Great Lakes Pilotage Rates-2020 Annual Review and Revisions to Methodology, 58099-58125 [2019-23510]

Download as PDF Federal Register / Vol. 84, No. 210 / Wednesday, October 30, 2019 / Proposed Rules DEPARTMENT OF HOMELAND SECURITY Coast Guard 46 CFR Parts 401, 403, and 404 [USCG–2019–0736] RIN 1625–AC56 Great Lakes Pilotage Rates—2020 Annual Review and Revisions to Methodology Coast Guard, DHS. Notice of proposed rulemaking. AGENCY: ACTION: In accordance with the Great Lakes Pilotage Act of 1960, the Coast Guard is proposing new base pilotage rates for the 2020 shipping season. This proposed rule would adjust the pilotage rates to account for changes in district operating expenses, an increase in the number of pilots, and anticipated inflation. The net result of decreased operating expenses for the associations compared to the previous year, inflation of pilot compensation, and the addition of one working pilot at the beginning of the 2020 shipping season is a 3 percent increase in pilotage rates. In addition, the Coast Guard is not proposing any surcharges for the 2020 shipping season, which would result in a 1 percent net decrease in pilotage costs compared to the 2019 season, when combined with the changes above. The Coast Guard is also proposing to clarify the rules related to the working capital fund. DATES: Comments and related material must be received by the Coast Guard on or before November 29, 2019. ADDRESSES: You may submit comments identified by docket number USCG– 2019–0736 using the Federal eRulemaking Portal at https:// www.regulations.gov. See the ‘‘Public Participation and Request for Comments’’ portion of the SUPPLEMENTARY INFORMATION section for further instructions on submitting comments. FOR FURTHER INFORMATION CONTACT: For information about this document, call or email Mr. Brian Rogers, Commandant (CG–WWM–2), Coast Guard; telephone 202–372–1535, email Brian.Rogers@ uscg.mil, or fax 202–372–1914. SUPPLEMENTARY INFORMATION: SUMMARY: Table of Contents for Preamble I. Public Participation and Request for Comments II. Abbreviations III. Executive Summary IV. Basis and Purpose V. Background VI. Discussion of Proposed Methodological and Other Changes VerDate Sep<11>2014 16:25 Oct 29, 2019 Jkt 250001 VII. Discussion of Proposed Rate Adjustment District One: 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 Fxund 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 District Two: 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 District Three: 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 VIII. Regulatory Analyses A. Regulatory Planning and Review B. Small Entities C. Assistance for Small Entities D. Collection of Information E. Federalism F. Unfunded Mandates G. Taking of Private Property H. Civil Justice Reform I. Protection of Children J. Indian Tribal Governments K. Energy Effects L. Technical Standards M. Environment I. Public Participation and Request for Comments The Coast Guard views public participation as essential to effective rulemaking, and will consider all comments and material received during the comment period. Your comment can help shape the outcome of this rulemaking. If you submit a comment, please include the docket number for PO 00000 Frm 00040 Fmt 4702 Sfmt 4702 58099 this rulemaking, indicate the specific section of this document to which each comment applies, and provide a reason for each suggestion or recommendation. We encourage you to submit comments through the Federal eRulemaking Portal at https:// www.regulations.gov. If you cannot submit your material by using https:// www.regulations.gov, call or email the person in the FOR FURTHER INFORMATION CONTACT section of this proposed rule for alternate instructions. Documents mentioned in this proposed rule, and all public comments, will be available in our online docket at https:// www.regulations.gov, and can be viewed by following that website’s instructions. Additionally, if you visit the online docket and sign up for email alerts, you will be notified when comments are posted or if a final rule is published. We accept anonymous comments. All comments received will be posted without change to https:// www.regulations.gov and will include any personal information you have provided. For more about privacy and submissions in response to this document, see DHS’s Correspondence System of Records notice (84 FR 48645, September 26, 2018).. We do not plan to hold a public meeting, but we will consider doing so if public comments indicate a meeting would be helpful. We would issue a separate Federal Register notice to announce the date, time, and location of such a meeting. II. Abbreviations AMOU American Maritime Officers Union 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 FOMC Federal Open Market Committee FR Federal Register GLPA Great Lakes Pilotage Authority (Canadian) GLPAC Great Lakes Pilotage Advisory Committee GLPMS Great Lakes Pilotage Management System NAICS North American Industry Classification System NPRM Notice of proposed rulemaking NTSB National Transportation Safety Board OMB Office of Management and Budget PCE Personal Consumption Expenditures RA Regulatory analysis SBA Small Business Administration § Section symbol SLSMC Saint Lawrence Seaway Management Corporation U.S.C. United States Code USD United States dollars E:\FR\FM\30OCP1.SGM 30OCP1 58100 Federal Register / Vol. 84, No. 210 / Wednesday, October 30, 2019 / Proposed Rules III. Executive Summary Pursuant to the Great Lakes Pilotage Act of 1960 (‘‘the Act’’),1 the Coast Guard regulates pilotage for oceangoing vessels on the Great Lakes and St. Lawrence Seaway — including setting the rates for pilotage services and adjusting them on an annual basis. The rates, which currently range from $306 to $733 per pilot hour (depending on which of the specific six areas pilotage service is provided), are paid by shippers to pilot associations. The three pilot associations, which are the exclusive U.S. source of registered pilots on the Great Lakes, use this revenue to cover operating expenses, maintain infrastructure, compensate working pilots, and train new pilots. We use a ratemaking methodology that we have developed since 2016 in accordance with our statutory requirements and regulations. Our ratemaking methodology calculates the revenue needed for each pilotage association (including operating expenses, compensation, and infrastructure needs), and then divides that amount by the expected shipping traffic over the course of the coming year to produce an hourly rate. This process is currently effected through a 10-step methodology which is explained in detail in this notice of proposed rulemaking (NPRM). In this NPRM, as part of our annual review, we are proposing new pilotage rates for 2020 based on the existing methodology. The result is an increase in rates for four areas, and a decrease in rates for the remaining two areas. These changes are due to a combination of four factors: (1) Decreased total operating expenses for the associations compared to the previous year,2 (2) an increase in the amount of money needed for the working capital fund, (3) inflation of pilot compensation by 2 percent, and (4) the net addition of one working pilot at the beginning of the 2020 shipping season in District Two. Based on the ratemaking model discussed in this NPRM, we are proposing the rates shown in Table 1. TABLE 1—CURRENT AND PROPOSED PILOTAGE RATES ON THE GREAT LAKES Final 2019 pilotage rate Area Name District One: Designated ............................................. District One: Undesignated ......................................... District Two: Designated ............................................. St. Lawrence River ..................................................... Lake Ontario ............................................................... Navigable waters from Southeast Shoal to Port Huron, MI. Lake Erie .................................................................... St. Mary’s River .......................................................... Lakes Huron, Michigan, and Superior ....................... District Two: Undesignated ......................................... District Three: Designated .......................................... District Three: Undesignated ...................................... Proposed 2020 pilotage rate $733 493 603 $757 462 602 531 594 306 573 621 327 provide adequate funds to upgrade and maintain infrastructure. The legal basis of this rulemaking is the Great Lakes Pilotage Act of 1960 (‘‘the Act’’),3 which requires foreign vessels and U.S. vessels operating ‘‘on register, meaning ’’ those U.S. vessels engaged in foreign trade, to use U.S. or Canadian registered pilots while transiting the U.S. waters of the St. Lawrence Seaway and the Great Lakes system.4 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.’’ 5 The Act requires that rates be established or reviewed and adjusted each year, not later than March 1.6 The Act requires that base rates be established by a full ratemaking at least once every 5 years, and in years when base rates are not established, they must be reviewed and, if necessary, adjusted.7 The Secretary’s duties and authority under the Act have been delegated to the Coast Guard.8 The purpose of this NPRM is to propose new pilotage rates for the 2020 shipping season. The Coast Guard believes that the new rates would continue to promote pilot retention, ensure safe, efficient, and reliable pilotage services on the Great Lakes, and Pursuant to the Act, the Coast Guard, in conjunction with the Canadian Great Lakes Pilotage Authority (GLPA), 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.9 U.S. and Canadian ‘‘lakers,’’ which account for most commercial shipping on the Great Lakes, are not affected.10 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 Canadian GLPA 1 Title 46 of the United States Code (U.S.C.) Chapter 93; Public Law 86–555, 74 Stat. 259, as amended. 2 Operating expenses decreased for the District One: Undesignated area and all of District Two. They increased for the District One: Designated area and all of District Three. 3 46 U.S.C. Chapter 93; Public Law 86–555, 74 Stat. 259, as amended. 4 46 U.S.C. 9302(a)(1). 5 46 U.S.C. 9303(f). 6 Id. 7 Id. 8 Department of Homeland Security (DHS) Delegation No. 0170.1, para. II (92.f). 9 See title 46 of the Code of Federal Regulations (CFR) part 401. 10 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. This proposed rule would impact 52 U.S. Great Lakes pilots, 3 pilot associations, and the owners and operators of an average of 266 oceangoing vessels that transit the Great Lakes annually. This proposed rule is not economically significant under Executive Order 12866 and would not affect the Coast Guard’s budget or increase Federal spending. The estimated overall annual regulatory economic impact of this rate change is a net decrease of $225,658 in estimated payments made by shippers from the 2019 shipping season. Because the Coast Guard must review, and, if necessary, adjust rates each year, we analyze these as single-year costs and do not annualize them over 10 years. Section VIII of this preamble provides the regulatory impact analyses of this proposed rule. IV. Basis and Purpose VerDate Sep<11>2014 16:25 Oct 29, 2019 Jkt 250001 PO 00000 Frm 00041 Fmt 4702 Sfmt 4702 V. Background E:\FR\FM\30OCP1.SGM 30OCP1 Federal Register / Vol. 84, No. 210 / Wednesday, October 30, 2019 / Proposed Rules establishes the rates for Canadian registered pilots. The U.S. waters of the Great Lakes and the St. Lawrence Seaway are divided into three pilotage districts. Pilotage in each district is provided by an association certified by the Coast Guard’s Director of the Great Lakes Pilotage (‘‘the Director’’) to operate a pilotage pool. The Saint Lawrence Seaway Pilotage Association provides pilotage services in District One, which includes all U.S. waters of the St. Lawrence River and Lake Ontario. The Lakes Pilotage Association provides 58101 Proclamation, are waters in which pilots must, at all times, be fully engaged in the navigation of vessels in their charge.11 Undesignated areas, on the other hand, are open bodies of water not subject to the same pilotage requirements. While working in 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.’’ 12 For these reasons, pilotage rates in designated areas can be significantly higher than those in undesignated areas. pilotage services in District Two, which includes all U.S. waters of Lake Erie, the Detroit River, Lake St. Clair, and the St. Clair River. Finally, the Western Great Lakes Pilotage Association provides pilotage services in District Three, which includes all U.S. waters of the St. Mary’s River; Sault Ste. Marie Locks; and Lakes Huron, Michigan, and Superior. Each pilotage district is further divided into ‘‘designated’’ and ‘‘undesignated’’ areas, which is depicted in Table 2 below. Designated areas, classified as such by Presidential TABLE 2—AREAS OF THE GREAT LAKES AND ST. LAWRENCE SEAWAY Area No. 13 Area name 14 District Pilotage association Designation One .......... Saint Lawrence Seaway Pilotage Association Two .......... Lake Pilotage Association .............................. Designated .......... Undesignated ...... Designated .......... 1 2 5 Three ....... Western Great Lakes Pilotage Association .... Undesignated ...... Designated .......... Undesignated ...... Undesignated ...... 4 7 6 8 St. Lawrence River. Lake Ontario. Navigable waters from Southeast Shoal to Port Huron, MI. Lake Erie. St. Mary’s River. Lakes Huron and Michigan. Lake Superior. Each pilot association is an independent business and is the sole provider of pilotage services in the district in which it operates. Each pilot association is responsible for funding its own operating expenses, maintaining infrastructure, acquiring and implementing technological advances, training personnel/partners and pilot compensation. 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 would need to cover expenses and provide competitive compensation to working pilots. We then divide that amount by the historic 10-year average for pilotage demand. We recognize that in years where traffic is above average, pilot associations will accrue more revenue than projected, while in years where traffic is below average, they will take in less. We believe that over the long term, however, this system ensures that infrastructure would be maintained and that pilots will receive adequate compensation and work a reasonable number of hours, with adequate rest between assignments, to ensure retention of highly trained personnel. Over the past 4 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 U.S. mariners rather than Canadian registered pilots. The current methodology, which was finalized in the Great Lakes Pilotage Rates—2019 Annual Review and Revisions to Methodology final rule (84 FR 20551), published May 10, 2019, 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 11 Presidential Proclamation 3385, Designation of restricted waters under the Great Lakes Pilotage Act of 1960, December 22, 1960. 12 46 U.S.C. 9302(a)(1)(B). 13 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. 14 The areas are listed by name in the Code of Federal Regulations, see 46 CFR 401.405. VerDate Sep<11>2014 16:25 Oct 29, 2019 Jkt 250001 PO 00000 Frm 00042 Fmt 4702 Sfmt 4702 As stated above, the ratemaking methodology, outlined in 46 CFR 404.101 through 404.110, consists of 10 steps that are designed to account for the revenues needed and total traffic expected in each district. The result is an hourly rate, determined separately for each of the areas administered by the Coast Guard. In Step 1, ‘‘Recognize previous operating expenses,’’ (§ 404.101) the Director reviews audited operating expenses from each of the three pilotage associations. This number forms the baseline amount that each association is budgeted. Because of the time delay between when the association submits raw numbers and the Coast Guard receives audited numbers, this number is 3 years behind the projected year of expenses. So in calculating the 2020 rates in this proposal, we are beginning with the audited expenses from the 2017 shipping season. While each pilotage association operates in an entire district, the Coast Guard tries to determine costs by area. Thus, with regard to operating expenses, we allocate certain operating expenses to undesignated areas, and certain expenses to designated areas. In some cases (e.g., insurance for applicant pilots who operate in undesignated areas E:\FR\FM\30OCP1.SGM 30OCP1 58102 Federal Register / Vol. 84, No. 210 / Wednesday, October 30, 2019 / Proposed Rules only), we can allocate the costs based on where they are actually accrued. In other situations (e.g., general legal expenses), expenses are distributed between designated and undesignated waters on a pro rata basis, based upon the proportion of income forecasted from the respective portions of the district. In Step 2, ‘‘Project operating expenses, adjusting for inflation or deflation,’’ (§ 404.102) the Director develops the 2020 projected operating expenses. To do this, we apply inflation adjustors for 3 years to the operating expense baseline received in Step 1. The inflation factors used are from the Bureau of Labor Statistics’ (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 total operating expenses for each area and district. In Step 3, ‘‘Estimate number of working pilots,’’ (§ 404.103) the Director calculates how many pilots are needed for each district. To do this, we employ a ‘‘staffing model,’’ described in § 401.220, paragraphs (a)(1) through (a)(3), to estimate how many pilots would be needed to handle shipping during the beginning and close of the season. This number is helpful in providing guidance to the Director 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 previous years, in the first process, we calculated the total compensation for each pilot using a ‘‘compensation benchmark.’’ Next, we multiplied 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 is divided by area for accounting purposes, we assigned a certain number of pilots for the designated areas and a certain number of pilots for the undesignated areas to determine the revenues needed for each area. To make the determination of how many pilots to assign, we used the VerDate Sep<11>2014 16:25 Oct 29, 2019 Jkt 250001 staffing model designed to determine the total number of pilots, described in Step 3, above. For the 2020 ratemaking, the Coast Guard is proposing to update the benchmark compensation model in accordance with § 404.104(b), switching from using the American Maritime Officers Union (AMOU) 2015 aggregated wage and benefit information, to using the 2019 compensation benchmark. Prior to 2016, the Coast Guard based the compensation benchmark on data provided by the AMOU regarding its contract for first mates on the Great Lakes. However, in 2016 the AMOU elected to no longer provide this data to the Coast Guard, and thus, in the 2016 ratemaking, we used average compensation for a Canadian pilot plus a 10 percent adjustment. As a result of a legal challenge filed by the shipping industry, the court found that the Coast Guard did not adequately support the 10 percent addition to the Canadian GLPA benchmark, and thus its use was deemed arbitrary and capricious. The Coast Guard then based the 2018 benchmark on data provided by the AMOU regarding its contract for first mates on the Great Lakes in the 2011 to 2015 period, and adjusted it for inflation using FOMC median economic projections for PCE inflation. We used the information provided by the AMOU because it was the most recent publicly available information to which we had access. This benchmark has successfully achieved the Coast Guard’s goals of safety through rate and compensation stability while also promoting recruitment and retention of qualified United States registered pilots. Therefore, the Coast Guard proposes to use this as the compensation benchmark for future rates. 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) to 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 highgrade corporate securities. This figure constitutes the ‘‘working capital fund’’ for each area and district. PO 00000 Frm 00043 Fmt 4702 Sfmt 4702 In Step 6, ‘‘Project needed revenue,’’ (§ 404.106) the Director simply adds up the totals produced by the preceding steps. The projected operating expense for each area and district (from Step 2) is added to 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 ‘‘needed revenue.’’ In Step 7, ‘‘Calculate initial base rates,’’ (§ 404.107) the Director calculates an hourly pilotage rate to cover the needed revenue as calculated in Step 6. This step consists of first calculating the 10-year hours of traffic average for each area. Next, the revenue needed in each area (calculated in Step 6) is divided by the 10-year hours of 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 the applied weighting factors for each year since 2014 (the first year the current weighting factors were applied). In Step 9, ‘‘Calculate revised base rates,’’ (§ 404.109) the Director modifies 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 trained and rested pilots fairly; and providing appropriate profit for improvements. Because it is our goal E:\FR\FM\30OCP1.SGM 30OCP1 Federal Register / Vol. 84, No. 210 / Wednesday, October 30, 2019 / Proposed Rules to be as transparent as possible in our ratemaking procedure, we use this step sparingly to adjust rates. After the base rates are set, § 401.401 permits the Coast Guard to apply surcharges. We previously used surcharges to pay for the training of new pilots, rather than incorporating training costs into the overall ‘‘needed revenue’’ used in the calculation of the base rates. The surcharge accelerates the reimbursement of certain necessary and reasonable expense. Last year, we applied a surcharge to account for the associations’ expenses for the Applicant Trainee and Apprentice Pilots, which included providing a stipend, lodging, training, and per diem. We implemented these surcharges because of a large number of pending pilot retirements, and a large amount of recruitment at the pilot associations. Without the surcharge, the associations would have been reimbursed for expenses associated with training new pilots 3 years later via the rate. However, any pilot who retired prior to that 3-year date would not have been reimbursed. Therefore, we applied a surcharge to ensure that these pilots would not have to incur the costs of training their replacements. As the vast majority of registered pilots are not anticipated to reach the regulatory required retirement age of 70 in the next 20 years, we believe that pilot associations are now able to plan for the costs associated with retirements without relying on the Coast Guard to impose surcharges. VI. Discussion of Proposed Methodological and Other Changes For 2020, the Coast Guard is proposing no new methodological changes to the ratemaking model. We believe that the methodology laid out in the 2019 Annual Review would produce rates for the 2020 shipping season that would ensure safe and reliable pilotage services are available on the Great Lakes. In previous years, several commenters have raised issues regarding the working capital fund. The purpose of the working capital fund is to ensure that associations have a way to set aside money to pay for high cost items and infrastructure improvements. The Coast Guard is proposing changes in this proposed rule to codify the procedures related to the use of funds and accounting requirements related to the working capital fund. The Coast Guard is proposing two changes to the regulatory text related to the working capital fund, formerly called ‘‘return on investment.’’ In 46 CFR 404.106, the Coast Guard proposes VerDate Sep<11>2014 16:25 Oct 29, 2019 Jkt 250001 to change the words ‘‘return on investment’’ to ‘‘working capital fund,’’ as that is the current name for that fund. This change was made in the Great Lakes Pilotage Rates 2017 Annual Review final rule (82 FR 41466, August 31, 2017), but the entry was overlooked in that rule. Prior to 2017, the working capital fund described in 46 CFR 404.105 was called ‘‘return on investment.’’ In the Great Lakes Pilotage Rates 2017 Annual Review final rule (82 FR 41466, August 31, 2017), the Coast Guard changed the name of that fund to the ‘‘working capital fund.’’ However, the 2017 final rule did not change a reference to ‘‘return on investment’’ in 46 CFR 404.106. This proposed change corrects that oversight so that 46 CFR 404.105 and 46 CFR 404.106 will use consistent terminology. In addition, the Coast Guard proposes to incorporate into regulations the policy currently being followed by the pilots associations regarding these funds. The Coast Guard proposes to add text to 46 CFR 403.110 requiring each pilot association set aside, in a separate account, an amount at least equal to the amount calculated in Step 5 of the ratemaking, and place restrictions on how those funds are expended. Under the proposed rule, pilot associations can only apply these funds in the working capital fund account to capital projects, infrastructure improvements, infrastructure maintenance, and nonrecurring technology purchases that are necessary for providing pilotage services. The pilot associations may grow the working capital fund over successive shipping seasons for a future significant purchase, including for a down payment on a purchase that would also be financed in part. If needed, pilot associations could request a waiver from the requirements from the Director. We invite interested parties to provide their input and recommendations on this issue. VII. Discussion of Proposed Rate Adjustments In this NPRM, based on the current methodology described in the previous section, we are proposing new pilotage rates for 2020. We propose to conduct the 2020 ratemaking as an ‘‘interim year,’’ as was done in 2019, rather than a full ratemaking as was conducted in 2018. Thus, the Coast Guard proposes to adjust the compensation benchmark pursuant to § 404.104(b) for this purpose, rather than § 404.104(a). This section discusses the proposed rate changes using the ratemaking steps provided in 46 CFR part 404. We will detail all ten steps of the ratemaking procedure for each of the three districts PO 00000 Frm 00044 Fmt 4702 Sfmt 4702 58103 to show how we arrived at the proposed new rates. District One 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 2017 expenses and revenues.15 For accounting purposes, the financial reports divide expenses into designated and undesignated areas. In certain instances, costs are applied to the designated or undesignated 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 accrued by the pilot associations generally, for example, such as employee benefits, the cost is divided between the designated and undesignated areas on a pro rata basis. The recognized operating expenses for District One is shown in Table 3. 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 3 years to reimburse. The rationale for using surcharges to cover these expenses, rather than including the costs as operating expenses, was so these non-recurring costs could be recovered in a more timely fashion, and 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 3 years, the Coast Guard added a $150,000 surcharge per applicant pilot, beginning in 2016, to recoup those costs in the year incurred. Now that these issues are no longer a concern, we are not proposing any surcharges for the 2020 shipping season. We also propose to deduct 3 percent of the ‘‘shared counsel’’ expenses, as stated in the auditor’s reports for each district to account for lobbying expenditures. Pursuant to 46 CFR 404.2(c)(3), lobbying expenses are not permitted to be recouped as operating expenses. 15 These reports are available in the docket for this rulemaking (see Docket #USCG–2019–0736). E:\FR\FM\30OCP1.SGM 30OCP1 58104 Federal Register / Vol. 84, No. 210 / Wednesday, October 30, 2019 / Proposed Rules For District One, we do not propose any Director’s adjustments, other than the surcharge adjustment and lobbying expenses described above. Other adjustments have been made by the auditors and are explained in the auditor’s reports, which are available in the docket for this rulemaking where indicated under the ADDRESSES portion of the preamble. TABLE 3—2017 RECOGNIZED EXPENSES FOR DISTRICT ONE District One Reported expenses for 2017 Operating Expenses: Other Pilotage Costs: Subsistence/Travel—Pilot ............................................................................................. Certified Public Accountant (CPA) Deduction ............................................................... Subsistence/Travel—Trainee ........................................................................................ License Insurance—Pilots ............................................................................................. License Insurance—Trainee ......................................................................................... Payroll Taxes—Pilots .................................................................................................... Payroll Taxes—Trainee ................................................................................................. Training—Full Pilots Continuing Education ................................................................... Cell and Internet Allowance—Pilots .............................................................................. Cell and Internet Allowance—Applicants ...................................................................... Other .............................................................................................................................. Designated Undesignated St. Lawrence River Lake Ontario Total $440,456 ¥189 22,008 48,620 0 137,788 705 32,197 24,312 2,210 675 $293,637 ¥126 14,672 32,413 0 91,858 470 21,464 16,208 1,474 450 $734,093 ¥315 36,680 81,033 0 229,646 1,175 53,661 40,520 3,684 1,125 708,782 472,520 1,181,302 297,942 50,100 19,706 198,628 33,400 13,137 496,570 83,500 32,843 Total Pilot and Dispatch Costs ...................................................................................... Administrative Expenses: Legal—General Counsel ...................................................................................................... Legal—Shared Counsel (K&L Gates) .................................................................................. CPA Adjustment ................................................................................................................... Office Rent ............................................................................................................................ Insurance .............................................................................................................................. Employee Benefits ................................................................................................................ Payroll Taxes ........................................................................................................................ Other Taxes .......................................................................................................................... Travel .................................................................................................................................... Depreciation/Auto Leasing/other .......................................................................................... Interest .................................................................................................................................. Dues and Subscriptions ....................................................................................................... Utilities .................................................................................................................................. Salaries ................................................................................................................................. Accounting/Professional Fees .............................................................................................. Pilot Training ................................................................................................................. Applicant Pilot Training ................................................................................................. Other ..................................................................................................................................... 367,748 245,165 612,913 2,098 26,835 ¥5,020 0 21,593 7,720 6,665 70,942 4,091 94,944 35,143 19,471 18,479 69,953 6,111 0 0 26,338 1,399 17,890 ¥3,347 0 14,395 5,146 4,444 47,294 2,728 63,296 23,428 12,981 12,320 46,636 4,074 0 0 17,559 3,497 44,725 ¥8,367 0 35,988 12,866 11,109 118,236 6,819 158,240 58,571 32,452 30,799 116,589 10,185 0 0 43,897 Total Administrative Expenses ...................................................................................... 405,363 270,243 675,606 Total Operating Expenses (Other Costs + Pilot Boats + Admin) .......................... Proposed Adjustments (Director): Total Director’s Adjustments ................................................................................................ 1,481,893 987,928 2,469,821 0 0 0 Total Operating Expenses (OpEx + Adjustments) ........................................................ 1,481,893 987,928 2,469,821 Total Other Pilotage Costs ..................................................................................... Pilot Boat and Dispatch Costs: Pilot Boat Expense ............................................................................................................... Dispatch Expense ................................................................................................................. Payroll Taxes ........................................................................................................................ Having identified the recognized 2017 operating expenses in Step 1, the next step is to estimate the current year’s operating expenses by adjusting those expenses for inflation over the 3-year period. We calculate inflation using the BLS data from the CPI for the Midwest Region of the United States for the 2018 inflation rate.16 Because the BLS does not provide forecasted inflation data, we use economic projections from the Federal Reserve for the 2019 and 2020 inflation modification.17 Based on that information, the calculations for Step 2 are as follows: 16 The 2018 inflation rate is available at https:// www.bls.gov/regions/midwest/data/ consumerpriceindexhistorical_midwest_table.pdf. Specifically the CPI is defined as ‘‘All Urban Consumers (CPI–U), All Items, 1982–4=100’’. Downloaded June 12, 2019. 17 The 2019 and 2020 inflation rates are available at https://www.federalreserve.gov/monetarypolicy/ files/fomcprojtabl20190320.pdf. We used the PCE median inflation value found in table 1, Downloaded June 12, 2019. B. Step 2: Project Operating Expenses, Adjusting for Inflation or Deflation VerDate Sep<11>2014 16:25 Oct 29, 2019 Jkt 250001 PO 00000 Frm 00045 Fmt 4702 Sfmt 4702 E:\FR\FM\30OCP1.SGM 30OCP1 Federal Register / Vol. 84, No. 210 / Wednesday, October 30, 2019 / Proposed Rules 58105 TABLE 4—ADJUSTED OPERATING EXPENSES FOR DISTRICT ONE District One Designated Total Operating Expenses (Step 1) ............................................................................................. 2018 Inflation Modification (@1.9%) ........................................................................................... 2019 Inflation Modification (@1.8%) ........................................................................................... 2020 Inflation Modification (@2%) .............................................................................................. Adjusted 2020 Operating Expenses ............................................................................................ C. Step 3: Estimate Number of Working Pilots In accordance with the text in § 404.103, we estimate the number of working pilots in each district. We determine the number of working pilots based on data provided by the Saint Lawrence Seaway Pilots Association. Using these numbers, we estimate that there will be 17 working pilots in 2020 in District One. Furthermore, based on the seasonal staffing model discussed in the 2017 ratemaking (see 82 FR 41466), $1,481,893 28,156 27,181 30,745 1,567,975 Undesignated $987,928 18,771 18,121 20,496 1,045,316 Total $2,469,821 46,927 45,302 51,241 2,613,291 we assign a certain number of pilots to designated waters and a certain number to undesignated waters, as shown in Table 5. These numbers are used to determine the amount of revenue needed in their respective areas. TABLE 5—AUTHORIZED PILOTS District One Item Maximum number of pilots (per § 401.220(a)) 18 ................................................................................................................................ 2020 Authorized pilots (total) ............................................................................................................................................................... Pilots assigned to designated areas ................................................................................................................................................... Pilots assigned to undesignated areas ............................................................................................................................................... D. Step 4: Determine Target Pilot Compensation Benchmark In this step, we determine the total pilot compensation for each area. As we are proposing an ‘‘interim’’ ratemaking this year, we propose to follow the procedure outlined in paragraph (b) of § 404.104, which adjusts the existing compensation benchmark by inflation. Because we do not have a value for the employment cost index for 2020, we multiply the 2019 compensation benchmark of $359,887 by the Median PCE Inflation value of 2.0 percent.19 Based on the projected 2020 inflation estimate, the proposed compensation benchmark for 2020 is $367,085 per pilot. Next, we certify that the number of pilots estimated for 2020 is less than or equal to the number permitted under the staffing model in § 401.220(a). The staffing model suggests that the number 17 17 10 7 of pilots needed is 17 pilots for District One, which is more than or equal to the numbers of working pilots provided by the pilot associations. 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 District One, as shown in Table 6. TABLE 6—TARGET COMPENSATION FOR DISTRICT ONE District One Designated Undesignated Total Target Pilot Compensation .......................................................................................................... Number of Pilots .......................................................................................................................... $367,085 10 $367,085 7 $367,085 17 Total Target Pilot Compensation .......................................................................................... $3,670,850 $2,569,595 $6,240,445 E. Step 5: Project Working Capital Fund Next, we calculate the working capital fund revenues needed for each area. First, we add together 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, the number is 3.93 percent.20 By multiplying the two figures, we obtain the working capital fund contribution for each area, as shown in Table 7. 18 For a detailed calculation, refer to the Great Lakes Pilotage Rates—2017 Annual Review final rule, which contains the staffing model. See 82 FR 41466, table 6 at 41480 (August 31, 2017). 19 https://www.federalreserve.gov/ monetarypolicy/files/fomcprojtabl20190320.pdf. 20 Moody’s Seasoned Aaa Corporate Bond Yield, average of 2018 monthly data. The Coast Guard uses the most recent year of complete data. Moody’s is taken from Moody’s Investors Service, which is a bond credit rating business of Moody’s Corporation. Bond ratings are based on creditworthiness and risk. The rating of ‘‘Aaa’’ is the highest bond rating assigned with the lowest credit risk. See https:// fred.stlouisfed.org/series/AAA. (June 12, 2019) VerDate Sep<11>2014 16:25 Oct 29, 2019 Jkt 250001 PO 00000 Frm 00046 Fmt 4702 Sfmt 4702 E:\FR\FM\30OCP1.SGM 30OCP1 58106 Federal Register / Vol. 84, No. 210 / Wednesday, October 30, 2019 / Proposed Rules TABLE 7—WORKING CAPITAL FUND CALCULATION FOR DISTRICT ONE District One Designated Undesignated Total Adjusted Operating Expenses (Step 2) ....................................................................................... Total Target Pilot Compensation (Step 4) ................................................................................... $1,567,975 3,670,850 $1,045,316 2,569,595 $2,613,291 6,240,445 Total 2018 Expenses ............................................................................................................ 5,238,825 3,614,911 8,853,736 Working Capital Fund (3.93%) ...................................................................................... 205,886 142,066 347,952 F. Step 6: Project Needed Revenue In this step, we add together all of 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). We show these calculations in Table 8. TABLE 8—REVENUE NEEDED FOR DISTRICT ONE District One Designated Undesignated Total Adjusted Operating Expenses (Step 2, See Table 4) ................................................................. Total Target Pilot Compensation (Step 4, See Table 6) ............................................................. Working Capital Fund (Step 5, See Table 7) .............................................................................. $1,567,975 3,670,850 205,886 $1,045,316 2,569,595 142,066 $2,613,291 6,240,445 347,952 Total Revenue Needed ........................................................................................................ 5,444,711 3,756,977 9,201,688 G. Step 7: Calculate Initial Base Rates Having determined the revenue needed for each area in the previous six steps, to develop an hourly rate we divide that number by the expected number of hours of traffic. Step 7 is a two-part process. In the first part, we calculate the 10-year average of traffic in District One, using the total time on task or pilot bridge hours.21 Because we calculate separate figures for designated and undesignated waters, there are two parts for each calculation. We show these values in Table 9. TABLE 9—TIME ON TASK FOR DISTRICT ONE [Hours] District One Year Designated 2018 2017 2016 2015 2014 2013 2012 2011 2010 2009 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 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, which is necessary to produce the revenue needed for each area, assuming the amount of traffic is as expected. We present the calculations for each area in Table 10. TABLE 10—INITIAL RATE CALCULATIONS FOR DISTRICT ONE Designated Needed revenue (Step 6) ........................................................................................................................................ 21 To calculate the time on task for each district, the Coast Guard uses billing data from the Great Lakes Pilotage Management System (GLPMS). We pull the data from the system filtering by district, VerDate Sep<11>2014 16:25 Oct 29, 2019 Jkt 250001 year, job status (we only include closed jobs), and flagging code (we only include U.S. jobs). After we have downloaded the data, we remove any overland transfers from the dataset, if necessary, and sum the PO 00000 Frm 00047 Fmt 4702 Sfmt 4702 $5,444,711 Undesignated $3,756,977 total bridge hours, by area. We then subtract any non-billable delay hours from the total. E:\FR\FM\30OCP1.SGM 30OCP1 Federal Register / Vol. 84, No. 210 / Wednesday, October 30, 2019 / Proposed Rules 58107 TABLE 10—INITIAL RATE CALCULATIONS FOR DISTRICT ONE—Continued Designated Average time on task (hours) .................................................................................................................................. Initial rate ................................................................................................................................................................. H. Step 8: Calculate Average Weighting Factors by Area In this step, we calculate the average weighting factor for each designated and undesignated area. We collect the weighting factors, set forth in 46 CFR 401.400, for each vessel trip. Using this database, we calculate the average 5,657 $962 Undesignated 6,248 $601 weighting factor for each area using the data from each vessel transit from 2014 onward, as shown in Tables 11 and 12.22 TABLE 11—AVERAGE WEIGHTING FACTOR FOR DISTRICT ONE, 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 ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. 31 41 31 28 54 285 295 185 352 559 50 28 50 67 86 271 251 214 285 393 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 31 41 31 28 54 327.75 339.25 212.75 404.8 642.85 65 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 12—AVERAGE WEIGHTING FACTOR FOR DISTRICT ONE, UNDESIGNATED 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 ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. 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 1.3 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 22 To calculate the number of transits by vessel class, we use the billing data from GLPMS, filtering VerDate Sep<11>2014 16:25 Oct 29, 2019 Jkt 250001 by district, year, job status (we only include closed jobs), and flagging code (we only include U.S. jobs). PO 00000 Frm 00048 Fmt 4702 Sfmt 4702 We then count the number of jobs by vessel class and area. E:\FR\FM\30OCP1.SGM 30OCP1 58108 Federal Register / Vol. 84, No. 210 / Wednesday, October 30, 2019 / Proposed Rules TABLE 12—AVERAGE WEIGHTING FACTOR FOR DISTRICT ONE, UNDESIGNATED AREAS—Continued Number of transits Vessel class/year Average weighting factor (weighted transits/number of transits) .................................. I. Step 9: Calculate Revised Base Rates In this step, we revise the base rates so that once the impact of the weighting factors are considered; the total cost of pilotage would be equal to the revenue needed. To do this, we divide the initial Weighting factor ........................ 1.30 Weighted transits ........................ base rates, calculated in Step 7, by the average weighting factors calculated in Step 8, as shown in Table 13. TABLE 13—REVISED BASE RATES FOR DISTRICT ONE Area District One: Designated .............................................................................................................. District One: Undesignated .......................................................................................................... J. Step 10: Review and Finalize Rates In this step, the Director reviews the rates set forth by the staffing model and ensures that they meet the goal of ensuring safe, efficient, and reliable pilotage. To establish that the proposed rates do meet the goal of ensuring safe, efficient and reliable pilotage, the Average weighting factor (Step 8) Initial rate (Step 7) Director considers whether the proposed rates incorporate appropriate compensation for pilots to handle heavy traffic periods and whether there is a sufficient number of pilots to handle those heavy traffic periods. The Director also considers whether the proposed rates would cover operating expenses $962 601 1.27 1.30 Revised rate (initial rate/ average weighting factor) $757 462 and infrastructure costs, and takes average traffic and weighting factors into consideration. Based on this information, the Director is not proposing any alterations to the rates in this step. We propose to modify the text in § 401.405(a) to reflect the final rates shown in Table 14. TABLE 14—PROPOSED FINAL RATES FOR DISTRICT ONE Final 2019 pilotage rate Area Name District One: Designated ............................................. District One: Undesignated ......................................... St. Lawrence River ..................................................... Lake Ontario ............................................................... District Two 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 2017 expenses and revenues.23 For accounting purposes, the financial reports divide expenses into designated and undesignated areas. In certain instances, costs are applied to the designated or undesignated area based on where they were actually incurred. 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 accrued by the pilot associations generally, such as employee benefits, for example, the cost is divided between the designated and undesignated areas on a pro rata basis. The recognized operating expenses for District Two are shown in Table 15. In addition to the surcharge adjustment and lobbying expenses described for District One in Section VII A. Step 1: Recognize previous operating expenses, and the adjustments made by the auditors, as explained in the auditors’ reports (available in the docket where indicated in the ADDRESSES portion of this document), the Director is proposing one adjustment to District 16:25 Oct 29, 2019 Jkt 250001 PO 00000 Frm 00049 Fmt 4702 Sfmt 4702 $757 462 Two’s operating expenses. The Director proposes an adjustment to disallow $120,350 in ‘‘housing allowance’’ expenses. The Coast Guard agrees with the Internal Revenue Service (IRS) that an employer-provided housing allowance is a fringe benefit, and we consider it to be employee compensation. In addition, we expect those appointed as registered pilots to live in the region in which they are employed. We expect that if a pilot chooses to live outside their region of employment, they should have to pay for their accommodations, and this cost should not be passed on to the shippers via the rate. Therefore, we propose not including any housing allowance the district chooses to provide their pilots in the ratemaking calculation. 23 These reports are available in the docket for this rulemaking (see Docket No. USCG–2019–0736). VerDate Sep<11>2014 $733 493 Proposed 2020 pilotage rate E:\FR\FM\30OCP1.SGM 30OCP1 Federal Register / Vol. 84, No. 210 / Wednesday, October 30, 2019 / Proposed Rules 58109 TABLE 15—2017 RECOGNIZED EXPENSES FOR DISTRICT TWO District Two Designated Reported expenses for 2017 Undesignated Lake Erie Operating Expenses: Other Pilotage Costs: Subsistence/Travel—Pilots ............................................................................................ Subsistence/Travel—Applicants .................................................................................... Housing Allowance—Pilots ........................................................................................... Housing Allowance—Applicants .................................................................................... Winter Meeting Allowance ............................................................................................. Telecommunication Allowance ...................................................................................... Payroll taxes—Pilots ..................................................................................................... Payroll taxes—Applicants .............................................................................................. License Insurance ......................................................................................................... Training .......................................................................................................................... Southeast Shoal to Port Huron Total $116,402 52,212 30,212 17,928 8,280 11,662 57,126 26,025 8,326 2,079 $174,602 78,317 45,318 26,892 12,420 17,493 85,688 39,038 12,490 3,119 $291,004 130,529 75,530 44,820 20,700 29,155 142,814 65,063 20,816 5,198 330,252 495,377 825,629 217,514 ¥34,860 0 78,680 12,230 326,272 ¥52,291 0 118,020 18,344 543,786 ¥87,151 0 196,700 30,574 Total Pilot and Dispatch Costs ...................................................................................... Cost Affiliated Entity Expenses: Office Rent .................................................................................................................... CPA Adjustment ............................................................................................................ 273,564 410,345 683,909 26,275 ¥4,742 39,413 ¥7,113 65,688 ¥11,855 Total Affiliated Entity Expense ...................................................................................... Administrative Expenses: Legal—General Counsel ...................................................................................................... Legal—Shared Counsel (K&L Gates) .................................................................................. CPA Adjustment ................................................................................................................... Employee benefits—Admin employees ................................................................................ Workman’s Compensation—Pilots ....................................................................................... Payroll taxes—Admin Employees ........................................................................................ Insurance .............................................................................................................................. Other Taxes .......................................................................................................................... Admin Travel ........................................................................................................................ Depreciation/Auto Lease/Other ............................................................................................ Interest .................................................................................................................................. CPA Adjustment ................................................................................................................... Dues and subscriptions ........................................................................................................ CPA Adjustment ................................................................................................................... Utilities .................................................................................................................................. Salaries—Admin employees ................................................................................................ Accounting ............................................................................................................................ Other ..................................................................................................................................... 21,533 32,300 53,833 3,505 15,604 ¥7,086 79,534 48,663 6,872 10,844 12,065 6,316 24,168 21,526 ¥20,920 10,760 ¥581 6,277 60,568 14,507 13,936 5,258 23,405 ¥10,630 119,301 72,994 10,308 16,265 18,097 9,475 36,251 32,288 ¥31,379 16,140 ¥871 9,415 90,852 21,761 20,904 8,763 39,009 ¥17,716 198,835 121,657 17,180 27,109 30,162 15,791 60,419 53,814 ¥52,299 26,900 ¥1,452 15,692 151,420 36,268 34,840 Total Administrative Expenses ...................................................................................... 306,558 459,834 766,392 Total Operating Expenses (Other Costs + Pilot Boats + Admin) .......................... Proposed Adjustments (Director): Housing allowance for Pilots ................................................................................................ Housing allowance for Applicants ........................................................................................ 931,907 1,397,856 2,329,763 ¥30,212 ¥17,928 ¥45,318 ¥26,892 ¥75,530 ¥44,820 Total Director’s Adjustments ......................................................................................... ¥48,140 ¥72,210 ¥120,350 Total Operating Expenses (OpEx + Adjustments) ................................................. 883,767 1,325,646 2,209,413 Total Other Pilotage Costs ..................................................................................... Pilot Boat and Dispatch Costs: Pilot Boat Cost ...................................................................................................................... CPA Adjustment ................................................................................................................... Dispatch Expense ................................................................................................................. Employee Benefits ................................................................................................................ Payroll Taxes ........................................................................................................................ B. Step 2: Project Operating Expenses, Adjusting for Inflation or Deflation Having identified the recognized 2017 operating expenses in Step 1, the next step is to estimate the current year’s operating expenses by adjusting those VerDate Sep<11>2014 16:25 Oct 29, 2019 Jkt 250001 expenses for inflation over the 3-year period. We calculate inflation using the BLS data from the CPI for the Midwest Region of the United States for the 2018 PO 00000 inflation rate. 24 Because the BLS does not provide forecasted inflation data, we use economic projections from the Federal Reserve for the 2019 and 2020 24 See Frm 00050 Fmt 4702 Sfmt 4702 E:\FR\FM\30OCP1.SGM footnote 13. 30OCP1 58110 Federal Register / Vol. 84, No. 210 / Wednesday, October 30, 2019 / Proposed Rules inflation modification.25 Based on that information, the calculations for Step 1 are as follows: information, the calculations for Step 1 are as follows: TABLE 16—ADJUSTED OPERATING EXPENSES FOR DISTRICT TWO District Two Item Undesignated Total Operating Expenses (Step 1) ............................................................................................. 2018 Inflation Modification (@1.9%) ........................................................................................... 2019 Inflation Modification (@1.8%) ........................................................................................... 2020 Inflation Modification (@2%) .............................................................................................. Adjusted 2020 Operating Expenses ............................................................................................ C. Step 3: Estimate Number of Working Pilots In accordance with the text in § 404.103, we estimate the number of working pilots in each district. We determine the number of working pilots based on input from the Lakes Pilots Association. Using these numbers, we estimate that there will be 15 working pilots in 2020 in District Two. Furthermore, based on the seasonal staffing model discussed in the 2017 ratemaking (see 82 FR 41466), we assign $883,767 16,792 16,210 18,335 935,104 Designated $1,325,646 25,187 24,315 27,503 1,402,651 Total $2,209,413 41,979 40,525 45,838 2,337,755 a certain number of pilots to designated waters and a certain number to undesignated waters, as shown in Table 17. These numbers are used to determine the amount of revenue needed in their respective areas. TABLE 17—AUTHORIZED PILOTS District Two Item Maximum number of pilots (per § 401.220(a)) 26 ................................................................................................................................ 2020 Authorized pilots (total) ............................................................................................................................................................... Pilots assigned to designated areas ................................................................................................................................................... Pilots assigned to undesignated areas ............................................................................................................................................... D. Step 4: Determine Target Pilot Compensation Benchmark In this step, we determine the total pilot compensation for each area. As we are proposing an ‘‘interim’’ ratemaking this year, we propose to follow the procedure outlined in paragraph (b) of § 404.104, which adjusts the existing compensation benchmark by inflation. Because we do not have a value for the employment cost index for 2020, we multiply the 2019 compensation benchmark of $359,887 by the Median PCE Inflation value of 2.0 percent.27 Based on the projected 2020 inflation estimate, the proposed compensation benchmark for 2020 is $367,085 per pilot. Next, we certify that the number of pilots estimated for 2020 is less than or equal to the number permitted under the staffing model in § 401.220(a). The staffing model suggests that the number 15 15 7 8 of pilots needed is 15 pilots for District Two, which is more than or equal to the numbers of working pilots provided by the pilot associations.28 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 District Two, as shown in Table 18. TABLE 18—TARGET COMPENSATION FOR DISTRICT TWO Undesignated Designated Total Target Pilot Compensation .......................................................................................................... Number of Pilots .......................................................................................................................... $367,085 8 $367,085 7 $367,085 15 Total Target Pilot Compensation .......................................................................................... $2,936,680 $2,569,595 $5,506,275 E. Step 5: Project Working Capital Fund Next, we calculate the working capital fund revenues needed for each area. First, we add together the figures for 25 See footnote 14. a detailed calculation refer to the Great Lakes Pilotage Rates—2017 Annual Review final rule, which contains the staffing model. See 82 FR 41466, table 6 at 41480 (August 31, 2017). 26 For VerDate Sep<11>2014 16:25 Oct 29, 2019 Jkt 250001 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, the number is 3.93 percent.29 By multiplying the two figures, we obtain the working capital fund contribution for each area, as shown in Table 19. 27 https://www.federalreserve.gov/monetary policy/files/fomcprojtabl20190320.pdf. 28 See Table 6 of the Great Lakes Pilotage Rates— 2017 Annual Review 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). 29 See footnote 17. PO 00000 Frm 00051 Fmt 4702 Sfmt 4702 E:\FR\FM\30OCP1.SGM 30OCP1 Federal Register / Vol. 84, No. 210 / Wednesday, October 30, 2019 / Proposed Rules 58111 TABLE 19—WORKING CAPITAL FUND CALCULATION FOR DISTRICT TWO District Two Item Undesignated Adjusted Operating Expenses (Step 2) ....................................................................................... Total Target Pilot Compensation (Step 4) ................................................................................... Total 2018 Expenses ................................................................................................................... Working Capital Fund (3.93%) .................................................................................................... F. Step 6: Project Needed Revenue In this step, we add together all of 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), $935,104 2,936,680 3,871,784 152,161 Designated $1,402,651 2,569,595 3,972,246 156,109 Total $2,337,755 5,506,275 7,844,030 308,270 and the working capital fund contribution (from Step 5). We show these calculations in Table 20. TABLE 20—REVENUE NEEDED FOR DISTRICT TWO District Two Undesignated Designated Total Adjusted Operating Expenses (Step 2, See Table 16) ............................................................... Total Target Pilot Compensation (Step 4, See Table 18) ........................................................... Working Capital Fund (Step 5, See Table 19) ............................................................................ $935,104 2,936,680 152,161 $1,402,651 2,569,595 156,109 $2,337,755 5,506,275 308,270 Total Revenue Needed ........................................................................................................ 4,023,945 4,128,355 8,152,300 G. Step 7: Calculate Initial Base Rates Having determined the needed revenue for each area in the previous six steps, to develop an hourly rate, we divide that number by the expected number of hours of traffic. Step 7 is a two-part process. In the first part, we calculate the 10-year average of traffic in District Two, using the total time on task or pilot bridge hours.30 Because we calculate separate figures for designated and undesignated waters, there are two parts for each calculation. We show these values in Table 21. TABLE 21—TIME ON TASK FOR DISTRICT TWO [Hours] 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 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, which is necessary 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 Table 22. TABLE 22—INITIAL RATE CALCULATIONS FOR DISTRICT TWO Item Undesignated Needed revenue (Step 6) ........................................................................................................................................ Average time on task (hours) .................................................................................................................................. Initial rate ................................................................................................................................................................. 30 See footnote 18 for more information. VerDate Sep<11>2014 16:25 Oct 29, 2019 Jkt 250001 PO 00000 Frm 00052 Fmt 4702 Sfmt 4702 E:\FR\FM\30OCP1.SGM 30OCP1 $4,023,945 5,322 $756 Designated $4,128,355 5,192 $795 58112 Federal Register / Vol. 84, No. 210 / Wednesday, October 30, 2019 / Proposed Rules H. Step 8: Calculate Average Weighting Factors by Area In this step, we calculate the average weighting factor for each designated and undesignated area. We collect the weighting factors, set forth in 46 CFR 401.400, for each vessel trip. Using this database, we calculated the average weighting factor for each area using the data from each vessel transit from 2014 onward, as shown in Tables 23 and 24.31 TABLE 23—AVERAGE WEIGHTING FACTOR FOR DISTRICT TWO, UNDESIGNATED 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 ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. 31 35 32 21 37 356 354 380 222 123 20 0 9 12 3 636 560 468 319 196 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 31 35 32 21 37 409.4 407.1 437 255.3 141.45 26 0 11.7 15.6 3.9 922.2 812 678.6 462.55 284.20 Total ...................................................................................................................................... 3,814 ........................ 5,023 Average weighting factor (weighted transits/number of transits) .................................. ........................ 1.32 ........................ TABLE 24—AVERAGE WEIGHTING FACTOR FOR DISTRICT TWO, 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 1.3 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 ........................ 3,510 Average weighting factor (weighted transits/number of transits) .................................. ........................ 1.32 ........................ I. Step 9: Calculate Revised Base Rates In this step, we revise the base rates so that once the impact of the weighting 31 See factors are considered, the total cost of pilotage would 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 25. footnote 19 for more information. VerDate Sep<11>2014 16:25 Oct 29, 2019 Jkt 250001 PO 00000 Frm 00053 Fmt 4702 Sfmt 4702 E:\FR\FM\30OCP1.SGM 30OCP1 58113 Federal Register / Vol. 84, No. 210 / Wednesday, October 30, 2019 / Proposed Rules TABLE 25—REVISED BASE RATES FOR DISTRICT TWO Area District Two: Designated .............................................................................................................. District Two: Undesignated .......................................................................................................... J. Step 10: Review and Finalize Rates. In this step, the Director reviews the rates set forth by the staffing model and ensures that they meet the goal of ensuring safe, efficient, and reliable pilotage. To establish that the proposed rates do meet the goal of ensuring safe, efficient and reliable pilotage, the Director considers whether the proposed rates incorporate appropriate compensation for pilots to handle heavy traffic periods, and whether there is a sufficient number of pilots to handle those heavy traffic periods. The Director also considers whether the proposed rates would cover operating expenses Revised rate (initial rate/ average weighting factor) Average weighting factor (Step 8) Initial rate (Step 7) $795 756 1.32 1.32 $602 573 and infrastructure costs, and takes average traffic and weighting factors into consideration. Based on this information, the Director is not proposing any alterations to the rates in this step. We propose to modify the text in § 401.405(a) to reflect the final rates shown in Table 26. TABLE 26—PROPOSED FINAL RATES FOR DISTRICT TWO Final 2019 pilotage rate Area Name District Two: Undesignated ......................................... District Two: Designated ............................................. Lake Erie .................................................................... Navigable waters from Southeast Shoal to Port Huron, MI. District Three 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 2017 expenses and revenues.32 For accounting purposes, the financial reports divide expenses into designated and undesignated areas. In certain instances, 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 accrued by the pilot associations generally, for example, employee benefits, the cost is divided between the designated and undesignated areas on a pro rata basis. The recognized operating expenses for District Three is laid out in Table 27. In addition to the surcharge adjustment and lobbying expenses described for District One in Section VII A. Step 1: Recognize previous operating expenses and the adjustments made by the auditors, as explained in the auditors’ reports, which are available in the docket for this rulemaking where indicated in the ADDRESSES portion of this document, the Director is proposing Proposed 2020 pilotage rate $531 603 $573 602 one adjustment to District Three’s operating expenses. The Director proposes an adjustment to disallow $32,800 in ‘‘housing allowance’’ expenses. The Coast Guard agrees with the IRS that an employer-provided housing allowance is a fringe benefit, and we consider it to be employee compensation. In addition, we expect those appointed as registered pilots pilot to live in the region in which they are employed. We expect that if a pilot chooses to live outside their region of employment, they should have to pay for their accommodations, and this cost should not be passed on to the shippers via the rate. Therefore, we propose not including any housing allowance the district chooses to provide their pilots in the ratemaking calculation. TABLE 27—2017 RECOGNIZED EXPENSES FOR DISTRICT THREE District Three Reported expenses for 2017 Undesignated 33 (Area 6) Designated (Area 7) Undesignated 34 (Area 8) Lakes Huron and Michigan St. Mary’s River Lake Superior Operating Expenses: Other Pilotage Costs: Subsistence/Travel—Pilot ................................................................. CPA Adjustment ................................................................................ Subsistence/Travel—Applicant ........................................................................ Payroll Taxes—Pilots ....................................................................................... $237,036 ¥11,178 90,123 124,088 Total $93,461 ¥4,407 35,535 48,927 32 These reports are available in the docket for this rulemaking (see Docket #USCG–2019–0736). VerDate Sep<11>2014 16:25 Oct 29, 2019 Jkt 250001 PO 00000 Frm 00054 Fmt 4702 Sfmt 4702 E:\FR\FM\30OCP1.SGM 30OCP1 $92,458 ¥4,360 35,154 48,402 $422,955 ¥19,945 160,812 221,417 58114 Federal Register / Vol. 84, No. 210 / Wednesday, October 30, 2019 / Proposed Rules TABLE 27—2017 RECOGNIZED EXPENSES FOR DISTRICT THREE—Continued District Three Reported expenses for 2017 Undesignated 33 (Area 6) Designated (Area 7) Undesignated 34 (Area 8) Lakes Huron and Michigan St. Mary’s River Lake Superior Total Payroll Taxes—Applicants ............................................................................... License Insurance—Pilots ............................................................................... Training—Pilots ................................................................................................ Training—Applicants ........................................................................................ Housing Allowance .......................................................................................... Winter Meeting ................................................................................................. Cell Phone Allowance ...................................................................................... Other Pilotage Costs ....................................................................................... CPA Adjustment .............................................................................................. 25,553 15,631 25,830 16,325 18,382 14,795 26,186 49,252 ¥3,699 10,075 6,163 10,185 6,437 7,248 5,834 10,325 19,420 ¥1,446 9,967 6,097 10,075 6,368 7,170 5,771 10,214 19,211 ¥1,431 45,595 27,891 46,090 29,130 32,800 26,400 46,725 87,883 ¥6,576 Total Other Pilotage Costs ......................................................... Pilot Boat and Dispatch Costs: Pilot boat costs ......................................................................................... CPA Adjustment ....................................................................................... Dispatch costs .......................................................................................... Payroll taxes ............................................................................................. Dispatch Employee Benefits .................................................................... 628,324 247,757 245,096 1,121,177 397,610 ¥27,756 99,705 9,351 3,927 156,774 ¥10,944 39,313 3,687 1,548 155,092 ¥10,826 38,891 3,648 1,532 709,476 ¥49,526 177,909 16,686 7,007 Total Pilot and Dispatch Costs .......................................................... Administrative Expenses: Legal—General Counsel .......................................................................... Legal—Shared Counsel (K&L Gates) ...................................................... CPA Adjustment ....................................................................................... Office Rent ................................................................................................ Insurance .................................................................................................. Employee benefits .................................................................................... Workers Compensation ............................................................................ Payroll Taxes ............................................................................................ Other Taxes .............................................................................................. Admin Travel ............................................................................................ Depreciation/Auto Leasing/Other ............................................................. Interest ...................................................................................................... APA Dues ................................................................................................. Utilities ...................................................................................................... Admin Salaries ......................................................................................... Accounting/Professional Fees .................................................................. Other ......................................................................................................... 482,837 190,378 188,337 861,552 32,149 18,730 ¥5,595 4,733 3,715 76,093 1,513 6,408 1,034 676 50,959 2,262 20,544 5,335 64,004 34,390 6,170 12,676 7,385 ¥2,206 1,866 1,465 30,003 597 2,527 408 267 20,093 892 8,100 2,103 25,236 13,560 2,433 12,540 7,306 ¥2,183 1,846 1,449 29,681 590 2,500 403 264 19,877 882 8,013 2,081 24,966 13,414 2,407 57,365 33,421 ¥9,984 8,445 6,629 135,777 2,700 11,435 1,845 1,207 90,929 4,036 36,657 9,519 114,206 61,364 11,010 Total Administrative Expenses .......................................................... 323,120 127,405 126,036 576,561 1,434,281 565,540 559,469 2,559,290 ¥18,382 ¥7,248 ¥7,170 ¥32,800 Total Director’s Adjustments ............................................................. ¥18,382 ¥7,248 ¥7,170 ¥32,800 Total Operating Expenses (OpEx + Adjustments) ..................... 1,415,899 558,292 552,299 2,526,490 Total Operating Expenses (Other Costs + Pilot Boats + Admin) .................................................................................... Proposed Adjustments (Director): Housing Allowance ................................................................................... B. Step 2: Project Operating Expenses, Adjusting for Inflation or Deflation Having identified the recognized 2017 operating expenses in Step 1, the next step is to estimate the current year’s operating expenses by adjusting those expenses for inflation over the 3-year period. We calculate inflation using the BLS data from the CPI for the Midwest Region of the United States for the 2018 inflation rate.35 Because the BLS does 33 The undesignated areas in District Three (areas 6 and 8) are treated separately in Table 27. In Table 28 and subsequent tables, both undesignated areas are combined and analyzed as a single undesignated area. 34 See footnote 31. VerDate Sep<11>2014 16:25 Oct 29, 2019 Jkt 250001 PO 00000 Frm 00055 Fmt 4702 Sfmt 4702 not provide forecasted inflation data, we use economic projections from the Federal Reserve for the 2019 and 2020 inflation modification.36 Based on that information, the calculations for Step 1 are as follows: 35 See 36 See E:\FR\FM\30OCP1.SGM footnote 13. footnote 14. 30OCP1 Federal Register / Vol. 84, No. 210 / Wednesday, October 30, 2019 / Proposed Rules 58115 TABLE 28—ADJUSTED OPERATING EXPENSES FOR DISTRICT THREE District Three Undesignated Total Operating Expenses (Step 1) ............................................................................................. 2018 Inflation Modification (@1.9%) ........................................................................................... 2019 Inflation Modification (@1.8%) ........................................................................................... 2020 Inflation Modification (@2%) .............................................................................................. Adjusted 2020 Operating Expenses ............................................................................................ C. Step 3: Estimate Number of Working Pilots In accordance with the text in § 404.103, we estimate the number of working pilots in each district. We determine the number of working pilots based on input from the Western Great Lakes Pilots Association. Using these number, we estimate that there will be 20 working pilots in 2020 in District Three. Furthermore, based on the seasonal staffing model discussed in the 2017 ratemaking (see 82 FR 41466), we $1,968,198 37,396 36,101 40,834 2,082,529 Designated $558,292 10,608 10,240 11,583 590,723 Total $2,526,490 48,004 46,341 52,417 2,673,252 assign a certain number of pilots to designated waters and a certain number to undesignated waters, as shown in Table 29. These numbers are used to determine the amount of revenue needed in their respective areas. TABLE 29—AUTHORIZED PILOTS District Three Maximum number of pilots (per § 401.220(a)) 37 ................................................................................................................................ 2020 Authorized pilots (total) ............................................................................................................................................................... Pilots assigned to designated areas ................................................................................................................................................... Pilots assigned to undesignated areas ............................................................................................................................................... D. Step 4: Determine Target Pilot Compensation Benchmark In this step, we determine the total pilot compensation for each area. As we are proposing an ‘‘interim’’ ratemaking this year, we propose to follow the procedure outlined in paragraph (b) of § 404.104, which adjusts the existing compensation benchmark by inflation. Because we do not have a value for the employment cost index for 2020, we multiply the 2019 compensation benchmark of $359,887 by the Median PCE Inflation value of 2.0 percent.38 Based on the projected 2020 inflation estimate, the proposed compensation benchmark for 2020 is $367,085 per pilot. Next, we certify that the number of pilots estimated for 2020 is less than or equal to the number permitted under the staffing model in § 401.220(a). The staffing model suggests that the number 22 20 4 16 of pilots needed for District Three is 22 pilots,39 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 District Three, as shown in Table 30. TABLE 30—TARGET COMPENSATION FOR DISTRICT THREE District Three Undesignated Designated Total Target Pilot Compensation .......................................................................................................... Number of Pilots .......................................................................................................................... $367,085 16 $367,085 4 $367,085 20 Total Target Pilot Compensation .......................................................................................... $5,873,360 $1,468,340 $7,341,700 E. Step 5: Project Working Capital Fund Next, we calculate the working capital fund revenues needed for each area. First, we add together 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, the number is 3.93 percent.40 By multiplying the two figures, we obtain the working capital fund contribution for each area, as shown in Table 31. 37 For a detailed calculation refer to the Great Lakes Pilotage Rates—2017 Annual Review final rule, which contains the staffing model. See 82 FR 41466, table 6 at 41480 (August 31, 2017). 38 https://www.federalreserve.gov/ monetarypolicy/files/fomcprojtabl20190320.pdf. 39 See Table 6 of the Great Lakes Pilotage Rates— 2017 Annual Review 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). 40 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. (June 12, 2019) VerDate Sep<11>2014 16:25 Oct 29, 2019 Jkt 250001 PO 00000 Frm 00056 Fmt 4702 Sfmt 4702 E:\FR\FM\30OCP1.SGM 30OCP1 58116 Federal Register / Vol. 84, No. 210 / Wednesday, October 30, 2019 / Proposed Rules TABLE 31—WORKING CAPITAL FUND CALCULATION FOR DISTRICT THREE District Three Undesignated Adjusted Operating Expenses (Step 2) ....................................................................................... Total Target Pilot Compensation (Step 4) ................................................................................... Total 2018 Expenses ................................................................................................................... Working Capital Fund (3.93%) .................................................................................................... F. Step 6: Project Needed Revenue In this step, we add together all of 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), $2,082,529 5,873,360 7,955,889 312,666 Designated $590,723 1,468,340 2,059,063 80,921 Total $2,673,252 7,341,700 10,014,952 393,587 and the working capital fund contribution (from Step 5). The calculations is shown in Table 32. TABLE 32—REVENUE NEEDED FOR DISTRICT THREE District Three Undesignated Designated Total Adjusted Operating Expenses (Step 2, See Table 28) ............................................................... Total Target Pilot Compensation (Step 4, See Table 30) ........................................................... Working Capital Fund (Step 5, See Table 31) ............................................................................ $2,082,529 5,873,360 312,666 $590,723 1,468,340 80,921 $2,673,252 7,341,700 393,587 Total Revenue Needed ........................................................................................................ 8,268,555 2,139,984 10,408,539 G. Step 7: Calculate Initial Base Rates Having determined the revenue needed for each area in the previous six steps, to develop an hourly rate, we divide that number by the expected number of hours of traffic. Step 7 is a two-part process. In the first part, we calculate the 10-year average of traffic in District Three, using the total time on task or pilot bridge hours.41 Because we calculate separate figures for designated and undesignated waters, there are two parts for each calculation. We show these values in Table 33. TABLE 33—TIME ON TASK FOR DISTRICT THREE [Hours] District Three Year Undesignated 2018 2017 2016 2015 2014 2013 2012 2011 2010 2009 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, which is necessary 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 Table 34. TABLE 34—INITIAL RATE CALCULATIONS FOR DISTRICT THREE Undesignated Revenue needed (Step 6) ....................................................................................................................................... Average time on task (hours) .................................................................................................................................. Initial rate ................................................................................................................................................................. 41 See footnote 18 for more information. VerDate Sep<11>2014 16:25 Oct 29, 2019 Jkt 250001 PO 00000 Frm 00057 Fmt 4702 Sfmt 4702 E:\FR\FM\30OCP1.SGM 30OCP1 $8,268,555 19,476 $425 Designated $2,139,984 2,651 $807 Federal Register / Vol. 84, No. 210 / Wednesday, October 30, 2019 / Proposed Rules H. Step 8: Calculate Average Weighting Factors by Area In this step, we calculate the average weighting factor for each designated and undesignated area. We collect the weighting factors, set forth in 46 CFR 401.400, for each vessel trip. Using this database, we calculate the average 58117 weighting factor for each area using the data from each vessel transit from 2014 onward, as shown in Tables 35 and 36.42 TABLE 35—AVERAGE WEIGHTING FACTOR FOR DISTRICT THREE, UNDESIGNATED AREAS Number of transits Vessel class/year Weighting factor Weighted transits Area 6 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) ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. 45 56 136 148 103 274 207 236 264 169 15 8 10 19 9 394 375 332 367 337 1 1 1 1 1 1.15 1.15 1.15 1.15 1.15 1.3 1.3 1.3 1.3 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 24.7 11.7 571.3 543.75 481.4 532.15 488.65 Total for Area 6 .................................................................................................................... 3,504 ........................ 4,507.05 ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. 3 0 4 4 0 177 169 174 151 102 3 0 7 18 7 243 253 204 269 188 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 3 0 4 4 0 203.55 194.35 200.1 173.65 117.3 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 ........................ 2623.1 Combined total .............................................................................................................. 5,480 ........................ 7,130.15 Average weighting factor (weighted transits/number of transits) .......................... ........................ 1.30 ........................ Area 8 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) TABLE 36—AVERAGE WEIGHTING FACTOR FOR DISTRICT THREE, DESIGNATED AREAS Number of transits Vessel class per year Class Class Class Class 1 1 1 1 42 See (2014) (2015) (2016) (2017) ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. 27 23 55 62 footnote 19 for more information VerDate Sep<11>2014 16:25 Oct 29, 2019 Jkt 250001 PO 00000 Frm 00058 Fmt 4702 Sfmt 4702 E:\FR\FM\30OCP1.SGM 30OCP1 Weighting factor Weighted transits 1 1 1 1 27 23 55 62 58118 Federal Register / Vol. 84, No. 210 / Wednesday, October 30, 2019 / Proposed Rules TABLE 36—AVERAGE WEIGHTING FACTOR FOR DISTRICT THREE, DESIGNATED AREAS—Continued Number of transits Vessel class per year Class Class Class Class Class Class Class Class Class Class Class Class Class Class Class Class 1 2 2 2 2 2 3 3 3 3 3 4 4 4 4 4 (2018) (2014) (2015) (2016) (2017) (2018) (2014) (2015) (2016) (2017) (2018) (2014) (2015) (2016) (2017) (2018) Weighting factor Weighted transits ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. 47 221 145 174 170 126 4 0 6 14 6 321 245 191 234 225 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 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 Average weighting factor (weighted transits per number of transits) ........................... ........................ 1.30 ........................ I. Step 9: Calculate Revised Base Rates In this step, we revise the base rates so that once the impact of the weighting factors are considered, the total cost of pilotage would 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 37. TABLE 37—REVISED BASE RATES FOR DISTRICT THREE Area District Three: Designated ........................................................................................................... District Three: Undesignated ....................................................................................................... J. Step 10: Review and Finalize Rates In this step, the Director reviews the rates set forth by the staffing model and ensures that they meet the goal of ensuring safe, efficient, and reliable pilotage. To establish that the proposed rates do meet the goal of ensuring safe, efficient and reliable pilotage, the Average weighting factor (Step 8) Initial rate (Step 7) Director considers whether the proposed rates incorporate appropriate compensation for pilots to handle heavy traffic periods and whether there is a sufficient number of pilots to handle those heavy traffic periods. The Director also considers whether the proposed rates would cover operating expenses $807 425 1.30 1.30 Revised rate (initial rate/ average weighting factor) $621 327 and infrastructure costs, and takes average traffic and weighting factors into consideration. Based on this information, the Director is not proposing any alterations to the rates in this step. We propose to modify the text in § 401.405(a) to reflect the final rates shown in Table 38. TABLE 38—PROPOSED FINAL RATES FOR DISTRICT THREE Final 2019 pilotage rate Area Name District Three: Designated .......................................... District Three: Undesignated ...................................... St. Mary’s River .......................................................... Lakes Huron, Michigan, and Superior ....................... K. Surcharges The Coast Guard is not proposing any surcharges in this ratemaking. As stated earlier, we previously used surcharges to pay for the training of new pilots, rather than incorporating training costs into the overall ‘‘needed revenue’’ that is used in the calculation of the base rate, because the surcharge accelerates the reimbursement of certain necessary VerDate Sep<11>2014 18:50 Oct 29, 2019 Jkt 250001 and reasonable expense. For the 2019 ratemaking, this reimbursement needed to be accelerated because of the large number of registered pilots retiring, and the large number of new pilots being trained to replace them. As the vast majority of registered pilots are not anticipated to retire in the next 20 years, we believe that pilot associations are now able to plan for the costs associated PO 00000 Frm 00059 Fmt 4702 Sfmt 4702 $594 306 Proposed 2020 pilotage rate $621 327 with retirements without relying on the Coast Guard to impose surcharges. VIII. Regulatory Analyses We developed this proposed rule after considering numerous statutes and Executive orders related to rulemaking. A summary of our analyses based on these statutes or Executive orders follows. E:\FR\FM\30OCP1.SGM 30OCP1 Federal Register / Vol. 84, No. 210 / Wednesday, October 30, 2019 / Proposed Rules 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 costs and benefits, reducing costs, harmonizing rules, and promoting flexibility. Executive Order 13771 (Reducing Regulation and Controlling Regulatory Costs) directs agencies to reduce regulation and control regulatory costs and provides that ‘‘for every one new regulation issued, at least two prior regulations be identified for elimination, and that the cost of planned regulations be prudently managed and controlled through a budgeting process.’’ The Office of Management and Budget (OMB) has not designated this proposed rule a significant regulatory action under section 3(f) of Executive Order 12866. Accordingly, OMB has not reviewed it. Because this proposed rule is not a significant regulatory action, it is exempt from the requirements of Executive Order 13771. See the OMB Memorandum titled ‘‘Guidance Implementing Executive Order 13771, titled ‘Reducing Regulation and Controlling Regulatory Costs’ ’’ (April 5, 2017). A regulatory analysis (RA) follows. The purpose of this proposed rule is to establish new base pilotage rates. The 58119 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 2018.43 Table 39 summarizes proposed changes with no cost impacts or where the cost impacts are captured in the proposed rate change. Table 40 summarizes the affected population, costs, and benefits of the proposed rate change. The Coast Guard estimates a decrease in cost of approximately $0.23 million to industry as a result of the change in revenue needed in 2020 compared to the revenue needed in 2019. TABLE 39—PROPOSED CHANGES WITH NO COSTS OR COST CAPTURED IN THE PROPOSED RATE CHANGE Change Description Affected population Basis for no cost Benefits Working capital fund requirements. The Coast Guard is proposing to add regulatory text to § 403.110 requiring the pilotage associations keep money allocated to the working capital fund in a separate account and limit the use of the funds to infrastructure expenses. The 3 pilotage associations .......... Provides increased transparency and oversight of how the money in the working capital fund is spent and how much each association has allocated for infrastructure expenses. Address inconsistent terms. The Coast Guard is proposing to replace the text in § 404.106, ‘‘return on investment’’ with ‘‘working capital fund’’. The 3 pilotage associations .......... Target pilot compensation. The Coast Guard is proposing to change the base pilot compensation benchmark in § 401.405(a) to the 2019 compensation benchmark after adjusting for inflation. Owners and operators of 266 vessels journeying the Great Lakes system annually, 52 U.S. Great Lakes pilots, and 3 pilotage associations. All three districts opened accounts for the working capital fund in response to a policy letter sent by the Coast Guard in November, 2018; therefore, there is no additional cost as a result of this rulemaking. In addition, based on discussion with the associations, we believe the cost to open these accounts was negligible, as each association was able to open a bank account online with their existing financial institutions with minimal effort. We estimate that any recordkeeping or reporting requirements associated with the working capital fund would also be minimal. The associations must already report and keep records on their infrastructure expense as part of their reporting requirements under § 403.105. We believe any recordkeeping associated with the new bank accounts may be conducted simultaneously with the recordkeeping for the existing accounts, as all accounts are with the same financial institution. The Coast Guard previously renamed ‘‘return on investment’’ as the ‘‘working capital fund’’ in the Great Lakes Pilotage Rates 2017 Annual Review final rule (82 FR 41466); however, this text was not modified in that rulemaking. Pilot compensation costs are accounted for in the base pilotage rates. 43 Great Lakes Pilotage Rates—2018 Annual Review and Revisions to Methodology (83 FR 26162), published June 5, 2018. VerDate Sep<11>2014 16:25 Oct 29, 2019 Jkt 250001 PO 00000 Frm 00060 Fmt 4702 Sfmt 4702 E:\FR\FM\30OCP1.SGM 30OCP1 Creates consistency across the CFR and reduces confusion. This compensation target achieves the Coast Guard’s goals of safety through rate and compensation stability, while promoting recruitment and retention of qualified U.S. registered pilots. 58120 Federal Register / Vol. 84, No. 210 / Wednesday, October 30, 2019 / Proposed Rules TABLE 40—ECONOMIC IMPACTS DUE TO PROPOSED CHANGES Change Description Rate and surUnder the Great Lakes Pilotage charge changes. Act of 1960, the Coast Guard is required to review and adjust base pilotage rates annually. The Coast Guard is required to review and adjust pilotage rates on the Great Lakes annually. See Sections IV and V of this preamble for detailed discussions of the legal basis and purpose for this rulemaking and for background information on Great Lakes pilotage ratemaking. Based on our annual review for this rulemaking, we are proposing to adjust the pilotage rates for the 2020 shipping season to generate sufficient revenues for each district to reimburse its necessary and reasonable operating expenses, fairly compensate trained and rested pilots, and provide an appropriate working capital fund to use for improvements. The rate changes in this proposed rule would increase the rates for four areas (District One: Designated, District Two: Undesignated, and all of District Three), and decrease the rates for the remaining two areas (District One: Undesignated, and District Two: Designated). In addition, the proposed rule would not implement a surcharge. These changes lead to a net decrease in the cost of service to shippers. However, because the proposed rates would increase for some areas and decrease for others, the change in per unit cost to each individual shipper would be dependent on their area of operation, and if they previously paid a surcharge. A detailed discussion of our economic impact analysis follows. Affected Population This rule would impact U.S. Great Lakes pilots, the three pilot associations, and the owners and operators of oceangoing vessels that transit the Great Lakes annually. We estimate that there would be 52 pilots working during the 2020 shipping season. The shippers affected by these rate changes are those owners and operators of domestic vessels operating ‘‘on register’’ (engaged 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 VerDate Sep<11>2014 16:25 Oct 29, 2019 Jkt 250001 Affected population Costs Benefits Owners and operators of 266 vessels transiting the Great Lakes system annually, 52 U.S. Great Lakes pilots, and 3 pilotage associations. Decrease of $225,658 due to change in revenue needed for 2020 ($27,762,527) from revenue needed for 2019 ($27,988,185) as shown in Table 41 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. 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 2016 through 2018 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. As described in Step 7 of the methodology, we use a 10-year average to estimate the traffic. We used 3 years of the most recent billing data to estimate the affected population. When we reviewed 10 years of the most recent billing data, we found the data included vessels that have not used pilotage services in recent years. We believe using 3 years of billing data is a better representation of the vessel population that is currently using pilotage services and would be impacted by this rulemaking. We found that 457 unique vessels used pilotage services during the years 2016 through 2018. That is, these vessels had a pilot dispatched to the vessel, and billing information was recorded in the GLPMS. Of these vessels, 420 were foreign-flagged vessels and 37 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. PO 00000 Frm 00061 Fmt 4702 Sfmt 4702 Numerous factors affect vessel traffic, which varies from year to year. Therefore, rather than using the total number of vessels over the time period, we took an average of the unique vessels using pilotage services from the years 2016 through 2018 as the best representation of vessels estimated to be affected by the rates in this rulemaking. From 2016 through 2018, an average of 266 vessels used pilotage services annually.44 On average, 248 of these vessels were foreign-flagged vessels and 18 were U.S.-flagged vessels that voluntarily opted into the pilotage service. Total Cost to Shippers The proposed rate changes resulting from this adjustment to the rates would result in a net decrease in the cost of service to shippers. However, because the rates would increase for some areas and decrease for others, the proposed change in per unit cost to each individual shipper would be dependent on their area of operation, and if they previously paid a surcharge. The Coast Guard estimates the effect of the rate changes on shippers by comparing the total projected revenues needed to cover costs in 2019 with the total projected revenues to cover costs in 2020, including any temporary surcharges we have authorized.45 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 44 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. 45 While the Coast Guard implemented a surcharge in 2019, we are not proposing any surcharges for 2020. E:\FR\FM\30OCP1.SGM 30OCP1 Federal Register / Vol. 84, No. 210 / Wednesday, October 30, 2019 / Proposed Rules services. The change in revenue from the previous year is the additional cost to shippers discussed in this rule. The impacts of the rate changes on shippers are estimated from the district pilotage projected revenues (shown in Tables 8, 20, and 32 of this preamble). The Coast Guard estimates that for the 2020 shipping season, the projected revenue needed for all three districts is $27,762,527. To estimate the change in cost to shippers from this rule, the Coast Guard compared the 2020 total projected revenues to the 2019 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 2019 rulemaking, we estimated the total projected revenue needed for 2019, including surcharges, as 58121 $27,988,185.46 This is the best approximation of 2019 revenues as, at the time of this publication, we do not have enough audited data available for the 2019 shipping season to revise these projections. Table 41 shows the revenue projections for 2019 and 2020 and details the additional cost increases to shippers by area and district as a result of the rate changes on traffic in Districts One, Two, and Three. TABLE 41—EFFECT OF THE RULE BY AREA AND DISTRICT [$U.S.; Non-discounted] Revenue needed in 2019 Area 2019 Temporary surcharge Total 2019 projected revenue Revenue needed in 2020 2020 Temporary surcharge Total 2020 projected revenue Change in costs of this proposed rule Total, district one ........................................... Total, district two ........................................... Total, district three ........................................ $9,271,852 7,864,224 9,802,109 $300,000 150,000 600,000 $9,571,852 8,014,224 10,402,109 $9,201,688 8,152,300 10,408,539 $0 0 0 $9,201,688 8,152,300 10,408,539 ¥$370,164 138,076 6,430 System total ........................................... 26,938,185 1,050,000 27,988,185 27,762,527 0 27,762,527 ¥$225,658 The resulting difference between the projected revenue in 2019 and the projected revenue in 2020 is the annual change in payments from shippers to pilots as a result of the rate change imposed by this proposed rule. The effect of the rate change to shippers varies by area and district. The rate changes, after taking into account the change in pilotage rates, would lead to affected shippers operating in District One experiencing a decrease in payments of $370,164, over the previous year. District Two and District Three would experience an increase in payments of $138,076 and, $6,430 respectively, when compared with 2019. The overall adjustment in payments would be a decrease in payments by shippers of $225,658 across all three districts (a 1-percent decrease when compared with 2019). 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 10year period. Table 42 shows the difference in revenue by revenue-component from 2019 to 2020, and presents each revenue-component as a percentage of the total revenue needed. In both 2019 and 2020, the largest revenuecomponent was pilotage compensation (66% of total revenue needed in 2019 and 69% of total revenue needed in 2020), followed by operating expenses (27% of total revenue needed in 2019 and 2020). TABLE 42—DIFFERENCE IN REVENUE BY COMPONENT Revenue needed in 2019 Revenue-component Adjusted Operating Expenses .................................................. Total Target Pilot Compensation .............................................. Working Capital Fund ............................................................... Total Revenue Needed, without Surcharge .............................. Surcharge .................................................................................. Total Revenue Needed, with Surcharge ................................... Percentage of total revenue needed in 2019 $7,565,310 18,354,237 1,018,638 26,938,185 1,050,000 27,988,185 27 66 4 96 4 100 Revenue needed in 2020 Percentage of total revenue needed in 2020 Difference (2020 revenue–2019 revenue) 27 69 4 100 0 100 $58,988 734,183 31,171 824,342 ¥1,050,000 ¥225,658 $7,624,298 19,088,420 1,049,809 27,762,527 0 27,762,527 Percentage change from previous year 1 4 3 3 ¥100 ¥1 Note: Totals may not sum due to rounding. Table 43 presents the percentage change in revenue by area and revenuecomponent, excluding surcharges as they are applied at the district level.47 The majority of the decrease in revenue is due to the removal of surcharges to cover the cost of applicant pilot training expenses and decreased operating 46 84 FR 20551, see table 36. VerDate Sep<11>2014 16:25 Oct 29, 2019 Jkt 250001 expenses. The change in revenue also accounts for the inflation of pilotage compensation and the net addition of one additional pilot. The target compensation for these pilots is $367,085 per pilot. The addition of this pilot to full working status accounts for $367,085 of the increase ($734,183 is the difference between the revenues needed in 2019 to the revenues needed in 2020, which takes into account the effect of increasing compensation for the other 51 pilots). The remaining amount is attributed to increases in the working capital fund. 47 The 2019 projected revenues are from the Great Lakes Pilotage Rates—2019 Annual Review and Revisions to Methodology final rule (84 FR 20551) Tables 15–17. The 2020 projected revenues are from tables 8, 20, and 32 of this proposed rule. PO 00000 Frm 00062 Fmt 4702 Sfmt 4702 E:\FR\FM\30OCP1.SGM 30OCP1 58122 Federal Register / Vol. 84, No. 210 / Wednesday, October 30, 2019 / Proposed Rules TABLE 43—DIFFERENCE IN REVENUE BY COMPONENT AND AREA Adjusted operating expenses Area District One: Designated District One: Undesignated .......................... District Two: Undesignated .......................... District Two: Designated District Three: Undesignated .......................... District Three: Designated ....................... 2019 2020 $1,467,171 $1,567,975 1,335,997 1,045,316 1,072,441 1,455,988 935,104 1,402,651 1,703,896 529,817 Total target pilot compensation Percentage change Working capital fund Percentage change 2019 2020 2019 2020 6 $3,598,870 $3,670,850 2 $199,095 $205,886 ¥28 2,519,209 2,569,595 2 151,510 142,066 ¥15 ¥4 2,519,209 2,519,209 2,936,680 2,569,595 14 2 141,152 156,225 152,161 156,109 2,082,529 18 5,758,192 5,873,360 2 293,260 590,723 10 1,439,548 1,468,340 2 77,396 Benefits B. Small Entities This proposed rule would allow the Coast Guard to meet the requirements in 46 U.S.C. 9303 to review the rates for pilotage services on the Great Lakes. The rate changes would promote safe, efficient, and reliable pilotage service on the Great Lakes by: (1) Ensuring that rates cover an association’s operating expenses; (2) providing fair pilot compensation, adequate training, and sufficient rest periods for pilots; and (3) ensuring pilot associations produce enough revenue to fund future improvements. The rate changes would also help recruit and retain pilots, which would ensure a sufficient number of pilots to meet peak shipping demand, helping to reduce delays caused by pilot shortages. Under the Regulatory Flexibility Act, 5 U.S.C. 601–612, we have considered whether this proposed rule would have a significant economic impact on a substantial number of small entities. The term ‘‘small entities’’ comprises small businesses, not-for-profit organizations that are independently owned and operated and are not dominant in their fields, and governmental jurisdictions with populations of less than 50,000. 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 48 and ReferenceUSA.49 As described in Section VIII.A of this preamble, Regulatory Planning and Total revenue needed Percentage change Percentage change 2019 2020 3 $5,265,136 $5,444,711 3 ¥7 4,006,716 3,756,977 ¥7 7 0 3,732,802 4,131,422 4,023,945 4,128,355 7 0 312,666 6 7,755,348 8,268,555 6 80,921 4 2,046,761 2,139,984 4 Review, we found that a total of 457 unique vessels used pilotage services from 2016 through 2018. These vessels are owned by 55 entities. We found that of the 55 entities that own or operate vessels engaged in trade on the Great Lakes that would be affected by this rule, 43 are foreign entities that operate primarily outside the United States. The remaining 12 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 Size Standards’’ for small businesses to determine how many of these companies are small entities.50 Table 44 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 44—NAICS CODES AND SMALL ENTITIES SIZE STANDARDS NAICS 211120 238910 488330 523910 532411 551111 561510 928110 Description .............. .............. .............. .............. .............. .............. .............. .............. Crude Petroleum Extraction ....................................................................................................... Site Preparation Contractors ...................................................................................................... Navigational Services to Shipping .............................................................................................. Miscellaneous Intermediation ..................................................................................................... Commercial Air, Rail, and Water Transportation Equipment Rental and Leasing .................... Offices of Bank Holding Companies .......................................................................................... Travel Agencies .......................................................................................................................... National Security. ....................................................................................................................... Of the 12 U.S. entities, 10 exceed the SBA’s small business standards for small entities. To estimate the potential impact on the 2 small entities, the Coast Guard used their 2018 invoice data to estimate their pilotage costs in 2020. We increased their 2018 costs to account for the changes in pilotage rates resulting from this rule and the Great Lakes 48 See https://www.manta.com/. http://resource.referenceusa.com/. 50 See: https://www.sba.gov/document/supporttable-size-standards. SBA has established a ‘‘Table 49 See VerDate Sep<11>2014 Small entity size standard 16:25 Oct 29, 2019 Jkt 250001 1,250 employees. $15.0 million. $38.5 million. $38.5 million. $32.5 million. $20.5 million. $20.5 million. Population of 50,000 people. Pilotage Rates—2019 Annual Review and Revisions to Methodology final rule (84 FR 20551). We estimated the change in cost to these entities resulting from this rule by subtracting their estimated 2019 costs from their estimated 2020 costs. We then compared the estimated change in pilotage costs between 2019 and 2020 with each firm’s annual revenue and compared their total estimated 2020 pilotage costs to their annual revenue. In both cases, their estimated pilotage expenses were below 1 percent of their annual revenue. Table 44 presents the calculation of these cost estimates for both entities. of Size Standards’’ for small businesses that sets small business size 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 in order to remain classified as a small business for SBA and Federal contracting programs. PO 00000 Frm 00063 Fmt 4702 Sfmt 4702 E:\FR\FM\30OCP1.SGM 30OCP1 Federal Register / Vol. 84, No. 210 / Wednesday, October 30, 2019 / Proposed Rules 58123 TABLE 44—ESTIMATED 2020 PILOTAGE COSTS FOR SMALL ENTITIES [Thousands of dollars] Entity 2018 pilotage expenses Estimated change in pilotage costs between 2018 and 2019 51 Estimated 2019 pilotage expenses Estimated change in pilotage cost between 2018 and 2019 Estimated 2020 pilotage expenses Estimated change in pilotage expenses from 2019 to 2020 (a) (b) (c) = (a) × (1 + (b)) (d) (e) = (c) × (1 + (d)) (f) = (e) ¥ (c) Small Entity A ............................................ Small Entity B ............................................ $4.75 148.39 In addition to the owners and operators discussed above, three U.S. entities that receive revenue from pilotage services would be affected by this proposed rule. 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 code and small-entity size standards described above, but have fewer than 500 employees. Combined, they have approximately 65 employees in total and, therefore, are designated as small entities. The Coast Guard expects no adverse effect on these entities from this rule because the three pilot associations would receive enough revenue to balance the projected expenses associated with the projected number of bridge hours (time on task) and pilots. Finally, 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 would be impacted by this rule. We did not find any small governmental jurisdictions with populations of fewer than 50,000 people that would be impacted by this rule. Based on this analysis, we conclude this rulemaking would not affect a substantial number of small entities, nor have a significant economic impact on any of the affected entities. Based on our analysis, this proposed rule would have a less than 1 percent annual impact on 2 small entities; therefore, the Coast Guard certifies under 5 U.S.C. 605(b) that this proposed rule would not have a significant economic impact on a substantial number of small entities. If you think that your business, organization, or governmental jurisdiction qualifies as a small entity and that this proposed rule would have a significant economic impact on it, please submit a comment to the docket at the address listed in the ADDRESSES section of this preamble. In your comment, explain why you think 51 84 FR 20551, see table 37. VerDate Sep<11>2014 16:25 Oct 29, 2019 Jkt 250001 11 11 it qualifies and how and to what degree this proposed rule would economically affect it. C. Assistance for Small Entities Under section 213(a) of the Small Business Regulatory Enforcement Fairness Act of 1996, Public Law 104– 121, we want to assist small entities in understanding this proposed rule so that they can better evaluate its effects on them and participate in the rulemaking. If the proposed rule would affect your small business, organization, or governmental jurisdiction and you have questions concerning its provisions or options for compliance, please contact the person in the FOR FURTHER INFORMATION section of this proposed rule. The Coast Guard will not retaliate against small entities that question or complain about this proposed rule or any policy or action of the Coast Guard. Small businesses may send comments on the actions of Federal employees who enforce, or otherwise determine compliance with, Federal regulations to the Small Business and Agriculture Regulatory Enforcement Ombudsman and the Regional Small Business Regulatory Fairness Boards. The Ombudsman evaluates these actions annually and rates each agency’s responsiveness to small business. If you wish to comment on actions by employees of the Coast Guard, call 1– 888–REG–FAIR (1–888–734–3247). D. Collection of Information This proposed rule would call for no new collection of information under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501–3520). This proposed rule would not change the burden in the collection currently approved by OMB under OMB Control Number 1625–0086, Great Lakes Pilotage Methodology. E. Federalism A rule has implications for federalism under Executive Order 13132 (Federalism) if it has a substantial direct effect on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the PO 00000 Frm 00064 Fmt 4702 ¥1 ¥1 5.27 164.71 Sfmt 4702 5.22 163.06 ¥$0.05 ¥1.65 various levels of government. We have analyzed this proposed rule under Executive Order 13132 and have determined that it is consistent with the fundamental federalism principles and preemption requirements as described in Executive Order 13132. Our analysis follows. Congress directed the Coast Guard to establish ‘‘rates and charges for pilotage services.’’ See 46 U.S.C. 9303(f). This regulation is issued pursuant to that statute and is preemptive of State law as specified in 46 U.S.C. 9306. Under 46 U.S.C. 9306, a ‘‘State or political subdivision of a State may not regulate or impose any requirement on pilotage on the Great Lakes.’’ As a result, States or local governments are expressly prohibited from regulating within this category. Therefore, this proposed rule is consistent with the fundamental federalism principles and preemption requirements described in Executive Order 13132. While it is well settled that States may not regulate in categories in which Congress intended the Coast Guard to be the sole source of a vessel’s obligations, the Coast Guard recognizes the key role that State and local governments may have in making regulatory determinations. Additionally, for rules with implications and preemptive effect, Executive Order 13132 specifically directs agencies to consult with State and local governments during the rulemaking process. If you believe this rule has implications for federalism under Executive Order 13132, please contact the person listed in the FOR FURTHER INFORMATION section of this preamble. F. Unfunded Mandates 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 million (adjusted for inflation) or more in any one year. Although this proposed rule would not result in such E:\FR\FM\30OCP1.SGM 30OCP1 58124 Federal Register / Vol. 84, No. 210 / Wednesday, October 30, 2019 / Proposed Rules an expenditure, we do discuss the effects of this proposed rule elsewhere in this preamble. G. Taking of Private Property This proposed rule would not cause a taking of private property or otherwise have taking implications under Executive Order 12630 (Governmental Actions and Interference with Constitutionally Protected Property Rights). H. Civil Justice Reform This proposed rule meets applicable standards in sections 3(a) and 3(b)(2) of Executive Order 12988, (Civil Justice Reform), to minimize litigation, eliminate ambiguity, and reduce burden. M. Environment I. Protection of Children We have analyzed this proposed rule under Executive Order 13045 (Protection of Children from Environmental Health Risks and Safety Risks). This proposed rule is not an economically significant rule and would not create an environmental risk to health or risk to safety that might disproportionately affect children. J. Indian Tribal Governments This proposed rule does not have tribal implications under Executive Order 13175 (Consultation and Coordination with Indian Tribal Governments), because it would not have a substantial direct effect on one or more Indian tribes, on the relationship between the Federal Government and Indian tribes, or on the distribution of power and responsibilities between the Federal Government and Indian tribes. K. Energy Effects We have analyzed this proposed rule under Executive Order 13211 (Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use). We have determined that it is not a ‘‘significant energy action’’ under that order because it is not a ‘‘significant regulatory action’’ under Executive Order 12866 and is not likely to have a significant adverse effect on the supply, distribution, or use of energy. 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 VerDate Sep<11>2014 16:25 Oct 29, 2019 impractical. Voluntary consensus standards are technical standards (e.g., specifications of materials, performance, design, or operation; test methods; sampling procedures; and related management systems practices) that are developed or adopted by voluntary consensus standards bodies. This proposed rule does not use technical standards. Therefore, we did not consider the use of voluntary consensus standards. If you disagree with our analysis or are aware of voluntary consensus standards that might apply, please send a comment explaining your disagreement or identifying appropriate standards to the docket using the method listed in the ADDRESSES section of this preamble. Jkt 250001 We have analyzed this proposed rule under Department of Homeland Security Management Directive 023–01– 001–01, Revision 1 (DHS Directive 023– 01), Commandant Instruction 5090.1 (COMDTINST 5090.1), and U.S. Coast Guard Environmental Planning Policy (April 2019), which guide the Coast Guard in complying with the National Environmental Policy Act of 1969 (42 U.S.C. 4321–4370f), and have made a preliminary determination that this action is one of a category of actions that do not individually or cumulatively have a significant effect on the human environment. A preliminary Record of Environmental Consideration supporting this determination is available in the docket where indicated under the ADDRESSES portion of this preamble. This proposed rule appears to meet the criteria for categorical exclusion (CATEX) under paragraphs A3 and L54 in Table 3–1 of U.S. Coast Guard Environmental Planning Implementing Procedures, which is available in the docket at www.regulations.gov. Paragraph A3 pertains to the promulgation of rules, issuance of rulings or interpretations, and the development and publication of policies, orders, directives, notices, procedures, manuals, advisory circulars, and other guidance documents of the following nature: (a) Those of a strictly administrative or procedural nature; (b) Those that implement, without substantive change, statutory or regulatory requirements; or (c) those that implement, without substantive change, procedures, manuals, and other guidance documents; and (d) Those that interpret or amend an existing regulation without changing its environmental effect. Paragraph L54 pertains to regulations which are editorial or procedural. PO 00000 Frm 00065 Fmt 4702 Sfmt 4702 This proposed rule involves: (1) Clarifying the rules related to the working capital fund, (2) adjusting the base pilotage rates, and (3) eliminating surcharges for administering the 2020 shipping season in accordance with applicable statutory and regulatory mandates pursuant to the Great Lakes Pilotage Act of 1960. We seek any comments or information that may lead to the discovery of a significant environmental impact from this proposed rule. List of Subjects 46 CFR Part 401 Administrative practice and procedure, Great Lakes, Navigation (water), Penalties, Reporting and recordkeeping requirements, Seamen. 46 CFR Part 403 Great Lakes, Navigation (water), Reporting and recordkeeping requirements, Seamen, Uniform System of Accounts. 46 CFR Part 404 Great Lakes, Navigation (water), Seamen. For the reasons discussed in the preamble, the Coast Guard proposes to amend 46 CFR parts 401, 403, and 404 as follows: PART 401—GREAT LAKES PILOTAGE REGULATIONS 1. The authority citation for part 401 continues to read as follows: ■ Authority: 46 U.S.C. 2103, 2104(a), 6101, 7701, 8105, 9303, 9304; Department of Homeland Security Delegation No. 0170.1(II)(92.a), (92.d), (92.e), (92.f). 2. Revise § 401.405(a) to read as follows: ■ § 401.405 Pilotage rates and charges. (a) The hourly rate for pilotage service on— (1) The St. Lawrence River is $757; (2) Lake Ontario is $462; (3) Lake Erie is $573; (4) The navigable waters from Southeast Shoal to Port Huron, MI is $602; (5) Lakes Huron, Michigan, and Superior is $302; and (6) The St. Mary’s River is $621. * * * * * PART 403—GREAT LAKES PILOTAGE UNIFORM ACCOUNTING SYSTEM 3. The authority citation for part 403 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). E:\FR\FM\30OCP1.SGM 30OCP1 Federal Register / Vol. 84, No. 210 / Wednesday, October 30, 2019 / Proposed Rules 4. Amend § 403.110 by: (a) Designating the text as paragraph (a); and ■ (b) Adding paragraph (b). The addition to read as follows: ■ ■ § 403.110 Accounting entities (a) * * * (b) Each Association will maintain a separate account called the ‘‘Working Capital Fund.’’ Each Association will deposit into the working capital fund an amount each year at least equal to the amount calculated in Step 5, 46 CFR 404.105. Working capital funds may only be used for infrastructure improvements and infrastructure VerDate Sep<11>2014 16:25 Oct 29, 2019 Jkt 250001 maintenance necessary to provide safe, efficient, and reliable pilot service such as pilot boat replacements, major repairs to pilot boats, non-recurring technology purchases necessary for providing pilot services, or for the acquisition of real property for use as a dispatch center, office space, or pilot lodging. The Director may grant exceptions to the requirements of this paragraph (403.110(b)) upon request by an Association. PART 404—GREAT LAKES PILOTAGE RATEMAKING Authority: 46 U.S.C. 2103, 2104(a), 9303, 9304; Department of Homeland Security Delegation No. 0170.1(II)(92.a), (92.f). § 404.106 [Amended] 6. In § 404.106, remove the words ‘‘return on investment’’ and add in their place ‘‘working capital fund’’. ■ Dated: October 23, 2019. R.V. Timme, Rear Admiral, U.S. Coast Guard, Assistant Commandant for Prevention Policy. [FR Doc. 2019–23510 Filed 10–29–19; 8:45 am] BILLING CODE 9110–04–P 5. The authority citation for part 404 continues to read as follows: ■ PO 00000 Frm 00066 Fmt 4702 Sfmt 9990 58125 E:\FR\FM\30OCP1.SGM 30OCP1

Agencies

[Federal Register Volume 84, Number 210 (Wednesday, October 30, 2019)]
[Proposed Rules]
[Pages 58099-58125]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-23510]



[[Page 58099]]

=======================================================================
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DEPARTMENT OF HOMELAND SECURITY

Coast Guard

46 CFR Parts 401, 403, and 404

[USCG-2019-0736]
RIN 1625-AC56


Great Lakes Pilotage Rates--2020 Annual Review and Revisions to 
Methodology

AGENCY: Coast Guard, DHS.

ACTION: Notice of proposed rulemaking.

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

SUMMARY: In accordance with the Great Lakes Pilotage Act of 1960, the 
Coast Guard is proposing new base pilotage rates for the 2020 shipping 
season. This proposed rule would adjust the pilotage rates to account 
for changes in district operating expenses, an increase in the number 
of pilots, and anticipated inflation. The net result of decreased 
operating expenses for the associations compared to the previous year, 
inflation of pilot compensation, and the addition of one working pilot 
at the beginning of the 2020 shipping season is a 3 percent increase in 
pilotage rates. In addition, the Coast Guard is not proposing any 
surcharges for the 2020 shipping season, which would result in a 1 
percent net decrease in pilotage costs compared to the 2019 season, 
when combined with the changes above. The Coast Guard is also proposing 
to clarify the rules related to the working capital fund.

DATES: Comments and related material must be received by the Coast 
Guard on or before November 29, 2019.

ADDRESSES: You may submit comments identified by docket number USCG-
2019-0736 using the Federal eRulemaking Portal at https://www.regulations.gov. See the ``Public Participation and Request for 
Comments'' portion of the SUPPLEMENTARY INFORMATION section for further 
instructions on submitting comments.

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

SUPPLEMENTARY INFORMATION:

Table of Contents for Preamble

I. Public Participation and Request for Comments
II. Abbreviations
III. Executive Summary
IV. Basis and Purpose
V. Background
VI. Discussion of Proposed Methodological and Other Changes
VII. Discussion of Proposed Rate Adjustment
    District One:
    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 Fxund
    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
    District Two:
    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
    District Three:
    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
VIII. Regulatory Analyses
    A. Regulatory Planning and Review
    B. Small Entities
    C. Assistance for Small Entities
    D. Collection of Information
    E. Federalism
    F. Unfunded Mandates
    G. Taking of Private Property
    H. Civil Justice Reform
    I. Protection of Children
    J. Indian Tribal Governments
    K. Energy Effects
    L. Technical Standards
    M. Environment

I. Public Participation and Request for Comments

    The Coast Guard views public participation as essential to 
effective rulemaking, and will consider all comments and material 
received during the comment period. Your comment can help shape the 
outcome of this rulemaking. If you submit a comment, please include the 
docket number for this rulemaking, indicate the specific section of 
this document to which each comment applies, and provide a reason for 
each suggestion or recommendation.
    We encourage you to submit comments through the Federal eRulemaking 
Portal at https://www.regulations.gov. If you cannot submit your 
material by using https://www.regulations.gov, call or email the person 
in the FOR FURTHER INFORMATION CONTACT section of this proposed rule 
for alternate instructions. Documents mentioned in this proposed rule, 
and all public comments, will be available in our online docket at 
https://www.regulations.gov, and can be viewed by following that 
website's instructions. Additionally, if you visit the online docket 
and sign up for email alerts, you will be notified when comments are 
posted or if a final rule is published.
    We accept anonymous comments. All comments received will be posted 
without change to https://www.regulations.gov and will include any 
personal information you have provided. For more about privacy and 
submissions in response to this document, see DHS's Correspondence 
System of Records notice (84 FR 48645, September 26, 2018)..
    We do not plan to hold a public meeting, but we will consider doing 
so if public comments indicate a meeting would be helpful. We would 
issue a separate Federal Register notice to announce the date, time, 
and location of such a meeting.

II. Abbreviations

AMOU American Maritime Officers Union
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
FOMC Federal Open Market Committee
FR Federal Register
GLPA Great Lakes Pilotage Authority (Canadian)
GLPAC Great Lakes Pilotage Advisory Committee
GLPMS Great Lakes Pilotage Management System
NAICS North American Industry Classification System
NPRM Notice of proposed rulemaking
NTSB National Transportation Safety Board
OMB Office of Management and Budget
PCE Personal Consumption Expenditures
RA Regulatory analysis
SBA Small Business Administration
Sec.  Section symbol
SLSMC Saint Lawrence Seaway Management Corporation
U.S.C. United States Code
USD United States dollars

[[Page 58100]]

III. Executive Summary

    Pursuant to the Great Lakes Pilotage Act of 1960 (``the Act''),\1\ 
the Coast Guard regulates pilotage for oceangoing vessels on the Great 
Lakes and St. Lawrence Seaway -- including setting the rates for 
pilotage services and adjusting them on an annual basis. The rates, 
which currently range from $306 to $733 per pilot hour (depending on 
which of the specific six areas pilotage service is provided), are paid 
by shippers to pilot associations. The three pilot associations, which 
are the exclusive U.S. source of registered pilots on the Great Lakes, 
use this revenue to cover operating expenses, maintain infrastructure, 
compensate working pilots, and train new pilots. We use a ratemaking 
methodology that we have developed since 2016 in accordance with our 
statutory requirements and regulations. Our ratemaking methodology 
calculates the revenue needed for each pilotage association (including 
operating expenses, compensation, and infrastructure needs), and then 
divides that amount by the expected shipping traffic over the course of 
the coming year to produce an hourly rate. This process is currently 
effected through a 10-step methodology which is explained in detail in 
this notice of proposed rulemaking (NPRM).
---------------------------------------------------------------------------

    \1\ Title 46 of the United States Code (U.S.C.) Chapter 93; 
Public Law 86-555, 74 Stat. 259, as amended.
---------------------------------------------------------------------------

    In this NPRM, as part of our annual review, we are proposing new 
pilotage rates for 2020 based on the existing methodology. The result 
is an increase in rates for four areas, and a decrease in rates for the 
remaining two areas. These changes are due to a combination of four 
factors: (1) Decreased total operating expenses for the associations 
compared to the previous year,\2\ (2) an increase in the amount of 
money needed for the working capital fund, (3) inflation of pilot 
compensation by 2 percent, and (4) the net addition of one working 
pilot at the beginning of the 2020 shipping season in District Two. 
Based on the ratemaking model discussed in this NPRM, we are proposing 
the rates shown in Table 1.
---------------------------------------------------------------------------

    \2\ Operating expenses decreased for the District One: 
Undesignated area and all of District Two. They increased for the 
District One: Designated area and all of District Three.

                         Table 1--Current and Proposed Pilotage Rates on the Great Lakes
----------------------------------------------------------------------------------------------------------------
                                                                                   Final 2019     Proposed 2020
                     Area                                    Name                pilotage rate    pilotage rate
----------------------------------------------------------------------------------------------------------------
District One: Designated.....................  St. Lawrence River.............             $733             $757
District One: Undesignated...................  Lake Ontario...................              493              462
District Two: Designated.....................  Navigable waters from Southeast              603              602
                                                Shoal to Port Huron, MI.
District Two: Undesignated...................  Lake Erie......................              531              573
District Three: Designated...................  St. Mary's River...............              594              621
District Three: Undesignated.................  Lakes Huron, Michigan, and                   306              327
                                                Superior.
----------------------------------------------------------------------------------------------------------------

    This proposed rule would impact 52 U.S. Great Lakes pilots, 3 pilot 
associations, and the owners and operators of an average of 266 
oceangoing vessels that transit the Great Lakes annually. This proposed 
rule is not economically significant under Executive Order 12866 and 
would not affect the Coast Guard's budget or increase Federal spending. 
The estimated overall annual regulatory economic impact of this rate 
change is a net decrease of $225,658 in estimated payments made by 
shippers from the 2019 shipping season. Because the Coast Guard must 
review, and, if necessary, adjust rates each year, we analyze these as 
single-year costs and do not annualize them over 10 years. Section VIII 
of this preamble provides the regulatory impact analyses of this 
proposed rule.

IV. Basis and Purpose

    The legal basis of this rulemaking is the Great Lakes Pilotage Act 
of 1960 (``the Act''),\3\ which requires foreign vessels and U.S. 
vessels operating ``on register, meaning '' those U.S. vessels engaged 
in foreign trade, to use U.S. or Canadian registered pilots while 
transiting the U.S. waters of the St. Lawrence Seaway and the Great 
Lakes system.\4\ 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.'' \5\ The Act requires that rates be established or reviewed 
and adjusted each year, not later than March 1.\6\ The Act requires 
that base rates be established by a full ratemaking at least once every 
5 years, and in years when base rates are not established, they must be 
reviewed and, if necessary, adjusted.\7\ The Secretary's duties and 
authority under the Act have been delegated to the Coast Guard.\8\
---------------------------------------------------------------------------

    \3\ 46 U.S.C. Chapter 93; Public Law 86-555, 74 Stat. 259, as 
amended.
    \4\ 46 U.S.C. 9302(a)(1).
    \5\ 46 U.S.C. 9303(f).
    \6\ Id.
    \7\ Id.
    \8\ Department of Homeland Security (DHS) Delegation No. 0170.1, 
para. II (92.f).
---------------------------------------------------------------------------

    The purpose of this NPRM is to propose new pilotage rates for the 
2020 shipping season. The Coast Guard believes that the new rates would 
continue to promote pilot retention, ensure safe, efficient, and 
reliable pilotage services on the Great Lakes, and provide adequate 
funds to upgrade and maintain infrastructure.

V. Background

    Pursuant to the Act, the Coast Guard, in conjunction with the 
Canadian Great Lakes Pilotage Authority (GLPA), 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.\9\ U.S. and Canadian ``lakers,'' which 
account for most commercial shipping on the Great Lakes, are not 
affected.\10\ 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 Canadian GLPA

[[Page 58101]]

establishes the rates for Canadian registered pilots.
---------------------------------------------------------------------------

    \9\ See title 46 of the Code of Federal Regulations (CFR) part 
401.
    \10\ 46 U.S.C. 9302(f). A ``laker'' is a commercial cargo vessel 
especially designed for and generally limited to use on the Great 
Lakes.
---------------------------------------------------------------------------

    The U.S. waters of the Great Lakes and the St. Lawrence Seaway are 
divided into three pilotage districts. Pilotage in each district is 
provided by an association certified by the Coast Guard's Director of 
the Great Lakes Pilotage (``the Director'') to operate a pilotage pool. 
The Saint Lawrence Seaway Pilotage Association provides pilotage 
services in District One, which includes all U.S. waters of the St. 
Lawrence River and Lake Ontario. The Lakes Pilotage Association 
provides pilotage services in District Two, which includes all U.S. 
waters of Lake Erie, the Detroit River, Lake St. Clair, and the St. 
Clair River. Finally, the Western Great Lakes Pilotage Association 
provides pilotage services in District Three, which includes all U.S. 
waters of the St. Mary's River; Sault Ste. Marie Locks; and Lakes 
Huron, Michigan, and Superior.
    Each pilotage district is further divided into ``designated'' and 
``undesignated'' areas, which is depicted in Table 2 below. Designated 
areas, classified as such by Presidential Proclamation, are waters in 
which pilots must, at all times, be fully engaged in the navigation of 
vessels in their charge.\11\ Undesignated areas, on the other hand, are 
open bodies of water not subject to the same pilotage requirements. 
While working in 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.'' \12\ For these 
reasons, pilotage rates in designated areas can be significantly higher 
than those in undesignated areas.
---------------------------------------------------------------------------

    \11\ Presidential Proclamation 3385, Designation of restricted 
waters under the Great Lakes Pilotage Act of 1960, December 22, 
1960.
    \12\ 46 U.S.C. 9302(a)(1)(B).

                            Table 2--Areas of the Great Lakes and St. Lawrence Seaway
----------------------------------------------------------------------------------------------------------------
      District         Pilotage association           Designation           Area No. \13\      Area name \14\
----------------------------------------------------------------------------------------------------------------
One.................  Saint Lawrence Seaway  Designated..................               1  St. Lawrence River.
                       Pilotage Association.
                                             Undesignated................               2  Lake Ontario.
Two.................  Lake Pilotage          Designated..................               5  Navigable waters from
                       Association.                                                         Southeast Shoal to
                                                                                            Port Huron, MI.
                                             Undesignated................               4  Lake Erie.
Three...............  Western Great Lakes    Designated..................               7  St. Mary's River.
                       Pilotage Association.
                                             Undesignated................               6  Lakes Huron and
                                                                                            Michigan.
                                             Undesignated................               8  Lake Superior.
----------------------------------------------------------------------------------------------------------------

    Each pilot association is an independent business and is the sole 
provider of pilotage services in the district in which it operates. 
Each pilot association is responsible for funding its own operating 
expenses, maintaining infrastructure, acquiring and implementing 
technological advances, training personnel/partners and pilot 
compensation. 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 would need to cover 
expenses and provide competitive compensation to working pilots. We 
then divide that amount by the historic 10-year average for pilotage 
demand. We recognize that in years where traffic is above average, 
pilot associations will accrue more revenue than projected, while in 
years where traffic is below average, they will take in less. We 
believe that over the long term, however, this system ensures that 
infrastructure would be maintained and that pilots will receive 
adequate compensation and work a reasonable number of hours, with 
adequate rest between assignments, to ensure retention of highly 
trained personnel.
---------------------------------------------------------------------------

    \13\ 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.
    \14\ The areas are listed by name in the Code of Federal 
Regulations, see 46 CFR 401.405.
---------------------------------------------------------------------------

    Over the past 4 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 U.S. mariners rather than Canadian registered 
pilots. The current methodology, which was finalized in the Great Lakes 
Pilotage Rates--2019 Annual Review and Revisions to Methodology final 
rule (84 FR 20551), published May 10, 2019, 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, outlined in 46 CFR 
404.101 through 404.110, consists of 10 steps that are designed to 
account for the revenues needed and total traffic expected in each 
district. The result is an hourly rate, determined separately for each 
of the areas administered by the Coast Guard.
    In Step 1, ``Recognize previous operating expenses,'' (Sec.  
404.101) the Director reviews audited operating expenses from each of 
the three pilotage associations. This number forms the baseline amount 
that each association is budgeted. Because of the time delay between 
when the association submits raw numbers and the Coast Guard receives 
audited numbers, this number is 3 years behind the projected year of 
expenses. So in calculating the 2020 rates in this proposal, we are 
beginning with the audited expenses from the 2017 shipping season.
    While each pilotage association operates in an entire district, the 
Coast Guard tries to determine costs by area. Thus, with regard to 
operating expenses, we allocate certain operating expenses to 
undesignated areas, and certain expenses to designated areas. In some 
cases (e.g., insurance for applicant pilots who operate in undesignated 
areas

[[Page 58102]]

only), we can allocate the costs based on where they are actually 
accrued. In other situations (e.g., general legal expenses), expenses 
are distributed between designated and undesignated waters on a pro 
rata basis, based upon the proportion of income forecasted from the 
respective portions of the district.
    In Step 2, ``Project operating expenses, adjusting for inflation or 
deflation,'' (Sec.  404.102) the Director develops the 2020 projected 
operating expenses. To do this, we apply inflation adjustors for 3 
years to the operating expense baseline received in Step 1. The 
inflation factors used are from the Bureau of Labor Statistics' (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 total operating expenses for each area and district.
    In Step 3, ``Estimate number of working pilots,'' (Sec.  404.103) 
the Director calculates how many pilots are needed for each district. 
To do this, we employ a ``staffing model,'' described in Sec.  401.220, 
paragraphs (a)(1) through (a)(3), to estimate how many pilots would be 
needed to handle shipping during the beginning and close of the season. 
This number is helpful in providing guidance to the Director 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 previous years, in the first process, we calculated the 
total compensation for each pilot using a ``compensation benchmark.'' 
Next, we multiplied 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 is divided by area for 
accounting purposes, we assigned a certain number of pilots for the 
designated areas and a certain number of pilots for the undesignated 
areas to determine the revenues needed for each area. To make the 
determination of how many pilots to assign, we used the staffing model 
designed to determine the total number of pilots, described in Step 3, 
above.
    For the 2020 ratemaking, the Coast Guard is proposing to update the 
benchmark compensation model in accordance with Sec.  404.104(b), 
switching from using the American Maritime Officers Union (AMOU) 2015 
aggregated wage and benefit information, to using the 2019 compensation 
benchmark. Prior to 2016, the Coast Guard based the compensation 
benchmark on data provided by the AMOU regarding its contract for first 
mates on the Great Lakes. However, in 2016 the AMOU elected to no 
longer provide this data to the Coast Guard, and thus, in the 2016 
ratemaking, we used average compensation for a Canadian pilot plus a 10 
percent adjustment. As a result of a legal challenge filed by the 
shipping industry, the court found that the Coast Guard did not 
adequately support the 10 percent addition to the Canadian GLPA 
benchmark, and thus its use was deemed arbitrary and capricious. The 
Coast Guard then based the 2018 benchmark on data provided by the AMOU 
regarding its contract for first mates on the Great Lakes in the 2011 
to 2015 period, and adjusted it for inflation using FOMC median 
economic projections for PCE inflation. We used the information 
provided by the AMOU because it was the most recent publicly available 
information to which we had access. This benchmark has successfully 
achieved the Coast Guard's goals of safety through rate and 
compensation stability while also promoting recruitment and retention 
of qualified United States registered pilots. Therefore, the Coast 
Guard proposes to use this as the compensation benchmark for future 
rates.
    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) to 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 
simply adds up the totals produced by the preceding steps. The 
projected operating expense for each area and district (from Step 2) is 
added to 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 ``needed revenue.''
    In Step 7, ``Calculate initial base rates,'' (Sec.  404.107) the 
Director calculates an hourly pilotage rate to cover the needed revenue 
as calculated in Step 6. This step consists of first calculating the 
10-year hours of traffic average for each area. Next, the revenue 
needed in each area (calculated in Step 6) is divided by the 10-year 
hours of 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 the applied weighting factors for each year since 2014 (the 
first year the current weighting factors were applied).
    In Step 9, ``Calculate revised base rates,'' (Sec.  404.109) the 
Director modifies 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 
trained and rested pilots fairly; and providing appropriate profit for 
improvements. Because it is our goal

[[Page 58103]]

to be as transparent as possible in our ratemaking procedure, we use 
this step sparingly to adjust rates.
    After the base rates are set, Sec.  401.401 permits the Coast Guard 
to apply surcharges. We previously used surcharges to pay for the 
training of new pilots, rather than incorporating training costs into 
the overall ``needed revenue'' used in the calculation of the base 
rates. The surcharge accelerates the reimbursement of certain necessary 
and reasonable expense. Last year, we applied a surcharge to account 
for the associations' expenses for the Applicant Trainee and Apprentice 
Pilots, which included providing a stipend, lodging, training, and per 
diem. We implemented these surcharges because of a large number of 
pending pilot retirements, and a large amount of recruitment at the 
pilot associations. Without the surcharge, the associations would have 
been reimbursed for expenses associated with training new pilots 3 
years later via the rate. However, any pilot who retired prior to that 
3-year date would not have been reimbursed. Therefore, we applied a 
surcharge to ensure that these pilots would not have to incur the costs 
of training their replacements. As the vast majority of registered 
pilots are not anticipated to reach the regulatory required retirement 
age of 70 in the next 20 years, we believe that pilot associations are 
now able to plan for the costs associated with retirements without 
relying on the Coast Guard to impose surcharges.

VI. Discussion of Proposed Methodological and Other Changes

    For 2020, the Coast Guard is proposing no new methodological 
changes to the ratemaking model. We believe that the methodology laid 
out in the 2019 Annual Review would produce rates for the 2020 shipping 
season that would ensure safe and reliable pilotage services are 
available on the Great Lakes.
    In previous years, several commenters have raised issues regarding 
the working capital fund. The purpose of the working capital fund is to 
ensure that associations have a way to set aside money to pay for high 
cost items and infrastructure improvements. The Coast Guard is 
proposing changes in this proposed rule to codify the procedures 
related to the use of funds and accounting requirements related to the 
working capital fund.
    The Coast Guard is proposing two changes to the regulatory text 
related to the working capital fund, formerly called ``return on 
investment.'' In 46 CFR 404.106, the Coast Guard proposes to change the 
words ``return on investment'' to ``working capital fund,'' as that is 
the current name for that fund. This change was made in the Great Lakes 
Pilotage Rates 2017 Annual Review final rule (82 FR 41466, August 31, 
2017), but the entry was overlooked in that rule. Prior to 2017, the 
working capital fund described in 46 CFR 404.105 was called ``return on 
investment.'' In the Great Lakes Pilotage Rates 2017 Annual Review 
final rule (82 FR 41466, August 31, 2017), the Coast Guard changed the 
name of that fund to the ``working capital fund.'' However, the 2017 
final rule did not change a reference to ``return on investment'' in 46 
CFR 404.106. This proposed change corrects that oversight so that 46 
CFR 404.105 and 46 CFR 404.106 will use consistent terminology. In 
addition, the Coast Guard proposes to incorporate into regulations the 
policy currently being followed by the pilots associations regarding 
these funds. The Coast Guard proposes to add text to 46 CFR 403.110 
requiring each pilot association set aside, in a separate account, an 
amount at least equal to the amount calculated in Step 5 of the 
ratemaking, and place restrictions on how those funds are expended. 
Under the proposed rule, pilot associations can only apply these funds 
in the working capital fund account to capital projects, infrastructure 
improvements, infrastructure maintenance, and non-recurring technology 
purchases that are necessary for providing pilotage services. The pilot 
associations may grow the working capital fund over successive shipping 
seasons for a future significant purchase, including for a down payment 
on a purchase that would also be financed in part. If needed, pilot 
associations could request a waiver from the requirements from the 
Director. We invite interested parties to provide their input and 
recommendations on this issue.

VII. Discussion of Proposed Rate Adjustments

    In this NPRM, based on the current methodology described in the 
previous section, we are proposing new pilotage rates for 2020. We 
propose to conduct the 2020 ratemaking as an ``interim year,'' as was 
done in 2019, rather than a full ratemaking as was conducted in 2018. 
Thus, the Coast Guard proposes to adjust the compensation benchmark 
pursuant to Sec.  404.104(b) for this purpose, rather than Sec.  
404.104(a).
    This section discusses the proposed rate changes using the 
ratemaking steps provided in 46 CFR part 404. We will detail all ten 
steps of the ratemaking procedure for each of the three districts to 
show how we arrived at the proposed new rates.

District One

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 2017 expenses and 
revenues.\15\ For accounting purposes, the financial reports divide 
expenses into designated and undesignated areas. In certain instances, 
costs are applied to the designated or undesignated 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 accrued by the pilot associations generally, for 
example, such as employee benefits, the cost is divided between the 
designated and undesignated areas on a pro rata basis. The recognized 
operating expenses for District One is shown in Table 3.
---------------------------------------------------------------------------

    \15\ These reports are available in the docket for this 
rulemaking (see Docket #USCG-2019-0736).
---------------------------------------------------------------------------

    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 3 years to reimburse. The 
rationale for using surcharges to cover these expenses, rather than 
including the costs as operating expenses, was so these non-recurring 
costs could be recovered in a more timely fashion, and 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 3 years, the Coast Guard added a $150,000 
surcharge per applicant pilot, beginning in 2016, to recoup those costs 
in the year incurred. Now that these issues are no longer a concern, we 
are not proposing any surcharges for the 2020 shipping season.
    We also propose to deduct 3 percent of the ``shared counsel'' 
expenses, as stated in the auditor's reports for each district to 
account for lobbying expenditures. Pursuant to 46 CFR 404.2(c)(3), 
lobbying expenses are not permitted to be recouped as operating 
expenses.

[[Page 58104]]

    For District One, we do not propose any Director's adjustments, 
other than the surcharge adjustment and lobbying expenses described 
above. Other adjustments have been made by the auditors and are 
explained in the auditor's reports, which are available in the docket 
for this rulemaking where indicated under the ADDRESSES portion of the 
preamble.

                               Table 3--2017 Recognized Expenses for District One
----------------------------------------------------------------------------------------------------------------
                                                                                   District One
                                                                 -----------------------------------------------
                                                                    Designated     Undesignated
                   Reported expenses for 2017                    --------------------------------
                                                                   St. Lawrence                        Total
                                                                       River       Lake Ontario
----------------------------------------------------------------------------------------------------------------
Operating Expenses:
    Other Pilotage Costs:
        Subsistence/Travel--Pilot...............................        $440,456        $293,637        $734,093
        Certified Public Accountant (CPA) Deduction.............            -189            -126            -315
        Subsistence/Travel--Trainee.............................          22,008          14,672          36,680
        License Insurance--Pilots...............................          48,620          32,413          81,033
        License Insurance--Trainee..............................               0               0               0
        Payroll Taxes--Pilots...................................         137,788          91,858         229,646
        Payroll Taxes--Trainee..................................             705             470           1,175
        Training--Full Pilots Continuing Education..............          32,197          21,464          53,661
        Cell and Internet Allowance--Pilots.....................          24,312          16,208          40,520
        Cell and Internet Allowance--Applicants.................           2,210           1,474           3,684
        Other...................................................             675             450           1,125
                                                                 -----------------------------------------------
            Total Other Pilotage Costs..........................         708,782         472,520       1,181,302
Pilot Boat and Dispatch Costs:
    Pilot Boat Expense..........................................         297,942         198,628         496,570
    Dispatch Expense............................................          50,100          33,400          83,500
    Payroll Taxes...............................................          19,706          13,137          32,843
                                                                 -----------------------------------------------
        Total Pilot and Dispatch Costs..........................         367,748         245,165         612,913
Administrative Expenses:
    Legal--General Counsel......................................           2,098           1,399           3,497
    Legal--Shared Counsel (K&L Gates)...........................          26,835          17,890          44,725
    CPA Adjustment..............................................          -5,020          -3,347          -8,367
    Office Rent.................................................               0               0               0
    Insurance...................................................          21,593          14,395          35,988
    Employee Benefits...........................................           7,720           5,146          12,866
    Payroll Taxes...............................................           6,665           4,444          11,109
    Other Taxes.................................................          70,942          47,294         118,236
    Travel......................................................           4,091           2,728           6,819
    Depreciation/Auto Leasing/other.............................          94,944          63,296         158,240
    Interest....................................................          35,143          23,428          58,571
    Dues and Subscriptions......................................          19,471          12,981          32,452
    Utilities...................................................          18,479          12,320          30,799
    Salaries....................................................          69,953          46,636         116,589
    Accounting/Professional Fees................................           6,111           4,074          10,185
        Pilot Training..........................................               0               0               0
        Applicant Pilot Training................................               0               0               0
    Other.......................................................          26,338          17,559          43,897
                                                                 -----------------------------------------------
        Total Administrative Expenses...........................         405,363         270,243         675,606
                                                                 -----------------------------------------------
            Total Operating Expenses (Other Costs + Pilot Boats        1,481,893         987,928       2,469,821
             + Admin)...........................................
Proposed Adjustments (Director):
    Total Director's Adjustments................................               0               0               0
                                                                 -----------------------------------------------
        Total Operating Expenses (OpEx + Adjustments)...........       1,481,893         987,928       2,469,821
----------------------------------------------------------------------------------------------------------------

B. Step 2: Project Operating Expenses, Adjusting for Inflation or 
Deflation
    Having identified the recognized 2017 operating expenses in Step 1, 
the next step is to estimate the current year's operating expenses by 
adjusting those expenses for inflation over the 3-year period. We 
calculate inflation using the BLS data from the CPI for the Midwest 
Region of the United States for the 2018 inflation rate.\16\ Because 
the BLS does not provide forecasted inflation data, we use economic 
projections from the Federal Reserve for the 2019 and 2020 inflation 
modification.\17\ Based on that information, the calculations for Step 
2 are as follows:
---------------------------------------------------------------------------

    \16\ The 2018 inflation rate is available at https://www.bls.gov/regions/midwest/data/consumerpriceindexhistorical_midwest_table.pdf. Specifically the CPI 
is defined as ``All Urban Consumers (CPI-U), All Items, 1982-
4=100''. Downloaded June 12, 2019.
    \17\ The 2019 and 2020 inflation rates are available at https://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20190320.pdf. We used the PCE median inflation value 
found in table 1, Downloaded June 12, 2019.

[[Page 58105]]



                              Table 4--Adjusted Operating Expenses for District One
----------------------------------------------------------------------------------------------------------------
                                                                                   District One
                                                                 -----------------------------------------------
                                                                    Designated     Undesignated        Total
----------------------------------------------------------------------------------------------------------------
Total Operating Expenses (Step 1)...............................      $1,481,893        $987,928      $2,469,821
2018 Inflation Modification (@1.9%).............................          28,156          18,771          46,927
2019 Inflation Modification (@1.8%).............................          27,181          18,121          45,302
2020 Inflation Modification (@2%)...............................          30,745          20,496          51,241
Adjusted 2020 Operating Expenses................................       1,567,975       1,045,316       2,613,291
----------------------------------------------------------------------------------------------------------------

C. Step 3: Estimate Number of Working Pilots
    In accordance with the text in Sec.  404.103, we estimate the 
number of working pilots in each district. We determine the number of 
working pilots based on data provided by the Saint Lawrence Seaway 
Pilots Association. Using these numbers, we estimate that there will be 
17 working pilots in 2020 in District One. Furthermore, based on the 
seasonal staffing model discussed in the 2017 ratemaking (see 82 FR 
41466), we assign a certain number of pilots to designated waters and a 
certain number to undesignated waters, as shown in Table 5. These 
numbers are used to determine the amount of revenue needed in their 
respective areas.

                       Table 5--Authorized Pilots
------------------------------------------------------------------------
                          Item                             District One
------------------------------------------------------------------------
Maximum number of pilots (per Sec.   401.220(a)) \18\...              17
2020 Authorized pilots (total)..........................              17
Pilots assigned to designated areas.....................              10
Pilots assigned to undesignated areas...................               7
------------------------------------------------------------------------

D. Step 4: Determine Target Pilot Compensation Benchmark
---------------------------------------------------------------------------

    \18\ For a detailed calculation, refer to the Great Lakes 
Pilotage Rates--2017 Annual Review final rule, which contains the 
staffing model. See 82 FR 41466, table 6 at 41480 (August 31, 2017).
---------------------------------------------------------------------------

    In this step, we determine the total pilot compensation for each 
area. As we are proposing an ``interim'' ratemaking this year, we 
propose to follow the procedure outlined in paragraph (b) of Sec.  
404.104, which adjusts the existing compensation benchmark by 
inflation. Because we do not have a value for the employment cost index 
for 2020, we multiply the 2019 compensation benchmark of $359,887 by 
the Median PCE Inflation value of 2.0 percent.\19\ Based on the 
projected 2020 inflation estimate, the proposed compensation benchmark 
for 2020 is $367,085 per pilot.
---------------------------------------------------------------------------

    \19\ https://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20190320.pdf.
---------------------------------------------------------------------------

    Next, we certify that the number of pilots estimated for 2020 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, which is more than or equal to 
the numbers of working pilots provided by the pilot associations. 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 District One, as shown in Table 6.

                                  Table 6--Target Compensation for District One
----------------------------------------------------------------------------------------------------------------
                                                                                   District One
                                                                 -----------------------------------------------
                                                                    Designated     Undesignated        Total
----------------------------------------------------------------------------------------------------------------
Target Pilot Compensation.......................................        $367,085        $367,085        $367,085
Number of Pilots................................................              10               7              17
                                                                 -----------------------------------------------
    Total Target Pilot Compensation.............................      $3,670,850      $2,569,595      $6,240,445
----------------------------------------------------------------------------------------------------------------

E. Step 5: Project Working Capital Fund
    Next, we calculate the working capital fund revenues needed for 
each area. First, we add together 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, the number is 3.93 
percent.\20\ By multiplying the two figures, we obtain the working 
capital fund contribution for each area, as shown in Table 7.
---------------------------------------------------------------------------

    \20\ Moody's Seasoned Aaa Corporate Bond Yield, average of 2018 
monthly data. The Coast Guard uses the most recent year of complete 
data. Moody's is taken from Moody's Investors Service, which is a 
bond credit rating business of Moody's Corporation. Bond ratings are 
based on creditworthiness and risk. The rating of ``Aaa'' is the 
highest bond rating assigned with the lowest credit risk. See 
https://fred.stlouisfed.org/series/AAA. (June 12, 2019)

[[Page 58106]]



                           Table 7--Working Capital Fund Calculation for District One
----------------------------------------------------------------------------------------------------------------
                                                                                   District One
                                                                 -----------------------------------------------
                                                                    Designated     Undesignated        Total
----------------------------------------------------------------------------------------------------------------
Adjusted Operating Expenses (Step 2)............................      $1,567,975      $1,045,316      $2,613,291
Total Target Pilot Compensation (Step 4)........................       3,670,850       2,569,595       6,240,445
                                                                 -----------------------------------------------
    Total 2018 Expenses.........................................       5,238,825       3,614,911       8,853,736
                                                                 -----------------------------------------------
        Working Capital Fund (3.93%)............................         205,886         142,066         347,952
----------------------------------------------------------------------------------------------------------------

F. Step 6: Project Needed Revenue
    In this step, we add together all of 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). We show these calculations in Table 8.

                                    Table 8--Revenue Needed for District One
----------------------------------------------------------------------------------------------------------------
                                                                                   District One
                                                                 -----------------------------------------------
                                                                    Designated     Undesignated        Total
----------------------------------------------------------------------------------------------------------------
Adjusted Operating Expenses (Step 2, See Table 4)...............      $1,567,975      $1,045,316      $2,613,291
Total Target Pilot Compensation (Step 4, See Table 6)...........       3,670,850       2,569,595       6,240,445
Working Capital Fund (Step 5, See Table 7)......................         205,886         142,066         347,952
                                                                 -----------------------------------------------
    Total Revenue Needed........................................       5,444,711       3,756,977       9,201,688
----------------------------------------------------------------------------------------------------------------

G. Step 7: Calculate Initial Base Rates
    Having determined the revenue needed for each area in the previous 
six steps, to develop an hourly rate we divide that number by the 
expected number of hours of traffic. Step 7 is a two-part process. In 
the first part, we calculate the 10-year average of traffic in District 
One, using the total time on task or pilot bridge hours.\21\ Because we 
calculate separate figures for designated and undesignated waters, 
there are two parts for each calculation. We show these values in Table 
9.
---------------------------------------------------------------------------

    \21\ To calculate the time on task for each district, the Coast 
Guard uses billing data from the Great Lakes Pilotage Management 
System (GLPMS). We pull the data from the system filtering by 
district, year, job status (we only include closed jobs), and 
flagging code (we only include U.S. jobs). After we have downloaded 
the data, we remove any overland transfers from the dataset, if 
necessary, and sum the total bridge hours, by area. We then subtract 
any non-billable delay hours from the total.

                 Table 9--Time on Task for District One
                                 [Hours]
------------------------------------------------------------------------
                                                   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
------------------------------------------------------------------------

    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, which is necessary to produce the revenue needed for each 
area, assuming the amount of traffic is as expected. We present the 
calculations for each area in Table 10.

          Table 10--Initial Rate Calculations for District One
------------------------------------------------------------------------
                                            Designated     Undesignated
------------------------------------------------------------------------
Needed revenue (Step 6).................      $5,444,711      $3,756,977

[[Page 58107]]

 
Average time on task (hours)............           5,657           6,248
Initial rate............................            $962            $601
------------------------------------------------------------------------

H. Step 8: Calculate Average Weighting Factors by Area
    In this step, we calculate the average weighting factor for each 
designated and undesignated area. We collect the weighting factors, set 
forth in 46 CFR 401.400, for each vessel trip. Using this database, we 
calculate the average weighting factor for each area using the data 
from each vessel transit from 2014 onward, as shown in Tables 11 and 
12.\22\
---------------------------------------------------------------------------

    \22\ To calculate the number of transits by vessel class, we use 
the billing data from GLPMS, filtering by district, year, job status 
(we only include closed jobs), and flagging code (we only include 
U.S. jobs). We then count the number of jobs by vessel class and 
area.

                      Table 11--Average Weighting Factor for District One, 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
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             1.3           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 12--Average Weighting Factor for District One, 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             1.3            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
                                                                 -----------------------------------------------

[[Page 58108]]

 
        Average weighting factor (weighted transits/number of     ..............            1.30  ..............
         transits)..............................................
----------------------------------------------------------------------------------------------------------------

I. Step 9: Calculate Revised Base Rates
    In this step, we revise the base rates so that once the impact of 
the weighting factors are considered; the total cost of pilotage would 
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 13.

                                  Table 13--Revised Base Rates for District One
----------------------------------------------------------------------------------------------------------------
                                                                                                   Revised rate
                                                                                      Average     (initial rate/
                              Area                                 Initial rate      weighting        average
                                                                     (Step 7)      factor  (Step     weighting
                                                                                        8)            factor)
----------------------------------------------------------------------------------------------------------------
District One: Designated........................................            $962            1.27            $757
District One: Undesignated......................................             601            1.30             462
----------------------------------------------------------------------------------------------------------------

J. Step 10: Review and Finalize Rates
    In this step, the Director reviews the rates set forth by the 
staffing model and ensures that they meet the goal of ensuring safe, 
efficient, and reliable pilotage. To establish that the proposed rates 
do meet the goal of ensuring safe, efficient and reliable pilotage, the 
Director considers whether the proposed rates incorporate appropriate 
compensation for pilots to handle heavy traffic periods and whether 
there is a sufficient number of pilots to handle those heavy traffic 
periods. The Director also considers whether the proposed rates would 
cover operating expenses and infrastructure costs, and takes average 
traffic and weighting factors into consideration. Based on this 
information, the Director is not proposing any alterations to the rates 
in this step. We propose to modify the text in Sec.  401.405(a) to 
reflect the final rates shown in Table 14.

                                 Table 14--Proposed Final Rates for District One
----------------------------------------------------------------------------------------------------------------
                                                                                   Final 2019     Proposed 2020
                     Area                                    Name                pilotage rate    pilotage rate
----------------------------------------------------------------------------------------------------------------
District One: Designated.....................  St. Lawrence River.............             $733             $757
District One: Undesignated...................  Lake Ontario...................              493              462
----------------------------------------------------------------------------------------------------------------

District Two

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 2017 expenses and 
revenues.\23\ For accounting purposes, the financial reports divide 
expenses into designated and undesignated areas. In certain instances, 
costs are applied to the designated or undesignated area based on where 
they were actually incurred. 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 accrued by the pilot associations generally, such as 
employee benefits, for example, the cost is divided between the 
designated and undesignated areas on a pro rata basis. The recognized 
operating expenses for District Two are shown in Table 15.
---------------------------------------------------------------------------

    \23\ These reports are available in the docket for this 
rulemaking (see Docket No. USCG-2019-0736).
---------------------------------------------------------------------------

    In addition to the surcharge adjustment and lobbying expenses 
described for District One in Section VII A. Step 1: Recognize previous 
operating expenses, and the adjustments made by the auditors, as 
explained in the auditors' reports (available in the docket where 
indicated in the ADDRESSES portion of this document), the Director is 
proposing one adjustment to District Two's operating expenses. The 
Director proposes an adjustment to disallow $120,350 in ``housing 
allowance'' expenses. The Coast Guard agrees with the Internal Revenue 
Service (IRS) that an employer-provided housing allowance is a fringe 
benefit, and we consider it to be employee compensation. In addition, 
we expect those appointed as registered pilots to live in the region in 
which they are employed. We expect that if a pilot chooses to live 
outside their region of employment, they should have to pay for their 
accommodations, and this cost should not be passed on to the shippers 
via the rate. Therefore, we propose not including any housing allowance 
the district chooses to provide their pilots in the ratemaking 
calculation.

[[Page 58109]]



                               Table 15--2017 Recognized Expenses for District Two
----------------------------------------------------------------------------------------------------------------
                                                                                   District Two
                                                                 -----------------------------------------------
                                                                   Undesignated     Designated
                   Reported expenses for 2017                    --------------------------------
                                                                                     Southeast         Total
                                                                     Lake Erie     Shoal to Port
                                                                                       Huron
----------------------------------------------------------------------------------------------------------------
Operating Expenses:
    Other Pilotage Costs:
        Subsistence/Travel--Pilots..............................        $116,402        $174,602        $291,004
        Subsistence/Travel--Applicants..........................          52,212          78,317         130,529
        Housing Allowance--Pilots...............................          30,212          45,318          75,530
        Housing Allowance--Applicants...........................          17,928          26,892          44,820
        Winter Meeting Allowance................................           8,280          12,420          20,700
        Telecommunication Allowance.............................          11,662          17,493          29,155
        Payroll taxes--Pilots...................................          57,126          85,688         142,814
        Payroll taxes--Applicants...............................          26,025          39,038          65,063
        License Insurance.......................................           8,326          12,490          20,816
        Training................................................           2,079           3,119           5,198
                                                                 -----------------------------------------------
            Total Other Pilotage Costs..........................         330,252         495,377         825,629
Pilot Boat and Dispatch Costs:
    Pilot Boat Cost.............................................         217,514         326,272         543,786
    CPA Adjustment..............................................         -34,860         -52,291         -87,151
    Dispatch Expense............................................               0               0               0
    Employee Benefits...........................................          78,680         118,020         196,700
    Payroll Taxes...............................................          12,230          18,344          30,574
                                                                 -----------------------------------------------
        Total Pilot and Dispatch Costs..........................         273,564         410,345         683,909
Cost Affiliated Entity Expenses:
        Office Rent.............................................          26,275          39,413          65,688
        CPA Adjustment..........................................          -4,742          -7,113         -11,855
                                                                 -----------------------------------------------
        Total Affiliated Entity Expense.........................          21,533          32,300          53,833
Administrative Expenses:
    Legal--General Counsel......................................           3,505           5,258           8,763
    Legal--Shared Counsel (K&L Gates)...........................          15,604          23,405          39,009
    CPA Adjustment..............................................          -7,086         -10,630         -17,716
    Employee benefits--Admin employees..........................          79,534         119,301         198,835
    Workman's Compensation--Pilots..............................          48,663          72,994         121,657
    Payroll taxes--Admin Employees..............................           6,872          10,308          17,180
    Insurance...................................................          10,844          16,265          27,109
    Other Taxes.................................................          12,065          18,097          30,162
    Admin Travel................................................           6,316           9,475          15,791
    Depreciation/Auto Lease/Other...............................          24,168          36,251          60,419
    Interest....................................................          21,526          32,288          53,814
    CPA Adjustment..............................................         -20,920         -31,379         -52,299
    Dues and subscriptions......................................          10,760          16,140          26,900
    CPA Adjustment..............................................            -581            -871          -1,452
    Utilities...................................................           6,277           9,415          15,692
    Salaries--Admin employees...................................          60,568          90,852         151,420
    Accounting..................................................          14,507          21,761          36,268
    Other.......................................................          13,936          20,904          34,840
                                                                 -----------------------------------------------
        Total Administrative Expenses...........................         306,558         459,834         766,392
                                                                 -----------------------------------------------
            Total Operating Expenses (Other Costs + Pilot Boats          931,907       1,397,856       2,329,763
             + Admin)...........................................
Proposed Adjustments (Director):
    Housing allowance for Pilots................................         -30,212         -45,318         -75,530
    Housing allowance for Applicants............................         -17,928         -26,892         -44,820
                                                                 -----------------------------------------------
        Total Director's Adjustments............................         -48,140         -72,210        -120,350
                                                                 -----------------------------------------------
            Total Operating Expenses (OpEx + Adjustments).......         883,767       1,325,646       2,209,413
----------------------------------------------------------------------------------------------------------------

B. Step 2: Project Operating Expenses, Adjusting for Inflation or 
Deflation
    Having identified the recognized 2017 operating expenses in Step 1, 
the next step is to estimate the current year's operating expenses by 
adjusting those expenses for inflation over the 3-year period. We 
calculate inflation using the BLS data from the CPI for the Midwest 
Region of the United States for the 2018 inflation rate. \24\ Because 
the BLS does not provide forecasted inflation data, we use economic 
projections from the Federal Reserve for the 2019 and 2020

[[Page 58110]]

inflation modification.\25\ Based on that information, the calculations 
for Step 1 are as follows:
---------------------------------------------------------------------------

    \24\ See footnote 13.
    \25\ See footnote 14.

                             Table 16--Adjusted Operating Expenses for District Two
----------------------------------------------------------------------------------------------------------------
                                                                                   District Two
                              Item                               -----------------------------------------------
                                                                   Undesignated     Designated         Total
----------------------------------------------------------------------------------------------------------------
Total Operating Expenses (Step 1)...............................        $883,767      $1,325,646      $2,209,413
2018 Inflation Modification (@1.9%).............................          16,792          25,187          41,979
2019 Inflation Modification (@1.8%).............................          16,210          24,315          40,525
2020 Inflation Modification (@2%)...............................          18,335          27,503          45,838
Adjusted 2020 Operating Expenses................................         935,104       1,402,651       2,337,755
----------------------------------------------------------------------------------------------------------------

C. Step 3: Estimate Number of Working Pilots
    In accordance with the text in Sec.  404.103, we estimate the 
number of working pilots in each district. We determine the number of 
working pilots based on input from the Lakes Pilots Association. Using 
these numbers, we estimate that there will be 15 working pilots in 2020 
in District Two. Furthermore, based on the seasonal staffing model 
discussed in the 2017 ratemaking (see 82 FR 41466), we assign a certain 
number of pilots to designated waters and a certain number to 
undesignated waters, as shown in Table 17. These numbers are used to 
determine the amount of revenue needed in their respective areas.

                       Table 17--Authorized Pilots
------------------------------------------------------------------------
                          Item                             District  Two
------------------------------------------------------------------------
Maximum number of pilots (per Sec.   401.220(a)) \26\...              15
2020 Authorized pilots (total)..........................              15
Pilots assigned to designated areas.....................               7
Pilots assigned to undesignated areas...................               8
------------------------------------------------------------------------

D. Step 4: Determine Target Pilot Compensation Benchmark
---------------------------------------------------------------------------

    \26\ For a detailed calculation refer to the Great Lakes 
Pilotage Rates--2017 Annual Review final rule, which contains the 
staffing model. See 82 FR 41466, table 6 at 41480 (August 31, 2017).
---------------------------------------------------------------------------

    In this step, we determine the total pilot compensation for each 
area. As we are proposing an ``interim'' ratemaking this year, we 
propose to follow the procedure outlined in paragraph (b) of Sec.  
404.104, which adjusts the existing compensation benchmark by 
inflation. Because we do not have a value for the employment cost index 
for 2020, we multiply the 2019 compensation benchmark of $359,887 by 
the Median PCE Inflation value of 2.0 percent.\27\ Based on the 
projected 2020 inflation estimate, the proposed compensation benchmark 
for 2020 is $367,085 per pilot.
---------------------------------------------------------------------------

    \27\ https://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20190320.pdf.
---------------------------------------------------------------------------

    Next, we certify that the number of pilots estimated for 2020 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 15 pilots for District Two, which is more than or equal to 
the numbers of working pilots provided by the pilot associations.\28\
---------------------------------------------------------------------------

    \28\ See Table 6 of the Great Lakes Pilotage Rates--2017 Annual 
Review 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 District Two, as shown in Table 
18.

                                 Table 18--Target Compensation for District Two
----------------------------------------------------------------------------------------------------------------
                                                                   Undesignated     Designated         Total
----------------------------------------------------------------------------------------------------------------
Target Pilot Compensation.......................................        $367,085        $367,085        $367,085
Number of Pilots................................................               8               7              15
                                                                 -----------------------------------------------
    Total Target Pilot Compensation.............................      $2,936,680      $2,569,595      $5,506,275
----------------------------------------------------------------------------------------------------------------

E. Step 5: Project Working Capital Fund
    Next, we calculate the working capital fund revenues needed for 
each area. First, we add together 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, the number is 3.93 
percent.\29\ By multiplying the two figures, we obtain the working 
capital fund contribution for each area, as shown in Table 19.
---------------------------------------------------------------------------

    \29\ See footnote 17.

[[Page 58111]]



                           Table 19--Working Capital Fund Calculation for District Two
----------------------------------------------------------------------------------------------------------------
                                                                                   District Two
                              Item                               -----------------------------------------------
                                                                   Undesignated     Designated         Total
----------------------------------------------------------------------------------------------------------------
Adjusted Operating Expenses (Step 2)............................        $935,104      $1,402,651      $2,337,755
Total Target Pilot Compensation (Step 4)........................       2,936,680       2,569,595       5,506,275
Total 2018 Expenses.............................................       3,871,784       3,972,246       7,844,030
Working Capital Fund (3.93%)....................................         152,161         156,109         308,270
----------------------------------------------------------------------------------------------------------------

F. Step 6: Project Needed Revenue
    In this step, we add together all of 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). We show these calculations in Table 20.

                                    Table 20--Revenue Needed for District Two
----------------------------------------------------------------------------------------------------------------
                                                                                   District Two
                                                                 -----------------------------------------------
                                                                   Undesignated     Designated         Total
----------------------------------------------------------------------------------------------------------------
Adjusted Operating Expenses (Step 2, See Table 16)..............        $935,104      $1,402,651      $2,337,755
Total Target Pilot Compensation (Step 4, See Table 18)..........       2,936,680       2,569,595       5,506,275
Working Capital Fund (Step 5, See Table 19).....................         152,161         156,109         308,270
                                                                 -----------------------------------------------
    Total Revenue Needed........................................       4,023,945       4,128,355       8,152,300
----------------------------------------------------------------------------------------------------------------

G. Step 7: Calculate Initial Base Rates
    Having determined the needed revenue for each area in the previous 
six steps, to develop an hourly rate, we divide that number by the 
expected number of hours of traffic. Step 7 is a two-part process. In 
the first part, we calculate the 10-year average of traffic in District 
Two, using the total time on task or pilot bridge hours.\30\ Because we 
calculate separate figures for designated and undesignated waters, 
there are two parts for each calculation. We show these values in Table 
21.
---------------------------------------------------------------------------

    \30\ See footnote 18 for more information.

                 Table 21--Time on Task for District Two
                                 [Hours]
------------------------------------------------------------------------
                  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
------------------------------------------------------------------------

    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, which is necessary 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 Table 22.

          Table 22--Initial Rate Calculations for District Two
------------------------------------------------------------------------
                  Item                     Undesignated     Designated
------------------------------------------------------------------------
Needed revenue (Step 6).................      $4,023,945      $4,128,355
Average time on task (hours)............           5,322           5,192
Initial rate............................            $756            $795
------------------------------------------------------------------------


[[Page 58112]]

H. Step 8: Calculate Average Weighting Factors by Area
    In this step, we calculate the average weighting factor for each 
designated and undesignated area. We collect the weighting factors, set 
forth in 46 CFR 401.400, for each vessel trip. Using this database, we 
calculated the average weighting factor for each area using the data 
from each vessel transit from 2014 onward, as shown in Tables 23 and 
24.\31\
---------------------------------------------------------------------------

    \31\ See footnote 19 for more information.

                     Table 23--Average Weighting Factor for District Two, 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          284.20
                                                                 -----------------------------------------------
    Total.......................................................           3,814  ..............           5,023
                                                                 -----------------------------------------------
        Average weighting factor (weighted transits/number of     ..............            1.32  ..............
         transits)..............................................
----------------------------------------------------------------------------------------------------------------


                      Table 24--Average Weighting Factor for District Two, 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             1.3            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  ..............           3,510
                                                                 -----------------------------------------------
        Average weighting factor (weighted transits/number of     ..............            1.32  ..............
         transits)..............................................
----------------------------------------------------------------------------------------------------------------

I. Step 9: Calculate Revised Base Rates
    In this step, we revise the base rates so that once the impact of 
the weighting factors are considered, the total cost of pilotage would 
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 25.

[[Page 58113]]



                                  Table 25--Revised Base Rates for District Two
----------------------------------------------------------------------------------------------------------------
                                                                                                   Revised rate
                                                                                      Average     (initial rate/
                              Area                                 Initial rate      weighting        average
                                                                     (Step 7)      factor (Step      weighting
                                                                                        8)            factor)
----------------------------------------------------------------------------------------------------------------
District Two: Designated........................................            $795            1.32            $602
District Two: Undesignated......................................             756            1.32             573
----------------------------------------------------------------------------------------------------------------

J. Step 10: Review and Finalize Rates.
    In this step, the Director reviews the rates set forth by the 
staffing model and ensures that they meet the goal of ensuring safe, 
efficient, and reliable pilotage. To establish that the proposed rates 
do meet the goal of ensuring safe, efficient and reliable pilotage, the 
Director considers whether the proposed rates incorporate appropriate 
compensation for pilots to handle heavy traffic periods, and whether 
there is a sufficient number of pilots to handle those heavy traffic 
periods. The Director also considers whether the proposed rates would 
cover operating expenses and infrastructure costs, and takes average 
traffic and weighting factors into consideration. Based on this 
information, the Director is not proposing any alterations to the rates 
in this step. We propose to modify the text in Sec.  401.405(a) to 
reflect the final rates shown in Table 26.

                                 Table 26--Proposed Final Rates for District Two
----------------------------------------------------------------------------------------------------------------
                                                                                   Final 2019     Proposed 2020
                     Area                                    Name                pilotage rate    pilotage rate
----------------------------------------------------------------------------------------------------------------
District Two: Undesignated...................  Lake Erie......................             $531             $573
District Two: Designated.....................  Navigable waters from Southeast              603              602
                                                Shoal to Port Huron, MI.
----------------------------------------------------------------------------------------------------------------

District Three

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 2017 expenses and 
revenues.\32\ For accounting purposes, the financial reports divide 
expenses into designated and undesignated areas. In certain instances, 
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 accrued by the pilot associations generally, for 
example, employee benefits, the cost is divided between the designated 
and undesignated areas on a pro rata basis. The recognized operating 
expenses for District Three is laid out in Table 27.
---------------------------------------------------------------------------

    \32\ These reports are available in the docket for this 
rulemaking (see Docket #USCG-2019-0736).
---------------------------------------------------------------------------

    In addition to the surcharge adjustment and lobbying expenses 
described for District One in Section VII A. Step 1: Recognize previous 
operating expenses and the adjustments made by the auditors, as 
explained in the auditors' reports, which are available in the docket 
for this rulemaking where indicated in the ADDRESSES portion of this 
document, the Director is proposing one adjustment to District Three's 
operating expenses. The Director proposes an adjustment to disallow 
$32,800 in ``housing allowance'' expenses. The Coast Guard agrees with 
the IRS that an employer-provided housing allowance is a fringe 
benefit, and we consider it to be employee compensation. In addition, 
we expect those appointed as registered pilots pilot to live in the 
region in which they are employed. We expect that if a pilot chooses to 
live outside their region of employment, they should have to pay for 
their accommodations, and this cost should not be passed on to the 
shippers via the rate. Therefore, we propose not including any housing 
allowance the district chooses to provide their pilots in the 
ratemaking calculation.

                              Table 27--2017 Recognized Expenses for District Three
----------------------------------------------------------------------------------------------------------------
                                                                           District Three
                                                  --------------------------------------------------------------
                                                    Undesignated     Designated    Undesignated \34\
            Reported expenses for 2017              \33\ (Area 6)     (Area 7)          (Area 8)
                                                  ---------------------------------------------------    Total
                                                     Lakes Huron     St. Mary's
                                                    and Michigan        River        Lake Superior
----------------------------------------------------------------------------------------------------------------
Operating Expenses:
    Other Pilotage Costs:
        Subsistence/Travel--Pilot................        $237,036         $93,461            $92,458    $422,955
        CPA Adjustment...........................         -11,178          -4,407             -4,360     -19,945
Subsistence/Travel--Applicant....................          90,123          35,535             35,154     160,812
Payroll Taxes--Pilots............................         124,088          48,927             48,402     221,417

[[Page 58114]]

 
Payroll Taxes--Applicants........................          25,553          10,075              9,967      45,595
License Insurance--Pilots........................          15,631           6,163              6,097      27,891
Training--Pilots.................................          25,830          10,185             10,075      46,090
Training--Applicants.............................          16,325           6,437              6,368      29,130
Housing Allowance................................          18,382           7,248              7,170      32,800
Winter Meeting...................................          14,795           5,834              5,771      26,400
Cell Phone Allowance.............................          26,186          10,325             10,214      46,725
Other Pilotage Costs.............................          49,252          19,420             19,211      87,883
CPA Adjustment...................................          -3,699          -1,446             -1,431      -6,576
rrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrr
            Total Other Pilotage Costs...........         628,324         247,757            245,096   1,121,177
Pilot Boat and Dispatch Costs:
    Pilot boat costs.............................         397,610         156,774            155,092     709,476
    CPA Adjustment...............................         -27,756         -10,944            -10,826     -49,526
    Dispatch costs...............................          99,705          39,313             38,891     177,909
    Payroll taxes................................           9,351           3,687              3,648      16,686
    Dispatch Employee Benefits...................           3,927           1,548              1,532       7,007
rrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrr
        Total Pilot and Dispatch Costs...........         482,837         190,378            188,337     861,552
Administrative Expenses:
    Legal--General Counsel.......................          32,149          12,676             12,540      57,365
    Legal--Shared Counsel (K&L Gates)............          18,730           7,385              7,306      33,421
    CPA Adjustment...............................          -5,595          -2,206             -2,183      -9,984
    Office Rent..................................           4,733           1,866              1,846       8,445
    Insurance....................................           3,715           1,465              1,449       6,629
    Employee benefits............................          76,093          30,003             29,681     135,777
    Workers Compensation.........................           1,513             597                590       2,700
    Payroll Taxes................................           6,408           2,527              2,500      11,435
    Other Taxes..................................           1,034             408                403       1,845
    Admin Travel.................................             676             267                264       1,207
    Depreciation/Auto Leasing/Other..............          50,959          20,093             19,877      90,929
    Interest.....................................           2,262             892                882       4,036
    APA Dues.....................................          20,544           8,100              8,013      36,657
    Utilities....................................           5,335           2,103              2,081       9,519
    Admin Salaries...............................          64,004          25,236             24,966     114,206
    Accounting/Professional Fees.................          34,390          13,560             13,414      61,364
    Other........................................           6,170           2,433              2,407      11,010
rrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrr
        Total Administrative Expenses............         323,120         127,405            126,036     576,561
rrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrr
            Total Operating Expenses (Other Costs       1,434,281         565,540            559,469   2,559,290
             + Pilot Boats + Admin)..............
Proposed Adjustments (Director):
    Housing Allowance............................         -18,382          -7,248             -7,170     -32,800
rrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrr
        Total Director's Adjustments.............         -18,382          -7,248             -7,170     -32,800
rrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrr
            Total Operating Expenses (OpEx +            1,415,899         558,292            552,299   2,526,490
             Adjustments)........................
----------------------------------------------------------------------------------------------------------------

B. Step 2: Project Operating Expenses, Adjusting for Inflation or 
Deflation
    Having identified the recognized 2017 operating expenses in Step 1, 
the next step is to estimate the current year's operating expenses by 
adjusting those expenses for inflation over the 3-year period. We 
calculate inflation using the BLS data from the CPI for the Midwest 
Region of the United States for the 2018 inflation rate.\35\ Because 
the BLS does not provide forecasted inflation data, we use economic 
projections from the Federal Reserve for the 2019 and 2020 inflation 
modification.\36\ Based on that information, the calculations for Step 
1 are as follows:
---------------------------------------------------------------------------

    \33\ The undesignated areas in District Three (areas 6 and 8) 
are treated separately in Table 27. In Table 28 and subsequent 
tables, both undesignated areas are combined and analyzed as a 
single undesignated area.
    \34\ See footnote 31.
    \35\ See footnote 13.
    \36\ See footnote 14.

[[Page 58115]]



                            Table 28--Adjusted Operating Expenses for District Three
----------------------------------------------------------------------------------------------------------------
                                                                                  District Three
                                                                 -----------------------------------------------
                                                                   Undesignated     Designated         Total
----------------------------------------------------------------------------------------------------------------
Total Operating Expenses (Step 1)...............................      $1,968,198        $558,292      $2,526,490
2018 Inflation Modification (@1.9%).............................          37,396          10,608          48,004
2019 Inflation Modification (@1.8%).............................          36,101          10,240          46,341
2020 Inflation Modification (@2%)...............................          40,834          11,583          52,417
Adjusted 2020 Operating Expenses................................       2,082,529         590,723       2,673,252
----------------------------------------------------------------------------------------------------------------

C. Step 3: Estimate Number of Working Pilots
    In accordance with the text in Sec.  404.103, we estimate the 
number of working pilots in each district. We determine the number of 
working pilots based on input from the Western Great Lakes Pilots 
Association. Using these number, we estimate that there will be 20 
working pilots in 2020 in District Three. Furthermore, based on the 
seasonal staffing model discussed in the 2017 ratemaking (see 82 FR 
41466), we assign a certain number of pilots to designated waters and a 
certain number to undesignated waters, as shown in Table 29. These 
numbers are used to determine the amount of revenue needed in their 
respective areas.

                       Table 29--Authorized Pilots
------------------------------------------------------------------------
                                                          District Three
------------------------------------------------------------------------
Maximum number of pilots (per Sec.   401.220(a)) \37\...              22
2020 Authorized pilots (total)..........................              20
Pilots assigned to designated areas.....................               4
Pilots assigned to undesignated areas...................              16
------------------------------------------------------------------------

D. Step 4: Determine Target Pilot Compensation Benchmark
---------------------------------------------------------------------------

    \37\ For a detailed calculation refer to the Great Lakes 
Pilotage Rates--2017 Annual Review final rule, which contains the 
staffing model. See 82 FR 41466, table 6 at 41480 (August 31, 2017).
---------------------------------------------------------------------------

    In this step, we determine the total pilot compensation for each 
area. As we are proposing an ``interim'' ratemaking this year, we 
propose to follow the procedure outlined in paragraph (b) of Sec.  
404.104, which adjusts the existing compensation benchmark by 
inflation. Because we do not have a value for the employment cost index 
for 2020, we multiply the 2019 compensation benchmark of $359,887 by 
the Median PCE Inflation value of 2.0 percent.\38\ Based on the 
projected 2020 inflation estimate, the proposed compensation benchmark 
for 2020 is $367,085 per pilot.
---------------------------------------------------------------------------

    \38\ https://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20190320.pdf.
---------------------------------------------------------------------------

    Next, we certify that the number of pilots estimated for 2020 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 for District Three is 22 pilots,\39\ which is more than or equal 
to the numbers of working pilots provided by the pilot associations.
---------------------------------------------------------------------------

    \39\ See Table 6 of the Great Lakes Pilotage Rates--2017 Annual 
Review 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 District Three, as shown in 
Table 30.

                                Table 30--Target Compensation for District Three
----------------------------------------------------------------------------------------------------------------
                                                                                  District Three
                                                                 -----------------------------------------------
                                                                   Undesignated     Designated         Total
----------------------------------------------------------------------------------------------------------------
Target Pilot Compensation.......................................        $367,085        $367,085        $367,085
Number of Pilots................................................              16               4              20
                                                                 -----------------------------------------------
    Total Target Pilot Compensation.............................      $5,873,360      $1,468,340      $7,341,700
----------------------------------------------------------------------------------------------------------------

E. Step 5: Project Working Capital Fund
    Next, we calculate the working capital fund revenues needed for 
each area. First, we add together 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, the number is 3.93 
percent.\40\ By multiplying the two figures, we obtain the working 
capital fund contribution for each area, as shown in Table 31.
---------------------------------------------------------------------------

    \40\ 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. (June 12, 2019)

[[Page 58116]]



                          Table 31--Working Capital Fund Calculation for District Three
----------------------------------------------------------------------------------------------------------------
                                                                                  District Three
                                                                 -----------------------------------------------
                                                                   Undesignated     Designated         Total
----------------------------------------------------------------------------------------------------------------
Adjusted Operating Expenses (Step 2)............................      $2,082,529        $590,723      $2,673,252
Total Target Pilot Compensation (Step 4)........................       5,873,360       1,468,340       7,341,700
Total 2018 Expenses.............................................       7,955,889       2,059,063      10,014,952
Working Capital Fund (3.93%)....................................         312,666          80,921         393,587
----------------------------------------------------------------------------------------------------------------

F. Step 6: Project Needed Revenue
    In this step, we add together all of 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 is shown in Table 32.

                                   Table 32--Revenue Needed for District Three
----------------------------------------------------------------------------------------------------------------
                                                                                  District Three
                                                                 -----------------------------------------------
                                                                   Undesignated     Designated         Total
----------------------------------------------------------------------------------------------------------------
Adjusted Operating Expenses (Step 2, See Table 28)..............      $2,082,529        $590,723      $2,673,252
Total Target Pilot Compensation (Step 4, See Table 30)..........       5,873,360       1,468,340       7,341,700
Working Capital Fund (Step 5, See Table 31).....................         312,666          80,921         393,587
                                                                 -----------------------------------------------
    Total Revenue Needed........................................       8,268,555       2,139,984      10,408,539
----------------------------------------------------------------------------------------------------------------

G. Step 7: Calculate Initial Base Rates
    Having determined the revenue needed for each area in the previous 
six steps, to develop an hourly rate, we divide that number by the 
expected number of hours of traffic. Step 7 is a two-part process. In 
the first part, we calculate the 10-year average of traffic in District 
Three, using the total time on task or pilot bridge hours.\41\ Because 
we calculate separate figures for designated and undesignated waters, 
there are two parts for each calculation. We show these values in Table 
33.
---------------------------------------------------------------------------

    \41\ See footnote 18 for more information.

                Table 33--Time on Task for District Three
                                 [Hours]
------------------------------------------------------------------------
                                                  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, which is necessary 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 Table 34.

         Table 34--Initial Rate Calculations for District Three
------------------------------------------------------------------------
                                           Undesignated     Designated
------------------------------------------------------------------------
Revenue needed (Step 6).................      $8,268,555      $2,139,984
Average time on task (hours)............          19,476           2,651
Initial rate............................            $425            $807
------------------------------------------------------------------------


[[Page 58117]]

H. Step 8: Calculate Average Weighting Factors by Area
    In this step, we calculate the average weighting factor for each 
designated and undesignated area. We collect the weighting factors, set 
forth in 46 CFR 401.400, for each vessel trip. Using this database, we 
calculate the average weighting factor for each area using the data 
from each vessel transit from 2014 onward, as shown in Tables 35 and 
36.\42\
---------------------------------------------------------------------------

    \42\ See footnote 19 for more information

                    Table 35--Average Weighting Factor for District Three, 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 (2017)..................................................              19             1.3            24.7
Class 3 (2018)..................................................               9             1.3            11.7
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
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             1.3             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  ..............          2623.1
                                                                 -----------------------------------------------
        Combined total..........................................           5,480  ..............        7,130.15
                                                                 -----------------------------------------------
            Average weighting factor (weighted transits/number    ..............            1.30  ..............
             of transits).......................................
----------------------------------------------------------------------------------------------------------------


                     Table 36--Average Weighting Factor for District Three, Designated Areas
----------------------------------------------------------------------------------------------------------------
                                                                     Number of       Weighting       Weighted
                      Vessel class per 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

[[Page 58118]]

 
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
                                                                 -----------------------------------------------
        Average weighting factor (weighted transits per number    ..............            1.30  ..............
         of transits)...........................................
----------------------------------------------------------------------------------------------------------------

I. Step 9: Calculate Revised Base Rates
    In this step, we revise the base rates so that once the impact of 
the weighting factors are considered, the total cost of pilotage would 
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 37.

                                 Table 37--Revised Base Rates for District Three
----------------------------------------------------------------------------------------------------------------
                                                                                                   Revised rate
                                                                                      Average     (initial rate/
                              Area                                 Initial rate      weighting        average
                                                                     (Step 7)      factor (Step      weighting
                                                                                        8)            factor)
----------------------------------------------------------------------------------------------------------------
District Three: Designated......................................            $807            1.30            $621
District Three: Undesignated....................................             425            1.30             327
----------------------------------------------------------------------------------------------------------------

J. Step 10: Review and Finalize Rates
    In this step, the Director reviews the rates set forth by the 
staffing model and ensures that they meet the goal of ensuring safe, 
efficient, and reliable pilotage. To establish that the proposed rates 
do meet the goal of ensuring safe, efficient and reliable pilotage, the 
Director considers whether the proposed rates incorporate appropriate 
compensation for pilots to handle heavy traffic periods and whether 
there is a sufficient number of pilots to handle those heavy traffic 
periods. The Director also considers whether the proposed rates would 
cover operating expenses and infrastructure costs, and takes average 
traffic and weighting factors into consideration. Based on this 
information, the Director is not proposing any alterations to the rates 
in this step. We propose to modify the text in Sec.  401.405(a) to 
reflect the final rates shown in Table 38.

                                Table 38--Proposed Final Rates for District Three
----------------------------------------------------------------------------------------------------------------
                                                                                   Final 2019     Proposed 2020
                     Area                                    Name                pilotage rate    pilotage rate
----------------------------------------------------------------------------------------------------------------
District Three: Designated...................  St. Mary's River...............             $594             $621
District Three: Undesignated.................  Lakes Huron, Michigan, and                   306              327
                                                Superior.
----------------------------------------------------------------------------------------------------------------

K. Surcharges
    The Coast Guard is not proposing any surcharges in this ratemaking. 
As stated earlier, we previously used surcharges to pay for the 
training of new pilots, rather than incorporating training costs into 
the overall ``needed revenue'' that is used in the calculation of the 
base rate, because the surcharge accelerates the reimbursement of 
certain necessary and reasonable expense. For the 2019 ratemaking, this 
reimbursement needed to be accelerated because of the large number of 
registered pilots retiring, and the large number of new pilots being 
trained to replace them. As the vast majority of registered pilots are 
not anticipated to retire in the next 20 years, we believe that pilot 
associations are now able to plan for the costs associated with 
retirements without relying on the Coast Guard to impose surcharges.

VIII. Regulatory Analyses

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

[[Page 58119]]

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 costs and 
benefits, reducing costs, harmonizing rules, and promoting flexibility. 
Executive Order 13771 (Reducing Regulation and Controlling Regulatory 
Costs) directs agencies to reduce regulation and control regulatory 
costs and provides that ``for every one new regulation issued, at least 
two prior regulations be identified for elimination, and that the cost 
of planned regulations be prudently managed and controlled through a 
budgeting process.''
    The Office of Management and Budget (OMB) has not designated this 
proposed rule a significant regulatory action under section 3(f) of 
Executive Order 12866. Accordingly, OMB has not reviewed it. Because 
this proposed rule is not a significant regulatory action, it is exempt 
from the requirements of Executive Order 13771. See the OMB Memorandum 
titled ``Guidance Implementing Executive Order 13771, titled `Reducing 
Regulation and Controlling Regulatory Costs' '' (April 5, 2017). A 
regulatory analysis (RA) follows.
    The purpose of this proposed rule is to establish new base pilotage 
rates. 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.\43\ Table 39 summarizes proposed changes 
with no cost impacts or where the cost impacts are captured in the 
proposed rate change. Table 40 summarizes the affected population, 
costs, and benefits of the proposed rate change. The Coast Guard 
estimates a decrease in cost of approximately $0.23 million to industry 
as a result of the change in revenue needed in 2020 compared to the 
revenue needed in 2019.
---------------------------------------------------------------------------

    \43\ Great Lakes Pilotage Rates--2018 Annual Review and 
Revisions to Methodology (83 FR 26162), published June 5, 2018.

              Table 39--Proposed Changes With No Costs or Cost Captured in the Proposed Rate Change
----------------------------------------------------------------------------------------------------------------
                                                           Affected
             Change                   Description         population       Basis for no cost       Benefits
----------------------------------------------------------------------------------------------------------------
Working capital fund              The Coast Guard is  The 3 pilotage      All three           Provides increased
 requirements.                     proposing to add    associations.       districts opened    transparency and
                                   regulatory text                         accounts for the    oversight of how
                                   to Sec.   403.110                       working capital     the money in the
                                   requiring the                           fund in response    working capital
                                   pilotage                                to a policy         fund is spent and
                                   associations keep                       letter sent by      how much each
                                   money allocated                         the Coast Guard     association has
                                   to the working                          in November,        allocated for
                                   capital fund in a                       2018; therefore,    infrastructure
                                   separate account                        there is no         expenses.
                                   and limit the use                       additional cost
                                   of the funds to                         as a result of
                                   infrastructure                          this rulemaking.
                                   expenses.                               In addition,
                                                                           based on
                                                                           discussion with
                                                                           the associations,
                                                                           we believe the
                                                                           cost to open
                                                                           these accounts
                                                                           was negligible,
                                                                           as each
                                                                           association was
                                                                           able to open a
                                                                           bank account
                                                                           online with their
                                                                           existing
                                                                           financial
                                                                           institutions with
                                                                           minimal effort.
                                                                          We estimate that
                                                                           any recordkeeping
                                                                           or reporting
                                                                           requirements
                                                                           associated with
                                                                           the working
                                                                           capital fund
                                                                           would also be
                                                                           minimal. The
                                                                           associations must
                                                                           already report
                                                                           and keep records
                                                                           on their
                                                                           infrastructure
                                                                           expense as part
                                                                           of their
                                                                           reporting
                                                                           requirements
                                                                           under Sec.
                                                                           403.105. We
                                                                           believe any
                                                                           recordkeeping
                                                                           associated with
                                                                           the new bank
                                                                           accounts may be
                                                                           conducted
                                                                           simultaneously
                                                                           with the
                                                                           recordkeeping for
                                                                           the existing
                                                                           accounts, as all
                                                                           accounts are with
                                                                           the same
                                                                           financial
                                                                           institution.
Address inconsistent terms......  The Coast Guard is  The 3 pilotage      The Coast Guard     Creates
                                   proposing to        associations.       previously          consistency
                                   replace the text                        renamed ``return    across the CFR
                                   in Sec.                                 on investment''     and reduces
                                   404.106, ``return                       as the ``working    confusion.
                                   on investment''                         capital fund'' in
                                   with ``working                          the Great Lakes
                                   capital fund''.                         Pilotage Rates
                                                                           2017 Annual
                                                                           Review final rule
                                                                           (82 FR 41466);
                                                                           however, this
                                                                           text was not
                                                                           modified in that
                                                                           rulemaking.
Target pilot compensation.......  The Coast Guard is  Owners and          Pilot compensation  This compensation
                                   proposing to        operators of 266    costs are           target achieves
                                   change the base     vessels             accounted for in    the Coast Guard's
                                   pilot               journeying the      the base pilotage   goals of safety
                                   compensation        Great Lakes         rates.              through rate and
                                   benchmark in Sec.   system annually,                        compensation
                                     401.405(a) to     52 U.S. Great                           stability, while
                                   the 2019            Lakes pilots, and                       promoting
                                   compensation        3 pilotage                              recruitment and
                                   benchmark after     associations.                           retention of
                                   adjusting for                                               qualified U.S.
                                   inflation.                                                  registered
                                                                                               pilots.
----------------------------------------------------------------------------------------------------------------


[[Page 58120]]


                               Table 40--Economic Impacts Due to Proposed Changes
----------------------------------------------------------------------------------------------------------------
                                                           Affected
             Change                   Description         population             Costs             Benefits
----------------------------------------------------------------------------------------------------------------
Rate and surcharge changes......  Under the Great     Owners and          Decrease of         New rates cover an
                                   Lakes Pilotage      operators of 266    $225,658 due to     association's
                                   Act of 1960, the    vessels             change in revenue   necessary and
                                   Coast Guard is      transiting the      needed for 2020     reasonable
                                   required to         Great Lakes         ($27,762,527)       operating
                                   review and adjust   system annually,    from revenue        expenses.
                                   base pilotage       52 U.S. Great       needed for 2019    Promotes safe,
                                   rates annually.     Lakes pilots, and   ($27,988,185) as    efficient, and
                                                       3 pilotage          shown in Table 41   reliable pilotage
                                                       associations.       below.              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.
----------------------------------------------------------------------------------------------------------------

    The Coast Guard is required to review and adjust pilotage rates on 
the Great Lakes annually. See Sections IV and V of this preamble for 
detailed discussions of the legal basis and purpose for this rulemaking 
and for background information on Great Lakes pilotage ratemaking. 
Based on our annual review for this rulemaking, we are proposing to 
adjust the pilotage rates for the 2020 shipping season to generate 
sufficient revenues for each district to reimburse its necessary and 
reasonable operating expenses, fairly compensate trained and rested 
pilots, and provide an appropriate working capital fund to use for 
improvements. The rate changes in this proposed rule would increase the 
rates for four areas (District One: Designated, District Two: 
Undesignated, and all of District Three), and decrease the rates for 
the remaining two areas (District One: Undesignated, and District Two: 
Designated). In addition, the proposed rule would not implement a 
surcharge. These changes lead to a net decrease in the cost of service 
to shippers. However, because the proposed rates would increase for 
some areas and decrease for others, the change in per unit cost to each 
individual shipper would be dependent on their area of operation, and 
if they previously paid a surcharge.
    A detailed discussion of our economic impact analysis follows.
Affected Population
    This rule would impact U.S. Great Lakes pilots, the three pilot 
associations, and the owners and operators of oceangoing vessels that 
transit the Great Lakes annually. We estimate that there would be 52 
pilots working during the 2020 shipping season. The shippers affected 
by these rate changes are those owners and operators of domestic 
vessels operating ``on register'' (engaged 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 2016 
through 2018 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. As described in Step 7 of the methodology, we use a 
10-year average to estimate the traffic. We used 3 years of the most 
recent billing data to estimate the affected population. When we 
reviewed 10 years of the most recent billing data, we found the data 
included vessels that have not used pilotage services in recent years. 
We believe using 3 years of billing data is a better representation of 
the vessel population that is currently using pilotage services and 
would be impacted by this rulemaking. We found that 457 unique vessels 
used pilotage services during the years 2016 through 2018. That is, 
these vessels had a pilot dispatched to the vessel, and billing 
information was recorded in the GLPMS. Of these vessels, 420 were 
foreign-flagged vessels and 37 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 using the total number of vessels over the 
time period, we took an average of the unique vessels using pilotage 
services from the years 2016 through 2018 as the best representation of 
vessels estimated to be affected by the rates in this rulemaking. From 
2016 through 2018, an average of 266 vessels used pilotage services 
annually.\44\ On average, 248 of these vessels were foreign-flagged 
vessels and 18 were U.S.-flagged vessels that voluntarily opted into 
the pilotage service.
---------------------------------------------------------------------------

    \44\ 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 proposed rate changes resulting from this adjustment to the 
rates would result in a net decrease in the cost of service to 
shippers. However, because the rates would increase for some areas and 
decrease for others, the proposed change in per unit cost to each 
individual shipper would be dependent on their area of operation, and 
if they previously paid a surcharge.
    The Coast Guard estimates the effect of the rate changes on 
shippers by comparing the total projected revenues needed to cover 
costs in 2019 with the total projected revenues to cover costs in 2020, 
including any temporary surcharges we have authorized.\45\ 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

[[Page 58121]]

services. The change in revenue from the previous year is the 
additional cost to shippers discussed in this rule.
---------------------------------------------------------------------------

    \45\ While the Coast Guard implemented a surcharge in 2019, we 
are not proposing any surcharges for 2020.
---------------------------------------------------------------------------

    The impacts of the rate changes on shippers are estimated from the 
district pilotage projected revenues (shown in Tables 8, 20, and 32 of 
this preamble). The Coast Guard estimates that for the 2020 shipping 
season, the projected revenue needed for all three districts is 
$27,762,527.
    To estimate the change in cost to shippers from this rule, the 
Coast Guard compared the 2020 total projected revenues to the 2019 
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 2019 
rulemaking, we estimated the total projected revenue needed for 2019, 
including surcharges, as $27,988,185.\46\ This is the best 
approximation of 2019 revenues as, at the time of this publication, we 
do not have enough audited data available for the 2019 shipping season 
to revise these projections. Table 41 shows the revenue projections for 
2019 and 2020 and details the additional cost increases to shippers by 
area and district as a result of the rate changes on traffic in 
Districts One, Two, and Three.
---------------------------------------------------------------------------

    \46\ 84 FR 20551, see table 36.

                                                    Table 41--Effect of the Rule by Area and District
                                                                 [$U.S.; Non-discounted]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                            Total 2019                                      Total 2020       Change in
                  Area                    Revenue needed  2019 Temporary     projected    Revenue needed  2020 Temporary     projected     costs of this
                                              in 2019        surcharge        revenue         in 2020        surcharge        revenue      proposed rule
--------------------------------------------------------------------------------------------------------------------------------------------------------
Total, district one.....................      $9,271,852        $300,000      $9,571,852      $9,201,688              $0      $9,201,688       -$370,164
Total, district two.....................       7,864,224         150,000       8,014,224       8,152,300               0       8,152,300         138,076
Total, district three...................       9,802,109         600,000      10,402,109      10,408,539               0      10,408,539           6,430
rrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrr
    System total........................      26,938,185       1,050,000      27,988,185      27,762,527               0      27,762,527       -$225,658
--------------------------------------------------------------------------------------------------------------------------------------------------------

    The resulting difference between the projected revenue in 2019 and 
the projected revenue in 2020 is the annual change in payments from 
shippers to pilots as a result of the rate change imposed by this 
proposed rule. The effect of the rate change to shippers varies by area 
and district. The rate changes, after taking into account the change in 
pilotage rates, would lead to affected shippers operating in District 
One experiencing a decrease in payments of $370,164, over the previous 
year. District Two and District Three would experience an increase in 
payments of $138,076 and, $6,430 respectively, when compared with 2019. 
The overall adjustment in payments would be a decrease in payments by 
shippers of $225,658 across all three districts (a 1-percent decrease 
when compared with 2019). 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 42 shows the difference in revenue by revenue-component from 
2019 to 2020, and presents each revenue-component as a percentage of 
the total revenue needed. In both 2019 and 2020, the largest revenue-
component was pilotage compensation (66% of total revenue needed in 
2019 and 69% of total revenue needed in 2020), followed by operating 
expenses (27% of total revenue needed in 2019 and 2020).

                                                      Table 42--Difference in Revenue by Component
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                            Difference
                                                          Revenue needed   Percentage of  Revenue needed   Percentage of  (2020 revenue-    Percentage
                    Revenue-component                         in 2019      total revenue      in 2020      total revenue   2019 revenue)    change from
                                                                          needed in 2019                  needed in 2020                   previous year
--------------------------------------------------------------------------------------------------------------------------------------------------------
Adjusted Operating Expenses.............................      $7,565,310              27      $7,624,298              27         $58,988               1
Total Target Pilot Compensation.........................      18,354,237              66      19,088,420              69         734,183               4
Working Capital Fund....................................       1,018,638               4       1,049,809               4          31,171               3
Total Revenue Needed, without Surcharge.................      26,938,185              96      27,762,527             100         824,342               3
Surcharge...............................................       1,050,000               4               0               0      -1,050,000            -100
Total Revenue Needed, with Surcharge....................      27,988,185             100      27,762,527             100        -225,658              -1
--------------------------------------------------------------------------------------------------------------------------------------------------------
Note: Totals may not sum due to rounding.

    Table 43 presents the percentage change in revenue by area and 
revenue-component, excluding surcharges as they are applied at the 
district level.\47\ The majority of the decrease in revenue is due to 
the removal of surcharges to cover the cost of applicant pilot training 
expenses and decreased operating expenses. The change in revenue also 
accounts for the inflation of pilotage compensation and the net 
addition of one additional pilot. The target compensation for these 
pilots is $367,085 per pilot. The addition of this pilot to full 
working status accounts for $367,085 of the increase ($734,183 is the 
difference between the revenues needed in 2019 to the revenues needed 
in 2020, which takes into account the effect of increasing compensation 
for the other 51 pilots). The remaining amount is attributed to 
increases in the working capital fund.
---------------------------------------------------------------------------

    \47\ The 2019 projected revenues are from the Great Lakes 
Pilotage Rates--2019 Annual Review and Revisions to Methodology 
final rule (84 FR 20551) Tables 15-17. The 2020 projected revenues 
are from tables 8, 20, and 32 of this proposed rule.

[[Page 58122]]



                                                                      Table 43--Difference in Revenue by Component and Area
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                  Adjusted operating expenses        Total target pilot compensation            Working capital fund                 Total revenue needed
                                             ---------------------------------------------------------------------------------------------------------------------------------------------------
                    Area                                               Percentage                           Percentage                           Percentage                           Percentage
                                                 2019        2020        change       2019        2020        change       2019        2020        change       2019        2020        change
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
District One: Designated....................  $1,467,171  $1,567,975            6  $3,598,870  $3,670,850            2    $199,095    $205,886            3  $5,265,136  $5,444,711            3
District One: Undesignated..................   1,335,997   1,045,316          -28   2,519,209   2,569,595            2     151,510     142,066           -7   4,006,716   3,756,977           -7
District Two: Undesignated..................   1,072,441     935,104          -15   2,519,209   2,936,680           14     141,152     152,161            7   3,732,802   4,023,945            7
District Two: Designated....................   1,455,988   1,402,651           -4   2,519,209   2,569,595            2     156,225     156,109            0   4,131,422   4,128,355            0
District Three: Undesignated................   1,703,896   2,082,529           18   5,758,192   5,873,360            2     293,260     312,666            6   7,755,348   8,268,555            6
District Three: Designated..................     529,817     590,723           10   1,439,548   1,468,340            2      77,396      80,921            4   2,046,761   2,139,984            4
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Benefits
    This proposed rule would allow the Coast Guard to meet the 
requirements in 46 U.S.C. 9303 to review the rates for pilotage 
services on the Great Lakes. The rate changes would promote safe, 
efficient, and reliable pilotage service on the Great Lakes by: (1) 
Ensuring that rates cover an association's operating expenses; (2) 
providing fair pilot compensation, adequate training, and sufficient 
rest periods for pilots; and (3) ensuring pilot associations produce 
enough revenue to fund future improvements. The rate changes would also 
help recruit and retain pilots, which would ensure a sufficient number 
of pilots to meet peak shipping demand, helping to reduce delays caused 
by pilot shortages.

B. Small Entities

    Under the Regulatory Flexibility Act, 5 U.S.C. 601-612, we have 
considered whether this proposed rule would have a significant economic 
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 \48\ and ReferenceUSA.\49\ As described in Section VIII.A 
of this preamble, Regulatory Planning and Review, we found that a total 
of 457 unique vessels used pilotage services from 2016 through 2018. 
These vessels are owned by 55 entities. We found that of the 55 
entities that own or operate vessels engaged in trade on the Great 
Lakes that would be affected by this rule, 43 are foreign entities that 
operate primarily outside the United States. The remaining 12 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 Size Standards'' 
for small businesses to determine how many of these companies are small 
entities.\50\ Table 44 shows the North American Industry Classification 
System (NAICS) codes of the U.S. entities and the small entity standard 
size established by the SBA.
---------------------------------------------------------------------------

    \48\ See https://www.manta.com/.
    \49\ See http://resource.referenceusa.com/.
    \50\ See: https://www.sba.gov/document/support-table-size-standards. SBA has established a ``Table of Size Standards'' for 
small businesses that sets small business size 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 in order to remain classified as a small business 
for SBA and Federal contracting programs.

                             Table 44--NAICS Codes and Small Entities Size Standards
----------------------------------------------------------------------------------------------------------------
             NAICS                         Description                      Small entity size standard
----------------------------------------------------------------------------------------------------------------
211120.........................  Crude Petroleum Extraction.....  1,250 employees.
238910.........................  Site Preparation Contractors...  $15.0 million.
488330.........................  Navigational Services to         $38.5 million.
                                  Shipping.
523910.........................  Miscellaneous Intermediation...  $38.5 million.
532411.........................  Commercial Air, Rail, and Water  $32.5 million.
                                  Transportation Equipment
                                  Rental and Leasing.
551111.........................  Offices of Bank Holding          $20.5 million.
                                  Companies.
561510.........................  Travel Agencies................  $20.5 million.
928110.........................  National Security..............  Population of 50,000 people.
----------------------------------------------------------------------------------------------------------------

    Of the 12 U.S. entities, 10 exceed the SBA's small business 
standards for small entities. To estimate the potential impact on the 2 
small entities, the Coast Guard used their 2018 invoice data to 
estimate their pilotage costs in 2020. We increased their 2018 costs to 
account for the changes in pilotage rates resulting from this rule and 
the Great Lakes Pilotage Rates--2019 Annual Review and Revisions to 
Methodology final rule (84 FR 20551). We estimated the change in cost 
to these entities resulting from this rule by subtracting their 
estimated 2019 costs from their estimated 2020 costs. We then compared 
the estimated change in pilotage costs between 2019 and 2020 with each 
firm's annual revenue and compared their total estimated 2020 pilotage 
costs to their annual revenue. In both cases, their estimated pilotage 
expenses were below 1 percent of their annual revenue. Table 44 
presents the calculation of these cost estimates for both entities.

[[Page 58123]]



                                               Table 44--Estimated 2020 Pilotage Costs for Small Entities
                                                                 [Thousands of dollars]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                            Estimated change
                                                              in  pilotage                        Estimated change                      Estimated change
                 Entity                     2018 pilotage    costs  between     Estimated 2019      in  pilotage      Estimated 2020      in  pilotage
                                              expenses        2018 and 2019    pilotage expenses    cost  between    pilotage expenses    expenses from
                                                                  \51\                              2018 and 2019                         2019 to 2020
                                                       (a)               (b)    (c) = (a) x (1 +               (d)    (e) = (c) x (1 +   (f) = (e) - (c)
                                                                                            (b))                                  (d))
--------------------------------------------------------------------------------------------------------------------------------------------------------
Small Entity A..........................             $4.75                11                5.27                -1                5.22            -$0.05
Small Entity B..........................            148.39                11              164.71                -1              163.06             -1.65
--------------------------------------------------------------------------------------------------------------------------------------------------------

    In addition to the owners and operators discussed above, three U.S. 
entities that receive revenue from pilotage services would be affected 
by this proposed rule. 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 code 
and small-entity size standards described above, but have fewer than 
500 employees. Combined, they have approximately 65 employees in total 
and, therefore, are designated as small entities. The Coast Guard 
expects no adverse effect on these entities from this rule because the 
three pilot associations would receive enough revenue to balance the 
projected expenses associated with the projected number of bridge hours 
(time on task) and pilots.
---------------------------------------------------------------------------

    \51\ 84 FR 20551, see table 37.
---------------------------------------------------------------------------

    Finally, 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 would be impacted by this rule. We did 
not find any small governmental jurisdictions with populations of fewer 
than 50,000 people that would be impacted by this rule. Based on this 
analysis, we conclude this rulemaking would not affect a substantial 
number of small entities, nor have a significant economic impact on any 
of the affected entities.
    Based on our analysis, this proposed rule would have a less than 1 
percent annual impact on 2 small entities; therefore, the Coast Guard 
certifies under 5 U.S.C. 605(b) that this proposed rule would not have 
a significant economic impact on a substantial number of small 
entities. If you think that your business, organization, or 
governmental jurisdiction qualifies as a small entity and that this 
proposed rule would have a significant economic impact on it, please 
submit a comment to the docket at the address listed in the ADDRESSES 
section of this preamble. In your comment, explain why you think it 
qualifies and how and to what degree this proposed rule would 
economically affect it.

C. Assistance for Small Entities

    Under section 213(a) of the Small Business Regulatory Enforcement 
Fairness Act of 1996, Public Law 104-121, we want to assist small 
entities in understanding this proposed rule so that they can better 
evaluate its effects on them and participate in the rulemaking. If the 
proposed rule would affect your small business, organization, or 
governmental jurisdiction and you have questions concerning its 
provisions or options for compliance, please contact the person in the 
FOR FURTHER INFORMATION section of this proposed rule. The Coast Guard 
will not retaliate against small entities that question or complain 
about this proposed rule or any policy or action of the Coast Guard.
    Small businesses may send comments on the actions of Federal 
employees who enforce, or otherwise determine compliance with, Federal 
regulations to the Small Business and Agriculture Regulatory 
Enforcement Ombudsman and the Regional Small Business Regulatory 
Fairness Boards. The Ombudsman evaluates these actions annually and 
rates each agency's responsiveness to small business. If you wish to 
comment on actions by employees of the Coast Guard, call 1-888-REG-FAIR 
(1-888-734-3247).

D. Collection of Information

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

E. Federalism

    A rule has implications for federalism under Executive Order 13132 
(Federalism) if it has a substantial direct effect on the States, on 
the relationship between the national government and the States, or on 
the distribution of power and responsibilities among the various levels 
of government. We have analyzed this proposed rule under Executive 
Order 13132 and have determined that it is consistent with the 
fundamental federalism principles and preemption requirements as 
described in Executive Order 13132. Our analysis follows.
    Congress directed the Coast Guard to establish ``rates and charges 
for pilotage services.'' See 46 U.S.C. 9303(f). This regulation is 
issued pursuant to that statute and is preemptive of State law as 
specified in 46 U.S.C. 9306. Under 46 U.S.C. 9306, a ``State or 
political subdivision of a State may not regulate or impose any 
requirement on pilotage on the Great Lakes.'' As a result, States or 
local governments are expressly prohibited from regulating within this 
category. Therefore, this proposed rule is consistent with the 
fundamental federalism principles and preemption requirements described 
in Executive Order 13132.
    While it is well settled that States may not regulate in categories 
in which Congress intended the Coast Guard to be the sole source of a 
vessel's obligations, the Coast Guard recognizes the key role that 
State and local governments may have in making regulatory 
determinations. Additionally, for rules with implications and 
preemptive effect, Executive Order 13132 specifically directs agencies 
to consult with State and local governments during the rulemaking 
process. If you believe this rule has implications for federalism under 
Executive Order 13132, please contact the person listed in the FOR 
FURTHER INFORMATION section of this preamble.

F. Unfunded Mandates

    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 million (adjusted for 
inflation) or more in any one year. Although this proposed rule would 
not result in such

[[Page 58124]]

an expenditure, we do discuss the effects of this proposed rule 
elsewhere in this preamble.

G. Taking of Private Property

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

H. Civil Justice Reform

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

I. Protection of Children

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

J. Indian Tribal Governments

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

K. Energy Effects

    We have analyzed this proposed rule under Executive Order 13211 
(Actions Concerning Regulations That Significantly Affect Energy 
Supply, Distribution, or Use). We have determined that it is not a 
``significant energy action'' under that order because it is not a 
``significant regulatory action'' under Executive Order 12866 and is 
not likely to have a significant adverse effect on the supply, 
distribution, or use of energy.

L. Technical Standards

    The National Technology Transfer and Advancement Act, codified as a 
note to 15 U.S.C. 272, directs agencies to use voluntary consensus 
standards in their regulatory activities unless the agency provides 
Congress, through OMB, with an explanation of why using these standards 
would be inconsistent with applicable law or otherwise impractical. 
Voluntary consensus standards are technical standards (e.g., 
specifications of materials, performance, design, or operation; test 
methods; sampling procedures; and related management systems practices) 
that are developed or adopted by voluntary consensus standards bodies.
    This proposed rule does not use technical standards. Therefore, we 
did not consider the use of voluntary consensus standards. If you 
disagree with our analysis or are aware of voluntary consensus 
standards that might apply, please send a comment explaining your 
disagreement or identifying appropriate standards to the docket using 
the method listed in the ADDRESSES section of this preamble.

M. Environment

    We have analyzed this proposed rule under Department of Homeland 
Security Management Directive 023-01-001-01, Revision 1 (DHS Directive 
023-01), Commandant Instruction 5090.1 (COMDTINST 5090.1), and U.S. 
Coast Guard Environmental Planning Policy (April 2019), which guide the 
Coast Guard in complying with the National Environmental Policy Act of 
1969 (42 U.S.C. 4321-4370f), and have made a preliminary determination 
that this action is one of a category of actions that do not 
individually or cumulatively have a significant effect on the human 
environment. A preliminary Record of Environmental Consideration 
supporting this determination is available in the docket where 
indicated under the ADDRESSES portion of this preamble. This proposed 
rule appears to meet the criteria for categorical exclusion (CATEX) 
under paragraphs A3 and L54 in Table 3-1 of U.S. Coast Guard 
Environmental Planning Implementing Procedures, which is available in 
the docket at www.regulations.gov. Paragraph A3 pertains to the 
promulgation of rules, issuance of rulings or interpretations, and the 
development and publication of policies, orders, directives, notices, 
procedures, manuals, advisory circulars, and other guidance documents 
of the following nature: (a) Those of a strictly administrative or 
procedural nature; (b) Those that implement, without substantive 
change, statutory or regulatory requirements; or (c) those that 
implement, without substantive change, procedures, manuals, and other 
guidance documents; and (d) Those that interpret or amend an existing 
regulation without changing its environmental effect. Paragraph L54 
pertains to regulations which are editorial or procedural.
    This proposed rule involves: (1) Clarifying the rules related to 
the working capital fund, (2) adjusting the base pilotage rates, and 
(3) eliminating surcharges for administering the 2020 shipping season 
in accordance with applicable statutory and regulatory mandates 
pursuant to the Great Lakes Pilotage Act of 1960. We seek any comments 
or information that may lead to the discovery of a significant 
environmental impact from this proposed rule.

List of Subjects

46 CFR Part 401

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

46 CFR Part 403

    Great Lakes, Navigation (water), Reporting and recordkeeping 
requirements, Seamen, Uniform System of Accounts.

46 CFR Part 404

    Great Lakes, Navigation (water), Seamen.

    For the reasons discussed in the preamble, the Coast Guard proposes 
to amend 46 CFR parts 401, 403, and 404 as follows:

PART 401--GREAT LAKES PILOTAGE REGULATIONS

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

    Authority: 46 U.S.C. 2103, 2104(a), 6101, 7701, 8105, 9303, 
9304; Department of Homeland Security Delegation No. 
0170.1(II)(92.a), (92.d), (92.e), (92.f).

0
 2. Revise Sec.  401.405(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 $757;
    (2) Lake Ontario is $462;
    (3) Lake Erie is $573;
    (4) The navigable waters from Southeast Shoal to Port Huron, MI is 
$602;
    (5) Lakes Huron, Michigan, and Superior is $302; and
    (6) The St. Mary's River is $621.
* * * * *

PART 403--GREAT LAKES PILOTAGE UNIFORM ACCOUNTING SYSTEM

0
3. The authority citation for part 403 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).


[[Page 58125]]


0
4. Amend Sec.  403.110 by:
0
(a) Designating the text as paragraph (a); and
0
(b) Adding paragraph (b).
    The addition to read as follows:


Sec.  403.110   Accounting entities

    (a) * * *
    (b) Each Association will maintain a separate account called the 
``Working Capital Fund.'' Each Association will deposit into the 
working capital fund an amount each year at least equal to the amount 
calculated in Step 5, 46 CFR 404.105. Working capital funds may only be 
used for infrastructure improvements and infrastructure maintenance 
necessary to provide safe, efficient, and reliable pilot service such 
as pilot boat replacements, major repairs to pilot boats, non-recurring 
technology purchases necessary for providing pilot services, or for the 
acquisition of real property for use as a dispatch center, office 
space, or pilot lodging. The Director may grant exceptions to the 
requirements of this paragraph (403.110(b)) upon request by an 
Association.

PART 404--GREAT LAKES PILOTAGE RATEMAKING

0
5. 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.  404.106  [Amended]

0
6. In Sec.  404.106, remove the words ``return on investment'' and add 
in their place ``working capital fund''.

    Dated: October 23, 2019.
R.V. Timme,
Rear Admiral, U.S. Coast Guard, Assistant Commandant for Prevention 
Policy.
[FR Doc. 2019-23510 Filed 10-29-19; 8:45 am]
 BILLING CODE 9110-04-P