Great Lakes Pilotage Rates-2022 Annual Review and Revisions to Methodology, 51047-51081 [2021-19570]

Agencies

• Coast Guard
• DEPARTMENT OF HOMELAND SECURITY

[Federal Register Volume 86, Number 175 (Tuesday, September 14, 2021)]
[Proposed Rules]
[Pages 51047-51081]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-19570]


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DEPARTMENT OF HOMELAND SECURITY

Coast Guard

46 CFR Parts 401 and 404

[USCG-2021-0431]
RIN 1625-AC70


Great Lakes Pilotage Rates--2022 Annual Review and Revisions to 
Methodology

AGENCY: Coast Guard, DHS.

ACTION: Notice of proposed rulemaking; request for comments.

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SUMMARY: In accordance with the statutory provisions enacted by the 
Great Lakes Pilotage Act of 1960, the Coast Guard is proposing new base 
pilotage rates for the 2022 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. In addition, this proposed rule would make a policy change 
to always round up in the staffing model. The Coast Guard is also 
proposing methodology changes to factor in an apprentice pilot's 
compensation benchmark for the estimated number of apprentice pilots 
with a limited registration. The Coast Guard estimates that this 
proposed rule would result in a 12-percent increase in pilotage 
operating costs compared to the 2021 season.

DATES: Comments and related material must be received by the Coast 
Guard on or before October 14, 2021.

ADDRESSES: You may submit comments identified by docket number USCG-
2021-0431 using the Federal Decision Making 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
    A. Proposed Changes to the Staffing Model

[[Page 51048]]

    B. Apprentice Pilots' Wage Benchmark for Conducting Pilotage 
While Using a Limited Registration
    C. Apprentice Pilots' Expenses and Benefits as Approved 
Operating Expenses
VII. Discussion of Proposed Rate Adjustments

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 Registered Pilots and Apprentice 
Pilots
    D. Step 4: Determine Target Pilot Compensation Benchmark and 
Apprentice Pilot Wage 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 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 Registered Pilots and Apprentice 
Pilots
    D. Step 4: Determine Target Pilot Compensation Benchmark and 
Apprentice Pilot Wage 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 Registered Pilots and Apprentice 
Pilots
    D. Step 4: Determine Target Pilot Compensation Benchmark and 
Apprentice Pilot Wage 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
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.
    Submitting comments. We encourage you to submit comments through 
the Federal Decision Making Portal at https://www.regulations.gov. To 
do so, go to https://www.regulations.gov, type USCG-2021-0431 in the 
search box and click ``Search.'' Next, look for this document in the 
Search Results column, and click on it. Then click on the Comment 
option. 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.
    Viewing material in docket. To view documents mentioned in this 
proposed rule as being available in the docket, find the docket as 
described in the previous paragraph, and then select ``Supporting & 
Related Material'' in the Document Type column. Public comments will 
also be placed in our online docket and can be viewed by following 
instructions on the https://www.regulations.gov Frequently Asked 
Questions web page. We review all comments received, but we will only 
post comments that address the topic of the proposed rule. We may 
choose not to post off-topic, inappropriate, or duplicate comments that 
we receive.
    Personal information. We accept anonymous comments. Comments we 
post to https://www.regulations.gov will include any personal 
information you have provided. For more about privacy and submissions 
in response to this document, see the Department of Homeland Security's 
eRulemaking System of Records notice (85 Federal Register (FR) 14226, 
March 11, 2020).
    Public meeting. We do not plan to hold a public meeting, but we 
will consider doing so if we determine from public comments that a 
meeting would be helpful. We would issue a separate Federal Register 
notice to announce the date, time, and location of such a meeting.

II. Abbreviations

APA American Pilots' Association
BLS Bureau of Labor Statistics
CFR Code of Federal Regulations
CPA Certified public accountant
CPI Consumer Price Index
DHS Department of Homeland Security
Director U.S. Coast Guard's Director of the Great Lakes Pilotage
ECI Employment Cost Index
FOMC Federal Open Market Committee
FR Federal Register
GLPA Great Lakes Pilotage Authority (Canadian)
GLPMS Great Lakes Pilotage Management System
LPA Lakes Pilots Association
NAICS North American Industry Classification System
NPRM Notice of proposed rulemaking
OMB Office of Management and Budget
PCE Personal Consumption Expenditures
Q4 Fourth quarter
Sec.  Section
SBA Small Business Administration
SLSPA Saint Lawrence Seaway Pilotage Association
U.S.C. United States Code
WGLPA Western Great Lakes Pilots Association

III. Executive Summary

    Pursuant to 46 U.S.C. Chapter 93,\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 for the upcoming shipping season. The shipping 
season begins when the locks open in the St. Lawrence Seaway, which 
allows traffic access to and from the Atlantic Ocean. The opening of 
the locks varies annually depending on waterway conditions but is 
generally in March or April. The rates, which for the 2021 season range 
from $337 to $800 per pilot hour (depending on which of the specific 
six areas pilotage service is provided), are paid by shippers to the 
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 apprentice pilots (previously referred to as applicants) and 
registered pilots, acquire and implement technological advances, train 
new personnel, and allow partners to participate in professional 
development.
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    \1\ Title 46 of the United States Code (U.S.C.), Sections 9301-
9308.
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    In accordance with statutory and regulatory requirements, we have 
employed a ratemaking methodology which was introduced originally in 
2016. Our ratemaking methodology calculates the revenue needed for each 
pilotage association (operating expenses, compensation for the number 
of pilots, and anticipated inflation), and then divides that amount by 
the

[[Page 51049]]

expected demand for pilotage services over the course of the coming 
year, to produce an hourly rate. We currently use a 10-step methodology 
to calculate rates. We explain in detail in the Discussion of Proposed 
Methodological and Other Changes in section VI of the preamble to this 
notice of proposed rulemaking (NPRM).
    As part of our annual review, in this NPRM we are proposing new 
pilotage rates for 2022 based on the existing methodology. The Coast 
Guard estimates that this proposed rule would result in a 12-percent 
increase in pilotage operating costs compared to the 2021 season. The 
result would be an increase in rates for all areas in District One, 
District Three, and the undesignated area of District Two. The rate for 
the designated area of District Two would decrease. These proposed 
changes are largely due to a combination of three factors: (1) The 
addition of apprentice pilots to step 3 with a target wage of 36 
percent of pilot target compensation (36 percent of the increase), (2) 
adjusting target pilot compensation for both the difference in past 
predicted and actual inflation and predicted future inflation (23 
percent of the increase), and (3) the net addition of two registered 
pilots at the beginning of the 2022 shipping season (22 percent of the 
increase), one for the undesignated area of District One and one for 
the undesignated area of District Two. The other 19 percent of the 
increase results from differences in traffic levels between the 2018, 
2019, and 2020 shipping seasons. The Coast Guard uses a 10-year average 
when calculating traffic to smooth out variations in traffic caused by 
global economic conditions, such as those caused by the COVID-19 
pandemic. The overall 12-percent increase in revenue needed is 
consistent with the increases from the 2019 \2\ and 2018 \3\ rules, 
which increased rates by 11 percent and 13 percent respectively, though 
greater than the increases in the last 2 years.
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    \2\ 84 FR 20551, 20573 (May 10, 2019), https://www.regulations.gov/document/USCG-2018-0665-0012.
    \3\ 83 FR 26162, 26189 (June 5, 2018), https://www.regulations.gov/document/USCG-2017-0903-0011.
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    The Coast Guard is also proposing one policy change and one change 
to the ratemaking methodology. First, the Coast Guard proposes to 
change the way we determine how many pilots are needed for the upcoming 
season in the staffing model (Volume 82 of the Federal Register (FR) at 
Page 41466, and table 6 at Page 41480, August 31, 2017), by always 
rounding up the final number to the nearest whole number. Second, we 
also propose to include in the methodology a calculation for a wage 
benchmark for apprentice pilots conducting pilotage on a limited 
registration issued by the Director. Although it is not a change to 
existing ratemaking policy, we are proposing to list apprentice pilot 
operating expenses within the approved operating expenses in Sec.  
404.2 ``Procedure and criteria for recognizing association expenses,'' 
used in step 1 of the rulemaking. These operating expenses have been 
included in past ratemakings and this is a codification of existing 
policy in order to distinguish apprentice pilot expenses from 
apprentice pilot wages.
    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
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                                                                                    Final 2021     Proposed 2022
                     Area                                     Name                pilotage  rate   pilotage rate
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District One: Designated......................  St. Lawrence River..............            $800            $818
District One: Undesignated....................  Lake Ontario....................             498             557
District Two: Designated......................  Navigable waters from Southeast              580             574
                                                 Shoal to Port Huron, MI.
District Two: Undesignated....................  Lake Erie.......................             566             651
District Three: Designated....................  St. Marys River.................             586             685
District Three: Undesignated..................  Lakes Huron, Michigan, and                   337             375
                                                 Superior.
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    This proposed rule would affect 56 U.S. Great Lakes pilots, 3 pilot 
associations, and the owners and operators of an average of 293 
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 increase of $3,527,425 in estimated payments made by 
shippers during the 2022 shipping season. This NPRM establishes the 
2022 yearly compensation for pilots on the Great Lakes at $393,461 per 
pilot (a 3.8 percent increase over their 2021 compensation). 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 46 U.S.C. Chapter 93,\4\ 
which requires foreign merchant vessels and U.S. vessels operating ``on 
register'' (meaning U.S. vessels engaged in foreign trade) to use U.S. 
or Canadian pilots while transiting the U.S. waters of the St. Lawrence 
Seaway and the Great Lakes system.\5\ For U.S. Great Lakes pilots, the 
statute 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.'' \6\ The statute 
requires that rates be established or reviewed and adjusted each year, 
not later than March 1.\7\ The statute also 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.\8\ The Secretary's duties and authority under 
46 U.S.C. Chapter 93 have been delegated to the Coast Guard.\9\
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    \4\ 46 U.S.C. 9301-9308.
    \5\ 46 U.S.C. 9302(a)(1).
    \6\ 46 U.S.C. 9303(f).
    \7\ Id.
    \8\ Id.
    \9\ DHS Delegation 00170.1, Revision No. 01.2, paragraph 
(II)(92)(f).
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    The purpose of this NPRM is to propose new pilotage rates for the 
2022 shipping season. The Coast Guard believes that the proposed new 
rates will continue to promote our goal as outlined in title 46 of the 
Code of Federal Regulations (CFR), section 404.1

[[Page 51050]]

of promoting safe, efficient, and reliable pilotage service in the 
Great Lakes by generating for each pilotage association sufficient 
revenue to reimburse its necessary and reasonable operating expenses, 
fairly compensate trained and rested pilots, and provide appropriate 
profit to use for improvements.

V. Background

    Pursuant to 46 U.S.C. 9303, 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.\10\ U.S. and Canadian ``lakers,'' which 
account for most commercial shipping on the Great Lakes, are not 
affected.\11\ 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 GLPA establishes the rates for Canadian 
registered pilots.
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    \10\ See 46 CFR part 401.
    \11\ 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.
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    The U.S. waters of the Great Lakes and the St. Lawrence Seaway are 
divided into three pilotage districts. Pilotage in each district is 
provided by an association certified by the Coast Guard's Director of 
the Great Lakes Pilotage (``the Director'') to operate a pilotage pool. 
The Saint Lawrence Seaway Pilotage Association (SLSPA) provides 
pilotage services in District One, which includes all U.S. waters of 
the St. Lawrence River and Lake Ontario. The Lakes Pilots Association 
(LPA) 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 Pilots Association 
(WGLPA) provides pilotage services in District Three, which includes 
all U.S. waters of the St. Marys River; Sault Ste. Marie Locks; and 
Lakes Huron, Michigan, and Superior.
    Each pilotage district is further divided into ``designated'' and 
``undesignated'' areas, depicted in table 2 below. Designated areas, 
classified as such by Presidential Proclamation, are waters in which 
pilots must be fully engaged in the navigation of vessels in their 
charge at all times.\12\ 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.'' \13\ For these 
reasons, pilotage rates in designated areas can be significantly higher 
than those in undesignated areas.
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    \12\ Presidential Proclamation 3385, Designation of restricted 
waters under the Great Lakes Pilotage Act of 1960, December 22, 
1960.
    \13\ 46 U.S.C. 9302(a)(1)(B).

                            Table 2--Areas of the Great Lakes and St. Lawrence Seaway
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                                                                                   Area
         District            Pilotage association          Designation           No.\14\       Area name \15\
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One.......................  Saint Lawrence Seaway  Designated................            1  St. Lawrence River.
                             Pilotage Association. Undesignated..............            2  Lake Ontario.
Two.......................  Lakes Pilots           Designated................            5  Navigable waters
                             Association.          Undesignated..............            4   from Southeast
                                                                                             Shoal to Port
                                                                                             Huron, MI.
                                                                                            Lake Erie.
Three.....................  Western Great Lakes    Designated................            7  St. Marys River.
                             Pilots Association.   Undesignated..............            6  Lakes Huron and
                                                   Undesignated..............            8   Michigan.
                                                                                            Lake Superior.
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    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, compensating pilots and 
apprentice pilots, acquiring and implementing technological advances, 
and training personnel and partners. The Coast Guard developed a 10-
step ratemaking methodology to derive a pilotage rate, based on the 
estimated amount of traffic, which covers these expenses.\16\ The 
methodology is designed to measure how much revenue each pilotage 
association would need to cover expenses and provide competitive 
compensation goals to registered pilots. Since the Coast Guard cannot 
guarantee demand for pilotage services, target pilot compensation for 
registered pilots is a goal. The actual demand for service dictates the 
actual compensation for the registered 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 
will be maintained and that pilots will receive adequate compensation 
and work a reasonable number of hours, with adequate rest between 
assignments, to ensure retention of highly trained personnel.
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    \14\ Area 3 is the Welland Canal, which is serviced exclusively 
by the Canadian GLPA and, accordingly, is not included in the U.S. 
pilotage rate structure.
    \15\ The areas are listed by name at 46 CFR 401.405.
    \16\ 46 CFR part 404.
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    Over the past 5 years, the Coast Guard has adjusted the Great Lakes 
pilotage ratemaking methodology per our authority in 46 U.S.C. 9303(f) 
to conduct annual reviews of base pilotage rates, and make adjustments 
to such base rates, in each intervening year in consideration of the 
public interest and the costs of providing the services. 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 for each district, in section VII of this preamble). In 2018, 
we revised the methodology by which we develop the compensation 
benchmark, based upon U.S. mariners rather than Canadian working 
pilots. In 2020, we revised the methodology to accurately capture all 
of

[[Page 51051]]

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 was 
finalized in the Great Lakes Pilotage Rates--2021 Annual Review and 
Revisions to Methodology final rule (86 FR 14184, March 12, 2021). The 
2021 ratemaking changed the inflation calculation in Step 4, Sec.  
404.104(b) for interim ratemakings, so that the previous year's target 
compensation value is first adjusted by actual inflation value using 
the Employment Cost Index (ECI). The 2021 final rule also excluded 
legal fees incurred in lawsuits against the Coast Guard related to our 
ratemaking and oversight from pilots associations' approved operating 
expenses. We summarize the proposed methodology in the section below.

Summary of the 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. Operating expenses include all 
allowable expenses minus wages and benefits. 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. Therefore, in calculating the 2022 rates in 
this proposal, we begin with the audited expenses from the 2019 
shipping season.
    While each pilotage association operates in an entire district 
(including both designated and undesignated areas), the Coast Guard 
tries to determine costs by area. With regard to operating expenses, we 
allocate certain operating expenses to designated areas, and certain 
operating expenses to undesignated areas. In some cases, we can 
allocate the costs based on where they are actually accrued. For 
example, we can allocate the costs for insurance for apprentice pilots 
who operate in undesignated areas only. In other situations, such as 
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 2022 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 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 registered pilots and apprentice 
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 pilots.
    For the purpose of the ratemaking calculation, we determine the 
number of pilots provided by the pilotage associations (see Sec.  
404.103) and use that figure to determine how many pilots need to be 
compensated via the pilotage fees collected.
    In Step 3, in this NPRM we propose adding an estimate for the 
number of apprentice pilots with limited registrations in each 
district. This number of apprentice pilots with limited registrations 
would be used in Step 4 to calculate an allowable wage benchmark for 
the districts to claim in the ratemaking. The Director would use the 
number of applications for apprentice pilots, traffic projections, 
information provided by the pilotage association regarding upcoming 
retirements, and any other relevant data input in determining the total 
number of apprentice pilots with limited registrations. See the 
Discussion of Proposed Methodological and Other Changes at section VI 
of this preamble for a detailed description of the changes proposed.
    In the first part of Step 4, ``Determine target pilot compensation 
benchmark and apprentice pilot wage benchmark,'' (Sec.  404.104) the 
Director determines the revenue needed for pilot compensation in each 
area and district. In 2020, the Coast Guard updated the benchmark 
compensation model in accordance with Sec.  404.104(b), switching from 
using the American Maritime Officers Union's 2015 aggregated wage and 
benefit information to the 2019 compensation benchmark. Based on 
experience over the past two ratemakings, the Coast Guard has 
determined that the level of target pilot compensation for those years 
provides an appropriate level of compensation for American Great Lakes 
pilots. Therefore, the Coast Guard will not seek alternative benchmarks 
for target compensation for future ratemakings at this time, and will 
instead simply adjust the amount of target pilot compensation for 
inflation. This benchmark has advanced the Coast Guard's goals of 
safety through rate and compensation stability while also promoting 
recruitment and retention of qualified U.S. pilots.
    In the 2021 ratemaking, the Coast Guard changed the way we 
calculate inflation in Step 4 to account for actual inflation instead 
of predicted inflation. In Sec.  404.104(b), the previous year's target 
compensation value is first adjusted by actual inflation using the ECI 
inflation value. If the ECI inflation value is not available, Sec.  
404.104(b)(1) and (2) specify the compensation inflation process the 
Director will use instead.
    In the second part 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 pilots for each area and district (from Step 3), producing a 
figure for total pilot compensation.
    This proposed rule would add an apprentice pilot wage benchmark to 
Step 4. The apprentice pilot wage benchmark would be set at 36 percent 
of individual target pilot compensation, as calculated in this section. 
The apprentice pilot wage benchmark would then be multiplied by the 
number of apprentice pilots with limited registrations for each 
district, producing a figure for total apprentice pilot wage. See the 
Discussion of Proposed Methodological and Other Changes at section VI 
of this preamble for a detailed description of the changes proposed.
    In Step 5, ``Project working capital fund,'' (Sec.  404.105) the 
Director calculates a value that is added to pay for needed capital 
improvements and other non-recurring expenses, such as technology 
investments and infrastructure maintenance. This value is calculated by 
adding the total operating expenses (derived in Step 2) to the total 
pilot compensation and total target apprentice pilot wage (derived in

[[Page 51052]]

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, including apprentice pilot wage 
benchmarks, (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, we divide the 
revenue needed in each area (calculated in Step 6) 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. We do this in the next step.
    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 46 U.S.C. 9303(f) 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.
    After the base rates are set, Sec.  401.401 permits the Coast Guard 
to apply surcharges. In previous ratemakings where apprentice pilot 
wages were not built into the rate, the Coast Guard used surcharges to 
cover applicant pilot compensation in those years to help with 
recruitment. In 2019, $1,202,635 in surcharges were collected by the 
three districts. Consistent with the 2020 and 2021 rulemakings, we 
continue to believe that the 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 2022, the Coast Guard is proposing one policy change to the 
ratemaking model and a methodological change to incorporate apprentice 
pilot wage benchmarks into the ratemaking methodology. The first 
proposed policy change is to always round up the pilot totals to the 
nearest whole number in the staffing model. We use the staffing model 
to determine how many pilots are needed in Step 3. Second, we are 
proposing to introduce a wage benchmark calculation for apprentice 
pilots conducting pilotage while using a limited registration in Steps 
3 and 4 of the methodology. While not a change to the ratemaking, this 
proposed rule would also codify the current practice of allowing pilot 
associations to include necessary and reasonable apprentice pilot 
benefits and expenses as operating expenses for the year they are 
incurred.

A. Proposed Changes to the Staffing Model

    The Director uses the staffing model to estimate how many pilots 
would be needed to handle shipping from the opening through the closing 
of the season. The Coast Guard is proposing to always round up the 
final number in the staffing model in Sec.  401.220(a)(2) to the 
nearest whole integer, instead of the current requirement to round to 
the nearest whole integer. The final number provides the maximum number 
of pilots authorized to be included in the ratemaking for a district.
    The Coast Guard proposed a similar change to the staffing model in 
the 2021 proposed rule titled ``Great Lakes Pilotage Rates--2021 Annual 
Review and Revisions to Methodology'' (85 FR 68210, October 27, 2020). 
We opted to forgo the proposed change to the rounding in the staffing 
model in the 2021 ratemaking final rule to more closely consider the 
alternatives and staffing issues mentioned by the commenters, posted in 
docket USCG-2020-0457.
    After consideration of the comments and issues discussed further in 
this section, the Coast Guard has determined that rounding up in the 
staffing model is a necessary change, but we are proposing an 
additional modification. In addition to always rounding up from the 
staffing model, we also propose that when the rounding up results in an 
additional pilot that would not have been authorized if we rounded to 
the nearest whole integer, that additional pilot would be added to the 
number of pilots in the undesignated area for that district.\17\ For 
example, if the total in a district is 17.25, we would round up to 18 
under the proposed changes, and the additional pilot would be allocated 
to the undesignated area. If the total in a district is 17.55, we would 
authorize 18 pilots and we would not change existing allocations.
---------------------------------------------------------------------------

    \17\ For a detailed calculation of the staffing model, see 82 FR 
41466, table 6 at 41480 (August 31, 2017).
---------------------------------------------------------------------------

    The purpose for placing the additional pilot in undesignated waters 
is to reduce the impact of the additional pilot on the final rates. 
Allocating additional pilots to the undesignated waters in the 
ratemaking methodology would result in only incremental changes, which 
promotes rate stability. Rate stability is in the public interest, 
because it provides greater predictability to both shipping companies 
and the pilots. Undesignated waters have lower rates for pilotage 
services than designated waters, because the average number of bridge 
hours is greater (denominator), which allows the operating expenses for 
those areas to be spread out over a greater number. Registered pilots 
in a district perform pilotage in both designated and undesignated 
waters. For ratemaking purposes, we assign pilots to either designated 
or undesignated waters to calculate the rates in each area. For 
ratemaking purposes, we assign pilots to either designated or 
undesignated waters to calculate the rates in each area.
    In the 2021 proposed rule, the Coast Guard acknowledged that the 
staffing model used in the ratemaking could be improved to account for 
registered pilots who are not performing pilotage full time. As we 
noted in the 2021 proposed rule, pilot associations have made 
assertions that the pilot

[[Page 51053]]

associations' presidents are spending more time at meetings, 
conferences, traveling, and facilitating communication between the 
pilots and Coast Guard. We continue to acknowledge that the pilot 
associations' presidents are not able to serve as pilots full-time due 
to their administrative duties and this continues to be the main reason 
for no longer rounding down the final number for some districts. The 
non-delegable administrative duties include attending meetings and 
conferences, providing additional financial and traffic information to 
increase transparency and accountability, overseeing and ensuring the 
integrity of their training program, evaluating technology, and 
coordinating with the American Pilots' Association (APA) to implement 
and share best practices. Rounding down to the nearest integer in the 
current staffing model could result in too few pilots allocated to a 
district which, when coupled with the president's spending less time 
serving as pilot, may adversely impact recuperative rest goals for 
registered pilots that are essential for safe navigation.
    The staffing model addresses the historic traffic at the opening 
and closing of the season. During this time, the Director has 
historically authorized or imposed double pilotage in the designated 
waters due to ice conditions, a lack of aids to navigation, and violent 
and volatile weather conditions, because the transits are likely to 
exceed the Coast Guard's tolerance for safety with a single pilot. 
Pilotage demand reaches peaks during the opening and close of the 
seasons, which is also when pilot presidents are performing many 
nondelegable duties. The pilot association president's participation is 
required during various coordination meetings at the opening and 
closing of the shipping season, which reduces their availability to 
provide pilotage services. These meetings include coordination with the 
U.S. and Canadian Seaways, the GLPA, Shipping Federation of Canada, 
U.S. Great Lakes Shipping Association, and various U.S. and Canadian 
Great Lakes ports. Rounding up will ensure that the pilot president is 
free to participate in these meetings and the associations have 
sufficient strength to handle the burden of double pilotage.
    One comment representing the shipping industry on the 2021 
ratemaking proposed rule requested that we authorize an administrative 
position for each district to account for these increased duties. We 
rejected the proposal to add an administrative position in the 2021 
ratemaking, because we thought it was inconsistent with industry 
standards and insufficient to address the problems identified by the 
associations. Many of the presidential duties are non-delegable to 
administrative staff, and the president would still be pulled away from 
providing pilotage services. Authorizing an administrative person 
instead of additional pilot would not address the recuperative rest 
impacts and potential for lack of pilots when needed.
    The APA comment \18\ and other commenters affirmed that there is 
always one pilot ``off the roles'' in each association. Similarly, in 
its comments, the SLSPA emphasized it is impossible to operate as a 
president and pilot a vessel at the same time and with no opportunity 
to rest. The APA comment urged the Coast Guard to consider authorizing 
an additional pilot for each district, whose principal duties would be 
to serve as an ``operations pilot.'' The comment said pilots on ships, 
as well as dispatchers and transportation coordinators, need 
operational support available in real time from a seasoned and 
experienced piloting professional. This professional is currently the 
association president or the suggested extra operations pilot. The APA 
comment expressed that piloting expertise is necessary to perform these 
duties, and that the associations' president pilot should be replaced 
with a pilot, not administrative staff. The president is unable to 
delegate certain administrative duties that keep him from piloting a 
vessel. This comment was in alignment with responses we received from 
other pilot industry comments.
---------------------------------------------------------------------------

    \18\ https://www.regulations.gov/document?D=USCG-2020-0457-0007.
---------------------------------------------------------------------------

    The Coast Guard agrees that, where the pilot associations' 
presidents are spending an increased amount of their time on 
administrative issues, the staffing model should account for that time 
and allow for additional staff to assist by rounding up the final total 
for each district. However, the Coast Guard does not agree with some 
comments on the 2021 NPRM that an additional operational pilot is 
necessary in addition to rounding up in the staffing model. Authorizing 
an additional operational pilot, in addition to rounding up, would 
authorize two additional pilots in some cases. Two additional pilots 
would be more pilots than necessary to address the need presented by 
the association's president not performing pilotage services full-time.
    Some comments from the 2021 ratemaking proposed rule included 
concerns that the staffing model could produce lower or fluctuating 
numbers in upcoming years, even with always rounding up, taking away 
previously authorized pilots. However, the staffing model does not 
change year-to-year, unless we make changes to the staffing model in a 
ratemaking. Based on the existing staffing model and the proposed 
change to always round up the final number, the number of pilots 
authorized would not decrease in future years, unless adjusted by 
ratemaking.
    The staffing model takes into consideration trends in traffic 
demand, ensuring that the number of pilots is sufficient to meet 
demand. The existing staffing model is designed to provide sufficient 
pilots for the entire shipping season while taking into account the 
amount of traffic anticipated, restorative rest periods for the pilots, 
and additional capacity during surges at the opening and closing of the 
shipping season. During the opening and closing of the season, the 
weather tends to be more severe; ice conditions affect transit times; 
and the aids to navigation are not in place. During this time, double 
pilotage occurs in designated waters to mitigate external factors and 
to ensure safety. This is also a time that the pilot association 
presidents are performing non-delegable duties, coordinating with the 
Coast Guard, the GLPA, U.S. and Canadian Seaway, and numerous other 
Great Lakes shipping stakeholders to ensure safe, efficient, and 
reliable pilotage service. Always rounding up allows us to account for 
this time and promote safety and restorative rest, while minimizing 
delays in providing pilotage services, for districts where we 
previously would have rounded the final number down. We cannot continue 
to round down for some districts and undersupply pilots where the 
staffing model indicates more are needed. By rounding up the staffing 
model final number, we ensure that we are always authorizing a 
sufficient number to cover the demand calculated according to the 
staffing model, which has been in place for many years. The purpose of 
always rounding up where we otherwise would have rounded down is to 
account for the association's president time spent away from pilotage 
duties, especially during the high demand for pilotage during the 
beginning and close of the shipping seasons. We believe this proposed 
rounding change will promote maritime safety by ensuring enough pilots 
are allocated to each district to cover the hours the association's 
president spends engaged in the non-pilot tasks and the administrative 
work discussed above.

[[Page 51054]]

B. Apprentice Pilots' Wage Benchmark for Conducting Pilotage While 
Using a Limited Registration

    In this NPRM, the Coast Guard is proposing to factor in the 
apprentice pilots wage benchmark in the ratemaking methodology, Steps 3 
and 4. The wage benchmark would be applicable to apprentice pilots 
operating under a limited registration.
    In Step 3, Sec.  404.103, the Director would project the number of 
apprentice pilots with limited registrations expected to be in training 
and compensated. The Director would consider the number of persons 
applying under 46 CFR part 401 to become apprentice pilots, traffic 
projections, information provided by the pilotage association regarding 
upcoming retirements, and any other relevant data.
    In Step 4, Sec.  404.104, the Director would determine the 
individual apprentice pilot wage benchmark at the rate of 36 percent of 
the individual target pilot compensation, as calculated according to 
Step 4. The Director would determine each pilot association's total 
apprentice pilot wage benchmark by multiplying the apprentice pilot 
wage benchmark by the number of apprentice pilots with limited 
registrations projected under Sec.  404.103. For example, if the 
projected number of apprentice pilots is 4, we would first take 36 
percent of individual target pilot compensation (example: $359,887 x 
0.36 = $129,559) and multiply that by 4 (example: $129,559 x 4 = 
$518,237) to obtain the total apprentice pilot wage benchmark for each 
district. This process is based on the way we factor the fully 
registered pilot compensation into the ratemaking in existing Step 3 
(Sec.  404.103) and Step 4 (Sec.  404.104) described in the Summary of 
the Ratemaking Methodology section above.
    The Coast Guard proposes to set the apprentice pilot wage benchmark 
at a percentage of the target pilot compensation, rather than a 
specific dollar amount, to allow for inflation each year. We factor 
inflation into the target pilot compensation calculation during Step 4. 
We would take 36 percent of the inflated target pilot compensation to 
obtain the apprentice pilot wage benchmark value.
    In ratemaking years 2016 through 2019, the Coast Guard authorized 
surcharges to cover the districts' apprentice pilot compensation. The 
Coast Guard never intended to use such surcharges as a permanent 
solution for compensating apprentice pilots, because the surcharge 
amounts were not derived from a formula that could take into 
consideration inflation and other reasonableness factors.
    The purpose of the surcharges was to provide reimbursement to the 
associations so that they could immediately hire additional apprentice 
pilots, rather than waiting three years to be reimbursed in the rates. 
The Coast Guard used surcharges as a temporary method to help the 
districts with pilot hiring and retention issues. In those ratemaking 
years, the Coast Guard made many Director's adjustments to the 
authorized surcharges in order to ensure that the ratemaking reflected 
a reasonable amount in compensation.
    In the 2020 and 2021 ratemakings, the Coast Guard acknowledged that 
the pilot associations were able to hire a sufficient number of 
apprentice pilots and fully registered pilots. In the 2020 and 2021 
ratemakings, the Coast Guard authorized apprentice pilot salaries to be 
included in the association's operating expenses for 2017 and 2018, 
respectively. We allowed the apprentice pilot wage expenses to be 
included in the operating expenses after the districts' operating 
expenses were fully audited. In the 2021 ratemaking final rule, the 
Coast Guard reduced the 2018 apprentice pilot salary operating expense 
(referred to as applicant pilot in the 2021 ratemaking) for District 
One and District Two to $132,151 per apprentice pilot because they paid 
in excess of that amount (86 FR 14184, 14197, 14202, March 12, 2021). 
As District Three reported paying their apprentice pilots less than 
$132,151 per apprentice pilot each, no Director's adjustment was made.
    The Coast Guard is proposing to set the apprentice pilot wage 
benchmark at 36 percent of individual target pilot compensation based 
on reasonable amounts previously allowed in past ratemakings. In the 
2019 rulemaking, we adjusted apprentice pilot salaries to approximately 
36 percent of target pilot compensation. In the 2019 NPRM, the Coast 
Guard proposed to make an adjustment to District Two's request for 
reimbursement of $571,248 for two applicant pilots ($285,624 per 
applicant). Instead of permitting $571,248 for two applicant pilots, we 
proposed allowing $257,566, or $128,783 per applicant pilot, based upon 
discussions with other pilot associations at the time. This standard 
went into effect in the final rule for 2019. In development of the 2021 
proposed rule, we reached out to several of the pilot associations 
throughout the United States to see what percentage they pay their 
applicant pilots. We factored in the sea time and experience required 
to become an applicant pilot on the Great Lakes and discussed the 
percentage with each association to determine if it was fair and 
reasonable. For 2019, this was approximately 36 percent ($128,783 / 
$359,887 = 35.78 percent). In the 2021 NPRM and final rule, the Coast 
Guard used the 36 percent benchmark for calculating each district's 
apprentice pilot compensation in its operating expenses.
    The Coast Guard solicited comments in the 2021 ratemaking NPRM on 
setting apprentice pilot salaries at a percentage of the fully 
registered target pilot compensation and including it in the ratemaking 
(85 FR 68210, October 27, 2020). We received one pilot comment and a 
user coalition comment requesting that we return to the use of 
surcharges. The Coast Guard used surcharges to immediately reimburse 
apprentice pilot salaries to make improvements in hiring and retention 
of pilots in the districts. Going forward, authorizing apprentice pilot 
wages in the ratemaking continues to support hiring and retention in a 
way that is better calibrated to generate the specific amount of 
revenue needed, than providing a surcharge. The associations would be 
funded for apprentice pilot wages in the same year they are incurred, 
and the amount would be adjusted for inflation, along with the target 
pilot compensation. We are also interested in building the apprentice 
pilot salaries into the ratemaking for predictability and stability 
purposes. We previously authorized $150,000 per apprentice pilot when 
we used surcharges, but, in practice, that amount was reduced by 
Director's adjustments to reasonable amounts. The proposed apprentice 
pilot wage benchmark in the ratemaking would not be adjusted by 
Director's adjustments.
    The other comments from the pilots were generally supportive of 
including the apprentice pilot salaries in the ratemaking, but urged 
the Coast Guard to consider setting the salaries at a higher percentage 
than 36 percent of the fully registered pilot compensation, or 
implementing a gradual percentage increase for additional years served. 
This 36 percent equation creates a number consistent with what some 
districts paid and were reimbursed for apprentice pilots in previous 
ratemaking years. It is also reasonable in amount, because it is only 
wages and would not include apprentice pilot benefits and travel 
reimbursements. Those additional benefits would be reimbursed in full 
as allowable operating expenses for the districts. In the 2021 
ratemaking, District Three reported paying apprentice pilot salaries at 
an amount of $132,151 per apprentice pilot, and we considered that 
amount reasonable. At

[[Page 51055]]

36 percent of registered pilot target compensation, the apprentice 
pilots would be authorized wages in the amount of $129,559, which is 
reasonable in consideration of the time in training, services provided, 
and past ratemakings. This number would be subject to inflation 
annually. Additionally, setting apprentice pilot salaries at one 
amount, irrespective of years in training, is consistent with our past 
practices and will help promote rate stability and predictability for 
all parties. In past ratemakings, we have historically used the term 
``applicant pilots'' as a collective way of referring to both applicant 
trainees and apprentice pilots. In this proposed rule, we are 
distinguishing how we will incorporate apprentice pilot wages into the 
ratemaking methodology from how we incorporate applicant trainees 
wages. To help clarify this distinction, this proposed rule would also 
add definitions for the terms ``apprentice pilot'' and ``limited 
registration'' in the definition section in Sec.  401.110. An 
apprentice pilot would be defined as a person, approved and certified 
by the Director, who is participating in an approved U.S. Great Lakes 
pilot training and qualification program and meets all the minimum 
requirements listed in 46 CFR 401.211. The apprentice pilot definition 
would not include applicant trainees, who are pilots in training who 
have not acquired the minimum service requirements in Sec.  
401.210(a)(1). Under this proposed rule, salaries for applicant 
trainees would continue to be included in the district's operating 
expenses for the year they are incurred. The ``apprentice pilot'' 
definition would only be applicable in determining which pilots may be 
included in the apprentice pilot estimates, compensation, and operating 
expenses discussed in new Sec. Sec.  404.2(b)(7), 404.103(b), and 
404.104(d) and (e) of this proposed rule.
    The apprentice pilot would be required to be operating with a 
limited registration to be eligible for inclusion in the wage benchmark 
calculations in Steps 3 and 4. A limited registration is currently used 
in the apprentice pilot training process in the districts, but it is 
not defined in the Great Lakes pilotage regulations. We propose adding 
a definition for ``limited registration'' that would align with the 
current use of the term in the industry. A limited registration would 
be defined as an authorization given by the Director, upon the request 
of the respective pilot association, to an apprentice pilot to provide 
pilotage service without direct supervision from a fully registered 
pilot in a specific area or waterway.
    Apprentice pilots with limited registrations are performing the 
services of a pilot for the shipping industry, often without a fully 
registered pilot onboard. These apprentice pilots are providing 
pilotage services to the shipping industry for the rates set by the 
Coast Guard for the waterway. Compensating the apprentice pilots for 
these services has historically been considered a reasonable and 
necessary cost included in the ratemakings as either surcharges or 
operating expenses. However, instead of evaluating the apprentice pilot 
wages annually for reasonableness in the operating expenses, the Coast 
Guard is proposing to include a specific and predictable apprentice 
pilot wage benchmark calculation into the ratemaking.

C. Apprentice Pilots' Expenses and Benefits as Approved Operating 
Expenses

    In Sec.  404.2 ``Procedure and criteria for recognizing association 
expenses,'' we propose to insert the pilot association's expenses for 
apprentice pilots operating with limited registrations as approved 
operating expenses. These expenses have historically been allowed in 
previous ratemakings' operating expenses. We are proposing to 
specifically list apprentice pilot with limited registrations expenses 
in the regulations to codify current practices and distinguish these 
expenses from the apprentice pilot wage benchmark that we propose to 
include in Step 4 of the ratemaking methodology.
    The associations would continue to include health care, travel 
expenses, training, and other expenses incurred on behalf of apprentice 
pilots with limited registrations, when determined to be necessary and 
reasonable by the Director. Associations currently fund travel and 
employment benefits for apprentice pilots with limited registrations in 
order to train pilots and provide pilotage services to the shipping 
industry. Apprentice pilots with limited registrations are expected to 
travel and be away from home while performing these duties. It is 
reasonable and consistent with industry practice for the association to 
cover their travel expenses. These travel costs are also allowed for 
fully registered pilots operating on the Great Lakes performing 
substantially similar services.
    The approved operating expenses could include health care and other 
necessary and reasonable employment benefits as well. Apprentice pilots 
are often offered benefits to help with retention and recruitment. 
Allowing associations to include necessary and reasonable expenses for 
apprentice pilots with limited registrations as operating expenses in 
the ratemaking would continue to promote adequate funding for 
apprentice pilot training and provision of pilotage services in the 
Great Lakes.

VII. Discussion of Proposed Rate Adjustments

    In this NPRM, based on the proposed policy changes described in the 
previous section, we are proposing new pilotage rates for 2022. We 
propose to conduct the 2022 ratemaking as an ``interim year,'' as was 
done in 2021, rather than a full ratemaking, as was conducted in 2018. 
Thus, the Coast Guard proposes to adjust the compensation benchmark 
following the procedures for an interim ratemaking year pursuant to 
Sec.  404.100(b) for this purpose, rather than the full ratemaking year 
procedures in Sec.  404.100(a).
    This section discusses the proposed rate changes using the 
ratemaking steps provided in 46 CFR part 404, incorporating the 
proposed changes discussed in section VI. We will detail all 10 steps 
of the ratemaking procedure for each of the 3 districts to show how we 
arrive 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 2018 expenses and 
revenues.\19\ For accounting purposes, the financial reports divide 
expenses into designated and undesignated 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 One are shown in table 3.
---------------------------------------------------------------------------

    \19\ These reports are available in the docket for this 
rulemaking.
---------------------------------------------------------------------------

    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 Public Participation and Request 
for Comments portion of the preamble.
    In the 2019 expenses used as the basis for this rulemaking, 
districts used the term ``applicant'' to describe applicant trainees 
and persons who would be

[[Page 51056]]

called apprentices (applicant pilots) under the new definition proposed 
in this rulemaking. Therefore, when describing past expenses, we use 
the term ``applicant'' to match what was reported from 2019, which 
includes both applicant and apprentice pilots. We use ``apprentice'' to 
distinguish apprentice pilot wages and describe the impacts of the 
ratemaking going forward.
    There was one Director's adjustment for District One, a deduction 
for $282,015, the amount of surcharge collected in 2019. As this amount 
exceeds the reported 2019 applicant salaries of $227,893, there is no 
further Director's adjustment. We continue to include applicant 
salaries as an allowable expense in the 2022 ratemaking, as it is based 
on 2019 operating expenses, when salaries were still an allowable 
expense. The apprentice salaries paid in the years 2019, 2020, and 2021 
have not been reimbursed in the ratemaking as of publication of this 
proposed rule. Applicant salaries (including applicant trainees and 
apprentice pilots) will continue to be an allowable operating expense 
through the 2024 ratemaking, which uses operating expenses from 2021 
where the wages for apprentice pilots were still authorized as 
operating expenses. Starting in the 2025 ratemaking, apprentice pilot 
salaries would no longer be included as a 2022 operating expense, 
because apprentice pilot wages would have already been factored into 
the ratemaking Steps 3 and 4 in calculation of the 2022 rates. Starting 
in 2025, the applicant salaries' operating expenses for 2022 will 
consist of only applicant trainees (those who are not yet apprentice 
pilots).

                               Table 3--2019 Recognized Expenses for District One
----------------------------------------------------------------------------------------------------------------
                                                                    Designated     Undesignated
                                                                 --------------------------------
              Reported operating expenses for 2019                 St. Lawrence                        Total
                                                                       River       Lake Ontario
----------------------------------------------------------------------------------------------------------------
Applicant Pilot Salaries:
    Salaries....................................................        $136,736         $91,157        $227,893
    Employee Benefits...........................................          12,506           8,337          20,843
    Applicant Subsistence/Travel................................          30,685          20,567          51,252
    Applicant Payroll Tax.......................................           7,943           5,295          13,238
                                                                 -----------------------------------------------
        Total Applicant Pilot Salaries..........................         187,870         125,356         313,226
Other Pilot Cost:
    Subsistence/Travel--Pilots..................................         667,071         444,714       1,111,785
    License Insurance--Pilots...................................          43,162          28,774          71,936
    Payroll Taxes--Pilots.......................................         184,884         123,256         308,140
    Other.......................................................         136,178          90,784         226,962
                                                                 -----------------------------------------------
        Total other pilotage costs..............................       1,031,295         687,528       1,718,823
Pilot Boat and Dispatch Costs:
    Pilot Boat Expense (Operating)..............................         360,276         240,184         600,460
    Certified Public Accountant (CPA) Deduction (D1-19-01), (D1-         138,093          92,062         230,155
     19-02).....................................................
    Dispatch Expense............................................          82,722          55,148         137,870
    Payroll Taxes...............................................          22,412          14,941          37,353
                                                                 -----------------------------------------------
        Total Pilot and Dispatch Costs..........................         603,503         402,335       1,005,838
Administrative Expenses:
    Legal--General Counsel......................................          34,558          23,038          57,596
    Legal--Shared Counsel (K&L Gates)...........................          55,318          36,879          92,197
    Legal--USCG Intervener Litigation...........................          28,765          19,177          47,942
    Office Rent.................................................  ..............  ..............               0
    Insurance...................................................          27,753          18,502          46,255
    Employee Benefits...........................................           7,056           4,704          11,760
    Payroll Taxes...............................................           5,236           3,491           8,727
    Other Taxes.................................................          61,822          41,215         103,037
    Real Estate Taxes...........................................          22,787          15,191          37,978
    Travel......................................................          34,617          23,078          57,695
    Depreciation/Auto Leasing/Other.............................         107,584          71,723         179,307
    CPA Deduction (D1-19-01)....................................        (52,291)        (34,861)        (87,152)
    Interest....................................................          24,339          16,226          40,565
    CPA Deduction (D1-19-01)....................................        (24,339)        (16,226)        (40,565)
    APA Dues....................................................          25,838          17,225          43,063
    Dues and Subscriptions......................................           4,080           2,720           6,800
    Utilities...................................................          19,221          12,814          32,035
    Salaries....................................................         164,453         109,636         274,089
    Accounting/Professional Fees................................           7,980           5,320          13,300
    Other.......................................................          21,908          14,605          36,513
                                                                 -----------------------------------------------
        Total Administrative Expenses...........................         576,685         384,457         961,142
----------------------------------------------------------------------------------------------------------------
Total Expenses (OpEx + Applicant + Pilot Boats + Admin +               2,399,353       1,599,676       3,999,029
 Capital).......................................................
    Surcharge Collected.........................................       (169,209)       (112,806)       (282,015)
                                                                 -----------------------------------------------
        Total Directors Adjustments.............................       (169,209)       (112,806)       (282,015)
                                                                 -----------------------------------------------
            Total Operating Expenses (OpEx + Adjustments).......       2,230,144       1,486,870       3,717,014
----------------------------------------------------------------------------------------------------------------


[[Page 51057]]

B. Step 2: Project Operating Expenses, Adjusting for Inflation or 
Deflation

    Having identified the recognized 2019 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 2020 inflation rate.\20\ Because 
the BLS does not provide forecasted inflation data, we use economic 
projections from the Federal Reserve for the 2021 and 2022 inflation 
modification.\21\ Based on that information, the calculations for Step 
2 are as follows:
---------------------------------------------------------------------------

    \20\ The 2020 inflation rate is available at https://beta.bls.gov/dataViewer/view/timeseries/CUUR0200SA0. Specifically 
the CPI is defined as ``All Urban Consumers (CPI-U), All Items, 
1982-4=100''. (Downloaded April 2021)
    \21\ The 2021 and 2022 inflation rates are available at https://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20210317.pdf. We used the PCE median inflation value 
found in table 1. (Downloaded March 24, 2021)

                              Table 4--Adjusted Operating Expenses for District One
----------------------------------------------------------------------------------------------------------------
                                                                                   District One
                                                                 -----------------------------------------------
                                                                    Designated     Undesignated        Total
----------------------------------------------------------------------------------------------------------------
Total Operating Expenses (Step 1)...............................      $2,230,144      $1,486,870      $3,717,014
2020 Inflation Modification (@1%)...............................          22,301          14,869          37,170
2021 Inflation Modification (@2.4%).............................          54,059          36,042          90,101
2022 Inflation Modification (@2%)...............................          46,130          30,756          76,886
                                                                 -----------------------------------------------
    Adjusted 2021 Operating Expenses............................       2,352,634       1,568,537       3,921,171
----------------------------------------------------------------------------------------------------------------

C. Step 3: Estimate Number of Registered Pilots and Apprentice Pilots

    In accordance with the text in Sec.  404.103, we estimate the 
number of fully registered pilots in each district. We determine the 
number of fully registered pilots based on data provided by the SLSPA. 
Using these numbers, we estimate that there will be 18 registered 
pilots in 2022 in District One. We determine the number of apprentice 
pilots based on input from the district on anticipated retirements and 
staffing needs. Using these numbers, we estimate that there will be two 
apprentice pilots in 2022 in District One. Based on the seasonal 
staffing model discussed in the 2017 ratemaking (see 82 FR 41466), and 
our proposed changes to that staffing model, we assign a certain number 
of pilots to designated waters and a certain number to undesignated 
waters, as shown in table 5. Without rounding up, there would be 7 
pilots assigned to the undesignated area of District One (6.8 pilots 
which is rounded up to 7 pilots). These numbers are used to determine 
the amount of revenue needed in their respective areas.

                       Table 5--Authorized Pilots
------------------------------------------------------------------------
                          Item                             District One
------------------------------------------------------------------------
Proposed Maximum Number of Pilots (per Sec.                           18
 401.220(a)) \22\.......................................
2022 Authorized Pilots (total)..........................              18
Pilots Assigned to Designated Areas.....................              10
Pilots Assigned to Undesignated Areas...................               8
2022 Apprentice Pilots..................................               2
------------------------------------------------------------------------

D. Step 4: Determine Target Pilot Compensation Benchmark and Apprentice 
Pilot Wage Benchmark
---------------------------------------------------------------------------

    \22\ 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 target pilot compensation for 
each area. As we are issuing an ``interim'' ratemaking this year, we 
follow the procedure outlined in paragraph (b) of Sec.  404.104, which 
adjusts the existing compensation benchmark by inflation. As stated in 
section VI.A of the preamble, we are proposing to use a two-step 
process to adjust target pilot compensation for inflation. First, we 
adjust the 2021 percent target compensation benchmark of $378,925 by 
1.8 percent for an adjusted value of $385,746. The adjustment accounts 
for the difference in actual fourth quarter (Q4) 2020 ECI inflation, 
which is 3.5 percent, and the 2020 PCE estimate of 1.7 
percent.23 24 The second step accounts for projected 
inflation from 2021 to 2022, 2.0 percent.\25\ Based on the projected 
2022 inflation estimate, the proposed target compensation benchmark for 
2022 is $393,461 per pilot. The target apprentice pilot wage is 36 
percent of the target pilot compensation, $141,646 (= $393,461 x 0.36).
---------------------------------------------------------------------------

    \23\ Employment Cost Index, Total Compensation for Private 
Industry workers in Transportation and Material Moving, Series ID: 
CIU2010000520000A.
    \24\ CPI for All Urban Consumers, Series ID CUUR0200SA0.
    \25\ https://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20210317.pdf.

                   Table 6--Target Pilot Compensation
------------------------------------------------------------------------
 
------------------------------------------------------------------------
2021 Target Compensation from Final Rule................        $378,925
Difference between Actual 2021 ECI inflation (3.5%) and            1.80%
 2020 PCE Estimate (1.7%)...............................
Adjusted 2021 Compensation..............................        $385,746
2021 to 2022 Inflation Factor...........................           2.00%
2022 Target Pilot Compensation..........................        $393,461
2022 Target Apprentice Pilot Wage.......................        $141,646
------------------------------------------------------------------------


[[Page 51058]]

    Next, we certify that the number of pilots estimated for 2021 is 
less than or equal to the number permitted under the proposed changes 
to the staffing model in Sec.  401.220(a). The proposed changes to the 
staffing model suggest that the number of pilots needed is 18 pilots 
for District One, which is less than or equal to 18, the number of 
registered pilots provided by the pilot associations. In accordance 
with the proposed changes to 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 registered pilots for District One, as shown in 
table 7. We estimate that the number of apprentice pilots with limited 
registration needed will be two for District One in the 2022 season. 
The total target wages for apprentices are allocated with 60 percent 
for the designated area, and 40 percent for the undesignated area, in 
accordance with the way operating expenses are allocated.

                                  Table 7--Target Compensation for District One
----------------------------------------------------------------------------------------------------------------
                                                                                   District One
                                                                 -----------------------------------------------
                                                                    Designated     Undesignated        Total
----------------------------------------------------------------------------------------------------------------
Target Pilot Compensation.......................................        $393,461        $393,461        $393,461
Number of Pilots................................................              10               8              18
                                                                 -----------------------------------------------
    Total Target Pilot Compensation.............................      $3,934,610      $3,147,688      $7,082,298
Target Apprentice Pilot Wage....................................        $141,646        $141,646        $141,646
Number of Apprentice Pilots.....................................  ..............  ..............               2
                                                                 -----------------------------------------------
    Total Target Apprentice Pilot Wages.........................        $169,975        $113,317        $283,292
----------------------------------------------------------------------------------------------------------------

E. Step 5: Project Working Capital Fund

    Next, we calculate the working capital fund revenues needed for 
each area. First, we add the figures for projected operating expenses, 
total pilot compensation, and total target apprentice pilot wage 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 2.4767 percent.\26\ By multiplying the two figures, 
we obtain the working capital fund contribution for each area, as shown 
in table 8.
---------------------------------------------------------------------------

    \26\ Moody's Seasoned Aaa Corporate Bond Yield, average of 2020 
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. (Downloaded March 26, 2021)

                           Table 8--Working Capital Fund Calculation for District One
----------------------------------------------------------------------------------------------------------------
                                                                                   District One
                                                                 -----------------------------------------------
                                                                    Designated     Undesignated        Total
----------------------------------------------------------------------------------------------------------------
Adjusted Operating Expenses (Step 2)............................      $2,352,634      $1,568,537      $3,921,171
Total Target Pilot Compensation (Step 4)........................       3,934,610       3,147,688       7,082,298
Total Target Apprentice Pilot Wages (Step 4)....................         169,975         113,317         283,292
                                                                 -----------------------------------------------
    Total 2022 Expenses.........................................       6,457,219       4,829,542      11,286,761
----------------------------------------------------------------------------------------------------------------
Working Capital Fund (2.48%)....................................         159,924         119,612         279,536
----------------------------------------------------------------------------------------------------------------

F. Step 6: Project Needed Revenue

    In this step, we add all the expenses accrued to derive the total 
revenue needed for each area. These expenses include the projected 
operating expenses (from Step 2), the total pilot compensation (from 
Step 4), total target apprentice pilot wage (from Step 4), and the 
working capital fund contribution (from Step 5). We show these 
calculations in table 9.

                                    Table 9--Revenue Needed for District One
----------------------------------------------------------------------------------------------------------------
                                                                                   District One
                                                                 -----------------------------------------------
                                                                    Designated     Undesignated        Total
----------------------------------------------------------------------------------------------------------------
Adjusted Operating Expenses (Step 2)............................      $2,352,634      $1,568,537      $3,921,171
Total Target Pilot Compensation (Step 4)........................       3,934,610       3,147,688       7,082,298
Total Target Apprentice Pilot Wages (Step 4)....................         169,975         113,317         283,292
Working Capital Fund (Step 5)...................................         159,924         119,612         279,536
                                                                 -----------------------------------------------
    Total Revenue Needed........................................       6,617,143       4,949,154      11,566,297
----------------------------------------------------------------------------------------------------------------


[[Page 51059]]

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.\27\ Because we 
calculate separate figures for designated and undesignated waters, 
there are two parts for each calculation. We show these values in table 
10.
---------------------------------------------------------------------------

    \27\ 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 downloading 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 10--Time on Task for District One
                                 [Hours]
------------------------------------------------------------------------
                                                   District One
                  Year                   -------------------------------
                                            Designated     Undesignated
------------------------------------------------------------------------
2020....................................           6,265           7,560
2019....................................           8,232           8,405
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
                                         -------------------------------
    Average.............................           6,271           6,885
------------------------------------------------------------------------

    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 11.

          Table 11--Initial Rate Calculations for District One
------------------------------------------------------------------------
                                            Designated     Undesignated
------------------------------------------------------------------------
Revenue Needed (Step 6).................      $6,617,143      $4,949,154
Average Time on Task (Hours)............           6,271           6,885
Initial Rate............................          $1,055            $719
------------------------------------------------------------------------

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 12 and 
13.\28\
---------------------------------------------------------------------------

    \28\ To calculate the number of transits by vessel class, we use 
the billing data from GLPMS and SeaPro, 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. (SeaPro, used by all three pilot districts, is the 
approved dispatch and invoicing system that tracks pilot and vessel 
transits in place of the GLPMS.)

                      Table 12--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 1 (2019)..................................................              72               1              72
Class 1 (2020)..................................................               8               1               8
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 2 (2019)..................................................             378            1.15           434.7
Class 2 (2020)..................................................             560            1.15             644
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 3 (2019)..................................................             122             1.3           158.6
Class 3 (2020)..................................................              67             1.3            87.1
Class 4 (2014)..................................................             271            1.45          392.95
Class 4 (2015)..................................................             251            1.45          363.95
Class 4 (2016)..................................................             214            1.45           310.3
Class 4 (2017)..................................................             285            1.45          413.25
Class 4 (2018)..................................................             393            1.45          569.85

[[Page 51060]]

 
Class 4 (2019)..................................................             730            1.45          1058.5
Class 4 (2020)..................................................             427            1.45          619.15
                                                                 -----------------------------------------------
    Total.......................................................           5,920  ..............           7,610
----------------------------------------------------------------------------------------------------------------
Average weighting factor (weighted transits/number of transits).  ..............            1.29  ..............
----------------------------------------------------------------------------------------------------------------


                     Table 13--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 1 (2019)..................................................              30               1              30
Class 1 (2020)..................................................               3               1               3
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 2 (2019)..................................................             366            1.15           420.9
Class 2 (2020)..................................................             358            1.15           411.7
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 3 (2019)..................................................              58             1.3            75.4
Class 3 (2020)..................................................              35             1.3            45.5
Class 4 (2014)..................................................             289            1.45          419.05
Class 4 (2015)..................................................             269            1.45          390.05
Class 4 (2016)..................................................             222            1.45           321.9
Class 4 (2017)..................................................             285            1.45          413.25
Class 4 (2018)..................................................             382            1.45           553.9
Class 4 (2019)..................................................             326            1.45           472.7
Class 4 (2020)..................................................             334            1.45           484.3
                                                                 -----------------------------------------------
    Total.......................................................           4,619  ..............           5,972
----------------------------------------------------------------------------------------------------------------
Average weighting factor (weighted transits/number of transits).  ..............            1.29  ..............
----------------------------------------------------------------------------------------------------------------

I. Step 9: Calculate Revised Base Rates

    In this step, we revise the base rates so that once the impact of 
the weighting factors is considered; the total cost of pilotage will be 
equal to the revenue needed. To do this, we divide the initial base 
rates calculated in Step 7 by the average weighting factors calculated 
in Step 8, as shown in table 14.

                                  Table 14--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........................................          $1,055            1.29            $818
District One: Undesignated......................................             719            1.29             557
----------------------------------------------------------------------------------------------------------------

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 this, 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, including average 
traffic and weighting factions. Based on the financial information 
submitted by the

[[Page 51061]]

pilots, the Director is not proposing any alterations to the rates in 
this step. We propose to modify Sec.  401.405(a)(1) and (2) to reflect 
the final rates shown in table 15.

                                 Table 15--Proposed Final Rates for District One
----------------------------------------------------------------------------------------------------------------
                                                                                    Final 2021     Proposed 2022
                     Area                                     Name                 pilotage rate   pilotage rate
----------------------------------------------------------------------------------------------------------------
District One: Designated......................  St. Lawrence River..............            $800            $818
District One: Undesignated....................  Lake Ontario....................             498             557
----------------------------------------------------------------------------------------------------------------

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 2019 expenses and 
revenues.\29\ For accounting purposes, the financial reports divide 
expenses into designated and undesignated 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 16.
---------------------------------------------------------------------------

    \29\ These reports are available in the docket for this 2022 
ratemaking rulemaking (see Docket No. USCG-2021-0431).
---------------------------------------------------------------------------

    Adjustments made by the auditors are explained in the auditors' 
reports (available in the docket where indicated in the Public 
Participation and Request for Comments portion of this document).
    In the 2019 expenses used as the basis for this rulemaking, 
districts used the term ``applicant'' to describe applicant trainees 
and persons who would be called apprentices under the new definition 
proposed in this rulemaking. Therefore, when describing past expenses, 
we use the term ``applicant'' to match what was reported from 2019, but 
use ``apprentice'' to distinguish the impacts of the ratemaking going 
forward.
    There are two Director's adjustments for District Two. The first 
deduction is $173,818, the amount of surcharge collected in 2019 to 
recoup expenses of one applicant pilot, which is greater than the 
allowable surcharge of $150,000 per applicant pilot. The second 
deduction of $287,836 reduces the allowable expenses for applicant 
pilot salaries to 36 percent of target pilot compensation. District Two 
reported $417,395 in expenses for the salary of a single applicant 
pilot, more than the salary of a fully registered pilot. Using the 36 
percent target, the allowable applicant salary would have been 
$129,559, meaning the district paid an excess of $287,836 in applicant 
salaries ($417,395-$129,559 = $287,836). We continue to include 
applicant salaries as an allowable expense in the 2022 ratemaking as it 
is based on 2019 operating expenses, when salaries were still an 
allowable expense. The apprentice salaries paid in the years 2019, 
2020, and 2021 have not been reimbursed in the ratemaking as of 
publication of this proposed rule. Applicant salaries (including 
applicant trainees and apprentice pilots) will continue to be an 
allowable operating expense through the 2024 ratemaking, which uses 
operating expenses from 2021, where the wages for apprentice pilots 
were still authorized as operating expenses. Starting in the 2025 
ratemaking, apprentice pilot salaries would no longer be included as a 
2022 operating expense, because apprentice pilot wages would have 
already been factored into the ratemaking Steps 3 and 4 in calculation 
of the 2022 rates. Starting in 2025, the applicant salaries' operating 
expenses for 2022 will consist of only applicant trainees (those who 
are not yet apprentice pilots).

                               Table 16--2019 Recognized Expenses for District Two
----------------------------------------------------------------------------------------------------------------
                                                                                   District Two
                                                                 -----------------------------------------------
                                                                   Undesignated     Designated
              Reported operating expenses for 2019               --------------------------------
                                                                                    SES to Port        Total
                                                                     Lake Erie         Huron
----------------------------------------------------------------------------------------------------------------
Total Other Pilotage Costs:
    Subsistence/Travel--Pilots..................................        $140,909        $211,363        $352,272
    Hotel/Lodging Cost..........................................          49,800          74,700         124,500
    License Insurance...........................................             730           1,095           1,825
    Payroll Taxes...............................................          90,091         135,137         225,228
    Insurance...................................................          95,470         143,206         238,676
    Training....................................................           6,428           9,642          16,070
    Other.......................................................             221             331             552
                                                                 -----------------------------------------------
        Total Other Pilotage Costs..............................         383,649         575,474         959,123
Total Applicant Pilotage Cost:
    Applicant Salaries..........................................         166,958         250,437         417,395
    Applicant Health Insurance..................................              80             120             200
    Applicant Subsistence/Travel................................           5,729           8,593          14,322
    Applicant Hotel/Lodging Cost................................           3,984           5,976           9,960

[[Page 51062]]

 
    Applicant Payroll Tax.......................................           5,717           8,576          14,293
                                                                 -----------------------------------------------
        Total Applicant Cost....................................         182,468         273,702         456,170
Pilot Boat and Dispatch Costs:
    Pilot Boat Cost.............................................         210,948         316,422         527,370
    Employee Benefits...........................................          96,959         145,438         242,397
    Payroll Taxes...............................................          13,178          19,767          32,945
                                                                 -----------------------------------------------
        Total Pilot Boat and Dispatch Costs.....................         321,085         481,627         802,712
Administrative Expense:
    Legal--General Counsel......................................           4,430           6,645          11,075
    Legal--Shared Counsel (K&L Gates)...........................          22,696          34,045          56,741
    Office Rent.................................................          27,627          41,440          69,067
    Insurance...................................................          11,085          16,627          27,712
    Employee Benefits...........................................          34,093          51,139          85,232
    Payroll Taxes...............................................           5,259           7,888          13,147
    Other Taxes.................................................          36,484          54,726          91,210
    Real Estate Taxes...........................................           7,905          11,858          19,763
    Depreciation/Auto Lease/Other...............................          12,248          18,371          30,619
    Interest....................................................             320             481             801
    APA Dues....................................................          14,698          22,048          36,746
    Dues and Subscriptions......................................           1,912           2,868           4,780
    Utilities...................................................          18,910          28,366          47,276
    Salaries--Admin Employees...................................          49,924          74,885         124,809
    Accounting..................................................          13,452          20,178          33,630
Other...........................................................          18,322          27,483          45,805
                                                                 -----------------------------------------------
        Total Administrative Expenses...........................         279,365         419,048         698,413
----------------------------------------------------------------------------------------------------------------
Total OpEx (Pilot Costs + Applicant Cost + Pilot Boats + Admin).       1,166,567       1,749,851       2,916,418
    Directors Adjustments--Applicant Surcharge Collected........        (69,527)       (104,291)       (173,818)
    Directors Adjustments--Excess Applicant Salary Paid.........       (115,134)       (172,701)       (287,836)
                                                                 -----------------------------------------------
        Total Director's Adjustments............................       (184,661)       (276,992)       (461,654)
                                                                 -----------------------------------------------
            Total Operating Expenses (OpEx + Adjustments).......         981,906       1,472,859       2,454,764
----------------------------------------------------------------------------------------------------------------
* Values may not sum due to rounding.

B. Step 2: Project Operating Expenses, Adjusting for Inflation or 
Deflation

    Having identified the recognized 2019 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 2020 inflation rate.\30\ 
Because the BLS does not provide forecasted inflation data, we use 
economic projections from the Federal Reserve for the 2021 and 2022 
inflation modification.\31\ Based on that information, the calculations 
for Step 2 are as follows:
---------------------------------------------------------------------------

    \30\ The 2020 inflation rate is available at https://beta.bls.gov/dataViewer/view/timeseries/CUUR0200SA0. Specifically 
the CPI is defined as ``All Urban Consumers (CPI-U), All Items, 
1982-4=100.'' (Downloaded April 2021)
    \31\ The 2021 and 2022 inflation rates are available at https://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20210317.pdf. We used the PCE median inflation value 
found in table 1. (Downloaded March 24, 2021)

                             Table 17--Adjusted Operating Expenses for District Two
----------------------------------------------------------------------------------------------------------------
                                                                                   District Two
                                                                 -----------------------------------------------
                                                                   Undesignated     Designated         Total
----------------------------------------------------------------------------------------------------------------
Total Operating Expenses (Step 1)...............................        $981,906      $1,472,859      $2,454,764
2020 Inflation Modification (@1%)...............................           9,819          14,729          24,548
2021 Inflation Modification (@2.4%).............................          23,801          35,702          59,503
2022 Inflation Modification (@2%)...............................          20,311          30,466          50,777
                                                                 -----------------------------------------------
    Adjusted 2022 Operating Expenses............................       1,035,837       1,553,756       2,589,592
----------------------------------------------------------------------------------------------------------------


[[Page 51063]]

C. Step 3: Estimate Number of Registered Pilots and Apprentice Pilots

    In accordance with the text in Sec.  404.103, we estimate the 
number of registered pilots in each district. We determine the number 
of registered pilots based on data provided by the LPA. Using these 
numbers, we estimate that there will be 16 registered pilots in 2022 in 
District Two. We determine the number of apprentice pilots based on 
input from the district on anticipated retirements and staffing needs. 
Using these numbers, we estimate that there will be two apprentice 
pilots in 2022 in District Two. Furthermore, based on the seasonal 
staffing model discussed in the 2017 ratemaking (see 82 FR 41466) and 
our proposed changes to that staffing model, we assign a certain number 
of pilots to designated waters and a certain number to undesignated 
waters, as shown in table 18. Without rounding up, there would be 8 
pilots assigned to the undesignated area of District Two (8.6 pilots 
which is rounded up to 9 pilots). These numbers are used to determine 
the amount of revenue needed in their respective areas.

                       Table 18--Authorized Pilots
------------------------------------------------------------------------
                          Item                             District  Two
------------------------------------------------------------------------
Proposed Maximum Number of Pilots (per Sec.                           16
 401.220(a)) \32\.......................................
2022 Authorized Pilots (total)..........................              16
Pilots Assigned to Designated Areas.....................               7
Pilots Assigned to Undesignated Areas...................               9
2022 Apprentice Pilots..................................               2
------------------------------------------------------------------------

D. Step 4: Determine Target Pilot Compensation Benchmark and Apprentice 
Pilot Wage Benchmark
---------------------------------------------------------------------------

    \32\ 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 issuing an ``interim'' ratemaking this year, we follow 
the procedure outlined in paragraph (b) of Sec.  404.104, which adjusts 
the existing compensation benchmark by inflation. As stated in section 
VI.A of the preamble, we are proposing to use a two-step process to 
adjust target pilot compensation for inflation. First, we adjust the 
2021 percent target compensation benchmark of $378,925 by multiplying 
by 1.8 percent for an adjusted value of $385,746. The adjustment 
accounts for the difference in actual Q4 2020 ECI inflation, 3.5 
percent, and the 2020 PCE estimate of 1.7 percent.33 34 The 
second step accounts for projected inflation from 2021 to 2022, which 
is 2.0 percent.\35\ The proposed compensation benchmark for 2022 is 
$393,461 per pilot, as calculated in table 6. The target apprentice 
pilot wage is 36 percent of the target pilot compensation, $141,646 (= 
$393,461 x 0.36).
---------------------------------------------------------------------------

    \33\ Employment Cost Index, Total Compensation for Private 
Industry workers in Transportation and Material Moving, Series ID: 
CIU2010000520000A.
    \34\ CPI for All Urban Consumers, Series ID CUUR0200SA0.
    \35\ https://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20210317.pdf.
---------------------------------------------------------------------------

    Next, we certify that the number of pilots estimated for 2022 is 
less than or equal to the number permitted under the proposed changes 
to the staffing model in Sec.  401.220(a). The proposed changes to the 
staffing model suggest that the number of pilots needed is 16 pilots 
for District Two, which is less than or equal to 16, the number of 
registered pilots provided by the pilot associations.\36\
---------------------------------------------------------------------------

    \36\ 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 registered pilots for District Two, as shown in 
table 19.

                                 Table 19--Target Compensation for District Two
----------------------------------------------------------------------------------------------------------------
                                                                                   District Two
                                                                 -----------------------------------------------
                                                                   Undesignated     Designated         Total
----------------------------------------------------------------------------------------------------------------
Target Pilot Compensation.......................................        $393,461        $393,461        $393,461
Number of Pilots................................................               9               7              16
                                                                 -----------------------------------------------
    Total Target Pilot Compensation.............................      $3,541,149      $2,754,227      $6,295,376
Target Apprentice Pilot Wage....................................        $141,646        $141,646        $141,646
Number of Apprentice Pilots.....................................  ..............  ..............               2
                                                                 -----------------------------------------------
    Total Target Apprentice Pilot Wages.........................        $169,975        $113,317        $283,292
----------------------------------------------------------------------------------------------------------------

E. Step 5: Project Working Capital Fund

    Next, we calculate the working capital fund revenues needed for 
each area. First, we add the figures for projected operating expenses, 
total pilot compensation, and total target apprentice pilot wages 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 2.4767 percent.\37\ By multiplying the two figures, 
we obtain the working capital fund contribution for each area, as shown 
in table 20.
---------------------------------------------------------------------------

    \37\ See footnote 22 for more information.

[[Page 51064]]



                           Table 20--Working Capital Fund Calculation for District Two
----------------------------------------------------------------------------------------------------------------
                                                                                   District Two
                                                                 -----------------------------------------------
                                                                   Undesignated     Designated         Total
----------------------------------------------------------------------------------------------------------------
Adjusted Operating Expenses (Step 2)............................      $1,035,837      $1,553,756      $2,589,592
Total Target Pilot Compensation (Step 4)........................       3,541,149       2,754,227       6,295,376
Total Target Apprentice Pilot Wages (Step 4)....................         169,975         113,317         283,292
                                                                 -----------------------------------------------
    Total 2022 Expenses.........................................       4,746,961       4,421,300       9,168,260
----------------------------------------------------------------------------------------------------------------
Working Capital Fund (2.48%)....................................         117,566         109,501         227,067
----------------------------------------------------------------------------------------------------------------

F. Step 6: Project Needed Revenue

    In this step, we add all the expenses accrued to derive the total 
revenue needed for each area. These expenses include the projected 
operating expenses (from Step 2), the total pilot compensation (from 
Step 4), total target apprentice pilot wages, and the working capital 
fund contribution (from Step 5). We show these calculations in table 
21.

                                    Table 21--Revenue Needed for District Two
----------------------------------------------------------------------------------------------------------------
                                                                                   District Two
                                                                 -----------------------------------------------
                                                                   Undesignated     Designated         Total
----------------------------------------------------------------------------------------------------------------
Adjusted Operating Expenses (Step 2)............................      $1,035,837      $1,553,756      $2,589,592
Total Target Pilot Compensation (Step 4)........................       3,541,149       2,754,227       6,295,376
Total Target Apprentice Pilot Wages (Step 4)....................         169,975         113,317         283,292
Working Capital Fund (Step 5)...................................         117,566         109,501         227,067
                                                                 -----------------------------------------------
    Total Revenue Needed........................................       4,864,527       4,530,801       9,395,327
----------------------------------------------------------------------------------------------------------------

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 
Two, using the total time on task or pilot bridge hours.\38\ Because we 
calculate separate figures for designated and undesignated waters, 
there are two parts for each calculation. We show these values in table 
22.
---------------------------------------------------------------------------

    \38\ See footnote 23 for more information.

                 Table 22--Time on Task for District Two
                                 [Hours]
------------------------------------------------------------------------
                                                   District Two
                  Year                   -------------------------------
                                            Designated     Undesignated
------------------------------------------------------------------------
2020....................................           6,232           8,401
2019....................................           6,512           7,715
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
                                         -------------------------------
    Average.............................           5,701           5,978
------------------------------------------------------------------------

    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 23. The initial rate for the 
designated area is lower than last year's rate because of the increase 
in bridge hours shown as the average time on task, making the 
denominator of the revenue needed divided by bridge hours larger, and 
therefore making the initial rate lower.

[[Page 51065]]



          Table 23--Initial Rate Calculations for District Two
------------------------------------------------------------------------
                  Item                     Undesignated     Designated
------------------------------------------------------------------------
Revenue Needed (Step 6).................      $4,864,527      $4,530,801
Average Time on Task (Hours)............           5,701           5,978
Initial Rate............................            $853            $758
------------------------------------------------------------------------

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 24 and 
25.\39\
---------------------------------------------------------------------------

    \39\ See footnote 24 for more information.

                     Table 24--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 1 (2019)..................................................              54               1              54
Class 1 (2020)..................................................               1               1               1
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 2 (2019)..................................................             127            1.15          146.05
Class 2 (2020)..................................................             165            1.15          189.75
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 3 (2019)..................................................               1             1.3             1.3
Class 3 (2020)..................................................               1             1.3             1.3
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
Class 4 (2019)..................................................             210            1.45          304.50
Class 4 (2020)..................................................             201            1.45          291.45
                                                                 -----------------------------------------------
    Total.......................................................           4,574  ..............           6,012
----------------------------------------------------------------------------------------------------------------
Average weighting factor (weighted transits/number of transits).  ..............            1.31  ..............
----------------------------------------------------------------------------------------------------------------


                      Table 25--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 1 (2019)..................................................              48               1              48
Class 1 (2020)..................................................               7               1               7
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 2 (2019)..................................................             281            1.15          323.15
Class 2 (2020)..................................................             342            1.15           393.3
Class 3 (2014)..................................................               8             1.3            10.4

[[Page 51066]]

 
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 3 (2019)..................................................               1             1.3             1.3
Class 3 (2020)..................................................               5             1.3             6.5
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
Class 4 (2019)..................................................             403            1.45          584.35
Class 4 (2020)..................................................             405            1.45          587.25
                                                                 -----------------------------------------------
    Total.......................................................           4,152  ..............           5,461
----------------------------------------------------------------------------------------------------------------
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 factors is considered, the total cost of pilotage will be 
equal to the revenue needed. To do this, we divide the initial base 
rates calculated in Step 7 by the average weighting factors calculated 
in Step 8, as shown in table 26.

                                  Table 26--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........................................            $758            1.32            $574
District Two: Undesignated......................................             853            1.31             651
----------------------------------------------------------------------------------------------------------------

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 this, 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. The proposed 2021 rate for the designated area of 
District Two is lower than the 2020 final rate because of the increased 
traffic shown in Step 7. We propose to modify Sec.  401.405(a)(3) and 
(4) to reflect the final rates shown in table 27.

                                 Table 27--Proposed Final Rates for District Two
----------------------------------------------------------------------------------------------------------------
                                                                                    Final 2020     Proposed 2021
                     Area                                     Name                 pilotage rate   pilotage rate
----------------------------------------------------------------------------------------------------------------
District Two: Designated......................  Navigable waters from Southeast             $580            $574
                                                 Shoal to Port Huron, MI.
District Two: Undesignated....................  Lake Erie.......................             566             651
----------------------------------------------------------------------------------------------------------------

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 2018 expenses and 
revenues.\40\ For accounting purposes, the financial reports divide 
expenses into designated and undesignated 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 Three are shown in table 28.
---------------------------------------------------------------------------

    \40\ These reports are available in the docket for this 
rulemaking (see Docket No. USCG-2019-0736).
---------------------------------------------------------------------------

    Adjustments made by the auditors are explained in the auditors' 
reports (available in the docket where indicated in the Public 
Participation and Request for Comments portion of this document).
    In the 2019 expenses used as the basis for this rulemaking, 
districts used the

[[Page 51067]]

term ``applicant'' to describe applicant trainees and persons who would 
be called apprentices under the new definition proposed in this 
rulemaking. Therefore, when describing past expenses, we use the term 
``applicant'' to match what was reported from 2019, but use 
``apprentice'' to describe the impacts of the ratemaking going forward.
    There are two Director's adjustments for District Three. The first 
deduction is $746,802, the amount of surcharge collected in 2019 to 
recoup expenses of four applicant pilots, which is greater than the 
allowable surcharge of $150,000 per applicant pilot. The second 
deduction of $1,921 reduces the allowable expenses for applicant pilots 
to 36 percent of target pilot compensation. District Three reported 
$520,158 in expenses for the salary of four applicant pilots. Using the 
36 percent target, the allowable applicant salary would have been 
$129,559 per applicant for a total of $518,237 for four applicant 
pilots, meaning the district paid an excess of $1,921 in applicant 
salaries ($520,158-$518,237 = $1,921). Applicant salaries (including 
applicant trainees and apprentice pilots) will continue to be an 
allowable operating expense through the 2024 ratemaking, which uses 
operating expenses from 2021 where the wages for apprentice pilots were 
still authorized as operating expenses. Starting in the 2025 
ratemaking, apprentice pilot salaries would no longer be included as a 
2022 operating expense, because apprentice pilot wages would have 
already been factored into the ratemaking Steps 3 and 4 in calculation 
of the 2022 rates. Starting in 2025, the applicant salaries operating 
expenses for 2022 will consist of only applicant trainees (those who 
are not apprentice pilots).

                              Table 28--2019 Recognized Expenses for District Three
----------------------------------------------------------------------------------------------------------------
                                                                  District Three
                                                 ------------------------------------------------
                                                   Undesignated     Designated     Undesignated
      Reported operating expenses for 2019       ------------------------------------------------      Total
                                                    Lakes Huron     St. Mary's
                                                   and Michigan        River       Lake Superior
----------------------------------------------------------------------------------------------------------------
Other Pilotage Costs:
    Pilot Subsistence/Travel....................        $274,911        $114,586        $144,207        $533,704
    Hotel/Lodging Cost..........................         118,533          49,406          62,178         230,117
    License Insurance--Pilots...................          16,171           6,740           8,483          31,394
    Payroll Taxes...............................  ..............  ..............  ..............               0
    Payroll Tax (D3-19-01)......................         146,545          61,082          76,871         284,498
    Pilot Training..............................          40,017          16,680          20,991          77,688
    Other.......................................          12,551           5,232           6,584          24,367
                                                 ---------------------------------------------------------------
        Total Other Pilotage Costs..............         608,728         253,726         319,314       1,181,768
Applicant Cost:
    Applicant Salaries..........................         267,933         111,678         140,547         520,158
    Applicant Benefits..........................          77,627          32,356          40,720         150,703
    Applicant Payroll Tax.......................          21,713           9,050          11,390          42,153
                                                 ---------------------------------------------------------------
        Total Applicant Cost....................         367,273         153,084         192,657         713,014
Pilot Boat and Dispatch Costs:
    Pilot Boat Costs............................         415,908         173,356         218,168         807,432
    Dispatch Costs..............................         126,807          52,855          66,518         246,180
    Employee Benefits...........................           7,550           3,147           3,960          14,657
    Payroll Taxes...............................          10,534           4,391           5,526          20,451
                                                 ---------------------------------------------------------------
        Total Pilot Boat and Dispatch Costs.....         560,799         233,749         294,172       1,088,720
Administrative Cost:
    Legal--General Counsel......................           9,453           3,940           4,958          18,351
    Legal--Shared Counsel (K&L Gates)...........          26,858          11,195          14,089          52,142
    Legal--USCG Intervener Litigation...........          19,050           7,940           9,993          36,983
    Office Rent.................................           3,369           1,404           1,767           6,540
    Insurance...................................          27,622          11,513          14,489          53,624
    Employee Benefits...........................          77,435          32,276          40,619         150,330
    Payroll Tax.................................          18,984           7,913           9,958          36,855
    Other Taxes.................................             480             200             252             932
    Depreciation/Auto Leasing/Other.............          51,287          21,377          26,903          99,567
    Interest....................................           5,754           2,398           3,018          11,170
    APA Dues....................................          24,311          10,133          12,752          47,196
    Dues and Subscriptions......................           4,198           1,750           2,202           8,150
    Utilities...................................          38,585          16,083          20,240          74,908
    Salaries....................................          75,200          31,344          39,447         145,991
    Accounting/Professional Fees................          19,865           8,280          10,420          38,565
    Other Expenses..............................          23,945           9,981          12,561          46,487
    CPA Deduction (D3-18-01)....................         (4,117)         (1,716)         (2,160)         (7,993)
                                                 ---------------------------------------------------------------
        Total Administrative Expenses...........         422,279         176,011         221,508         819,798
----------------------------------------------------------------------------------------------------------------
Total Operating Expenses (Other Costs+ Applicant       1,959,079         816,570       1,027,651       3,803,300
 Cost + Pilot Boats + Admin)....................
    Directors Adjustments--Applicant Surcharge         (384,678)       (160,339)       (201,786)       (746,802)
     Collected..................................
    Directors Adjustments--Excess Applicant             (989.36)        (412.38)        (518.98)         (1,921)
     Salary Paid................................
                                                 ---------------------------------------------------------------

[[Page 51068]]

 
        Total Directors Adjustments.............       (385,667)       (160,751)       (202,305)       (748,723)
                                                 ---------------------------------------------------------------
            Total Operating Expenses (OpEx +           1,573,412         655,819         825,346       3,054,577
             Adjustments).......................
----------------------------------------------------------------------------------------------------------------

B. Step 2: Project Operating Expenses, Adjusting for Inflation or 
Deflation

    Having identified the recognized 2019 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 2020 inflation rate.\41\ 
Because the BLS does not provide forecasted inflation data, we use 
economic projections from the Federal Reserve for the 2021 and 2022 
inflation modification.\42\ Based on that information, the calculations 
for Step 2 are as follows:
---------------------------------------------------------------------------

    \41\ The 2020 inflation rate is available at https://beta.bls.gov/dataViewer/view/timeseries/CUUR0200SA0. Specifically 
the CPI is defined as ``All Urban Consumers (CPI-U), All Items, 
1982-4 = 100''. (Downloaded April 2021)
    \42\ The 2021 and 2022 inflation rates are available at https://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20210317.pdf. We used the PCE median inflation value 
found in table 1. (Downloaded March 24, 2021)

                            Table 29--Adjusted Operating Expenses for District Three
----------------------------------------------------------------------------------------------------------------
                                                                                  District Three
                                                                 -----------------------------------------------
                                                                   Undesignated     Designated         Total
----------------------------------------------------------------------------------------------------------------
Total Operating Expenses (Step 1)...............................      $2,398,758        $655,819      $3,054,577
2020 Inflation Modification (@1%)...............................          23,988           6,558          30,546
2021 Inflation Modification (@2.4%).............................          58,146          15,897          74,043
2022 Inflation Modification (@2%)...............................          49,618          13,565          63,183
                                                                 -----------------------------------------------
    Adjusted 2022 Operating Expenses............................       2,530,510         691,839       3,222,349
----------------------------------------------------------------------------------------------------------------

C. Step 3: Estimate Number of Registered Pilots and Apprentice Pilots

    In accordance with the text in Sec.  404.104(c), we estimate the 
number of registered pilots in each district. We determine the number 
of registered pilots based on data provided by the WGLPA. Using these 
numbers, we estimate that there will be 22 registered pilots in 2022 in 
District Three. We determine the number of apprentice pilots based on 
input from the district on anticipated retirements and staffing needs. 
Using these numbers, we estimate that there will be five apprentice 
pilots in 2022 in District Three. Furthermore, based on the seasonal 
staffing model discussed in the 2017 ratemaking (see 82 FR 41466), and 
our proposed changes to that staffing model, we assign a certain number 
of pilots to designated waters and a certain number to undesignated 
waters, as shown in table 30. These numbers are used to determine the 
amount of revenue needed in their respective areas.

                       Table 30--Authorized Pilots
------------------------------------------------------------------------
                          Item                            District Three
------------------------------------------------------------------------
Proposed Maximum Number of Pilots (per Sec.                           22
 401.220(a)) \43\.......................................
2022 Authorized Pilots (total)..........................              22
Pilots Assigned to Designated Areas.....................               4
Pilots Assigned to Undesignated Areas...................              18
2022 Apprentice Pilots..................................               5
------------------------------------------------------------------------

D. Step 4: Determine Target Pilot Compensation Benchmark and Apprentice 
Pilot Wage Benchmark
---------------------------------------------------------------------------

    \43\ 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 issuing an ``interim'' ratemaking this year, we follow 
the procedure outlined in paragraph (b) of Sec.  404.104, which adjusts 
the existing compensation benchmark by inflation. First, we adjust the 
2021 percent target compensation benchmark of $378,925 by 1.8 percent 
for an adjusted value of $385,746. The adjustment accounts for the 
difference in actual Q4 2020 ECI inflation, 3.5 percent, and the 2020 
PCE estimate of 1.7 percent.44 45 The second step accounts 
for projected inflation from

[[Page 51069]]

2021 to 2022, 2.0 percent.\46\ Based on the projected 2022 inflation 
estimate, the proposed compensation benchmark for 2022 is $393,461 per 
pilot as shown in table 6. The target apprentice pilot wage is 36 
percent of the target pilot compensation, $141,646 (= $393,461 x 0.36).
---------------------------------------------------------------------------

    \44\ Employment Cost Index, Total Compensation for Private 
Industry workers in Transportation and Material Moving, Series ID: 
CIU2010000520000A.
    \45\ CPI for All Urban Consumers, Series ID CUUR0200SA0.
    \46\ https://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20210317.pdf.
---------------------------------------------------------------------------

    Next, we certify that the number of pilots estimated for 2022 is 
less than or equal to the number permitted under the proposed changes 
to the staffing model in Sec.  401.220(a). The proposed changes to the 
staffing model suggest that the number of pilots needed is 22 pilots 
for District Three, which is less than or equal to 22, the number of 
registered pilots provided by the pilot associations.\47\
---------------------------------------------------------------------------

    \47\ 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 registered pilots for District Three, as shown in 
table 31.

                                Table 31--Target Compensation for District Three
----------------------------------------------------------------------------------------------------------------
                                                                                  District Three
                                                                 -----------------------------------------------
                                                                   Undesignated     Designated         Total
----------------------------------------------------------------------------------------------------------------
Target Pilot Compensation.......................................        $393,461        $393,461        $393,461
Number of Pilots................................................              18               4              22
                                                                 -----------------------------------------------
    Total Target Pilot Compensation.............................      $7,082,298      $1,573,844      $8,656,142
Target Apprentice Pilot Wage....................................        $141,646        $141,646        $141,646
Number of Apprentice Pilots.....................................  ..............  ..............               5
                                                                 -----------------------------------------------
    Total Target Apprentice Pilot Wages.........................        $424,938        $283,292     $708,229.80
----------------------------------------------------------------------------------------------------------------

E. Step 5: Project Working Capital Fund

    Next, we calculate the working capital fund revenues needed for 
each area. First, we add the figures for projected operating expenses, 
total pilot compensation, and total target apprentice pilot wages 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 2.4767 percent.\48\ By multiplying the two figures, 
we obtain the working capital fund contribution for each area, as shown 
in table 32.
---------------------------------------------------------------------------

    \48\ Moody's Seasoned Aaa Corporate Bond Yield, average of 2020 
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. (March 26, 2021)

                          Table 32--Working Capital Fund Calculation for District Three
----------------------------------------------------------------------------------------------------------------
                                                                                  District Three
                                                                 -----------------------------------------------
                                                                   Undesignated     Designated         Total
----------------------------------------------------------------------------------------------------------------
Adjusted Operating Expenses (Step 2)............................      $2,530,510        $691,839      $3,222,349
Total Target Pilot Compensation (Step 4)........................       7,082,298       1,573,844       8,656,142
Total Target Apprentice Pilot Wages (Step 4)....................         424,938         283,292         708,230
                                                                 -----------------------------------------------
    Total 2022 Expenses.........................................      10,037,746       2,548,975      12,586,721
----------------------------------------------------------------------------------------------------------------
Working Capital Fund (2.48%)....................................         248,602          63,130         311,732
----------------------------------------------------------------------------------------------------------------

F. Step 6: Project Needed Revenue

    In this step, we add all the expenses accrued to derive the total 
revenue needed for each area. These expenses include the projected 
operating expenses (from Step 2), the total pilot compensation (from 
Step 4), and the working capital fund contribution (from Step 5). The 
calculations are shown in table 33.

                                   Table 33--Revenue Needed for District Three
----------------------------------------------------------------------------------------------------------------
                                                                                  District Three
                                                                 -----------------------------------------------
                                                                   Undesignated     Designated         Total
----------------------------------------------------------------------------------------------------------------
Adjusted Operating Expenses (Step 2)............................      $2,530,510        $691,839      $3,222,349
Total Target Pilot Compensation (Step 4)........................       7,082,298       1,573,844       8,656,142
Total Target Apprentice Pilot Wages (Step 4)....................         424,938         283,292         708,230
Working Capital Fund (Step 5)...................................         248,602          63,130         311,732
                                                                 -----------------------------------------------
    Total Revenue Needed........................................      10,286,348       2,612,105      12,898,453
----------------------------------------------------------------------------------------------------------------


[[Page 51070]]

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.\49\ Because 
we calculate separate figures for designated and undesignated waters, 
there are two parts for each calculation. We show these values in table 
34.
---------------------------------------------------------------------------

    \49\ See footnote 22 for more information.

                Table 34--Time on Task for District Three
                                 [Hours]
------------------------------------------------------------------------
                                                  District Three
                  Year                   -------------------------------
                                           Undesignated     Designated
------------------------------------------------------------------------
2020....................................          24,178           3,682
2019....................................          24,851           3,395
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
                                         -------------------------------
    Average.............................          21,106           2,930
------------------------------------------------------------------------

    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 35.

         Table 35--Initial Rate Calculations for District Three
------------------------------------------------------------------------
                                           Undesignated     Designated
------------------------------------------------------------------------
Revenue Needed (Step 6).................     $10,287,977      $2,612,550
Average Time on Task (Hours)............          21,106           2,930
Initial Rate............................             487             891
------------------------------------------------------------------------

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 36 and 
37.\50\
---------------------------------------------------------------------------

    \50\ See footnote 23 for more information.

                    Table 36--Average Weighting Factor for District Three, Undesignated Areas
----------------------------------------------------------------------------------------------------------------
                                                                     Number of       Weighting       Weighted
                        Vessel class/year                            transits         factor         transits
----------------------------------------------------------------------------------------------------------------
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 1 (2019)..................................................             173               1             173
Class 1 (2020)..................................................               4               1               4
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 2 (2019)..................................................             279            1.15          320.85
Class 2 (2020)..................................................             395            1.15          454.25
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 3 (2019)..................................................               9             1.3            11.7
Class 3 (2020)..................................................               4             1.3             5.2

[[Page 51071]]

 
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
Class 4 (2019)..................................................             334            1.45           484.3
Class 4 (2020)..................................................             413            1.45          598.85
                                                                 -----------------------------------------------
    Total for Area 6............................................           5,115  ..............           6,559
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 1 (2019)..............................................               0               1               0
    Class 1 (2020)..............................................               1               1               1
    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 2 (2019)..............................................             120            1.15             138
    Class 2 (2020)..............................................             239            1.15          274.85
    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 3 (2019)..............................................               6             1.3             7.8
    Class 3 (2020)..............................................               2             1.3             2.6
    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
    Class 4 (2019)..............................................             254            1.45           368.3
    Class 4 (2020)..............................................             456            1.45           661.2
                                                                 -----------------------------------------------
    Total for Area 8............................................           3,054  ..............           4,077
                                                                 -----------------------------------------------
        Combined total..........................................           8,169  ..............       10,636.05
----------------------------------------------------------------------------------------------------------------
Average weighting factor (weighted transits/number of transits).  ..............            1.30  ..............
----------------------------------------------------------------------------------------------------------------


                     Table 37--Average Weighting Factor for District Three, Designated Areas
----------------------------------------------------------------------------------------------------------------
                                                                     Number of       Weighting       Weighted
                        Vessel class/year                            transits         factor         transits
----------------------------------------------------------------------------------------------------------------
Class 1 (2014)..................................................              27               1              27
Class 1 (2015)..................................................              23               1              23
Class 1 (2016)..................................................              55               1              55
Class 1 (2017)..................................................              62               1              62
Class 1 (2018)..................................................              47               1              47
Class 1 (2019)..................................................              45               1              45
Class 1 (2020)..................................................              16               1              16
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 2 (2019)..................................................             162            1.15           186.3
Class 2 (2020)..................................................             250            1.15           287.5
Class 3 (2014)..................................................               4             1.3             5.2
Class 3 (2015)..................................................               0             1.3               0
Class 3 (2016)..................................................               6             1.3             7.8
Class 3 (2017)..................................................              14             1.3            18.2
Class 3 (2018)..................................................               6             1.3             7.8
Class 3 (2019)..................................................               3             1.3             3.9
Class 3 (2020)..................................................               4             1.3             5.2

[[Page 51072]]

 
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
Class 4 (2019)..................................................             308            1.45           446.6
Class 4 (2020)..................................................             385            1.45          558.25
                                                                 -----------------------------------------------
    Total.......................................................           3,469  ..............           4,526
----------------------------------------------------------------------------------------------------------------
Average weighting factor (weighted transits/number of transits).  ..............            1.30  ..............
----------------------------------------------------------------------------------------------------------------

I. Step 9: Calculate Revised Base Rates

    In this step, we revise the base rates so that once the impact of 
the weighting factors is considered, the total cost of pilotage will be 
equal to the revenue needed. To do this, we divide the initial base 
rates calculated in Step 7 by the average weighting factors calculated 
in Step 8, as shown in table 38.

                                 Table 38--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......................................            $891            1.30            $685
District Three: Undesignated....................................             487            1.30             375
----------------------------------------------------------------------------------------------------------------

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 this, 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 Sec.  401.405(a)(5) and (6) to 
reflect the final rates shown in table 39.

                                Table 39--Proposed Final Rates for District Three
----------------------------------------------------------------------------------------------------------------
                                                                                    Final 2020     Proposed 2021
                     Area                                     Name                 pilotage rate   pilotage rate
----------------------------------------------------------------------------------------------------------------
District Three: Designated....................  St. Marys River.................            $586            $685
District Three: Undesignated..................  Lakes Huron, Michigan, and                   337             375
                                                 Superior.
----------------------------------------------------------------------------------------------------------------

VIII. Regulatory Analyses

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

A. Regulatory Planning and Review

    Executive Orders 12866 (Regulatory Planning and Review) and 13563 
(Improving Regulation and Regulatory Review) direct agencies to assess 
the costs and benefits of available regulatory alternatives and, if 
regulation is necessary, to select regulatory approaches that maximize 
net benefits (including potential economic, environmental, public 
health and safety effects, distributive impacts, and equity). Executive 
Order 13563 emphasizes the importance of quantifying costs and 
benefits, reducing costs, harmonizing rules, and promoting flexibility.
    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. A 
regulatory analysis (RA) follows. The purpose of this proposed rule is 
to establish new base pilotage rates, as 46 U.S.C. 9303(f) requires 
that rates be established or reviewed and adjusted each year. The 
statute also requires that base rates be established by a full 
ratemaking at least once every 5 years, and in years when base rates 
are not established, they must be reviewed and, if necessary, adjusted. 
The last full ratemaking was concluded in June of 2018.\51\ For this 
ratemaking, the Coast Guard estimates an increase in cost of 
approximately $3.53 million to industry, an approximate 12-percent 
increase, because of the change in revenue needed in 2022 compared to 
the revenue needed in 2021.
---------------------------------------------------------------------------

    \51\ Great Lakes Pilotage Rates--2018 Annual Review and 
Revisions to Methodology (83 FR 26162), published June 5, 2018.
---------------------------------------------------------------------------

    Table 40 summarizes proposed changes with no cost impacts or where 
the cost impacts are captured in the

[[Page 51073]]

proposed rate change. Table 41 summarizes the affected population, 
costs, and benefits of the proposed rate change.

              Table 40--Proposed Changes With No Costs or Cost Captured in the Proposed Rate Change
----------------------------------------------------------------------------------------------------------------
                                                                           Basis for no cost
             Change                   Description          Affected        or cost captured        Benefits
                                                          population          in the rate
----------------------------------------------------------------------------------------------------------------
Add a definition of apprentice    Distinguishes       Owners and          No cost, strictly   Provides clarity
 pilot.                            between             operators of 293    a definitional      by distinguishing
                                   applicants who      vessels             change.             apprentice pilots
                                   have not yet        transiting the                          from applicant
                                   entered training    Great Lakes                             trainees when
                                   and apprentices,    system annually,                        calculating the
                                   persons approved    56 U.S. Great                           apprentice pilot
                                   and certified by    Lakes pilots, 9                         operating
                                   the Director who    apprentice                              expenses,
                                   are participating   pilots, and 3                           estimates and
                                   in an approved      pilotage                                wage benchmark.
                                   U.S. Great Lakes    associations.
                                   pilot training
                                   and qualification
                                   program and meet
                                   all the minimum
                                   requirements
                                   listed in 46 CFR
                                   401.211.
Changes to staffing model.......  The Coast Guard is  Owners and          The total number    Rounding up in the
                                   proposing to        operators of 293    of pilots is        staffing model
                                   modify the          vessels             accounted for in    accounts for
                                   staffing model at   transiting the      the base pilotage   extra staff or
                                   46 CFR              Great Lakes         rates. For the      extra time spent
                                   401.220(a)(3) to    system annually,    2022 ratemaking,    by the pilot
                                   round up to the     56 U.S. Great       this proposed       associations
                                   nearest integer,    Lakes pilots, 9     change would        presidents not
                                   as opposed to the   apprentice          allow for two       performing
                                   existing method,    pilots, and 3       additional pilots   pilotage service.
                                   which rounds to     pilotage            that would not      Rounding up
                                   the nearest         associations.       have otherwise      allows us to
                                   integer. In                             been allowed.       account for this
                                   total, this would                       This increases      time and promote
                                   increase the                            the total revenue   safety and
                                   maximum number of                       needed by           restorative rest,
                                   allowable pilots                        $773,281.           while minimizing
                                   by 2, adding one                                            delays in
                                   pilot to each of                                            providing
                                   the undesignated                                            pilotage
                                   areas of District                                           services.
                                   One and District
                                   Two.
Adding number of apprentice       The Coast Guard is  Owners and          Total cost of       Setting a target
 pilots to Step 3 and setting      proposing to        operators of 293    $1,274,814 for      wage of 36% of
 target apprentice pilot wage in   modify the          vessels             the wages of 9      registered pilot
 Step 4.                           staffing model at   transiting the      apprentice pilots   compensation
                                   46 CFR 404.103 to   Great Lakes         for the 2022        better matches
                                   predict the         system annually,    season. This        changes in
                                   number of           56 U.S. Great       amount is           registered pilot
                                   apprentice pilots   Lakes pilots, 9     incorporated into   compensation and
                                   each district       apprentice          the rate increase.  inflation and
                                   would need for      pilots, and 3                           more evenly
                                   the next season.    pilotage                                distributes the
                                   46 CFR 404.103      associations.                           additional cost
                                   would establish                                             of apprentice
                                   the target                                                  pilots compared
                                   apprentice pilot                                            to the surcharge
                                   wage at 36% of                                              method.
                                   registered pilot
                                   compensation for
                                   that year.
----------------------------------------------------------------------------------------------------------------


                               Table 41--Economic Impacts Due to Proposed Changes
----------------------------------------------------------------------------------------------------------------
                                                           Affected
             Change                   Description         population             Costs             Benefits
----------------------------------------------------------------------------------------------------------------
Rate and surcharge changes......  In accordance with  Owners and          Increase of         New rates cover an
                                   46 U.S.C. Chapter   operators of 293    $3,527,425 due to   association's
                                   93, the Coast       vessels             change in revenue   necessary and
                                   Guard is required   transiting the      needed for 2022     reasonable
                                   to review and       Great Lakes         ($33,860,077)       operating
                                   adjust base         system annually,    from revenue        expenses.
                                   pilotage rates      56 U.S. Great       needed for 2021     Promotes safe,
                                   annually.           Lakes pilots, 9     ($30,332,652), as   efficient, and
                                                       apprentice          shown in table 42.  reliable pilotage
                                                       pilots, and 3                           service on the
                                                       pilotage                                Great Lakes.
                                                       associations.                           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

[[Page 51074]]

information on Great Lakes pilotage ratemaking. Based on our annual 
review for this rulemaking, we are proposing to adjust the pilotage 
rates for the 2022 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 result 
would be an increase in rates for all areas in Districts One and Three 
and the undesignated area of District Two. The rate for the designated 
area of District Two would decrease. These changes would lead to a net 
increase 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 affect U.S. Great Lakes pilots, the 3 pilot 
associations, and the owners and operators of 293 oceangoing vessels 
that transit the Great Lakes annually. We estimate that there would be 
56 registered pilots and 9 apprentice pilots during the 2022 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 2018 
through 2020 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 514 unique vessels 
used pilotage services during the years 2017 through 2019. That is, 
these vessels had a pilot dispatched to the vessel, and billing 
information was recorded in the GLPMS or SeaPro. Of these vessels, 465 
were foreign-flagged vessels and 49 were U.S.-flagged vessels. As 
stated previously, 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 2018 through 2020 as the best representation of 
vessels estimated to be affected by the rates in this rulemaking. From 
2018 through 2020, an average of 293 vessels used pilotage services 
annually.\52\ On average, 275 of these vessels were foreign-flagged 
vessels and 19 were U.S.-flagged vessels that voluntarily opted into 
the pilotage service.
---------------------------------------------------------------------------

    \52\ 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 increase in the cost of service to 
shippers. However, the proposed change in per unit cost to each 
individual shipper would be dependent on their area of operation.
    The Coast Guard estimates the effect of the rate changes on 
shippers by comparing the total projected revenues needed to cover 
costs in 2021 with the total projected revenues to cover costs in 2022, 
including any temporary surcharges we have authorized.\53\ We set 
pilotage rates so pilot associations receive enough revenue to cover 
their necessary and reasonable expenses. Shippers pay these rates when 
they have a pilot as required by 46 U.S.C. 9302. Therefore, the 
aggregate payments of shippers to pilot associations are equal to the 
projected necessary revenues for pilot associations. The revenues each 
year represent the total costs that shippers must pay for pilotage 
services. The change in revenue from the previous year is the 
additional cost to shippers discussed in this rule.
---------------------------------------------------------------------------

    \53\ While the Coast Guard implemented a surcharge in 2019, we 
are not proposing any surcharges for 2022.
---------------------------------------------------------------------------

    The impacts of the rate changes on shippers are estimated from the 
district pilotage projected revenues (shown in tables 9, 21, and 33 of 
this preamble). The Coast Guard estimates that for the 2022 shipping 
season, the projected revenue needed for all three districts is 
$33,860,077.
    To estimate the change in cost to shippers from this rule, the 
Coast Guard compared the 2022 total projected revenues to the 2021 
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 2021 
rulemaking, we estimated the total projected revenue needed for 2021 as 
$30,332,652.\54\ This is the best approximation of 2021 revenues, as at 
the time of this publication the Coast Guard does not have enough 
audited data available for the 2021 shipping season to revise these 
projections.\55\ Table 42 shows the revenue projections for 2021 and 
2022 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.
---------------------------------------------------------------------------

    \54\ 85 FR 20088, see table 41.
    \55\ The proposed rates for 2021 do not account for the impacts 
COVID-19 may have had on shipping traffic and subsequently pilotage 
revenue, as we do not have complete data for 2020. The rates for 
2022 will take into account for all and any pertinent impacts of 
COVID-19 on shipping traffic, because that future ratemaking will 
include 2020 traffic data. However, the Coast Guard uses 10-year 
average when calculating traffic in order to smooth out variations 
in traffic caused by global economic conditions, such as those 
caused by the COVID-19 pandemic.

[[Page 51075]]



                                Table 42--Effect of the Rule by Area and District
                                             [$U.S.; non-discounted]
----------------------------------------------------------------------------------------------------------------
                                                                                                     Change in
                              Area                                Revenue needed  Revenue needed   costs of this
                                                                      in 2021         in 2022      proposed rule
----------------------------------------------------------------------------------------------------------------
Total, District One.............................................     $10,620,941     $11,566,297        $945,356
Total, District Two.............................................       8,506,705       9,395,327         888,622
Total, District Three...........................................      11,205,006      12,898,453       1,693,447
                                                                 -----------------------------------------------
    System Total................................................      30,332,652      33,860,077       3,527,425
----------------------------------------------------------------------------------------------------------------

    The resulting difference between the projected revenue in 2021 and 
the projected revenue in 2022 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. After taking into account the change in pilotage rates, 
the rate changes would lead to affected shippers operating in District 
One experiencing an increase in payments of $945,356 over the previous 
year. District Two and District Three would experience an increase in 
payments of $888,622 and $1,693,447, respectively, when compared with 
2021. The overall adjustment in payments would be an increase in 
payments by shippers of $3,527,425 across all three districts (a 12-
percent increase when compared with 2021). 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 43 shows the difference in revenue by revenue-component from 
2021 to 2022 and presents each revenue-component as a percentage of the 
total revenue needed. In both 2021 and 2022, the largest revenue-
component was pilotage compensation (71 percent of total revenue needed 
in 2021 and 65 percent of total revenue needed in 2022), followed by 
operating expenses (26 percent of total revenue needed in 2021 and 29 
percent of total revenue needed in 2022).

                                                      Table 43--Difference in Revenue by Component
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                         Percentage of                   Percentage of  Difference (2022    Percentage
                   Revenue-component                    Revenue needed   total revenue  Revenue needed   total revenue    revenue- 2021     change from
                                                            in 2021     needed in 2021      in 2022     needed in 2022      revenue)       previous year
--------------------------------------------------------------------------------------------------------------------------------------------------------
Adjusted Operating Expenses...........................      $8,876,850              29      $9,733,112              29          $856,262              10
Total Target Pilot Compensation.......................      20,461,950              67      22,033,816              65         1,571,866               8
Total Target Apprentice Pilot Wages...................  ..............  ..............       1,274,814               4         1,274,814  ..............
Working Capital Fund..................................         993,852               3         818,335               2         (175,517)            (18)
                                                       -------------------------------------------------------------------------------------------------
    Total Revenue Needed..............................      30,332,652             100      33,860,077             100         3,527,425              12
--------------------------------------------------------------------------------------------------------------------------------------------------------
Note: Totals may not sum due to rounding.

    As stated above, we estimate that there will be a total increase in 
revenue needed by the pilot associations of $3,527,425. This represents 
an increase in revenue needed for target pilot compensation of 
$1,571,866, the now-codified revenue needed for total apprentice pilot 
wages of $1,274,814, and an increase in the revenue needed for adjusted 
operating expenses of $856,262 and a decrease in the revenue needed for 
the working capital fund of ($175,517).
    The majority of the increase in revenue needed, $1,571,866, is the 
result of changes to target pilot compensation. These changes are due 
to three factors: (1) The proposed changes to adjust 2021 pilotage 
compensation to account for the difference between actual ECI inflation 
(3.5 percent) \56\ and predicted PCE inflation (1.7 percent) \57\ for 
2021; (2) the net addition of two additional pilots; and (3) inflation 
of pilotage compensation in step 2 of the methodology using CPI from 
2019 and predicted inflation through 2022.
---------------------------------------------------------------------------

    \56\ https://www.bls.gov/news.release/archives/eci_01292021.htm.
    \57\ https://www.federalreserve.gov/monetarypolicy/fomcprojtabl20201216.htm.
---------------------------------------------------------------------------

    The proposed target compensation is $393,461 per pilot in 2022, 
compared to $378,925 in 2021. The proposed changes to modify the 2020 
pilot compensation to account for the difference between predicted and 
actual inflation would increase the 2021 target compensation value by 
1.8 percent. As shown in table 44, this inflation adjustment would 
increase total compensation by $6,821 per pilot, and the total revenue 
needed by $381,956 when accounting for all 56 pilots.

[[Page 51076]]



    Table 44--Change in Revenue Resulting From the Proposed Change to
          Inflation of Pilot Compensation Calculation in Step 4
------------------------------------------------------------------------
 
------------------------------------------------------------------------
2021 target compensation................................        $378,925
Adjusted 2021 Compensation ($378,925 x 1.018)...........         385,746
Difference between Target 2021 Compensation and Adjusted           6,821
 Target 2021 Compensation ($385,746-$378,925)...........
Increase in Total Revenue for 56 Pilots ($6,821 x 56)...         381,956
------------------------------------------------------------------------

    Adjusting rounding in the staffing model to always round up, rather 
than round to the nearest integer, would add an additional pilot to the 
undesignated areas of District One and District Two. The proposed 
addition of two fully registered pilots accounts for $773,281 of the 
increase in needed revenue. As shown in table 44, to avoid double 
counting, this value excludes the change in revenue resulting from the 
proposed change to adjust 2021 pilotage compensation to account for the 
difference between actual and predicted inflation.

 Table 45--Change in Revenue Resulting From Adding Two Additional Pilots
------------------------------------------------------------------------
 
------------------------------------------------------------------------
2022 Target Compensation................................        $393,461
Total Number of New Pilots..............................               2
Total Cost of New Pilots ($393,461 x 2).................        $786,922
Difference between Adjusted Target 2021 Compensation and          $6,821
 Target 2021 Compensation ($378,925-$385,746)...........
Increase in Total Revenue for 2 Pilots ($6,821 x 2).....         $13,641
Net Increase in Total Revenue for 2 Pilots ($786,922-           $773,281
 $13,641)...............................................
------------------------------------------------------------------------

    Another proposed increase, $432,060, is the result of increasing 
compensation for the 56 pilots to account for future inflation of 2.0 
percent in 2022. This would increase total compensation by $7,715 per 
pilot, as shown in table 46.

 Table 46--Change in Revenue Resulting From Inflating 2021 Compensation
                                 to 2022
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Adjusted 2021 Compensation..............................        $385,746
2022 Target Compensation ($385,746 x 1.02)..............         393,461
Difference between Adjusted 2021 Compensation and Target           7,715
 2022 Compensation ($393,461-$385,746)..................
Increase in Total Revenue for 56 Pilots ($7,715 x 56)...         432,060
------------------------------------------------------------------------

    Finally, the second-largest part of the increase in revenue needed 
would be to account for the target apprentice pilot wage, now 
incorporated into the rate. First, in Step 3, we estimate the need for 
9 apprentice pilots for the 2022 shipping season. Based on the 2022 
target pilot compensation of $393,461, the target apprentice pilot wage 
would be $141,646 ($393,461 x 0.36 = $141,646). Setting the target in 
this manner, rather than through a surcharge, better allows apprentice 
pilot wages to match fluctuations in the pilot wage, which follows 
changes in traffic and better accounts for changes in inflation than 
the surcharge. Additionally, unlike a surcharge, this method will not 
need to be ``turned off,'' which makes rates throughout the season more 
predictable for shippers. The total cost of wages for the 9 apprentice 
pilots would be $1,274,814, as shown in table 47.
---------------------------------------------------------------------------

    \58\ The 2020 projected revenues are from the Great Lakes 
Pilotage Rate--2020 Annual Review and Revisions to Methodology final 
rule (85 FR 20088), tables 8, 20, and 32. The 2021 projected 
revenues are from tables 9, 21, and 33 of this NPRM.

Table 47--Change in Revenue Resulting From Target Apprentice Pilot Wages
------------------------------------------------------------------------
 
------------------------------------------------------------------------
2022 Target Apprentice Pilot Wage.......................        $141,646
Total Number of Apprentice Pilots.......................               9
Total Cost of Apprentice Pilots ($141,646 x 9)..........      $1,274,814
------------------------------------------------------------------------

    Table 48 presents the percentage change in revenue by area and 
revenue-component, excluding surcharges, as they are applied at the 
district level.\58\

[[Page 51077]]



                                                                                          Table 48--Difference in Revenue by Component and Area
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                      Adjusted operating expenses          Total target pilot compensation        Total              Working capital fund                   Total revenue needed
                                                                ------------------------------------------------------------------------------    target   -----------------------------------------------------------------------------
                                                                                                                                                apprentice
                                                                                            Percentage                             Percentage   pilot wage                             Percentage                             Percentage
                                                                     2021         2022        change        2021         2022        change   -------------     2021         2022        change        2021         2022        change
                                                                                                                                                   2022
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
District One: Designated.......................................   $2,328,981   $2,352,634            1   $3,789,250   $4,104,585            8     $169,975     $207,255     $159,924         (30)   $6,325,486   $6,617,143            4
District One: Undesignated.....................................    1,502,239    1,568,537            4    2,652,475    3,261,005           19      113,317      140,741      119,612         (18)    4,295,455    4,949,154           13
District Two: Undesignated.....................................    1,003,961    1,035,837            3    3,031,400    3,711,124           18      169,975      136,698      117,566         (16)    4,172,059    4,864,527           14
District Two: Designated.......................................    1,540,146    1,553,756            1    2,652,475    2,867,544            8      113,317      142,025      109,501         (30)    4,334,646    4,530,801            4
District Three: Undesignated...................................    1,947,484    2,530,510           23    6,820,650    7,507,236            9      424,938      297,021      248,602         (19)    9,065,155   10,286,348           12
District Three: Designated.....................................      554,039      691,839           20    1,515,700    1,857,136           18      283,292       70,112       63,130         (11)    2,139,851    2,612,105           18
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------


[[Page 51078]]

Benefits
    This proposed rule would allow the Coast Guard to meet 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 proposed 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 \59\ and ReferenceUSA.\60\ As described in 
section VIII.A of this preamble, Regulatory Planning and Review, we 
found that 513 unique vessels used pilotage services during the years 
2018 through 2020. These vessels are owned by 58 entities, of which 44 
are foreign entities that operate primarily outside the United States 
and the remaining 14 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 considered small entities.\61\ Table 49 
shows the North American Industry Classification System (NAICS) codes 
of the U.S. entities and the small entity standard size established by 
the SBA.
---------------------------------------------------------------------------

    \59\ See https://www.manta.com/.
    \60\ See https://resource.referenceusa.com/.
    \61\ 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 49--NAICS Codes and Small Entities Size Standards
----------------------------------------------------------------------------------------------------------------
             NAICS                         Description                      Small entity size standard
----------------------------------------------------------------------------------------------------------------
211120.........................  Crude Petroleum Extraction.....  1,250 employees.
237990.........................  Other Heavy and Civil            $39.5 million.
                                  Engineering Construction.
238910.........................  Site Preparation Contractors...  $16.5 million.
483212.........................  Inland Water Passenger           500 employees.
                                  Transportation.
487210.........................  Scenic and Sightseeing           $8.0 million.
                                  Transportation, Water.
488330.........................  Navigational Services to         $41.5 million.
                                  Shipping.
523910.........................  Miscellaneous Intermediation...  $41.5 million.
561599.........................  All Other Travel Arrangement     $22.0 million.
                                  and Reservation Services.
982100.........................  National Security..............  Population of 50,000 People.
----------------------------------------------------------------------------------------------------------------

    Of the 14 U.S. entities, 7 exceed the SBA's small business 
standards for small entities. To estimate the potential impact on the 
seven small entities, the Coast Guard used their 2020 invoice data to 
estimate their pilotage costs in 2022. Of the seven entities from 2018 
to 2020, only three used pilotage services in 2020. We increased their 
2020 costs to account for the changes in pilotage rates resulting from 
this proposed rule and the Great Lakes Pilotage Rates--2021 Annual 
Review and Revisions to Methodology final rule (86 FR 14184). We 
estimated the change in cost to these entities resulting from this 
proposed rule by subtracting their estimated 2021 costs from their 
estimated 2022 costs and found the average costs to small firms would 
be approximately $16,072, with a range of $607 to $70,853.\62\ We then 
compared the estimated change in pilotage costs between 2021 and 2022 
with each firm's annual revenue. In all cases, their estimated pilotage 
expenses were below 1 percent of their annual revenue.
---------------------------------------------------------------------------

    \62\ One company had a particularly disproportionate impact 
because its vessel operated in all three districts. The impact for 
that company was more than 15 times greater than the next smallest 
company.
---------------------------------------------------------------------------

    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 proposed rule. 
We also did not find any small governmental jurisdictions with 
populations of fewer than 50,000 people that would be impacted by this 
proposed rule. Based on this analysis, we conclude this 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 three 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

[[Page 51079]]

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 call or email 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.

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, 46 U.S.C. Chapter 93 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 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 
one of the methods listed in the ADDRESSES section of this preamble.

M. Environment

    We have analyzed this proposed rule under DHS Management Directive 
023-01, Rev. 1, associated implementing instructions, and Environmental 
Planning COMDTINST 5090.1 (series), which guide the Coast Guard in 
complying with the National

[[Page 51080]]

Environmental Policy Act of 1969 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. 
For instructions on locating the docket, see the ADDRESSES section of 
this preamble.
    This proposed rule meets the criteria for categorical exclusion 
(CATEX) under paragraphs A3 and L54 of Appendix A, Table 1 of DHS 
Instruction Manual 023-001-01, Rev. 1.\63\ 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.
---------------------------------------------------------------------------

    \63\ https://www.dhs.gov/sites/default/files/publications/DHS_Instruction%20Manual%20023-01-001-01%20Rev%2001_508%20Admin%20Rev.pdf.
---------------------------------------------------------------------------

    This proposed rule involves adjusting the pilotage rates to account 
for changes in district operating expenses, an increase in the number 
of pilots, and anticipated inflation. In addition, the Coast Guard is 
proposing how apprentice pilots will be compensated in future 
rulemakings. All of these proposed changes are consistent with the 
Coast Guard's maritime safety missions. We seek any comments or 
information that may lead to the discovery of a significant 
environmental impact from this proposed rule.

List of Subjects

46 CFR Part 401

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

46 CFR Part 404

    Great Lakes, Navigation (water), Seamen.

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

PART 401--GREAT LAKES PILOTAGE REGULATIONS

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

    Authority: 46 U.S.C. 2103, 2104(a), 6101, 7701, 8105, 9303, 
9304; DHS Delegation 00170.1, Revision No. 01.2, paragraphs 
(II)(92)(a), (d), (e), (f).

0
2. Amend Sec.  401.110 by adding paragraphs (a)(18) and (19) to read as 
follows:


Sec.  401.110   Definitions.

    (a) * * *
    (18) Apprentice Pilot means a person approved and certified by the 
Director who is participating in an approved U.S. Great Lakes pilot 
training and qualification program. This individual meets all the 
minimum requirements listed in 46 CFR 401.211. This definition is only 
applicable to determining which pilots may be included in the operating 
expenses, estimates, and wage benchmark in Sec. Sec.  404.2(b)(7), 
404.103(b), and 404.104(d) and (e).
    (19) Limited Registration is a certificate issued by the Director, 
upon the request of the respective pilots association, to an Apprentice 
Pilot to provide pilotage service without direct supervision from a 
fully registered pilot in a specific area or waterway.
0
3. Amend Sec.  401.220 by revising the first sentence of paragraph 
(a)(3) to read as follows:


Sec.  401.220  Registration of pilots.

    (a) * * *
    (3) The number of pilots needed in each district is calculated by 
totaling the area results by district and rounding them up to a whole 
integer. * * *
* * * * *
0
4. Amend Sec.  401.405 by revising paragraphs (a)(1) through (6) to 
read as follows:


Sec.  401.405  Pilotage rates and charges.

    (a) * * *
    (1) The St. Lawrence River is $818;
    (2) Lake Ontario is $557;
    (3) Lake Erie is $651;
    (4) The navigable waters from Southeast Shoal to Port Huron, MI is 
$574;
    (5) Lakes Huron, Michigan, and Superior is $375; and
    (6) The St. Marys River is $685.
* * * * *

PART 404--GREAT LAKES PILOTAGE RATEMAKING

0
5. The authority citation for part 404 is revised to read as follows:

    Authority: 46 U.S.C. 2103, 2104(a), 9303, 9304; DHS Delegation 
00170.1, Revision No. 01.2, paragraphs (II)(92)(a), (f).

0
6. Amend Sec.  404.2 by adding paragraph (b)(7) to read as follows:


Sec.  404.2  Procedure and criteria for recognizing association 
expenses.

* * * * *
    (b) * * *
    (7) Apprentice Pilot Expenses. The association's expenses for 
Apprentice Pilots with limited registrations, such as health care, 
travel expenses, training, and other expenses are recognizable when 
determined to be necessary and reasonable.
* * * * *
0
7. Amend Sec.  404.103 as follows:
0
a. Revise the section heading;
0
b. Redesignate the introductory text as paragraph (a); and
0
c. Add new paragraph (b).
    The revisions and additions read as follows:


Sec.  404.103  Ratemaking step 3: Estimate number of registered pilots 
and apprentice pilots.

* * * * *
    (b) The Director projects, based on the number of persons applying 
under 46 CFR part 401 to become apprentice pilots, traffic projections, 
information provided by the pilotage association regarding upcoming 
retirements, and any other relevant data, the number of apprentice 
pilots with limited registrations expected to be in training and 
compensated.
0
8. Amend Sec.  404.104 as follows:
0
a. Revise the section heading; and
0
b. Add new paragraphs (d) and (e).
    The revisions and additions read as follows:


Sec.  404.104  Ratemaking step 4: Determine target pilot compensation 
benchmark and apprentice pilot wage benchmark.

* * * * *
    (d) The Director determines the individual apprentice pilot wage 
benchmark at the rate of 36 percent of the individual target pilot 
compensation, as calculated according to paragraphs (a) or (b) of this 
section.
    (e) The Director determines each pilot association's total 
apprentice pilot wage benchmark by multiplying the apprentice pilot 
compensation computed in paragraph (d) of this section by the number of 
apprentice pilots with limited registrations projected under Sec.  
404.103(b).
* * * * *


[[Page 51081]]


    Dated: September 3, 2021.
J.W. Mauger,
Rear Admiral, U.S. Coast Guard, Assistant Commandant for Prevention 
Policy.
[FR Doc. 2021-19570 Filed 9-13-21; 8:45 am]
BILLING CODE 9110-04-P