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

Download as PDF Federal Register / Vol. 86, No. 175 / Tuesday, September 14, 2021 / Proposed Rules individual’s rights or obligations. Deletion of a site from the NPL does not in any way alter EPA’s right to take enforcement actions, as appropriate. The NPL is designed primarily for informational purposes and to assist EPA management. Section 300.425(e)(3) of the NCP states that the deletion of a site from the NPL does not preclude eligibility for future response actions, should future conditions warrant such actions. IV. Basis for Full Site or Partial Site Deletion The site to be deleted from the NPL, the location of the site, and docket number with information including reference documents with the rationale and data principally relied upon by the EPA to determine that the Superfund response is complete is specified in Table 1. The NCP permits activities to occur at a deleted site or that media or 51047 parcel of a partially deleted site, including operation and maintenance of the remedy, monitoring, and five-year reviews. These activities for the site are entered in Table 1, if applicable, under Footnote such that; 1 = site has continued operation and maintenance of the remedy, 2 = site receives continued monitoring, and 3 = site five-year reviews are conducted. TABLE 1 Site name City/county, state Type Docket no. Beckman Instruments .......................... Porterville, CA ..................................... Full ......... EPA–HQ–SFUND–2021–0485 ............ Table 2 includes information concerning whether the full site is proposed for deletion from the NPL or a description of the area, media or Operable Units (OUs) of the NPL site proposed for partial deletion from the NPL, and an email address to which public comments may be submitted if Footnote the commenter does not comment using https://www.regulations.gov. TABLE 2 Site name Full site deletion (full) or media/parcels/ description for partial deletion Beckman Instruments ........................................ Full .................................................................... EPA maintains the NPL as the list of sites that appear to present a significant risk to public health, welfare, or the environment. Deletion from the NPL does not preclude further remedial action. Whenever there is a significant release from a site deleted from the NPL, the deleted site may be restored to the NPL without application of the hazard ranking system. Deletion of a site from the NPL does not affect responsible party liability in the unlikely event that future conditions warrant further actions. DEPARTMENT OF HOMELAND SECURITY List of Subjects in 40 CFR Part 300 ACTION: tkelley on DSK125TN23PROD with PROPOSALS Environmental protection, Air pollution control, Chemicals, Hazardous substances, Hazardous waste, Intergovernmental relations, Natural resources, Oil pollution, Penalties, Reporting and recordkeeping requirements, Superfund, Water pollution control, Water supply. Authority: 33 U.S.C. 1251 et seq.; 42 U.S.C. 9601–9657; E.O. 13626, 77 FR 56749, 3 CFR, 2013 Comp., p. 306; E.O. 12777, 56 FR 54757, 3 CFR, 1991 Comp., p. 351; E.O. 12580, 52 FR 2923, 3 CFR, 1987 Comp., p. 193. Dated: September 2, 2021. Larry Douchand, Office Director, Office of Superfund Remediation and Technology Innovation. [FR Doc. 2021–19449 Filed 9–13–21; 8:45 am] BILLING CODE 6560–50–P VerDate Sep<11>2014 21:00 Sep 13, 2021 Jkt 253001 Coast Guard would result in a 12-percent increase in pilotage operating costs compared to the 2021 season. Comments and related material must be received by the Coast Guard on or before October 14, 2021. [USCG–2021–0431] Great Lakes Pilotage Rates—2022 Annual Review and Revisions to Methodology Coast Guard, DHS. Notice of proposed rulemaking; request for comments. AGENCY: 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 SUMMARY: Fmt 4702 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. ADDRESSES: RIN 1625–AC70 Frm 00026 Hadlock.holly@epa.gov. DATES: 46 CFR Parts 401 and 404 PO 00000 Email address for public comments Sfmt 4702 For information about this document, call or email Mr. Brian Rogers, Commandant (CG–WWM–2), Coast Guard; telephone 202–372–1535, email Brian.Rogers@ uscg.mil, or fax 202–372–1914. FOR FURTHER INFORMATION CONTACT: 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 E:\FR\FM\14SEP1.SGM 14SEP1 51048 Federal Register / Vol. 86, No. 175 / Tuesday, September 14, 2021 / Proposed Rules 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 tkelley on DSK125TN23PROD with PROPOSALS 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 VerDate Sep<11>2014 21:00 Sep 13, 2021 Jkt 253001 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 PO 00000 Frm 00027 Fmt 4702 Sfmt 4702 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 § 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. 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 1 Title 46 of the United States Code (U.S.C.), Sections 9301–9308. E:\FR\FM\14SEP1.SGM 14SEP1 Federal Register / Vol. 86, No. 175 / Tuesday, September 14, 2021 / Proposed Rules 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. 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 51049 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 § 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 Name District One: Designated .............................................. District One: Undesignated .......................................... District Two: Designated .............................................. St. Lawrence River ....................................................... Lake Ontario ................................................................. Navigable waters from Southeast Shoal to Port Huron, MI. Lake Erie ...................................................................... St. Marys River ............................................................. Lakes Huron, Michigan, and Superior .......................... District Two: Undesignated .......................................... District Three: Designated ............................................ District Three: Undesignated ........................................ tkelley on DSK125TN23PROD with PROPOSALS Final 2021 pilotage rate Area 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 2 84 FR 20551, 20573 (May 10, 2019), https:// www.regulations.gov/document/USCG-2018-06650012. VerDate Sep<11>2014 21:00 Sep 13, 2021 Jkt 253001 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 3 83 FR 26162, 26189 (June 5, 2018), https:// www.regulations.gov/document/USCG-2017-09030011. 4 46 U.S.C. 9301–9308. 5 46 U.S.C. 9302(a)(1). PO 00000 Frm 00028 Fmt 4702 Sfmt 4702 Proposed 2022 pilotage rate $800 498 580 $818 557 574 566 586 337 651 685 375 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 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 6 46 U.S.C. 9303(f). 7 Id. 8 Id. 9 DHS Delegation 00170.1, Revision No. 01.2, paragraph (II)(92)(f). E:\FR\FM\14SEP1.SGM 14SEP1 51050 Federal Register / Vol. 86, No. 175 / Tuesday, September 14, 2021 / Proposed Rules 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 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. 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. 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, tkelley on DSK125TN23PROD with PROPOSALS TABLE 2—AREAS OF THE GREAT LAKES AND ST. LAWRENCE SEAWAY Area No.14 District Pilotage association Designation One ................... Two ................... Saint Lawrence Seaway Pilotage Association. Lakes Pilots Association ............................... Designated ....... Undesignated ... Designated ....... Undesignated ... 1 2 5 4 Three ................. Western Great Lakes Pilots Association ...... Designated ....... Undesignated ... Undesignated ... 7 6 8 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 10 See 46 CFR part 401. U.S.C. 9302(f). A ‘‘laker’’ is a commercial cargo vessel especially designed for and generally limited to use on the Great Lakes. 11 46 VerDate Sep<11>2014 21:00 Sep 13, 2021 Jkt 253001 Area name 15 St. Lawrence River. Lake Ontario. Navigable waters from Southeast Shoal to Port Huron, MI. Lake Erie. St. Marys River. Lakes Huron and Michigan. Lake Superior. 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. 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 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). 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. PO 00000 Frm 00029 Fmt 4702 Sfmt 4702 E:\FR\FM\14SEP1.SGM 14SEP1 Federal Register / Vol. 86, No. 175 / Tuesday, September 14, 2021 / Proposed Rules tkelley on DSK125TN23PROD with PROPOSALS 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, § 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,’’ (§ 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 VerDate Sep<11>2014 21:00 Sep 13, 2021 Jkt 253001 between designated and undesignated waters on a pro rata basis, based upon the proportion of income forecasted from the respective portions of the district. In Step 2, ‘‘Project operating expenses, adjusting for inflation or deflation,’’ (§ 404.102) the Director develops the 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,’’ (§ 404.103) the Director calculates how many pilots are needed for each district. To do this, we employ a ‘‘staffing model,’’ described in § 401.220, paragraphs (a)(1) through (a)(3), to estimate how many pilots would be needed to handle shipping during the beginning and close of the season. This number is helpful in providing guidance to the Director in approving an appropriate number of pilots. For the purpose of the ratemaking calculation, we determine the number of pilots provided by the pilotage associations (see § 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,’’ (§ 404.104) the Director determines the revenue needed for pilot compensation in each area and district. In 2020, the PO 00000 Frm 00030 Fmt 4702 Sfmt 4702 51051 Coast Guard updated the benchmark compensation model in accordance with § 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 § 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, § 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 § 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,’’ (§ 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 E:\FR\FM\14SEP1.SGM 14SEP1 tkelley on DSK125TN23PROD with PROPOSALS 51052 Federal Register / Vol. 86, No. 175 / Tuesday, September 14, 2021 / Proposed Rules 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,’’ (§ 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,’’ (§ 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 § 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,’’ (§ 404.108) the Director calculates how much extra revenue, as a percentage of total revenue, has historically been produced by the weighting factors in each area. We do this by using a historical average of the applied weighting factors for each year since 2014 (the first year the current weighting factors were applied). In Step 9, ‘‘Calculate revised base rates,’’ (§ 404.109) the Director modifies the base rates by accounting for the extra revenue generated by the weighting factors. We do this by dividing the initial pilotage rate for each area (from Step 7) by the corresponding average weighting factor (from Step 8), to produce a revised rate. In Step 10, ‘‘Review and finalize rates,’’ (§ 404.110) often referred to informally as ‘‘Director’s discretion,’’ the Director reviews the revised base rates (from Step 9) to ensure that they meet the goals set forth in 46 U.S.C. 9303(f) and 46 CFR 404.1(a), which VerDate Sep<11>2014 21:00 Sep 13, 2021 Jkt 253001 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, § 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 § 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 PO 00000 Frm 00031 Fmt 4702 Sfmt 4702 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. 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 17 For a detailed calculation of the staffing model, see 82 FR 41466, table 6 at 41480 (August 31, 2017). E:\FR\FM\14SEP1.SGM 14SEP1 tkelley on DSK125TN23PROD with PROPOSALS Federal Register / Vol. 86, No. 175 / Tuesday, September 14, 2021 / Proposed Rules 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, VerDate Sep<11>2014 21:00 Sep 13, 2021 Jkt 253001 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. 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 fulltime. Some comments from the 2021 ratemaking proposed rule included 18 https://www.regulations.gov/ document?D=USCG-2020-0457-0007. PO 00000 Frm 00032 Fmt 4702 Sfmt 4702 51053 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. E:\FR\FM\14SEP1.SGM 14SEP1 51054 Federal Register / Vol. 86, No. 175 / Tuesday, September 14, 2021 / Proposed Rules tkelley on DSK125TN23PROD with PROPOSALS 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, § 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, § 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 § 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 × 0.36 = $129,559) and multiply that by 4 (example: $129,559 × 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 (§ 404.103) and Step 4 (§ 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 VerDate Sep<11>2014 21:00 Sep 13, 2021 Jkt 253001 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 PO 00000 Frm 00033 Fmt 4702 Sfmt 4702 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 E:\FR\FM\14SEP1.SGM 14SEP1 tkelley on DSK125TN23PROD with PROPOSALS Federal Register / Vol. 86, No. 175 / Tuesday, September 14, 2021 / Proposed Rules 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 § 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 § 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 §§ 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 VerDate Sep<11>2014 21:00 Sep 13, 2021 Jkt 253001 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 § 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 PO 00000 Frm 00034 Fmt 4702 Sfmt 4702 51055 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 § 404.100(b) for this purpose, rather than the full ratemaking year procedures in § 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 (§ 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. 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 19 These reports are available in the docket for this rulemaking. E:\FR\FM\14SEP1.SGM 14SEP1 51056 Federal Register / Vol. 86, No. 175 / Tuesday, September 14, 2021 / Proposed Rules 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 Reported operating expenses for 2019 Applicant Pilot Salaries: Salaries ................................................................................................................................. Employee Benefits ................................................................................................................ Applicant Subsistence/Travel ............................................................................................... Applicant Payroll Tax ............................................................................................................ Undesignated St. Lawrence River Lake Ontario Total $136,736 12,506 30,685 7,943 $91,157 8,337 20,567 5,295 $227,893 20,843 51,252 13,238 187,870 125,356 313,226 667,071 43,162 184,884 136,178 444,714 28,774 123,256 90,784 1,111,785 71,936 308,140 226,962 Total other pilotage costs .............................................................................................. Pilot Boat and Dispatch Costs: Pilot Boat Expense (Operating) ............................................................................................ Certified Public Accountant (CPA) Deduction (D1–19–01), (D1–19–02) ............................ Dispatch Expense ................................................................................................................. Payroll Taxes ........................................................................................................................ 1,031,295 687,528 1,718,823 360,276 138,093 82,722 22,412 240,184 92,062 55,148 14,941 600,460 230,155 137,870 37,353 Total Pilot and Dispatch Costs ...................................................................................... Administrative Expenses: Legal—General Counsel ...................................................................................................... Legal—Shared Counsel (K&L Gates) .................................................................................. Legal—USCG Intervener Litigation ...................................................................................... Office Rent ............................................................................................................................ Insurance .............................................................................................................................. Employee Benefits ................................................................................................................ Payroll Taxes ........................................................................................................................ Other Taxes .......................................................................................................................... Real Estate Taxes ................................................................................................................ Travel .................................................................................................................................... Depreciation/Auto Leasing/Other ......................................................................................... CPA Deduction (D1–19–01) ................................................................................................. Interest .................................................................................................................................. CPA Deduction (D1–19–01) ................................................................................................. APA Dues ............................................................................................................................. Dues and Subscriptions ....................................................................................................... Utilities .................................................................................................................................. Salaries ................................................................................................................................. Accounting/Professional Fees .............................................................................................. Other ..................................................................................................................................... 603,503 402,335 1,005,838 34,558 55,318 28,765 ........................ 27,753 7,056 5,236 61,822 22,787 34,617 107,584 (52,291) 24,339 (24,339) 25,838 4,080 19,221 164,453 7,980 21,908 23,038 36,879 19,177 ........................ 18,502 4,704 3,491 41,215 15,191 23,078 71,723 (34,861) 16,226 (16,226) 17,225 2,720 12,814 109,636 5,320 14,605 57,596 92,197 47,942 0 46,255 11,760 8,727 103,037 37,978 57,695 179,307 (87,152) 40,565 (40,565) 43,063 6,800 32,035 274,089 13,300 36,513 Total Administrative Expenses ...................................................................................... 576,685 384,457 961,142 Total Expenses (OpEx + Applicant + Pilot Boats + Admin + Capital) ........................................ Surcharge Collected ............................................................................................................. 2,399,353 (169,209) 1,599,676 (112,806) 3,999,029 (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 Total Applicant Pilot Salaries ........................................................................................ Other Pilot Cost: Subsistence/Travel—Pilots ................................................................................................... License Insurance—Pilots .................................................................................................... Payroll Taxes—Pilots ........................................................................................................... Other ..................................................................................................................................... tkelley on DSK125TN23PROD with PROPOSALS Designated VerDate Sep<11>2014 21:00 Sep 13, 2021 Jkt 253001 PO 00000 Frm 00035 Fmt 4702 Sfmt 4702 E:\FR\FM\14SEP1.SGM 14SEP1 Federal Register / Vol. 86, No. 175 / Tuesday, September 14, 2021 / Proposed Rules 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 51057 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: TABLE 4—ADJUSTED OPERATING EXPENSES FOR DISTRICT ONE District One Designated Total 2020 2021 2022 Undesignated Total Operating Expenses (Step 1) ............................................................................................. Inflation Modification (@1%) .............................................................................................. Inflation Modification (@2.4%) ........................................................................................... Inflation Modification (@2%) .............................................................................................. $2,230,144 22,301 54,059 46,130 $1,486,870 14,869 36,042 30,756 $3,717,014 37,170 90,101 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 § 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 § 401.220(a)) 22 ............................................................................................................... 2022 Authorized Pilots (total) .............................................................................................................................................................. Pilots Assigned to Designated Areas .................................................................................................................................................. Pilots Assigned to Undesignated Areas .............................................................................................................................................. 2022 Apprentice Pilots ......................................................................................................................................................................... D. Step 4: Determine Target Pilot Compensation Benchmark and Apprentice Pilot Wage Benchmark 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 § 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 18 18 10 8 2 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 × 0.36). tkelley on DSK125TN23PROD with PROPOSALS TABLE 6—TARGET PILOT COMPENSATION 2021 Target Compensation from Final Rule ....................................................................................................................................... Difference between Actual 2021 ECI inflation (3.5%) and 2020 PCE Estimate (1.7%) ..................................................................... Adjusted 2021 Compensation ............................................................................................................................................................. 2021 to 2022 Inflation Factor .............................................................................................................................................................. 2022 Target Pilot Compensation ......................................................................................................................................................... 2022 Target Apprentice Pilot Wage .................................................................................................................................................... 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/ VerDate Sep<11>2014 21:00 Sep 13, 2021 Jkt 253001 files/fomcprojtabl20210317.pdf. We used the PCE median inflation value found in table 1. (Downloaded March 24, 2021) 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). PO 00000 Frm 00036 Fmt 4702 Sfmt 4702 $378,925 1.80% $385,746 2.00% $393,461 $141,646 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. E:\FR\FM\14SEP1.SGM 14SEP1 51058 Federal Register / Vol. 86, No. 175 / Tuesday, September 14, 2021 / Proposed Rules 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 § 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 § 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 .......................................................................................................... Number of Pilots .......................................................................................................................... $393,461 10 $393,461 8 $393,461 18 Total Target Pilot Compensation .......................................................................................... Target Apprentice Pilot Wage ..................................................................................................... Number of Apprentice Pilots ........................................................................................................ $3,934,610 $141,646 ........................ $3,147,688 $141,646 ........................ $7,082,298 $141,646 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. TABLE 8—WORKING CAPITAL FUND CALCULATION FOR DISTRICT ONE District One Designated Undesignated Total Adjusted Operating Expenses (Step 2) ....................................................................................... Total Target Pilot Compensation (Step 4) ................................................................................... Total Target Apprentice Pilot Wages (Step 4) ............................................................................ $2,352,634 3,934,610 169,975 $1,568,537 3,147,688 113,317 $3,921,171 7,082,298 283,292 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 tkelley on DSK125TN23PROD with PROPOSALS Designated Undesignated Total Adjusted Operating Expenses (Step 2) ....................................................................................... Total Target Pilot Compensation (Step 4) ................................................................................... Total Target Apprentice Pilot Wages (Step 4) ............................................................................ Working Capital Fund (Step 5) .................................................................................................... $2,352,634 3,934,610 169,975 159,924 $1,568,537 3,147,688 113,317 119,612 $3,921,171 7,082,298 283,292 279,536 Total Revenue Needed ........................................................................................................ 6,617,143 4,949,154 11,566,297 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 VerDate Sep<11>2014 21:00 Sep 13, 2021 Jkt 253001 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:// PO 00000 Frm 00037 Fmt 4702 Sfmt 4702 fred.stlouisfed.org/series/AAA. (Downloaded March 26, 2021) E:\FR\FM\14SEP1.SGM 14SEP1 51059 Federal Register / Vol. 86, No. 175 / Tuesday, September 14, 2021 / Proposed Rules 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. TABLE 10—TIME ON TASK FOR DISTRICT ONE TABLE 10—TIME ON TASK FOR DISTRICT ONE—Continued [Hours] [Hours] District One District One Year Year Designated 2020 2019 2018 2017 2016 2015 2014 2013 2012 2011 .......... .......... .......... .......... .......... .......... .......... .......... .......... .......... Designated Undesignated 6,265 8,232 6,943 7,605 5,434 5,743 6,810 5,864 4,771 5,045 7,560 8,405 8,445 8,679 6,217 6,667 6,853 5,529 5,121 5,377 Average 6,271 Undesignated 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 Revenue Needed (Step 6) ....................................................................................................................................... Average Time on Task (Hours) ............................................................................................................................... Initial Rate ................................................................................................................................................................ H. Step 8: Calculate Average Weighting Factors by Area In this step, we calculate the average weighting factor for each designated and undesignated area. We collect the weighting factors, set forth in 46 CFR 401.400, for each vessel trip. Using this database, we calculate the average $6,617,143 6,271 $1,055 Undesignated $4,949,154 6,885 $719 weighting factor for each area using the data from each vessel transit from 2014 onward, as shown in tables 12 and 13.28 TABLE 12—AVERAGE WEIGHTING FACTOR FOR DISTRICT ONE, DESIGNATED AREAS Number of transits tkelley on DSK125TN23PROD with PROPOSALS Vessel class/year Class Class Class Class Class Class Class Class Class Class Class Class Class Class Class Class Class Class Class Class Class Class Class Class Class Class 1 1 1 1 1 1 1 2 2 2 2 2 2 2 3 3 3 3 3 3 3 4 4 4 4 4 (2014) (2015) (2016) (2017) (2018) (2019) (2020) (2014) (2015) (2016) (2017) (2018) (2019) (2020) (2014) (2015) (2016) (2017) (2018) (2019) (2020) (2014) (2015) (2016) (2017) (2018) ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. 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 VerDate Sep<11>2014 21:00 Sep 13, 2021 Jkt 253001 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. 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 PO 00000 Frm 00038 Fmt 4702 Sfmt 4702 31 41 31 28 54 72 8 285 295 185 352 559 378 560 50 28 50 67 86 122 67 271 251 214 285 393 Weighting factor 1 1 1 1 1 1 1 1.15 1.15 1.15 1.15 1.15 1.15 1.15 1.3 1.3 1.3 1.3 1.3 1.3 1.3 1.45 1.45 1.45 1.45 1.45 Weighted transits 31 41 31 28 54 72 8 327.75 339.25 212.75 404.8 642.85 434.7 644 65 36.4 65 87.1 111.8 158.6 87.1 392.95 363.95 310.3 413.25 569.85 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.) E:\FR\FM\14SEP1.SGM 14SEP1 51060 Federal Register / Vol. 86, No. 175 / Tuesday, September 14, 2021 / Proposed Rules TABLE 12—AVERAGE WEIGHTING FACTOR FOR DISTRICT ONE, DESIGNATED AREAS—Continued Number of transits Vessel class/year Weighting factor Weighted transits Class 4 (2019) ............................................................................................................................. Class 4 (2020) ............................................................................................................................. 730 427 1.45 1.45 1058.5 619.15 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 transits Vessel class/year Class Class Class Class Class Class Class Class Class Class Class Class Class Class Class Class Class Class Class Class Class Class Class Class Class Class Class Class 1 1 1 1 1 1 1 2 2 2 2 2 2 2 3 3 3 3 3 3 3 4 4 4 4 4 4 4 (2014) (2015) (2016) (2017) (2018) (2019) (2020) (2014) (2015) (2016) (2017) (2018) (2019) (2020) (2014) (2015) (2016) (2017) (2018) (2019) (2020) (2014) (2015) (2016) (2017) (2018) (2019) (2020) Weighting factor Weighted transits ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. 25 28 18 19 22 30 3 238 263 169 290 352 366 358 60 42 28 45 63 58 35 289 269 222 285 382 326 334 1 1 1 1 1 1 1 1.15 1.15 1.15 1.15 1.15 1.15 1.15 1.3 1.3 1.3 1.3 1.3 1.3 1.3 1.45 1.45 1.45 1.45 1.45 1.45 1.45 25 28 18 19 22 30 3 273.7 302.45 194.35 333.5 404.8 420.9 411.7 78 54.6 36.4 58.5 81.9 75.4 45.5 419.05 390.05 321.9 413.25 553.9 472.7 484.3 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 Initial rate (step 7) Area tkelley on DSK125TN23PROD with PROPOSALS District One: Designated .............................................................................................................. District One: Undesignated .......................................................................................................... J. Step 10: Review and Finalize Rates In this step, the Director reviews the rates set forth by the staffing model and ensures that they meet the goal of ensuring safe, efficient, and reliable VerDate Sep<11>2014 21:00 Sep 13, 2021 Jkt 253001 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 PO 00000 Frm 00039 Fmt 4702 Sfmt 4702 $1,055 719 Average weighting factor (step 8) 1.29 1.29 Revised Rate (initial rate ÷ average weighting factor) $818 557 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 E:\FR\FM\14SEP1.SGM 14SEP1 Federal Register / Vol. 86, No. 175 / Tuesday, September 14, 2021 / Proposed Rules pilots, the Director is not proposing any alterations to the rates in this step. We propose to modify § 401.405(a)(1) and 51061 (2) to reflect the final rates shown in table 15. TABLE 15—PROPOSED FINAL RATES FOR DISTRICT ONE Final 2021 pilotage rate Area Name District One: Designated .............................................. District One: Undesignated .......................................... St. Lawrence River ....................................................... Lake Ontario ................................................................. District Two A. Step 1: Recognize Previous Operating Expenses Step 1 in our ratemaking methodology requires that the Coast Guard review and recognize the previous year’s operating expenses (§ 404.101). To do so, we begin by reviewing the independent accountant’s financial reports for each association’s 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. 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 Proposed 2022 pilotage rate $800 498 $818 557 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 Reported operating expenses for 2019 tkelley on DSK125TN23PROD with PROPOSALS Total Other Pilotage Costs: Subsistence/Travel—Pilots ................................................................................................... Hotel/Lodging Cost ............................................................................................................... License Insurance ................................................................................................................ Payroll Taxes ........................................................................................................................ Insurance .............................................................................................................................. Training ................................................................................................................................. Other ..................................................................................................................................... Total Other Pilotage Costs ............................................................................................ Total Applicant Pilotage Cost: Applicant Salaries ................................................................................................................. Applicant Health Insurance .................................................................................................. Applicant Subsistence/Travel ............................................................................................... Applicant Hotel/Lodging Cost ............................................................................................... Undesignated Designated Lake Erie SES to Port Huron $140,909 49,800 730 90,091 95,470 6,428 221 $211,363 74,700 1,095 135,137 143,206 9,642 331 $352,272 124,500 1,825 225,228 238,676 16,070 552 383,649 575,474 959,123 166,958 80 5,729 3,984 250,437 120 8,593 5,976 417,395 200 14,322 9,960 29 These reports are available in the docket for this 2022 ratemaking rulemaking (see Docket No. USCG–2021–0431). VerDate Sep<11>2014 21:00 Sep 13, 2021 Jkt 253001 PO 00000 Frm 00040 Fmt 4702 Sfmt 4702 Total E:\FR\FM\14SEP1.SGM 14SEP1 51062 Federal Register / Vol. 86, No. 175 / Tuesday, September 14, 2021 / Proposed Rules TABLE 16—2019 RECOGNIZED EXPENSES FOR DISTRICT TWO—Continued District Two Reported operating expenses for 2019 Undesignated Designated Lake Erie SES to Port Huron Total Applicant Payroll Tax ............................................................................................................ 5,717 8,576 14,293 Total Applicant Cost ...................................................................................................... Pilot Boat and Dispatch Costs: Pilot Boat Cost ...................................................................................................................... Employee Benefits ................................................................................................................ Payroll Taxes ........................................................................................................................ 182,468 273,702 456,170 210,948 96,959 13,178 316,422 145,438 19,767 527,370 242,397 32,945 Total Pilot Boat and Dispatch Costs ............................................................................. Administrative Expense: Legal—General Counsel ...................................................................................................... Legal—Shared Counsel (K&L Gates) .................................................................................. Office Rent ............................................................................................................................ Insurance .............................................................................................................................. Employee Benefits ................................................................................................................ Payroll Taxes ........................................................................................................................ Other Taxes .......................................................................................................................... Real Estate Taxes ................................................................................................................ Depreciation/Auto Lease/Other ............................................................................................ Interest .................................................................................................................................. APA Dues ............................................................................................................................. Dues and Subscriptions ....................................................................................................... Utilities .................................................................................................................................. Salaries—Admin Employees ................................................................................................ Accounting ............................................................................................................................ Other ............................................................................................................................................ 321,085 481,627 802,712 4,430 22,696 27,627 11,085 34,093 5,259 36,484 7,905 12,248 320 14,698 1,912 18,910 49,924 13,452 18,322 6,645 34,045 41,440 16,627 51,139 7,888 54,726 11,858 18,371 481 22,048 2,868 28,366 74,885 20,178 27,483 11,075 56,741 69,067 27,712 85,232 13,147 91,210 19,763 30,619 801 36,746 4,780 47,276 124,809 33,630 45,805 Total Administrative Expenses ...................................................................................... 279,365 419,048 698,413 Total OpEx (Pilot Costs + Applicant Cost + Pilot Boats + Admin) ............................................. Directors Adjustments—Applicant Surcharge Collected ...................................................... Directors Adjustments—Excess Applicant Salary Paid ....................................................... 1,166,567 (69,527) (115,134) 1,749,851 (104,291) (172,701) 2,916,418 (173,818) (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: TABLE 17—ADJUSTED OPERATING EXPENSES FOR DISTRICT TWO District Two Undesignated tkelley on DSK125TN23PROD with PROPOSALS Total 2020 2021 2022 Designated Total Operating Expenses (Step 1) ............................................................................................. Inflation Modification (@1%) .............................................................................................. Inflation Modification (@2.4%) ........................................................................................... Inflation Modification (@2%) .............................................................................................. $981,906 9,819 23,801 20,311 $1,472,859 14,729 35,702 30,466 $2,454,764 24,548 59,503 50,777 Adjusted 2022 Operating Expenses ..................................................................................... 1,035,837 1,553,756 2,589,592 30 The 2020 inflation rate is available at https:// beta.bls.gov/dataViewer/view/timeseries/ CUUR0200SA0. Specifically the CPI is defined as VerDate Sep<11>2014 21:00 Sep 13, 2021 Jkt 253001 ‘‘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/ PO 00000 Frm 00041 Fmt 4702 Sfmt 4702 files/fomcprojtabl20210317.pdf. We used the PCE median inflation value found in table 1. (Downloaded March 24, 2021) E:\FR\FM\14SEP1.SGM 14SEP1 Federal Register / Vol. 86, No. 175 / Tuesday, September 14, 2021 / Proposed Rules C. Step 3: Estimate Number of Registered Pilots and Apprentice Pilots In accordance with the text in § 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 51063 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. 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 TABLE 18—AUTHORIZED PILOTS District Two Item Proposed Maximum Number of Pilots (per § 401.220(a)) 32 ............................................................................................................... 2022 Authorized Pilots (total) .............................................................................................................................................................. Pilots Assigned to Designated Areas .................................................................................................................................................. Pilots Assigned to Undesignated Areas .............................................................................................................................................. 2022 Apprentice Pilots ......................................................................................................................................................................... D. Step 4: Determine Target Pilot Compensation Benchmark and Apprentice Pilot Wage Benchmark 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 § 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 × 0.36). Next, we certify that the number of pilots estimated for 2022 is less than or equal to the number permitted under 16 16 7 9 2 the proposed changes to the staffing model in § 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 Thus, in accordance with § 404.104(c), we use the revised target individual compensation level to derive the total pilot compensation by multiplying the individual target compensation by the estimated number of registered pilots for District Two, as shown in table 19. TABLE 19—TARGET COMPENSATION FOR DISTRICT TWO District Two Undesignated Total Target Pilot Compensation .......................................................................................................... Number of Pilots .......................................................................................................................... $393,461 9 $393,461 7 $393,461 16 Total Target Pilot Compensation .......................................................................................... Target Apprentice Pilot Wage ..................................................................................................... Number of Apprentice Pilots ........................................................................................................ $3,541,149 $141,646 ........................ $2,754,227 $141,646 ........................ $6,295,376 $141,646 2 Total Target Apprentice Pilot Wages ................................................................................... $169,975 $113,317 $283,292 E. Step 5: Project Working Capital Fund tkelley on DSK125TN23PROD with PROPOSALS Designated 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. 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). 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. 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). 37 See footnote 22 for more information. VerDate Sep<11>2014 21:00 Sep 13, 2021 Jkt 253001 PO 00000 Frm 00042 Fmt 4702 Sfmt 4702 E:\FR\FM\14SEP1.SGM 14SEP1 51064 Federal Register / Vol. 86, No. 175 / Tuesday, September 14, 2021 / Proposed Rules TABLE 20—WORKING CAPITAL FUND CALCULATION FOR DISTRICT TWO District Two Undesignated Designated Total Adjusted Operating Expenses (Step 2) ....................................................................................... Total Target Pilot Compensation (Step 4) ................................................................................... Total Target Apprentice Pilot Wages (Step 4) ............................................................................ $1,035,837 3,541,149 169,975 $1,553,756 2,754,227 113,317 $2,589,592 6,295,376 283,292 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 needed for each area. These expenses include the projected operating expenses (from Step 2), the total pilot compensation (from Step 4), total target In this step, we add all the expenses accrued to derive the total revenue 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) ....................................................................................... Total Target Pilot Compensation (Step 4) ................................................................................... Total Target Apprentice Pilot Wages (Step 4) ............................................................................ Working Capital Fund (Step 5) .................................................................................................... $1,035,837 3,541,149 169,975 117,566 $1,553,756 2,754,227 113,317 109,501 $2,589,592 6,295,376 283,292 227,067 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. TABLE 22—TIME ON TASK FOR DISTRICT TWO [Hours] District Two Year Designated tkelley on DSK125TN23PROD with PROPOSALS 2020 2019 2018 2017 2016 2015 2014 2013 2012 2011 Undesignated ......................................................................................................................................................................... ......................................................................................................................................................................... ......................................................................................................................................................................... ......................................................................................................................................................................... ......................................................................................................................................................................... ......................................................................................................................................................................... ......................................................................................................................................................................... ......................................................................................................................................................................... ......................................................................................................................................................................... ......................................................................................................................................................................... 6,232 6,512 6,150 5,139 6,425 6,535 7,856 4,603 3,848 3,708 8,401 7,715 6,655 6,074 5,615 5,967 7,001 4,750 3,922 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 38 See 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. footnote 23 for more information. VerDate Sep<11>2014 21:00 Sep 13, 2021 Jkt 253001 PO 00000 Frm 00043 Fmt 4702 Sfmt 4702 E:\FR\FM\14SEP1.SGM 14SEP1 Federal Register / Vol. 86, No. 175 / Tuesday, September 14, 2021 / Proposed Rules 51065 TABLE 23—INITIAL RATE CALCULATIONS FOR DISTRICT TWO Item Undesignated Revenue Needed (Step 6) ....................................................................................................................................... Average Time on Task (Hours) ............................................................................................................................... Initial Rate ................................................................................................................................................................ H. Step 8: Calculate Average Weighting Factors by Area In this step, we calculate the average weighting factor for each designated and undesignated area. We collect the weighting factors, set forth in 46 CFR 401.400, for each vessel trip. Using this database, we calculate the average $4,864,527 5,701 $853 Designated $4,530,801 5,978 $758 weighting factor for each area using the data from each vessel transit from 2014 onward, as shown in tables 24 and 25.39 TABLE 24—AVERAGE WEIGHTING FACTOR FOR DISTRICT TWO, UNDESIGNATED AREAS Number of transits Vessel class/year Class Class Class Class Class Class Class Class Class Class Class Class Class Class Class Class Class Class Class Class Class Class Class Class Class Class Class Class 1 1 1 1 1 1 1 2 2 2 2 2 2 2 3 3 3 3 3 3 3 4 4 4 4 4 4 4 (2014) (2015) (2016) (2017) (2018) (2019) (2020) (2014) (2015) (2016) (2017) (2018) (2019) (2020) (2014) (2015) (2016) (2017) (2018) (2019) (2020) (2014) (2015) (2016) (2017) (2018) (2019) (2020) Weighting factor Weighted transits ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. 31 35 32 21 37 54 1 356 354 380 222 123 127 165 20 0 9 12 3 1 1 636 560 468 319 196 210 201 1 1 1 1 1 1 1 1.15 1.15 1.15 1.15 1.15 1.15 1.15 1.3 1.3 1.3 1.3 1.3 1.3 1.3 1.45 1.45 1.45 1.45 1.45 1.45 1.45 31 35 32 21 37 54 1 409.4 407.1 437 255.3 141.45 146.05 189.75 26 0 11.7 15.6 3.9 1.3 1.3 922.2 812 678.6 462.55 284.20 304.50 291.45 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 transits tkelley on DSK125TN23PROD with PROPOSALS Vessel class/year Class Class Class Class Class Class Class Class Class Class Class Class Class Class Class 1 1 1 1 1 1 1 2 2 2 2 2 2 2 3 39 See (2014) (2015) (2016) (2017) (2018) (2019) (2020) (2014) (2015) (2016) (2017) (2018) (2019) (2020) (2014) ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. 20 15 28 15 42 48 7 237 217 224 127 153 281 342 8 footnote 24 for more information. VerDate Sep<11>2014 21:00 Sep 13, 2021 Jkt 253001 PO 00000 Frm 00044 Fmt 4702 Sfmt 4702 E:\FR\FM\14SEP1.SGM 14SEP1 Weighting factor 1 1 1 1 1 1 1 1.15 1.15 1.15 1.15 1.15 1.15 1.15 1.3 Weighted transits 20 15 28 15 42 48 7 272.55 249.55 257.6 146.05 175.95 323.15 393.3 10.4 51066 Federal Register / Vol. 86, No. 175 / Tuesday, September 14, 2021 / Proposed Rules TABLE 25—AVERAGE WEIGHTING FACTOR FOR DISTRICT TWO, DESIGNATED AREAS—Continued Number of transits Vessel class/year Class Class Class Class Class Class Class Class Class Class Class Class Class 3 3 3 3 3 3 4 4 4 4 4 4 4 (2015) (2016) (2017) (2018) (2019) (2020) (2014) (2015) (2016) (2017) (2018) (2019) (2020) Weighting factor Weighted transits ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. 8 4 4 14 1 5 359 340 281 185 379 403 405 1.3 1.3 1.3 1.3 1.3 1.3 1.45 1.45 1.45 1.45 1.45 1.45 1.45 10.4 5.2 5.2 18.2 1.3 6.5 520.55 493 407.45 268.25 549.55 584.35 587.25 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 Initial rate (step 7) Area District Two: Designated .............................................................................................................. District Two: Undesignated .......................................................................................................... J. Step 10: Review and Finalize Rates In this step, the Director reviews the rates set forth by the staffing model and ensures that they meet the goal of ensuring safe, efficient, and reliable pilotage. To establish 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 $758 853 Average weighting factor (step 8) 1.32 1.31 Revised rate (initial rate ÷ average weighting factor) $574 651 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 § 401.405(a)(3) and (4) to reflect the final rates shown in table 27. TABLE 27—PROPOSED FINAL RATES FOR DISTRICT TWO Name District Two: Designated .............................................. Navigable waters from Southeast Shoal to Port Huron, MI. Lake Erie ...................................................................... District Two: Undesignated .......................................... District Three tkelley on DSK125TN23PROD with PROPOSALS Final 2020 pilotage rate Area A. Step 1: Recognize Previous Operating Expenses Step 1 in our ratemaking methodology requires that the Coast Guard review and recognize the previous year’s operating expenses (§ 404.101). To do so, we begin by reviewing the independent accountant’s financial reports for each association’s 2018 VerDate Sep<11>2014 21:00 Sep 13, 2021 Jkt 253001 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 40 These reports are available in the docket for this rulemaking (see Docket No. USCG–2019–0736). PO 00000 Frm 00045 Fmt 4702 Sfmt 4702 Proposed 2021 pilotage rate $580 $574 566 651 on a pro rata basis. The recognized operating expenses for District Three are shown in table 28. 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 E:\FR\FM\14SEP1.SGM 14SEP1 Federal Register / Vol. 86, No. 175 / Tuesday, September 14, 2021 / Proposed Rules 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 51067 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 Lakes Huron and Michigan St. Mary’s River Lake Superior $274,911 118,533 16,171 ........................ 146,545 40,017 12,551 $114,586 49,406 6,740 ........................ 61,082 16,680 5,232 $144,207 62,178 8,483 ........................ 76,871 20,991 6,584 $533,704 230,117 31,394 0 284,498 77,688 24,367 Total Other Pilotage Costs ................................................................ Applicant Cost: Applicant Salaries ..................................................................................... Applicant Benefits ..................................................................................... Applicant Payroll Tax ................................................................................ 608,728 253,726 319,314 1,181,768 267,933 77,627 21,713 111,678 32,356 9,050 140,547 40,720 11,390 520,158 150,703 42,153 Total Applicant Cost .......................................................................... Pilot Boat and Dispatch Costs: Pilot Boat Costs ........................................................................................ Dispatch Costs ......................................................................................... Employee Benefits .................................................................................... Payroll Taxes ............................................................................................ 367,273 153,084 192,657 713,014 415,908 126,807 7,550 10,534 173,356 52,855 3,147 4,391 218,168 66,518 3,960 5,526 807,432 246,180 14,657 20,451 Total Pilot Boat and Dispatch Costs ................................................. Administrative Cost: Legal—General Counsel .......................................................................... Legal—Shared Counsel (K&L Gates) ...................................................... Legal—USCG Intervener Litigation .......................................................... Office Rent ................................................................................................ Insurance .................................................................................................. Employee Benefits .................................................................................... Payroll Tax ................................................................................................ Other Taxes .............................................................................................. Depreciation/Auto Leasing/Other ............................................................. Interest ...................................................................................................... APA Dues ................................................................................................. Dues and Subscriptions ........................................................................... Utilities ...................................................................................................... Salaries ..................................................................................................... Accounting/Professional Fees .................................................................. Other Expenses ........................................................................................ CPA Deduction (D3–18–01) ..................................................................... 560,799 233,749 294,172 1,088,720 9,453 26,858 19,050 3,369 27,622 77,435 18,984 480 51,287 5,754 24,311 4,198 38,585 75,200 19,865 23,945 (4,117) 3,940 11,195 7,940 1,404 11,513 32,276 7,913 200 21,377 2,398 10,133 1,750 16,083 31,344 8,280 9,981 (1,716) 4,958 14,089 9,993 1,767 14,489 40,619 9,958 252 26,903 3,018 12,752 2,202 20,240 39,447 10,420 12,561 (2,160) 18,351 52,142 36,983 6,540 53,624 150,330 36,855 932 99,567 11,170 47,196 8,150 74,908 145,991 38,565 46,487 (7,993) Total Administrative Expenses .......................................................... 422,279 176,011 221,508 819,798 Total Operating Expenses (Other Costs+ Applicant Cost + Pilot Boats + Admin) .......................................................................................................... Directors Adjustments—Applicant Surcharge Collected .......................... Directors Adjustments—Excess Applicant Salary Paid ............................ 1,959,079 (384,678) (989.36) 816,570 (160,339) (412.38) 1,027,651 (201,786) (518.98) 3,803,300 (746,802) (1,921) Reported operating expenses for 2019 tkelley on DSK125TN23PROD with PROPOSALS Other Pilotage Costs: Pilot Subsistence/Travel ........................................................................... Hotel/Lodging Cost ................................................................................... License Insurance—Pilots ........................................................................ Payroll Taxes ............................................................................................ Payroll Tax (D3–19–01) ............................................................................ Pilot Training ............................................................................................. Other ......................................................................................................... VerDate Sep<11>2014 21:00 Sep 13, 2021 Jkt 253001 PO 00000 Frm 00046 Fmt 4702 Sfmt 4702 E:\FR\FM\14SEP1.SGM 14SEP1 Total 51068 Federal Register / Vol. 86, No. 175 / Tuesday, September 14, 2021 / Proposed Rules TABLE 28—2019 RECOGNIZED EXPENSES FOR DISTRICT THREE—Continued District Three Reported operating expenses for 2019 Undesignated Designated Undesignated Lakes Huron and Michigan St. Mary’s River Lake Superior Total Total Directors Adjustments .............................................................. (385,667) (160,751) (202,305) (748,723) Total Operating Expenses (OpEx + Adjustments) ..................... 1,573,412 655,819 825,346 3,054,577 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: TABLE 29—ADJUSTED OPERATING EXPENSES FOR DISTRICT THREE District Three Undesignated Total 2020 2021 2022 Designated Total Operating Expenses (Step 1) ............................................................................................. Inflation Modification (@1%) .............................................................................................. Inflation Modification (@2.4%) ........................................................................................... Inflation Modification (@2%) .............................................................................................. $2,398,758 23,988 58,146 49,618 $655,819 6,558 15,897 13,565 $3,054,577 30,546 74,043 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 § 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 District Three Item Proposed Maximum Number of Pilots (per § 401.220(a)) 43 ............................................................................................................... 2022 Authorized Pilots (total) .............................................................................................................................................................. Pilots Assigned to Designated Areas .................................................................................................................................................. Pilots Assigned to Undesignated Areas .............................................................................................................................................. 2022 Apprentice Pilots ......................................................................................................................................................................... tkelley on DSK125TN23PROD with PROPOSALS D. Step 4: Determine Target Pilot Compensation Benchmark and Apprentice Pilot Wage Benchmark In this step, we determine the total pilot compensation for each area. As we are issuing an ‘‘interim’’ ratemaking this 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/ VerDate Sep<11>2014 21:00 Sep 13, 2021 Jkt 253001 22 22 4 18 5 year, we follow the procedure outlined in paragraph (b) of § 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 files/fomcprojtabl20210317.pdf. We used the PCE median inflation value found in table 1. (Downloaded March 24, 2021) 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). 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. PO 00000 Frm 00047 Fmt 4702 Sfmt 4702 E:\FR\FM\14SEP1.SGM 14SEP1 Federal Register / Vol. 86, No. 175 / Tuesday, September 14, 2021 / Proposed Rules 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 × 0.36). 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 § 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 51069 registered pilots provided by the pilot associations.47 Thus, in accordance with § 404.104(c), we use the revised target individual compensation level to derive the total pilot compensation by multiplying the individual target compensation by the estimated number of 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 .......................................................................................................... Number of Pilots .......................................................................................................................... $393,461 18 $393,461 4 $393,461 22 Total Target Pilot Compensation .......................................................................................... Target Apprentice Pilot Wage ..................................................................................................... Number of Apprentice Pilots ........................................................................................................ $7,082,298 $141,646 ........................ $1,573,844 $141,646 ........................ $8,656,142 $141,646 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. TABLE 32—WORKING CAPITAL FUND CALCULATION FOR DISTRICT THREE District Three Undesignated Designated Total Adjusted Operating Expenses (Step 2) ....................................................................................... Total Target Pilot Compensation (Step 4) ................................................................................... Total Target Apprentice Pilot Wages (Step 4) ............................................................................ $2,530,510 7,082,298 424,938 $691,839 1,573,844 283,292 $3,222,349 8,656,142 708,230 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 tkelley on DSK125TN23PROD with PROPOSALS Undesignated Designated Total Adjusted Operating Expenses (Step 2) ....................................................................................... Total Target Pilot Compensation (Step 4) ................................................................................... Total Target Apprentice Pilot Wages (Step 4) ............................................................................ Working Capital Fund (Step 5) .................................................................................................... $2,530,510 7,082,298 424,938 248,602 $691,839 1,573,844 283,292 63,130 $3,222,349 8,656,142 708,230 311,732 Total Revenue Needed ........................................................................................................ 10,286,348 2,612,105 12,898,453 46 https://www.federalreserve.gov/ monetarypolicy/files/fomcprojtabl20210317.pdf. VerDate Sep<11>2014 21:00 Sep 13, 2021 Jkt 253001 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 PO 00000 Frm 00048 Fmt 4702 Sfmt 4702 staffing model is discussed at length in the final rule (see pages 41476–41480 for a detailed analysis of the calculations). E:\FR\FM\14SEP1.SGM 14SEP1 51070 Federal Register / Vol. 86, No. 175 / Tuesday, September 14, 2021 / Proposed Rules 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. TABLE 34—TIME ON TASK FOR DISTRICT THREE [Hours] District Three Year Undesignated 2020 2019 2018 2017 2016 2015 2014 2013 2012 2011 Designated ......................................................................................................................................................................... ......................................................................................................................................................................... ......................................................................................................................................................................... ......................................................................................................................................................................... ......................................................................................................................................................................... ......................................................................................................................................................................... ......................................................................................................................................................................... ......................................................................................................................................................................... ......................................................................................................................................................................... ......................................................................................................................................................................... 24,178 24,851 19,967 20,955 23,421 22,824 25,833 17,115 15,906 16,012 3,682 3,395 3,455 2,997 2,769 2,696 3,835 2,631 2,163 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 Revenue Needed (Step 6) ....................................................................................................................................... Average Time on Task (Hours) ............................................................................................................................... Initial Rate ................................................................................................................................................................ H. Step 8: Calculate Average Weighting Factors by Area In this step, we calculate the average weighting factor for each designated and undesignated area. We collect the weighting factors, set forth in 46 CFR 401.400, for each vessel trip. Using this database, we calculate the average $10,287,977 21,106 487 Designated $2,612,550 2,930 891 weighting factor for each area using the data from each vessel transit from 2014 onward, as shown in tables 36 and 37.50 TABLE 36—AVERAGE WEIGHTING FACTOR FOR DISTRICT THREE, UNDESIGNATED AREAS Number of transits tkelley on DSK125TN23PROD with PROPOSALS Vessel class/year Class Class Class Class Class Class Class Class Class Class Class Class Class Class Class Class Class Class Class Class Class 1 1 1 1 1 1 1 2 2 2 2 2 2 2 3 3 3 3 3 3 3 49 See (2014) (2015) (2016) (2017) (2018) (2019) (2020) (2014) (2015) (2016) (2017) (2018) (2019) (2020) (2014) (2015) (2016) (2017) (2018) (2019) (2020) ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. 45 56 136 148 103 173 4 274 207 236 264 169 279 395 15 8 10 19 9 9 4 footnote 22 for more information. VerDate Sep<11>2014 21:00 Sep 13, 2021 Jkt 253001 PO 00000 Frm 00049 Fmt 4702 Sfmt 4702 E:\FR\FM\14SEP1.SGM 14SEP1 Weighting factor 1 1 1 1 1 1 1 1.15 1.15 1.15 1.15 1.15 1.15 1.15 1.3 1.3 1.3 1.3 1.3 1.3 1.3 Weighted transits 45 56 136 148 103 173 4 315.1 238.05 271.4 303.6 194.35 320.85 454.25 19.5 10.4 13 24.7 11.7 11.7 5.2 51071 Federal Register / Vol. 86, No. 175 / Tuesday, September 14, 2021 / Proposed Rules TABLE 36—AVERAGE WEIGHTING FACTOR FOR DISTRICT THREE, UNDESIGNATED AREAS—Continued Number of transits Vessel class/year Class Class Class Class Class Class Class 4 4 4 4 4 4 4 (2014) (2015) (2016) (2017) (2018) (2019) (2020) Weighting factor Weighted transits ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. 394 375 332 367 337 334 413 1.45 1.45 1.45 1.45 1.45 1.45 1.45 571.3 543.75 481.4 532.15 488.65 484.3 598.85 Total for Area 6 .................................................................................................................... Area 8: Class 1 (2014) ...................................................................................................................... Class 1 (2015) ...................................................................................................................... Class 1 (2016) ...................................................................................................................... Class 1 (2017) ...................................................................................................................... Class 1 (2018) ...................................................................................................................... Class 1 (2019) ...................................................................................................................... Class 1 (2020) ...................................................................................................................... Class 2 (2014) ...................................................................................................................... Class 2 (2015) ...................................................................................................................... Class 2 (2016) ...................................................................................................................... Class 2 (2017) ...................................................................................................................... Class 2 (2018) ...................................................................................................................... Class 2 (2019) ...................................................................................................................... Class 2 (2020) ...................................................................................................................... Class 3 (2014) ...................................................................................................................... Class 3 (2015) ...................................................................................................................... Class 3 (2016) ...................................................................................................................... Class 3 (2017) ...................................................................................................................... Class 3 (2018) ...................................................................................................................... Class 3 (2019) ...................................................................................................................... Class 3 (2020) ...................................................................................................................... Class 4 (2014) ...................................................................................................................... Class 4 (2015) ...................................................................................................................... Class 4 (2016) ...................................................................................................................... Class 4 (2017) ...................................................................................................................... Class 4 (2018) ...................................................................................................................... Class 4 (2019) ...................................................................................................................... Class 4 (2020) ...................................................................................................................... 5,115 ........................ 6,559 3 0 4 4 0 0 1 177 169 174 151 102 120 239 3 0 7 18 7 6 2 243 253 204 269 188 254 456 1 1 1 1 1 1 1 1.15 1.15 1.15 1.15 1.15 1.15 1.15 1.3 1.3 1.3 1.3 1.3 1.3 1.3 1.45 1.45 1.45 1.45 1.45 1.45 1.45 3 0 4 4 0 0 1 203.55 194.35 200.1 173.65 117.3 138 274.85 3.9 0 9.1 23.4 9.1 7.8 2.6 352.35 366.85 295.8 390.05 272.6 368.3 661.2 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 transits tkelley on DSK125TN23PROD with PROPOSALS Vessel class/year Class Class Class Class Class Class Class Class Class Class Class Class Class Class Class Class Class Class Class Class Class 1 1 1 1 1 1 1 2 2 2 2 2 2 2 3 3 3 3 3 3 3 (2014) (2015) (2016) (2017) (2018) (2019) (2020) (2014) (2015) (2016) (2017) (2018) (2019) (2020) (2014) (2015) (2016) (2017) (2018) (2019) (2020) VerDate Sep<11>2014 ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. 21:00 Sep 13, 2021 Jkt 253001 PO 00000 Frm 00050 Fmt 4702 Sfmt 4702 E:\FR\FM\14SEP1.SGM 27 23 55 62 47 45 16 221 145 174 170 126 162 250 4 0 6 14 6 3 4 14SEP1 Weighting factor 1 1 1 1 1 1 1 1.15 1.15 1.15 1.15 1.15 1.15 1.15 1.3 1.3 1.3 1.3 1.3 1.3 1.3 Weighted transits 27 23 55 62 47 45 16 254.15 166.75 200.1 195.5 144.9 186.3 287.5 5.2 0 7.8 18.2 7.8 3.9 5.2 51072 Federal Register / Vol. 86, No. 175 / Tuesday, September 14, 2021 / Proposed Rules TABLE 37—AVERAGE WEIGHTING FACTOR FOR DISTRICT THREE, DESIGNATED AREAS—Continued Number of transits Vessel class/year Class Class Class Class Class Class Class 4 4 4 4 4 4 4 (2014) (2015) (2016) (2017) (2018) (2019) (2020) Weighting factor Weighted transits ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. 321 245 191 234 225 308 385 1.45 1.45 1.45 1.45 1.45 1.45 1.45 465.45 355.25 276.95 339.3 326.25 446.6 558.25 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 Initial rate (step 7) Area District Three: Designated ........................................................................................................... District Three: Undesignated ....................................................................................................... J. Step 10: Review and Finalize Rates In this step, the Director reviews the rates set forth by the staffing model and ensures that they meet the goal of ensuring safe, efficient, and reliable pilotage. To establish 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 $891 487 Average weighting factor (step 8) Revised rate (initial rate ÷ average weighting factor) 1.30 1.30 $685 375 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 § 401.405(a)(5) and (6) to reflect the final rates shown in table 39. TABLE 39—PROPOSED FINAL RATES FOR DISTRICT THREE Name District Three: Designated ............................................ District Three: Undesignated ........................................ St. Marys River ............................................................. Lakes Huron, Michigan, and 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 tkelley on DSK125TN23PROD with PROPOSALS Final 2020 pilotage rate Area 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, VerDate Sep<11>2014 21:00 Sep 13, 2021 Jkt 253001 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 PO 00000 Frm 00051 Fmt 4702 Sfmt 4702 Proposed 2021 pilotage rate $586 337 $685 375 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. Table 40 summarizes proposed changes with no cost impacts or where the cost impacts are captured in the 51 Great Lakes Pilotage Rates—2018 Annual Review and Revisions to Methodology (83 FR 26162), published June 5, 2018. E:\FR\FM\14SEP1.SGM 14SEP1 51073 Federal Register / Vol. 86, No. 175 / Tuesday, September 14, 2021 / Proposed Rules 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 or cost captured in the rate Change Description Affected population Add a definition of apprentice pilot. Distinguishes between applicants who have not yet entered training and apprentices, persons approved and certified by the Director who are participating in an approved U.S. Great Lakes pilot training and qualification program and meet all the minimum requirements listed in 46 CFR 401.211. The Coast Guard is proposing to modify the staffing model at 46 CFR 401.220(a)(3) to round up to the nearest integer, as opposed to the existing method, which rounds to the nearest integer. In total, this would increase the maximum number of allowable pilots by 2, adding one pilot to each of the undesignated areas of District One and District Two. The Coast Guard is proposing to modify the staffing model at 46 CFR 404.103 to predict the number of apprentice pilots each district would need for the next season. 46 CFR 404.103 would establish the target apprentice pilot wage at 36% of registered pilot compensation for that year. Owners and operators of 293 vessels transiting the Great Lakes system annually, 56 U.S. Great Lakes pilots, 9 apprentice pilots, and 3 pilotage associations. No cost, strictly a definitional change. Provides clarity by distinguishing apprentice pilots from applicant trainees when calculating the apprentice pilot operating expenses, estimates and wage benchmark. Owners and operators of 293 vessels transiting the Great Lakes system annually, 56 U.S. Great Lakes pilots, 9 apprentice pilots, and 3 pilotage associations. The total number of pilots is accounted for in the base pilotage rates. For the 2022 ratemaking, this proposed change would allow for two additional pilots that would not have otherwise been allowed. This increases the total revenue needed by $773,281. Rounding up in the staffing model accounts for extra staff or extra time spent by the pilot associations presidents not performing pilotage service. Rounding up allows us to account for this time and promote safety and restorative rest, while minimizing delays in providing pilotage services. Owners and operators of 293 vessels transiting the Great Lakes system annually, 56 U.S. Great Lakes pilots, 9 apprentice pilots, and 3 pilotage associations. Total cost of $1,274,814 for the wages of 9 apprentice pilots for the 2022 season. This amount is incorporated into the rate increase. Setting a target wage of 36% of registered pilot compensation better matches changes in registered pilot compensation and inflation and more evenly distributes the additional cost of apprentice pilots compared to the surcharge method. Changes to staffing model Adding number of apprentice pilots to Step 3 and setting target apprentice pilot wage in Step 4. Benefits TABLE 41—ECONOMIC IMPACTS DUE TO PROPOSED CHANGES Change tkelley on DSK125TN23PROD with PROPOSALS Rate and surcharge changes. Description Affected population Costs Benefits In accordance with 46 U.S.C. Chapter 93, the Coast Guard is required to review and adjust base pilotage rates annually. Owners and operators of 293 vessels transiting the Great Lakes system annually, 56 U.S. Great Lakes pilots, 9 apprentice pilots, and 3 pilotage associations. Increase of $3,527,425 due to change in revenue needed for 2022 ($33,860,077) from revenue needed for 2021 ($30,332,652), as shown in table 42. New rates cover an association’s necessary and reasonable operating expenses. Promotes safe, efficient, and reliable pilotage service on the Great Lakes. Provides fair compensation, adequate training, and sufficient rest periods for pilots. Ensures the association receives sufficient revenues to fund future improvements. The Coast Guard is required to review and adjust pilotage rates on the Great VerDate Sep<11>2014 21:00 Sep 13, 2021 Jkt 253001 Lakes annually. See sections IV and V of this preamble for detailed discussions PO 00000 Frm 00052 Fmt 4702 Sfmt 4702 of the legal basis and purpose for this rulemaking and for background E:\FR\FM\14SEP1.SGM 14SEP1 51074 Federal Register / Vol. 86, No. 175 / Tuesday, September 14, 2021 / Proposed Rules tkelley on DSK125TN23PROD with PROPOSALS 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 VerDate Sep<11>2014 21:00 Sep 13, 2021 Jkt 253001 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. 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 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. PO 00000 Frm 00053 Fmt 4702 Sfmt 4702 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. 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 $30,332,652.54 This is the best approximation of 2021 revenues, as at the time of this publication the Coast Guard does not have enough audited data available for the 2021 shipping season to revise these projections.55 Table 42 shows the revenue projections for 2021 and 2022 and details the additional cost increases to shippers by area and district as a result of the rate changes on traffic in Districts One, Two, and Three. 53 While the Coast Guard implemented a surcharge in 2019, we are not proposing any surcharges for 2022. 54 85 FR 20088, see table 41. 55 The proposed rates for 2021 do not account for the impacts COVID–19 may have had on shipping traffic and subsequently pilotage revenue, as we do not have complete data for 2020. The rates for 2022 will take into account for all and any pertinent impacts of COVID–19 on shipping traffic, because that future ratemaking will include 2020 traffic data. However, the Coast Guard uses 10-year average when calculating traffic in order to smooth out variations in traffic caused by global economic conditions, such as those caused by the COVID–19 pandemic. E:\FR\FM\14SEP1.SGM 14SEP1 Federal Register / Vol. 86, No. 175 / Tuesday, September 14, 2021 / Proposed Rules 51075 TABLE 42—EFFECT OF THE RULE BY AREA AND DISTRICT [$U.S.; non-discounted] Revenue needed in 2021 Revenue needed in 2022 Total, District One ........................................................................................................................ Total, District Two ........................................................................................................................ Total, District Three ..................................................................................................................... $10,620,941 8,506,705 11,205,006 $11,566,297 9,395,327 12,898,453 $945,356 888,622 1,693,447 System Total ......................................................................................................................... 30,332,652 33,860,077 3,527,425 Area 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 10year period. Change in costs of this proposed rule Table 43 shows the difference in revenue by revenue-component from 2021 to 2022 and presents each revenuecomponent 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 Revenue-component Revenue needed in 2021 Percentage of total revenue needed in 2021 Adjusted Operating Expenses .............................................. Total Target Pilot Compensation .......................................... Total Target Apprentice Pilot Wages .................................... Working Capital Fund ........................................................... $8,876,850 20,461,950 ........................ 993,852 29 67 ........................ 3 Total Revenue Needed .................................................. 30,332,652 100 Percentage of total revenue needed in 2022 Difference (2022 revenue¥ 2021 revenue) $9,733,112 22,033,816 1,274,814 818,335 29 65 4 2 $856,262 1,571,866 1,274,814 (175,517) 10 8 ........................ (18) 33,860,077 100 3,527,425 12 Revenue needed in 2022 Percentage change from previous year Note: Totals may not sum due to rounding. tkelley on DSK125TN23PROD with PROPOSALS 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 nowcodified 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 VerDate Sep<11>2014 21:00 Sep 13, 2021 Jkt 253001 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 56 https://www.bls.gov/news.release/archives/eci_ 01292021.htm. 57 https://www.federalreserve.gov/ monetarypolicy/fomcprojtabl20201216.htm. PO 00000 Frm 00054 Fmt 4702 Sfmt 4702 methodology using CPI from 2019 and predicted inflation through 2022. 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. E:\FR\FM\14SEP1.SGM 14SEP1 51076 Federal Register / Vol. 86, No. 175 / Tuesday, September 14, 2021 / Proposed Rules TABLE 44—CHANGE IN REVENUE RESULTING FROM THE PROPOSED CHANGE TO INFLATION OF PILOT COMPENSATION CALCULATION IN STEP 4 2021 target compensation ................................................................................................................................................................... Adjusted 2021 Compensation ($378,925 × 1.018) ............................................................................................................................. Difference between Target 2021 Compensation and Adjusted Target 2021 Compensation ($385,746¥$378,925) ........................ Increase in Total Revenue for 56 Pilots ($6,821 × 56) ....................................................................................................................... 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 $378,925 385,746 6,821 381,956 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 ................................................................................................................................................................. Total Number of New Pilots ................................................................................................................................................................ Total Cost of New Pilots ($393,461 × 2) ............................................................................................................................................. Difference between Adjusted Target 2021 Compensation and Target 2021 Compensation ($378,925¥$385,746) ........................ Increase in Total Revenue for 2 Pilots ($6,821 × 2) ........................................................................................................................... Net Increase in Total Revenue for 2 Pilots ($786,922¥$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 $393,461 2 $786,922 $6,821 $13,641 $773,281 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 ............................................................................................................................................................. 2022 Target Compensation ($385,746 × 1.02) ................................................................................................................................... Difference between Adjusted 2021 Compensation and Target 2022 Compensation ($393,461¥$385,746) ................................... Increase in Total Revenue for 56 Pilots ($7,715 × 56) ....................................................................................................................... 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 × 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 $385,746 393,461 7,715 432,060 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. TABLE 47—CHANGE IN REVENUE RESULTING FROM TARGET APPRENTICE PILOT WAGES 2022 Target Apprentice Pilot Wage .................................................................................................................................................... Total Number of Apprentice Pilots ...................................................................................................................................................... Total Cost of Apprentice Pilots ($141,646 × 9) ................................................................................................................................... tkelley on DSK125TN23PROD with PROPOSALS Table 48 presents the percentage change in revenue by area and revenue- component, excluding surcharges, as they are applied at the district level.58 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. VerDate Sep<11>2014 21:00 Sep 13, 2021 Jkt 253001 PO 00000 Frm 00055 Fmt 4702 Sfmt 4702 E:\FR\FM\14SEP1.SGM 14SEP1 $141,646 9 $1,274,814 District One: Designated ..................... District One: Undesignated ....................... District Two: Undesignated ....................... District Two: Designated ..................... District Three: Undesignated ..................... District Three: Designated ..................... tkelley on DSK125TN23PROD with PROPOSALS VerDate Sep<11>2014 21:00 Sep 13, 2021 Jkt 253001 1,035,837 1,553,756 2,530,510 1,003,961 1,540,146 1,947,484 691,839 1,568,537 1,502,239 554,039 $2,352,634 2022 $2,328,981 2021 20 23 1 3 4 1 Percentage change Adjusted operating expenses 1,515,700 6,820,650 2,652,475 3,031,400 2,652,475 $3,789,250 2021 1,857,136 7,507,236 2,867,544 3,711,124 3,261,005 $4,104,585 2022 18 9 8 18 19 8 Percentage change Total target pilot compensation 283,292 424,938 113,317 169,975 113,317 $169,975 2022 Total target apprentice pilot wage 70,112 297,021 142,025 136,698 140,741 $207,255 2021 63,130 248,602 109,501 117,566 119,612 $159,924 2022 (11) (19) (30) (16) (18) (30) Percentage change Working capital fund TABLE 48—DIFFERENCE IN REVENUE BY COMPONENT AND AREA 2,139,851 9,065,155 4,334,646 4,172,059 4,295,455 $6,325,486 2021 2,612,105 10,286,348 4,530,801 4,864,527 4,949,154 $6,617,143 2022 18 12 4 14 13 4 Percentage change Total revenue needed Federal Register / Vol. 86, No. 175 / Tuesday, September 14, 2021 / Proposed Rules PO 00000 Frm 00056 Fmt 4702 Sfmt 4702 E:\FR\FM\14SEP1.SGM 14SEP1 51077 51078 Federal Register / Vol. 86, No. 175 / Tuesday, September 14, 2021 / Proposed Rules Benefits 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 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. 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. TABLE 49—NAICS CODES AND SMALL ENTITIES SIZE STANDARDS NAICS tkelley on DSK125TN23PROD with PROPOSALS 211120 237990 238910 483212 487210 488330 523910 561599 982100 Description .............. .............. .............. .............. .............. .............. .............. .............. .............. Crude Petroleum Extraction ....................................................................................................... Other Heavy and Civil Engineering Construction ...................................................................... Site Preparation Contractors ...................................................................................................... Inland Water Passenger Transportation .................................................................................... Scenic and Sightseeing Transportation, Water .......................................................................... Navigational Services to Shipping .............................................................................................. Miscellaneous Intermediation ..................................................................................................... All Other Travel Arrangement and Reservation Services .......................................................... National Security ........................................................................................................................ 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. 59 See https://www.manta.com/. https://resource.referenceusa.com/. 61 See https://www.sba.gov/document/support-table-size-standards. SBA has established a ‘‘Table 60 See VerDate Sep<11>2014 Small entity size standard 21:00 Sep 13, 2021 Jkt 253001 1,250 employees. $39.5 million. $16.5 million. 500 employees. $8.0 million. $41.5 million. $41.5 million. $22.0 million. Population of 50,000 People. 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 of Size Standards’’ for small businesses that sets small business size standards by NAICS code. A size standard, which is usually stated in number of employees or average annual receipts (‘‘revenues’’), represents the largest size that a business (including its subsidiaries and affiliates) may be in order to remain classified as a small business for SBA and Federal contracting programs. PO 00000 Frm 00057 Fmt 4702 Sfmt 4702 E:\FR\FM\14SEP1.SGM 14SEP1 Federal Register / Vol. 86, No. 175 / Tuesday, September 14, 2021 / Proposed Rules 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). tkelley on DSK125TN23PROD with PROPOSALS 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 VerDate Sep<11>2014 21:00 Sep 13, 2021 Jkt 253001 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 PO 00000 Frm 00058 Fmt 4702 Sfmt 4702 51079 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 E:\FR\FM\14SEP1.SGM 14SEP1 51080 Federal Register / Vol. 86, No. 175 / Tuesday, September 14, 2021 / Proposed Rules 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. 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. tkelley on DSK125TN23PROD with PROPOSALS Great Lakes, Navigation (water), Seamen. For the reasons discussed in the preamble, the Coast Guard proposes to 63 https://www.dhs.gov/sites/default/files/ publications/DHS_Instruction%20Manual%2002301-001-01%20Rev%2001_ 508%20Admin%20Rev.pdf. 21:00 Sep 13, 2021 Jkt 253001 PART 404—GREAT LAKES PILOTAGE RATEMAKING PART 401—GREAT LAKES PILOTAGE REGULATIONS ■ 1. The authority citation for part 401 is revised to read as follows: ■ 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). 6. Amend § 404.2 by adding paragraph (b)(7) 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). ■ 2. Amend § 401.110 by adding paragraphs (a)(18) and (19) to read as follows: * ■ § 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 §§ 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. ■ 3. Amend § 401.220 by revising the first sentence of paragraph (a)(3) to read as follows: § 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. * * * * * * * * ■ 4. Amend § 401.405 by revising paragraphs (a)(1) through (6) to read as follows: § 401.405 46 CFR Part 404 VerDate Sep<11>2014 amend 46 CFR parts 401 and 404 as follows: 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. * * * * * PO 00000 Frm 00059 Fmt 4702 Sfmt 4702 § 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. * * * * * ■ 7. Amend § 404.103 as follows: ■ a. Revise the section heading; ■ b. Redesignate the introductory text as paragraph (a); and ■ c. Add new paragraph (b). The revisions and additions read as follows: § 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. ■ 8. Amend § 404.104 as follows: ■ a. Revise the section heading; and ■ b. Add new paragraphs (d) and (e). The revisions and additions read as follows: § 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 § 404.103(b). * * * * * E:\FR\FM\14SEP1.SGM 14SEP1 Federal Register / Vol. 86, No. 175 / Tuesday, September 14, 2021 / Proposed Rules 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 FEDERAL COMMUNICATIONS COMMISSION 47 CFR Part 52 [WC Docket Nos. 13–97, 07–243, 20–67; IB Docket No. 16–155; FCC 21–94; FR ID 43570] Numbering Policies for Modern Communications Federal Communications Commission. ACTION: Proposed rule. AGENCY: In this document, the Federal Communications Commission (Commission or FCC) proposes to update rules regarding direct access to numbers by providers of interconnected voice over internet Protocol (VoIP) services. The Pallone-Thune Telephone Robocall Abuse Criminal Enforcement and Deterrence (TRACED) Act directed the Commission to examine ways to reduce access to telephone numbers by potential perpetrators of illegal robocalls. These proposals aim to safeguard the numbers and consumers, protect national security interests, promote public safety, and reduce opportunities for regulatory arbitrage. DATES: Comments are due on or before October 14, 2021, and reply comments are due on or before November 15, 2021. Written comments on the Paperwork Reduction Act proposed information collection requirements must be submitted by the public and other interested parties on or before November 15, 2021. ADDRESSES: You may send comments, identified by WC Docket Nos. 13–97, 07–243, 20–67, and IB Docket No. 16– 155 by any of the following methods: • Federal Communications Commission’s Website: https:// apps.fcc.gov/ecfs/. Follow the instructions for submitting comments. • Mail: Parties who choose to file by paper must file an original and one copy of each filing. Filings can be sent by commercial overnight courier, or by first-class or overnight U.S. Postal Service mail. All filings must be addressed to the Commission’s Secretary, Office of the Secretary, Federal Communications Commission. Commercial overnight mail (other than U.S. Postal Service Express Mail and tkelley on DSK125TN23PROD with PROPOSALS SUMMARY: VerDate Sep<11>2014 21:00 Sep 13, 2021 Jkt 253001 Priority Mail) must be sent to 9050 Junction Drive, Annapolis Junction, MD 20701.U.S. Postal Service first-class, Express, and Priority mail must be addressed to 45 L Street NE, Washington, DC 20554. • Hand Delivery: Effective March 19, 2020, and until further notice, the Commission no longer accepts any hand or messenger delivered filings. This is a temporary measure taken to help protect the health and safety of individuals, and to mitigate the transmission of COVID– 19. See FCC Announces Closure of FCC Headquarters Open Window and Change in Hand-Delivery Policy, Public Notice, DA 20–304 (March 19, 2020). https://www.fcc.gov/document/fcccloses-headquarters-open-window-andchanges-hand-delivery-policy. • People With Disabilities: Contact the FCC to request reasonable accommodations (accessible format documents, sign language interpreters, CART, etc.) by email: FCC504@fcc.gov or phone: 202–418–0530 or TTY: 202– 418–0432. For detailed instructions for submitting comments and additional information on the rulemaking process, see the SUPPLEMENTARY INFORMATION section of this document. FOR FURTHER INFORMATION CONTACT: Wireline Competition Bureau, Competition Policy Division, Jordan Reth, at (202) 418–1418, Jordan.Reth@ fcc.gov. For additional information concerning the Paperwork Reduction Act information collection requirements contained in this document, send an email to PRA@fcc.gov or contact Nicole Ongele, Nicole.Ongele@fcc.gov. SUPPLEMENTARY INFORMATION: This is a summary of the Commission’s Further Notice of Proposed Rulemaking (FNPRM) in WC Docket Nos. 13–97, 07– 243, 20–67, and IB Docket No. 16–155, adopted on August 5, 2021, and released on August 6, 2021. The full text of the document is available on the Commission’s website at https:// www.fcc.gov/document/fcc-proposesupdating-numbering-rules-fightrobocalls. To request materials in accessible formats for people with disabilities (e.g., braille, large print, electronic files, audio format, etc.), send an email to FCC504@fcc.gov or call the Consumer & Governmental Affairs Bureau at (202) 418–0530 (voice) or (202) 418–0432 (TTY). Initial Paperwork Reduction Act of 1995 Analysis: This document contains proposed information collection requirements. The Commission, as part of its continuing effort to reduce paperwork burdens, invites the general public to comment on the information PO 00000 Frm 00060 Fmt 4702 Sfmt 4702 51081 collection requirements contained in this document, as required by the Paperwork Reduction Act of 1995, Public Law 104–13. Public and agency comments are due November 15, 2021. Comments should address: (a) Whether the proposed collection of information is necessary for the proper performance of the functions of the Commission, including whether the information shall have practical utility; (b) the accuracy of the Commission’s burden estimates; (c) ways to enhance the quality, utility, and clarity of the information collected; (d) ways to minimize the burden of the collection of information on the respondents, including the use of automated collection techniques or other forms of information technology; and (e) way to further reduce the information collection burden on small business concerns with fewer than 25 employees. In addition, pursuant to the Small Business Paperwork Relief Act of 2002, Public Law 107–198, see 44 U.S.C. 3506(c)(4), we seek specific comment on how we might further reduce the information collection burden for small business concerns with fewer than 25 employees. Synopsis I. Further Notice of Proposed Rulemaking 1. To provide additional guardrails to safeguard the Nation’s finite numbering resources, protect consumers, curb illegal and harmful robocalling, reduce the opportunity for regulatory arbitrage, and further promote public safety, we propose and seek comment on a number of modifications to our rules governing the authorization process for interconnected VoIP providers’ direct access to numbering resources. First, to enable Commission staff to have the necessary information to efficiently review direct access applications and continue protecting the public interest, we propose to require additional certifications as part of the direct access application process and clarify existing requirements. Second, to help address the risk of providing access to our numbering resources and databases to bad actors abroad, we propose clarifying that applicants must disclose foreign ownership information. Third, we propose clarifying that holders of a Commission direct access authorization must update the Commission and applicable states within 30 days of any change to the ownership information submitted to the Commission. Fourth, we seek comment whether any changes to our rules are necessary to clarify that holders of a Commission direct access E:\FR\FM\14SEP1.SGM 14SEP1

Agencies

[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]


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

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.

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

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.
---------------------------------------------------------------------------

    \1\ Title 46 of the United States Code (U.S.C.), Sections 9301-
9308.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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
----------------------------------------------------------------------------------------------------------------
                                                                                    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: 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.
----------------------------------------------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \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).
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \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
----------------------------------------------------------------------------------------------------------------
                                                                                   Area
         District            Pilotage association          Designation           No.\14\       Area name \15\
----------------------------------------------------------------------------------------------------------------
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.
----------------------------------------------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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


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