Great Lakes Pilotage Rates-2022 Annual Review and Revisions to Methodology, 18488-18525 [2022-06394]

Agencies

• Coast Guard
• DEPARTMENT OF HOMELAND SECURITY

[Federal Register Volume 87, Number 61 (Wednesday, March 30, 2022)]
[Rules and Regulations]
[Pages 18488-18525]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-06394]



[[Page 18487]]

Vol. 87

Wednesday,

No. 61

March 30, 2022

Part II





Department of Homeland Security





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Coast Guard





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46 CFR Parts 401 and 404





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

Federal Register / Vol. 87 , No. 61 / Wednesday, March 30, 2022 / 
Rules and Regulations

[[Page 18488]]


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DEPARTMENT OF HOMELAND SECURITY

Coast Guard

46 CFR Parts 401 and 404

[Docket No. USCG-2021-0431]
RIN 1625-AC70


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

AGENCY: Coast Guard, DHS.

ACTION: Final rule.

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SUMMARY: In accordance with the statutory provisions enacted by the 
Great Lakes Pilotage Act of 1960, the Coast Guard is issuing new base 
pilotage rates for the 2022 shipping season. This rule will 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 rule will make a policy change to round up in the 
staffing model. The Coast Guard is also making methodology changes to 
factor in an apprentice pilot's compensation benchmark for the 
estimated number of apprentice pilots. The Coast Guard estimates that 
this rule will result in a 7-percent increase in pilotage operating 
costs compared to the 2021 season.

DATES: This final rule is effective April 29, 2022.

ADDRESSES: To view documents mentioned in this preamble as being 
available in the docket, go to https://www.regulations.gov, type USCG-
2021-0431 in the search box and click ``Search.'' Next, in the Document 
Type column, select ``Supporting & Related Material.''

FOR FURTHER INFORMATION CONTACT: For information about this document, 
call or email Mr. Brian Rogers, Commandant, Office of Waterways and 
Ocean Policy--Great Lakes Pilotage Division (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. Abbreviations
II. Executive Summary
III Basis and Purpose
IV. Discussion of Comments and Changes
    A. Staffing Model
    B. Apprentice Pilot Wage Benchmark and Applicant Trainee 
Compensation
    C. Timing of Annual Audit
    D. Exclusion of Legal Expenses From Operating Expenses
    E. Correction of Recognized Expenses for District Two
    F. Changes to the NPRM's Estimate for District Two Pilot Numbers
    G. Changes to the NPRM's Estimate for District Three Pilot 
Numbers
    H. Request for Cost-Effectiveness Study
    I. Public Disclosure of Pilot Compensation
V. Discussion of Methodological and Other Changes
    A. Changes to the Staffing Model
    B. Apprentice Pilot Wage Benchmark for Conducting Pilotage While 
Using a Limited Registration
    C. Apprentice Pilots' Expenses and Benefits as Approved 
Operating Expenses
VI. Discussion of 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
VII. Regulatory Analyses
    A. Regulatory Planning and Review
    B. Small Entities
    C. Assistance for Small Entities
    D. Collection of Information
    E. Federalism
    F. Unfunded Mandates
    G. Taking of Private Property
    H. Civil Justice Reform
    I. Protection of Children
    J. Indian Tribal Governments
    K. Energy Effects
    L. Technical Standards
    M. Environment

I. Abbreviations

APA American Pilots' Association
BLS Bureau of Labor Statistics
CFR Code of Federal Regulations
Coalition Shipping Federation of Canada, American Great Lakes Ports 
Association, and United States Great Lakes Shipping Association
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
GAO United States Government Accountability Office
GLPA Great Lakes Pilotage Authority (Canadian)
GLPAC Great Lakes Pilotage Advisory Committee
GLPMS Great Lakes Pilotage Management System
Great Lakes Pilots' comment The comment filed jointly by the Lakes 
Pilots Association, Saint Lawrence Seaway Pilotage Association, and 
Western Great Lakes Pilots Association
IRS Internal Revenue Service
LPA Lakes Pilots Association
NAICS North American Industry Classification System
NPRM Notice of proposed rulemaking
NTSB National Transportation Safety Board
OMB Office of Management and Budget
PCE Personal Consumption Expenditures
Q4 Fourth quarter
Sec.  Section
SBA Small Business Administration
SLSDC St. Lawrence Seaway Development Corporation
SLSMC St. Lawrence Seaway Management Corporation
SLSPA Saint Lawrence Seaway Pilotage Association
U.S.C. United States Code
WGLPA Western Great Lakes Pilots Association

II. Executive Summary

    Pursuant to Title 46 of the United States Code (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

[[Page 18489]]

waterway conditions but is generally in March or April. The rates for 
the 2022 season, which range from $342 to $834 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 source of United States 
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 pilots to participate in professional development.
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    \1\ Title 46 of the United States Code (U.S.C.), Sections 9301-
9308.
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    In accordance with statutory and regulatory requirements, we 
employed a ratemaking methodology that was introduced originally in 
2016.\2\ 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 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 that we explain in detail in the 
Discussion of Methodological and Other Changes, in section V of the 
preamble to this rule.
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    \2\ 81 FR 11907, March 7, 2016.
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    As part of our annual review, in this rule we are establishing new 
pilotage rates for 2022 based on the existing methodology. The Coast 
Guard estimates that this rule will result in a 7-percent increase in 
pilotage operating costs compared to the 2021 season. There will be an 
increase in rates for all areas of District One and District Three, and 
for the undesignated area of District Two. The rate for the designated 
area of District Two will decrease.
    These changes are largely due to a combination of three factors: 
(1) The addition of apprentice pilots to Step 3, ``Estimate Number of 
Registered Pilots and Apprentice Pilots,'' with a target wage of 36 
percent of pilot target compensation (60 percent of the increase in 
revenue needed), (2) adjusting target pilot compensation for both the 
difference in past predicted and actual inflation and predicted future 
inflation (48 percent of the increase in revenue needed), and (3) a net 
reduction of 3 registered pilots at the beginning of the 2022 shipping 
season, representing the addition of 1 pilot for the undesignated area 
of District One due to rounding, the reduction of 2 pilots, and the 
addition of 1 pilot for the undesignated area due to rounding in 
District Two, and 3 retirements in District Three (an offsetting 
decrease representing -54 percent of the increase in revenue 
needed).\3\ The other 46 percent of the increase in revenue needed 
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 caused by global economic 
conditions, such as those caused by the COVID-19 pandemic.
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    \3\ The increase of two pilots from rounding is an increase of 
36 percent, and the decrease of five pilots from retirements and 
attrition is -90 percent, for a net effect of a decrease of 54 
percent.
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    The Coast Guard is also making one policy change and one change to 
the ratemaking methodology. First, in the staffing model (Volume 82 of 
the Federal Register (FR) at Page 41466, and table 6 at Page 41480, 
August 31, 2017), the Coast Guard will change the way we determine the 
maximum number of pilots needed for the upcoming season by always 
rounding up the final number to the nearest whole number. Second, we 
will also include in the methodology a calculation for a wage benchmark 
for apprentice pilots. Although it is not a change to existing 
ratemaking policy, we are listing apprentice pilot operating expenses 
within the approved operating expenses in title 46 of the Code of 
Federal Regulations (CFR), section 404.2, ``Procedure and criteria for 
recognizing association expenses,'' used in Step 1 of the ratemaking. 
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 wage benchmark.
    Based on the ratemaking model discussed in this rule, we are 
establishing the rates shown in table 1.

                           Table 1--Existing and New Pilotage Rates on the Great Lakes
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                                                                                    Final  2021     Final  2022
                     Area                                     Name                pilotage  rate  pilotage  rate
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District One: Designated......................  St. Lawrence River..............            $800            $834
District One: Undesignated....................  Lake Ontario....................             498             568
District Two: Designated......................  Navigable waters from Southeast              580             536
                                                 Shoal to Port Huron, MI.
District Two: Undesignated....................  Lake Erie.......................             566             610
District Three: Designated....................  St. Marys River.................             586             662
District Three: Undesignated..................  Lakes Huron, Michigan, and                   337             342
                                                 Superior.
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    This rule will affect 51 United States Great Lakes pilots, 9 
apprentice pilots, 3 pilot associations, and the owners and operators 
of an average of 293 oceangoing vessels that transit the Great Lakes 
annually. This rule is not economically significant under Executive 
Order 12866 and will 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 $2,154,342 in estimated 
payments made by shippers during the 2022 shipping season. This rule 
establishes the 2022 yearly compensation for pilots on the Great Lakes 
at $399,266 per pilot (a 5.37 percent increase over their 2021 
compensation), adjusted for changes in inflation since the September 
14, 2021 notice of proposed rulemaking (NPRM) for this final rule (see, 
86 FR 51047). 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 VII of this preamble provides 
the regulatory impact analyses of this rule.

III. Basis and Purpose

    The legal basis of this rulemaking is 46 U.S.C. Chapter 93,\4\ 
which requires foreign merchant vessels and United States vessels 
operating ``on register'' (meaning United States vessels engaged in 
foreign trade) to use United States or Canadian pilots while transiting 
the

[[Page 18490]]

United States waters of the St. Lawrence Seaway and the Great Lakes 
system.\5\ For United States 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, no later than March 
1.\7\ The statute also requires that base rates be established by a 
full ratemaking at least once every 5 years, and, in years when base 
rates are not established, they must be reviewed and, if necessary, 
adjusted.\8\ The Secretary's duties and authority under 46 U.S.C. 
Chapter 93 have been delegated to the Coast Guard.\9\
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    \4\ 46 U.S.C. 9301-9308.
    \5\ 46 U.S.C. 9302(a)(1).
    \6\ 46 U.S.C. 9303(f).
    \7\ Id.
    \8\ Id.
    \9\ Department of Homeland Security (DHS) Delegation 00170.1, 
Revision No. 01.2, paragraph (II)(92)(f).
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    The purpose of this rule is to issue new pilotage rates for the 
2022 shipping season. The Coast Guard believes that the new rates will 
continue to promote our goals, as outlined in 46 CFR 404.1, of 
promoting safe, efficient, and reliable pilotage service; facilitating 
commerce throughout the Great Lakes and St. Lawrence Seaway; protecting 
the marine environment; and generating sufficient revenue for each 
pilotage association to reimburse its necessary and reasonable 
operating expenses, recruit qualified mariners, retain experienced 
United States Registered Pilots, support staffing model goals in 
accordance with National Transportation Safety Board (NTSB) 
recommendations regarding pilot fatigue, and provide appropriate 
revenue to use for improvements.

IV. Discussion of Comments and Changes

    In response to the NPRM for this ratemaking, the Coast Guard 
received six comment submissions. These submissions include one comment 
filed jointly by the Lakes Pilots Association, the Saint Lawrence 
Seaway Pilotage Association, and the Western Great Lakes Pilots 
Association (the Great Lakes Pilots' comment); one filed jointly by the 
Shipping Federation of Canada, the American Great Lakes Ports 
Association, and the United States Great Lakes Shipping Association 
(collectively, the Coalition); one from the president of the St. 
Lawrence Seaway Pilots' Association (SLSPA); one from the president of 
the Lakes Pilots Association (LPA); one from the president of the 
Western Great Lakes Pilot Association (WGLPA); and one from a retired 
United States Registered Pilot who provided pilotage service in 
District Three. As each of these commenters touched on numerous issues, 
for each response below we note which commenter raised the specific 
points addressed. In situations where multiple commenters raised 
similar issues, we provide one response to those issues.

A. Staffing Model

    The retired United States Registered Pilot in District Three 
commented that, while it is necessary to have enough staffing for 
association presidents to perform administrative duties without 
impairing pilotage service, he believes that doing so by always 
rounding up in the staffing model lacks a rational basis. He 
characterized the adjustment as essentially a random adjustment from 
+0.01 to +0.99 pilots, and while figures at the higher end of that 
range may result in enough additional staffing being available, figures 
at the lower end of that range would not.
    The SLSPA commented that it believes the Coast Guard's decision to 
always round up the pilot numbers in the staffing model is a good step 
toward mitigating the impact of non-piloting duties on association 
presidents' workload. The WGLPA also supported the decision to always 
round up in the staffing model. They characterized the practice of 
always rounding up as providing some relief for the non-pilot 
responsibilities of presidents and providing a cushion for adequate 
staffing when unexpected injuries or illnesses occur, while rounding 
down would always leave the associations short-staffed. In support of 
rounding up, the WGLPA characterized it as ``ridiculous'' to 
acknowledge that a district has more demand for pilotage services than 
can be met by a specific number of pilots, and then round down to 
authorize that same inadequate number. The LPA also supported rounding 
up the number of pilots in the staffing model. The LPA were of the 
opinion that this approach still undercounts the need for staff, 
especially when the rounding is a small fraction, but does assist in 
addressing the need.
    The Great Lakes Pilots' comment similarly noted that always 
rounding up the number of pilots in the staffing formula helps address 
the associations' staffing needs, but undercounts the need, especially 
when the rounding is a small fraction. It suggested that a dedicated 
position, in addition to rounding up, would be a better solution.
    We disagree that rounding up the staffing model's final number to 
the nearest integer leads to an inadequate result or is a random 
adjustment. We also considered and rejected the alternative request to 
add a dedicated position. The Coast Guard's reasoning for always 
rounding up in the staffing model is as follows.
    The staffing model focuses on the opening and closing of the 
shipping season. Weather conditions, ice coverage and formation, and 
the lack of aids to navigation have historically made it necessary to 
require double pilotage. Pilot association presidents do conduct a 
significant amount of piloting assignments and will continue to do so 
in the future, but during the opening and closing of the shipping 
season the pilot association presidents must coordinate with United 
States and Canadian agencies and numerous other stakeholders to 
facilitate commerce. Rounding up the pilot numbers in the staffing 
model is essential to provide some relief to accommodate the important 
non-piloting duties of the presidents.
    Rounding up ensures that the Great Lakes and St. Lawrence Seaway 
have sufficient pilotage strength to safely and efficiently facilitate 
commerce at the opening and closing of the season. When a pilot 
president is not able to pilot full-time because of their facilitative 
role, they are essentially acting as a pilot on a less than full-time 
basis. However, the associations do not staff part-time pilots. In 
addition, when we round down the staffing model final number decimal as 
much as 0.49, we undercount the piloting needs for half a pilot. The 
part-time pilotage of the presidents, combined with the undercounted 
need of half a pilot from rounding down in the staffing model, could 
result in understaffing equivalent to the need for a full pilot. 
Rounding up to a whole pilot also provides added capacity when the 
association is short-staffed for unexpected reasons, such as a pilot's 
illness. It also ensures that the partial pilot indicated by the 
staffing model is actually provided to the district to satisfy the 
traffic demand.
    The result of rounding up to the nearest integer is not random, as 
one commenter suggested, because the staffing model already shows a 
need for a partial pilot. Rounding up in the staffing model already 
occurs when the result for the number of pilots needed for the district 
has a decimal of 0.5 or greater, as with District Three's result of 
21.55, which would round up to 22 pilots in any event.\10\ Always 
rounding up to the nearest integer only creates a

[[Page 18491]]

change from current practice when the result of a district is greater 
than 0.00 and less than 0.50, not between 0.01 and 0.99, as the 
commenter suggested.
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    \10\ For a detailed calculation of the staffing model, see 82 FR 
41466, table 6 at 41480 (August 31, 2017).
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    Therefore, we believe that rounding up to a whole integer should 
sufficiently cover the need presented by the staffing model and pilot 
association presidents. In the staffing model calculations that we were 
already using, the demand for half of a pilot or more (0.50+) is 
rounded up to a whole integer. Rounding up the decimals incorporates 
some margin to account for the president who serves as pilot less than 
full-time due to their other oversight responsibilities.
    We disagree that a dedicated position in addition to rounding up, 
as proposed, would be a better solution. Allowing an additional 
dedicated position for a pilot, in addition to rounding up, would 
surpass the need presented. The cost of adding an additional pilot slot 
for each of the three pilot associations, in addition to rounding up, 
would add three additional target pilot compensations (one in each 
district) to the operating expense base. We do not believe always 
allowing an additional pilot for each of the three pilotage 
associations is a reasonable expense, because we have determined that 
the need presented is satisfied by rounding up. Adding three permanent 
additional pilots to the ratemaking annually, in addition to rounding 
up, would overcount the need presented by the staffing model and the 
less than full-time pilotage provided by presidents. Therefore, we have 
determined that adding an additional slot for a pilot is not a 
necessary and reasonable cost to include in the ratemaking. We expect 
to include this topic and the staffing model as agenda items for a 
future Great Lakes Pilotage Advisory Committee (GLPAC) meeting.
    The Coalition commented that it believes the decision to always 
round up in the staffing model is arbitrary and unsupported by 
evidence, as there is no data regarding the extent of the 
administrative burden on association presidents. It commented that the 
Coast Guard put off a decision on always rounding up in the 2021 final 
rule, pending additional research, but has not presented the results of 
that research. The Coalition suggested that the Coast Guard evaluate 
the real demand for administrative services, both in terms of the total 
hours required and the skills required to perform those tasks (so that 
a highly skilled pilot is not wasted on administrative work not 
requiring pilotage experience), and do so by district, in case the need 
is not consistent from district to district. The Coalition also 
asserted that, by always rounding up, the Coast Guard will effectively 
always provide one additional pilot in each of the three Great Lakes 
pilotage districts.
    We disagree with the Coalition's comment. In the 2021 final rule, 
the Coast Guard did not adopt the proposed change to round up in the 
staffing model, noting we would ``gather more information on the best 
way to address this issue, based on concerns raised by the 
commenters.'' (86 FR 14190). The Coast Guard considered the concerns, 
information, and constraints discussed in the comments, as well as 
discussions with the interested parties, and believes the best way to 
address the pilot president being ``off the roles'' part of the time is 
by rounding up in the staffing model, based on the following facts and 
information.
    The Coast Guard acknowledges that pilot presidents are still 
performing pilotage duties, as well as their nondelegable 
administrative oversight, and are essentially providing pilotage 
services on a less than full-time basis. During the annual GLPAC 
meeting on September 1, 2021, the association presidents discussed in 
detail their non-piloting duties and their piloting schedules. 
Attendees of the GLPAC meeting included the three association 
presidents, a representative for the shipping industry, a 
representative for the port operators, the Director of Great Lakes 
Pilotage, and several other members of the public, including pilots, 
industry representatives, and Coast Guard employees. The agenda topics 
for this meeting included stakeholder outreach and the staffing model 
used in the ratemaking methodology. The association presidents 
responded to inquiries regarding their stakeholder engagements over the 
last couple of years.
    On pages 174-177 of the GLPAC transcript (available in the docket 
where indicated under the ADDRESSES section of the preamble), the 
presidents' discussion validates our assertion that they are often 
pulled away for nondelegable meetings and responsibilities that require 
the president's knowledge, authority, and piloting expertise, which 
results in them not being able to pilot full-time. The GLPAC transcript 
indicates the presidents' piloting time competes with attending 
conferences and meetings, outreach, serving on other advisory 
committees, and assisting with special projects and issues. These tasks 
require an experienced pilot to provide advice and solutions for issues 
facing pilotage in the Great Lakes. A non-pilot manager would not have 
the necessary piloting expertise to advise agencies and stakeholders in 
lieu of the association president. For these reasons, the Coast Guard 
determined that a reasonable approach to covering time spent performing 
tasks other than piloting was to round up, where we would have 
otherwise rounded down, rather than allow expenses for an additional 
administrative position.
    Rounding up avoids the very real issue of understaffing where the 
staffing model already indicates that there is traffic demand and a 
need for pilots above the rounded-down integer. Adequate staffing is 
especially critical during the double-pilotage requirements that often 
occur during the opening and closing of the shipping season, when 
navigation is particularly challenging. During double pilotage, 
association presidents may be tasked with coordinating with agencies to 
facilitate commerce rather than providing pilotage. Because the 
staffing model focuses on the opening and closing season shipping 
demands, it could be detrimental to the Great Lakes shipping industry 
to provide fewer pilots than the number indicated by the staffing 
model.
    In further response to the Coalition's comment, rounding up does 
not allocate pilot compensation costs toward the work of an 
administrative role. It is intended to cover the need for a partial 
pilot already demonstrated by the staffing model and the need presented 
by the president being off the rolls part of the time in order to 
perform tasks that cannot be delegated to a non-pilot. The Coast Guard 
may review the staffing model in a future rulemaking, and we would 
consider the factors suggested by the Coalition. By rounding down (up 
to .49 of a pilot), combined with the part-time service provided by the 
presidents, there is a clear discrepancy in how many pilots the 
staffing model says are needed and what is actually available to assist 
the shipping industry. Further, when compared with the prior staffing 
model, always rounding up to a whole integer only adds two additional 
pilots in this ratemaking, one in District One and one in District Two. 
In District Three, there is no additional pilot as a consequence of our 
change to the staffing model, because the prior staffing model would 
also have rounded up to a whole integer.\11\
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    \11\ For a detailed calculation of the staffing model, see 82 FR 
41466, table 6 at 41480 (August 31, 2017).
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    The general concerns raised by the Coalition in response to the 
previous 2021 NPRM were that an additional pilot was not necessary and 
could be filled by a lower-cost administrative assistant. We considered 
that

[[Page 18492]]

alternative. In evaluating the duties described in the GLPAC 
transcript, pages 174-177, we determined that only a pilot could 
supplement the piloting duties of a president only providing part time 
pilotage. Therefore, we determined that rounding up to allow for an 
additional pilot was necessary, versus hiring administrative staff.
    In addition, the Coast Guard took into consideration additional 
cost factors, such as where any additional pilots would be factored 
into the ratemaking if an extra pilot was authorized. The Coast Guard 
reviewed the options of placing that pilot in either the designated 
waters or undesignated waters for ratemaking purposes. Where the pilot 
would be allocated was not a consideration proposed in the 2021 
ratemaking NPRM proposal for rounding up in the staffing model. In the 
interest of maintaining rate stability, while also considering the 
shipping industry's projections for pilotage demands, the 2022 
ratemaking NPRM proposed placing the additional pilot in undesignated 
waters. Based on the alternatives considered, information provided to 
us by the commenters, and the information presented at the GLPAC 
meeting, the Coast Guard believes this is the best solution to ensuring 
there are enough pilots allocated to the districts at this time.

B. Apprentice Pilot Wage Benchmark and Applicant Trainee Compensation

    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 each districts' operating expenses, the line 
item for applicant pilot salaries includes salaries for both apprentice 
pilots and applicant trainees. Beginning with the year 2022, we are 
adopting an apprentice pilot wage benchmark for funding all 
apprentices' salaries and will leave applicant trainees' salaries in 
the operating expenses. To help clarify this distinction, this rule 
adds definitions for the terms ``apprentice pilot'' and ``limited 
registration'' to the definition section in Sec.  401.110.
    An apprentice pilot is defined as a person, approved and certified 
by the Director, who is participating in an approved United States 
Great Lakes pilot training and qualification program and meets all the 
minimum requirements listed in 46 CFR 401.211. The apprentice pilot 
definition will 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 rule, salaries for applicant trainees 
will continue to be included in the district's operating expenses for 
the year they are incurred. The ``apprentice pilot'' definition will 
only be applicable in determining which pilots may be included in the 
apprentice pilot estimates, wage benchmark, and operating expenses 
discussed in new Sec. Sec.  404.2(b)(7), 404.103(b), and 404.104(d) and 
(e) of this rule.
    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 are adding a definition for ``limited 
registration'' that will align with the current use of the term in the 
industry. A limited registration is 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.
    The SLSPA commented that it believed that apprentice pilot 
compensation should not be restricted to apprentices with limited 
registration, because this creates a gap in compensation until the 
apprentices receive limited registration. The SLSPA suggested that this 
compensation should be given to ``trainees'' as soon as they enter 
training, for the purpose of attracting experienced mariners.
    The Coast Guard agrees that apprentice pilots should be included in 
the compensation wage benchmark as soon as they achieve apprentice 
pilot status, which is as soon as they enter apprentice pilot training. 
In the initial proposal to apply this wage benchmark to apprentice 
pilots with limited registrations, we assumed that all apprentice 
pilots would have a limited registration. But the comments and 
additional information we received indicate that there is a potential 
for a few months to pass before the apprentice pilot actually receives 
the limited registration. We do not intend for there to be a gap before 
the wage benchmark becomes applicable. This wage benchmark was always 
intended to apply to all apprentice pilots, as applicants who progress 
through the training program will typically receive a limited 
registration. As a result, for ratemaking purposes, apprentice pilots 
with and without limited registrations will be considered equivalent. 
In this final rule, apprentice pilots with or without limited 
registration are included in Step 3 of the methodology, with a 
compensation of 36 percent of pilot target compensation. The projected 
number of apprentices needed for each district estimated in Step 3 of 
the methodology will not change. We estimated these numbers under the 
assumption that the apprentices would receive their limited 
registrations within the season.
    The districts will continue to be reimbursed for all necessary and 
reasonable costs associated with applicant pilots (``trainees'' as the 
commenter refers to them), via the operating expenses portion of the 
methodology, 3 years after the costs have been incurred. The Coast 
Guard intends to keep costs associated with applicant pilots under the 
heading of recognized expenses in recognition of the fact that it is 
harder to accurately predict the number of applicants newly joining a 
program as opposed to apprentices, who must have already applied, been 
accepted, and started their training. To ensure the accuracy of this 
estimate going forward, the Coast Guard will continue to track the 
progress of applicants as they are accepted into programs and shift 
into apprentice roles, as well as the progress of apprentices toward 
becoming fully registered pilots.
    A retired U.S. Registered Pilot in District Three commented that 
the Coast Guard made an incorrect statement when it said that the 
previous use of the 36-percent benchmark for apprentice pilots 
compensation was not opposed in the 2019 ratemaking. He also commented 
that he believed the administrative record does not support the 
decision to only allow 36 percent of target compensation. The LPA also 
disagreed with the 36-percent benchmark for apprentice pilots with 
limited registration, characterizing it as inadequate. The LPA's 
comment further stated that they consistently pay 75 percent of target 
pilot compensation for first-year apprentice pilots, 85 percent for 
second-year apprentice pilots, and 95 percent for third-year apprentice 
pilots; that this amount allows them attract and retain the most 
qualified mariners; and that they have operated this way for over 30 
years.
    We disagree with the retired pilot commenter and the LPA and 
respond to these comments with a recount of the 2019 administrative 
record and a discussion of why we determined that the 36-percent figure 
is reasonable.
    In years prior to the 2019 ratemaking, we authorized a $150,000 
surcharge to cover apprentice pilot compensation. The surcharge 
included both apprentice pilot wage benchmarks and expenses. In the 
2019 ratemaking final rule, we explained that there was no cap on the 
apprentice pilot surcharges allowed to be collected in the operation 
expense year for 2016, and that the amounts actually collected totaled 
more than the 2016 surcharge percentage was

[[Page 18493]]

anticipated to collect (84 FR 20551, 20557, May 10, 2019). Therefore, 
in the 2019 final rule, the Coast Guard used a Director's adjustment to 
bring the 2016 surcharge expense for apprentice pilot compensation for 
District Two to a reasonable level in comparison to other districts. 
District Two has historically reported higher expenses for apprentice 
pilots, in comparison to the other districts, which they recently 
confirmed in a comment on the NPRM for this final rule.
    When determining what is a necessary and reasonable apprentice 
pilot wage benchmark, the Director considers many factors, including 
past practices and a comparison of the expenses incurred by other 
districts for similar services. In developing the 2019 ratemaking, the 
Coast Guard reduced District Two's expenses to align with those of the 
other districts, which also closely aligned with the amount of the 
surcharges authorized in the years 2016 through 2018. Although we 
previously authorized $150,000 per apprentice pilot, two of the 
districts did not have actual apprentice pilot wage expenses above 
$128,000. Setting the apprentice pilot wage benchmark at 36 percent is 
both consistent with what we have authorized in the past 4 years and 
reasonable in consideration of what the districts actually paid.
    Although the average compensation per apprentice for District Two 
exceeded the apprentice pilot salaries in the other districts, we have 
never allowed a district to claim more in apprentice pilot salaries 
simply because they have paid more than other districts. The Coast 
Guard will continue this practice of allowing up to a certain amount, 
using the 36-percent target for all districts. In any case, we believe 
it would be unfair to allow each district to claim a different amount 
of apprentice pilot salaries in the ratemaking. Similarly, we do not 
set different target pilot compensation amounts for each district. 
Doing so could disproportionately affect the ratemaking, lead to 
significant changes in the rates, and set a precedent that is 
unpredictable for all parties. It is consistent with past ratemakings 
to authorize the same apprentice pilot compensation in each district, 
because the $150,000 per apprentice previously authorized with the 
surcharge was the same for all districts, which is one reason why we 
adjusted District Two's apprentice pilot salaries in 2019 to the 36 
percentage mark. Since then, we have determined that 36 percent is 
reasonable, based on actual expenses and the predictability it 
provides.
    In addition, the Director also considers the associations' success 
with pilot retention and recruitment of qualified mariners. As noted 
above, the 36 percent apprentice pilot wage benchmark is consistent 
with what we have authorized in expenses in the past several 
ratemakings. The comments from the pilot associations did not present 
any actual inability to recruit and retain qualified apprentice pilots 
based on the past 4 years of allowable expenses. This is why we believe 
continuing this rate would be sufficient to ensure adequate apprentice 
pilot recruitment and retention, as long as the associations are able 
to recruit and retain apprentices.
    The Great Lakes Pilots' comment noted that apprentice pilots and 
applicant trainees are highly trained mariners and, however their 
compensation is accounted for, they cannot be expected to work for 
significant periods of time without adequate compensation. The Great 
Lakes Pilots' comment supported establishing a clear understanding 
ahead of time as to what amounts the Coast Guard will approve for 
pilotage services, and requested that the approved amounts be accurate 
and not subject to after-the-fact adjustments.
    The Great Lakes Pilots' comment suggested that the proposed 
apprentice pilot wage benchmark would be a better model for funding 
salaries for applicant trainee pilots than currently provided, and that 
the apprentice pilot wage benchmark should be structured in a manner 
more akin to the fully registered pilot target compensation. It further 
suggested that the wage benchmark should reflect the difference between 
an applicant trainee accumulating time and training trips and an 
apprentice pilot who is actually moving the vessel and generating 
revenue as the pilot of record.
    As indicated above, we have determined that the 36-percent figure 
is a reasonable wage benchmark for apprentice pilots, based on actual 
expenses, historic data that indicates adequate apprentice pilot 
recruitment and retention, and the predictability it provides all 
parties involved. This wage benchmark is meant to cover wage expenses 
for apprentices that cannot otherwise be recouped. In instances where 
the apprentice pilot is operating as the pilot of record, shippers are 
being charged the rate of a registered pilot and, therefore, the 
district is able to recoup earnings to compensate the apprentice over 
the wage benchmark. By building the target apprentice pilot wage 
benchmark into the rate, the Coast Guard ensures that apprentice pilot 
wage benchmark will be appropriate and predictable moving forward and 
eliminates the need to adjust past expenses (once expenses are based on 
years where apprentices are built into the rate). The Coast Guard will 
only adjust past recognized apprentice pilot expenses for years that 
preceded the implementation of including apprentice pilots in Step 3 of 
the methodology. Adjustments will continue to be made through the 2025 
ratemaking, which will use 2021 operating expenses as the basis.
    The Coast Guard will continue to classify the necessary and 
reasonable applicant trainee salaries and benefits as recognized 
operating expenses going forward. The Coast Guard has opted not to use 
a wage benchmark approach for funding applicant trainee salaries 
because it could result in inaccurate compensation to the districts. 
Applicant trainees may only be training for part of a shipping season, 
because they can be brought on at any point or they may be promoted to 
apprentice pilots. Continuing to rely on the districts' actual 
operating expenses for applicant trainee salaries will ensure the Coast 
Guard allows a necessary and reasonable amount to be included in the 
ratemakings.
    The WGLPA indicated that it supported the compensation methods for 
applicant and apprentice pilots proposed in the NPRM, noting that it is 
unreasonable to expect applicant and apprentice pilots to endure 
financial and personal hardship to join the pilot associations, and 
that these compensation methods are required to ensure that the best 
mariners continue to join the piloting ranks. The WGLPA requested that 
the applicant trainee compensation methods be implemented beginning 
with the 2022 rates, and criticized the 3-year lag in recouping those 
apprentice pilot wage operating expenses under the previous method.
    The Coast Guard confirms that the apprentice pilot wage benchmark 
process in Steps 3 and 4 will start with this 2022 ratemaking. This was 
our intent when we proposed the change in the NPRM. As we stated in the 
NPRM, necessary and reasonable apprentice pilot salaries incurred in 
years 2019 through 2021 will also be reimbursed in the operating 
expenses included in ratemakings 2022 through 2024, because they have 
not yet been reimbursed in any way in the ratemakings.\12\
---------------------------------------------------------------------------

    \12\ 86 FR at 51056.
---------------------------------------------------------------------------

    The Coalition's comment requested that we set the apprentice pilot 
wage benchmark at a flat $150,000 surcharge for wages, benefits, and 
expenses, rather

[[Page 18494]]

than 36 percent of target compensation, for a simple and transparent 
approach.
    We disagree. Under the surcharge scheme, during periods of high 
traffic and pilotage demand, the apprentice would receive less money 
for wages because the costs associated with transportation, lodging, 
and other per diem expenses would increase. Conversely, during slow 
periods, the opposite would occur. The surcharge wage scheme would 
likely have a negative impact on apprentice retention because wages 
would be lowest during the highest demand periods.
    The Coast Guard believes that the 36-percent wage benchmark for 
apprentice pilots is equally transparent because the calculations will 
be included in every ratemaking, and the percentage will not change 
year to year. Furthermore, in past years, the districts have collected 
more surcharge proceeds than intended, requiring subsequent Director's 
adjustments. The apprentice pilot benefits and expenses will continue 
to be line items in the expense reports, which are made available in 
the docket for this rulemaking. We also believe that setting the wage 
benchmark as a percentage of target pilot compensation is a better 
approach, because it captures the inflation adjustment that is 
performed on the target pilot salaries. A set surcharge would not take 
inflation into account as easily and would need adjusting year to year.

C. Timing of Annual Audit

    The Great Lakes Pilots' comment requested that the Coast Guard 
conduct the third-party expense and revenue review earlier in the year, 
because holding the audit in October and November results in it being 
scheduled during their busiest shipping months, which is also when 
comments are generally due on the annual ratemaking NPRM. The SLSPA and 
LPA both made similar requests individually.
    The annual audit is performed to ensure the Coast Guard can obtain 
accurate operating expenses and revenues for ratemakings. The timing of 
the audit is not specified in the regulatory text of the ratemaking 
methodology. Although shipping is cyclical, and no one can be certain 
which months will be busy due to the dynamic nature of commodity 
demand, the Coast Guard will work with the association presidents to 
find a timeframe to conduct the third-party reviews that best suits all 
parties involved.

D. Exclusion of Legal Expenses From Operating Expenses

    The Great Lakes Pilots' comment argued that disallowing legal 
expenses for claims against the federal government arbitrarily and 
capriciously excludes expenses that are regularly allowed to all 
businesses under Internal Revenue Service (IRS) regulations.
    The Coast Guard did not propose any changes to the treatment of 
legal expenses as operating expenses in the NPRM. The 2021 ratemaking 
final rule excluded legal fees against the Coast Guard related to our 
ratemaking responsibilities, and our response in that rule (46 FR at 
14193, March 12, 2021) still applies here. We distinguished the IRS 
regulation from the pilotage associations' expenses, as the Equal 
Access to Justice Act and settlement terms often provide for 
reimbursement of the pilots' legal fees when the pilots prevail. In 
those cases, a court can determine a reasonable amount of legal fees to 
reimburse the pilot association. When a pilot association does not 
prevail on the merits, the legal fees associated with that lawsuit are, 
arguably, per the court's determination, not necessary for the 
safeguarding or production of its income. If allowed, those legal fees 
would inflate the pilot associations' operating expenses and, 
subsequently, the shipper's rates. Unlike other businesses and 
jurisdictions, shippers on the Great Lakes do not have the option to 
purchase service from another firm if they disagree with a firm's 
business practices, and may not have the choice to not purchase the 
service, because pilotage service is required for all foreign vessels 
and domestic vessels operating on register.
    On the other hand, the Coalition's comment asserted that all pilot 
association legal fees related to rate setting should be excluded, 
including cases where the pilots intervene on behalf of the Coast 
Guard. The Coalition asserted that including the intervener legal fees 
means industry may have to pay the pilots' legal fees if the pilots 
challenge a Coast Guard decision, no matter how the challenge turns 
out, which discourages legal challenges from industry and unfairly 
favors the Coast Guard.
    As we mentioned above, we did not propose any changes to the 
treatment of legal fees in determining pilot association operating 
expenses in the NPRM to this final rule. Necessary and reasonable legal 
fees that are not incurred in cases against the Coast Guard are still 
permitted as operating expenses, because we did not have the same basis 
to remove them from the operating expenses. As we stated in the 2021 
final rule (86 FR 14193), pilots often have a legitimate interest in 
the outcome of lawsuits initiated by the shippers against the Coast 
Guard. Thus, the court may allow the pilots to intervene in the case to 
protect their own interests. The Coast Guard does not have the same 
justification to exclude these intervener legal expenses, because these 
expenses are not eligible for reimbursement under the Equal Access to 
Justice Act or via settlement with the Coast Guard. These legal fees 
incurred by pilot associations are not otherwise reimbursed by a more 
responsible party, so we must consider these costs of providing 
services in the rates per our statutory mandate. The exclusion of legal 
fees for pilots' cases against the Coast Guard is effectively a small 
benefit to the shippers, because it removes that financial 
responsibility from the ratemaking and places it on the responsible 
regulatory agency. We do not intend or predict that exclusion of legal 
fees will incentivize pilots to intervene in the Coast Guard's defense.

E. Correction of Recognized Expenses for District Two

    The LPA commented that they did not agree with the 2019 license 
insurance total ($1,825) included in Other Pilotage Costs or the 
applicant health insurance total ($200) included in Applicant Pilotage 
Costs. These totals were included in table 16--2019 Recognized Expenses 
for District Two in the NPRM (86 FR at 51061). In its comment (and in 
an attached letter from its certified public accountant), LPA said 
these numbers should be $21,267 for license insurance total and 
$31,763.96 for applicant health insurance total.
    CohnReznick, an independent accounting firm, reviewed the letter 
LPA's accountant provided with the comment and the association's 
expense reports provided in 2019. CohnReznick's official conclusion is 
available in the docket for this rulemaking. With that independent 
accountant review, the Coast Guard determines that the license 
insurance total of $1,825 is correct but was labeled incorrectly, so 
that the additional amount claimed in the comment was included in 
another line item. LPA is aware of this conclusion and concurs with it. 
After review of the applicant health insurance total, the Coast Guard 
determines that the figure of $200 for applicant health insurance in 
the NPRM was incorrect. We have updated the recognized expenses to 
reflect $31,764 for applicant health insurance, in

[[Page 18495]]

accordance with CohnReznick's conclusion.

F. Changes to the NPRM's Estimate for District Two Pilot Numbers

    The Coast Guard estimated in the 2022 NPRM that District Two would 
have 16 fully working pilots based on the information we had at that 
time. The staffing model allows for a maximum of 16 working pilots 
after rounding up. In this final rule, we now estimate the number of 
fully working pilots in District Two to be 14. As a result, we are 
reducing the number of estimated fully working pilots in Step 3. 
Section 404.103 requires the Director to project the number of pilots 
expected to be fully working and compensated, based on the number of 
persons applying to become United States Registered Pilots and on 
information provided by the district's pilotage association. Only 
pilots who are expected to be fully working and compensated are 
permitted to be included in this estimate. Our justifications for 
removing two pilots from District Two's NPRM's projected numbers are as 
follows.
    One of the pilots serving under a temporary registration performed 
part-time pilotage for the year of 2021. One pilot performed 
substantially less than the average assignments per pilot projected in 
the 2017 staffing model (82 FR 41466, table 5) for District Two, 
according to the official piloting trip records used by the pilotage 
association and the Coast Guard. Based on the information available to 
the Coast Guard at the time of this final rule, and information 
provided by the association, there is no indication that the pilot will 
perform pilotage on a full-time basis in the 2022 shipping season. 
Therefore, based on the information available to us now, we cannot 
authorize this pilotage position because we do not expect the pilot to 
be fully working and compensated in 2022.
    Additionally, based on a statement from District Two that one 
apprentice pilot would be brought on as a fully registered pilot at the 
end of 2021, we estimated in the NPRM that there would be a 16th pilot 
in District Two for the 2022 shipping season. However, after the NPRM 
was published, the Director was made aware that the apprentice pilot 
will not be brought on as a registered pilot.\13\ Therefore, the 
Director does not expect this position to be filled by a working pilot. 
While the staffing model allows for 16 pilots in District Two, the 
total estimates in Step 3 should only fund the amount of pilots that 
are expected to be fully working. We cannot justify funding positions 
that are not expected to be filled at this time. Based on the 
information discussed above, the Coast Guard estimates there will be 14 
registered pilots fully working and compensated in District Two for the 
2022 season. This is a net decrease of one pilot from the 2021 final 
rule, which authorized 15 working pilots in District Two for the 2021 
shipping season.
---------------------------------------------------------------------------

    \13\ Email from Anthony Brandano, Lakes Pilots Association, to 
Vincent F. Berg, Marine Transportation Specialist, United States 
Coast Guard, January 25, 2022.
---------------------------------------------------------------------------

G. Changes to the NPRM's Estimate for District Three Pilot Numbers

    The WGLPA commented that, in 2019, they had 6 pilots assigned to 
designated waters, 13 pilots assigned to undesignated waters, 5 
applicant pilots for the entire season, and another applicant pilot 
beginning September 23, 2019. They expressed concern that the expenses 
for the five applicant pilots do not flow through the ratemaking 
process. Further, the WGLPA questioned the Director's adjustment of 
$746,802 (surcharge collected in 2019 for applicant pilots), stating 
that they were unsure where that number came from and if it was 
correct.
    After review, the Coast Guard has determined that, although 
District Three was allowed four applicant pilots for the 2019 season, 
it actually had five. This fifth applicant was approved by the 
Director. This additional pilot removes the need for the Director's 
adjustment of $1,921 for excess applicant salaries paid. District Three 
reported $520,158 in expenses for the salary of five applicant pilots, 
meaning the district paid an average of $104,032 per applicant, which 
is below the $129,559 target for 2019.
    Additionally, the WGLPA commented that the Coast Guard should work 
with WGLPA to determine the need for additional pilots in the fiscal 
year 2022 rate because of an expected increase in the number of cruise 
ships (possibly in excess of 6,000 bridge hours in District Three) that 
may or may not materialize due to COVID-19 impacts on the cruise 
industry, the retirement of three pilots, and the unexpected retirement 
of another three pilots due to COVID-19.
    While we were developing the NPRM, WGLPA stated that they would 
have a need for 22 pilots in 2022. This is the same number of pilots 
they had in the 2021 ratemaking. However, our current records, and 
pages 154 and 155 of the transcript of the September 1, 2021 GLPAC 
meeting (available in the docket for this rulemaking), indicate that 
District Three will not have 22 pilots for the beginning of the 2022 
shipping season. Based on our numbers, which we track routinely, and 
the statements made by the WGLPA president during the GLPAC meeting, 
this group will have 19 pilots and 5 apprentice pilots at the beginning 
of the 2022 shipping season. If the district plans to hire additional 
pilots, we expect that these additional pilots will start as 
applicants, and their salaries will be reimbursable as operating 
expenses 3 years from the time of hire. The Coast Guard will continue 
to monitor pilotage demands and consult with WGLPA during the 2022 
shipping season.

H. Request for Cost-Effectiveness Study

    The Coalition's comment requested the Coast Guard begin a safety 
and efficiency study of pilotage on the Great Lakes to identify 
measures to improve cost-effectiveness. The Coalition observed that, 
during five of the last seven years, the Coast Guard has proposed a 
double-digit percentage increase for pilot services, and the cost-per-
pilot has gone from $352,777 to $543,615.
    We disagree with the Coalition's suggestion regarding the study. 
The United States Government Accountability Office (GAO) completed a 
comprehensive review of the United States Coast Guard Great Lakes 
Pilotage Program in 2019. The GAO's final report, ``Stakeholders' Views 
on Issues and Options for Managing the Great Lakes Pilotage Program,'' 
is available in the docket for this rulemaking.
    We plan to evaluate the staffing model in a future rulemaking, per 
GLPAC's recommendation at its September 1, 2021 annual meeting. We are 
currently reviewing the regulations in 46 CFR part 400 to make 
necessary updates and enhance efficiency. The Coast Guard will consider 
measures to improve cost effectiveness within those future actions. We 
welcome information that could improve the regulations, ratemaking, and 
staffing model via comments or GLPAC meetings.
    With regard to the substantial increases noted by the Coalition 
over the past 7 years, these increases have been due to the 
reimbursement of operating expenses, the need to account for inflation, 
the hiring of additional pilots, the need to address the problem of 
pilot retention, and deficiencies resulting from the past methodology. 
The deficiencies in the older methodology created issues with retaining 
pilots; unnecessary delays to vessel traffic; significant revenue 
shortfalls for necessary improvements to property, pilot boats, and 
assets; and reduced maritime safety. In recent years, the Coast Guard 
has increased the

[[Page 18496]]

number of United States Registered Pilots, so that the pilot 
associations have sufficient personnel available to provide needed 
pilotage services while also being able to implement scientifically-
based hours of service programs, in accordance with NTSB 
recommendations regarding pilot fatigue and Hours of Service Rules.\14\ 
The methodology and staffing model take into account the NTSB 
recommendation for Hours of Service Rules, including limits on hours of 
service, providing predictable work and rest schedules, and human sleep 
and rest requirements. The NTSB report generally concluded, on page 58 
of the report, that at the time of the accident, the first pilot was 
subject to the fatiguing effects of insufficient sleep from extended 
wakefulness, which adversely effected his ability to prevent the vessel 
from sheering. The methodology ensures funding for a sufficient number 
of registered pilots in consideration of preventing pilot fatigue and 
promoting maritime safety. We have also increased staffing to correct 
work-life balances to recruit and retain United States Registered 
Pilots. In addition, recent ratemakings have allowed for structural 
improvements to associations' docks and the purchase of newer pilot 
boats and property with on-site accommodations for pilots to rest 
between piloting. These allowances in the ratemaking improve the 
efficiencies and safety of the pilotage program and help reduce delays 
to vessel traffic.
---------------------------------------------------------------------------

    \14\ See Section 2.4, ``Fatigue,'' in ``Marine Accident Report: 
Collision of Tankship Eagle Otome with Cargo Vessel Gull Arrow and 
Subsequent Collision with the Dixie Vengeance Tow, Sabine-Neeches 
Canal, Port Arthur, Texas, January 23, 2010'' (adopted by the NTSB 
on September 27, 2011), www.ntsb.gov/investigations/AccidentReports/Reports/MAR1104.pdf.
---------------------------------------------------------------------------

    In recent years, demand for pilotage service has increased and 
diversified. Historically, international dry-bulk commodity shippers 
accounted for nearly 95 percent of pilotage demand. More recently, the 
Canadian domestic fleet has voluntarily employed United States 
Registered Pilots, including during the winter months when the locks 
are closed. Additionally, petroleum tankers and cruise ships have 
consumed significant pilotage service. At least one foreign trade 
vessel has remained in the Great Lakes and required pilotage service 
throughout the year. This increase in pilotage demand has increased 
operating expenses and required the Coast Guard to increase staffing. 
These staffing levels are necessary to promote safe, efficient, and 
reliable pilotage service in order to facilitate commerce and protect 
the marine environment.

I. Public Disclosure of Pilot Compensation

    The Coalition submitted a comment asserting that, in the interest 
of transparency and good governance, the Coast Guard should require 
pilot associations to make compensation levels of individual pilots 
public. The Coalition noted that one district voluntarily released this 
information prior to 2016, suggesting there is no reason why this 
information could not be released. The Coalition further suggested that 
public disclosure of individual pilot compensation is necessary to 
determine whether the Coast Guard's changes to the methodology in 2016 
to address recruitment and retention concerns were successful.
    The Coast Guard disagrees with the Coalition's recommendation to 
make compensation levels of individual pilots available to the public. 
The Coast Guard does not include the compensation of individual pilots 
in the expense base or methodology and, therefore, declines to add a 
regulatory requirement for pilot associations to publicly report the 
compensation of individual pilots. The Coast Guard does not use the 
actual earnings or even average earnings; we use a target pilot 
compensation, described in Step 3 of the existing methodology, which we 
have determined to be reasonable and necessary. Because actual salary 
values are not used in the ratemaking, we believe that a requirement to 
report pilot compensation is not in the public interest or necessary to 
provide for the costs of services. Progress toward pilot retention can 
be reviewed through other means, such as pilot turnover and the 
association's ability to promptly fill pilot vacancies for fully 
registered pilots and apprentice pilots.
    The Coast Guard has solved the recruitment and retention 
challenges. We believe the Coalition's proposal would unnecessarily 
discourage qualified mariners from applying to, and experienced United 
States Registered Pilots from staying with, the United States Great 
Lakes pilot associations. The pilots have stated on numerous occasions 
that they do not want this personal information shared with the public. 
The Coalition has not identified the maritime safety issue their 
proposal would address or improve.
    As the Coalition noted, the release of this information prior to 
2016 was entirely voluntary on the part of one association. We do not 
intend to deviate from our precedent and require the associations to 
publish a list of their salaries.

V. Discussion of Methodological and Other Changes

    For 2022, the Coast Guard is making one policy change to the 
ratemaking model, and a methodological change to the ratemaking 
methodology. First, we are instituting a practice of always rounding up 
the pilot totals to the nearest whole number in the staffing model. We 
use the staffing model in Step 3 to determine how many pilots are 
needed. Second, in Steps 3 and 4 of the methodology, we are introducing 
a wage benchmark calculation for apprentice pilots conducting pilotage. 
This rule will 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.
    Table 2 summarizes the changes between the NPRM and this final 
rule. In the NPRM we proposed to only apply the wage benchmark to 
apprentice pilots with limited registration, but in this final rule 
will apply it to all apprentice pilots, with or without limited 
registration. Doing so will avoid a potential gap in compensation 
before an apprentice pilot receives a limited registration. This will 
not change the projected number of apprentice pilots compensated in 
each district, because, in the NPRM rate calculation, we assumed that 
all apprentice pilots would receive limited registration within the 
season.

          Table 2--Changes Between Proposed Rule and Final Rule
------------------------------------------------------------------------
                 Change                             Reasoning
------------------------------------------------------------------------
Remove Director's adjustment for excess  Coast Guard confirmed that
 applicant salaries paid in District      District Three had five
 Three.                                   applicants in 2019, not four,
                                          as stated in the NPRM, meaning
                                          the average compensation for
                                          applicants was under the 36-
                                          percent target.

[[Page 18497]]

 
Revise number of pilots in District      District Three reported that
 Three from 22 to 19.                     they would have three
                                          retirements ahead of the 2022
                                          season.
Revise number of pilots in District Two  District Two reported that one
 from 16 to 14.                           apprentice pilot would not
                                          become fully registered as
                                          planned, and our records
                                          indicate one pilot with a
                                          temporary registration was not
                                          performing full-time services.
Revise figure for applicant health       District Two commented on the
 insurance for District Two.              NPRM that the applicant health
                                          insurance figure listed was
                                          incorrect. The Coast Guard
                                          verified the correct figure
                                          and includes it in this final
                                          rule.
Add language clarifying that the 36-     Several commenters noted
 percent target will apply to             confusion on the language
 apprentice pilots and apprentice         using ``limited
 pilots with a limited registration.      registration.''
Update inflation figures...............  More recent figures were
 Updates 2021 Employment Cost     published since we conducted
 Index (ECI) inflation from 3.5% listed   the analysis for the NPRM.
 in the NPRM to 4.8%.
 Updates 2021 Personal
 Consumption Expenditures (PCE)
 inflation from 2.4% listed in the NPRM
 to 5.1% CPI inflation.
 Updates 2022 PCE inflation
 from 2% listed in the NPRM to 2.2%.
------------------------------------------------------------------------

A. Changes to the Staffing Model

    The Director uses the staffing model to estimate how many pilots 
are needed to handle shipping from the opening through the closing of 
the season. The Coast Guard is changing the staffing model in Sec.  
401.220(a)(3) to always round up the final number 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.
    In addition to always rounding up from the staffing model, we also 
specify 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 will be added to the maximum number of 
pilots in the undesignated area for that district.\15\ For example, if 
the total in a district were 17.25, we would round up to 18, and the 
additional pilot would be allocated to the undesignated area. If the 
total in a district were 17.55, we would authorize 18 pilots and we 
would not change existing allocations.
---------------------------------------------------------------------------

    \15\ For a detailed calculation of the staffing model, see 82 FR 
41466, table 6 at 41480 (August 31, 2017).
---------------------------------------------------------------------------

    The reason 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 will 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 (denominator) is greater, 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.
    Based on the existing staffing model, and the change to always 
round up the final number, the number of pilots authorized will not 
decrease in future years, unless the staffing model is adjusted by 
ratemaking. We 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 nondelegable 
administrative duties that require pilotage expertise include attending 
meetings and conferences with stakeholders, 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 because the transits are likely to exceed the Coast Guard's 
tolerance for safety with a single pilot due to ice conditions, a lack 
of aids to navigation, and severe winter weather conditions. 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 SLSDC in the 
United States and the St. Lawrence Seaway Management Corporation 
(SLSMC) in Canada, the Canadian Great Lakes Pilotage Authority (GLPA), 
the Shipping Federation of Canada, the United States Great Lakes 
Shipping Association, various United States and Canadian Great Lakes 
ports, and other stakeholders. 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.
    We cannot continue to round down for some districts and undersupply 
pilots where the staffing model indicates more pilots 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 staffing model takes into account the high demands during 
the open and close of the shipping season, where weather and ice 
conditions may result in double-pilotage requirements and higher demand 
for pilot services. 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

[[Page 18498]]

seasons. We believe this rounding change will promote maritime safety 
by ensuring enough pilots are allocated to each district to cover the 
shipping demands and promote recuperative rest.

B. Apprentice Pilot Wage Benchmark for Conducting Pilotage

    In this rule, the Coast Guard will factor in the apprentice pilots 
wage benchmark in the ratemaking methodology, at Steps 3 and 4. The 
wage benchmark will be applicable to apprentice pilots and apprentice 
pilots operating under a limited registration.
    In Step 3, Sec.  404.103, the Director will project the number of 
apprentice pilots and apprentice pilots with limited registrations 
expected to be in training and compensated. The Director will consider 
the number of persons applying under 46 CFR part 401 to become 
apprentice pilots, as well as traffic projections, information provided 
by the pilotage association regarding upcoming retirements, and any 
other relevant data.
    In Step 4, Sec.  404.104, the Director will 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 will determine each pilot association's total 
apprentice pilot wage benchmark by multiplying the apprentice pilot 
wage benchmark by the number of apprentice pilots and apprentice pilots 
with limited registrations projected under Sec.  404.103. For example, 
if the projected number of apprentice pilots is 4, we 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 the 
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).
    The Coast Guard will 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 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 3 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, and 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 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 the development of the 2021 proposed rule, 
we reached out to several pilot associations throughout the United 
States to see what percentage they pay their apprentice pilots. We 
factored in the sea time and experience required to become an 
apprentice 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 wage 
benchmark in its operating expenses.
    Going forward, we will authorize an apprentice pilot wage benchmark 
in the ratemaking to support hiring and retention in a way that is 
better calibrated to generate the specific amount of revenue needed 
than by assessing a surcharge. The associations will be funded for 
apprentice pilot wage benchmarks in the same year they are incurred, 
and the amount will be adjusted for inflation along with the target 
pilot compensation. We are also interested in building the apprentice 
pilot wage benchmark 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 and necessary amounts 
when compared to what others paid in the maritime industry per Sec.  
404.2(a). The apprentice pilot wage benchmark in the ratemaking will 
not be adjusted by Director's adjustments.
    Some comments urged the Coast Guard to consider setting the 
apprentice pilot wage benchmark 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 will cover only a wage 
benchmark and will not include apprentice pilot benefits and travel 
reimbursements. Those additional benefits will be reimbursed in full as 
allowable operating expenses for the districts. In the 2021 ratemaking, 
District Three reported paying apprentice pilot wages at an amount of 
$132,151 per apprentice pilot. At a wage benchmark of 36 percent of 
registered pilot target compensation, the apprentice pilots will 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 will be subject to inflation annually. 
Additionally, setting the apprentice pilot wage benchmark at one 
amount,

[[Page 18499]]

irrespective of years in training, is consistent with our past 
practices and will help promote rate stability and predictability for 
all parties. We earlier explained that, on some trips, apprentice 
pilots will be the pilot and, therefore, generating revenue from which 
they can be compensated. This 36-percent figure ensures they can 
receive compensation for trips where they are strictly in a training 
mode and another pilot has to be assigned to the trip.
    Compensating the apprentice pilots for performing pilotage services 
has historically been considered a reasonable and necessary cost 
included in the ratemakings as either surcharges or operating expenses. 
Instead of evaluating the apprentice pilot salaries annually for 
reasonableness in the operating expenses, the Coast Guard will 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 insert the pilot association's expenses for 
apprentice pilots and apprentice pilots operating with limited 
registrations as approved operating expenses. These expenses have 
historically been allowed in previous ratemakings' operating expenses. 
With this final rule, we specifically list apprentice pilots' and 
apprentice pilots' with limited registrations expenses in the 
regulations to codify current practices and distinguish these expenses 
from the apprentice pilot wage benchmark that we include in Step 4 of 
the ratemaking methodology.
    The associations will continue to include necessary and reasonable 
health care, travel expenses, training, and other expenses incurred on 
behalf of apprentice pilots and 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 in order to train pilots and provide pilotage 
services to the shipping industry. Apprentice pilots 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 and apprentice pilots with limited registrations as 
operating expenses in the ratemaking will continue to promote adequate 
funding for apprentice pilot training and provision of pilotage 
services in the Great Lakes.

VI. Discussion of Rate Adjustments

    In this final rule, based on the policy changes described in the 
previous section, we will implement new pilotage rates for 2022. We 
will 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 will adjust the compensation benchmark following the 
procedures for an interim ratemaking year in Sec.  404.100(b), rather 
than the full ratemaking year procedures in Sec.  404.100(a).
    This section discusses the rate changes using the ratemaking steps 
provided in 46 CFR part 404, incorporating the changes discussed in 
section V of this preamble. We will detail all 10 steps of the 
ratemaking procedure for each of the 3 districts to show how we arrived 
at the 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 2019 expenses and revenues, 
which are available in the docket for this rulemaking. 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.
    In the 2019 expenses used as the basis for this rulemaking, 
districts used the term ``applicant'' to describe applicant trainees 
and persons who are called apprentices (applicant pilots) under the new 
definition in this rulemaking. Therefore, when describing past 
expenses, we use the term ``applicant'' to match what was reported from 
2019, which includes both applicant trainees and apprentice pilots. We 
use ``apprentice'' to distinguish the apprentice pilot wage benchmark 
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 
rule. Applicant salaries (including applicant trainees and apprentice 
pilots) will continue to be an allowable operating expense through the 
2024 ratemaking, which will use operating expenses from 2021, when the 
salaries for apprentice pilots were still authorized as operating 
expenses. Starting in the 2025 ratemaking, apprentice pilot salaries 
will no longer be included as a 2022 operating expense, because the 
apprentice pilot wage benchmark will 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).

[[Page 18500]]



                               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 Costs:
    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
----------------------------------------------------------------------------------------------------------------
* All figures are rounded to the nearest dollar and may not sum.

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 Bureau of Labor Statistics (BLS) data 
from the Consumer Price Index (CPI) for the Midwest Region of the 
United States for the 2020 and 2021 inflation rates.\16\ Because the 
BLS does not provide forecasted inflation data, we use economic 
projections from the Federal Reserve for the 2022 inflation 
modification.\17\ Based on that information, the calculations for Step 
2 are as shown in table 4.
---------------------------------------------------------------------------

    \16\ The 2020 and 2021 inflation rates are available at https://beta.bls.gov/dataViewer/view/timeseries/CUUR0200SA0. Specifically, 
the CPI is defined as ``All items in Midwest urban, all urban 
consumers, not seasonally adjusted (Series ID CUUR0200SA0)(CPI-U), 
All Items, 1982-4=100'' (downloaded March 2022). In the NPRM we used 
the PCE estimate of 4.3 percent for 2021, but now use the available 
interim CPI figure of 5.1 percent.
    \17\ For the 2022 inflation rate, we used the PCE median 
inflation value found in table 1 at https://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20211215.pdf (Federal Reserve 
Board, Summary of Economic Projections, dated December 15, 2021, 
downloaded March 2022). This figure is updated to 2.2 percent from 2 
percent in the NPRM.

[[Page 18501]]



                              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 (@5.1%).............................         114,875          76,589         191,464
2022 Inflation Modification (@2.2%).............................          52,081          34,723          86,804
                                                                 -----------------------------------------------
    Adjusted 2022 Operating Expenses............................       2,419,401       1,613,051       4,032,452
----------------------------------------------------------------------------------------------------------------
* All figures are rounded to the nearest dollar and may not sum.

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. With rounding, the 
maximum number of pilots increases to 18 (17.25 rounding up to 18), 
with the additional pilot allocated to the maximum for the undesignated 
area of District One, for a maximum of 8 pilots in the undesignated 
area and a maximum of 10 pilots in the designated area. 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, meeting the increased 
maximum proposed in the NPRM. 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 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. These numbers are used to determine the 
amount of revenue needed in their respective areas.

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

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 Sec.  404.104, which 
adjusts the existing compensation benchmark for inflation. As stated in 
section V.A of the preamble, we are using a two-step process to adjust 
target pilot compensation for inflation. First, we adjust the 2021 
target compensation benchmark of $378,925 by 3.1 percent for an 
adjusted value of $390,672. The adjustment accounts for the difference 
in actual fourth quarter (Q4) 2021 ECI inflation, which is 4.8 percent, 
and the 2021 PCE estimate of 1.7 percent.18 19 The second 
step accounts for projected inflation from 2021 to 2022, 2.2 
percent.\20\ Based on the projected 2022 inflation estimate, the target 
compensation benchmark for 2022 is $399,266 per pilot. The apprentice 
pilot wage benchmark is 36 percent of the target pilot compensation, or 
$143,736 ($399,266x 0.36).
---------------------------------------------------------------------------

    \18\ In the NPRM we used a figure of 3.5 percent, the most 
recently available at the time. Employment Cost Index, Total 
Compensation for Private Industry workers in Transportation and 
Material Moving, Series ID: CIU2010000520000A.
    \19\ CPI for All Urban Consumers, Series ID CUUR0200SA0.
    \20\ Table 1, 2022 PCE Inflation, https://www.federalreserve.gov/monetarypolicy/fomcprojtabl20210922.htm.

                   Table 6--Target Pilot Compensation
------------------------------------------------------------------------
 
------------------------------------------------------------------------
2021 Target Compensation from Final Rule................        $378,925
Difference between Actual 2021 ECI inflation (4.8%) and            3.10%
 2021 PCE Estimate (1.7%)...............................
Adjusted 2021 Compensation..............................        $390,672
2021 to 2022 Inflation Factor...........................           2.20%
2022 Target Compensation................................        $399,266
2022 Apprentice Pilot Wage Benchmark....................        $143,736
------------------------------------------------------------------------
* All figures are rounded to the nearest dollar and may not sum.

    Next, we certify that the number of pilots estimated for 2022 is 
less than or equal to the number permitted under the changes to the 
staffing model in Sec.  401.220(a). The 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

[[Page 18502]]

the pilot associations.\21\ In accordance with the 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 two apprentice 
pilots will be needed for District One in the 2022 season. The 
apprentice pilots will work under a fully registered pilot and receive 
training in both the designated and undesignated waters, but their 
target compensation will not differ depending on which area they are 
training in. The total wages of $287,472 for two apprentice pilots are 
allocated as 60 percent for the designated area ($172,483) and 40 
percent for the undesignated area ($114,989), in accordance with the 
way operating expenses are allocated in Step 1, and later in Step 6.
---------------------------------------------------------------------------

    \21\ 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).

                                  Table 7--Target Compensation for District One
----------------------------------------------------------------------------------------------------------------
                                                                                   District One
                                                                 -----------------------------------------------
                                                                    Designated     Undesignated        Total
----------------------------------------------------------------------------------------------------------------
Target Pilot Compensation.......................................        $399,266        $399,266        $399,266
Number of Pilots................................................              10               8              18
                                                                 -----------------------------------------------
    Total Target Pilot Compensation.............................      $3,992,660      $3,194,128      $7,186,788
Apprentice Pilot Wage Benchmark.................................        $143,736        $143,736        $143,736
Number of Apprentice Pilots.....................................  ..............  ..............               2
                                                                 -----------------------------------------------
    Total Apprentice Pilot Wages................................        $172,483        $114,989        $287,472
----------------------------------------------------------------------------------------------------------------
* All figures are rounded to the nearest dollar and may not sum.

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 apprentice pilot wage benchmark 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.\22\ By multiplying the two figures, 
we obtain the working capital fund contribution for each area, as shown 
in table 8.
---------------------------------------------------------------------------

    \22\ 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)............................      $2,419,401      $1,613,051      $4,032,452
Total Target Pilot Compensation (Step 4)........................       3,992,660       3,194,128       7,186,788
Total Apprentice Pilot Wage Benchmark (Step 4)..................         172,483         114,989         287,472
                                                                 -----------------------------------------------
    Total 2022 Expenses.........................................       6,584,544       4,922,168      11,506,712
----------------------------------------------------------------------------------------------------------------
Working Capital Fund (2.48%)....................................         163,077         121,906         284,983
----------------------------------------------------------------------------------------------------------------
* All figures are rounded to the nearest dollar and may not sum.

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 apprentice pilot wage benchmark (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)............................      $2,419,401      $1,613,051      $4,032,452
Total Target Pilot Compensation (Step 4)........................       3,992,660       3,194,128       7,186,788
Total Apprentice Pilot Wage Benchmark (Step 4)..................         172,483         114,989         287,472
Working Capital Fund (Step 5)...................................         163,077         121,906         284,983
                                                                 -----------------------------------------------
    Total Revenue Needed........................................       6,747,621       5,044,074      11,791,695
----------------------------------------------------------------------------------------------------------------
* All figures are rounded to the nearest dollar and may not sum.


[[Page 18503]]

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. To calculate 
the time on task for each district, the Coast Guard uses billing data 
from the Great Lakes Pilotage Management System (GLPMS) and SeaPro.\23\ 
We pull 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. 
Because we calculate separate figures for designated and undesignated 
waters, there are two parts for each calculation. We show these values 
in table 10.
---------------------------------------------------------------------------

    \23\ 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 10--Time on Task for District One
                                 [Hours]
------------------------------------------------------------------------
                                                   District One
                  Year                   -------------------------------
                                            Designated     Undesignated
------------------------------------------------------------------------
2020....................................            6265            7560
2019....................................            8232            8405
2018....................................            6943            8445
2017....................................            7605            8679
2016....................................            5434            6217
2015....................................            5743            6667
2014....................................            6810            6853
2013....................................            5864            5529
2012....................................            4771            5121
2011....................................            5045            5377
                                         -------------------------------
  Average...............................            6271            6885
------------------------------------------------------------------------

    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).................      $6,747,621      $5,044,074
Average Time on Task (Hours)............           6,271           6,885
Initial Rate............................          $1,076            $733
------------------------------------------------------------------------
* All figures are rounded to the nearest dollar and may not sum.

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.

                      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 18504]]

 
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........................................          $1,076            1.29            $834
District One: Undesignated......................................             733            1.29             568
----------------------------------------------------------------------------------------------------------------
* All figures are rounded to the nearest dollar.

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 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 rates will cover operating expenses 
and infrastructure costs,

[[Page 18505]]

including average traffic and weighting factions. Based on the 
financial information submitted by the pilots, the Director is not 
making any alterations to the rates in this step. We will modify Sec.  
401.405(a)(1) and (2) to reflect the final rates shown in table 15.

                                     Table 15--Final Rates for District One
----------------------------------------------------------------------------------------------------------------
                                                                                    Final 2021     2022 Pilotage
                     Area                                     Name                 pilotage rate       rate
----------------------------------------------------------------------------------------------------------------
District One: Designated......................  St. Lawrence River..............            $800            $834
District One: Undesignated....................  Lake Ontario....................            $498            $568
----------------------------------------------------------------------------------------------------------------
* All figures are rounded to the nearest dollar.

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, 
which are available in the docket for this rulemaking. For accounting 
purposes, the financial reports divide expenses into designated (60 
percent) and undesignated areas (40 percent). 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, which are available in the docket for this rulemaking.
    In the 2019 expenses used as the basis for this rulemaking, 
districts used the term ``applicant'' to describe applicant trainees 
and persons who are called apprentices (applicant pilots) under the new 
definition in this rulemaking. Therefore, when describing past 
expenses, we use the term ``applicant'' to match what was reported from 
2019, which includes both applicant trainees and apprentice pilots. We 
use ``apprentice'' to distinguish the apprentice pilot wage benchmark 
and describe 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 for both 
apprentices and applicant trainees 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 rule. 
Applicant salaries (including applicant trainees and apprentice pilots) 
will continue to be an allowable operating expense through the 2024 
ratemaking, which will use operating expenses from 2021, when the 
salaries for apprentice pilots were still authorized as operating 
expenses. Starting in the 2025 ratemaking, apprentice pilot salaries 
will no longer be included as a 2022 operating expense, because 
apprentice pilot wages will 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).
    As discussed above, in a public comment on the NPRM for this 
rulemaking, the LPA commented that the expenses listed in the NPRM for 
license insurance and applicant health insurance were incorrect. An 
independent accounting firm reviewed the expenses LPA claimed as the 
correct figures and determined that the license insurance expense 
figure of $1,825 originally proposed in the NPRM was correct, and that 
the amount the LPA claimed was missing was accounted for in another 
line item. The independent accountant further determined that the 
applicant health insurance expense of $200 originally proposed was 
incorrect. In this final rule, Coast Guard corrects the applicant 
health insurance to a total of $31,764, with $12,706 allocated to the 
undesignated area and $19,058 allocated to the designated area.

                               Table 16--2019 Recognized Expenses for District Two
----------------------------------------------------------------------------------------------------------------
                                                                                   District Two
                                                                 -----------------------------------------------
                                                                   Undesignated     Designated
              Reported operating expenses for 2019               --------------------------------
                                                                                     Southeast         Total
                                                                     Lake Erie     Shoal to Port
                                                                                       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
                                                                 -----------------------------------------------

[[Page 18506]]

 
        Total Other Pilotage Costs..............................         383,649         575,474         959,123
Total Applicant Pilotage Costs:
    Applicant Salaries..........................................         166,958         250,437         417,395
    Applicant Health Insurance..................................          12,706          19,058          31,764
    Applicant Subsistence/Travel................................           5,729           8,593          14,322
    Applicant Hotel/Lodging Cost................................           3,984           5,976           9,960
    Applicant Payroll Tax.......................................           5,717           8,576          14,293
                                                                 -----------------------------------------------
        Total Applicant Costs...................................         195,094         292,640         487,734
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).       1,179,193       1,768,789       2,947,982
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).......         994,531       1,491,797       2,486,328
----------------------------------------------------------------------------------------------------------------
* All figures are rounded to the nearest dollar and may not sum.

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 and 2021 inflation 
rates.\24\ Because the BLS does not provide forecasted inflation data, 
we use economic projections from the Federal Reserve for the 2022 
inflation modification.\25\ Based on that information, the calculations 
for Step 2 are as shown in table 17.
---------------------------------------------------------------------------

    \24\ The 2020 and 2021 inflation rates are available at https://beta.bls.gov/dataViewer/view/timeseries/CUUR0200SA0. Specifically, 
the CPI is defined as ``All items in Midwest urban, all urban 
consumers, not seasonally adjusted (Series ID CUUR0200SA0)(CPI-U), 
All Items, 1982-4=100'' (downloaded March 2022). In the NPRM we used 
the PCE estimate of 4.3 percent for 2021, but now use the available 
interim CPI figure of 5.1 percent.
    \25\ For the 2022 inflation rates, we used the PCE median 
inflation value found in table 1 at https://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20211215.pdf (Federal Reserve 
Board, Summary of Economic Projections, dated December 15, 2021, 
downloaded March 2022). This figure is updated to 2.2 percent from 2 
percent in the NPRM.

[[Page 18507]]



                             Table 17--Adjusted Operating Expenses for District Two
----------------------------------------------------------------------------------------------------------------
                                                                                   District Two
                                                                 -----------------------------------------------
                                                                   Undesignated     Designated         Total
----------------------------------------------------------------------------------------------------------------
Total Operating Expenses (Step 1)...............................        $994,531      $1,491,797      $2,486,328
2020 Inflation Modification (@1%)...............................           9,945          14,918          24,863
2021 Inflation Modification (@5.1%).............................          51,228          76,842         128,070
2022 Inflation Modification (@2.2%).............................          23,225          34,838          58,063
                                                                 -----------------------------------------------
    Adjusted 2022 Operating Expenses............................      $1,078,929      $1,618,395      $2,697,324
----------------------------------------------------------------------------------------------------------------
* All figures are rounded to the nearest dollar and may not sum.

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. With rounding, 
the maximum number of pilots for District Two increases to 16 pilots 
(15.41 rounding up to 16), with the additional pilot allocated to the 
maximum for the undesignated area of District Two, resulting in a 
maximum of 7 pilots for the designated area and a maximum of 9 pilots 
for the undesignated area. In the NPRM, the Coast Guard estimated that 
District Two would fill the new maximum of 16 registered pilots, but 
has since been made aware that a temporary pilot performed 
substantially fewer trips than the average number of assignments per 
pilot projected in the staffing model, and that an apprentice pilot 
previously projected to join as a registered pilot will not do so, as 
noted in section IV. F. of the discussion of public comments and 
changes. Therefore, in this final rule, we estimate that there will be 
14 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 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. These numbers are 
used to determine the amount of revenue needed in their respective 
areas.

                       Table 18--Authorized Pilots
------------------------------------------------------------------------
                          Item                             District Two
------------------------------------------------------------------------
Maximum Number of Pilots (per Sec.   401.220(a)) *......              16
2022 Authorized Pilots (total)..........................              14
Pilots Assigned to Designated Areas.....................               6
Pilots Assigned to Undesignated Areas...................               8
2022 Apprentice Pilots..................................               2
------------------------------------------------------------------------
* 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).

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 Sec.  404.104, which adjusts 
the existing compensation benchmark by inflation. As stated in section 
V.A of the preamble, we using a two-step process to adjust target pilot 
compensation for inflation. First, we adjust the 2021 target 
compensation benchmark of $378,925 by multiplying by 3.1 percent for an 
adjusted value of $390,672. The adjustment accounts for the difference 
in actual Q4 2021 ECI inflation, 4.8 percent, and the 2020 PCE estimate 
of 1.7 percent.\26\ \27\ The second step accounts for projected 
inflation from 2021 to 2022, which is 2.2 percent.\28\ The compensation 
benchmark for 2022 is $399,266 per pilot, as calculated in table 6. The 
apprentice pilot wage benchmark is 36 percent of the target pilot 
compensation, or $143,736 ($399,266 x 0.36).
---------------------------------------------------------------------------

    \26\ Employment Cost Index, Total Compensation for Private 
Industry workers in Transportation and Material Moving, Series ID: 
CIU2010000520000A.
    \27\ CPI for All Urban Consumers, Series ID CUUR0200SA0.
    \28\ For the 2022 inflation rates, we used the PCE median 
inflation value found in table 1 at https://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20211215.pdf (Federal Reserve Bank, 
Summary of Economic Projections, dated December 15, 2021, downloaded 
March 2022). This figure is updated to 2.2 percent from 2 percent in 
the NPRM.
---------------------------------------------------------------------------

    Next, we certify that the number of pilots estimated for 2022 is 
less than or equal to the number permitted under the changes to the 
staffing model in Sec.  401.220(a). The changes to the staffing model 
suggest that the number of pilots needed is 14 pilots for District Two, 
which is less than or equal to 16, the maximum number of registered 
pilots provided by staffing model.\29\ We estimate that two apprentice 
pilots will be needed for District Two in the 2022 season. The 
apprentice pilots will work under a fully registered pilot and receive 
training in both the designated and undesignated waters, but their 
target compensation will not differ depending on which area they are 
training in. The $287,472 in total wages for two apprentice pilots is 
allocated 60 percent for the designated area ($172,483) and 40 percent 
for the undesignated area ($114,989), in accordance with the way 
operating expenses are allocated in Step 1 and later in Step 6.
---------------------------------------------------------------------------

    \29\ 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

[[Page 18508]]

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.......................................        $399,266        $399,266        $399,266
Number of Pilots................................................               8               6              14
                                                                 -----------------------------------------------
    Total Target Pilot Compensation.............................      $3,194,128      $2,395,596      $5,589,724
Apprentice Pilot Wage Benchmark.................................        $143,736        $143,736        $143,736
Number of Apprentice Pilots.....................................  ..............  ..............               2
                                                                 -----------------------------------------------
    Total Apprentice Pilot Wage Benchmark.......................        $172,483        $114,989        $287,472
----------------------------------------------------------------------------------------------------------------
* All figures are rounded to the nearest dollar and may not sum.

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 apprentice pilot wage benchmarks 
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.\30\ By multiplying the two 
figures, we obtain the working capital fund contribution for each area, 
as shown in table 20.
---------------------------------------------------------------------------

    \30\ 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 20--Working Capital Fund Calculation for District Two
----------------------------------------------------------------------------------------------------------------
                                                                                   District Two
                                                                 -----------------------------------------------
                                                                   Undesignated     Designated         Total
----------------------------------------------------------------------------------------------------------------
Adjusted Operating Expenses (Step 2)............................      $1,078,929      $1,618,395      $2,697,324
Total Target Pilot Compensation (Step 4)........................       3,194,128       2,395,596       5,589,724
Total Apprentice Pilot Wage Benchmark (Step 4)..................         172,483         114,989         287,472
                                                                 -----------------------------------------------
    Total 2022 Expenses.........................................       4,445,540       4,128,980       8,574,520
----------------------------------------------------------------------------------------------------------------
Working Capital Fund (2.48%)....................................         110,101         102,261         212,362
----------------------------------------------------------------------------------------------------------------
* All figures are rounded to the nearest dollar and may not sum.

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 apprentice pilot wage benchmarks, 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)............................      $1,078,929      $1,618,395      $2,697,324
Total Target Pilot Compensation (Step 4)........................       3,194,128       2,395,596       5,589,724
Total Apprentice Pilot Wage Benchmark (Step 4)..................         172,483         114,989         287,472
Working Capital Fund (Step 5)...................................         110,101         102,261         212,362
                                                                 -----------------------------------------------
    Total Revenue Needed........................................       4,555,641       4,231,241       8,786,882
----------------------------------------------------------------------------------------------------------------
* All figures are rounded to the nearest dollar and may not sum.

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. To calculate 
the time on task for each district, the Coast Guard uses billing data 
from the GLPMS and SeaPro. 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

[[Page 18509]]

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. 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                   -------------------------------
                                           Undesignated     Designated
------------------------------------------------------------------------
2020....................................            6232            8401
2019....................................            6512            7715
2018....................................            6150            6655
2017....................................            5139            6074
2016....................................            6425            5615
2015....................................            6535            5967
2014....................................            7856            7001
2013....................................            4603            4750
2012....................................            3848            3922
2011....................................            3708            3680
                                         -------------------------------
    Average.............................            5701            5978
------------------------------------------------------------------------

    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.

          Table 23--Initial Rate Calculations for District Two
------------------------------------------------------------------------
                  Item                     Undesignated     Designated
------------------------------------------------------------------------
Revenue Needed (Step 6).................      $4,555,641      $4,231,241
Average Time on Task (Hours)............           5,701           5,978
Initial Rate............................            $799            $708
------------------------------------------------------------------------
* All figures are rounded to the nearest dollar and may not sum.

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.

                     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

[[Page 18510]]

 
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
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........................................            $708            1.32            $536
District Two: Undesignated......................................             799            1.31             610
----------------------------------------------------------------------------------------------------------------
* All figures are rounded to the nearest dollar.


[[Page 18511]]

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 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 rates will cover operating expenses 
and infrastructure costs, and takes average traffic and weighting 
factors into consideration. Based on this information, the Director is 
not making any alterations to the rates in this step. The 2022 rate for 
the designated area of District Two is higher than the 2021 final rate, 
despite the increased traffic shown in Step 7, because of increased 
inflation. We modify Sec.  401.405(a)(3) and (4) to reflect the final 
rates shown in table 27.

                                     Table 27--Final Rates for District Two
----------------------------------------------------------------------------------------------------------------
                                                                                    Final 2021     2022 Pilotage
                     Area                                     Name                 pilotage rate       rate
----------------------------------------------------------------------------------------------------------------
District Two: Designated......................  Navigable waters from Southeast             $580            $536
                                                 Shoal to Port Huron, MI.
District Two: Undesignated....................  Lake Erie.......................             566             610
----------------------------------------------------------------------------------------------------------------
* All figures are rounded to the nearest dollar.

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 2019 expenses and revenues, 
which are available in the docket for this rulemaking. For accounting 
purposes, the financial reports divide expenses into a designated area 
(21 percent) and two undesignated areas (52 and 27 percent). 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.
    Adjustments made by the auditors are explained in the auditors' 
reports, which are available in the docket for this rulemaking.
    In the 2019 expenses used as the basis for this rulemaking, 
districts used the term ``applicant'' to describe applicant trainees 
and persons who are called apprentices (applicant pilots) under the new 
definition in this rulemaking. Therefore, when describing past 
expenses, we use the term ``applicant'' to match what was reported from 
2019, which includes both applicant trainees and apprentice pilots. We 
use ``apprentice'' to distinguish the apprentice pilot wage benchmark 
and 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 five applicant pilots. In the NPRM, the Coast Guard 
proposed a second deduction of $1,921 to reduce the allowable expenses 
for applicant pilots to 36 percent of target pilot compensation. In 
this final rule, Coast Guard removes this deduction because we 
confirmed that the fifth apprentice reported was approved by the 
Director, meaning that the average per-apprentice compensation was 
below the 36-percent benchmark. District Three reported $520,158 in 
expenses for the salary of five applicant pilots. Using the 36-percent 
target, the allowable applicant salary would have been $129,559 per 
applicant, for a total of $647,797 for five applicant pilots, meaning 
the district paid an average of $104,032 per applicant, which is below 
the $129,559 target. Applicant salaries (including applicant trainees 
and apprentice pilots) will continue to be an allowable operating 
expense through the 2024 ratemaking, which will use operating expenses 
from 2021, when the wages for apprentice pilots were still authorized 
as operating expenses. Starting in the 2025 ratemaking, apprentice 
pilot salaries will no longer be included as a 2022 operating expense, 
because apprentice pilot wage benchmark will 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       ------------------------------------------------
                                                    Lakes Huron      St. Marys                         Total
                                                   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 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 Costs:
    Applicant Salaries..........................         267,933         111,678         140,547         520,158
    Applicant Benefits..........................          77,627          32,356          40,720         150,703

[[Page 18512]]

 
    Applicant Payroll Tax.......................          21,713           9,050          11,390          42,153
                                                 ---------------------------------------------------------------
        Total Applicant Costs...................         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 Costs:
    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 +                1,959,079         816,570       1,027,651       3,803,300
 Applicant Cost + Pilot Boats + Admin)..........
    Directors Adjustments-Applicant Surcharge          (384,678)       (160,339)       (201,786)       (746,802)
     Collected..................................
        Total Directors Adjustments.............       (384,678)       (160,339)       (201,786)       (746,802)
                                                 ---------------------------------------------------------------
            Total Operating Expenses (OpEx +           1,574,401         656,231         825,865       3,056,498
             Adjustments).......................
----------------------------------------------------------------------------------------------------------------
* All figures are rounded to the nearest dollar and may not sum.

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 and 2021 inflation 
rates.\31\ Because the BLS does not provide forecasted inflation data, 
we use economic projections from the Federal Reserve for the 2022 
inflation modification.\32\ Based on that information, the calculations 
for Step 2 are as shown in table 29.
---------------------------------------------------------------------------

    \31\ The 2020 and 2021 inflation rates are available at https://beta.bls.gov/dataViewer/view/timeseries/CUUR0200SA0. Specifically, 
the CPI is defined as ``All items in Midwest urban, all urban 
consumers, not seasonally adjusted (Series ID CUUR0200SA0)(CPI-U), 
All Items, 1982-4=100'' (downloaded March 2022). In the NPRM we used 
the PCE estimate of 4.3 percent for 2021, but now use the available 
interim CPI figure of 5.1 percent.
    \32\ For the 2022 inflation rates, we used the PCE median 
inflation value found in table 1 at https://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20211215.pdf (Federal Reserve Bank, 
Summary of Economic Projections, dated December 16, 2021, downloaded 
March 2022). This figure is updated to 2.2 percent from 2 percent in 
the NPRM.

                            Table 29--Adjusted Operating Expenses for District Three
----------------------------------------------------------------------------------------------------------------
                                                                                  District Three
                                                                 -----------------------------------------------
                                                                   Undesignated     Designated         Total
----------------------------------------------------------------------------------------------------------------
Total Operating Expenses (Step 1)...............................      $2,400,266        $656,231      $3,056,498
2020 Inflation Modification (@1%)...............................          24,003           6,562          30,565
2021 Inflation Modification (@5.1%).............................         123,638          33,802         157,440
2022 Inflation Modification (@2.2%).............................          56,054          15,325          71,379
    Adjusted 2022 Operating Expenses............................       2,603,961         711,920       3,315,882
----------------------------------------------------------------------------------------------------------------
* All figures are rounded to the nearest dollar and may not sum.


[[Page 18513]]

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. Rounding in the staffing 
model does not increase the maximum number of pilots for District Three 
because the total pilots needed, 21.55, already rounds up to 22. We 
determine the number of registered pilots based on data provided by the 
WGLPA. In the NPRM, we estimated that there would be 22 registered 
pilots in 2022 in District Three. However, during the GLPAC meeting on 
September 1, 2021, WGLPA reported that they would have three 
retirements before the 2022 season. Therefore, we now estimate that 
there will be 19 registered pilots in 2022 in District Three, with 4 
pilots assigned to designated areas and 15 pilots assigned to 
undesignated areas. 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 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
------------------------------------------------------------------------
Maximum Number of Pilots (per Sec.   401.220(a)) *......              22
2022 Authorized Pilots (total)..........................              19
Pilots Assigned to Designated Areas.....................               4
Pilots Assigned to Undesignated Areas...................              15
2022 Apprentice Pilots..................................               5
------------------------------------------------------------------------
* 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).

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 Sec.  404.104, which adjusts 
the existing compensation benchmark by inflation. First, we adjust the 
2021 target compensation benchmark of $378,925 by 3.1 percent for an 
adjusted value of $390,672. The adjustment accounts for the difference 
in actual Q4 2021 ECI inflation, 4.8 percent, and the 2020 PCE estimate 
of 1.7 percent.\33\ \34\ The second step accounts for projected 
inflation from 2021 to 2022, 2.2 percent.\35\ Based on the projected 
2022 inflation estimate, the compensation benchmark for 2022 is 
$399,266 per pilot as shown in table 6. The apprentice pilot wage 
benchmark is 36 percent of the target pilot compensation, or $143,736 
($399,266 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\ For the 2022 inflation rates, we used the PCE median 
inflation value found in table 1 at https://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20211215.pdf (Federal Reserve Bank, 
Summary of Economic Projections, dated December 16, 2021, downloaded 
March 2022). This figure is updated to 2.2 percent from 2 percent in 
the NPRM.
---------------------------------------------------------------------------

    Next, we certify that the number of pilots estimated for 2022 is 
less than or equal to the number permitted under the changes to the 
staffing model in Sec.  401.220(a). The changes to the staffing model 
suggest that the number of pilots needed is 19 pilots for District 
Three, which is less than or equal to 22, the number of registered 
pilots provided by the pilot associations.\36\ We estimate that five 
apprentice pilots will be needed for District Three in the 2022 season. 
The apprentice pilots will work under a fully registered pilot and 
receive training in both the designated and undesignated waters, but 
their target compensation will not differ depending on which area they 
are training in. The total wages of $718,680 for five apprentice pilots 
are allocated at 21 percent for the designated area ($150,923) and 79 
percent (52 percent + 27 percent) for the undesignated area ($567,756), 
in accordance with the way operating expenses are allocated in Step 1 
and later in Step 6.
---------------------------------------------------------------------------

    \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 Three, as shown in 
table 31.

                                Table 31--Target Compensation for District Three
----------------------------------------------------------------------------------------------------------------
                                                                                  District Three
                                                                 -----------------------------------------------
                                                                   Undesignated     Designated         Total
----------------------------------------------------------------------------------------------------------------
Target Pilot Compensation.......................................        $399,266        $399,266        $399,266
Number of Pilots................................................              15               4              19
Total Target Pilot Compensation.................................      $5,988,990      $1,597,064      $7,586,054
Apprentice Pilot Wage Benchmark.................................        $143,736        $143,736        $143,736
Number of Apprentice Pilots.....................................  ..............  ..............               5
    Total Apprentice Pilot Wage Benchmark.......................        $567,756        $150,923     $718,678.80
----------------------------------------------------------------------------------------------------------------
* All figures are rounded to the nearest dollar and may not sum.


[[Page 18514]]

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 apprentice pilot wage benchmarks 
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 32.
---------------------------------------------------------------------------

    \37\ 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)............................      $2,603,961        $711,920      $3,315,882
Total Target Pilot Compensation (Step 4)........................       5,988,990       1,597,064       7,586,054
Total Apprentice Pilot Wage Benchmark (Step 4)..................         567,756         150,923         718,679
                                                                 -----------------------------------------------
    Total 2022 Expenses.........................................       9,160,708       2,459,907      11,620,614
----------------------------------------------------------------------------------------------------------------
Working Capital Fund (2.48%)....................................         226,880          60,924         287,804
----------------------------------------------------------------------------------------------------------------
* All figures are rounded to the nearest dollar and may not sum.

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)............................      $2,603,961        $711,920      $3,315,882
Total Target Pilot Compensation (Step 4)........................       5,988,990       1,597,064       7,586,054
Total Apprentice Pilot Wage Benchmark (Step 4)..................         567,756         150,923         718,679
Working Capital Fund (Step 5)...................................         226,880          60,924         287,804
                                                                 -----------------------------------------------
    Total Revenue Needed........................................       9,387,588       2,520,831      11,908,418
----------------------------------------------------------------------------------------------------------------
* All figures are rounded to the nearest dollar and may not sum.

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. To calculate 
the time on task for each district, the Coast Guard uses billing data 
from the GLPMS and SeaPro. 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. 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     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

[[Page 18515]]

 
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).................      $9,387,588      $2,520,831
Average Time on Task (Hours)............          21,106           2,930
Initial Rate............................            $445            $860
------------------------------------------------------------------------
* All figures are rounded to the nearest dollar and may not sum.

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.

                    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
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

[[Page 18516]]

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


[[Page 18517]]

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......................................            $860            1.30            $662
District Three: Undesignated....................................             445            1.30             342
----------------------------------------------------------------------------------------------------------------
* All figures are rounded to the nearest dollar.

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 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 rates will cover operating expenses 
and infrastructure costs, and takes average traffic and weighting 
factors into consideration. Based on this information, the Director is 
not making any alterations to the rates in this step. We will modify 
Sec.  401.405(a)(5) and (6) to reflect the final rates shown in table 
39.

                                    Table 39--Final Rates for District Three
----------------------------------------------------------------------------------------------------------------
                                                                                    Final 2021    2022  pilotage
                     Area                                     Name                 pilotage rate       rate
----------------------------------------------------------------------------------------------------------------
District Three: Designated....................  St. Marys River.................            $586            $662
District Three: Undesignated..................  Lakes Huron, Michigan, and                   337             342
                                                 Superior.
----------------------------------------------------------------------------------------------------------------
* All figures are rounded to the nearest dollar.

VII. Regulatory Analyses

    We developed this 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 
rule a significant regulatory action under section 3(f) of Executive 
Order 12866. Accordingly, OMB has not reviewed it. A regulatory 
analysis follows.
    The purpose of this 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.\38\ For this ratemaking, the Coast Guard estimates an increase 
in cost of approximately $2.15 million to industry. This is 
approximately a 7-percent increase because of the change in revenue 
needed in 2022 compared to the revenue needed in 2021.
---------------------------------------------------------------------------

    \38\ Great Lakes Pilotage Rates--2018 Annual Review and 
Revisions to Methodology (83 FR 26162), published June 5, 2018.
---------------------------------------------------------------------------

    Table 40 summarizes changes with no cost impacts or where the cost 
impacts are captured in the rate change. Table 41 summarizes the 
affected population, costs, and benefits of the rate change.

[[Page 18518]]



                      Table 40--Changes With No Costs or Costs Captured in the 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    51 United States                        apprentice pilot
                                   and certified by    Great Lakes                             operating
                                   the Director, who   pilots, 9                               expenses,
                                   are participating   apprentice                              estimates and
                                   in an approved      pilots, and 3                           wage benchmark.
                                   United States       pilotage
                                   Great Lakes pilot   associations.
                                   training and
                                   qualification
                                   program and meet
                                   all the minimum
                                   requirements
                                   listed in 46 CFR
                                   401.211.
Add a definition of limited       An authorization    Owners and          No cost, strictly   Provides clarity
 registration.                     given by the        operators of 293    a definitional      by distinguishing
                                   Director, upon      vessels             change.             when apprentice
                                   the request of      transiting the                          pilots can
                                   the respective      Great Lakes                             operate as the
                                   pilots              system annually,                        pilot of record
                                   association, to     51 United States                        without being a
                                   an apprentice       Great Lakes                             fully registered
                                   pilot to provide    pilots, 9                               pilot.
                                   pilotage service    apprentice
                                   without direct      pilots, and 3
                                   supervision from    pilotage
                                   a fully             associations.
                                   registered pilot
                                   in a specific
                                   area or waterway.
Adding number of apprentice       The Coast Guard     Owners and          Total cost of       Setting a target
 pilots to Step 3 and setting      will modify the     operators of 293    $1,293,622 for      wage of 36% of
 apprentice pilot wage benchmark   staffing model at   vessels             the wages of 9      registered pilot
 in Step 4.                        46 CFR 404.103 to   transiting the      apprentice pilots   compensation
                                   predict the         Great Lakes         for the 2022        better matches
                                   number of           system annually,    season. This        changes in
                                   apprentice pilots   51 United States    amount is           registered pilot
                                   each district       Great Lakes         incorporated into   compensation and
                                   will need for the   pilots, 9           the rate increase.  inflation and
                                   next season. 46     apprentice                              more evenly
                                   CFR 404.103 will    pilots, and 3                           distributes the
                                   establish the       pilotage                                additional cost
                                   apprentice pilot    associations.                           of apprentice
                                   wage benchmark at                                           pilots compared
                                   36% of registered                                           to the surcharge
                                   pilot                                                       method.
                                   compensation for
                                   that year.
----------------------------------------------------------------------------------------------------------------


                                    Table 41--Economic Impacts Due to Changes
----------------------------------------------------------------------------------------------------------------
                                                           Affected
             Change                   Description         population             Costs             Benefits
----------------------------------------------------------------------------------------------------------------
Rate changes....................  In accordance with  Owners and          Increase of         New rates cover an
                                   46 U.S.C. Chapter   operators of 293    $2,154,343 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         ($32,486,995)       operating
                                   adjust base         system annually,    from revenue        expenses.
                                   pilotage rates      51 United States    needed for 2021     Promotes safe,
                                   annually.           Great Lakes         ($30,332,652), as   efficient, and
                                                       pilots, 9           shown in table 42.  reliable pilotage
                                                       apprentice                              service on the
                                                       pilots, and 3                           Great Lakes.
                                                       pilotage                                Provides fair
                                                       associations.                           compensation,
                                                                                               adequate
                                                                                               training, and
                                                                                               sufficient rest
                                                                                               periods for
                                                                                               pilots. Ensures
                                                                                               the association
                                                                                               receives
                                                                                               sufficient
                                                                                               revenues to fund
                                                                                               future
                                                                                               improvements.
Changes to staffing model.......  The Coast Guard     Owners and          The total           Rounding up in the
                                   will modify the     operators of 293    potential impact    staffing model
                                   staffing model at   vessels             of two additional   accounts for
                                   46 CFR              transiting the      positions is        extra staff or
                                   401.220(a)(3) to    Great Lakes         $775,039. Only      extra time spent
                                   round up to the     system annually,    one district has    by the pilot
                                   nearest integer,    51 United States    hired up to the     associations'
                                   as opposed to the   Great Lakes         new maximum so      presidents not
                                   existing method,    pilots, 9           the realized        performing
                                   which rounds to     apprentice          impact is only      pilotage service.
                                   the nearest         pilots, and 3       $387,519.           Rounding up
                                   integer. In         pilotage                                allows us to
                                   total, this will    associations.                           account for this
                                   increase the                                                time and promote
                                   maximum number of                                           safety and
                                   allowable pilots                                            restorative rest,
                                   by two, adding                                              while minimizing
                                   one pilot to each                                           delays in
                                   of the                                                      providing
                                   undesignated                                                pilotage
                                   areas of District                                           services.
                                   One and District
                                   Two.
----------------------------------------------------------------------------------------------------------------

    The Coast Guard is required to review and adjust pilotage rates on 
the Great Lakes annually. See section III of this preamble for detailed 
discussions of the legal basis and purpose for this rulemaking. Based 
on our annual review for this rulemaking, we are adjusting 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 
will be an increase in rates for all areas in District One and District 
Two, and in the designated area of District Three. The rate for the 
undesignated area of District Three will decrease. These changes will 
lead to a net increase in the cost of service to shippers. However, 
because the rates will increase for some areas and decrease for others, 
the change in per unit cost to each individual shipper will 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 affects United States 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

[[Page 18519]]

will be 51 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. United States-flagged vessels not operating on 
register, and Canadian ``lakers,'' which account for most commercial 
shipping on the Great Lakes, are not required by 46 U.S.C. 9302 to have 
pilots. However, these United States- 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 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 ratemaking 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 will be impacted by this 
rulemaking. We found that 514 unique vessels used pilotage services 
during the years 2018 through 2020. That is, these vessels had a pilot 
dispatched to the vessel, and billing information was recorded in the 
GLPMS or SeaPro.\39\ 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.
---------------------------------------------------------------------------

    \39\ SeaPro is a data management system developed by District 
One as an alternative to GLPMS. It tracks the same traffic and 
invoice data as the GLPMS. Going into the 2022 season, all districts 
will employ SeaPro.
---------------------------------------------------------------------------

    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.\40\ On average, 275 of these vessels were foreign-flagged 
vessels and 19 were U.S.-flagged vessels that voluntarily opted into 
the pilotage service (these figures are rounded averages).
---------------------------------------------------------------------------

    \40\ Some vessels entered the Great Lakes multiple times in a 
single year, affecting the average number of unique vessels 
utilizing pilotage services in any given year.
---------------------------------------------------------------------------

Total Cost to Shippers
    The rate changes resulting from this adjustment to the rates will 
result in a net increase in the cost of service to shippers. However, 
the change in per unit cost to each individual shipper will 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.\41\ 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.
---------------------------------------------------------------------------

    \41\ While the Coast Guard implemented a surcharge in 2019, we 
are not implementing 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 
$32,486,994.
    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.\42\ This is the best approximation of 2021 revenues, as, 
at the time of this publication of this final rule, the Coast Guard 
does not have enough audited data available for the 2021 shipping 
season to revise these projections.\43\ 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.
---------------------------------------------------------------------------

    \42\ 85 FR 20088, see table 41. https://www.regulations.gov/document/USCG-2020-0457-0013.
    \43\ The 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 a 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.

                                Table 42--Effect of the Rule by Area and District
                                             [$U.S.; Non-discounted]
----------------------------------------------------------------------------------------------------------------
                                                                                                     Change in
                              Area                                    Revenue         Revenue      costs of this
                                                                  needed in 2021  needed in 2022       rule
----------------------------------------------------------------------------------------------------------------
Total, District One.............................................     $10,620,941     $11,791,695      $1,170,754
Total, District Two.............................................       8,506,705       8,786,882         280,177
Total, District Three...........................................      11,205,006      11,908,418         703,412
                                                                 -----------------------------------------------
    System Total................................................      30,332,652      32,486,995       2,154,343
----------------------------------------------------------------------------------------------------------------
* All figures are rounded to the nearest dollar and may not sum.


[[Page 18520]]

    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 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 will lead to affected shippers operating in District One 
experiencing an increase in payments of $1,170,754 over the previous 
year. District Two and District Three will experience an increase in 
payments of $280,177 and $703,412, respectively, when compared with 
2021. The overall adjustment in payments will be an increase in 
payments by shippers of $2,154,343 across all three districts (a 7-
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 (67 percent of total revenue needed 
in 2021, and 63 percent of total revenue needed in 2022), followed by 
operating expenses (29 percent of total revenue needed in 2021, and 31 
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     $10,045,658              31        $1,168,808              13
Total Target Pilot Compensation.......................      20,461,950              67      20,362,566              63          (99,384)           (0.5)
Total Apprentice Pilot Wage Benchmark.................  ..............  ..............       1,293,622               4         1,293,622  ..............
Working Capital Fund..................................         993,852               3         785,149               2         (208,703)            (21)
                                                       -------------------------------------------------------------------------------------------------
    Total Revenue Needed..............................      30,332,652             100      32,486,995             100         2,154,343               7
--------------------------------------------------------------------------------------------------------------------------------------------------------
* All figures are rounded to the nearest dollar and may not sum.

    As stated above, we estimate that there will be a total increase in 
revenue needed by the pilot associations of $2,154,343. This represents 
a decrease in revenue needed for target pilot compensation of 
($99,384), the now-codified revenue needed for total apprentice pilot 
wage benchmark of $1,293,622, an increase in the revenue needed for 
adjusted operating expenses of $1,168,808, and a decrease in the 
revenue needed for the working capital fund of ($208,703).
    The change in revenue needed for pilot compensation, ($99,384), is 
due to four factors: (1) The changes to adjust 2021 pilotage 
compensation to account for the difference between actual ECI inflation 
(5.1 percent) \44\ and predicted PCE inflation (1.7 percent) \45\ for 
2021; (2) the increase in the maximum number of pilots by two pilots 
because of rounding; (3) an increase of one pilot in District One 
compared to 2021, a decrease of one pilot in District Two compared to 
2021, and a decrease of three pilots in District Three compared to 
2021; and (4) projected inflation of pilotage compensation in Step 2 of 
the methodology, using predicted inflation through 2023.
---------------------------------------------------------------------------

    \44\ In the NPRM we used a figure of 3.5 percent, the most 
recently available at the time. Employment Cost Index, Total 
Compensation for Private Industry workers in Transportation and 
Material Moving, Series ID: CIU2010000520000A.
    \45\ https://www.federalreserve.gov/monetarypolicy/fomcprojtabl20201216.htm.
---------------------------------------------------------------------------

    The target compensation is $399,266 per pilot in 2022, compared to 
$378,925 in 2021. The changes to modify the 2021 pilot compensation to 
account for the difference between predicted and actual inflation will 
increase the 2021 target compensation value by 3.1 percent. As shown in 
table 44, this inflation adjustment increases total compensation by 
$11,747 per pilot, and the total revenue needed by $599,080 when 
accounting for all 51 pilots.

  Table 44--Change in Revenue Resulting From the Change to Inflation of
                Pilot Compensation Calculation in Step 4
------------------------------------------------------------------------
 
------------------------------------------------------------------------
2021 Target Compensation................................        $378,925
Adjusted 2021 Compensation ($378,925 x 1.031%)..........         390,672
Difference between Adjusted Target 2021 Compensation and          11,747
 Target 2021 Compensation ( $390,672-$378,925)..........
Increase in total Revenue for 51 Pilots ($11,747 x 51)..         599,080
------------------------------------------------------------------------
* All figures are rounded to the nearest dollar and may not sum.

    Adjusting rounding in the staffing model to always round up, rather 
than round to the nearest integer, increases the maximum number of 
pilots in District One and District Two. The potential impact of this 
change is equivalent to an increase in revenue needed for two fully 
registered pilots because the districts would have the ability to hire 
two more pilots than they would have without rounding. The cost of 
$775,039 is based on target compensation for 2022. However, only 
District One will utilize the increased maximum number of pilots in the 
2022 season, while District Two will have fewer than the maximum number 
of pilots in the 2022 season. For this reason, the potential impact of 
rounding in the staffing model is not fully realized in the 2022 
season. Further, the increase in revenue needed from rounding is offset 
by the net decrease in pilots needed, such that the cost is not 
represented in the rate for this year. For that reason, the Coast Guard 
breaks out the potential and realized costs separately and does not 
show the percentage in relation to the increase in total revenue 
needed, as shown in table 45. To avoid double counting, the Coast Guard 
excludes the change in revenue resulting from adjustments for inflation 
to account for the difference between actual and predicted inflation.

[[Page 18521]]



                   Table 45--Potential and Realized Impacts of Rounding in the Staffing Model
----------------------------------------------------------------------------------------------------------------
 
----------------------------------------------------------------------------------------------------------------
                       Potential impact                          Realized impact
----------------------------------------------------------------------------------------------------------------
2022 Target Compensation......................        $399,266  2022 Target Compensation........        $399,266
Total Number of New Pilots....................               2  Total Number of New Pilot.......               1
Total Cost of New Pilots ($399,266 x 2).......        $798,532  Total Cost of New Pilot                 $399,266
                                                                 ($399,266 x 1).
Difference between Adjusted Target 2021                $11,747  Difference between Adjusted              $11,747
 Compensation and Target 2021 Compensation                       Target 2021 Compensation and
 ($390,672-$378,925).                                            Target 2021 Compensation
                                                                 ($390,672-$378,925).
Increase in total Revenue for 2 Pilots                 $23,493  Increase in total Revenue for 1          $11,747
 ($11,747 x 2).                                                  Pilot ($11,747 x 1).
Net Increase in total Revenue for 2 Pilots            $775,039  Net Increase in total Revenue           $387,519
 ($798,532-$23,493).                                             for 1 Pilot ($399,266-$11,747).
----------------------------------------------------------------------------------------------------------------
* All figures are rounded to the nearest dollar and may not sum.

    As noted earlier, the Coast Guard revised the total number of 
pilots needed from 56 pilots in the NPRM to 51 pilots in this final 
rule because of the attrition of one apprentice pilot, the removal of 
one temporary pilot in District Two, and three retirements in District 
Three going into the 2022 season. This change is discussed in detail in 
section IV. F. of the discussion of comments and changes. The result is 
a net decrease of three pilots needed compared to the 2021 season, 
which projected 54 pilots needed. The difference reflects an increase 
of one pilot in District One, a decrease of one pilot in District Two, 
and a decrease of three pilots in District Three (1-1-3 =-3). Table 46 
shows the decrease of $1,162,558 in revenue needed solely for pilot 
compensation. As above, to avoid double counting, this value excludes 
the change in revenue resulting from the change to adjust 2021 pilotage 
compensation to account for the difference between actual and predicted 
inflation.

 Table 46--Change in Revenue Resulting From Net Decrease of Three Pilots
------------------------------------------------------------------------
 
------------------------------------------------------------------------
2022 Target Compensation................................        $399,266
Net Number of New Pilots................................             (3)
Total Cost of new Pilots ($399,266 x-3).................    ($1,197,798)
Difference between Adjusted Target 2021 Compensation and         $11,747
 Target 2021 Compensation ($390,672-$378,925)...........
Increase in total Revenue for -3 Pilots ($11,747 x-3)...       ($35,240)
Net Increase in total Revenue for -3 Pilots (-$1,197,798-   ($1,162,558)
 -$35,240)..............................................
------------------------------------------------------------------------
* All figures are rounded to the nearest dollar and may not sum.

    Another increase, $438,311, is the result of increasing 
compensation for the 51 pilots to account for future inflation of 2.2 
percent in 2022. This will increase total compensation by $8,594 per 
pilot, as shown in table 47.

 Table 47--Change in Revenue Resulting From Inflating 2021 Compensation
                                 to 2022
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Adjusted 2021 Compensation..............................        $390,672
2022 Target Compensation ($390,672 x 1.022%)............         399,266
Difference between Adjusted 2021 Compensation and Target           8,594
 2022 Compensation ($399,266-$390,672)..................
Increase in total Revenue for 51 Pilots ($8,594 x 51)...         438,311
------------------------------------------------------------------------
* All figures are rounded to the nearest dollar and may not sum.

    Finally, the largest part of the increase in revenue needed is to 
account for the apprentice pilot wage benchmark, now incorporated into 
the rate. First, in Step 3, we estimate the need for nine apprentice 
pilots for the 2022 shipping season. Based on the 2022 target pilot 
compensation of $399,266, the apprentice pilot wage benchmark will be 
$143,736 ($399,266 x 0.36 = $143,736). Setting the wage benchmark in 
this manner, rather than through a surcharge, better allows apprentice 
pilot wage benchmark to match fluctuations in the pilot compensation, 
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'' once the target amount of 
surcharge is collected, which makes rates throughout the season more 
predictable for shippers. The total cost of the wage benchmark for the 
9 apprentice pilots will be $1,293,622, as shown in table 48.

    Table 48--Change in Revenue Resulting From Apprentice Pilot Wages
------------------------------------------------------------------------
 
------------------------------------------------------------------------
2022 Apprentice Pilot Wage Benchmark....................        $143,736
Total Number of Apprentice Pilots.......................               9
Total Cost of Apprentice Pilots ($143,736 x 9)..........      $1,293,622
------------------------------------------------------------------------
* All figures are rounded to the nearest dollar and may not sum.


[[Page 18522]]

    Table 49 presents the percentage change in revenue by area and 
revenue-component, excluding surcharges, as they are applied at the 
district level.\46\
---------------------------------------------------------------------------

    \46\ The 2021 projected revenues are from the Great Lakes 
Pilotage Rate-2021 Annual Review and Revisions to Methodology final 
rule (86 FR 14184), tables 9, 21, and 33. The 2022 projected 
revenues are from tables 9, 21, and 33 of this final rule.

                                                                      Table 49--Difference in Revenue by Component and Area
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                    Adjusted operating expenses    Total target pilot compensation     Total          Working capital fund             Total revenue needed
                                                 ------------------------------------------------------------------ apprentice -----------------------------------------------------------------
                                                                             %                                %     pilot wage                             %                                %
                                                     2021        2022      change     2021        2022      change   benchmark     2021        2022      change     2021        2022      change
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
District One: Designated........................  $2,328,981  $2,419,401        4  $3,789,250  $4,165,143       10    $172,483    $207,255    $163,077     (21)  $6,325,486  $6,747,621      6.7
District One: Undesignated......................   1,502,239   1,613,051        7   2,652,475   3,309,117       25     114,989     140,741     121,906     (13)   4,295,455   5,044,074     17.4
District Two: Undesignated......................   1,003,961   1,078,929        7   3,031,400   3,366,611       11     172,483     136,698     110,101     (19)   4,172,059   4,555,641      9.2
District Two: Designated........................   1,540,146   1,618,395        5   2,652,475   2,510,585      (5)     114,989     142,025     102,261     (28)   4,334,646   4,231,241    (2.4)
District Three: Undesignated....................   1,947,484   2,603,961       34   6,820,650   6,556,746      (4)     567,756     297,021     226,880     (24)   9,065,155   9,387,588      3.6
District Three: Designated......................     554,039     711,920       28   1,515,700   1,747,987       15     150,923      70,112      60,924     (13)   2,139,851   2,520,831     17.8
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
* All figures are rounded to the nearest dollar and may not sum.

Benefits
    This rule allows the Coast Guard to meet the requirements in 46 
U.S.C. 9303 to review the rates for pilotage services on the Great 
Lakes. The rate changes 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 also help recruit and retain 
pilots, which 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 rule would have a significant economic impact 
on a substantial number of small entities. The term ``small entities'' 
comprises small businesses, not-for-profit organizations that are 
independently owned and operated and are not dominant in their fields, 
and governmental jurisdictions with populations of less than 50,000.
    For the rule, the Coast Guard reviewed recent company size and 
ownership data for the vessels identified in the GLPMS, and we reviewed 
business revenue and size data provided by publicly available sources 
such as Manta \47\ and ReferenceUSA.\48\ As described in section VII.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.\49\ Table 50 shows 
the North American Industry Classification System (NAICS) codes of the 
U.S. entities and the small entity standard size established by the 
SBA.
---------------------------------------------------------------------------

    \47\ See https://www.manta.com/.
    \48\ See https://resource.referenceusa.com/.
    \49\ 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. Accessed April 2021.

                             Table 50--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 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 rule by 
subtracting their estimated 2021 pilotage costs from their estimated 
2022 pilotage costs and found the average costs to small firms will be 
approximately $9,375, with a range of $354 to $41,331.\50\ 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 0.35 percent of their annual revenue.
---------------------------------------------------------------------------

    \50\ 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.

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

[[Page 18523]]

    In addition to the owners and operators discussed above, three U.S. 
entities that receive revenue from pilotage services will be affected 
by this 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 will 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 will be impacted by this rule. We also 
did not find any small governmental jurisdictions with populations of 
fewer than 50,000 people that will be impacted by this rule. Based on 
this analysis, we conclude this rulemaking will not affect a 
substantial number of small entities, nor have a significant economic 
impact on any of the affected entities.
    Based on our analysis, this rule will have a less than 1 percent 
annual impact on small entities; therefore, the Coast Guard certifies 
under 5 U.S.C. 605(b) that this rule will not have a significant 
economic impact on a substantial number of small entities.

C. Assistance for Small Entities

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

D. Collection of Information

    This rule calls 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 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 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 CONTACT 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 rule 
will not result in such an expenditure, we do discuss the effects of 
this rule elsewhere in this preamble.

G. Taking of Private Property

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

H. Civil Justice Reform

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

J. Indian Tribal Governments

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

K. Energy Effects

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

[[Page 18524]]

L. Technical Standards

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

M. Environment

    We have analyzed this 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 Environmental Policy Act of 1969 (42 U.S.C. 
4321-4370f), and have concluded 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 final Record of Environmental 
Consideration supporting this determination is available in the docket 
for this rulemaking. For instructions on locating the docket, see the 
ADDRESSES section of this preamble.
    This 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.\51\ 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; (c) those that implement, 
without substantive change, procedures, manuals, and other guidance 
documents; (d) those that interpret or amend an existing regulation 
without changing its environmental effect; (e) Technical guidance on 
safety and security matters; or (f) guidance for the preparation of 
security plans. Paragraph L54 pertains to regulations which are 
editorial or procedural.
---------------------------------------------------------------------------

    \51\ https://www.dhs.gov/sites/default/files/publications/DHS_Instruction%20Manual%20023-01-001-01%20Rev%2001_508%20Admin%20Rev.pdf.
---------------------------------------------------------------------------

    This rule involves setting or adjusting the pilotage rates for the 
upcoming shipping season to account for changes in district operating 
expenses, changes in the number of pilots, and anticipated inflation. 
In addition, the Coast Guard is (1) changing the way we determine the 
number or pilots that are needed for the upcoming season in the 
staffing model, and (2) including in our methodology a calculation for 
a wage benchmark for apprentice pilots. All of these changes are 
consistent with the Coast Guard's maritime safety missions.

List of Subjects

46 CFR Part 401

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

46 CFR Part 404

    Great Lakes, Navigation (water), Seamen.

    For the reasons discussed in the preamble, the Coast Guard amends 
46 CFR 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), (19) and (b) 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 an authorization 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.
    (b) [Reserved]

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 $834;
    (2) Lake Ontario is $568;
    (3) Lake Erie is $610;
    (4) The navigable waters from Southeast Shoal to Port Huron, MI is 
$536;
    (5) Lakes Huron, Michigan, and Superior is $342; and
    (6) The St. Marys River is $662.
* * * * *

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 and 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 by:
0
a. Revising the section heading;
0
b. Redesignating the introductory text as paragraph (a); and
0
c. Adding 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

[[Page 18525]]

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 and Apprentice Pilots with Limited Registrations expected to be 
in training and compensated.

0
8. Amend Sec.  404.104 by:
0
a. Revising the section heading; and
0
b. Adding paragraphs (d) and (e).
    The revision 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 and Apprentice Pilots with Limited Registrations 
projected under Sec.  404.103(b).

    Dated: March 23, 2022.
J.W. Mauger,
Rear Admiral, U.S. Coast Guard, Assistant Commandant for Prevention 
Policy.
[FR Doc. 2022-06394 Filed 3-29-22; 8:45 am]
BILLING CODE 9110-04-P