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Rule2022-06394

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

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Published

March 30, 2022

Effective

April 29, 2022

Issuing agencies

Homeland Security DepartmentCoast Guard

Abstract

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.

Full Text

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[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 [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[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 <a href="https://www.regulations.gov">https://www.regulations.gov</a>, 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 <a href="/cdn-cgi/l/email-protection#5d1f2f343c33730f323a382f2e1d282e3e3a73303431"><span class="__cf_email__" data-cfemail="81c3f3e8e0efafd3eee6e4f3f2c1f4f2e2e6afece8ed">[email&#160;protected]</span></a>, 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

District Two

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), <a href="http://www.ntsb.gov/investigations/AccidentReports/Reports/MAR1104.pdf">www.ntsb.gov/investigations/AccidentReports/Reports/MAR1104.pdf</a>.
---------------------------------------------------------------------------

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
<bullet> 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%.
<bullet> Updates 2021 Personal
Consumption Expenditures (PCE)
inflation from 2.4% listed in the NPRM
to 5.1% CPI inflation.
<bullet> 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

[[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 <a href="https://beta.bls.gov/dataViewer/view/timeseries/CUUR0200SA0">https://beta.bls.gov/dataViewer/view/timeseries/CUUR0200SA0</a>. 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 <a href="https://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20211215.pdf">https://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20211215.pdf</a> (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.<SUP>18 19</SUP> 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, <a href="https://www.federalreserve.gov/monetarypolicy/fomcprojtabl20210922.htm">https://www.federalreserve.gov/monetarypolicy/fomcprojtabl20210922.htm</a>.

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.

[[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
<a href="https://fred.stlouisfed.org/series/AAA">https://fred.stlouisfed.org/series/AAA</a>. (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

[[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 <a href="https://beta.bls.gov/dataViewer/view/timeseries/CUUR0200SA0">https://beta.bls.gov/dataViewer/view/timeseries/CUUR0200SA0</a>. 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 <a href="https://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20211215.pdf">https://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20211215.pdf</a> (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 <a href="https://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20211215.pdf">https://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20211215.pdf</a> (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
<a href="https://fred.stlouisfed.org/series/AAA">https://fred.stlouisfed.org/series/AAA</a>. (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

[[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

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

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 <a href="https://beta.bls.gov/dataViewer/view/timeseries/CUUR0200SA0">https://beta.bls.gov/dataViewer/view/timeseries/CUUR0200SA0</a>. 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 <a href="https://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20211215.pdf">https://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20211215.pdf</a> (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 <a href="https://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20211215.pdf">https://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20211215.pdf</a> (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
<a href="https://fred.stlouisfed.org/series/AAA">https://fred.stlouisfed.org/series/AAA</a> (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 f

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