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Proposed Rule2022-18690

Great Lakes Pilotage Rates-2023 Annual Review and Revisions to Methodology

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Published

August 30, 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 proposing new base pilotage rates for the 2023 shipping season. The Coast Guard estimates that this proposed rule would result in an approximately 14-percent increase in operating costs compared to the 2022 season. Additionally, in accordance with the requirement to conduct a full ratemaking every 5 years, the Coast Guard is accepting comments on the Great Lakes pilotage ratemaking methodology. We are also accepting suggestions for changes to the staffing model, for consideration in a future ratemaking.

Full Text

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<title>Federal Register, Volume 87 Issue 167 (Tuesday, August 30, 2022)</title>
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[Federal Register Volume 87, Number 167 (Tuesday, August 30, 2022)]
[Proposed Rules]
[Pages 52870-52900]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-18690]

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DEPARTMENT OF HOMELAND SECURITY

Coast Guard

46 CFR Part 401

[Docket No. USCG-2022-0370]
RIN 1625-AC82

Great Lakes Pilotage Rates--2023 Annual Review and Revisions to
Methodology

AGENCY: Coast Guard, Department of Homeland Security (DHS).

ACTION: Notice of proposed rulemaking.

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SUMMARY: In accordance with the statutory provisions enacted by the
Great Lakes Pilotage Act of 1960, the Coast Guard is proposing new base
pilotage rates for the 2023 shipping season. The Coast Guard estimates
that this proposed rule would result in an approximately 14-percent
increase in operating costs compared to the 2022 season. Additionally,
in accordance with the requirement to conduct a full ratemaking every 5
years, the Coast Guard is accepting comments on the Great Lakes
pilotage ratemaking methodology. We are also accepting suggestions for
changes to the staffing model, for consideration in a future
ratemaking.

DATES: Comments and related material must be received by the Coast
Guard on or before September 29, 2022.

ADDRESSES: You may submit comments identified by docket number USCG-
2022-0370 using the Federal Decision Making Portal at <a href="https://www.regulations.gov">https://www.regulations.gov</a>. See the ``Public Participation and Request for
Comments'' portion of the SUPPLEMENTARY INFORMATION section for further
instructions on submitting comments.

FOR FURTHER INFORMATION CONTACT: For information about this document,
call or email Mr. Brian Rogers, Commandant, 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#febc8c979f90d0ac91999b8c8dbe8b8d9d99d0939792"><span class="__cf_email__" data-cfemail="286a5a414946067a474f4d5a5b685d5b4b4f06454144">[email&#160;protected]</span></a>, or fax 202-372-
1914.

SUPPLEMENTARY INFORMATION:

Table of Contents for Preamble

I. Public Participation and Request for Comments
II. Abbreviations
III. Executive Summary
IV. Basis and Purpose
V. Background
VI. Summary of the Ratemaking Methodology
VII. Discussion of Proposed Methodological and Other Changes
VIII. Individual Target Pilot Compensation Benchmark
IX. Discussion of Proposed Rate Adjustments
District One
A. Step 1: Recognize Previous Operating Expenses
B. Step 2: Project Operating Expenses, Adjusting for Inflation
or Deflation
C. Step 3: Estimate Number of Registered Pilots and Apprentice
Pilots
D. Step 4: Determine Target Pilot Compensation Benchmark and
Apprentice Pilot Wage Benchmark
E. Step 5: Project Working Capital Fund
F. Step 6: Project Needed Revenue
G. Step 7: Calculate Initial Base Rates
H. Step 8: Calculate Average Weighting Factors by Area
I. Step 9: Calculate Revised Base Rates
J. Step 10: Review and Finalize Rates
District Two
A. Step 1: Recognize Previous Operating Expenses
B. Step 2: Project Operating Expenses, Adjusting for Inflation
or Deflation
C. Step 3: Estimate Number of Registered Pilots and Apprentice
Pilots
D. Step 4: Determine Target Pilot Compensation Benchmark and
Apprentice Pilot Wage Benchmark
E. Step 5: Project Working Capital Fund
F. Step 6: Project Needed Revenue
G. Step 7: Calculate Initial Base Rates
H. Step 8: Calculate Average Weighting Factors by Area
I. Step 9: Calculate Revised Base Rates
J. Step 10: Review and Finalize Rates
District Three
A. Step 1: Recognize Previous Operating Expenses
B. Step 2: Project Operating Expenses, Adjusting for Inflation
or Deflation
C. Step 3: Estimate Number of Registered Pilots and Apprentice
Pilots
D. Step 4: Determine Target Pilot Compensation Benchmark and
Apprentice Pilot Wage Benchmark
E. Step 5: Project Working Capital Fund
F. Step 6: Project Needed Revenue
G. Step 7: Calculate Initial Base Rates
H. Step 8: Calculate Average Weighting Factors by Area
I. Step 9: Calculate Revised Base Rates
J. Step 10: Review and Finalize Rates
X. Regulatory Analyses
A. Regulatory Planning and Review
B. Small Entities
C. Assistance for Small Entities
D. Collection of Information

[[Page 52871]]

E. Federalism
F. Unfunded Mandates
G. Taking of Private Property
H. Civil Justice Reform
I. Protection of Children
J. Indian Tribal Governments
K. Energy Effects
L. Technical Standards
M. Environment

I. Public Participation and Request for Comments

The Coast Guard views public participation as essential to
effective rulemaking and will consider all comments and material
received during the comment period. Your comment can help shape the
outcome of this rulemaking. If you submit a comment, please include the
docket number for this rulemaking, indicate the specific section of
this document to which each comment applies, and provide a reason for
each suggestion or recommendation.
Submitting comments. We encourage you to submit comments through
the Federal Decision Making Portal at <a href="https://www.regulations.gov">https://www.regulations.gov</a>. To
do so, go to <a href="https://www.regulations.gov">https://www.regulations.gov</a>, type USCG-1625-AC82 in the
search box and click ``Search.'' Next, look for this document in the
Search Results column, and click on it. Then click on the Comment
option. If you cannot submit your material by using <a href="https://www.regulations.gov">https://www.regulations.gov</a>, call or email the person in the FOR FURTHER
INFORMATION CONTACT section of this proposed rule for alternate
instructions.
Viewing material in docket. To view documents mentioned in this
proposed rule as being available in the docket, find the docket as
described in the previous paragraph, and then select ``Supporting &
Related Material'' in the Document Type column. Public comments will
also be placed in our online docket and can be viewed by following
instructions on the <a href="https://www.regulations.gov">https://www.regulations.gov</a> Frequently Asked
Questions web page. We review all comments received, but we will only
post comments that address the topic of the proposed rule. We may
choose not to post off-topic, inappropriate, or duplicate comments that
we receive.
Personal information. We accept anonymous comments. Comments we
post to <a href="https://www.regulations.gov">https://www.regulations.gov</a> will include any personal
information you have provided. For more about privacy and submissions
to the docket in response to this document, see the Department of
Homeland Security's eRulemaking System of Records notice (85 FR 14226,
March 11, 2020).
Public meeting. We do not plan to hold a public meeting, but we
will consider doing so if we determine from public comments that a
meeting would be helpful. We would issue a separate Federal Register
notification to announce the date, time, and location of such a
meeting.

II. Abbreviations

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

III. Executive Summary

In accordance with 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 waterway conditions, but is generally in March or April.
The rates, which for the 2023 season range from a proposed $407 to $867
per pilot hour (depending on which of the specific six areas pilotage
service is provided), are paid by shippers to the pilot associations.
The three pilot associations, which are the exclusive U.S. source of
registered pilots on the Great Lakes, use this revenue to cover
operating expenses, maintain infrastructure, compensate apprentice and
registered pilots, acquire and implement technological advances, train
new personnel, and allow partners to participate in professional
development.
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\1\ 46 U.S.C. 9301-9308.
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In accordance with statutory and regulatory requirements, we have
employed the ratemaking methodology we introduced in 2016. Our
ratemaking methodology calculates the revenue needed for each pilotage
association (operating expenses, compensation for the number of pilots,
and anticipated inflation), and then divides that amount by the
expected demand for pilotage services over the course of the coming
year, to produce an hourly rate. This is a 10-step methodology to
calculate rates. The 10-step methodology is explained in section VI of
this preamble.
In this notice of proposed rulemaking (NPRM), we are proposing a
full ratemaking, setting new pilotage rates for 2023 based on the 10-
step ratemaking methodology, and accepting comments on the methodology.
We conducted the last full ratemaking 5 years ago, in 2018. Per title
46 of the Code of Federal Regulations (CFR), Sec. 404.100(a), in this
NPRM, the Coast Guard's Director of the Great Lakes Pilotage (``the
Director'') proposes to establish base pilotage rates by a full
ratemaking pursuant to Sec. Sec. 404.101 through 404.110. Base rates
would be set to meet the goals of promoting safe, efficient, and
reliable pilotage service on the Great Lakes, by generating sufficient
revenue for each pilotage association to reimburse its necessary and
reasonable operating expenses, fairly compensate trained and rested
pilots, and provide appropriate funds to use for improvements. We use a
10-year average when calculating traffic to smooth out variations in
traffic caused by global economic conditions, such as those caused by
the COVID-19 pandemic. The Coast Guard estimates that this proposed
rule would result in $4,535,400 in additional costs.
Based on the ratemaking model discussed in this NPRM, we are
proposing the rates shown in table 1.

[[Page 52872]]

Table 1--Current and Proposed Pilotage Rates on the Great Lakes
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Final 2022 Proposed 2023
Area Name pilotage rate pilotage rate
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District One: Designated..................... St. Lawrence River............. $834 $867
District One: Undesignated................... Lake Ontario................... 568 581
District Two: Designated..................... Navigable waters from Southeast 536 606
Shoal to Port Huron, MI.
District Two: Undesignated................... Lake Erie...................... 610 652
District Three: Designated................... St. Mary's River............... 662 818
District Three: Undesignated................. Lakes Huron, Michigan, and 342 407
Superior.
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This proposed rule would affect 55 U.S. Great Lakes pilots, 7
apprentice pilots, 3 pilot associations, and the owners and operators
of an average of 285 oceangoing vessels that transit the Great Lakes
annually. This proposed rule is not economically significant under
Executive Order 12866 and would not affect the Coast Guard's budget or
increase Federal spending. The estimated overall annual regulatory
economic impact of this rate change would be a net increase of
$4,535,400 in estimated payments made by shippers during the 2023
shipping season. This NPRM establishes the 2023 yearly compensation for
pilots on the Great Lakes at $422,336 per pilot (a $23,070 increase, or
5.78 percent, over their 2022 compensation). Because the Coast Guard
must review, and, if necessary, adjust rates each year, we analyze
these as single-year costs and do not annualize them over 10 years.
Section X of this preamble provides the regulatory impact analyses of
this proposed rule.

IV. Basis and Purpose

The legal basis of this rulemaking is 46 U.S.C. Chapter 93,\2\
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 United States waters of the St. Lawrence Seaway and the Great Lakes
system.\3\ For U.S. Great Lakes pilots, the statute requires the
Secretary of Homeland Security to ``prescribe by regulation rates and
charges for pilotage services, giving consideration to the public
interest and the costs of providing the services.'' \4\ The statute
requires that rates be established or reviewed and adjusted each year,
not later than March 1.\5\ 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.\6\ The Secretary's duties and authority under
46 U.S.C. Chapter 93 have been delegated to the Coast Guard.\7\
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\2\ 46 U.S.C. 9301-9308.
\3\ 46 U.S.C. 9302(a)(1).
\4\ 46 U.S.C. 9303(f).
\5\ Id.
\6\ Id.
\7\ 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
2023 shipping season. The Coast Guard believes that the new rates will
continue to promote our goal, as outlined in 46 CFR 404.1, of promoting
safe, efficient, and reliable pilotage service in the Great Lakes by
generating for each pilotage association sufficient revenue to
reimburse its necessary and reasonable operating expenses, fairly
compensate trained and rested pilots, and provide appropriate funds to
use for improvements.

V. Background

Pursuant to 46 U.S.C. 9303, the Coast Guard, in conjunction with
the Canadian Great Lakes Pilotage Authority (GLPA), regulates shipping
practices and rates on the Great Lakes. Under Coast Guard regulations,
all vessels engaged in foreign trade (often referred to as ``salties'')
are required to engage United States or Canadian pilots during their
transit through the regulated waters.\8\ United States and Canadian
``lakers,'' which account for most commercial shipping on the Great
Lakes, are not affected.\9\ Generally, vessels are assigned a United
States or Canadian pilot depending on the order in which they transit a
particular area of the Great Lakes, and do not choose the pilot they
receive. If a vessel is assigned a U.S. pilot, that pilot will be
assigned by the pilotage association responsible for the particular
district in which the vessel is operating, and the vessel operator will
pay the pilotage association for the pilotage services. The GLPA
establishes the rates for Canadian registered pilots.
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\8\ See 46 CFR part 401.
\9\ 46 U.S.C. 9302(f). A ``laker'' is a commercial cargo vessel
especially designed for and generally limited to use on the Great
Lakes.
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The U.S. waters of the Great Lakes and the St. Lawrence Seaway are
divided into three pilotage districts. Pilotage in each district is
provided by an association certified by the Director to operate a
pilotage pool. The Saint Lawrence Seaway Pilotage Association (SLSPA)
provides pilotage services in District One, which includes all U.S.
waters of the St. Lawrence River and Lake Ontario. The Lakes Pilots
Association (LPA) provides pilotage services in District Two, which
includes all U.S. waters of Lake Erie, the Detroit River, Lake St.
Clair, and the St. Clair River. Finally, the Western Great Lakes Pilots
Association (WGLPA) provides pilotage services in District Three, which
includes all U.S. waters of the St. Marys River; Sault Ste. Marie
Locks; and Lakes Huron, Michigan, and Superior.
Each pilotage district is further divided into ``designated'' and
``undesignated'' areas, depicted in table 2 below. Designated areas,
classified as such by Presidential Proclamation, are waters in which
pilots must direct the navigation of vessels at all times.\10\
Undesignated areas, on the other hand, are open bodies of water not
subject to the same pilotage requirements. While working in
undesignated areas, pilots must ``be on board and available to direct
the navigation of the vessel at the discretion of and subject to the
customary authority of the master.'' \11\ For these reasons, pilotage
rates in designated areas can be significantly higher than those in
undesignated areas.
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\10\ Presidential Proclamation 3385, Designation of restricted
waters under the Great Lakes Pilotage Act of 1960, December 22,
1960.
\11\ 46 U.S.C. 9302(a)(1)(b).

[[Page 52873]]

Table 2--Areas of the Great Lakes and St. Lawrence Seaway
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Pilotage Area number
District association Designation \12\ Area name \13\
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One............................. Saint Lawrence Designated.............. 1 St. Lawrence
Seaway Pilotage Undesignated............ 2 River.
Association. Lake Ontario.
Two............................. Lakes Pilots Designated.............. 5 Navigable waters
Association. from Southeast
Shoal to Port
Huron, MI.
Undesignated............ 4 Lake Erie.
Three........................... Western Great Lakes Designated.............. 7 St. Marys River
Pilots Association. Undesignated............ 6 Lakes Huron and
Michigan.
Undesignated............ 8 Lake Superior.
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Each pilot association is an independent business and is the sole
provider of pilotage services in the district in which it operates.
Each pilot association is responsible for funding its own operating
expenses, maintaining infrastructure, compensating pilots and
apprentice pilots,\14\ acquiring and implementing technological
advances, and training personnel and partners. The Coast Guard uses a
10-step ratemaking methodology to derive a pilotage rate, based on the
estimated amount of traffic, which covers these expenses.\15\ The
methodology is designed to measure how much revenue each pilotage
association would need to cover expenses and provide competitive
compensation goals to registered pilots. Since the Coast Guard cannot
guarantee demand for pilotage services, target pilot compensation for
registered pilots is a goal. The actual demand for service dictates the
actual compensation for the registered pilots. We then divide that
amount by the historic 10-year average for pilotage demand. We
recognize that, in years where traffic is above average, pilot
associations will accrue more revenue than projected, while in years
where traffic is below average, they will take in less. We believe that
over the long term, however, this system ensures that infrastructure
will be maintained and that pilots will receive adequate compensation
and work a reasonable number of hours, with adequate rest between
assignments, to ensure retention of highly trained personnel.
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\12\ Area 3 is the Welland Canal, which is serviced exclusively
by the Canadian GLPA and, accordingly, is not included in the United
States pilotage rate structure.
\13\ The areas are listed by name at 46 CFR 401.405.
\14\ Apprentice pilots and applicant pilots are compensated by
the pilot association they are training with, which is funded
through the pilotage rates. The ratemaking methodology accounts for
an apprentice pilot wage benchmark in Step 4 per 46 CFR 404.104(d).
The applicant pilot salaries are included in the pilot associations'
operating expenses used in Step 1 per 46 CFR 404.101.
\15\ 46 CFR part 404.
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Over the past several years, the Coast Guard has adjusted the Great
Lakes pilotage ratemaking methodology per our authority in 46 U.S.C.
9303(f) to conduct annual reviews of base pilotage rates and adjust
such base rates in each intervening year in consideration of the public
interest and the costs of providing the services. The current
methodology was finalized in the Great Lakes Pilotage Rates--2022
Annual Review and Revisions to Methodology final rule (87 FR 18488,
March 30, 2022). We summarize the current and proposed methodology in
the section below.

VI. Summary of the Ratemaking Methodology

As stated above, the ratemaking methodology, outlined in 46 CFR
404.101 through 404.110, consists of 10 steps that are designed to
account for the revenues needed and total traffic expected in each
district. The result is an hourly rate, determined separately for each
of the areas administered by the Coast Guard.
In Step 1, ``Recognize previous operating expenses,'' (Sec.
404.101) the Director reviews audited operating expenses from each of
the three pilotage associations. Operating expenses include all
allowable expenses minus wages and benefits. This number forms the
baseline amount that each association is budgeted. Because of the time
delay between when the association submits raw numbers and the Coast
Guard receives audited numbers, this number is 3 years behind the
projected year of expenses. Therefore, in calculating the 2023 rates in
this proposal, we begin with the audited expenses from the 2020
shipping season.
While each pilotage association operates in an entire district
(including both designated and undesignated areas), the Coast Guard
determines costs by area. With regard to operating expenses, we
allocate certain operating expenses to designated areas and certain
operating expenses to undesignated areas. In some cases, we can
allocate the costs based on where they are actually accrued. For
example, we can allocate the costs for insurance for apprentice pilots
who operate in undesignated areas only. In other situations, such as
general legal expenses, expenses are distributed between designated and
undesignated waters on a pro rata basis, based upon the proportion of
income forecasted from the respective portions of the district.
In Step 2, ``Project operating expenses, adjusting for inflation or
deflation,'' (Sec. 404.102) the Director develops the 2023 projected
operating expenses. To do this, we apply inflation adjustors for 3
years to the operating expense baseline received in Step 1. The
inflation factors are from the Bureau of Labor Statistics' (BLS)
Consumer Price Index (CPI) for the Midwest Region, or, if not
available, the Federal Open Market Committee (FOMC) median economic
projections for Personal Consumption Expenditures (PCE) inflation. This
step produces the total operating expenses for each area and district.
In Step 3, ``Estimate number of registered pilots and apprentice
pilots,'' (Sec. 404.103) the Director calculates how many registered
and apprentice pilots, including apprentice pilots with limited
registration, are needed for each district. To do this, we employ a
``staffing model,'' described in Sec. 401.220, paragraphs (a)(1)
through (3), to estimate how many pilots would be needed to handle
shipping during the beginning and close of the season. This number is
helpful in providing guidance to the Director in approving an
appropriate number of pilots.
For the purpose of the ratemaking calculation, we determine the
number of pilots provided by the pilotage associations (see Sec.
404.103) and use that figure to determine how many pilots need to be
compensated via the pilotage fees collected.
In the first part of Step 4, ``Determine target pilot compensation
benchmark and apprentice pilot wage benchmark,'' (Sec. 404.104) the
Director determines the revenue needed for pilot compensation in each
area and district and calculates

[[Page 52874]]

the total compensation for each pilot using a ``compensation
benchmark.''
In the second part of Step 4, set forth in Sec. 404.104(c), the
Director determines the total compensation figure for each district. To
do this, the Director multiplies the compensation benchmark by the
number of pilots for each area and district (from Step 3), producing a
figure for total pilot compensation.
In Step 5, ``Project working capital fund,'' (Sec. 404.105) the
Director calculates a value that is added to pay for needed capital
improvements and other non-recurring expenses, such as technology
investments and infrastructure maintenance. This value is calculated by
adding the total operating expenses (derived in Step 2) to the total
pilot compensation and total target apprentice pilot wage (derived in
Step 4) and multiplying that figure by the preceding year's average
annual rate of return for new issues of high-grade corporate
securities. This figure constitutes the ``working capital fund'' for
each area and district.
In Step 6, ``Project needed revenue,'' (Sec. 404.106) the Director
simply adds up the totals produced by the preceding steps. The
projected operating expense for each area and district (from Step 2) is
added to the total pilot compensation, including apprentice pilot wage
benchmarks, (from Step 4) and the working capital fund contribution
(from Step 5). The total figure, calculated separately for each area
and district, is the ``needed revenue.''
In Step 7, ``Calculate initial base rates,'' (Sec. 404.107) the
Director calculates an hourly pilotage rate to cover the needed revenue
as calculated in Step 6. This step consists of first calculating the
10-year hours of traffic average for each area. Next, we divide the
revenue needed in each area (calculated in Step 6) by the 10-year hours
of traffic average to produce an initial base rate.
An additional element, the ``weighting factor,'' is required under
Sec. 401.400. Pursuant to that section, ships pay a multiple of the
``base rate'' as calculated in Step 7 by a number ranging from 1.0 (for
the smallest ships, or ``Class I'' vessels) to 1.45 (for the largest
ships, or ``Class IV'' vessels). As this significantly increases the
revenue collected, we need to account for the added revenue produced by
the weighting factors to ensure that shippers are not overpaying for
pilotage services. We do this in the next step.
In Step 8, ``Calculate average weighting factors by Area,'' (Sec.
404.108) the Director calculates how much extra revenue, as a
percentage of total revenue, has historically been produced by the
weighting factors in each area. We do this by using a historical
average of the applied weighting factors for each year since 2014 (the
first year the current weighting factors were applied).
In Step 9, ``Calculate revised base rates,'' (Sec. 404.109) the
Director modifies the base rates by accounting for the extra revenue
generated by the weighting factors. We do this by dividing the initial
pilotage rate for each area (from Step 7) by the corresponding average
weighting factor (from Step 8), to produce a revised rate.
In Step 10, ``Review and finalize rates,'' (Sec. 404.110) often
referred to informally as ``Director's discretion,'' the Director
reviews the revised base rates (from Step 9) to ensure that they meet
the goals set forth in 46 U.S.C. 9303(f) and 46 CFR 404.1(a), which
include promoting efficient, safe, and reliable pilotage service on the
Great Lakes; generating sufficient revenue for each pilotage
association to reimburse necessary and reasonable operating expenses;
compensating trained and rested pilots fairly; and providing
appropriate revenue for improvements.
After the base rates are set, Sec. 401.401 permits the Coast Guard
to apply surcharges. We are not proposing to use any surcharges in this
ratemaking. In previous ratemakings where apprentice pilot wages were
not built into the rate, the Coast Guard used surcharges to cover
applicant pilot compensation in those years to help with applicant
recruitment. In this ratemaking, we include the applicant trainee
compensation in the district's operating expenses used in step 1 of the
ratemaking. Consistent with the 2021 and 2022 rulemakings, we continue
to believe that the pilot associations are now able to plan for the
costs associated with hiring applicant pilots to fill pilot vacancies
without relying on the Coast Guard to impose surcharges to help with
recruiting.

VII. Discussion of Proposed Methodological and Other Changes

The Coast Guard is proposing to use the existing ratemaking
methodology for establishing the base rates in this full ratemaking.
The Coast Guard is not proposing any methodological or other policy
changes to the ratemaking within this NPRM. However, we are accepting
comments on the entire ratemaking methodology and staffing model as
part of our full ratemaking year.
According to 46 U.S.C. 9303(f), and restated in Sec. 404.100(a),
the Coast Guard must establish base rates by a full ratemaking at least
once every 5 years. We have determined that the current base rate and
methodology still adequately adheres to the Coast Guard's goals of
safety through rate and compensation stability, while promoting
recruitment and retention of qualified U.S. registered pilots. The
Coast Guard has made several changes to the ratemaking over the last
several ratemakings in consideration of the public interest and costs
of providing services. The recent changes and their impacts are
summarized as follows.
In the 2017 ratemaking (82 FR 41466, August 31, 2017), we modified
the ratemaking methodology to account for the additional revenue
produced by the application of weighting factors (discussed in detail
in Steps 7 through 9 for each district, in section IX of this
preamble). In the 2018 ratemaking (83 FR 26162, June 5, 2018), we
adopted a new approach in the methodology for the compensation
benchmark, based upon United States mariners rather than Canadian
working pilots. In the 2020 ratemaking (85 FR 20088, April 9, 2020), we
revised the methodology to accurately capture all costs and revenues
associated with Great Lakes pilotage requirements and produce an hourly
rate that adequately and accurately compensates pilots and covers
expenses. The 2021 ratemaking (86 FR 14184, March 12, 2021) changed the
inflation calculation in Step 4, Sec. 404.104(b) for interim
ratemakings, so that the previous year's target compensation value is
first adjusted by actual inflation value using the Employment Cost
Index (ECI). That change ensures that the target pilot compensation
reimbursed to the association remains current with inflation and
competitive with industry pay increases. The 2022 ratemaking (87 FR
18488, March 30, 2022) implemented an apprentice pilot wage benchmark
in Steps 3 and 4 to provide predictability and stability to
associations training apprentice pilots. The 2022 final rule also
codified rounding up the staffing model's final number to ensure the
ratemaking does not undercount the pilot need presented by the staffing
model and association circumstances.
These refinements to the methodology continue to promote safe,
efficient, and reliable pilotage service on the Great Lakes, and allows
each pilotage association to generate sufficient revenue to cover its
necessary and reasonable operating expenses, fairly compensate trained
and rested pilots, and realize an appropriate revenue to use for
improvements. While the Coast Guard is not proposing changes at this
time, we welcome public comments and suggestions on the methodology.

[[Page 52875]]

The Coast Guard is requesting input on the staffing model due to
the diversification of traffic and increased demand for pilotage
services, for consideration in a future rulemaking. The annual Great
Lakes Pilotage Advisory Committee (GLPAC) meeting of September 1, 2021,
produced a recommendation for the Coast Guard to review the staffing
model. A copy of the GLPAC September 1, 2021, meeting transcript is
available in the docket, where indicated under the Public Participation
and Request for Comments portion of the preamble (section I). The
recommendation is on page 53 of the transcript. We are interested in
the public's suggestions on what changes may improve the staffing model
to accurately capture staffing demand. We would consider the comments
and determine any changes to propose in a future ratemaking.

VIII. Individual Target Pilot Compensation Benchmark

The Coast Guard is proposing to set the target pilot compensation
benchmark in this ratemaking at the target compensation for the
ratemaking year 2022, adjusted for inflation. In a full ratemaking
year, per 46 CFR 404.104(a), the Director determines a base individual
target pilot compensation using a compensation benchmark in
consideration of relevant currently available non-proprietary
information. The Director may make necessary and reasonable adjustments
to the benchmark if circumstances require. The compensation benchmark
would be used in Step 4 of the existing methodology. In the following
interim year ratemakings, the base target pilot compensation would be
inflated annually in accordance with Sec. 404.104(b). We discuss how
we arrived at this proposed compensation benchmark next.
Prior to 2016, the Coast Guard based the compensation benchmark on
data provided by the American Maritime Officers Union (AMOU) regarding
its contract for first mates on the Great Lakes. However, in 2016 the
AMOU elected to no longer provide this data to the Coast Guard. In the
2016 ratemaking (81 FR 11908, March 7, 2016), we used average
compensation for a Canadian pilot plus a 10-percent adjustment. The
shipping industry challenged the compensation benchmark, and the court
found that the Coast Guard did not adequately support the 10-percent
addition to the Canadian GLPA compensation benchmark. American Great
Lakes Ports Association v. Zukunft, 296 F.Supp. 3d 27 (D.D.C. 2017).
The Coast Guard then based the 2018 full ratemaking compensation
benchmark on data provided by the AMOU regarding its contract for first
mates on the Great Lakes in the 2011 to 2015 period (83 FR 26162, June
5, 2018). The 2018 final rule adjusted the AMOU 2015 data for inflation
using FOMC median economic projections for PCE inflation.
In the 2020 interim year ratemaking final rule, the Coast Guard
established its most recent pilot compensation benchmark. Given the
lack of access to AMOU data, we did not rely on the AMOU aggregated
wage and benefit information as the basis for the compensation
benchmark, and instead adopted the 2019 target pilot compensation (with
inflation) as our compensation benchmark going forward. We stated in
the 2020 final rule that no other United States or Canadian pilot
compensation data was appropriate to use as a benchmark at that time.
See 85 FR 20091. The Director determined that the ratemaking provided
adequate compensation for pilots. In the 2020 ratemaking, we announced
we would use the 2020 benchmark for future rates. See 85 FR 20091.
Based on our experience over the past three ratemakings (2020-
2022), the Director continues to believe that the level of target pilot
compensation for those years provided an appropriate level of
compensation for U.S. Registered pilots. According to Sec. 401.101(a),
the Director may make necessary and reasonable adjustments to the
benchmark based on current information. However, current circumstances
do not indicate that an adjustment, other than for inflation, is
necessary. The Director bases this decision on the fact that there is
no indication that registered pilots are resigning due to their
compensation or that this compensation benchmark is causing shortfalls
in achieving reliable pilotage. We also do not believe that the pilot
compensation benchmark is too high relative to the expertise required
to perform the job. The compensation would continue to be adjusted
annually in accordance with published inflation rates, which would
ensure the compensation remains competitive and current for upcoming
years.
Therefore, the Coast Guard proposes to not seek alternative
benchmarks for target compensation at this time and, instead, to simply
adjust the amount of target pilot compensation for inflation as our
target compensation benchmark for 2023, as shown in Step 4. This target
compensation benchmark approach has advanced and will continue to
advance the Coast Guard's goals of safety through rate and compensation
stability while also promoting recruitment and retention of qualified
U.S. pilots.
The proposed compensation benchmark for 2023 is $399,266 per
registered pilot, and $143,736 per apprentice pilot, using the 2022
compensation as a benchmark. We then follow the procedure outlined in
paragraph (b) of Sec. 404.104, which adjusts the existing compensation
benchmark for inflation. We are using a two-step process to adjust
target pilot compensation for inflation. First, we adjust the 2022
target compensation benchmark of $399,266 by 3.4 percent for an
adjusted value of $412,841. This first adjustment accounts for the
difference in actual first quarter 2022 ECI inflation, which is 5.6
percent, and the 2022 PCE estimate of 2.2 percent.\16\ \17\ The second
step accounts for projected inflation from 2022 to 2023, which is 2.3
percent.\18\ Based on the projected 2023 inflation estimate, the
proposed target compensation benchmark for 2023 is $422,336 per pilot.
The proposed apprentice pilot wage benchmark is 36 percent of the
target pilot compensation, or $152,041 ($422,336 x 0.36).
---------------------------------------------------------------------------

\16\ Employment Cost Index, Total Compensation for Private
Industry workers in Transportation and Material Moving, Annual
Average, Series ID: CIU2010000520000A. Accessed April 29, 2022.
<a href="https://www.bls.gov/news.release/eci.t05.htm">https://www.bls.gov/news.release/eci.t05.htm</a>.
\17\ Table 1 Summary of Economic Projections, PCE Inflation
September Projection. Accessed December, 2021 <a href="https://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20211215.pdf">https://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20211215.pdf</a>.
\18\ Table 1 Summary of Economic Projections, PCE Inflation
December Projection. Accessed March 2022 <a href="https://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20220316.pdf">https://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20220316.pdf</a>.
---------------------------------------------------------------------------

IX. Discussion of Proposed Rate Adjustments

In this NPRM, based on the proposed policy changes described in the
previous section, we are proposing new pilotage rates for 2023. We
propose to conduct the 2023 ratemaking as a full ratemaking, as we last
did in 2018 (83 FR 26162). Thus, the Coast Guard proposes to adjust the
compensation benchmark following the full ratemaking year procedures
under Sec. 404.100(a) rather than the procedures for an interim
ratemaking year in Sec. 404.100(b).
This section discusses the proposed rate changes using the
ratemaking steps provided in 46 CFR part 404. We will detail all 10
steps of the ratemaking procedure for each of the 3 districts to show
how we arrive at the proposed new rates.

[[Page 52876]]

District One

A. Step 1: Recognize Previous Operating Expenses

Step 1 in our ratemaking methodology requires that the Coast Guard
review and recognize the previous year's operating expenses (Sec.
404.101). To do so, we begin by reviewing the independent accountant's
financial reports for each association's 2020 expenses and
revenues.\19\ For accounting purposes, the financial reports divide
expenses into designated and undesignated areas. For costs accrued by
the pilot associations generally, such as employee benefits, for
example, the cost is divided between the designated and undesignated
areas on a pro rata basis. The recognized operating expenses for
District One are shown in table 3.
---------------------------------------------------------------------------

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

Adjustments have been made by the auditors and are explained in the
auditor's reports, which are available in the docket for this
rulemaking, where indicated under the Public Participation and Request
for Comments portion of the preamble.
In the 2020 expenses used as the basis for this rulemaking,
districts used the term ``applicant'' to describe applicant trainees
and persons who would be called apprentices (applicant pilots) under
the definition of ``Apprentice pilot'' introduced in the 2022 final
rule. Therefore, when describing past expenses, we use the term
``applicant'' to match what was reported from 2020, which includes both
applicant and apprentice pilots. We use ``apprentice'' to distinguish
apprentice pilot wages and describe the impacts of the ratemaking going
forward.
We continue to include applicant salaries as an allowable expense
in the 2023 ratemaking, as it is based on 2020 operating expenses, when
salaries were still an allowable expense. The apprentice salaries paid
in the years 2020 and 2021 have not been reimbursed in the ratemaking
as of publication of this proposed rule. Applicant salaries (including
applicant trainees and apprentice pilots) will continue to be an
allowable operating expense through the 2024 ratemaking, which uses
operating expenses from 2021, where the wages for apprentice pilots
were still authorized as operating expenses. Beginning with the 2025
ratemaking, apprentice pilot salaries will no longer be included as a
2022 operating expense, because apprentice pilot wages would have
already been factored into the ratemaking Steps 3 and 4 in calculation
of the 2022 rates. Beginning in 2025, the applicant salaries' operating
expenses for 2022 will consist of only applicant trainees (those who
are not yet apprentice pilots).

Table 3--2020 Recognized Expenses for District One
----------------------------------------------------------------------------------------------------------------
District One
-----------------------------------------------------
Reported operating expenses for 2020 Designated Undesignated
-------------------------------------- Total
St. Lawrence River Lake Ontario
----------------------------------------------------------------------------------------------------------------
Applicant Pilot Compensation:
Salaries.............................................. $257,250 $171,500 $428,750
Employee Benefits..................................... 13,633 9,089 22,722
Applicant Subsistence/Travel.......................... 14,901 9,934 24,835
Applicant License Insurance........................... 1,771 1,181 2,952
Applicant Payroll Tax................................. 20,823 13,882 34,705
-----------------------------------------------------
Total Applicant Pilot Compensation................ 308,378 205,586 513,964
----------------------------------------------------------------------------------------------------------------
Other Pilot Cost:
Subsistence/Travel--Pilot............................. 575,475 383,650 959,125
Hotel/Lodging Cost.................................... 32,802 21,868 54,671
License Insurance--Pilots............................. 45,859 30,573 76,432
Payroll Taxes--Pilots................................. 188,318 125,546 313,864
Other................................................. 26,433 17,621 44,054
-----------------------------------------------------
Total other pilotage costs........................ 868,887 579,258 1,448,145
----------------------------------------------------------------------------------------------------------------
Pilot Boat and Dispatch Costs:
Pilot Boat Expense (Operating)........................ 325,904 217,269 543,173
Pilot Boat Cost (D1-20-01)............................ 104,658 69,772 174,430
Dispatch Expense...................................... 139,916 93,277 233,193
Payroll Taxes......................................... 22,930 15,287 38,217
-----------------------------------------------------
Total Pilot and Dispatch Costs.................... 593,408 395,605 989,013
----------------------------------------------------------------------------------------------------------------
Administrative Expenses:
Legal--General Counsel................................ 3,124 2,083 5,207
Legal--Shared Counsel (K&L Gates)..................... 62,906 41,937 104,843
Legal--USCG Litigation................................ 8,793 5,862 14,655
Insurance............................................. 35,040 23,360 58,400
Employee Benefits..................................... 5,541 3,694 9,235
Payroll Taxes......................................... 6,511 4,341 10,852
Other Taxes........................................... 69,000 46,000 115,000
Real Estate Taxes..................................... 23,298 15,532 38,830
Travel................................................ 21,516 14,344 35,860
Depreciation.......................................... 152,071 101,381 253,452
Certified Public Accountant (CPA) Deduction (D1-19-01) (44,623) (29,748) (74,371)

[[Page 52877]]

Interest.............................................. 36,924 24,616 61,540
CPA Deduction (D1-19-01).............................. (18,710) (12,473) (31,183)
American Pilots' Association (APA) Dues............... 27,172 18,115 45,287
Dues and Subscriptions................................ 4,080 2,720 6,800
Utilities............................................. 15,618 10,412 26,030
Salaries.............................................. 69,848 46,565 116,413
Accounting/Professional Fees.......................... 8,220 5,480 13,700
Other................................................. 55,213 36,809 92,022
Applicant Administrative Expense:
Pilot Training........................................ 26,787 17,858 44,645
Supplies.............................................. 481 320 801
-----------------------------------------------------
Total Administrative Expenses..................... 568,810 379,208 948,018
-----------------------------------------------------
Total Expenses (OpEx + Applicant + Pilot Boats 2,339,483 1,559,657 3,899,140
+ Admin + Capital)...........................
----------------------------------------------------------------------------------------------------------------
Director's Adjustments--Applicant Surcharge Collected..... (10,814) (7,209) (18,024)
Director's Adjustments--Applicant Salaries................ (19,379) (12,919) (32,298)
-----------------------------------------------------
Total Director's Adjustments.......................... (30,193) (20,129) (50,322)
-----------------------------------------------------
Total Operating Expenses (OpEx + Adjustments)......... 2,309,290 1,539,528 3,848,818
----------------------------------------------------------------------------------------------------------------

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

Having identified the recognized 2020 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 2021 inflation rate.\20\ Because
the BLS does not provide forecasted inflation data, we use economic
projections from the Federal Reserve for the 2022 and 2023 inflation
modification.\21\ Based on that information, the calculations for Step
2 are as follows:
---------------------------------------------------------------------------

\20\ The 2021 inflation rate is available at <a href="https://data.bls.gov/pdq/SurveyOutputServlet">https://data.bls.gov/pdq/SurveyOutputServlet</a>. Specifically, the CPI is
defined as ``All Urban Consumers (CPI-U), All Items, 1982-4=100.''
Series CUUS0200SAO (Downloaded March 2022)
\21\ The 2022 and 2023 inflation rates are available at <a href="https://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20220316.pdf">https://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20220316.pdf</a>. We used the PCE median inflation value
found in table 1. (Downloaded March 2022).

Table 4--Adjusted Operating Expenses for District One
----------------------------------------------------------------------------------------------------------------
District One
-----------------------------------------------
Designated Undesignated Total
----------------------------------------------------------------------------------------------------------------
Total Operating Expenses (Step 1)............................... $2,309,290 $1,539,528 $3,848,818
2021 Inflation Modification (@5.1%)............................. 117,774 78,516 196,290
2022 Inflation Modification (@2.7033%).......................... 65,531 43,687 109,218
2023 Inflation Modification (@2.3%)............................. 57,330 38,220 95,550
-----------------------------------------------
Adjusted 2023 Operating Expenses............................ 2,549,925 1,699,951 4,249,876
----------------------------------------------------------------------------------------------------------------

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

In accordance with the text in Sec. 404.103, we estimate the
number of fully registered pilots in each district. We determine the
number of fully registered pilots based on data provided by the SLSPA.
Using these numbers, we estimate that there will be 18 registered
pilots in 2023 in District One. We determine the number of apprentice
pilots based on input from the district on anticipated retirements and
staffing needs. Using these numbers, we estimate that there will be two
apprentice pilots in 2023 in District One. Based on the seasonal
staffing model discussed in the 2017 ratemaking (see 82 FR 41466), we
assign a certain number of pilots to designated waters and a certain
number to undesignated waters, as shown in table 5. These numbers are
used to determine the amount of revenue needed in their respective
areas.

[[Page 52878]]

Table 5--Authorized Pilots for District One
------------------------------------------------------------------------
Item District One
------------------------------------------------------------------------
Proposed Maximum Number of Pilots (per Sec. 18
401.220(a)) *..........................................
2023 Authorized Pilots (total).......................... 18
Pilots Assigned to Designated Areas..................... 10
Pilots Assigned to Undesignated Areas................... 8
2023 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. Because we are proposing a full ratemaking this year, we propose
to follow the procedure outlined in paragraph (a) of Sec. 404.104,
which requires us to develop a benchmark after considering the most
relevant currently available non-proprietary information. In accordance
with the discussion in Section VII of this preamble, the proposed
compensation benchmark for 2023 uses the 2022 compensation of $399,266
per registered pilot as a base, then adjusts for inflation following
the procedure outlined in paragraph (b) of Sec. 404.104. The proposed
target pilot compensation for 2023 is $422,336 per pilot. The proposed
apprentice pilot wage benchmark is 36 percent of the target pilot
compensation, or $152,041 ($422,336 x 0.36).
Next, we certify that the number of pilots estimated for 2022 is
less than or equal to the number permitted under the staffing model in
Sec. 401.220(a). The staffing model suggests that the number of pilots
needed is 18 pilots for District One, which is less than or equal to
18, the number of registered pilots provided by the pilot association.
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 One, as shown in table 6. We estimate
that the number of apprentice pilots with limited registration needed
will be two for District One in the 2023 season. The total target wages
for apprentices are allocated with 60 percent for the designated area,
and 40 percent for the undesignated area, in accordance with the
allocation for operating expenses.

Table 6--Target Compensation for District One
----------------------------------------------------------------------------------------------------------------
District One
-----------------------------------------------
Designated Undesignated Total
----------------------------------------------------------------------------------------------------------------
Target Pilot Compensation....................................... $422,336 $422,336 $422,336
Number of Pilots................................................ 10 8 18
Total Target Pilot Compensation................................. $4,223,360 $3,378,688 $7,602,048
Target Apprentice Pilot Compensation............................ $152,041 $152,041 $152,041
Number of Apprentice Pilots..................................... .............. .............. 2
Total Target Apprentice Pilot Compensation...................... $182,449.00 $121,632.92 $304,082
----------------------------------------------------------------------------------------------------------------

E. Step 5: Project Working Capital Fund

Next, we calculate the working capital fund revenues needed for
each area. First, we add the figures for projected operating expenses,
total pilot compensation, and total target apprentice pilot wage for
each area. Next, we find the preceding year's average annual rate of
return for new issues of high-grade corporate securities. Using Moody's
data, the number is 2.7033 percent.\22\ By multiplying the two figures,
we obtain the working capital fund contribution for each area, as shown
in table 7.
---------------------------------------------------------------------------

\22\ Moody's Seasoned Aaa Corporate Bond Yield, average of 2021
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, 2022)

Table 7--Working Capital Fund Calculation for District One
----------------------------------------------------------------------------------------------------------------
District One
-----------------------------------------------
Designated Undesignated Total
----------------------------------------------------------------------------------------------------------------
Adjusted Operating Expenses (Step 2)............................ $2,549,925 $1,699,951 $4,249,876
Total Target Pilot Compensation (Step 4)........................ 4,223,360 3,378,688 7,602,048
Total Target Apprentice Pilot Compensation (Step 4)............. 182,449 121,633 304,082
Total 2023 Expenses............................................. 6,955,734 5,200,272 12,156,006
Working Capital Fund (2.7033%).................................. 188,037 140,581 328,618
----------------------------------------------------------------------------------------------------------------

[[Page 52879]]

F. Step 6: Project Needed Revenue

In this step, we add all the expenses accrued to derive the total
revenue needed for each area. These expenses include the projected
operating expenses (from Step 2), the total pilot compensation (from
Step 4), total target apprentice pilot wage, (from Step 4) and the
working capital fund contribution (from Step 5). We show these
calculations in table 8.

Table 8--Revenue Needed for District One
----------------------------------------------------------------------------------------------------------------
District One
-----------------------------------------------
Designated Undesignated Total
----------------------------------------------------------------------------------------------------------------
Adjusted Operating Expenses (Step 2)............................ $2,549,925 $1,699,951 $4,249,876
Total Target Pilot Compensation (Step 4)........................ 4,223,360 3,378,688 7,602,048
Total Target Apprentice Pilot Compensation (Step 4)............. 182,449 121,633 304,082
Working Capital Fund (Step 5)................................... 188,037 140,581 328,618
-----------------------------------------------
Total Revenue Needed........................................ 7,143,771 5,340,853 12,484,624
----------------------------------------------------------------------------------------------------------------

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). 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).
Because we calculate separate figures for designated and undesignated
waters, there are two parts for each calculation. We show these values
in table 9.

Table 9--Time on Task for District One
[Hours]
------------------------------------------------------------------------
District One
Year -------------------------------
Designated Undesignated
------------------------------------------------------------------------
2021.................................... 6,188 7,871
2020.................................... 6,265 7,560
2019.................................... 8,232 8,405
2018.................................... 6,943 8,445
2017.................................... 7,605 8,679
2016.................................... 5,434 6,217
2015.................................... 5,743 6,667
2014.................................... 6,810 6,853
2013.................................... 5,864 5,529
2012.................................... 4,771 5,121
-------------------------------
Average............................. 6,386 7,135
------------------------------------------------------------------------

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 District One in table 10.

Table 10--Initial Rate Calculations for District One
------------------------------------------------------------------------
Designated Undesignated
------------------------------------------------------------------------
Revenue needed (Step 6)................. $7,143,771 $5,340,853
Average time on task (hours)............ 6,386 7,135
Initial rate............................ $1,119 $749
------------------------------------------------------------------------

H. Step 8: Calculate Average Weighting Factors by Area

In this step, we calculate the average weighting factor for each
designated and undesignated area. We collect the weighting factors, set
forth in 46 CFR 401.400, for each vessel trip. Using this database, we
calculate the average weighting factor for each area using the data
from each vessel transit from 2014 onward, as shown in tables 11 and
12.

[[Page 52880]]

Table 11--Average Weighting Factor for District One, Designated Areas
----------------------------------------------------------------------------------------------------------------
Number of Weighting Weighted
Vessel class/year transits factor transits
----------------------------------------------------------------------------------------------------------------
Class 1 (2014).................................................. 31 1 31
Class 1 (2015).................................................. 41 1 41
Class 1 (2016).................................................. 31 1 31
Class 1 (2017).................................................. 28 1 28
Class 1 (2018).................................................. 54 1 54
Class 1 (2019).................................................. 72 1 72
Class 1 (2020).................................................. 8 1 8
Class 1 (2021).................................................. 10 1 10
Class 2 (2014).................................................. 285 1.15 328
Class 2 (2015).................................................. 295 1.15 339
Class 2 (2016).................................................. 185 1.15 213
Class 2 (2017).................................................. 352 1.15 405
Class 2 (2018).................................................. 559 1.15 643
Class 2 (2019).................................................. 378 1.15 435
Class 2 (2020).................................................. 560 1.15 644
Class 2 (2021).................................................. 315 1.15 362
Class 3 (2014).................................................. 50 1.3 65
Class 3 (2015).................................................. 28 1.3 36
Class 3 (2016).................................................. 50 1.3 65
Class 3 (2017).................................................. 67 1.3 87
Class 3 (2018).................................................. 86 1.3 112
Class 3 (2019).................................................. 122 1.3 159
Class 3 (2020).................................................. 67 1.3 87
Class 3 (2021).................................................. 52 1.3 68
Class 4 (2014).................................................. 271 1.45 393
Class 4 (2015).................................................. 251 1.45 364
Class 4 (2016).................................................. 214 1.45 310
Class 4 (2017).................................................. 285 1.45 413
Class 4 (2018).................................................. 393 1.45 570
Class 4 (2019).................................................. 730 1.45 1059
Class 4 (2020).................................................. 427 1.45 619
Class 4 (2021).................................................. 407 1.45 590
-----------------------------------------------
Total....................................................... 6,704 .............. 8,640
-----------------------------------------------
Average weighting factor (weighted transits / number of .............. 1.29 ..............
transits)..............................................
----------------------------------------------------------------------------------------------------------------

Table 12--Average Weighting Factor for District One, Undesignated Areas
----------------------------------------------------------------------------------------------------------------
Number of Weighting Weighted
Vessel class/year transits factor transits
----------------------------------------------------------------------------------------------------------------
Class 1 (2014).................................................. 25 1 25
Class 1 (2015).................................................. 28 1 28
Class 1 (2016).................................................. 18 1 18
Class 1 (2017).................................................. 19 1 19
Class 1 (2018).................................................. 22 1 22
Class 1 (2019).................................................. 30 1 30
Class 1 (2020).................................................. 3 1 3
Class 1 (2021).................................................. 19 1 19
Class 2 (2014).................................................. 238 1.15 274
Class 2 (2015).................................................. 263 1.15 302
Class 2 (2016).................................................. 169 1.15 194
Class 2 (2017).................................................. 290 1.15 334
Class 2 (2018).................................................. 352 1.15 405
Class 2 (2019).................................................. 366 1.15 421
Class 2 (2020).................................................. 358 1.15 412
Class 2 (2021).................................................. 463 1.15 532
Class 3 (2014).................................................. 60 1.3 78
Class 3 (2015).................................................. 42 1.3 55
Class 3 (2016).................................................. 28 1.3 36
Class 3 (2017).................................................. 45 1.3 59
Class 3 (2018).................................................. 63 1.3 82
Class 3 (2019).................................................. 58 1.3 75
Class 3 (2020).................................................. 35 1.3 46
Class 3 (2021).................................................. 71 1.3 92
Class 4 (2014).................................................. 289 1.45 419
Class 4 (2015).................................................. 269 1.45 390
Class 4 (2016).................................................. 222 1.45 322
Class 4 (2017).................................................. 285 1.45 413

[[Page 52881]]

Class 4 (2018).................................................. 382 1.45 554
Class 4 (2019).................................................. 326 1.45 473
Class 4 (2020).................................................. 334 1.45 484
Class 4 (2021).................................................. 466 1.45 676
-----------------------------------------------
Total....................................................... 5,638 .............. 7,291
-----------------------------------------------
Average weighting factor (weighted transits / number of .............. .............. 1.29
transits)..............................................
----------------------------------------------------------------------------------------------------------------

I. Step 9: Calculate Revised Base Rates

In this step, we revise the base rates so that the total cost of
pilotage will be equal to the revenue needed after considering the
impact of the weighting factors. To do this, we divide the initial base
rates calculated in Step 7 by the average weighting factors calculated
in Step 8, as shown in table 13.

Table 13--Revised Base Rates for District One
----------------------------------------------------------------------------------------------------------------
Revised rate
Initial rate Average weighting (Initial rate /
Area (Step 7) factor (Step 8) average weighting
factor)
----------------------------------------------------------------------------------------------------------------
District One: Designated................................ $1,119 1.29 $867
District One: Undesignated.............................. 749 1.29 581
----------------------------------------------------------------------------------------------------------------

J. Step 10: Review and Finalize Rates

In this step, the Director reviews the rates set forth by the
staffing model and ensures that they meet the goal of ensuring safe,
efficient, and reliable pilotage. To establish this, the Director
considers whether the proposed rates incorporate appropriate
compensation for pilots to handle heavy traffic periods and whether
there is a sufficient number of pilots to handle those heavy traffic
periods. The Director also considers whether the proposed rates would
cover operating expenses and infrastructure costs, including average
traffic and weighting factions. Based on the financial information
submitted by the pilots, the Director is not proposing any alterations
to the rates in this step. We propose to modify Sec. 401.405(a)(1) and
(2) to reflect the final rates shown in table 14.

Table 14--Proposed Final Rates for District One
----------------------------------------------------------------------------------------------------------------
Final 2022 Proposed 2023
Area Name pilotage rate pilotage rate
----------------------------------------------------------------------------------------------------------------
District One: Designated..................... St. Lawrence River............. $834 $867
District One: Undesignated................... Lake Ontario................... 568 581
----------------------------------------------------------------------------------------------------------------

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 2020 expenses and
revenues.\23\ For accounting purposes, the financial reports divide
expenses into designated and undesignated areas. For costs accrued by
the pilot associations generally, such as employee benefits, for
example, the cost is divided between the designated and undesignated
areas on a pro rata basis. The recognized operating expenses for
District Two are shown in table 15.
---------------------------------------------------------------------------

\23\ These reports are available in the docket for this
rulemaking.
---------------------------------------------------------------------------

Adjustments have been made by the auditors and are explained in the
auditor's reports, which are available in the docket for this
rulemaking, where indicated under the Public Participation and Request
for Comments portion of the preamble.
In the 2020 expenses used as the basis for this rulemaking,
districts used the term ``applicant'' to describe applicant trainees
and persons who would be called apprentices (applicant pilots) under
the definition introduced by the 2022 final rule. Therefore, when
describing past expenses, we use the term ``applicant'' to match what
was reported from 2020, which includes both applicant and apprentice
pilots. We use ``apprentice'' to distinguish apprentice pilot wages and
describe the impacts of the ratemaking going forward.
We continue to include applicant salaries as an allowable expense
in the 2023 ratemaking, as it is based on 2020 operating expenses, when
salaries were still an allowable expense. The apprentice salaries paid
in the years 2020 and 2021 have not been reimbursed in the ratemaking
as of publication of this proposed rule. Applicant salaries (including
applicant trainees and apprentice pilots) will continue to be an
allowable operating expense through the 2024 ratemaking, which uses
operating expenses from 2021 where the wages for apprentice pilots were
still authorized as operating expenses. Beginning with the 2025
ratemaking, apprentice pilot salaries would no longer be included as a
2022 operating expense, because apprentice

[[Page 52882]]

pilot wages would have already been factored into the ratemaking Steps
3 and 4 in calculation of the 2022 rates. Beginning in 2025, the
applicant salaries' operating expenses for 2022 will consist of only
applicant trainees (those who are not yet apprentice pilots).

Table 15--2020 Recognized Expenses for District Two
----------------------------------------------------------------------------------------------------------------
District Two
-------------------------------------------------
Undesignated Designated
Reported operating expenses for 2020 ----------------------------------
Southeast Shoal Total
Lake Erie to Port Huron
----------------------------------------------------------------------------------------------------------------
Applicant Salaries............................................ $101,810 $152,715 $254,525
Applicant Health Insurance.................................... 12,706 19,058 31,764
Applicant Subsistence/Travel.................................. 6,732 10,098 16,830
Applicant Hotel/Lodging Cost.................................. 3,652 5,478 9,130
Applicant Payroll Tax......................................... 4,888 7,332 12,220
-------------------------------------------------
Total Applicant Cost...................................... 129,788 194,681 324,469
----------------------------------------------------------------------------------------------------------------
Pilot Subsistence/Travel...................................... 124,953 187,427 312,380
Hotel/Lodging Cost............................................ 40,744 61,116 101,860
License Renewal............................................... 1,606 2,409 4,015
Payroll Taxes................................................. 94,996 142,495 237,491
Insurance..................................................... 8,666 12,999 21,665
-------------------------------------------------
Total Other Pilotage Costs................................ 270,965 406,446 677,411
----------------------------------------------------------------------------------------------------------------
Pilot Boat and Dispatch Costs:
Pilot Boat Cost........................................... 218,840 328,261 547,101
Employee Benefits......................................... 92,554 138,831 231,385
Payroll taxes............................................. 13,565 20,347 33,912
-------------------------------------------------
Total Pilot Boat and Dispatch Costs................... 324,959 487,439 812,398
----------------------------------------------------------------------------------------------------------------
Administrative Expense:
Legal--General Counsel.................................... 4,016 6,024 10,040
Legal--Shared Counsel (K&L Gates)......................... 9,898 14,846 24,744
Legal--Shared Counsel (K&L Gates) (D2-20-01).............. 3,233 4,850 8,083
Office Rent............................................... 27,627 41,440 69,067
Insurance................................................. 12,357 18,536 30,893
Employee Benefits......................................... 157,650 236,476 394,126
Payroll Taxes............................................. 5,007 7,510 12,517
Other Taxes............................................... 43,400 65,100 108,500
Real Estate Taxes......................................... 8,285 12,427 20,712
Depreciation/Auto Lease/Other............................. 7,783 11,674 19,457
Interest.................................................. 114 171 285
APA Dues.................................................. 14,683 22,025 36,708
Dues and Subscriptions.................................... 819 1,229 2,048
Utilities................................................. 18,453 27,679 46,132
Salaries--Admin Employees................................. 50,250 75,374 125,624
Accounting................................................ 14,360 21,540 35,900
Pilot Training............................................ 146 219 365
Other..................................................... 24,604 36,906 61,510
-------------------------------------------------
Total Administrative Expenses......................... 402,685 604,026 1,006,711
-------------------------------------------------
Total OpEx (Pilot Costs + Applicant Cost + Pilot 1,128,397 1,692,592 2,820,989
Boats + Admin)...................................
----------------------------------------------------------------------------------------------------------------
Director's Adjustments for Pilot Salaries:
Total Director's Adjustments..............................
Total Operating Expenses (OpEx + Adjustments)............. 1,128,397 1,692,592 2,820,989
----------------------------------------------------------------------------------------------------------------

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

\24\ The 2021 inflation rate is available at <a href="https://data.bls.gov/pdq/SurveyOutputServlet">https://data.bls.gov/pdq/SurveyOutputServlet</a>. Specifically, the CPI is
defined as ``All Urban Consumers (CPI-U), All Items, 1982-4=100.''
Series CUUS0200SAO. (Downloaded March 2022).

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

[[Page 52883]]

Because the BLS does not provide forecasted inflation data, we use
economic projections from the Federal Reserve for the 2022 and 2023
inflation modification.\25\ Based on that information, the calculations
for Step 2 are as follows:
---------------------------------------------------------------------------

\25\ The 2022 and 2023 inflation rates are available at <a href="https://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20220316.pdf">https://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20220316.pdf</a>. We used the PCE median inflation value
found in table 1. (Downloaded March 2022).

Table 16--Adjusted Operating Expenses for District Two
----------------------------------------------------------------------------------------------------------------
District Two
-----------------------------------------------
Undesignated Designated Total
----------------------------------------------------------------------------------------------------------------
Total Operating Expenses (Step 1)............................... $1,128,397 $1,692,592 $2,820,989
2021 Inflation Modification (@5.1%)............................. 57,548 86,322 143,870
2022 Inflation Modification (@2.7033%).......................... 32,021 48,031 80,052
2023 Inflation Modification (@2.3%)............................. 28,013 42,020 70,033
Adjusted 2023 Operating Expenses............................ 1,245,979 1,868,965 3,114,944
----------------------------------------------------------------------------------------------------------------

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

In accordance with the text in Sec. 404.103, we estimate the
number of fully registered pilots in each district. We determine the
number of fully registered pilots based on data provided by the LPA.
Using these numbers, we estimate that there will be 16 registered
pilots in 2023 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 2023 in District Two. Based on the seasonal
staffing model discussed in the 2017 ratemaking (see 82 FR 41466), we
assign a certain number of pilots to designated waters and a certain
number to undesignated waters, as shown in table 17. These numbers are
used to determine the amount of revenue needed in their respective
areas.

Table 17--Authorized Pilots for District Two
------------------------------------------------------------------------
Item District Two
------------------------------------------------------------------------
Proposed Maximum Number of Pilots (per Sec. 16
401.220(a)) *..........................................
2023 Authorized Pilots (total).......................... 15
Pilots Assigned to Designated Areas..................... 6
Pilots Assigned to Undesignated Areas................... 9
2023 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. Because we are proposing a full ratemaking this year, we propose
to follow the procedure outlined in paragraph (a) of Sec. 404.104,
which requires us to develop a benchmark after considering the most
relevant currently available non-proprietary information. In accordance
with the discussion in Section VII of this preamble, the proposed
compensation benchmark for 2023 uses the 2022 compensation of $399,266
per registered pilot as a base, then adjusts for inflation following
the procedure outlined in paragraph (b) of Sec. 404.104. The proposed
target pilot compensation for 2023 is $422,336 per pilot. The proposed
apprentice pilot wage benchmark is 36 percent of the target pilot
compensation, or $152,041 ($422,336 x 0.36).
Next, we certify that the number of pilots estimated for 2022 is
less than or equal to the number permitted under the staffing model in
Sec. 401.220(a). The staffing model suggests that the number of pilots
needed is 15 pilots for District Two, which is less than or equal to
15, the number of registered pilots provided by the pilot association.
In accordance with Sec. 404.104(c), we use the revised target
individual compensation level to derive the total pilot compensation by
multiplying the individual target compensation by the estimated number
of registered pilots for District Two, as shown in table 18. We
estimate that the number of apprentice pilots with limited registration
needed will be two for District Two in the 2023 season. The total
target wages for apprentices are allocated with 60 percent for the
designated area and 40 percent for the undesignated area, in accordance
with the allocation for operating expenses.

Table 18--Target Compensation for District Two
----------------------------------------------------------------------------------------------------------------
District Two
-----------------------------------------------
Undesignated Designated Total
----------------------------------------------------------------------------------------------------------------
Target Pilot Compensation....................................... $422,336 $422,336 $422,336
Number of Pilots................................................ 9 6 15
Total Target Pilot Compensation................................. $3,801,024 $2,534,016 $6,335,040
Target Apprentice Pilot Compensation............................ $152,041 $152,041 $152,041
Number of Apprentice Pilots..................................... .............. .............. 2

[[Page 52884]]

Total Target Apprentice Pilot Compensation...................... $121,632.92 $182,449.00 $304,082
----------------------------------------------------------------------------------------------------------------

E. Step 5: Project Working Capital Fund

Next, we calculate the working capital fund revenues needed for
each area. First, we add the figures for projected operating expenses,
total pilot compensation, and total target apprentice pilot wage for
each area. Then 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 2.7033 percent.\26\ By multiplying the two figures,
we obtain the working capital fund contribution for each area, as shown
in table 19.
---------------------------------------------------------------------------

\26\ Moody's Seasoned Aaa Corporate Bond Yield, average of 2021
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 2022).

Table 19--Working Capital Fund Calculation for District Two
----------------------------------------------------------------------------------------------------------------
District Two
-----------------------------------------------
Undesignated Designated Total
----------------------------------------------------------------------------------------------------------------
Adjusted Operating Expenses (Step 2)............................ $1,245,979 $1,868,965 $3,114,944
Total Target Pilot Compensation (Step 4)........................ 3,801,024 2,534,016 6,335,040
Total Target Apprentice Pilot Compensation (Step 4)............. 121,633 182,449 304,082
Total 2023 Expenses............................................. 5,168,636 4,585,430 9,754,066
Working Capital Fund (2.7033%).................................. 139,725 123,959 263,684
----------------------------------------------------------------------------------------------------------------

F. Step 6: Project Needed Revenue

Table 20--Revenue Needed for District Two
----------------------------------------------------------------------------------------------------------------
District Two
-----------------------------------------------
Undesignated Designated Total
----------------------------------------------------------------------------------------------------------------
Adjusted Operating Expenses (Step 2)............................ $1,245,979 $1,868,965 $3,114,944
Total Target Pilot Compensation (Step 4)........................ 3,801,024 2,534,016 6,335,040
Total Target Apprentice Pilot Compensation (Step 4)............. 121,633 182,449 304,082
Working Capital Fund (Step 5)................................... 139,725 123,959 263,684
-----------------------------------------------
Total Revenue Needed........................................ 5,308,361 4,709,389 10,017,750
----------------------------------------------------------------------------------------------------------------

G. Step 7: Calculate Initial Base Rates

Having determined the revenue needed for each area in the previous
six steps, to develop an hourly rate we divide that number by the
expected number of hours of traffic. Step 7 is a two-part process. In
the first part, we calculate the 10-year average of traffic in District
Two, using the total time on task or pilot bridge hours. To calculate
the time on task for each district, the Coast Guard uses billing data
from SeaPro. We pull the data from the system filtering by district,
year, job status (we only include processed jobs), and flagging code
(we only include U.S. jobs). Because we calculate separate figures for
designated and undesignated waters, there are two parts for each
calculation. We show these values in table 21.

Table 21--Time on Task for District Two (Hours)
------------------------------------------------------------------------
District Two
Year -------------------------------
Undesignated Designated
------------------------------------------------------------------------
2021.................................... 8,826 3,226
2020.................................... 6,232 8,401
2019.................................... 6,512 7,715
2018.................................... 6,150 6,655
2017.................................... 5,139 6,074
2016.................................... 6,425 5,615

[[Page 52885]]

2015.................................... 6,535 5,967
2014.................................... 7,856 7,001
2013.................................... 4,603 4,750
2012.................................... 3,848 3,922
-------------------------------
Average............................. 6,213 5,933
------------------------------------------------------------------------

Table 22--Initial Rate Calculations for District Two
------------------------------------------------------------------------
Undesignated Designated
------------------------------------------------------------------------
Revenue needed (Step 6)................. $5,308,361 $4,709,389
Average time on task (hours)............ 6,213 5,933
Initial rate............................ $854 $794
------------------------------------------------------------------------

H. Step 8: Calculate Average Weighting Factors by Area.

Table 23--Average Weighting Factor for District Two, Undesignated Areas
----------------------------------------------------------------------------------------------------------------
Number of Weighting Weighted
Vessel class/year transits factor transits
----------------------------------------------------------------------------------------------------------------
Class 1 (2014).................................................. 31 1 31
Class 1 (2015).................................................. 35 1 35
Class 1 (2016).................................................. 32 1 32
Class 1 (2017).................................................. 21 1 21
Class 1 (2018).................................................. 37 1 37
Class 1 (2019).................................................. 54 1 54
Class 1 (2020).................................................. 1 1 1
Class 1 (2021).................................................. 7 1 7
Class 2 (2014).................................................. 356 1.15 409
Class 2 (2015).................................................. 354 1.15 407
Class 2 (2016).................................................. 380 1.15 437
Class 2 (2017).................................................. 222 1.15 255
Class 2 (2018).................................................. 123 1.15 141
Class 2 (2019).................................................. 127 1.15 146
Class 2 (2020).................................................. 165 1.15 190
Class 2 (2021).................................................. 206 1.15 237
Class 3 (2014).................................................. 20 1.3 26
Class 3 (2015).................................................. 0 1.3 0
Class 3 (2016).................................................. 9 1.3 12
Class 3 (2017).................................................. 12 1.3 16
Class 3 (2018).................................................. 3 1.3 4
Class 3 (2019).................................................. 1 1.3 1
Class 3 (2020).................................................. 1 1.3 1
Class 3 (2021).................................................. 5 1.3 7
Class 4 (2014).................................................. 636 1.45 922
Class 4 (2015).................................................. 560 1.45 812
Class 4 (2016).................................................. 468 1.45 679
Class 4 (2017).................................................. 319 1.45 463
Class 4 (2018).................................................. 196 1.45 284
Class 4 (2019).................................................. 210 1.45 305
Class 4 (2020).................................................. 201 1.45 291
Class 4 (2021).................................................. 227 1.45 329
-----------------------------------------------
Total....................................................... 5,019 .............. 6,592
Average weighting factor (weighted transits / number of .............. 1.31 ..............
transits)..............................................
----------------------------------------------------------------------------------------------------------------

[[Page 52886]]

Table 24--Average Weighting Factor for District Two, Designated Areas
----------------------------------------------------------------------------------------------------------------
Number of Weighting Weighted
Vessel class/year transits factor transits
----------------------------------------------------------------------------------------------------------------
Class 1 (2014).................................................. 20 1 20
Class 1 (2015).................................................. 15 1 15
Class 1 (2016).................................................. 28 1 28
Class 1 (2017).................................................. 15 1 15
Class 1 (2018).................................................. 42 1 42
Class 1 (2019).................................................. 48 1 48
Class 1 (2020).................................................. 7 1 7
Class 1 (2021).................................................. 12 1 12
Class 2 (2014).................................................. 237 1.15 273
Class 2 (2015).................................................. 217 1.15 250
Class 2 (2016).................................................. 224 1.15 258
Class 2 (2017).................................................. 127 1.15 146
Class 2 (2018).................................................. 153 1.15 176
Class 2 (2019).................................................. 281 1.15 323
Class 2 (2020).................................................. 342 1.15 393
Class 2 (2021).................................................. 240 1.15 276
Class 3 (2014).................................................. 8 1.3 10
Class 3 (2015).................................................. 8 1.3 10
Class 3 (2016).................................................. 4 1.3 5
Class 3 (2017).................................................. 4 1.3 5
Class 3 (2018).................................................. 14 1.3 18
Class 3 (2019).................................................. 1 1.3 1
Class 3 (2020).................................................. 5 1.3 7
Class 3 (2021).................................................. 2 1.3 3
Class 4 (2014).................................................. 359 1.45 521
Class 4 (2015).................................................. 340 1.45 493
Class 4 (2016).................................................. 281 1.45 407
Class 4 (2017).................................................. 185 1.45 268
Class 4 (2018).................................................. 379 1.45 550
Class 4 (2019).................................................. 403 1.45 584
Class 4 (2020).................................................. 405 1.45 587
Class 4 (2021).................................................. 268 1.45 389
-----------------------------------------------
Total....................................................... 4,674 .............. 6,140
Average weighting factor (weighted transits / number of .............. .............. 1.31
transits)..............................................
----------------------------------------------------------------------------------------------------------------

I. Step 9: Calculate Revised Base Rates

Table 25--Revised Base Rates for District Two
----------------------------------------------------------------------------------------------------------------
Revised rate
Average (initial rate
Area Initial rate weighting average
(Step 7) factor (Step weighting
8) factor)
----------------------------------------------------------------------------------------------------------------
District Two: Undesignated...................................... $854 1.31 $652
District Two: Designated........................................ 794 1.31 606
----------------------------------------------------------------------------------------------------------------

J. Step 10: Review and Finalize Rates

In this step, the Director reviews the rates set forth by the
staffing model and ensures that they meet the goal of ensuring safe,
efficient, and reliable pilotage. To establish this, the Director
considers whether the proposed rates incorporate appropriate
compensation for pilots to handle heavy traffic periods, and whether
there is a sufficient number of pilots to handle those heavy traffic
periods. The Director also considers whether the proposed rates would
cover operating expenses and infrastructure costs, and takes average
traffic and weighting factors into consideration. Based on the
financial information submitted by the pilots, the Director is not
proposing any alterations to the rates in this step. We propose to
modify Sec. 401.405(a)(3) and (4) to reflect the final rates shown in
table 26.

[[Page 52887]]

Table 26--Proposed Final Rates for District Two
----------------------------------------------------------------------------------------------------------------
Final 2022 Proposed 2023
Area Name pilotage rate pilotage rate
----------------------------------------------------------------------------------------------------------------
District Two: Designated.................... Navigable waters from $536 $606
Southeast Shoal to Port
Huron, MI.
District Two: Undesignated.................. Lake Erie..................... 610 652
----------------------------------------------------------------------------------------------------------------

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 2020 expenses and
revenues.\27\ For accounting purposes, the financial reports divide
expenses into designated and undesignated areas. For costs accrued by
the pilot associations generally, such as employee benefits, for
example, the cost is divided between the designated and undesignated
areas on a pro rata basis. The recognized operating expenses for
District Three are shown in table 27.
---------------------------------------------------------------------------

\27\ These reports are available in the docket for this
rulemaking.
---------------------------------------------------------------------------

Adjustments have been made by the auditors and are explained in the
auditor's reports, which are available in the docket for this
rulemaking, where indicated under the Public Participation and Request
for Comments portion of the preamble.
In the 2020 expenses used as the basis for this rulemaking,
districts used the term ``applicant'' to describe applicant trainees
and persons who would be called apprentices (applicant pilots) under
the definition introduced by the 2022 final rule. Therefore, when
describing past expenses, we use the term ``applicant'' to match what
was reported from 2020, which includes both applicant and apprentice
pilots. We use ``apprentice'' to distinguish apprentice pilot wages and
describe the impacts of the ratemaking going forward.
We continue to include applicant salaries as an allowable expense
in the 2023 ratemaking, as it is based on 2020 operating expenses, when
salaries were still an allowable expense. The apprentice salaries paid
in the years 2020 and 2021 have not been reimbursed in the ratemaking
as of publication of this proposed rule. Applicant salaries (including
applicant trainees and apprentice pilots) will continue to be an
allowable operating expense through the 2024 ratemaking, which uses
operating expenses from 2021 where the wages for apprentice pilots were
still authorized as operating expenses. Beginning with the 2025
ratemaking, apprentice pilot salaries would no longer be included as a
2022 operating expense, because apprentice pilot wages would have
already been factored into the ratemaking Steps 3 and 4 in calculation
of the 2022 rates. Beginning in 2025, the applicant salaries' operating
expenses for 2022 will consist of only applicant trainees (those who
are not yet apprentice pilots).

Table 27--2020 Recognized Expenses for District Three
----------------------------------------------------------------------------------------------------------------
District Three
---------------------------------------------------------------
Undesignated Designated Undesignated
Reported operating expenses for 2020 ------------------------------------------------
Lakes Huron St. Mary's Total
and Michigan River Lake Superior
----------------------------------------------------------------------------------------------------------------
Other Pilotage Costs:
Pilot Subsistence/Travel.................... $284,547 $118,603 $149,261 $552,411
Hotel/Lodging Cost.......................... 87,208 36,349 45,745 169,302
License Insurance- Pilots................... 16,749 6,981 8,786 32,516
Payroll Taxes............................... .............. .............. .............. ..............
Payroll Tax (D3-19-01)...................... 151,266 63,049 79,348 293,663
Other....................................... 6,505 2,711 3,412 12,628
---------------------------------------------------------------
Total Other Pilotage Costs.............. 546,275 227,693 286,552 1,060,520
----------------------------------------------------------------------------------------------------------------
Applicant Cost:
Applicant Salaries.......................... 340,677 141,998 178,705 661,380
Applicant Benefits.......................... 66,083 27,544 34,665 128,292
Applicant Payroll Tax....................... 25,711 10,717 13,487 49,915
Applicant Hotel/Lodging..................... 31,313 13,052 16,425 60,790
---------------------------------------------------------------
Total Applicant Cost.................... 463,784 193,311 243,282 900,377
----------------------------------------------------------------------------------------------------------------
Pilot Boat and Dispatch costs:
Pilot Boat Costs............................ 515,075 214,689 270,187 999,951
Dispatch Costs.............................. 112,008 46,686 58,755 217,449
Employee Benefits........................... 41,153 17,153 21,587 79,893
Payroll Taxes............................... 16,771 6,991 8,798 32,560
---------------------------------------------------------------
Total Pilot Boat and Dispatch costs..... 685,007 285,519 359,327 1,329,853
----------------------------------------------------------------------------------------------------------------

[[Page 52888]]

Administrative Cost:
Legal--General Counsel...................... 1,921 801 1,008 3,730
Legal--Shared Counsel (K&L Gates)........... 21,650 9,024 11,357 42,031
Legal--Shared Counsel (K&L Gates) CPA 3,601 1,501 1,889 6,991
Deduction (D3-20-03).......................
Legal--USCG Litigation...................... 8,575 3,574 4,498 16,647
Insurance................................... 18,811 7,841 9,867 36,519
Employee Benefits........................... 80,117 33,394 42,026 155,537
Payroll Tax................................. 8,101 3,377 4,250 15,728
Other Taxes................................. 15,797 6,584 8,286 30,667
Real Estate Taxes........................... 2,001 834 1,050 3,885
Depreciation/Auto Leasing/Other............. 61,096 25,465 32,048 118,609
Interest.................................... 2,940 1,225 1,542 5,707
APA Dues.................................... 23,860 9,945 12,516 46,321
Dues and Subscriptions...................... 4,971 2,072 2,607 9,650
Salaries.................................... 50,795 21,172 26,645 98,612
Utilities................................... 54,212 22,596 28,438 105,246
Accounting/Professional Fees................ 23,823 9,930 12,496 46,249
Other Expenses.............................. 38,507 16,050 20,199 74,756
Other Expenses CPA Deduction (D3-18-01)..... (4,684) (1,952) (2,457) (9,093)
---------------------------------------------------------------
Total Administrative Expenses........... 416,094 173,433 218,265 807,792
Total Operating Expenses (Other 2,111,160 879,956 1,107,426 4,098,542
Costs + Applicant Cost + Pilot
Boats + Admin).....................
----------------------------------------------------------------------------------------------------------------
Director's Adjustments--Applicant Surcharge (63,120) (26,309) (33,110) (122,539)
Collected......................................
---------------------------------------------------------------
Total Director's Adjustments................ (63,120) (26,309) (33,110) (122,539)
Total Operating Expenses (OpEx + 2,048,040 853,647 1,074,316 3,976,003
Adjustments)...............................
----------------------------------------------------------------------------------------------------------------

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

Having identified the recognized 2020 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 2021 inflation rate.\28\ Because
the BLS does not provide forecasted inflation data, we use economic
projections from the Federal Reserve for the 2022 and 2023 inflation
modification.\29\ Based on that information, the calculations for Step
2 are as follows:
---------------------------------------------------------------------------

\28\ The 2021 inflation rate is available at <a href="https://data.bls.gov/pdq/SurveyOutputServlet">https://data.bls.gov/pdq/SurveyOutputServlet</a>. Specifically, the CPI is
defined as ``All Urban Consumers (CPI-U), All Items, 1982-4 = 100.''
Series CUUS0200SAO (Downloaded March 2022).
\29\ The 2022 and 2023 inflation rates are available at <a href="https://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20220316.pdf">https://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20220316.pdf</a>. We used the PCE median inflation value
found in table 1. (Downloaded March 2022).

Table 28--Adjusted Operating Expenses for District Three
----------------------------------------------------------------------------------------------------------------
District Three
-----------------------------------------------
Undesignated Designated Total
----------------------------------------------------------------------------------------------------------------
Total Operating Expenses (Step 1)............................... $3,122,356 $853,647 $3,976,003
2021 Inflation Modification (@5.1%)............................. 159,240 43,536 202,776
2022 Inflation Modification (@2.7033%).......................... 88,603 24,224 112,827
2023 Inflation Modification (@2.3%)............................. 77,515 21,192 98,707
-----------------------------------------------
Adjusted 2023 Operating Expenses............................ 3,447,714 942,599 4,390,313
----------------------------------------------------------------------------------------------------------------

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 WGLPA. Using these
numbers, we estimate that there will be 22 registered pilots in 2023 in
District Three. We determine the number of apprentice pilots based on
input from the district on anticipated retirements and staffing needs.
Using these numbers, we estimate that there will be three apprentice
pilots in 2023 in District Three. Furthermore, based on the seasonal
staffing model discussed in the 2017 ratemaking (see 82 FR 41466), we
assign a certain number of pilots to designated waters and a certain
number to undesignated waters, as shown in table 29. These numbers are
used to determine the amount of revenue needed in their respective
areas.

[[Page 52889]]

Table 29--Authorized Pilots for District Three
------------------------------------------------------------------------
Item District Three
------------------------------------------------------------------------
Proposed Maximum Number of Pilots (per Sec. 22
401.220(a)) *........................................
2023 Authorized Pilots (total)........................ 22
Pilots Assigned to Designated Areas................... 5
Pilots Assigned to Undesignated Areas................. 17
2023 Apprentice Pilots................................ 3
------------------------------------------------------------------------
* 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. Because we are proposing a full ratemaking this year, we propose
to follow the procedure outlined in paragraph (a) of Sec. 404.104,
which requires us to develop a benchmark after considering the most
relevant currently available non-proprietary information. In accordance
with the discussion in Section VII above, the proposed compensation
benchmark for 2023 uses the 2022 compensation of $399,266 per
registered pilot as a base, then adjusts for inflation following the
procedure outlined in paragraph (b) of Sec. 404.104. The proposed
target pilot compensation for 2023 is $422,336 per pilot. The proposed
apprentice pilot wage benchmark is 36 percent of the target pilot
compensation, or $152,041 ($422,336 x 0.36).
Next, we certify that the number of pilots estimated for 2022 is
less than or equal to the number permitted under the staffing model in
Sec. 401.220(a). The staffing model suggests that the number of pilots
needed is 22 pilots for District Three, which is less than or equal to
22, the number of registered pilots provided by the pilot association.
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 30. We
estimate that the number of apprentice pilots with limited registration
needed will be three for District Three in the 2023 season. The total
target wages for apprentices are allocated with 21 percent for the
designated area, and 79 percent (52 percent + 27 percent) for the
undesignated areas, in accordance with the allocation for operating
expenses.

Table 30--Target Compensation for District Three
----------------------------------------------------------------------------------------------------------------
District three
-----------------------------------------------
Undesignated Designated Total
----------------------------------------------------------------------------------------------------------------
Target Pilot Compensation....................................... $422,336 $422,336 $422,336
Number of Pilots................................................ 17 5 22
Total Target Pilot Compensation................................. $7,179,712 $2,111,680 $9,291,392
Target Apprentice Pilot Compensation............................ $152,041 $152,041 $152,041
Number of Apprentice Pilots..................................... .............. .............. 3
Total Target Apprentice Pilot Compensation...................... $358,193 $97,929 $456,122.88
----------------------------------------------------------------------------------------------------------------

E. Step 5: Project Working Capital Fund

Next, we calculate the working capital fund revenues needed for
each area. First, we add the figures for projected operating expenses,
total pilot compensation, and total target apprentice pilot wage for
each area. Then 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 2.7033 percent.\30\ By multiplying the two figures,
we obtain the working capital fund contribution for each area, as shown
in table 31.
---------------------------------------------------------------------------

\30\ Moody's Seasoned Aaa Corporate Bond Yield, average of 2021
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 2022).

Table 31--Working Capital Fund Calculation for District Three
----------------------------------------------------------------------------------------------------------------
District three
-----------------------------------------------
Undesignated Designated Total
----------------------------------------------------------------------------------------------------------------
Adjusted Operating Expenses (Step 2)............................ $3,447,714 $942,599 $4,390,313
Total Target Pilot Compensation (Step 4)........................ 7,179,712 2,111,680 9,291,392
Total Target Apprentice Pilot Compensation (Step 4)............. 358,193 97,929 456,123
Total 2023 Expenses............................................. 10,985,619 3,152,208 14,137,828
Working Capital Fund (2.7033%).................................. 296,978 85,215 382,193
----------------------------------------------------------------------------------------------------------------

[[Page 52890]]

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 32.

Table 32--Revenue Needed for District Three
----------------------------------------------------------------------------------------------------------------
District three
-----------------------------------------------
Undesignated Designated Total
----------------------------------------------------------------------------------------------------------------
Adjusted Operating Expenses (Step 2)............................ $3,447,714 $942,599 $4,390,313
Total Target Pilot Compensation (Step 4)........................ 7,179,712 2,111,680 9,291,392
Total Target Apprentice Pilot Compensation (Step 4)............. 358,193 97,929 456,123
Working Capital Fund (Step 5)................................... 296,978 85,215 382,193
-----------------------------------------------
Total Revenue Needed........................................ 11,282,597 3,237,423 14,520,021
----------------------------------------------------------------------------------------------------------------

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 SeaPro. We pull the data from the system filtering by district,
year, job status (we only include processed jobs), and flagging code
(we only include U.S. jobs). Because we calculate separate figures for
designated and undesignated waters, there are two parts for each
calculation. We show these values in table 33.

Table 33--Time on Task for District Three
[Hours]
------------------------------------------------------------------------
District three
Year -------------------------------
Undesignated Designated
------------------------------------------------------------------------
2021.................................... 18,219 2,584
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
-------------------------------
Average............................. 21,327 3,021
------------------------------------------------------------------------

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 District Three are set forth in table 34.

Table 34--Initial Rate Calculations for District Three
------------------------------------------------------------------------
Undesignated Designated
------------------------------------------------------------------------
Revenue needed (Step 6)................. $11,282,597 $3,237,423
Average time on task (hours)............ 21,327 3,021
Initial rate............................ $529 $1,072
------------------------------------------------------------------------

H. Step 8: Calculate Average Weighting Factors by Area

[[Page 52891]]

Table 35--Average Weighting Factor for District Three, Undesignated Areas
----------------------------------------------------------------------------------------------------------------
Number of Weighting Weighted
Vessel class/year transits factor transits
----------------------------------------------------------------------------------------------------------------
Class 1 (2014).................................................. 45 1 45
Class 1 (2015).................................................. 56 1 56
Class 1 (2016).................................................. 136 1 136
Class 1 (2017).................................................. 148 1 148
Class 1 (2018).................................................. 103 1 103
Class 1 (2019).................................................. 173 1 173
Class 1 (2020).................................................. 4 1 4
Class 1 (2021).................................................. 7 1 7
Class 2 (2014).................................................. 274 1.15 315
Class 2 (2015).................................................. 207 1.15 238
Class 2 (2016).................................................. 236 1.15 271
Class 2 (2017).................................................. 264 1.15 304
Class 2 (2018).................................................. 169 1.15 194
Class 2 (2019).................................................. 279 1.15 321
Class 2 (2020).................................................. 395 1.15 454
Class 2 (2021).................................................. 261 1.15 300
Class 3 (2014).................................................. 15 1.3 20
Class 3 (2015).................................................. 8 1.3 10
Class 3 (2016).................................................. 10 1.3 13
Class 3 (2017).................................................. 19 1.3 25
Class 3 (2018).................................................. 9 1.3 12
Class 3 (2019).................................................. 9 1.3 12
Class 3 (2020).................................................. 4 1.3 5
Class 3 (2021).................................................. 7 1.3 9
Class 4 (2014).................................................. 394 1.45 571
Class 4 (2015).................................................. 375 1.45 544
Class 4 (2016).................................................. 332 1.45 481
Class 4 (2017).................................................. 367 1.45 532
Class 4 (2018).................................................. 337 1.45 489
Class 4 (2019).................................................. 334 1.45 484
Class 4 (2020).................................................. 413 1.45 599
Class 4 (2021).................................................. 312 1.45 452
-----------------------------------------------
Total for Area 6............................................ 5,702 .............. 7,328
----------------------------------------------------------------------------------------------------------------
Area 8
Class 1 (2014).................................................. 3 1 3
Class 1 (2015).................................................. 0 1 0
Class 1 (2016).................................................. 4 1 4
Class 1 (2017).................................................. 4 1 4
Class 1 (2018).................................................. 0 1 0
Class 1 (2019).................................................. 0 1 0
Class 1 (2020).................................................. 1 1 1
Class 1 (2021).................................................. 4 1 4
Class 2 (2014).................................................. 177 1.15 204
Class 2 (2015).................................................. 169 1.15 194
Class 2 (2016).................................................. 174 1.15 200
Class 2 (2017).................................................. 151 1.15 174
Class 2 (2018).................................................. 102 1.15 117
Class 2 (2019).................................................. 120 1.15 138
Class 2 (2020).................................................. 239 1.15 275
Class 2 (2021).................................................. 96 1.15 110
Class 3 (2014).................................................. 3 1.3 4
Class 3 (2015).................................................. 0 1.3 0
Class 3 (2016).................................................. 7 1.3 9
Class 3 (2017).................................................. 18 1.3 23
Class 3 (2018).................................................. 7 1.3 9
Class 3 (2019).................................................. 6 1.3 8
Class 3 (2020).................................................. 2 1.3 3
Class 3 (2021).................................................. 1 1.3 1
Class 4 (2014).................................................. 243 1.45 352
Class 4 (2015).................................................. 253 1.45 367
Class 4 (2016).................................................. 204 1.45 296
Class 4 (2017).................................................. 269 1.45 390
Class 4 (2018).................................................. 188 1.45 273
Class 4 (2019).................................................. 254 1.45 368
Class 4 (2020).................................................. 456 1.45 661
Class 4 (2021).................................................. 182 1.45 264
-----------------------------------------------
Total for Area 8............................................ 3,337 .............. 4456
Combined total.............................................. 9,039 .............. 11784

[[Page 52892]]

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

Table 36--Average Weighting Factor for District Three, Designated Areas
----------------------------------------------------------------------------------------------------------------
Number of Weighting Weighted
Vessel class/year transits factor transits
----------------------------------------------------------------------------------------------------------------
Class 1 (2014).................................................. 27 1 27
Class 1 (2015).................................................. 23 1 23
Class 1 (2016).................................................. 55 1 55
Class 1 (2017).................................................. 62 1 62
Class 1 (2018).................................................. 47 1 47
Class 1 (2019).................................................. 45 1 45
Class 1 (2020).................................................. 16 1 16
Class 1 (2021).................................................. 12 1 12
Class 2 (2014).................................................. 221 1.15 254
Class 2 (2015).................................................. 145 1.15 167
Class 2 (2016).................................................. 174 1.15 200
Class 2 (2017).................................................. 170 1.15 196
Class 2 (2018).................................................. 126 1.15 145
Class 2 (2019).................................................. 162 1.15 186
Class 2 (2020).................................................. 250 1.15 288
Class 2 (2021).................................................. 128 1.15 147
Class 3 (2014).................................................. 4 1.3 5
Class 3 (2015).................................................. 0 1.3 0
Class 3 (2016).................................................. 6 1.3 8
Class 3 (2017).................................................. 14 1.3 18
Class 3 (2018).................................................. 6 1.3 8
Class 3 (2019).................................................. 3 1.3 4
Class 3 (2020).................................................. 4 1.3 5
Class 3 (2021).................................................. 2 1.3 3
Class 4 (2014).................................................. 321 1.45 465
Class 4 (2015).................................................. 245 1.45 355
Class 4 (2016).................................................. 191 1.45 277
Class 4 (2017).................................................. 234 1.45 339
Class 4 (2018).................................................. 225 1.45 326
Class 4 (2019).................................................. 308 1.45 447
Class 4 (2020).................................................. 385 1.45 558
Class 4 (2021).................................................. 299 1.45 434
-----------------------------------------------
Total....................................................... 3,910 .............. 5,122
Average weighting factor (weighted transits / number of .............. 1.31 ..............
transits)..............................................
----------------------------------------------------------------------------------------------------------------

I. Step 9: Calculate Revised Base Rates

Table 37--Revised Base Rates for District Three
----------------------------------------------------------------------------------------------------------------
Revised rate
Initial rate Average weighting (initial rate /
Area (Step 7) factor (Step 8) average weighting
factor)
----------------------------------------------------------------------------------------------------------------
District Three: Undesignated............................ $529 1.30 $407
District Three: Designated.............................. 1,072 1.31 818
----------------------------------------------------------------------------------------------------------------

J. Step 10: Review and Finalize Rates

In this step, the Director reviews the rates set forth by the
staffing model and ensures that they meet the goal of ensuring safe,
efficient, and reliable pilotage. To establish this, the Director
considers whether the proposed rates incorporate appropriate
compensation for pilots to handle heavy traffic periods and whether
there is a sufficient number of pilots to handle those heavy traffic
periods. The Director also considers whether the proposed rates would
cover operating expenses and infrastructure costs and takes average
traffic and weighting factors into consideration. Based on this
information, the Director is not proposing any alterations to the rates
in this step. We propose to modify Sec. 401.405(a)(5) and (6) to
reflect the final rates shown in table 38.

[[Page 52893]]

Table 38--Proposed Final Rates for District Three
----------------------------------------------------------------------------------------------------------------
Final 2022 Proposed 2023
Area Name pilotage rate pilotage rate
----------------------------------------------------------------------------------------------------------------
District Three: Designated.................. St. Mary's River.............. $662 $818
District Three: Undesignated................ Lakes Huron, Michigan, and 342 407
Superior.
----------------------------------------------------------------------------------------------------------------

X. Regulatory Analyses

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

A. Regulatory Planning and Review

Executive Orders 12866 (Regulatory Planning and Review) and 13563
(Improving Regulation and Regulatory Review) direct agencies to assess
the costs and benefits of available regulatory alternatives and, if
regulation is necessary, to select regulatory approaches that maximize
net benefits (including potential economic, environmental, public
health and safety effects, distributive impacts, and equity). Executive
Order 13563 emphasizes the importance of quantifying costs and
benefits, reducing costs, harmonizing rules, and promoting flexibility.
The Office of Management and Budget (OMB) has not designated this
proposed rule a significant regulatory action under section 3(f) of
Executive Order 12866. A regulatory analysis follows.
The purpose of this proposed rule is to establish new base pilotage
rates, as 46 U.S.C. 9303(f) requires that rates be established or
reviewed and adjusted each year. The statute also requires that base
rates be established by a full ratemaking at least once every 5 years,
and, in years when base rates are not established, they must be
reviewed and, if necessary, adjusted. The last full ratemaking was
concluded in June of 2018.\31\ For this ratemaking, the Coast Guard
estimates an increase in cost of approximately $4.54 million to
industry. This is approximately a 14-percent increase because of the
change in revenue needed in 2023 compared to the revenue needed in
2022.
---------------------------------------------------------------------------

\31\ Great Lakes Pilotage Rates--2018 Annual Review and
Revisions to Methodology (83 FR 26162), published June 5, 2018.

Table 39--Economic Impacts Due to Proposed Changes
----------------------------------------------------------------------------------------------------------------
Change Description Affected population Costs Benefits
----------------------------------------------------------------------------------------------------------------
Rate changes............. In accordance with Owners and operators Increase of New rates cover an
46 U.S.C. Chapter of 285 vessels $4,535,400 due to association's
93, the Coast Guard transiting the change in revenue necessary and
is required to Great Lakes system needed for 2023 reasonable
review and adjust annually, 55 United ($37,022,395) from operating
base pilotage rates States Great Lakes revenue needed for expenses. Promotes
annually. pilots, 7 2022 ($32,486,995) safe, efficient,
apprentice pilots, as shown in table and reliable
and 3 pilotage 40. pilotage service
associations. on the Great
Lakes. Provides
fair compensation,
adequate training,
and sufficient
rest periods for
pilots. Ensures
the association
receives
sufficient
revenues to fund
future
improvements.
----------------------------------------------------------------------------------------------------------------

The Coast Guard is required to review and adjust pilotage rates on
the Great Lakes annually. See section IV of this preamble for detailed
discussions of the legal basis and purpose for this rulemaking. Based
on our annual review for this rulemaking, we are adjusting the pilotage
rates for the 2023 shipping season to generate sufficient revenues for
each district to reimburse its necessary and reasonable operating
expenses, fairly compensate trained and rested pilots, and provide an
appropriate working capital fund to use for improvements. The result
would be an increase in rates for all areas in District One, District
Two, and District Three. These changes would also lead to a net
increase in the cost of service to shippers. The change in per unit
cost to each individual shipper will be dependent on their area of
operation.
A detailed discussion of our economic impact analysis follows.
Affected Population
This proposed rule affects United States Great Lakes pilots and
apprentice pilots, the 3 pilot associations, and the owners and
operators of 285 oceangoing vessels that transit the Great Lakes
annually on average from 2019 to 2021. We estimate that there will be
55 registered pilots and 7 apprentice pilots during the 2023 shipping
season. The shippers affected by these rate changes are those owners
and operators of domestic vessels operating ``on register'' (engaged in
foreign trade) and owners and operators of non-Canadian foreign vessels
on routes within the Great Lakes system. These owners and operators
must have pilots or pilotage service as required by 46 U.S.C. 9302.
There is no minimum tonnage limit or exemption for these vessels. The
statute applies only to commercial vessels and not to recreational
vessels. United States-flagged vessels not operating on register, and
Canadian ``lakers,'' which account for most commercial shipping on the
Great Lakes, are not required by 46 U.S.C. 9302 to have pilots.
However, these United States- and Canadian-flagged lakers may
voluntarily choose to engage a Great Lakes registered pilot. Vessels
that are U.S.-flagged may opt to have a pilot for varying reasons, such
as unfamiliarity with designated waters and ports, or for insurance
purposes.
The Coast Guard used billing information from the years 2019
through

[[Page 52894]]

2021 from the GLPMS to estimate the average annual number of vessels
affected by the rate adjustment. The GLPMS tracks data related to
managing and coordinating the dispatch of pilots on the Great Lakes,
and billing in accordance with the services. As described in Step 7 of
the ratemaking methodology, we use a 10-year average to estimate the
traffic. We used 3 years of the most recent billing data to estimate
the affected population. When we reviewed 10 years of the most recent
billing data, we found the data included vessels that have not used
pilotage services in recent years. We believe using 3 years of billing
data is a better representation of the vessel population that is
currently using pilotage services and will be impacted by this
rulemaking. We found that 424 unique vessels used pilotage services
during the years 2019 through 2021. That is, these vessels had a pilot
dispatched to the vessel, and billing information was recorded in the
GLPMS or SeaPro. Of these vessels, 397 were foreign-flagged vessels and
27 were U.S.-flagged vessels. As stated previously, U.S.-flagged
vessels not operating on register are not required to have a registered
pilot per 46 U.S.C. 9302, but they can voluntarily choose to have one.
Numerous factors affect vessel traffic, which varies from year to
year. Therefore, rather than using the total number of vessels over the
time period, we took an average of the unique vessels using pilotage
services from the years 2019 through 2021 as the best representation of
vessels estimated to be affected by the rates in this rulemaking. From
2019 through 2021, an average of 285 vessels used pilotage services
annually.\32\ On average, 273 of these vessels were foreign-flagged and
12 were U.S.-flagged vessels that voluntarily opted into the pilotage
service (these figures are rounded averages).
---------------------------------------------------------------------------

\32\ Some vessels entered the Great Lakes multiple times in a
single year, affecting the average number of unique vessels using
pilotage services in any given year.
---------------------------------------------------------------------------

Total Cost to Shippers
The rate changes resulting from this adjustment to the rates would
result in a net increase in the cost of service to shippers. However,
the change in per unit cost to each individual shipper will be
dependent on their area of operation.
The Coast Guard estimates the effect of the rate changes on
shippers by comparing the total projected revenues needed to cover
costs in 2022 with the total projected revenues to cover costs in 2023.
We set pilotage rates so pilot associations receive enough revenue to
cover their necessary and reasonable expenses. Shippers pay these rates
when they engage a pilot as required by 46 U.S.C. 9302. Therefore, the
aggregate payments of shippers to pilot associations are equal to the
projected necessary revenues for pilot associations. The revenues each
year represent the total costs that shippers must pay for pilotage
services. The change in revenue from the previous year is the
additional cost to shippers discussed in this proposed rule.
The impacts of the rate changes on shippers are estimated from the
district pilotage projected revenues (shown in tables 8, 20, and 32 of
this preamble). The Coast Guard estimates that for the 2023 shipping
season, the projected revenue needed for all three districts is
$37,022,395.
To estimate the change in cost to shippers from this proposed rule,
the Coast Guard compared the 2023 total projected revenues to the 2022
projected revenues. Because we review and prescribe rates for Great
Lakes pilotage annually, the effects are estimated as a single-year
cost rather than annualized over a 10-year period. In the 2022
rulemaking, we estimated the total projected revenue needed for 2022 as
$32,486,994.\33\ This is the best approximation of 2022 revenues, as,
at the time of publication of this proposed rule, the Coast Guard does
not have enough audited data available for the 2022 shipping season to
revise these projections. Table 40 shows the revenue projections for
2022 and 2023 and details the additional cost increases to shippers by
area and district as a result of the rate changes on traffic in
Districts One, Two, and Three.
---------------------------------------------------------------------------

\33\ 87 FR 18488, see table 42. <a href="https://www.govinfo.gov/content/pkg/FR-2022-03-30/pdf/2022-06394.pdf">https://www.govinfo.gov/content/pkg/FR-2022-03-30/pdf/2022-06394.pdf</a>.

Table 40--Effect of the Rulemaking by Area and District
[$U.S.; non-discounted]
----------------------------------------------------------------------------------------------------------------
Additional costs
Area Revenue needed Revenue needed of this
in 2022 in 2023 rulemaking
----------------------------------------------------------------------------------------------------------------
Total, District One....................................... $11,791,695 $12,484,624 $692,930
Total, District Two....................................... 8,786,881 10,017,750 1,230,868
Total, District Three..................................... 11,908,418 14,520,021 2,611,602
-----------------------------------------------------
System Total.......................................... 32,486,994 37,022,395 4,535,400
----------------------------------------------------------------------------------------------------------------
* All figures are rounded to the nearest dollar and may not sum.

The resulting difference between the projected revenue in 2022 and
the projected revenue in 2023 is the annual change in payments from
shippers to pilots as a result of the rate changes proposed by this
rulemaking. The effect of the rate changes to shippers would vary by
area and district. After taking into account the change in pilotage
rates, the proposed rate changes would lead to affected shippers
operating in District One experiencing an increase in payments of
$692,930 over the previous year. District Two and District Three would
experience an increase in payments of $1,230,868 and $2,611,602,
respectively, when compared with 2022. The overall adjustment in
payments would be an increase in payments by shippers of $4,535,400
across all three districts (a 14-percent increase when compared with
2022). Again, because the Coast Guard reviews and sets rates for Great
Lakes pilotage annually, we estimate the impacts as single-year costs
rather than annualizing them over a 10-year period.
Table 41 shows the difference in revenue by revenue-component from
2022 to 2023 and presents each revenue-component as a percentage of the
total revenue needed. In both 2022 and 2023, the largest revenue-
component was pilotage compensation (63 percent of total revenue needed
in 2022, and 63 percent of total revenue needed in 2023), followed by
operating expenses (31 percent of total revenue needed in

[[Page 52895]]

2022, and 32 percent of total revenue needed in 2023).

Table 41--Difference in Revenue by Revenue-Component
--------------------------------------------------------------------------------------------------------------------------------------------------------
Percentage Percentage
of total of total Difference (2023 Percentage
Revenue component Revenue needed revenue Revenue needed revenue revenue- 2022 change from
in 2022 needed in in 2023 needed in revenue) previous year
2022 2023
--------------------------------------------------------------------------------------------------------------------------------------------------------
Adjusted Operating Expenses................................ $10,045,658 31 $11,755,133 32 $1,709,475 17
Total Target Pilot Compensation............................ 20,362,566 63 23,228,480 63 2,865,914 14
Total Target Apprentice Pilot Compensation................. 1,293,622 4 1,064,287 3 (229,335) (18)
Working Capital Fund....................................... 785,149 2 974,495 3 189,346 24
Total Revenue Needed....................................... 32,486,994 100 37,022,395 100 4,535,400 14
--------------------------------------------------------------------------------------------------------------------------------------------------------
* All figures are rounded to the nearest dollar and may not sum.

As stated above, we estimate that there would be a total increase
in revenue needed by the pilot associations of $4,535,400. This
represents an increase in revenue needed for target pilot compensation
of $2,865,914, a decrease in revenue needed for total apprentice pilot
wage benchmark of ($229,335), an increase in the revenue needed for
adjusted operating expenses of $1,709,475, and an increase in the
revenue needed for the working capital fund of $189,346.
The change in revenue needed for pilot compensation, $2,865,914, is
due to three factors: (1) The changes to adjust 2022 pilotage
compensation to account for the difference between actual ECI inflation
\34\ (5.6 percent) and predicted PCE inflation \35\ (2.2 percent) for
2022; (2) an increase of one pilot in District Two and three pilots in
District Three compared to 2022; and (3) projected inflation of
pilotage compensation in Step 2 of the methodology, using predicted
inflation through 2024.
---------------------------------------------------------------------------

\34\ Employment Cost Index, Total Compensation for Private
Industry workers in Transportation and Material Moving, Annual
Average, Series ID: CIU2010000520000A. Accessed April 29, 2022.
<a href="https://www.bls.gov/news.release/eci.t05.htm">https://www.bls.gov/news.release/eci.t05.htm</a>.
\35\ <a href="https://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20220316.pdf">https://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20220316.pdf</a>.
---------------------------------------------------------------------------

The target compensation is $422,336 per pilot in 2023, compared to
$399,266 in 2022. The proposed changes to modify the 2022 pilot
compensation to account for the difference between predicted and actual
inflation would increase the 2022 target compensation value by 3.4
percent. As shown in table 42, this inflation adjustment increases
total compensation by $13,575 per pilot, and the total revenue needed
by $746,627 when accounting for all 55 pilots.

Table 42--Change in Revenue Resulting From the Change to Inflation of
Pilot Compensation Calculation in Step 4
------------------------------------------------------------------------

------------------------------------------------------------------------
2022 Target Pilot Compensation............................. $399,266
Adjusted 2022 Compensation ($399,266 x 1.034%)............. 412,841
Difference between Adjusted Target 2022 Compensation and 13,575
Target 2022 Compensation ($412,841-$399,266)..............
Increase in total Revenue for 55 Pilots ($13,575 x 55)..... 746,627
------------------------------------------------------------------------
* All figures are rounded to the nearest dollar and may not sum.

Similarly, table 43 shows the impact of the difference between
predicted and actual inflation on the target apprentice pilot
compensation benchmark. The inflation adjustment increases the
compensation benchmark by $4,887 per apprentice pilot, and the total
revenue needed by $34,209 when accounting for all seven apprentice
pilots.

Table 43--Change in Revenue Resulting From the Change to Inflation of
Apprentice Pilot Compensation Calculation in Step 4
------------------------------------------------------------------------

------------------------------------------------------------------------
Target Apprentice Pilot Compensation....................... $143,736
Adjusted Compensation ($143,736 x 1.034%).................. 148,623
Difference between Adjusted Target Compensation and Target 4,887
Compensation ($148,623-$143,736)..........................
Increase in total Revenue for Apprentices ($4,887 x 7)..... 34,209
------------------------------------------------------------------------
* All figures are rounded to the nearest dollar and may not sum.

As noted earlier, the Coast Guard predicts that 55 pilots would be
needed for the 2023 season. This would be an increase of four pilots
compared to the 2022 season. The difference reflects an increase of one
pilot in District Two and three pilots in District Three. Table 44
shows the increase of $1,635,044 in revenue needed solely for pilot
compensation. As noted previously, to avoid double counting this value
excludes the change in revenue resulting from the change to adjust 2022
pilotage compensation to account for the difference between actual and
predicted inflation.

[[Page 52896]]

Table 44--Change in Revenue Resulting From Increase of Four Pilots
------------------------------------------------------------------------

------------------------------------------------------------------------
2023 Target Compensation................................... $422,336
Total Number of New Pilots................................. 4
Total Cost of new Pilots ($422,336 x 4).................... $1,689,344
Difference between Adjusted Target 2022 Compensation and $13,575
Target 2022 Compensation ($412,841-$399,266)..............
Increase in total Revenue for 4 Pilots ($13,575 x 4)....... $54,300
Net Increase in total Revenue for 4 Pilots ($1,689,344- $1,635,044
$54,300)..................................................
------------------------------------------------------------------------
* All figures are rounded to the nearest dollar and may not sum.

Similarly, the Coast Guard predicts that seven apprentice pilots
would be needed for the 2023 season. This would be a decrease of two
apprentices from the 2022 season. The difference reflects a decrease of
two apprentices for District Three. Table 45 shows the decrease of
($294,308) in revenue needed solely for apprentice pilot compensation.
As noted previously, to avoid double counting this value excludes the
change in revenue resulting from the change to adjust 2022 apprentice
pilotage compensation to account for the difference between actual and
predicted inflation.

Table 45--Change in Revenue Resulting From Decrease of Two Apprentices
------------------------------------------------------------------------

------------------------------------------------------------------------
2023 Apprentice Target Compensation.................. $152,041
Total Number of New Apprentices...................... (2)
Total Cost of new Apprentices ($152,041 x-2)......... ($304,081.92)
Difference between Adjusted Target 2022 Compensation $4,887
and Target 2022 Compensation ($148,623-$143,736)....
Increase in total Revenue for -2 Apprentices ($4,887 ($9,774)
x-2)................................................
Net Increase in total Revenue for -2 Apprentices (- ($294,308)
$304,082--$9,774)...................................
------------------------------------------------------------------------
* All figures are rounded to the nearest dollar and may not sum.

Another increase, $522,223, would be the result of increasing
compensation for the 55 pilots to account for future inflation of 2.3
percent in 2023. This would increase total compensation by $9,495 per
pilot.

Table 46--Change in Revenue Resulting From Inflating 2022 Compensation
to 2023
------------------------------------------------------------------------

------------------------------------------------------------------------
Adjusted 2022 Compensation................................. $412,841
2023 Target Compensation ($412,841 x 1.023%)............... 422,336
Difference between Adjusted 2022 Compensation and Target 9,495
2023 Compensation ($422,336-$412,841).....................
Increase in total Revenue for 55 Pilots ($9,495 x 55)...... 522,223
------------------------------------------------------------------------
* All figures are rounded to the nearest dollar and may not sum.

Similarly, an increase of $23,927 would be the result of increasing
compensation for the 7 apprentice pilots to account for future
inflation of 2.3 percent in 2023. This would increase total
compensation by $3,418 per apprentice pilot, as shown in table 47.

Table 47--Change in Revenue Resulting From Inflating 2022 Apprentice
Pilot Compensation to 2023
------------------------------------------------------------------------

------------------------------------------------------------------------
Adjusted 2022 Compensation................................. $148,623
2023 Target Compensation ($422,336 x 36%).................. 152,041
Difference between Adjusted Compensation and Target 3,418
Compensation ($152,041-$148,623)..........................
Increase in total Revenue for 7 Apprentice Pilots ($3,418 x 23,927
7)........................................................
------------------------------------------------------------------------
* All figures are rounded to the nearest dollar and may not sum.

Table 48 presents the percentage change in revenue by area and
revenue-component, excluding surcharges, as they are applied at the
district level.\36\
---------------------------------------------------------------------------

\36\ The 2022 projected revenues are from the Great Lakes
Pilotage Rate--2022 Annual Review and Revisions to Methodology final
rule (86 FR 14184), tables 9, 21, and 33. The 2023 projected
revenues are from tables 8, 20, and 32 of this final rule.

[[Page 52897]]

Table 48--Difference in Revenue by Revenue-Component and Area
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Adjusted operating expenses Total target pilot compensation Total target apprentice pilot Working capital fund Total revenue needed
------------------------------------------------------------------------ compensation ---------------------------------------------------------------------
----------------------------------
2022 2023 Percentage 2022 2023 Percentage Percentage 2022 2023 Percentage 2022 2023 Percentage
change change 2022 2023 change change change
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
District One: Designated................................ $2,419,401 $2,549,925 5 $3,992,660 $4,223,360 6 $172,483 $182,449 5.8 $163,077 $188,037 15 $6,747,621 $7,143,771 5.9
District One: Undesignated.............................. 1,613,051 1,699,951 5 3,194,128 3,378,688 6 114,989 121,633 5.8 121,906 140,581 15 5,044,074 5,340,853 5.9
District Two: Undesignated.............................. 1,078,929 1,245,979 15 3,194,128 3,801,024 19 172,483 121,633 -29.5 110,101 139,725 27 4,555,641 5,308,361 16.5
District Two: Designated................................ 1,618,395 1,868,965 15 2,395,596 2,534,016 6 114,989 182,449 58.7 102,261 123,959 21 4,231,241 4,709,389 11.3
District Three: Undesignated............................ 2,603,961 3,447,714 32 5,988,990 7,179,712 20 567,756 358,193 -37 226,880 296,978 31 9,387,588 11,282,597 20.2
District Three: Designated.............................. 711,920 942,599 32 1,597,064 2,111,680 32 150,923 97,929 -35 60,924 85,215 40 2,520,831 3,237,423 28.4
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
* All figures are rounded to the nearest dollar and may not sum.

[[Page 52898]]

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

B. Small Entities

Under the Regulatory Flexibility Act, 5 U.S.C. 601-612, we have
considered whether this proposed rule would have a significant economic
impact on a substantial number of small entities. The term ``small
entities'' comprises small businesses, not-for-profit organizations
that are independently owned and operated and are not dominant in their
fields, and governmental jurisdictions with populations of less than
50,000.
For the rulemaking, the Coast Guard reviewed recent company size
and ownership data for the vessels identified in the GLPMS, and we
reviewed business revenue and size data provided by publicly available
sources such as ReferenceUSA.\37\ As described in section X.A of this
preamble, Regulatory Planning and Review, we found that 285 unique
vessels used pilotage services during the years 2019 through 2021.
These vessels are owned by 59 entities, of which 44 are foreign
entities that operate primarily outside the United States, and the
remaining 15 entities are U.S. entities. We compared the revenue and
employee data found in the company search to the Small Business
Administration's (SBA) small business threshold as defined in the SBA's
``Table of Size Standards'' for small businesses to determine how many
of these companies are considered small entities.\38\ Table 49 shows
the North American Industry Classification System (NAICS) codes of the
U.S. entities and the small entity standard size established by the
SBA.
---------------------------------------------------------------------------

\37\ See <a href="https://resource.referenceusa.com/">https://resource.referenceusa.com/</a>.
\38\ See <a href="https://www.sba.gov/document/support--table-size-standards">https://www.sba.gov/document/support--table-size-standards</a>. SBA has established a ``Table of Size Standards'' for
small businesses that sets small business size standards by NAICS
code. A size standard, which is usually stated in number of
employees or average annual receipts (``revenues''), represents the
largest size that a business (including its subsidiaries and
affiliates) may be in order to remain classified as a small business
for SBA and Federal contracting programs. Accessed April 2022.

Table 49--NAICS Codes and Small Entities Size Standards
----------------------------------------------------------------------------------------------------------------
NAICS Description Small entity size standard
----------------------------------------------------------------------------------------------------------------
238910.................................. Site Preparation Contractors.... $16,500,000
423860.................................. Transportation Equipment And 150 Employees
Supplies.
425120.................................. Wholesale Trade Agents And 100 Employees
Brokers.
483212.................................. Inland Water Passenger 500 Employees
Transportation.
484230.................................. Specialized Freight (Except Used $30,000
Goods) Trucking.
488330.................................. Navigational Services to $41,500,000
Shipping.
561510.................................. Travel Agencies................. $22,000,000
561599.................................. All Other Travel Arrangement And $22,000,000
Reservation Services.
713930.................................. Marinas......................... $8,000,000
813910.................................. Business Associations........... $8,000,000
----------------------------------------------------------------------------------------------------------------

Of the 15 U.S. entities, 8 exceed the SBA's small business
standards for small entities. To estimate the potential impact on the
seven small entities, the Coast Guard used their 2021 invoice data to
estimate their pilotage costs in 2023. Of the seven small entities,
from 2019 to 2021, only five used pilotage services in 2021. We
increased their 2021 costs to account for the changes in pilotage rates
resulting from this proposed rule and the Great Lakes Pilotage Rates--
2021 Annual Review and Revisions to Methodology final rule (86 FR
14184). We estimated the change in cost to these entities resulting
from this rulemaking by subtracting their estimated 2022 pilotage costs
from their estimated 2023 pilotage costs and found the average costs to
small firms will be approximately $25,575, with a range of $1,580 to
$95,381. We then compared the estimated change in pilotage costs
between 2022 and 2023 with each firm's annual revenue. In all but one
case, the impact of the change in estimated pilotage expenses were
below 1 percent of revenues. For one entity, the change in impact would
be 3.7 percent of revenues, as this entity reports revenue
approximately ten times less than the next largest small entity.
In addition to the owners and operators discussed previously, three
U.S. entities that receive revenue from pilotage services will be
affected by this rulemaking. These are the three pilot associations
that provide and manage pilotage services within the Great Lakes
districts. These associations are designated with the same NAICS code
as Business Associations \39\ with a small-entity size standard of
$8,000,000. Based on the reported revenues from audit reports, none of
the associations qualify as small entities.
---------------------------------------------------------------------------

\39\ In previous rulemakings, the associations used a different
NAICS code, 483212 Inland Water Passenger Transportation, which had
a size standard of 500 employees and, therefore, designated the
associations as small entities. The change in NAICS code comes from
an update to the association's ReferenceUSA profile in February
2022.
---------------------------------------------------------------------------

Finally, the Coast Guard did not find any small not-for-profit
organizations that are independently owned and operated and are not
dominant in their fields that will be impacted by this proposed rule.
We also did not find any small governmental jurisdictions with
populations of fewer than 50,000 people that will be impacted by this
rulemaking. Based on this analysis, we conclude this rulemaking would
not affect a substantial number of small entities, nor have a
significant economic impact on any of the affected entities.
Therefore, the Coast Guard certifies under 5 U.S.C. 605(b) that
this proposed rule would not have a significant economic impact on a
substantial number of small entities. If you think that your business,
organization, or governmental jurisdiction qualifies as a small entity
and that this proposed rule would have a significant economic impact on
it, please submit a comment

[[Page 52899]]

to the docket at the address listed in the Public Participation and
Request for Comments section of this preamble. In your comment, explain
why you think it qualifies and how and to what degree this proposed
rule would economically affect it.

C. Assistance for Small Entities

Under section 213(a) of the Small Business Regulatory Enforcement
Fairness Act of 1996, Public Law 104-121, we want to assist small
entities in understanding this proposed rule so that they can bette

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