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Rule2024-29128

Great Lakes Pilotage Rates-2025 Annual Review

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Published

December 13, 2024

Effective

January 13, 2025

Issuing agencies

Homeland Security DepartmentCoast Guard

Abstract

In accordance with the statutory provisions enacted by the Great Lakes Pilotage Act of 1960, the Coast Guard is issuing new pilotage rates for 2025. This rule adjusts the pilotage rates to account for changes in district operating expenses, an increase in the number of pilots, and anticipated inflation. These changes, when combined, result in a 7-percent net increase in pilotage costs compared to the 2024 season.

Full Text

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<title>Federal Register, Volume 89 Issue 240 (Friday, December 13, 2024)</title>
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[Federal Register Volume 89, Number 240 (Friday, December 13, 2024)]
[Rules and Regulations]
[Pages 100810-100838]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-29128]

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DEPARTMENT OF HOMELAND SECURITY

Coast Guard

46 CFR Part 401

[Docket No. USCG-2024-0406]
RIN 1625-AC94

Great Lakes Pilotage Rates--2025 Annual Review

AGENCY: Coast Guard, DHS.

ACTION: Final rule.

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SUMMARY: In accordance with the statutory provisions enacted by the
Great Lakes Pilotage Act of 1960, the Coast Guard is issuing new
pilotage rates for 2025. This rule adjusts the pilotage rates to
account for changes in district operating expenses, an increase in the
number of pilots, and anticipated inflation. These changes, when
combined, result in a 7-percent net increase in pilotage costs compared
to the 2024 season.

DATES: This final rule is effective January 13, 2025.

ADDRESSES: To view documents mentioned in this preamble as being
available in the docket, go to <a href="http://www.regulations.gov">www.regulations.gov</a>, type USCG-2024-0406
in the search box and click ``Search.'' Next, in the Document Type
column, select ``Supporting & Related Material.''

FOR FURTHER INFORMATION CONTACT: For information about this document,
call or email Mr. Brian Rogers, Commandant, Office of Waterways and
Ocean Policy--Great Lakes Pilotage Division (CG-WWM-2), Coast Guard;
telephone 410-360-9260, email <a href="/cdn-cgi/l/email-protection#1b5969727a753549747c7e69685b6e68787c35767277"><span class="__cf_email__" data-cfemail="7634041f1718582419111304053603051511581b1f1a">[email&#160;protected]</span></a>.

SUPPLEMENTARY INFORMATION:

Table of Contents for Preamble

I. Abbreviations
II. Basis and Purpose, and Regulatory History
III. Background
IV. Final Pilotage Rates for 2025
V. Discussion of Comments and Changes
VI. Summary of the Ratemaking Methodology
VII. Discussion of the Rate Adjustments
District One
A. Step 1: Recognize Previous Operating Expenses
B. Step 2: Project Operating Expenses, Adjusting for Inflation
or Deflation
C. Step 3: Estimate Number of Registered Pilots and Apprentice
Pilots
D. Step 4: Determine Target Pilot Compensation Benchmark and
Apprentice Pilot Wage Benchmark
E. Step 5: Project Working Capital Fund
F. Step 6: Project Needed Revenue
G. Step 7: Calculate Initial Base Rates
H. Step 8: Calculate Average Weighting Factors by Area
I. Step 9: Calculate Revised Base Rates
J. Step 10: Review and Finalize Rates
District Two
A. Step 1: Recognize Previous Operating Expenses
B. Step 2: Project Operating Expenses, Adjusting for Inflation
or Deflation
C. Step 3: Estimate Number of Registered Pilots and Apprentice
Pilots
D. Step 4: Determine Target Pilot Compensation Benchmark and
Apprentice Pilot Wage Benchmark
E. Step 5: Project Working Capital Fund
F. Step 6: Project Needed Revenue
G. Step 7: Calculate Initial Base Rates
H. Step 8: Calculate Average Weighting Factors by Area
I. Step 9: Calculate Revised Base Rates
J. Step 10: Review and Finalize Rates
District Three
A. Step 1: Recognize Previous Operating Expenses
B. Step 2: Project Operating Expenses, Adjusting for Inflation
or Deflation
C. Step 3: Estimate Number of Registered Pilots and Apprentice
Pilots
D. Step 4: Determine Target Pilot Compensation Benchmark and
Apprentice Pilot Wage Benchmark
E. Step 5: Project Working Capital Fund
F. Step 6: Project Needed Revenue
G. Step 7: Calculate Initial Base Rates
H. Step 8: Calculate Average Weighting Factors by Area
I. Step 9: Calculate Revised Base Rates
J. Step 10: Review and Finalize Rates
VIII. Regulatory Analyses
A. Regulatory Planning and Review
B. Small Entities
C. Assistance for Small Entities
D. Collection of Information
E. Federalism
F. Unfunded Mandates
G. Taking of Private Property
H. Civil Justice Reform
I. Protection of Children
J. Indian Tribal Governments
K. Energy Effects
L. Technical Standards
M. Environment

I. Abbreviations

2023 final rule Great Lakes Pilotage Rates--2023 Annual Ratemaking
and Review of Methodology
2024 final rule Great Lakes Pilotage Rates--2024 Annual Review
2025 Ratemaking NPRM Great Lakes Pilotage Rates--2025 Annual Review
notice of proposed rulemaking
APA American Pilots' Association
BLS Bureau of Labor Statistics
CFR Code of Federal Regulations
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
GLPAC Great Lakes Pilotage Advisory Committee
LPA Lakes Pilots Association
MOU Memorandum of Understanding
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 Pilots Association
U.S.C. United States Code
WGLPA Western Great Lakes Pilots Association

II. Basis and Purpose, and Regulatory History

The legal basis of this rulemaking is 46 U.S.C. Chapter 93,\1\
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.\2\ For U.S. Great Lakes Pilots, the statute requires the
Secretary to ``prescribe by regulation rates and charges for pilotage
services, giving consideration to the public interest and the costs of
providing the services.'' Title 46 of the U.S.C. 9303(f) also requires
that rates be established or reviewed and adjusted each year, no later
than March 1. The Secretary's duties and authority under 46 U.S.C.
Chapter 93 have generally been delegated to the Coast Guard.\3\
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\1\ 46 U.S.C. 9301-9308.
\2\ 46 U.S.C. 9302(a)(1).
\3\ Department of Homeland Security Delegation No. 00170.1
(II)(92)(f), Revision No. 01.4. The Secretary retains the authority
under Section 9307 to establish, and appoint members to, a Great
Lakes Pilotage Advisory Committee.
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The purpose of this final rule is to issue new pilotage rates for
2025 by revising a base rate established in 2023.

[[Page 100811]]

The Coast Guard believes that the new rates will continue to promote
our goal, as outlined in 46 CFR 404.1(a), to promote safe, efficient,
and reliable pilotage service in the Great Lakes by generating
sufficient revenue for each pilot association, to reimburse its
necessary and reasonable operating expenses, fairly compensate trained
and rested Pilots, and provide appropriate funds to use for
improvements.

III. Background

Rates are the foundation for safe, efficient, and reliable pilotage
service to facilitate maritime commerce, protect the marine
environment, and comply with National Transportation Safety Board
recommendations regarding staffing and pilot fatigue. The pilotage
rates for the 2025 season range from $440 to $986 per pilot hour,
depending on which of the specific six areas pilotage service is
provided, and are paid by shippers to the pilot associations.
There are three American pilotage districts on the Great Lakes,
each represented by a pilot association.\4\ Each pilotage district is
further divided into ``designated'' and ``undesignated'' areas.
Designated areas, classified as such by Presidential Proclamation, are
waters in which pilots must direct the navigation of vessels at all
times.\5\ Undesignated areas are open bodies of water where pilots must
only ``be on board and available to direct the navigation of the
vessel'' at the discretion of the vessel master.\6\ For these reasons,
pilotage rates in designated areas can be significantly higher than
those in undesignated areas.
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\4\ The Saint Lawrence Seaway Pilots Association provides
pilotage services in District One, which includes all U.S. waters of
the St. Lawrence River and Lake Ontario. The Lakes Pilots
Association 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 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.
\5\ Presidential Proclamation 3385, Designation of restricted
waters under the Great Lakes Pilotage Act of 1960, December 22,
1960, <a href="https://www.archives.gov/federal-register/codification/proclamations/03385.html">https://www.archives.gov/federal-register/codification/proclamations/03385.html</a>; accessed 10/25/2024.
\6\ 46 U.S.C. 9302(a)(1)(B).
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The three pilot associations, which are the exclusive U.S. source
of Registered Pilots on the Great Lakes, use the revenue from the
shippers to cover operating expenses, maintain infrastructure,
compensate Apprentice and Registered Pilots, acquire and implement
technological advances, train new personnel, and provide for continuing
professional development. Each pilot association is an independent
business and is the sole provider of pilotage services in its district
of operation. Each pilot association is responsible for funding its own
operating expenses, infrastructure maintenance, and compensation for
Pilots and Apprentice Pilots.\7\
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\7\ 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.
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The actual demand for service dictates the compensation amount for
United States Registered Pilots. We divide that amount by the historic
10-year average for pilotage demand. We recognize that in years where
demand for pilotage services exceeds the 10-year average, pilot
associations will accrue more revenue than projected, while in years
where demand is below average, they will take in less. We believe over
the long term, however, this scheme 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.
For this final rule, we conducted our annual review and interim
adjustment to the base pilotage rates for 2025. The Coast Guard last
conducted a full ratemaking in 2023, with the ``Great Lakes Pilotage
Rates--2023 Annual Ratemaking and Review of Methodology'' final rule
(hereafter the 2023 final rule) (88 FR 12226, published February 27,
2023). This final rule is an interim ratemaking under 46 CFR
404.100(b).

IV. Final Pilotage Rates for 2025

In this final rule, we set new pilotage rates for 2025. We
conducted this 2025 ratemaking as an interim ratemaking, as we did with
the ``Great Lakes Pilotage Rates--2024 Annual Review'' final rule
(hereafter the 2024 final rule) (89 FR 9038, published February 9,
2024). Thus, the Coast Guard adjusts the compensation benchmark
following the interim ratemaking procedures under Sec. 404.100(b),
rather than following the procedures for a full ratemaking under Sec.
404.100(a).
The Coast Guard is setting the rates shown in table 1.

Table 1--Current and 2025 Pilotage Rates on the Great Lakes
----------------------------------------------------------------------------------------------------------------
Final 2024 Final 2025
Area Name pilotage rate pilotage rate
----------------------------------------------------------------------------------------------------------------
District One: Designated................... St. Lawrence River........... $927 $986
District One: Undesignated................. Lake Ontario................. 608 643
District Two: Designated................... Navigable waters from 667 753
Southeast Shoal to Port
Huron, MI.
District Two: Undesignated................. Lake Erie.................... 597 576
District Three: Designated................. St. Marys River.............. 836 825
District Three: Undesignated............... Lakes Huron, Michigan, and 430 440
Superior.
----------------------------------------------------------------------------------------------------------------

This final rule affects 61 U.S. Great Lakes Pilots, 3 Apprentice
Pilots, 3 pilot associations, and the owners and operators of an
average of 280 oceangoing vessels that transit the Great Lakes
annually. This final rule will not affect the Coast Guard's budget or
increase Federal spending because foreign shippers, foreign cruise
ships, and vessels requesting voluntary pilotage pay these rates
directly to the respective pilot association The estimated overall
annual regulatory economic impact of this rate change will be a net
increase of $2,879,028 in payments made by the foreign shippers,
foreign cruise ships, and vessels requesting voluntary pilotage
service, which is a 7-percent increase from operating costs in the 2024
shipping season. This represents an increase in revenue needed for
target Pilot compensation, a decrease in revenue needed for the total
Apprentice Pilot wage benchmark, an increase in the revenue needed for
adjusted operating expenses, and an increase in the revenue needed for
the working capital fund.

[[Page 100812]]

This final rule establishes the 2025 yearly target compensation for
Pilots on the Great Lakes at $464,317 per Pilot (a $23,659, or 5.37
percent, increase over their 2024 target compensation). Because the
Coast Guard must review, and, if necessary, adjust rates each year, we
analyze these as single-year costs and do not annualize them over 10
years. Section VIII., Regulatory Analyses, in this preamble, provides
the regulatory impact analyses of this final rule.

V. Discussion of Comments and Changes

We received three comments in response to the notice of proposed
rulemaking (NPRM) for this this final rule, titled ``Great Lakes
Pilotage Rates--2025 Annual Review'' (hereafter 2025 Ratemaking NPRM)
(89 FR 63334, published August 5, 2024). We made no changes to the
rates in response to those comments.
One anonymous commenter was concerned that the ratemaking
methodology was not accurately capturing trends in demand, citing this
year's rate increase in District One as surprising, given that transits
and time on task have gone down over the past couple of seasons. While
the ratemaking methodology itself is not included in the scope of this
rule, we note that the 10-year rolling average is designed to minimize
volatility in the ratemaking. This decision has been confirmed by the
courts as a ``rational choice.'' Am. Great Lake Ports Assn. v. United
States Coast Guard.\8\
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\8\ 443 F. Supp. 3d 44 (D.D.C. 2020).
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Another commenter, representing three trade associations, suggested
that the Coast Guard should use Federal Open Market Committee (FOMC)
Projections for the inflation numbers used in Step 2 of the
methodology. Modifying the ratemaking methodology is outside the scope
of this rule--since this is an interim ratemaking--but we will consider
this suggestion in the next full ratemaking.\9\
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\9\ This commenter also submitted an earlier comment requesting
an extension for the comment period.
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The same commenter supported the elimination of the Working Capital
Fund in Step 5 of the ratemaking process. We appreciate the commenter's
support, but elimination of the Working Capital Fund is outside the
scope of this rule and will be addressed in next year's full
ratemaking.
This commenter also supported District One's efforts to improve
their dispatch operations and suggested that Districts Two and Three
make similar efforts. Pilotage association dispatch operations are
outside the scope of this rulemaking, but we will take the comment
under advisement for potential future rulemakings.
This commenter suggested that the Coast Guard should update the
Memorandum of Understanding (MOU) between the U.S. Coast Guard and the
Canadian Great Lakes Pilotage Authority because that ``document
provides for the coordination of services, including the division of
dispatch activity and the sharing of work assignments.'' The MOU is
outside the scope of this rulemaking, but we will take this comment
under advisement and communicate it to the relevant parties.
The commenter urged the Coast Guard to make individual pilot
compensation publicly available. The Coast Guard will not accommodate
this request. Compensation of individual pilots is not included in the
expense base or methodology, and, therefore, we decline to add a
regulatory requirement for pilot associations to publicly report the
compensation of individual pilots. The Coast Guard does not use actual
earnings or average earnings; instead, we use target pilot compensation
(described in Step 4 of the existing methodology), which the Coast
Guard has determined to be reasonable and necessary. Because actual
individual salary values are not used in the ratemaking, the Coast
Guard believes that a requirement to report pilot compensation is not
in the public interest or necessary to provide for the costs of
services. Concerns about equity among the pilots are outside the scope
of this rulemaking.
The commenter's last suggestion was that the Coast Guard should
conduct a line-by-line inspection of pilot association expenses to
determine if they meet the ``necessary and reasonable'' standard. This
is a suggested change to the methodology, which is outside the scope of
this rule. We will consider this comment for the next full ratemaking.
The last comment, from the Western Great Lakes Pilots Association
(WGLPA), contained three requests for the Coast Guard. First, WGLPA
requested an upward adjustment of $47,924 based on legal expenses
related to negotiations of the collective bargaining agreement between
the WGLPA and the International Longshoremen's Association. However,
the only evidence of these charges was a letter from WGLPA's outside
counsel. In order to make a change to the expenses, the Coast Guard
would need to see verifiable and detailed evidence that explains those
charges. For legal work, a detailed record of an attorney's billable
hours would be sufficient. Even with this information, we may not be
able to recognize this expense as the other pilot associations perform
this function without incurring substantial legal expenses. We would
also need additional justification to determine if this was a necessary
expense, and if so, whether all or some portion of the expense is a
reasonable amount to include in the association's expense base.
Second, WGLPA requested an upward adjustment of $45,296 based on a
2023 arbitration ruling that found that wages were owed for work
performed by their dispatch team. These are 2023 expenses and,
therefore, cannot be added to this year's ratemaking. If properly
submitted next year to CohnReznick (the third-party firm under contract
to create revenue and expense reports for the three pilot association
expenses), the expenses will be evaluated in next year's ratemaking.
Last, WGLPA alleged that they did not have sufficient opportunity
to engage with the Coast Guard and CohnReznick to adequately provide
explanation or documentation for certain expenses. The Coast Guard
disagrees with this assertion. According to our records, the
opportunity to provide documentation and information to CohnReznick
commenced on August 10, 2023, and concluded on January 24, 2024, a day
before the draft report was generated. We believe WGLPA had sufficient
time to organize and segregate records to comply with the Coast Guard
contract to perform this work. Additionally, the Director confirmed
with CohnReznick personnel that they verbally communicated the project
timeline to WGLPA personnel during the initial ``prepared by client''
phone call on August 10, 2023, and, on the same day, emailed the WGLPA
with a list of documents and information the WGLPA would need to
provide in order to successfully produce the report.
The only change from the NPRM results from updated inflation data
becoming available since the publication of the proposed rule. Table 2
summarizes the changes between the 2025 Ratemaking NPRM and this final
rule. This table includes changes from the proposed rule that are not
based on comments from the NPRM.

[[Page 100813]]

Table 2--Changes Between the NPRM and Final Rule
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Change Reasoning
------------------------------------------------------------------------
Updates 2023 Employment Cost Index More recent figures were
(ECI) inflation from 5.1%, listed in published since the Coast
the NPRM, to 5.6%. Guard conducted the analysis
for the NPRM.
Updates 2024 Personal Consumption
Expenditures (PCE) inflation from
2.4%, listed in the NPRM, to 2.8%.
Updates 2025 PCE inflation from 2.2%,
listed in the NPRM, to 2.3%.
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VI. Summary of the Ratemaking Methodology

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 first
several steps of the methodology establish base pilotage rates.
Additional steps to incorporate the weighting factors are necessary to
establish the final pilotage rates. 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 U.S. Coast Guard's Director of the Great Lakes Pilotage
(Director) uses an independent third party to review each pilot
association's audited operating expenses from each of the three pilot
associations. Operating expenses include all allowable expenses, minus
Pilot and Apprentice Pilot 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 when the
Coast Guard receives audited numbers, this number is 3 years behind the
projected year of expenses. Therefore, in calculating the 2025 rates in
this final rule, we began with the audited expenses from the shipping
activity in 2022.
While each pilot association operates in an entire district,
including both designated and undesignated areas, the Coast Guard
determines costs by area. 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
accrued. For example, we can allocate the costs of 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 2025 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 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 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 provides guidance to the Director in approving an appropriate
number of Pilots.
At the September 7, 2023 Great Lakes Pilotage Advisory Committee
(GLPAC) meeting, there was a unanimous recommendation for an August 1
cutoff date to allow an Apprentice Pilot, who has completed all their
training, to be recognized as a fully registered Pilot in the rate.\10\
The Coast Guard agrees that this change is both necessary and
reasonable, as it provides the proper compensation based on the most
accurate data. If an Apprentice Pilot is scheduled to complete training
and becomes a fully registered Pilot before August 1, they will be
counted as a fully registered Pilot in the rate; if they do not meet
the August 1 deadline, those funds may be adjusted in the proceeding
rate for up to the full amount. In addition, if a fully registered
Pilot retires, or an Apprentice Pilot resigns, and has been counted in
the rate, the proceeding rate may be adjusted accordingly for up to the
full amount.
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\10\ Transcript of United States Coast Guard GLPAC Meeting at 97
(Sept. 7, 2023), <a href="https://www.regulations.gov/document/USCG-2023-0438-0009">https://www.regulations.gov/document/USCG-2023-0438-0009</a>; accessed 10/25/2024.
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In Step 4 of the ratemaking calculation, we determine the number of
Pilots provided by the pilot 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(b)(1)), the Director adjusts the previous
year's individual target Pilot compensation by the difference between
the previous year's BLS ECI for the Transportation and Materials sector
and the FOMC median economic projections for PCE inflation value used
to inflate the previous year's target Pilot compensation.
In the second part of Step 4, (Sec. 404.104(b)(2)), the Director
then adjusts that value by the FOMC median economic projections for PCE
inflation for the upcoming year.
In the final part of Step 4, Sec. 404.104(c) and (d), the Director
determines the total target 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. Based on the total Pilot
compensation, the Director determines the individual Apprentice Pilot
wage benchmark at the rate of 36 percent of the individual target Pilot
compensation, as calculated according to paragraphs (a) or (b) of this
section.
In Step 5, ``Project working capital fund,'' (Sec. 404.105), the
Director calculates an added value 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
target Pilot compensation and the total target Apprentice Pilot wage
(derived in Step 4), then by 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 the totals produced by the preceding steps. The
projected operating expenses for each area and district (from Step 2)
is

[[Page 100814]]

added to the total target 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 average of traffic hours for each area. Next,
we divide the revenue needed in each area (calculated in Step 6) by the
10-year average of traffic hours 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). This significantly increases
the revenue collected, and 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 pilot association
to reimburse necessary and reasonable operating expenses; compensating
trained and rested pilots fairly; and providing appropriate revenue for
improvements.

VII. Discussion of the Rate Adjustments

District One

A. Step 1: Recognize Previous Operating Expenses
Step 1 in the ratemaking methodology requires that the Coast Guard
review and recognize the operating expenses for the last full year for
which figures are available (Sec. 404.101). To do so, we begin by
reviewing the independent accountant's financial reports for each
association's 2022 expenses and revenues. 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, the cost is divided between the designated and
undesignated areas on a pro rata basis. 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
ADDRESSES portion of this preamble.
The recognized operating expenses for District One are shown in
table 3.

Table 3--2022 Recognized Expenses for District One
----------------------------------------------------------------------------------------------------------------
District One
--------------------------------------------------------
Designated Undesignated
Reported operating expenses for 2022 --------------------------------------
St. Lawrence Total
River Lake Ontario
----------------------------------------------------------------------------------------------------------------
Applicant Pilot Compensation:
Salaries........................................... $35,411 $23,608 $59,019
Employee benefits.................................. 11,628 7,752 19,380
--------------------------------------------------------
Total Applicant Pilot Compensation............. 47,039 31,360 78,399
Other Pilotage Cost:
Pilot Subsistence.................................. 148,350 98,900 247,250
Hotel/Lodging Costs................................ 31,222 20,815 52,037
Travel............................................. 535,016 356,678 891,694
Payroll Taxes...................................... 228,222 152,148 380,370
--------------------------------------------------------
Total Other Pilotage Costs..................... 942,810 628,541 1,571,351
Pilot Boat and Dispatch Costs:
Pilot boat costs................................... 178,691 119,127 297,818
Dispatch costs..................................... 232,196 154,798 386,994
Salaries........................................... 253,761 169,174 422,935
--------------------------------------------------------
Total Pilot and Dispatch Costs................. 664,648 443,099 1,107,747
Administrative Expenses:
Legal.............................................. 301 201 502
Legal--shared counsel (K&L Gates).................. 6,178 4,119 10,297
Legal--USCG Litigation............................. 61,625 41,083 102,708
Insurance.......................................... 44,603 29,735 74,338
Employee benefits.................................. 47,517 31,678 79,195
Payroll Taxes...................................... 48,433 32,288 80,721
Other taxes........................................ 81,576 54,384 135,960
Real Estate taxes.................................. 23,000 15,333 38,333
Travel............................................. 23,098 15,399 38,497
Depreciation/Auto leasing/Other.................... 108,836 72,558 181,394
Interest........................................... 20,257 13,504 33,761

[[Page 100815]]

American Pilots' Association (APA) Dues............ 32,927 21,951 54,878
Dues and subscriptions............................. 4,560 3,040 7,600
Utilities.......................................... 40,478 26,986 67,464
Salaries........................................... 223,539 149,026 372,565
Accounting/Professional fees....................... 9,900 6,600 16,500
Applicant Pilot Training............................... 69,383 46,255 115,638
Other expenses......................................... 19,083 12,722 31,805
--------------------------------------------------------
Total Administrative Expenses.................. 865,294 576,862 1,442,156
----------------------------------------------------------------------------------------------------------------
Total Expenses (OPEX + Applicant + Pilot Boats + Admin 2,519,791 1,679,862 4,199,653
+ Capital)............................................
----------------------------------------------------------------------------------------------------------------

B. Step 2: Project Operating Expenses, Adjusting for Inflation or
Deflation
In accordance with the text in Sec. 404.102, having identified the
recognized 2022 operating expenses in Step 1, the next step is to
estimate the current year's operating expenses by adjusting 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
2023 inflation rate.\11\ Because the BLS does not provide forecasted
inflation data, we use economic projections from the Federal Reserve
for the 2024 and 2025 inflation modification.\12\ Based on that
information, the calculations for Step 2 are as presented in table 4.
---------------------------------------------------------------------------

\11\ The CPI is defined as ``All Urban Consumers (CPI-U), All
Items, 1982-4=100.'' Series CUUR0200SA0 (Downloaded February 22,
2024). Available at <a href="https://www.bls.gov/cpi/data.htm">https://www.bls.gov/cpi/data.htm</a>., All Urban
Consumers (Current Series), multiscreen data, not seasonally
adjusted, 0200 Midwest, Current, All Items, Monthly, 12-month
Percent Change and Annual Data; accessed 10/25/2024.
\12\ The 2024 and 2025 inflation rates are available at <a href="https://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20240918.pdf">https://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20240918.pdf</a>. We used the Core PCE June Projection found
in table 1; accessed 10/02/2024.

Table 4--Adjusted Operating Expenses for District One
----------------------------------------------------------------------------------------------------------------
District One
--------------------------------------------------------
Designated Undesignated Total
----------------------------------------------------------------------------------------------------------------
Total Operating Expenses (Step 1)...................... $2,519,791 $1,679,862 $4,199,653
2023 Inflation Modification (@3.8%).................... 95,752 63,835 159,587
2024 Inflation Modification (@2.8%).................... 73,235 48,824 122,059
2025 Inflation Modification (@2.3%).................... 61,842 41,228 103,070
--------------------------------------------------------
Adjusted 2025 Operating Expenses................... 2,750,620 1,833,749 4,584,369
----------------------------------------------------------------------------------------------------------------

C. Step 3: Estimate Number of Registered Pilots and Apprentice Pilots
In accordance with the text in Sec. 404.103, the Coast Guard
estimates the number of fully registered Pilots in each district. In
the past, this was done using the staffing model and the process
described in Sec. 404.103. During the 2023 GLPAC meeting, there was a
unanimous recommendation by the GLPAC that, after 2024, the Director be
given discretion to increase the staffing model plus three Pilots per
District, based on industry demand and to ensure shipping
reliability.\13\ Additionally, the previous staffing model's maximum is
now considered the minimum in regard to the number of Pilots needed in
each district.\14\
---------------------------------------------------------------------------

\13\ Transcript, supra note 8, at 89-90.
\14\ Id. at 57-58.
---------------------------------------------------------------------------

We determine the number of fully registered Pilots based on data
provided by the St. Lawrence Seaway Pilots Association (SLSPA) as well
as the previously mentioned recommendation. We determine the number of
Apprentice Pilots based on input from the district on anticipated
retirements and staffing needs. These numbers can be found in table 5.

Table 5--Authorized Pilots for District One
------------------------------------------------------------------------
Item District One
------------------------------------------------------------------------
2025 Authorized Pilots (total)....................... 20
2025 Pilots Assigned to Designated Areas............. 11
2025 Pilots Assigned to Undesignated Areas........... 9
2025 Apprentice Pilots............................... 1
------------------------------------------------------------------------

[[Page 100816]]

\15\ Employment Cost Index, Total Compensation for Private
Industry workers in Transportation and Material Moving, Annual
Average, Series ID: CIU2010000520000A. <a href="https://www.bls.gov/news.release/eci.t05.htm">https://www.bls.gov/news.release/eci.t05.htm</a>; accessed 10/31/2024.
\16\ 2.6 percent was the latest figure available for the 2024
final rule. Table 1, Summary of Economic Projections, Median Core
PCE Inflation June Projection. <a href="https://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20230920.pdf">https://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20230920.pdf</a>;.accessed05/31/2024.
---------------------------------------------------------------------------

The second step accounts for projected inflation from 2024 to 2025,
which is 2.3 percent.\17\ Based on the projected 2025 inflation
estimate, the target compensation benchmark for 2025 is $464,317 per
pilot. The Apprentice Pilot wage benchmark is 36 percent of the target
Pilot compensation, or $167,154 ($464,317 x 0.36).
---------------------------------------------------------------------------

\17\ Table 1, Summary of Economic Projections, Median Core PCE
Inflation June Projection. <a href="https://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20240918.pdf">https://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20240918.pdf</a>; accessed 10/02/2024.
---------------------------------------------------------------------------

In accordance with Sec. 404.104(c), we use the revised target
individual compensation level to derive the total target 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 needed will
be one for District One in the 2025 rulemaking. The total target wages
for Apprentice Pilots 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.............................. $464,317 $464,317 $464,317
Number of Pilots....................................... 11 9 20
--------------------------------------------------------
Total Target Pilot Compensation.................... 5,107,487 4,178,853 9,286,340
Target Apprentice Pilot Compensation................... 167,154 167,154 167,154
Number of Apprentice Pilots............................ ................. ................. 1
--------------------------------------------------------
Total Target Apprentice Pilot Compensation......... 100,292 66,862 167,154
----------------------------------------------------------------------------------------------------------------

E. Step 5: Project Working Capital Fund
Next, the Coast Guard calculates the working capital fund revenues
needed for each area. We first add the figures for projected operating
expenses, total target 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 4.8100 percent,
rounded.\18\ By multiplying the two figures, we obtain the working
capital fund contribution for each area, as shown in table 7.
---------------------------------------------------------------------------

\18\ Moody's Seasoned Aaa Corporate Bond Yield, average of 2023
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>; accessed 10/25/2024.

Table 7--Working Capital Fund Calculation for District One
----------------------------------------------------------------------------------------------------------------
District One
--------------------------------------------------------
Designated Undesignated Total
----------------------------------------------------------------------------------------------------------------
Adjusted Operating Expenses (Step 2)................... $2,750,620 $1,833,749 $4,584,369
Total Target Pilot Compensation (Step 4)............... 5,107,487 4,178,853 9,286,340
Total Target Apprentice Pilot Compensation (Step 4).... 100,292 66,862 167,154
--------------------------------------------------------
Total 2025 Expenses................................ 7,958,399 6,079,464 14,037,863
----------------------------------------------------------------------------------------------------------------
Working Capital Fund (4.8100%)......................... 382,799 292,422 675,221
----------------------------------------------------------------------------------------------------------------

F. Step 6: Project Needed Revenue
In this step, we add the expenses accrued to derive the total
revenue needed for each area. These expenses include the projected
operating expenses (from Step 2), the total target 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.

[[Page 100817]]

Table 8--Revenue Needed for District One
----------------------------------------------------------------------------------------------------------------
District One
--------------------------------------------------------
Designated Undesignated Total
----------------------------------------------------------------------------------------------------------------
Adjusted Operating Expenses (Step 2)................... $2,750,620 $1,833,749 $4,584,369
Total Target Pilot Compensation (Step 4)............... 5,107,487 4,178,853 9,286,340
Total Target Apprentice Pilot Compensation (Step 4).... 100,292 66,862 167,154
Working Capital Fund (Step 5).......................... 382,799 292,422 675,221
--------------------------------------------------------
Total Revenue Needed............................... 8,341,198 6,371,886 14,713,084
----------------------------------------------------------------------------------------------------------------

G. Step 7: Calculate Initial Base Rates
Having determined the revenue needed for each area in the previous
six steps, we divide that number by the expected number of traffic
hours to develop an hourly rate.
Step 7 is a two-part process. The first part entails calculating
the 10-year traffic average 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 used billing data from SeaPro. 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
------------------------------------------------------------------------
2023.............................. 5,810 7,650
2022.............................. 6,577 8,356
2021.............................. 6,166 7,893
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
-------------------------------------
Average....................... 6,559 7,673
------------------------------------------------------------------------

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)........... $8,341,198 $6,371,886
Average time on task (hours)...... 6,559 7,673
Initial rate...................... $1,272 $830
------------------------------------------------------------------------

H. Step 8: Calculate Average Weighting Factors by Area
In this step, the Coast Guard calculates the average weighting
factor for each designated and undesignated area by first collecting
the weighting factors, set forth in 46 CFR 401.400, for each vessel
trip. Using the weight factor report from SeaPro, 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.

Table 11--Average Weighting Factor for District One, Designated Areas
----------------------------------------------------------------------------------------------------------------
Number of Weighted transits
Vessel class/year transits Weighting factor *
----------------------------------------------------------------------------------------------------------------
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

[[Page 100818]]

Class 1 (2020)......................................... 8 1 8
Class 1 (2021)......................................... 10 1 10
Class 1 (2022)......................................... 39 1 39
Class 1 (2023)......................................... 19 1 19
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 2 (2022)......................................... 462 1.15 531
Class 2 (2023)......................................... 481 1.15 553
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 3 (2022)......................................... 103 1.3 134
Class 3 (2023)......................................... 34 1.3 44
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
Class 4 (2022)......................................... 446 1.45 647
Class 4 (2023)......................................... 420 1.45 609
--------------------------------------------------------
Total.............................................. 8,708 ................. 11,216
----------------------------------------------------------------------------------------------------------------
Average weighting factor (weighted transits / number of ................. 1.29 .................
transits).............................................
----------------------------------------------------------------------------------------------------------------
* Weighted transits are rounded to the nearest whole number for presentation, but the Total calculation uses
unrounded figures.

Table 12--Average Weighting Factor for District One, Undesignated Areas
----------------------------------------------------------------------------------------------------------------
Number of Weighted transits
Vessel class/year transits Weighting factor *
----------------------------------------------------------------------------------------------------------------
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 1 (2022)......................................... 27 1 27
Class 1 (2023)......................................... 31 1 31
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 2 (2022)......................................... 349 1.15 401
Class 2 (2023)......................................... 346 1.15 398
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

[[Page 100819]]

Class 3 (2019)......................................... 58 1.3 75
Class 3 (2020)......................................... 35 1.3 46
Class 3 (2021)......................................... 71 1.3 92
Class 3 (2022)......................................... 65 1.3 85
Class 3 (2023)......................................... 44 1.3 57
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
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
Class 4 (2022)......................................... 386 1.45 560
Class 4 (2023)......................................... 328 1.45 476
--------------------------------------------------------
Total.............................................. 7,214 ................. 9,326
----------------------------------------------------------------------------------------------------------------
Average weighting factor (weighted transits / number of ................. 1.29 .................
transits).............................................
----------------------------------------------------------------------------------------------------------------
* Weighted transits are rounded to the nearest whole number for presentation, but the Total calculation uses
unrounded figures.

I. Step 9: Calculate Revised Base Rates
After considering the impact of the weighting factors, we revise
the base rates in this step so that the total costs of pilotage will be
equal to the revenue needed. To do this, we divide the initial base
rates calculated in Step 7 by the average weighting factors calculated
in Step 8, as shown in table 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............................... $1,272 1.29 $986
District One: Undesignated............................. 830 1.29 643
----------------------------------------------------------------------------------------------------------------

J. Step 10: Review and Finalize Rates
In this step, the Director reviews the base pilotage rates
calculated in Sec. 404.109 of this part to ensure it meets the goal of
ensuring safe, efficient, and reliable pilotage service. To establish
this, the Director considers whether the rates incorporate appropriate
compensation for Pilots to handle heavy traffic periods and whether
there are enough Pilots to handle those heavy traffic periods. The
Director also considers whether the rates will cover operating expenses
and infrastructure costs, including average traffic and weighting
factors. Based on these considerations, the Director did not propose
any alterations to the rates in this step. We modified Sec.
401.405(a)(1) and (2) to reflect the final rates shown in table 14.

Table 14--Final Rates for District One
----------------------------------------------------------------------------------------------------------------
Final 2024 Final 2025
Area Name pilotage rate pilotage rate
----------------------------------------------------------------------------------------------------------------
District One: Designated................... St. Lawrence River........... $927 $986
District One: Undesignated................. Lake Ontario................. 608 643
----------------------------------------------------------------------------------------------------------------

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 2022 expenses and revenues.
For accounting purposes, the financial reports divide expenses into
designated and undesignated areas. For costs generally accrued by the
pilot associations, such as employee benefits, the cost is divided
between the designated and undesignated areas on a pro rata basis.
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 ADDRESSES portion of the
preamble.
The recognized operating expenses for District Two are shown in
table 15.

[[Page 100820]]

Table 15--2022 Recognized Expenses for District Two
----------------------------------------------------------------------------------------------------------------
District Two
--------------------------------------------------------
Undesignated Designated
Reported operating expenses for 2022 --------------------------------------
Southeast Shoal Total
Lake Erie to Port Huron
----------------------------------------------------------------------------------------------------------------
Applicant Pilot Compensation........................... $236,674 $355,011 $591,685
Employee benefits...................................... 60 90 150
--------------------------------------------------------
Total Other Applicant Cost..................... 236,734 355,101 591,835
Other Pilotage Cost:
Pilot Subsistence.................................. 93,840 140,760 234,600
Hotel/Lodging Costs................................ 70,468 105,703 176,171
Hotel/Lodging (D2-22-01)........................... (70,080) (105,120) (175,200)
Travel............................................. 57,324 85,985 143,309
License renewal.................................... 396 594 990
Payroll Taxes...................................... 20,068 30,101 50,169
License Insurance.................................. 10,362 15,543 25,905
--------------------------------------------------------
Total Other Pilotage Costs..................... 182,378 273,566 455,944
Pilot Boat and Dispatch Costs:
Pilot boat expense costs........................... 100,642 150,963 251,605
Employee Benefits.................................. 40,409 60,613 101,022
Employee Benefits (D2-22-02)....................... 46,599 69,899 116,498
Insurance.......................................... 9,257 13,886 23,143
Salaries........................................... 171,763 257,645 429,408
--------------------------------------------------------
Total Pilot and Dispatch Costs................. 368,670 553,006 921,676
Administrative Expenses:
Legal.............................................. 18 27 45
Legal--shared counsel (K&L Gates).................. 3,210 4,816 8,026
Insurance.......................................... 15,698 23,547 39,245
Employee benefits.................................. 19,884 29,827 49,711
Employee benefits (D2-22-02)....................... 14,208 21,312 35,520
Payroll Taxes...................................... 134,123 201,184 335,307
Other taxes........................................ 8,862 13,294 22,156
Real Estate taxes.................................. 8,754 13,130 21,884
Travel............................................. 24,482 36,723 61,205
Depreciation/Auto leasing/Other.................... 19,136 28,703 47,839
APA Dues........................................... 14,843 22,264 37,107
Dues and subscriptions............................. 470 704 1,174
Utilities.......................................... 27,009 40,513 67,522
Salaries........................................... 78,662 117,994 196,656
Accounting/Professional fees....................... 15,850 23,775 39,625
Pilot Training..................................... 17,661 26,491 44,152
Other expenses..................................... 10,306 15,458 25,764
--------------------------------------------------------
Total Administrative Expenses.................. 413,176 619,762 1,032,938
----------------------------------------------------------------------------------------------------------------
Total Expenses (OPEX + Applicant + Pilot Boats + Admin 1,200,958 1,801,435 3,002,393
+ Capital)............................................
----------------------------------------------------------------------------------------------------------------

B. Step 2: Project Operating Expenses, Adjusting for Inflation or
Deflation
In accordance with the text in Sec. 404.102, having identified the
recognized 2022 operating expenses in Step 1, the next step is to
estimate the current year's operating expenses by adjusting 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
2023 inflation rate.\19\ Because the BLS does not provide forecasted
inflation data, we use economic projections from the Federal Reserve
for the 2024 and 2025 inflation modification.\20\ Based on that
information, the calculations for Step 2 are presented in table 16.
---------------------------------------------------------------------------

\19\ CPI, supra note 10.
\20\ Core PCE June Projection, supra note 11.

Table 16--Adjusted Operating Expenses for District Two
----------------------------------------------------------------------------------------------------------------
District Two
--------------------------------------------------------
Undesignated Designated Total
----------------------------------------------------------------------------------------------------------------
Total Operating Expenses (Step 1)...................... $1,200,958 $1,801,435 $3,002,393
2023 Inflation Modification (@3.8%).................... 45,636 68,455 114,091
2024 Inflation Modification (@2.8%).................... 34,905 52,357 87,262
2025 Inflation Modification (@2.3%).................... 29,474 44,212 73,686
--------------------------------------------------------

[[Page 100821]]

Adjusted 2025 Operating Expenses................... 1,310,973 1,966,459 3,277,432
----------------------------------------------------------------------------------------------------------------

C. Step 3: Estimate Number of Registered Pilots and Apprentice Pilots
In accordance with the text in Sec. 404.103, the Coast Guard
estimates the number of fully registered Pilots in each district. In
the past, this was done using the staffing model and the process
described in Sec. 404.103. During the 2023 GLPAC meeting, there was a
unanimous recommendation by the GLPAC that, after 2024, the Director be
given discretion to increase the staffing model plus three Pilots per
District, based on industry demand and to ensure shipping
reliability.\21\ Additionally, the previous staffing model's maximum is
now considered the minimum in regard to the number of Pilots needed in
each district.\22\
---------------------------------------------------------------------------

\21\ Transcript, supra note 8 at 89-90.
\22\ Id. at 57-58.
---------------------------------------------------------------------------

We determine the number of fully registered Pilots based on data
provided by the Lakes Pilots Association (LPA) as well as the previous
mentioned recommendation. We determine the number of Apprentice Pilots
based on input from the district on anticipated retirements and
staffing needs. These numbers can be found in table 17.

Table 17--Authorized Pilots for District Two
------------------------------------------------------------------------
Item District Two
------------------------------------------------------------------------
2025 Authorized Pilots (total)....................... 17
Pilots Assigned to Designated Areas.................. 10
Pilots Assigned to Undesignated Areas................ 7
2025 Apprentice Pilots............................... 1
------------------------------------------------------------------------

D. Step 4: Determine Target Pilot Compensation Benchmark and Apprentice
Pilot Wage Benchmark
In this step, we determine the total target Pilot compensation for
each area. Because we are issuing an interim ratemaking this year, we
follow the procedure outlined in paragraph (b) of Sec. 404.104, which
adjusts the existing compensation benchmark by inflation. First, we
adjust the 2024 target compensation benchmark of $440,658 by 3.0
percent for a value of $453,878. This accounts for the difference in
actual third quarter 2024 ECI inflation, which is 5.6 percent, and the
2024 PCE estimate of 2.6 percent.<SUP>23 24</SUP> The second step
accounts for projected inflation from 2024 to 2025, which is 2.3
percent.\25\ Based on the projected 2025 inflation estimate, the target
compensation benchmark for 2025 is $464,317 per Pilot. The Apprentice
Pilot wage benchmark is 36 percent of the target Pilot compensation, or
$167,154 ($464,317 x 0.36).
---------------------------------------------------------------------------

\23\ ECI, supra note 14.
\24\ Median Core PCE Inflation June Projection, supra note 15.
\25\ Median Core PCE Inflation June Projection, supra note 16.
---------------------------------------------------------------------------

In accordance with Sec. 404.104(c), we used the revised target
individual compensation level to derive the total target Pilot
compensation by multiplying the individual target compensation by the
estimated number of Registered Pilots for District Two, as shown in
table 18. The total target wages for Apprentice Pilots 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.............................. $464,317 $464,317 $464,317
Number of Pilots....................................... 7 10 17
--------------------------------------------------------
Total Target Pilot Compensation.................... $3,250,219 $4,643,170 $7,893,389
Target Apprentice Pilot Compensation................... $167,154 $167,154 $167,154
Number of Apprentice Pilots............................ ................. ................. 1
--------------------------------------------------------
Total Target Apprentice Pilot Compensation......... $66,862 $100,292 $167,154
----------------------------------------------------------------------------------------------------------------

E. Step 5: Project Working Capital Fund
Next, the Coast Guard calculates the working capital fund revenues
needed for each area. We first add the figures for projected operating
expenses, total target 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 4.8100 percent,
rounded.\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, supra note 17.

[[Page 100822]]

Table 19--Working Capital Fund Calculation for District Two
----------------------------------------------------------------------------------------------------------------
District Two
--------------------------------------------------------
Undesignated Designated Total
----------------------------------------------------------------------------------------------------------------
Adjusted Operating Expenses (Step 2)................... $1,310,973 $1,966,459 $3,277,432
Total Target Pilot Compensation (Step 4)............... 3,250,219 4,643,170 7,893,389
Total Target Apprentice Pilot Compensation (Step 4).... 66,862 100,292 167,154
--------------------------------------------------------
Total 2025 Expenses................................ 4,628,054 6,709,921 11,337,975
----------------------------------------------------------------------------------------------------------------
Working Capital Fund (4.8100%)......................... 222,609 322,747 545,356
----------------------------------------------------------------------------------------------------------------

F. Step 6: Project Needed Revenue
In this step, the Coast Guard adds 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 target 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 20.

Table 20--Revenue Needed for District Two
----------------------------------------------------------------------------------------------------------------
District Two
--------------------------------------------------------
Undesignated Designated Total
----------------------------------------------------------------------------------------------------------------
Adjusted Operating Expenses (Step 2)................... $1,310,973 $1,966,459 $3,277,432
Total Target Pilot Compensation (Step 4)............... 3,250,219 4,643,170 7,893,389
Total Target Apprentice Pilot Compensation (Step 4).... 66,862 100,292 167,154
Working Capital Fund (Step 5).......................... 222,609 322,747 545,356
--------------------------------------------------------
Total Revenue Needed............................... 4,850,663 7,032,668 11,883,331
----------------------------------------------------------------------------------------------------------------

G. Step 7: Calculate Initial Base Rates
Having determined the revenue needed for each area in the previous
six steps, we divide that number by the expected number of traffic
hours to develop an hourly rate.
Step 7 is a two-part process. The first part entails calculating
the 10-year traffic average 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 used billing data from SeaPro. 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
------------------------------------------------------------------------
2023.................................... 6,424 8,092
2022.................................... 7,695 9,044
2021.................................... 5,290 6,762
2020.................................... 6,232 8,401
2019.................................... 6,512 7,715
2018.................................... 6,150 6,655
2017.................................... 5,139 6,074
2016.................................... 6,425 5,615
2015.................................... 6,535 5,967
2014.................................... 7,856 7,001
-------------------------------
Average............................. 6,426 7,133
------------------------------------------------------------------------

Table 22--Initial Rate Calculations for District Two
------------------------------------------------------------------------
Undesignated Designated
------------------------------------------------------------------------
Revenue needed (Step 6)........... $4,850,663 $7,032,668
Average time on task (hours)...... 6,426 7,133
Initial rate...................... $755 $986
------------------------------------------------------------------------

[[Page 100823]]

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 1 (2022).................................................. 57 1 57
Class 1 (2023).................................................. 54 1 54
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 2 (2022).................................................. 202 1.15 232
Class 2 (2023).................................................. 152 1.15 175
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 3 (2022).................................................. 2 1.3 3
Class 3 (2023).................................................. 2 1.3 3
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
Class 4 (2022).................................................. 208 1.45 302
Class 4 (2023).................................................. 169 1.45 245
-----------------------------------------------
Total....................................................... 5,865 .............. 7,662
----------------------------------------------------------------------------------------------------------------
Average weighting factor (weighted transits / number of .............. 1.31 ..............
transits)......................................................
----------------------------------------------------------------------------------------------------------------
* Weighted transits are rounded to the nearest whole number for presentation, but the Total calculation uses
unrounded figures.

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 1 (2022).................................................. 53 1 53
Class 1 (2023).................................................. 56 1 56
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 2 (2022).................................................. 327 1.15 376

[[Page 100824]]

Class 2 (2023).................................................. 312 1.15 359
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 3 (2022).................................................. 4 1.3 5
Class 3 (2023).................................................. 5 1.3 7
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
Class 4 (2022).................................................. 391 1.45 567
Class 4 (2023).................................................. 349 1.45 506
-----------------------------------------------
Total....................................................... 6,171 .............. 8,069
----------------------------------------------------------------------------------------------------------------
Average weighting factor (weighted transits/number of transits). .............. 1.31 ..............
----------------------------------------------------------------------------------------------------------------
* Weighted transits are rounded to the nearest whole number for presentation, but the Total calculation uses
unrounded figures.

Table 25--Revised Base Rates for District Two
----------------------------------------------------------------------------------------------------------------
Revised rate
Initial rate Average weighting (initial rate /
Area (Step 7) factor (Step 8) average weighting
factor)
----------------------------------------------------------------------------------------------------------------
District Two: Undesignated............................. $755 1.31 $576
District Two: Designated............................... 986 1.31 753
----------------------------------------------------------------------------------------------------------------

J. Step 10: Review and Finalize Rates
In this step, the Director reviews the base pilotage rates
calculated in Sec. 404.109 of this part to ensure it meets the goal of
ensuring safe, efficient, and reliable pilotage service. To establish
this, the Director considers whether the rates incorporate appropriate
compensation for Pilots to handle heavy traffic periods and whether
there are enough Pilots to handle those heavy traffic periods. The
Director also considers whether the rates will cover operating expenses
and infrastructure costs, including average traffic and weighting
factors. Based on these considerations, the Director did not propose
any alterations to the rates in this step. We modified Sec.
401.405(a)(3) and (4) to reflect the final rates shown in table 26.

Table 26--Final Rates for District Two
----------------------------------------------------------------------------------------------------------------
Final 2024 Final 2025
Area Name pilotage rate pilotage rate
----------------------------------------------------------------------------------------------------------------
District Two: Designated...................... Navigable waters from Southeast $667 $753
Shoal to Port Huron, MI.
District Two: Undesignated.................... Lake Erie....................... 597 576
----------------------------------------------------------------------------------------------------------------

District Three

[[Page 100825]]

the cost is divided between the designated and undesignated areas on a
pro rata basis. 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 in the ADDRESSES portion of the
preamble.
The recognized operating expenses for District Three are shown in
table 27.

Table 27--2022 Recognized Expenses for District Three
----------------------------------------------------------------------------------------------------------------
District Three
---------------------------------------------------------------------------
Undesignated Designated Undesignated
Reported Operating Expenses for 2022 ---------------------------------------------------------
Lakes Huron and Total
Michigan St. Marys River Lake Superior
----------------------------------------------------------------------------------------------------------------
Applicant Cost:
Salaries........................ $417,221 $154,305 $177,126 $748,652
Salaries (D3-22-04)............. (173,587) (64,199) (73,694) (311,480)
Applicant Benefits.............. 54,874 20,295 23,296 98,465
---------------------------------------------------------------------------
Total Applicant Cost........ 298,508 110,401 126,728 535,637
Other Pilotage Costs:
Pilot subsistence............... 168,607 62,357 71,580 302,544
Pilot subsistence (D3-22-06).... 7,664 2,834 3,254 13,752
Hotel/Lodging Cost.............. 163,971 60,643 69,612 294,225
Hotel/Lodging Cost (D3-22-01)... (22,392) (8,282) (9,506) (40,180)
Travel.......................... 233,386 86,315 99,081 418,783
Travel (D3-22-01), (D3-22-03)... (54,224) (20,054) (23,020) (97,298)
License Renewal................. 315 117 134 566
Payroll taxes (D3-22-04)........ 192,009 71,013 81,515 344,537
License Insurance............... 17,757 6,567 7,539 31,863
---------------------------------------------------------------------------
Total Other Pilotage Costs.. 707,093 261,510 300,189 1,268,792
Pilot Boat and Dispatch Costs:
Pilot boat costs................ 536,327 198,355 227,691 962,373
Pilot Boat Costs (D3-22-03)..... (9,518) (3,520) (4,041) (17,079)
Dispatch costs.................. 162,843 60,226 69,133 292,201
Dispatch costs.................. (25,243) (9,336) (10,717) (45,296)
Insurance....................... 26,193 9,687 11,120 47,000
---------------------------------------------------------------------------
Total Pilot Boat and 690,602 255,412 293,186 1,239,200
Dispatch Costs.............
Administrative Cost:
Legal........................... 58,159 21,510 24,691 104,360
Legal (D3-22-05)................ (48,792) (18,045) (20,714) (87,551)
Legal--shared counsel (K&L 4,473 1,654 1,899 8,026
Gates).........................
Insurance....................... 22,952 8,489 9,744 41,185
Employee benefits............... 137,044 50,684 58,180 245,908
Employee benefits (D3-22-03).... (6,129) (2,267) (2,602) (10,998)
Payroll Tax..................... 50,962 18,848 21,635 91,445
Payroll Tax (D3-22-05).......... (13,015) (4,813) (5,525) (23,354)
Other taxes..................... 4,924 1,821 2,090 8,835
Real Estate Taxes............... 1,524 564 647 2,735
Depreciation/Auto leasing/Other. 163,196 60,356 69,283 292,835
APA Dues........................ 24,610 9,102 10,448 44,160
APA Dues (D3-22-02)............. (1,231) (455) (522) (2,208)
Dues and subscriptions.......... 15,716 5,812 6,672 28,200
Utilities....................... 45,613 16,869 19,364 81,846
Utilities (D3-22-03)............ (5,449) (2,015) (2,313) (9,778)
Salaries........................ 47,719 17,648 20,259 85,626
Accounting/Professional fees.... 28,079 10,385 11,921 50,385
Pilot Training.................. 45,010 16,646 19,108 80,764
Other expenses.................. 23,172 8,570 9,837 41,579
Other expenses (D3-22-07)....... (1,250) (462) (531) (2,243)
---------------------------------------------------------------------------
Total Administrative 597,287 220,901 253,571 1,071,759
Expenses...................
----------------------------------------------------------------------------------------------------------------
Total Operating Expenses (Other 2,293,490 848,224 973,674 4,115,388
Costs + Applicant Cost + Pilot
Boats + Admin).....................
----------------------------------------------------------------------------------------------------------------

B. Step 2: Project Operating Expenses, Adjusting for Inflation or
Deflation
In accordance with the text in Sec. 404.102, having identified the
recognized 2022 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 2023 inflation rate.\27\ Because the BLS does not
provide forecasted inflation data, we use economic projections from the
Federal

[[Page 100826]]

Reserve for the 2024 and 2025 inflation modification.\28\ Based on that
information, the calculations for Step 2 are as presented in table 28.
---------------------------------------------------------------------------

\27\ CPI, supra note 10.
\28\ Core PCE June Projection, supra note 11.

Table 28--Adjusted Operating Expenses for District Three
----------------------------------------------------------------------------------------------------------------
District Three
--------------------------------------------------------
Undesignated Designated Total
----------------------------------------------------------------------------------------------------------------
Total Operating Expenses (Step 1)...................... $3,267,164 $848,224 $4,115,388
2023 Inflation Modification (@3.8%).................... 124,152 32,233 156,385
2024 Inflation Modification (@2.8%).................... 94,957 24,653 119,610
2025 Inflation Modification (@2.3%).................... 80,184 20,818 101,002
--------------------------------------------------------
Adjusted 2025 Operating Expenses................... 3,566,457 925,928 4,492,385
----------------------------------------------------------------------------------------------------------------

C. Step 3: Estimate Number of Registered Pilots and Apprentice Pilots
In accordance with the text in Sec. 404.103, the Coast Guard
estimates the number of fully registered Pilots in each district. In
the past, this was done using the staffing model and the process
described in Sec. 404.103. During the 2023 GLPAC meeting, there was a
unanimous recommendation by the GLPAC that, after 2024, the Director be
given discretion to increase the staffing model plus three Pilots per
District, based on industry demand and to ensure shipping reliability.
\29\ Additionally, the previous staffing model's maximum are now
considered the minimum regarding the number of Pilots needed in each
district.\30\
---------------------------------------------------------------------------

\29\ Transcript, supra note 8, at 89-90.
\30\ Id. at 57-58.
---------------------------------------------------------------------------

We determine the number of fully registered Pilots based on data
provided by the WGLPA, as well as the previous mentioned
recommendation. We determine the number of Apprentice Pilots based on
input from the district on anticipated retirements and staffing needs.
These numbers can be found in table 29.

Table 29--Authorized Pilots for District Three
------------------------------------------------------------------------
Item District Three
------------------------------------------------------------------------
2025 Authorized Pilots (total)....................... 24
Pilots Assigned to Designated Areas.................. 5
Pilots Assigned to Undesignated Areas................ 19
2025 Apprentice Pilots............................... 1
------------------------------------------------------------------------

D. Step 4: Determine Target Pilot Compensation Benchmark and Apprentice
Pilot Wage Benchmark
In this step, we determine the total target Pilot compensation for
each area. Because we are issuing an interim ratemaking this year, we
follow the procedure outlined in paragraph (b) of Sec. 404.104, which
adjusts the existing compensation benchmark by inflation. First, we
adjust the 2024 target compensation benchmark of $440,658 by 3.0
percent for a value of $453,878. This accounts for the difference in
actual third quarter 2024 ECI inflation, which is 5.6 percent, and the
2024 PCE estimate of 2.6 percent. \31\ \32\ The second step accounts
for projected inflation from 2024 to 2025, which is 2.3 percent.\33\
Based on the projected 2025 inflation estimate, the target compensation
benchmark for 2025 is $464,317 per pilot. The apprentice pilot wage
benchmark is 36 percent of the target Pilot compensation, or $167,154
($464,317 x 0.36).
---------------------------------------------------------------------------

\31\ ECI, supra note 14.
\32\ Median Core PCE Inflation June Projection, supra note 15.
\33\ Median Core PCE Inflation June Projection, supra note 16.
---------------------------------------------------------------------------

In accordance with Sec. 404.104(c), we use the revised target
individual compensation level to derive the total target 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 needed for
District Three in the 2024 season will be one. The total target wages
for Apprentice Pilots are allocated with 21 percent for the designated
area, and 79 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.............................. $464,317 $464,317 $464,317
Number of Pilots....................................... 19 5 24
--------------------------------------------------------
Total Target Pilot Compensation.................... $8,822,023 $2,321,585 $11,143,608
Target Apprentice Pilot Compensation................... $167,154 $167,154 $167,154
Number of Apprentice Pilots............................ ................. ................. 1
--------------------------------------------------------
Total Target Apprentice Pilot Compensation......... $132,052 $35,102 $167,154
----------------------------------------------------------------------------------------------------------------

[[Page 100827]]

E. Step 5: Project Working Capital Fund
Next, the Coast Guard calculates the working capital fund revenues
needed for each area. We first add the figures for projected operating
expenses, total target Pilot compensation, and total target Apprentice
Pilot wage for each area, and 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 4.8100 percent,
rounded.\34\ By multiplying the two figures, we obtain the working
capital fund contribution for each area, as shown in table 31.
---------------------------------------------------------------------------

\34\ Moody's Seasoned Aaa Corporate Bond Yield, supra note 17.

Table 31--Working Capital Fund Calculation for District Three
----------------------------------------------------------------------------------------------------------------
District Three
--------------------------------------------------------
Undesignated Designated Total
----------------------------------------------------------------------------------------------------------------
Adjusted Operating Expenses (Step 2)................... $3,566,457 $925,928 $4,492,385
Total Target Pilot Compensation (Step 4)............... 8,822,023 2,321,585 11,143,608
Total Target Apprentice Pilot Compensation (Step 4).... 132,052 35,102 167,154
--------------------------------------------------------
Total 2025 Expenses................................ 12,520,532 3,282,615 15,803,147
Working Capital Fund (4.8100%)......................... 602,238 157,894 760,132
----------------------------------------------------------------------------------------------------------------

F. Step 6: Project needed revenue
In this step, the Coast Guard adds 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 target 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)................... $3,566,457 $925,928 $4,492,385
Total Target Pilot Compensation (Step 4)............... 8,822,023 2,321,585 11,143,608
Total Target Apprentice Pilot Compensation (Step 4).... 132,052 35,102 167,154
Working Capital Fund (Step 5).......................... 602,238 157,894 760,132
--------------------------------------------------------
Total Revenue Needed............................... 13,122,770 3,440,509 16,563,279
----------------------------------------------------------------------------------------------------------------

G. Step 7: Calculate Initial Base Rates
Having determined the revenue needed for each area in the previous
six steps, we divide that number by the expected number of traffic
hours to develop an hourly rate.
Step 7 is a two-part process. The first part is calculating the 10-
year traffic average 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 used billing data from SeaPro. 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
------------------------------------------------------------------------
2023.............................. 25,690 3,501
2022.............................. 24,148 3,426
2021.............................. 18,149 2,484
2020.............................. 23,678 3,520
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
-------------------------------------
Average....................... 22,952 3,208
------------------------------------------------------------------------

[[Page 100828]]

Table 34--Initial Rate Calculations for District Three
------------------------------------------------------------------------
Undesignated Designated
------------------------------------------------------------------------
Revenue needed (Step 6)........... $13,122,770 $3,440,509
Average time on task (hours)...... 22,952 3,208
Initial rate...................... $572 $1,073
------------------------------------------------------------------------

Table 35--Average Weighting Factor for District Three, Undesignated Areas
----------------------------------------------------------------------------------------------------------------
Number of Weighted transits
Vessel class/year transits Weighting factor *
----------------------------------------------------------------------------------------------------------------
Area 6
----------------------------------------------------------------------------------------------------------------
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)......................................... 8 1 8
Class 1 (2022)......................................... 116 1 116
Class 1 (2023)......................................... 155 1 155
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)......................................... 332 1.15 382
Class 2 (2021)......................................... 273 1.15 314
Class 2 (2022)......................................... 276 1.15 317
Class 2 (2023)......................................... 295 1.15 339
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)......................................... 5 1.3 7
Class 3 (2022)......................................... 3 1.3 4
Class 3 (2023)......................................... 5 1.3 7
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)......................................... 339 1.45 492
Class 4 (2021)......................................... 356 1.45 516
Class 4 (2022)......................................... 363 1.45 526
Class 4 (2023)......................................... 356 1.45 516
--------------------------------------------------------
Total for Area 6................................... 7,189 ................. 9,205
----------------------------------------------------------------------------------------------------------------
Area 8
----------------------------------------------------------------------------------------------------------------
Class 1 (2014)......................................... 3 1 3
Class 1 (2015)......................................... 0 1 0
Class 1 (2016)......................................... 4 1 4

[[Page 100829]]

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)......................................... 5 1 5
Class 1 (2022)......................................... 10 1 10
Class 1 (2023)......................................... 5 1 5
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)......................................... 180 1.15 207
Class 2 (2021)......................................... 124 1.15 143
Class 2 (2022)......................................... 89 1.15 102
Class 2 (2023)......................................... 118 1.15 136
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)......................................... 1 1.3 1
Class 3 (2021)......................................... 1 1.3 1
Class 3 (2022)......................................... 6 1.3 8
Class 3 (2023)......................................... 0 1.3 0
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)......................................... 265 1.45 384
Class 4 (2021)......................................... 319 1.45 463
Class 4 (2022)......................................... 243 1.45 352
Class 4 (2023)......................................... 268 1.45 389
--------------------------------------------------------
Total for Area 8................................... 3,991 ................. 5,344
--------------------------------------------------------
Combined total................................. 11,180 ................. 14,549
----------------------------------------------------------------------------------------------------------------
Average weighting factor (weighted transits / number of ................. 1.30 .................
transits).............................................
----------------------------------------------------------------------------------------------------------------
* Weighted transits are rounded to the nearest whole number for presentation, but the Total calculation uses
unrounded figures.

Table 36--Average Weighting Factor for District Three, Designated Areas
----------------------------------------------------------------------------------------------------------------
Number of Weighted transits
Vessel class/year transits Weighting factor *
----------------------------------------------------------------------------------------------------------------
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)......................................... 15 1 15
Class 1 (2021)......................................... 15 1 15
Class 1 (2022)......................................... 74 1 74
Class 1 (2023)......................................... 68 1 68
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)......................................... 218 1.15 251
Class 2 (2021)......................................... 131 1.15 151
Class 2 (2022)......................................... 162 1.15 186
Class 2 (2023)......................................... 142 1.15 163

[[Page 100830]]

Class 3 (2014)......................................... 15 1.3 20
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)......................................... 1 1.3 1
Class 3 (2021)......................................... 2 1.3 3
Class 3 (2022)......................................... 5 1.3 7
Class 3 (2023)......................................... 0 1.3 0
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)......................................... 336 1.45 487
Class 4 (2021)......................................... 258 1.45 374
Class 4 (2022)......................................... 249 1.45 361
Class 4 (2023)......................................... 300 1.45 435
--------------------------------------------------------
Total.............................................. 4,801 ................. 6,264
----------------------------------------------------------------------------------------------------------------
Average weighting factor (weighted transits / number of ................. 1.30 .................
transits).............................................
----------------------------------------------------------------------------------------------------------------
* Weighted transits are rounded to the nearest whole number for presentation, but the Total calculation uses
unrounded figures.

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........................... $572 1.30 $440
District Three: Designated............................. 1,073 1.30 825
----------------------------------------------------------------------------------------------------------------

Table 38--Final Rates for District Three
----------------------------------------------------------------------------------------------------------------
Final 2024 Final 2025
Area Name pilotage rate pilotage rate
----------------------------------------------------------------------------------------------------------------
District Three: Designated................. St. Marys River.............. $836 $825
District Three: Undesignated............... Lakes Huron, Michigan, and 430 440
Superior.
----------------------------------------------------------------------------------------------------------------

VIII. Regulatory Analyses

We developed this final 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), as amended
by Executive Order 14094 (Modernizing Regulatory 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.

[[Page 100831]]

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
final rule a significant regulatory action under section 3(f) of
Executive Order 12866, as amended by Executive Order 14094.
Accordingly, OMB has not reviewed this regulatory action. The purpose
of this final rule is to establish new 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 Coast Guard concluded the last full ratemaking in
February of 2023.\35\ For this final rule, the Coast Guard estimates an
increase in cost of approximately $2.88 million to industry. This is
approximately a 7-percent increase because of the change in revenue
needed in 2025 compared to the revenue needed in 2024. Primarily
driving this 7-percent increase is the addition of 3 pilots compared to
the 2024 season, as well as general increases in inflation and the rate
of return used for the working capital fund. See table 39.
---------------------------------------------------------------------------

\35\ 88 FR 12226.

Table 39--Economic Impacts Due to Rate Changes
----------------------------------------------------------------------------------------------------------------
Affected
Change Description population Costs Benefits
----------------------------------------------------------------------------------------------------------------
Rate changes.................... In accordance with Owners and Increase of New rates cover an
46 U.S.C. Chapter operators of 280 $2,879,028 due to association's
93, the Coast vessels change in revenue necessary and
Guard is required transiting the needed for 2025 reasonable
to review and Great Lakes ($43,159,694) operating
adjust pilotage system annually, from revenue expenses.
rates annually. 61 United States needed for 2024 Promotes safe,
Great Lakes ($40,280,666) as efficient, and
Pilots, 3 shown in table 41. reliable pilotage
Apprentice service on the
Pilots, and 3 Great Lakes.
pilot Provides fair
associations. 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 II., Basis and Purpose, and
Regulatory History, 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 in 2025 to
generate sufficient revenues for each district to reimburse its
necessary and reasonable operating expenses, to fairly compensate
properly trained and rested Pilots, and to provide an appropriate
working capital fund to use for improvements. The result is an increase
in rates for both areas in District One, the designated area for
District Two, and the undesignated area in District Three. There is
also a decrease in rates for the undesignated area for District Two and
the designated area for District Three. These changes lead to a net
increase in the cost of service to shippers. The change in per-unit
cost to each individual shipper depends on their area of operation.
A detailed discussion of our economic impact analysis follows.
Affected Population
This final rule affects United States Great Lakes Pilots and
Apprentice Pilots, the 3 pilot associations, and the owners and
operators of 280 oceangoing vessels that transit the Great Lakes
annually, on average, from 2021 to 2023. The Coast Guard estimates that
there will be 61 Registered Pilots and 3 Apprentice Pilots during 2025,
an increase of three Pilots from the 2024 season. The shippers affected
by these rate changes are those owners and operators of domestic
vessels operating ``on register'' (engaged in foreign trade) and the
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, 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 2021
through 2023 from SeaPro to estimate the average annual number of
vessels affected by the rate adjustment. SeaPro 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. We believe that using 3 years of billing data
is a better representation of the vessel population currently using
pilotage services and impacted by this rule.
We found that 484 unique vessels used pilotage services during the
years 2021 through 2023. That is, these vessels had a Pilot dispatched
to the vessel and billing information was recorded in SeaPro. Of these
vessels, 451 were foreign-flagged vessels, and 33 were U.S.-flagged
vessels. U.S.-flagged vessels not operating on register are not
required to have a Registered Pilot, per 46 U.S.C. 9302, but 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, the Coast Guard took an average of the unique vessels
using pilotage services from the years 2021 through 2023 as the best
representation of vessels estimated to be affected by the rates in this
final rule. From 2021 through 2023, an average of 280 vessels used
pilotage services annually.\36\ On average, 268 of these vessels were
foreign-flagged, and 13 were U.S.-flagged vessels that voluntarily
opted into the pilotage service (these figures are rounded averages).
---------------------------------------------------------------------------

\36\ 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.

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

[[Page 100832]]

Total Cost to Shippers
The rate changes resulting from this adjustment to the rates result
in a net increase in the cost of service to shippers. However, the
change in per-unit cost to each individual shipper depends 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 2024 with the total projected revenues to cover costs in 2025.
We set pilotage rates so that 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 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 2025, the projected
revenue needed for all three districts is $43,159,694.
To estimate the change in cost to shippers from this final rule,
the Coast Guard compared the 2025 total projected revenues to the 2024
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 2024 final
rule, we estimated the total projected revenue needed for 2024 as
$40,280,666.\37\ This is the best approximation of 2024 revenues, as,
at the time of publication of this final rule, the Coast Guard does not
have enough audited data available for 2024 to revise these
projections. Table 40 shows the revenue projections for 2024 and 2025
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.
---------------------------------------------------------------------------

\37\ 2024 final rule (89 FR 9066), Table 43.

Table 40--Effect of the Final Rule by Area and District
[U.S. Dollars; non-discounted]
----------------------------------------------------------------------------------------------------------------
Revenue needed in Revenue needed in Additional costs
Area 2024 2025 of this rule
----------------------------------------------------------------------------------------------------------------
Total, District One.................................... $13,695,935 $14,713,084 $1,017,149
Total, District Two.................................... 10,830,491 11,883,331 1,052,840
Total, District Three.................................. 15,754,240 16,563,279 809,039
--------------------------------------------------------
System Total....................................... 40,280,666 43,159,694 2,879,028
----------------------------------------------------------------------------------------------------------------
* All figures are rounded to the nearest dollar and may not sum.

The resulting difference between the projected revenue in 2024 and
the projected revenue in 2025 is the annual change in payments from
shippers to pilots as a result of the rate changes in this final rule.
The effect of the rate changes to shippers varies by area and district.
After considering the change in pilotage rates, the rate changes will
lead to affected shippers operating in District One experiencing an
increase in payments of $1,017,149 over the previous year. Affected
shippers operating in District Two and District Three will experience
an increase in payments of $1,052,840 and $809,039, respectively, when
compared with 2024. The overall adjustment in payments will increase
payments by shippers of $2,879,028 across all three districts (a 7-
percent increase when compared with 2024). 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
2024 to 2025 and presents each revenue-component as a percentage of the
total revenue needed. In both 2024 and 2025, the largest revenue
component was target pilotage compensation (63 percent of total revenue
needed in 2024, and 66 percent of total revenue needed in 2025),
followed by operating expenses (30 percent of total revenue needed in
2024, and 29 percent of total revenue needed in 2025). The large
increase in the working capital fund, 26 percent from 2024 to 2025, is
driven by an increase in the Target Rate of Return on Investment, from
4.0742 percent in 2022 to 4.8100 percent in 2023.\38\
---------------------------------------------------------------------------

\38\ Moody's Seasoned Aaa Corporate Bond Yield, supra note 17.

Table 41--Difference in Revenue by Revenue-Component
--------------------------------------------------------------------------------------------------------------------------------------------------------
Percentage Percentage
of total of total Difference (2025 Percentage
Revenue component Revenue needed revenue Revenue needed revenue revenue-- 2024 change from
in 2024 needed in in 2025 needed in revenue) previous
2024 2025 year
--------------------------------------------------------------------------------------------------------------------------------------------------------
Adjusted Operating Expenses.................................... $12,193,810 30 $12,354,186 29 $160,376 1
Total Target Pilot Compensation................................ 25,558,164 63 28,323,337 66 2,765,173 11
Total Target Apprentice Pilot Compensation..................... 951,822 2 501,462 1 (450,360) (47)
Working Capital Fund........................................... 1,576,870 4 1,980,709 5 403,839 26
----------------------------------------------------------------------------------------
Total Revenue Needed....................................... 40,280,666 100 43,159,694 100 2,879,028 7
--------------------------------------------------------------------------------------------------------------------------------------------------------
* All figures are rounded to the nearest dollar and may not sum.

As stated previously, we estimate that there will be a total
increase of $2,879,028 in revenue needed by the pilot associations.
This represents an increase in revenue needed for target Pilot
compensation of $2,765,173; a

[[Page 100833]]

decrease in revenue needed for the total target Apprentice Pilot wage
benchmark of ($450,360); an increase in the revenue needed for adjusted
operating expenses of $160,376; and an increase in the revenue needed
for the working capital fund of $403,839.
The change in revenue needed for Pilot compensation, $2,765,173, is
due to three factors: (1) The changes to adjust 2024 pilotage
compensation to account for the difference between actual ECI inflation
\39\ (5.6 percent) and predicted PCE inflation \40\ (2.6 percent) for
2024; (2) projected inflation of pilotage compensation in Step 2 of the
methodology, using predicted inflation through 2025; \41\ and (3) an
increase of three authorized Pilots.
---------------------------------------------------------------------------

\39\ ECI, supra note 14.
\40\ Median Core PCE Inflation June Projection, supra note 15.
\41\ Median Core PCE Inflation June Projection, supra note 16.
---------------------------------------------------------------------------

The target compensation is $464,317 per Pilot in 2025, compared to
$440,658 in 2024. The changes modify the 2024 Pilot compensation to
account for the difference between predicted and actual inflation and
will increase the 2024 target compensation value by 3.0 percent. As
shown in table 42, this inflation adjustment increases total
compensation by $13,220 per Pilot, and the total revenue needed by
$806,404, when accounting for all 61 Pilots.

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

------------------------------------------------------------------------
2024 Target Pilot Compensation....................... $440,658
Adjusted 2024 Compensation ($440,658 x 1.03)......... 453,878
Difference between Adjusted Target 2024 Compensation 13,220
and Target 2024 Compensation ($453,878-$440,658)....
Increase in total Revenue for 61 Pilots ($13,220 x 806,404
61).................................................
------------------------------------------------------------------------
* 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 $4,759 per Apprentice Pilot, and the total
revenue needed by $14,277 when accounting for all three Apprentice
Pilots.

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

------------------------------------------------------------------------
2024 Target Apprentice Pilot Compensation............ $158,637
Adjusted 2024 Compensation ($158,637 x 1.03)......... 163,396
Difference between Adjusted Target 2024 Compensation 4,759
and Target Compensation ($163,396-$158,637).........
Increase in total Revenue for Apprentices ($4,759 x 14,277
3)..................................................
------------------------------------------------------------------------
* All figures are rounded to the nearest dollar and may not sum.

The Coast Guard predicts that 61 Pilots will be needed for the 2025
season. This is an increase of three Pilots from the 2024 season. Table
44 shows the increase of $1,353,292 in revenue needed for Pilot
compensation. To avoid double counting, this value excludes the change
in revenue resulting from the change to adjust 2024 Pilot compensation
to account for the difference between actual and predicted inflation.

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

------------------------------------------------------------------------
2025 Target Compensation............................. $464,317
Total Number of New Pilots........................... 3
Total Cost of new Pilots (464,317 x 3)............... $1,392,951
Difference between Adjusted Target 2024 Compensation $13,220
and Target 2024 Compensation (453,878-440,658)......
Increase in total Revenue for 3 Pilots (13,220 x 3).. $39,659
Net Increase in total Revenue for 3 Pilots (1,392,951- $1,353,292
39,659).............................................
------------------------------------------------------------------------
* All figures are rounded to the nearest dollar and may not sum.

[[Page 100834]]

Similarly, the Coast Guard predicts that three Apprentice Pilots
will be needed for the 2025 season. This will be a decrease of three
Apprentice Pilots from the 2024 season. Table 45 shows the decrease of
($487,185) in revenue needed solely for Apprentice Pilot compensation.
To avoid double counting, this value excludes the change in revenue
resulting from the change to adjust 2024 Apprentice Pilot compensation
to account for the difference between actual and predicted inflation.

Table 45--Change in Revenue Resulting From Decrease of Three Apprentice
Pilots
------------------------------------------------------------------------

------------------------------------------------------------------------
2025 Apprentice Target Compensation.................. $167,154
Total Number of New Apprentices...................... -3
Total Cost of new Apprentices ($167,154 x -3)........ ($501,462)
Difference between Adjusted Target 2024 Compensation $4,759
and Target 2024 Compensation ($163,396-$158,637)....
Increase in total Revenue for -3 Apprentices ($4,759 ($14,277)
x -3)...............................................
Net Increase in total Revenue for -3 Apprentices (- ($487,185)
$501,462--$14,277)..................................
------------------------------------------------------------------------
* All figures are rounded to the nearest dollar and may not sum.

Another $605,477 increase is the result of increasing compensation
for the 61 Pilots, to account for future inflation of 2.3 percent in
2025. This increases total compensation by $10,439 per Pilot, as shown
in table 46.

Table 46--Change in Revenue Resulting From Inflating 2024 Compensation
to 2025
------------------------------------------------------------------------

------------------------------------------------------------------------
Adjusted 2024 Compensation........................... $453,878
2025 Target Compensation ($453,878 x 1.023).......... 464,317
Difference between Adjusted 2024 Compensation and 10,439
Target 2025 Compensation ($464,317-$453,878)........
Increase in total Revenue for 58 Pilots ($10,439 x 605,477
58).................................................
------------------------------------------------------------------------
* All figures are rounded to the nearest dollar and may not sum.

Similarly, a $22,548 increase is the result of increasing
compensation for the three Apprentice Pilots, to account for future
inflation of 2.3 percent in 2025. This increases total compensation by
$3,758 per Apprentice Pilot, as shown in table 47.
---------------------------------------------------------------------------

\42\ The 2024 projected revenues are from the 2024 final rule
(89 FR 9038), tables 11, 23, and 35. The 2025 projected revenues are
from tables 8, 20, and 32 of this final rule.

Table 47--Change in Revenue Resulting From Inflating 2024 Apprentice
Pilot Compensation to 2025
------------------------------------------------------------------------

------------------------------------------------------------------------
Adjusted 2024 Compensation........................... $163,396
2025 Target Compensation ($464,317 x 36%)............ 167,154
Difference between Adjusted Compensation and Target 3,758
Compensation ($167,154-$163,396)....................
Increase in total Revenue for 6 Apprentices ($3,758 x 22,548
6)..................................................
------------------------------------------------------------------------
* 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.\42\

[[Page 100835]]

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 -----------------------------------------------------------------------
----------------------------------
2024 2025 Percentage 2024 2025 Percentage Percentage 2024 2025 Percentage 2024 2025 Percentage
change change 2024 2025 change change change
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
District One: $2,851,215 $2,750,620 (4) $4,406,580 $5,107,487 16 $285,547 $100,292 (65) $307,331 $382,799 25 $7,850,673 $8,341,198 6.2
Designated........................................
District One: 1,900,809 1,833,749 (4) 3,525,264 4,178,853 19 190,364 66,862 (65) 228,825 292,422 28 5,845,262 6,371,886 9.0
Undesignated......................................
District Two: 1,102,673 1,310,973 19 3,525,264 3,250,219 (8) 63,455 66,862 5 191,137 222,609 16 4,882,529 4,850,663 (0.7)
Undesignated......................................
District Two: 1,654,014 1,966,459 19 3,965,922 4,643,170 17 95,182 100,292 5 232,845 322,747 39 5,947,963 7,032,668 18.2
Designated........................................
District Three: 3,679,209 3,566,457 (3) 7,931,844 8,822,023 11 250,646 132,052 (47) 483,269 602,238 25 12,344,968 13,122,770 6.3
Undesignated......................................
District Three: 1,005,891 925,928 (8) 2,203,290 2,321,585 5 66,628 35,102 (47) 133,463 157,894 18 3,409,272 3,440,509 0.9
Designated........................................
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
* All figures are rounded to the nearest dollar and may not sum.

[[Page 100836]]

Benefits
This final 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 that pilot associations produce enough revenue
to fund future improvements. The rate changes also help recruit and
retain Pilots, which ensures enough 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
considered whether this final rule will 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 this final rule, the Coast Guard reviewed recent company size
and ownership data for the vessels identified in SeaPro, and we
reviewed business revenue and size data provided by publicly available
sources such as ReferenceUSA.\43\ As described in Section VIII.,
Regulatory Analyses, of this preamble, we found that 484 unique vessels
used pilotage services during the years 2021 through 2023. These
vessels are owned by 63 entities, of which 49 are foreign entities that
operate primarily outside the United States, and the remaining 14
entities are U.S. entities. We compared the revenue and employee data
found in the company search to the Small Business Administration's
(SBA) small business threshold, as defined in the SBA's ``Table of Size
Standards'' for small businesses, to determine how many of these
companies are considered small entities.\44\ 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.
---------------------------------------------------------------------------

\43\ See Resources for Reference Solutions Users, ReferenceUSA,
<a href="https://resource.referenceusa.com">https://resource.referenceusa.com</a>; accessed 04/22/2024.
\44\ See Table of Size Standards, <a href="https://www.sba.gov/document/support--table-size-standards">https://www.sba.gov/document/support--table-size-standards</a>; accessed 05/01/24. SBA has
established a ``Table of Size Standards'' for small businesses that
sets small business size standards by NAICS code. A size standard,
which is usually stated in number of employees or average annual
receipts (``revenues''), represents the largest size that a business
(including its subsidiaries and affiliates) may be in order to
remain classified as a small business for SBA and Federal
contracting programs.

Table 49--NAICS Codes and Small Entities Size Standards
----------------------------------------------------------------------------------------------------------------
NAICS Description Small entity size standard
----------------------------------------------------------------------------------------------------------------
238910.................................. Site Preparation Contractors.... $19,000,000.
423860.................................. Transportation Equipment and 175 Employees.
Supplies (except Motor Vehicle)
Merchant Wholesalers.
488330.................................. Navigational Services to $47,000,000.
Shipping.
488390.................................. Other Support Activities for $47,000,000.
Water Transportation.
541611.................................. Administrative Management and $24,500,000.
General Management Consulting
Services.
561510.................................. Travel Agencies................. $25,000,000.
562910.................................. Remediation Services............ $25,000,000.
713930.................................. Marinas......................... $11,000,000.
----------------------------------------------------------------------------------------------------------------

Of the 14 U.S. entities, four exceed the SBA's small business
standards for small entities. To estimate the potential impact on the
remaining 10 small entities, the Coast Guard used their 2023 invoice
data to estimate their pilotage costs in 2025. We increased their 2023
costs to account for the changes in pilotage rates resulting from this
final rule and the 2024 final rule. We estimated the change in cost to
these entities resulting from this final rule by subtracting their
estimated 2024 pilotage costs from their estimated 2025 pilotage costs
and found the average costs to small firms are approximately $13,643,
with a range of $1,411 to $42,691. We then compared the estimated
change in pilotage costs between 2024 and 2025 with each firm's annual
revenue. In all but one case, the impact of the change in estimated
pilotage expenses will be below 1 percent of revenues. For one entity,
the impact will be 6.9 percent of revenues.
In addition to the owners and operators discussed previously, three
U.S. entities that receive revenue from pilotage services will be
affected by this final rule. These are the three pilot associations
that provide and manage pilotage services within the Great Lakes
districts. District One, SLSPA, uses the NAICS code ``Inland Water
Freight Transportation'' with a small-entity size standard of 1,050
employees. District Two, ``LPA'' uses the NAICS code, ``Business
Associations'' with a small-entity size standard of $15,500,000 in
revenue. District Three, ``WGLPA'' did not have a registered NAICS code
through ReferenceUSA. All three associations are considered small
entities.
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 final rule. We
also did not find any small governmental jurisdictions with populations
of fewer than 50,000 people that will be impacted by this final rule.
Based on this analysis, we conclude this final rule will not have a
significant economic impact on a substantial number of small entities.
Therefore, the Coast Guard certifies under 5 U.S.C. 605(b) that
this final rule will not have a significant economic impact on a
substantial number of small entities.

C. Assistance for Small Entities

Under section 213(a) of the Small Business Regulatory Enforcement
Fairness Act of 1996, Public Law 104-121, we want to assist small
entities in understanding this final rule so that they can better
evaluate its effects on them and participate in the rulemaking. The
Coast Guard will not retaliate against small entities that question or
complain about this final rule or any policy or action of the Coast
Guard.
Small businesses may send comments on the actions of Federal
employees

[[Page 100837]]

who enforce, or otherwise determine compliance with, Federal
regulations to the Small Business and Agriculture Regulatory
Enforcement Ombudsman and the Regional Small Business Regulatory
Fairness Boards. The Ombudsman evaluates these actions annually and
rates each agency's responsiveness to small business. If you wish to
comment on actions by employees of the Coast Guard, call 1-888-REG-FAIR
(1-888-734-3247).

D. Collection of Information

This final rule calls for no new collection of information under
the Paperwork Reduction Act of 1995, 44 U.S.C. 3501-3520.

E. Federalism

A final rule has implications for federalism under Executive Order
13132 (Federalism) if it has a substantial direct effect on States, on
the relationship between the National Government and the States, or on
the distribution of power and responsibilities among the various levels
of government. We have analyzed this final rule under Executive Order
13132 and have determined that it is consistent with the fundamental
federalism principles and preemption requirements described in
Executive Order 13132. Our analysis follows.
Congress directed the Coast Guard to establish ``rates and charges
for pilotage services.'' 46 U.S.C. 9303(f). This regulation is issued
pursuant to that statute and is preemptive of State law as specified in
46 U.S.C. 9306. Under 46 U.S.C. 9306, a ``State or political
subdivision of a State may not regulate or impose any requirement on
pilotage on the Great Lakes.'' As a result, States or local governments
are expressly prohibited from regulating within this category.
Therefore, this final rule is consistent with the fundamental
federalism principles and preemption requirements described in
Executive Order 13132.

F. Unfunded Mandates

The Unfunded Mandates Reform Act of 1995, 2 U.S.C. 1531-1538,
requires Federal agencies to assess the effects of their discretionary
regulatory actions. In particular, the Act addresses actions that may
result in the expenditure by a State, local, or tribal government, in
the aggregate, or by the private sector of $100 million (adjusted for
inflation) or more in any one year. Although this final rule will not
result in such an expenditure, we do discuss the effects of this final
rule elsewhere in this preamble.

G. Taking of Private Property

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

H. Civil Justice Reform

This final rule meets applicable standards in sections 3(a) and
3(b)(2) of Executive Order 12988, (Civil Justice Reform), to minimize
litigation, eliminate ambiguity, and reduce burden.

I. Protection of Children

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

J. Indian Tribal Governments

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

K. Energy Effects

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

L. Technical Standards

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

M. Environment

We have analyzed this final rule under Department of Homeland
Security Management Directive 023-01, Rev. 1, associated implementing
instructions, and Environmental Planning COMDTINST 5090.1 (series),
which guide the Coast Guard in complying with the National
Environmental Policy Act of 1969 (42 U.S.C. 4321-4370f), and have
determined that this action is one of a category of actions that do not
individually or cumulatively have a significant effect on the human
environment. A Record of Environmental Consideration supporting this
determination is available in the docket. For instructions on locating
the docket, see the ADDRESSES section of this preamble. This final rule
is categorically excluded under paragraphs A3 and L54 of Appendix A,
Table 1 of the Department of Homeland Security (DHS) Instruction Manual
023-01-001-01, Rev. 1. Paragraph A3 pertains to the promulgation of
rules of the following nature: (a) those of a strictly administrative
or procedural nature; (b) those that implement, without substantive
change, statutory or regulatory requirements; (c) those that implement,
without substantive change, procedures, manuals, and other guidance
documents; (d) those that interpret or amend an existing regulation
without changing its environmental effect; (e) those that provide
technical guidance on safety and security matters; and (f) those that
provide guidance for the preparation of security plans. Paragraph L54
pertains to regulations which are editorial or procedural.
This final rule involves adjusting the pilotage rates for 2025 to
account for changes in district operating expenses, changes in the
number of pilots, and anticipated inflation. All changes are consistent
with the Coast Guard's maritime safety missions.

List of Subjects in 46 CFR Part 401

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

[[Page 100838]]

For the reasons discussed in the preamble, the Coast Guard amends
46 CFR part 401 as follows:

PART 401--GREAT LAKES PILOTAGE REGULATIONS

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

Authority: 46 U.S.C. 2103, 2104(a), 6101, 7701, 8105, 9303,
9304; DHS Delegation No. 00170.1, Revision No. 01.4, paragraphs
(II)(92)(a), (d), (e), (f).

0
2. Amend Sec. 401.405 by revising paragraphs (a)(1) through (6) to
read as follows:

Sec. 401.405 Pilotage rates and charges.

(a) * * *
(1) The St. Lawrence River is $986;
(2) Lake Ontario is $643;
(3) Lake Erie is $576;
(4) The navigable waters from Southeast Shoal to Port Huron, MI is
$753;
(5) Lakes Huron, Michigan, and Superior is $440; and
(6) The St. Marys River is $825.
* * * * *

Dated: December 6, 2024.
A.M. Beach,
Captain, U.S. Coast Guard, Acting, Assistant Commandant for Prevention
Policy.
[FR Doc. 2024-29128 Filed 12-12-24; 8:45 am]
BILLING CODE 9110-04-P

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