Federal Register / Vol. 83, No. 12 / Thursday, January 18, 2018 / Proposed Rules 2581 

C. Paperwork Reduction Act (PRA) 

This action does not impose an 

information collection burden under the 

PRA. This rule does not contain any 

information collection requirements that 

require approval of the OMB. 

D. Regulatory Flexibility Act (RFA) 

I certify that this action will not have 

a significant economic impact on a 

substantial number of small entities 

under the RFA. This action will not 

impose any requirements on small 

entities. This rule listing sites on the 

NPL does not impose any obligations on 

any group, including small entities. This 

rule also does not establish standards or 

requirements that any small entity must 

meet, and imposes no direct costs on 

any small entity. Whether an entity, 

small or otherwise, is liable for response 

costs for a release of hazardous 

substances depends on whether that 

entity is liable under CERCLA 107(a). 

Any such liability exists regardless of 

whether the site is listed on the NPL 

through this rulemaking. 

E. Unfunded Mandates Reform Act 

(UMRA) 

This action does not contain any 

unfunded mandate as described in 

UMRA, 2 U.S.C. 1531–1538, and does 

not significantly or uniquely affect small 

governments. This action imposes no 

enforceable duty on any state, local or 

tribal governments or the private sector. 

Listing a site on the NPL does not itself 

impose any costs. Listing does not mean 

that the EPA necessarily will undertake 

remedial action. Nor does listing require 

any action by a private party, state, local 

or tribal governments or determine 

liability for response costs. Costs that 

arise out of site responses result from 

future site-specific decisions regarding 

what actions to take, not directly from 

the act of placing a site on the NPL. 

F. Executive Order 13132: Federalism 

This rule does not have federalism 

implications. It will not have substantial 

direct effects on the states, on the 

relationship between the national 

government and the states, or on the 

distribution of power and 

responsibilities among the various 

levels of government. 

G. Executive Order 13175: Consultation 

and Coordination With Indian Tribal 

Governments 

This action does not have tribal 

implications as specified in Executive 

Order 13175. Listing a site on the NPL 

does not impose any costs on a tribe or 

require a tribe to take remedial action. 

Thus, Executive Order 13175 does not 

apply to this action. 

H. Executive Order 13045: Protection of 

Children From Environmental Health 

and Safety Risks 

The EPA interprets Executive Order 

13045 as applying only to those 

regulatory actions that concern 

environmental health or safety risks that 

the EPA has reason to believe may 

disproportionately affect children, per 

the definition of ‘‘covered regulatory 

action’’ in section 2–202 of the 

Executive Order. This action is not 

subject to Executive Order 13045 

because this action itself is procedural 

in nature (adds sites to a list) and does 

not, in and of itself, provide protection 

from environmental health and safety 

risks. Separate future regulatory actions 

are required for mitigation of 

environmental health and safety risks. 

I. Executive Order 13211: Actions That 

Significantly Affect Energy Supply, 

Distribution, or Use 

This action is not subject to Executive 

Order 13211, because it is not a 

significant regulatory action under 

Executive Order 12866. 

J. National Technology Transfer and 

Advancement Act (NTTAA) 

This rulemaking does not involve 

technical standards. 

K. Executive Order 12898: Federal 

Actions To Address Environmental 

Justice in Minority Populations and 

Low-Income Populations 

The EPA believes the human health or 

environmental risk addressed by this 

action will not have potential 

disproportionately high and adverse 

human health or environmental effects 

on minority, low-income or indigenous 

populations because it does not affect 

the level of protection provided to 

human health or the environment. As 

discussed in Section I.C. of the 

preamble to this action, the NPL is a list 

of national priorities. The NPL is 

intended primarily to guide the EPA in 

determining which sites warrant further 

investigation to assess the nature and 

extent of public health and 

environmental risks associated with a 

release of hazardous substances, 

pollutants or contaminants. The NPL is 

of only limited significance as it does 

not assign liability to any party. Also, 

placing a site on the NPL does not mean 

that any remedial or removal action 

necessarily need be taken. 

List of Subjects in 40 CFR Part 300 

Environmental protection, Air 

pollution control, Chemicals, Hazardous 

substances, Hazardous waste, 

Intergovernmental relations, Natural 

resources, Oil pollution, Penalties, 

Reporting and recordkeeping 

requirements, Superfund, Water 

pollution control, Water supply. 

Authority: 33 U.S.C. 1321(d); 42 U.S.C. 

9601–9657; E.O. 13626, 77 FR 56749, 3 CFR, 

2013 Comp., p. 306; E.O. 12777, 56 FR 54757, 

3 CFR, 1991 Comp., p.351; E.O. 12580, 52 FR 

2923, 3 CFR, 1987 Comp., p. 193. 

Dated: January 9, 2018. 

Barry N. Breen, 

Principal Deputy Assistant Administrator, 

Office of Land and Emergency Management. 

[FR Doc. 2018–00623 Filed 1–17–18; 8:45 am] 

BILLING CODE 6560–50–P 

DEPARTMENT OF HOMELAND 

SECURITY 

Coast Guard 

46 CFR Parts 401 and 404 

[USCG–2017–0903] 

RIN 1625–AC40 

Great Lakes Pilotage Rates—2018 

Annual Review and Revisions to 

Methodology 

AGENCY: Coast Guard, DHS. 

ACTION: Notice of proposed rulemaking. 

SUMMARY: In accordance with the Great 

Lakes Pilotage Act of 1960, the Coast 

Guard proposes new base pilotage rates 

and surcharges for the 2018 shipping 

season. Additionally, the Coast Guard is 

proposing several changes to the Great 

Lakes pilotage ratemaking methodology. 

These additional proposed changes 

include creating clear delineation 

between the Coast Guard’s annual rate 

adjustments and the Coast Guard’s 

requirement to conduct a full 

ratemaking every five years; the 

adoption of a revised compensation 

benchmark; reorganization of the text 

regarding the staffing model for 

calculating the number of pilots needed; 

and certain editorial changes. 

DATES: Comments and related material 

must be submitted to the online docket 

via https://www.regulations.gov, or 

reach the Docket Management Facility, 

on or before February 20, 2018. 

ADDRESSES: You may submit comments 

identified by docket number USCG– 

2017–0903 using the Federal 

eRulemaking Portal at https://

www.regulations.gov. See the ‘‘Public 

Participation and Request for 

Comments’’ portion of the 

SUPPLEMENTARY INFORMATION section of 

this document for further instructions 

on submitting comments. 

FOR FURTHER INFORMATION CONTACT: For 

information about this document, call or 


sradovich on DSK3GMQ082PROD with PROPOSALS
2582 Federal Register / Vol. 83, No. 12 / Thursday, January 18, 2018 / Proposed Rules 

1 46 U.S.C. Chapter 93; Public Law 86–555, 74 

Stat. 259, as amended. 

2We have included the court’s opinion in the 

docket at USCG–2017–0903. 

email Mr. Michael Moyers, Great Lakes 

Pilotage, Commandant (CG–WWM–2), 

Coast Guard; telephone 202–372–1553, 

email Michael.S.Moyers@uscg.mil, or 

fax 202–372–1914. 

SUPPLEMENTARY INFORMATION: 

Table of Contents for Preamble 

I. Public Participation and Request for 

Comments 

II. Abbreviations 

III. Executive Summary 

IV. Basis and Purpose 

V. Background 

VI. Discussion of Proposed Methodological 

and Other Changes 

A. Codification of Compensation Inflation 

Adjustment 

B. Relocation of Staffing Model Regulations 

C. Additional Changes to Ratemaking Steps 

3 and 4 

D. Delineation of Full Ratemakings and 

Annual Adjustments 

E. Other Miscellaneous Changes 

VII. Revised Compensation Benchmark 

VIII. Discussion of Proposed Rate 

Adjustments 

A. Step 1: Recognition of Operating 

Expenses 

B. Step 2: Projection of Operating Expenses 

C. Step 3: Estimate Number of Working 

Pilots 

D. Step 4: Determine Target Pilot 

Compensation 

E. Step 5: Calculate Working Capital Fund 

F. Step 6: Calculate Revenue Needed 

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 

K. Surcharges 

IX. Regulatory Analyses 

A. Regulatory Planning and Review 

B. Small Entities 

C. Assistance for Small Entities 

D. Collection of Information 

E. Federalism 

F. Unfunded Mandates Reform Act 

G. Taking of Private Property 

H. Civil Justice Reform 

I. Protection of Children 

J. Indian Tribal Governments 

K. Energy Effects 

L. Technical Standards 

M. Environment 

I. Public Participation and Request for 

Comments 

We view public participation as 

essential to effective rulemaking, and 

will consider all comments and material 

received during the comment period. 

Your comment can help shape the 

outcome of this rulemaking. If you 

submit a comment, please include the 

docket number for this rulemaking, 

indicate the specific section of this 

document to which each comment 

applies, and provide a reason for each 

suggestion or recommendation. 

We encourage you to submit 

comments through the Federal 

eRulemaking Portal at https://

www.regulations.gov. If your material 

cannot be submitted using https://

www.regulations.gov, contact the person 

in the FOR FURTHER INFORMATION

CONTACT section of this proposed rule 

for alternate instructions. Documents 

mentioned in this proposed rule, and all 

public comments, are available in our 

online docket at https://

www.regulations.gov, and can be viewed 

by following that website’s instructions. 

Additionally, if you go to the online 

docket and sign up for email alerts, you 

will be notified when comments are 

posted or a final rule is published. 

We accept anonymous comments. All 

comments received will be posted 

without change to https://

www.regulations.gov and will include 

any personal information you have 

provided. For more about privacy and 

the docket, visit https://

www.regulations.gov/privacyNotice. 

We are not planning to hold a public 

meeting but will consider doing so if 

public comments indicate a meeting 

would be helpful. We would issue a 

separate Federal Register notice to 

announce the date, time, and location of 

such a meeting. 

II. Abbreviations 

APA American Pilots Association 

AMOU American Maritime Officers Union 

CATEX Unique Categorical Exclusions for 

the U.S. Coast Guard 

CFR Code of Federal Regulations 

CPA Certified public accountant 

DHS Department of Homeland Security 

FOMC Federal Open Market Committee 

FR Federal Register 

GLPA Great Lakes Pilotage Authority 

(Canadian) 

GLPAC Great Lakes Pilotage Advisory 

Committee 

GLPMS Great Lakes Pilotage Management 

System 

NAICS North American Industry 

Classification System 

NPRM Notice of proposed rulemaking 

OMB Office of Management and Budget 

PCE Personal Consumption Expenditures 

RA Regulatory analysis 

SBA Small Business Administration 

§ Section symbol 

The Act Great Lakes Pilotage Act of 1960 

U.S.C. United States Code 

III. Executive Summary 

Pursuant to the Great Lakes Pilotage 

Act of 1960 (‘‘the Act’’),1 the Coast 

Guard regulates pilotage for oceangoing 

vessels on the Great Lakes—including 

setting the rates for pilotage services and 

adjusting them on an annual basis. The 

rates, which currently range from $218 

to $601 per pilot hour (depending on 

the specific area where pilotage service 

is provided), are paid by shippers to 

pilot associations. The three pilot 

associations, which are the exclusive 

source of registered pilots on the Great 

Lakes, use this revenue to cover 

operating expenses, maintain 

infrastructure, compensate working 

pilots, and train new pilots. We have 

developed a ratemaking methodology in 

accordance with our statutory 

requirements and regulations. Our 

ratemaking methodology calculates the 

revenue needed for each pilotage 

association (including operating 

expenses, compensation, and 

infrastructure needs), and then divides 

that amount by the expected shipping 

traffic over the course of the year to 

produce an hourly rate. This process is 

currently effected through a 10-step 

methodology and supplemented with 

surcharges, which are explained in 

detail in this notice of proposed 

rulemaking (NPRM). 

In this NPRM, we are proposing to 

make modifications to the ratemaking 

methodology and proposing new 

pilotage rates for 2018 based on the new 

proposed methodology. The proposed 

modifications to the ratemaking 

methodology consist of a new 

compensation benchmark, 

organizational changes, and 

clarifications. We are proposing a new 

compensation benchmark to comply 

with a recent court decision holding 

that the Coast Guard had not adequately 

justified the previous benchmark, 

established in the 2016 rulemaking, 

which set compensation at the level of 

Canadian wages plus ten percent.2 From 

an organizational standpoint, we 

propose to move the discussion of the 

staffing model from its current location 

in title 46 of the Code of Federal 

Regulation (CFR) 404.103 (as part of 

‘‘Step 3’’ of the ratemaking process), to 

the general regulations governing 

pilotage in 46 CFR 401.220(a). For 

clarification purposes, we are proposing 

to set forth separate regulatory 

paragraphs detailing the differences 

between how we undertake an annual 

adjustment of the pilotage rates, and a 

full reassessment of the rates, which 

must be undertaken once every 5 years. 

As part of our annual review, we are 

proposing in this NPRM new rates for 

the 2018 shipping season. Based on the 

ratemaking model discussed in this 

NPRM, we are proposing the rates 

shown in Table 1. 


sradovich on DSK3GMQ082PROD with PROPOSALS
Federal Register / Vol. 83, No. 12 / Thursday, January 18, 2018 / Proposed Rules 2583 

3See 46 U.S.C. 9301(2) and 9302(a)(1). 

4See 46 U.S.C. 9303(f). 

5 Department of Homeland Security (DHS) 

Delegation No. 0170.1, para. II (92.f). 

6See 46 U.S.C. 9302. A ‘‘laker’’ is a commercial 

cargo vessel especially designed for and generally 

limited to use on the Great Lakes. 

7Presidential Proc. 3385, Designation of restricted 

waters under the Great Lakes Pilotage Act of 1960, 

December 22, 1960. 

8 46 U.S.C. 9302(a)(1)(B). 

TABLE 1—CURRENT AND PROPOSED PILOTAGE RATES ON THE GREAT LAKES

Area 2017 pilotage 

rate 

Proposed 

2018 pilotage 

rate 

St. Lawrence River .................................................................................................................................................. $601 $622 

Lake Ontario ............................................................................................................................................................ 408 424 

Navigable waters from Southeast Shoal to Port Huron, MI .................................................................................... 580 553 

Lake Erie .................................................................................................................................................................. 429 454 

St. Mary’s River ....................................................................................................................................................... 514 517 

Lakes Huron, Michigan, and Superior ..................................................................................................................... 218 253 

This proposed rule is not 

economically significant under E.O. 

12866. This proposed rule would 

impact 49 U.S. Great Lakes pilots, 3 

pilot associations, and the owners and 

operators of an average of 215 

oceangoing vessels that transit the Great 

Lakes annually. The estimated overall 

annual regulatory economic impact of 

this rate change is a net increase of 

$1,162,401 in payments made by 

shippers from the 2017 shipping season. 

Because we must review, and, if 

necessary, adjust rates each year, we 

analyze these as single year costs and do 

not annualize them over 10 years. This 

rule does not affect the Coast Guard’s 

budget or increase Federal spending. 

Section IX of this preamble discusses 

the regulatory impact analyses of this 

proposed rule. 

IV. Basis and Purpose 

The legal basis of this rulemaking is 

the Great Lakes Pilotage Act of 1960 

(‘‘the Act’’), which requires U.S. vessels 

operating ‘‘on register’’ and foreign 

merchant vessels to use U.S. or 

Canadian registered pilots while 

transiting the U.S. waters of the St. 

Lawrence Seaway and the Great Lakes 

system.3 For the U.S. Registered Great 

Lakes Pilots (‘‘pilots’’), the Act 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.’’ 4 The Act requires that rates 

be established or reviewed and adjusted 

each year, not later than March 1. The 

Act 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 Secretary’s duties and authority 

under the Act have been delegated to 

the Coast Guard.5 The purpose of this 

NPRM is to propose new changes to the 

methodology in projecting pilotage rates 

as well as revised pilotage rates and 

surcharges. Our goals for this and all 

future rates are to ensure safe, efficient, 

and reliable pilotage services on the 

Great Lakes, and provide adequate 

funds to maintain infrastructure. 

Additionally, we believe that the new 

methodology will increase transparency 

and predictability in the ratemaking 

process and ensure that annual 

adjustments of rates are completed in a 

timely manner. 

V. Background 

Pursuant to the Great Lakes Pilotage 

Act, the Coast Guard, in conjunction 

with the Canadian Great Lakes Pilotage 

Authority, regulates shipping practices 

and pilotage rates on the Great Lakes. 

Under Coast Guard regulations, all U.S. 

vessels sailing on register and all nonCanadian, foreign merchant vessels 

(often referred to as ‘‘salties’’), are 

required to engage U.S. or Canadian 

pilots during their transit through 

regulated waters. United States and 

Canadian ‘‘lakers,’’ which account for 

most commercial shipping on the Great 

Lakes, are not subject to the Act.6

Generally, vessels are assigned a U.S. or 

Canadian pilot depending on the order 

in which they transit a particular area of 

the Great Lakes, and do not choose the 

pilot they receive. If a vessel is assigned 

a U.S. pilot, that pilot will be assigned 

by the pilotage association responsible 

for the particular district in which the 

vessel is operating, and the vessel 

operator will pay the pilotage 

association for the pilotage services. 

The U.S. waters of the Great Lakes 

and the St. Lawrence Seaway are 

divided into three pilotage districts. 

Pilotage in each district is provided by 

an association certified by the Coast 

Guard Director of the Great Lakes 

Pilotage Office (‘‘the Director’’) to 

operate a pilotage pool. The Saint 

Lawrence Seaway Pilotage Association 

provides pilotage services in District 

One, which includes all U.S. waters of 

the St. Lawrence River and Lake 

Ontario. The Lakes Pilotage 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 Pilotage 

Association provides pilotage services 

in District Three, which includes all 

U.S. waters of the St. Mary’s River; Sault 

Ste. Marie Locks; and Lakes Huron, 

Michigan, and Superior. 

Each pilotage district is further 

divided into ‘‘designated’’ and 

‘‘undesignated’’ areas. Designated areas 

are classified as such by Presidential 

Proclamation 7 to be waters in which 

pilots must, at all times, be fully 

engaged in the navigation of vessels in 

their charge. Undesignated areas, on the 

other hand, are open bodies of water, 

and thus are not subject to the same 

pilotage requirements. While working in 

those undesignated areas, pilots must 

‘‘be on board and available to direct the 

navigation of the vessel at the discretion 

of and subject to the customary 

authority of the master.’’ 8 As such, 

pilotage rates in designated areas are 

higher than those in undesignated areas. 


sradovich on DSK3GMQ082PROD with PROPOSALS
2584 Federal Register / Vol. 83, No. 12 / Thursday, January 18, 2018 / Proposed Rules 

9Area 3 is the Welland Canal, which is serviced 

exclusively by the Canadian Great Lakes Pilotage 

Authority (GLPA) and, accordingly, is not included 

in the United States pilotage rate structure. 10The areas are listed by name in 46 CFR 

401.405. 

TABLE 2—AREAS OF THE GREAT LAKES AND SAINT LAWRENCE SEAWAY

District Pilotage association Designation Area number 9 Area name 10

One ........................ Saint Lawrence Seaway Pilotage Association.Designated .............

Undesignated .........

1 

2 

St. Lawrence River. 

Lake Ontario. 

Two ........................ Lake Pilotage Association ...................... Designated ............. 5 Navigable waters from Southeast Shoal 

to Port Huron, MI. 

Undesignated ......... 4 Lake Erie. 

Three ...................... Western Great Lakes Pilotage Association.Designated .............

Undesignated .........

Undesignated .........

7 

6 

8 

St. Mary’s River. 

Lakes Huron and Michigan. 

Lake Superior. 

Each pilot association is an 

independent business and is the sole 

provider of pilotage services in the 

district in which it operates. Each pilot 

associations is responsible for funding 

its own operating expenses, maintaining 

infrastructure, acquiring and 

implementing technological advances, 

training personnel/partners and pilot 

compensation. We developed a 10-step 

ratemaking methodology to derive a 

pilotage rate that covers these expenses 

based on the estimated amount of 

traffic. In short, the methodology is 

designed to measure how much revenue 

each pilotage association will need to 

cover expenses and provide competitive 

compensation to working pilots. The 

Coast Guard then divides that amount 

by the historical average traffic 

transiting through the district. We 

recognize that in years where traffic is 

above average, pilot associations will 

take in more revenue than projected, 

while in years where traffic is below 

average, they will take in less. We 

believe that over the long term, 

however, this system ensures that 

infrastructure will be maintained and 

that pilots will receive adequate 

compensation and work a reasonable 

number of hours with adequate rest 

between assignments to ensure retention 

of highly-trained personnel. Over the past 2 years, the Coast Guard 

has made major adjustments to the Great 

Lakes pilotage ratemaking methodology. 

In 2016, we made significant changes to 

the methodology, moving to an hourly 

billing rate for pilotage services and 

changing the compensation benchmark 

to a more transparent model. In 2017, 

we added additional steps to the 

ratemaking methodology, including new 

steps that will accurately account for the 

additional revenue produced by the 

application of weighting factors 

(discussed in detail in Steps 7 through 

9 of this preamble). The current 

methodology, which was finalized in 

the August 31, 2017 Federal Register 

(82 FR 41466), is designed to accurately 

capture all the costs and revenues 

associated with Great Lakes pilotage 

requirements and produce an hourly 

rate that adequately, and accurately, 

compensates pilots and covers 

expenses. The Coast Guard summarizes 

the current methodology in the section 

below. 

Summary of Ratemaking Methodology 

As stated above, the ratemaking 

methodology, currently outlined in 46 

CFR 404.101 through 404.110, consists 

of 10 steps that are designed to account 

for the revenues needed and total traffic 

expected in each district. The result is 

an hourly rate (determined separately 

for each of the areas administered by the 

Coast Guard). 

In Step 1, ‘‘Recognize previous 

operating expenses,’’ (§ 404.101) we 

review audited operating expenses from 

each of the three pilotage associations. 

This number forms the baseline amount 

that each association is budgeted. 

Because of the time delay between when 

the association submits raw numbers 

and the Coast Guard receives audited 

numbers, this number is 3 years behind 

the projected year of expenses. So in 

calculating the 2018 rates in this 

proposal, we are beginning with the 

audited expenses from calendar year 

2015. 

While each pilotage association 

operates in an entire district, we further 

break down the costs by area. Thus, 

with regard to operating expenses, we 

allocate certain operating expenses to 

undesignated areas, and certain 

expenses to designated areas. In some 

cases (e.g., insurance for applicant pilots 

who operate in undesignated areas 

only), we can allocate the costs based on 

where they are actually accrued. In 

other situations (e.g., 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,’’ (§ 404.102) we develop the 

2018 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 used are from the 

Bureau of Labor Statistics’ Consumer 

Price Index for the Midwest Region, or 

if not available, the Federal Open 

Market Committee (FOMC) median 

economic projections for Personal 

Consumption Expenditures (PCE) 

inflation. This step produces the total 

operating expenses for each area and 

district. 

In Step 3, ‘‘Determine number of 

pilots needed,’’ (§ 404.103) we calculate 

how many pilots are needed for each 

district. To do this, we employ a 

‘‘staffing model,’’ described in 

§ 404.103(a) through (c), to estimate how 

many pilots would be needed to handle 

shipping during the beginning and close 

of the season. This number is helpful in 

providing guidance to the Director of 

the Coast Guard Great Lakes Pilotage 

Office in approving an appropriate 

number of credentials for pilots. For the purpose of the ratemaking 

calculation, we determine the number of 

working pilots provided by the pilotage 

associations (see § 404.103(d)) which is 

what we use to determine how many 

pilots need to be compensated via the 

pilotage fees collected. In Step 4, ‘‘Determine target pilot 

compensation benchmark,’’ (§ 404.104) 

we determine the revenue needed for 

pilot compensation in each area and 

district. This step contains two 

processes. In the first process, we 

calculate the total compensation for 

each pilot using a ‘‘compensation 

benchmark.’’ Next, we multiply the 

individual pilot compensation by the 

number of working pilots for each area 

and district (from Step 3), producing a 

figure for total pilot compensation. 

Because pilots are paid by the 

associations, but the costs of pilotage is 

divided up by area for accounting 

purposes, we assign a certain number of 

pilots for the designated areas and a 

certain number of pilots for the 

undesignated areas for purposes of 

determining the revenues needed for 

each area. To make the determination of 

how many pilots to assign, we use the 

staffing model designed to determine 


sradovich on DSK3GMQ082PROD with PROPOSALS
Federal Register / Vol. 83, No. 12 / Thursday, January 18, 2018 / Proposed Rules 2585 

11 In some cases, U.S.-registered vessels that are 

not required to use a pilot by law will do so 

voluntarily for business reasons. 

12See 81 FR 11908 (March 7, 2016). 

13See 81 FR 72011 (October 19, 2016). 

14See 82 FR 41466 (August 31, 2017). 

15 Id., at 41483. 

the total number of pilots, described in 

Step 3, above. 

In Step 5, ‘‘Project working capital 

fund,’’ (§ 404.105) we calculate a return 

on investment by adding the total 

operating expenses (derived in Step 2) 

and the total pilot compensation 

(derived in Step 4), and multiply that 

figure by the preceding year’s average 

annual rate of return for new issues of 

high-grade corporate securities. This 

figure constitutes the ‘‘working capital 

fund’’ for each area and district. 

In Step 6, ‘‘Project needed revenue,’’ 

(§ 404.106) we simply add up the totals 

produced by the preceding steps. For 

each area and district, we add the 

projected operating expense (from Step 

2), the total pilot compensation (from 

Step 4), and the working capital fund 

contribution (from Step 5). The total 

figure, calculated separately for each 

area and district, is the ‘‘revenue 

needed.’’ 

In Step 7, ‘‘Initially calculate base 

rates,’’ (§ 404.107) we calculate an 

hourly pilotage rate to cover the revenue 

needed calculated in step 6. This step 

consists of first calculating the 10-year 

traffic average for each area. Next, we 

divide the revenue needed in each area 

(calculated in Step 6) by the 10-year 

traffic average to produce an initial base 

rate. 

An additional element, the 

‘‘weighting factor,’’ is required under 

§ 401.400. Pursuant to that section, 

ships pay a multiple of the ‘‘base rate’’ 

as calculated in Step 7 by a number 

ranging from 1.0 (for the smallest ships, 

or ‘‘Class I’’ vessels) to 1.45 (for the 

largest ships, or ‘‘Class IV’’ vessels). As 

this significantly increases the revenue 

collected, we need to account for the 

added revenue produced by the 

weighting factors to ensure that shippers 

are not overpaying for pilotage services. 

In Step 8, ‘‘Calculate average 

weighting factors by area,’’ (§ 404.108) 

we calculate 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 

applied weighting factors for each year 

since 2014 (the first year the current 

weighting factors were applied). 

In Step 9, ‘‘Calculate revised base 

rates,’’ (§ 404.109) we modify the base 

rates by accounting for the extra revenue 

generated by the weighting factors. We 

do this by simply dividing the initial 

pilotage rate for each area (from Step 7) 

by the corresponding average weighting 

factor (from Step 8), to produce a 

revised rate. 

In Step 10, ‘‘Review and finalize 

rates,’’ (§ 404.110) often referred to 

informally as ‘‘director’s discretion,’’ we 

review the revised base rates (from Step 

9) to ensure that they meet the goals set 

forth in the Act and 46 CFR 404.1(a), 

which include promoting efficient, safe, 

and reliable pilotage service on the 

Great Lakes; generating sufficient 

revenue for each pilotage association to 

reimburse necessary and reasonable 

operating expenses; compensating pilots 

fairly, who are trained and rested; and 

providing appropriate profit for 

improvements. Because it is our goal to 

be as transparent as possible in our 

ratemaking procedure, we use this step 

sparingly to adjust rates. 

Finally, after the base rates are set, 

§ 401.401 permits the Coast Guard to 

apply surcharges. Currently, we use 

surcharges to pay for the training of new 

pilots, rather than incorporating training 

costs into the overall ‘‘revenue needed’’ 

that is used in the calculation of the 

base rates. In recent years, we have 

allocated $150,000 per applicant pilot to 

be collected via surcharges. This 

amount is calculated as a percentage of 

total revenue for each district, and that 

percentage is applied to each bill. When 

the total amount of the surcharge has 

been collected, the pilot associations are 

prohibited from collecting further 

surcharges. Thus, in years where traffic 

is heavier than expected, shippers early 

in the season could pay more than 

shippers employing pilots later in the 

season, after the surcharge cap has been 

met. 

VI. Discussion of Proposed 

Methodological and Other Changes 

For 2018, we are proposing a number 

of changes to the ratemaking 

methodology. These changes are both 

revisions to the rate-setting process, as 

well as organizational changes that will 

simplify and streamline rate-setting 

procedures in future years. While we 

realize that yearly adjustments of the 

ratemaking methodology can lead to 

unpredictability, we believe that modest 

modifications to the ratemaking 

methodology in order to improve 

accuracy, simplify its steps, and make it 

more transparent complies with our 

statutory requirement to consider public 

interest and the costs of providing 

pilotage services. These proposed 

changes are intended to provide rate 

stability and predictability beneficial to 

the U.S. Great Lakes pilot associations, 

shippers, cruise ships, and voluntary 

employment of U.S. registered pilots.11

Additionally, in this section, we discuss 

several other proposed changes to the 

Great Lakes pilotage regulations, which, 

while related to the annual ratemakings, 

are not limited to the specific 

methodological steps. 

A. Codification of Compensation 

Inflation Adjustment 

One change we are proposing in this 

NPRM is to add regulatory text to 

§ 404.104 that would automatically 

adjust the pilot compensation figure for 

inflation annually. Under the current 

regulations, while pilot compensation is 

determined in Step 4 annually, there is 

no specific provision that it will change 

with inflation. This issue is often raised 

in comments. For example, in the 2016 

Great Lakes pilotage rate adjustment 

final rule,12 we set target pilot 

compensation at $326,114 annually. 

Then, in the 2017 NPRM,13 we proposed 

leaving that amount unchanged. This 

prompted comments stating that leaving 

the nominal target compensation of 

pilots unchanged undermined the Coast 

Guard’s stated goal of compensation 

stability, because the pilots’ earning 

power would not keep up with regional 

inflation. In the 2017 final rule, we 

increased the target compensation 

number by the inflation rate, to the 

current level of $332,963.14 In that rule, 

we stated that ‘‘we intend to adjust the 

compensation figure for inflation 

annually in future ratemaking actions, 

the same way that operating expenses 

are adjusted for inflation.’’ 15

Based on these considerations, we 

propose to add regulatory text to 

§ 404.104 to make the adjustment for 

inflation automatic. This would serve a 

variety of interests. First, it would 

improve consistency in our ratemaking 

procedures. While the operating 

expenses are automatically adjusted for 

inflation, compensation is not. This 

proposed change would treat the two 

types of expenses equally. Additionally, 

because the revenue for the working 

capital fund is based in part on 

compensation (see the discussion in the 

Background section of this Preamble), 

automatically adjusting pilot 

compensation for inflation would have 

a similar effect on contributions to the 

working capital fund. 

Automatically adjusting pilot 

compensation for inflation would 

improve transparency and efficiency in 

our ratemaking procedures. Also, 

replacing the current process with an 

automatic and predictable inflationary 

adjustment would increase 

predictability. As previously stated, we 

believe this predictability benefits the 


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16https://www.federalreserve.gov/ 

monetarypolicy/files/fomcprojtabl20170920.pdf. 17For more information on this topic, see section 

VI.D. titled, ‘‘Delineation of full ratemakings and 

annual reviews’’ in this preamble. 

18See 82 FR 41466, at 41484 (August 31, 2018). 

19See, for example, table 7, ‘‘Calculations of total 

compensation,’’ 82 FR 41466, at 41483 (August 31, 

2017). 

U.S. registered pilots who provide the 

service and those stakeholders who 

employ the pilots. Given variations in 

traffic, compensation as a pilot is 

uncertain, and we believe that this 

proposed change would reduce some of 

the uncertainty related to target pilot 

compensation. It would also increase 

the efficiency of the ratemaking process 

by making the inflation adjustment 

automatic, so that we would be better 

able to process our annual ratemaking in 

a timely fashion. 

To implement this increase, we 

propose adding regulatory text to 

§ 404.104 stating that the Director will 

adjust the previous year’s individual 

target pilot compensation level by BLS 

CPI for the Midwest Region, or if that is 

unavailable, the FOMC median 

economic projections for PCE 

inflation 16. See proposed § 404.104(b). 

The BLS CPI tracks the changes in 

prices of all goods and services 

purchased for consumption by urban 

households. The BLS releases CPI data 

monthly, for the previous month. The 

FOMC PCE inflation tracks the projected 

change in prices of goods and services 

purchased by consumers throughout the 

US economy for the current and future 

years. We note that this would occur 

only in years in which we conduct an 

annual review of pilotage rates, and not 

in years when we conduct a ‘‘full 

ratemaking, because in those years the 

target compensation figure is reset and 

no inflation adjustment is needed.’’ 17

We invite comment on the effect of this 

proposal as well as the particular 

inflation index chosen to implement it. 

B. Relocation of Staffing Model 

Regulations 

Another change that we propose in 

this NPRM is to relocate the ‘‘staffing 

model’’ regulatory text, currently 

located in § 404.103(a) through (c). We 

are not proposing to adjust or modify 

the regulatory text, but simply move it 

to § 401.220(a), ‘‘Registration of pilots,’’ 

rather than keep it as part of the 

ratemaking methodology text. For the 

reasons below, we believe that this 

change will both improve the clarity of 

the regulations and improve the 

regulatory process. The staffing model 

informs the Coast Guard’s 

administration of the Great Lakes 

Pilotage program, but is distinct from 

the ratemaking methodology. 

Specifically, the staffing model provides 

guidance to the Director on 

implementing the requirement currently 

in § 401.220(a), which requires the 

Director to determine the number of 

pilots needed to assure adequate and 

efficient pilotage service in the United 

States waters of the Great Lakes and to 

provide for equitable participation of 

United States Registered Pilots with 

Canadian Registered Pilots. 

The current way in which § 404.103, 

entitled ‘‘Ratemaking Step 3: Determine 

number of pilots needed,’’ is written 

produces two distinct sets of numbers. 

In § 404.103(a) through (c), we employ 

a ‘‘staffing model’’ to determine the 

number of pilots needed in each district 

to provide safe and reliable pilotage 

services in periods of high seasonal 

demand. This staffing model produces a 

number of pilots for each district that 

we believe is needed to minimize delays 

and allow for some instances of double 

pilotage (that is, where two pilots are 

employed on a vessel simultaneously 

because of particularly hazardous 

conditions). In the 2017 final rule, the 

staffing model produced a figure of 54 

total pilots on the Great Lakes: 17 for 

District One, 15 for District Two, and 22 

for District Three.18

The Director of the Great Lakes 

Pilotage Office is required in 

§ 404.103(d) to project the number of 

pilots expected to be working in the 

current year based on the numbers 

provided by the pilotage associations, as 

well as the number of applications for 

pilot positions.19 As shown by the 

calculations used in the next, and all 

subsequent steps of the ratemaking 

process, the pilot numbers derived 

under § 404.103(d), not those from the 

staffing model text in paragraphs (a)–(c), 

were used to calculate the pilotage rates. 

The reason that the numbers produced 

by the text in paragraphs (a)–(c) are not 

used in the ratemaking is because while 

the staffing model is related to the 

annual ratemaking methodology, it is 

only through its impact on the number 

derived in paragraph (d). Instead, the 

function of the staffing model is to 

provide guidance to the Director 

regarding the number of pilots needed. 

While the number of pilots needed, as 

ascertained by the Director, certainly 

has an impact on the number of working 

pilots, the two numbers are not 

necessarily identical. We also note that, 

over the past several years, the number 

of pilots actually working has been 

significantly lower than the amount the 

staffing model suggests are needed. 

While the staffing model itself does not 

directly affect the ratemaking, the fact 

that the text appears in § 404.103, rather 

than as a modifier to § 401.220(a), 

creates some confusion. To begin, we 

note that inclusion of the staffing model 

text in the annual ratemaking section 

implies that we reevaluate the staffing 

model every year as part of the annual 

ratemaking procedure. While this is 

incorrect, it has led to confusion about 

the role of the staffing model, and 

significant resources have been 

expended by commenters in past years 

regarding its use and application. We 

believe part 401 is the best place to 

locate the staffing model text as it 

contains many similar items pertaining 

to pilotage that, while they affect the 

ratemaking process, are not part of it 

and do not need to be reanalyzed on an 

annual basis. 

Finally, we note that the movement of 

the staffing model to § 401.220(a) would 

have an organizational impact on future 

pilotage rate regulatory actions. In the 

past, we included detailed, and 

sometimes repetitive, calculations of the 

staffing model in our annual ratemaking 

publication. However, if we move the 

staffing model text to part 401, and do 

not make any changes to the inputs or 

staffing methodology, we would not 

include a full analysis of the staffing 

model in each regulatory document. 

Instead, we propose to simply certify 

that the number of pilots working under 

Step 3 of the ratemaking process was 

less than or equal to the number of 

pilots authorized by the regulations in 

§ 401.220. However, in circumstances 

where the staffing model produced a 

changed result in the number of pilots 

needed to ensure safe and reliable 

pilotage, we would include an analysis 

of the number of pilots recommended 

by the staffing model in the proposed 

rule. In this year’s ratemaking, we note 

that the staffing model analysis remains 

unchanged from 2017, and for that 

reason is not repeated here. 

For the reasons stated above, we 

propose moving the current staffing 

model text, located in § 404.103(a) 

through (c) to § 401.220(a), where it will 

be renumbered as § 401.220(a)(1) 

through (a)(3). The existing text would 

not be changed in any way other than 

being relocated, and we are not 

proposing any changes to the staffing 

model in this ratemaking. 

C. Additional Changes to Ratemaking 

Steps 3 and 4 

Additionally, we are proposing a 

change to the remaining text of 

§ 404.103. Specifically, we propose to 

remove the words ‘‘during the first year 

of the period for which base rates are 

being established’’ from § 404.103(d). 

This phrase, carried over from previous 


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20See 46 U.S.C. 9303(f). 

21 Id. 22See 33 CFR 404.100(b)(1) through (b)(3). 23See 82 FR 41466 (March 8, 2017) at 41469. 

years, does not apply under the current 

methodology where base rates are 

established annually. We believe that 

this change would help to improve 

clarity and regulatory efficiency in 

future annual ratemakings. 

Finally, we are proposing to change 

the name of the section. The section, 

currently titled, ‘‘Determine number of 

pilots needed,’’ is misleading, as the 

number of pilots needed to ensure safe 

and reliable pilotage is determined by 

the Director in § 401.220(a). Thus, we 

propose to change the section heading 

to ‘‘Estimate number of working pilots,’’ 

to more accurately reflect what we are 

doing in this step of the ratemaking 

process. In a related matter, we are also 

proposing a change to § 404.104 to 

explicitly establish the relationship 

between the staffing model and the 

annual ratemaking. While in the past, 

the number of pilots has been below the 

number derived from the staffing model, 

there is no regulatory text indicating 

that this is a limiting factor. To 

eliminate this ambiguity, we propose to 

add text to § 404.104, ‘‘Ratemaking step 

4: Determine target pilot 

compensation,’’ that would limit the 

total number of working pilots for 

ratemaking purposes to the maximum 

number allowed by the staffing model. 

This does not prohibit pilotage 

associations from hiring more pilots 

than the staffing model suggests are 

needed to handle peak traffic (if, for 

example, pilots wanted to work fewer 

hours for less pay, and the Director 

approved), but it would limit pilotage 

rates by preventing those extra pilots 

from being considered in the ratemaking 

calculations. 

D. Delineation of Full Ratemakings and 

Annual Adjustments 

In this NPRM, we are proposing an 

organizational change to the regulations 

in part 404 to better delineate the full 

ratemaking procedure from the interim 

ratemaking procedure. Pursuant to the 

Act, we are required to establish new 

pilotage rates by March 1 of each year.20

However, the Act sets forth two types of 

ratemaking procedures. The Act states 

that the Coast Guard must establish base 

pilotage rates by a ‘‘full ratemaking’’ at 

least once every 5 years, and that it must 

‘‘conduct annual reviews of such base 

pilotage rates, and make adjustments to 

such base rates, in each intervening 

year.’’ 21 In order to more clearly effect 

the Act’s mandate, we propose to 

include in the regulatory text sections 

that differentiate between a ‘‘full 

ratemaking’’ and an ‘‘interim 

ratemaking.’’ We would announce, in 

the NPRM of each annual ratemaking, 

whether we were conducting a full or 

interim ratemaking procedure (while the 

Act requires that the Coast Guard 

perform a full ratemaking at least once 

every 5 years, we note that it may occur 

more frequently if circumstances 

warrant). 

We note that the existing regulatory 

text in part 404 already contains a 

provision that considers the difference 

between a full ratemaking and an 

interim ratemaking. Existing § 404.100, 

‘‘Ratemaking and annual reviews in 

general,’’ states that once every 5 years, 

the Director establishes base pilotage 

rates by a full ratemaking pursuant to 

§§ 404.101 through 404.110, and that in 

‘‘interim years,’’ the Director may adjust 

rates according to one of several 

methods (either automatic adjustments, 

annual adjustments for inflation, or a 

new full ratemaking).22 However, after 

adopting the new ratemaking 

methodology in 2016, we do not 

currently have a regulatory provision for 

implementing the interim ratemaking 

other than conducting a full ratemaking 

analysis. With the new methodology, 

adopted in 2016, refined in 2017, and 

with the additional changes proposed 

for 2018, we believe that the ratemaking 

procedures generally defined in this 

part can be used in both full and interim 

ratemaking years, with certain 

differences, as described below. 

The only substantive difference 

between a full and interim ratemaking 

concerns Step 4 of the ratemaking 

procedure, ‘‘Determine target pilot 

compensation.’’ This step of the 

ratemaking analysis, in which the total 

compensation for pilots is determined, 

comprises the majority of the revenue 

total needed to operate Great Lakes 

pilotage. In past ratemaking actions, we 

received numerous comments and 

substantial amounts of data when 

considering the ‘‘benchmark’’ for pilot 

compensation. Even in years where we 

did not propose adjusting the 

compensation benchmark, we received 

substantial data about ways in which it 

could be adjusted. However, we do not 

believe that it is in the interest of Great 

Lakes shipping to calculate a new 

benchmark compensation level every 

year. Such a system could lead to 

substantial volatility regarding 

compensation. This, in turn, could lead 

to the pilot recruitment and retention 

problems that affected the Great Lakes 

region prior to the ratemaking 

methodology changes introduced in the 

past few years. 

For these reasons, we are proposing 

regulatory language in part 404 to clarify 

that the benchmark pilot compensation 

would only be reconsidered during ‘‘full 

ratemaking’’ years, which occur at least 

once every 5 years. Conversely, during 

‘‘interim years,’’ we would not consider 

changes to the benchmark pilot 

compensation. Instead, during those 

years, we would adjust the target 

compensation according to Bureau of 

Labor Statistics’ Consumer Price Index 

for the Midwest Region, or if that is not 

available, the FOMC median economic 

projections for PCE inflation, allowing 

compensation to stay in line with 

inflation. We believe that this system 

would simplify ratemaking procedures 

in interim years and better effect the 

statutory mandate in section 9303(f) of 

the Act. In this NPRM, we have 

proposed regulatory changes to 

§ 404.100(b) and (c), as well as in 

§ 404.104(a) and (b), that would enact 

these changes to the methodology. 

E. Other Miscellaneous Changes 

We propose several minor editorial 

changes in this NPRM. In section 

404.107, we propose renaming Step 7, 

currently titled, ‘‘Initially calculate base 

rates’’ to ‘‘Calculate initial base rates’’ 

for style purposes and to make an 

accompanying edit to the text by 

changing the words ‘‘initially calculates 

base rates’’ to ‘‘calculates initial base 

rates’’ in the text of that section. We also 

propose to adjust the reference to the 

staffing model in Step 7 to account for 

its relocation in text (proposed section 

401.220(a)). 

VII. Revised Compensation Benchmark 

In this NPRM, the Coast Guard is 

proposing a new compensation 

benchmark for pilots on the Great Lakes. 

It is doing so to comply with a court 

decision holding that the Coast Guard’s 

existing compensation benchmark, 

which based on the salaries of Canadian 

Great Lakes pilot salaries plus a 10% 

increase, was arbitrary and capricious. 

We are following the court’s decision 

and are moving to implement a new 

benchmark in this proposed rule. 

When the Coast Guard adopted the 

existing compensation benchmark in the 

2016 annual adjustment, we recognized 

that the number was based on somewhat 

uncertain data, and have undertaken a 

comprehensive, multi-year analysis of 

pilot compensation practices to develop 

a more appropriate benchmark.23

However, as we do not expect to be able 

to make any proposals based on this 

study until at least the 2020 rate 

adjustment, and we cannot continue to 


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24We note that the 2016 ratemaking significantly 

overhauled the entire ratemaking process, not just 

the method for computing the compensation 

benchmark, and that methodology is still the basis 

of the current proposed ratemaking process. 

25We refer to this document as the ‘‘2013 AMOU 

letter,’’ which is available in the docket at USCG– 

2017–0903, as well as in the docket for the 2014 

Great Lakes Pilotage rulemaking, at USCG–2013– 

0534–0007. 26We acknowledge that the American pilotage 

associations sued the Coast Guard and won in a 

lawsuit on the 2014 ratemaking regarding the 

inappropriate use of AMOU daily aggregate rate 

data. However, that was because in that ratemaking, 

the Coast Guard did not use the updated daily 

aggregate rate data provided in the October 4, 2013 

letter, but instead relied on older data that the 

AMOU had explicitly disavowed. In this proposal, 

we are correcting that mistake by using the updated 

data. The opinion from the 2014 court case is 

available on the docket at USCG–2017–0903. 

27 ‘‘Agreement A’’ refers to the contract between 

AMOU and vessels operated by Key Lakes, Inc. 

28 ‘‘Agreement B’’ refers to the contract between 

AMOU and vessels operated by Mittal Steel USA, 

Inc. 

29 2012 Rates for Pilotage on the Great Lakes, 77 

FR 11752 (February 28, 2012). 

30Because the out-year figures, including those 

for 2015, were estimates, we would not expect the 

2015 numbers as calculated in 2011 and 2013 to 

match exactly, as component items such as medical 

cost expenditures often defy exact predictions. We 

believe that the very close match between our own 

calculations and the figures provided by AMOU is 

strong evidence that the AMOU data accurately 

accounts for the total compensation of Great Lakes 

masters and thus provides a reasonable facsimile for 

Great Lakes pilots. 

31 Great Lakes Pilotage Rates—2014 Annual 

Review and Adjustment, notice of proposed 

rulemaking, 78 FR 48374, at 48381(August 8, 2013). 

32 Id. 

33 Id., at 48382. 

34This was the information AMOU provided to 

correct what it alleged was inaccurate data the 

Coast Guard had proposed using. The aggregate data 

in the 2013 AMOU letter included a comprehensive 

wage component, which included work days, 

weekend days, holidays, and the ‘‘seasonal bonus’’ 

days. 

use the existing model, there is a need 

for an interim benchmark level to be 

developed on short notice and with 

limited time to gather new data. 

Therefore, the Coast Guard is 

proposing a new compensation 

benchmark based, in part, on the 

previous model of compensation that 

was used by the Coast Guard prior to the 

new ratemaking methodology 

introduced in the 2016 annual 

ratemaking.24 Under the previous 

methodology, each year the Coast Guard 

gathered contract information from the 

American Maritime Officers Union 

(AMOU), and used details from their 

contracts to estimate rates for Great 

Lakes pilots. Ultimately, however, the 

AMOU stopped providing information 

to the Coast Guard, which was one basis 

for moving to other models. However, in 

the context of the previous rate 

adjustments, the AMOU did provide 

information up through the 2015 

calendar year. Given that in this 

document, we have proposed to develop 

a new benchmark compensation level 

every 5 years, and then index that 

number for inflation each year in 

between, we believe the most efficient 

solution for an interim compensation 

benchmark is to derive a compensation 

figure using the 2015 AMOU data, and 

then apply inflationary adjustments to 

that data to arrive at an equivalent level 

for the 2018 shipping season. We note 

that this method is different than using 

data for the 2018 AMOU contracts, for 

which there is no public information 

and which this proposed compensation 

benchmark does not utilize. Because the 

interim benchmark proposed in this 

NPRM is explicitly based on the terms 

of the AMOU contract as they existed in 

2015, we note that comments that relate 

to AMOU contract information from 

years other than 2015 would not be 

relevant to this proposed compensation 

benchmark and will not be considered. 

However, we do request comments on 

whether we have correctly applied the 

terms of the 2015 contract, or used 

correct data, to the calculation of target 

pilot compensation under this proposed 

model and note that we may adjust the 

interim compensation benchmark if we 

receive validated data relating to total 

compensation pursuant to the 2015 

AMOU contract terms that improves our 

understanding of that contract. 

The data we are using, provided in a 

letter from the AMOU from October 4, 

2013,25 consists of ‘‘daily aggregate 

rates’’ for two contracts between Great 

Lakes shipping companies for the 

services of AMOU mates.26 These 

numbers were provided to the Coast 

Guard as a public comment to be used 

as a basis for compensation in the 2014 

ratemaking procedure. These daily 

aggregate rates include daily wages, 

vacation pay, pension plan 

contributions, and medical plan 

contributions for AMOU officers. The 

relevant 2015 numbers include a 

$1,142.06 aggregate rate for Agreement 

A,27 and $1,124.72 aggregate rate for 

Agreement B,28 which are the amounts 

used to calculate the compensation for 

pilots on designated waters. We note 

that the while the 2014 ratemaking 

methodology calculated different 

compensation targets for pilots in 

undesignated areas and those in 

designated areas, the ratemaking 

methodology used today calculates a 

single wage rate, so only the numbers 

used in designated waters would be 

relevant. We explain how we propose to 

translate this information into a 

proposed annual pilot compensation 

benchmark below. 

Despite the fact that the aggregated 

data in the 2013 AMOU letter is not 

broken down into specific costs, we 

believe that the data points provided are 

generally accurate. Prior to 2014, the 

Coast Guard received confidential 

copies of the AMOU contracts with 

detailed breakdowns of compensation 

components including wages, medical 

costs, defined contribution and defined 

benefit pension costs. The latest 

contract we have covered the 2011 

through the 2015 shipping seasons, 

which is one reason we believe that 

basing our interim benchmark on the 

2015 season is a reasonable measure, as 

we have the underlying contract for that 

season. Using the estimated out-year 

figures set forth in the 2011 contract, 

and applying the detailed compensation 

methodology used in the 2012 Great 

Lakes Pilotage annual ratemaking final 

rule,29 we were able to calculate 

aggregate figures that were within 1% of 

the figures provided in the 2013 AMOU 

letter.30

In the notice of proposed rulemaking 

for the 2014 Great Lakes pilotage annual 

rate adjustment, we described how we 

use the daily aggregate rates to develop 

a total pilot compensation figure. The 

annual rates included the ‘‘daily wage 

rate, vacation pay, pension plan 

contributions, and medical plan 

contributions.’’ 31 We stated that 

‘‘because we are interested in annual 

compensation, we must convert these to 

daily rates. We use a 270-day multiplier 

which reflects an average 30-day month, 

over the 9 months of the average 

shipping season.’’ 32 Subsequently, 

‘‘[w]e apportion the compensation 

provided by each agreement according 

to the percentage of tonnage represented 

by companies under each agreement.’’ 33

After publication of the 2014 Final 

Rule, the Coast Guard was sued by the 

three American pilotage associations, in 

part, because the AMOU aggregate data 

it had used to calculate the 2014 

compensation figures did not include a 

seasonal bonus component. In that case, 

the Coast Guard relied on previous 

aggregate data figures provided by the 

AMOU in 2012, instead of using the 

figures provided by the AMOU in its 

October 4, 2013 public comment, where 

the AMOU stated that the previous 

figures were inaccurate. While the court 

found that the use of the old figures was 

arbitrary, the use of AMOU aggregate 

data generally was not disputed.34

Instead, it was the use of the disavowed 

aggregate data that was not supported. 

We intend to correct this by basing our 

interim methodology on the new figures 

provided by the AMOU for the year 


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35 Great Lakes Pilotage Rates—2016 Annual 

Review and Changes to Methodology, 80 FR 54484, 

at 54490 (September 10, 2015). 

2015, which were also contained in the 

2013 letter. 

To apply the 2015 aggregate data 

figures to the current ratemaking 

methodology, we need only use the 

figures for designated waters. Prior to 

the 2016 ratemaking, the Coast Guard 

calculated separate compensation 

figures for designated and undesignated 

waters—compensating pilots assigned to 

designated waters an equivalent rate to 

masters, while compensating pilots 

assigned to undesignated waters the 

equivalent rate of AMOU mates, who 

are paid considerably less. However, in 

2016, the Coast Guard ended the 

practice of calculating separate 

compensation figures for pilots on the 

Great Lakes. In the 2016 Great Lakes 

pilotage NPRM, we stated that ‘‘we see 

no reasonable basis for discriminating 

between the target compensation of 

pilots on the basis of the distinction 

between designated or undesignated 

waters. In any waters and in any 

district, pilots need the same skills, and 

therefore we propose a single individual 

target compensation figure across all 

three districts.’’ 35 As all pilots must be 

trained to navigate the more-complex 

designated waters, we believe it is 

appropriate that they receive the level of 

compensation associated with that task. 

Because of these factors, we believe 

we can develop an interim benchmark 

compensation level based on the 2015 

AMOU aggregate data for wages in 

designated waters that has been 

publically provided. Based on our 

calculations, the new benchmark 

compensation figure would be $319,617 

per pilot. The numbers are derived as 

follows: 

In the first step of calculating the 

interim compensation benchmark, 

shown as Table 3 below, we multiply 

the daily aggregate rates for Agreement 

A and Agreement B by 270, the 

estimated number of days in the 

shipping season, to derive a seasonal 

average compensation figure. 

TABLE 3—CALCULATION OF SEASONAL RATES BY AGREEMENT

Aggregate 

daily rate 

Seasonal 

compensation 

(aggregate 

daily rate × 

270) 

Agreement A ............................................................................................................................................................ $1,142.06 $308,356 

Agreement B ............................................................................................................................................................ 1,124.72 303,674 

Next, as stated above, we apportion 

the compensation provided by each 

agreement according to the percentage 

of tonnage represented by companies 

under each agreement. As shown in 

Table 4 below, approximately 70% of 

cargo was carried under the Agreement 

A contract, while approximately 30% of 

cargo was carried under the Agreement 

B contract. 

TABLE 4—WEIGHTED AVERAGE OF EACH AGREEMENT

Tonnage 

% Tonnage 

(total tonnage/ 

1,215,811) 

Agreement A ............................................................................................................................................................ 361,385 29.7237811 

Agreement B ............................................................................................................................................................ 854,426 70.2762189 

Total tonnage .................................................................................................................................................... 1,215,811 100 

Third, we develop an average of 

compensation based on the total 

compensation under the two contracts, 

weighting each contract by its 

percentage of total tonnage. Based on 

this calculation, we have developed a 

figure of $305,066 (rounded) for total 

compensation in 2015. 

TABLE 5—CALCULATION OF AVERAGED COMPENSATION

% Tonnage 

Weighted 

compensation 

(seasonal 

compensation 

× % tonnage) 

(rounded) 

Agreement A—weighted .......................................................................................................................................... 29.7237811 $91,655 

Agreement B—weighted .......................................................................................................................................... 70.2762189 213,411 

Total compensation (Agreement A + B) ........................................................................................................... 100 305,066 


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2590 Federal Register / Vol. 83, No. 12 / Thursday, January 18, 2018 / Proposed Rules 

36 Inflation adjustment from 2015 to 2016 

calculated from Bureau of Labor Statistics, CPI—All 

Urban Consumers for Midwest Urban, found at 

https://data.bls.gov/timeseries/CUUR0200SA0?

data_tool=Xgtable. 

37 Inflation to 2017 and 2018 found using Federal 

Open Market Committee, Summary of Economic 

Projections, found at https://

www.federalreserve.gov/monetarypolicy/ 

fomcprojtabl20160316.htm. 

38These reports are available in the docket for 

this rulemaking (see https://www.regulations.gov, 

Docket #USCG–2017–0903). 

Finally, we adjust that figure for 

inflation. As we propose to do in our 

overall ratemaking methodology, we use 

the BLS Consumer Price Index for the 

Midwest region to inflate to 2016, and 

FOMC median economic projections for 

PCE inflation to inflate the total 

compensation to 2017 and 2018. Based 

on three years of inflation adjustments, 

we arrive at the proposed 2018 target 

compensation figure, which is $319,617 

annually. 

TABLE 6—INFLATION ADJUSTMENTS—2015 TO 2018 

Inflation 

(%) 

Target 

compensation 

2015 Target Pilot Compensation ............................................................................................................................. ........................ $305,066 

2016 Inflation Adjustment 36 .................................................................................................................................... 0.8 307,507 

2017 Inflation Adjustment 37 .................................................................................................................................... 1.9 313,350 

2018 Inflation Adjustment ........................................................................................................................................ 2.0 319,617 

VIII. Discussion of Proposed Rate 

Adjustments 

In this NPRM, based on the proposed 

updated methodology described in the 

previous section, we are proposing new 

pilotage rates for 2018. This section 

discusses the proposed rate changes 

using the ratemaking steps provided in 

46 CFR part 404, as they would be 

written according to the proposed 

revisions discussed above. Here we will 

detail each step of the ratemaking 

procedure to show how we arrived at 

the proposed new rates. 

The 2018 ratemaking is an ‘‘annual 

review,’’ rather than a full ratemaking. 

Thus, for this purpose, we propose 

using the annual review methodology in 

§ 404.104. 

A. Step 1: Recognition of Operating 

Expenses 

Step 1 in our ratemaking methodology 

requires that we review and recognize 

the previous year’s operating expenses 

(§ 404.101). To do this, we begin by 

reviewing the independent accountant’s 

financial reports for each association’s 

2015 expenses and revenues.38 For 

accounting purposes, the financial 

reports divide expenses into designated 

and undesignated areas. In certain 

instances, for example, costs are applied 

to the undesignated or designated area 

based on where they were actually 

accrued. For example, costs for 

‘‘Applicant pilot license insurance’’ in 

District One are assigned entirely to the 

undesignated areas, as applicant pilots 

work exclusively in those areas. For 

costs that accrued to the pilot 

associations generally, for example, 

insurance, the cost is divided between 

the designated and undesignated areas 

on a pro rata basis. The recognized 

operating expenses for the three districts 

are laid out in Tables 7 through 9. 

TABLE 7—2015 RECOGNIZED EXPENSES FOR DISTRICT ONE

Reported expenses for 2015 

Designated Undesignated 

Total St. Lawrence 

River Lake Ontario 

Operating Expenses: 

Other Pilotage Costs: 

Pilot subsistence/travel ......................................................................................................... $344,718 $267,669 $612,387 

Applicant Pilot subsistence/travel ......................................................................................... 59,992 88,313 148,305 

License insurance ................................................................................................................. 26,976 26,976 53,952 

Applicant Pilot license insurance .......................................................................................... 0 2,271 2,271 

Payroll taxes ......................................................................................................................... 97,531 61,656 159,187 

Applicant Pilot payroll taxes ................................................................................................. 8,200 12,583 20,783 

Other ..................................................................................................................................... 5,679 5,341 11,020 

Total other pilotage costs .............................................................................................. 543,096 464,809 1,007,905 

Pilot Boat and Dispatch Costs: 

Pilot boat expense ................................................................................................................ 134,400 106,064 240,464 

Dispatch expense ................................................................................................................. 0 0 0 

Payroll taxes ......................................................................................................................... 9,688 7,645 17,333 

Total pilot and dispatch costs ....................................................................................... 144,088 113,709 257,797 

Administrative Expenses: 

Legal—general counsel ........................................................................................................ 12,388 9,733 22,121 

Legal—shared counsel (K&L Gates) .................................................................................... 904 710 1,614 

Legal—USCG litigation ......................................................................................................... 0 0 0 

Insurance .............................................................................................................................. 16,261 12,832 29,093 

Employee benefits ................................................................................................................ 8,752 6,907 15,659 

Payroll taxes ......................................................................................................................... 5,628 4,441 10,069 

Other taxes ........................................................................................................................... 9,447 7,455 16,902 

Travel .................................................................................................................................... 795 627 1,422 

Depreciation/auto leasing/other ............................................................................................ 55,850 31,763 87,613 

Interest .................................................................................................................................. 12,337 9,736 22,073 


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TABLE 7—2015 RECOGNIZED EXPENSES FOR DISTRICT ONE—Continued 

Reported expenses for 2015 

Designated Undesignated 

Total St. Lawrence 

River Lake Ontario 

Dues and subscriptions ........................................................................................................ 15,867 15,513 31,380 

Utilities .................................................................................................................................. 9,573 461 10,034 

Salaries ................................................................................................................................. 56,126 44,291 100,417 

Accounting/Professional fees ............................................................................................... 5,254 4,146 9,400 

Pilot Training ......................................................................................................................... 0 0 0 

Applicant Pilot training .......................................................................................................... 0 0 0 

Other ..................................................................................................................................... 9,118 6,446 15,564 

Total Administrative Expenses ...................................................................................... 218,300 155,061 373,361 

Total Operating Expenses (Other Costs + Pilot Boats + Admin) ................................. 905,484 733,579 1,639,063 

Proposed Adjustments (Independent certified public accountant (CPA)): 

Pilot subsistence/travel ......................................................................................................... 0 ¥2,943 ¥2,943 

Payroll taxes ......................................................................................................................... 0 0 0 

Applicant Pilot payroll taxes ................................................................................................. 0 0 0 

TOTAL CPA ADJUSTMENTS ....................................................................................... 0 ¥2,943 ¥2,943 

Proposed Adjustments (Director): 

Legal—general counsel (corrected number) ........................................................................ 904 710 1,614 

Legal—general counsel (corrected number) ........................................................................ ¥12,388 ¥9,733 ¥22,121 

Legal—shared counsel (K&L Gates) (corrected number) .................................................... 12,388 9,733 22,121 

Legal—shared counsel (K&L Gates) (corrected number) .................................................... ¥904 ¥710 ¥1,614 

Legal—shared counsel—3% lobbying fee (K&L Gates) ...................................................... ¥371 ¥292 ¥663 

TOTAL DIRECTOR’S ADJUSTMENTS ........................................................................ ¥371 ¥292 ¥663 

Total Operating Expenses (OpEx + Adjustments) ................................................. 905,113 730,344 1,635,457 

TABLE 8—2015 RECOGNIZED EXPENSES FOR DISTRICT TWO

Reported expenses for 2015 

Undesignated Designated 

Total 

Lake Erie SES to Port 

Huron 

Operating Expenses: 

Other Pilotage Costs: 

Pilot subsistence/travel ......................................................................................................... $163,276 $244,915 $408,191 

Applicant Pilot subsistence/travel ......................................................................................... 0 0 0 

License insurance ................................................................................................................. 6,798 10,196 16,994 

Applicant Pilot license insurance .......................................................................................... 0 0 0 

Payroll taxes ......................................................................................................................... 53,242 79,863 133,105 

Applicant Pilot payroll taxes ................................................................................................. 0 0 0 

Other ..................................................................................................................................... 457 686 1,143 

Total other pilotage costs .............................................................................................. 223,773 335,660 559,433 

Pilot Boat and Dispatch Costs: 

Pilot boat expense ................................................................................................................ 175,331 262,997 438,328 

Dispatch expense ................................................................................................................. 9,000 13,500 22,500 

Employee benefits ................................................................................................................ 74,855 112,282 187,137 

Payroll taxes ......................................................................................................................... 9,724 14,585 24,309 

Total pilot and dispatch costs ....................................................................................... 268,910 403,364 672,274 

Administrative Expenses: 

Legal—general counsel ........................................................................................................ 10,282 15,422 25,704 

Legal—shared counsel (K&L Gates) .................................................................................... 8,346 12,520 20,866 

Legal—USCG litigation ......................................................................................................... 0 0 0 

Office rent ............................................................................................................................. 26,275 39,413 65,688 

Insurance .............................................................................................................................. 10,618 15,926 26,544 

Employee benefits ................................................................................................................ 23,930 35,896 59,826 

Workman’s compensation—pilots ........................................................................................ 47,636 71,453 119,089 

Payroll taxes ......................................................................................................................... 5,428 8,141 13,569 

Other taxes ........................................................................................................................... 29,220 43,830 73,050 

Depreciation/auto leasing/other ............................................................................................ 19,757 29,636 49,393 

Interest .................................................................................................................................. 4,159 6,238 10,397 

APA Dues ............................................................................................................................. 11,827 17,741 29,568 

Utilities .................................................................................................................................. 15,850 23,775 39,625 

Salaries ................................................................................................................................. 51,365 77,048 128,413 

Accounting/Professional fees ............................................................................................... 10,721 16,081 26,802 


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2592 Federal Register / Vol. 83, No. 12 / Thursday, January 18, 2018 / Proposed Rules 

TABLE 8—2015 RECOGNIZED EXPENSES FOR DISTRICT TWO—Continued 

Reported expenses for 2015 

Undesignated Designated 

Total 

Lake Erie SES to Port 

Huron 

Pilot Training ......................................................................................................................... 0 0 0 

Other ..................................................................................................................................... 11,775 17,662 29,437 

Total Administrative Expenses ...................................................................................... 287,189 430,782 717,971 

Total Operating Expenses (Other Costs + Pilot Boats + Admin) ................................. 779,872 1,169,806 1,949,678 

Proposed Adjustments (Independent CPA): 

Pilot boat costs ..................................................................................................................... ¥444 ¥666 ¥1,110 

TOTAL CPA ADJUSTMENTS ....................................................................................... ¥444 ¥666 ¥1,110 

Proposed Adjustments (Director): 

Legal—shared counsel 3% lobbying fee (K&L Gates) ........................................................ ¥250 ¥376 ¥626 

TOTAL DIRECTOR’S ADJUSTMENTS ........................................................................ ¥250 ¥376 ¥626 

Total Operating Expenses (OpEx + Adjustments) ................................................. 779,178 1,168,764 1,947,942 

TABLE 9—2015 RECOGNIZED EXPENSES FOR DISTRICT THREE

Reported expenses for 2015 

Undesignated Designated 

Total Lakes Huron 

and Michigan 

and Lake 

Superior 

St. Mary’s 

River 

Operating Expenses: 

Other Pilotage Costs: 

Pilot subsistence/travel ......................................................................................................... $457,393 $152,465 $609,858 

Applicant pilot subsistence/travel ......................................................................................... 0 ........................ 0 

License insurance ................................................................................................................. 16,803 5,601 22,404 

Payroll taxes ......................................................................................................................... 160,509 53,503 214,012 

Applicant pilot payroll taxes .................................................................................................. 0 ........................ 0 

Other ..................................................................................................................................... 1,546 515 2,061 

Total other pilotage costs .............................................................................................. 636,251 212,084 848,335 

Pilot Boat and Dispatch Costs: 

Pilot boat costs ..................................................................................................................... 488,246 162,748 650,994 

Dispatch costs ...................................................................................................................... 128,620 42,873 171,493 

Employee benefits ................................................................................................................ 12,983 4,327 17,310 

Payroll taxes ......................................................................................................................... 14,201 4,734 18,935 

Total pilot and dispatch costs ....................................................................................... 644,050 214,682 858,732 

Administrative Expenses: 

Legal—general counsel ........................................................................................................ 16,798 5,599 22,397 

Legal—shared counsel (K&L Gates) .................................................................................... 18,011 6,004 24,015 

Legal—USCG litigation ......................................................................................................... 0 ........................ 0 

Office rent ............................................................................................................................. 6,372 2,124 8,496 

Insurance .............................................................................................................................. 12,227 4,076 16,303 

Employee benefits ................................................................................................................ 93,646 31,215 124,861 

Payroll Taxes ........................................................................................................................ 9,963 3,321 13,284 

Other taxes ........................................................................................................................... 1,333 445 1,778 

Depreciation/auto leasing/other ............................................................................................ 29,111 9,703 38,814 

Interest .................................................................................................................................. 3,397 1,132 4,529 

APA Dues ............................................................................................................................. 22,736 7,579 30,315 

Utilities .................................................................................................................................. 32,716 10,906 43,622 

Salaries ................................................................................................................................. 84,075 28,025 112,100 

Accounting/Professional fees ............................................................................................... 19,696 6,565 26,261 

Pilot Training ......................................................................................................................... 26,664 8,888 35,552 

Other ..................................................................................................................................... 25,228 8,409 33,637 

Total Administrative Expenses ...................................................................................... 401,973 133,991 535,964 

Total Operating Expenses (Other Costs + Pilot Boats + Admin) ................................. 1,682,274 560,757 2,243,031 

Proposed Adjustments (Independent CPA): 

Pilot subsistence/Travel ........................................................................................................ ¥67,933 ¥22,645 ¥90,578 

Payroll taxes ......................................................................................................................... ¥14,175 ¥4,725 ¥18,901 

Other expenses .................................................................................................................... ¥4,058 ¥1,353 ¥5,411 

TOTAL CPA ADJUSTMENTS ....................................................................................... ¥86,166 ¥28,723 ¥114,890 


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39Available at https://www.bls.gov/regions/ 

midwest/data/consumerpriceindexhistorical_

midwest_table.pdf. 

40See https://data.bls.gov/timeseries/ 

CUUR0200SA0?data_tool=Xgtable. 

41See https://www.federalreserve.gov/ 

monetarypolicy/fomcprojtabl20160316.htm. 

42See https://www.federalreserve.gov/ 

monetarypolicy/fomcprojtabl20160316.htm. 

TABLE 9—2015 RECOGNIZED EXPENSES FOR DISTRICT THREE—Continued 

Reported expenses for 2015 

Undesignated Designated 

Total Lakes Huron 

and Michigan 

and Lake 

Superior 

St. Mary’s 

River 

Proposed Adjustments (Director): 

Legal—shared counsel 3% lobbying fee (K&L Gates) ........................................................ ¥540 ¥180 ¥720 

TOTAL DIRECTOR’S ADJUSTMENTS ........................................................................ ¥540 ¥180 ¥720 

Total Operating Expenses (OpEx + Adjustments) ................................................. 1,595,565 531,854 2,127,420 

*Values may not sum due to rounding. District 3 provided the Coast Guard data for Areas 6, 7, and 8. However, the Coast Guard combined 

areas 6 and 8 to present the operating expenses by designated and undesignated areas. 

B. Step 2: Projection of Operating 

Expenses 

Having ascertained the recognized 

2015 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 calculated inflation 

using the Bureau of Labor Statistics’ 

data from the Consumer Price Index for 

the Midwest Region of the United 

States 39 and reports from the Federal 

Reserve. Based on that information, the 

calculations for Step 1 are as follows: 

TABLE 10—ADJUSTED OPERATING EXPENSES FOR DISTRICT ONE

Designated Undesignated Total 

Total Operating Expenses (Step 1) ............................................................................................. $905,113 $730,344 $1,635,457 

2016 Inflation Modification (@0.8%) 40 ........................................................................................ 7,241 5,843 13,084 

2017 Inflation Modification (@1.9%) 41 ........................................................................................ 17,335 13,988 31,323 

2018 Inflation Modification (@2.0%) 42 ........................................................................................ 18,594 15,004 33,598 

Adjusted 2018 Operating Expenses ..................................................................................... 948,283 765,179 1,713,462 

TABLE 11—ADJUSTED OPERATING EXPENSES FOR DISTRICT TWO

Undesignated Designated Total 

Total Operating Expenses (Step 1) ............................................................................................. $779,178 $1,168,764 $1,947,942 

2016 Inflation Modification (@0.8%) ........................................................................................... 6,233 9,350 15,583 

2017 Inflation Modification (@1.9%) ........................................................................................... 14,923 22,384 37,307 

2018 Inflation Modification (@2.0%) ........................................................................................... 16,007 24,010 40,017 

Adjusted 2018 Operating Expenses ..................................................................................... 816,341 1,224,508 2,040,849 

TABLE 12—ADJUSTED OPERATING EXPENSES FOR DISTRICT THREE

Undesignated Designated Total 

Total Operating Expenses (Step 1) ............................................................................................. $1,595,565 $531,854 $2,127,420 

2016 Inflation Modification (@0.8%) ........................................................................................... 12,765 4,255 17,020 

2017 Inflation Modification (@1.9%) ........................................................................................... 30,558 10,186 40,744 

2018 Inflation Modification (@2.0%) ........................................................................................... 32,778 10,926 43,704 

Adjusted 2018 Operating Expenses ..................................................................................... 1,671,666 557,221 2,228,888 

C. Step 3: Estimate Number of Working 

Pilots 

In accordance with the proposed text 

in § 404.103, we estimated the number 

of working pilots in each district. Based 

on input from the Saint Lawrence 

Seaway Pilots Association, we estimate 

that there will be 17 working pilots in 

2018 in District One. Based on input 

from the Lakes Pilots Association, we 

estimate there will be 14 working pilots 

in 2018 in District Two. Based on input 

from the Western Great Lakes Pilots 

Association, we estimate there will be 

18 working pilots in 2018 in District 

Three. 

Furthermore, based on the staffing 

model employed to develop the total 

number of pilots needed, we assign a 

certain number of pilots to designated 

waters, and a certain number to 

undesignated waters. These numbers are 


sradovich on DSK3GMQ082PROD with PROPOSALS
2594 Federal Register / Vol. 83, No. 12 / Thursday, January 18, 2018 / Proposed Rules 

43For a detailed calculation, see 82 FR 41466, 

table 6 at 41480 (August 31, 2017). 

44See Table 6 of the 2017 final rule, 82 FR 41466 

at 41480 (August 31, 2017). The methodology of the 

staffing model is discussed at length in the final 

rule (see pages 41476–41480 for a detailed analysis 

of the calculations). 

45Moody’s Seasoned Aaa Corporate Bond Yield, 

average of 2016 monthly data, located at http://

research.stlouisfed.org/fred2/series/AAA/download

data?cid=119. The Coast Guard uses the most recent 

complete year of data. 

used to determine the amount of revenue needed in their respective 

areas. 

TABLE 13—AUTHORIZED PILOTS

District One District Two District Three 

Maximum number of pilots (per § 401.220(a)) 43 ......................................................................... 17 15 22 

2018 Authorized pilots (total) ....................................................................................................... 17 14 18 

Pilots assigned to designated areas ........................................................................................... 10 7 4 

Pilots assigned to undesignated areas ....................................................................................... 7 7 14 

D. Step 4: Determine Target Pilot 

Compensation 

In this step, we determine the total 

pilot compensation for each area. 

Because we are proposing a ‘‘full 

ratemaking’’ this year, we propose to 

follow the procedure outlined in 

paragraph (a) of § 404.104, which 

requires us to develop a benchmark after 

considering the most relevant currently 

available non-proprietary information. 

In accordance with the discussion in 

Section VII above, the proposed 

compensation benchmark for 2018 is 

$319,617 per pilot. 

Next, we certify that the number of 

pilots estimated for 2018 is less than or 

equal to the number permitted under 

the staffing model in § 401.220(a). The 

staffing model suggests that the number 

of pilots needed is 17 pilots for District 

One, 15 pilots for District Two, and 22 

pilots for District Three,44 which is 

more than or equal to the numbers of 

working pilots provided by the pilot 

associations. 

Thus, in accordance with proposed 

§ 404.104(c), we use the revised target 

individual compensation level to derive 

the total pilot compensation by 

multiplying the individual target 

compensation by the estimated number 

of working pilots for each district, as 

shown in Table 14. 

TABLE 14—TARGET PILOT COMPENSATION FOR DISTRICT ONE

Designated Undesignated Total 

Target Pilot Compensation .......................................................................................................... $319,617 $319,617 $319,617 

Number of Pilots .......................................................................................................................... 10 7 17 

Total Target Pilot Compensation .......................................................................................... $3,196,170 $2,237,319 $5,433,489 

TABLE 15—TARGET PILOT COMPENSATION FOR DISTRICT TWO

Undesignated Designated Total 

Target Pilot Compensation .......................................................................................................... $319,617 $319,617 $319,617 

Number of Pilots .......................................................................................................................... 7 7 14 

Total Target Pilot Compensation .......................................................................................... $2,237,319 $2,237,319 $4,474,638 

TABLE 16—TARGET PILOT COMPENSATION FOR DISTRICT THREE

Undesignated Designated Total 

Target Pilot Compensation .......................................................................................................... $319,617 $319,617 $319,617 

Number of Pilots .......................................................................................................................... 14 4 18 

Total Target Pilot Compensation .......................................................................................... $4,474,638 $1,278,468 $5,753,106 

E. Step 5: Calculate Working Capital 

Fund 

Next, we calculate the working capital 

fund revenues needed for each area. 

First, we add the figures for projected 

operating expenses and total pilot 

compensation for each area. Next, we 

find the preceding year’s average annual 

rate of return for new issues of high 

grade corporate securities. Using 

Moody’s data, that number is 3.67 

percent.45 By multiplying the two 

figures, we get the working capital fund 

contribution for each area, as shown in 

Table 17. 


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TABLE 17—WORKING CAPITAL FUND CONTRIBUTION FOR DISTRICT ONE

Designated Undesignated Total 

Adjusted Operating Expenses (Step 2) ....................................................................................... $948,283 $765,179 $1,713,462 

Total Target Pilot Compensation (Step 4) ................................................................................... 3,196,170 2,237,319 5,433,489 

Total 2018 Expenses ............................................................................................................ 4,144,453 3,002,498 7,146,951 

Working Capital Fund Contribution (Total 2018 Expenses × 3.67%) ......................................... 152,101 110,192 262,293 

TABLE 18—WORKING CAPITAL FUND CONTRIBUTION FOR DISTRICT TWO

Undesignated Designated Total 

Adjusted Operating Expenses (Step 2) ....................................................................................... $816,341 $1,224,508 $2,040,849 

Total Target Pilot Compensation (Step 4) ................................................................................... 2,237,319 2,237,319 4,474,638 

Total 2018 Expenses ............................................................................................................ 3,053,660 3,461,827 6,515,487 

Working Capital Fund Contribution (Total 2018 Expenses × 3.67%) ......................................... 112,069 127,049 239,118 

TABLE 19—WORKING CAPITAL FUND CONTRIBUTION FOR DISTRICT THREE

Undesignated Designated Total 

Adjusted Operating Expenses (Step 2) ....................................................................................... $1,671,666 $557,221 $2,228,887 

Total Target Pilot Compensation (Step 4) ................................................................................... 4,474,638 1,278,468 5,753,106 

Total 2018 Expenses ............................................................................................................ 6,146,304 1,835,689 7,981,993 

Working Capital Fund Contribution (Total 2018 Expenses × 3.67%) ......................................... 225,569 67,370 292,939 

F. Step 6: Calculate Revenue Needed 

We add up all the expenses accrued 

to derive the total revenue needed for 

each area. These expenses include the 

projected operating expenses (from Step 

2), the total pilot compensation (from 

Step 4), and the working capital fund 

contribution (from Step 5). The 

calculations are shown in Table 20. 

TABLE 20—REVENUE NEEDED FOR DISTRICT ONE

Designated Undesignated Total 

Adjusted Operating Expenses (Step 2) ....................................................................................... $948,283 $765,179 $1,713,462 

Total Target Pilot Compensation (Step 4) ................................................................................... 3,196,170 2,237,319 5,433,489 

Return on Investment (Step 5) .................................................................................................... 152,101 110,192 262,293 

Total Revenue Needed ........................................................................................................ 4,296,554 3,112,690 7,409,244 

TABLE 21—REVENUE NEEDED FOR DISTRICT TWO

Undesignated Designated Total 

Adjusted Operating Expenses (Step 2) ....................................................................................... $816,341 $1,224,508 $2,040,849 

Total Target Pilot Compensation (Step 4) ................................................................................... 2,237,319 2,237,319 4,474,638 

Return on Investment (Step 5) .................................................................................................... 112,069 127,049 239,118 

Total Revenue Needed ........................................................................................................ 3,165,729 3,588,876 6,754,605 

TABLE 22—REVENUE NEEDED FOR DISTRICT THREE

Undesignated Designated Total 

Adjusted Operating Expenses (Step 2) ....................................................................................... $1,671,666 $557,221 $2,228,888 

Total Target Pilot Compensation (Step 4) ................................................................................... 4,474,638 1,278,468 5,753,106 

Return on Investment (Step 5) .................................................................................................... 225,569 67,370 292,939 

Total Revenue Needed ........................................................................................................ 6,371,873 1,903,059 8,274,933 


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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 hours of traffic to 

develop an hourly rate. Step 7 is a twopart process. In the first part, we 

calculate the 10-year average of traffic in 

each district. Because we are calculating 

separate figures for designated and 

undesignated waters, there are two parts 

for each calculation. The calculations 

are shown in Tables 23 through 25. 

TABLE 23—TIME ON TASK FOR

DISTRICT ONE

Year Undesignated Designated 

2016 .............. 6,217 5,434 

2015 .............. 6,667 5,743 

2014 .............. 6,853 6,810 

2013 .............. 5,529 5,864 

2012 .............. 5,121 4,771 

2011 .............. 5,377 5,045 

2010 .............. 5,649 4,839 

TABLE 23—TIME ON TASK FOR

DISTRICT ONE—Continued 

Year Undesignated Designated 

2009 .............. 3,947 3,511 

2008 .............. 5,298 5,829 

2007 .............. 5,929 6,099 

Average ........ 5,659 5,395 

TABLE 24—TIME ON TASK FOR

DISTRICT TWO

Year Undesignated Designated 

2016 .............. 6,425 5,615 

2015 .............. 6,535 5,967 

2014 .............. 7,856 7,001 

2013 .............. 4,603 4,750 

2012 .............. 3,848 3,922 

2011 .............. 3,708 3,680 

2010 .............. 5,565 5,235 

2009 .............. 3,386 3,017 

2008 .............. 4,844 3,956 

2007 .............. 6,223 6,049 

Average ........ 5,299 4,919 

TABLE 25—TIME ON TASK FOR

DISTRICT THREE

Year Undesignated Designated 

2016 .............. 23,421 2,769 

2015 .............. 22,824 2,696 

2014 .............. 25,833 3,835 

2013 .............. 17,115 2,631 

2012 .............. 15,906 2,163 

2011 .............. 16,012 1,678 

2010 .............. 20,211 2,461 

2009 .............. 12,520 1,820 

2008 .............. 14,287 2,286 

2007 .............. 24,811 5,944 

Average ........ 19,294 2,828 

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 needed to 

produce the revenue needed for each 

area, assuming the amount of traffic is 

as expected. The calculations for each 

area are set forth in Tables 26 through 

28. 

TABLE 26—RATE CALCULATIONS FOR DISTRICT ONE

Designated Undesignated 

Revenue needed (Step 6) ....................................................................................................................................... $4,296,554 $3,112,690 

Average time on task ............................................................................................................................................... 5,395 5,659 

Initial rate ................................................................................................................................................................. 796 550 

TABLE 27—RATE CALCULATIONS FOR DISTRICT TWO

Designated Undesignated 

Revenue needed (Step 6) ....................................................................................................................................... $3,588,876 $3,165,729 

Average time on task ............................................................................................................................................... 4,919 5,299 

Initial rate ................................................................................................................................................................. 730 597 

TABLE 28—RATE CALCULATIONS FOR DISTRICT THREE

Designated Undesignated 

Revenue needed (Step 6) ....................................................................................................................................... $1,903,059 $6,371,873 

Average time on task ............................................................................................................................................... 2,828 19,294 

Initial rate ................................................................................................................................................................. 673 330 

H. Step 8: Calculate Weighting Factors 

by Area 

In this step, we calculate the average 

weighting factor for each designated and 

undesignated area. We collect the 

weighting factors, set forth in 46 CFR 

401.400, for each vessel trip. Using this 

database, we calculate the average 

weighting factor for each area using the 

data from each vessel transit from 2014 

onward, as shown in Tables 29 through 

34. 

TABLE 29—AVERAGE WEIGHTING FACTOR FOR AREA 1 

[District 1, designated] 

Vessel class/year Number of 

transits 

Weighting 

factor 

Weighted 

transits 

Class 1 (2014) ............................................................................................................................. 31 1.00 31 

Class 1 (2015) ............................................................................................................................. 41 1.00 41 

Class 1 (2016) ............................................................................................................................. 31 1.00 31 

Class 2 (2014) ............................................................................................................................. 285 1.15 327.75 

Class 2 (2015) ............................................................................................................................. 295 1.15 339.25 

Class 2 (2016) ............................................................................................................................. 185 1.15 212.75 

Class 3 (2014) ............................................................................................................................. 50 1.30 65 


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TABLE 29—AVERAGE WEIGHTING FACTOR FOR AREA 1—Continued 

[District 1, designated] 

Vessel class/year Number of 

transits 

Weighting 

factor 

Weighted 

transits 

Class 3 (2015) ............................................................................................................................. 28 1.30 36.4 

Class 3 (2016) ............................................................................................................................. 50 1.30 65 

Class 4 (2014) ............................................................................................................................. 271 1.45 392.95 

Class 4 (2015) ............................................................................................................................. 251 1.45 363.95 

Class 4 (2016) ............................................................................................................................. 214 1.45 310.3 

Total ...................................................................................................................................... 1,732 ........................ 2,216.35 

Average weighting factor (weighted transits/number of transits) ................................................ ........................ 1.28 ........................

TABLE 30—AVERAGE WEIGHTING FACTOR FOR AREA 2 

[District 1, undesignated] 

Vessel class/year Number of 

transits 

Weighting 

factor 

Weighted 

transits 

Class 1 (2014) ............................................................................................................................. 25 1.00 25 

Class 1 (2015) ............................................................................................................................. 28 1.00 28 

Class 1 (2016) ............................................................................................................................. 18 1.00 18 

Class 2 (2014) ............................................................................................................................. 238 1.15 273.7 

Class 2 (2015) ............................................................................................................................. 263 1.15 302.45 

Class 2 (2016) ............................................................................................................................. 169 1.15 194.35 

Class 3 (2014) ............................................................................................................................. 60 1.30 78 

Class 3 (2015) ............................................................................................................................. 42 1.30 54.6 

Class 3 (2016) ............................................................................................................................. 28 1.30 36.4 

Class 4 (2014) ............................................................................................................................. 289 1.45 419.05 

Class 4 (2015) ............................................................................................................................. 269 1.45 390.05 

Class 4 (2016) ............................................................................................................................. 222 1.45 321.9 

Total ...................................................................................................................................... 1,651 ........................ 2,141.6 

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

TABLE 31—AVERAGE WEIGHTING FACTOR FOR AREA 4 

[District 2, designated] 

Vessel class/year Number of 

transits 

Weighting 

factor 

Weighted 

transits 

Class 1 (2014) ............................................................................................................................. 20 1.00 20 

Class 1 (2015) ............................................................................................................................. 15 1.00 15 

Class 1 (2016) ............................................................................................................................. 28 1.00 28 

Class 2 (2014) ............................................................................................................................. 237 1.15 272.55 

Class 2 (2015) ............................................................................................................................. 217 1.15 249.55 

Class 2 (2016) ............................................................................................................................. 224 1.15 257.6 

Class 3 (2014) ............................................................................................................................. 8 1.30 10.4 

Class 3 (2015) ............................................................................................................................. 8 1.30 10.4 

Class 3 (2016) ............................................................................................................................. 4 1.30 5.2 

Class 4 (2014) ............................................................................................................................. 359 1.45 520.55 

Class 4 (2015) ............................................................................................................................. 340 1.45 493 

Class 4 (2016) ............................................................................................................................. 281 1.45 407.45 

Total ...................................................................................................................................... 1,741 ........................ 2,289.7 

Average weighting factor (weighted transits/number of transits) ................................................ ........................ 1.32 ........................

TABLE 32—AVERAGE WEIGHTING FACTOR FOR AREA 5 

[District 2, undesignated] 

Vessel class/year Number of 

transits 

Weighting 

factor 

Weighted 

transits 

Class 1 (2014) ............................................................................................................................. 31 1.00 31 

Class 1 (2015) ............................................................................................................................. 35 1.00 35 

Class 1 (2016) ............................................................................................................................. 32 1.00 32 

Class 2 (2014) ............................................................................................................................. 356 1.15 409.4 

Class 2 (2015) ............................................................................................................................. 354 1.15 407.1 


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TABLE 32—AVERAGE WEIGHTING FACTOR FOR AREA 5—Continued 

[District 2, undesignated] 

Vessel class/year Number of 

transits 

Weighting 

factor 

Weighted 

transits 

Class 2 (2016) ............................................................................................................................. 380 1.15 437 

Class 3 (2014) ............................................................................................................................. 20 1.30 26 

Class 3 (2015) ............................................................................................................................. 0 1.30 0 

Class 3 (2016) ............................................................................................................................. 9 1.30 11.7 

Class 4 (2014) ............................................................................................................................. 636 1.45 922.2 

Class 4 (2015) ............................................................................................................................. 560 1.45 812 

Class 4 (2016) ............................................................................................................................. 468 1.45 678.6 

Total ...................................................................................................................................... 2,881 ........................ 3,802 

Average weighting factor (weighted transits/number of transits) ................................................ ........................ 1.32 ........................

TABLE 33—AVERAGE WEIGHTING FACTOR FOR AREAS 6 AND 8 

[District 3, undesignated] 

Vessel class/year Number of 

transits 

Weighting 

factor 

Weighted 

transits 

Area 6: 

Class 1 (2014) ...................................................................................................................... 45 1.00 45 

Class 1 (2015) ...................................................................................................................... 56 1.00 56 

Class 1 (2016) ...................................................................................................................... 136 1.00 136 

Class 2 (2014) ...................................................................................................................... 274 1.15 315.1 

Class 2 (2015) ...................................................................................................................... 207 1.15 238.05 

Class 2 (2016) ...................................................................................................................... 236 1.15 271.4 

Class 3 (2014) ...................................................................................................................... 15 1.30 19.5 

Class 3 (2015) ...................................................................................................................... 8 1.30 10.4 

Class 3 (2016) ...................................................................................................................... 10 1.30 13 

Class 4 (2014) ...................................................................................................................... 394 1.45 571.3 

Class 4 (2015) ...................................................................................................................... 375 1.45 543.75 

Class 4 (2016) ...................................................................................................................... 332 1.45 481.4 

Total for Area 6 ............................................................................................................. 2,088 ........................ 2,700.9 

Area 8: 

Class 1 (2014) ...................................................................................................................... 3 1.00 3 

Class 1 (2015) ...................................................................................................................... 0 1.00 0 

Class 1 (2016) ...................................................................................................................... 4 1.00 4 

Class 2 (2014) ...................................................................................................................... 177 1.15 203.55 

Class 2 (2015) ...................................................................................................................... 169 1.15 194.35 

Class 2 (2016) ...................................................................................................................... 174 1.15 200.1 

Class 3 (2014) ...................................................................................................................... 3 1.30 3.9 

Class 3 (2015) ...................................................................................................................... 0 1.30 0 

Class 3 (2016) ...................................................................................................................... 7 1.30 9.1 

Class 4 (2014) ...................................................................................................................... 243 1.45 352.35 

Class 4 (2015) ...................................................................................................................... 253 1.45 366.85 

Class 4 (2016) ...................................................................................................................... 204 1.45 295.8 

Total for Area 8 ............................................................................................................. 1,237 ........................ 1,633 

Combined total ....................................................................................................... 3,325 ........................ 4,333.9 

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

TABLE 34—AVERAGE WEIGHTING FACTOR FOR AREA 7 

[District 3, designated] 

Vessel class/year Number of 

transits 

Weighting 

factor 

Weighted 

transits 

Class 1 (2014) ............................................................................................................................. 27 1.00 27 

Class 1 (2015) ............................................................................................................................. 23 1.00 23 

Class 1 (2016) ............................................................................................................................. 55 1.00 55 

Class 2 (2014) ............................................................................................................................. 221 1.15 254.15 

Class 2 (2015) ............................................................................................................................. 145 1.15 166.75 

Class 2 (2016) ............................................................................................................................. 174 1.15 200.1 

Class 3 (2014) ............................................................................................................................. 4 1.30 5.2 

Class 3 (2015) ............................................................................................................................. 0 1.30 0 

Class 3 (2016) ............................................................................................................................. 6 1.30 7.8 


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TABLE 34—AVERAGE WEIGHTING FACTOR FOR AREA 7—Continued 

(District 3, designated) 

Vessel class/year Number of 

transits 

Weighting 

factor 

Weighted 

transits 

Class 4 (2014) ............................................................................................................................. 321 1.45 465.45 

Class 4 (2015) ............................................................................................................................. 245 1.45 355.25 

Class 4 (2016) ............................................................................................................................. 191 1.45 276.95 

Total ...................................................................................................................................... 1,412 ........................ 1,836.65 

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

I. Step 9: Calculate Revised Base Rates 

In this step, we revise the base rates 

so that once the impact of the weighting 

factors are considered, the total cost of 

pilotage will be equal to the revenue 

needed. To do this, we divide the initial 

base rates, calculated in Step 7, by the 

average weighting factors calculated in 

Step 8, as shown in Table 35. 

TABLE 35—REVISED BASE RATES

Area Initial rate 

(Step 7) 

Average 

weighting 

factor 

(Step 8) 

Revised rate 

(initial rate/ 

average 

weighting 

factor) 

District One: Designated .............................................................................................................. $796 1.28 $622 

District One: Undesignated .......................................................................................................... 550 1.30 424 

District Two: Designated .............................................................................................................. 730 1.32 553 

District Two: Undesignated .......................................................................................................... 597 1.32 424 

District Three: Designated ........................................................................................................... 673 1.30 517 

District Three: Undesignated ....................................................................................................... 330 1.30 253 

J. Step 10: Review and Finalize Rates 

In this step, the Director reviews the 

rates set forth by the staffing model and 

ensures that they meet the goal of 

ensuring safe, efficient, and reliable 

pilotage. Because, as detailed in the 

discussion sections of this NPRM, the 

proposed rates incorporate appropriate 

compensation for enough pilots to 

handle heavy traffic periods, would 

cover operating expenses and 

infrastructure costs, and have taken 

average traffic and weighting factors 

into consideration, we believe that they 

do meet the goal of ensuring safe, 

efficient, and reliable pilotage. Thus, we 

are not proposing any alterations to the 

rates in this step. The final rates are 

shown in Table 36, and we propose to 

modify the text in § 401.405(a) to reflect 

them. 

TABLE 36—FINAL RATES

Area Name 

2017 

Pilotage 

rate 

Proposed 

2018 pilotage 

rate 

District One: Designated .............................................. St. Lawrence River ....................................................... $601 $622 

District One: Undesignated .......................................... Lake Ontario ................................................................. 408 424 

District Two: Undesignated .......................................... Lake Erie ...................................................................... 429 454 

District Two: Designated .............................................. Navigable waters from Southeast Shoal to Port 

Huron, MI.

580 553 

District Three: Undesignated ........................................ Lakes Huron, Michigan, and Superior .......................... 218 253 

District Three: Designated ............................................ St. Mary’s River ............................................................ 514 517 

K. Surcharges 

Because there are several applicant 

pilots in 2018, we are proposing to levy 

surcharges to cover the costs needed for 

training expenses. Consistent with 

previous years, we are proposing to 

assign a cost of $150,000 per applicant 

pilot. To develop the surcharge, we 

multiply the number of applicant pilots 

by the average cost per pilot to develop 

a total amount of training costs needed, 

and then impose that amount as a 

surcharge to all areas in the respective 

district, consisting of a percentage of 

revenue needed. In this year, there are 

two applicant pilots for District One, 

one applicant pilot for District Two, and 

four applicant pilots for District Three. 

The calculations to develop the 

surcharges are shown in Table 37. We 

note that while the percentages are 

rounded for simplicity, such rounding 

does not impact the revenue generated, 

as surcharges can no longer be collected 

once the surcharge total has been 

attained. 


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TABLE 37—SURCHARGE CALCULATIONS

District One District Two District Three 

Number of applicant pilots ........................................................................................................... 2 1 4 

Total applicant training costs ....................................................................................................... $300,000 $150,000 $600,000 

Revenue needed (Step 6) ........................................................................................................... $7,409,244 $6,754,605 $8,274,933 

Total surcharge as percentage (total training costs/revenue) ..................................................... 4% 2% 7% 

IX. Regulatory Analyses 

We developed this proposed rule after 

considering numerous statutes and 

Executive orders related to rulemaking. 

Below we summarize our analyses 

based on these statutes or Executive 

orders. 

A. Regulatory Planning and Review 

Executive Orders 12866, ‘‘Regulatory 

Planning and Review,’’ and 13563, 

‘‘Improving Regulation and Regulatory 

Review,’’ direct agencies to assess the 

costs and benefits of available regulatory 

alternatives and, if regulation is 

necessary, to select regulatory 

approaches that maximize net benefits 

(including potential economic, 

environmental, public health and safety 

effects, distributive impacts, and 

equity). Executive Order 13563 

emphasizes the importance of 

quantifying both costs and benefits, of 

reducing costs, of harmonizing rules, 

and of promoting flexibility. Executive 

Order 13771, ‘‘Reducing Regulation and 

Controlling Regulatory Costs,’’ directs 

agencies to reduce regulation and 

control regulatory costs and provides 

that ‘‘for every one new regulation 

issued, at least two prior regulations be 

identified for elimination, and that the 

cost of planned regulations be prudently 

managed and controlled through a 

budgeting process.’’ 

The Office of Management and Budget 

(OMB) has not designated this proposed 

rule a significant regulatory action 

under section 3(f) of Executive Order 

12866. Accordingly, OMB has not 

reviewed it. Because this proposed rule 

is not a significant regulatory action, 

this proposed rule is exempt from the 

requirements of Executive Order 13771. 

See OMB’s Memorandum titled, 

‘‘Interim Guidance Implementing 

Section 2 of the Executive Order of 

January 30, 2017 titled ‘Reducing 

Regulation and Controlling Regulatory 

Costs’’’ (February 2, 2017). A regulatory 

analysis (RA) follows. 

The purpose of this rulemaking is to 

propose new base pilotage rates and 

surcharges for training. This proposed 

rule also makes changes to the 

ratemaking methodology and revises the 

compensation benchmark. The last full 

ratemaking was concluded in 2017. 

Table 38 summarizes the regulatory 

changes that are expected to have no 

costs, and any qualitative benefits 

associated with them. The table also 

includes proposed changes that affect 

portions of the methodology for 

calculating the proposed base pilotage 

rates. While these proposed changes 

affect the calculation of the rate, the 

costs of these changes are captured in 

the changes to the total revenue as a 

result of the proposed rate change 

(summarized in Table 39). 

TABLE 38—REGULATORY CHANGES WITH NO COST OR COSTS CAPTURED IN THE PROPOSED RATE CHANGE

Proposed change Description Basis for no costs Benefits 

Codification of compensation inflation adjustment.Add regulatory text to § 404.104 

to make the adjustment for inflation automatic.

Pilot compensation costs are accounted for in the base pilotage 

rates.

—Pilot compensation would keep 

up with regional inflation. 

—Improves consistency, transparency, and efficiency in our 

ratemaking procedures. 

Target pilot compensation ............. —Due to the 2016 court opinion 

on pilot compensation, the 

Coast Guard is changing the 

pilot compensation benchmark.

Pilot compensation costs are accounted for in the base pilotage 

rates.

Improves transparency in our 

ratemaking procedures. 

Relocation of staffing model regulations.Move the discussion of the staffing model from 46 CFR 

404.103 (as part of ‘‘Step 3’’ of 

the ratemaking process), to the 

general regulations governing 

pilotage in § 401.420.

We are not proposing to adjust or 

modify the regulatory text, but 

simply move it to § 401.220.

Improve the clarity of the regulations and improve the regulatory process. 

Delineation of full ratemakings and 

annual reviews.

Set forth separate regulatory 

paragraphs detailing the differences between how the 

Coast Guard undertakes an annual adjustment of the pilotage 

rates, and a full reassessment 

of the rates, which must be undertaken once every 5 years.

Change only clarifies that the 

benchmark level compensation 

will only be reconsidered during 

‘‘full ratemaking’’ years.

Simplify ratemaking procedures in 

interim years and better effect 

the statutory mandate in section 

9303(f) of the Great Lakes Pilotage Act. 

Miscellaneous other changes ........ —Rename the step currently titled 

‘‘Initially calculate base rates’’ 

to ‘‘Calculate initial base rates’’ 

for style purposes.

—Adjust the reference to the 

staffing model in Step 7 to account for its relocation in text.

Minor editorial changes in this 

NPRM that do not impact total 

revenues.

Provides clarification to regulatory 

text and the rulemaking. 


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46Total payments across all three districts are 

equal to the increase in payments incurred by 

shippers as a result of the rate changes plus the 

temporary surcharges applied to traffic in Districts 

One, Two, and Three. 

47Some vessels entered the Great Lakes multiple 

times in a single year, affecting the average number 

of unique vessels utilizing pilotage services in any 

given year. 

Table 39 summarizes the affected 

population, costs, and benefits of the 

rate changes that are expected to have 

costs associated with them. 

TABLE 39—ECONOMIC IMPACTS DUE TO RATE CHANGES

Proposed change Description Affected population Costs Benefits 

Rate Changes ................... Under the Great Lakes Pilotage Act of 1960, the 

Coast Guard is required 

to review and adjust 

base pilotage rates annually.

Owners and operators of 

215 vessels journeying 

the Great Lakes system 

annually, 49 U.S. Great 

Lakes pilots, and 3 pilotage associations.

$1,162,401—Due to 

change in Revenue 

Needed for 2018 

($23,488,782) from Revenue Needed for 2017 

($22,326,381) as shown 

in Table 40 below.

—New rates cover an association’s necessary 

and reasonable operating expenses. 

—Provides fair compensation, adequate training, 

and sufficient rest periods for pilots. 

—Ensures the association 

receives sufficient revenues to fund future improvements. 

The Coast Guard is required to review 

and adjust pilotage rates on the Great 

Lakes annually. See sections IV and V 

of this preamble for detailed discussions 

of the legal basis and purpose for this 

rulemaking and for background 

information on Great Lakes pilotage 

ratemaking. Based on our annual review 

for this proposed rulemaking, we 

propose adjusting the pilotage rates for 

the 2018 shipping season to generate 

sufficient revenues for each district to 

reimburse its necessary and reasonable 

operating expenses, fairly compensate 

trained and rested pilots, and provide 

an appropriate working capital fund to 

use for improvements. The rate changes 

in this proposed rule would, if codified, 

lead to an increase in the cost per unit 

of service to shippers in all three 

districts, and result in an estimated 

annual cost increase to shippers. 

In addition to the increase in 

payments that would be incurred by 

shippers in all three districts from the 

previous year as a result of the proposed 

rate changes, we propose authorizing a 

temporary surcharge to allow the 

pilotage associations to recover training 

expenses that would be incurred in 

2018. For 2018, we anticipate that there 

will be two applicant pilots in District 

One, one applicant pilot in District Two, 

and four applicant pilots in District 

Three. With a training cost of $150,000 

per pilot, we estimate that Districts One, 

Two, and Three will incur $300,000, 

$150,000, and $600,000 in training 

expenses, respectively. These temporary 

surcharges would generate a combined 

$1,050,000 in revenue for the pilotage 

associations. Therefore, after accounting 

for the implementation of the temporary 

surcharges across all three districts, the 

total payments that would be made by 

shippers during the 2018 shipping 

season are estimated at approximately 

$1,162,401 more than the total 

payments that were estimated in 2017 

(Table 40).46

A detailed discussion of our economic 

impact analysis follows. 

Affected Population 

The shippers affected by these rate 

changes are those owners and operators 

of domestic vessels operating ‘‘on 

register’’ (employed in foreign trade) 

and owners and operators of nonCanadian foreign vessels on routes 

within the Great Lakes system. These 

owners and operators must have pilots 

or pilotage service as required by 46 

U.S.C. 9302. There is no minimum 

tonnage limit or exemption for these 

vessels. The statute applies only to 

commercial vessels and not to 

recreational vessels. United Statesflagged vessels not operating on register 

and Canadian ‘‘lakers,’’ which account 

for most commercial shipping on the 

Great Lakes, are not required by 46 

U.S.C. 9302 to have pilots. However, 

these U.S.- and Canadian-flagged lakers 

may voluntarily choose to engage a 

Great Lakes registered pilot. Vessels that 

are U.S.-flagged may opt to have a pilot 

for varying reasons, such as 

unfamiliarity with designated waters 

and ports, or for insurance purposes. 

We used billing information from the 

years 2014 through 2016 from the Great 

Lakes Pilotage Management System 

(GLPMS) to estimate the average annual 

number of vessels affected by the rate 

adjustment. The GLPMS tracks data 

related to managing and coordinating 

the dispatch of pilots on the Great 

Lakes, and billing in accordance with 

the services. We found that a total of 

387 vessels used pilotage services 

during the years 2014 through 2016. 

That is, these vessels had a pilot 

dispatched to the vessel, and billing 

information was recorded in the 

GLPMS. The number of invoices per 

vessel ranged from a minimum of 1 

invoice per year to a maximum of 108 

invoices per year. Of these vessels, 367 

were foreign-flagged vessels and 20 

were U.S.-flagged. As previously stated, 

U.S.-flagged vessels not operating on 

register are not required to have a 

registered pilot per 46 U.S.C. 9302, but 

they can voluntarily choose to have one. 

Vessel traffic is affected by numerous 

factors and varies from year to year. 

Therefore, rather than the total number 

of vessels over the time period, an 

average of the unique vessels using 

pilotage services from the years 2014 

through 2016 is the best representation 

of vessels estimated to be affected by the 

rate proposed in this NPRM. From the 

years 2014 through 2016, an average of 

215 vessels used pilotage services 

annually.47 On average, 206 of these 

vessels were foreign-flagged vessels and 

9 were U.S.-flagged vessels that 

voluntarily opted into the pilotage 

service. 

Total Cost to Shippers 

The rate changes resulting from the 

new methodology would generate costs 

to industry in the form of higher 

payments for shippers. We estimate the 

effect of the rate changes on shippers by 

comparing the total projected revenues 

needed to cover costs in 2017 with the 

total projected revenues to cover costs 

in 2018, including any temporary 

surcharges we have authorized. We set 

pilotage rates so that pilot associations 

receive enough revenue to cover their 

necessary and reasonable expenses. 

Shippers pay these rates when they 


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48The 2017 projected revenues are from the 2017 

Great Lakes Pilotage Ratemaking final rule (82 FR 

41484 and 41489), Tables 9 and 14. 

49The 2017 projected revenues are from the 2017 

final rule (82 FR 41484 and 41489), tables 9 and 14. 

The 2018 projected revenues are from tables 20–22 

of this NPRM. 

have a pilot as required by 46 U.S.C. 

9302. Therefore, the aggregate payments 

of shippers to pilot associations are 

equal to the projected necessary 

revenues for pilot associations. The 

revenues each year represent the total 

costs that shippers must pay for pilotage 

services, and the change in revenue 

from the previous year is the additional 

cost to shippers discussed in this 

proposed rule. 

The impacts of the proposed rate 

changes on shippers are estimated from 

the District pilotage projected revenues 

(shown in Tables 20 through 22 of this 

preamble) and the proposed surcharges 

described in section VIII of this 

preamble. We estimate that for the 2018 

shipping season, the projected revenue 

needed for all three districts is 

$22,438,782. Temporary surcharges on 

traffic in Districts One, Two, and Three 

would be applied for the duration of the 

2018 season in order for the pilotage 

associations to recover training 

expenses incurred for applicant pilots. 

We estimate that the pilotage 

associations would require an 

additional $300,000, $150,000, and 

$600,000 in revenue for applicant 

training expenses in Districts One, Two, 

and Three, respectively. This would be 

an additional cost to shippers of 

$1,050,000 during the 2018 shipping 

season. Adding the projected revenue of 

$22,438,782 to the proposed surcharges, 

we estimate the pilotage associations’ 

total projected revenue needed for 2018 

would be $23,488,782. To estimate the 

additional cost to shippers from this 

proposed rule, we compare the 2018 

total projected revenues to the 2017 

projected revenues. Because we review 

and prescribe rates for the Great Lakes 

Pilotage annually, the effects are 

estimated as a single year cost rather 

than annualized over a 10-year period. 

In the 2017 rulemaking,48 we estimated 

the total projected revenue needed for 

2017, including surcharges, as 

$22,326,381. This is the best 

approximation of 2017 revenues as, at 

the time of this publication, we do not 

have enough audited data available for 

the 2017 shipping season to revise these 

projections. Table 40 shows the revenue 

projections for 2017 and 2018 and 

details the additional cost increases to 

shippers by area and district as a result 

of the rate changes and temporary 

surcharges on traffic in Districts One, 

Two, and Three. 

TABLE 40—EFFECT OF THE PROPOSED RULE BY AREA AND DISTRICT

[$U.S.; non-discounted] 

Area 

Revenue 

needed in 

2017 

2017 

Temporary 

surcharge 

Total 2017 

projected 

revenue 

Revenue 

needed in 

2018 

2018 

Temporary 

surcharge 

Total 2018 

projected 

revenue 

Additional 

costs of this 

proposed rule 

Total, District One ........ $7,109,019 $0 $7,109,019 $7,409,244 $300,000 $7,709,244 $600,225 

Total, District Two ........ 6,633,491 300,000 6,933,491 6,754,605 150,000 6,904,605 (28,886) 

Total, District Three ..... 7,233,871 1,050,000 8,283,871 8,274,933 600,000 8,874,933 591,062 

System Total ......... 20,976,381 1,350,000 22,326,381 22,438,782 1,050,000 23,488,782 1,162,401 

The resulting difference between the 

projected revenue in 2017 and the 

projected revenue in 2018 is the 

proposed annual change in payments 

from shippers to pilots as a result of the 

rate change that would be imposed by 

this rule. The effect of the proposed rate 

change to shippers varies by area and 

district. The rate changes, after taking 

into account the increase in pilotage 

rates and the addition of temporary 

surcharges, would lead to affected 

shippers operating in District One and 

District Three experiencing an increase 

in payments of $600,225 and $591,062, 

respectively, over the previous year, and 

a decrease in payments of $28,886 in 

District 2. The overall adjustment in 

payments would be an increase in 

payments by shippers of approximately 

$1,162,401 across all three districts (a 5 

percent increase over 2017). Again, 

because we review and set rates for 

Great Lakes Pilotage annually, the 

impacts are estimated as single year 

costs rather than annualized over a 10- 

year period. 

Table 41 shows the difference in 

revenue by component from 2017 to 

2018.49 The majority of the increase in 

revenue is due to the inflation of 

operating expenses and to the addition 

of four pilots who were authorized in 

the 2017 rule. These four pilots are 

training this year and will become fulltime working pilots at the beginning of 

the 2018 shipping season. They would 

be compensated at the target 

compensation of $319,617 per pilot. The 

addition of these pilots to full working 

status accounts for $1,278,468 of the 

increase ($677,898 when also including 

the effect of decreasing compensation 

for 45 pilots). The remaining amount is 

attributed to decreases in the working 

capital fund and differences in the 

surcharges from 2017. 

TABLE 41—DIFFERENCE IN REVENUE BY COMPONENT

Revenue component 

Revenue 

needed in 

2017 

Revenue 

needed in 

2018 

Difference 

(2018 Revenue–2017 

Revenue) 

Adjusted Operating Expenses ..................................................................................................... $5,155,280 $5,983,199 $827,919 

Total Target Pilot Compensation ................................................................................................. 14,983,335 15,661,233 677,898 

Working Capital Fund .................................................................................................................. 837,766 794,350 (43,416) 

Total Revenue Needed, without Surcharge ................................................................................ 20,976,381 22,438,782 1,462,401 

Surcharge .................................................................................................................................... 1,350,000 1,050,000 (300,000) 


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50The study is available at http://

www.dco.uscg.mil/Our-Organization/AssistantCommandant-for-Prevention-Policy-CG-5P/MarineTransportation-Systems-CG-5PW/Office-ofWaterways-and-Ocean-Policy/Office-of-Waterwaysand-Ocean-Policy-Great-Lakes-Pilotage-Div/. 

51Martin Associates, ‘‘Analysis of Great Lakes 

Pilotage Costs on Great Lakes Shipping and the 

Potential Impact of Increases in U.S. Pilotage 

Charges,’’ page 33. 

52The 2016 projected revenues are from the 2016 

final rule, 81 FR 11938. Figure 32, projected 

revenue needed in 2016 plus the temporary 

surcharge ($17,453,678 + $1,650,000 = 

$19,103,678). 

53The 2017 projected revenues are from the 2017 

final rule, 82 FR 41484 and 41489, tables 9 and 14. 

TABLE 41—DIFFERENCE IN REVENUE BY COMPONENT—Continued 

Revenue component 

Revenue 

needed in 

2017 

Revenue 

needed in 

2018 

Difference 

(2018 Revenue–2017 

Revenue) 

Total Revenue Needed, with Surcharge .............................................................................. 22,326,381 23,488,782 1,162,401 

Pilotage Rates as a Percentage of Vessel 

Operating Costs 

To estimate the impact of U.S. 

pilotage costs on foreign-flagged vessels 

that would be affected by the rate 

adjustment, we looked at the pilotage 

costs as a percentage of a vessel’s costs 

for an entire voyage. The portion of the 

trip on the Great Lakes using a pilot is 

only a portion of the whole trip. The 

affected vessels are often traveling from 

a foreign port, and the days without a 

pilot on the total trip often exceed the 

days a pilot is needed. 

To estimate this impact, we used the 

2017 study titled, ‘‘Analysis of Great 

Lakes Pilotage Costs on Great Lakes 

Shipping and the Potential Impact of 

Increases in U.S. Pilotage Charges.’’ 50

We conducted the study to explore 

additional frameworks and 

methodologies for assessing the cost of 

Great Lakes pilot’s ratemaking 

regulations, with a focus on capturing 

industry and port level economic 

impacts. The study also included an 

analysis of the pilotage costs as a 

percentage of the total voyage costs that 

we can use in RAs to estimate the direct 

impact of changes to the pilotage rates. 

The study developed a voyage cost 

model that is based on a vessel’s daily 

costs. The daily costs included: Capital 

repayment costs; fuel costs; operating 

costs (such as crew, supplies, and 

insurance); port costs; speed of the 

vessel; stevedoring rates; and tolls. The 

daily operating costs were translated 

into total voyage costs using mileage 

between the ports for a number of 

voyage scenarios. In the study, the total 

voyage costs were then compared to the 

U.S. pilotage costs. The study found 

that, using the 2016 rates, the U.S. 

pilotage charges represent 10 percent of 

the total voyage costs for a vessel 

carrying grain, and between 8 percent 

and 9 percent of the total voyage costs 

for a vessel carrying steel.51 We updated 

the analysis to estimate the percentage 

U.S. pilotage charges represent using the 

percentage increase in revenues from 

the years 2016 to 2018. Since the study 

used 2016 as the latest year of data, we 

compared the revenues needed in 2018 

and 2017 to the 2016 revenues in order 

to estimate the change in pilotage costs 

as a percentage of total voyage costs 

from 2017 to 2018. Table 42 shows the 

revenues needed for the years 2016, 

2017, and 2018. 

TABLE 42—REVENUE NEEDED IN 2016, 2017, AND 2018 

Revenue component 

Revenue 

needed in 

2016 52

Revenue 

needed in 

2017 53

Revenue 

needed in 

2018 

Total Revenue Needed, with Surcharge ..................................................................................... $19,103,678 $22,326,381 $23,488,782 

From 2016 to 2017, the total revenues 

needed increased by 17 percent. From 

2017 to 2018, the proposed total 

revenues needed would increase by 5 

percent. From 2016 to 2018, the total 

revenues needed would increase by 23 

percent. While the change in total 

voyage cost would vary by the trip, 

vessel class, and whether the vessel is 

carrying steel or grain, we used these 

percentages as an average increase to 

estimate the change in the impact. 

When we increased the pilotage charges 

by 17 percent from 2016, we found the 

U.S. pilotage costs represented an 

average of 11.3 percent of the total 

voyage costs. We then increased the 

base 2016 rates by 23 percent. With this 

proposed rule’s rates for 2018, pilotage 

costs are estimated to account for 11.8 

percent of the total voyage costs, or a 0.5 

percent increase over the percentage 

that U.S. pilotage costs represented of 

the total voyage in 2017. 

It is important to note that this 

analysis is based on a number of 

assumptions. The purpose of the study 

was to look at the impact of the U.S. 

pilotage rates. The study did not include 

an analysis of the GLPA rates. It was 

assumed that a U.S. pilot is assigned to 

all portions of a voyage where he or she 

could be assigned. In reality, the 

assignment of a United States or 

Canadian pilot is based on the order in 

which a vessel enters the system, as 

outlined in the Memorandum of 

Understanding between the GLPA and 

the Coast Guard. 

This analysis only looks at the impact 

of proposed U.S. pilotage cost changes. 

All other costs were held constant at the 

2016 levels, including Canadian 

pilotage costs, tolls, stevedoring, and 

port charges. This analysis estimates the 

impacts of Great Lakes pilotage rates 

holding all other factors constant. If 

other factors or sectors were not held 

constant but, instead, were allowed to 

adjust or fluctuate, it is likely that the 

impact of pilotage rates would be 

different. Many factors that drive the 

tonnage levels of foreign cargo on the 

Great Lakes and St. Lawrence Seaway 

were held constant for this analysis. 

These factors include, but are not 

limited to, demand for steel and grain, 

construction levels in the regions, 

tariffs, exchange rates, weather 

conditions, crop production, rail and 

alternative route pricing, tolls, vessel 

size restriction on the Great Lakes and 

St. Lawrence Seaway, and inland 

waterway river levels. 

Benefits 

This proposed rule would allow the 

Coast Guard to meet the requirements in 


sradovich on DSK3GMQ082PROD with PROPOSALS
2604 Federal Register / Vol. 83, No. 12 / Thursday, January 18, 2018 / Proposed Rules 

54See http://www.manta.com/. 

55See http://resource.referenceusa.com/. 

56Source: https://www.sba.gov/contracting/ 

getting-started-contractor/make-sure-you-meet-sbasize-standards/table-small-business-size-standards. 

SBA has established a Table of Small Business Size 

Standards, which is matched to NAICS industries. 

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 considered in order to remain classified as 

a small business for SBA and Federal contracting 

programs. 

46 U.S.C. 9303 to review the rates for 

pilotage services on the Great Lakes. 

The rate changes would promote safe, 

efficient, and reliable pilotage service on 

the Great Lakes by: (1) Ensuring that 

rates cover an association’s operating 

expenses; (2) providing fair pilot 

compensation, adequate training, and 

sufficient rest periods for pilots; and (3) 

ensuring the association produces 

enough revenue to fund future 

improvements. The rate changes would 

also help recruit and retain pilots, 

which would ensure a sufficient number 

of pilots to meet peak shipping demand, 

which would help reduce delays caused 

by pilot shortages. 

B. Small Entities 

Under the Regulatory Flexibility Act, 

5 U.S.C. 601–612, we have considered 

whether this proposed rule would have 

a significant economic effect 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 people. 

For the proposed rule, we reviewed 

recent company size and ownership 

data for the vessels identified in the 

GLPMS and we reviewed business 

revenue and size data provided by 

publicly available sources such as 

MANTA 54 and ReferenceUSA.55 As 

described in Section IX.A of this 

preamble, Regulatory Planning and 

Review, we found that a total of 387 

unique vessels used pilotage services 

from 2014 through 2016. These vessels 

are owned by 59 entities. We found that 

of the 59 entities that own or operate 

vessels engaged in trade on the Great 

Lakes affected by this proposed rule, 48 

are foreign entities that operate 

primarily outside the United States. The 

remaining 11 entities are U.S. entities. 

We compared the revenue and 

employee data found in the company 

search to the Small Business 

Administration’s (SBA) Table of Small 

Business Size Standards 56 to determine 

how many of these companies are small 

entities. Table 43 shows the North 

American Industry Classification 

System (NAICS) codes of the U.S. 

entities and the small entity standard 

size established by the SBA. 

TABLE 43—NAICS CODES AND SMALL ENTITIES SIZE STANDARDS

NAICS Description Small business 

size standard 

238910 ............ Site Preparation Contractors ............................................................................................................................... $15 million. 

483211 ............ Inland Water Freight Transportation .................................................................................................................... 750 employees. 

483212 ............ Inland Water Passenger Transportation .............................................................................................................. 500 employees. 

487210 ............ Scenic & Sightseeing Transportation, Water ...................................................................................................... $7.5 million. 

488320 ............ Marine Cargo Handling ........................................................................................................................................ $38.5 million. 

488330 ............ Navigational Services to Shipping ....................................................................................................................... $38.5 million. 

488510 ............ Freight Transportation Arrangement ................................................................................................................... $15 million. 

The entities all exceed the SBA’s 

small business standards for small 

businesses. Further, these U.S. entities 

operate U.S.-flagged vessels and are not 

required to have pilots as required by 46 

U.S.C. 9302. 

In addition to the owners and 

operators of vessels affected by this 

proposed rule, there are three U.S. 

entities affected by the proposed rule 

that receive revenue from pilotage 

services. These are the three pilot 

associations that provide and manage 

pilotage services within the Great Lakes 

districts. Two of the associations 

operate as partnerships and one 

operates as a corporation. These 

associations are designated with the 

same NAICS industry classification and 

small-entity size standards described 

above, but they have fewer than 500 

employees; combined, they have 

approximately 65 employees in total. 

We expect no adverse effect on these 

entities from this proposed rule because 

all associations would receive enough 

revenue to balance the projected 

expenses associated with the projected 

number of bridge hours (time on task) 

and pilots. 

We did not find any small not-forprofit organizations that are 

independently owned and operated and 

are not dominant in their fields. We did 

not find any small governmental 

jurisdictions with populations of fewer 

than 50,000 people. Based on this 

analysis, we found this proposed 

rulemaking, if promulgated, would not 

affect a substantial number of small 

entities. 

Therefore, we certify under 5 U.S.C. 

605(b) that this proposed rule would not 

have a significant economic impact on 

a substantial number of small entities. If 

you think that your business, 

organization, or governmental 

jurisdiction qualifies as a small entity 

and that this proposed rule would have 

a significant economic impact on it, 

please submit a comment to the Docket 

Management Facility at the address 

under ADDRESSES. In your comment, 

explain why you think it qualifies, and 

how and to what degree this proposed 

rule would economically affect it. 

C. Assistance for Small Entities 

Under section 213(a) of the Small 

Business Regulatory Enforcement 

Fairness Act of 1996, Public Law 104– 

121, we want to assist small entities in 

understanding this proposed rule so that 

they can better evaluate its effects on 

them and participate in the rulemaking. 

If the proposed rule would affect your 

small business, organization, or 

governmental jurisdiction and you have 

questions concerning its provisions or 

options for compliance, please consult 

Mr. Mike Moyers, Great Lakes Pilotage, 

Commandant (CG–WWM–2), Coast 

Guard; telephone 202–372–1533, email 

Michael.S.Moyers@uscg.mil, or fax 202– 

372–1914. The Coast Guard will not 

retaliate against small entities that 

question or complain about this rule or 

any policy or action of the Coast Guard. 

Small businesses may send comments 

on the actions of Federal employees 

who enforce, or otherwise determine 

compliance with, Federal regulations to 

the Small Business and Agriculture 

Regulatory Enforcement Ombudsman 

and the Regional Small Business 


sradovich on DSK3GMQ082PROD with PROPOSALS
Federal Register / Vol. 83, No. 12 / Thursday, January 18, 2018 / Proposed Rules 2605 

Regulatory Fairness Boards. The 

Ombudsman evaluates these actions 

annually and rates each agency’s 

responsiveness to small business. If you 

wish to comment on actions by 

employees of the Coast Guard, call 

1–888–REG–FAIR (1–888–734–3247). 

D. Collection of Information 

This proposed rule would call for no 

new collection of information under the 

Paperwork Reduction Act of 1995 (44 

U.S.C. 3501–3520). This proposed rule 

would not change the burden in the 

collection currently approved by OMB 

under OMB Control Number 1625–0086, 

Great Lakes Pilotage Methodology. 

E. Federalism 

A rule has implications for federalism 

under E.O. 13132, Federalism, if it has 

a substantial direct effect on the States, 

on the relationship between the national 

government and the States, or on the 

distribution of power and 

responsibilities among the various 

levels of government. We have analyzed 

this proposed rule under E.O. 13132 and 

have determined that it is consistent 

with the fundamental federalism 

principles and preemption requirements 

as described in E.O. 13132. Our analysis 

follows. 

Congress directed the Coast Guard to 

establish ‘‘rates and charges for pilotage 

services.’’ See 46 U.S.C. 9303(f). This 

regulation is issued pursuant to that 

statute and is preemptive of State law as 

specified in 46 U.S.C. 9306. Under 46 

U.S.C. 9306, a ‘‘State or political 

subdivision of a State may not regulate 

or impose any requirement on pilotage 

on the Great Lakes.’’ As a result, States 

or local governments are expressly 

prohibited from regulating within this 

category. Therefore, the rule is 

consistent with the principles of 

federalism and preemption 

requirements in E.O. 13132. 

While it is well settled that States may 

not regulate in categories in which 

Congress intended the Coast Guard to be 

the sole source of a vessel’s obligations, 

the Coast Guard recognizes the key role 

that State and local governments may 

have in making regulatory 

determinations. Additionally, for rules 

with implications and preemptive 

effect, E.O. 13132 specifically directs 

agencies to consult with State and local 

governments during the rulemaking 

process. If you believe this rule has 

implications for federalism under E.O. 

13132, please contact the person listed 

in the FOR FURTHER INFORMATION section 

of this preamble. 

F. Unfunded Mandates Reform Act 

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 

$100,000,000 (adjusted for inflation) or 

more in any one year. Though this 

proposed rule would not result in such 

an expenditure, we discuss the effects of 

this proposed rule elsewhere in this 

preamble. 

G. Taking of Private Property 

This proposed rule would not cause a 

taking of private property or otherwise 

have taking implications under E.O. 

12630, Governmental Actions and 

Interference with Constitutionally 

Protected Property Rights. 

H. Civil Justice Reform 

This proposed rule meets applicable 

standards in sections 3(a) and 3(b)(2) of 

E.O. 12988, Civil Justice Reform, to 

minimize litigation, eliminate 

ambiguity, and reduce burden. 

I. Protection of Children 

We have analyzed this proposed rule 

under E.O. 13045, Protection of 

Children from Environmental Health 

Risks and Safety Risks. This proposed 

rule is not an economically significant 

rule and would not create an 

environmental risk to health or risk to 

safety that might disproportionately 

affect children. 

J. Indian Tribal Governments 

This proposed rule does not have 

tribal implications under E.O. 13175, 

Consultation and Coordination with 

Indian Tribal Governments, because it 

would not have a substantial direct 

effect on one or more Indian tribes, on 

the relationship between the Federal 

Government and Indian tribes, or on the 

distribution of power and 

responsibilities between the Federal 

Government and Indian tribes. 

K. Energy Effects 

We have analyzed this proposed rule 

under E.O. 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 

E.O. because it is not a ‘‘significant 

regulatory action’’ under E.O. 12866 and 

is not likely to have a significant 

adverse effect on the supply, 

distribution, or use of energy. The 

Administrator of the Office of 

Information and Regulatory Affairs has 

not designated it as a significant energy 

action. Therefore, it does not require a 

Statement of Energy Effects under E.O. 

13211. 

L. Technical Standards 

The National Technology Transfer 

and Advancement Act, codified as a 

note to 15 U.S.C. 272, directs agencies 

to use voluntary consensus standards in 

their regulatory activities unless the 

agency provides Congress, through 

OMB, with an explanation of why using 

these standards would be inconsistent 

with applicable law or otherwise 

impractical. Voluntary consensus 

standards are technical standards (e.g., 

specifications of materials, performance, 

design, or operation; test methods; 

sampling procedures; and related 

management systems practices) that are 

developed or adopted by voluntary 

consensus standards bodies. This 

proposed rule does not use technical 

standards. Therefore, we did not 

consider the use of voluntary consensus 

standards. 

M. Environment 

We have analyzed this proposed rule 

under Department of Homeland 

Security (DHS) Directive 023–01, 

Revision (Rev) 01, Implementation of 

the National Environmental Policy Act 

[DHS Instruction Manual 023–01 

(series)] and Commandant Instruction 

M16475.lD, which guide the Coast 

Guard in complying with the National 

Environmental Policy Act of 1969 (42 

U.S.C. 4321–4370f), and have made a 

preliminary determination that this 

action is one of a category of actions that 

do not individually or cumulatively 

have a significant effect on the human 

environment. A preliminary Record of 

Environmental Consideration 

supporting this determination is 

available in the docket where indicated 

under the ‘‘Public Participation and 

Request for Comments’’ section of this 

preamble. This proposed rule meets the 

criteria for categorical exclusion 

(CATEX) under paragraph A3 of Table 

1, particularly subparts (a), (b), and (c) 

in Appendix A of DHS Directive 023– 

01(series). CATEX A3 pertains to 

promulgation of rules and procedures 

that are: (a) Strictly administrative or 

procedural in nature; (b) that 

implement, without substantive change, 

statutory or regulatory requirements; or 

(c) that implement, without substantive 

change, procedures, manuals, and other 

guidance documents. This proposed 

rule adjusts base pilotage rates and 

surcharges for administering the 2018 

shipping season in accordance with 

applicable statutory and regulatory 

mandates, and also proposes several 


sradovich on DSK3GMQ082PROD with PROPOSALS
2606 Federal Register / Vol. 83, No. 12 / Thursday, January 18, 2018 / Proposed Rules 

minor changes to the Great Lakes 

pilotage ratemaking methodology. We 

seek any comments or information that 

may lead to the discovery of a 

significant environmental impact from 

this proposed rule. 

List of Subjects 

46 CFR Part 401 

Administrative practice and 

procedure, Great Lakes, Navigation 

(water), Penalties, Reporting and 

recordkeeping requirements, Seamen. 

46 CFR Part 404 

Great Lakes, Navigation (water), 

Seamen. 

For the reasons discussed in the 

preamble, the Coast Guard proposes to 

amend 46 CFR parts 401 and 404 as 

follows: 

Title 46—Shipping 

PART 401—GREAT LAKES PILOTAGE 

REGULATIONS 

■ 1. The authority citation for part 401 

continues to read as follows: 

Authority: 46 U.S.C. 2103, 2104(a), 6101, 

7701, 8105, 9303, 9304; Department of 

Homeland Security Delegation No. 

0170.1(II)(92.a), (92.d), (92.e), (92.f). 

■ 2. Revise paragraph (a) of § 401.220 to 

read as follows: 

§ 401.220 Registration of pilots. 

(a) The Director shall determine the 

number of pilots required to be 

registered in order to assure adequate 

and efficient pilotage service in the 

United States waters of the Great Lakes 

and to provide for equitable 

participation of United States Registered 

Pilots with Canadian Registered Pilots 

in the rendering of pilotage services. 

The Director determines the number of 

pilots needed as follows: 

(1) The Director determines the base 

number of pilots needed by dividing 

each area’s peak pilotage demand data 

by its pilot work cycle. The pilot work 

cycle standard includes any time that 

the Director finds to be a necessary and 

reasonable component of ensuring that 

a pilotage assignment is carried out 

safely, efficiently, and reliably for each 

area. These components may include 

but are not limited to— 

(i) Amount of time a pilot provides 

pilotage service or is available to a 

vessel’s master to provide pilotage 

service; 

(ii) Pilot travel time, measured from 

the pilot’s base, to and from an 

assignment’s starting and ending points; 

(iii) Assignment delays and 

detentions; 

(iv) Administrative time for a pilot 

who serves as a pilotage association’s 

president; 

(v) Rest between assignments, as 

required by 46 CFR 401.451; 

(vi) Ten days’ recuperative rest per 

month from April 15 through November 

15 each year, provided that lesser rest 

allowances are approved by the Director 

at the pilotage association’s request, if 

necessary to provide pilotage without 

interruption through that period; and 

(vii) Pilotage-related training. 

(2) Pilotage demand and the base 

seasonal work standard are based on 

available and reliable data, as so 

deemed by the Director, for a multi-year 

base period. The multi-year period is 

the 10 most recent full shipping 

seasons, and the data source is a system 

approved under 46 CFR 403.300. Where 

such data are not available or reliable, 

the Director also may use data, from 

additional past full shipping seasons or 

other sources, that the Director 

determines to be available and reliable. 

(3) The number of pilots needed in 

each district is calculated by totaling the 

area results by district and rounding 

them to the nearest whole integer. For 

supportable circumstances, the Director 

may make reasonable and necessary 

adjustments to the rounded result to 

provide for changes that the Director 

anticipates will affect the need for pilots 

in the district over the period for which 

base rates are being established. 

* * * * * 

■ 3. Revise paragraph (a) of § 401.405 to 

read as follows: 

(a) The hourly rate for pilotage service 

on— 

(1) The St. Lawrence River is $622; 

(2) Lake Ontario is $424; 

(3) Lake Erie is $454; 

(4) The navigable waters from 

Southeast Shoal to Port Huron, MI is 

$553; 

(5) Lakes Huron, Michigan, and 

Superior is $253; and 

(6) The St. Mary’s River is $517. 

* * * * * 

PART 404—GREAT LAKES PILOTAGE 

RATEMAKING 

■ 4. The authority citation for part 404 

continues to read as follows: 

Authority: 46 U.S.C. 2103, 2104(a), 9303, 

9304; Department of Homeland Security 

Delegation No. 0170.1(II)(92.a), (92.f). 

■ 5. Revise § 404.100 to read as follows: 

§ 404.100 Ratemaking and annual reviews 

in general. 

(a) The Director establishes base 

pilotage rates by a full ratemaking 

pursuant to §§ 404.101 through 404.110 

of this part, which is conducted at least 

once every 5 years and completed by 

March 1 of the first year for which the 

base rates will be in effect. Base rates 

will be set to meet the goal specified in 

§ 404.1(a) of this part. 

(b) In the interim years preceding the 

next scheduled full rate review, the 

Director will adjust base pilotage rates 

by an interim ratemaking pursuant to 

§§ 404.101 through 404.110 of this part. 

(c) Each year, the Director will 

announce whether the Coast Guard will 

conduct a full ratemaking or interim 

ratemaking procedure. 

■ 6. Revise § 404.103 to read as follows: 

§ 404.103 Ratemaking step 3: Estimate 

number of working pilots. 

The Director projects, based on the 

number of persons applying under 46 

CFR part 401 to become U.S. Great 

Lakes registered pilots, and on 

information provided by the district’s 

pilotage association, the number of 

pilots expected to be fully working and 

compensated. 

■ 7. Revise § 404.104 to read as follows: 

§ 404.104 Ratemaking step 4: Determine 

target pilot compensation benchmark. 

(a) In a full ratemaking year, the 

Director determines base individual 

target pilot compensation using a 

compensation benchmark, set after 

considering the most relevant currently 

available non-proprietary information. 

For supportable circumstances, the 

Director may make necessary and 

reasonable adjustments to the 

benchmark. 

(b) In an interim year, the Director 

adjusts the previous year’s individual 

target pilot compensation level by the 

Bureau of Labor Statistics’ Consumer 

Price Index for the Midwest Region, or 

if that is unavailable, the Federal Open 

Market Committee median economic 

projections for Personal Consumption 

Expenditures inflation. 

(c) The Director determines each 

pilotage association’s total target pilot 

compensation by multiplying individual 

target pilot compensation computed in 

paragraph (a) or (b) of this section by the 

number of pilots projected under 

§ 404.103(d) of this part, or § 401.220(a) 

of this part, whichever is lower. 

■ 8. Revise § 404.107 to read as follows: 

§ 404.107 Ratemaking step 7: Calculate 

initial base rates. 

(a) The Director calculates initial base 

hourly rates by dividing the projected 

needed revenue from § 404.106 of this 

part by averages of past hours worked in 

each district’s designated and 

undesignated waters, using available 

and reliable data for a multi-year period 

set in accordance with § 401.220(a) of 

this part. 


sradovich on DSK3GMQ082PROD with PROPOSALS
Federal Register / Vol. 83, No. 12 / Thursday, January 18, 2018 / Proposed Rules 2607 

Dated: January 11, 2018. 

Michael D. Emerson, 

Director, Marine Transportation Systems, 

U.S. Coast Guard. 

[FR Doc. 2018–00781 Filed 1–17–18; 8:45 am] 

BILLING CODE 9110–04–P 

DEPARTMENT OF TRANSPORTATION 

National Highway Traffic Safety 

Administration 

49 CFR Part 571 

[Docket No. NHTSA–2018–0009] 

Removing Regulatory Barriers for 

Vehicles With Automated Driving 

Systems 

AGENCY: National Highway Traffic 

Safety Administration (NHTSA), 

Department of Transportation (DOT). 

ACTION: Request for comment (RFC). 

SUMMARY: NHTSA seeks public 

comments to identify any regulatory 

barriers in the existing Federal Motor 

Vehicle Safety Standards (FMVSS) to 

the testing, compliance certification and 

compliance verification of motor 

vehicles with Automated Driving 

Systems (ADSs) and certain 

unconventional interior designs. 

NHTSA is focusing primarily, but not 

exclusively, on vehicles with ADSs that 

lack controls for a human driver; e.g., 

steering wheel, brake pedal or 

accelerator pedal. The absence of 

manual driving controls, and thus of a 

human driver, poses potential barriers 

to testing, compliance certification and 

compliance verification. For example, 

many of the FMVSS refer to the ‘‘driver’’ 

or ‘‘driver’s seating position’’ in 

specifying where various vehicle 

features and systems need to be located 

so that they can be seen and/or used by 

a person sitting in that position. Further, 

the compliance test procedures of some 

FMVSS depend on the presence of such 

things as a human test driver who can 

follow instructions on test driving 

maneuvers or a steering wheel that can 

be used by an automated steering 

machine. NHTSA also seeks comments 

on the research that would be needed to 

determine how to amend the FMVSS in 

order to remove such barriers, while 

retaining those existing safety 

requirements that will be needed and 

appropriate for those vehicles. In all 

cases, the Agency’s goal would be to 

ensure the maintenance of currently 

required levels of safety performance. 

These comments will aid the Agency in 

setting research priorities as well as 

inform its subsequent actions to lay a 

path for innovative vehicle designs and 

technologies that feature ADSs. 

DATES: Comments are due no later than 

March 5, 2018. 

ADDRESSES: Comments must refer to the 

docket number above and be submitted 

by one of the following methods: 

• Federal eRulemaking Portal: Go to 

http://www.regulations.gov. Follow the 

online instructions for submitting 

comments. 

• Mail: Docket Management Facility, 

M–30, U.S. Department of 

Transportation, West Building, Ground 

Floor, Room W12–140, 1200 New Jersey 

Avenue SE, Washington, DC 20590. 

• Hand Delivery or Courier: U.S. 

Department of Transportation, West 

Building, Ground Floor, Room W12– 

140, 1200 New Jersey Avenue SE, 

Washington, DC, between 9 a.m. and 5 

p.m. Eastern time, Monday through 

Friday, except Federal holidays. 

• Fax: 202–493–2251. 

Regardless of how you submit your 

comments, you must include the docket 

number identified in the heading of this 

notice. 

Note that all comments received, 

including any personal information 

provided, will be posted without change 

to http://www.regulations.gov. Please 

see the ‘‘Privacy Act’’ heading below. 

You may call the Docket Management 

Facility at 202–366–9324. 

Docket: For access to the docket to 

read background documents or 

comments received, go to http://

www.regulations.gov or the street 

address listed above. We will continue 

to file relevant information in the 

Docket as it becomes available. 

Privacy Act: In accordance with 5 

U.S.C. 553(c), DOT solicits comments 

from the public to better inform its 

decision-making process. DOT posts 

these comments, without edit, including 

any personal information the 

commenter provides, to http://

www.regulations.gov, as described in 

the system of records notice (DOT/ALL– 

14 FDMS), which can be reviewed at 

https://www.transportation.gov/privacy. 

Anyone can search the electronic form 

of all comments received into any of our 

dockets by the name of the individual 

submitting the comment (or signing the 

comment, if submitted on behalf of an 

association, business, labor union, etc.). 

FOR FURTHER INFORMATION CONTACT: 

For research issues, John Harding, 

Intelligent Technologies Research 

Division, Office of Vehicle Crash 

Avoidance and Electronic Controls 

Research, telephone: 202–366–5665, 

email: John.Harding@dot.gov; 

For rulemaking issues, David Hines, 

Director, Office of Crash Avoidance 

Standards, telephone 202–366–1810, 

email David.Hines@dot.gov; 

For legal issues, Stephen Wood, 

Assistant Chief Counsel, Vehicle 

Rulemaking and Harmonization, Office 

of Chief Counsel, 202–366–2992, email 

Steve.Wood@dot.gov. 

SUPPLEMENTARY INFORMATION: 

Table of Contents 

I. Overview 

II. Automation Revolution 

III. Changes in Vehicle Interior Designs and 

Their Effect on Testing, Certification and 

Compliance Verification Under the 

Federal Safety Standards 

IV. Initial Agency Efforts To Identify Testing, 

Certification and Compliance 

Verification Issues 

V. Requests for Comment 

A. Barriers to Testing, Certification and 

Compliance Verification 

B. Research Needed To Address Those 

Barriers and NHTSA’s Role in 

Conducting it 

VI. Public Participation 

Appendix 

1. Executive Summary of the Volpe Report 

2. List of Standards Identified in the Volpe 

Report 

I. Overview 

NHTSA wants to avoid impeding 

progress with unnecessary or 

unintended regulatory barriers to motor 

vehicles that have Automated Driving 

Systems (ADS) and unconventional 

designs, especially those with 

unconventional interior designs. These 

barriers may complicate or may even 

make impossible the testing and 

certification of motor vehicles. At this 

stage, the Agency is primarily, but not 

exclusively, concerned with vehicles 

with ADSs that do not have the means 

for human driving, e.g., a steering wheel 

and brake and accelerator pedals. 

NHTSA is also interested in the 

additional testing and certification 

problems for vehicles with ADSs and 

with seating or other systems that have 

multiple modes, such as front seats that 

rotate. Some FMVSS, therefore, may 

pose barriers to the testing and 

certification of these vehicles. 

To enable vehicles with ADSs and 

with unconventional interiors while 

maintaining those existing safety 

requirements that will be needed and 

appropriate for those vehicles, NHTSA 

is developing plans and proposals for 

removing or modifying existing 

regulatory barriers to testing and 

compliance certification in those areas 

for which existing data and knowledge 

are sufficient to support decisionmaking. In other areas, plans and 

proposals cannot be developed until the 

completion of near term research to 

determine how to revise the test 

procedures for those vehicles. In all 


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