Document ID: USCG-2022-0370-0001
Agency: uscg
Document Type: Proposed Rule
Title: Great Lakes Pilotage Rates—2023 Annual Review and Revisions to Methodology
Posted Date: 2022-08-30T04:00Z

[Federal Register Volume 87, Number 167 (Tuesday, August 30, 2022)]
[Proposed Rules]
[Pages 52870-52900]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-18690]

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DEPARTMENT OF HOMELAND SECURITY

Coast Guard

46 CFR Part 401

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

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

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

ACTION: Notice of proposed rulemaking.

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

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

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

FOR FURTHER INFORMATION CONTACT: For information about this document, 
call or email Mr. Brian Rogers, Commandant, Office of Waterways and 
Ocean Policy--Great Lakes Pilotage Division (CG-WWM-2), Coast Guard; 
telephone 202-372-1535, email [email protected], or fax 202-372-
1914.

SUPPLEMENTARY INFORMATION:

Table of Contents for Preamble

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

[[Page 52871]]

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

I. Public Participation and Request for Comments

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

II. Abbreviations

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

III. Executive Summary

    In accordance with Title 46 of the United States Code (U.S.C.), 
Chapter 93,\1\ the Coast Guard regulates pilotage for oceangoing 
vessels on the Great Lakes and St. Lawrence Seaway -- including setting 
the rates for pilotage services and adjusting them on an annual basis 
for the upcoming shipping season. The shipping season begins when the 
locks open in the St. Lawrence Seaway, which allows traffic access to 
and from the Atlantic Ocean. The opening of the locks varies annually, 
depending on waterway conditions, but is generally in March or April. 
The rates, which for the 2023 season range from a proposed $407 to $867 
per pilot hour (depending on which of the specific six areas pilotage 
service is provided), are paid by shippers to the pilot associations. 
The three pilot associations, which are the exclusive U.S. source of 
registered pilots on the Great Lakes, use this revenue to cover 
operating expenses, maintain infrastructure, compensate apprentice and 
registered pilots, acquire and implement technological advances, train 
new personnel, and allow partners to participate in professional 
development.
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    \1\ 46 U.S.C. 9301-9308.
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    In accordance with statutory and regulatory requirements, we have 
employed the ratemaking methodology we introduced in 2016. Our 
ratemaking methodology calculates the revenue needed for each pilotage 
association (operating expenses, compensation for the number of pilots, 
and anticipated inflation), and then divides that amount by the 
expected demand for pilotage services over the course of the coming 
year, to produce an hourly rate. This is a 10-step methodology to 
calculate rates. The 10-step methodology is explained in section VI of 
this preamble.
    In this notice of proposed rulemaking (NPRM), we are proposing a 
full ratemaking, setting new pilotage rates for 2023 based on the 10-
step ratemaking methodology, and accepting comments on the methodology. 
We conducted the last full ratemaking 5 years ago, in 2018. Per title 
46 of the Code of Federal Regulations (CFR), Sec.  404.100(a), in this 
NPRM, the Coast Guard's Director of the Great Lakes Pilotage (``the 
Director'') proposes to establish base pilotage rates by a full 
ratemaking pursuant to Sec. Sec.  404.101 through 404.110. Base rates 
would be set to meet the goals of promoting safe, efficient, and 
reliable pilotage service on the Great Lakes, by generating sufficient 
revenue for each pilotage association to reimburse its necessary and 
reasonable operating expenses, fairly compensate trained and rested 
pilots, and provide appropriate funds to use for improvements. We use a 
10-year average when calculating traffic to smooth out variations in 
traffic caused by global economic conditions, such as those caused by 
the COVID-19 pandemic. The Coast Guard estimates that this proposed 
rule would result in $4,535,400 in additional costs.
    Based on the ratemaking model discussed in this NPRM, we are 
proposing the rates shown in table 1.

[[Page 52872]]

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

IV. Basis and Purpose

    The legal basis of this rulemaking is 46 U.S.C. Chapter 93,\2\ 
which requires foreign merchant vessels and United States vessels 
operating ``on register'' (meaning United States vessels engaged in 
foreign trade) to use United States or Canadian pilots while transiting 
the United States waters of the St. Lawrence Seaway and the Great Lakes 
system.\3\ For U.S. Great Lakes pilots, the statute requires the 
Secretary of Homeland Security to ``prescribe by regulation rates and 
charges for pilotage services, giving consideration to the public 
interest and the costs of providing the services.'' \4\ The statute 
requires that rates be established or reviewed and adjusted each year, 
not later than March 1.\5\ The statute also requires that base rates be 
established by a full ratemaking at least once every 5 years, and, in 
years when base rates are not established, they must be reviewed and, 
if necessary, adjusted.\6\ The Secretary's duties and authority under 
46 U.S.C. Chapter 93 have been delegated to the Coast Guard.\7\
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    \2\ 46 U.S.C. 9301-9308.
    \3\ 46 U.S.C. 9302(a)(1).
    \4\ 46 U.S.C. 9303(f).
    \5\ Id.
    \6\ Id.
    \7\ Department of Homeland Security (DHS) Delegation 00170.1, 
Revision No. 01.2, paragraph (II)(92)(f).
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    The purpose of this rule is to issue new pilotage rates for the 
2023 shipping season. The Coast Guard believes that the new rates will 
continue to promote our goal, as outlined in 46 CFR 404.1, of promoting 
safe, efficient, and reliable pilotage service in the Great Lakes by 
generating for each pilotage association sufficient revenue to 
reimburse its necessary and reasonable operating expenses, fairly 
compensate trained and rested pilots, and provide appropriate funds to 
use for improvements.

V. Background

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

[[Page 52873]]

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

VI. Summary of the Ratemaking Methodology

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

[[Page 52874]]

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

VII. Discussion of Proposed Methodological and Other Changes

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

[[Page 52875]]

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

VIII. Individual Target Pilot Compensation Benchmark

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

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

IX. Discussion of Proposed Rate Adjustments

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

[[Page 52876]]

District One

A. Step 1: Recognize Previous Operating Expenses

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

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

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

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

[[Page 52877]]

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

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

    Having identified the recognized 2020 operating expenses in Step 1, 
the next step is to estimate the current year's operating expenses by 
adjusting those expenses for inflation over the 3-year period. We 
calculate inflation using the BLS data from the CPI for the Midwest 
Region of the United States for the 2021 inflation rate.\20\ Because 
the BLS does not provide forecasted inflation data, we use economic 
projections from the Federal Reserve for the 2022 and 2023 inflation 
modification.\21\ Based on that information, the calculations for Step 
2 are as follows:
---------------------------------------------------------------------------

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

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

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

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

[[Page 52878]]

               Table 5--Authorized Pilots for District One
------------------------------------------------------------------------
                          Item                             District One
------------------------------------------------------------------------
Proposed Maximum Number of Pilots (per Sec.                           18
 401.220(a)) *..........................................
2023 Authorized Pilots (total)..........................              18
Pilots Assigned to Designated Areas.....................              10
Pilots Assigned to Undesignated Areas...................               8
2023 Apprentice Pilots..................................               2
------------------------------------------------------------------------
* For a detailed calculation, refer to the Great Lakes Pilotage Rates--
  2017 Annual Review final rule, which contains the staffing model. See
  82 FR 41466, table 6 at 41480 (August 31, 2017).

D. Step 4: Determine Target Pilot Compensation Benchmark and Apprentice 
Pilot Wage Benchmark

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

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

E. Step 5: Project Working Capital Fund

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

    \22\ Moody's Seasoned Aaa Corporate Bond Yield, average of 2021 
monthly data. The Coast Guard uses the most recent year of complete 
data. Moody's is taken from Moody's Investors Service, which is a 
bond credit rating business of Moody's Corporation. Bond ratings are 
based on creditworthiness and risk. The rating of ``Aaa'' is the 
highest bond rating assigned with the lowest credit risk. See 
https://fred.stlouisfed.org/series/AAA. (Downloaded March, 2022)

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

[[Page 52879]]

F. Step 6: Project Needed Revenue

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

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

G. Step 7: Calculate Initial Base Rates

    Having determined the revenue needed for each area in the previous 
six steps, to develop an hourly rate we divide that number by the 
expected number of hours of traffic. Step 7 is a two-part process. In 
the first part, we calculate the 10-year average of traffic in District 
One, using the total time on task or pilot bridge hours. To calculate 
the time on task for each district, the Coast Guard uses billing data 
from the Great Lakes Pilotage Management System (GLPMS). We pull the 
data from the system filtering by district, year, job status (we only 
include closed jobs), and flagging code (we only include U.S. jobs). 
Because we calculate separate figures for designated and undesignated 
waters, there are two parts for each calculation. We show these values 
in table 9.

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

    Next, we derive the initial hourly rate by dividing the revenue 
needed by the average number of hours for each area. This produces an 
initial rate, which is necessary to produce the revenue needed for each 
area, assuming the amount of traffic is as expected. We present the 
calculations for District One in table 10.

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

H. Step 8: Calculate Average Weighting Factors by Area

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

[[Page 52880]]

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

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

[[Page 52881]]

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

I. Step 9: Calculate Revised Base Rates

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

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

J. Step 10: Review and Finalize Rates

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

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

District Two

A. Step 1: Recognize Previous Operating Expenses

    Step 1 in our ratemaking methodology requires that the Coast Guard 
review and recognize the previous year's operating expenses (Sec.  
404.101). To do so, we begin by reviewing the independent accountant's 
financial reports for each association's 2020 expenses and 
revenues.\23\ For accounting purposes, the financial reports divide 
expenses into designated and undesignated areas. For costs accrued by 
the pilot associations generally, such as employee benefits, for 
example, the cost is divided between the designated and undesignated 
areas on a pro rata basis. The recognized operating expenses for 
District Two are shown in table 15.
---------------------------------------------------------------------------

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

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

[[Page 52882]]

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

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

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

    Having identified the recognized 2020 operating expenses in Step 1, 
the next step is to estimate the current year's operating expenses by 
adjusting those expenses for inflation over the 3-year period. We 
calculate inflation using the BLS data from the CPI for the Midwest 
Region of the United States for the 2021 inflation rate.\24\
---------------------------------------------------------------------------

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

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

[[Page 52883]]

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

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

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

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

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

              Table 17--Authorized Pilots for District Two
------------------------------------------------------------------------
                          Item                             District Two
------------------------------------------------------------------------
Proposed Maximum Number of Pilots (per Sec.                           16
 401.220(a)) *..........................................
2023 Authorized Pilots (total)..........................              15
Pilots Assigned to Designated Areas.....................               6
Pilots Assigned to Undesignated Areas...................               9
2023 Apprentice Pilots..................................               2
------------------------------------------------------------------------
* For a detailed calculation, refer to the Great Lakes Pilotage Rates--
  2017 Annual Review final rule, which contains the staffing model. See
  82 FR 41466, table 6 at 41480 (August 31, 2017).

D. Step 4: Determine Target Pilot Compensation Benchmark and Apprentice 
Pilot Wage Benchmark

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

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

[[Page 52884]]

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

E. Step 5: Project Working Capital Fund

    Next, we calculate the working capital fund revenues needed for 
each area. First, we add the figures for projected operating expenses, 
total pilot compensation, and total target apprentice pilot wage for 
each area. Then we find the preceding year's average annual rate of 
return for new issues of high-grade corporate securities. Using Moody's 
data, the number is 2.7033 percent.\26\ By multiplying the two figures, 
we obtain the working capital fund contribution for each area, as shown 
in table 19.
---------------------------------------------------------------------------

    \26\ Moody's Seasoned Aaa Corporate Bond Yield, average of 2021 
monthly data. The Coast Guard uses the most recent year of complete 
data. Moody's is taken from Moody's Investors Service, which is a 
bond credit rating business of Moody's Corporation. Bond ratings are 
based on creditworthiness and risk. The rating of ``Aaa'' is the 
highest bond rating assigned with the lowest credit risk. See 
https://fred.stlouisfed.org/series/AAA. (Downloaded March 2022).

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

F. Step 6: Project Needed Revenue

    In this step, we add all the expenses accrued to derive the total 
revenue needed for each area. These expenses include the projected 
operating expenses (from Step 2), the total pilot compensation (from 
Step 4), total target apprentice pilot wage, (from Step 4) and the 
working capital fund contribution (from Step 5). We show these 
calculations in table 20.

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

G. Step 7: Calculate Initial Base Rates

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

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

[[Page 52885]]

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

    Next, we derive the initial hourly rate by dividing the revenue 
needed by the average number of hours for each area. This produces an 
initial rate, which is necessary to produce the revenue needed for each 
area, assuming the amount of traffic is as expected. We present the 
calculations for District Two in table 22.

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

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

    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 23 and 
24.

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

[[Page 52886]]

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

I. Step 9: Calculate Revised Base Rates

    In this step, we revise the base rates so that the total cost of 
pilotage will be equal to the revenue needed after considering the 
impact of the weighting factors. To do this, we divide the initial base 
rates calculated in Step 7 by the average weighting factors calculated 
in Step 8, as shown in table 25.

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

J. Step 10: Review and Finalize Rates

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

[[Page 52887]]

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

District Three

A. Step 1: Recognize Previous Operating Expenses

    Step 1 in our ratemaking methodology requires that the Coast Guard 
review and recognize the previous year's operating expenses (Sec.  
404.101). To do so, we begin by reviewing the independent accountant's 
financial reports for each association's 2020 expenses and 
revenues.\27\ For accounting purposes, the financial reports divide 
expenses into designated and undesignated areas. For costs accrued by 
the pilot associations generally, such as employee benefits, for 
example, the cost is divided between the designated and undesignated 
areas on a pro rata basis. The recognized operating expenses for 
District Three are shown in table 27.
---------------------------------------------------------------------------

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

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

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

[[Page 52888]]

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

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

    Having identified the recognized 2020 operating expenses in Step 1, 
the next step is to estimate the current year's operating expenses by 
adjusting those expenses for inflation over the 3-year period. We 
calculate inflation using the BLS data from the CPI for the Midwest 
Region of the United States for the 2021 inflation rate.\28\ Because 
the BLS does not provide forecasted inflation data, we use economic 
projections from the Federal Reserve for the 2022 and 2023 inflation 
modification.\29\ Based on that information, the calculations for Step 
2 are as follows:
---------------------------------------------------------------------------

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

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

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

    In accordance with the text in Sec.  404.103, we estimate the 
number of registered pilots in each district. We determine the number 
of registered pilots based on data provided by the WGLPA. Using these 
numbers, we estimate that there will be 22 registered pilots in 2023 in 
District Three. We determine the number of apprentice pilots based on 
input from the district on anticipated retirements and staffing needs. 
Using these numbers, we estimate that there will be three apprentice 
pilots in 2023 in District Three. Furthermore, based on the seasonal 
staffing model discussed in the 2017 ratemaking (see 82 FR 41466), we 
assign a certain number of pilots to designated waters and a certain 
number to undesignated waters, as shown in table 29. These numbers are 
used to determine the amount of revenue needed in their respective 
areas.

[[Page 52889]]

             Table 29--Authorized Pilots for District Three
------------------------------------------------------------------------
                         Item                            District Three
------------------------------------------------------------------------
Proposed Maximum Number of Pilots (per Sec.                           22
 401.220(a)) *........................................
2023 Authorized Pilots (total)........................                22
Pilots Assigned to Designated Areas...................                 5
Pilots Assigned to Undesignated Areas.................                17
2023 Apprentice Pilots................................                 3
------------------------------------------------------------------------
* For a detailed calculation, refer to the Great Lakes Pilotage Rates--
  2017 Annual Review final rule, which contains the staffing model. See
  82 FR 41466, table 6 at 41480 (August 31, 2017).

D. Step 4: Determine Target Pilot Compensation Benchmark and Apprentice 
Pilot Wage Benchmark

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

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

E. Step 5: Project Working Capital Fund

    Next, we calculate the working capital fund revenues needed for 
each area. First, we add the figures for projected operating expenses, 
total pilot compensation, and total target apprentice pilot wage for 
each area. Then we find the preceding year's average annual rate of 
return for new issues of high-grade corporate securities. Using Moody's 
data, the number is 2.7033 percent.\30\ By multiplying the two figures, 
we obtain the working capital fund contribution for each area, as shown 
in table 31.
---------------------------------------------------------------------------

    \30\ Moody's Seasoned Aaa Corporate Bond Yield, average of 2021 
monthly data. The Coast Guard uses the most recent year of complete 
data. Moody's is taken from Moody's Investors Service, which is a 
bond credit rating business of Moody's Corporation. Bond ratings are 
based on creditworthiness and risk. The rating of ``Aaa'' is the 
highest bond rating assigned with the lowest credit risk. See 
https://fred.stlouisfed.org/series/AAA. (Downloaded March 2022).

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

[[Page 52890]]

F. Step 6: Project Needed Revenue

    In this step, we add all the expenses accrued to derive the total 
revenue needed for each area. These expenses include the projected 
operating expenses (from Step 2), the total pilot compensation (from 
Step 4), and the working capital fund contribution (from Step 5). The 
calculations are shown in table 32.

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

G. Step 7: Calculate Initial Base Rates

    Having determined the revenue needed for each area in the previous 
six steps, to develop an hourly rate, we divide that number by the 
expected number of hours of traffic. Step 7 is a two-part process. In 
the first part, we calculate the 10-year average of traffic in District 
Three, using the total time on task or pilot bridge hours. To calculate 
the time on task for each district, the Coast Guard uses billing data 
from SeaPro. We pull the data from the system filtering by district, 
year, job status (we only include processed jobs), and flagging code 
(we only include U.S. jobs). Because we calculate separate figures for 
designated and undesignated waters, there are two parts for each 
calculation. We show these values in table 33.

                Table 33--Time on Task for District Three
                                 [Hours]
------------------------------------------------------------------------
                                                  District three
                  Year                   -------------------------------
                                           Undesignated     Designated
------------------------------------------------------------------------
2021....................................          18,219           2,584
2020....................................          24,178           3,682
2019....................................          24,851           3,395
2018....................................          19,967           3,455
2017....................................          20,955           2,997
2016....................................          23,421           2,769
2015....................................          22,824           2,696
2014....................................          25,833           3,835
2013....................................          17,115           2,631
2012....................................          15,906           2,163
                                         -------------------------------
    Average.............................          21,327           3,021
------------------------------------------------------------------------

    Next, we derive the initial hourly rate by dividing the revenue 
needed by the average number of hours for each area. This produces an 
initial rate, which is necessary to produce the revenue needed for each 
area, assuming the amount of traffic is as expected. The calculations 
for District Three are set forth in table 34.

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

H. Step 8: Calculate Average Weighting Factors by Area

    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 35 and 
36.

[[Page 52891]]

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

[[Page 52892]]

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

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

I. Step 9: Calculate Revised Base Rates

    In this step, we revise the base rates so that the total cost of 
pilotage will be equal to the revenue needed after considering the 
impact of the weighting factors. To do this, we divide the initial base 
rates calculated in Step 7 by the average weighting factors calculated 
in Step 8, as shown in table 37.

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

J. Step 10: Review and Finalize Rates

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

[[Page 52893]]

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

X. Regulatory Analyses

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

A. Regulatory Planning and Review

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

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

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

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

[[Page 52894]]

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

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

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

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

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

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

[[Page 52895]]

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

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

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

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

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

  Table 42--Change in Revenue Resulting From the Change to Inflation of
                Pilot Compensation Calculation in Step 4
------------------------------------------------------------------------
 
------------------------------------------------------------------------
2022 Target Pilot Compensation.............................     $399,266
Adjusted 2022 Compensation ($399,266 x 1.034%).............      412,841
Difference between Adjusted Target 2022 Compensation and          13,575
 Target 2022 Compensation ($412,841-$399,266)..............
Increase in total Revenue for 55 Pilots ($13,575 x 55).....      746,627
------------------------------------------------------------------------
* All figures are rounded to the nearest dollar and may not sum.

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

  Table 43--Change in Revenue Resulting From the Change to Inflation of
           Apprentice Pilot Compensation Calculation in Step 4
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Target Apprentice Pilot Compensation.......................     $143,736
Adjusted Compensation ($143,736 x 1.034%)..................      148,623
Difference between Adjusted Target Compensation and Target         4,887
 Compensation ($148,623-$143,736)..........................
Increase in total Revenue for Apprentices ($4,887 x 7).....       34,209
------------------------------------------------------------------------
* All figures are rounded to the nearest dollar and may not sum.

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

[[Page 52896]]

   Table 44--Change in Revenue Resulting From Increase of Four Pilots
------------------------------------------------------------------------
 
------------------------------------------------------------------------
2023 Target Compensation...................................     $422,336
Total Number of New Pilots.................................            4
Total Cost of new Pilots ($422,336 x 4)....................   $1,689,344
Difference between Adjusted Target 2022 Compensation and         $13,575
 Target 2022 Compensation ($412,841-$399,266)..............
Increase in total Revenue for 4 Pilots ($13,575 x 4).......      $54,300
Net Increase in total Revenue for 4 Pilots ($1,689,344-       $1,635,044
 $54,300)..................................................
------------------------------------------------------------------------
* All figures are rounded to the nearest dollar and may not sum.

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

 Table 45--Change in Revenue Resulting From Decrease of Two Apprentices
------------------------------------------------------------------------
 
------------------------------------------------------------------------
2023 Apprentice Target Compensation..................           $152,041
Total Number of New Apprentices......................                (2)
Total Cost of new Apprentices ($152,041 x-2).........      ($304,081.92)
Difference between Adjusted Target 2022 Compensation              $4,887
 and Target 2022 Compensation ($148,623-$143,736)....
Increase in total Revenue for -2 Apprentices ($4,887            ($9,774)
 x-2)................................................
Net Increase in total Revenue for -2 Apprentices (-           ($294,308)
 $304,082--$9,774)...................................
------------------------------------------------------------------------
* All figures are rounded to the nearest dollar and may not sum.

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

 Table 46--Change in Revenue Resulting From Inflating 2022 Compensation
                                 to 2023
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Adjusted 2022 Compensation.................................     $412,841
2023 Target Compensation ($412,841 x 1.023%)...............      422,336
Difference between Adjusted 2022 Compensation and Target           9,495
 2023 Compensation ($422,336-$412,841).....................
Increase in total Revenue for 55 Pilots ($9,495 x 55)......      522,223
------------------------------------------------------------------------
* All figures are rounded to the nearest dollar and may not sum.

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

  Table 47--Change in Revenue Resulting From Inflating 2022 Apprentice
                       Pilot Compensation to 2023
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Adjusted 2022 Compensation.................................     $148,623
2023 Target Compensation ($422,336 x 36%)..................      152,041
Difference between Adjusted Compensation and Target                3,418
 Compensation ($152,041-$148,623)..........................
Increase in total Revenue for 7 Apprentice Pilots ($3,418 x       23,927
 7)........................................................
------------------------------------------------------------------------
* All figures are rounded to the nearest dollar and may not sum.

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

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

[[Page 52897]]

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

[[Page 52898]]

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

B. Small Entities

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

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

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

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

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

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

[[Page 52899]]

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

C. Assistance for Small Entities

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

D. Collection of Information

    This proposed rule would call for no new or revised collection of 
information under the Paperwork Reduction Act of 1995, 44 U.S.C. 3501-
3520.

E. Federalism

    A rule has implications for federalism under Executive Order 13132 
(Federalism) if it has a substantial direct effect on 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 Executive Order 
13132 and have determined that it is consistent with the fundamental 
federalism principles and preemption requirements described in 
Executive Order 13132. Our analysis follows.
    Congress directed the Coast Guard to establish ``rates and charges 
for pilotage services.'' See 46 U.S.C. 9303(f). This regulation is 
issued pursuant to that statute and is preemptive of State law as 
specified in 46 U.S.C. 9306. Under 46 U.S.C. 9306, a ``State or 
political subdivision of a State may not regulate or impose any 
requirement on pilotage on the Great Lakes.'' As a result, States or 
local governments are expressly prohibited from regulating within this 
category. Therefore, this rulemaking is consistent with the fundamental 
federalism principles and preemption requirements described in 
Executive Order 13132.
    While it is well settled that States may not regulate in categories 
in which Congress intended the Coast Guard to be the sole source of a 
vessel's obligations, the Coast Guard recognizes the key role that 
State and local governments may have in making regulatory 
determinations. Additionally, for rules with federalism implications 
and preemptive effect, Executive Order 13132 specifically directs 
agencies to consult with State and local governments during the 
rulemaking process. If you believe this proposed rule would have 
implications for federalism under Executive Order 13132, please call or 
email the person listed in the FOR FURTHER INFORMATION CONTACT section 
of this preamble.

F. Unfunded Mandates

    The Unfunded Mandates Reform Act of 1995, 2 U.S.C. 1531-1538, 
requires Federal agencies to assess the effects of their discretionary 
regulatory actions. In particular, the Act addresses actions that may 
result in the expenditure by a State, local, or tribal government, in 
the aggregate, or by the private sector of $100 million (adjusted for 
inflation) or more in any one year. Although this proposed rule would 
not result in such an expenditure, we do discuss the potential 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 Executive Order 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 Executive Order 12988, (Civil Justice Reform), to minimize 
litigation, eliminate ambiguity, and reduce burden.

J. Indian Tribal Governments

    This proposed rule does not have tribal implications under 
Executive Order 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.

I. Protection of Children

    We have analyzed this proposed rule under Executive Order 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.

K. Energy Effects

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

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 (for example, 
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 Management Directive 023-01, Rev. 1, associated implementing 
instructions, and Environmental Planning COMDTINST 5090.1 (series), 
which guide the Coast Guard in complying with the National 
Environmental Policy Act of 1969 (42 U.S.C. 4321-4370f), and have made 
a

[[Page 52900]]

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. 
For instructions on locating the docket, see the ADDRESSES section of 
this preamble. This proposed rule would be categorically excluded under 
paragraphs A3 and L54 of Appendix A, Table 1 of DHS Instruction Manual 
023-01-001-01, Rev. 1. Paragraph A3 pertains to the promulgation of 
rules of the following nature: (a) those of a strictly administrative 
or procedural nature; (b) those that implement, without substantive 
change, statutory or regulatory requirements; (c) those that implement, 
without substantive change, procedures, manuals, and other guidance 
documents; (d) those that interpret or amend an existing regulation 
without changing its environmental effect; (e) those that provide 
technical guidance on safety and security matters; and (f) those that 
provide guidance for the preparation of security plans. Paragraph L54 
pertains to regulations which are editorial or procedural.
    This proposed rule involves setting or adjusting the pilotage rates 
for the 2023 shipping season to account for changes in district 
operating expenses, changes in the number of pilots, and anticipated 
inflation. In addition, the Coast Guard is accepting comments on the 
entire Great Lakes pilotage ratemaking methodology, in accordance with 
the requirement to conduct a full ratemaking every 5 years. We are also 
accepting suggestions for changes to the staffing model, for 
consideration in a future rulemaking. All of these changes are 
consistent with the Coast Guard's maritime safety missions. We seek any 
comments or information that may lead to the discovery of a significant 
environmental impact from this proposed rule.

List of Subjects in 46 CFR Part 401

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

    For the reasons discussed in the preamble, the Coast Guard is 
proposing to amend 46 CFR part 401 as follows:

PART 401--GREAT LAKES PILOTAGE REGULATIONS

0
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; DHS Delegation 00170.1, Revision No. 01.2, paragraphs 
(II)(92)(a), (d), (e), (f).

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

Sec.  401.405  Pilotage rates and charges.

    (a) * * *
    (1) The St. Lawrence River is $867;
    (2) Lake Ontario is $581;
    (3) Lake Erie is $683;
    (4) The navigable waters from Southeast Shoal to Port Huron, MI is 
$606;
    (5) Lakes Huron, Michigan, and Superior is $407; and
    (6) The St. Marys River is $818.
* * * * *

    Dated: August 25, 2022.
W.R. Arguin,
Rear Admiral, U.S. Coast Guard, Assistant Commandant for Prevention 
Policy.
[FR Doc. 2022-18690 Filed 8-29-22; 8:45 am]
BILLING CODE 9110-04-P