Document ID: USCG-2016-0268-0041
Agency: uscg
Document Type: Proposed Rule
Title: Great Lakes Pilotage Rates- 2017 Annual Review
Posted Date: 2017-04-05T04:00Z

[Federal Register Volume 82, Number 64 (Wednesday, April 5, 2017)]
[Proposed Rules]
[Pages 16542-16550]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-06662]

 ========================================================================
 Proposed Rules
                                                 Federal Register
 ________________________________________________________________________
 
 This section of the FEDERAL REGISTER contains notices to the public of 
 the proposed issuance of rules and regulations. The purpose of these 
 notices is to give interested persons an opportunity to participate in 
 the rule making prior to the adoption of the final rules.
 
 ========================================================================
 

  Federal Register / Vol. 82, No. 64 / Wednesday, April 5, 2017 / 
Proposed Rules  

[[Page 16542]]

DEPARTMENT OF HOMELAND SECURITY

Coast Guard

46 CFR Parts 401, 403, and 404

[USCG-2016-0268]
RIN 1625-AC34

Great Lakes Pilotage Rates--2017 Annual Review

AGENCY: Coast Guard, DHS.

ACTION: Supplemental notice of proposed rulemaking.

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

SUMMARY: The Coast Guard proposes to modify its calculations for hourly 
pilotage rates on the Great Lakes by accounting for the ``weighting 
factor,'' which is a multiplier that can increase the pilotage costs 
for larger vessels traversing areas in the Great Lakes by a factor of 
up to 1.45. While the weighting factor has existed for decades, it has 
never been included in any of the previous ratemaking calculations. We 
propose to add steps to our rate-setting methodology to adjust hourly 
rates downwards by an amount equal to the average weighting factor, so 
that when the weighting factor is applied, the cost to the shippers and 
the corresponding revenue generated for the pilot associations will 
adjust to what was originally intended. We note that until a final rule 
is produced, the 2016 rates will stay in effect, even if a final rule 
is not published by the start of the 2017 season.

DATES: Comments and related material must be submitted to the online 
docket via www.regulations.gov on or before May 5, 2017.

ADDRESSES: You may submit comments identified by docket number USCG-
2016-0268 using the Federal eRulemaking Portal at http://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. Todd Haviland, Director, Great Lakes Pilotage, 
Commandant (CG-WWM-2), Coast Guard; telephone 202-372-2037, email 
Todd.A.Haviland@uscg.mil, or fax 202-372-1914.

SUPPLEMENTARY INFORMATION:

Table of Contents for Preamble

I. Public Participation and Request for Comments
II. Abbreviations
III. Executive Summary
IV. Basis and Purpose
V. Background
VI. Discussion of Proposed Changes
VII. Regulatory Analyses
    A. Regulatory Planning and Review
    B. Small Entities
    C. Assistance for Small Entities
    D. Collection of Information
    E. Federalism
    F. Unfunded Mandates Reform Act
    G. Taking of Private Property
    H. Civil Justice Reform
    I. Protection of Children
    J. Indian Tribal Governments
    K. Energy Effects
    L. Technical Standards
    M. Environment

I. Public Participation and Request for Comments

    We view public participation as essential to effective rulemaking, 
and will consider all comments and material received during the comment 
period. Your comment can help shape the outcome of this rulemaking. If 
you submit a comment, please include the docket number for this 
rulemaking, indicate the specific section of this document to which 
each comment applies, and provide a reason for each suggestion or 
recommendation.
    We note that, in this supplemental notice of proposed rulemaking 
(SNPRM), we are only soliciting comments regarding the addition of the 
weighting factor adjustment into the Coast Guard's Great Lakes pilotage 
methodology. The Coast Guard is neither soliciting, nor are we 
considering, comments relating to any other part of the Great Lakes 
Pilotage rate setting methodology. Although we left all other items in 
the proposed October 2016 notice of proposed rulemaking (NPRM) as if 
they were unchanged, we note that those items are still under 
consideration by the Coast Guard and may be amended in the final rule. 
Any changes in the final rule will be based only on (1) comments 
submitted prior to the December 19, 2016 deadline for the NPRM comment 
period, and (2) comments submitted in response to this SNPRM regarding 
the weighting factor adjustment.
    We encourage you to submit comments through the Federal eRulemaking 
Portal at http://www.regulations.gov. If your material cannot be 
submitted using http://www.regulations.gov, contact the person in the 
FOR FURTHER INFORMATION CONTACT section of this document for alternate 
instructions. Documents mentioned in this notice, and all public 
comments, are in our online docket at http://www.regulations.gov and 
can be viewed by following that Web site's instructions. Additionally, 
if you go to the online docket and sign up for email alerts, you will 
be notified when comments are posted or a final rule is published.
    We accept anonymous comments. All comments received will be posted 
without change to http://www.regulations.gov and will include any 
personal information you have provided. For more about privacy and the 
docket, you may review a Privacy Act notice regarding the Federal 
Docket Management System in the March 24, 2005, issue of the Federal 
Register (70 FR 15086).
    We are not planning to hold a public meeting but will consider 
doing so if public comments indicate a meeting would be helpful. We 
would issue a separate Federal Register notice to announce the date, 
time, and location of such a meeting.

II. Abbreviations

CFR Code of Federal Regulations
CPI Consumer Price Index
FR Federal Register
NPRM Notice of proposed rulemaking
OMB Office of Management and Budget
SNPRM Supplemental notice of proposed rulemaking
U.S.C. United States Code

III. Executive Summary

    In this SNPRM, the Coast Guard proposes changes in its methodology 
to adjust for the weighting factor charged for larger vessels. The 
result of the adjustment would be a reduction in the hourly pilotage 
rates in the Great Lakes region from amounts proposed in the NPRM, 
published in October 2016 (81 FR 72011, October 19, 2016). This

[[Page 16543]]

action does not change the total amount of projected revenue we deem 
necessary for the pilot associations to provide safe, efficient, and 
reliable service, but would have the practical effect of reducing the 
actual amount of money paid as pilotage fees by shippers by 
approximately 28 to 32 percent. The Coast Guard believes that this 
adjustment in hourly rates would allow us to more accurately project 
the amount of revenue to be collected that we consider necessary for 
the pilot associations to carry out their duties.
    We note that until a final rule is produced, the 2016 rates will 
stay in effect, even if a final rule is not published by the start of 
the 2017 season.
    Pursuant to the Great Lakes Pilotage Act, the Coast Guard sets 
hourly rates for pilot services on the Great Lakes. While all vessels 
must pay these base rates, larger vessels pay a higher rate, as a 
``weighting factor'' multiplies the base rates they pay by a factor of 
1.15 to 1.45. In past rate-settings, the methodology used to calculate 
hourly rates on the Great Lakes did not adjust the rates for the 
weighting factor. During the 2016 shipping season, under the revised 
methodology, preliminary estimates of actual revenues exceeded the 
projected revenues, even when adjusted for increased shipping traffic.
    Based on the 2016 data, we believe it is necessary to account for 
the weighting factors in the hourly rate calculation in the methodology 
in order for the U.S. Great Lakes pilot associations to more accurately 
generate total revenues. Our projections for total revenues are 
intended to ensure safe, efficient, and reliable pilotage service. One 
goal of our methodology is to produce revenues that reflect the level 
of actual pilotage demand. While we recognize that traffic varies from 
year to year, in years where traffic is higher than the 10-year rolling 
average, the rates should generate more revenue than our projections. 
In years where traffic is lower than the 10-year rolling average, the 
rates should generate less than our projections. The variance in actual 
demand for pilotage services should align with the variance in actual 
revenues.
    The preliminary information we have available to us after 1 year 
under the revised methodology indicates that not adjusting for the 
weighting factor in the calculation of hourly rates has contributed to 
actual revenues exceeding our projected revenues. We believe that 
revising the methodology to adjust hourly rates for the weighting 
factors would improve the ability of the methodology to more closely 
match projections of total revenue with the actual revenue generated.
    Table 1 shows the proposed changes in the pilotage charges per 
hour. The first column lists the current pilotage charges in force, the 
second column shows the rate increase that the Coast Guard proposed in 
October of 2016, and the third column shows the revised rates, which 
incorporate an adjustment for the weighting factors into the ratemaking 
methodology. We note that this rule does not change the weighting 
factors themselves, only the methodology used to calculate base hourly 
pilotage rates. Additionally, this does not change the overall revenue 
we project as necessary to provide safe, efficient, and reliable 
pilotage service. As this action does not change the amount of 
projected revenue we deem necessary for the pilot associations, the 
Regulatory Analyses remains unchanged from the NPRM.

                   Table 1--Summary of Current and Proposed Pilotage Fees, From 46 CFR 401.405
----------------------------------------------------------------------------------------------------------------
                                                                      Current                          SNPRM
                                                                     pilotage     NPRM  proposed     proposed
                              Area                                  charges per     charges per     charges per
                                                                       hour            hour            hour
----------------------------------------------------------------------------------------------------------------
St. Lawrence River..............................................            $580            $757            $592
Lake Ontario....................................................             398             522             402
Navigable waters from Southeast Shoal to Port Huron, MI.........             684             720             546
Lake Erie.......................................................             448             537             408
St. Mary's River................................................             528             661             508
Lakes Huron, Michigan, and Superior.............................             264             280             215
----------------------------------------------------------------------------------------------------------------

IV. Basis and Purpose

    The legal basis of this rulemaking is the Great Lakes Pilotage Act 
of 1960 (``the Act''), which requires U.S.-flagged and foreign-flagged 
vessels to use U.S. or Canadian registered pilots while transiting the 
U.S. waters of the St. Lawrence Seaway and the Great Lakes system. For 
the U.S. registered Great Lakes pilots, the Act requires the Secretary 
to ``prescribe by regulation rates and charges for pilotage services, 
giving consideration to the public interest and the costs of providing 
the services.'' The Act requires that rates be established or reviewed 
and adjusted each year, not later than March 1. Also, the Act requires 
the establishment of a full ratemaking at least once every 5 years, and 
in years when base rates are not established, they must be reviewed 
and, if necessary, adjusted. The Secretary's duties and authority under 
the Act have been delegated to the Coast Guard.
    In this SNPRM, the Coast Guard proposes to incorporate the 
weighting factor into its method of calculating pilotage rates set 
forth in the previously-published NPRM (81 FR 72011, October 19, 2016). 
This SNPRM does not propose to make any other adjustments to the 
methodology proposed in that NPRM.

V. Background

    Because the Coast Guard is charged by statute with setting pilotage 
rates by regulation, taking into account the public interest and the 
cost of providing services, we have in the past used a methodology that 
attempts to determine the amount of traffic, the number of pilots 
needed to handle that traffic, allowable operating expenses, and a fair 
pilot compensation. It uses these calculations to set a mandatory cost 
of pilotage for each of six areas in the Great Lakes region.\1\ In the 
past, the Coast Guard's modeling efforts fell short, leaving pilots in 
the Great Lakes substantially undercompensated compared to their peers, 
and resulting in retention and attrition problems, as well as shipping 
delays, which led to a disruption of commerce. These revenue shortfalls 
also prevented the pilot associations from investing in infrastructure, 
obtaining educational opportunities, and acquiring the latest 
technological tools to improve service. In order to correct these 
problems, the Coast Guard undertook a major overhaul of its rate-
setting program in 2016, substantially revising how it made those

[[Page 16544]]

calculations and adjusting the per-hour pilotage rates accordingly.
---------------------------------------------------------------------------

    \1\ See 46 CFR 401.405.
---------------------------------------------------------------------------

    Because the Coast Guard sets pilotage rates on a yearly basis, we 
proposed changes to the 2016 methodology for 2017, issuing an NPRM in 
October 2016 that proposed various modifications to the 2016 
methodology for the 2017 shipping season. In our NPRM, we proposed a 
substantial number of changes in how to determine operating expenses 
and the number of pilots needed. The proposed methodology is carried 
out in an eight-step process, separately for each area, as described 
briefly below. For a fuller explanation of the process, please refer to 
the NPRM, at 81 FR 72011 beginning on page 72013.
    Step 1: Recognize previous year's operating expenses. In this step, 
the Coast Guard would use audited financial information from the 
pilot's association to determine recognized operating expenses from the 
previous year. These include expenses such as insurance, administrative 
expenses, payroll taxes, and other items. However, they do not include 
pilot compensation or money for infrastructure projects.
    Step 2: Project next year's operating expenses. In this step, we 
would multiply the previous year's operating expenses by the Consumer 
Price Index (CPI) for the Midwest region.
    Step 3: Determine the number of pilots needed. In this step, we 
would determine the number of pilots needed by dividing the total 
number of hours worked by the average pilot cycle (that is, the full 
cycle, including work time, travel time, and rest time). That number is 
multiplied by an ``efficiency factor'' to account for times of double 
pilotage as well as time spent waiting for ships.
    Step 4: Determine target pilot compensation. In this step, we would 
establish a goal for what an average pilot should earn over the course 
of the shipping season.
    Step 5: Determine working capital fund. In this step, we would 
determine the amount of money needed to fund future capital projects by 
multiplying the operating expenses and pilot compensation by the 
average annual rate of return for new issuances of high-grade corporate 
securities, currently set at 4.16 percent.
    Step 6: Project needed revenue for next year. In this step, we 
would add the projected operating expenses, the target pilot 
compensation, and the working capital fund to arrive at a total amount 
needed to cover the upcoming year's revenue needs.
    Step 7: Make initial base rate calculations. In this step, we would 
divide the revenue needed by the 10-year running average of hours 
worked, to arrive at preliminary hourly rate figures.
    Step 8: Review and finalize rates. This step would allow the 
Director of the Great Lakes Pilotage Office to impose surcharges for 
the training of new pilots and other unexpected expenses.
    Using this process, the Coast Guard produced the following proposed 
changes to the hourly pilotage rates, as summarized in Table 2. As 
shown by the figures in the table, the NPRM proposed increases of 
varying sizes for rates in each of the six regions.

 Table 2--Proposed Changes to the Hourly Pilotage Rates in the 2017 NPRM
------------------------------------------------------------------------
                                              Current
                                             pilotage     NPRM  proposed
                  Area                      charge per      charges per
                                               hour            hour
------------------------------------------------------------------------
St. Lawrence River (District One                    $580            $757
 Designated)............................
(District One Undesignated) Lake Ontario             398             522
(District Two Undesignated) Lake Erie...             448             537
Navigable waters from Southeast Shoal to             684             720
 Port Huron, MI (District Two
 Designated)............................
District Three Undesignated Lakes Huron,             264             280
 Michigan, and Superior.................
St. Mary's River (District Three                     528             661
 Designated)............................
------------------------------------------------------------------------

    While we believe that the ratemaking calculations proposed in the 
NPRM are fairly comprehensive, there is one item that is currently not 
captured by that methodology. This item is the ``weighting factor.'' 
The weighting factor is a multiplier of between 1.0 and 1.45, which is 
applied to the total pilot costs for larger vessels. The weighting 
factor has been used to ensure that larger vessels, which can absorb 
more in pilotage costs than smaller ones, pay a larger percentage of 
the total costs of pilotage in the Great Lakes. However, while the 
weighting factor increases the total pilotage revenue generated, it is 
not used in the calculation of pilotage rates. Instead, as shown 
earlier in Step 7 of the rate-setting process, we use only the total 
number of hours to set pilotage rates, which is not adjusted to include 
additional revenues brought in due to the weighting factor.

VI. Discussion of Proposed Changes

    In the NPRM, the Coast Guard did not propose to incorporate the 
weighting factors into the rate-setting methodology. We stated that we 
did not have sufficient data at the time of the NPRM to incorporate 
them into the calculations. While we discussed three options on how to 
proceed, we specifically stated that ``we request public comment on 
which of three options should be implemented for future ratemakings.'' 
The three options were as follows: (1) Maintain the status quo, by 
continuing to mandate the weighting factors while leaving them out of 
the ratemaking calculation; (2) remove the weighting factors completely 
and charge each vessel equally for pilotage service; and (3) 
incorporate weighting factors into the rulemaking through an additional 
step that examines and projects their impact on the revenues of the 
pilot associations. We note that this third option ``might enable us to 
better forecast revenue, but it would add another variable to the 
projections in the rate methodology.'' (81 FR at 72027)
    In the comments to the NPRM, the Coast Guard received data and 
commentary from both shippers and pilots regarding the weighting 
factors. One commenter, representing the pilots, stated that the Coast 
Guard has ``correctly explained that the weighting factors are separate 
from the ratemaking calculation.'' \2\ The commenter noted that ``over 
the last decade, the pilots have consistently failed to reach target 
compensation even with the weighting factors included. Changing this 
practice would exacerbate an already unfortunate situation and risk 
further contributing to the pilot attraction and retention 
difficulties.'' The commenter also stated that although the final 
numbers for the 2016 season were not

[[Page 16545]]

available at the time of the NPRM's publication, they believe there is 
nothing in this most recent shipping season that suggests the trend of 
failing to reach the target compensation level is abating.
---------------------------------------------------------------------------

    \2\ Commenter docket number (USCG-2016-0268-0028), p. 9, citing 
the NPRM at 81 FR 72027.
---------------------------------------------------------------------------

    Shippers, on the other hand, argued that the weighting factors 
should be included in the revenue calculations. The shipping industry 
commenters stated that revenue projections in the Coast Guard's 
regulations will not be accurate if they do not include some value 
reflecting vessel size, and that it is an ``arithmetic certainty'' that 
the revenue projections in the NPRM would overstate the rates needed to 
generate a given level of pilotage revenue.\3\ The shipping industry 
comments included data indicating that the average weighting factor 
applied to all ships over a period from 2010 through 2015 as 1.26.\4\ 
Similarly, comments from the Shipping Federation of Canada, included as 
an enclosure, stated that the weighting factor adds an average of over 
20 percent to the pilotage invoice revenue.
---------------------------------------------------------------------------

    \3\ Commenter docket number (USCG-2016-0268-0033), pp. 29-30.
    \4\ Commenter docket number (USCG-2016-0268-0033, Exhibit I). 
While the commenter found some lower weighting factor averages in 
the years prior to 2014, we have focused on the later years because 
the classification parameters for weighting factors changed in 2013, 
producing overall lower values.
---------------------------------------------------------------------------

    Because the weighting factors were adjusted in 2014, we propose 
using the measured average of weighting factors from the years 2014 
through 2016 to calculate an average weighting factor to use in the 
ratemaking calculations. We calculated the average multiplier by 
weighting each class of vessels according to the number of transits, 
for each district, and for designated and undesignated areas. We note 
this is a different method than used by the shipping industry in their 
comments, which we averaged by the number of ships. We believe our 
methodology is more accurate as some ships will transit multiple times 
per year, paying the weighted pilotage cost each time. The following 
tables show the calculations we used to determine proposed average 
weighting factors in both designated and undesignated waters for each 
district.

             Table 3a--Calculation of Average Weighting Factor for Designated Waters in District One
----------------------------------------------------------------------------------------------------------------
                                                                     Number of       Weighting
                          Vessel class                               transits         factor        Multiplier
----------------------------------------------------------------------------------------------------------------
Class 1.........................................................             103            1.00             103
Class 2.........................................................             765            1.15          879.75
Class 3.........................................................             128            1.30           166.4
Class 4.........................................................             736            1.45         1,067.2
                                                                 -----------------------------------------------
    Total transits..............................................           1,732  ..............        2,216.35
                                                                 -----------------------------------------------
Average weighting factor........................................  ..............  ..............            1.28
----------------------------------------------------------------------------------------------------------------

            Table 3b--Calculation of Average Weighting Factor for Undesignated Waters in District One
----------------------------------------------------------------------------------------------------------------
                                                                     Number of       Weighting
                          Vessel class                               transits         factor        Multiplier
----------------------------------------------------------------------------------------------------------------
Class 1.........................................................              71            1.00              71
Class 2.........................................................             670            1.15           770.5
Class 3.........................................................             130            1.30             169
Class 4.........................................................             780            1.45           1,131
                                                                 -----------------------------------------------
    Total.......................................................           1,651  ..............         2,141.5
Average weighting factor........................................  ..............  ..............            1.30
----------------------------------------------------------------------------------------------------------------

             Table 3c--Calculation of Average Weighting Factor for Designated Waters in District Two
----------------------------------------------------------------------------------------------------------------
                                                                     Number of       Weighting
                          Vessel class                               transits         factor        Multiplier
----------------------------------------------------------------------------------------------------------------
Class 1.........................................................              98            1.00              98
Class 2.........................................................           1,090            1.15         1,253.5
Class 3.........................................................              29            1.30            37.7
Class 4.........................................................           1,664            1.45         2,412.8
                                                                 -----------------------------------------------
    Total.......................................................           2,881  ..............           3,802
Average weighting factor........................................  ..............  ..............            1.32
----------------------------------------------------------------------------------------------------------------

            Table 3d--Calculation of Average Weighting Factor for Undesignated Waters in District Two
----------------------------------------------------------------------------------------------------------------
                                                                     Number of       Weighting
                          Vessel class                               transits         factor        Multiplier
----------------------------------------------------------------------------------------------------------------
Class 1.........................................................              63            1.00              63
Class 2.........................................................             678            1.15           779.7
Class 3.........................................................              20            1.30              26
Class 4.........................................................             980            1.45           1,421
                                                                 -----------------------------------------------

[[Page 16546]]

 
    Total.......................................................           1,741  ..............         2,289.7
Average weighting factor........................................  ..............  ..............            1.32
----------------------------------------------------------------------------------------------------------------

            Table 3e--Calculation of Average Weighting Factor for Designated Waters in District Three
----------------------------------------------------------------------------------------------------------------
                                                                     Number of       Weighting
                          Vessel class                               transits         factor        Multiplier
----------------------------------------------------------------------------------------------------------------
Class 1.........................................................             105            1.00             105
Class 2.........................................................             540            1.15             621
Class 3.........................................................              10            1.30              13
Class 4.........................................................             757            1.45        1,097.65
                                                                 -----------------------------------------------
    Total.......................................................           1,412  ..............        1,836.65
Average weighting factor........................................  ..............  ..............            1.30
----------------------------------------------------------------------------------------------------------------

           Table 3f--Calculation of Average Weighting Factor for Undesignated Waters in District Three
----------------------------------------------------------------------------------------------------------------
                                                                     Number of       Weighting
                          Vessel class                               transits         factor        Multiplier
----------------------------------------------------------------------------------------------------------------
Class 1.........................................................             244            1.00             244
Class 2.........................................................           1,237            1.15        1,422.55
Class 3.........................................................              43            1.30            55.9
Class 4.........................................................           1,801            1.45        2,611.45
                                                                 -----------------------------------------------
    Total.......................................................           3,325  ..............         4,333.9
Average weighting factor........................................  ..............  ..............            1.30
----------------------------------------------------------------------------------------------------------------

                          Table 3g--Summary of Average Weighting Factors by Association
----------------------------------------------------------------------------------------------------------------
                                                                   Undesignated     Designated         Total
                           Association                               weighting       weighting       weighting
                                                                      factor          factor          factor
----------------------------------------------------------------------------------------------------------------
Saint Lawrence Seaway Pilots Association (District One).........            1.28            1.30            1.29
Lakes Pilots Association (District Two).........................            1.32            1.32            1.32
Western Great Lakes Pilots Association (District Three).........            1.30            1.30            1.30
----------------------------------------------------------------------------------------------------------------

    Using preliminary data from the pilot associations for the entire 
2016 season with regard to revenues and surcharges, as well as internal 
Coast Guard systems, we examined disparities between the revenue raised 
from pilotage services and the total number of hours worked. We expect 
a relatively simple relationship between hours billed and total revenue 
raised.\5\ However, an examination of the relationship between traffic 
and revenue in each district appears to produce a significant disparity 
as shown in Table 4.
---------------------------------------------------------------------------

    \5\ We note that other factors can cause discrepancies in the 
ratio between the actual traffic and actual revenue raised. These 
other factors include shipping delays, a pilot being detained on the 
ship or overcarried for the convenience of the vessel, cancelled 
orders, and weather delays during certain times of the year. We 
believe that the impact of these factors is often small and we do 
not believe that they would cause discrepancies of the magnitude 
experienced in 2016.

                          Table 4--Comparison of Actual 2016 Pilot Demand and Revenues
----------------------------------------------------------------------------------------------------------------
                                                     Projected     Actual pilot
                   Association                     pilot demand       demand         Projected        Actual
                                                      (hours)         (hours)      revenue  ($)    revenue  ($)
----------------------------------------------------------------------------------------------------------------
Saint Lawrence Seaway Pilots Association........          10,987          11,651       5,804,945       7,718,852
(District One)..................................
Lakes Pilots Association (District Two).........          10,016          12,022       5,929,641       9,181,265
Western Great Lakes Pilots Association (District          21,670          26,868       7,369,092      10,949,257
 Three).........................................
----------------------------------------------------------------------------------------------------------------

    Furthermore, the disparities between revenue and demand 
substantially correlate with the average weighting factors. Table 5 
demonstrates this disparity.

[[Page 16547]]

                          Table 5--Proportional Differences Between Demand and Revenue
----------------------------------------------------------------------------------------------------------------
                                                     Measured        Measured                         Average
                                                    percent of      percent of     Proportional      weighting
              Association/district                   projected       projected      difference     factor  (From
                                                      revenue         demand                         Table 3g)
----------------------------------------------------------------------------------------------------------------
Saint Lawrence Seaway Pilots Association........             133             106           1.254            1.29
(District One)..................................
Lakes Pilots Association........................             155             120            1.29            1.32
(District Two)..................................
Western Great Lakes Pilots Association..........             149             124           1.198            1.30
(District Three)................................
----------------------------------------------------------------------------------------------------------------

    For example, for District Two, actual pilot demand was above the 
pilot demand that the Coast Guard projected in the 2016 ratemaking at a 
ratio of 120 percent (12,022/10,016). Actual revenue generated was 
above projected revenue by 155 percent (9,181,265/5,929,641). The ratio 
of the increase in revenues to the increase in pilot demand is 1.29, 
compared to the average weighting factor of 1.32.
    Based on this analysis, we believe that there is a likelihood that 
the weighting factors are a factor in the difference between projected 
and a preliminary review of actual revenue experienced in 2016 under 
the revised methodology. In this SNPRM, we propose to incorporate the 
weighting factors into the ratemaking model. The practical result of 
this would be substantial net reductions in hourly pilotage fees, 
producing reductions of 28 to 32 percent, depending on the area. We 
request comments on both the new data introduced by the Coast Guard, as 
well as this specific proposal.
    We note that, given the above calculations (more detailed figures 
underpinning these calculations are available in the docket for this 
rulemaking), the proposed weighting factors are higher--particularly in 
the case of District Three \6\--than the measured disparity between 
traffic and revenue. As it is our goal that the methodology produces a 
close relationship between measured traffic and revenue, and gets as 
close as possible to the published target compensation, we seek 
comments on any factors that could have an effect on the relationship 
between those factors. Additionally, we specifically request comment on 
the validity of our calculations of the weighting factors for each 
area, as well as suggestions as to how it could be improved. We 
understand that in the past, the methodology did not produce the 
anticipated revenue and it is our goal to correct this issue.
---------------------------------------------------------------------------

    \6\ We believe that the provision, currently located in 46 CFR 
404.107(b) (Step 7), limiting the pilotage rate in designated waters 
to twice the rate of the pilotage rate in undesignated waters, 
contributed to the particularly large disparity for District Three. 
In the NPRM, we proposed to eliminate that provision, and believe 
that this would help to lessen the future traffic-to-revenue 
disparity for District Three.
---------------------------------------------------------------------------

    Because the weighting factors were adjusted in 2014, we propose 
using the measured average of weighting factors from the years 2014 to 
2016 to calculate an average weighting factor to use in the ratemaking 
calculations. We calculated the average multiplier by weighting each 
class of vessel according to the number of transits. We note this is a 
different method than used by the shipping industry in their comments, 
which averaged by number of ships. We believe our methodology is more 
accurate as some ships will transit multiple times per year, paying the 
weighted pilotage cost each time.
    Using these weighting factor averages, the Coast Guard proposes to 
add two additional steps to our rate making procedure. We propose 
renumbering existing step 8, the Director's discretion, to step 10, and 
adding new steps 8 and 9 to account for the influence the weighting 
factors have on total generated revenues.
    In Step 8, which would be codified as 404.108, ``Calculate average 
weighting factors by Area,'' the Coast Guard proposes to calculate the 
rolling average of the weighting factors for the designated and 
undesignated waters of each pilotage district. We propose using the 
same 10-year rolling average standard for this calculation as we use 
for historic pilotage demand. Since the current weighting factors came 
into place in 2013, we propose using the data between 2014 and 2016 and 
expand this data set until we reach our 10-year goal. Tables 3a through 
3f featured earlier, show the data used in these calculations for this 
SNPRM.
    In Step 9, which would be codified as 404.109, ``Calculation of 
Revised Base Rates,'' the Coast Guard proposes to divide the initial 
rate calculation, from Step 7 (calculation of the initial base rates), 
by the average weighting factor calculated in Step 8.

                                   Table 6--Calculation of Revised Base Rates
----------------------------------------------------------------------------------------------------------------
                                                                                      Average      Revised rate
                                                                   Initial base      weighting    (initial rate/
                              Area                                rate  (Step 7)   factor  (Step     weighting
                                                                                        8)            factor)
----------------------------------------------------------------------------------------------------------------
District One: Designated (St. Lawrence River)...................            $757            1.28            $592
District One: Undesignated (Lake Ontario).......................             522            1.30             402
District Two: Designated (Southeast Shoal to Port Huron, MI)....             720            1.32             546
District Two: Undesignated (Lake Erie)..........................             537            1.32             408
District Three: Designated (St. Mary's River)...................             661            1.30             508
District Three: Undesignated (Lakes Huron, Michigan, and                     280            1.30             215
 Superior)......................................................
----------------------------------------------------------------------------------------------------------------

[[Page 16548]]

    Finally, we propose renaming the Director's Discretion as Step 10, 
but otherwise leave it unchanged.

VII. Regulatory Analyses

    We developed this proposed rule after considering numerous statutes 
and Executive orders related to rulemaking. Below we summarize our 
analyses based on these statutes or Executive orders.

A. Regulatory Planning and Review

    As this action does not change the amount of projected revenue we 
deem necessary for the pilot associations, the Regulatory Planning and 
Review remains unchanged from the NPRM.
    Executive Orders 12866 (``Regulatory Planning and Review'') and 
13563 (``Improving Regulation and Regulatory Review'') direct agencies 
to assess the costs and benefits of available regulatory alternatives 
and, if regulation is necessary, to select regulatory approaches that 
maximize net benefits (including potential economic, environmental, 
public health and safety effects, distributive impacts, and equity). 
Executive Order 13563 emphasizes the importance of quantifying both 
costs and benefits, of reducing costs, of harmonizing rules, and of 
promoting flexibility. Executive Order 13771 (``Reducing Regulation and 
Controlling Regulatory Costs''), directs agencies to reduce regulation 
and control regulatory costs and provides that ``for every one new 
regulation issued, at least two prior regulations be identified for 
elimination, and that the cost of planned regulations be prudently 
managed and controlled through a budgeting process.''
    The Office of Management and Budget (OMB) has not designated this 
rule a significant regulatory action under section 3(f) of Executive 
Order 12866. Accordingly, OMB has not reviewed it. As this rule is not 
a significant regulatory action, this rule is exempt from the 
requirements of Executive Order 13771. See OMB's memorandum titled 
``Interim Guidance Implementing Section 2 of the Executive Order of 
January 30, 2017 titled `Reducing Regulation and Controlling Regulatory 
Costs''' (February 2, 2017).
    We developed an analysis of the costs and benefits of the NPRM to 
ascertain its probable impacts on industry. We consider all estimates 
and analysis in that Regulatory Analysis (RA) to be subject to change 
in consideration of public comments. As this SNPRM does not change the 
total required revenue or any other items that would alter the analysis 
of the impact of the proposed rule we have not included a separate 
regulatory analysis in this document. Instead, we refer you to the 
previously published NPRM to see the analysis of the costs and benefit 
of the proposed rule.

B. Small Entities

    As this action does not change the amount of projected revenue we 
deem necessary for the pilot associations, the Small Entities analysis 
remains unchanged from the NPRM.
    Under the Regulatory Flexibility Act, 5 U.S.C. 601-612, we have 
considered whether the proposed rule would have a significant economic 
effect on a substantial number of small entities. The term ``small 
entities'' comprises small businesses, not-for-profit organizations 
that are independently owned and operated and are not dominant in their 
fields, and governmental jurisdictions with populations of less than 
50,000 people.
    Based on the analysis in the NPRM, we found this proposed 
rulemaking, if promulgated, would not affect a substantial number of 
small 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 to the Docket Management Facility at the 
address under ADDRESSES. In your comment, explain why you think it 
qualifies, as well as how and to what degree this proposed rule would 
economically affect it.

C. Assistance for Small Entities

    Under section 213(a) of the Small Business Regulatory Enforcement 
Fairness Act of 1996, Public Law 104-121, we want to assist small 
entities in understanding this proposed rule so that they can better 
evaluate its effects on them and participate in the rulemaking. If the 
proposed rule would affect your small business, organization, or 
governmental jurisdiction and you have questions concerning its 
provisions or options for compliance, please consult Mr. Todd Haviland, 
Director, Great Lakes Pilotage, Commandant (CG-WWM-2), Coast Guard; 
telephone 202-372-2037, email Todd.A.Haviland@uscg.mil, or fax 202-372-
1914. The Coast Guard will not retaliate against small entities that 
question or complain about this rule or any policy or action of the 
Coast Guard.
    Small businesses may send comments on the actions of Federal 
employees who enforce, or otherwise determine compliance with, Federal 
regulations to the Small Business and Agriculture Regulatory 
Enforcement Ombudsman and the Regional Small Business Regulatory 
Fairness Boards. The Ombudsman evaluates these actions annually and 
rates each agency's responsiveness to small business. If you wish to 
comment on actions by employees of the Coast Guard, call 1-888-REG-FAIR 
(1-888-734-3247).

D. Collection of Information

    This proposed rule would call for no new collection of information 
under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520). This 
proposed rule would not change the burden in the collection currently 
approved by OMB under OMB Control Number 1625-0086, Great Lakes 
Pilotage Methodology.

E. Federalism

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

[[Page 16549]]

contact the person listed in the FOR FURTHER INFORMATION CONTACT 
section of this preamble.

F. Unfunded Mandates Reform Act

    The Unfunded Mandates Reform Act of 1995, (2 U.S.C. 1531-1538), 
requires Federal agencies to assess the effects of their discretionary 
regulatory actions. In particular, the Act addresses actions that may 
result in the expenditure by a State, local, or Tribal Government, in 
the aggregate, or by the private sector of $100,000,000 (adjusted for 
inflation) or more in any one year. Though this proposed rule would not 
result in such an expenditure, we discuss the effects of this proposed 
rule elsewhere in this preamble.

G. Taking of Private Property

    This proposed rule would not cause a taking of private property or 
otherwise have taking implications under 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.

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.

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.

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 Executive 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. The Administrator of the Office of 
Information and Regulatory Affairs has not designated it as a 
significant energy action. Therefore, it does not require a Statement 
of Energy Effects under Executive Order 13211.

L. Technical Standards

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

M. Environment

    We have analyzed this proposed rule under Department of Homeland 
Security Management Directive 023-01 and Commandant Instruction 
M16475.lD, which guide the Coast Guard in complying with the National 
Environmental Policy Act of 1969 (42 U.S.C. 4321-4370f), and have made 
a preliminary determination that this action is one of a category of 
actions that do not individually or cumulatively have a significant 
effect on the human environment. A preliminary environmental analysis 
checklist supporting this determination is available in the docket 
where indicated under the ``Public Participation and Request for 
Comments'' section of this preamble. This proposed rule is 
categorically excluded under section 2.B.2, and figure 2-1, paragraph 
34(a) of the Instruction. Paragraph 34(a) pertains to minor regulatory 
changes that are editorial or procedural in nature. This proposed rule 
adjusts rates in accordance with applicable statutory and regulatory 
mandates. We seek any comments or information that may lead to the 
discovery of a significant environmental impact from this proposed 
rule.

List of Subjects

 46 CFR Part 401

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

46 CFR Part 403

    Great Lakes, Navigation (water), Reporting and recordkeeping 
requirements, Seamen, Uniform System of Accounts.

46 CFR Part 404

    Great Lakes, Navigation (water), Seamen.

    For the reasons discussed in the preamble, the Coast Guard proposes 
to amend 46 CFR parts 401, 403, and 404 as follows:

Title 46--Shipping

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; Department of Homeland Security Delegation No. 
0170.1(II)(92.a), (92.d), (92.e), (92.f).

0
2. Revise Sec.  401.401 to read as follows:

Sec.  401.401   Surcharges.

    To facilitate safe, efficient, and reliable pilotage, and for good 
cause, the Director may authorize surcharges on any rate or charge 
authorized by this subpart. Surcharges must be proposed for prior 
public comment and may not be authorized for more than 1 year. Once the 
approved amount has been received, the pilot association is not 
authorized to collect any additional funds under the surcharge 
authority and must cease such collections for the remainder of that 
shipping season.
0
3. Revise Sec.  401.405(a) to read as follows:

Sec.  401.405  Pilotage rates and charges.

    (a) The hourly rate for pilotage service on--
    (1) The St. Lawrence River is $592;
    (2) Lake Ontario is $402;
    (3) Lake Erie is $408;
    (4) The navigable waters from Southeast Shoal to Port Huron, MI is 
$546;
    (5) Lakes Huron, Michigan, and Superior is $215; and
    (6) The St. Mary's River is $508.
* * * * *
0
4. Revise Sec.  401.420(b) to read as follows:

Sec.  401.420  Cancellation, delay, or interruption in rendition of 
services.

* * * * *

[[Page 16550]]

    (b) When an order for a U.S. pilot's service is cancelled, the 
vessel can be charged for the pilot's reasonable travel expenses for 
travel that occurred to and from the pilot's base, and the greater of--
    (1) Four hours; or
    (2) The time of cancellation and the time of the pilot's scheduled 
arrival, or the pilot's reporting for duty as ordered, whichever is 
later.
* * * * *
0
 5. Revise Sec.  401.450 as follows:
0
 a. Redesignate paragraphs (b) through (j) as paragraphs (c) through 
(k), respectively; and
0
 b. Add new paragraph (b) to read as follows:

Sec.  401.450  Pilotage change points.

* * * * *
    (b) The Saint Lawrence River between Iroquois Lock and the area of 
Ogdensburg, NY beginning January 31, 2017;
* * * * *

PART 403--GREAT LAKES PILOTAGE UNIFORM ACCOUNTING SYSTEM

0
 6. The authority citation for part 403 continues to read as follows:

    Authority:  46 U.S.C. 2103, 2104(a), 9303, 9304; Department of 
Homeland Security Delegation No. 0170.1(II)(92.a), (92.f).

0
7. Revise Sec.  403.300(c) to read as follows:

Sec.  403.300  Financial reporting requirements.

* * * * *
    (c) By January 24 of each year, each association must obtain an 
unqualified audit report for the preceding year that is audited and 
prepared in accordance with generally accepted accounting principles by 
an independent certified public accountant. Each association must 
electronically submit that report with any associated settlement 
statements and all accompanying notes to the Director by January 31.

PART 404--GREAT LAKES PILOTAGE RATEMAKING

0
 8. The authority citation for part 404 continues to read as follows:

    Authority:  46 U.S.C. 2103, 2104(a), 9303, 9304; Department of 
Homeland Security Delegation No. 0170.1(II)(92.a), (92.f).

0
9. Revise Sec.  404.103 as follows:
0
a. In paragraph (a), following the words ``dividing each area's'' 
remove the word ``peak'' and add, in its place, the word ``seasonal''; 
and
0
b. Revise paragraph (b) to read as follows:

Sec.  404.103  Ratemaking step 3: Determine number of pilots needed.

* * * * *
    (b) Pilotage demand and the base seasonal work standard are based 
on available and reliable data, as so deemed by the Director, for a 
multi-year base period. The multi-year period is the 10 most recent 
full shipping seasons, and the data source is a system approved under 
46 CFR 403.300. Where such data are not available or reliable, the 
Director also may use data, from additional past full shipping seasons 
or other sources, that the Director determines to be available and 
reliable.
* * * * *
0
10. Revise Sec.  404.104 to read as follows:

Sec.  404.104  Ratemaking step 4: Determine target pilot compensation 
benchmark.

    At least once every 10 years, the Director will set a base target 
pilot compensation benchmark using the most relevant available non-
proprietary information. In years in which a base compensation 
benchmark is not set, target pilot compensation will be adjusted for 
inflation using the CPI for the Midwest region or a published 
predetermined amount. The Director determines each pilotage 
association's total target pilot compensation by multiplying individual 
target pilot compensation by the number of pilots projected under Sec.  
404.103(d) of this part.

Sec.  404.105  [Amended]

0
11. In Sec.  404.105, remove the words ``return on investment'' and 
add, in their place, the words ``working capital fund.''
* * * * *
0
12. Revise Sec.  404.107 to read as follows:

Sec.  404.107   Ratemaking step 7: Initially calculate base rates.

    The Director initially calculates base hourly rates by dividing the 
projected needed revenue from Sec.  404.106 of this part by averages of 
past hours worked in each district's designated and undesignated 
waters, using available and reliable data for a multi-year period set 
in accordance with Sec.  404.103(b) of this part.
0
13. Revise Sec.  404.108 to read as follows:

Sec.  404.108  Ratemaking step 8: Calculate average weighting factors 
by Area.

    The Director calculates the average weighting factor for each area 
by computing the 10-year rolling average of weighting factors applied 
in that area, beginning with the year 2014. If less than 10 years of 
data are available, the Director calculates the average weighting 
factor using data from each year beginning with 2014.
0
14. Add Sec.  404.109 as follows:

Sec.  404.109  Ratemaking step 9: Calculate revised base rates.

    The Director calculates revised base rates for each area by 
dividing the initial base rate (from Step 7) by the average weighting 
factor (from Step 8) to produce a revised base rate for each area.
0
15. Add Sec.  404.110 as follows:

Sec.  404.110  Ratemaking step 10: Review and finalize rates.

    The Director reviews the base pilotage rates calculated in Sec.  
404.109 of this part to ensure they meet the goal set in Sec.  404.1(a) 
of this part, and either finalizes them or first makes necessary and 
reasonable adjustments to them based on requirements of Great Lakes 
pilotage agreements between the United States and Canada, or other 
supportable circumstances.

    Dated: March 30, 2017.
Michael D. Emerson,
Director, Marine Transportation Systems, U.S. Coast Guard.
[FR Doc. 2017-06662 Filed 4-4-17; 8:45 am]
 BILLING CODE 9110-04-P