Document ID: USCG-2023-0438-0001
Agency: uscg
Document Type: Proposed Rule
Title: Great Lakes Pilotage Rates—2024 Annual Review
Posted Date: 2023-08-16T04:00Z

[Federal Register Volume 88, Number 157 (Wednesday, August 16, 2023)]
[Proposed Rules]
[Pages 55629-55660]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-17474]

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DEPARTMENT OF HOMELAND SECURITY

Coast Guard

46 CFR Part 401

[Docket No. USCG-2023-0438]
RIN 1625-AC89

Great Lakes Pilotage Rates--2024 Annual Review

AGENCY: Coast Guard, 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 
pilotage rates for the 2024 shipping season. The Coast Guard estimates 
that this proposed rule would result in approximately a 5-percent 
increase in operating costs compared to the 2023 season.

DATES: Comments and related material must be received by the Coast 
Guard on or before September 15, 2023.

ADDRESSES: You may submit comments identified by docket number USCG-
2023-0438 using the Federal Decision Making Portal at 
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 410-360-9260, email [email protected].

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. Historic 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
    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 www.regulations.gov. To do so, go 
to www.regulations.gov, type USCG-2023-0438 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 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 www.regulations.gov Frequently Asked Questions web 
page. This web page also explains how to subscribe for email alerts 
that will notify you when comments are posted or if a final rule is 
published. 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 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 DHS'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 
notice to announce the date, time, and location of such a meeting.

[[Page 55630]]

II. Abbreviations

2023 final rule Great Lakes Pilotage Rates--2023 Annual Ratemaking 
and Review of Methodology final rule
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 2024 season range from a proposed $413 to $925 
per pilot hour (depending on which of the specific 6 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 provide for continuing professional development.
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    \1\ 46 U.S.C. 9301-9308.
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    In accordance with statutory and regulatory requirements, the Coast 
Guard employs the ratemaking methodology introduced in 2016 and 
finalized in 2023. 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, which is explained in detail in section 
VI., Summary of the Ratemaking Methodology, in the preamble to this 
proposed rule.
    In this notice of proposed rulemaking (NPRM), we are conducting our 
annual review and interim adjustment to the base pilotage rates for 
2024. The Coast Guard last conducted a full ratemaking in 2023, with 
the ``Great Lakes Pilotage Rates--2023 Annual Ratemaking and Review of 
Methodology'' final rule (hereafter the ``2023 final rule'') (88 FR 
12226, published February 27, 2023).\2\ Per title 46 of the Code of 
Federal Regulations (CFR), section 404.100(b), via this NPRM, the Coast 
Guard's Director of the Great Lakes Pilotage (``the Director'') 
proposes to establish base pilotage rates by an interim ratemaking 
pursuant to Sec. Sec.  404.101 through 404.110.
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    \2\ https://www.govinfo.gov/content/pkg/FR-2023-02-27/pdf/2023-03212.pdf (last visited 5/12/2023).
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    The Coast Guard sets base rates to meet the goal 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. A 10-year average is used when calculating 
traffic to smooth out anomalies caused by unexpected events, such as 
those caused by the COVID-19 pandemic. The Coast Guard estimates that 
this proposed rule would result in $1,914,438 of additional costs. This 
represents an increase in revenue needed for target pilot compensation, 
an increase in revenue needed for the total apprentice pilot wage 
benchmark, an increase in the revenue needed for adjusted operating 
expenses, and an increase in the revenue needed for the working capital 
fund.
    Based on the ratemaking model discussed in this NPRM, the Coast 
Guard is proposing the rates shown in table 1.

                      Table 1--Current and Proposed 2024 Pilotage Rates on the Great Lakes
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                                                                                    Final 2023    Proposed  2024
                     Area                                     Name                 pilotage rate   pilotage rate
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District One: Designated......................  St. Lawrence River..............            $876            $925
District One: Undesignated....................  Lake Ontario....................             586             606
District Two: Designated......................  Navigable waters from Southeast              601             660
                                                 Shoal to Port Huron, MI.
District Two: Undesignated....................  Lake Erie.......................             704             586
District Three: Designated....................  St. Mary's River................             834             805
District Three: Undesignated..................  Lakes Huron, Michigan, and                   410             413
                                                 Superior.
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    This proposed rule would affect 56 U.S. Great Lakes pilots, 7 
apprentice pilots, 3 pilot associations, and the owners and operators 
of an average of 277 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 
$1,914,438 in estimated payments made by shippers during the 2024 
shipping season. This proposed rule would establish the 2024 yearly 
target compensation for pilots on the Great Lakes at $442,403 per pilot 
(a $18,005 increase, or 4.24 percent, over their 2023 target 
compensation). Because the Coast Guard must review, and, if necessary, 
adjust rates each year, we analyze these as single-year costs and do 
not annualize them over 10 years. Section X., Regulatory Analyses, in 
this preamble provides the regulatory impact analyses of this proposed 
rule.

[[Page 55631]]

IV. Basis and Purpose

    The legal basis of this rulemaking is 46 U.S.C. Chapter 93,\3\ 
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.\4\ For U.S. Great Lakes pilots, the statute requires the 
Secretary to ``prescribe by regulation rates and charges for pilotage 
services, giving consideration to the public interest and the costs of 
providing the services.'' \5\ The statute requires that rates be 
established or reviewed and adjusted each year, no later than March 
1.\6\ 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.\7\ The Secretary's duties and authority under 46 U.S.C. 
Chapter 93 have generally been delegated to the Coast Guard.\8\
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    \3\ 46 U.S.C. 9301-9308.
    \4\ 46 U.S.C. 9302(a)(1).
    \5\ 46 U.S.C. 9303(f).
    \6\ Ibid.
    \7\ Ibid.
    \8\ Department of Homeland Security (DHS) Delegation No. 00170.1 
(II)(92)(f), Revision No. 01.3. The Secretary retains the authority 
under Section 9307 to establish, and appoint members to, a Great 
Lakes Pilotage Advisory Committee.
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    Each pilot association is an independent business and is the sole 
provider of pilotage services in its district of operation. Each pilot 
association is responsible for funding its own operating expenses, 
maintaining infrastructure, compensating pilots and apprentice 
pilots,\9\ acquiring and implementing technological advances, and 
training personnel and partners.
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    \9\ Apprentice pilots and applicant pilots are compensated by 
the pilot association they are training with, which is funded 
through the pilotage rates. The ratemaking methodology accounts for 
an apprentice pilot wage benchmark in Step 4 per 46 CFR 404.104(d). 
The applicant pilot salaries are included in the pilot associations' 
operating expenses used in Step 1 per 46 CFR 404.101.
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    The Coast Guard uses a 10-step ratemaking methodology to derive a 
pilotage rate, based on the estimated amount of traffic, which covers 
these expenses.\10\ The methodology is designed to measure how much 
revenue each pilotage association would need to cover expenses and to 
provide competitive compensation 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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    \10\ 46 CFR part 404.101-404.110. https://www.ecfr.gov/current/title-46/chapter-III/part-404 (Last visited 5/17/23).
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    The purpose of this proposed rule is to issue new pilotage rates 
for the 2024 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 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.

V. Background

    Pursuant to 46 U.S.C. 9303, the Coast Guard 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.\11\ United States and Canadian 
``lakers,'' which account for most commercial shipping on the Great 
Lakes, are not affected.\12\ 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 district in 
which the vessel is operating, and the vessel operator will pay the 
pilotage association for the pilotage services. The Great Lakes 
Pilotage Authority (Canadian) (GLPA) establishes the rates for Canadian 
registered pilots.
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    \11\ See 46 CFR part 401. https://www.ecfr.gov/current/title-46/chapter-III/part-401 (Last visited 5/17/23).
    \12\ 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. https://uscode.house.gov/view.xhtml?req=granuleid:U.S.C.-prelim-title46-section9302#=0&edition=prelim (Last visited 5/17/
23).
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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. Mary's 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. Designated areas, 
classified as such by Presidential Proclamation, are waters in which 
pilots must direct the navigation of vessels at all times.\13\ 
Undesignated areas 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.'' \14\ For these reasons, pilotage rates in designated areas 
can be significantly higher than those in undesignated areas. Table 2 
shows the districts and areas of the Great Lakes and St. Lawrence 
Seaway.
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    \13\ Presidential Proclamation 3385, Designation of restricted 
waters under the Great Lakes Pilotage Act of 1960, December 22, 1960 
(https://www.archives.gov/federal-register/codification/proclamations/03385.html) (Last visited 5/31/23).
    \14\ 46 U.S.C. 9302(a)(l)(B).

[[Page 55632]]

                            Table 2--Areas of the Great Lakes and St. Lawrence Seaway
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                                        Pilotage                                     Area
            District                  association             Designation        Number \15\    Area Name \16\
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One.............................  Saint Lawrence       Designated..............            1  St. Lawrence
                                   Seaway Pilotage                                             River.
                                   Association
                                   (SLPSA).
                                                       Undesignated............            2  Lake Ontario.
Two.............................  Lakes Pilots         Designated..............            5  Navigable waters
                                   Association (LPA).                                          from Southeast
                                                                                               Shoal to Port
                                                                                               Huron, MI.
                                                       Undesignated............            4  Lake Erie.
Three...........................  Western Great Lakes  Designated..............            7  St. Marys River.
                                   Pilots Association
                                   (WGLPA).
                                                       Undesignated............            6  Lakes Huron and
                                                                                               Michigan.
                                                       Undesignated............            8  Lake Superior.
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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 2023 final rule.\17\ We summarize the 
current methodology in the following section.
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    \15\ 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.
    \16\ The areas are listed by name at 46 CFR 401.405. https://www.ecfr.gov/current/title-46/chapter-III/part-401/subpart-D/section-401.405 (Last visited 5/17/23).
    \17\ 88 FR 12226.
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VI. Summary of the Ratemaking Methodology

    As stated previously, the ratemaking methodology, outlined in 46 
CFR 404.101 through 404.110, consists of 10 steps that are designed to 
account for the revenues needed and total traffic expected in each 
district. The first several steps of the methodology establish base 
pilotage rates. Additional steps to incorporate the weighting factors 
are necessary to establish the final pilot rates. The result is an 
hourly rate, determined separately for each of the areas administered 
by the Coast Guard.
    In Step 1, ``Recognize previous operating expenses,'' (Sec.  
404.101), the 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 when the 
Coast Guard receives audited numbers, this number is 3 years behind the 
projected year of expenses. Therefore, in calculating the 2024 rates in 
this proposal, we begin with the audited expenses from the 2021 
shipping season.
    While each pilotage association operates in an entire district 
(including both designated and undesignated areas), the Coast Guard 
determines costs by area. We allocate certain operating expenses to 
designated areas and certain operating expenses to undesignated areas. 
In some cases, we can allocate the costs based on where they are 
accrued. For example, we can allocate the costs of insurance for 
apprentice pilots who operate in undesignated areas only. In other 
situations, such as general legal expenses, expenses are distributed 
between designated and undesignated waters on a pro rata basis, based 
upon the proportion of income forecasted from the respective portions 
of the district.
    In Step 2, ``Project operating expenses, adjusting for inflation or 
deflation,'' (Sec.  404.102), the Director develops the 2024 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 
registrations, are needed for each district. To do this, we employ a 
``staffing model,'' described in Sec.  401.220, paragraphs (a)(1) 
through (3), to estimate how many pilots would be needed to handle 
shipping during the beginning and close of the season. This number 
provides guidance to the Director in approving an appropriate number of 
pilots.
    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(a)), 
the Director determines the revenue needed for pilot compensation in 
each area and district and calculates the total compensation for each 
pilot using a ``compensation benchmark.''
    In the second part of Step 4, (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 an added value to pay for needed capital 
improvements and other non-recurring expenses, such as technology 
investments and infrastructure maintenance. This value is calculated by 
adding the total operating expenses (derived in Step 2) to the total 
pilot compensation and the total target apprentice pilot wage (derived 
in Step 4), then by multiplying that figure by the preceding year's 
average annual rate of return for new issues of high-grade corporate 
securities. This figure constitutes the ``working capital fund'' for 
each area and district.
    In Step 6, ``Project needed revenue,'' (Sec.  404.106), the 
Director simply adds the totals produced by the preceding steps. The 
projected operating 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

[[Page 55633]]

separately for each area and district, is the ``needed revenue.''
    In Step 7, ``Calculate initial base rates,'' (Sec.  404.107), the 
Director calculates an hourly pilotage rate to cover the needed 
revenue, as calculated in Step 6. This step consists of first 
calculating the 10-year average of traffic hours for each area. Next, 
we divide the revenue needed in each area (calculated in Step 6) by the 
10-year average of traffic hours to produce an initial base rate.
    An additional element, the ``weighting factor,'' is required under 
Sec.  401.400. Pursuant to that section, ships pay a multiple of the 
``base rate'', as calculated in Step 7, by a number ranging from 1.0 
(for the smallest ships, or ``Class I'' vessels) to 1.45 (for the 
largest ships, or ``Class IV'' vessels). This significantly increases 
the revenue collected, and we need to account for the added revenue 
produced by the weighting factors to ensure that shippers are not 
overpaying for pilotage services. We do this in the next step.
    In Step 8, ``Calculate average weighting factors by Area,'' (Sec.  
404.108), the Director calculates how much extra revenue, as a 
percentage of total revenue, has historically been produced by the 
weighting factors in each area. We do this by using a historical 
average of the applied weighting factors for each year since 2014 (the 
first year the current weighting factors were applied).
    In Step 9, ``Calculate revised base rates,'' (Sec.  404.109), the 
Director modifies the base rates by accounting for the extra revenue 
generated by the weighting factors. We do this by dividing the initial 
pilotage rate for each area (from Step 7) by the corresponding average 
weighting factor (from Step 8), to produce a revised rate.
    In Step 10, ``Review and finalize rates,'' (Sec.  404.110), often 
referred to informally as ``Director's discretion'', the Director 
reviews the revised base rates (from Step 9) to ensure that they meet 
the goals set forth in 46 U.S.C. 9303(f) and 46 CFR 404.1(a), which 
include promoting efficient, safe, and reliable pilotage service on the 
Great Lakes; generating sufficient revenue for each 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 
proposed rule. 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 proposed rule, we include the applicant trainee 
compensation in the district's operating expenses used in Step 1. 
Consistent with the 2021, 2022, and 2023 rulemakings, in this proposed 
rule, we continue to believe that the pilot associations are 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. Historic Methodological and Other Changes

    The Coast Guard is proposing to use the existing ratemaking 
methodology for establishing the base rates in this interim ratemaking. 
The Coast Guard is not proposing any methodological or other policy 
changes to the ratemaking within this NPRM.
    According to 46 U.S.C. 9303(f), and restated in 46 CFR 404.100(a), 
the Coast Guard must only establish base rates by a full ratemaking at 
least once every 5 years. The Coast Guard has determined that the 
current base rate and methodology still adequately adheres to the Coast 
Guard's goals 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 methodology over 
the last several years in consideration of the public interest and the 
costs of providing services. The recent changes and their impacts are 
summarized as follows.
    In the 2017 ratemaking, Great Lakes Pilotage Rates--2017 Annual 
Review (82 FR 41466, published August 31, 2017),\18\ the Coast Guard 
modified the methodology to account for the additional revenue produced 
by the application of weighting factors. This is discussed in detail in 
Steps 7 through 9 for each district, in section IX., Discussion of 
Proposed Rate Adjustments, of this preamble.
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    \18\ https://www.govinfo.gov/content/pkg/FR-2017-08-31/pdf/2017-18411.pdf (last visited 5/12/2023).
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    In the 2018 ratemaking, Great Lakes Pilotage Rates--2018 Annual 
Review and Revisions to Methodology (83 FR 26162, published June 5, 
2018),\19\ the Coast Guard adopted a new approach in the methodology 
for the compensation benchmark, based upon United States mariners, 
rather than Canadian working pilots.
---------------------------------------------------------------------------

    \19\ https://www.govinfo.gov/content/pkg/FR-2018-06-05/pdf/2018-11969.pdf (last visited 5/12/2023).
---------------------------------------------------------------------------

    In the 2020 ratemaking, Great Lakes Pilotage Rates--2020 Annual 
Review and Revisions to Methodology (85 FR 20088, published April 9, 
2020),\20\ the Coast Guard revised the methodology to accurately 
capture all costs and revenues associated with Great Lakes pilotage 
requirements and to produce an hourly rate that adequately and 
accurately compensates pilots and covers expenses.
---------------------------------------------------------------------------

    \20\ https://www.govinfo.gov/content/pkg/FR-2020-04-09/pdf/2020-06968.pdf (last visited 5/12/2023).
---------------------------------------------------------------------------

    The 2021 ratemaking, Great Lakes Pilotage Rates--2021 Annual Review 
and Revisions to Methodology (86 FR 14184, published March 12, 
2021),\21\ 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.
---------------------------------------------------------------------------

    \21\ https://www.govinfo.gov/content/pkg/FR-2021-03-12/pdf/2021-05050.pdf (last visited 5/12/2023).
---------------------------------------------------------------------------

    The 2022 ratemaking, Great Lakes Pilotage Rates--2022 Annual Review 
and Revisions to Methodology (87 FR 18488, published March 30, 
2022),\22\ implemented an apprentice pilot wage benchmark in Steps 3 
and 4 to provide predictability and stability to pilot associations 
training apprentice pilots. The 2022 final rule also codified rounding 
up the staffing model's final number to ensure that the ratemaking does 
not undercount the pilot need presented by the staffing model and 
association circumstances.
---------------------------------------------------------------------------

    \22\ https://www.govinfo.gov/content/pkg/FR-2022-03-30/pdf/2022-06394.pdf (last visited 5/12/2023).
---------------------------------------------------------------------------

VIII. Individual Target Pilot Compensation Benchmark

    The Coast Guard is proposing to set the target pilot compensation 
benchmark in this NPRM at the target compensation for the ratemaking 
year 2023, adjusted for inflation. In an interim ratemaking year, the 
base target pilot compensation would be adjusted annually in accordance 
with Sec.  404.104(b). The Coast Guard arrived at this proposed 
compensation benchmark as explained in the following paragraphs.
    Before 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, Great Lakes Pilotage Rates--2016 Annual Review and 
Changes to Methodology (81 FR 11908, published

[[Page 55634]]

March 7, 2016),\23\ the Coast Guard used the 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, 48 (D.D.C. 2017), aff'd sub 
nom. American Great Lakes Ports Association v. Schultz, 962 F.3d 510 
(D.C. Cir. 2020). 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). The 2018 final rule adjusted the AMOU 2015 data for 
inflation using Federal Open Market FOMC median economic projections 
for PCE inflation.
---------------------------------------------------------------------------

    \23\ https://www.govinfo.gov/content/pkg/FR-2016-03-07/pdf/2016-04894.pdf (last visited 5/12/2023).
---------------------------------------------------------------------------

    In the 2020 interim year ratemaking final rule,\24\ the Coast Guard 
established its most recent pilot compensation benchmark. Given the 
lack of access to AMOU data, the Coast Guard did not rely on the AMOU 
aggregated wage and benefit information as the basis for the 
compensation benchmark. Instead, the Coast Guard adopted the 2019 
target pilot compensation (with inflation) as our compensation 
benchmark going forward. The Coast Guard 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 (85 FR 20091). The 
Director determined that the ratemaking provided adequate compensation 
for pilots. In the 2020 ratemaking, the Coast Guard announced that the 
2020 benchmark will be used for future rates (85 FR 20091).
---------------------------------------------------------------------------

    \24\ 85 FR 20088.
---------------------------------------------------------------------------

    Based on our experience over the past four ratemakings (2020-2023), 
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.  404.104(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 service. The Coast Guard also does not 
believe that the pilot compensation benchmark is too high relative to 
the expertise required to perform the job. The compensation will 
continue to be adjusted annually, in accordance with published 
inflation rates, which will 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 2024, as shown in Step 4. This target 
compensation benchmark approach has advanced and will continue to 
advance the Coast Guard's goals through rate and compensation stability 
while also promoting recruitment and retention of qualified U.S. 
pilots.
    The proposed compensation benchmark for 2024 is $442,403 per 
registered pilot and $159,265 per apprentice pilot, using the 2023 
compensation as a benchmark. We follow the procedure outlined in 
paragraph (b) of Sec.  404.104, which adjusts the existing compensation 
benchmark for inflation. We use a two-step process to adjust target 
pilot compensation for inflation. First, we adjust the 2023 target 
compensation benchmark of $424,398 by 1.7 percent for an adjusted value 
of $431,613. This first adjustment accounts for the difference in 
actual first quarter 2023 ECI inflation, which is 4.4 percent, and the 
2023 PCE estimate of 2.7 percent.\25\ The second step accounts for 
projected inflation from 2023 to 2024, which is 2.5 percent.\26\ Based 
on the projected 2024 inflation estimate, the proposed target 
compensation benchmark for 2024 is $442,403 per pilot. The proposed 
apprentice pilot wage benchmark is 36 percent of the target pilot 
compensation, or $159,265 ($442,403 x 0.36).\27\
---------------------------------------------------------------------------

    \25\ Employment Cost Index, Total Compensation for Private 
Industry workers in Transportation and Material Moving, Annual 
Average, Series ID: CIU2010000520000A. https://www.bls.gov/news.release/eci.t05.htm (Last visited 04/28/23); and Table 1 
Summary of Economic Projections, PCE Inflation. https://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20220316.pdf 
(Last visited 05/17/23).
    \26\ Table 1 Summary of Economic Projections, PCE Inflation 
December Projection. https://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20230322.pdf (Last visited 03/2023).
    \27\ For more information on the proposed apprentice pilot wage 
benchmark, see the Coast Guard's 2022 Annual Review and Revisions to 
Methodology. 87 FR 18488.
---------------------------------------------------------------------------

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 2024. We 
propose to conduct the 2024 ratemaking as an interim ratemaking, as we 
last did in 2022 (87 FR 18488). Thus, the Coast Guard proposes to 
adjust the compensation benchmark following the interim ratemaking year 
procedures under Sec.  404.100(b) rather than the procedures for a full 
ratemaking year in Sec.  404.100(a).
    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.

District One

A. Step 1: Recognize Previous Operating Expenses

    Step 1 in the ratemaking methodology requires that the Coast Guard 
review and recognize the operating expenses for the last full year for 
which figures are available (Sec.  404.101). To do so, we begin by 
reviewing the independent accountant's financial reports for each 
association's 2021 expenses and revenues.\28\ For accounting purposes, 
the financial reports divide expenses into designated and undesignated 
areas. For costs accrued by the pilot associations generally, such as 
employee benefits, the cost is divided between the designated and 
undesignated areas on a pro rata basis. The recognized operating 
expenses for District One are shown in table 3.
---------------------------------------------------------------------------

    \28\ These reports are available in the docket for this proposed 
rule.
---------------------------------------------------------------------------

    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 2021 expenses used as the basis for this proposed rule, 
districts used the term ``applicant'' to describe applicant trainees 
and persons who will be called apprentices (applicant pilots), under 
the definition of ``apprentice pilot'', which was introduced in the 
2022 final rule. Therefore, when describing past expenses, the term 
``applicant'' is used to match what was reported from 2021, which 
includes both applicant and apprentice pilots. The term ``apprentice'' 
is used to distinguish apprentice pilot wages and describe the

[[Page 55635]]

impacts of the ratemaking going forward.
    The Coast Guard continues to include apprentice salaries as an 
allowable expense in the 2024 ratemaking, as this proposed rule is 
based on 2021 operating expenses, when salaries were still an allowable 
expense. Beginning with the 2025 ratemaking, apprentice pilot salaries 
will no longer be included as a 2022 operating expense, because 
apprentice pilot wages will 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--2021 Recognized Expenses for District One
----------------------------------------------------------------------------------------------------------------
                                                                 Designated        Undesignated
     District One Reported Operating Expenses for 2021     --------------------------------------      Total
                                                             St. Lawrence River    Lake Ontario
----------------------------------------------------------------------------------------------------------------
Applicant Pilot Compensation:
    Salaries..............................................              $247,735        $165,157        $412,892
    Employee Benefits.....................................                10,367           6,911          17,278
                                                           -----------------------------------------------------
        Total Applicant Pilot Compensation................               258,102         172,068         430,170
Other Applicant Cost:
    Applicant Subsistence.................................                 1,723           1,148           2,871
    Travel................................................                 1,832           1,221           3,053
    License Insurance.....................................                   752             502           1,254
    Payroll taxes.........................................                 1,945           1,296           3,241
    Other--Pilotage Cost..................................                   833             555           1,388
                                                           -----------------------------------------------------
        Total Other Applicant Cost........................                 7,085           4,722          11,807
Other Pilotage Cost:
    Subsistence...........................................               133,993          89,329         223,322
    Hotel/Lodging.........................................                32,424          21,616          54,040
    Travel................................................               453,718         302,478         756,196
    License renewal.......................................                 1,200             800           2,000
    Payroll Taxes.........................................               198,901         132,601         331,502
    License Insurance.....................................                53,174          35,450          88,624
                                                           -----------------------------------------------------
        Total Other Pilotage Costs........................               873,410         582,274       1,455,684
Pilot Boat and Dispatch Costs:
    Pilot boat expense (Operating)........................               200,672         133,782         334,454
    Dispatch expense......................................               167,291         111,527         278,818
    Employee Benefits.....................................                50,560          33,707          84,267
    Salaries..............................................               249,396         166,264         415,660
    Payroll taxes.........................................                10,269           6,846          17,115
                                                           -----------------------------------------------------
        Total Pilot and Dispatch Costs....................               678,188         452,126       1,130,314
Administrative Expenses:
    Legal--general counsel................................                 1,078             719           1,797
    Legal--shared counsel (K&L Gates).....................                 4,402           2,935           7,337
    Legal--USCG Litigation................................                14,641           9,760          24,401
    Insurance.............................................                44,108          29,405          73,513
    Employee benefits.....................................                 4,470           2,980           7,450
    Payroll Taxes.........................................                42,464          28,310          70,774
    Other taxes...........................................                79,200          52,800         132,000
    Real Estate taxes.....................................                22,918          15,278          38,196
    Travel................................................                 1,568           1,045           2,613
    Depreciation..........................................               186,517         124,345         310,862
    Interest..............................................                54,271          36,180          90,451
    APA Dues..............................................                25,250          16,834          42,084
    APA Dues (D1-21-01)...................................                 2,971           1,980           4,951
    Dues and subscriptions................................                 4,320           2,880           7,200
    Utilities.............................................                41,343          27,562          68,905
    Salaries..............................................                73,890          49,260         123,150
    Accounting/Professional fees..........................                 4,320           2,880           7,200
    Pilot Training........................................                 4,680           3,120           7,800
    Applicant Pilot Training..............................                18,911          12,607          31,518
    Other.................................................                28,422          18,948          47,370
                                                           -----------------------------------------------------
        Total Administrative Expenses.....................               659,744         439,828       1,099,572
                                                           -----------------------------------------------------
        Total Expenses (OPEX + Applicant + Pilot Boats +               2,476,529       1,651,018       4,127,547
         Admin + Capital).................................
                                                           -----------------------------------------------------
        Total Operating Expenses (OpEx + Adjustments).....             2,476,529       1,651,018       4,127,547
----------------------------------------------------------------------------------------------------------------

[[Page 55636]]

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

    In accordance with the text in Sec.  404.102, having identified the 
recognized 2021 operating expenses in Step 1, the next step is to 
estimate the current year's operating expenses by adjusting for 
inflation over the 3-year period. We calculate inflation using the BLS 
data from the CPI for the Midwest Region of the United States for the 
2022 inflation rate.\29\ Because the BLS does not provide forecasted 
inflation data, we use economic projections from the Federal Reserve 
for the 2023 and 2024 inflation modification.\30\ Based on that 
information, the calculations for Step 2 are as presented in table 4.
---------------------------------------------------------------------------

    \29\ The CPI is defined as ``All Urban Consumers (CPI-U), All 
Items, 1982-4=100.'' Series CUUR0200SAO (Downloaded March 21, 2023). 
Available at https://www.bls.gov/cpi/data.htm., All Urban Consumers 
(Current Series), multiscreen data, not seasonally adjusted, 0200 
Midwest, Current, All Items, Monthly, 12-month Percent Change and 
Annual Data.
    \30\ The 2022 and 2023 inflation rates are available at https://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20230322.pdf. We used the Core PCE December Projection 
found in table 1. (Downloaded April 2023).

                              Table 4--Adjusted Operating Expenses for District One
----------------------------------------------------------------------------------------------------------------
                                                                                   District One
                                                                 -----------------------------------------------
                                                                    Designated     Undesignated        Total
----------------------------------------------------------------------------------------------------------------
Total Operating Expenses (Step 1)...............................      $2,476,529      $1,651,018      $4,127,547
2022 Inflation Modification (@8%)...............................         198,122         132,081         330,203
2023 Inflation Modification (@3.5%).............................          93,613          62,408         156,021
2024 Inflation Modification (@2.5%).............................          69,207          46,138         115,345
                                                                 -----------------------------------------------
    Adjusted 2024 Operating Expenses............................       2,837,471       1,891,645       4,729,116
----------------------------------------------------------------------------------------------------------------

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

    In accordance with the text in Sec.  404.103, the Coast Guard 
estimates the number of fully registered pilots in each district. 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 2024 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 three apprentice pilots in 2024 in District One. Based on 
the seasonal staffing model discussed in the 2017 ratemaking (82 FR 
41466), a certain number of pilots are assigned to designated waters, 
and a certain number of pilots are assigned to undesignated waters, as 
shown in table 5. These numbers are used to determine the amount of 
revenue needed in their respective areas.

               Table 5--Authorized Pilots for District One
------------------------------------------------------------------------
                         Item                             District One
------------------------------------------------------------------------
Proposed Maximum Number of Pilots (per Sec.                           18
 401.220(a)) *.......................................
2024 Authorized Pilots (total).......................                 18
Pilots Assigned to Designated Areas..................                 10
Pilots Assigned to Undesignated Areas................                  8
2024 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 issuing an ``interim'' ratemaking this year, we 
follow the procedure outlined in paragraph (b) of Sec.  404.104, which 
adjusts the existing compensation benchmark by inflation. First, we 
adjust the 2023 target compensation benchmark of $424,398 by 1.7 
percent for a value of $431,613. This accounts for the difference in 
actual first quarter 2023 ECI inflation, which is 4.4 percent, and the 
2023 PCE estimate of 2.7 percent.31 32 The second step 
accounts for projected inflation from 2023 to 2024, which is 2.5 
percent.\33\ Based on the projected 2024 inflation estimate, the 
proposed target compensation benchmark for 2024 is $442,403 per pilot. 
The proposed apprentice pilot wage benchmark is 36 percent of the 
target pilot compensation, or $159,265 ($442,403 x 0.36).
---------------------------------------------------------------------------

    \31\ Employment Cost Index, Total Compensation for Private 
Industry workers in Transportation and Material Moving, Annual 
Average, Series ID: CIU2010000520000A. https://www.bls.gov/news.release/eci.t05.htm (Last visited 04/28/23).
    \32\ Table 1 Summary of Economic Projections, PCE Inflation. 
https://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20220316.pdf (Last visited 05/17/23).
    \33\ Table 1 Summary of Economic Projections, PCE Inflation 
December Projection. https://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20230322.pdf (Last visited 03/2023).
---------------------------------------------------------------------------

    Next, the Coast Guard certifies that the number of pilots estimated 
for 2024 is less than or equal to the number permitted under the 
staffing model in Sec.  401.220(a). The staffing model suggests that 
District One needs 18 pilots, which is less than or equal to 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 three for District One in the 2024 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.

[[Page 55637]]

                                  Table 6--Target Compensation for District One
----------------------------------------------------------------------------------------------------------------
                                                                                   District One
                                                                 -----------------------------------------------
                                                                    Designated     Undesignated        Total
----------------------------------------------------------------------------------------------------------------
Target Pilot Compensation.......................................        $442,403        $442,403        $442,403
Number of Pilots................................................              10               8              18
Total Target Pilot Compensation.................................       4,424,030       3,539,224       7,963,254
Target Apprentice Pilot Compensation............................         159,265         159,265         159,265
Number of Apprentice Pilots.....................................  ..............  ..............               3
Total Target Apprentice Pilot Compensation......................         286,677         191,118         477,795
----------------------------------------------------------------------------------------------------------------

E. Step 5: Project Working Capital Fund

    Next, the Coast Guard calculates the working capital fund revenues 
needed for each area. We first add the figures for projected operating 
expenses, total pilot compensation, and total target apprentice pilot 
wage for each area, and then, we find the preceding year's average 
annual rate of return for new issues of high-grade corporate 
securities. Using Moody's data, the number is 4.0742 percent 
rounded.\34\ By multiplying the two figures, we obtain the working 
capital fund contribution for each area, as shown in table 7.
---------------------------------------------------------------------------

    \34\ Moody's Seasoned Aaa Corporate Bond Yield, average of 2022 
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 (Last visited 03/21/23).

                           Table 7--Working Capital Fund Calculation for District One
----------------------------------------------------------------------------------------------------------------
                                                                                   District One
                                                                 -----------------------------------------------
                                                                    Designated     Undesignated        Total
----------------------------------------------------------------------------------------------------------------
Adjusted Operating Expenses (Step 2)............................      $2,837,471      $1,891,645      $4,729,116
Total Target Pilot Compensation (Step 4)........................       4,424,030       3,539,224       7,963,254
Total Target Apprentice Pilot Compensation (Step 4).............         286,677         191,118         477,795
Total 2024 Expenses.............................................       7,548,178       5,621,987      13,170,165
Working Capital Fund (4.0742%)..................................         307,525         229,049         536,574
----------------------------------------------------------------------------------------------------------------

F. Step 6: Project Needed Revenue

    In this step, we add the expenses accrued to derive the total 
revenue needed for each area. These expenses include the projected 
operating expenses (from Step 2), the total 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)............................      $2,837,471      $1,891,645      $4,729,116
Total Target Pilot Compensation (Step 4)........................       4,424,030       3,539,224       7,963,254
Total Target Apprentice Pilot Compensation (Step 4).............         286,677         191,118         477,795
Working Capital Fund (Step 5)...................................         307,525         229,049         536,574
                                                                 -----------------------------------------------
    Total Revenue Needed........................................       7,855,703       5,851,036      13,706,739
----------------------------------------------------------------------------------------------------------------

G. Step 7: Calculate Initial Base Rates

    Having determined the revenue needed for each area in the previous 
six steps, we divide that number by the expected number of traffic 
hours to develop an hourly rate.
    Step 7 is a two-part process. The first part is calculating the 10-
year traffic average in District 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 SeaPro. The data is pulled from 
the system filtering by district, year, job status (including only 
processed jobs), and flagging code (including only 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.

[[Page 55638]]

                 Table 9--Time on Task for District One
                                 [Hours]
------------------------------------------------------------------------
                                                   District One
                  Year                   -------------------------------
                                            Designated     Undesignated
------------------------------------------------------------------------
2022....................................           6,785           8,574
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
                                         -------------------------------
    Average.............................           6,587           7,480
------------------------------------------------------------------------

    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).................      $7,855,703      $5,851,036
Average time on task (hours)............           6,587           7,480
Initial rate............................           1,193             782
------------------------------------------------------------------------

H. Step 8: Calculate Average Weighting Factors by Area

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

                      Table 11--Average Weighting Factor for District One, Designated Areas
----------------------------------------------------------------------------------------------------------------
                                                                     Number of       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 1 (2022)..................................................              39               1              39
Class 2 (2014)..................................................             285            1.15             328
Class 2 (2015)..................................................             295            1.15             339
Class 2 (2016)..................................................             185            1.15             213
Class 2 (2017)..................................................             352            1.15             405
Class 2 (2018)..................................................             559            1.15             643
Class 2 (2019)..................................................             378            1.15             435
Class 2 (2020)..................................................             560            1.15             644
Class 2 (2021)..................................................             315            1.15             362
Class 2 (2022)..................................................             466            1.15             536
Class 3 (2014)..................................................              50             1.3              65
Class 3 (2015)..................................................              28             1.3              36
Class 3 (2016)..................................................              50             1.3              65
Class 3 (2017)..................................................              67             1.3              87
Class 3 (2018)..................................................              86             1.3             112
Class 3 (2019)..................................................             122             1.3             159
Class 3 (2020)..................................................              67             1.3              87
Class 3 (2021)..................................................              52             1.3              68
Class 3 (2022)..................................................             104             1.3             135
Class 4 (2014)..................................................             271            1.45             393
Class 4 (2015)..................................................             251            1.45             364

[[Page 55639]]

 
Class 4 (2016)..................................................             214            1.45             310
Class 4 (2017)..................................................             285            1.45             413
Class 4 (2018)..................................................             393            1.45             570
Class 4 (2019)..................................................             730            1.45            1059
Class 4 (2020)..................................................             427            1.45             619
Class 4 (2021)..................................................             407            1.45             590
Class 4 (2022)..................................................             461            1.45             668
                                                                 -----------------------------------------------
    Total.......................................................           7,774  ..............          10,019
                                                                 -----------------------------------------------
        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 1 (2022)..................................................              32               1              32
Class 2 (2014)..................................................             238            1.15             274
Class 2 (2015)..................................................             263            1.15             302
Class 2 (2016)..................................................             169            1.15             194
Class 2 (2017)..................................................             290            1.15             334
Class 2 (2018)..................................................             352            1.15             405
Class 2 (2019)..................................................             366            1.15             421
Class 2 (2020)..................................................             358            1.15             412
Class 2 (2021)..................................................             463            1.15             532
Class 2 (2022)..................................................             358            1.15             412
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 3 (2022)..................................................              69             1.3              90
Class 4 (2014)..................................................             289            1.45             419
Class 4 (2015)..................................................             269            1.45             390
Class 4 (2016)..................................................             222            1.45             322
Class 4 (2017)..................................................             285            1.45             413
Class 4 (2018)..................................................             382            1.45             554
Class 4 (2019)..................................................             326            1.45             473
Class 4 (2020)..................................................             334            1.45             484
Class 4 (2021)..................................................             466            1.45             676
Class 4 (2022)..................................................             393            1.45             570
                                                                 -----------------------------------------------
    Total.......................................................           6,490  ..............           8,395
                                                                 -----------------------------------------------
        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, the initial base rates 
calculated in Step 7 are divided by the average weighting factors 
calculated in Step 8, as shown in table 13.

[[Page 55640]]

                                  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................................          $1,193                1.29                $925
District One: Undesignated..............................             782                1.29                 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 are enough 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 2023     Proposed 2024
                     Area                                    Name                pilotage rate    pilotage rate
----------------------------------------------------------------------------------------------------------------
District One: Designated.....................  St. Lawrence River.............             $876             $925
District One: Undesignated...................  Lake Ontario...................              586              606
----------------------------------------------------------------------------------------------------------------

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 2021 expenses and 
revenues.\35\ For accounting purposes, the financial reports divide 
expenses into designated and undesignated areas. For costs generally 
accrued by the pilot associations, such as employee benefits, the cost 
is divided between the designated and undesignated areas on a pro rata 
basis.
---------------------------------------------------------------------------

    \35\ These reports are available in the docket for this proposed 
rule.
---------------------------------------------------------------------------

    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 2021 expenses used as the basis for this proposed rule, 
districts used the term ``applicant'' to describe applicant trainees 
and persons who will be called apprentices (applicant pilots), under 
the definition of ``apprentice pilot'', which was introduced in the 
2022 final rule. Therefore, when describing past expenses, the term 
``applicant'' is used to match what was reported from 2021, which 
includes both applicant and apprentice pilots. The term ``apprentice'' 
is used to distinguish apprentice pilot wages and describe the impacts 
of the ratemaking going forward.
    The Coast Guard continues to include apprentice salaries as an 
allowable expense in the 2024 ratemaking, as this proposed rule is 
based on 2021 operating expenses, when salaries were still an allowable 
expense. Beginning with the 2025 ratemaking, apprentice pilot salaries 
will no longer be included as a 2022 operating expense, because 
apprentice pilot wages will 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). 
The recognized operating expenses for District Two are shown in table 
15.

                               Table 15--2021 Recognized Expenses for District Two
----------------------------------------------------------------------------------------------------------------
                                                                                  District Two
                                                               -------------------------------------------------
                                                                 Undesignated      Designated
             Reported Operating Expenses for 2021              ----------------------------------
                                                                                 Southeast Shoal       Total
                                                                   Lake Erie      to Port Huron
----------------------------------------------------------------------------------------------------------------
Applicant Pilot Compensation:
    Salaries..................................................         $79,538          $119,306        $198,844
    Employee Benefits.........................................          11,066            16,599          27,665
                                                               -------------------------------------------------
        Total Applicant Pilot Compensation....................          90,604           135,905         226,509
                                                               -------------------------------------------------
Other Applicant Cost:
    Applicant Subsistence.....................................           5,280             7,920          13,200
    Hotel/Lodging Cost........................................           2,976             4,464           7,440
    Hotel/Lodging Cost (D2-21-01).............................         (2,976)           (4,464)         (7,440)

[[Page 55641]]

 
    Payroll taxes.............................................           6,901            10,352          17,253
                                                               -------------------------------------------------
        Total Other Applicant Cost............................          12,181            18,272          30,453
Other Pilotage Cost:
    Subsistence...............................................          73,921           110,880         184,800
    Hotel/Lodging.............................................          62,496            93,744         156,240
    Hotel/Lodging (D2-21-01)..................................        (55,307)          (82,960)       (138,267)
    Travel....................................................          42,625            63,937         106,562
    License renewal...........................................           1,958             2,938           4,896
    Payroll Taxes.............................................          87,620           131,430         219,050
    License Insurance.........................................           9,007            13,510          22,517
                                                               -------------------------------------------------
        Total Other Pilotage Costs............................         222,320           333,479         555,798
Pilot Boat and Dispatch Costs:
    Pilot boat expense (Operating)............................          60,067            90,101         150,168
    Employee Benefits.........................................          80,273           120,410         200,683
    Insurance.................................................           4,317             6,475          10,792
    Salaries..................................................         148,260           222,391         370,651
    Payroll taxes.............................................          13,277            19,915          33,192
                                                               -------------------------------------------------
        Total Pilot and Dispatch Costs........................         306,194           459,292         765,486
Administrative Expenses:
    Legal--general counsel....................................           2,186             3,278           5,464
    Legal--shared counsel (K&L Gates).........................           7,167            10,751          17,918
    Office Rent...............................................          27,627            41,440          69,067
    Insurance.................................................          15,084            22,627          37,711
    Employee benefits.........................................          35,010            52,516          87,526
    Payroll Taxes.............................................           5,161             7,741          12,902
    Other taxes...............................................          55,252            82,879         138,131
    Real Estate taxes.........................................           7,879            11,819          19,698
    Travel....................................................           8,688            13,033          21,721
    Depreciation..............................................          11,121            16,682          27,803
    Interest..................................................               2                 2               4
    APA Dues..................................................          14,683            22,025          36,708
    Dues and subscriptions....................................             505               757           1,262
    Utilities.................................................          24,356            36,535          60,891
    Salaries..................................................          48,532            72,797         121,329
    Accounting/Professional fees..............................          17,846            26,769          44,615
    Pilot Training............................................          23,909            35,864          59,773
    Applicant Pilot Training..................................             209               313             522
    Other.....................................................          21,252            31,879          53,131
                                                               -------------------------------------------------
        Total Administrative Expenses.........................         326,469           489,707         816,176
                                                               -------------------------------------------------
            Total Expenses (OPEX + Applicant + Pilot Boats +           957,768         1,436,655       2,394,423
             Admin + Capital).................................
                                                               -------------------------------------------------
        Total Directors Adjustments...........................  ..............  ................  ..............
                                                               -------------------------------------------------
            Total Operating Expenses (OpEx + Adjustments).....         957,768         1,436,655       2,394,422
----------------------------------------------------------------------------------------------------------------

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

    In accordance with the text in Sec.  404.102, having identified the 
recognized 2021 operating expenses in Step 1, the next step is to 
estimate the current year's operating expenses by adjusting for 
inflation over the 3-year period. We calculate inflation using the BLS 
data from the CPI for the Midwest Region of the United States for the 
2022 inflation rate.\36\ Because the BLS does not provide forecasted 
inflation data, we use economic projections from the Federal Reserve 
for the 2023 and 2024 inflation modification.\37\ Based on that 
information, the calculations for Step 2 are presented in table 16:
---------------------------------------------------------------------------

    \36\ The CPI is defined as ``All Urban Consumers (CPI-U), All 
Items, 1982-4=100.'' Series CUUR0200SAO (Downloaded March 21, 2023). 
Available at https://www.bls.gov/cpi/data.htm., All Urban Consumers 
(Current Series), multiscreen data, not seasonally adjusted, 0200 
Midwest, Current, All Items, Monthly, 12-month Percent Change and 
Annual Data.
    \37\ The 2023 and 2024 inflation rates are available at https://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20230322.pdf. We used the Core PCE December Projection 
found in table 1. (Last visited 04/2023).

[[Page 55642]]

                             Table 16--Adjusted Operating Expenses for District Two
----------------------------------------------------------------------------------------------------------------
                                                                                   District Two
                                                                 -----------------------------------------------
                                                                   Undesignated     Designated         Total
----------------------------------------------------------------------------------------------------------------
Total Operating Expenses (Step 1)...............................        $957,768      $1,436,655      $2,394,422
2022 Inflation Modification (@8%)...............................          76,621         114,932         191,553
2023 Inflation Modification (@3.5%).............................          36,204          54,306          90,510
2024 Inflation Modification (@2.5%).............................          26,765          40,147          66,912
Adjusted 2024 Operating Expenses................................       1,097,358       1,646,040       2,743,397
----------------------------------------------------------------------------------------------------------------

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

    In accordance with the text in Sec.  404.103, the Coast Guard 
estimates the number of fully registered pilots in each district. 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 2024 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 2024 in District Two. Based on 
the seasonal staffing model discussed in the 2017 ratemaking (82 FR 
41466), a certain number of pilots are assigned to designated waters, 
and a certain number of pilots are assigned 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)) *.......................................
2024 Authorized Pilots (total).......................                 16
Pilots Assigned to Designated Areas..................                  7
Pilots Assigned to Undesignated Areas................                  9
2024 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 issuing an interim ratemaking this year, we follow 
the procedure outlined in paragraph (b) of Sec.  404.104, which adjusts 
the existing compensation benchmark by inflation. First, we adjust the 
2023 target compensation benchmark of $424,398 by 1.7 percent for a 
value of $431,613. This accounts for the difference in actual first 
quarter 2023 ECI inflation, which is 4.4 percent, and the 2023 PCE 
estimate of 2.7 percent.38 39 The second step accounts for 
projected inflation from 2023 to 2024, which is 2.5 percent.\40\ Based 
on the projected 2024 inflation estimate, the proposed target 
compensation benchmark for 2024 is $442,403 per pilot. The proposed 
apprentice pilot wage benchmark is 36 percent of the target pilot 
compensation, or $159,265 ($442,403 x 0.36).
---------------------------------------------------------------------------

    \38\ Employment Cost Index, Total Compensation for Private 
Industry workers in Transportation and Material Moving, Annual 
Average, Series ID: CIU2010000520000A. https://www.bls.gov/news.release/eci.t05.htm (Last visited 04/28/23).
    \39\ Table 1 Summary of Economic Projections, PCE Inflation. 
https://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20220316.pdf (Last visited 5/17/23).
    \40\ Table 1 Summary of Economic Projections, PCE Inflation 
December Projection. https://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20230322.pdf (Last visited 03/2023).
---------------------------------------------------------------------------

    Next, the Coast Guard certifies that the number of pilots estimated 
for 2024 is less than or equal to the number permitted under the 
staffing model in Sec.  401.220(a). The staffing model suggests that 
District Two needs 16 pilots, which is less than or equal to the number 
of registered pilots provided by the pilot association. In accordance 
with Sec.  404.104(c), the Coast Guard uses 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. The Coast 
Guard estimates that the number of apprentice pilots with limited 
registration needed will be two for District Two in the 2024 season. 
The total target wages for apprentices are allocated at 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.......................................        $442,403        $442,403        $442,403
Number of Pilots................................................               9               7              16
Total Target Pilot Compensation.................................       3,981,627       3,096,821       7,078,448
Target Apprentice Pilot Compensation............................         159,265         159,265         159,265
Number of Apprentice Pilots.....................................  ..............  ..............               2

[[Page 55643]]

 
Total Target Apprentice Pilot Compensation......................         127,412         191,118         318,530
----------------------------------------------------------------------------------------------------------------

E. Step 5: Project Working Capital Fund

    Next, the Coast Guard calculates the working capital fund revenues 
needed for each area. We first add the figures for projected operating 
expenses, total pilot compensation, and total target apprentice pilot 
wage for each area, and then we find the preceding year's average 
annual rate of return for new issues of high-grade corporate 
securities. Using Moody's data, the number is 4.0742 percent, 
rounded.\41\ By multiplying the two figures, we obtain the working 
capital fund contribution for each area, as shown in table 19.
---------------------------------------------------------------------------

    \41\ Moody's Seasoned Aaa Corporate Bond Yield, average of 2022 
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. (Last visited 03/21/2023).

                           Table 19--Working Capital Fund Calculation for District Two
----------------------------------------------------------------------------------------------------------------
                                                                                   District Two
                                                                 -----------------------------------------------
                                                                   Undesignated     Designated         Total
----------------------------------------------------------------------------------------------------------------
Adjusted Operating Expenses (Step 2)............................      $1,097,358      $1,646,040      $2,743,398
Total Target Pilot Compensation (Step 4)........................       3,981,627       3,096,821       7,078,448
Total Target Apprentice Pilot Compensation (Step 4).............         127,412         191,118         318,530
Total 2024 Expenses.............................................       5,206,397       4,933,979      10,140,376
Working Capital Fund (4.0742%)..................................         212,117         201,019         413,135
----------------------------------------------------------------------------------------------------------------

F. Step 6: Project Needed Revenue

    In this step, the Coast Guard adds all the expenses accrued to 
derive the total revenue needed for each area. These expenses include 
the projected operating expenses (from Step 2), the total 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)............................      $1,097,358      $1,646,040      $2,743,398
Total Target Pilot Compensation (Step 4)........................       3,981,627       3,096,821       7,078,448
Total Target Apprentice Pilot Compensation (Step 4).............         127,412         191,118         318,530
Working Capital Fund (Step 5)...................................         212,117         201,019         413,136
Total Revenue Needed............................................       5,418,514       5,134,998      10,553,511
----------------------------------------------------------------------------------------------------------------

G. Step 7: Calculate Initial Base Rates

    Having determined the revenue needed for each area in the previous 
six steps, the Coast Guard divides that number by the expected number 
of traffic hours to develop an hourly rate. Step 7 is a two-part 
process. In the first part, we calculate the 10-year traffic average in 
District Two, using the total time on task or pilot bridge hours. To 
calculate the time on task for each district, the Coast Guard 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
------------------------------------------------------------------------
2022....................................          12,306           3,975
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

[[Page 55644]]

 
2016....................................           6,425           5,615
2015....................................           6,535           5,967
2014....................................           7,856           7,001
2013....................................           4,603           4,750
                                         -------------------------------
    Average.............................           7,058           5,938
------------------------------------------------------------------------

    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).................      $5,418,514      $5,134,998
Average time on task (hours)............           7,058           5,938
Initial rate............................             768             865
------------------------------------------------------------------------

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 data, 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 1 (2022)..................................................              79               1              79
Class 2 (2014)..................................................             356            1.15             409
Class 2 (2015)..................................................             354            1.15             407
Class 2 (2016)..................................................             380            1.15             437
Class 2 (2017)..................................................             222            1.15             255
Class 2 (2018)..................................................             123            1.15             141
Class 2 (2019)..................................................             127            1.15             146
Class 2 (2020)..................................................             165            1.15             190
Class 2 (2021)..................................................             206            1.15             237
Class 2 (2022)..................................................             275            1.15             316
Class 3 (2014)..................................................              20             1.3              26
Class 3 (2015)..................................................               0             1.3               0
Class 3 (2016)..................................................               9             1.3              12
Class 3 (2017)..................................................              12             1.3              16
Class 3 (2018)..................................................               3             1.3               4
Class 3 (2019)..................................................               1             1.3               1
Class 3 (2020)..................................................               1             1.3               1
Class 3 (2021)..................................................               5             1.3               7
Class 3 (2022)..................................................               3             1.3               4
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

[[Page 55645]]

 
Class 4 (2022)..................................................             349            1.45             506
                                                                 -----------------------------------------------
    Total.......................................................           5,725  ..............           7,497
                                                                 -----------------------------------------------
        Average weighting factor (weighted transits/number of     ..............            1.31  ..............
         transits)..............................................
----------------------------------------------------------------------------------------------------------------

                      Table 24--Average Weighting Factor for District Two, Designated Areas
----------------------------------------------------------------------------------------------------------------
                                                                     Number of       Weighting       Weighted
                        Vessel class/year                            transits         factor         transits
----------------------------------------------------------------------------------------------------------------
Class 1 (2014)..................................................              20               1              20
Class 1 (2015)..................................................              15               1              15
Class 1 (2016)..................................................              28               1              28
Class 1 (2017)..................................................              15               1              15
Class 1 (2018)..................................................              42               1              42
Class 1 (2019)..................................................              48               1              48
Class 1 (2020)..................................................               7               1               7
Class 1 (2021)..................................................              12               1              12
Class 1 (2022)..................................................              34               1              34
Class 2 (2014)..................................................             237            1.15             273
Class 2 (2015)..................................................             217            1.15             250
Class 2 (2016)..................................................             224            1.15             258
Class 2 (2017)..................................................             127            1.15             146
Class 2 (2018)..................................................             153            1.15             176
Class 2 (2019)..................................................             281            1.15             323
Class 2 (2020)..................................................             342            1.15             393
Class 2 (2021)..................................................             240            1.15             276
Class 2 (2022)..................................................             184            1.15             212
Class 3 (2014)..................................................               8             1.3              10
Class 3 (2015)..................................................               8             1.3              10
Class 3 (2016)..................................................               4             1.3               5
Class 3 (2017)..................................................               4             1.3               5
Class 3 (2018)..................................................              14             1.3              18
Class 3 (2019)..................................................               1             1.3               1
Class 3 (2020)..................................................               5             1.3               7
Class 3 (2021)..................................................               2             1.3               3
Class 3 (2022)..................................................               3             1.3               4
Class 4 (2014)..................................................             359            1.45             521
Class 4 (2015)..................................................             340            1.45             493
Class 4 (2016)..................................................             281            1.45             407
Class 4 (2017)..................................................             185            1.45             268
Class 4 (2018)..................................................             379            1.45             550
Class 4 (2019)..................................................             403            1.45             584
Class 4 (2020)..................................................             405            1.45             587
Class 4 (2021)..................................................             268            1.45             389
Class 4 (2022)..................................................             273            1.45             396
                                                                 -----------------------------------------------
    Total.......................................................           5,168  ..............           6,785
                                                                 -----------------------------------------------
        Average weighting factor (weighted transits/number of     ..............            1.31  ..............
         transits)..............................................
----------------------------------------------------------------------------------------------------------------

I. Step 9: Calculate Revised Base Rates

    In this step, the Coast Guard revises 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......................................            $768            1.31            $586
District Two: Designated........................................             865            1.31             660
----------------------------------------------------------------------------------------------------------------

[[Page 55646]]

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 are enough pilots to handle those heavy traffic periods. The 
Director also considers whether the proposed rates would cover 
operating expenses and infrastructure costs, taking 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.

                                 Table 26--Proposed Final Rates for District Two
----------------------------------------------------------------------------------------------------------------
                                                                                 Final 2023       Proposed 2024
                    Area                                   Name                 pilotage rate     pilotage rate
----------------------------------------------------------------------------------------------------------------
District Two: Designated....................  Navigable waters from                       $601              $660
                                               Southeast Shoal to Port
                                               Huron, MI.
District Two: Undesignated..................  Lake Erie.....................               704               586
----------------------------------------------------------------------------------------------------------------

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 review the independent accountant's financial 
reports for each association's 2021 expenses and revenues.\42\ For 
accounting purposes, the financial reports divide expenses into 
designated and undesignated areas. For costs generally accrued by the 
pilot associations, such as employee benefits, the cost is divided 
between the designated and undesignated areas on a pro rata basis.
---------------------------------------------------------------------------

    \42\ These reports are available in the docket for this proposed 
rule.
---------------------------------------------------------------------------

    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 2021 expenses used as the basis for this proposed rule, 
districts used the term ``applicant'' to describe applicant trainees 
and persons who will be called apprentices (applicant pilots), under 
the definition of ``apprentice pilot'', which was introduced in the 
2022 final rule. Therefore, when describing past expenses, the term 
``applicant'' is used to match what was reported in 2021, which 
includes both applicant and apprentice pilots. The term ``apprentice'' 
is used to distinguish apprentice pilot wages and to describe the 
impacts of the ratemaking going forward.
    The Coast Guard continues to include apprentice salaries as an 
allowable expense in the 2024 ratemaking, as this proposed rule is 
based on 2021 operating expenses, when salaries were still an allowable 
expense. Beginning with the 2025 ratemaking, apprentice pilot salaries 
will no longer be included as a 2022 operating expense, because 
apprentice pilot wages will 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). 
The recognized operating expenses for District Three are shown in table 
27.

                              Table 27--2021 Recognized Expenses for District Three
----------------------------------------------------------------------------------------------------------------
                                                                          District Three
                                                 ---------------------------------------------------------------
                                                   Undesignated     Designated     Undesignated
      Reported operating expenses for 2021       ------------------------------------------------
                                                    Lakes Huron      St. Marys                         Total
                                                   and Michigan        River       Lake Superior
----------------------------------------------------------------------------------------------------------------
Applicant Cost:
    Applicant Salaries..........................        $336,149        $140,111        $176,330        $652,590
    Applicant Benefits..........................          58,306          24,303          30,585         113,194
                                                 ---------------------------------------------------------------
        Total Applicant Cost....................         394,455         164,414         206,915         765,784
----------------------------------------------------------------------------------------------------------------
Other Pilotage Costs:
    Pilot subsistence/travel....................         149,993          62,519          78,680         291,192
    Hotel/Lodging Cost..........................         136,769          57,007          71,744         265,520
    Hotel/Lodging Cost (D3-21-03)...............        (18,162)         (7,570)         (9,527)        (35,260)
    Travel......................................          55,936          23,315          29,342         108,592
    License Insurance--Pilots...................             881             367             462           1,710
    Payroll taxes...............................  ..............  ..............  ..............  ..............
    Payroll Tax (D3-21-04)......................         155,779          64,931          81,715         302,425
    License Insurance...........................          15,328           6,389           8,040          29,757
                                                 ---------------------------------------------------------------
        Total Other Pilotage Costs..............         496,524         206,958         260,456         963,938
----------------------------------------------------------------------------------------------------------------
Pilot Boat and Dispatch costs:
    Pilot boat costs............................         445,549         185,710         233,716         864,975

[[Page 55647]]

 
    Pilot Boat Coast (D2-21-02).................        (10,901)         (4,544)         (5,718)        (21,163)
    Dispatch costs..............................          38,156          15,904          20,015          74,074
    Employee Benefits...........................           1,748             729             917           3,394
    Insurance...................................          20,141           8,395          10,565          39,101
    Insurance (D3-21-05, D3-21-09)..............           1,735             723             910           3,369
    Salaries....................................         140,294          58,476          73,592         272,363
    Payroll taxes...............................             123              51              64             238
                                                 ---------------------------------------------------------------
        Total Pilot boat and dispatch costs.....         636,845         265,444         334,061       1,236,350
----------------------------------------------------------------------------------------------------------------
Administrative Cost
    Legal--general counsel......................           9,560           3,985           5,015          18,560
    Legal--shared counsel (K&L Gates)...........           6,227           2,595           3,266          12,088
    Legal--shared counsel (K&L Gates) (D3-21-07)         (1,307)           (545)           (686)         (2,538)
    Travel......................................          58,104          24,219          30,479         112,802
    Travel (D3-21-03)...........................        (14,093)         (5,874)         (7,393)        (27,360)
    Insurance...................................          29,480          12,288          15,464          57,232
    Insurance (D3-21-05, D3-21-09)..............         (5,112)         (2,131)         (2,681)         (9,924)
    Employee benefits...........................         126,390          52,681          66,299         245,369
    Payroll Tax.................................          54,544          22,735          28,611         105,890
    Other taxes.................................          25,489          10,624          13,370          49,483
    Other taxes (D3-21-02)......................        (25,006)        (10,423)        (13,117)        (48,545)
    Real Estate Taxes...........................           1,396             582             732           2,710
    Depreciation/Auto leasing/Other.............         112,215          46,772          58,863         217,850
    Depreciation/Auto leasing/Other (D3-21-02)..         (4,465)         (1,861)         (2,342)         (8,668)
    Interest....................................           3,432           1,431           1,800           6,663
    APA Dues....................................          25,946          10,814          13,610          50,370
    APA Dues (D3-21-08).........................         (1,297)           (541)           (680)         (2,519)
    Dues and subscriptions......................           4,044           1,685           2,121           7,850
    Salaries....................................          63,591          26,506          33,357         123,454
    Utilities...................................          41,681          17,373          21,864          80,919
    Utilities (D3-21-03)........................        (34,248)        (14,275)        (17,965)        (66,488)
    Accounting/Professional fees................          22,765           9,489          11,941          44,195
    Pilot Training..............................          44,259          18,448          23,216          85,923
    Other expenses..............................          24,741          10,312          12,978          48,032
                                                 ---------------------------------------------------------------
        Total Administrative Expenses...........         568,336         236,889         298,122       1,103,347
                                                 ---------------------------------------------------------------
            Total Operating Expenses (Other            2,096,160         873,705       1,099,554       4,069,419
             Costs+ Applicant Cost + Pilot Boats
             + Admin)...........................
                                                 ---------------------------------------------------------------
    Directors Adjustments--Applicant Surcharge    ..............  ..............  ..............  ..............
     Collected..................................
                                                 ---------------------------------------------------------------
    Total Directors Adjustments.................  ..............  ..............  ..............  ..............
                                                 ---------------------------------------------------------------
    Total Operating Expenses (OpEx +                   2,096,160         873,705       1,099,554       4,069,419
     Adjustments)...............................
----------------------------------------------------------------------------------------------------------------

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

    In accordance with the text in Sec.  404.102, having identified the 
2021 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 
2022 inflation rate.\43\ Because the BLS does not provide forecasted 
inflation data, we use economic projections from the Federal Reserve 
for the 2023 and 2024 inflation modification.\44\ Based on that 
information, the calculations for Step 2 are as presented in table 28:
---------------------------------------------------------------------------

    \43\ The CPI is defined as ``All Urban Consumers (CPI-U), All 
Items, 1982-4=100.'' Series CUUR0200SAO (Downloaded March 21, 2023). 
Available at https://www.bls.gov/cpi/data.htm., All Urban Consumers 
(Current Series), multiscreen data, not seasonally adjusted, 0200 
Midwest, Current, All Items, Monthly, 12-month Percent Change and 
Annual Data.
    \44\ The 2023 and 2024 inflation rates are available at https://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20230322.pdf. We used the Core PCE December Projection 
found in table 1. (Last visited 04/2023).

[[Page 55648]]

                            Table 28--Adjusted Operating Expenses for District Three
----------------------------------------------------------------------------------------------------------------
                                                                                  District Three
                                                                 -----------------------------------------------
                                                                   Undesignated     Designated         Total
----------------------------------------------------------------------------------------------------------------
Total Operating Expenses (Step 1)...............................      $3,195,714        $873,705      $4,069,419
2022 Inflation Modification (@8%)...............................         255,657          69,896         325,553
2023 Inflation Modification (@3.5%).............................         120,798          33,026         153,824
2024 Inflation Modification (@2.5%).............................          89,304          24,416         113,720
                                                                 -----------------------------------------------
    Adjusted 2024 Operating Expenses............................       3,661,473       1,001,043       4,662,516
----------------------------------------------------------------------------------------------------------------

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

    In accordance with the text in Sec.  404.103, the Coast Guard 
estimates the number of 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 2024 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, the Coast Guard 
estimates that there will be two apprentice pilots in 2024 in District 
Three. Based on the seasonal staffing model discussed in the 2017 
ratemaking (82 FR 41466), a certain number of pilots are assigned to 
designated waters, and a certain number of pilots are assigned to 
undesignated waters, as shown in table 29. These numbers are used to 
determine the amount of revenue needed in their respective areas.

             Table 29--Authorized Pilots for District Three
------------------------------------------------------------------------
                         Item                            District Three
------------------------------------------------------------------------
Proposed Maximum Number of Pilots (per Sec.                           22
 401.220(a)) *........................................
2024 Authorized Pilots (total)........................                22
Pilots Assigned to Designated Areas...................                 5
Pilots Assigned to Undesignated Areas.................                17
2024 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 issuing an ``interim'' ratemaking this year, we 
follow the procedure outlined in paragraph (b) of Sec.  404.104, which 
adjusts the existing compensation benchmark by inflation. First, we 
adjust the 2023 target compensation benchmark of $424,398 by 1.7 
percent for a value of $431,613. This accounts for the difference in 
actual first quarter 2023 ECI inflation, which is 4.4 percent, and the 
2023 PCE estimate of 2.7 percent.45 46 The second step 
accounts for projected inflation from 2023 to 2024, which is 2.5 
percent.\47\ Based on the projected 2024 inflation estimate, the 
proposed target compensation benchmark for 2024 is $442,403 per pilot. 
The proposed apprentice pilot wage benchmark is 36 percent of the 
target pilot compensation, or $159,265 ($442,403 x 0.36).
---------------------------------------------------------------------------

    \45\ Employment Cost Index, Total Compensation for Private 
Industry workers in Transportation and Material Moving, Annual 
Average, Series ID: CIU2010000520000A. https://www.bls.gov/news.release/eci.t05.htm (Last visited 04/28/23).
    \46\ Table 1 Summary of Economic Projections, PCE Inflation. 
https://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20220316.pdf (Last visited 05/17/23).
    \47\ Table 1 Summary of Economic Projections, PCE Inflation 
December Projection. https://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20230322.pdf (Last visited 03/2023).
---------------------------------------------------------------------------

    Next, we certify that the number of pilots estimated for 2024 is 
less than or equal to the number permitted under the staffing model in 
Sec.  401.220(a). The staffing model suggests that District Three needs 
22 pilots, which is less than or equal to 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 two for 
District Three in the 2024 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.......................................        $442,403        $442,403        $442,403
Number of Pilots................................................              17               5              22
    Total Target Pilot Compensation.............................      $7,520,851      $2,212,015      $9,732,866
Target Apprentice Pilot Compensation............................        $159,265        $159,265        $159,265
Number of Apprentice Pilots.....................................  ..............  ..............               2

[[Page 55649]]

 
    Total Target Apprentice Pilot Compensation..................        $251,639         $66,891        $318,530
----------------------------------------------------------------------------------------------------------------

E. Step 5: Project Working Capital Fund

    Next, the Coast Guard calculates the working capital fund revenues 
needed for each area. We first add the figures for projected operating 
expenses, total pilot compensation, and total target apprentice pilot 
wage for each area, and then, we find the preceding year's average 
annual rate of return for new issues of high-grade corporate 
securities. Using Moody's data, the number is 4.0742 percent, 
rounded.\48\ By multiplying the two figures, we obtain the working 
capital fund contribution for each area, as shown in table 31.
---------------------------------------------------------------------------

    \48\ Moody's Seasoned Aaa Corporate Bond Yield, average of 2022 
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. (Last visited 03/21/2023).

                          Table 31--Working Capital Fund Calculation for District Three
----------------------------------------------------------------------------------------------------------------
                                                                                  District Three
                                                                 -----------------------------------------------
                                                                   Undesignated     Designated         Total
----------------------------------------------------------------------------------------------------------------
Adjusted Operating Expenses (Step 2)............................      $3,661,473      $1,001,043      $4,662,516
    Total Target Pilot Compensation (Step 4)....................      $7,520,851      $2,212,015      $9,732,866
    Total Target Apprentice Pilot Compensation (Step 4).........        $251,639         $66,891        $318,530
    Total 2024 Expenses.........................................     $11,433,963      $3,279,949     $14,713,912
Working Capital Fund (4.0742%)..................................        $465,839        $133,631        $599,470
----------------------------------------------------------------------------------------------------------------

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)............................      $3,661,473      $1,001,043      $4,662,516
    Total Target Pilot Compensation (Step 4)....................      $7,520,851      $2,212,015      $9,732,866
    Total Target Apprentice Pilot Compensation (Step 4).........        $251,639         $66,891        $318,530
Working Capital Fund (Step 5)...................................        $465,839        $133,631        $599,470
    Total Revenue Needed........................................     $11,899,802      $3,413,580     $15,313,382
----------------------------------------------------------------------------------------------------------------

G. Step 7: Calculate Initial Base Rates

    Having determined the revenue needed for each area in the previous 
six steps, we divide that number by the expected number of traffic 
hours to develop an hourly rate. Step 7 is a two-part process. In the 
first part, the 10-year traffic average in District Three is calculated 
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, pulling the data from the system filtering by district, year, 
job status (including only processed jobs), and flagging code 
(including only 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
------------------------------------------------------------------------
2022....................................          23,985           4,424
2021....................................          18,286           2,516
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

[[Page 55650]]

 
2015....................................          22,824           2,696
2014....................................          25,833           3,835
2013....................................          17,115           2,631
                                         -------------------------------
    Average.............................          22,142           3,240
------------------------------------------------------------------------

    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).................     $11,899,802      $3,413,580
Average time on task (hours)............          22,142           3,240
Initial rate............................            $537          $1,054
------------------------------------------------------------------------

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 data, 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.

                    Table 35--Average Weighting Factor for District Three, Undesignated Areas
----------------------------------------------------------------------------------------------------------------
                                                                     Number of       Weighting       Weighted
                        Vessel class/year                            transits         factor         transits
----------------------------------------------------------------------------------------------------------------
Area 6
Class 1 (2014)..................................................              45               1              45
Class 1 (2015)..................................................              56               1              56
Class 1 (2016)..................................................             136               1             136
Class 1 (2017)..................................................             148               1             148
Class 1 (2018)..................................................             103               1             103
Class 1 (2019)..................................................             173               1             173
Class 1 (2020)..................................................               4               1               4
Class 1 (2021)..................................................               8               1               8
Class 1 (2022)..................................................              94               1              94
Class 2 (2014)..................................................             274            1.15             315
Class 2 (2015)..................................................             207            1.15             238
Class 2 (2016)..................................................             236            1.15             271
Class 2 (2017)..................................................             264            1.15             304
Class 2 (2018)..................................................             169            1.15             194
Class 2 (2019)..................................................             279            1.15             321
Class 2 (2020)..................................................             332            1.15             382
Class 2 (2021)..................................................             273            1.15             314
Class 2 (2022)..................................................             278            1.15             320
Class 3 (2014)..................................................              15             1.3              20
Class 3 (2015)..................................................               8             1.3              10
Class 3 (2016)..................................................              10             1.3              13
Class 3 (2017)..................................................              19             1.3              25
Class 3 (2018)..................................................               9             1.3              12
Class 3 (2019)..................................................               9             1.3              12
Class 3 (2020)..................................................               4             1.3               5
Class 3 (2021)..................................................               5             1.3               7
Class 3 (2022)..................................................               3             1.3               4
Class 4 (2014)..................................................             394            1.45             571
Class 4 (2015)..................................................             375            1.45             544
Class 4 (2016)..................................................             332            1.45             481
Class 4 (2017)..................................................             367            1.45             532
Class 4 (2018)..................................................             337            1.45             489
Class 4 (2019)..................................................             334            1.45             484
Class 4 (2020)..................................................             339            1.45             492
Class 4 (2021)..................................................             365            1.45             529
Class 4 (2022)..................................................             385            1.45             558
                                                                 -----------------------------------------------

[[Page 55651]]

 
    Total for Area 6............................................           6,380  ..............           8,200
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)..................................................               5               1               5
Class 1 (2022)..................................................              13               1              13
Class 2 (2014)..................................................             177            1.15             204
Class 2 (2015)..................................................             169            1.15             194
Class 2 (2016)..................................................             174            1.15             200
Class 2 (2017)..................................................             151            1.15             174
Class 2 (2018)..................................................             102            1.15             117
Class 2 (2019)..................................................             120            1.15             138
Class 2 (2020)..................................................             180            1.15             207
Class 2 (2021)..................................................             124            1.15             143
Class 2 (2022)..................................................             103            1.15             118
Class 3 (2014)..................................................               3             1.3               4
Class 3 (2015)..................................................               0             1.3               0
Class 3 (2016)..................................................               7             1.3               9
Class 3 (2017)..................................................              18             1.3              23
Class 3 (2018)..................................................               7             1.3               9
Class 3 (2019)..................................................               6             1.3               8
Class 3 (2020)..................................................               1             1.3               1
Class 3 (2021)..................................................               1             1.3               1
Class 3 (2022)..................................................               6             1.3               8
Class 4 (2014)..................................................             243            1.45             352
Class 4 (2015)..................................................             253            1.45             367
Class 4 (2016)..................................................             204            1.45             296
Class 4 (2017)..................................................             269            1.45             390
Class 4 (2018)..................................................             188            1.45             273
Class 4 (2019)..................................................             254            1.45             368
Class 4 (2020)..................................................             265            1.45             384
Class 4 (2021)..................................................             319            1.45             463
Class 4 (2022)..................................................             271            1.45             393
                                                                 -----------------------------------------------
    Total for Area 8............................................           3,645  ..............           4,874
    Combined total..............................................          10,025  ..............          13,074
        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)..................................................              15               1              15
Class 1 (2021)..................................................              15               1              15
Class 1 (2022)..................................................             102               1             102
Class 2 (2014)..................................................             221            1.15             254
Class 2 (2015)..................................................             145            1.15             167
Class 2 (2016)..................................................             174            1.15             200
Class 2 (2017)..................................................             170            1.15             196
Class 2 (2018)..................................................             126            1.15             145
Class 2 (2019)..................................................             162            1.15             186
Class 2 (2020)..................................................             218            1.15             251
Class 2 (2021)..................................................             131            1.15             151
Class 2 (2022)..................................................             176            1.15             202
Class 3 (2014)..................................................              15             1.3              20
Class 3 (2015)..................................................               0             1.3               0
Class 3 (2016)..................................................               6             1.3               8
Class 3 (2017)..................................................              14             1.3              18

[[Page 55652]]

 
Class 3 (2018)..................................................               6             1.3               8
Class 3 (2019)..................................................               3             1.3               4
Class 3 (2020)..................................................               1             1.3               1
Class 3 (2021)..................................................               2             1.3               3
Class 3 (2022)..................................................               5             1.3               7
Class 4 (2014)..................................................             321            1.45             465
Class 4 (2015)..................................................             245            1.45             355
Class 4 (2016)..................................................             191            1.45             277
Class 4 (2017)..................................................             234            1.45             339
Class 4 (2018)..................................................             225            1.45             326
Class 4 (2019)..................................................             308            1.45             447
Class 4 (2020)..................................................             336            1.45             487
Class 4 (2021)..................................................             258            1.45             374
Class 4 (2022)..................................................             344            1.45             499
    Total.......................................................           4,428  ..............           5,780
        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
                                                                                      Average     (initial rate
                              Area                                 Initial rate      weighting        average
                                                                     (Step 7)      factor  (Step     weighting
                                                                                        8)            factor)
----------------------------------------------------------------------------------------------------------------
District Three: Undesignated....................................            $537            1.30            $413
District Three: Designated......................................          $1,054            1.31            $805
----------------------------------------------------------------------------------------------------------------

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 are enough pilots to handle those heavy traffic periods. The 
Director also considers whether the proposed rates would cover 
operating expenses and infrastructure costs, taking 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 proposed 
rates shown in table 38.

                                Table 38--Proposed Final Rates for District Three
----------------------------------------------------------------------------------------------------------------
                                                                                 Final 2023       Proposed 2024
                    Area                                   Name                 pilotage rate     pilotage rate
----------------------------------------------------------------------------------------------------------------
District Three: Designated..................  St. Marys River...............              $834              $805
District Three: Undesignated................  Lakes Huron, Michigan, and                   410               413
                                               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), as amended 
by Executive Order 14094 (Modernizing Regulatory Review), and 13563 
(Improving Regulation and Regulatory Review) direct agencies to assess 
the costs and benefits of available regulatory alternatives and, if 
regulation is necessary, to select regulatory approaches that maximize 
net benefits (including potential economic, environmental, public 
health and safety effects, distributive impacts, and equity). 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 
rule a significant regulatory action under section 3(f) of Executive 
Order 12866, as amended by Executive Order 14094. Accordingly, OMB has 
not reviewed this regulatory action.
    The purpose of this proposed rule is to establish new pilotage 
rates, as 46 U.S.C. 9303(f) requires that rates be established or 
reviewed and adjusted each year. The statute also requires that base 
rates be established by a full ratemaking at least once every 5 years, 
and, in years when base rates are not established, they must be 
reviewed and, if necessary, adjusted. The Coast Guard

[[Page 55653]]

concluded the last full ratemaking in February of 2023.\49\ For this 
NPRM, the Coast Guard estimates an increase in cost of approximately 
$1.91 million to industry. This is approximately a 5-percent increase 
because of the change in revenue needed in 2024 compared to the revenue 
needed in 2023. See table 39.
---------------------------------------------------------------------------

    \49\ Great Lakes Pilotage Rates--2023 Annual Ratemaking and 
Review of Methodology (88 FR 12226), published February 27, 2023.

                               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 277 vessels        $1,914,438 due to     association's
                            93, the Coast Guard   transiting the        change in revenue     necessary and
                            is required to        Great Lakes system    needed for 2024       reasonable
                            review and adjust     annually, 56 United   ($39,573,633) from    operating
                            pilotage rates        States Great Lakes    revenue needed for    expenses.
                            annually.             pilots, 7             2023 ($37,659,195)   Promotes safe,
                                                  apprentice pilots,    as shown in table     efficient, and
                                                  and 3 pilotage        40.                   reliable pilotage
                                                  associations.                               service 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., Basis and Purpose, 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 2024 shipping season to generate 
sufficient revenues for each district to reimburse its necessary and 
reasonable operating expenses, fairly compensate properly trained and 
rested pilots, and provide an appropriate working capital fund to use 
for improvements. The result would be an increase in rates for both 
areas in District One, the designated area for District Two, and the 
undesignated area in District Three. The result would be a decrease in 
rates for the undesignated area for District Two and the designated 
area for 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 would depend 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 277 oceangoing vessels that transit the Great Lakes 
annually on average from 2020 to 2022. The Coast Guard estimates that 
there will be 56 registered pilots and 7 apprentice pilots during the 
2024 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 the owners and operators of 
non-Canadian foreign vessels on routes within the Great Lakes system. 
These owners and operators must have pilots or pilotage service as 
required by 46 U.S.C. 9302. There is no minimum tonnage limit or 
exemption for these vessels. The statute applies only to commercial 
vessels, not to recreational vessels. United States-flagged vessels not 
operating on register, and Canadian ``lakers,'' which account for most 
commercial shipping on the Great Lakes, are not required by 46 U.S.C. 
9302 to have pilots. However, these United States- and Canadian-flagged 
lakers may voluntarily choose to engage a Great Lakes registered pilot. 
Vessels that are U.S.-flagged may opt to have a pilot for varying 
reasons, such as unfamiliarity with designated waters and ports, or for 
insurance purposes.
    The Coast Guard used billing information from the years 2020 
through 2022 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 that using 3 years of 
billing data is a better representation of the vessel population 
currently using pilotage services and impacted by this proposed rule.
    We found that 444 unique vessels used pilotage services during the 
years 2020 through 2022. That is, these vessels had a pilot dispatched 
to the vessel, and billing information was recorded in SeaPro. Of these 
vessels, 412 were foreign-flagged vessels and 32 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, the Coast Guard took an average of the unique vessels 
using pilotage services from the years 2020 through 2022 as the best 
representation of vessels estimated to be affected by the rates in this 
proposed rule. From 2020 through 2022, an average of 277 vessels used 
pilotage services annually.\50\ On average, 266 of these vessels were 
foreign-flagged and 11 were U.S.-flagged vessels that voluntarily opted 
into the pilotage service (these figures are rounded averages).
---------------------------------------------------------------------------

    \50\ 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-

[[Page 55654]]

unit cost to each individual shipper would 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 2023 with the total projected revenues to cover costs in 2024. 
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 2024 shipping 
season, the projected revenue needed for all three districts is 
$39,573,633.
    To estimate the change in cost to shippers from this proposed rule, 
the Coast Guard compared the 2024 total projected revenues to the 2023 
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 2023 final 
rule, we estimated the total projected revenue needed for 2023 as 
37,659,195.\51\ This is the best approximation of 2023 revenues, as, at 
the time of publication of this proposed rule, the Coast Guard does not 
have enough audited data available for the 2023 shipping season to 
revise these projections. Table 40 shows the revenue projections for 
2023 and 2024 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.
---------------------------------------------------------------------------

    \51\ 88 FR 12226, 12252. See table 42. https://www.govinfo.gov/content/pkg/FR-2023-02-27/pdf/2023-03212.pdf (Last visited 5/17/23).

                           Table 40--Effect of the Proposed Rule by Area and District
                                         [U.S. dollars; non-discounted]
----------------------------------------------------------------------------------------------------------------
                                                             Revenue needed    Revenue needed   Additional costs
                           Area                                  in 2023           in 2024        of this rule
----------------------------------------------------------------------------------------------------------------
Total, District One.......................................       $12,609,601       $13,706,739        $1,097,138
Total, District Two.......................................        10,392,542        10,553,511           160,969
Total, District Three.....................................        14,657,052        15,313,382           656,330
                                                           -----------------------------------------------------
    System Total..........................................        37,659,195        39,573,633         1,914,438
----------------------------------------------------------------------------------------------------------------
* All figures are rounded to the nearest dollar and may not sum.

    The resulting difference between the projected revenue in 2023 and 
the projected revenue in 2024 is the annual change in payments from 
shippers to pilots as a result of the rate changes proposed by this 
NPRM. The effect of the rate changes to shippers would vary by area and 
district. After considering the change in pilotage rates, the proposed 
rate changes would lead to affected shippers operating in District One 
experiencing an increase in payments of $1,097,138 over the previous 
year. Affected shippers operating in District Two and District Three 
would experience an increase in payments of $160,969 and $656,330, 
respectively, when compared with 2023. The overall adjustment in 
payments would increase payments by shippers of $1,914,438 across all 
three districts (a 5-percent increase when compared with 2023). 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 
2023 to 2024 and presents each revenue-component as a percentage of the 
total revenue needed. In both 2023 and 2024, the largest revenue-
component was pilotage compensation (63 percent of total revenue needed 
in 2023, and 63 percent of total revenue needed in 2024), followed by 
operating expenses (32 percent of total revenue needed in 2023, and 31 
percent of total revenue needed in 2024). The large increase in the 
working capital fund, 56 percent from 2023 to 2024, is driven by a 
large increase in the Target Rate of Return on Investment from 2.7033 
percent in 2021 to 4.0742 percent in 2022.\52\
---------------------------------------------------------------------------

    \52\ Moody's Seasoned Aaa Corporate Bond Yield, average of 2022 
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. (Last visited 03/21/2023).

                                                  Table 41--Difference in Revenue by Revenue-Component
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                Percentage                 Percentage
                                                                    Revenue      of total      Revenue      of total      Difference        Percentage
                       Revenue component                          needed  in     revenue     needed  in     revenue     (2024 revenue--    change from
                                                                     2023       needed  in      2024       needed  in    2023 revenue)    previous year
                                                                                   2023                       2024
--------------------------------------------------------------------------------------------------------------------------------------------------------
Adjusted Operating Expenses....................................   $11,984,950           32   $12,135,029           31          $150,079                1
Total Target Pilot Compensation................................    23,766,288           63    24,774,568           63         1,008,280                4
Total Target Apprentice Pilot Compensation.....................       916,700            2     1,114,856            3           198,156               22
Working Capital Fund...........................................       991,257            3     1,549,180            4           557,923               56
                                                                ----------------------------------------------------------------------------------------
    Total Revenue Needed.......................................    37,659,195          100    39,573,633          100         1,914,438                5
--------------------------------------------------------------------------------------------------------------------------------------------------------
* All figures are rounded to the nearest dollar and may not sum.

[[Page 55655]]

    As stated above, we estimate that there would be a total increase 
in revenue needed by the pilot associations of $1,914,438. This 
represents an increase in revenue needed for target pilot compensation 
of $1,008,280, an increase in revenue needed for the total apprentice 
pilot wage benchmark of $198,156, an increase in the revenue needed for 
adjusted operating expenses of $150,079, and an increase in the revenue 
needed for the working capital fund of $557,923.
    The change in revenue needed for pilot compensation, $1,008,280, is 
due to two factors: (1) The changes to adjust 2023 pilotage 
compensation to account for the difference between actual ECI inflation 
\53\ (4.4 percent) and predicted PCE inflation \54\ (2.7 percent) for 
2023; and (2) projected inflation of pilotage compensation in Step 2 of 
the methodology, using predicted inflation through 2024.
---------------------------------------------------------------------------

    \53\ Employment Cost Index, Total Compensation for Private 
Industry workers in Transportation and Material Moving, Annual 
Average, Series ID: CIU2010000520000A. https://www.bls.gov/news.release/eci.t05.htm (Last visited 04/28/23).
    \54\ Table 1 Summary of Economic Projections, PCE Inflation 
December Projection. https://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20220316.pdf (Last visited 5/17/23).
---------------------------------------------------------------------------

    The target compensation is $442,403 per pilot in 2024, compared to 
$424,398 in 2023. The proposed changes to modify the 2023 pilot 
compensation to account for the difference between predicted and actual 
inflation would increase the 2023 target compensation value by 1.7 
percent. As shown in table 42, this inflation adjustment increases 
total compensation by $7,215 per pilot, and the total revenue needed by 
$404,027, when accounting for all 56 pilots.

  Table 42--Change in Revenue Resulting From the Change to Inflation of
                Pilot Compensation Calculation in Step 4
------------------------------------------------------------------------
 
------------------------------------------------------------------------
2023 Target Pilot Compensation.............................     $424,398
Adjusted 2023 Compensation ($424,398 x 1.017)..............      431,613
Difference between Adjusted Target 2023 Compensation and           7,215
 Target 2023 Compensation ($431,613-$424,398)..............
Increase in total Revenue for 56 Pilots ($7,215 x 56)......      404,027
------------------------------------------------------------------------
*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 $2,597 per apprentice pilot, and the total 
revenue needed by $18,181 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.......................     $152,783
Adjusted Compensation ($152,783 x 1.017)...................      155,381
Difference between Adjusted Target Compensation and Target         2,597
 Compensation ($155,381-$152,783)..........................
Increase in total Revenue for Apprentices ($2,597 x 7).....       18,181
------------------------------------------------------------------------
*All figures are rounded to the nearest dollar and may not sum.

    As noted earlier, the Coast Guard predicts that 56 pilots would be 
needed for the 2024 season. This is the same number of pilots as the 
2023 season, so we do not estimate a change in revenue needed for pilot 
compensation separate from the changes to inflation.
    Similarly, the Coast Guard predicts that seven apprentice pilots 
would be needed for the 2024 season. This would be an increase of one 
from the 2023 season. Table 44 shows the increase of $156,668 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 2023 apprentice pilotage 
compensation to account for the difference between actual and predicted 
inflation.

  Table 44--Change in Revenue Resulting From Increase of One Apprentice
                                  Pilot
------------------------------------------------------------------------
 
------------------------------------------------------------------------
2024 Apprentice Target Compensation........................     $159,265
Total Number of New Apprentices............................            1
Total Cost of new Apprentices ($159,265 x 1)...............      159,265
Difference between Adjusted Target 2023 Compensation and           2,597
 Target 2023 Compensation ($159,265-$155,381)..............
Increase in total Revenue for due to increase of 1                 2,597
 apprentice ($2,597 x 1)...................................
Net Increase in total Revenue for increase of 1-Apprentice       156,668
 (159,265-$2,597)..........................................
------------------------------------------------------------------------
*All figures are rounded to the nearest dollar and may not sum.

    Another increase, $604,253, would be the result of increasing 
compensation for the 56 pilots to account for future inflation of 2.5 
percent in 2024. This would increase total compensation by $10,790 per 
pilot, as shown in table 45.

 Table 45--Change in Revenue Resulting From Inflating 2023 Compensation
                                 to 2024
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Adjusted 2023 Compensation.................................     $431,613
2024 Target Compensation ($431,613 x 1.025)................      442,403
Difference between Adjusted 2023 Compensation and Target          10,790
 2024 Compensation $442,403-$431,613)......................

[[Page 55656]]

 
Increase in total Revenue for 56 Pilots ($10,790 x 56).....      604,253
------------------------------------------------------------------------
*All figures are rounded to the nearest dollar and may not sum.

    Similarly, an increase of $27,191 would be the result of increasing 
compensation for the 7 apprentice pilots to account for future 
inflation of 2.5 percent in 2024. This would increase total 
compensation by $3,884 per apprentice pilot, as shown in table 46.

  Table 46--Change in Revenue Resulting From Inflating 2023 Apprentice
                       Pilot Compensation to 2024
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Adjusted 2023 Compensation.................................     $155,381
2024 Target Compensation ($442,403 x 36%)..................      159,265
Difference between Adjusted Compensation and Target                3,884
 Compensation ($159,265-$155,381)..........................
Increase in total Revenue for 7 Apprentices ($3,884 x 7)...       27,191
------------------------------------------------------------------------
*All figures are rounded to the nearest dollar and may not sum.

    Table 47 presents the percentage change in revenue by area and 
revenue-component, excluding surcharges, as they are applied at the 
district level.\55\
---------------------------------------------------------------------------

    \55\ The 2023 projected revenues are from the Great Lakes 
Pilotage Rate-2023 Annual Review and Revisions to Methodology final 
rule (88 FR 12226), tables 10, 22, and 34. The 2024 projected 
revenues are from tables 8, 20, and 32 of this proposed rule.

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

[[Page 55657]]

[GRAPHIC] [TIFF OMITTED] TP16AU23.002

[[Page 55658]]

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 ensures enough pilots to meet peak shipping demand, 
helping to reduce delays caused by pilot shortages.

B. Small Entities

    Under the Regulatory Flexibility Act, 5 U.S.C. 601-612, we 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 this proposed rule, the Coast Guard reviewed recent company 
size and ownership data for the vessels identified in SeaPro, and we 
reviewed business revenue and size data provided by publicly available 
sources such as ReferenceUSA.\56\ As described in section X., 
Regulatory Analyses, and section III., Executive Summary, of this 
preamble, we found that 444 unique vessels used pilotage services 
during the years 2020 through 2022. These vessels are owned by 53 
entities, of which 47 are foreign entities that operate primarily 
outside the United States, and the remaining 6 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.\57\ Table 48 shows the North American 
Industry Classification System (NAICS) codes of the U.S. entities and 
the small entity standard size established by the SBA.
---------------------------------------------------------------------------

    \56\ See https://resource.referenceusa.com/ (Last visited 05/18/
2023).
    \57\ See https://www.sba.gov/document/support--table-size-standards (Last visited 5/17/23). SBA has established a ``Table of 
Size Standards'' for small businesses that sets small business size 
standards by NAICS code. A size standard, which is usually stated in 
number of employees or average annual receipts (``revenues''), 
represents the largest size that a business (including its 
subsidiaries and affiliates) may be in order to remain classified as 
a small business for SBA and Federal contracting programs.

         Table 48--NAICS Codes and Small Entities Size Standards
------------------------------------------------------------------------
                                                          Small entity
             NAICS                    Description         size standard
------------------------------------------------------------------------
238910........................  Site Preparation        $19,000,000.
                                 Contractors.
425120........................  Wholesale Trade Agents  125 Employees.
                                 And Brokers.
483211........................  Inland Water Freight    1,050 Employees.
                                 Transportation.
483212........................  Inland Water            550 Employees.
                                 Transportation.
484230........................  Specialized Freight     $34,000,000.
                                 (Except Used Goods)
                                 Trucking, Long-
                                 Distance.
488330........................  Navigational Services   $47,000,000.
                                 to Shipping.
561599........................  All Other Travel        $32,500,000.
                                 Arrangement And
                                 Reservation Services.
713930........................  Marinas...............  $11,000,000.
813910........................  Business Associations.  $15,500,000.
------------------------------------------------------------------------

    Of the six U.S. entities, two exceed the SBA's small business 
standards for small entities. To estimate the potential impact on the 
remaining four small entities, the Coast Guard used their 2022 invoice 
data to estimate their pilotage costs in 2024. We increased their 2022 
costs to account for the changes in pilotage rates resulting from this 
proposed rule and the 2023 final rule. We estimated the change in cost 
to these entities resulting from this proposed rule by subtracting 
their estimated 2023 pilotage costs from their estimated 2024 pilotage 
costs and found the average costs to small firms would be approximately 
$7,345.04, with a range of $4,198.62 to $11,322.27. We then compared 
the estimated change in pilotage costs between 2023 and 2024 with each 
firm's annual revenue. In all but one case, the impact of the change in 
estimated pilotage expenses would be below 1 percent of revenues. For 
one entity, the impact would be 1.62 percent of revenues.
    In addition to the owners and operators discussed previously, three 
U.S. entities that receive revenue from pilotage services would be 
affected by this proposed rule. These are the three pilot associations 
that provide and manage pilotage services within the Great Lakes 
districts. These associations are designated collectively as the Lake 
Carrier's Association, as well as individually by each separate 
district association, all with the same NAICS code, ``Business 
Association'' \58\ with a small-entity size standard of $15,500,000. 
Based on the reported revenues from audit reports, the associations 
individually qualify as small entities, but are not considered small by 
the reported revenue of the Lake Carrier's Association.
---------------------------------------------------------------------------

    \58\ In previous rulemakings, the associations used a different 
NAICS code, 483212 Inland Water Passenger Transportation, which had 
a size standard of 500 employees (as of the latest SBA [published 
March 17, 2023] small business size table, that NAICS has a small 
business size threshold of 550 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 would be impacted by this proposed rule. 
We also did not find any small governmental jurisdictions with 
populations of fewer than 50,000 people that would be impacted by this 
proposed rule. Based on this analysis, we conclude this proposed rule 
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 to the docket at the address listed in the 
Public Participation and Request for

[[Page 55659]]

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 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 proposed rule 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.

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 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 (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, 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 preliminary determination that this action is one of a category of 
actions that

[[Page 55660]]

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 Public Participation and 
Request for Comments 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 adjusting the pilotage rates for the 
2024 shipping season to account for changes in district operating 
expenses, changes in the number of pilots, and anticipated inflation. 
All changes are consistent with the Coast Guard's maritime safety 
missions. 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 proposes 
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 No. 00170.1, Revision No. 01.3, 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 $925;
    (2) Lake Ontario is $606;
    (3) Lake Erie is $586;
    (4) The navigable waters from Southeast Shoal to Port Huron, MI is 
$660;
    (5) Lakes Huron, Michigan, and Superior is $413; and
    (6) The St. Mary's River is $805.
* * * * *

    Dated: August 10, 2023.
W.R. Arguin,
Rear Admiral, U.S. Coast Guard, Assistant Commandant for Prevention 
Policy.
[FR Doc. 2023-17474 Filed 8-15-23; 8:45 am]
BILLING CODE 9110-04-P