Document ID: USCG-2017-0903-0001
Agency: uscg
Document Type: Proposed Rule
Title: Great Lakes Pilotage Rates- 2018 Annual Review and Revisions to Methodology
Posted Date: 2018-01-18T05:00Z

[Federal Register Volume 83, Number 12 (Thursday, January 18, 2018)]
[Proposed Rules]
[Pages 2581-2607]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-00781]

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DEPARTMENT OF HOMELAND SECURITY

Coast Guard

46 CFR Parts 401 and 404

[USCG-2017-0903]
RIN 1625-AC40

Great Lakes Pilotage Rates--2018 Annual Review and Revisions to 
Methodology

AGENCY: Coast Guard, DHS.

ACTION: Notice of proposed rulemaking.

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SUMMARY: In accordance with the Great Lakes Pilotage Act of 1960, the 
Coast Guard proposes new base pilotage rates and surcharges for the 
2018 shipping season. Additionally, the Coast Guard is proposing 
several changes to the Great Lakes pilotage ratemaking methodology. 
These additional proposed changes include creating clear delineation 
between the Coast Guard's annual rate adjustments and the Coast Guard's 
requirement to conduct a full ratemaking every five years; the adoption 
of a revised compensation benchmark; reorganization of the text 
regarding the staffing model for calculating the number of pilots 
needed; and certain editorial changes.

DATES: Comments and related material must be submitted to the online 
docket via https://www.regulations.gov, or reach the Docket Management 
Facility, on or before February 20, 2018.

ADDRESSES: You may submit comments identified by docket number USCG-
2017-0903 using the Federal eRulemaking Portal at https://www.regulations.gov. See the ``Public Participation and Request for 
Comments'' portion of the SUPPLEMENTARY INFORMATION section of this 
document for further instructions on submitting comments.

FOR FURTHER INFORMATION CONTACT: For information about this document, 
call or

[[Page 2582]]

email Mr. Michael Moyers, Great Lakes Pilotage, Commandant (CG-WWM-2), 
Coast Guard; telephone 202-372-1553, email [email protected], 
or fax 202-372-1914.

SUPPLEMENTARY INFORMATION: 

Table of Contents for Preamble

I. Public Participation and Request for Comments
II. Abbreviations
III. Executive Summary
IV. Basis and Purpose
V. Background
VI. Discussion of Proposed Methodological and Other Changes
    A. Codification of Compensation Inflation Adjustment
    B. Relocation of Staffing Model Regulations
    C. Additional Changes to Ratemaking Steps 3 and 4
    D. Delineation of Full Ratemakings and Annual Adjustments
    E. Other Miscellaneous Changes
VII. Revised Compensation Benchmark
VIII. Discussion of Proposed Rate Adjustments
    A. Step 1: Recognition of Operating Expenses
    B. Step 2: Projection of Operating Expenses
    C. Step 3: Estimate Number of Working Pilots
    D. Step 4: Determine Target Pilot Compensation
    E. Step 5: Calculate Working Capital Fund
    F. Step 6: Calculate Revenue Needed
    G. Step 7: Calculate Initial Base Rates
    H. Step 8: Calculate Average Weighting Factors by Area
    I. Step 9: Calculate Revised Base Rates
    J. Step 10: Review and Finalize Rates
    K. Surcharges
IX. Regulatory Analyses
    A. Regulatory Planning and Review
    B. Small Entities
    C. Assistance for Small Entities
    D. Collection of Information
    E. Federalism
    F. Unfunded Mandates Reform Act
    G. Taking of Private Property
    H. Civil Justice Reform
    I. Protection of Children
    J. Indian Tribal Governments
    K. Energy Effects
    L. Technical Standards
    M. Environment

I. Public Participation and Request for Comments

    We view public participation as essential to effective rulemaking, 
and will consider all comments and material received during the comment 
period. Your comment can help shape the outcome of this rulemaking. If 
you submit a comment, please include the docket number for this 
rulemaking, indicate the specific section of this document to which 
each comment applies, and provide a reason for each suggestion or 
recommendation.
    We encourage you to submit comments through the Federal eRulemaking 
Portal at https://www.regulations.gov. If your material cannot be 
submitted using https://www.regulations.gov, contact the person in the 
FOR FURTHER INFORMATION CONTACT section of this proposed rule for 
alternate instructions. Documents mentioned in this proposed rule, and 
all public comments, are available in our online docket at https://www.regulations.gov, and can be viewed by following that website's 
instructions. Additionally, if you go to the online docket and sign up 
for email alerts, you will be notified when comments are posted or a 
final rule is published.
    We accept anonymous comments. All comments received will be posted 
without change to https://www.regulations.gov and will include any 
personal information you have provided. For more about privacy and the 
docket, visit https://www.regulations.gov/privacyNotice.
    We are not planning to hold a public meeting but will consider 
doing so if public comments indicate a meeting would be helpful. We 
would issue a separate Federal Register notice to announce the date, 
time, and location of such a meeting.

II. Abbreviations

APA American Pilots Association
AMOU American Maritime Officers Union
CATEX Unique Categorical Exclusions for the U.S. Coast Guard
CFR Code of Federal Regulations
CPA Certified public accountant
DHS Department of Homeland Security
FOMC Federal Open Market Committee
FR Federal Register
GLPA Great Lakes Pilotage Authority (Canadian)
GLPAC Great Lakes Pilotage Advisory Committee
GLPMS Great Lakes Pilotage Management System
NAICS North American Industry Classification System
NPRM Notice of proposed rulemaking
OMB Office of Management and Budget
PCE Personal Consumption Expenditures
RA Regulatory analysis
SBA Small Business Administration
Sec.  Section symbol
The Act Great Lakes Pilotage Act of 1960
U.S.C. United States Code

III. Executive Summary

    Pursuant to the Great Lakes Pilotage Act of 1960 (``the Act''),\1\ 
the Coast Guard regulates pilotage for oceangoing vessels on the Great 
Lakes--including setting the rates for pilotage services and adjusting 
them on an annual basis. The rates, which currently range from $218 to 
$601 per pilot hour (depending on the specific area where pilotage 
service is provided), are paid by shippers to pilot associations. The 
three pilot associations, which are the exclusive source of registered 
pilots on the Great Lakes, use this revenue to cover operating 
expenses, maintain infrastructure, compensate working pilots, and train 
new pilots. We have developed a ratemaking methodology in accordance 
with our statutory requirements and regulations. Our ratemaking 
methodology calculates the revenue needed for each pilotage association 
(including operating expenses, compensation, and infrastructure needs), 
and then divides that amount by the expected shipping traffic over the 
course of the year to produce an hourly rate. This process is currently 
effected through a 10-step methodology and supplemented with 
surcharges, which are explained in detail in this notice of proposed 
rulemaking (NPRM).
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    \1\ 46 U.S.C. Chapter 93; Public Law 86-555, 74 Stat. 259, as 
amended.
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    In this NPRM, we are proposing to make modifications to the 
ratemaking methodology and proposing new pilotage rates for 2018 based 
on the new proposed methodology. The proposed modifications to the 
ratemaking methodology consist of a new compensation benchmark, 
organizational changes, and clarifications. We are proposing a new 
compensation benchmark to comply with a recent court decision holding 
that the Coast Guard had not adequately justified the previous 
benchmark, established in the 2016 rulemaking, which set compensation 
at the level of Canadian wages plus ten percent.\2\ From an 
organizational standpoint, we propose to move the discussion of the 
staffing model from its current location in title 46 of the Code of 
Federal Regulation (CFR) 404.103 (as part of ``Step 3'' of the 
ratemaking process), to the general regulations governing pilotage in 
46 CFR 401.220(a). For clarification purposes, we are proposing to set 
forth separate regulatory paragraphs detailing the differences between 
how we undertake an annual adjustment of the pilotage rates, and a full 
reassessment of the rates, which must be undertaken once every 5 years.
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    \2\ We have included the court's opinion in the docket at USCG-
2017-0903.
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    As part of our annual review, we are proposing in this NPRM new 
rates for the 2018 shipping season. Based on the ratemaking model 
discussed in this NPRM, we are proposing the rates shown in Table 1.

[[Page 2583]]

     Table 1--Current and Proposed Pilotage Rates on the Great Lakes
------------------------------------------------------------------------
                                           2017 pilotage   Proposed 2018
                  Area                         rate        pilotage rate
------------------------------------------------------------------------
St. Lawrence River......................            $601            $622
Lake Ontario............................             408             424
Navigable waters from Southeast Shoal to             580             553
 Port Huron, MI.........................
Lake Erie...............................             429             454
St. Mary's River........................             514             517
Lakes Huron, Michigan, and Superior.....             218             253
------------------------------------------------------------------------

    This proposed rule is not economically significant under E.O. 
12866. This proposed rule would impact 49 U.S. Great Lakes pilots, 3 
pilot associations, and the owners and operators of an average of 215 
oceangoing vessels that transit the Great Lakes annually. The estimated 
overall annual regulatory economic impact of this rate change is a net 
increase of $1,162,401 in payments made by shippers from the 2017 
shipping season. Because we must review, and, if necessary, adjust 
rates each year, we analyze these as single year costs and do not 
annualize them over 10 years. This rule does not affect the Coast 
Guard's budget or increase Federal spending. Section IX of this 
preamble discusses the regulatory impact analyses of this proposed 
rule.

IV. Basis and Purpose

    The legal basis of this rulemaking is the Great Lakes Pilotage Act 
of 1960 (``the Act''), which requires U.S. vessels operating ``on 
register'' and foreign merchant vessels to use U.S. or Canadian 
registered pilots while transiting the U.S. waters of the St. Lawrence 
Seaway and the Great Lakes system.\3\ For the U.S. Registered Great 
Lakes Pilots (``pilots''), the Act requires the Secretary to 
``prescribe by regulation rates and charges for pilotage services, 
giving consideration to the public interest and the costs of providing 
the services.'' \4\ The Act requires that rates be established or 
reviewed and adjusted each year, not later than March 1. The Act 
requires that base rates be established by a full ratemaking at least 
once every 5 years, and in years when base rates are not established, 
they must be reviewed and, if necessary, adjusted. The Secretary's 
duties and authority under the Act have been delegated to the Coast 
Guard.\5\ The purpose of this NPRM is to propose new changes to the 
methodology in projecting pilotage rates as well as revised pilotage 
rates and surcharges. Our goals for this and all future rates are to 
ensure safe, efficient, and reliable pilotage services on the Great 
Lakes, and provide adequate funds to maintain infrastructure. 
Additionally, we believe that the new methodology will increase 
transparency and predictability in the ratemaking process and ensure 
that annual adjustments of rates are completed in a timely manner.
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    \3\ See 46 U.S.C. 9301(2) and 9302(a)(1).
    \4\ See 46 U.S.C. 9303(f).
    \5\ Department of Homeland Security (DHS) Delegation No. 0170.1, 
para. II (92.f).
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V. Background

    Pursuant to the Great Lakes Pilotage Act, the Coast Guard, in 
conjunction with the Canadian Great Lakes Pilotage Authority, regulates 
shipping practices and pilotage rates on the Great Lakes. Under Coast 
Guard regulations, all U.S. vessels sailing on register and all non-
Canadian, foreign merchant vessels (often referred to as ``salties''), 
are required to engage U.S. or Canadian pilots during their transit 
through regulated waters. United States and Canadian ``lakers,'' which 
account for most commercial shipping on the Great Lakes, are not 
subject to the Act.\6\ Generally, vessels are assigned a U.S. or 
Canadian pilot depending on the order in which they transit a 
particular area of the Great Lakes, and do not choose the pilot they 
receive. If a vessel is assigned a U.S. pilot, that pilot will be 
assigned by the pilotage association responsible for the particular 
district in which the vessel is operating, and the vessel operator will 
pay the pilotage association for the pilotage services.
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    \6\ See 46 U.S.C. 9302. A ``laker'' is a commercial cargo vessel 
especially designed for and generally limited to use on the Great 
Lakes.
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    The U.S. waters of the Great Lakes and the St. Lawrence Seaway are 
divided into three pilotage districts. Pilotage in each district is 
provided by an association certified by the Coast Guard Director of the 
Great Lakes Pilotage Office (``the Director'') to operate a pilotage 
pool. The Saint Lawrence Seaway Pilotage Association provides pilotage 
services in District One, which includes all U.S. waters of the St. 
Lawrence River and Lake Ontario. The Lakes Pilotage Association 
provides pilotage services in District Two, which includes all U.S. 
waters of Lake Erie, the Detroit River, Lake St. Clair, and the St. 
Clair River. Finally, the Western Great Lakes Pilotage Association 
provides pilotage services in District Three, which includes all U.S. 
waters of the St. Mary's River; Sault Ste. Marie Locks; and Lakes 
Huron, Michigan, and Superior.
    Each pilotage district is further divided into ``designated'' and 
``undesignated'' areas. Designated areas are classified as such by 
Presidential Proclamation \7\ to be waters in which pilots must, at all 
times, be fully engaged in the navigation of vessels in their charge. 
Undesignated areas, on the other hand, are open bodies of water, and 
thus are not subject to the same pilotage requirements. While working 
in those undesignated areas, pilots must ``be on board and available to 
direct the navigation of the vessel at the discretion of and subject to 
the customary authority of the master.'' \8\ As such, pilotage rates in 
designated areas are higher than those in undesignated areas.
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    \7\ Presidential Proc. 3385, Designation of restricted waters 
under the Great Lakes Pilotage Act of 1960, December 22, 1960.
    \8\ 46 U.S.C. 9302(a)(1)(B).

[[Page 2584]]

                           Table 2--Areas of the Great Lakes and Saint Lawrence Seaway
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                                         Pilotage                              Area number
             District                  association          Designation            \9\          Area name \10\
----------------------------------------------------------------------------------------------------------------
One..............................  Saint Lawrence       Designated.........               1  St. Lawrence River.
                                    Seaway Pilotage     Undesignated.......               2  Lake Ontario.
                                    Association.
Two..............................  Lake Pilotage        Designated.........               5  Navigable waters
                                    Association.                                              from Southeast
                                                                                              Shoal to Port
                                                                                              Huron, MI.
                                                        Undesignated.......               4  Lake Erie.
Three............................  Western Great Lakes  Designated.........               7  St. Mary's River.
                                    Pilotage            Undesignated.......               6  Lakes Huron and
                                    Association.        Undesignated.......               8   Michigan.
                                                                                             Lake Superior.
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    Each pilot association is an independent business and is the sole 
provider of pilotage services in the district in which it operates. 
Each pilot associations is responsible for funding its own operating 
expenses, maintaining infrastructure, acquiring and implementing 
technological advances, training personnel/partners and pilot 
compensation. We developed a 10-step ratemaking methodology to derive a 
pilotage rate that covers these expenses based on the estimated amount 
of traffic. In short, the methodology is designed to measure how much 
revenue each pilotage association will need to cover expenses and 
provide competitive compensation to working pilots. The Coast Guard 
then divides that amount by the historical average traffic transiting 
through the district. We recognize that in years where traffic is above 
average, pilot associations will take in more revenue than projected, 
while in years where traffic is below average, they will take in less. 
We believe that over the long term, however, this system ensures that 
infrastructure will be maintained and that pilots will receive adequate 
compensation and work a reasonable number of hours with adequate rest 
between assignments to ensure retention of highly-trained personnel.
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    \9\ Area 3 is the Welland Canal, which is serviced exclusively 
by the Canadian Great Lakes Pilotage Authority (GLPA) and, 
accordingly, is not included in the United States pilotage rate 
structure.
    \10\ The areas are listed by name in 46 CFR 401.405.
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    Over the past 2 years, the Coast Guard has made major adjustments 
to the Great Lakes pilotage ratemaking methodology. In 2016, we made 
significant changes to the methodology, moving to an hourly billing 
rate for pilotage services and changing the compensation benchmark to a 
more transparent model. In 2017, we added additional steps to the 
ratemaking methodology, including new steps that will accurately 
account for the additional revenue produced by the application of 
weighting factors (discussed in detail in Steps 7 through 9 of this 
preamble). The current methodology, which was finalized in the August 
31, 2017 Federal Register (82 FR 41466), is designed to accurately 
capture all the costs and revenues associated with Great Lakes pilotage 
requirements and produce an hourly rate that adequately, and 
accurately, compensates pilots and covers expenses. The Coast Guard 
summarizes the current methodology in the section below.

Summary of Ratemaking Methodology

    As stated above, the ratemaking methodology, currently outlined in 
46 CFR 404.101 through 404.110, consists of 10 steps that are designed 
to account for the revenues needed and total traffic expected in each 
district. The result is an hourly rate (determined separately for each 
of the areas administered by the Coast Guard).
    In Step 1, ``Recognize previous operating expenses,'' (Sec.  
404.101) we review audited operating expenses from each of the three 
pilotage associations. This number forms the baseline amount that each 
association is budgeted. Because of the time delay between when the 
association submits raw numbers and the Coast Guard receives audited 
numbers, this number is 3 years behind the projected year of expenses. 
So in calculating the 2018 rates in this proposal, we are beginning 
with the audited expenses from calendar year 2015.
    While each pilotage association operates in an entire district, we 
further break down the costs by area. Thus, with regard to operating 
expenses, we allocate certain operating expenses to undesignated areas, 
and certain expenses to designated areas. In some cases (e.g., 
insurance for applicant pilots who operate in undesignated areas only), 
we can allocate the costs based on where they are actually accrued. In 
other situations (e.g., general legal expenses), expenses are 
distributed between designated and undesignated waters on a pro rata 
basis, based upon the proportion of income forecasted from the 
respective portions of the district.
    In Step 2, ``Project operating expenses, adjusting for inflation or 
deflation,'' (Sec.  404.102) we develop the 2018 projected operating 
expenses. To do this, we apply inflation adjustors for 3 years to the 
operating expense baseline received in Step 1. The inflation factors 
used are from the Bureau of Labor Statistics' Consumer Price Index for 
the Midwest Region, or if not available, the Federal Open Market 
Committee (FOMC) median economic projections for Personal Consumption 
Expenditures (PCE) inflation. This step produces the total operating 
expenses for each area and district.
    In Step 3, ``Determine number of pilots needed,'' (Sec.  404.103) 
we calculate how many pilots are needed for each district. To do this, 
we employ a ``staffing model,'' described in Sec.  404.103(a) through 
(c), to estimate how many pilots would be needed to handle shipping 
during the beginning and close of the season. This number is helpful in 
providing guidance to the Director of the Coast Guard Great Lakes 
Pilotage Office in approving an appropriate number of credentials for 
pilots.
    For the purpose of the ratemaking calculation, we determine the 
number of working pilots provided by the pilotage associations (see 
Sec.  404.103(d)) which is what we use to determine how many pilots 
need to be compensated via the pilotage fees collected.
    In Step 4, ``Determine target pilot compensation benchmark,'' 
(Sec.  404.104) we determine the revenue needed for pilot compensation 
in each area and district. This step contains two processes. In the 
first process, we calculate the total compensation for each pilot using 
a ``compensation benchmark.'' Next, we multiply the individual pilot 
compensation by the number of working pilots for each area and district 
(from Step 3), producing a figure for total pilot compensation. Because 
pilots are paid by the associations, but the costs of pilotage is 
divided up by area for accounting purposes, we assign a certain number 
of pilots for the designated areas and a certain number of pilots for 
the undesignated areas for purposes of determining the revenues needed 
for each area. To make the determination of how many pilots to assign, 
we use the staffing model designed to determine

[[Page 2585]]

the total number of pilots, described in Step 3, above.
    In Step 5, ``Project working capital fund,'' (Sec.  404.105) we 
calculate a return on investment by adding the total operating expenses 
(derived in Step 2) and the total pilot compensation (derived in Step 
4), and multiply that figure by the preceding year's average annual 
rate of return for new issues of high-grade corporate securities. This 
figure constitutes the ``working capital fund'' for each area and 
district.
    In Step 6, ``Project needed revenue,'' (Sec.  404.106) we simply 
add up the totals produced by the preceding steps. For each area and 
district, we add the projected operating expense (from Step 2), the 
total pilot compensation (from Step 4), and the working capital fund 
contribution (from Step 5). The total figure, calculated separately for 
each area and district, is the ``revenue needed.''
    In Step 7, ``Initially calculate base rates,'' (Sec.  404.107) we 
calculate an hourly pilotage rate to cover the revenue needed 
calculated in step 6. This step consists of first calculating the 10-
year traffic average for each area. Next, we divide the revenue needed 
in each area (calculated in Step 6) by the 10-year traffic average to 
produce an initial base rate.
    An additional element, the ``weighting factor,'' is required under 
Sec.  401.400. Pursuant to that section, ships pay a multiple of the 
``base rate'' as calculated in Step 7 by a number ranging from 1.0 (for 
the smallest ships, or ``Class I'' vessels) to 1.45 (for the largest 
ships, or ``Class IV'' vessels). As this significantly increases the 
revenue collected, we need to account for the added revenue produced by 
the weighting factors to ensure that shippers are not overpaying for 
pilotage services.
    In Step 8, ``Calculate average weighting factors by area,'' (Sec.  
404.108) we calculate how much extra revenue, as a percentage of total 
revenue, has historically been produced by the weighting factors in 
each area. We do this by using a historical average of applied 
weighting factors for each year since 2014 (the first year the current 
weighting factors were applied).
    In Step 9, ``Calculate revised base rates,'' (Sec.  404.109) we 
modify the base rates by accounting for the extra revenue generated by 
the weighting factors. We do this by simply dividing the initial 
pilotage rate for each area (from Step 7) by the corresponding average 
weighting factor (from Step 8), to produce a revised rate.
    In Step 10, ``Review and finalize rates,'' (Sec.  404.110) often 
referred to informally as ``director's discretion,'' we review the 
revised base rates (from Step 9) to ensure that they meet the goals set 
forth in the Act and 46 CFR 404.1(a), which include promoting 
efficient, safe, and reliable pilotage service on the Great Lakes; 
generating sufficient revenue for each pilotage association to 
reimburse necessary and reasonable operating expenses; compensating 
pilots fairly, who are trained and rested; and providing appropriate 
profit for improvements. Because it is our goal to be as transparent as 
possible in our ratemaking procedure, we use this step sparingly to 
adjust rates.
    Finally, after the base rates are set, Sec.  401.401 permits the 
Coast Guard to apply surcharges. Currently, we use surcharges to pay 
for the training of new pilots, rather than incorporating training 
costs into the overall ``revenue needed'' that is used in the 
calculation of the base rates. In recent years, we have allocated 
$150,000 per applicant pilot to be collected via surcharges. This 
amount is calculated as a percentage of total revenue for each 
district, and that percentage is applied to each bill. When the total 
amount of the surcharge has been collected, the pilot associations are 
prohibited from collecting further surcharges. Thus, in years where 
traffic is heavier than expected, shippers early in the season could 
pay more than shippers employing pilots later in the season, after the 
surcharge cap has been met.

VI. Discussion of Proposed Methodological and Other Changes

    For 2018, we are proposing a number of changes to the ratemaking 
methodology. These changes are both revisions to the rate-setting 
process, as well as organizational changes that will simplify and 
streamline rate-setting procedures in future years. While we realize 
that yearly adjustments of the ratemaking methodology can lead to 
unpredictability, we believe that modest modifications to the 
ratemaking methodology in order to improve accuracy, simplify its 
steps, and make it more transparent complies with our statutory 
requirement to consider public interest and the costs of providing 
pilotage services. These proposed changes are intended to provide rate 
stability and predictability beneficial to the U.S. Great Lakes pilot 
associations, shippers, cruise ships, and voluntary employment of U.S. 
registered pilots.\11\ Additionally, in this section, we discuss 
several other proposed changes to the Great Lakes pilotage regulations, 
which, while related to the annual ratemakings, are not limited to the 
specific methodological steps.
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    \11\ In some cases, U.S.-registered vessels that are not 
required to use a pilot by law will do so voluntarily for business 
reasons.
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A. Codification of Compensation Inflation Adjustment

    One change we are proposing in this NPRM is to add regulatory text 
to Sec.  404.104 that would automatically adjust the pilot compensation 
figure for inflation annually. Under the current regulations, while 
pilot compensation is determined in Step 4 annually, there is no 
specific provision that it will change with inflation. This issue is 
often raised in comments. For example, in the 2016 Great Lakes pilotage 
rate adjustment final rule,\12\ we set target pilot compensation at 
$326,114 annually. Then, in the 2017 NPRM,\13\ we proposed leaving that 
amount unchanged. This prompted comments stating that leaving the 
nominal target compensation of pilots unchanged undermined the Coast 
Guard's stated goal of compensation stability, because the pilots' 
earning power would not keep up with regional inflation. In the 2017 
final rule, we increased the target compensation number by the 
inflation rate, to the current level of $332,963.\14\ In that rule, we 
stated that ``we intend to adjust the compensation figure for inflation 
annually in future ratemaking actions, the same way that operating 
expenses are adjusted for inflation.'' \15\
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    \12\ See 81 FR 11908 (March 7, 2016).
    \13\ See 81 FR 72011 (October 19, 2016).
    \14\ See 82 FR 41466 (August 31, 2017).
    \15\ Id., at 41483.
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    Based on these considerations, we propose to add regulatory text to 
Sec.  404.104 to make the adjustment for inflation automatic. This 
would serve a variety of interests. First, it would improve consistency 
in our ratemaking procedures. While the operating expenses are 
automatically adjusted for inflation, compensation is not. This 
proposed change would treat the two types of expenses equally. 
Additionally, because the revenue for the working capital fund is based 
in part on compensation (see the discussion in the Background section 
of this Preamble), automatically adjusting pilot compensation for 
inflation would have a similar effect on contributions to the working 
capital fund.
    Automatically adjusting pilot compensation for inflation would 
improve transparency and efficiency in our ratemaking procedures. Also, 
replacing the current process with an automatic and predictable 
inflationary adjustment would increase predictability. As previously 
stated, we believe this predictability benefits the

[[Page 2586]]

U.S. registered pilots who provide the service and those stakeholders 
who employ the pilots. Given variations in traffic, compensation as a 
pilot is uncertain, and we believe that this proposed change would 
reduce some of the uncertainty related to target pilot compensation. It 
would also increase the efficiency of the ratemaking process by making 
the inflation adjustment automatic, so that we would be better able to 
process our annual ratemaking in a timely fashion.
    To implement this increase, we propose adding regulatory text to 
Sec.  404.104 stating that the Director will adjust the previous year's 
individual target pilot compensation level by BLS CPI for the Midwest 
Region, or if that is unavailable, the FOMC median economic projections 
for PCE inflation \16\. See proposed Sec.  404.104(b). The BLS CPI 
tracks the changes in prices of all goods and services purchased for 
consumption by urban households. The BLS releases CPI data monthly, for 
the previous month. The FOMC PCE inflation tracks the projected change 
in prices of goods and services purchased by consumers throughout the 
US economy for the current and future years. We note that this would 
occur only in years in which we conduct an annual review of pilotage 
rates, and not in years when we conduct a ``full ratemaking, because in 
those years the target compensation figure is reset and no inflation 
adjustment is needed.'' \17\ We invite comment on the effect of this 
proposal as well as the particular inflation index chosen to implement 
it.
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    \16\ https://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20170920.pdf.
    \17\ For more information on this topic, see section VI.D. 
titled, ``Delineation of full ratemakings and annual reviews'' in 
this preamble.
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B. Relocation of Staffing Model Regulations

    Another change that we propose in this NPRM is to relocate the 
``staffing model'' regulatory text, currently located in Sec.  
404.103(a) through (c). We are not proposing to adjust or modify the 
regulatory text, but simply move it to Sec.  401.220(a), ``Registration 
of pilots,'' rather than keep it as part of the ratemaking methodology 
text. For the reasons below, we believe that this change will both 
improve the clarity of the regulations and improve the regulatory 
process. The staffing model informs the Coast Guard's administration of 
the Great Lakes Pilotage program, but is distinct from the ratemaking 
methodology. Specifically, the staffing model provides guidance to the 
Director on implementing the requirement currently in Sec.  401.220(a), 
which requires the Director to determine the number of pilots needed to 
assure adequate and efficient pilotage service in the United States 
waters of the Great Lakes and to provide for equitable participation of 
United States Registered Pilots with Canadian Registered Pilots.
    The current way in which Sec.  404.103, entitled ``Ratemaking Step 
3: Determine number of pilots needed,'' is written produces two 
distinct sets of numbers. In Sec.  404.103(a) through (c), we employ a 
``staffing model'' to determine the number of pilots needed in each 
district to provide safe and reliable pilotage services in periods of 
high seasonal demand. This staffing model produces a number of pilots 
for each district that we believe is needed to minimize delays and 
allow for some instances of double pilotage (that is, where two pilots 
are employed on a vessel simultaneously because of particularly 
hazardous conditions). In the 2017 final rule, the staffing model 
produced a figure of 54 total pilots on the Great Lakes: 17 for 
District One, 15 for District Two, and 22 for District Three.\18\
---------------------------------------------------------------------------

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

    The Director of the Great Lakes Pilotage Office is required in 
Sec.  404.103(d) to project the number of pilots expected to be working 
in the current year based on the numbers provided by the pilotage 
associations, as well as the number of applications for pilot 
positions.\19\ As shown by the calculations used in the next, and all 
subsequent steps of the ratemaking process, the pilot numbers derived 
under Sec.  404.103(d), not those from the staffing model text in 
paragraphs (a)-(c), were used to calculate the pilotage rates. The 
reason that the numbers produced by the text in paragraphs (a)-(c) are 
not used in the ratemaking is because while the staffing model is 
related to the annual ratemaking methodology, it is only through its 
impact on the number derived in paragraph (d). Instead, the function of 
the staffing model is to provide guidance to the Director regarding the 
number of pilots needed. While the number of pilots needed, as 
ascertained by the Director, certainly has an impact on the number of 
working pilots, the two numbers are not necessarily identical. We also 
note that, over the past several years, the number of pilots actually 
working has been significantly lower than the amount the staffing model 
suggests are needed. While the staffing model itself does not directly 
affect the ratemaking, the fact that the text appears in Sec.  404.103, 
rather than as a modifier to Sec.  401.220(a), creates some confusion. 
To begin, we note that inclusion of the staffing model text in the 
annual ratemaking section implies that we reevaluate the staffing model 
every year as part of the annual ratemaking procedure. While this is 
incorrect, it has led to confusion about the role of the staffing 
model, and significant resources have been expended by commenters in 
past years regarding its use and application. We believe part 401 is 
the best place to locate the staffing model text as it contains many 
similar items pertaining to pilotage that, while they affect the 
ratemaking process, are not part of it and do not need to be reanalyzed 
on an annual basis.
---------------------------------------------------------------------------

    \19\ See, for example, table 7, ``Calculations of total 
compensation,'' 82 FR 41466, at 41483 (August 31, 2017).
---------------------------------------------------------------------------

    Finally, we note that the movement of the staffing model to Sec.  
401.220(a) would have an organizational impact on future pilotage rate 
regulatory actions. In the past, we included detailed, and sometimes 
repetitive, calculations of the staffing model in our annual ratemaking 
publication. However, if we move the staffing model text to part 401, 
and do not make any changes to the inputs or staffing methodology, we 
would not include a full analysis of the staffing model in each 
regulatory document. Instead, we propose to simply certify that the 
number of pilots working under Step 3 of the ratemaking process was 
less than or equal to the number of pilots authorized by the 
regulations in Sec.  401.220. However, in circumstances where the 
staffing model produced a changed result in the number of pilots needed 
to ensure safe and reliable pilotage, we would include an analysis of 
the number of pilots recommended by the staffing model in the proposed 
rule. In this year's ratemaking, we note that the staffing model 
analysis remains unchanged from 2017, and for that reason is not 
repeated here.
    For the reasons stated above, we propose moving the current 
staffing model text, located in Sec.  404.103(a) through (c) to Sec.  
401.220(a), where it will be renumbered as Sec.  401.220(a)(1) through 
(a)(3). The existing text would not be changed in any way other than 
being relocated, and we are not proposing any changes to the staffing 
model in this ratemaking.

C. Additional Changes to Ratemaking Steps 3 and 4

    Additionally, we are proposing a change to the remaining text of 
Sec.  404.103. Specifically, we propose to remove the words ``during 
the first year of the period for which base rates are being 
established'' from Sec.  404.103(d). This phrase, carried over from 
previous

[[Page 2587]]

years, does not apply under the current methodology where base rates 
are established annually. We believe that this change would help to 
improve clarity and regulatory efficiency in future annual ratemakings.
    Finally, we are proposing to change the name of the section. The 
section, currently titled, ``Determine number of pilots needed,'' is 
misleading, as the number of pilots needed to ensure safe and reliable 
pilotage is determined by the Director in Sec.  401.220(a). Thus, we 
propose to change the section heading to ``Estimate number of working 
pilots,'' to more accurately reflect what we are doing in this step of 
the ratemaking process. In a related matter, we are also proposing a 
change to Sec.  404.104 to explicitly establish the relationship 
between the staffing model and the annual ratemaking. While in the 
past, the number of pilots has been below the number derived from the 
staffing model, there is no regulatory text indicating that this is a 
limiting factor. To eliminate this ambiguity, we propose to add text to 
Sec.  404.104, ``Ratemaking step 4: Determine target pilot 
compensation,'' that would limit the total number of working pilots for 
ratemaking purposes to the maximum number allowed by the staffing 
model. This does not prohibit pilotage associations from hiring more 
pilots than the staffing model suggests are needed to handle peak 
traffic (if, for example, pilots wanted to work fewer hours for less 
pay, and the Director approved), but it would limit pilotage rates by 
preventing those extra pilots from being considered in the ratemaking 
calculations.

D. Delineation of Full Ratemakings and Annual Adjustments

    In this NPRM, we are proposing an organizational change to the 
regulations in part 404 to better delineate the full ratemaking 
procedure from the interim ratemaking procedure. Pursuant to the Act, 
we are required to establish new pilotage rates by March 1 of each 
year.\20\ However, the Act sets forth two types of ratemaking 
procedures. The Act states that the Coast Guard must establish base 
pilotage rates by a ``full ratemaking'' at least once every 5 years, 
and that it must ``conduct annual reviews of such base pilotage rates, 
and make adjustments to such base rates, in each intervening year.'' 
\21\ In order to more clearly effect the Act's mandate, we propose to 
include in the regulatory text sections that differentiate between a 
``full ratemaking'' and an ``interim ratemaking.'' We would announce, 
in the NPRM of each annual ratemaking, whether we were conducting a 
full or interim ratemaking procedure (while the Act requires that the 
Coast Guard perform a full ratemaking at least once every 5 years, we 
note that it may occur more frequently if circumstances warrant).
---------------------------------------------------------------------------

    \20\ See 46 U.S.C. 9303(f).
    \21\ Id.
---------------------------------------------------------------------------

    We note that the existing regulatory text in part 404 already 
contains a provision that considers the difference between a full 
ratemaking and an interim ratemaking. Existing Sec.  404.100, 
``Ratemaking and annual reviews in general,'' states that once every 5 
years, the Director establishes base pilotage rates by a full 
ratemaking pursuant to Sec. Sec.  404.101 through 404.110, and that in 
``interim years,'' the Director may adjust rates according to one of 
several methods (either automatic adjustments, annual adjustments for 
inflation, or a new full ratemaking).\22\ However, after adopting the 
new ratemaking methodology in 2016, we do not currently have a 
regulatory provision for implementing the interim ratemaking other than 
conducting a full ratemaking analysis. With the new methodology, 
adopted in 2016, refined in 2017, and with the additional changes 
proposed for 2018, we believe that the ratemaking procedures generally 
defined in this part can be used in both full and interim ratemaking 
years, with certain differences, as described below.
---------------------------------------------------------------------------

    \22\ See 33 CFR 404.100(b)(1) through (b)(3).
---------------------------------------------------------------------------

    The only substantive difference between a full and interim 
ratemaking concerns Step 4 of the ratemaking procedure, ``Determine 
target pilot compensation.'' This step of the ratemaking analysis, in 
which the total compensation for pilots is determined, comprises the 
majority of the revenue total needed to operate Great Lakes pilotage. 
In past ratemaking actions, we received numerous comments and 
substantial amounts of data when considering the ``benchmark'' for 
pilot compensation. Even in years where we did not propose adjusting 
the compensation benchmark, we received substantial data about ways in 
which it could be adjusted. However, we do not believe that it is in 
the interest of Great Lakes shipping to calculate a new benchmark 
compensation level every year. Such a system could lead to substantial 
volatility regarding compensation. This, in turn, could lead to the 
pilot recruitment and retention problems that affected the Great Lakes 
region prior to the ratemaking methodology changes introduced in the 
past few years.
    For these reasons, we are proposing regulatory language in part 404 
to clarify that the benchmark pilot compensation would only be 
reconsidered during ``full ratemaking'' years, which occur at least 
once every 5 years. Conversely, during ``interim years,'' we would not 
consider changes to the benchmark pilot compensation. Instead, during 
those years, we would adjust the target compensation according to 
Bureau of Labor Statistics' Consumer Price Index for the Midwest 
Region, or if that is not available, the FOMC median economic 
projections for PCE inflation, allowing compensation to stay in line 
with inflation. We believe that this system would simplify ratemaking 
procedures in interim years and better effect the statutory mandate in 
section 9303(f) of the Act. In this NPRM, we have proposed regulatory 
changes to Sec.  404.100(b) and (c), as well as in Sec.  404.104(a) and 
(b), that would enact these changes to the methodology.

E. Other Miscellaneous Changes

    We propose several minor editorial changes in this NPRM. In section 
404.107, we propose renaming Step 7, currently titled, ``Initially 
calculate base rates'' to ``Calculate initial base rates'' for style 
purposes and to make an accompanying edit to the text by changing the 
words ``initially calculates base rates'' to ``calculates initial base 
rates'' in the text of that section. We also propose to adjust the 
reference to the staffing model in Step 7 to account for its relocation 
in text (proposed section 401.220(a)).

VII. Revised Compensation Benchmark

    In this NPRM, the Coast Guard is proposing a new compensation 
benchmark for pilots on the Great Lakes. It is doing so to comply with 
a court decision holding that the Coast Guard's existing compensation 
benchmark, which based on the salaries of Canadian Great Lakes pilot 
salaries plus a 10% increase, was arbitrary and capricious. We are 
following the court's decision and are moving to implement a new 
benchmark in this proposed rule.
    When the Coast Guard adopted the existing compensation benchmark in 
the 2016 annual adjustment, we recognized that the number was based on 
somewhat uncertain data, and have undertaken a comprehensive, multi-
year analysis of pilot compensation practices to develop a more 
appropriate benchmark.\23\ However, as we do not expect to be able to 
make any proposals based on this study until at least the 2020 rate 
adjustment, and we cannot continue to

[[Page 2588]]

use the existing model, there is a need for an interim benchmark level 
to be developed on short notice and with limited time to gather new 
data.
---------------------------------------------------------------------------

    \23\ See 82 FR 41466 (March 8, 2017) at 41469.
---------------------------------------------------------------------------

    Therefore, the Coast Guard is proposing a new compensation 
benchmark based, in part, on the previous model of compensation that 
was used by the Coast Guard prior to the new ratemaking methodology 
introduced in the 2016 annual ratemaking.\24\ Under the previous 
methodology, each year the Coast Guard gathered contract information 
from the American Maritime Officers Union (AMOU), and used details from 
their contracts to estimate rates for Great Lakes pilots. Ultimately, 
however, the AMOU stopped providing information to the Coast Guard, 
which was one basis for moving to other models. However, in the context 
of the previous rate adjustments, the AMOU did provide information up 
through the 2015 calendar year. Given that in this document, we have 
proposed to develop a new benchmark compensation level every 5 years, 
and then index that number for inflation each year in between, we 
believe the most efficient solution for an interim compensation 
benchmark is to derive a compensation figure using the 2015 AMOU data, 
and then apply inflationary adjustments to that data to arrive at an 
equivalent level for the 2018 shipping season. We note that this method 
is different than using data for the 2018 AMOU contracts, for which 
there is no public information and which this proposed compensation 
benchmark does not utilize. Because the interim benchmark proposed in 
this NPRM is explicitly based on the terms of the AMOU contract as they 
existed in 2015, we note that comments that relate to AMOU contract 
information from years other than 2015 would not be relevant to this 
proposed compensation benchmark and will not be considered. However, we 
do request comments on whether we have correctly applied the terms of 
the 2015 contract, or used correct data, to the calculation of target 
pilot compensation under this proposed model and note that we may 
adjust the interim compensation benchmark if we receive validated data 
relating to total compensation pursuant to the 2015 AMOU contract terms 
that improves our understanding of that contract.
---------------------------------------------------------------------------

    \24\ We note that the 2016 ratemaking significantly overhauled 
the entire ratemaking process, not just the method for computing the 
compensation benchmark, and that methodology is still the basis of 
the current proposed ratemaking process.
---------------------------------------------------------------------------

    The data we are using, provided in a letter from the AMOU from 
October 4, 2013,\25\ consists of ``daily aggregate rates'' for two 
contracts between Great Lakes shipping companies for the services of 
AMOU mates.\26\ These numbers were provided to the Coast Guard as a 
public comment to be used as a basis for compensation in the 2014 
ratemaking procedure. These daily aggregate rates include daily wages, 
vacation pay, pension plan contributions, and medical plan 
contributions for AMOU officers. The relevant 2015 numbers include a 
$1,142.06 aggregate rate for Agreement A,\27\ and $1,124.72 aggregate 
rate for Agreement B,\28\ which are the amounts used to calculate the 
compensation for pilots on designated waters. We note that the while 
the 2014 ratemaking methodology calculated different compensation 
targets for pilots in undesignated areas and those in designated areas, 
the ratemaking methodology used today calculates a single wage rate, so 
only the numbers used in designated waters would be relevant. We 
explain how we propose to translate this information into a proposed 
annual pilot compensation benchmark below.
---------------------------------------------------------------------------

    \25\ We refer to this document as the ``2013 AMOU letter,'' 
which is available in the docket at USCG-2017-0903, as well as in 
the docket for the 2014 Great Lakes Pilotage rulemaking, at USCG-
2013-0534-0007.
    \26\ We acknowledge that the American pilotage associations sued 
the Coast Guard and won in a lawsuit on the 2014 ratemaking 
regarding the inappropriate use of AMOU daily aggregate rate data. 
However, that was because in that ratemaking, the Coast Guard did 
not use the updated daily aggregate rate data provided in the 
October 4, 2013 letter, but instead relied on older data that the 
AMOU had explicitly disavowed. In this proposal, we are correcting 
that mistake by using the updated data. The opinion from the 2014 
court case is available on the docket at USCG-2017-0903.
    \27\ ``Agreement A'' refers to the contract between AMOU and 
vessels operated by Key Lakes, Inc.
    \28\ ``Agreement B'' refers to the contract between AMOU and 
vessels operated by Mittal Steel USA, Inc.
---------------------------------------------------------------------------

    Despite the fact that the aggregated data in the 2013 AMOU letter 
is not broken down into specific costs, we believe that the data points 
provided are generally accurate. Prior to 2014, the Coast Guard 
received confidential copies of the AMOU contracts with detailed 
breakdowns of compensation components including wages, medical costs, 
defined contribution and defined benefit pension costs. The latest 
contract we have covered the 2011 through the 2015 shipping seasons, 
which is one reason we believe that basing our interim benchmark on the 
2015 season is a reasonable measure, as we have the underlying contract 
for that season. Using the estimated out-year figures set forth in the 
2011 contract, and applying the detailed compensation methodology used 
in the 2012 Great Lakes Pilotage annual ratemaking final rule,\29\ we 
were able to calculate aggregate figures that were within 1% of the 
figures provided in the 2013 AMOU letter.\30\
---------------------------------------------------------------------------

    \29\ 2012 Rates for Pilotage on the Great Lakes, 77 FR 11752 
(February 28, 2012).
    \30\ Because the out-year figures, including those for 2015, 
were estimates, we would not expect the 2015 numbers as calculated 
in 2011 and 2013 to match exactly, as component items such as 
medical cost expenditures often defy exact predictions. We believe 
that the very close match between our own calculations and the 
figures provided by AMOU is strong evidence that the AMOU data 
accurately accounts for the total compensation of Great Lakes 
masters and thus provides a reasonable facsimile for Great Lakes 
pilots.
---------------------------------------------------------------------------

    In the notice of proposed rulemaking for the 2014 Great Lakes 
pilotage annual rate adjustment, we described how we use the daily 
aggregate rates to develop a total pilot compensation figure. The 
annual rates included the ``daily wage rate, vacation pay, pension plan 
contributions, and medical plan contributions.'' \31\ We stated that 
``because we are interested in annual compensation, we must convert 
these to daily rates. We use a 270-day multiplier which reflects an 
average 30-day month, over the 9 months of the average shipping 
season.'' \32\ Subsequently, ``[w]e apportion the compensation provided 
by each agreement according to the percentage of tonnage represented by 
companies under each agreement.'' \33\
---------------------------------------------------------------------------

    \31\ Great Lakes Pilotage Rates--2014 Annual Review and 
Adjustment, notice of proposed rulemaking, 78 FR 48374, at 
48381(August 8, 2013).
    \32\ Id.
    \33\ Id., at 48382.
---------------------------------------------------------------------------

    After publication of the 2014 Final Rule, the Coast Guard was sued 
by the three American pilotage associations, in part, because the AMOU 
aggregate data it had used to calculate the 2014 compensation figures 
did not include a seasonal bonus component. In that case, the Coast 
Guard relied on previous aggregate data figures provided by the AMOU in 
2012, instead of using the figures provided by the AMOU in its October 
4, 2013 public comment, where the AMOU stated that the previous figures 
were inaccurate. While the court found that the use of the old figures 
was arbitrary, the use of AMOU aggregate data generally was not 
disputed.\34\ Instead, it was the use of the disavowed aggregate data 
that was not supported. We intend to correct this by basing our interim 
methodology on the new figures provided by the AMOU for the year

[[Page 2589]]

2015, which were also contained in the 2013 letter.
---------------------------------------------------------------------------

    \34\ This was the information AMOU provided to correct what it 
alleged was inaccurate data the Coast Guard had proposed using. The 
aggregate data in the 2013 AMOU letter included a comprehensive wage 
component, which included work days, weekend days, holidays, and the 
``seasonal bonus'' days.
---------------------------------------------------------------------------

    To apply the 2015 aggregate data figures to the current ratemaking 
methodology, we need only use the figures for designated waters. Prior 
to the 2016 ratemaking, the Coast Guard calculated separate 
compensation figures for designated and undesignated waters--
compensating pilots assigned to designated waters an equivalent rate to 
masters, while compensating pilots assigned to undesignated waters the 
equivalent rate of AMOU mates, who are paid considerably less. However, 
in 2016, the Coast Guard ended the practice of calculating separate 
compensation figures for pilots on the Great Lakes. In the 2016 Great 
Lakes pilotage NPRM, we stated that ``we see no reasonable basis for 
discriminating between the target compensation of pilots on the basis 
of the distinction between designated or undesignated waters. In any 
waters and in any district, pilots need the same skills, and therefore 
we propose a single individual target compensation figure across all 
three districts.'' \35\ As all pilots must be trained to navigate the 
more-complex designated waters, we believe it is appropriate that they 
receive the level of compensation associated with that task.
---------------------------------------------------------------------------

    \35\ Great Lakes Pilotage Rates--2016 Annual Review and Changes 
to Methodology, 80 FR 54484, at 54490 (September 10, 2015).
---------------------------------------------------------------------------

    Because of these factors, we believe we can develop an interim 
benchmark compensation level based on the 2015 AMOU aggregate data for 
wages in designated waters that has been publically provided. Based on 
our calculations, the new benchmark compensation figure would be 
$319,617 per pilot. The numbers are derived as follows:
    In the first step of calculating the interim compensation 
benchmark, shown as Table 3 below, we multiply the daily aggregate 
rates for Agreement A and Agreement B by 270, the estimated number of 
days in the shipping season, to derive a seasonal average compensation 
figure.

           Table 3--Calculation of Seasonal Rates by agreement
------------------------------------------------------------------------
                                                             Seasonal
                                                           compensation
                                             Aggregate      (aggregate
                                            daily rate     daily rate x
                                                               270)
------------------------------------------------------------------------
Agreement A.............................       $1,142.06        $308,356
Agreement B.............................        1,124.72         303,674
------------------------------------------------------------------------

    Next, as stated above, we apportion the compensation provided by 
each agreement according to the percentage of tonnage represented by 
companies under each agreement. As shown in Table 4 below, 
approximately 70% of cargo was carried under the Agreement A contract, 
while approximately 30% of cargo was carried under the Agreement B 
contract.

               Table 4--Weighted Average of Each Agreement
------------------------------------------------------------------------
                                                             % Tonnage
                                              Tonnage     (total tonnage/
                                                            1,215,811)
------------------------------------------------------------------------
Agreement A.............................         361,385      29.7237811
Agreement B.............................         854,426      70.2762189
                                         -------------------------------
    Total tonnage.......................       1,215,811             100
------------------------------------------------------------------------

    Third, we develop an average of compensation based on the total 
compensation under the two contracts, weighting each contract by its 
percentage of total tonnage. Based on this calculation, we have 
developed a figure of $305,066 (rounded) for total compensation in 
2015.

              Table 5--Calculation of Averaged Compensation
------------------------------------------------------------------------
                                                             Weighted
                                                           compensation
                                                             (seasonal
                                             % Tonnage    compensation x
                                                            % tonnage)
                                                             (rounded)
------------------------------------------------------------------------
Agreement A--weighted...................      29.7237811         $91,655
Agreement B--weighted...................      70.2762189         213,411
                                         -------------------------------
    Total compensation (Agreement A + B)             100         305,066
------------------------------------------------------------------------

[[Page 2590]]

    Finally, we adjust that figure for inflation. As we propose to do 
in our overall ratemaking methodology, we use the BLS Consumer Price 
Index for the Midwest region to inflate to 2016, and FOMC median 
economic projections for PCE inflation to inflate the total 
compensation to 2017 and 2018. Based on three years of inflation 
adjustments, we arrive at the proposed 2018 target compensation figure, 
which is $319,617 annually.

              Table 6--Inflation Adjustments--2015 to 2018
------------------------------------------------------------------------
                                                              Target
                                           Inflation (%)   compensation
------------------------------------------------------------------------
2015 Target Pilot Compensation..........  ..............        $305,066
2016 Inflation Adjustment \36\..........             0.8         307,507
2017 Inflation Adjustment \37\..........             1.9         313,350
2018 Inflation Adjustment...............             2.0         319,617
------------------------------------------------------------------------

VIII. Discussion of Proposed Rate Adjustments

    In this NPRM, based on the proposed updated methodology described 
in the previous section, we are proposing new pilotage rates for 2018. 
This section discusses the proposed rate changes using the ratemaking 
steps provided in 46 CFR part 404, as they would be written according 
to the proposed revisions discussed above. Here we will detail each 
step of the ratemaking procedure to show how we arrived at the proposed 
new rates.
---------------------------------------------------------------------------

    \36\ Inflation adjustment from 2015 to 2016 calculated from 
Bureau of Labor Statistics, CPI--All Urban Consumers for Midwest 
Urban, found at https://data.bls.gov/timeseries/CUUR0200SA0?data_tool=Xgtable.
    \37\ Inflation to 2017 and 2018 found using Federal Open Market 
Committee, Summary of Economic Projections, found at https://www.federalreserve.gov/monetarypolicy/fomcprojtabl20160316.htm.
---------------------------------------------------------------------------

    The 2018 ratemaking is an ``annual review,'' rather than a full 
ratemaking. Thus, for this purpose, we propose using the annual review 
methodology in Sec.  404.104.

A. Step 1: Recognition of Operating Expenses

    Step 1 in our ratemaking methodology requires that we review and 
recognize the previous year's operating expenses (Sec.  404.101). To do 
this, we begin by reviewing the independent accountant's financial 
reports for each association's 2015 expenses and revenues.\38\ For 
accounting purposes, the financial reports divide expenses into 
designated and undesignated areas. In certain instances, for example, 
costs are applied to the undesignated or designated area based on where 
they were actually accrued. For example, costs for ``Applicant pilot 
license insurance'' in District One are assigned entirely to the 
undesignated areas, as applicant pilots work exclusively in those 
areas. For costs that accrued to the pilot associations generally, for 
example, insurance, the cost is divided between the designated and 
undesignated areas on a pro rata basis. The recognized operating 
expenses for the three districts are laid out in Tables 7 through 9.
---------------------------------------------------------------------------

    \38\ These reports are available in the docket for this 
rulemaking (see https://www.regulations.gov, Docket #USCG-2017-
0903).

                               Table 7--2015 Recognized Expenses for District One
----------------------------------------------------------------------------------------------------------------
                                                                    Designated     Undesignated
                                                                 --------------------------------
                   Reported expenses for 2015                      St. Lawrence                        Total
                                                                       River       Lake Ontario
----------------------------------------------------------------------------------------------------------------
Operating Expenses:
    Other Pilotage Costs:
    Pilot subsistence/travel....................................        $344,718        $267,669        $612,387
    Applicant Pilot subsistence/travel..........................          59,992          88,313         148,305
    License insurance...........................................          26,976          26,976          53,952
    Applicant Pilot license insurance...........................               0           2,271           2,271
    Payroll taxes...............................................          97,531          61,656         159,187
    Applicant Pilot payroll taxes...............................           8,200          12,583          20,783
    Other.......................................................           5,679           5,341          11,020
                                                                 -----------------------------------------------
        Total other pilotage costs..............................         543,096         464,809       1,007,905
Pilot Boat and Dispatch Costs:
    Pilot boat expense..........................................         134,400         106,064         240,464
    Dispatch expense............................................               0               0               0
    Payroll taxes...............................................           9,688           7,645          17,333
                                                                 -----------------------------------------------
        Total pilot and dispatch costs..........................         144,088         113,709         257,797
Administrative Expenses:
    Legal--general counsel......................................          12,388           9,733          22,121
    Legal--shared counsel (K&L Gates)...........................             904             710           1,614
    Legal--USCG litigation......................................               0               0               0
    Insurance...................................................          16,261          12,832          29,093
    Employee benefits...........................................           8,752           6,907          15,659
    Payroll taxes...............................................           5,628           4,441          10,069
    Other taxes.................................................           9,447           7,455          16,902
    Travel......................................................             795             627           1,422
    Depreciation/auto leasing/other.............................          55,850          31,763          87,613
    Interest....................................................          12,337           9,736          22,073

[[Page 2591]]

 
    Dues and subscriptions......................................          15,867          15,513          31,380
    Utilities...................................................           9,573             461          10,034
    Salaries....................................................          56,126          44,291         100,417
    Accounting/Professional fees................................           5,254           4,146           9,400
    Pilot Training..............................................               0               0               0
    Applicant Pilot training....................................               0               0               0
    Other.......................................................           9,118           6,446          15,564
----------------------------------------------------------------------------------------------------------------
        Total Administrative Expenses...........................         218,300         155,061         373,361
                                                                 -----------------------------------------------
        Total Operating Expenses (Other Costs + Pilot Boats +            905,484         733,579       1,639,063
         Admin).................................................
Proposed Adjustments (Independent certified public accountant
 (CPA)):
    Pilot subsistence/travel....................................               0          -2,943          -2,943
    Payroll taxes...............................................               0               0               0
    Applicant Pilot payroll taxes...............................               0               0               0
                                                                 -----------------------------------------------
        TOTAL CPA ADJUSTMENTS...................................               0          -2,943          -2,943
Proposed Adjustments (Director):
    Legal--general counsel (corrected number)...................             904             710           1,614
    Legal--general counsel (corrected number)...................         -12,388          -9,733         -22,121
    Legal--shared counsel (K&L Gates) (corrected number)........          12,388           9,733          22,121
    Legal--shared counsel (K&L Gates) (corrected number)........            -904            -710          -1,614
    Legal--shared counsel--3% lobbying fee (K&L Gates)..........            -371            -292            -663
                                                                 -----------------------------------------------
        TOTAL DIRECTOR'S ADJUSTMENTS............................            -371            -292            -663
                                                                 -----------------------------------------------
            Total Operating Expenses (OpEx + Adjustments).......         905,113         730,344       1,635,457
----------------------------------------------------------------------------------------------------------------

                               Table 8--2015 Recognized Expenses for District Two
----------------------------------------------------------------------------------------------------------------
                                                                   Undesignated     Designated
                                                                 --------------------------------
                   Reported expenses for 2015                                       SES to Port        Total
                                                                     Lake Erie         Huron
----------------------------------------------------------------------------------------------------------------
Operating Expenses:
    Other Pilotage Costs:
    Pilot subsistence/travel....................................        $163,276        $244,915        $408,191
    Applicant Pilot subsistence/travel..........................               0               0               0
    License insurance...........................................           6,798          10,196          16,994
    Applicant Pilot license insurance...........................               0               0               0
    Payroll taxes...............................................          53,242          79,863         133,105
    Applicant Pilot payroll taxes...............................               0               0               0
    Other.......................................................             457             686           1,143
                                                                 -----------------------------------------------
        Total other pilotage costs..............................         223,773         335,660         559,433
Pilot Boat and Dispatch Costs:
    Pilot boat expense..........................................         175,331         262,997         438,328
    Dispatch expense............................................           9,000          13,500          22,500
    Employee benefits...........................................          74,855         112,282         187,137
    Payroll taxes...............................................           9,724          14,585          24,309
                                                                 -----------------------------------------------
        Total pilot and dispatch costs..........................         268,910         403,364         672,274
Administrative Expenses:
    Legal--general counsel......................................          10,282          15,422          25,704
    Legal--shared counsel (K&L Gates)...........................           8,346          12,520          20,866
    Legal--USCG litigation......................................               0               0               0
    Office rent.................................................          26,275          39,413          65,688
    Insurance...................................................          10,618          15,926          26,544
    Employee benefits...........................................          23,930          35,896          59,826
    Workman's compensation--pilots..............................          47,636          71,453         119,089
    Payroll taxes...............................................           5,428           8,141          13,569
    Other taxes.................................................          29,220          43,830          73,050
    Depreciation/auto leasing/other.............................          19,757          29,636          49,393
    Interest....................................................           4,159           6,238          10,397
    APA Dues....................................................          11,827          17,741          29,568
    Utilities...................................................          15,850          23,775          39,625
    Salaries....................................................          51,365          77,048         128,413
    Accounting/Professional fees................................          10,721          16,081          26,802

[[Page 2592]]

 
    Pilot Training..............................................               0               0               0
    Other.......................................................          11,775          17,662          29,437
                                                                 -----------------------------------------------
        Total Administrative Expenses...........................         287,189         430,782         717,971
                                                                 -----------------------------------------------
        Total Operating Expenses (Other Costs + Pilot Boats +            779,872       1,169,806       1,949,678
         Admin).................................................
Proposed Adjustments (Independent CPA):
    Pilot boat costs............................................            -444            -666          -1,110
                                                                 -----------------------------------------------
        TOTAL CPA ADJUSTMENTS...................................            -444            -666          -1,110
Proposed Adjustments (Director):
    Legal--shared counsel 3% lobbying fee (K&L Gates)...........            -250            -376            -626
                                                                 -----------------------------------------------
        TOTAL DIRECTOR'S ADJUSTMENTS............................            -250            -376            -626
                                                                 -----------------------------------------------
            Total Operating Expenses (OpEx + Adjustments).......         779,178       1,168,764       1,947,942
----------------------------------------------------------------------------------------------------------------

                              Table 9--2015 Recognized Expenses for District Three
----------------------------------------------------------------------------------------------------------------
                                                                   Undesignated     Designated
                                                                 --------------------------------
                                                                    Lakes Huron
                   Reported expenses for 2015                      and Michigan     St. Mary's         Total
                                                                     and Lake          River
                                                                     Superior
----------------------------------------------------------------------------------------------------------------
Operating Expenses:
    Other Pilotage Costs:
    Pilot subsistence/travel....................................        $457,393        $152,465        $609,858
    Applicant pilot subsistence/travel..........................               0  ..............               0
    License insurance...........................................          16,803           5,601          22,404
    Payroll taxes...............................................         160,509          53,503         214,012
    Applicant pilot payroll taxes...............................               0  ..............               0
    Other.......................................................           1,546             515           2,061
                                                                 -----------------------------------------------
        Total other pilotage costs..............................         636,251         212,084         848,335
Pilot Boat and Dispatch Costs:
    Pilot boat costs............................................         488,246         162,748         650,994
    Dispatch costs..............................................         128,620          42,873         171,493
    Employee benefits...........................................          12,983           4,327          17,310
    Payroll taxes...............................................          14,201           4,734          18,935
                                                                 -----------------------------------------------
        Total pilot and dispatch costs..........................         644,050         214,682         858,732
Administrative Expenses:
    Legal--general counsel......................................          16,798           5,599          22,397
    Legal--shared counsel (K&L Gates)...........................          18,011           6,004          24,015
    Legal--USCG litigation......................................               0  ..............               0
    Office rent.................................................           6,372           2,124           8,496
    Insurance...................................................          12,227           4,076          16,303
    Employee benefits...........................................          93,646          31,215         124,861
    Payroll Taxes...............................................           9,963           3,321          13,284
    Other taxes.................................................           1,333             445           1,778
    Depreciation/auto leasing/other.............................          29,111           9,703          38,814
    Interest....................................................           3,397           1,132           4,529
    APA Dues....................................................          22,736           7,579          30,315
    Utilities...................................................          32,716          10,906          43,622
    Salaries....................................................          84,075          28,025         112,100
    Accounting/Professional fees................................          19,696           6,565          26,261
    Pilot Training..............................................          26,664           8,888          35,552
    Other.......................................................          25,228           8,409          33,637
                                                                 -----------------------------------------------
        Total Administrative Expenses...........................         401,973         133,991         535,964
                                                                 -----------------------------------------------
        Total Operating Expenses (Other Costs + Pilot Boats +          1,682,274         560,757       2,243,031
         Admin).................................................
Proposed Adjustments (Independent CPA):
    Pilot subsistence/Travel....................................         -67,933         -22,645         -90,578
    Payroll taxes...............................................         -14,175          -4,725         -18,901
    Other expenses..............................................          -4,058          -1,353          -5,411
                                                                 -----------------------------------------------
        TOTAL CPA ADJUSTMENTS...................................         -86,166         -28,723        -114,890

[[Page 2593]]

 
Proposed Adjustments (Director):
    Legal--shared counsel 3% lobbying fee (K&L Gates)...........            -540            -180            -720
                                                                 -----------------------------------------------
        TOTAL DIRECTOR'S ADJUSTMENTS............................            -540            -180            -720
                                                                 -----------------------------------------------
            Total Operating Expenses (OpEx + Adjustments).......       1,595,565         531,854       2,127,420
----------------------------------------------------------------------------------------------------------------
* Values may not sum due to rounding. District 3 provided the Coast Guard data for Areas 6, 7, and 8. However,
  the Coast Guard combined areas 6 and 8 to present the operating expenses by designated and undesignated areas.

B. Step 2: Projection of Operating Expenses

    Having ascertained the recognized 2015 operating expenses in Step 
1, the next step is to estimate the current year's operating expenses 
by adjusting those expenses for inflation over the 3-year period. We 
calculated inflation using the Bureau of Labor Statistics' data from 
the Consumer Price Index for the Midwest Region of the United States 
\39\ and reports from the Federal Reserve. Based on that information, 
the calculations for Step 1 are as follows:
---------------------------------------------------------------------------

    \39\ Available at https://www.bls.gov/regions/midwest/data/consumerpriceindexhistorical_midwest_table.pdf.
    \40\ See https://data.bls.gov/timeseries/CUUR0200SA0?data_tool=Xgtable.
    \41\ See https://www.federalreserve.gov/monetarypolicy/fomcprojtabl20160316.htm.
    \42\ See https://www.federalreserve.gov/monetarypolicy/fomcprojtabl20160316.htm.

                             Table 10--Adjusted Operating Expenses for District One
----------------------------------------------------------------------------------------------------------------
                                                                    Designated     Undesignated        Total
----------------------------------------------------------------------------------------------------------------
Total Operating Expenses (Step 1)...............................        $905,113        $730,344      $1,635,457
2016 Inflation Modification (@0.8%) \40\........................           7,241           5,843          13,084
2017 Inflation Modification (@1.9%) \41\........................          17,335          13,988          31,323
2018 Inflation Modification (@2.0%) \42\........................          18,594          15,004          33,598
                                                                 -----------------------------------------------
    Adjusted 2018 Operating Expenses............................         948,283         765,179       1,713,462
----------------------------------------------------------------------------------------------------------------

                             Table 11--Adjusted Operating Expenses for District Two
----------------------------------------------------------------------------------------------------------------
                                                                   Undesignated     Designated         Total
----------------------------------------------------------------------------------------------------------------
Total Operating Expenses (Step 1)...............................        $779,178      $1,168,764      $1,947,942
2016 Inflation Modification (@0.8%).............................           6,233           9,350          15,583
2017 Inflation Modification (@1.9%).............................          14,923          22,384          37,307
2018 Inflation Modification (@2.0%).............................          16,007          24,010          40,017
                                                                 -----------------------------------------------
    Adjusted 2018 Operating Expenses............................         816,341       1,224,508       2,040,849
----------------------------------------------------------------------------------------------------------------

                            Table 12--Adjusted Operating Expenses for District Three
----------------------------------------------------------------------------------------------------------------
                                                                   Undesignated     Designated         Total
----------------------------------------------------------------------------------------------------------------
Total Operating Expenses (Step 1)...............................      $1,595,565        $531,854      $2,127,420
2016 Inflation Modification (@0.8%).............................          12,765           4,255          17,020
2017 Inflation Modification (@1.9%).............................          30,558          10,186          40,744
2018 Inflation Modification (@2.0%).............................          32,778          10,926          43,704
                                                                 -----------------------------------------------
    Adjusted 2018 Operating Expenses............................       1,671,666         557,221       2,228,888
----------------------------------------------------------------------------------------------------------------

C. Step 3: Estimate Number of Working Pilots

    In accordance with the proposed text in Sec.  404.103, we estimated 
the number of working pilots in each district. Based on input from the 
Saint Lawrence Seaway Pilots Association, we estimate that there will 
be 17 working pilots in 2018 in District One. Based on input from the 
Lakes Pilots Association, we estimate there will be 14 working pilots 
in 2018 in District Two. Based on input from the Western Great Lakes 
Pilots Association, we estimate there will be 18 working pilots in 2018 
in District Three.
    Furthermore, based on the staffing model employed to develop the 
total number of pilots needed, we assign a certain number of pilots to 
designated waters, and a certain number to undesignated waters. These 
numbers are

[[Page 2594]]

used to determine the amount of revenue needed in their respective 
areas.

                                           Table 13--Authorized Pilots
----------------------------------------------------------------------------------------------------------------
                                                                   District One    District Two   District Three
----------------------------------------------------------------------------------------------------------------
Maximum number of pilots (per Sec.   401.220(a)) \43\...........              17              15              22
2018 Authorized pilots (total)..................................              17              14              18
Pilots assigned to designated areas.............................              10               7               4
Pilots assigned to undesignated areas...........................               7               7              14
----------------------------------------------------------------------------------------------------------------

D. Step 4: Determine Target Pilot Compensation

    In this step, we determine the total pilot compensation for each 
area. Because we are proposing a ``full ratemaking'' this year, we 
propose to follow the procedure outlined in paragraph (a) of Sec.  
404.104, which requires us to develop a benchmark after considering the 
most relevant currently available non-proprietary information. In 
accordance with the discussion in Section VII above, the proposed 
compensation benchmark for 2018 is $319,617 per pilot.
---------------------------------------------------------------------------

    \43\ For a detailed calculation, see 82 FR 41466, table 6 at 
41480 (August 31, 2017).
---------------------------------------------------------------------------

    Next, we certify that the number of pilots estimated for 2018 is 
less than or equal to the number permitted under the staffing model in 
Sec.  401.220(a). The staffing model suggests that the number of pilots 
needed is 17 pilots for District One, 15 pilots for District Two, and 
22 pilots for District Three,\44\ which is more than or equal to the 
numbers of working pilots provided by the pilot associations.
---------------------------------------------------------------------------

    \44\ See Table 6 of the 2017 final rule, 82 FR 41466 at 41480 
(August 31, 2017). The methodology of the staffing model is 
discussed at length in the final rule (see pages 41476-41480 for a 
detailed analysis of the calculations).
---------------------------------------------------------------------------

    Thus, in accordance with proposed 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 working pilots for each district, as shown in Table 
14.

                              Table 14--Target Pilot Compensation for District One
----------------------------------------------------------------------------------------------------------------
                                                                    Designated     Undesignated        Total
----------------------------------------------------------------------------------------------------------------
Target Pilot Compensation.......................................        $319,617        $319,617        $319,617
Number of Pilots................................................              10               7              17
                                                                 -----------------------------------------------
    Total Target Pilot Compensation.............................      $3,196,170      $2,237,319      $5,433,489
----------------------------------------------------------------------------------------------------------------

                              Table 15--Target Pilot Compensation for District Two
----------------------------------------------------------------------------------------------------------------
                                                                   Undesignated     Designated         Total
----------------------------------------------------------------------------------------------------------------
Target Pilot Compensation.......................................        $319,617        $319,617        $319,617
Number of Pilots................................................               7               7              14
                                                                 -----------------------------------------------
    Total Target Pilot Compensation.............................      $2,237,319      $2,237,319      $4,474,638
----------------------------------------------------------------------------------------------------------------

                             Table 16--Target Pilot Compensation for District Three
----------------------------------------------------------------------------------------------------------------
                                                                   Undesignated     Designated         Total
----------------------------------------------------------------------------------------------------------------
Target Pilot Compensation.......................................        $319,617        $319,617        $319,617
Number of Pilots................................................              14               4              18
                                                                 -----------------------------------------------
    Total Target Pilot Compensation.............................      $4,474,638      $1,278,468      $5,753,106
----------------------------------------------------------------------------------------------------------------

E. Step 5: Calculate Working Capital Fund

    Next, we calculate the working capital fund revenues needed for 
each area. First, we add the figures for projected operating expenses 
and total pilot compensation for each area. Next, we find the preceding 
year's average annual rate of return for new issues of high grade 
corporate securities. Using Moody's data, that number is 3.67 
percent.\45\ By multiplying the two figures, we get the working capital 
fund contribution for each area, as shown in Table 17.
---------------------------------------------------------------------------

    \45\ Moody's Seasoned Aaa Corporate Bond Yield, average of 2016 
monthly data, located at http://research.stlouisfed.org/fred2/series/AAA/downloaddata?cid=119. The Coast Guard uses the most 
recent complete year of data.

[[Page 2595]]

                          Table 17--Working Capital Fund Contribution for District One
----------------------------------------------------------------------------------------------------------------
                                                                    Designated     Undesignated        Total
----------------------------------------------------------------------------------------------------------------
Adjusted Operating Expenses (Step 2)............................        $948,283        $765,179      $1,713,462
Total Target Pilot Compensation (Step 4)........................       3,196,170       2,237,319       5,433,489
                                                                 -----------------------------------------------
    Total 2018 Expenses.........................................       4,144,453       3,002,498       7,146,951
----------------------------------------------------------------------------------------------------------------
Working Capital Fund Contribution (Total 2018 Expenses x 3.67%).         152,101         110,192         262,293
----------------------------------------------------------------------------------------------------------------

                          Table 18--Working Capital Fund Contribution for District Two
----------------------------------------------------------------------------------------------------------------
                                                                   Undesignated     Designated         Total
----------------------------------------------------------------------------------------------------------------
Adjusted Operating Expenses (Step 2)............................        $816,341      $1,224,508      $2,040,849
Total Target Pilot Compensation (Step 4)........................       2,237,319       2,237,319       4,474,638
                                                                 -----------------------------------------------
    Total 2018 Expenses.........................................       3,053,660       3,461,827       6,515,487
----------------------------------------------------------------------------------------------------------------
Working Capital Fund Contribution (Total 2018 Expenses x 3.67%).         112,069         127,049         239,118
----------------------------------------------------------------------------------------------------------------

                         Table 19--Working Capital Fund Contribution for District Three
----------------------------------------------------------------------------------------------------------------
                                                                   Undesignated     Designated         Total
----------------------------------------------------------------------------------------------------------------
Adjusted Operating Expenses (Step 2)............................      $1,671,666        $557,221      $2,228,887
Total Target Pilot Compensation (Step 4)........................       4,474,638       1,278,468       5,753,106
                                                                 -----------------------------------------------
    Total 2018 Expenses.........................................       6,146,304       1,835,689       7,981,993
----------------------------------------------------------------------------------------------------------------
Working Capital Fund Contribution (Total 2018 Expenses x 3.67%).         225,569          67,370         292,939
----------------------------------------------------------------------------------------------------------------

F. Step 6: Calculate Revenue Needed

    We add up all the expenses accrued to derive the total revenue 
needed for each area. These expenses include the projected operating 
expenses (from Step 2), the total pilot compensation (from Step 4), and 
the working capital fund contribution (from Step 5). The calculations 
are shown in Table 20.

                                    Table 20--Revenue Needed for District One
----------------------------------------------------------------------------------------------------------------
                                                                    Designated     Undesignated        Total
----------------------------------------------------------------------------------------------------------------
Adjusted Operating Expenses (Step 2)............................        $948,283        $765,179      $1,713,462
Total Target Pilot Compensation (Step 4)........................       3,196,170       2,237,319       5,433,489
Return on Investment (Step 5)...................................         152,101         110,192         262,293
                                                                 -----------------------------------------------
    Total Revenue Needed........................................       4,296,554       3,112,690       7,409,244
----------------------------------------------------------------------------------------------------------------

                                    Table 21--Revenue Needed for District Two
----------------------------------------------------------------------------------------------------------------
                                                                   Undesignated     Designated         Total
----------------------------------------------------------------------------------------------------------------
Adjusted Operating Expenses (Step 2)............................        $816,341      $1,224,508      $2,040,849
Total Target Pilot Compensation (Step 4)........................       2,237,319       2,237,319       4,474,638
Return on Investment (Step 5)...................................         112,069         127,049         239,118
                                                                 -----------------------------------------------
    Total Revenue Needed........................................       3,165,729       3,588,876       6,754,605
----------------------------------------------------------------------------------------------------------------

                                   Table 22--Revenue Needed for District Three
----------------------------------------------------------------------------------------------------------------
                                                                   Undesignated     Designated         Total
----------------------------------------------------------------------------------------------------------------
Adjusted Operating Expenses (Step 2)............................      $1,671,666        $557,221      $2,228,888
Total Target Pilot Compensation (Step 4)........................       4,474,638       1,278,468       5,753,106
Return on Investment (Step 5)...................................         225,569          67,370         292,939
                                                                 -----------------------------------------------
    Total Revenue Needed........................................       6,371,873       1,903,059       8,274,933
----------------------------------------------------------------------------------------------------------------

[[Page 2596]]

G. Step 7: Calculate Initial Base Rates

    Having determined the revenue needed for each area in the previous 
six steps, we divide that number by the expected number of hours of 
traffic to develop an hourly rate. Step 7 is a two-part process. In the 
first part, we calculate the 10-year average of traffic in each 
district. Because we are calculating separate figures for designated 
and undesignated waters, there are two parts for each calculation. The 
calculations are shown in Tables 23 through 25.

                 Table 23--Time on Task for District One
------------------------------------------------------------------------
                    Year                      Undesignated   Designated
------------------------------------------------------------------------
2016........................................         6,217         5,434
2015........................................         6,667         5,743
2014........................................         6,853         6,810
2013........................................         5,529         5,864
2012........................................         5,121         4,771
2011........................................         5,377         5,045
2010........................................         5,649         4,839
2009........................................         3,947         3,511
2008........................................         5,298         5,829
2007........................................         5,929         6,099
Average.....................................         5,659         5,395
------------------------------------------------------------------------

                 Table 24--Time on Task for District Two
------------------------------------------------------------------------
                    Year                      Undesignated   Designated
------------------------------------------------------------------------
2016........................................         6,425         5,615
2015........................................         6,535         5,967
2014........................................         7,856         7,001
2013........................................         4,603         4,750
2012........................................         3,848         3,922
2011........................................         3,708         3,680
2010........................................         5,565         5,235
2009........................................         3,386         3,017
2008........................................         4,844         3,956
2007........................................         6,223         6,049
Average.....................................         5,299         4,919
------------------------------------------------------------------------

                Table 25--Time on Task for District Three
------------------------------------------------------------------------
                    Year                      Undesignated   Designated
------------------------------------------------------------------------
2016........................................        23,421         2,769
2015........................................        22,824         2,696
2014........................................        25,833         3,835
2013........................................        17,115         2,631
2012........................................        15,906         2,163
2011........................................        16,012         1,678
2010........................................        20,211         2,461
2009........................................        12,520         1,820
2008........................................        14,287         2,286
2007........................................        24,811         5,944
Average.....................................        19,294         2,828
------------------------------------------------------------------------

    Next, we derive the initial hourly rate by dividing the revenue 
needed by the average number of hours for each area. This produces an 
initial rate needed to produce the revenue needed for each area, 
assuming the amount of traffic is as expected. The calculations for 
each area are set forth in Tables 26 through 28.

              Table 26--Rate Calculations for District One
------------------------------------------------------------------------
                                            Designated     Undesignated
------------------------------------------------------------------------
Revenue needed (Step 6).................      $4,296,554      $3,112,690
Average time on task....................           5,395           5,659
Initial rate............................             796             550
------------------------------------------------------------------------

              Table 27--Rate Calculations for District Two
------------------------------------------------------------------------
                                            Designated     Undesignated
------------------------------------------------------------------------
Revenue needed (Step 6).................      $3,588,876      $3,165,729
Average time on task....................           4,919           5,299
Initial rate............................             730             597
------------------------------------------------------------------------

             Table 28--Rate Calculations for District Three
------------------------------------------------------------------------
                                            Designated     Undesignated
------------------------------------------------------------------------
Revenue needed (Step 6).................      $1,903,059      $6,371,873
Average time on task....................           2,828          19,294
Initial rate............................             673             330
------------------------------------------------------------------------

H. Step 8: Calculate Weighting Factors by Area

    In this step, we calculate the average weighting factor for each 
designated and undesignated area. We collect the weighting factors, set 
forth in 46 CFR 401.400, for each vessel trip. Using this database, we 
calculate the average weighting factor for each area using the data 
from each vessel transit from 2014 onward, as shown in Tables 29 
through 34.

                                  Table 29--Average Weighting Factor for Area 1
                                            [District 1, designated]
----------------------------------------------------------------------------------------------------------------
                                                                     Number of       Weighting       Weighted
                        Vessel class/year                            transits         factor         transits
----------------------------------------------------------------------------------------------------------------
Class 1 (2014)..................................................              31            1.00              31
Class 1 (2015)..................................................              41            1.00              41
Class 1 (2016)..................................................              31            1.00              31
Class 2 (2014)..................................................             285            1.15          327.75
Class 2 (2015)..................................................             295            1.15          339.25
Class 2 (2016)..................................................             185            1.15          212.75
Class 3 (2014)..................................................              50            1.30              65

[[Page 2597]]

 
Class 3 (2015)..................................................              28            1.30            36.4
Class 3 (2016)..................................................              50            1.30              65
Class 4 (2014)..................................................             271            1.45          392.95
Class 4 (2015)..................................................             251            1.45          363.95
Class 4 (2016)..................................................             214            1.45           310.3
                                                                 -----------------------------------------------
    Total.......................................................           1,732  ..............        2,216.35
----------------------------------------------------------------------------------------------------------------
Average weighting factor (weighted transits/number of transits).  ..............            1.28  ..............
----------------------------------------------------------------------------------------------------------------

                                  Table 30--Average Weighting Factor for Area 2
                                           [District 1, undesignated]
----------------------------------------------------------------------------------------------------------------
                                                                     Number of       Weighting       Weighted
                        Vessel class/year                            transits         factor         transits
----------------------------------------------------------------------------------------------------------------
Class 1 (2014)..................................................              25            1.00              25
Class 1 (2015)..................................................              28            1.00              28
Class 1 (2016)..................................................              18            1.00              18
Class 2 (2014)..................................................             238            1.15           273.7
Class 2 (2015)..................................................             263            1.15          302.45
Class 2 (2016)..................................................             169            1.15          194.35
Class 3 (2014)..................................................              60            1.30              78
Class 3 (2015)..................................................              42            1.30            54.6
Class 3 (2016)..................................................              28            1.30            36.4
Class 4 (2014)..................................................             289            1.45          419.05
Class 4 (2015)..................................................             269            1.45          390.05
Class 4 (2016)..................................................             222            1.45           321.9
                                                                 -----------------------------------------------
    Total.......................................................           1,651  ..............         2,141.6
----------------------------------------------------------------------------------------------------------------
Average weighting factor (weighted transits/number of transits).  ..............            1.30  ..............
----------------------------------------------------------------------------------------------------------------

                                  Table 31--Average Weighting Factor for Area 4
                                            [District 2, designated]
----------------------------------------------------------------------------------------------------------------
                                                                     Number of       Weighting       Weighted
                        Vessel class/year                            transits         factor         transits
----------------------------------------------------------------------------------------------------------------
Class 1 (2014)..................................................              20            1.00              20
Class 1 (2015)..................................................              15            1.00              15
Class 1 (2016)..................................................              28            1.00              28
Class 2 (2014)..................................................             237            1.15          272.55
Class 2 (2015)..................................................             217            1.15          249.55
Class 2 (2016)..................................................             224            1.15           257.6
Class 3 (2014)..................................................               8            1.30            10.4
Class 3 (2015)..................................................               8            1.30            10.4
Class 3 (2016)..................................................               4            1.30             5.2
Class 4 (2014)..................................................             359            1.45          520.55
Class 4 (2015)..................................................             340            1.45             493
Class 4 (2016)..................................................             281            1.45          407.45
                                                                 -----------------------------------------------
    Total.......................................................           1,741  ..............         2,289.7
----------------------------------------------------------------------------------------------------------------
Average weighting factor (weighted transits/number of transits).  ..............            1.32  ..............
----------------------------------------------------------------------------------------------------------------

                                  Table 32--Average Weighting Factor for Area 5
                                           [District 2, undesignated]
----------------------------------------------------------------------------------------------------------------
                                                                     Number of       Weighting       Weighted
                        Vessel class/year                            transits         factor         transits
----------------------------------------------------------------------------------------------------------------
Class 1 (2014)..................................................              31            1.00              31
Class 1 (2015)..................................................              35            1.00              35
Class 1 (2016)..................................................              32            1.00              32
Class 2 (2014)..................................................             356            1.15           409.4
Class 2 (2015)..................................................             354            1.15           407.1

[[Page 2598]]

 
Class 2 (2016)..................................................             380            1.15             437
Class 3 (2014)..................................................              20            1.30              26
Class 3 (2015)..................................................               0            1.30               0
Class 3 (2016)..................................................               9            1.30            11.7
Class 4 (2014)..................................................             636            1.45           922.2
Class 4 (2015)..................................................             560            1.45             812
Class 4 (2016)..................................................             468            1.45           678.6
                                                                 -----------------------------------------------
    Total.......................................................           2,881  ..............           3,802
----------------------------------------------------------------------------------------------------------------
Average weighting factor (weighted transits/number of transits).  ..............            1.32  ..............
----------------------------------------------------------------------------------------------------------------

                              Table 33--Average Weighting Factor for Areas 6 and 8
                                           [District 3, undesignated]
----------------------------------------------------------------------------------------------------------------
                                                                     Number of       Weighting       Weighted
                        Vessel class/year                            transits         factor         transits
----------------------------------------------------------------------------------------------------------------
Area 6:
    Class 1 (2014)..............................................              45            1.00              45
    Class 1 (2015)..............................................              56            1.00              56
    Class 1 (2016)..............................................             136            1.00             136
    Class 2 (2014)..............................................             274            1.15           315.1
    Class 2 (2015)..............................................             207            1.15          238.05
    Class 2 (2016)..............................................             236            1.15           271.4
    Class 3 (2014)..............................................              15            1.30            19.5
    Class 3 (2015)..............................................               8            1.30            10.4
    Class 3 (2016)..............................................              10            1.30              13
    Class 4 (2014)..............................................             394            1.45           571.3
    Class 4 (2015)..............................................             375            1.45          543.75
    Class 4 (2016)..............................................             332            1.45           481.4
                                                                 -----------------------------------------------
        Total for Area 6........................................           2,088  ..............         2,700.9
Area 8:
    Class 1 (2014)..............................................               3            1.00               3
    Class 1 (2015)..............................................               0            1.00               0
    Class 1 (2016)..............................................               4            1.00               4
    Class 2 (2014)..............................................             177            1.15          203.55
    Class 2 (2015)..............................................             169            1.15          194.35
    Class 2 (2016)..............................................             174            1.15           200.1
    Class 3 (2014)..............................................               3            1.30             3.9
    Class 3 (2015)..............................................               0            1.30               0
    Class 3 (2016)..............................................               7            1.30             9.1
    Class 4 (2014)..............................................             243            1.45          352.35
    Class 4 (2015)..............................................             253            1.45          366.85
    Class 4 (2016)..............................................             204            1.45           295.8
                                                                 -----------------------------------------------
        Total for Area 8........................................           1,237  ..............           1,633
                                                                 -----------------------------------------------
            Combined total......................................           3,325  ..............         4,333.9
----------------------------------------------------------------------------------------------------------------
Average weighting factor (weighted transits/number of transits).  ..............            1.30  ..............
----------------------------------------------------------------------------------------------------------------

                                  Table 34--Average Weighting Factor for Area 7
                                            [District 3, designated]
----------------------------------------------------------------------------------------------------------------
                                                                     Number of       Weighting       Weighted
                        Vessel class/year                            transits         factor         transits
----------------------------------------------------------------------------------------------------------------
Class 1 (2014)..................................................              27            1.00              27
Class 1 (2015)..................................................              23            1.00              23
Class 1 (2016)..................................................              55            1.00              55
Class 2 (2014)..................................................             221            1.15          254.15
Class 2 (2015)..................................................             145            1.15          166.75
Class 2 (2016)..................................................             174            1.15           200.1
Class 3 (2014)..................................................               4            1.30             5.2
Class 3 (2015)..................................................               0            1.30               0
Class 3 (2016)..................................................               6            1.30             7.8

[[Page 2599]]

 
Class 4 (2014)..................................................             321            1.45          465.45
Class 4 (2015)..................................................             245            1.45          355.25
Class 4 (2016)..................................................             191            1.45          276.95
                                                                 -----------------------------------------------
    Total.......................................................           1,412  ..............        1,836.65
----------------------------------------------------------------------------------------------------------------
Average weighting factor (weighted transits/number of transits).  ..............            1.30  ..............
----------------------------------------------------------------------------------------------------------------

I. Step 9: Calculate Revised Base Rates

    In this step, we revise the base rates so that once the impact of 
the weighting factors are considered, the total cost of pilotage will 
be equal to the revenue needed. To do this, we divide the initial base 
rates, calculated in Step 7, by the average weighting factors 
calculated in Step 8, as shown in Table 35.

                                          Table 35--Revised Base Rates
----------------------------------------------------------------------------------------------------------------
                                                                                                   Revised rate
                                                                                      Average     (initial rate/
                              Area                                 Initial rate      weighting        average
                                                                     (Step 7)      factor  (Step     weighting
                                                                                        8)            factor)
----------------------------------------------------------------------------------------------------------------
District One: Designated........................................            $796            1.28            $622
District One: Undesignated......................................             550            1.30             424
District Two: Designated........................................             730            1.32             553
District Two: Undesignated......................................             597            1.32             424
District Three: Designated......................................             673            1.30             517
District Three: Undesignated....................................             330            1.30             253
----------------------------------------------------------------------------------------------------------------

J. Step 10: Review and Finalize Rates

    In this step, the Director reviews the rates set forth by the 
staffing model and ensures that they meet the goal of ensuring safe, 
efficient, and reliable pilotage. Because, as detailed in the 
discussion sections of this NPRM, the proposed rates incorporate 
appropriate compensation for enough pilots to handle heavy traffic 
periods, would cover operating expenses and infrastructure costs, and 
have taken average traffic and weighting factors into consideration, we 
believe that they do meet the goal of ensuring safe, efficient, and 
reliable pilotage. Thus, we are not proposing any alterations to the 
rates in this step. The final rates are shown in Table 36, and we 
propose to modify the text in Sec.  401.405(a) to reflect them.

                                              Table 36--Final Rates
----------------------------------------------------------------------------------------------------------------
                                                                                   2017 Pilotage   Proposed 2018
                     Area                                     Name                     rate        pilotage rate
----------------------------------------------------------------------------------------------------------------
District One: Designated......................  St. Lawrence River..............            $601            $622
District One: Undesignated....................  Lake Ontario....................             408             424
District Two: Undesignated....................  Lake Erie.......................             429             454
District Two: Designated......................  Navigable waters from Southeast              580             553
                                                 Shoal to Port Huron, MI.
District Three: Undesignated..................  Lakes Huron, Michigan, and                   218             253
                                                 Superior.
District Three: Designated....................  St. Mary's River................             514             517
----------------------------------------------------------------------------------------------------------------

K. Surcharges

    Because there are several applicant pilots in 2018, we are 
proposing to levy surcharges to cover the costs needed for training 
expenses. Consistent with previous years, we are proposing to assign a 
cost of $150,000 per applicant pilot. To develop the surcharge, we 
multiply the number of applicant pilots by the average cost per pilot 
to develop a total amount of training costs needed, and then impose 
that amount as a surcharge to all areas in the respective district, 
consisting of a percentage of revenue needed. In this year, there are 
two applicant pilots for District One, one applicant pilot for District 
Two, and four applicant pilots for District Three. The calculations to 
develop the surcharges are shown in Table 37. We note that while the 
percentages are rounded for simplicity, such rounding does not impact 
the revenue generated, as surcharges can no longer be collected once 
the surcharge total has been attained.

[[Page 2600]]

                                        Table 37--Surcharge Calculations
----------------------------------------------------------------------------------------------------------------
                                                                   District One    District Two   District Three
----------------------------------------------------------------------------------------------------------------
Number of applicant pilots......................................               2               1               4
Total applicant training costs..................................        $300,000        $150,000        $600,000
Revenue needed (Step 6).........................................      $7,409,244      $6,754,605      $8,274,933
Total surcharge as percentage (total training costs/revenue)....              4%              2%              7%
----------------------------------------------------------------------------------------------------------------

IX. Regulatory Analyses

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

A. Regulatory Planning and Review

    Executive Orders 12866, ``Regulatory Planning and Review,'' and 
13563, ``Improving Regulation and Regulatory Review,'' direct agencies 
to assess the costs and benefits of available regulatory alternatives 
and, if regulation is necessary, to select regulatory approaches that 
maximize net benefits (including potential economic, environmental, 
public health and safety effects, distributive impacts, and equity). 
Executive Order 13563 emphasizes the importance of quantifying both 
costs and benefits, of reducing costs, of harmonizing rules, and of 
promoting flexibility. Executive Order 13771, ``Reducing Regulation and 
Controlling Regulatory Costs,'' directs agencies to reduce regulation 
and control regulatory costs and provides that ``for every one new 
regulation issued, at least two prior regulations be identified for 
elimination, and that the cost of planned regulations be prudently 
managed and controlled through a budgeting process.''
    The Office of Management and Budget (OMB) has not designated this 
proposed rule a significant regulatory action under section 3(f) of 
Executive Order 12866. Accordingly, OMB has not reviewed it. Because 
this proposed rule is not a significant regulatory action, this 
proposed rule is exempt from the requirements of Executive Order 13771. 
See OMB's Memorandum titled, ``Interim Guidance Implementing Section 2 
of the Executive Order of January 30, 2017 titled `Reducing Regulation 
and Controlling Regulatory Costs''' (February 2, 2017). A regulatory 
analysis (RA) follows.
    The purpose of this rulemaking is to propose new base pilotage 
rates and surcharges for training. This proposed rule also makes 
changes to the ratemaking methodology and revises the compensation 
benchmark. The last full ratemaking was concluded in 2017.
    Table 38 summarizes the regulatory changes that are expected to 
have no costs, and any qualitative benefits associated with them. The 
table also includes proposed changes that affect portions of the 
methodology for calculating the proposed base pilotage rates. While 
these proposed changes affect the calculation of the rate, the costs of 
these changes are captured in the changes to the total revenue as a 
result of the proposed rate change (summarized in Table 39).

             Table 38--Regulatory Changes With No Cost or Costs Captured in the Proposed Rate Change
----------------------------------------------------------------------------------------------------------------
           Proposed change                   Description           Basis for no costs            Benefits
----------------------------------------------------------------------------------------------------------------
Codification of compensation           Add regulatory text to   Pilot compensation       --Pilot compensation
 inflation adjustment.                  Sec.   404.104 to make   costs are accounted      would keep up with
                                        the adjustment for       for in the base          regional inflation.
                                        inflation automatic.     pilotage rates.         --Improves consistency,
                                                                                          transparency, and
                                                                                          efficiency in our
                                                                                          ratemaking procedures.
Target pilot compensation............  --Due to the 2016 court  Pilot compensation       Improves transparency
                                        opinion on pilot         costs are accounted      in our ratemaking
                                        compensation, the        for in the base          procedures.
                                        Coast Guard is           pilotage rates.
                                        changing the pilot
                                        compensation benchmark.
Relocation of staffing model           Move the discussion of   We are not proposing to  Improve the clarity of
 regulations.                           the staffing model       adjust or modify the     the regulations and
                                        from 46 CFR 404.103      regulatory text, but     improve the regulatory
                                        (as part of ``Step 3''   simply move it to Sec.   process.
                                        of the ratemaking          401.220.
                                        process), to the
                                        general regulations
                                        governing pilotage in
                                        Sec.   401.420.
Delineation of full ratemakings and    Set forth separate       Change only clarifies    Simplify ratemaking
 annual reviews.                        regulatory paragraphs    that the benchmark       procedures in interim
                                        detailing the            level compensation       years and better
                                        differences between      will only be             effect the statutory
                                        how the Coast Guard      reconsidered during      mandate in section
                                        undertakes an annual     ``full ratemaking''      9303(f) of the Great
                                        adjustment of the        years.                   Lakes Pilotage Act.
                                        pilotage rates, and a
                                        full reassessment of
                                        the rates, which must
                                        be undertaken once
                                        every 5 years.
Miscellaneous other changes..........  --Rename the step        Minor editorial changes  Provides clarification
                                        currently titled         in this NPRM that do     to regulatory text and
                                        ``Initially calculate    not impact total         the rulemaking.
                                        base rates'' to          revenues.
                                        ``Calculate initial
                                        base rates'' for style
                                        purposes.
                                       --Adjust the reference
                                        to the staffing model
                                        in Step 7 to account
                                        for its relocation in
                                        text.
----------------------------------------------------------------------------------------------------------------

[[Page 2601]]

    Table 39 summarizes the affected population, costs, and benefits of 
the rate changes that are expected to have costs associated with them.

                                 Table 39--Economic Impacts Due to Rate Changes
----------------------------------------------------------------------------------------------------------------
                                                           Affected
         Proposed change              Description         population             Costs             Benefits
----------------------------------------------------------------------------------------------------------------
Rate Changes....................  Under the Great     Owners and          $1,162,401--Due to  --New rates cover
                                   Lakes Pilotage      operators of 215    change in Revenue   an association's
                                   Act of 1960, the    vessels             Needed for 2018     necessary and
                                   Coast Guard is      journeying the      ($23,488,782)       reasonable
                                   required to         Great Lakes         from Revenue        operating
                                   review and adjust   system annually,    Needed for 2017     expenses.
                                   base pilotage       49 U.S. Great       ($22,326,381) as   --Provides fair
                                   rates annually.     Lakes pilots, and   shown in Table 40   compensation,
                                                       3 pilotage          below.              adequate
                                                       associations.                           training, and
                                                                                               sufficient rest
                                                                                               periods for
                                                                                               pilots.
                                                                                              --Ensures the
                                                                                               association
                                                                                               receives
                                                                                               sufficient
                                                                                               revenues to fund
                                                                                               future
                                                                                               improvements.
----------------------------------------------------------------------------------------------------------------

    The Coast Guard is required to review and adjust pilotage rates on 
the Great Lakes annually. See sections IV and V of this preamble for 
detailed discussions of the legal basis and purpose for this rulemaking 
and for background information on Great Lakes pilotage ratemaking. 
Based on our annual review for this proposed rulemaking, we propose 
adjusting the pilotage rates for the 2018 shipping season to generate 
sufficient revenues for each district to reimburse its necessary and 
reasonable operating expenses, fairly compensate trained and rested 
pilots, and provide an appropriate working capital fund to use for 
improvements. The rate changes in this proposed rule would, if 
codified, lead to an increase in the cost per unit of service to 
shippers in all three districts, and result in an estimated annual cost 
increase to shippers.
    In addition to the increase in payments that would be incurred by 
shippers in all three districts from the previous year as a result of 
the proposed rate changes, we propose authorizing a temporary surcharge 
to allow the pilotage associations to recover training expenses that 
would be incurred in 2018. For 2018, we anticipate that there will be 
two applicant pilots in District One, one applicant pilot in District 
Two, and four applicant pilots in District Three. With a training cost 
of $150,000 per pilot, we estimate that Districts One, Two, and Three 
will incur $300,000, $150,000, and $600,000 in training expenses, 
respectively. These temporary surcharges would generate a combined 
$1,050,000 in revenue for the pilotage associations. Therefore, after 
accounting for the implementation of the temporary surcharges across 
all three districts, the total payments that would be made by shippers 
during the 2018 shipping season are estimated at approximately 
$1,162,401 more than the total payments that were estimated in 2017 
(Table 40).\46\
---------------------------------------------------------------------------

    \46\ Total payments across all three districts are equal to the 
increase in payments incurred by shippers as a result of the rate 
changes plus the temporary surcharges applied to traffic in 
Districts One, Two, and Three.
---------------------------------------------------------------------------

    A detailed discussion of our economic impact analysis follows.

Affected Population

    The shippers affected by these rate changes are those owners and 
operators of domestic vessels operating ``on register'' (employed in 
foreign trade) and owners and operators of non-Canadian foreign vessels 
on routes within the Great Lakes system. These owners and operators 
must have pilots or pilotage service as required by 46 U.S.C. 9302. 
There is no minimum tonnage limit or exemption for these vessels. The 
statute applies only to commercial vessels and not to recreational 
vessels. United States-flagged vessels not operating on register and 
Canadian ``lakers,'' which account for most commercial shipping on the 
Great Lakes, are not required by 46 U.S.C. 9302 to have pilots. 
However, these U.S.- and Canadian-flagged lakers may voluntarily choose 
to engage a Great Lakes registered pilot. Vessels that are U.S.-flagged 
may opt to have a pilot for varying reasons, such as unfamiliarity with 
designated waters and ports, or for insurance purposes.
    We used billing information from the years 2014 through 2016 from 
the Great Lakes Pilotage Management System (GLPMS) to estimate the 
average annual number of vessels affected by the rate adjustment. The 
GLPMS tracks data related to managing and coordinating the dispatch of 
pilots on the Great Lakes, and billing in accordance with the services. 
We found that a total of 387 vessels used pilotage services during the 
years 2014 through 2016. That is, these vessels had a pilot dispatched 
to the vessel, and billing information was recorded in the GLPMS. The 
number of invoices per vessel ranged from a minimum of 1 invoice per 
year to a maximum of 108 invoices per year. Of these vessels, 367 were 
foreign-flagged vessels and 20 were U.S.-flagged. As previously stated, 
U.S.-flagged vessels not operating on register are not required to have 
a registered pilot per 46 U.S.C. 9302, but they can voluntarily choose 
to have one.
    Vessel traffic is affected by numerous factors and varies from year 
to year. Therefore, rather than the total number of vessels over the 
time period, an average of the unique vessels using pilotage services 
from the years 2014 through 2016 is the best representation of vessels 
estimated to be affected by the rate proposed in this NPRM. From the 
years 2014 through 2016, an average of 215 vessels used pilotage 
services annually.\47\ On average, 206 of these vessels were foreign-
flagged vessels and 9 were U.S.-flagged vessels that voluntarily opted 
into the pilotage service.
---------------------------------------------------------------------------

    \47\ Some vessels entered the Great Lakes multiple times in a 
single year, affecting the average number of unique vessels 
utilizing pilotage services in any given year.
---------------------------------------------------------------------------

Total Cost to Shippers

    The rate changes resulting from the new methodology would generate 
costs to industry in the form of higher payments for shippers. We 
estimate the effect of the rate changes on shippers by comparing the 
total projected revenues needed to cover costs in 2017 with the total 
projected revenues to cover costs in 2018, including any temporary 
surcharges we have authorized. We set pilotage rates so that pilot 
associations receive enough revenue to cover their necessary and 
reasonable expenses. Shippers pay these rates when they

[[Page 2602]]

have a pilot as required by 46 U.S.C. 9302. Therefore, the aggregate 
payments of shippers to pilot associations are equal to the projected 
necessary revenues for pilot associations. The revenues each year 
represent the total costs that shippers must pay for pilotage services, 
and the change in revenue from the previous year is the additional cost 
to shippers discussed in this proposed rule.
    The impacts of the proposed rate changes on shippers are estimated 
from the District pilotage projected revenues (shown in Tables 20 
through 22 of this preamble) and the proposed surcharges described in 
section VIII of this preamble. We estimate that for the 2018 shipping 
season, the projected revenue needed for all three districts is 
$22,438,782. Temporary surcharges on traffic in Districts One, Two, and 
Three would be applied for the duration of the 2018 season in order for 
the pilotage associations to recover training expenses incurred for 
applicant pilots. We estimate that the pilotage associations would 
require an additional $300,000, $150,000, and $600,000 in revenue for 
applicant training expenses in Districts One, Two, and Three, 
respectively. This would be an additional cost to shippers of 
$1,050,000 during the 2018 shipping season. Adding the projected 
revenue of $22,438,782 to the proposed surcharges, we estimate the 
pilotage associations' total projected revenue needed for 2018 would be 
$23,488,782. To estimate the additional cost to shippers from this 
proposed rule, we compare the 2018 total projected revenues to the 2017 
projected revenues. Because we review and prescribe rates for the Great 
Lakes Pilotage annually, the effects are estimated as a single year 
cost rather than annualized over a 10-year period. In the 2017 
rulemaking,\48\ we estimated the total projected revenue needed for 
2017, including surcharges, as $22,326,381. This is the best 
approximation of 2017 revenues as, at the time of this publication, we 
do not have enough audited data available for the 2017 shipping season 
to revise these projections. Table 40 shows the revenue projections for 
2017 and 2018 and details the additional cost increases to shippers by 
area and district as a result of the rate changes and temporary 
surcharges on traffic in Districts One, Two, and Three.
---------------------------------------------------------------------------

    \48\ The 2017 projected revenues are from the 2017 Great Lakes 
Pilotage Ratemaking final rule (82 FR 41484 and 41489), Tables 9 and 
14.

                                               Table 40--Effect of the Proposed Rule by Area and District
                                                                 [$U.S.; non-discounted]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                            Total 2017                                      Total 2018      Additional
                  Area                    Revenue needed  2017 Temporary     projected    Revenue needed  2018 Temporary     projected     costs of this
                                              in 2017        surcharge        revenue         in 2018        surcharge        revenue      proposed rule
--------------------------------------------------------------------------------------------------------------------------------------------------------
Total, District One.....................      $7,109,019              $0      $7,109,019      $7,409,244        $300,000      $7,709,244        $600,225
Total, District Two.....................       6,633,491         300,000       6,933,491       6,754,605         150,000       6,904,605        (28,886)
Total, District Three...................       7,233,871       1,050,000       8,283,871       8,274,933         600,000       8,874,933         591,062
                                         ---------------------------------------------------------------------------------------------------------------
    System Total........................      20,976,381       1,350,000      22,326,381      22,438,782       1,050,000      23,488,782       1,162,401
--------------------------------------------------------------------------------------------------------------------------------------------------------

    The resulting difference between the projected revenue in 2017 and 
the projected revenue in 2018 is the proposed annual change in payments 
from shippers to pilots as a result of the rate change that would be 
imposed by this rule. The effect of the proposed rate change to 
shippers varies by area and district. The rate changes, after taking 
into account the increase in pilotage rates and the addition of 
temporary surcharges, would lead to affected shippers operating in 
District One and District Three experiencing an increase in payments of 
$600,225 and $591,062, respectively, over the previous year, and a 
decrease in payments of $28,886 in District 2. The overall adjustment 
in payments would be an increase in payments by shippers of 
approximately $1,162,401 across all three districts (a 5 percent 
increase over 2017). Again, because we review and set rates for Great 
Lakes Pilotage annually, the impacts are estimated as single year costs 
rather than annualized over a 10-year period.
    Table 41 shows the difference in revenue by component from 2017 to 
2018.\49\ The majority of the increase in revenue is due to the 
inflation of operating expenses and to the addition of four pilots who 
were authorized in the 2017 rule. These four pilots are training this 
year and will become full-time working pilots at the beginning of the 
2018 shipping season. They would be compensated at the target 
compensation of $319,617 per pilot. The addition of these pilots to 
full working status accounts for $1,278,468 of the increase ($677,898 
when also including the effect of decreasing compensation for 45 
pilots). The remaining amount is attributed to decreases in the working 
capital fund and differences in the surcharges from 2017.
---------------------------------------------------------------------------

    \49\ The 2017 projected revenues are from the 2017 final rule 
(82 FR 41484 and 41489), tables 9 and 14. The 2018 projected 
revenues are from tables 20-22 of this NPRM.

                                  Table 41--Difference in Revenue by Component
----------------------------------------------------------------------------------------------------------------
                                                                                                    Difference
                                                                  Revenue needed  Revenue needed  (2018 Revenue-
                        Revenue component                             in 2017         in 2018      2017 Revenue)
 
----------------------------------------------------------------------------------------------------------------
Adjusted Operating Expenses.....................................      $5,155,280      $5,983,199        $827,919
Total Target Pilot Compensation.................................      14,983,335      15,661,233         677,898
Working Capital Fund............................................         837,766         794,350        (43,416)
                                                                 -----------------------------------------------
Total Revenue Needed, without Surcharge.........................      20,976,381      22,438,782       1,462,401
Surcharge.......................................................       1,350,000       1,050,000       (300,000)
                                                                 -----------------------------------------------

[[Page 2603]]

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

Pilotage Rates as a Percentage of Vessel Operating Costs

    To estimate the impact of U.S. pilotage costs on foreign-flagged 
vessels that would be affected by the rate adjustment, we looked at the 
pilotage costs as a percentage of a vessel's costs for an entire 
voyage. The portion of the trip on the Great Lakes using a pilot is 
only a portion of the whole trip. The affected vessels are often 
traveling from a foreign port, and the days without a pilot on the 
total trip often exceed the days a pilot is needed.
    To estimate this impact, we used the 2017 study titled, ``Analysis 
of Great Lakes Pilotage Costs on Great Lakes Shipping and the Potential 
Impact of Increases in U.S. Pilotage Charges.'' \50\ We conducted the 
study to explore additional frameworks and methodologies for assessing 
the cost of Great Lakes pilot's ratemaking regulations, with a focus on 
capturing industry and port level economic impacts. The study also 
included an analysis of the pilotage costs as a percentage of the total 
voyage costs that we can use in RAs to estimate the direct impact of 
changes to the pilotage rates.
---------------------------------------------------------------------------

    \50\ The study is available at http://www.dco.uscg.mil/Our-Organization/Assistant-Commandant-for-Prevention-Policy-CG-5P/Marine-Transportation-Systems-CG-5PW/Office-of-Waterways-and-Ocean-Policy/Office-of-Waterways-and-Ocean-Policy-Great-Lakes-Pilotage-Div/.
---------------------------------------------------------------------------

    The study developed a voyage cost model that is based on a vessel's 
daily costs. The daily costs included: Capital repayment costs; fuel 
costs; operating costs (such as crew, supplies, and insurance); port 
costs; speed of the vessel; stevedoring rates; and tolls. The daily 
operating costs were translated into total voyage costs using mileage 
between the ports for a number of voyage scenarios. In the study, the 
total voyage costs were then compared to the U.S. pilotage costs. The 
study found that, using the 2016 rates, the U.S. pilotage charges 
represent 10 percent of the total voyage costs for a vessel carrying 
grain, and between 8 percent and 9 percent of the total voyage costs 
for a vessel carrying steel.\51\ We updated the analysis to estimate 
the percentage U.S. pilotage charges represent using the percentage 
increase in revenues from the years 2016 to 2018. Since the study used 
2016 as the latest year of data, we compared the revenues needed in 
2018 and 2017 to the 2016 revenues in order to estimate the change in 
pilotage costs as a percentage of total voyage costs from 2017 to 2018. 
Table 42 shows the revenues needed for the years 2016, 2017, and 2018.
---------------------------------------------------------------------------

    \51\ Martin Associates, ``Analysis of Great Lakes Pilotage Costs 
on Great Lakes Shipping and the Potential Impact of Increases in 
U.S. Pilotage Charges,'' page 33.
    \52\ The 2016 projected revenues are from the 2016 final rule, 
81 FR 11938. Figure 32, projected revenue needed in 2016 plus the 
temporary surcharge ($17,453,678 + $1,650,000 = $19,103,678).
    \53\ The 2017 projected revenues are from the 2017 final rule, 
82 FR 41484 and 41489, tables 9 and 14.

                                Table 42--Revenue Needed in 2016, 2017, and 2018
----------------------------------------------------------------------------------------------------------------
                                                                  Revenue needed  Revenue needed  Revenue needed
                        Revenue component                          in 2016 \52\    in 2017 \53\       in 2018
----------------------------------------------------------------------------------------------------------------
Total Revenue Needed, with Surcharge............................     $19,103,678     $22,326,381     $23,488,782
----------------------------------------------------------------------------------------------------------------

    From 2016 to 2017, the total revenues needed increased by 17 
percent. From 2017 to 2018, the proposed total revenues needed would 
increase by 5 percent. From 2016 to 2018, the total revenues needed 
would increase by 23 percent. While the change in total voyage cost 
would vary by the trip, vessel class, and whether the vessel is 
carrying steel or grain, we used these percentages as an average 
increase to estimate the change in the impact. When we increased the 
pilotage charges by 17 percent from 2016, we found the U.S. pilotage 
costs represented an average of 11.3 percent of the total voyage costs. 
We then increased the base 2016 rates by 23 percent. With this proposed 
rule's rates for 2018, pilotage costs are estimated to account for 11.8 
percent of the total voyage costs, or a 0.5 percent increase over the 
percentage that U.S. pilotage costs represented of the total voyage in 
2017.
    It is important to note that this analysis is based on a number of 
assumptions. The purpose of the study was to look at the impact of the 
U.S. pilotage rates. The study did not include an analysis of the GLPA 
rates. It was assumed that a U.S. pilot is assigned to all portions of 
a voyage where he or she could be assigned. In reality, the assignment 
of a United States or Canadian pilot is based on the order in which a 
vessel enters the system, as outlined in the Memorandum of 
Understanding between the GLPA and the Coast Guard.
    This analysis only looks at the impact of proposed U.S. pilotage 
cost changes. All other costs were held constant at the 2016 levels, 
including Canadian pilotage costs, tolls, stevedoring, and port 
charges. This analysis estimates the impacts of Great Lakes pilotage 
rates holding all other factors constant. If other factors or sectors 
were not held constant but, instead, were allowed to adjust or 
fluctuate, it is likely that the impact of pilotage rates would be 
different. Many factors that drive the tonnage levels of foreign cargo 
on the Great Lakes and St. Lawrence Seaway were held constant for this 
analysis. These factors include, but are not limited to, demand for 
steel and grain, construction levels in the regions, tariffs, exchange 
rates, weather conditions, crop production, rail and alternative route 
pricing, tolls, vessel size restriction on the Great Lakes and St. 
Lawrence Seaway, and inland waterway river levels.

Benefits

    This proposed rule would allow the Coast Guard to meet the 
requirements in

[[Page 2604]]

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

B. Small Entities

    Under the Regulatory Flexibility Act, 5 U.S.C. 601-612, we have 
considered whether this proposed rule would have a significant economic 
effect on a substantial number of small entities. The term ``small 
entities'' comprises small businesses, not-for-profit organizations 
that are independently owned and operated and are not dominant in their 
fields, and governmental jurisdictions with populations of less than 
50,000 people.
    For the proposed rule, we reviewed recent company size and 
ownership data for the vessels identified in the GLPMS and we reviewed 
business revenue and size data provided by publicly available sources 
such as MANTA \54\ and ReferenceUSA.\55\ As described in Section IX.A 
of this preamble, Regulatory Planning and Review, we found that a total 
of 387 unique vessels used pilotage services from 2014 through 2016. 
These vessels are owned by 59 entities. We found that of the 59 
entities that own or operate vessels engaged in trade on the Great 
Lakes affected by this proposed rule, 48 are foreign entities that 
operate primarily outside the United States. The remaining 11 entities 
are U.S. entities. We compared the revenue and employee data found in 
the company search to the Small Business Administration's (SBA) Table 
of Small Business Size Standards \56\ to determine how many of these 
companies are small entities. Table 43 shows the North American 
Industry Classification System (NAICS) codes of the U.S. entities and 
the small entity standard size established by the SBA.
---------------------------------------------------------------------------

    \54\ See http://www.manta.com/.
    \55\ See http://resource.referenceusa.com/.
    \56\ Source: https://www.sba.gov/contracting/getting-started-contractor/make-sure-you-meet-sba-size-standards/table-small-business-size-standards. SBA has established a Table of Small 
Business Size Standards, which is matched to NAICS industries. A 
size standard, which is usually stated in number of employees or 
average annual receipts (``revenues''), represents the largest size 
that a business (including its subsidiaries and affiliates) may be 
considered in order to remain classified as a small business for SBA 
and Federal contracting programs.

         Table 43--NAICS Codes and Small Entities Size Standards
------------------------------------------------------------------------
                                                   Small business size
         NAICS                Description                standard
------------------------------------------------------------------------
238910................  Site Preparation         $15 million.
                         Contractors.
483211................  Inland Water Freight     750 employees.
                         Transportation.
483212................  Inland Water Passenger   500 employees.
                         Transportation.
487210................  Scenic & Sightseeing     $7.5 million.
                         Transportation, Water.
488320................  Marine Cargo Handling..  $38.5 million.
488330................  Navigational Services    $38.5 million.
                         to Shipping.
488510................  Freight Transportation   $15 million.
                         Arrangement.
------------------------------------------------------------------------

    The entities all exceed the SBA's small business standards for 
small businesses. Further, these U.S. entities operate U.S.-flagged 
vessels and are not required to have pilots as required by 46 U.S.C. 
9302.
    In addition to the owners and operators of vessels affected by this 
proposed rule, there are three U.S. entities affected by the proposed 
rule that receive revenue from pilotage services. These are the three 
pilot associations that provide and manage pilotage services within the 
Great Lakes districts. Two of the associations operate as partnerships 
and one operates as a corporation. These associations are designated 
with the same NAICS industry classification and small-entity size 
standards described above, but they have fewer than 500 employees; 
combined, they have approximately 65 employees in total. We expect no 
adverse effect on these entities from this proposed rule because all 
associations would receive enough revenue to balance the projected 
expenses associated with the projected number of bridge hours (time on 
task) and pilots.
    We did not find any small not-for-profit organizations that are 
independently owned and operated and are not dominant in their fields. 
We did not find any small governmental jurisdictions with populations 
of fewer than 50,000 people. Based on this analysis, we found this 
proposed rulemaking, if promulgated, would not affect a substantial 
number of small entities.
    Therefore, we certify under 5 U.S.C. 605(b) that this proposed rule 
would not have a significant economic impact on a substantial number of 
small entities. If you think that your business, organization, or 
governmental jurisdiction qualifies as a small entity and that this 
proposed rule would have a significant economic impact on it, please 
submit a comment to the Docket Management Facility at the address under 
ADDRESSES. In your comment, explain why you think it qualifies, and how 
and to what degree this proposed rule would economically affect it.

C. Assistance for Small Entities

    Under section 213(a) of the Small Business Regulatory Enforcement 
Fairness Act of 1996, Public Law 104-121, we want to assist small 
entities in understanding this proposed rule so that they can better 
evaluate its effects on them and participate in the rulemaking. If the 
proposed rule would affect your small business, organization, or 
governmental jurisdiction and you have questions concerning its 
provisions or options for compliance, please consult Mr. Mike Moyers, 
Great Lakes Pilotage, Commandant (CG-WWM-2), Coast Guard; telephone 
202-372-1533, email [email protected], or fax 202-372-1914. The 
Coast Guard will not retaliate against small entities that question or 
complain about this rule or any policy or action of the Coast Guard.
    Small businesses may send comments on the actions of Federal 
employees who enforce, or otherwise determine compliance with, Federal 
regulations to the Small Business and Agriculture Regulatory 
Enforcement Ombudsman and the Regional Small Business

[[Page 2605]]

Regulatory Fairness Boards. The Ombudsman evaluates these actions 
annually and rates each agency's responsiveness to small business. If 
you wish to comment on actions by employees of the Coast Guard, call 1-
888-REG-FAIR (1-888-734-3247).

D. Collection of Information

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

E. Federalism

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

F. Unfunded Mandates Reform Act

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

G. Taking of Private Property

    This proposed rule would not cause a taking of private property or 
otherwise have taking implications under E.O. 12630, Governmental 
Actions and Interference with Constitutionally Protected Property 
Rights.

H. Civil Justice Reform

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

I. Protection of Children

    We have analyzed this proposed rule under E.O. 13045, Protection of 
Children from Environmental Health Risks and Safety Risks. This 
proposed rule is not an economically significant rule and would not 
create an environmental risk to health or risk to safety that might 
disproportionately affect children.

J. Indian Tribal Governments

    This proposed rule does not have tribal implications under E.O. 
13175, Consultation and Coordination with Indian Tribal Governments, 
because it would not have a substantial direct effect on one or more 
Indian tribes, on the relationship between the Federal Government and 
Indian tribes, or on the distribution of power and responsibilities 
between the Federal Government and Indian tribes.

K. Energy Effects

    We have analyzed this proposed rule under E.O. 13211, Actions 
Concerning Regulations That Significantly Affect Energy Supply, 
Distribution, or Use. We have determined that it is not a ``significant 
energy action'' under that E.O. because it is not a ``significant 
regulatory action'' under E.O. 12866 and is not likely to have a 
significant adverse effect on the supply, distribution, or use of 
energy. The Administrator of the Office of Information and Regulatory 
Affairs has not designated it as a significant energy action. 
Therefore, it does not require a Statement of Energy Effects under E.O. 
13211.

L. Technical Standards

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

M. Environment

    We have analyzed this proposed rule under Department of Homeland 
Security (DHS) Directive 023-01, Revision (Rev) 01, Implementation of 
the National Environmental Policy Act [DHS Instruction Manual 023-01 
(series)] and Commandant Instruction M16475.lD, which guide the Coast 
Guard in complying with the National Environmental Policy Act of 1969 
(42 U.S.C. 4321-4370f), and have made a preliminary determination that 
this action is one of a category of actions that do not individually or 
cumulatively have a significant effect on the human environment. A 
preliminary Record of Environmental Consideration supporting this 
determination is available in the docket where indicated under the 
``Public Participation and Request for Comments'' section of this 
preamble. This proposed rule meets the criteria for categorical 
exclusion (CATEX) under paragraph A3 of Table 1, particularly subparts 
(a), (b), and (c) in Appendix A of DHS Directive 023-01(series). CATEX 
A3 pertains to promulgation of rules and procedures that are: (a) 
Strictly administrative or procedural in nature; (b) that implement, 
without substantive change, statutory or regulatory requirements; or 
(c) that implement, without substantive change, procedures, manuals, 
and other guidance documents. This proposed rule adjusts base pilotage 
rates and surcharges for administering the 2018 shipping season in 
accordance with applicable statutory and regulatory mandates, and also 
proposes several

[[Page 2606]]

minor changes to the Great Lakes pilotage ratemaking methodology. We 
seek any comments or information that may lead to the discovery of a 
significant environmental impact from this proposed rule.

List of Subjects

46 CFR Part 401

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

46 CFR Part 404

    Great Lakes, Navigation (water), Seamen.

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

Title 46--Shipping

PART 401--GREAT LAKES PILOTAGE REGULATIONS

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

    Authority:  46 U.S.C. 2103, 2104(a), 6101, 7701, 8105, 9303, 
9304; Department of Homeland Security Delegation No. 
0170.1(II)(92.a), (92.d), (92.e), (92.f).

0
 2. Revise paragraph (a) of Sec.  401.220 to read as follows:

Sec.  401.220   Registration of pilots.

    (a) The Director shall determine the number of pilots required to 
be registered in order to assure adequate and efficient pilotage 
service in the United States waters of the Great Lakes and to provide 
for equitable participation of United States Registered Pilots with 
Canadian Registered Pilots in the rendering of pilotage services. The 
Director determines the number of pilots needed as follows:
    (1) The Director determines the base number of pilots needed by 
dividing each area's peak pilotage demand data by its pilot work cycle. 
The pilot work cycle standard includes any time that the Director finds 
to be a necessary and reasonable component of ensuring that a pilotage 
assignment is carried out safely, efficiently, and reliably for each 
area. These components may include but are not limited to--
    (i) Amount of time a pilot provides pilotage service or is 
available to a vessel's master to provide pilotage service;
    (ii) Pilot travel time, measured from the pilot's base, to and from 
an assignment's starting and ending points;
    (iii) Assignment delays and detentions;
    (iv) Administrative time for a pilot who serves as a pilotage 
association's president;
    (v) Rest between assignments, as required by 46 CFR 401.451;
    (vi) Ten days' recuperative rest per month from April 15 through 
November 15 each year, provided that lesser rest allowances are 
approved by the Director at the pilotage association's request, if 
necessary to provide pilotage without interruption through that period; 
and
    (vii) Pilotage-related training.
    (2) Pilotage demand and the base seasonal work standard are based 
on available and reliable data, as so deemed by the Director, for a 
multi-year base period. The multi-year period is the 10 most recent 
full shipping seasons, and the data source is a system approved under 
46 CFR 403.300. Where such data are not available or reliable, the 
Director also may use data, from additional past full shipping seasons 
or other sources, that the Director determines to be available and 
reliable.
    (3) The number of pilots needed in each district is calculated by 
totaling the area results by district and rounding them to the nearest 
whole integer. For supportable circumstances, the Director may make 
reasonable and necessary adjustments to the rounded result to provide 
for changes that the Director anticipates will affect the need for 
pilots in the district over the period for which base rates are being 
established.
* * * * *
0
 3. Revise paragraph (a) of Sec.  401.405 to read as follows:
    (a) The hourly rate for pilotage service on--
    (1) The St. Lawrence River is $622;
    (2) Lake Ontario is $424;
    (3) Lake Erie is $454;
    (4) The navigable waters from Southeast Shoal to Port Huron, MI is 
$553;
    (5) Lakes Huron, Michigan, and Superior is $253; and
    (6) The St. Mary's River is $517.
* * * * *

PART 404--GREAT LAKES PILOTAGE RATEMAKING

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

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

0
5. Revise Sec.  404.100 to read as follows:

Sec.  404.100   Ratemaking and annual reviews in general.

    (a) The Director establishes base pilotage rates by a full 
ratemaking pursuant to Sec. Sec.  404.101 through 404.110 of this part, 
which is conducted at least once every 5 years and completed by March 1 
of the first year for which the base rates will be in effect. Base 
rates will be set to meet the goal specified in Sec.  404.1(a) of this 
part.
    (b) In the interim years preceding the next scheduled full rate 
review, the Director will adjust base pilotage rates by an interim 
ratemaking pursuant to Sec. Sec.  404.101 through 404.110 of this part.
    (c) Each year, the Director will announce whether the Coast Guard 
will conduct a full ratemaking or interim ratemaking procedure.
0
6. Revise Sec.  404.103 to read as follows:

Sec.  404.103   Ratemaking step 3: Estimate number of working pilots.

    The Director projects, based on the number of persons applying 
under 46 CFR part 401 to become U.S. Great Lakes registered pilots, and 
on information provided by the district's pilotage association, the 
number of pilots expected to be fully working and compensated.
0
7. Revise Sec.  404.104 to read as follows:

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

    (a) In a full ratemaking year, the Director determines base 
individual target pilot compensation using a compensation benchmark, 
set after considering the most relevant currently available non-
proprietary information. For supportable circumstances, the Director 
may make necessary and reasonable adjustments to the benchmark.
    (b) In an interim year, the Director adjusts the previous year's 
individual target pilot compensation level by the Bureau of Labor 
Statistics' Consumer Price Index for the Midwest Region, or if that is 
unavailable, the Federal Open Market Committee median economic 
projections for Personal Consumption Expenditures inflation.
    (c) The Director determines each pilotage association's total 
target pilot compensation by multiplying individual target pilot 
compensation computed in paragraph (a) or (b) of this section by the 
number of pilots projected under Sec.  404.103(d) of this part, or 
Sec.  401.220(a) of this part, whichever is lower.
0
8. Revise Sec.  404.107 to read as follows:

Sec.  404.107   Ratemaking step 7: Calculate initial base rates.

    (a) The Director calculates initial base hourly rates by dividing 
the projected needed revenue from Sec.  404.106 of this part by 
averages of past hours worked in each district's designated and 
undesignated waters, using available and reliable data for a multi-year 
period set in accordance with Sec.  401.220(a) of this part.

[[Page 2607]]

    Dated: January 11, 2018.
Michael D. Emerson,
Director, Marine Transportation Systems, U.S. Coast Guard.
[FR Doc. 2018-00781 Filed 1-17-18; 8:45 am]
 BILLING CODE 9110-04-P