[Federal Register Volume 85, Number 208 (Tuesday, October 27, 2020)]
[Proposed Rules]
[Pages 68210-68241]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-23407]



[[Page 68209]]

Vol. 85

Tuesday,

No. 208

October 27, 2020

Part III





Department of Homeland Security





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Coast Guard





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46 CFR Parts 401 and 404





Great Lakes Pilotage Rates--2021 Annual Review and Revisions to 
Methodology; Proposed Rules

  Federal Register / Vol. 85 , No. 208 / Tuesday, October 27, 2020 / 
Proposed Rules  

[[Page 68210]]


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DEPARTMENT OF HOMELAND SECURITY

Coast Guard

46 CFR Parts 401 and 404

[USCG-2020-0457]
RIN 1625-AC67


Great Lakes Pilotage Rates--2021 Annual Review and Revisions to 
Methodology

AGENCY: Coast Guard, DHS.

ACTION: Notice of proposed rulemaking; request for comments.

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SUMMARY: In accordance with the Great Lakes Pilotage Act of 1960, the 
Coast Guard is proposing new base pilotage rates for the 2021 shipping 
season. This proposed rule would adjust the pilotage rates to account 
for changes in district operating expenses, an increase in the number 
of pilots, and anticipated inflation. Additionally, this proposed rule 
would make one change to the ratemaking methodology to account for 
actual inflation, in step 4, and two policy changes. The first policy 
change would be to always round up numbers, as opposed to rounding to 
the nearest whole integer, in the staffing model. The second policy 
change would be to exclude litigation fees incurred in litigation 
against the Coast Guard regarding ratemaking from necessary and 
reasonable pilot association operating expenses. The Coast Guard 
estimates that this proposed rule would result in a 4-percent net 
increase in pilotage costs compared to the 2020 season. Finally, the 
Coast Guard is requesting comments on how apprentice pilots (a mariner 
with a limited registration) should be compensated in future 
rulemakings.

DATES: Comments and related material must be received by the Coast 
Guard on or before November 27, 2020.

ADDRESSES: You may submit comments identified by docket number USCG-
2020-0457 using the Federal eRulemaking Portal at https://www.regulations.gov. See the ``Public Participation and Request for 
Comments'' portion of the SUPPLEMENTARY INFORMATION section for further 
instructions on submitting comments.

FOR FURTHER INFORMATION CONTACT: For information about this document, 
call or email Mr. Brian Rogers, Commandant (CG-WWM-2), Coast Guard; 
telephone 202-372-1535, email Brian.Rogers@uscg.mil, or fax 202-372-
1914.

SUPPLEMENTARY INFORMATION:

Table of Contents for Preamble

I. Public Participation and Request for Comments
II. Abbreviations
III. Executive Summary
IV. Basis and Purpose
V. Background
VI. Discussion of Proposed Methodological and Other Changes
    A. Inflation of Pilot Compensation Calculation in Step 4
    B. Changes to Rounding in the Staffing Model
    C. Exclusion of Legal Fees Incurred in Lawsuits Against the 
Coast Guard Related To Ratemaking and Regulating From Pilots 
Associations' Approved Operating Expenses
    D. Request for Comments on Changes to Apprentice Pilot 
Compensation for Consideration in a Future Rulemaking
VII. Coast Guard's Authority To Remedy Harms From Past Ratemakings 
in Response to 2020 D.C. Appellate Court Opinion
    A. Coast Guard's Authority To Remedy Harms From Past Ratemakings
    B. Does remedying harms from past ratemakings comport with our 
statutory mandate?
VIII. Discussion of Proposed Rate Adjustment
    District One
    A. Step 1: Recognize Previous Operating Expenses
    B. Step 2: Project Operating Expenses, Adjusting for Inflation 
or Deflation
    C. Step 3: Estimate Number of Working Pilots
    D. Step 4: Determine Target Pilot Compensation Benchmark
    E. Step 5: Project Working Capital Fund
    F. Step 6: Project Needed Revenue
    G. Step 7: Calculate Initial Base Rates
    H. Step 8: Calculate Average Weighting Factors by Area
    I. Step 9: Calculate Revised Base Rates
    J. Step 10: Review and Finalize Rates
    District Two
    A. Step 1: Recognize Previous Operating Expenses
    B. Step 2: Project Operating Expenses, Adjusting for Inflation 
or Deflation
    C. Step 3: Estimate Number of Registered Pilots
    D. Step 4: Determine Target Pilot Compensation Benchmark
    E. Step 5: Project Working Capital Fund
    F. Step 6: Project Needed Revenue
    G. Step 7: Calculate Initial Base Rates
    H. Step 8: Calculate Average Weighting Factors by Area
    I. Step 9: Calculate Revised Base Rates
    J. Step 10: Review and Finalize Rates
    District Three
    A. Step 1: Recognize Previous Operating Expenses
    B. Step 2: Project Operating Expenses, Adjusting for Inflation 
or Deflation
    C. Step 3: Estimate Number of Working Pilots
    D. Step 4: Determine Target Pilot Compensation Benchmark
    E. Step 5: Project Working Capital Fund
    F. Step 6: Project Needed Revenue
    G. Step 7: Calculate Initial Base Rates
    H. Step 8: Calculate Average Weighting Factors by Area
    I. Step 9: Calculate Revised Base Rates
    J. Step 10: Review and Finalize Rates
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
    G. Taking of Private Property
    H. Civil Justice Reform
    I. Protection of Children
    J. Indian Tribal Governments
    K. Energy Effects
    L. Technical Standards
    M. Environment

I. Public Participation and Request for Comments

    The Coast Guard views public participation as essential to 
effective rulemaking, and will consider all comments and material 
received during the comment period. Your comment can help shape the 
outcome of this rulemaking. If you submit a comment, please include the 
docket number for this rulemaking, indicate the specific section of 
this document to which each comment applies, and provide a reason for 
each suggestion or recommendation.
    We encourage you to submit comments through the Federal eRulemaking 
Portal at https://www.regulations.gov. If you cannot submit your 
material by using https://www.regulations.gov, call or email the person 
in the FOR FURTHER INFORMATION CONTACT section of this proposed rule 
for alternate instructions. Documents mentioned in this proposed rule, 
and all public comments, will be available in our online docket at 
https://www.regulations.gov, and can be viewed by following that 
website's instructions. Additionally, if you visit the online docket 
and sign up for email alerts, you will be notified when comments are 
posted or if 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 
submissions in response to this document, see DHS's Correspondence 
System of Records notice (84 FR 48645, September 26, 2018).
    We do not plan to hold a public meeting, but we will consider doing 
so if we determine from public comments that a meeting would be 
helpful. We would issue a separate Federal Register notice to announce 
the date, time, and location of such a meeting.

II. Abbreviations

AMOU American Maritime Officers Union

[[Page 68211]]

APA American Pilots Association
BLS Bureau of Labor Statistics
CAD Canadian dollars
CFR Code of Federal Regulations
CPA Certified public accountant
CPI Consumer Price Index
DHS Department of Homeland Security
Director U.S. Coast Guard's Director of the Great Lakes Pilotage
EAJA Equal Access to Justice Act
FOMC Federal Open Market Committee
FR Federal Register
GLPA Great Lakes Pilotage Authority (Canadian)
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
Pilots Working pilots
SBA Small Business Administration
Sec.  Section
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 and St. Lawrence Seaway--including setting the rates for pilotage 
services and adjusting them on an annual basis. The rates, which for 
the 2020 season range from $337 to $758 per pilot hour (depending on 
which of the specific six areas pilotage service is provided), are paid 
by shippers to pilot associations. The three pilot associations, which 
are the exclusive U.S. source of registered pilots on the Great Lakes, 
use this revenue to cover operating expenses, maintain infrastructure, 
compensate applicant and registered pilots, acquire and implement 
technological advances, train new personnel, and allow partners to 
participate in professional development.
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    \1\ 46 U.S.C. Chapter 93; Public Law 86-555, 74 Stat. 259, as 
amended.
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    To compute the rate for pilotage services, we use a ratemaking 
methodology that we have developed since 2016, in accordance with our 
statutory requirements and regulations. Our ratemaking methodology 
calculates the revenue needed for each pilotage association (operating 
expenses, compensation for the number of pilots, and anticipated 
inflation), and then divides that amount by the expected shipping 
traffic over the course of the coming year, to produce an hourly rate. 
This process is currently effected through a 10-step methodology, which 
is explained in detail in the Summary of Ratemaking Methodology in 
section V of the preamble to this notice of proposed rulemaking (NPRM).
    As part of our annual review, in this NPRM we are proposing new 
pilotage rates for 2021 based on the existing methodology. The result 
is a decrease in rates for all areas. These changes are due to a 
combination of four factors: (1) A decrease in the amount of money 
needed for the working capital fund, (2) adjusting pilot compensation 
for inflation, (3) the net addition of three working pilots 
(``pilots'') at the beginning of the 2021 shipping season in District 
One, and (4) an increase in the average hours of traffic for each area. 
This increase in the average hours of traffic resulted in lower hourly 
rates despite a net increase in the amount of revenue needed by the 
pilot association, because when calculating the base hourly rates the 
total revenue needed is divided by the average hours of traffic 
annually (see Step 7 of the ratemaking process). The proposed rates for 
2021 do not account for the impacts COVID-19 may have on shipping 
traffic in the Great Lakes, because we use the most recent 10-years of 
complete data in our average traffic calculations. For this proposed 
ratemaking, that means the years 2010 through 2019. The rates for 2022 
will take into account the impact of COVID-19 on shipping traffic, 
because that ratemaking will include 2020 traffic data. The Coast Guard 
uses a 10-year average when calculating traffic to smooth out 
variations in traffic caused by global economic conditions, such as 
those caused by the COVID-19 pandemic.
    In addition, the Coast Guard proposes one methodological change to 
the way we calculate the inflation of pilot compensation to account for 
actual inflation; modifying the way we round the numbers used in the 
staffing model (82 Federal Register (FR) at 41466 and table 6 at 41480, 
August 31, 2017); and disallowing legal fees used in litigation against 
the Coast Guard regarding the ratemaking rulemakings as redeemable 
operating expenses. Last, the Coast Guard is requesting comments, for 
consideration in a future rulemaking, on whether apprentice pilot 
compensation should be calculated by using a percentage of the target 
pilot compensation. These proposed changes are discussed in detail in 
Section VI of this preamble.
    Based on the ratemaking model discussed in this NPRM, we are 
proposing the rates shown in table 1.

                         Table 1--Current and Proposed Pilotage Rates on the Great Lakes
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                                                                                   Final 2020     Proposed 2021
                     Area                                    Name                pilotage rate    pilotage rate
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District One: Designated.....................  St. Lawrence River.............             $758             $757
District One: Undesignated...................  Lake Ontario...................              463              428
District Two: Designated.....................  Navigable waters from Southeast              618              577
                                                Shoal to Port Huron, MI.
District Two: Undesignated...................  Lake Erie......................              586              566
District Three: Designated...................  St. Marys River................              632              584
District Three: Undesignated.................  Lakes Huron, Michigan, and                   337              335
                                                Superior.
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    This proposed rule would impact 55 U.S. Great Lakes pilots, 3 pilot 
associations, and the owners and operators of an average of 279 
oceangoing vessels that transit the Great Lakes annually. This proposed 
rule is not economically significant under Executive Order 12866 and 
would not affect the Coast Guard's budget or increase Federal spending. 
The estimated overall annual regulatory economic impact of this rate 
change is a net increase of $1,059,966 in estimated payments made by 
shippers during the 2020 shipping season. Because the Coast Guard must 
review, and, if necessary, adjust rates each year, we analyze these as 
single-year costs and do not annualize them over 10 years. Section IX 
of this preamble provides the regulatory impact analyses of this 
proposed rule.

[[Page 68212]]

IV. Basis and Purpose

    The legal basis of this rulemaking is the Great Lakes Pilotage Act 
of 1960 (``the Act''),\2\ which requires foreign merchant vessels and 
U.S. vessels operating ``on register,'' meaning U.S. vessels engaged in 
foreign trade, to use U.S. or Canadian pilots while transiting the U.S. 
waters of the St. Lawrence Seaway and the Great Lakes system.\3\ For 
U.S. Great Lakes pilots, the Act requires the Secretary to ``prescribe 
by regulation rates and charges for pilotage services, giving 
consideration to the public interest and the costs of providing the 
services.'' \4\ The Act requires that rates be established or reviewed 
and adjusted each year, not later than March 1.\5\ The Act also 
requires that base rates be established by a full ratemaking at least 
once every 5 years, and, in years when base rates are not established, 
they must be reviewed and, if necessary, adjusted.\6\ The Secretary's 
duties and authority under the Act have been delegated to the Coast 
Guard.\7\
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    \2\ 46 U.S.C. Chapter 93; Public Law 86-555, 74 Stat. 259, as 
amended.
    \3\ 46 U.S.C. 9302(a)(1).
    \4\ 46 U.S.C. 9303(f).
    \5\ Id.
    \6\ Id.
    \7\ Department of Homeland Security (DHS) Delegation No. 0170.1, 
para. II (92.f).
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    The purpose of this NPRM is to propose new pilotage rates for the 
2021 shipping season. The Coast Guard believes that the new rates would 
continue to promote pilot retention, ensure safe, efficient, and 
reliable pilotage services in order to facilitate maritime commerce 
throughout the Great Lakes and Saint Lawrence River System, and provide 
adequate funds to upgrade and maintain infrastructure.

V. Background

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

                            Table 2--Areas of the Great Lakes and St. Lawrence Seaway
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      District         Pilotage association           Designation           Area No.\12\       Area name \13\
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One.................  Saint Lawrence Seaway  Designated..................               1  St. Lawrence River.
                       Pilotage Association. Undesignated................               2  Lake Ontario.
Two.................  Lake Pilotage          Designated..................               5  Navigable waters from
                       Association.          Undesignated................               4   Southeast Shoal to
                                                                                            Port Huron, MI.
                                                                                           Lake Erie.
Three...............  Western Great Lakes    Designated..................               7  St. Marys River.
                       Pilotage Association.
                                             Undesignated................               6  Lakes Huron and
                                                                                            Michigan.
                                             Undesignated................               8  Lake Superior.
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    Each pilot association is an independent business and is the sole 
provider of pilotage services in the district in which it operates. 
Each pilot association is responsible for funding its own operating 
expenses, maintaining infrastructure, compensating pilots and applicant 
pilots, acquiring and implementing technological advances, and training 
personnel and partners. The Coast Guard developed a 10-step ratemaking 
methodology to derive a pilotage rate, based on the estimated amount of 
traffic, which covers these expenses. The methodology is designed to 
measure how much revenue each pilotage association would need to cover 
expenses and provide competitive compensation goals to working pilots. 
We then divide that amount by the historic 10-year average for pilotage 
demand. We recognize that in years where traffic is above average, 
pilot associations will accrue more revenue than projected, while in 
years where traffic is below average, they will take in less. We 
believe that over the long term, however, this system ensures that 
infrastructure would be maintained and that pilots will receive 
adequate

[[Page 68213]]

compensation and work a reasonable number of hours, with adequate rest 
between assignments, to ensure retention of highly trained personnel.
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    \12\ Area 3 is the Welland Canal, which is serviced exclusively 
by the Canadian GLPA and, accordingly, is not included in the U.S. 
pilotage rate structure.
    \13\ The areas are listed by name at 46 CFR 401.405.
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    Over the past 4 years, the Coast Guard has made 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 accurately account for 
the additional revenue produced by the application of weighting factors 
(discussed in detail in Steps 7 through 9 for each district, in Section 
VIII of this preamble). In 2018, we revised the methodology by which we 
develop the compensation benchmark, based upon U.S. mariners rather 
than Canadian working pilots. The current methodology, which was 
finalized in the Great Lakes Pilotage Rates-2020 Annual Review and 
Revisions to Methodology final rule (85 FR 20088), published April 9, 
2020, is designed to accurately capture all of 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 current methodology is summarized in the section below.

Summary of Ratemaking Methodology

    As stated above, the ratemaking methodology, outlined in 46 CFR 
404.101 through 404.110, consists of 10 steps that are designed to 
account for the revenues needed and total traffic expected in each 
district. The result is an hourly rate, determined separately for each 
of the areas administered by the Coast Guard.
    In Step 1, ``Recognize previous operating expenses,'' (Sec.  
404.101) the Director reviews audited operating expenses from each of 
the three pilotage associations. Operating expenses include all 
allowable expenses minus wages and benefits. This number forms the 
baseline amount that each association is budgeted. Because of the time 
delay between when the association submits raw numbers and the Coast 
Guard receives audited numbers, this number is 3 years behind the 
projected year of expenses. So, in calculating the 2021 rates in this 
proposal, we begin with the audited expenses from the 2018 shipping 
season.
    While each pilotage association operates in an entire district, the 
Coast Guard tries to determine costs by area. Thus, with regard to 
operating expenses, we allocate certain operating expenses to 
designated areas, and certain operating expenses to undesignated areas. 
In some cases, we can allocate the costs based on where they are 
actually accrued. For example, we can allocate the costs for insurance 
for applicant pilots who operate in undesignated areas only. In other 
situations, such as general legal expenses, expenses are distributed 
between designated and undesignated waters on a pro rata basis, based 
upon the proportion of income forecasted from the respective portions 
of the district.
    In Step 2, ``Project operating expenses, adjusting for inflation or 
deflation,'' (Sec.  404.102) the Director develops the 2020 projected 
operating expenses. To do this, we apply inflation adjustors for 3 
years to the operating expense baseline received in Step 1. The 
inflation factors are from the Bureau of Labor Statistics' (BLS) 
Consumer Price Index (CPI) for the Midwest Region, or, if not 
available, the Federal Open Market Committee (FOMC) median economic 
projections for Personal Consumption Expenditures (PCE) inflation. This 
step produces the total operating expenses for each area and district.
    In Step 3, ``Estimate number of working pilots,'' (Sec.  404.103) 
the Director calculates how many pilots are needed for each district. 
To do this, we employ a ``staffing model,'' described in Sec.  401.220, 
paragraphs (a)(1) through (a)(3), to estimate how many pilots would be 
needed to handle shipping during the beginning and close of the season. 
This number is helpful in providing guidance to the Director in 
approving an appropriate number of credentials for pilots.
    For the purpose of the ratemaking calculation, we determine the 
number of pilots provided by the pilotage associations (see Sec.  
404.103), which is what we use to determine how many pilots need to be 
compensated via the pilotage fees collected.
    In the first part of Step 4, ``Determine target pilot compensation 
benchmark,'' (Sec.  404.104) the Director determines the revenue needed 
for pilot compensation in each area and district. For the 2020 
ratemaking, the Coast Guard updated the benchmark compensation model in 
accordance with Sec.  404.104(b), switching from using the American 
Maritime Officers Union (AMOU) 2015 aggregated wage and benefit 
information, to the 2019 compensation benchmark. Based on our 
experience over the past two ratemakings, the Coast Guard has 
determined that the level of target pilot compensation for those years 
provides an appropriate level of compensation for American Great Lakes 
pilots. The Coast Guard, therefore, will not, at this time, seek 
alternative benchmarks for target compensation for future ratemakings 
and will instead simply adjust the amount of target pilot compensation 
for inflation. This benchmark has advanced the Coast Guard's goals of 
safety through rate and compensation stability while also promoting 
recruitment and retention of qualified U.S. pilots.
    In order to further this goal, for the 2021 ratemaking, the Coast 
Guard is proposing to change the way inflation is calculated in this 
step to account for actual inflation instead of predicted inflation. 
See the Discussion of Proposed Methodological and Other Changes at 
section VI of this preamble for a detailed description of the changes 
proposed.
    In the second part of Step 4, set forth in Sec.  404.104(c), the 
Director determines the total compensation figure for each district. To 
do this, the Director multiplies the compensation benchmark by the 
number of pilots for each area and District (from Step 3), producing a 
figure for total pilot compensation.
    In Step 5, ``Project working capital fund,'' (Sec.  404.105) the 
Director calculates a value that is added to pay for needed capital 
improvements and other non-recurring expenses, such as technology 
investments and infrastructure maintenance. This value is calculated by 
adding the total operating expenses (derived in Step 2) to the total 
pilot compensation (derived in Step 4), and multiplying that figure by 
the preceding year's average annual rate of return for new issues of 
high-grade corporate securities. This figure constitutes the ``working 
capital fund'' for each area and district.
    In Step 6, ``Project needed revenue,'' (Sec.  404.106) the Director 
simply adds up the totals produced by the preceding steps. The 
projected operating expense for each area and district (from Step 2) is 
added to the total pilot compensation (from Step 4) and the working 
capital fund contribution (from Step 5). The total figure, calculated 
separately for each area and district, is the ``needed revenue.''
    In Step 7, ``Calculate initial base rates,'' (Sec.  404.107) the 
Director calculates an hourly pilotage rate to cover the needed revenue 
as calculated in Step 6. This step consists of first calculating the 
10-year hours of traffic average for each area. Next, the revenue 
needed in each area (calculated in Step 6) is divided by the 10-year 
hours of traffic average to produce an initial base rate.

[[Page 68214]]

    An additional element, the ``weighting factor,'' is required under 
Sec.  401.400. Pursuant to that section, ships pay a multiple of the 
``base rate'' as calculated in Step 7 by a number ranging from 1.0 (for 
the smallest ships, or ``Class I'' vessels) to 1.45 (for the largest 
ships, or ``Class IV'' vessels). As this significantly increases the 
revenue collected, we need to account for the added revenue produced by 
the weighting factors to ensure that shippers are not overpaying for 
pilotage services. We do this in the next step.
    In Step 8, ``Calculate average weighting factors by area,'' (Sec.  
404.108) the Director calculates how much extra revenue, as a 
percentage of total revenue, has historically been produced by the 
weighting factors in each area. We do this by using a historical 
average of the applied weighting factors for each year since 2014 (the 
first year the current weighting factors were applied).
    In Step 9, ``Calculate revised base rates,'' (Sec.  404.109) the 
Director modifies the base rates by accounting for the extra revenue 
generated by the weighting factors. We do this by dividing the initial 
pilotage rate for each area (from Step 7) by the corresponding average 
weighting factor (from Step 8), to produce a revised rate.
    In Step 10, ``Review and finalize rates,'' (Sec.  404.110) often 
referred to informally as ``Director's discretion,'' the Director 
reviews the revised base rates (from Step 9) to ensure that they meet 
the goals set forth in 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 
trained and rested pilots fairly; and providing appropriate profit for 
improvements.
    After the base rates are set, Sec.  401.401 permits the Coast Guard 
to apply surcharges. As stated in the 2020 rulemaking, as the vast 
majority of working pilots are not anticipated to reach the regulatory 
required retirement age of 70 in the next 20 years, we continue to 
believe that the pilot associations are now able to plan for the costs 
associated with retirements without relying on the Coast Guard to 
impose surcharges.

VI. Discussion of Proposed Methodological and Other Changes

    For 2021, the Coast Guard is proposing one methodological change to 
the ratemaking model and two policy changes. The proposed changes, 
discussed in detail below, include changes to how we calculate 
inflation of pilot compensation in step 4, how we round numbers in the 
staffing model, and the proposed exclusion of legal expenses associated 
with lawsuits against the Coast Guard's ratemaking rulemakings from 
operating expenses. For consideration in a future rulemaking, we are 
also requesting comments on how to calculate compensation for 
apprentice pilots.

A. Inflation of Pilot Compensation Calculation in Step 4

    Based on public comments received on the 2020 proposed rule, the 
Coast Guard is proposing to change the inflation calculation in Step 4 
of the ratemaking. This step discusses the use of the Federal Reserve's 
projected PCE data, as opposed to using historic BLS ECI data. 
Currently in Step 4, we adjust the existing target pilot compensation 
to account for inflation, following the procedures outlined in Sec.  
404.104(b), which require that PCE data only be used when ECI data is 
not available. In each year's ratemaking, the Coast Guard projects 
future values that requires forecasted inflation data. The BLS ECI only 
provides historic data; consequently we use PCE data, in accordance 
with Sec.  404.104(b), as the PCE provides estimates of future 
inflation. The forecasted PCE inflation data is generated by the 
Federal Reserve. The Federal Reserve is responsible for setting 
monetary policy in the United States, which in turn influences 
inflation. The Federal Reserve bases these estimates on predictions of 
economic growth, the unemployment rate, other economic data, and the 
future policy path the Federal Reserve expects to take to meet its 
goals of maximizing employment and setting stable prices. The PCE is a 
reflection of the government's best prediction of what will happen, and 
the Coast Guard will continue to use it as our predicted inflation 
value in Step 4 of the ratemaking.
    However, as the Coast Guard updates the previous year's target 
compensation value for inflation in each ratemaking, any differences 
between the predicted inflation rate and the actual inflation rate will 
be compounded with each ratemaking, if the predicted PCE value is 
continually higher or lower than actual inflation. Therefore, for this 
ratemaking, the Coast Guard is proposing to modify the way inflation is 
calculated in Step 4 of the ratemaking to account for the difference 
between the predicted inflation and actual inflation.
    In this NPRM, the Coast Guard is proposing that the previous year's 
target compensation value would first be adjusted by the difference 
between predicted PCE inflation value and actual ECI inflation value, 
to ensure the target compensation value accounts for actual inflation. 
We would then multiply this adjusted target compensation value by the 
predicted future inflation value from the PCE to account for future 
inflation.
    For 2020, the actual ECI inflation is 3.4 percent, which is 1.4 
percent greater than the predicted PCE inflation of 2 percent. 
Therefore, this proposed use of the difference between predicted PCE 
inflation rates and historic ECI inflation data to account for actual 
inflation in Sec.  401.104(b) would result in a 1.4 percent increase 
for the 2021 pilotage fees versus continuing to use the predicted PCE 
inflation value. In some years, however, it is possible that the actual 
ECI inflation will be lower than the predicted PCE inflation, resulting 
in a decrease for the pilotage fees.

B. Changes to Rounding in the Staffing Model

    The first policy change is to how we round numbers in the staffing 
model in 46 CFR 401.220(a)(2). This proposed rule would amend the text 
to always round up in the staffing model, instead of rounding to the 
nearest whole integer. We are proposing this change in response to 
three comments we received on the proposed rule, ``Great Lakes Pilotage 
Rates--2020 Annual Review and Revisions to Methodology'' (84 FR 58099, 
Oct. 30, 2019), which are posted within docket number USCG-2019-0736. 
The St. Lawrence Seaway Pilot's Association asserted that the 
regulatory burden on the three pilotage associations has increased 
substantially. The commenter suggested that rounding in the staffing 
model does not account for the administrative time and effort required 
of the three associations' Presidents and therefore one additional 
pilot per district is necessary to cover the President's pilotage 
duties. Lakes Pilots Association, Inc. also stated that the staffing 
model should include an additional pilot in the rate for administrative 
work of the president and committee members. Another commenter, on 
behalf of all pilots within the three pilot associations, made similar 
assertions that the pilot associations' presidents are spending more 
time at meetings, conferences, traveling, and facilitating 
communication between the pilots and Coast Guard. They requested that 
we authorize an administrative position for each district to account 
for these increased duties and prevent delays in responsiveness to the 
Coast Guard. We rejected the proposal to add an ``administrative 
pilot'' because this is

[[Page 68215]]

not consistent with industry standards. According to our discussions 
with the American Pilots Association (APA), aside from the largest 
pilot groups, many state and local groups recognize that the pool 
president continues to work as a pilot. However, due to the 
presidential duties, the president is expected to spend less time 
engaged in piloting vessels.
    Rounding up in the staffing model would account for extra staff or 
extra time spent by the pilot associations' presidents, including 
attending meetings and conferences, providing additional financial and 
traffic information to increase transparency and accountability, 
overseeing and ensuring the integrity of the association training 
program, evaluating technology, and coordinating with the APA to 
implement and share best practices. Rounding up in the staff model is 
also consistent with industry standards, as is it not possible to have 
a portion of a person. Therefore, if the staffing model requires 8.1 
pilots for an area, 9 pilots are actually needed. In addition, we 
currently estimate how many pilots each district needs for the upcoming 
year without taking into account the administrative work that takes the 
president of each association away from their role as a Great Lakes 
pilot. We believe rounding up is prudent with regard to maritime safety 
to help ensure enough pilots are allocated to each district to cover 
the extra hours the association's president spends engaged in the non-
pilot tasks and administrative work discussed above. In sum, rounding 
down in the staffing model could result in too few pilots allocated to 
a district which, when coupled with the president's spending less time 
serving as pilot, may adversely impact recuperative rest goals for 
working pilots that are essential for safe navigation.
    The Coast Guard agrees that, where the pilot associations' 
presidents are spending an increased amount of their time on 
administrative issues, the staffing model should account for that time 
and allow for additional staff to assist. In light of the information 
presented by the pilot association's comments, the Coast Guard is 
proposing to always round up the final number, rather than round to the 
nearest integer when determining the maximum number of pilots in the 
staffing model. For the 2021 ratemaking, this proposed change to the 
rounding in the staffing model would allow each association one 
additional pilot that would not have otherwise been allowed.

C. Exclusion of Legal Fees Incurred in Lawsuits Against the Coast Guard 
Related To Ratemaking and Regulating From Pilots Associations' Approved 
Operating Expenses

    This is the second policy change. The Coast Guard is proposing to 
exclude legal fees incurred in litigation against the Coast Guard in 
relation to the ratemaking and oversight requirements in Title 46 of 
the United States Code (U.S.C.) at sections 9303, 9304, and 9305 from 
approved pilot associations' operating expenses used in the calculation 
of pilotage rates. We believe causing the shippers to pay for the 
pilots' litigation expenses against the Coast Guard's annual ratemaking 
is an undue burden, because the shippers are not responsible for the 
ratemaking and the pilots can be reimbursed through other means.
    The Coast Guard acknowledges that many legal fees are appropriately 
included in the operating expenses of the pilot associations, and that 
excluding legal fees incurred in lawsuits against the Coast Guard 
related to ratemaking is a departure from our past policies. The 
regulations will still provide for the inclusion of the legal fees 
needed for the pilots to run their businesses, defend their licenses, 
and to protect their interests when the shippers litigate. To clarify, 
pilot associations who intervene as defendants alongside the Coast 
Guard in a shipper-initiated lawsuit related to the ratemaking would be 
able to continue to include those legal fees in their operating 
expenses, because they are not incurred in a lawsuit against the Coast 
Guard. As the U.S. District Court recently noted, ``each year, it 
seems, either the shipping companies or the associations that supply 
the pilots sue the Coast Guard to challenge aspects of the rulemaking. 
The shippers perennially complain that the rates are too high, while 
the pilots gripe that they are too low.'' \14\ The pilots have an 
incentive to sue the Coast Guard annually on the ratemaking, regardless 
of the outcome of the case, because the costs associated with the 
lawsuit will inflate the pilot's associations operating expenses, and, 
in turn, increase their annual rates. Regardless of outcome, those 
legal fees go into the calculations that, ultimately, the shipper pays. 
From the shippers' perspective, shippers are generally paying legal 
fees for pilots to try and obtain higher fees from the shippers.
---------------------------------------------------------------------------

    \14\ Am. Great Lake Ports Ass'n v. Coast Guard, 443 F. Supp. 3d 
44, 47 (D.D.C. Mar. 10, 2020).
---------------------------------------------------------------------------

    The Coast Guard is proposing to remove this expense from the 
ratemaking calculation, noting that under the Equal Access to Justice 
Act (EAJA), 28 U.S.C. 2412, the Coast Guard can reimburse pilots if 
they prevail on the merits. This more equitable solution places the 
burden of paying legal fees on the Coast Guard when the pilots prevail 
in such litigation. Excluding legal fees incurred by suing the Coast 
Guard from the operating expenses on the annual ratemaking is a change 
consistent with giving consideration to the public interest and the 
costs of providing the services, as the pilots would be eligible for 
reimbursement from the Coast Guard if their challenge prevails.
    Additionally, shippers become a party in interest when the pilots 
sue the Coast Guard. In some cases, shipping companies have intervened 
as defendants in legal challenges to the ratemakings. Under the present 
scheme, pilots are reimbursed for their legal expenses when they sue 
the Coast Guard, irrespective of whether they win or lose. But it is 
not the Government that bears the expense--shippers pay the pilots' 
legal expenses, in the form of higher pilotage rates, when those legal 
expenses are included in the operating expenses.
    The general proposition in the American system of jurisprudence is 
that litigants bears their own expenses for the litigation. ``In the 
United States, the prevailing litigant is ordinarily not entitled to 
collect a reasonable attorneys' fee from the loser.'' \15\ Under this 
jurisprudence, the shippers, as a party in interest, should not 
continue to bear the legal expenses each time the pilots sue the Coast 
Guard in relation to the ratemaking and regulation, because the 
shippers are not responsible for the ratemaking and regulatory 
function.
---------------------------------------------------------------------------

    \15\ Alyeska Pipeline Service Co. v. Wilderness Soc'y, 421 U.S. 
240, 247 (1975).
---------------------------------------------------------------------------

    The pilots have alternative remedies to recoup their legal fees in 
lawsuits against the Coast Guard related to the ratemaking and 
oversight requirements. Under the EAJA, a prevailing party in a suit 
where the government agency is an opposing party can apply for its 
legal fees under certain conditions. To be considered a prevailing 
party entitled to an award of attorney fees under the EAJA, it is 
sufficient if the claimant prevails on an important matter that 
directly benefits them, but they need not prevail on all issues.\16\ 
One D.C. Circuit

[[Page 68216]]

Court of Appeals opinion, Select Milk Producers, Inc. v. Johanns, 
affirmed that plaintiffs were prevailing parties entitled to attorney 
fees under the EAJA even where the plaintiff secured a preliminary 
injunction but a subsequent change in regulation rendered the case 
moot.\17\ Plaintiffs can also become a prevailing party if they enter a 
favorable settlement agreement under a court's consent decree.\18\ If 
the prevailing party is awarded legal fees, the government agency, in 
this case the Coast Guard, pays those fees. Similarly, if a case 
involving the Coast Guard settles, attorney fees can be included as a 
term of the settlement.
---------------------------------------------------------------------------

    \16\ Ctr. for Food Safety v. Burwell, 126 F. Supp. 3d 114, 120 
(D.D.C. 2015) (citing Tex. State Teachers Ass'n v. Garland Indep. 
Sch. Dist., 489 U.S. 782, 790 (1989) (``At the same time, however, a 
plaintiff need not prevail on the ``central issue'' in the 
litigation to be a prevailing party under the EAJA; it is sufficient 
for a party to prevail on an ``important matter'' in the course of 
litigation, even when that party ``does not prevail on all issues.' 
'').
    \17\ 400 F. 3d 939, 195 (D.C. Cir. 2005).
    \18\ Buckhannon Bd. & Care Home Inc. v. W. Va. Dep't of Health 
and Human Res., 532 U.S. 598, 604 (2001).
---------------------------------------------------------------------------

    Excluding these legal fees from operating expenses in the 
ratemaking and regulatory function is consistent with ``giving 
consideration to the public interest and the costs of providing the 
services,'' \19\ as it would place the burden of paying the legal fees 
on the Coast Guard as the regulatory agency, rather than the shipping 
companies that pay for pilotage services. The Coast Guard finds that 
continuing to allow these legal expenses to be included in the 
operating expenses is not necessary for the costs of providing 
services, because the legal fees incurred by the pilot associations are 
eligible for reimbursement through settlement negotiations or through 
the EAJA, when the pilots prevail on the merits. For these reasons, we 
do not believe that excluding these narrowly defined legal expenses 
from operating expenses when the pilots sue the Coast Guard will have a 
deleterious effect on the safe, efficient operation of pilots or 
otherwise militate against the public interest in the regulation of 
pilotage services.
---------------------------------------------------------------------------

    \19\ 46 U.S.C. 9303(f).
---------------------------------------------------------------------------

    As such, we believe that repositioning the financial responsibility 
for legal fees on the proper entity by removing them from pilots' 
operating expenses is an equitable resolution that comports with our 
statutory mandate to give consideration to both the public interest and 
the costs of providing the services.
    Our process to exclude the legal fees in our annual ratemaking 
would be as follows. First, the unreimbursed pilot associations' legal 
fees incurred in litigation against the Coast Guard would be identified 
as an individual line item in the operating expenses. Second, we would 
remove the same amount by way of a Director's adjustment in a later 
step. If the pilot association is not reimbursed at all by the EAJA or 
other settlement means, then the full unreimbursed cost of legal fees 
for that year would be listed as an operating expense, and then the 
same dollar amount would be excluded by a Director's adjustment. Where 
a pilot association's legal fees are reimbursed fully or partially by 
way of the EAJA or settlement, then the operating expense amount would 
be reduced to represent only the unreimbursed dollar amount, and that 
same dollar amount would be excluded by a Director's adjustment. Only 
the outstanding cost of legal fees incurred in litigation against the 
Coast Guard related to ratemaking and oversight would be listed, 
representing the true cost to the association. Listing the dollar 
amount of unreimbursed legal expenses and removing it from the 
operating expenses would provide transparency to the pilot associations 
of the exact amount of legal fees excluded by this proposed change.

D. Request for Comments on Changes to Apprentice Pilot Compensation for 
Consideration in a Future Rulemaking

    For consideration in a future ratemaking, we are requesting 
comments on how we calculate compensation for apprentice pilots and 
pilots with a limited registration. We are requesting comments on 
setting the reimbursable cost associated with apprentice pilot salaries 
at a set amount based on a percentage of the previous year's target 
pilot compensation. This reimbursable cost would be included in the 
approved operating expenses for pilotage associations.
    Apprentice pilot salaries are currently based on a Director's 
adjustment made in the 2019 rulemaking, which adjusted these salaries 
to approximately 36 percent of target pilot compensation. The Coast 
Guard is requesting comments on setting all future apprentice pilot 
salaries at a rate equivalent to 36 percent of target pilot 
compensation. This would align the compensation practices for 
apprentice pilots across all three districts. The Coast Guard believes 
setting this benchmark for apprentice pilot salaries would help recruit 
highly qualified mariners to join and remain with the pilot 
associations by providing apprentice pilots with the ability to earn an 
equitable income during the training process, which can last from 6 to 
48 months. This could also ensure that the pilot associations have 
sufficient personnel to continue providing service, despite retirements 
and unscheduled turn-over.
    We would like to hear any comments, suggestions, or questions you 
have pertaining to the Coast Guard's proposed recommendation to set 
future apprentice pilot salaries at an amount equivalent to 36 percent 
of the target pilot compensation. If you disagree with this proposed 
percentage, please address your concerns and provide a substitute 
amount or percentage along with your rationale supporting the proposed 
substitution. If you agree with the proposed percentage for different 
reasons than the Coast Guard noted above, please explain your rationale 
and reasoning.

VII. Coast Guard's Authority To Remedy Harms From Past Ratemakings in 
Response to 2020 D.C. Appellate Court Opinion

    In American Great Lakes Ports Association, et al., v. Shultz, the 
U.S. Court of Appeals for the District of Columbia Circuit affirmed the 
District Court's decision with regard to the remedy in the challenge to 
the 2016 pilotage rates.\20\ The D.C. Circuit agreed that the District 
Court properly decided not to vacate the 2016 rates, noting the 
``numerous disruptive consequences that would follow from vacating the 
2016 Rule.'' \21\ The D.C. Circuit Court further affirmed that the 
precise amount of any funds that would be needed to recoup and 
redistribute funds was unknown, since there would be no operative 2016 
rate.\22\ Finally, the Circuit Court urged the Coast Guard, in this 
annual rate review, to ``consider if it has the statutory authority to 
remedy the harms from the 2016 Rule and if doing so would comport with 
its mandate to consider `the public interest and the costs of providing 
services' 46 U.S.C. 9303(f).'' \23\
---------------------------------------------------------------------------

    \20\ Am. Great Lakes Ports Ass'n. v. Shultz, 962 F. 3d 510 (D.C. 
Cir. June 16, 2020).
    \21\ Id. at 519-520.
    \22\ Id. at 516.
    \23\ Am. Great Lakes Ports Ass'n. v. Shultz, 962 F. 3d at 520.
---------------------------------------------------------------------------

A. Coast Guard's Authority To Remedy Harms From Past Ratemakings

    First, the Coast Guard's longstanding position is that it has no 
statutory authority to retroactively recalculate rates. The District 
Court, in American Great Lakes Ports Assoc. v. Zukunft, confirmed that 
no such statutory authority existed.\24\ Therefore, the question is 
whether the Act authorizes discretionary prospective rate adjustments 
to correct for or offset in part a past error. The relevant authority 
in Sec.  9303(f) states ``[t]he Secretary shall prescribe by regulation 
rates and charges for pilotage services, giving consideration to the 
public interest and

[[Page 68217]]

the costs of providing the services. The Secretary shall establish new 
pilotage rates by March 1 of each year.'' \25\ While the statute does 
not allow the Coast Guard to retroactively re-calculate rates, based on 
the broad grant of authority in the statute, the Coast Guard believes 
that the statute grants the Coast Guard discretion to consider the 
impact of past rates in setting annual rates that are just and 
reasonable to ensure the public safety and reliability of the pilotage 
services while also covering the allowable and reasonable costs of 
those services.
---------------------------------------------------------------------------

    \24\ Am. Great Lakes Ports Ass'n v. Zukunft, 301 F. Supp. 3d 99, 
104 (D.D.C. Mar. 13, 2018).
    \25\ See 46 U.S.C. 9303(f). This authority has been delegated to 
the Coast Guard through DHS Delegation No. 0170.1, para. II (92.f).
---------------------------------------------------------------------------

    Within the existing methodology, the Coast Guard includes an 
allowance for the discretionary adjustment of rates. In Step 10, 
``Review and finalize rates,'' (Sec.  404.110), often referred to 
informally as Director's discretion, the Director of the Great Lakes 
Pilotage reviews the revised base rates (from Step 9) to ensure that 
they meet the goals set forth in the Act and in 46 CFR 404.1(a), which 
include promoting efficient, safe, and reliable pilotage service on the 
Great Lakes; generating sufficient revenue for each pilotage 
association to reimburse necessary and reasonable operating expenses; 
compensating trained and rested pilots fairly; and providing 
appropriate capital for improvements.
    The Coast Guard has yet to exercise this discretion under the 2016 
methodology, and generally believes that its discretion is properly 
limited to circumstances of clear error or mistake resulting in an 
unjust rate or extraordinary circumstances. The annual ratemaking 
ensures that the consequences of any error is limited in time. The 2016 
methodology, as currently implemented, has survived legal challenge and 
is producing stable rates based on, among other factors, an ever-
increasing amount of historical data.
    The consideration of the impact of past rates includes the 
consequences of any identified errors. The Coast Guard clarifies that 
its longstanding policy against calculating retroactive rates does not 
prevent its estimation of correcting for past rates when reliable 
information for doing so is available, and it is in the public interest 
and provides for the cost of services. In considering whether to 
exercise our discretion to adjust current rates for issues in past 
rates, the Coast Guard takes a retrospective look for extraordinary 
circumstances associated with past rates that the Coast Guard concludes 
were both unjust and unreasonable.

B. Does remedying harms from past ratemakings comport with our 
statutory mandate?

    Next, the Coast Guard will consider whether remedying any portion 
of the identified harms from the 2016 ratemaking final rule in this 
ratemaking is appropriate. More specifically, the Coast Guard will 
consider whether a prospective rate adjustment aligns with our mandate 
to consider the public interest and the costs of providing services per 
46 U.S.C. 9303(f). Consistent with its longstanding position; \26\ that 
is, that adjusting rates annually to correct for past events will tend 
to result in greater swings in the rate from year to year, as the rates 
constantly seek to correct for possible miscalculations used in past 
ratemakings, the Coast Guard is generally of the view that exercising 
its discretion to consider adjustments based on possible past errors 
should be limited to clear error or extraordinary circumstances.\27\ 
The Coast Guard strives to accurately project demand for pilotage 
services and required revenue each year, generally resulting in 
incremental changes and rate stability. We believe this is in the 
public interest, as it provides greater predictability to both shipping 
companies and the pilots and promotes public confidence in the Coast 
Guard.\28\
---------------------------------------------------------------------------

    \26\ Memorandum of Points and Authorities in Reply to 
Plaintiffs' Opposition at par. III.B, Am. Great Lakes Ports Ass'n. 
v. Zukunft, 301 F. Supp. 3d 99 (D.D.C. Mar. 13, 2018) (Civil Action 
No.: 16-1019) 2017 WL 632501.
    \27\ Memorandum of Points and Authorities in Reply to 
Plaintiffs' Opposition at 3, par. III.B, Am. Great Lakes Ports 
Ass'n. v. Zukunft, 301 F. Supp. 3d 99 (D.D.C. Mar. 13, 2018) (Civil 
Action No.: 16-1019) 2017 WL 632501.
    \28\ Id.
---------------------------------------------------------------------------

    The Coast Guard exercises discretion to adjust the final rates in 
step 10, to produce adequate revenue for the upcoming year. Ensuring 
the rates are adjusted to sufficiently cover all the approved operating 
expenses is consistent with our mandate to consider the public interest 
and safety of navigating through the Great Lakes. Having considered all 
of the information before it carefully, the Coast Guard does not intend 
to make a prospective change in the 2021 rates to correct for 2016 
errors for the following three reasons.
    One: By the time the 2021 final rule publishes, 5 years will have 
passed since the 2016 pilotage rates final rule was issued and 
implemented. Since then, the Coast Guard has improved its ratemaking 
methodology to remove the arbitrary calculations that led to the harm 
identified in the opinions of the D.C. district court and the D.C. 
Circuit. The passage of time weighs against a rate adjustment, and even 
more significantly, we cannot calculate the actual error in 2016 
because of the inherent difficulty of determining what the correct 
target compensation should have been. As the D.C. District Court 
opinion noted, with regard to target pilot compensation, there was 
evidence in the record to support either a higher or a lower target 
compensation, and the Coast Guard could, on remand, have supported the 
10-percent adjustment.\29\ Therefore, it is not a simple arithmetic 
exercise to determine what the 2016 rates should have been; indeed it 
is unclear on the existing record whether they should have been higher 
or lower or that some should have been higher and some lower. Due to 
the changes in the methodology, the Coast Guard has no data from 
subsequent years on which to estimate with reasonable reliability what 
the 2016 rate would have been without the consideration of factors 
found to be arbitrary or insufficiently justified by the courts. 
Because the target compensation adjustment could have been lower or 
higher than our 10-percent estimate, we cannot adjust the weighting 
factors to produce a number without acting arbitrarily or risking being 
perceived as arbitrary. Determining how to make all the necessary 
corrections would be resource intensive, and likely controversial and 
disruptive to the current participants in the market for pilotage 
services, and we believe that our resources are better devoted to 
getting this year's rates correct and published in a timely fashion 
without adjustment for the 2016 errors. The Coast Guard does not 
believe that, to date, either the pilots or the shippers have 
convincingly showed a methodology for correcting the 2016 rate that 
reliably produces a just and reasonable rate.
---------------------------------------------------------------------------

    \29\ Am. Great Lakes Ports Ass'n v. Zukunft, 301 F. Supp. 3d at 
103 (D.D.C. Mar. 13, 2018).
---------------------------------------------------------------------------

    Two: Also related to the passage of significant time, pilot 
turnover and changes in operators render a remedial rate adjustment to 
compensate for circumstances 5 years ago less equitable and less in the 
public interest because the remedy may not benefit those who were 
actually disadvantaged by the ratemaking. As we stated in the 2020 
ratemaking proposed rule, we found that 457 unique vessels used 
pilotage services during the years 2016 through 2018.\30\ Of these 
vessels, 420 were

[[Page 68218]]

foreign-flagged vessels and 37 were U.S.-flagged vessels. In 2016, 245 
unique vessels used pilotage services compared with 287 unique vessels 
in 2019. In addition, of those 287 vessels only 63 percent used 
pilotage services in both 2016 and 2019. The number of unique vessels 
that transit the area is an indication that any changes made for the 
2021 ratemaking period would be unlikely to reach all those who were 
disadvantaged by the 2016 ratemaking.
---------------------------------------------------------------------------

    \30\ Great Lakes Pilotage Rates--2020 Annual Review and 
Revisions to Methodology, 84 FR 58099 at 58120, Oct. 30, 2019.
---------------------------------------------------------------------------

    Three: Using the discretionary adjustment in step 10 to correct for 
potential overcharges in past years, by lowering the pilotage rates 
from the result of the multi-step process, risks imposing rates below 
the level needed to adequately fund operational expenses. In fact, 
imposing a remedy through even a small, discretionary adjustment to the 
2021 rate could disadvantage or harm pilots or shipping companies 
unjustly for the upcoming year, and the harms likely outweigh the 
uncertain benefits. As we have seen in the past, when the rates or 
actual traffic volume do not produce predicted revenue, pilot attrition 
increases, which leads to fewer qualified pilots and the additional 
costs of training new pilots, which can take from 6 months to 48 
months.

VIII. Discussion of Proposed Rate Adjustments

    In this NPRM, based on the proposed changes to the existing 
methodology described in the previous section, we are proposing new 
pilotage rates for 2021. We propose to conduct the 2021 ratemaking as 
an ``interim year,'' as was done in 2020, rather than a full ratemaking 
as was conducted in 2018. Thus, the Coast Guard proposes to adjust the 
compensation benchmark pursuant to Sec.  404.104(b) for this purpose, 
rather than Sec.  404.104(a).
    This section discusses the proposed rate changes using the 
ratemaking steps provided in 46 CFR part 404, incorporating the 
proposed changes discussed in section VI. We will detail all 10 steps 
of the ratemaking procedure for each of the 3 districts to show how we 
arrive at the proposed new rates.

District One

A. Step 1: Recognize Previous Operating Expenses

    Step 1 in our ratemaking methodology requires that the Coast Guard 
review and recognize the previous year's operating expenses (Sec.  
404.101). To do so, we begin by reviewing the independent accountant's 
financial reports for each association's 2018 expenses and 
revenues.\31\ For accounting purposes, the financial reports divide 
expenses into designated and undesignated areas. In certain instances, 
costs are applied to the designated or undesignated area based on where 
they were actually accrued.
---------------------------------------------------------------------------

    \31\ These reports are available in the docket for this 
rulemaking (see Docket #USCG-2019-0736).
---------------------------------------------------------------------------

    As noted above, in 2016 the Coast Guard began authorizing 
surcharges to cover the training costs of applicant pilots. The 
surcharges were intended to reimburse pilot associations for training 
applicants in a more timely fashion than if those costs were listed as 
operating expenses, which would have required 3 years to reimburse. The 
rationale for using surcharges to cover these expenses, rather than 
including the costs as operating expenses, was so these non-recurring 
costs could be recovered in a more timely fashion, and so that retiring 
pilots would not have to cover the costs of training their 
replacements. Because operating expenses incurred are not actually 
recouped for a period of 3 years, the Coast Guard added a $150,000 
surcharge per applicant pilot, beginning in 2016, to recoup those costs 
in the year incurred. Although the districts did not collect any 
surcharges for the 2020 shipping season, they did collect a surcharge 
for the 2018 season, which will need to be reflected in the operating 
expenses of the districts.
    For District One, we propose several Director's adjustments. 
District One had two applicant pilots during the 2018 season. In total, 
the District paid these two pilots $594,521, or $297,261 each. The 
Coast Guard believes this amount is above what is necessary and 
reasonable for retention and recruitment. In the 2019 NPRM, the Coast 
Guard proposed to make an adjustment to District Two's request for 
reimbursement of $571,248 for two applicant pilots ($285,624 per 
applicant). Instead of permitting $571,248 for two applicant pilots, we 
proposed allowing $257,566, or $128,783 per applicant pilot based on 
discussions with other pilot associations at the time. This standard 
went into the final rule for 2019 and was not opposed. To determine 
this percentage, we reached out to several of the pilot associations 
throughout the United States to see what percentage they pay their 
applicant pilots, then factored in the sea time and experience required 
to become an applicant pilot on the Great Lakes. Finally, we discussed 
the percentage with the presidents of each association to determine if 
it was fair and reasonable. If we adopt this methodology, the Coast 
Guard would continue to use the same ratio of applicant-to-target 
compensation for all districts. For 2019, this was approximately 36 
percent ($128,783 / $359,887 = 35.78 percent), so the Coast Guard is 
proposing to use the rounded up value of 36.0 percent of target 
compensation as the benchmark for applicant pilot compensation, for a 
2021 target pilot compensation of $132,151 ($367,085 x .36). This 
allows adjustments to applicant pilot compensation to fluctuate in line 
with target compensation.
    The other Director's adjustments to expenses occurred because 
District One did not break out any costs associated with applicant 
pilots after the audit, and included these costs as part of pilotage 
costs. For transparency, the Coast Guard has included the applicant 
pilot costs as Director's adjustments and has then deducted the same 
amount to avoid any double counting of these costs. These costs are 
necessary and reasonable for district operations and should, therefore, 
be implemented in the rate.
    A Director's adjustment has also been proposed for the amount 
collected using the 2018 surcharge. A final Director's adjustment is 
proposed for the amount of Coast Guard litigation legal fees. Other 
adjustments have been made by the auditors and are explained in the 
auditor's reports, which are available in the docket for this 
rulemaking where indicated under the Public Participation and Request 
for Comments portion of the preamble.

[[Page 68219]]



                               Table 3--2018 Recognized Expenses for District One
----------------------------------------------------------------------------------------------------------------
                                                                                   District one
                                                                 -----------------------------------------------
                                                                    Designated     Undesignated
              Reported operating expenses for 2018               --------------------------------
                                                                   St. Lawrence                        Total
                                                                       River       Lake Ontario
----------------------------------------------------------------------------------------------------------------
Pilotage Costs:
    Subsistence/travel--Pilot...................................        $799,507        $533,005      $1,332,512
    License insurance--Pilots...................................          45,859          30,573          76,432
    Payroll taxes--Pilots.......................................         202,848         135,232         338,080
    Other.......................................................          15,474          10,316          25,790
                                                                 -----------------------------------------------
        Total Other Pilotage Costs..............................       1,063,688         709,126       1,772,814
Pilot Boat and Dispatch Costs:
    Pilot Boat Expense..........................................         267,420         178,280         445,700
    Dispatch Expense............................................          55,280          36,853          92,133
    Payroll Taxes...............................................          19,100          12,733          31,833
                                                                 -----------------------------------------------
        Total Pilot and Dispatch Costs..........................         341,800         227,866         569,666
Administrative Expenses:
    Legal--general counsel......................................           8,550           5,700          14,250
    Legal--shared counsel (K&L Gates)...........................          34,607          23,071          57,678
    Legal--USCG Litigation......................................           7,743           5,162          12,905
    Office Rent.................................................               0               0               0
    Insurance...................................................          24,423          16,282          40,705
    Employee benefits...........................................           8,064           5,376          13,440
    Other taxes.................................................          50,963          33,976          84,939
    Real Estate taxes...........................................          22,280          14,853          37,133
    Depreciation/auto leasing/other.............................         101,140          67,426         168,566
    Interest....................................................          28,270          18,846          47,116
    APA Dues....................................................          26,416          17,610          44,026
    Dues and subscriptions......................................           3,960           2,640           6,600
    CPA DEDUCTION...............................................         (3,960)         (2,640)         (6,600)
    Utilities...................................................          21,887          14,591          36,478
    Travel......................................................           4,314           2,876           7,190
    Salaries....................................................          74,763          49,842         124,605
    Pay Roll Tax................................................           7,323           4,882          12,205
    Accounting/Professional fees................................           7,800           5,200          13,000
    Pilot Training..............................................               0               0               0
    Other.......................................................          21,276          14,184          35,460
                                                                 -----------------------------------------------
        Total Administrative Expenses...........................         449,819         299,877         749,696
                                                                 -----------------------------------------------
            Total Operating Expenses (Other Costs + Pilot Boats        1,855,307       1,236,869       3,092,176
             + Admin)...........................................
Proposed Adjustments (Director):
    Directors Adjustment (Applicant Salaries)...................         356,712         237,809         594,521
    Directors Adjustment (Applicant Salaries) Deduction.........       (356,712)       (237,809)       (594,521)
    Directors Adjustment (Applicant Salaries) Deduction (Salary        (132,088)       (198,132)       (330,220)
     Adjustment)................................................
    Directors Adjustment (Applicant License insurance)..........           2,540           1,693           4,233
    Directors Adjustment (Applicant License insurance) Deduction         (2,540)         (1,693)         (4,233)
    Directors Adjustment (Applicant Health insurance)...........          10,336           6,891          17,227
    Directors Adjustment (Applicant Health insurance) Deduction.        (10,336)         (6,891)        (17,227)
    Directors Adjustment (Applicant Expenses)...................          93,296          62,197         155,493
    Directors Adjustment (Applicant Expenses) Deduction.........        (93,296)        (62,197)       (155,493)
    Directors Adjustment (Applicant payroll tax)................          30,944          20,629          51,573
    Directors Adjustment (Applicant payroll tax) Deduction......        (30,944)        (20,629)        (51,573)
    Directors Adjustment Surcharge Collected in 2018............       (144,770)       (144,770)       (289,540)
    Directors Adjustment Legal--USCG Litigation.................         (7,743)         (5,162)        (12,905)
                                                                 -----------------------------------------------
        Total Director's Adjustments............................       (284,601)       (348,064)       (632,665)
                                                                 -----------------------------------------------
            Total Operating Expenses (OpEx + Adjustments).......       1,570,706         888,805       2,459,511
----------------------------------------------------------------------------------------------------------------

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

    Having identified the recognized 2018 operating expenses in Step 1, 
the next step is to estimate the current year's operating expenses by 
adjusting those expenses for inflation over the 3-year period. We 
calculate inflation using the BLS data from the CPI for the Midwest 
Region of the United States for the 2019 inflation rate.\32\ Because 
the BLS does not provide forecasted inflation data, we use economic 
projections from the Federal Reserve for the 2019 and 2020

[[Page 68220]]

inflation modification.\33\ Based on that information, the calculations 
for Step 2 are as follows:
---------------------------------------------------------------------------

    \32\ The 2019 inflation rate is available at https://www.bls.gov/regions/midwest/data/consumerpriceindexhistorical_midwest_table.pdf. Specifically the CPI 
is defined as ``All Urban Consumers (CPI-U), All Items, 1982-4 = 
100''. Downloaded June 11, 2020.
    \33\ The 2020 and 2021 inflation rates are available at https://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20200610.pdf. We used the PCE median inflation value 
found in table 1, Downloaded June 11, 2020.

                              Table 4--Adjusted Operating Expenses for District One
----------------------------------------------------------------------------------------------------------------
                                                                                   District one
                                                                 -----------------------------------------------
                                                                    Designated     Undesignated        Total
----------------------------------------------------------------------------------------------------------------
Total Operating Expenses (Step 1)...............................      $1,570,706        $888,805      $2,459,511
2019 Inflation Modification (@1.5%).............................          23,561          13,332          36,893
2020 Inflation Modification (@0.8%).............................          12,754           7,217          19,971
2021 Inflation Modification (@1.6%).............................          25,712          14,550          40,262
                                                                 -----------------------------------------------
    Adjusted 2021 Operating Expenses............................       1,632,733         923,904       2,556,637
----------------------------------------------------------------------------------------------------------------

C. Step 3: Estimate Number of Registered Pilots

    In accordance with the text in Sec.  404.103, we estimate the 
number of registered pilots in each district. We determine the number 
of registered pilots based on data provided by the Saint Lawrence 
Seaway Pilots Association. Using these numbers, we estimate that there 
will be 18 registered pilots in 2021 in District One. Based on the 
seasonal staffing model discussed in the 2017 ratemaking (see 82 FR 
41466), and our proposed changes to that staffing model, we assigned a 
certain number of pilots to designated waters and a certain number to 
undesignated waters, as shown in table 5. These numbers are used to 
determine the amount of revenue needed in their respective areas.

                       Table 5--Authorized Pilots
------------------------------------------------------------------------
                          Item                             District one
------------------------------------------------------------------------
Proposed Maximum number of pilots (per Sec.                           18
 401.220(a)) \34\.......................................
2021 Authorized pilots (total)..........................              18
Pilots assigned to designated areas.....................              11
Pilots assigned to undesignated areas...................               7
------------------------------------------------------------------------

D. Step 4: Determine Target Pilot Compensation Benchmark

    In this step, we determine the total pilot compensation for each 
area. As we are proposing an ``interim'' ratemaking this year, we 
propose to follow the procedure outlined in paragraph (b) of Sec.  
404.104, which adjusts the existing compensation benchmark by 
inflation. As stated in Section VI.A of the preamble, we are proposing 
to use a two-step process to adjust target pilot compensation for 
inflation. The first step adjusts the 2019 target compensation 
benchmark of $367,085 value by 1.4 percent for a total adjusted value 
of $372,224. This adjustment accounts for the difference between the 
predicted 2020 Median PCE inflation value of 2 percent and the actual 
2020 ECI inflation value of 3.4 percent.35 36 Because we do 
not have a value for the ECI for 2021, we multiply the adjusted 2020 
compensation benchmark of $372,224 by the Median PCE inflation value of 
1.60 percent.\37\ Based on the projected 2021 inflation estimate, the 
proposed compensation benchmark for 2021 is $378,180 per pilot.
---------------------------------------------------------------------------

    \34\ For a detailed calculation, refer to the Great Lakes 
Pilotage Rates--2017 Annual Review final rule, which contains the 
staffing model. See 82 FR 41466, table 6 at 41480 (August 31, 2017).
    \35\ U.S. Bureau of Labor Statistics Employment Cost Index (ECI) 
Q1 2020 data for Total Compensation for Private Industry Workers in 
the Transportation and Material Moving Sector (Series ID: 
CIU2010000520000A). The first quarter data was the most recently 
available data at the time of analysis for this NPRM. The Coast 
Guard will use updated 2020 ECI data in the final rule. https://www.bls.gov/news.release/archives/eci_01312020.pdf.
    \36\ In Step 2 of the ratemaking, the Coast Guard uses the 
Federal Reserve's predicted PCE inflation rate of 0.8% to inflate 
operating expenses to 2020 dollars. This value differs from the ECI 
Q1 inflation rate of 3.4%. The reason for the large deviation 
between the values is the timing of each dataset. The ECI data is 
only for Q1 of 2020 (January-March) and therefore does not capture 
the impact of COVID-19. The PCE inflation predictions are from the 
June 2020 and account for the impacts of the pandemic on the U.S. 
economy.
    \37\ The Federal Reserve, Table 1. Economic projections of 
Federal Reserve Board members and Federal Reserve Bank presidents, 
under their individual assumptions of projected appropriate monetary 
policy, June 2020, (June 10, 2020, 2:00 p.m.), https://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20200610.pdf.

                   Table 6--Target Pilot Compensation
------------------------------------------------------------------------
 
------------------------------------------------------------------------
2020 Target Compensation................................        $367,085
Difference between Q12020 ECI Inflation Rate (3.4%) and           1.400%
 the 2020 PCE Predicted Inflation Rate (2.0%)...........
Adjusted 2020 Compensation..............................        $372,224
2020 to 2021 Inflation Factor...........................           1.60%
2021 Target Compensation................................        $378,180
------------------------------------------------------------------------

    Next, we certify that the number of pilots estimated for 2021 is 
less than or equal to the number permitted under the proposed changes 
to the staffing model in Sec.  401.220(a). The proposed changes to the 
staffing model suggest that the number of pilots needed is 18 pilots 
for District One, which is more than or equal to 18, the number of 
registered pilots provided by the pilot associations. In accordance 
with Sec.  404.104(c), we use the revised target individual 
compensation level to derive the total pilot compensation by 
multiplying the individual target compensation by the estimated number 
of registered pilots for District One, as shown in table 7.

[[Page 68221]]



                                  Table 7--Target Compensation for District One
----------------------------------------------------------------------------------------------------------------
                                                                                   District One
                                                                 -----------------------------------------------
                                                                    Designated     Undesignated        Total
----------------------------------------------------------------------------------------------------------------
Target Pilot Compensation.......................................        $378,180        $378,180        $378,180
Number of Pilots................................................              11               7              18
                                                                 -----------------------------------------------
    Total Target Pilot Compensation.............................       4,159,980       2,647,260       6,807,240
----------------------------------------------------------------------------------------------------------------

E. Step 5: Project Working Capital Fund

    Next, we calculate the working capital fund revenues needed for 
each area. First, we add the figures for projected operating expenses 
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, the number is 3.3875 
percent.\38\ By multiplying the two figures, we obtain the working 
capital fund contribution for each area, as shown in table 8.
---------------------------------------------------------------------------

    \38\ Moody's Seasoned Aaa Corporate Bond Yield, average of 2019 
monthly data. The Coast Guard uses the most recent year of complete 
data. Moody's is taken from Moody's Investors Service, which is a 
bond credit rating business of Moody's Corporation. Bond ratings are 
based on creditworthiness and risk. The rating of ``Aaa'' is the 
highest bond rating assigned with the lowest credit risk. See 
https://fred.stlouisfed.org/series/AAA. (June 11, 2020)

                           Table 8--Working Capital Fund Calculation for District One
----------------------------------------------------------------------------------------------------------------
                                                                                   District one
                                                                 -----------------------------------------------
                                                                    Designated     Undesignated        Total
----------------------------------------------------------------------------------------------------------------
Adjusted Operating Expenses (Step 2)............................      $1,632,733        $923,904      $2,556,637
Total Target Pilot Compensation (Step 4)........................       4,159,980       2,647,260       6,807,240
Total 2021 Expenses.............................................       5,792,713       3,571,164       9,363,877
Working Capital Fund (3. 3.875%)................................         196,228         120,973         317,201
----------------------------------------------------------------------------------------------------------------

F. Step 6: Project Needed Revenue

    In this step, we add all the expenses accrued to derive the total 
revenue needed for each area. These expenses include the projected 
operating expenses (from Step 2), the total pilot compensation (from 
Step 4), and the working capital fund contribution (from Step 5). We 
show these calculations in table 9.

                                    Table 9--Revenue Needed for District One
----------------------------------------------------------------------------------------------------------------
                                                                                   District one
                                                                 -----------------------------------------------
                                                                    Designated     Undesignated        Total
----------------------------------------------------------------------------------------------------------------
Adjusted Operating Expenses (Step 2, see table 4)...............      $1,632,733        $923,904      $2,556,637
Total Target Pilot Compensation (Step 4, see table 6)...........       4,159,980       2,647,260       6,807,240
Working Capital Fund (Step 5, see table 8)......................         196,228         120,973         317,201
                                                                 -----------------------------------------------
    Total Revenue Needed........................................       5,988,941       3,692,137       9,681,078
----------------------------------------------------------------------------------------------------------------

G. Step 7: Calculate Initial Base Rates

    Having determined the revenue needed for each area in the previous 
six steps, to develop an hourly rate we divide that number by the 
expected number of hours of traffic. Step 7 is a two-part process. In 
the first part, we calculate the 10-year average of traffic in District 
One, using the total time on task or pilot bridge hours.\39\ Because we 
calculate separate figures for designated and undesignated waters, 
there are two parts for each calculation. We show these values in table 
10.
---------------------------------------------------------------------------

    \39\ To calculate the time on task for each district, the Coast 
Guard uses billing data from the Great Lakes Pilotage Management 
System (GLPMS). We pull the data from the system filtering by 
district, year, job status (we only include closed jobs), and 
flagging code (we only include U.S. jobs). After we have downloaded 
the data, we remove any overland transfers from the dataset, if 
necessary, and sum the total bridge hours, by area. We then subtract 
any non-billable delay hours from the total.

                 Table 10--Time on Task for District One
                                 [Hours]
------------------------------------------------------------------------
                                                   District one
                  Year                   -------------------------------
                                            Designated     Undesignated
------------------------------------------------------------------------
2019....................................           8,232           8,405
2018....................................           6,943           8,445
2017....................................           7,605           8,679
2016....................................           5,434           6,217

[[Page 68222]]

 
2015....................................           5,743           6,667
2014....................................           6,810           6,853
2013....................................           5,864           5,529
2012....................................           4,771           5,121
2011....................................           5,045           5,377
2010....................................           4,839           5,649
                                         -------------------------------
    Average.............................           6,129           6,694
------------------------------------------------------------------------

    Next, we derive the initial hourly rate by dividing the revenue 
needed by the average number of hours for each area. This produces an 
initial rate, which is necessary to produce the revenue needed for each 
area, assuming the amount of traffic is as expected. We present the 
calculations for each area in table 11.

          Table 11--Initial Rate Calculations for District One
------------------------------------------------------------------------
                                            Designated     Undesignated
------------------------------------------------------------------------
Needed revenue (Step 6).................      $5,988,941      $3,692,137
Average time on task (hours)............           6,129           6,694
Initial rate............................            $977            $552
------------------------------------------------------------------------

H. Step 8: Calculate Average Weighting Factors by Area

    In this step, we calculate the average weighting factor for each 
designated and undesignated area. We collect the weighting factors, set 
forth in 46 CFR 401.400, for each vessel trip. Using this database, we 
calculate the average weighting factor for each area using the data 
from each vessel transit from 2014 onward, as shown in tables 12 and 
13.\40\
---------------------------------------------------------------------------

    \40\ To calculate the number of transits by vessel class, we use 
the billing data from GLPMS, filtering by district, year, job status 
(we only include closed jobs), and flagging code (we only include 
U.S. jobs). We then count the number of jobs by vessel class and 
area.

                      Table 12--Average Weighting Factor for District One, Designated Areas
----------------------------------------------------------------------------------------------------------------
                                                                     Number of       Weighting       Weighted
                        Vessel class/year                            transits         factor         transits
----------------------------------------------------------------------------------------------------------------
Class 1 (2014)..................................................              31               1              31
Class 1 (2015)..................................................              41               1              41
Class 1 (2016)..................................................              31               1              31
Class 1 (2017)..................................................              28               1              28
Class 1 (2018)..................................................              54               1              54
Class 1 (2019)..................................................              72               1              72
Class 2 (2014)..................................................             285            1.15          327.75
Class 2 (2015)..................................................             295            1.15          339.25
Class 2 (2016)..................................................             185            1.15          212.75
Class 2 (2017)..................................................             352            1.15           404.8
Class 2 (2018)..................................................             559            1.15          642.85
Class 2 (2019)..................................................             378            1.15           434.7
Class 3 (2014)..................................................              50             1.3              65
Class 3 (2015)..................................................              28             1.3            36.4
Class 3 (2016)..................................................              50             1.3              65
Class 3 (2017)..................................................              67             1.3            87.1
Class 3 (2018)..................................................              86             1.3           111.8
Class 3 (2019)..................................................             122             1.3           158.6
Class 4 (2014)..................................................             271            1.45          392.95
Class 4 (2015)..................................................             251            1.45          363.95
Class 4 (2016)..................................................             214            1.45           310.3
Class 4 (2017)..................................................             285            1.45          413.25
Class 4 (2018)..................................................             393            1.45          569.85
Class 4 (2019)..................................................             730            1.45         1,058.5
                                                                 -----------------------------------------------
    Total.......................................................           4,858  ..............           6,252
                                                                 -----------------------------------------------
        Average weighting factor (weighted transits/number of     ..............            1.29  ..............
         transits)..............................................
----------------------------------------------------------------------------------------------------------------


[[Page 68223]]


                     Table 13--Average Weighting Factor for District One, Undesignated Areas
----------------------------------------------------------------------------------------------------------------
                                                                     Number of       Weighting       Weighted
                        Vessel class/year                            transits         factor         transits
----------------------------------------------------------------------------------------------------------------
Class 1 (2014)..................................................              25               1              25
Class 1 (2015)..................................................              28               1              28
Class 1 (2016)..................................................              18               1              18
Class 1 (2017)..................................................              19               1              19
Class 1 (2018)..................................................              22               1              22
Class 1 (2019)..................................................              30               1              30
Class 2 (2014)..................................................             238            1.15           273.7
Class 2 (2015)..................................................             263            1.15          302.45
Class 2 (2016)..................................................             169            1.15          194.35
Class 2 (2017)..................................................             290            1.15           333.5
Class 2 (2018)..................................................             352            1.15           404.8
Class 2 (2019)..................................................             366            1.15           420.9
Class 3 (2014)..................................................              60             1.3              78
Class 3 (2015)..................................................              42             1.3            54.6
Class 3 (2016)..................................................              28             1.3            36.4
Class 3 (2017)..................................................              45             1.3            58.5
Class 3 (2018)..................................................              63             1.3            81.9
Class 3 (2019)..................................................              58             1.3            75.4
Class 4 (2014)..................................................             289            1.45          419.05
Class 4 (2015)..................................................             269            1.45          390.05
Class 4 (2016)..................................................             222            1.45           321.9
Class 4 (2017)..................................................             285            1.45          413.25
Class 4 (2018)..................................................             382            1.45           553.9
Class 4 (2019)..................................................             326            1.45           472.7
                                                                 -----------------------------------------------
    Total.......................................................           3,889  ..............           5,027
                                                                 -----------------------------------------------
        Average weighting factor (weighted transits/number of     ..............            1.29  ..............
         transits)..............................................
----------------------------------------------------------------------------------------------------------------

I. Step 9: Calculate Revised Base Rates

    In this step, we revise the base rates so that once the impact of 
the weighting factors is 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 14.

                                  Table 14--Revised Base Rates for District One
----------------------------------------------------------------------------------------------------------------
                                                                                                   Revised rate
                                                                                      Average     (initial rate
                              Area                                 Initial rate      weighting        average
                                                                     (step 7)      factor (step      weighting
                                                                                        8)            factor)
----------------------------------------------------------------------------------------------------------------
District One: Designated........................................            $977            1.29            $757
District One: Undesignated......................................             552            1.29             428
----------------------------------------------------------------------------------------------------------------

J. Step 10: Review and Finalize Rates

    In this step, the Director reviews the rates set forth by the 
staffing model and ensures that they meet the goal of ensuring safe, 
efficient, and reliable pilotage. To establish this, the Director 
considers whether the proposed rates incorporate appropriate 
compensation for pilots to handle heavy traffic periods and whether 
there is a sufficient number of pilots to handle those heavy traffic 
periods. The Director also considers whether the proposed rates would 
cover operating expenses and infrastructure costs, including average 
traffic and weighting factions. Based on the financial information 
submitted by the pilots, the Director is not proposing any alterations 
to the rates in this step. We propose to modify the text in Sec.  
401.405(a) to reflect the final rates shown in table 15.

                                 Table 15--Proposed Final Rates for District One
----------------------------------------------------------------------------------------------------------------
                                                                                   Final 2020     Proposed 2021
                     Area                                    Name                pilotage rate    pilotage rate
----------------------------------------------------------------------------------------------------------------
District One: Designated.....................  St. Lawrence River.............             $758             $757
District One: Undesignated...................  Lake Ontario...................              463              427
----------------------------------------------------------------------------------------------------------------


[[Page 68224]]

District Two

A. Step 1: Recognize Previous Operating Expenses

    Step 1 in our ratemaking methodology requires that the Coast Guard 
review and recognize the previous year's operating expenses (Sec.  
404.101). To do so, we begin by reviewing the independent accountant's 
financial reports for each association's 2018 expenses and 
revenues.\41\ For accounting purposes, the financial reports divide 
expenses into designated and undesignated areas. For costs accrued by 
the pilot associations generally, such as employee benefits, for 
example, the cost is divided between the designated and undesignated 
areas on a pro rata basis. The recognized operating expenses for 
District Two are shown in table 16.
---------------------------------------------------------------------------

    \41\ These reports are available in the docket for this 
rulemaking (see Docket No. USCG-2019-0736).
---------------------------------------------------------------------------

    For District Two, we propose three Director's adjustments: (1) For 
the amount collected from the 2018 surcharge; (2) for the amount in 
Coast Guard litigation legal fees; and (3) for the amount paid to the 
District's applicant pilot. District Two had one applicant pilot during 
the 2018 season and paid $334,659 in salary. The Coast Guard believes 
this amount is above what is necessary and reasonable for retention and 
recruitment. In the 2019 NPRM, the Coast Guard proposed to make an 
adjustment to District Two's request for reimbursement of $571,248 for 
two applicant pilots ($285,624 per applicant). Instead of permitting 
$571,248 for two applicant pilots, we proposed allowing $257,566, or 
$128,783 per applicant pilot. This proposal went into the final rule 
for 2019 and was not opposed. Going forward, the Coast Guard will 
continue to use the same ratio of applicant to target compensation. For 
2019, this was approximately 36 percent ($128,783 / $359,887 = 35.78 
percent), so the Coast Guard is proposing to use the rounded up value 
of 36.0 percent of target compensation as the benchmark for applicant 
pilot compensation, for a 2021 target pilot compensation of $132,151 
($367,085 x .36). This allows adjustments to applicant pilot 
compensation to fluctuate in line with target compensation. Other 
adjustments made by the auditors are explained in the auditors' reports 
(available in the docket where indicated in the Public Participation 
and Request for Comments portion of this document).

                               Table 16--2018 Recognized Expenses for District Two
----------------------------------------------------------------------------------------------------------------
                                                                                   District two
                                                                 -----------------------------------------------
                                                                   Undesignated     Designated
              Reported operating expenses for 2018               --------------------------------
                                                                                     Southeast         Total
                                                                     Lake Erie     Shoal to Port
                                                                                       Huron
----------------------------------------------------------------------------------------------------------------
Other Pilotage Costs:
    Subsistence/Travel--Pilots..................................        $115,073        $172,608        $287,681
    CPA DEDUCTION...............................................         (3,457)         (5,185)         (8,642)
    Hotel/Lodging Cost..........................................          50,464          75,696         126,160
    License Insurance...........................................             138             207             345
    Payroll taxes...............................................          82,960         124,441         207,401
    Other.......................................................             860           1,291           2,151
                                                                 -----------------------------------------------
        Total Other Pilotage Costs..............................         246,038         369,058         615,096
Applicant Pilot Costs:
    Applicant Salaries..........................................         133,864         200,795         334,659
    Applicant Health Insurance..................................          18,691          28,036          46,727
    Applicant Payroll Tax.......................................           4,496           6,745          11,241
    Applicant Subsistence.......................................           9,872          14,807          24,679
                                                                 -----------------------------------------------
        Total Applicant Pilot Cost..............................         166,923         250,383         417,306
Pilot Boat and Dispatch Costs:
    Pilot Boat Cost.............................................         206,998         310,496         517,494
    Employee Benefits...........................................          80,906         121,358         202,264
    Payroll Taxes...............................................          12,523          18,785          31,308
                                                                 -----------------------------------------------
        Total Pilot and Dispatch Costs..........................         300,427         450,639         751,066
Administrative Expenses:
    Legal--general counsel......................................          35,711          53,567         $89,278
    Legal--shared counsel (K&L Gates)...........................          17,037          25,555          42,592
    Legal--USCG litigation......................................           2,185           3,277           5,462
    Office rent.................................................          33,326          49,988          83,314
    Insurance...................................................          20,357          30,536          50,893
    Employee Benefits...........................................          89,999         134,999         224,998
    Other taxes.................................................          25,620          38,430          64,050
    Real Estate taxes...........................................           6,066           9,099          15,165
    Depreciation/Auto lease/Other...............................          29,392          44,087          73,479
    Interest....................................................             586             880           1,466
    APA dues....................................................          13,703          20,554          34,257
    Dues and Subscriptions......................................             676           1,015           1,691
    Utilities...................................................          19,413          29,119          48,532
    Salaries--Admin employees...................................          53,170          79,755         132,925
    Payroll taxes...............................................           5,558           8,338          13,896
    Accounting..................................................          14,276          21,414          35,690

[[Page 68225]]

 
    Pilot Training..............................................          14,434          21,414          35,848
    Other.......................................................          15,310          22,966          38,276
                                                                 -----------------------------------------------
        Total Administrative Expenses...........................         396,819         594,993         991,812
                                                                 -----------------------------------------------
            Total Operating Expenses (Other Costs + Pilot Boats        1,110,207       1,665,073       2,775,280
             + Admin)...........................................
Proposed Adjustments (Director):
    Directors Adjustment Surcharge Collected in 2018............        (65,962)        (65,962)       (131,924)
    Directors Adjustment Applicant Pilot Salary.................        (66,828)       (135,680)       (202,508)
    Proposed Legal Fee Removal--USCG Litigation.................         (2,185)         (3,277)         (5,462)
                                                                 -----------------------------------------------
        Total Director's Adjustments............................       (134,975)       (204,919)       (339,894)
            Total Operating Expenses (OpEx + Adjustments).......         975,232       1,460,154       2,435,386
----------------------------------------------------------------------------------------------------------------

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

    Having identified the recognized 2019 operating expenses in Step 1, 
the next step is to estimate the current year's operating expenses by 
adjusting those expenses for inflation over the 3-year period. We 
calculate inflation using the BLS data from the CPI for the Midwest 
Region of the United States for the 2019 inflation rate.\42\ Because 
the BLS does not provide forecasted inflation data, we use economic 
projections from the Federal Reserve for the 2020 and 2021 inflation 
modification.\43\ Based on that information, the calculations for Step 
1 are as follows:
---------------------------------------------------------------------------

    \42\ Supra footnote 29, at 30.
    \43\ Supra footnote 30, at 32.

                             Table 17--Adjusted Operating Expenses for District Two
----------------------------------------------------------------------------------------------------------------
                                                                                   District two
                              Item                               -----------------------------------------------
                                                                   Undesignated     Designated         Total
----------------------------------------------------------------------------------------------------------------
Total Operating Expenses (Step 1)...............................        $975,232      $1,460,154      $2,435,386
2019 Inflation Modification (@1.5%).............................          14,628          21,902          36,530
2020 Inflation Modification (@0.8%).............................           7,919          11,856          19,775
2021 Inflation Modification (@1.6%).............................          15,964          23,903          39,867
                                                                 -----------------------------------------------
    Adjusted 2021 Operating Expenses............................       1,013,743       1,517,815       2,531,558
----------------------------------------------------------------------------------------------------------------

C. Step 3: Estimate Number of Working Pilots

    In accordance with the text in Sec.  404.103, we estimate the 
number of working pilots in each district. We determine the number of 
registered pilots based on data provided by the Lakes Pilots 
Association. Using these numbers, we estimate that there will be 15 
registered pilots in 2021 in District Two. Furthermore, based on the 
seasonal staffing model discussed in the 2017 ratemaking (see 82 FR 
41466) and our proposed changes to that staffing model, we assign a 
certain number of pilots to designated waters and a certain number to 
undesignated waters, as shown in table 18. These numbers are used to 
determine the amount of revenue needed in their respective areas.

                       Table 18--Authorized Pilots
------------------------------------------------------------------------
                          Item                             District two
------------------------------------------------------------------------
Proposed Maximum number of pilots (per Sec.                           16
 401.220(a)) \44\.......................................
2021 Authorized pilots (total)..........................              15
Pilots assigned to designated areas.....................               7
Pilots assigned to undesignated areas...................               8
------------------------------------------------------------------------

D. Step 4: Determine Target Pilot Compensation Benchmark
---------------------------------------------------------------------------

    \44\ For a detailed calculation refer to the Great Lakes 
Pilotage Rates--2017 Annual Review final rule, which contains the 
staffing model. See 82 FR 41466, table 6 at 41480 (August 31, 2017).
---------------------------------------------------------------------------

    In this step, we determine the total pilot compensation for each 
area. As we are proposing an ``interim'' ratemaking this year, we 
propose to follow the procedure outlined in paragraph (b) of Sec.  
404.104, which adjusts the existing compensation benchmark by 
inflation. As stated in Section VI.A of the preamble, we are proposing 
to use a two-step process to adjust target pilot compensation for 
inflation. The first step adjusts the 2019 target compensation 
benchmark of $367,085

[[Page 68226]]

by 1.4 percent, for a total adjusted value of $372,224. This adjustment 
accounts for the difference between the predicted 2020 Median PCE 
inflation value of 2 percent and the actual 2020 ECI inflation value of 
3.4 percent.45 46 Because we do not have a value for the 
employment cost index for 2021, we multiply the adjusted 2020 
compensation benchmark of $372,224 by the Median PCE inflation value of 
1.60 percent.\47\ Based on the projected 2021 inflation estimate, the 
proposed compensation benchmark for 2021 is $378,180 per pilot (see 
table 6 for calculations).
---------------------------------------------------------------------------

    \45\ U.S. Bureau of Labor Statistics Employment Cost Index (ECI) 
Q1 2020 data for Total Compensation for Private Industry Workers in 
the Transportation and Material Moving Sector (Series ID: 
CIU2010000520000A). The first quarter data was the most recently 
available data at the time of analysis for this NPRM. The Coast 
Guard will use updated 2020 ECI data in the final rule. https://www.bls.gov/news.release/archives/eci_01312020.pdf.
    \46\ In Step 2 of the ratemaking, the Coast Guard uses the 
Federal Reserve's predicted PCE inflation rate of 0.8% to inflate 
operating expenses to 2020 dollars. This value differs from the ECI 
Q1 inflation rate of 3.4%. The reason for the large deviation 
between the values is the timing of each dataset. The ECI data is 
only for Q1 of 2020 (January-March) and therefore does not capture 
the impact of COVID-19. The PCE inflation predictions are from the 
June 2020 and account for the impacts of the pandemic on the US 
economy.
    \47\ The Federal Reserve, Table 1. Economic projections of 
Federal Reserve Board members and Federal Reserve Bank presidents, 
under their individual assumptions of projected appropriate monetary 
policy, June 2020, (June 10, 2020, 2:00 p.m.), https://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20200610.pdf).
---------------------------------------------------------------------------

    Next, we certify that the number of pilots estimated for 2021 is 
less than or equal to the number permitted under the proposed changes 
to the staffing model in Sec.  401.220(a). The proposed changes to the 
staffing model suggest that the number of pilots needed is 16 pilots 
for District Two, which is more than or equal to 15, the number of 
registered pilots provided by the pilot associations.\48\
---------------------------------------------------------------------------

    \48\ See table 6 of the Great Lakes Pilotage Rates--2017 Annual 
Review 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 Sec.  404.104(c), we use the revised 
target individual compensation level to derive the total pilot 
compensation by multiplying the individual target compensation by the 
estimated number of registered pilots for District Two, as shown in 
table 19.

                                 Table 19--Target Compensation for District Two
----------------------------------------------------------------------------------------------------------------
                                                                   Undesignated     Designated         Total
----------------------------------------------------------------------------------------------------------------
Target Pilot Compensation.......................................        $378,180        $378,180        $378,180
Number of Pilots................................................               8               7              15
                                                                 -----------------------------------------------
    Total Target Pilot Compensation.............................      $3,025,440      $2,647,260      $5,672,700
----------------------------------------------------------------------------------------------------------------

E. Step 5: Project Working Capital Fund

    Next, we calculate the working capital fund revenues needed for 
each area. First, we add the figures for projected operating expenses 
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, the number is 3.3875 
percent.\49\ By multiplying the two figures, we obtain the working 
capital fund contribution for each area, as shown in table 20.
---------------------------------------------------------------------------

    \49\ See footnote 33.

                           Table 20--Working Capital Fund Calculation for District Two
----------------------------------------------------------------------------------------------------------------
                                                                                   District two
                              Item                               -----------------------------------------------
                                                                   Undesignated     Designated         Total
----------------------------------------------------------------------------------------------------------------
Adjusted Operating Expenses (Step 2)............................      $1,013,743      $1,517,815      $2,531,558
Total Target Pilot Compensation (Step 4)........................       3,025,440       2,647,260       5,672,700
Total Expenses..................................................       4,039,183       4,165,075       8,204,258
Working Capital Fund (3.3875%)..................................         136,827         141,092         277,919
----------------------------------------------------------------------------------------------------------------

F. Step 6: Project Needed Revenue

    In this step, we add all the expenses accrued to derive the total 
revenue needed for each area. These expenses include the projected 
operating expenses (from Step 2), the total pilot compensation (from 
Step 4), and the working capital fund contribution (from Step 5). We 
show these calculations in table 21.

                                    Table 21--Revenue Needed for District Two
----------------------------------------------------------------------------------------------------------------
                                                                                   District two
                                                                 -----------------------------------------------
                                                                   Undesignated     Designated         Total
----------------------------------------------------------------------------------------------------------------
Adjusted Operating Expenses (Step 2, see Table 17)..............      $1,013,743      $1,517,815      $2,531,558
Total Target Pilot Compensation (Step 4, see Table 19)..........       3,025,440       2,647,260       5,672,700
Working Capital Fund (Step 5, see Table 20).....................         136,827         141,092         277,919
                                                                 -----------------------------------------------
    Total Revenue Needed........................................       4,176,010       4,306,167       8,482,177
----------------------------------------------------------------------------------------------------------------


[[Page 68227]]

G. Step 7: Calculate Initial Base Rates

    Having determined the needed revenue for each area in the previous 
six steps, to develop an hourly rate we divide that number by the 
expected number of hours of traffic. Step 7 is a two-part process. In 
the first part, we calculate the 10-year average of traffic in District 
Two, using the total time on task or pilot bridge hours.\50\ Because we 
calculate separate figures for designated and undesignated waters, 
there are two parts for each calculation. We show these values in table 
22.
---------------------------------------------------------------------------

    \50\ See footnote 34 for more information.

                 Table 22--Time on Task for District Two
                                 [Hours]
------------------------------------------------------------------------
                  Year                     Undesignated     Designated
------------------------------------------------------------------------
2019....................................           6,512           7,715
2018....................................           6,150           6,655
2017....................................           5,139           6,074
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
                                         -------------------------------
    Average.............................           5,634           5,661
------------------------------------------------------------------------

    Next, we derive the initial hourly rate by dividing the revenue 
needed by the average number of hours for each area. This produces an 
initial rate, which is necessary to produce the revenue needed for each 
area, assuming the amount of traffic is as expected. The calculations 
for each area are set forth in table 23.

          Table 23--Initial Rate Calculations for District Two
------------------------------------------------------------------------
                  Item                     Undesignated     Designated
------------------------------------------------------------------------
Needed revenue (Step 6).................      $4,176,010      $4,306,167
Average time on task (hours)............           5,634           5,661
Initial rate............................            $741            $761
------------------------------------------------------------------------

H. Step 8: Calculate Average Weighting Factors by Area

    In this step, we calculate the average weighting factor for each 
designated and undesignated area. We collect the weighting factors, set 
forth in 46 CFR 401.400, for each vessel trip. Using this database, we 
calculated the average weighting factor for each area using the data 
from each vessel transit from 2014 onward, as shown in tables 24 and 
25.\51\
---------------------------------------------------------------------------

    \51\ Supra footnote 35, at 41.

                     Table 24--Average Weighting Factor for District Two, Undesignated Areas
----------------------------------------------------------------------------------------------------------------
                                                                     Number of       Weighting       Weighted
                        Vessel class/year                            transits         factor         transits
----------------------------------------------------------------------------------------------------------------
Class 1 (2014)..................................................              31               1              31
Class 1 (2015)..................................................              35               1              35
Class 1 (2016)..................................................              32               1              32
Class 1 (2017)..................................................              21               1              21
Class 1 (2018)..................................................              37               1              37
Class 1 (2019)..................................................              54               1              54
Class 2 (2014)..................................................             356            1.15           409.4
Class 2 (2015)..................................................             354            1.15           407.1
Class 2 (2016)..................................................             380            1.15             437
Class 2 (2017)..................................................             222            1.15           255.3
Class 2 (2018)..................................................             123            1.15          141.45
Class 2 (2019)..................................................             127            1.15          146.05
Class 3 (2014)..................................................              20             1.3              26
Class 3 (2015)..................................................               0             1.3               0
Class 3 (2016)..................................................               9             1.3            11.7
Class 3 (2017)..................................................              12             1.3            15.6
Class 3 (2018)..................................................               3             1.3             3.9
Class 3 (2019)..................................................               1             1.3             1.3
Class 4 (2014)..................................................             636            1.45           922.2
Class 4 (2015)..................................................             560            1.45             812
Class 4 (2016)..................................................             468            1.45           678.6
Class 4 (2017)..................................................             319            1.45          462.55
Class 4 (2018)..................................................             196            1.45          284.20

[[Page 68228]]

 
Class 4 (2019)..................................................             210            1.45           304.5
                                                                 -----------------------------------------------
    Total.......................................................           4,206  ..............           5,529
                                                                 -----------------------------------------------
        Average weighting factor (weighted transits/number of     ..............            1.31  ..............
         transits)..............................................
----------------------------------------------------------------------------------------------------------------


                      Table 25--Average Weighting Factor for District Two, Designated Areas
----------------------------------------------------------------------------------------------------------------
                                                                     Number of       Weighting       Weighted
                        Vessel class/year                            transits         factor         transits
----------------------------------------------------------------------------------------------------------------
Class 1 (2014)..................................................              20               1              20
Class 1 (2015)..................................................              15               1              15
Class 1 (2016)..................................................              28               1              28
Class 1 (2017)..................................................              15               1              15
Class 1 (2018)..................................................              42               1              42
Class 1 (2019)..................................................              48               1              48
Class 2 (2014)..................................................             237            1.15          272.55
Class 2 (2015)..................................................             217            1.15          249.55
Class 2 (2016)..................................................             224            1.15           257.6
Class 2 (2017)..................................................             127            1.15          146.05
Class 2 (2018)..................................................             153            1.15          175.95
Class 2 (2019)..................................................             281            1.15          323.15
Class 3 (2014)..................................................               8             1.3            10.4
Class 3 (2015)..................................................               8             1.3            10.4
Class 3 (2016)..................................................               4             1.3             5.2
Class 3 (2017)..................................................               4             1.3             5.2
Class 3 (2018)..................................................              14             1.3            18.2
Class 3 (2019)..................................................               1             1.3             1.3
Class 4 (2014)..................................................             359            1.45          520.55
Class 4 (2015)..................................................             340            1.45             493
Class 4 (2016)..................................................             281            1.45          407.45
Class 4 (2017)..................................................             185            1.45          268.25
Class 4 (2018)..................................................             379            1.45          549.55
Class 4 (2019)..................................................             403            1.45          584.35
                                                                 -----------------------------------------------
    Total.......................................................           3,393  ..............           4,467
                                                                 -----------------------------------------------
        Average weighting factor (weighted transits/number of     ..............            1.32  ..............
         transits)..............................................
----------------------------------------------------------------------------------------------------------------

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 26.

                                  Table 26--Revised Base Rates for District Two
----------------------------------------------------------------------------------------------------------------
                                                                                                   Revised Rate
                                                                                    Average      (initial rate /
                     Area                           Initial rate (step 7)          weighting         average
                                                                                factor (step 8)     weighting
                                                                                                     factor)
----------------------------------------------------------------------------------------------------------------
District Two: Designated.....................  $741...........................             1.31             $566
District Two: Undesignated...................  761............................             1.32              577
----------------------------------------------------------------------------------------------------------------

J. Step 10: Review and Finalize Rates

    In this step, the Director reviews the rates set forth by the 
staffing model and ensures that they meet the goal of ensuring safe, 
efficient, and reliable pilotage. To establish this, the Director 
considers whether the proposed rates incorporate appropriate 
compensation for pilots to handle heavy traffic periods, and whether 
there is a sufficient number of pilots to handle those heavy traffic 
periods. The Director also considers whether the proposed rates would 
cover operating expenses and infrastructure costs, and takes average 
traffic and weighting factors into consideration. Based on this 
information, the Director is not proposing any alterations to the rates 
in this step. We propose to modify the text in Sec.  401.405(a) to 
reflect the final rates shown in table 27.

[[Page 68229]]



                                 Table 27--Proposed Final Rates for District Two
----------------------------------------------------------------------------------------------------------------
                                                                                   Final 2020     Proposed 2021
                     Area                                    Name                pilotage rate    pilotage rate
----------------------------------------------------------------------------------------------------------------
District Two: Designated.....................  Navigable waters from Southeast             $586             $566
                                                Shoal to Port Huron, MI.
District Two: Undesignated...................  Lake Erie......................              618              577
----------------------------------------------------------------------------------------------------------------

District Three

A. Step 1: Recognize Previous Operating Expenses

    Step 1 in our ratemaking methodology requires that the Coast Guard 
review and recognize the previous year's operating expenses (Sec.  
404.101). To do so, we begin by reviewing the independent accountant's 
financial reports for each association's 2018 expenses and 
revenues.\52\ For accounting purposes, the financial reports divide 
expenses into designated and undesignated areas. For costs accrued by 
the pilot associations generally, such as employee benefits, for 
example, the cost is divided between the designated and undesignated 
areas on a pro rata basis. The recognized operating expenses for 
District Three are shown in table 28.
---------------------------------------------------------------------------

    \52\ These reports are available in the docket for this 
rulemaking (see Docket No. USCG-2019-0736).
---------------------------------------------------------------------------

    For District Three, we propose two Director's adjustments. One 
would be for the amount collected from the 2018 surcharge and the other 
for the amount of Coast Guard litigation legal fees. Other adjustments 
made by the auditors are explained in the auditors' reports (available 
in the docket where indicated in the Public Participation and Request 
for Comments portion of this document).
    We would make no adjustments to the District Three compensation for 
applicant pilots. In the 2019 NPRM, the Coast Guard proposed to make an 
adjustment to District Three's request for reimbursement of $571,248 
for two applicant pilots ($285,624 per applicant). Instead of 
permitting $571,248 for two applicant pilots, we proposed allowing 
$257,566, or $128,783 per applicant pilot. This proposal went into the 
final rule for 2019 and was not opposed. Going forward, the Coast Guard 
will to continue to use the same ratio of applicant to target 
compensation for all districts. For 2019, this was approximately 36 
percent ($128,783 / $359,887 = 35.78 percent), so the Coast Guard will 
use 36 percent of target compensation as the benchmark for applicant 
pilot compensation. This allows adjustments to applicant pilot 
compensation to fluctuate in line with target compensation.

                              Table 28--2018 Recognized Expenses for District Three
----------------------------------------------------------------------------------------------------------------
                                                                       District three
                                           ---------------------------------------------------------------------
                                            Undesignated \53\    Designated       Undesignated
        Reported expenses for 2018               (Area 6)         (area 7)          (area 8)
                                           ------------------------------------------------------      Total
                                             Lakes Huron and      St. Marys
                                                 Michigan           River        Lake Superior
----------------------------------------------------------------------------------------------------------------
Operating Expenses:
    Other Pilotage Costs:
        Pilot subsistence/travel..........           $208,110        $110,697           $123,980        $442,787
        Hotel/Lodging Cost................             88,982          47,331             53,011         189,324
        License Insurance--Pilots.........             13,516           7,189              8,052          28,757
        Payroll taxes.....................            122,954          65,401             73,249         261,604
        Other.............................             19,521          10,383             11,629          41,533
                                           ---------------------------------------------------------------------
            Total Other Pilotage Costs....            453,083         241,001            269,921         964,005
Applicant Pilot Costs:
    Applicant Salaries....................            183,485          97,598            109,310         390,393
    Applicant pilot subsistence/travel....             16,411           8,729              9,777          34,917
    Applicant Insurance...................             38,312          20,379             22,823          81,514
    Applicant Payroll Tax.................             16,411           8,729              9,777          34,917
                                           ---------------------------------------------------------------------
        Applicant Total Cost..............            254,619         135,435            151,687         541,741
Pilot Boat and Dispatch Costs:
    Pilot boat costs......................            346,160         184,127            206,223         736,510
    Dispatch costs........................             99,982          53,182             59,563         212,727
    Payroll taxes.........................             13,609           7,239              8,108          28,956
                                           ---------------------------------------------------------------------
        Total Pilot and Dispatch Costs....            459,751         244,548            273,894         978,193
Administrative Expenses:
    Legal--general counsel................             22,766          12,109             13,563          48,438
    Legal--shared counsel (K&L Gates).....             19,426          10,333             11,573          41,332
    Legal--USCG litigation................              8,611           4,580              5,130          18,321
    Office rent...........................              4,020           2,138              2,395           8,553
    Insurance.............................             11,354           6,040              6,764          24,158
    Employee benefits.....................             68,303          36,331             40,691         145,325
    Other taxes...........................                131              70                 78             279

[[Page 68230]]

 
    Depreciation/Auto leasing/Other.......             57,315          30,487             34,145         121,947
    Interest..............................                  7               4                  4              15
    APA Dues..............................             20,628          10,973             12,289          43,890
    Dues and subscriptions................              3,290           1,750              1,960           7,000
    Utilities.............................             31,860          16,947             18,980          67,787
    Salaries..............................             60,876          32,381             36,267         129,524
    Payroll taxes.........................              5,406           2,875              3,220          11,501
    Accounting/Professional fees..........              8,069           4,292              4,807          17,168
    Pilot training........................             18,586           9,886             11,073          39,545
    Other expenses (D3-18-01).............              8,907           4,738              5,306          18,951
    (D3-18-01) CPA Deduction..............            (2,030)         (1,080)            (1,210)         (4,320)
                                           ---------------------------------------------------------------------
        Total Administrative Expenses.....            347,525         184,854            207,035         739,414
                                           ---------------------------------------------------------------------
            Total Operating Expenses                1,514,978         805,838            902,537       3,223,353
             (Other Costs + Pilot Boats +
             Admin).......................
Proposed Adjustments (Director):
    Directors Adjustment Surcharge                  (273,168)       (273,168)          (273,168)       (819,504)
     Collected in 2018....................
    Proposed Legal Fee Removal--USCG                  (8,611)         (4,580)            (5,130)        (18,321)
     Litigation...........................
                                           ---------------------------------------------------------------------
        Total Director's Adjustments......          (281,779)       (277,748)          (278,298)       (837,825)
                                           ---------------------------------------------------------------------
            Total Operating Expenses (OpEx          1,233,199         528,090            624,239       2,385,528
             + Adjustments)...............
----------------------------------------------------------------------------------------------------------------

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

    \53\ The undesignated areas in District Three (areas 6 and 8) 
are treated separately in table 28. In table 29 and subsequent 
tables, both undesignated areas are combined and analyzed as a 
single undesignated area.
---------------------------------------------------------------------------

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

    Having identified the recognized 2018 operating expenses in Step 1, 
the next step is to estimate the current year's operating expenses by 
adjusting those expenses for inflation over the 3-year period. We 
calculate inflation using the BLS data from the CPI for the Midwest 
Region of the United States for the 2019 inflation rate.\54\ Because 
the BLS does not provide forecasted inflation data, we use economic 
projections from the Federal Reserve for the 2020 and 2021 inflation 
modification.\55\ Based on that information, the calculations for Step 
1 are as follows:
---------------------------------------------------------------------------

    \54\ Supra footnote 29, at 30.
    \55\ Supra footnote 30, at 31.

                            Table 29--Adjusted Operating Expenses for District Three
----------------------------------------------------------------------------------------------------------------
                                                                                  District three
                                                                 -----------------------------------------------
                                                                   Undesignated     Designated         Total
----------------------------------------------------------------------------------------------------------------
Total Operating Expenses (Step 1)...............................      $1,857,438        $528,090      $2,385,528
2019 Inflation Modification (@1.5%).............................          27,862           7,921          35,783
2020 Inflation Modification (@0.8%).............................          15,082           4,288          19,370
2021 Inflation Modification (@1.6%).............................          30,406           8,645          39,051
                                                                 -----------------------------------------------
    Adjusted 2021 Operating Expenses............................       1,930,788         548,944       2,479,732
----------------------------------------------------------------------------------------------------------------

C. Step 3: Estimate Number of Working Pilots

    In accordance with the text in Sec.  404.104(c), we estimate the 
number of working pilots in each district. We determine the number of 
registered pilots based on data provided by the Western Great Lakes 
Pilots Association. Using these numbers, we estimate that there will be 
22 registered pilots in 2021 in District Three. Furthermore, based on 
the seasonal staffing model discussed in the 2017 ratemaking (see 82 FR 
41466), and our proposed changes to that staffing model, we assign a 
certain number of pilots to designated waters and a certain number to 
undesignated waters, as shown in table 30. These numbers are used to 
determine the amount of revenue needed in their respective areas.

[[Page 68231]]



                       Table 30--Authorized Pilots
------------------------------------------------------------------------
                                                          District three
------------------------------------------------------------------------
Proposed Maximum number of pilots (per Sec.                           23
 401.220(a)) \56\.......................................
2021 Authorized pilots (total)..........................              22
Pilots assigned to designated areas.....................               4
Pilots assigned to undesignated areas...................              18
------------------------------------------------------------------------

D. Step 4: Determine Target Pilot Compensation Benchmark
---------------------------------------------------------------------------

    \56\ For a detailed calculation, refer to the Great Lakes 
Pilotage Rates--2017 Annual Review final rule, which contains the 
staffing model. See 82 FR 41466, table 6 at 41480 (August 31, 2017).
---------------------------------------------------------------------------

    In this step, we determine the total pilot compensation for each 
area. As we are proposing an ``interim'' ratemaking this year, we 
propose to follow the procedure outlined in paragraph (b) of Sec.  
404.104, which adjusts the existing compensation benchmark by 
inflation. As stated in Section VI.A of the preamble, we are proposing 
to use a two-step process to adjust target pilot compensation for 
inflation. The first step adjusts the 2019 target compensation 
benchmark of $367,085 by 1.4 percent, for a total adjusted value of 
$372,224. This adjustment accounts for the difference between the 
predicted 2020 Median PCE inflation value of 2 percent and the actual 
2020 ECI inflation value of 3.4 percent.57 58 Because we do 
not have a value for the ECI for 2021, we multiply the adjusted 2020 
compensation benchmark of $372,224 by the Median PCE inflation value of 
1.60 percent.\59\ Based on the projected 2020 inflation estimate, the 
proposed compensation benchmark for 2021 is $378,180 per pilot (see 
table 6 for calculations).
---------------------------------------------------------------------------

    \57\ U.S. Bureau of Labor Statistics Employment Cost Index (ECI) 
Q1 2020 data for Total Compensation for Private Industry Workers in 
the Transportation and Material Moving Sector (Series ID: 
CIU2010000520000A). The first quarter data was the most recently 
available data at the time of analysis for this NPRM. The Coast 
Guard will use updated 2020 ECI data in the final rule. https://www.bls.gov/news.release/archives/eci_01312020.pdf.
    \58\ In Step 2 of the ratemaking, the Coast Guard uses the 
Federal Reserve's predicted PCE inflation rate of 0.8% to inflate 
operating expenses to 2020 dollars. This value differs from the ECI 
Q1 inflation rate of 3.4%. The reason for the large deviation 
between the values is the timing of each dataset. The ECI data is 
only for Q1 of 2020 (January-March) and therefore does not capture 
the impact of COVID-19. The PCE inflation predictions are from the 
June 2020 and account for the impacts of the pandemic on the U.S. 
economy.
    \59\ Supra footnote 33, at 39.
---------------------------------------------------------------------------

    Next, we certify that the number of pilots estimated for 2021 is 
less than or equal to the number permitted under the proposed changes 
to the staffing model in Sec.  401.220(a). The proposed changes to the 
staffing model suggest that the number of pilots needed is 23 pilots 
for District Three,\60\ which is more than or equal to 22, the number 
of registered pilots provided by the pilot associations.
---------------------------------------------------------------------------

    \60\ See Table 6 of the Great Lakes Pilotage Rates--2017 Annual 
Review 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 Sec.  404.104(c), we use the revised 
target individual compensation level to derive the total pilot 
compensation by multiplying the individual target compensation by the 
estimated number of registered pilots for District Three, as shown in 
table 31.

                                Table 31--Target Compensation for District Three
----------------------------------------------------------------------------------------------------------------
                                                                                  District three
                                                                 -----------------------------------------------
                                                                   Undesignated     Designated         Total
----------------------------------------------------------------------------------------------------------------
Target Pilot Compensation.......................................        $378,180        $378,180        $378,180
Number of Pilots................................................              18               4              22
                                                                 -----------------------------------------------
    Total Target Pilot Compensation.............................      $6,807,240      $1,512,720      $8,319,960
----------------------------------------------------------------------------------------------------------------

E. Step 5: Project Working Capital Fund

    Next, we calculate the working capital fund revenues needed for 
each area. First, we add the figures for projected operating expenses 
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, the number is 3.3875 
percent.\61\ By multiplying the two figures, we obtain the working 
capital fund contribution for each area, as shown in table 32.
---------------------------------------------------------------------------

    \61\ Moody's Seasoned Aaa Corporate Bond Yield, average of 2018 
monthly data. The Coast Guard uses the most recent complete year of 
data. See https://fred.stlouisfed.org/series/AAA. (June 12, 2019).

                          Table 32--Working Capital Fund Calculation for District Three
----------------------------------------------------------------------------------------------------------------
                                                                                  District three
                                                                 -----------------------------------------------
                                                                   Undesignated     Designated         Total
----------------------------------------------------------------------------------------------------------------
Adjusted Operating Expenses (Step 2)............................      $1,930,788        $548,944      $2,479,732
Total Target Pilot Compensation (Step 4)........................       6,807,240       1,512,720       8,319,960
Total Expenses..................................................       8,738,028       2,061,664      10,799,692
Working Capital Fund (3.3875)...................................         296,001          69,839         365,840
----------------------------------------------------------------------------------------------------------------


[[Page 68232]]

F. Step 6: Project Needed Revenue

    In this step, we add all the expenses accrued to derive the total 
revenue needed for each area. These expenses include the projected 
operating expenses (from Step 2), the total pilot compensation (from 
Step 4), and the working capital fund contribution (from Step 5). The 
calculations are shown in table 33.

                                   Table 33--Revenue Needed for District Three
----------------------------------------------------------------------------------------------------------------
                                                                                  District three
                                                                 -----------------------------------------------
                                                                   Undesignated     Designated         Total
----------------------------------------------------------------------------------------------------------------
Adjusted Operating Expenses (Step 2, see Table 9)...............      $1,930,788        $548,944      $2,479,732
Total Target Pilot Compensation (Step 4, see Table 31)..........       6,807,240       1,512,720       8,319,960
Working Capital Fund (Step 5, see Table 32).....................         296,001          69,839         365,840
                                                                 -----------------------------------------------
    Total Revenue Needed........................................       9,034,029       2,131,503      11,165,532
----------------------------------------------------------------------------------------------------------------

G. Step 7: Calculate Initial Base Rates

    Having determined the revenue needed for each area in the previous 
six steps, to develop an hourly rate we divide that number by the 
expected number of hours of traffic. Step 7 is a two-part process. In 
the first part, we calculate the 10-year average of traffic in District 
Three, using the total time on task or pilot bridge hours.\62\ Because 
we calculate separate figures for designated and undesignated waters, 
there are two parts for each calculation. We show these values in table 
34.
---------------------------------------------------------------------------

    \62\ See supra footnote 34, at 40 for more information.

                Table 34--Time on task for District Three
                                 [Hours]
------------------------------------------------------------------------
                                                  District three
                  Year                   -------------------------------
                                           Undesignated     Designated
------------------------------------------------------------------------
2019....................................          24,851           3,395
2018....................................          19,967           3,455
2017....................................          20,955           2,997
2016....................................          23,421           2,769
2015....................................          22,824           2,696
2014....................................          25,833           3,835
2013....................................          17,115           2,631
2012....................................          15,906           2,163
2011....................................          16,012           1,678
2010....................................          20,211           2,461
                                         -------------------------------
    Average.............................          20,710           2,808
------------------------------------------------------------------------

    Next, we derive the initial hourly rate by dividing the revenue 
needed by the average number of hours for each area. This produces an 
initial rate, which is necessary to produce the revenue needed for each 
area, assuming the amount of traffic is as expected. The calculations 
for each area are set forth in table 35.

         Table 35--Initial Rate Calculations for District Three
------------------------------------------------------------------------
                                        Undesignated       Designated
------------------------------------------------------------------------
Revenue needed (Step 6).............        $9,034,029        $2,131,503
Average time on task (hours)........            20,710             2,808
Initial rate........................              $436              $759
------------------------------------------------------------------------

H. Step 8: Calculate Average Weighting Factors by Area

    In this step, we calculate the average weighting factor for each 
designated and undesignated area. We collect the weighting factors, set 
forth in 46 CFR 401.400, for each vessel trip. Using this database, we 
calculate the average weighting factor for each area using the data 
from each vessel transit from 2014 onward, as shown in tables 36 and 
37.\63\
---------------------------------------------------------------------------

    \63\ See supra footnote 35, at 41 for more information.

                    Table 36--Average Weighting Factor for District Three, Undesignated Areas
----------------------------------------------------------------------------------------------------------------
                                                                     Number of       Weighting       Weighted
                        Vessel class/year                            transits         factor         transits
----------------------------------------------------------------------------------------------------------------
Area 6:

[[Page 68233]]

 
    Class 1 (2014)..............................................              45               1              45
    Class 1 (2015)..............................................              56               1              56
    Class 1 (2016)..............................................             136               1             136
    Class 1 (2017)..............................................             148               1             148
    Class 1 (2018)..............................................             103               1             103
    Class 1 (2019)..............................................             173               1             173
    Class 2 (2014)..............................................             274            1.15           315.1
    Class 2 (2015)..............................................             207            1.15          238.05
    Class 2 (2016)..............................................             236            1.15           271.4
    Class 2 (2017)..............................................             264            1.15           303.6
    Class 2 (2018)..............................................             169            1.15          194.35
    Class 2 (2019)..............................................             279            1.15          320.85
    Class 3 (2014)..............................................              15             1.3            19.5
    Class 3 (2015)..............................................               8             1.3            10.4
    Class 3 (2016)..............................................              10             1.3              13
    Class 3 (2017)..............................................              19             1.3            24.7
    Class 3 (2018)..............................................               9             1.3            11.7
    Class 3 (2019)..............................................               9             1.3            11.7
    Class 4 (2014)..............................................             394            1.45           571.3
    Class 4 (2015)..............................................             375            1.45          543.75
    Class 4 (2016)..............................................             332            1.45           481.4
    Class 4 (2017)..............................................             367            1.45          532.15
    Class 4 (2018)..............................................             337            1.45          488.65
    Class 4 (2019)..............................................             334            1.45           484.3
                                                                 -----------------------------------------------
        Total for Area 6........................................           4,299  ..............           5,497
Area 8:
    Class 1 (2014)..............................................               3               1               3
    Class 1 (2015)..............................................               0               1               0
    Class 1 (2016)..............................................               4               1               4
    Class 1 (2017)..............................................               4               1               4
    Class 1 (2018)..............................................               0               1               0
    Class 1 (2019)..............................................               0               1               0
    Class 2 (2014)..............................................             177            1.15          203.55
    Class 2 (2015)..............................................             169            1.15          194.35
    Class 2 (2016)..............................................             174            1.15           200.1
    Class 2 (2017)..............................................             151            1.15          173.65
    Class 2 (2018)..............................................             102            1.15           117.3
    Class 2 (2019)..............................................             120            1.15             138
    Class 3 (2014)..............................................               3             1.3             3.9
    Class 3 (2015)..............................................               0             1.3               0
    Class 3 (2016)..............................................               7             1.3             9.1
    Class 3 (2017)..............................................              18             1.3            23.4
    Class 3 (2018)..............................................               7             1.3             9.1
    Class 3 (2019)..............................................               6             1.3             7.8
    Class 4 (2014)..............................................             243            1.45          352.35
    Class 4 (2015)..............................................             253            1.45          366.85
    Class 4 (2016)..............................................             204            1.45           295.8
    Class 4 (2017)..............................................             269            1.45          390.05
    Class 4 (2018)..............................................             188            1.45           272.6
    Class 4 (2019)..............................................             254            1.45           368.3
                                                                 -----------------------------------------------
        Total for Area 8........................................           2,356  ..............           3,137
                                                                 -----------------------------------------------
            Combined total......................................           6,655  ..............        8,634.10
                                                                 -----------------------------------------------
                Average weighting factor (weighted transits/      ..............            1.30  ..............
                 number of transits)............................
----------------------------------------------------------------------------------------------------------------


                     Table 37--Average Weighting Factor for District Three, Designated Areas
----------------------------------------------------------------------------------------------------------------
                                                                     Number of       Weighting       Weighted
                      Vessel class per year                          transits         factor         transits
----------------------------------------------------------------------------------------------------------------
Class 1 (2014)..................................................              27               1              27
Class 1 (2015)..................................................              23               1              23
Class 1 (2016)..................................................              55               1              55
Class 1 (2017)..................................................              62               1              62
Class 1 (2018)..................................................              47               1              47
Class 1 (2019)..................................................              45               1              45
Class 2 (2014)..................................................             221            1.15          254.15
Class 2 (2015)..................................................             145            1.15          166.75

[[Page 68234]]

 
Class 2 (2016)..................................................             174            1.15           200.1
Class 2 (2017)..................................................             170            1.15           195.5
Class 2 (2018)..................................................             126            1.15           144.9
Class 2 (2019)..................................................             162            1.15           186.3
Class 3 (2014)..................................................               4             1.3             5.2
Class 3 (2015)..................................................               0             1.3               0
Class 3 (2016)..................................................               6             1.3             7.8
Class 3 (2017)..................................................              14             1.3            18.2
Class 3 (2018)..................................................               6             1.3             7.8
Class 3 (2019)..................................................               3             1.3             3.9
Class 4 (2014)..................................................             321            1.45          465.45
Class 4 (2015)..................................................             245            1.45          355.25
Class 4 (2016)..................................................             191            1.45          276.95
Class 4 (2017)..................................................             234            1.45           339.3
Class 4 (2018)..................................................             225            1.45          326.25
Class 4 (2019)..................................................             308            1.45           446.6
                                                                 -----------------------------------------------
    Total.......................................................           2,814  ..............           3,659
                                                                 -----------------------------------------------
        Average weighting factor (weighted transits per number    ..............            1.30  ..............
         of transits)...........................................
----------------------------------------------------------------------------------------------------------------

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 38.

                                 Table 38--Revised Base Rates for District Three
----------------------------------------------------------------------------------------------------------------
                                                                                                   Revised rate
                                                                                    Average      (Initial rate /
                             Area                                Initial rate      weighting         average
                                                                   (step 7)     factor (step 8)     weighting
                                                                                                     factor)
----------------------------------------------------------------------------------------------------------------
District Three: Designated...................................             $759             1.30             $584
District Three: Undesignated.................................              436             1.30              335
----------------------------------------------------------------------------------------------------------------

J. Step 10: Review and Finalize Rates

    In this step, the Director reviews the rates set forth by the 
staffing model and ensures that they meet the goal of ensuring safe, 
efficient, and reliable pilotage. To establish this, the Director 
considers whether the proposed rates incorporate appropriate 
compensation for pilots to handle heavy traffic periods and whether 
there is a sufficient number of pilots to handle those heavy traffic 
periods. The Director also considers whether the proposed rates would 
cover operating expenses and infrastructure costs, and takes average 
traffic and weighting factors into consideration. Based on this 
information, the Director is not proposing any alterations to the rates 
in this step. We propose to modify the text in Sec.  401.405(a) to 
reflect the final rates shown in table 39.

                                Table 39--Proposed Final Rates for District Three
----------------------------------------------------------------------------------------------------------------
                                                                                   Final 2020     Proposed 2021
                     Area                                    Name                pilotage rate    pilotage rate
----------------------------------------------------------------------------------------------------------------
District Three: Designated...................  St. Marys River................             $632             $584
District Three: Undesignated.................  Lakes Huron, Michigan, and                   337              335
                                                Superior.
----------------------------------------------------------------------------------------------------------------

IX. Regulatory Analyses

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

A. Regulatory Planning and Review

    Executive Orders 12866 (Regulatory Planning and Review) and 13563 
(Improving Regulation and Regulatory Review) direct agencies to assess 
the costs and benefits of available regulatory alternatives and, if 
regulation is necessary, to select regulatory approaches that maximize 
net benefits (including potential economic, environmental, public 
health and safety effects, distributive impacts, and equity). Executive 
Order 13563 emphasizes the importance of quantifying costs and 
benefits, reducing costs, harmonizing rules, and promoting flexibility. 
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

[[Page 68235]]

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, it is exempt 
from the requirements of Executive Order 13771. See the OMB Memorandum 
titled ``Guidance Implementing Executive Order 13771, titled `Reducing 
Regulation and Controlling Regulatory Costs' '' (April 5, 2017). A 
regulatory analysis (RA) follows.
    The purpose of this proposed rule is to establish new base pilotage 
rates. The Great Lakes Pilotage Act of 1960 requires that rates be 
established or reviewed and adjusted each year. The Act requires that 
base rates be established by a full ratemaking at least once every five 
years, and in years when base rates are not established, they must be 
reviewed and, if necessary, adjusted. The last full ratemaking was 
concluded in June of 2018.\64\ For this ratemaking, the Coast Guard 
estimates an increase in cost of approximately $1.06 million to 
industry as a result of the change in revenue needed in 2021 compared 
to the revenue needed in 2020.
---------------------------------------------------------------------------

    \64\ Great Lakes Pilotage Rates--2018 Annual Review and 
Revisions to Methodology (83 FR 26162), published June 5, 2018.
---------------------------------------------------------------------------

    Table 40 summarizes proposed changes with no cost impacts or where 
the cost impacts are captured in the proposed rate change. Table 41 
summarizes the affected population, costs, and benefits of the proposed 
rate change.

              Table 40--Proposed Changes With No Costs or Cost Captured in the Proposed Rate Change
----------------------------------------------------------------------------------------------------------------
                                                                           Basis for no cost
             Change                   Description          Affected        or cost captured        Benefits
                                                          population          in the rate
----------------------------------------------------------------------------------------------------------------
Legal expenses for lawsuits       The Coast Guard is  Owners and          Changes in          The change would
 against the U.S. Government are   proposing to        operators of 279    operating           remove the undue
 not allowable operating           exclude legal       vessels             expenses are        cost to shippers
 expenses.                         fees for            journeying the      accounted for in    of effectively
                                   litigation          Great Lakes         the base pilotage   paying for the
                                   against the Coast   system annually,    rates. For the      pilots'
                                   Guard from          55 U.S. Great       2020 ratemaking,    litigation
                                   operating           Lakes pilots, and   these legal fees    expenses to sue
                                   expenses for        3 pilotage          total $36,688 for   the Coast Guard.
                                   calculation of      associations.       all three
                                   pilotage rates.                         districts. After
                                   This proposal                           adjusting for
                                   would only apply                        inflation and the
                                   to legal fees                           working capital
                                   when pilots                             fund, these
                                   associations sue                        expenses are
                                   the Coast Guard                         $39,430, or 0.13%
                                   in relation to                          of the total
                                   the ratemaking                          revenue needed
                                   and oversight                           for 2021. The
                                   requirement in 46                       pilotage
                                   U.S.C. 9303, 9304                       associations may
                                   and 9305. As part                       still be
                                   of this proposed                        reimbursed for
                                   change, the Coast                       these expenses by
                                   Guard is also                           the Coast Guard
                                   proposing to                            under the EAJA.
                                   create a new
                                   paragraph 46 CFR
                                   404.2(b)(6) which
                                   defines legal
                                   expenses.
Changes to Staffing Model.......  The Coast Guard is  Owners and          The total number    Rounding up in the
                                   proposing to        operators of 279    of pilots is        staffing model
                                   modify the          vessels             accounted for in    accounts for
                                   staffing model at   journeying the      the base pilotage   extra staff or
                                   46 CFR              Great Lakes         rates. For the      extra time spent
                                   401.220(a)(3) to    system annually,    2021 ratemaking,    by the pilot
                                   round up to the     55 U.S. Great       this proposed       associations
                                   nearest integer,    Lakes pilots, and   change would        presidents,
                                   as opposed to the   3 pilotage          allow for one       including
                                   existing method,    associations.       additional pilot    attending
                                   which rounds to                         that would not      mandatory
                                   the nearest                             have otherwise      meetings with the
                                   integer. In                             been allowed.       Coast Guard,
                                   total, this would                                           complying with
                                   increase the                                                new reporting
                                   maximum number of                                           requirements, and
                                   allowable pilots                                            overseeing
                                   by 3.                                                       projects that
                                                                                               enable the
                                                                                               associations to
                                                                                               provide safe,
                                                                                               efficient, and
                                                                                               reliable pilotage
                                                                                               service in order
                                                                                               to facilitate
                                                                                               maritime
                                                                                               commerce.
Inflation of Target pilot         The Coast Guard is  Owners and          Pilot compensation  This proposed
 compensation.                     proposing to        operators of 279    costs are           change ensures
                                   modify 46 CFR       vessels             accounted for in    the Coast Guard
                                   404.104(b) to       journeying the      the base pilotage   will be able to
                                   change how          Great Lakes         rates.              correct any under-
                                   inflation of        system annually,                         or over-
                                   pilot               55 U.S. Great                           estimates in
                                   compensation is     Lakes pilots, and                       inflation rather
                                   calculated by       3 pilotage                              than keeping
                                   accounting for      associations.                           these errors
                                   the difference                                              continuously in
                                   between the                                                 the rate.
                                   predicted PCE
                                   inflation rated
                                   and the actual
                                   ECI inflation
                                   rate.
----------------------------------------------------------------------------------------------------------------


                               Table 41--Economic Impacts Due to Proposed Changes
----------------------------------------------------------------------------------------------------------------
                                                           Affected
             Change                   Description         population             Costs             Benefits
----------------------------------------------------------------------------------------------------------------
Rate and surcharge changes......  Under the Great     Owners and          Increase of         New rates cover an
                                   Lakes Pilotage      operators of 279    $1,060,757 due to   association's
                                   Act of 1960, the    vessels             change in revenue   necessary and
                                   Coast Guard is      transiting the      needed for 2021     reasonable
                                   required to         Great Lakes         ($29,328,787)       operating
                                   review and adjust   system annually,    from revenue        expenses.
                                   base pilotage       55 U.S. Great       needed for 2020     Promotes safe,
                                   rates annually.     Lakes pilots, and   ($28,268,030), as   efficient, and
                                                       3 pilotage          shown in table 42   reliable pilotage
                                                       associations.       below.              service on the
                                                                                               Great Lakes.
                                                                                               Provides fair
                                                                                               compensation,
                                                                                               adequate
                                                                                               training, and
                                                                                               sufficient rest
                                                                                               periods for
                                                                                               pilots. Ensures
                                                                                               the association
                                                                                               receives
                                                                                               sufficient
                                                                                               revenues to fund
                                                                                               future
                                                                                               improvements.
----------------------------------------------------------------------------------------------------------------


[[Page 68236]]

    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 rulemaking, we are proposing to 
adjust the pilotage rates for the 2021 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 decrease the 
rates for all three districts. In addition, the proposed rule would not 
implement a surcharge for the training of apprentice pilots as was last 
implemented in the 2019 ratemaking.\65\ These changes lead to a net 
increase in the cost of service to shippers. However, because the 
proposed rates would increase for some areas and decrease for others, 
the change in per unit cost to each individual shipper would be 
dependent on their area of operation, and if they previously paid a 
surcharge.
---------------------------------------------------------------------------

    \65\ See, 84 FR 20551 (May 10, 2019).
---------------------------------------------------------------------------

    A detailed discussion of our economic impact analysis follows.
Affected Population
    This rule would impact U.S. Great Lakes pilots, the 3 pilot 
associations, and the owners and operators of 279 oceangoing vessels 
that transit the Great Lakes annually. We estimate that there would be 
55 pilots registered during the 2021 shipping season. The shippers 
affected by these rate changes are those owners and operators of 
domestic vessels operating ``on register'' (engaged in foreign trade) 
and owners and operators of non-Canadian foreign vessels on routes 
within the Great Lakes system. These owners and operators must have 
pilots or pilotage service as required by 46 U.S.C. 9302. There is no 
minimum tonnage limit or exemption for these vessels. The statute 
applies only to commercial vessels and not to recreational vessels. 
U.S.-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.
    The Coast Guard used billing information from the years 2017 
through 2019 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. As described in Step 7 of the methodology, we use a 
10-year average to estimate the traffic. We used 3 years of the most 
recent billing data to estimate the affected population. When we 
reviewed 10 years of the most recent billing data, we found the data 
included vessels that have not used pilotage services in recent years. 
We believe using 3 years of billing data is a better representation of 
the vessel population that is currently using pilotage services and 
would be impacted by this rulemaking. We found that 474 unique vessels 
used pilotage services during the years 2017 through 2019. That is, 
these vessels had a pilot dispatched to the vessel and billing 
information was recorded in the GLPMS. Of these vessels, 434 were 
foreign-flagged vessels and 40 were U.S.-flagged vessels. 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.
    Numerous factors affect vessel traffic, which varies from year to 
year. Therefore, rather than using the total number of vessels over the 
time period, we took an average of the unique vessels using pilotage 
services from the years 2017 through 2019 as the best representation of 
vessels estimated to be affected by the rates in this rulemaking. From 
2017 through 2019, an average of 279 vessels used pilotage services 
annually.\66\ On average, 261 of these vessels were foreign-flagged 
vessels and 18 were U.S.-flagged vessels that voluntarily opted into 
the pilotage service.
---------------------------------------------------------------------------

    \66\ 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 proposed rate changes resulting from this adjustment to the 
rates would result in a net decrease in the cost of service to 
shippers. However, the proposed change in per unit cost to each 
individual shipper would be dependent on their area of operation.
    The Coast Guard estimates the effect of the rate changes on 
shippers by comparing the total projected revenues needed to cover 
costs in 2020 with the total projected revenues to cover costs in 2021, 
including any temporary surcharges we have authorized.\67\ We set 
pilotage rates so pilot associations receive enough revenue to cover 
their necessary and reasonable expenses. Shippers pay these rates when 
they 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. The change in revenue from the previous year is the 
additional cost to shippers discussed in this rule.
---------------------------------------------------------------------------

    \67\ While the Coast Guard implemented a surcharge in 2019, we 
are not proposing any surcharges for 2021.
---------------------------------------------------------------------------

    The impacts of the rate changes on shippers are estimated from the 
district pilotage projected revenues (shown in tables 9, 21, and 33 of 
this preamble). The Coast Guard estimates that for the 2021 shipping 
season, the projected revenue needed for all three districts is 
$29,328,787.
    To estimate the change in cost to shippers from this rule, the 
Coast Guard compared the 2021 total projected revenues to the 2020 
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 2020 
rulemaking, we estimated the total projected revenue needed for 2020 as 
$28,268,030.\68\ This is the best approximation of 2020 revenues, as at 
the time of this publication, the Coast Guard does not have enough 
audited data available for the 2020 shipping season to revise these 
projections.\69\ Table 42 shows the revenue projections for 2020 and 
2021 and details the additional cost increases to shippers by area and 
district as a result of the rate changes on traffic in Districts One, 
Two, and Three.
---------------------------------------------------------------------------

    \68\ 85 FR 20088, see table 41.
    \69\ The proposed rates for 2021 do not account for the impacts 
COVID-19 may have on shipping traffic and subsequently pilotage 
revenue, as we do not have complete data for 2020. The rates for 
2022 will take into account the impact of COVID-19 on shipping 
traffic, because that future ratemaking will include 2020 traffic 
data. However, the Coast Guard uses 10-year average when calculating 
traffic in order to smooth out variations in traffic caused by 
global economic conditions, such as those caused by the COVID-19 
pandemic.

[[Page 68237]]



                                Table 42--Effect of the Rule by Area and District
                                             [$U.S.; non-discounted]
----------------------------------------------------------------------------------------------------------------
                                                                                                     Change in
                              Area                                Revenue needed  Revenue needed   costs of this
                                                                      in 2020         in 2021      proposed rule
----------------------------------------------------------------------------------------------------------------
Total, District One.............................................      $9,210,888      $9,681,078        $470,190
Total, District Two.............................................       8,345,871       8,482,177         136,306
Total, District Three...........................................      10,711,271      11,165,532         454,261
                                                                 -----------------------------------------------
    System Total................................................      28,268,030      29,328,787       1,060,757
----------------------------------------------------------------------------------------------------------------

    The resulting difference between the projected revenue in 2020 and 
the projected revenue in 2021 is the annual change in payments from 
shippers to pilots as a result of the rate change imposed by this 
proposed rule. The effect of the rate change to shippers varies by area 
and district. After taking into account the change in pilotage rates, 
the rate changes would lead to affected shippers operating in District 
One experiencing an increase in payments of $470,190 over the previous 
year. District Two and District Three would experience an increase in 
payments of $136,306 and $454,261, respectively, when compared with 
2020. The overall adjustment in payments would be an increase in 
payments by shippers of $1,060,757 across all three districts (a 4-
percent increase when compared with 2020). Again, because the Coast 
Guard reviews and sets rates for Great Lakes Pilotage annually, we 
estimate the impacts as single-year costs rather than annualizing them 
over a 10-year period.
    Table 43 shows the difference in revenue by revenue-component from 
2020 to 2021 and presents each revenue-component as a percentage of the 
total revenue needed. In both 2020 and 2021, the largest revenue-
component was pilotage compensation (68 percent of total revenue needed 
in 2020 and 71 percent of total revenue needed in 2021), followed by 
operating expenses (29 percent of total revenue needed in 2020 and 26 
percent of total revenue needed in 2021).

                                                      Table 43--Difference in Revenue by Component
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                            Difference
                                                          Revenue needed   Percentage of  Revenue needed   Percentage of  (2021 revenue-    Percentage
                    Revenue component                         in 2020      total revenue      in 2021      total revenue   2020 revenue)    change from
                                                                          needed in 2020                  needed in 2021                   previous year
--------------------------------------------------------------------------------------------------------------------------------------------------------
Adjusted Operating Expenses.............................      $8,110,685              29      $7,567,927              26      ($542,758)             (7)
Total Target Pilot Compensation.........................      19,088,420              68      20,799,900              71       1,711,480               9
Working Capital Fund....................................       1,068,925               4         960,960               3       (107,965)            (10)
                                                         -----------------------------------------------------------------------------------------------
    Total Revenue Needed................................      28,268,030             100      29,328,787             100       1,060,757               4
--------------------------------------------------------------------------------------------------------------------------------------------------------
Note: Totals may not sum due to rounding.

    As stated above, we estimate that there will be a total increase in 
revenue needed by the pilot associations of $1,060,757. This represents 
an increase in revenue needed for target pilot compensation of 
$1,711,480, and a decrease in the revenue needed for adjusted operating 
expenses and the working capital fund of $542,758 and $107,965, 
respectively. The proposed removal of legal fees associated with 
litigation against the Coast Guard would reduce the revenue needed in 
2021 by $39,430. While the shippers would no longer reimburse the legal 
fees associated with litigation via the rate under the proposed rule, 
the pilot associations may still be reimbursed for these expenses by 
the Coast Guard under the EAJA.
    The majority of the increase in revenue needed, $1,711,480, is the 
result of changes to target pilot compensation. These changes are due 
to three factors: (1) The proposed changes to adjust 2020 pilotage 
compensation to account for the difference between actual and predicted 
inflation; (2) the net addition of three additional pilots; and (3) 
inflation of pilotage compensation.
    The proposed target compensation is $378,180 per pilot in 2021, 
compared to $367,085 in 2020. The proposed changes to modify the 2020 
pilot compensation to account for the difference between predicted and 
actual inflation would increase the 2020 target compensation value by 
1.4 percent. As show in table 43, this inflation adjustment would 
increase total compensation by $5,139 per pilot, and the total revenue 
needed by $282,655 when accounting for all 55 pilots.

    Table 44--Change in Revenue Resulting From the Proposed Change to
          Inflation of Pilot Compensation Calculation in Step 4
------------------------------------------------------------------------
 
------------------------------------------------------------------------
2020 Target Compensation................................        $367,085
Adjusted 2020 Compensation ($367,085 x 1.014)...........         372,224
Difference between Target 2020 Compensation and Target             5,139
 2020 Compensation ($372,224 - $367,085)................
Increase in total Revenue for 55 Pilots ($5,139 x 55)...         282,655
------------------------------------------------------------------------

    The addition of 3 pilots to full registered status accounts for 
$1,119,122 of the increase in needed revenue. As shown in table 44, to 
avoid double counting, this value excludes the change in revenue 
resulting from the proposed

[[Page 68238]]

change to adjust 2020 pilotage compensation to account for the 
difference between actual and predicted inflation.

   Table 45--Change in Revenue Resulting From Adding Three Additional
                                 Pilots
------------------------------------------------------------------------
 
------------------------------------------------------------------------
2021 Target Compensation................................        $378,180
Total Number of New Pilots..............................               3
Total Cost of new Pilots ($378,180 x 3).................      $1,134,540
Difference between Target 2020 Compensation and Target            $5,139
 2020 Compensation ($372,224 - $367,085)................
Increase in total Revenue for 3 Pilots ($5,139 x 3).....         $15,418
Net Increase in total Revenue 3 Pilots ($1,134,540-           $1,119,122
 $15,418)...............................................
------------------------------------------------------------------------

    Finally, the remainder of the increase, $309,702, is the result of 
increasing compensation for the other 52 pilots to account for future 
inflation of 1.6 percent in 2021. This would increase total 
compensation by $5,965 per pilot.

 Table 46--Change in Revenue Resulting From Inflating 2020 Compensation
                                 to 2021
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Adjusted 2020 Compensation..............................        $372,224
2021 Target Compensation ($372,224 x 1.016).............         378,180
Difference between Target 2020 Compensation and Target             5,956
 2020 Compensation ($378,180 - $372,224)................
Increase in total Revenue for 52 Pilots ($5,956 x 52)...         309,702
------------------------------------------------------------------------

    Table 46 presents the percentage change in revenue by area and 
revenue-component, excluding surcharges, as they are applied at the 
district level.\70\
---------------------------------------------------------------------------

    \70\ The 2020 projected revenues are from the Great Lakes 
Pilotage Rates--2020 Annual Review and Revisions to Methodology 
final rule (85 FR 20088) Tables 8, 20, and 32. The 2021 projected 
revenues are from tables 9, 21, and 33 of this proposed rule.

                                                                      Table 47--Difference in Revenue by Component and Area
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                  Adjusted operating expenses        Total target pilot compensation            Working capital fund                 Total revenue needed
                                             ---------------------------------------------------------------------------------------------------------------------------------------------------
                    Area                                               Percentage                           Percentage                           Percentage                           Percentage
                                                 2020        2021        change       2020        2021        change       2020        2021        change       2020        2021        change
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
District One: Designated....................  $1,573,286  $1,632,733            4  $3,670,850  $4,159,980           12    $206,095    $196,228          (5)  $5,450,231  $5,988,941            9
District One: Undesignated..................   1,048,857     923,904         (14)   2,569,595   2,647,260            3     142,205     120,973         (18)   3,760,657   3,692,137          (2)
District Two: Undesignated..................   1,019,371   1,013,743          (1)   2,936,680   3,025,440            3     155,473     136,827         (14)   4,111,524   4,176,010            2
District Two: Designated....................   1,504,635   1,517,815            1   2,569,595   2,647,260            3     160,117     141,092         (13)   4,234,347   4,306,167            2
District Three: Undesignated................   2,336,354   1,930,788         (21)   5,873,360   6,807,240           14     322,642     296,001          (9)   8,532,356   9,034,029            6
District Three: Designated..................     628,182     548,944         (14)   1,468,340   1,512,720            3      82,393      69,839         (18)   2,178,915   2,131,503          (2)
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Benefits
    This proposed rule would allow the Coast Guard to meet requirements 
in 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 pilot associations produce 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, helping to reduce delays caused by pilot 
shortages.

B. Small Entities

    Under the Regulatory Flexibility Act, 5 U.S.C. 601-612, we have 
considered whether this proposed rule would have a significant economic 
impact on a substantial number of small entities. The term ``small 
entities'' comprises small businesses, not-for-profit organizations 
that are independently owned and operated and are not dominant in their 
fields, and governmental jurisdictions with populations of less than 
50,000.
    For the proposed rule, the Coast Guard reviewed recent company size 
and ownership data for the vessels identified in the GLPMS, and we 
reviewed business revenue and size data provided by publicly available 
sources such as Manta \71\ and ReferenceUSA.\72\ As described in 
Section IX.A of this preamble, Regulatory Planning and Review, we found 
that a total of 474 unique vessels used pilotage services from 2017 
through 2019. These vessels are owned by 49 entities. We found that of 
the 49 entities that own or operate vessels engaged in trade on the 
Great Lakes that would be affected by this rule, 38 are foreign 
entities that operate primarily outside the United States, and 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) small business threshold as defined in the SBA's 
``Table of Size Standards'' for small businesses to determine how many 
of these companies are considered small entities.\73\ Table 48 shows 
the North American Industry Classification System (NAICS) codes of the 
U.S. entities and the small entity standard size established by the 
SBA.
---------------------------------------------------------------------------

    \71\ See https://www.manta.com/.
    \72\ See http://resource.referenceusa.com/.
    \73\ See: https://www.sba.gov/document/support--table-size-standards. SBA has established a ``Table of Size Standards'' for 
small businesses that sets small business size standards by NAICS 
code. A size standard, which is usually stated in number of 
employees or average annual receipts (``revenues''), represents the 
largest size that a business (including its subsidiaries and 
affiliates) may be in order to remain classified as a small business 
for SBA and Federal contracting programs.

[[Page 68239]]



                             Table 48--NAICS Codes and Small Entities Size Standards
----------------------------------------------------------------------------------------------------------------
             NAICS                         Description                      Small entity size standard
----------------------------------------------------------------------------------------------------------------
211120.........................  Crude Petroleum Extraction.....  1,250 employees.
237990.........................  Other Heavy and Civil            $39.5 million.
                                  Engineering Construction.
238910.........................  Site Preparation Contractors...  $16.5 million.
483212.........................  Inland Water Passenger           500 employees.
                                  Transportation.
487210.........................  Scenic and Sightseeing           $8.0 million.
                                  Transportation, Water.
488330.........................  Navigational Services to         $41.5 million.
                                  Shipping.
523910.........................  Miscellaneous Intermediation...  $41.5 million.
561599.........................  All Other Travel Arrangement     $22.0 million.
                                  and Reservation Services.
982100.........................  National Security..............  Population of 50,000 People.
----------------------------------------------------------------------------------------------------------------

    Of the 11 U.S. entities, 8 exceed the SBA's small business 
standards for small entities. To estimate the potential impact on the 3 
small entities, the Coast Guard used their 2019 invoice data to 
estimate their pilotage costs in 2021. We increased their 2019 costs to 
account for the changes in pilotage rates resulting from this proposed 
rule and the Great Lakes Pilotage Rates--2020 Annual Review and 
Revisions to Methodology final rule (85 FR 20088). We estimated the 
change in cost to these entities resulting from this rule by 
subtracting their estimated 2020 costs from their estimated 2021 costs, 
and found the average costs to small firms would be approximately 
$1,226. We then compared the estimated change in pilotage costs between 
2020 and 2021 with each firm's annual revenue. In all cases, their 
estimated pilotage expenses were below 1 percent of their annual 
revenue.
    In addition to the owners and operators discussed above, three U.S. 
entities that receive revenue from pilotage services would be affected 
by this proposed rule. These are the three pilot associations that 
provide and manage pilotage services within the Great Lakes districts. 
Two of the associations operate as partnerships, and one operates as a 
corporation. These associations are designated with the same NAICS code 
and small-entity size standards described above, but have fewer than 
500 employees. Combined, they have approximately 65 employees in total 
and, therefore, are designated as small entities. The Coast Guard 
expects no adverse effect on these entities from this rule because the 
three pilot associations would receive enough revenue to balance the 
projected expenses associated with the projected number of bridge hours 
(time on task) and pilots.
    Finally, the Coast Guard did not find any small not-for-profit 
organizations that are independently owned and operated and are not 
dominant in their fields that would be impacted by this rule. We did 
not find any small governmental jurisdictions with populations of fewer 
than 50,000 people that would be impacted by this rule. Based on this 
analysis, we conclude this rulemaking would not affect a substantial 
number of small entities, nor have a significant economic impact on any 
of the affected entities.
    Based on our analysis, this proposed rule would have a less than 1 
percent annual impact on 3 small entities; therefore, the Coast Guard 
certifies under 5 U.S.C. 605(b) that this proposed rule would not have 
a significant economic impact on a substantial number of small 
entities. If you think that your business, organization, or 
governmental jurisdiction qualifies as a small entity and that this 
proposed rule would have a significant economic impact on it, please 
submit a comment to the docket at the address listed in the ADDRESSES 
section of this preamble. In your comment, explain why you think it 
qualifies and how and to what degree this proposed rule would 
economically affect it.

C. Assistance for Small Entities

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

D. Collection of Information

    The Paperwork Reduction Act of 1995 (44 3501-3520) requires that 
the Coast Guard consider the impact of paperwork and other information 
collection burdens imposed on the public. According to the 1995 
amendments to the Paperwork Reduction Act (5 CFR 1320(b)(2)(vi), an 
agency may not collect or sponsor the collection of information, nor 
may it impose an information collection requirement unless it displays 
a currently valid Office of Management and Budget (OMB) control number.
    The Coast Guard has determined that there would be no new 
information collection associated with this proposed rule. Approval to 
collect such information previously was approved by OMB and was 
assigned OMB Control Number 1625-0086, Great Lakes Pilotage 
Methodology.

E. Federalism

    A rule has implications for federalism under Executive Order 13132 
(Federalism) if it has a substantial direct effect on the States, on 
the relationship between the national government and the States, or on 
the distribution of power and responsibilities among the various levels 
of government. We have analyzed this proposed rule under Executive 
Order 13132 and have determined that it is consistent with the 
fundamental federalism principles and preemption requirements as 
described in Executive Order 13132. Our analysis follows.
    Congress directed the Coast Guard to establish ``rates and charges 
for pilotage services''. See 46 U.S.C. 9303(f). This regulation is 
issued pursuant to that statute and is preemptive of State law as 
specified in 46 U.S.C. 9306. Under 46 U.S.C. 9306, a ``State or 
political

[[Page 68240]]

subdivision of a State may not regulate or impose any requirement on 
pilotage on the Great Lakes.'' As a result, States or local governments 
are expressly prohibited from regulating within this category. 
Therefore, this proposed rule is consistent with the fundamental 
federalism principles and preemption requirements described in 
Executive Order 13132.
    While it is well settled that States may not regulate in categories 
in which Congress intended the Coast Guard to be the sole source of a 
vessel's obligations, the Coast Guard recognizes the key role that 
State and local governments may have in making regulatory 
determinations. Additionally, for rules with implications and 
preemptive effect, Executive Order 13132 specifically directs agencies 
to consult with State and local governments during the rulemaking 
process. If you believe this rule has implications for federalism under 
Executive Order 13132, please contact the person listed in the FOR 
FURTHER INFORMATION section of this preamble.

F. Unfunded Mandates

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

G. Taking of Private Property

    This proposed rule would not cause a taking of private property or 
otherwise have taking implications under Executive Order 12630 
(Governmental Actions and Interference with Constitutionally Protected 
Property Rights).

H. Civil Justice Reform

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

I. Protection of Children

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

J. Indian Tribal Governments

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

K. Energy Effects

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

L. Technical Standards

    The National Technology Transfer and Advancement Act, codified as a 
note to 15 U.S.C. 272, directs agencies to use voluntary consensus 
standards in their regulatory activities unless the agency provides 
Congress, through OMB, with an explanation of why using these standards 
would be inconsistent with applicable law or otherwise impractical. 
Voluntary consensus standards are technical standards (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. If you 
disagree with our analysis or are aware of voluntary consensus 
standards that might apply, please send a comment explaining your 
disagreement or identifying appropriate standards to the docket using 
the method listed in the ADDRESSES section of this preamble.

M. Environment

    We have analyzed this proposed rule under Department of Homeland 
Security Management Directive 023-01, Rev. 1 (DHS Directive 023-01), 
associated implementing instructions, and Environmental Planning 
COMDTINST 5090.1 (series), which guide the Coast Guard in complying 
with the National Environmental Policy Act of 1969 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 
ADDRESSES portion of this preamble.
    This proposed rule meets the criteria for categorical exclusion 
(CATEX) under paragraphs A3 and L54 of Appendix A, Table 1 of DHS 
Instruction Manual 023-001-01, Rev. 1.\74\ Paragraph A3 pertains to the 
promulgation of rules, issuance of rulings or interpretations, and the 
development and publication of policies, orders, directives, notices, 
procedures, manuals, advisory circulars, and other guidance documents 
of the following nature: (a) Those of a strictly administrative or 
procedural nature; (b) those that implement, without substantive 
change, statutory or regulatory requirements; or (c) those that 
implement, without substantive change, procedures, manuals, and other 
guidance documents; and (d) those that interpret or amend an existing 
regulation without changing its environmental effect. Paragraph L54 
pertains to regulations, which are editorial or procedural.
---------------------------------------------------------------------------

    \74\ https://www.dhs.gov/sites/default/files/publications/DHS_Instruction%20Manual%20023-01-001-01%20Rev%2001_508%20Admin%20Rev.pdf.
---------------------------------------------------------------------------

    This proposed rule involves adjusting the pilotage rates to account 
for changes in district operating expenses, an increase in the number 
of pilots, and anticipated inflation. In addition, the Coast Guard is 
proposing how apprentice pilots will be compensated in future 
rulemakings. All of these proposed changes are consistent with the 
Coast Guard's maritime safety missions. We seek any comments or 
information that may lead to the discovery of a significant 
environmental impact from this proposed rule.

List of Subjects

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.


[[Page 68241]]


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

PART 401--GREAT LAKES PILOTAGE REGULATIONS

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

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


Sec.  401.220  [Amended]

0
2. Amend Sec.  401.220, by revising the first sentence of paragraph 
(a)(3) to read as follows:


Sec.  401.220  Registration of pilots.

    (a) * * *
    (3) The number of pilots needed in each district is calculated by 
totaling the area results by district and rounding them up to a whole 
integer.* * *
* * * * *


Sec.  401.405  Pilotage Rates and Charges.

0
3. Amend Sec.  401.405 by revising paragraphs (a)(1) through (6) to 
read as follows:
    (a) * * *
    (1) The St. Lawrence River is $757;
    (2) Lake Ontario is $428;
    (3) Lake Erie is $566;
    (4) The navigable waters from Southeast Shoal to Port Huron, MI is 
$577;
    (5) Lakes Huron, Michigan, and Superior is $335; and
    (6) The St. Marys River is $584.
* * * * *

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. Amend Sec.  404.2 by adding paragraph (b)(6) to read as follows:


Sec.  404.2  Procedure and criteria for recognizing association 
expenses.

* * * * *
    (b) * * *
    (6) Legal Expenses. These association expenses are recognizable 
except for any and all expenses associated with legal action against 
the U.S. Coast Guard or its agents in relation to the ratemaking and 
oversight requirements in 46 U.S.C. 9303, 9304 and 9305.
* * * * *
0
6. Amend Sec.  404.104 by revising paragraph (b) to read as follows:


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

* * * * *
    (b) In an interim year, the Director adjusts the previous year's 
individual target pilot compensation level by the Bureau of Labor 
Statistics' Employment Cost Index for the Transportation and Materials 
sector, or if that is unavailable, the Director adjusts the previous 
year's individual target pilot compensation level using a two-step 
process:
    (1) First, the Director adjusts the previous year's individual 
target pilot by the difference between the previous year's Bureau of 
Labor Statistics' Employment Cost Index for the Transportation and 
Materials sector and the Federal Open Market Committee median economic 
projections for Personal Consumption Expenditures inflation value used 
to inflate the previous year's target pilot compensation.
    (2) Second, the Director then adjusts that value by the Federal 
Open Market Committee median economic projections for Personal 
Consumption Expenditures inflation for the upcoming year.
* * * * *

    Dated: October 16, 2020.
R.V. Timme,
Rear Admiral, U.S. Coast Guard Assistant Commandant for Prevention 
Policy.
[FR Doc. 2020-23407 Filed 10-23-20; 8:45 am]
BILLING CODE 9110-04-P


