83 FR 26162 - Great Lakes Pilotage Rates-2018 Annual Review and Revisions to Methodology
DEPARTMENT OF HOMELAND SECURITY
Coast Guard Federal Register Volume 83, Issue 108 (June 5, 2018)
Coast Guard
Federal Register Volume 83, Issue 108 (June 5, 2018)
| Page Range | 26162-26193 | |
| FR Document | 2018-11969 |
[Federal Register Volume 83, Number 108 (Tuesday, June 5, 2018)] [Rules and Regulations] [Pages 26162-26193] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2018-11969] [[Page 26161]] Vol. 83 Tuesday, No. 108 June 5, 2018 Part II Department of Homeland Security ----------------------------------------------------------------------- Coast Guard ----------------------------------------------------------------------- 46 CFR Parts 401 and 404 Great Lakes Pilotage Rates--2018 Annual Review and Revisions to Methodology; Final Rule Federal Register / Vol. 83 , No. 108 / Tuesday, June 5, 2018 / Rules and Regulations [[Page 26162]] ----------------------------------------------------------------------- DEPARTMENT OF HOMELAND SECURITY Coast Guard 46 CFR Parts 401 and 404 [Docket No. USCG-2017-0903] RIN 1625-AC40 Great Lakes Pilotage Rates--2018 Annual Review and Revisions to Methodology AGENCY: Coast Guard, DHS. ACTION: Final rule. ----------------------------------------------------------------------- SUMMARY: In accordance with the Great Lakes Pilotage Act of 1960, the Coast Guard is establishing new base pilotage rates and surcharges for the 2018 shipping season. Additionally, the Coast Guard is making several changes to the Great Lakes pilotage ratemaking methodology. These additional changes include creating clear delineation between the Coast Guard's annual rate adjustments and the Coast Guard's requirement to conduct a full ratemaking every 5 years; the adoption of a revised compensation benchmark; reorganization of the text regarding the staffing model for calculating the number of pilots needed; and certain editorial changes. DATES: This rule will be effective July 5, 2018. FOR FURTHER INFORMATION CONTACT: For information about this document, call or email Mr. Todd Haviland, Director, Great Lakes Pilotage, Commandant (CG-WWM-2), Coast Guard; telephone 202-372-2037, email [email protected], or fax 202-372-1914. SUPPLEMENTARY INFORMATION: Table of Contents for Preamble I. Abbreviations II. Executive Summary III. Basis and Purpose IV. Background and Comment Topics V. Discussion of Comments and Changes to Methodology A. Rationale for Change in Compensation Benchmark 1. Challenges With Canadian Comparison 2. Comparison With U.S. Pilotage Associations B. Revised Compensation Benchmark Issues 1. Use of AMO 2015 Aggregate Rate 2. Overtime Compensation 3. Calculation of Number of Days in Pay C. Inflation Adjustment Factor for Adjustment Years D. Staffing Model Relocation and Calculations E. Working Capital Fund Basis and Use F. Use of 10-Year Traffic Baseline G. Calculation of Surcharges and Incorporation Into Operating Costs H. Other Issues Relating to Pilotage Oversight 1. Unnecessary Pilot Orders for Use of Tugs 2. Mechanisms To Prevent or Discourage Delays 3. Delays Related to Labor Disputes 4. Over-Realization of Revenues VI. Discussion of Rate Adjustments A. Step 1--Recognition of Operating Expenses B. Step 2--Projection of Operating Expenses C. Step 3--Estimate Number of Working Pilots D. Step 4--Determine Target Pilot Compensation E. Step 5--Calculate Working Capital Fund F. Step 6--Calculate Revenue Needed G. Step 7--Calculate Initial Base Rates H. Step 8--Calculate Average Weighting Factors by Area I. Step 9--Calculate Revised Base Rates J. Step 10--Review and Finalize Rates K. Surcharges VII. Regulatory Analyses A. Regulatory Planning and Review B. Small Entities C. Assistance for Small Entities D. Collection of Information E. Federalism F. Unfunded Mandates Reform Act G. Taking of Private Property H. Civil Justice Reform I. Protection of Children J. Indian Tribal Governments K. Energy Effects L. Technical Standards M. Environment I. Abbreviations AMO American Maritime Officers Union CATEX Unique Categorical Exclusions for the U.S. Coast Guard CFR Code of Federal Regulations CPA Certified public accountant CPI Consumer Price Index DHS Department of Homeland Security ECI Employment Cost Index FOMC Federal Open Market Committee FR Federal Register GLPA Great Lakes Pilotage Authority (Canadian) GLPAC Great Lakes Pilotage Advisory Committee GLPMS Great Lakes Pilotage Management System NAICS North American Industry Classification System NPRM Notice of proposed rulemaking OMB Office of Management and Budget PCE Personal Consumption Expenditures RA Regulatory analysis SBA Small Business Administration Sec. Section Symbol The Act Great Lakes Pilotage Act of 1960 U.S.C. United States Code II. Executive Summary Pursuant to the Great Lakes Pilotage Act of 1960 (``the Act''),\1\ the Coast Guard regulates pilotage for oceangoing vessels on the Great Lakes--including setting the rates for pilotage services and adjusting them on an annual basis. The rates, which in the 2017 shipping year ranged from $218 to $601 per pilot hour (depending on the specific area where pilotage service is provided), are paid by shippers to pilot associations. The three pilot associations that are the exclusive source of United States registered pilots on the Great Lakes use this revenue to cover operating expenses, maintain infrastructure, compensate working pilots, and train new pilots. We have developed a ratemaking methodology in accordance with our statutory requirements and regulations. Our ratemaking methodology calculates the revenue needed for each pilotage association (including operating expenses, compensation, and infrastructure needs), and then divides that amount by the expected shipping traffic over the course of the year to produce an hourly rate. This process is currently effected through a 10-step methodology and supplemented with surcharges, which are explained in detail in the notice of proposed rulemaking (NPRM) published on January 18, 2018.\2\ --------------------------------------------------------------------------- \1\ 46 U.S.C. Chapter 93; Public Law 86-555, 74 Stat. 259, as amended. \2\ Great Lakes Pilotage Rates--2018 Annual Review and Revisions to Methodology, 83 FR 2581, January 18, 2018. --------------------------------------------------------------------------- In this final rule, the Coast Guard is modifying the ratemaking methodology and establishing new pilotage rates for 2018 based on the new methodology. The modifications to the ratemaking methodology consist of a new compensation benchmark, updates and revisions to annually adjusted figures such as inflation rates and traffic volumes, organizational changes, and clarifications. In this final rule, we are establishing a new compensation benchmark based on input from the American Maritime Officers Union (AMO) 2015 contracts. Also, based on comments to the proposed rule that the Coast Guard received, we are changing the inflation adjustment index from the Consumer Price Index (CPI) to the Employment Cost Index (ECI). Additionally, from an organizational standpoint, we are moving, but not changing, the requirements of the staffing model from their current location in title 46 of the Code of Federal Regulations (CFR) 404.103 (as part of ``Step 3'' of the ratemaking process), to the general regulations governing pilotage in 46 CFR 401.220(a). For clarification purposes, we are setting forth separate regulatory paragraphs detailing the differences between how we undertake an annual adjustment of the pilotage rates, and a [[Page 26163]] full reassessment of the rates, which must be undertaken once every 5 years. As part of our annual review, we are setting new rates for the 2018 shipping season. Based on the ratemaking model discussed in this final rule, we are establishing the rates shown in Table 1. Table 1--Previous and New Pilotage Rates on the Great Lakes ---------------------------------------------------------------------------------------------------------------- Final 2017 Proposed 2018 Final 2018 Area Name pilotage rate pilotage rate pilotage rate ---------------------------------------------------------------------------------------------------------------- District One: Designated.......... St. Lawrence River....... 601 622 653 District One: Undesignated........ Lake Ontario............. 408 424 435 District Two: Undesignated........ Lake Erie................ 429 454 497 District Two: Designated.......... Navigable waters from 580 553 593 Southeast Shoal to Port Huron, MI. District Three: Undesignated...... Lakes Huron, Michigan, 218 253 271 and Superior. District Three: Designated........ St. Mary's River......... 514 517 600 ---------------------------------------------------------------------------------------------------------------- This final rule is not economically significant under Executive Order 12866. This rule impacts 49 U.S. Great Lakes pilots, 7 applicant pilots, 3 pilot associations, and the owners and operators of approximately 215 oceangoing vessels that transit the Great Lakes annually. The estimated overall annual regulatory economic impact of this rate change is a net increase of $2,830,061 in payments made by shippers from the 2017 shipping season. Because we must review, and, if necessary, adjust rates each year, we analyze these as single year costs and do not annualize them over 10 years. This rule does not affect the Coast Guard's budget or increase Federal spending. In Section VII of this preamble, we discuss the regulatory impact analyses of this final rule. III. Basis and Purpose The legal basis of this final rule is the Great Lakes Pilotage Act of 1960 (``the Act''), which requires U.S. vessels operating ``on register'' and foreign merchant vessels to use U.S. or Canadian registered pilots while transiting the U.S. waters of the St. Lawrence Seaway and the Great Lakes system.\3\ For the U.S. Registered Great Lakes Pilots (``pilots''), the Act requires the Secretary to ``prescribe by regulation rates and charges for pilotage services, giving consideration to the public interest and the costs of providing the services.'' \4\ The Act requires that rates be established or reviewed and adjusted each year, not later than March 1. The Act also requires that base rates be established by a full ratemaking at least once every 5 years, and in years when base rates are not established, they must be reviewed and, if necessary, adjusted. The Secretary's duties and authority under the Act have been delegated to the Coast Guard.\5\ --------------------------------------------------------------------------- \3\ See 46 U.S.C. 9301(2) and 9302(a)(1). \4\ See 46 U.S.C. 9303(f). \5\ Department of Homeland Security (DHS) Delegation No. 0170.1, para. II (92.f). --------------------------------------------------------------------------- This final rule establishes new changes to the methodology in projecting pilotage rates, as well as revised pilotage rates and surcharges. Our goals for this and future rates are to ensure safe, efficient, and reliable pilotage services on the Great Lakes, and to provide adequate funds to maintain infrastructure. Additionally, we believe that the new methodology will increase transparency and predictability in the ratemaking process and help complete annual rate adjustments in a timely manner. IV. Background and Comment Topics Pursuant to the Act, the Coast Guard, in conjunction with the Canadian Great Lakes Pilotage Authority (GLPA), regulates shipping practices and pilotage rates on the Great Lakes. Under Coast Guard regulations, all U.S. vessels sailing on register, and all non- Canadian, foreign merchant vessels (often referred to as ``salties''), are required to engage U.S. or Canadian pilots during their transit through regulated waters. United States and Canadian ``lakers,'' which account for most commercial shipping on the Great Lakes, are not subject to the Act.\6\ Generally, vessels are assigned a U.S. or Canadian pilot depending on the order in which they transit a particular area of the Great Lakes, and do not choose the pilot they receive. If a vessel is assigned a U.S. pilot, that pilot will be assigned by the pilotage association responsible for the particular district in which the vessel is operating, and the vessel operator will pay the pilotage association for the pilotage services. For a more thorough summary of the background of Great Lakes Pilotage, see the summary in the 2018 pilotage rate NPRM (2018 NPRM).\7\ --------------------------------------------------------------------------- \6\ See 46 U.S.C. 9302. A ``laker'' is a commercial cargo vessel especially designed for, and generally limited to, use on the Great Lakes. \7\ 83 FR 2581, at 2583. --------------------------------------------------------------------------- The ratemaking methodology, currently outlined in 46 CFR 404.101 through 404.110, consists of 10 steps that are designed to account for the revenues needed and total traffic expected in each district. The result is an hourly rate (determined separately for each of the areas administered by the Coast Guard). Steps 1 and 2 of the ratemaking methodology concern accounting for the operating expenses of the pilotage associations. In Step 1, ``Recognize previous operating expenses'' (Sec. 404.101), the Coast Guard reviews audited operating expenses from each of the three pilotage associations. This number forms the baseline amount that each association is budgeted. In Step 2, ``Project operating expenses, adjusting for inflation or deflation'' (Sec. 404.102), we develop the 2018 projected operating expenses. To do this, we apply inflation adjustors for 3 years to the operating expense baseline received in Step 1. The inflation factors used in Step 2 are multiplied by the baseline from Step 1. These inflation factors are from the Bureau of Labor Statistics CPI for the Midwest Region, or, if those factors were not available, from the Federal Open Market Committee (FOMC) median economic projections for Personal Consumption Expenditures (PCE) inflation (See Section V.C. for a policy discussion about inflation adjustments). This step produces the total operating expenses for each area and district. We did not receive comments on the operating expenses portion of the methodology this year. In Step 3, ``Determine number of pilots needed'' (Sec. 404.103), the Coast Guard calculates how many pilots are needed for each district. To do this, we employ a ``staffing model,'' described in Sec. 404.103(a) through (c), to estimate how [[Page 26164]] many pilots would be needed to handle shipping at the start and close of the season. This number is helpful in providing guidance to the Director of the Coast Guard Great Lakes Pilotage Office in approving an appropriate number of credentials for pilots. For the purpose of the ratemaking calculation, the Coast Guard determines the number of working pilots provided by the pilotage associations (see Sec. 404.103(d)), which is what we use to determine how many pilots need to be compensated via the pilotage fees collected. We compare that number against the number provided by the staffing model, and we use the lesser of the two as the final result for Step 3. In Step 4, ``Determine target pilot compensation benchmark'' (Sec. 404.104), the Coast Guard determines the revenue needed for pilot compensation in each area and district. This step contains two processes. In the first process, we calculate the total compensation for each pilot using a ``compensation benchmark.'' In the 2018 NPRM, we proposed using a new benchmark based on the AMO-provided daily aggregate rates for first mates. We received numerous comments on the propriety and accuracy of that figure, which are addressed in the discussion below. We also proposed a system for adjusting that benchmark for inflation in future years. With regard to that proposal, we received comments on how to best account for inflation, which we address in Section V.C of this preamble. Next, the Coast Guard multiplies the individual pilot compensation by the number of working pilots for each area and district (from Step 3), producing a figure for total pilot compensation. Because pilots are paid by the associations, but the costs of pilotage are divided up by area for accounting purposes, we assign a certain number of pilots for the designated areas and a certain number of pilots for the undesignated areas to determine the revenues needed for each area. In Step 5, ``Project working capital fund'' (Sec. 404.105), we calculate a return on investment by adding the total operating expenses (from Step 2) and the total pilot compensation (from 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. We received comments on the calculation and use of the working capital fund, which we address in Section V.E of this preamble. In Step 6, ``Project needed revenue'' (Sec. 404.106), we add up the totals produced by the preceding steps. For each area and district, we add the projected operating expense (from Step 2), the total pilot compensation (from Step 4), and the working capital fund contribution (from Step 5). The total figure, calculated separately for each area and district, is the ``revenue needed.'' In Step 7, ``Calculate initial base rates'' (Sec. 404.107), we calculate an hourly pilotage rate to cover the revenue needed (from Step 6). We first calculate the 10-year traffic average for each area. Next, we divide the revenue needed in each area (from Step 6) by the 10-year traffic average to produce an initial base rate. We received comments on the propriety of the 10-year average traffic baseline figure, which we address in Section V.F of this preamble. 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 factor ranging from 1.0 (for the smallest ships, or ``Class I'' vessels) to 1.45 (for the largest ships, or ``Class IV'' vessels). Because this significantly increases the revenue collected, we need to account for the added revenue produced by the weighting factors to ensure that the formula doesn't require shippers to overpay for pilotage services. In Step 8, ``Calculate average weighting factors by area'' (Sec. 404.108), we calculate how much extra revenue, as a percentage of total revenue, has historically been produced by the weighting factors in each area. We do this by using a historical average of applied weighting factors for each year since 2014 (the first year the current weighting factors were applied). In Step 9, ``Calculate revised base rates'' (Sec. 404.109), we modify the base rates by accounting for the extra revenue generated by the weighting factors. We do this by dividing the initial pilotage rate for each area (from Step 7) by the corresponding average weighting factor (from Step 8), to produce a revised rate. In Step 10, ``Review and finalize rates'' (Sec. 404.110), often referred to informally as ``director's discretion,'' we review the revised base rates (from Step 9) to ensure that they meet the goals set forth in the Act and 46 CFR 404.1(a), which include promoting efficient, safe, and reliable pilotage service on the Great Lakes; generating sufficient revenue for each pilotage association to reimburse necessary and reasonable operating expenses; fairly compensating pilots who are trained and rested; and providing appropriate profit to allow for infrastructure improvements. Because we want to be as transparent as possible in our ratemaking procedure, we use this step sparingly to adjust rates. The Coast Guard is not using this discretion in this final rule. Finally, after the base rates are set, under Sec. 401.401 the Coast Guard considers whether surcharges are necessary this year. Currently, we use surcharges to allow the pilotage associations to collect extra money to pay for the training of new pilots, rather than incorporating training costs into the overall ``revenue needed'' that is used in the calculation of the base rates. In recent years, the Coast Guard has allocated $150,000 per applicant pilot to be collected via surcharges. This amount is calculated as a percentage of total revenue for each district, and that percentage is applied to each bill. When the total amount of the surcharge has been collected, the pilot associations are prohibited from collecting further surcharges. Thus, in years where traffic is heavier than expected, shippers that employ pilots early in the season could pay more than shippers that employ pilots later in the season, after the surcharge cap has been met. We received comments on the method by which surcharges are collected and on the amounts collected, which we address in Section V.G of this preamble. V. Discussion of Comments and Changes to Methodology In response to the January 18, 2018, NPRM, we received five substantive comment letters. We received three comment letters from organizations representing pilot associations on the Great Lakes: One comment from the president of the Western Great Lakes Pilots Association,\8\ one comment from the president of the St. Lawrence Seaway Pilots' Association,\9\ and one comment from the law firm K&L Gates, which represents the interests of the three Great Lakes pilot associations.\10\ We received one comment from the law firm Thompson Coburn, which represents the interests of the Shipping Federation of Canada, the American Great Lakes Ports Association, and the United States Great Lakes Shipping Association (hereinafter ``Industry commenters'').\11\ Additionally, we received one comment from the AMO.\12\ Each of these commenters touched on numerous issues, and so for each [[Page 26165]] response below, we note which commenters raised the specific points being addressed. In situations where multiple commenters raised similar issues, we attempt to provide one response to those issues. --------------------------------------------------------------------------- \8\ Docket number USCG-2017-0903-0004, available at www.regulations.gov. \9\ Docket number USCG-2017-0903-0007, available at www.regulations.gov. \10\ Docket number USCG-2017-0903-0006, available at www.regulations.gov. \11\ Docket number USCG-2017-0903-0008, available at www.regulations.gov. \12\ Docket number USCG-2017-0903-0005, available at www.regulations.gov. --------------------------------------------------------------------------- Overall, the issues raised by the commenters fell into eight categories. The most substantive comments were in regard to the issue of the proposed interim compensation benchmark, which we address in Sections V.A and B of this preamble. We also received comments on the proper measure of inflation by which to adjust compensation figures annually. Other parts of the ratemaking methodology were raised by commenters as well, including questions regarding the placement and application of the staffing model used to calculate the needed number of pilots, the amount and application of the working capital fund charges, the use of a 10-year average to calculate expected vessel traffic, and the collection and calculation of surcharges. Finally, commenters raised a variety of pilotage issues not directly related to calculating the 2018 shipping rates. We address each of these items in the subsections that follow. A. Rationale for Change in Compensation Benchmark The most substantive change proposed in the 2018 NPRM was the change in the benchmark compensation model, with the proposed switch from using the GLPA as a baseline to the ``interim benchmark,'' which uses the AMO \13\ 2015 aggregated wage and benefit information. In the NPRM, we stated that we proposed this change because, pursuant to litigation \14\ filed by the industry, a court had found that the Coast Guard ``failed to justify'' \15\ its decision to apply a 10-percent addition to the Canadian GLPA benchmark, and thus was arbitrary and capricious.\16\ As this opinion was handed down in November 2017, the Coast Guard noted that ``there is a need for an interim benchmark level to be developed on short notice and with limited time to gather new data.'' \17\ We based the new benchmark on data provided by the AMO regarding its contract for first mates on the Great Lakes in the 2011 to 2015 period. We used the information from 2015, adjusting it for inflation to an equivalent 2018 rate, because it was the most recent publically-available information to which we had access. We stated that we proposed to use this benchmark to calculate compensation until we identify another suitable standard. We are currently conducting a comprehensive, multi-year analysis of pilot compensation that we hope will inform a new benchmark. This study will not be available before the 2020 ratemaking proceeding. --------------------------------------------------------------------------- \13\ We note that in the NPRM, we referred to the American Maritime Officers Union as the ``AMOU'', but in their comments, they referred to themselves as ``AMO''. We use their preferred acronym in this document except when citing direct quotes that use other terminology. \14\ American Great Lakes Ports Association, et al., v. Admiral Paul F. Zukunft, Civil Action No. 16-1019, D.C. District Court, November 3, 2017. \15\ American Great Lakes Ports Association, et al., v. Admiral Paul F. Zukunft, Civil Action No. 16-1019, D.C. District Court, November 3, 2017, p. 5. \16\ 83 FR 2581, at 2587. \17\ 83 FR 2581, at 2588. --------------------------------------------------------------------------- Nearly all commenters made arguments regarding the proposal to change the compensation benchmark. Many commenters stated that the Coast Guard should not have stopped using the Canadian compensation benchmark, but simply should have reanalyzed and adjusted the ten- percent increase it applied to account for health and pension differences. Alternatively, some commenters suggested that instead of using Canadian GLPA or AMO comparative information to establish a benchmark, the Coast Guard should use the benefit and salary information for other U.S. pilotage associations. We address these issues below. 1. Challenges With Canadian Comparison In the 2016 ratemaking, the Coast Guard originally established a benchmark for target pilot compensation based on the total compensation of Canadian GLPA.\18\ We chose the GLPA because ``Canadian GLPA pilots provide service that is almost identical to the service provided by U.S. Great Lakes Pilots.'' \19\ To calculate this benchmark, we started with the 2013 Canadian GLPA salaries, which we calculated to be $273,145 in Canadian dollars, or $255,037 U.S.\20\ We then inflated that amount using Midwest CPI-U data for 2014 and 2015, and Federal Reserve inflation data for 2016, to arrive at an inflation-adjusted figure of $267,534.\21\ Next, to match average annual wage increases of GLPA pilots, we applied an additional 3.5 percent annual real wage increase factor for each of the 3 years, to arrive at $296,467 as the final equivalent compensation figure for 2016.\22\ Finally, we increased that figure by an additional 10 percent to address the ``difference in status between GLPA employees and independent U.S. pilots,'' \23\ for a final ``GLPA plus 10 percent'' benchmark figure of $326,114. While we were not certain that a 10 percent adjustment for these differences was appropriate, we did note that the figure had been cited in a July 2014 Great Lakes Pilotage Advisory Committee (GLPAC) meeting as balancing the different status of the U.S. and GLPA pilots. --------------------------------------------------------------------------- \18\ In this final rule, we refer to the U.S. dollar equivalent of the combined wages and benefits of Canadian Great Lakes pilots, using the conversion methodology described above, as the ``Canadian benchmark,'' although we did not use that terminology in the 2016 ratemaking documents. \19\ Great Lakes Pilotage Rates--2016 Annual Review and Changes to Methodology, Notice of Proposed Rulemaking (September 10, 2015), 80 FR 54484, at 54497. \20\ See 81 FR 11908, at 11933 to determine how we arrived at 2013 compensation. We then converted that number to U.S. dollars at the 2013 exchange rate of 1.071 CAD to USD. \21\ See 81 FR 11908, at 11933, Figure 19. \22\ See 81 FR 11908, at 11933, Figure 21. \23\ 80 FR 54484, at 54498. This referred to the fact that ``GLPA pilots are Canadian government employees and therefore have guaranteed minimum compensation with increases for high-traffic periods, retirement, healthcare and vacation benefits, and limited professional liability. In addition, GLPA pilots have guaranteed time off while U.S. pilots must be available for service throughout the shipping season and without any guaranteed time off.'' See 80 FR 54484, at 54497. --------------------------------------------------------------------------- This GLPA-plus-10-percent benchmark of $326,114 formed the basis for our target compensation until the 2017 memorandum opinion \24\ found it to be arbitrary and capricious and in violation of the Administrative Procedure Act. Specifically, the court found that certain statements made at the 2014 GLPAC meeting did not constitute an adequate basis for the 10-percent adjustment.\25\ Based on the 2017 memorandum opinion, in the 2018 NPRM, we proposed adopting the interim benchmark, based on AMO information.\26\ However, several commenters suggested that we had not responded appropriately to the court's 2017 opinion. These commenters argued that because the court found that only the 10-percent increase was arbitrary and capricious, the Coast Guard should replace only that portion. One commenter stated that ``all the Coast Guard needs to do is return to the administrative record for the 2016 rulemaking, analyze the multiple comments in support of a 25- to 37-percent adjustment, and explain its reasoning for the adjustment it determines is most appropriate.\27\ Another commenter stated that the court ``require[d] the Coast Guard to reconsider more carefully the pilots' [[Page 26166]] position that the Canadian benchmark compensation should be increased by 25 to 37 percent to account for differences between the two pilotage groups, particularly the government health care and pensions received by the Canadians.'' \28\ --------------------------------------------------------------------------- \24\ American Great Lakes Ports Association, et al., v. Admiral Paul F. Zukunft, Civil Action No. 16-1019, D.C. District Court, November 3, 2017, p. 25. \25\ American Great Lakes Ports Association, et al., v. Admiral Paul F. Zukunft, Civil Action No. 16-1019, D.C. District Court, November 3, 2017, p. 25. \26\ 83 FR 2581, at 2587-88. \27\ USCG-2017-0903-0004, p. 3. \28\ USCG-2017-0903-0006, p. 5. --------------------------------------------------------------------------- We agree with the commenters that the court found only the 10- percent addition to be unjustified, and that the Coast Guard would legally be able to propose using the GLPA wages and benefits as a starting point to develop a revised benchmark. Indeed, when considering a revised benchmark for the 2018 ratemaking, we did reanalyze GLPA compensation. To update our information regarding the value of the Canadian benchmark, we analyzed the 2016 GLPA annual report to calculate a new average total compensation figure. Using that information, and applying the same methodology as we did in the 2016 ratemaking, we calculated that the 2016 GLPA pilot average compensation was $235,136.\29\ Next, we inflated that amount using 2017 ECI data and 2018 Federal Reserve PCE inflation data,\30\ to arrive at an inflation- adjusted figure of $247,510. Finally, we applied an additional 3.5 percent annual real wage increase factor for the 2 years, to match the calculation we performed in 2016 for annual wage increases of GLPA pilots, to arrive at a final $265,139 equivalent compensation figure for 2018. --------------------------------------------------------------------------- \29\ We performed the 2016 calculation as follows: We used 2016 pilot compensation from the GLPA (available in the docket as USCG- 2017-0903) to derive the average Canadian pilot compensation of approximately $324,252 CAD. To do so, we divided $17,769,000 total wages and benefits by 54.8 pilots. We then converted that number to U.S. dollars at the 2016 exchange rate of 1.379 CAD to USD, to derive a figure of $235,136. \30\ ECI for ``total compensation for private industry workers, transportation and material moving,'' for 12 months ended in December, is found in Table 5 (p. 71) of the following: https://www.bls.gov/web/eci/echistrynaics.pdf. ECI for 2017 is 3.3 percent. PCE inflation for 2018 is 1.9 percent, see https://www.federalreserve.gov/monetarypolicy/fomcminutes20171213ep.htm. --------------------------------------------------------------------------- Comparing the previously calculated $312,069 (without the 10- percent increase, in 2018 dollars \31\) Canadian GLP total compensation with the $265,139 (in 2018 dollars) Canadian GLP compensation calculated in 2018--using the same methodology--reveals a substantial problem with using GLPA compensation as a benchmark for U.S. pilots.\32\ Specifically, the exchange rate between the U.S. and Canadian dollars underwent a shift of over 25 percent in 3 years, which caused the benchmark to shift substantially as well. An analysis of the U.S. to Canadian exchange rates reveals that this rate can fluctuate substantially, as shown using IRS data \33\ in Table 2. --------------------------------------------------------------------------- \31\ This figure is the $296,467 we calculated in 2016, inflated to 2018 dollars using the ECI and PCE inflation. \32\ If we then added 10 percent, the resultant figure would be $291,653. \33\ This information is available at: https://www.irs.gov/individuals/international-taxpayers/yearly-average-currency-exchange-rates. Table 2--U.S./Canadian Dollar Exchange Rates ---------------------------------------------------------------------------------------------------------------- Year 2012 2013 2014 2015 2016 2017 ---------------------------------------------------------------------------------------------------------------- Exchange Rate (USD/CAD)..... 1.040 1.071 1.149 1.329 1.379 1.350 ---------------------------------------------------------------------------------------------------------------- This fluctuation reveals a fundamental challenge with using the GLPA compensation as a benchmark. If we were to continue to use it, we would have to adjust it every 5 years using the current exchange rate. As shown, doing so could lead to very substantial fluctuations in the benchmark, which would not relate to economic conditions in the United States or to the state of the U.S. labor market. Such an increase in volatility would be counter to the Coast Guard's goals of rate and compensation stability and promoting recruitment and retention of qualified United States registered pilots. We note that two commenters representing pilotage associations argued that the Coast Guard should not have abandoned the Canadian GLPA compensation benchmark, because using the interim benchmark resulted in a proposed lower level of compensation.\34\ One commenter stated that one problem with using the proposed revised benchmark is that it ``reduces the compensation target by at least $20,000 relative to retaining the GLPA benchmark and adjusting it for another year of inflation--resulting in the very ``substantial volatility regarding compensation'' that the Coast Guard says it wants to avoid . . . .'' \35\ We note two flaws with this argument. First, as shown above, continuing to use the GLPA benchmark would have resulted in a significant decrease in target compensation, even below the level derived from the interim benchmark. Second, the Coast Guard believes the commenters misinterpret the issue of volatility. The fact that the target compensation can decrease when it is re-benchmarked is a feature of the system. It would hardly be fair if, upon a showing that the relevant compensation level had decreased, the Coast Guard resorted to a new benchmark as part of a scheme to keep compensation rising. We hope to reduce volatility by selecting a relatively stable compensation benchmark, but may still reduce target compensation and rates when warranted by the data. --------------------------------------------------------------------------- \34\ USCG-2017-0903-0004, p. 5; USCG-2017-0903-0006, p. 8. \35\ USCG-2017-0903-0004, p. 5. Emphasis in original. --------------------------------------------------------------------------- In light of the court's opinion, the Coast Guard has also considered the commenters' assertions that we should re-analyze the 2016 comments on the ``adjustment factor'' that is applied to GLPA rates, and simply use that number, rather than use the interim compensation benchmark. One commenter suggested that the Coast Guard should ``analyze the multiple comments in support of a 25%-37% adjustment, and explain its reasoning for the adjustment it determines is most appropriate.'' \36\ Another commenter asserted the D.C. District Court, in its 2017 opinion, ``require[d] the Coast Guard to reconsider more carefully the pilot's position that the Canadian benchmark compensation should be increased by 25-37% to account for differences between the two pilotage groups, particularly the government health care and pensions received by Canadians.'' \37\ We note that the court itself not only suggested that the Coast Guard should have more closely analyzed the pilots' comments, but also suggested we consider the option of, ``as the shipping industry suggested, foregoing an adjustment altogether.'' \38\ --------------------------------------------------------------------------- \36\ USCG-2017-0903-0004, p. 3. \37\ USCG-2017-0903-0006, p. 5. \38\ American Great Lakes Ports Association, et al., v. Admiral Paul F. Zukunft, Civil Action No. 16-1019, D.C. District Court, November 3, 2017, p. 25. --------------------------------------------------------------------------- In analyzing those comments, we found little evidence or data to warrant the substantial adjustments to arrive at the 25- and 37-percent figures suggested by the commenters. The 25-percent figure, suggested by the Great Lakes [[Page 26167]] Pilots,\39\ was not based on specific information, but instead was simply asserted in light of the listing of 10 general differences between U.S. and Canadian pilots (e.g., ``Canadian pilots receive healthcare benefits as government employees. American pilots pay for their own healthcare.'' \40\) In the comment by the International Organization of Masters, Mates, and Pilots, which produced the figure of 37 percent, we found several questionable assumptions.\41\ First, as noted in the 2016 final rule, the mathematical basis of adding a 37- percent premium to the Canadian compensation level in order to arrive at an equivalent level of compensation for a U.S. pilot requires increasing the salary proportion of the component by 15 percent to account for a purported cost of living differential between Detroit, Michigan, and Windsor, Ontario, resulting in an additional $35,156 in salary. As we noted in the 2016 final rule, ``we do not think the 15 percent COLA differential between Detroit, MI and Windsor, ON is relevant--a single comparison point should not be utilized to establish the regional comparison.'' \42\ The commenter also makes the assumption that to match $49,716 in Canadian benefits, which includes health insurance, pension benefits, and tax ``true-ups,'' among other items, would require U.S. pilots be paid an additional $118,741 (which includes $43,231 in health insurance costs and $53,000 in pension contributions). We do not believe that taxation differences should be taken into account when determining whether compensation is equivalent for several reasons. First, taxation varies over time and by specific locality within both the U.S. and Canada. Second, services are received in exchange for taxes, and it would be unfair to pay an individual more to compensate for taxes that pay for services they receive. Finally, we note that tax policy is under the control of neither the USCG nor the GLPA, but we could control whether the pre-tax compensation is similar. We also do not accept the commenter's assertion that the pension costs require such a tremendous increase in compensation. Given that there is a mathematical basis of pension contributions (i.e., there is no reason a properly-funded monetary pension should cost more in the United States than it does in Canada), we do not believe these calculations are sound. In this particular instance, the commenter stated that ``[f]or pension costs if we had used the MMP pension plan contribution rate of 18% of wages plus a 5% IRAP the cost would be $61,992. But the IRS has a cap on the contribution for self-employed individuals at $53,000 and we will use that number.'' \43\ However, the commenter did not assert whether the Canadian pension plan is similar to the MMP pension plan, rendering it impossible to understand why the contributions needed to fund the two plans are so different. --------------------------------------------------------------------------- \39\ This comment is available at www.regulations.gov, docket number USCG-2015-0497-0052. \40\ USCG-2015-0497-0052, p.16. We note that health benefits were included in the estimate of Canadian compensation used to create the benchmark. \41\ This comment is available at www.regulations.gov, docket number USCG-2015-0497-0038. \42\ 81 FR 11908, at 11915. \43\ USCG-2015-0497-0038, p.5. Acronyms were undefined in original comment, internal citations to U.S. statutes omitted. --------------------------------------------------------------------------- Based on our analysis of the substantial changes in the exchange rate, and the uncertainty regarding the correct comparison of the Canadian and U.S. compensation systems, we decided not to continue using the GLPA information as a compensation benchmark. Instead, as described below, we believe that a comparison with a U.S. system is a better interim benchmark until the Coast Guard can complete its compensation study. 2. Comparison With U.S. Pilotage Associations Several commenters also repeated a request that, instead of basing our compensation benchmark on Canadian pilots or U.S. mates, we should instead base it on a figure derived from the compensation of other U.S. pilotage organizations. One commenter argued that ``many pilots are comparably regulated in other U.S. jurisdictions and their rates and compensation set in open and evidence-based proceedings. The Coast Guard has never provided a convincing rationale for its failure to consider or adopt a benchmark based on the compensation of other U.S. pilots.'' \44\ The commenter also provided examples of other U.S. pilot compensation, which it noted were considerably higher than any benchmark the Coast Guard had used in the past. The AMO, on whose contracts the proposed interim benchmark was based, argued that, rather than using AMO contracts with U.S. shipping companies as a basis to determine the target rate of compensation, ``it would make considerably more sense for the Coast Guard to use publicly available information on the compensation levels for other independent compulsory pilots throughout the United States.'' \45\ --------------------------------------------------------------------------- \44\ USCG-2017-0903-0006, p. 6. \45\ USCG-2017-0903-0005, p. 1. --------------------------------------------------------------------------- While we agree with the commenters that the final compensation information of some other U.S. pilots is publicly available, we are not, at this time, convinced that it is the best benchmark. We note that there are over 60 pilotage associations in the U.S., with huge variations in pay structure and levels. For example, in some of our research involving pilot compensation, we found that pilot compensation levels that ranged from a low of $173,554 annually \46\ to a high of $758,922.\47\ Such a wide range does not provide sufficient information about the proper compensation of Great Lakes pilots on its own. --------------------------------------------------------------------------- \46\ https://www.governmentjobs.com/careers/lacity/jobs/1823743/port-pilot-5151?keywords=port%20pilot&pagetype=jobOpportunitiesJobs. \47\ See ``NOBRA 2017 Income Disclosure,'' docket # USCG-2017- 0903-0009. --------------------------------------------------------------------------- At this time, we do not have sufficient, reliable information regarding how the baseline average compensation levels of other U.S. pilotage associations are set, only information on the rate changes from year to year. While the final compensation levels are public, the methods by which those compensation levels were benchmarked (as opposed to adjusted on a year-by-year basis) is not apparent. As we mention above, the Coast Guard continues to study the compensation structures of other pilotage systems as part of our comprehensive study, and in the course of that study, has reached out to numerous pilot associations and shipping interests as to how compensation levels and shipping rates are determined, but would certainly welcome input on how compensation is set and what factors contribute to that determination. Further, as noted in the 2018 NPRM, the Coast Guard commissioned a study to better understand the direct and secondary impacts of the U.S. pilotage charges. The report is titled ``Analysis of the Great Lakes Pilotage Costs on Great Lakes Shipping and the Potential Impact of Increases in U.S. Pilotage Charges'' \48\ and assessed the baseline economic conditions of maritime commerce on the Great Lakes, quantified the cost of operating vessels on the Great Lakes, compared the cost of foreign trade on the Great Lakes to other modes of transportation and coastal ports, and assessed the impact of changes in [[Page 26168]] pilotage rates to the Great Lakes shipping industry, including surrounding ports. This study demonstrated that pilotage costs play a role in determining the amount of cargo shipped on the Great Lakes. Because the Coast Guard considers the impact of shipping costs on Great Lakes pilotage as part of its ratemaking considerations, this study provided evidence that large increases in pilotage rates could negatively affect shipping on the Great Lakes. While we recognize that the study itself is not a comprehensive analysis of all economic factors, it is one factor that the Coast Guard considered when setting rates for shipping. --------------------------------------------------------------------------- \48\ ``Analysis of Great Lakes Pilotage Costs on Great Lakes Shipping and the Potential Impact of Increases in U.S. Pilotage Charges,'' prepared by John C. Martin Associates, LLC, June 28, 2017 (hereinafter the ``2017 Pilotage Cost Analysis''). --------------------------------------------------------------------------- To assess the potential impact of the U.S. pilotage charges on the competitive cost position of the Great Lakes/St. Lawrence Seaway System and the associated impact on tonnage moving via the Great Lakes ports, the 2017 Pilotage Cost Analysis considered the actual increases in pilotage charges between 2015 and 2016, and assuming numerous other economic factors remained constant,\49\ projected potential impacts in the event that similar increases in U.S. pilotage charges were to occur in the following year. While the 2017 rates did not actually increase in accordance with the model's assumption, and thus the projected impacts did not actually occur, the study provides evidence of the Great Lakes/St. Lawrence Seaway System's sensitivity to changes in the cost of U.S. pilotage, as a percentage of total voyage costs. --------------------------------------------------------------------------- \49\ This study is a single sector analysis, which means it assumes that numerous other factors that affect the cost of international shipping in the Great Lakes/St. Lawrence Seaway System are held constant. If the other factors or sectors were not held constant, but instead were allowed to fluctuate as they actually do, it is likely that the impact from changing pilotage rates would be different. It is important to note that the results of a single sector analysis should not be interpreted as a full regional or national impact analysis. --------------------------------------------------------------------------- The 2017 Pilotage Cost Analysis is informative to our ratemaking process and supports the notion that there is an upper limit to the amount that can be charged for pilotage services before shippers consider diverting cargo to other locations or other modes of transportation. As pilot compensation costs constitute the bulk of the input into pilotage fees, the Coast Guard continues to carefully consider the direct and secondary impacts of our annual rate adjustments. B. Revised Compensation Benchmark Issues In the preceding subsections, we described why we did not continue to use the Canadian GLPA data or data from the other U.S. pilotage associations as the basis for the interim compensation benchmark in the 2018 NPRM. In this section, we respond to comments regarding our choice to use the 2015 AMO contract information as the basis for the compensation benchmark instead. We received several comments on the AMO contract information's validity and how to implement it, which we address in several subsections that follow. In the first subsection, we address why we chose the 2015 rate. In the second subsection, we discuss comments from the AMO about the application of overtime compensation to the daily aggregate rate. Finally, in the third subsection, we address industry comments regarding the application of the daily aggregate rate to the 270-day shipping season on the Great Lakes. 1. Use of AMO 2015 Aggregate Rate In addition to suggestions that we continue using the Canadian GLPA compensation as a benchmark or that we base our compensation on those of other U.S. pilotage associations, we received several comments specifically regarding our decision to make use of the AMO aggregate daily rates from 2015 (note this is separate from the discussion of comments, in Section V.B.2., regarding how to apply the AMO aggregate daily rates). A discussion of the comments regarding use of AMO 2015 aggregate rates and our responses follows. One commenter supported the use of AMO data, stating that this approach was ``a more rational approach to identification of some analogous field of endeavor against which to test the reasonableness of pilot compensation levels.'' \50\ The commenter also stated that comparisons with AMO members aboard U.S.-flag vessels avoid difficulties, identified above in Section V.A.2, in trying to develop comparisons across countries. However, the commenter criticized the Coast Guard's acceptance of the AMO's decision to withhold contract information and obtain compensation data from other sources, and stated that the commenters ``lack information necessary to validate the stated 'daily aggregate rates' identified in the NPRM.'' \51\ In response, we note that (1) we do not have the authority to compel anyone to provide confidential contract information; (2) we have been working to obtain other compensation data, and have commissioned a comprehensive review of that data; and (3) it may be possible for shipping industry personnel to acquire data about AMO contracts with shipping companies on their own. --------------------------------------------------------------------------- \50\ USCG-2017-0903-0008, p. 4. \51\ USCG-2017-0903-0008, p. 5, footnote 5. --------------------------------------------------------------------------- One commenter argued that basing the compensation on the 2015 AMO data was inappropriate. The commenter stated that ``the use of old, disputed, extrapolated AMOU data does not adhere to the Coast Guard's own regulations (as proposed) in 404.104,'' \52\ which state that the Coast Guard will set a compensation benchmark after considering the most relevant currently available non-proprietary information. The commenter argued that the information is old (it is from October 2013), irrelevant (stating that it relates to laker-masters, not pilots), and proprietary (as actual data from 2018 is not available), and thus should not be used as a basis for pilot compensation. --------------------------------------------------------------------------- \52\ USCG-2017-0903-0004, p. 4. --------------------------------------------------------------------------- We disagree with the commenter, and believe that the data supplied in the October 4, 2013, letter from the AMO describing aggregate daily rates,\53\ meets the standard in 46 CFR 404.104 of being the ``most relevant currently-available non-proprietary information'' for the reasons described below. --------------------------------------------------------------------------- \53\ We refer to this document as the ``AMO letter,'' which is available at www.regulations.gov, docket number USCG-2013-0534-0007. For a discussion about how the information from the 2013 AMO letter was extrapolated to derive the 2015 baseline compensation figures, see Section VII of the 2018 NPRM, entitled ``Revised Compensation Benchmark,'' 83 FR 2581, at 2587. --------------------------------------------------------------------------- First, we believe that the data in the AMO letter is the `most relevant' information. Notwithstanding AMO's statement that ``. . . the AMO is disappointed to learn that the U.S. Coast Guard is again attempting to rely on the use [of] AMO contracts with U.S. shipping companies on the Great Lakes as a basis to determine the `target rate of compensation' for U.S.-registered pilots on the Great Lakes,'' for the reasons described in the NPRM,\54\ we believe that it provides a highly relevant gauge for how much experienced mariners working on the Great Lakes are compensated. While AMO's position on the matter are certainly highly relevant, we still believe that the compensation of U.S. masters on Great Lakes ships provides a useful proxy for the compensation of U.S. pilots on Great Lakes ships, and the interim benchmark methodology is an effective manner to translate the AMO figure into a useable number for the latter. The interim benchmark is based on the idea that a Great Lakes pilot should earn, on average, about 1.5 times the salary of a [[Page 26169]] first mate,\55\ given the demanding nature of Great Lakes pilotage work and the experience required. On that basis, the AMO data--which describes what a first mate earns for a day of work--is highly relevant, and perhaps the most relevant piece of information possible.\56\ --------------------------------------------------------------------------- \54\ See Section entitled ``Revised Compensation Benchmark'', 83 FR 2581, 2587-2590. \55\ For a full discussion of how the interim benchmark was derived, see 83 FR 2581, at 2587-2590. \56\ We also note that the commenters' assertion that the AMO data relates to `laker-masters' is incorrect; it relates to first mates. --------------------------------------------------------------------------- Second, we believe that the data in the AMO letter is currently- available. We interpret this term to mean ``available at the current time.'' As the letter has been posted in the public docket for years and is still available, we believe it meets the definition of ``currently available.'' The purpose of this provision is to prohibit the use of data that is in existence but not available for public release. Finally, we believe the data in the AMO letter is non-proprietary. While the AMO asserts that the underlying contract data is proprietary, and so we did not rely on that information in setting the interim benchmark, the AMO has publically released the daily aggregate compensation figure. Indeed, the commenter cites language from our 2016 pilotage rates NPRM (2016 NPRM), the year the AMO stopped making its information publically available, saying ``the union now regards that data as proprietary and will no longer disclose it [emphasis added].'' \57\ We consider this an acknowledgement that the earlier data, which we are using, is not proprietary information. We note that there are other non-proprietary sources of information, and simply noting that a data source is non-proprietary does not mean that it necessarily provides information that the Coast Guard is obligated to incorporate into its ratemaking calculations. For example, several pilotage organizations also provided overall information about pilot compensation without explaining the factors that went into that information, but for the reasons described above in Section V.A.2., we did not use that information to determine the target compensation for Great Lakes pilots. --------------------------------------------------------------------------- \57\ USCG-2017-0903-0004, p. 5, citing 80 FR 54484. --------------------------------------------------------------------------- 2. Overtime Compensation In the 2018 NPRM, we used the public figures provided by AMO for its 2014 compensation rate, expressed as a daily aggregate rate, to determine the target compensation figure for the interim compensation benchmark. These figures were provided by AMO in its letter to the Coast Guard in 2013, and represented the most current information we had to implement this method of computing a benchmark. However, in its comments on the 2018 NPRM, the AMO indicated that the information it provided in the 2013 letter was incomplete. Specifically, it stated that the daily aggregate rates the Coast Guard is using to determine the benchmark compensation do not take into account ``standard overtime compensation that is consistently earned by U.S. merchant mariners under AMO contracts.'' \58\ The AMO stated that the average overtime for a U.S. credentialed chief mate under AMO contracts is 40 hours per month, which at the 2018 hourly pay rate would be $60.07 per hour, or $21,625 for a 9-month period. This was also stated by the pilot associations, which stated that ``this `overtime' compensation is planned and expected (by both the shipping companies and the AMO merchant mariners) [as] part of the AMO-negotiated compensation package, and represents a guaranteed payment [emphasis added], for an average of 40 hours per month or more, for overtime work (including clerical work) that is expected and intended each mate will perform.'' \59\ --------------------------------------------------------------------------- \58\ USCG-2017-0903-0005, p. 2. \59\ USCG-2017-0903-0006, pp. 9-10. --------------------------------------------------------------------------- The information on guaranteed overtime is new to the Coast Guard. In the past, when we based our compensation rates on the daily aggregate rates provided by the AMO, guaranteed overtime was not included in those calculations. Nor was information on guaranteed overtime provided to the Coast Guard by the AMO in the ``settlement agreements'' from 2011,\60\ which listed factors that go into the daily aggregate wages. These factors included wages, medical plan contributions, and pension plan contributions. We used this information to validate the daily aggregate rates provided in the 2013 AMO letter.\61\ However, this formula did not include a guaranteed overtime bonus. We note the footnote in the shipping industry's comment that they ``lack information necessary to validate the stated `daily aggregate rates' identified in the NPRM and submit that the underlying calculation of those rates should have been explained. . . .'' \62\ The Coast Guard agrees that it would be better to have incorporated the new information into the daily aggregate rates at the proposed rule stage. However, we cannot now ignore highly relevant information simply because it was not apparent at the beginning of the rulemaking process, and we further note that the Coast Guard has been criticized for not using AMO data provided during the course of the rulemaking process in the past.\63\ Because it is our goal to base our target compensation on the actual compensation of mates under the AMO contract, we believe it is appropriate to include the guaranteed overtime in the daily aggregate rates. We note that the use of ``overtime'' as part of the AMO contract terms does not mean there is overtime compensation for U.S. pilots, and shippers only pay for actual hours worked at the levels proscribed in the regulatory text. --------------------------------------------------------------------------- \60\ These settlement agreements, between the AMO, Key Lakes, and Mittal Steel (Agreements ``A'' and ``B'', respectively), are not public information. Therefore, we cannot publicly reveal detailed information about their contents. \61\ See 83 FR 2581, at 2588. The formula to derive the aggregate daily rate multiplies the wage (including weekend, holiday, and bonus days) by 1.5, adds a 5-percent 401k contribution, and adds the medical plan and pension plan contributions. \62\ USCG-2017-0903-0008, p. 5, footnote 5. \63\ See St. Lawrence Seaway Pilots Association, Inc., et al. v. United States Coast Guard, No. 14-cv-392, (D.D.C., March 27, 2015), p. 11-12. --------------------------------------------------------------------------- We have modified the overtime number provided by the AMO to account for the fact that they provided 2018 information. As stated in the 2018 NPRM, we are basing the target compensation on the 2015 AMO contract information, which contains the last information that is publically available, and using an inflation index to arrive at a comparable 2018 rate. Because our rates are based on 2015 information, and not 2018 information, we are not using the 2.5 percent annual wage adjustment figures from 2015 through 2018 that the AMO provides and the Great Lakes Pilots reiterate, even though they assert that those are the actual wage increases. While this may be true, it is not relevant for the purposes of determining the 2015 daily aggregate rate. As stated above in this section, in order to base the compensation on 2015 rates, we are adjusting the 2015 rates for inflation to reach a 2018 rather than tracking contract permutations. To incorporate the 2018 average overtime figure, we first deflated the hourly overtime rate to 2015, using the 2.5 percent annual rate \64\ provided by the AMO, to derive its 2015 value, which is $55.68. We then broke down the 40 hours per month of overtime into a daily average of 80 minutes over 30 days (or one and one third hours per day), to arrive a total value of $74.24 ($55.68 x 1.3333) in [[Page 26170]] overtime compensation per day. We then added that value to the provided daily aggregate rates to provide revised daily aggregate rates of $1,216.30 for Agreement A, and $1,198.96 for Agreement B.\65\ From that point, the calculations are similar to those performed in the NPRM, as shown in Table 3. --------------------------------------------------------------------------- \64\ While the 2.5 percent rate is not relevant for calculating the 2018 aggregate total, it is appropriate for translating the AMO- provided 2018 dollar figure to an actual 2015 figure, as that was the actual amount by which it was inflated, per the AMO. \65\ $1,142.06 + $74.24 = $1,216.30 for Agreement A; $1,124.72 + $74.24 = $1,198.96 for Agreement B. Table 3--Calculation of Seasonal Rates by Agreement ---------------------------------------------------------------------------------------------------------------- Seasonal compensation Aggregate daily (aggregate daily rate x rate 270) ---------------------------------------------------------------------------------------------------------------- Agreement A........................................................ $1,216.30 $328,401 Agreement B........................................................ 1,198.96 323,719 ---------------------------------------------------------------------------------------------------------------- Next, we apportion the compensation provided by each agreement according to the percentage of tonnage represented by companies under each agreement. As shown in Table 4, approximately 70 percent of cargo was carried under the Agreement A contract, while approximately 30 percent of cargo was carried under the Agreement B contract. Table 4--Weighted Average of Each Agreement ---------------------------------------------------------------------------------------------------------------- Percentage of tonnage Tonnage (total tonnage/ 1,215,811) ---------------------------------------------------------------------------------------------------------------- Agreement A........................................................ 361,385 29.7237811 Agreement B........................................................ 854,426 70.2762189 -------------------------------------------- Total tonnage.................................................. 1,215,811 100.00 ---------------------------------------------------------------------------------------------------------------- Third, we develop an average of compensation based on the total compensation under the two contracts, weighting each contract by its percentage of total tonnage, as shown in Table 5. Based on this calculation, we developed a figure of $325,110 for total compensation in 2015. Table 5--Calculation of Averaged Compensation ---------------------------------------------------------------------------------------------------------------- Weighted compensation Percentage of (seasonal compensation x tonnage percentage of tonnage) (rounded) ---------------------------------------------------------------------------------------------------------------- Agreement A--weighted.............................................. 29.7237811 $97,613 Agreement B--weighted.............................................. 70.2762189 227,497 -------------------------------------------- Total Compensation (Agreement A + B)........................... 100.00 325,110 ---------------------------------------------------------------------------------------------------------------- 3. Calculation of Number of Days in Pay As stated above, in the NPRM, we proposed to set the compensation benchmark by multiplying the aggregate daily rate by 270, the number of days in the shipping season, to derive a ``seasonal average compensation figure.'' \66\ Industry commenters argued that the use of the 270-day figure was inappropriate. They stated that, while ``in past ratemaking proceedings [the Coast Guard] has used the 270-day assumption as a basis for extrapolating AMOU compensation data to pilot compensation . . . the Coast Guard has since (see 2016 final rule) imposed mandatory rest periods on pilots that limit their working days each month and has imposed on rate payers additional costs attributable to increased staffing levels that are, in large part, attributable to mandatory rest periods.'' \67\ The industry commenters suggest that, instead of multiplying the daily aggregate rate by 270, the aggregate rate should be multiplied by only 200, given that the AMO figures are tied to working days and that Great Lakes pilots are only expected to work 200 days.\68\ --------------------------------------------------------------------------- \66\ 83 FR 2581, at 2589. \67\ USCG-2017-0903-0008, p. 5, footnote 7. \68\ USCG-2017-0903-0008, p. 5. --------------------------------------------------------------------------- First, the Coast Guard notes that the industry commenters have mischaracterized the 10 days of rest that we have incorporated into the staffing model. Unlike Canadian pilots, AMO mates, or other U.S. pilots, United States registered pilots do not have guaranteed days off during the shipping season. Instead, Great Lakes pilots are expected to be on call and available for work each day during the entire 270-day season. However, it is our goal that when pilot demand is not at its highest level (during the 7 months that are not the opening or closing of the season), pilots are able to rest for 10 days, and we have set the number of pilots so that there are approximately \1/3\ more pilots than necessary to handle traffic during these times, allowing an average pilot 10 days of rest during an average non-peak traffic month. As we noted in the 2016 NPRM when we proposed this system, ``we propose building into our base seasonal work standard only 200 workdays per pilot per season. The 70-day difference should facilitate a 10-day recuperative rest period for each pilot in each of the seven months (mid-April to mid-November) between peak traffic periods.'' \69\ As we noted in that document, ``our goal is to regulate the pilotage system to maximize the likelihood [emphasis added] for [[Page 26171]] providing the full 10 days per month.'' \70\ --------------------------------------------------------------------------- \69\ 80 FR 54484, at 54490. \70\ 80 FR 54484, at 54490, footnote 30. --------------------------------------------------------------------------- The industry commenters suggest that, like AMO mates, Great Lakes pilots should be compensated only for days that they are actually expected to work, and thus that the aggregate daily wage be multiplied by 200, rather than 270. This calculation would mean that Great Lakes pilots would receive zero compensation for being ``on call'' during those additional 70 days of the season.\71\ On the other hand, we recognize that multiplying the aggregate daily wage by 270 means that Great Lakes pilots would receive full compensation for days on call, even if the system is designed so that they are not expected to work for those days. While neither number is perfect, we acknowledge that this is a consequence of using the AMO compensation model, which has a sharp delineation between guaranteed days worked and guaranteed days off, and of applying it to the Great Lakes pilots, where a day on the tour-de-roll may not correlate to a day actively undertaking pilotage duties. --------------------------------------------------------------------------- \71\ Or longer, as some recent shipping seasons have lasted longer than 270 days due to changes in ice patterns on the Great Lakes. For example, we note that the 2017 shipping season in District 1 lasted 296 days. --------------------------------------------------------------------------- The Coast Guard's mission in regulating pilotage on the Great Lakes is to ``promote safe, efficient, and reliable pilotage service on the Great Lakes.'' \72\ However, there is a natural balancing in this mission. To promote safe pilotage, the Coast Guard strives to attract the most experienced pilots, and to attract sufficient numbers, so that each vessel assigned a pilot is assured an experienced, well-rested pilot. To promote reliable pilotage, we must ensure there are sufficient numbers of pilots so that a rested pilot is available for duty at the required location at the required time, even in periods where traffic is more than expected. Both of these goals recommend that we hire more pilots, and ensure competitive compensation, thus advocating for higher pilotage rates. On the other hand, the promotion of efficient pilotage pulls in the opposite direction. We can lower pilotage rates by more efficiently utilizing a lower number of pilots-- moving them around more, or giving them less rest--with the understanding that this may result in less reliable service when traffic is higher than predicted. Similarly, we can lower compensation--improving efficiency by hiring less experienced pilots who will work for less compensation--with the understanding that this could have consequences for safety. --------------------------------------------------------------------------- \72\ See 46 CFR 404.1(a). --------------------------------------------------------------------------- While we believe that the industry commenters' suggestion of multiplying the aggregate daily wage by 200, rather than 270, has merit, we have decided that in the interests of recruiting and retaining a suitable number of experienced pilots, a multiplier of 270 is the preferable course of action. While we have considered the argument that it would be more efficient to pay pilots less or have fewer of them to generate lower shipping rates, we believe the effect on safety and reliability warrant a multiplier of 270. In the past, when compensation levels were lower, the pilot associations asserted that they had trouble attracting and retaining qualified pilots, and we believe offering higher compensation will help the pilot associations attract and retain higher numbers of more experienced pilots. Furthermore, we continue to note that the Great Lakes pilots' target compensation is within the range compensation of other U.S. pilotage associations (although we note we are still gathering data as to how the compensation and tariff levels of other U.S. pilotage associations are set). We also note that our economic analysis of shipping on the Great Lakes, discussed above, demonstrates that pilotage costs remain low enough to enable a robust trade of commodities. Additionally, we point to an issue raised by commenters as an additional reason to ensure that safety and reliability are emphasized in the Coast Guard's analysis of Great Lakes pilotage. One commenter noted that cruise ships are becoming an increasingly important source of business on the Great Lakes, and that unlike cargo ships, which can weather delays with relatively little impact, cruise ships are severely impacted by delays as they cannot keep to their schedules.\73\ We believe that with cruise ships becoming a large share of business, the need to minimize delays by having an adequate number of pilots grows in importance. --------------------------------------------------------------------------- \73\ USCG-2017-0903-0004, p. 11. We note that the commenter also requested that the Coast Guard adjust its regulations to allow pilots to give priority to cruise ships for this reason. While such a request is outside the scope of the ratemaking procedure, we will give the idea consideration. --------------------------------------------------------------------------- C. Inflation Adjustment Factor for Adjustment Years In the NPRM, we proposed that in non-benchmark years, the target compensation for Great Lakes pilots be increased by an inflation factor to promote predictability and increase the efficiency of the ratemaking process. All commenters who discussed this issue were supportive of an automatic increase for inflation. However, several commenters recommended that the inflation benchmark used was inappropriate. While we proposed to use the CPI for the Midwest Region,\74\ several commenters recommended different inflation adjustments. --------------------------------------------------------------------------- \74\ Specifically, we proposed to use the Midwest Region CPI or the Federal Open Market Committee (FOMC) median economic projections for Personal Consumption Expenditures (PCE) inflation. The PCE figure would be used for years where CPI data is not available. --------------------------------------------------------------------------- One commenter questioned why the Coast Guard expected the CPI for the Midwest Region to track actual AMO wage increases year after year, and stated that the AMO contract increased wages at 3 percent per year.\75\ Another commenter argued that the Coast Guard's method of ``guessing at current AMOU compensation'' using the CPI was inherently flawed.\76\ In response, we note that the NPRM never proposed that the compensation rate should track yearly increases in the AMO rate, and that its intent was to set a compensation benchmark at a rate derived from the 2015 AMO rate, and then increase that rate by an inflation factor. The Coast Guard explicitly stated that the goal was not to track AMO rates developed after 2015,\77\ and thus believes the commenters' suggestions are not warranted. --------------------------------------------------------------------------- \75\ USCG-2017-0903-0006, p. 9. \76\ USCG-2017-0903-0004, p. 7. \77\ See 83 FR 2581, at 2588. --------------------------------------------------------------------------- Several commenters suggested that instead of adjusting the compensation benchmark by the CPI, we should instead adjust it by the ECI for the transportation and material moving sector.\78\ One commenter noted that ``the [ECI] is the more relevant index because unlike the CPI, it tracks the parameter we're talking about: employment cost in the transportation sector.'' \79\ We agree with the commenters that, for the purposes of inflating compensation costs, the ECI provides a better gauge of compensation inflation than the CPI does. Our goal is to promote recruitment and retention of skilled pilots, and that goal is undermined if the wages of Great Lakes pilots increase less than the wages of other skilled maritime professionals in the transportation sector as the result of an inflationary gauge that was not as accurate as possible. Thus, we have substituted the ECI for the CPI in our annual inflation adjustor for target compensation. We note that this logic does not apply to the increase in [[Page 26172]] operating costs, for which we will continue to use CPI as the benchmark for inflation, because the ECI measures the change in the cost of labor. --------------------------------------------------------------------------- \78\ USCG-2017-0903-0004, p. 9; USCG-2017-0903-0007. \79\ USCG-2017-0903-0004, p. 9. --------------------------------------------------------------------------- Finally, we note that in instances where BLS ECI or CPI inflation data is not available, the Coast Guard has historically used the FOMC median PCE estimates. We have included language to that extent in the language for 46 CFR 404.102 and 404.104, respectively, to make the process more transparent. We note that we did not include this as proposed language in the NPRM, but given that the particular inflationary gauges used in the rule have been raised as a serious issue in comments, believe that being more explicit about the exact figures used in the calculations of both the NPRM and final rule is a logical outgrowth of that issue. D. Staffing Model Relocation and Calculations In the NPRM, we proposed to relocate the staffing model regulations from 46 CFR 404.103(a) through (c) to 46 CFR 401.220(a). We did not propose making any modification to the text of the staffing model. We stated that the rationale for moving the text was to improve the clarity of the regulations and simplify the process for preparing the annual rulemaking documents. Noting that, under the current organizational scheme, ``Ratemaking Step 3'' produces two sets of pilot numbers (one produced by the staffing model and a different one used in the ratemaking calculation), the staffing model text should be moved to part 401, where other pilotage inputs that inform the ratemaking process, but are not part of the annual calculation, are located.\80\ --------------------------------------------------------------------------- \80\ 83 FR 2581, at 2586. --------------------------------------------------------------------------- We received one comment from a pilotage organization that protested this organizational change. The commenter argued that this proposal allows the Director of Great Lakes Pilotage to conduct the calculations whenever he or she believes it is necessary, which could allow long periods of neglect.\81\ We note that, if the commenter believes the staffing levels are being neglected, the commenter is able to raise this concern in the many public forums, such as GLPAC meetings, that are available for input into the ratemaking process. We also note that analyzing the number of pilots required is not a process currently conducted once per year, but something that is continuously done. It is similar to the system for determining the number of applicant pilots, which, while it informs the methodology, is not part of it. Instead, those regulations are located in Sec. 401.211 of the Great Lakes Pilotage Regulations. We believe placing the staffing model text in part 401 is the best way to ensure transparency in the regulations, and makes clear that it is the number of working pilots that we authorize in the regulations--which may not correspond to the number generated by the staffing model--that is the relevant value for establishing pilotage rates. --------------------------------------------------------------------------- \81\ USCG-2017-0903-0004, p.11. --------------------------------------------------------------------------- One commenter stated that the Coast Guard had miscalculated the number of pilots needed in Districts One and Two, and that we should add an additional pilot to each of those Districts pursuant to the staffing model. In the calculations for those Districts, we determined that 17.25 and 15.41 pilots were needed, which we rounded down to 17 and 15, respectively.\82\ The commenter argued that ``the [staffing] model contemplates additional duties of the Association Presidents as a basis for rounding pilot numbers. It is entirely nonsensical to round down to account for extra workload and duties.'' \83\ --------------------------------------------------------------------------- \82\ 82 FR 41466, at 41480, Table 6. For District 3, we calculated 21.55 pilots, which was rounded up to 22. \83\ USCG-2017-0903-0007. --------------------------------------------------------------------------- We disagree with the commenter's analysis, and believe that the commenter is referring to a rounding convention that was applicable to a different staffing model. We did state, in the 2017 pilotage rates NPRM, that ``[i]n all districts, when the calculation results in a fraction of a pilot, we round pilot numbers up to the nearest whole pilot. We do this to avoid shortening our demand calculation and also to compensate for the role of the district presidents as both working pilots and representatives of their associations.'' \84\ However, that statement was made in regard to a proposal to switch from a ``peak staffing model'' to an ``average staffing model.'' The proposed average staffing model, which, based on comments we received, was never finalized, derived the number of pilots from their average workload during the year. Because a pilot association has responsibilities beyond pilotage, which takes up some of each pilot's time, the Coast Guard proposed to round up to account for those responsibilities. However, this situation does not apply to the staffing model currently used, which is based on the number of pilots needed at the beginning and close of the season, when traffic is highest and treacherous conditions often require double pilotage. Under the current staffing model, during the first and last months of the season, we expect all pilots to focus on pilotage duties, while allowing an average of 10 days of rest for pilots during the remaining 7 months. Pilot association presidents can undertake their administrative responsibilities during this time, so there is no need to round up, and a traditional rounding system can be used. --------------------------------------------------------------------------- \84\ 81 FR 72011, at 72015-16. --------------------------------------------------------------------------- E. Working Capital Fund Basis and Use One commenter suggested that the Coast Guard eliminate the working capital fund, or alternatively, that the Coast Guard promulgate regulations that segregate the working capital funds and govern their use, and prevent their distribution as compensation. While we did not propose any modifications to the calculation or use of working capital funds and are not incorporating them into the 2018 ratemaking procedure at this late stage, we do believe that some of the ideas expressed by the commenter merit discussion. First, we discuss the commenter's argument that the value of the working capital fund ``appears to be an entirely arbitrary `adder' that bears no clear relationship to its supposed function or nomenclature.'' \85\ The commenter stated that ``the term `working capital' is commonly understood to be a balance sheet measure that is the difference between current assets and current liabilities.'' The commenter also stated that the relationship between the amount of money collected pursuant to Step 5 of the ratemaking process and the infrastructure costs of the District is unclear. Finally, the commenter raised the point that, in the past, surcharges had been used to fund infrastructure improvements, and there should be a mechanism to ensure that it is used for that purpose. --------------------------------------------------------------------------- \85\ USCG-2017-0903-0008, p. 6. --------------------------------------------------------------------------- In the 2016 NPRM, we discussed both the purpose of the working capital fund as well as its name.\86\ In our discussion of why we proposed to change the name of this step from ``return on investment'' to ``working capital fund,'' we stated that ``the intent of [this section of the ratemaking methodology is] to provide the pilots with working capital for future expenses associated with capital improvements, technology investments, and future training needs, with the goal of eliminating the need for surcharges [emphasis added].'' \87\ We also agree that there may be merit in a mechanism to ensure that the funds are set aside for future projects, and will investigate the need for such regulation and how to best effect it. We encourage commenters [[Page 26173]] to engage with the Coast Guard on this issue with additional information. --------------------------------------------------------------------------- \86\ 81 FR 72011, at 72017. \87\ 81 FR 72011, at 72017. --------------------------------------------------------------------------- The commenter also suggested that the amount of money collected by the working capital fund calculation was incorrect, and that the Coast Guard should re-evaluate what is the working capital fund's function and relationship to pilot-compensation. However, the commenter did not suggest an alternative value for the fund. In the 2017 final rule, we stated that the fund ``is structured so that the pilot associations can demonstrate credit worthiness when seeking funds from a financial institution for needed infrastructure projects, and those projects can produce a return on investment at a rate commensurate to repay a financial institution.'' \88\ Because the purpose of the working capital fund is that the pilot associations can demonstrate credit worthiness when seeking funds from a financial institution for needed infrastructure projects, the value of the working capital fund contribution is tied to pilot association revenue and prevailing corporate interest rate. --------------------------------------------------------------------------- \88\ 82 FR 41466, at 41484. --------------------------------------------------------------------------- Separate from the amount of the working capital fund, the commenter suggested that the use of money collected as part of the working capital fund be clearly bounded, and any unspent money should be segregated and carried forward from year to year, and not be distributed as compensation.\89\ The commenter stated that a number of surcharges have been imposed on rate payers over the years for specific capital projects and expenses, and so the purpose of the working capital fund is unclear. --------------------------------------------------------------------------- \89\ USCG-2017-0903-0008, p. 6. --------------------------------------------------------------------------- Since 2016, when the ratemaking methodology was updated, we have not used surcharges to finance infrastructure improvements or maintenance, only to train new pilots. The purpose of the working capital fund is to demonstrate that pilots can achieve a return on investment, and thus have the ability to acquire loans to finance needed capital improvements. In the event that loans are taken out for this purpose, we would expect the working capital funds to be used to finance those loans, and so we would not permit the financing expenses to be counted as operating expenses. Currently, there are no requirements for how money collected under this provision is spent or distributed. However, we agree that the idea has merit. We believe that the money is meant to secure the financing for infrastructure improvements, and should not be used as compensation. While we believe that this ratemaking proceeding is not the proper venue to determine whether and how the Coast Guard could or should implement some limitations on the use of working capital fund money, we will take the idea under advisement. F. Use of 10-Year Traffic Baseline One issue raised by industry commenters concerns the use of a 10- year moving average to calculate average traffic. The commenters noted that ``the 10-year average is depressed by the significant reduction of traffic that occurred in the 2008-2013 period,'' \90\ which was caused by the global recession of 2008 and 2009. Noting that in years since 2013, traffic has been substantially higher, the commenters assert that ``it [is] rational to assume that 2018 hours will be generally comparable to levels in the 2014-2017 period.'' \91\ If those traffic numbers are reached, then actual revenue would be substantially higher than the ``revenue needed'' under Step 7 of the ratemaking methodology, and pilots will exceed their target compensation. --------------------------------------------------------------------------- \90\ USCG-2017-0903-0008, p. 6. \91\ USCG-2017-0903-0008, p. 7. --------------------------------------------------------------------------- To rectify this, the industry commenters recommend that instead of using a 10-year average traffic volume to calculate revenue needed, the Coast Guard should use a 3-year period instead. This would result in substantially lower shipping costs, as the total revenue needed ($22,438,782, as identified in Step 7 of the NPRM \92\) would be divided by 51,607 hours of traffic, rather than the 43,384 hours of traffic using the 10-year average. Applying this change would lower the average rate across all areas from $517.21 per hour to $434.80 per hour, a reduction of approximately 16 percent. --------------------------------------------------------------------------- \92\ 83 FR 2581, at 2595. This figure is derived by adding the totals from Tables 20, 21, and 22. Note that it does not include revenues from surcharges. --------------------------------------------------------------------------- Commenters assert that a 3-year traffic average convention would make more sense than a 10-year average, as the Coast Guard's other parts of the ratemaking methodology that feed into the ``Revenue Needed'' use more recent data.\93\ The commenters note that operating expenses, used in Step 1 of the ratemaking methodology, are based on data that is 3 years old, and staffing levels, used in Step 3 of the ratemaking methodology, are based on current year data. The industry commenters assert that ``the Coast Guard's chronic underestimation of revenue in 2014-2016 . . . is [partly] caused by asymmetry in the time span of data in the Revenue Needed and Time on Task data in Step 7.'' \94\ --------------------------------------------------------------------------- \93\ We note that ``revenue needed'' is determined by adding operating expenses, pilot compensation, and working capital fund contributions, and then dividing by total number of hours. These numbers are calculated on an area-by-area basis. \94\ USCG-2017-0903-0008, p. 7. --------------------------------------------------------------------------- While we agree that, for the purposes of the 2018 calculations, hourly pilotage rates would be lower if we used a 3-year window, we do not believe that this argument is convincing. Given a normal distribution of traffic, approximately 5 years out of every 10 will have traffic above the 10-year average level, and approximately 5 will have traffic below it. We note that traffic volumes on the Great Lakes can vary significantly from year to year, and a 10-year average is a good way to smooth out variations in traffic caused by global economic conditions. Industry commenters provide data showing actual traffic numbers from 2007 through 2016; those numbers clearly demonstrate that traffic can dramatically change from one year to the next.\95\ We do not see this as support for the industry's assertion that it would be rational to assume 2018 hours will be generally comparable to the 2014 through 2017 period. --------------------------------------------------------------------------- \95\ See, e.g., the change from 2009 to 2010, increasing by over 50% from 28,201 hours to 43,960 hours. --------------------------------------------------------------------------- Unlike operating expenses, which do not have wide swings from year to year, and pilot staffing levels, which can be determined with a high degree of precision, traffic averages are the hardest part of the ratemaking inputs to predict. Using a 3-year average would lead to dramatic swings from year to year, while a 10-year average smooths out those transitions. For that reason, we have decided to continue using the 10-year average in our calculations. With regard to the idea that, in 2018, this number may underestimate traffic, we note that in some years, the use of the 10-year average overestimated traffic. G. Calculation of Surcharges and Incorporation Into Operating Costs In the NPRM, we proposed to add surcharges totaling $1,050,000 to subsidize the training of seven applicant pilots. This was based on the fact that there are seven apprentice pilots, and we use the figure of $150,000 as an estimate for the total training costs of a pilot (this includes a stipend). In their comments, industry commenters noted that they support adequate training for pilot trainees, but stated that ``the content and cost of all elements of the training program must be put to a [[Page 26174]] process of public review.'' \96\ The commenter asserted that this element of the NPRM should be withdrawn and a supplemental NPRM should be issued to permit public comment on the elements of a training program. --------------------------------------------------------------------------- \96\ USCG-2017-0903-0008, p. 8. --------------------------------------------------------------------------- We disagree that industry commenters have not had a chance to comment on the propriety of the $150,000 figure. This amount has been used each year since 2016, without change. In the 2016 NPRM, when it was introduced, we discussed the basis for that figure. We stated that ``[b]ased on historic pilot costs, the stipend, per diem, and training costs for each applicant pilot are approximately $150,000.'' \97\ More detail is provided in the financial reports submitted by pilotage associations. For example, the 2016 financial reports submitted by the pilotage associations \98\ contain the following line items for applicant pilots: --------------------------------------------------------------------------- \97\ 80 FR 54484, at 54500. \98\ Available at www.regulations.gov, docket number USCG-2016- 0268.Salaries--Applicant Pilots Benefits--Applicant Pilots Housing Allowance--Applicant Pilots Subsistence/Travel--Applicant Pilots Training--Applicant Pilots Payroll Taxes--Applicant Pilots If it is unclear, the purpose of using surcharges to cover anticipated pilotage costs, instead of operating expenses, is so that retiring pilots do not have to pay costs that they will be unable to recoup, as operating expenses are factored into the ratemaking calculations only after a 3-year delay. We also note that while the $150,000 figure is an approximation of the amount required to train a new pilot, the number is ultimately balanced with the actual cost through the modifications of operating expenses. This means that pilotage associations will provide audited information relating to pilotage training costs each year as part of the public ratemaking process. Because operating expenses are analyzed using a 3-year delay (see Step 1 of the ratemaking process), and 2016 was the first year we authorized a surcharge for training applicant pilots, these figures will become subject to public review beginning with the 2019 ratemaking. When actual operating expenses are provided, pilotage associations will be able to add to their operating costs any expenditures that exceeded the $150,000 collected surcharge. Similarly, if they did not spend that much, the excess monies will be deducted from their authorized operating expenses. In this way, ratepayers will never pay more or less than the actual cost incurred to train a new pilot. We note that this would not cause any additional paperwork costs, because pilot organizations already provide the Coast Guard with their operating expenses on a yearly basis. As we noted in Section VII.D below, this rule will not change the burden in the collection currently approved by OMB under OMB Control Number 1625-0086. While the current $150,000 surcharge practice began only in 2016, the process of providing money up front for training, and then balancing that later through the accounting of operating expenses, is one we have used in the past. For example, in 2014, we authorized a 3 percent surcharge in District One to recoup $48,995 in expenses that the association incurred for training.\99\ However, because realized traffic in 2014 exceeded projections (and at the time, there was no mechanism to prevent the over collection of surcharges), we note that the pilot association collected $146,424.01.\100\ The amount of the 2014 surcharge that exceeded actual training costs was deducted from operating expenses in the next 2 years. In the 2015 final rule, for example, we disallowed the $48,314 ``pilot training'' item from the operating expenses, because pilot training expenses are deducted from surcharges.\101\ We made a further ``surcharge adjustment'' in the 2016 operating expenses to deduct for the remaining amount of $97,429.\102\ --------------------------------------------------------------------------- \99\ Great Lakes Pilotage Rates--2014 Annual Review and Adjustment, final rule, 79 FR 12084, at 12088 (March 4, 2014). \100\ See 81 FR 11908 at 11929, Figure 8, footnote. \101\ Great Lakes Pilotage Rates--2015 Annual Review and Adjustment, final rule, 80 FR 10365, at 10370, Table 2 (February 26, 2015). \102\ 81 FR 11908, at 11929, Figure 8. In the footnote to the table, we noted that ``the adjustment represents the difference between the collected amount and the authorized amount of $48,995 authorized in the 2014 final rule.'' --------------------------------------------------------------------------- We also received a comment from a pilotage organization relating to the surcharge provision. Specifically, the commenter argued that, in some instances, pilot associations do not collect the full amount of the authorized surcharge during the shipping season. The commenter pointed out that, because the 2017 rates did not become effective until later in the season, the pilot associations did not collect the entirety of the authorized sum. Noting that there is a provision to stop collecting surcharges when the authorized amount is reached, the commenter requested that the Coast Guard revise 46 CFR 401.401 to ``protect the pilots from surcharge under-generation in the same way it protects users from surcharge over-generation.'' \103\ We do not believe such a mechanism is necessary at this time, and again point to the mechanism above where collected surcharges and audited training expenditures are ultimately balanced via adjustment to the operating expenses. In the case where the collected surcharges did not cover the actual cost of training a pilot, either because the surcharge was too low or it was not collected, the pilot association would be able to include any extra expenses in their allowable operating expenses 3 years later. --------------------------------------------------------------------------- \103\ USCG-2017-0903-0004, p. 10. --------------------------------------------------------------------------- H. Other Issues Relating to Pilotage Oversight We received several comments from the shipping industry that did not relate to the specific ratemaking in this rule, but touched on areas regulated by the Coast Guard. While we are unable to make changes to the regulations in this final rule due to the fact that the scope of the NPRM covered only the proposed 2018 adjustments to pilotage rates, we acknowledge that some of these matters are important issues and should be addressed in the appropriate forum. 1. Unnecessary Pilot Orders for Use of Tugs One comment concerned situations in which vessel masters or owners disagreed with pilots on the matter of whether extra tugs were required. The commenter asserted that there has been a sharp increase in ``questionable pilot tug callouts'' \104\ and requested that the Coast Guard implement a procedure whereby protests over these callouts can be registered with the Captain of the Port or District Commander. The commenter further requested that, if the tug is ruled unnecessary, the relevant pilot association be required to reimburse the vessel owner for the costs of the tug callout. At this time, there is no mechanism by which a vessel owner can contest such a charge, but we would welcome additional discussion of this issue at an appropriate venue. --------------------------------------------------------------------------- \104\ USCG-2017-0903-0008, p. 9. --------------------------------------------------------------------------- 2. Mechanisms To Prevent or Discourage Delays Industry commenters also raised concerns that they were experiencing significant charges for pilotage attributable to time on board vessels that are not in active navigation, but are delayed by issues beyond the control of the vessel. These issues included items such as congestion, lack of available pilots at a change point, and unavailability of pilot boats. The commenters made two suggestions: (1) [[Page 26175]] The Coast Guard should forbid pilotage charges when vessels are not under active navigation; or (2) the Coast Guard should develop a separate, lower rate structure for pilot charges in these circumstances, possibly including a cap or limit for situations where the vessel is stopped at anchor. The commenters also noted that these charges are particularly significant in the parts of the season before May 1 and after November 30.\105\ --------------------------------------------------------------------------- \105\ USCG-2017-0903-0008, pp. 8 and 9. The commenter also stated that in 2016, the Coast Guard removed a $250/hour limitation on certain charges, but we are uncertain to what the commenter is referring. --------------------------------------------------------------------------- We note that existing regulations in Sec. 401.420 speak to these situations. In situations where a delay occurs, a pilotage association cannot charge for pilotage if the delay is caused by the pilotage association or the pilot (such as in the situation of a lack of a pilot boat). Delays caused by weather are, however, charged to the vessel before May 1 or after November 30. We disagree with the commenters that this provision should be changed. During these ``peak'' periods of the season, pilot time is a scarce resource, and we want to encourage the most efficient use of the pilot's time. There is a risk of delay when using the Great Lakes during parts of the year where delays caused by ice is common, and we want shippers, who decide when to use the Great Lakes, to incorporate the risks of those delays into their business decisions. Excluding fees for weather delays, at times when weather is a known risk, encourages inefficient use of pilot time and puts pressure on the system to increase the number of pilots, thus increasing rates for all. 3. Delays Related to Labor Disputes Industry commenters also raised the issue of delays caused by labor disputes. The commenters stated that there were incidents in which pilots delayed vessel operations, citing pickets or demonstrations by labor interests at terminal facilities being used by a vessel required by law to use pilot services.\106\ The commenters requested that the Coast Guard establish mechanisms to require pilot associations to reimburse the vessel operator for any delay costs associated with these actions. --------------------------------------------------------------------------- \106\ USCG-2017-0903-0008, p. 9. --------------------------------------------------------------------------- We believe that there is currently no specific regulation that would require or enable the Coast Guard to impose monetary or damages for delays associated with a pilot or pilot association refusing service to a vessel based on labor protests. If a vessel operator believes this situation is occurring, he or she may use the procedures in Sec. 401.510, ``Operation without registered pilots,'' to determine the best course of action. If an owner or operator believes he or she has accrued monetary damages from an improper delay, that person may wish to pursue those claims in a civil venue. 4. Over-Realization of Revenues Industry commenters raise the issue of over-realization of revenues on the part of the pilot associations, and said the Coast Guard is failing to give this matter sufficient attention in the NPRM. The commenters argued that high U.S. pilotage rates had an adverse effect on the economy, and were substantively higher than Canadian rates for similar routes. We note that, while we did not write at length on the issue of over-realization of revenues in the NPRM, it is because it is not a highly salient issue at this time. In the past, over-realization of revenues was caused by two factors, as the industry commenters note in their remarks: The lack of incorporation of weighting factor fees into the ratemaking methodology (revised per the suggestion of industry commenters), and a traffic level higher than the 10-year average. As we stated earlier in this preamble, higher traffic than expected translating into more revenues than expected is a feature of the pay- for-service economic model on the Great Lakes, not a shortcoming of the methodology. Furthermore, we note that, contrary to the commenter's assertion, we have considered the secondary economic impact of pilotage rates--the 2017 Pilotage Cost Analysis the commenters cite being an example of how we analyze them. The results of the study are clear: although pilotage rates have by necessity increased substantially (given our focus on increasing the number of pilots and their compensation to encourage recruitment and retention), they have not increased to levels that threaten the economic viability of Great Lakes shipping. VI. Discussion of Rate Adjustments Having made the adjustments to the ratemaking methodology and inputs as described in the previous section, in this section, we discuss the revised 2018 ratemaking model used to derive the new pilotage rates. We note that several of the inputs have changed from the NPRM because this final rule was developed in 2018, and so various data points have been updated to include 2017 data that has become available. These changes include a revision of the Moody's rate for corporate securities, in Step 5, a revision to the 10-year average traffic figures, in Step 7, and a revision of the average weighting factors, in Step 8. Several inflation factors have been similarly adjusted to incorporate 2017 data and revised estimates. We have provided citations to all relevant data, where possible. A. Step 1--Recognition of 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 this, we begin by reviewing the independent accountant's financial reports for each association's 2015 expenses and revenues.\107\ For accounting purposes, the financial reports divide expenses into designated and undesignated areas. In certain instances, for example, costs are applied to the undesignated or designated area based on where they were actually accrued. For example, costs for ``Applicant pilot license insurance'' in District One are assigned entirely to the undesignated areas, as applicant pilots work exclusively in those areas. For costs that accrued to the pilot associations generally, for example, insurance, the cost is divided between the designated and undesignated areas on a pro rata basis. The recognized operating expenses for the three districts are shown in Tables 6 through 8. --------------------------------------------------------------------------- \107\ These reports are available in the docket for this rulemaking (see https://www.regulations.gov, Docket # USCG-2017- 0903). [[Page 26176]] Table 6--2015 Recognized Expenses for District One ---------------------------------------------------------------------------------------------------------------- District One ----------------------------------------------- Designated Undesignated Reported expenses for 2015 -------------------------------- St. Lawrence Total River Lake Ontario ---------------------------------------------------------------------------------------------------------------- Operating Expenses: Other Pilotage Costs: Pilot subsistence/travel................................ $344,718 $267,669 $612,387 Applicant Pilot subsistence/travel...................... 59,992 88,313 148,305 License insurance....................................... 26,976 26,976 53,952 Applicant Pilot license insurance....................... 0 2,271 2,271 Payroll taxes........................................... 97,531 61,656 159,187 Applicant Pilot payroll taxes........................... 8,200 12,583 20,783 Other................................................... 5,679 5,341 11,020 ----------------------------------------------- Total other pilotage costs.......................... 543,096 464,809 1,007,905 Pilot Boat and Dispatch Costs: Pilot boat expense...................................... 134,400 106,064 240,464 Dispatch expense........................................ 0 0 0 Payroll taxes........................................... 9,688 7,645 17,333 ----------------------------------------------- Total pilot and dispatch costs...................... 144,088 113,709 257,797 Administrative Expenses: Legal--general counsel.................................. 12,388 9,733 22,121 Legal--shared counsel (K&L Gates)....................... 904 710 1,614 Legal--USCG litigation.................................. 0 0 0 Insurance............................................... 16,261 12,832 29,093 Employee benefits....................................... 8,752 6,907 15,659 Payroll taxes........................................... 5,628 4,441 10,069 Other taxes............................................. 9,447 7,455 16,902 Travel.................................................. 795 627 1,422 Depreciation/auto leasing/other......................... 55,850 31,763 87,613 Interest................................................ 12,337 9,736 22,073 Dues and subscriptions.................................. 15,867 15,513 31,380 Utilities............................................... 9,573 461 10,034 Salaries................................................ 56,126 44,291 100,417 Accounting/Professional fees............................ 5,254 4,146 9,400 Pilot Training.......................................... 0 0 0 Applicant Pilot training................................ 0 0 0 Other................................................... 9,118 6,446 15,564 ----------------------------------------------- Total Administrative Expenses....................... 218,300 155,061 373,361 ----------------------------------------------- Total Operating Expenses (Other Costs + Pilot 905,484 733,579 1,639,063 Boats + Admin)................................. Adjustments (Independent certified public accountant (CPA)): Pilot subsistence/travel.................................... 0 -2,943 -2,943 Payroll taxes............................................... 0 0 0 Applicant Pilot payroll taxes............................... 0 0 0 ----------------------------------------------- Total CPA Adjustments................................... 0 -2,943 -2,943 Adjustments (Director): Legal--general counsel (corrected number)................... 904 710 1,614 Legal--general counsel (corrected number)................... -12,388 -9,733 -22,121 Legal--shared counsel (K&L Gates) (corrected number)........ 12,388 9,733 22,121 Legal--shared counsel (K&L Gates) (corrected number)........ -904 -710 -1,614 Legal--shared counsel--3% lobbying fee (K&L Gates).......... -371 -292 -663 ----------------------------------------------- Total Director's Adjustments............................ -371 -292 -663 ----------------------------------------------- Total Operating Expenses (OpEx + Adjustments)....... 905,113 730,344 1,635,457 ---------------------------------------------------------------------------------------------------------------- Table 7--2015 Recognized Expenses for District Two ---------------------------------------------------------------------------------------------------------------- District Two ----------------------------------------------- Undesignated Designated Reported expenses for 2015 -------------------------------- SES to Port Total Lake Erie Huron ---------------------------------------------------------------------------------------------------------------- Operating Expenses: Other Pilotage Costs: Pilot subsistence/travel................................ $163,276 $244,915 $408,191 [[Page 26177]] Applicant Pilot subsistence/travel...................... 0 0 0 License insurance....................................... 6,798 10,196 16,994 Applicant Pilot license insurance....................... 0 0 0 Payroll taxes........................................... 53,242 79,863 133,105 Applicant Pilot payroll taxes........................... 0 0 0 Other................................................... 457 686 1,143 ----------------------------------------------- Total other pilotage costs.......................... 223,773 335,660 559,433 Pilot Boat and Dispatch Costs: Pilot boat expense...................................... 175,331 262,997 438,328 Dispatch expense........................................ 9,000 13,500 22,500 Employee benefits....................................... 74,855 112,282 187,137 Payroll taxes........................................... 9,724 14,585 24,309 ----------------------------------------------- Total pilot and dispatch costs...................... 268,910 403,364 672,274 Administrative Expenses: Legal--general counsel.................................. 10,282 15,422 25,704 Legal--shared counsel (K&L Gates)....................... 8,346 12,520 20,866 Legal--USCG litigation.................................. 0 0 0 Office rent............................................. 26,275 39,413 65,688 Insurance............................................... 10,618 15,926 26,544 Employee benefits....................................... 23,930 35,896 59,826 Workman's compensation--pilots.......................... 47,636 71,453 119,089 Payroll taxes........................................... 5,428 8,141 13,569 Other taxes............................................. 29,220 43,830 73,050 Depreciation/auto leasing/other......................... 19,757 29,636 49,393 Interest................................................ 4,159 6,238 10,397 APA Dues................................................ 11,827 17,741 29,568 Utilities............................................... 15,850 23,775 39,625 Salaries................................................ 51,365 77,048 128,413 Accounting/Professional fees............................ 10,721 16,081 26,802 Pilot Training.......................................... 0 0 0 Other................................................... 11,775 17,662 29,437 ----------------------------------------------- Total Administrative Expenses....................... 287,189 430,782 717,971 ----------------------------------------------- Total Operating Expenses (Other Costs + Pilot 779,872 1,169,806 1,949,678 Boats + Admin)................................. Adjustments (Independent CPA): Pilot boat costs............................................ -444 -666 -1,110 ----------------------------------------------- Total CPA Adjustments................................... -444 -666 -1,110 Adjustments (Director): Legal--shared counsel 3% lobbying fee (K&L Gates)........... -250 -376 -626 ----------------------------------------------- Total Director's Adjustments............................ -250 -376 -626 ----------------------------------------------- Total Operating Expenses (OpEx + Adjustments)....... 779,178 1,168,764 1,947,942 ---------------------------------------------------------------------------------------------------------------- Table 8--2015 Recognized Expenses for District Three ---------------------------------------------------------------------------------------------------------------- District Three ----------------------------------------------- Undesignated Designated -------------------------------- Reported expenses for 2015 Lakes Huron and Michigan St. Mary's Total and Lake River Superior ---------------------------------------------------------------------------------------------------------------- Operating Expenses: Other Pilotage Costs: Pilot subsistence/travel................................ $457,393 $152,465 $609,858 Applicant pilot subsistence/travel...................... 0 .............. 0 License insurance....................................... 16,803 5,601 22,404 Payroll taxes........................................... 160,509 53,503 214,012 Applicant pilot payroll taxes........................... 0 .............. 0 Other................................................... 1,546 515 2,061 ----------------------------------------------- [[Page 26178]] Total other pilotage costs.......................... 636,251 212,084 848,335 Pilot Boat and Dispatch Costs: Pilot boat costs........................................ 488,246 162,748 650,994 Dispatch costs.......................................... 128,620 42,873 171,493 Employee benefits....................................... 12,983 4,327 17,310 Payroll taxes........................................... 14,201 4,734 18,935 ----------------------------------------------- Total pilot and dispatch costs...................... 644,050 214,682 858,732 Administrative Expenses: Legal--general counsel.................................. 16,798 5,599 22,397 Legal--shared counsel (K&L Gates)....................... 18,011 6,004 24,015 Legal--USCG litigation.................................. 0 .............. 0 Office rent............................................. 6,372 2,124 8,496 Insurance............................................... 12,227 4,076 16,303 Employee benefits....................................... 93,646 31,215 124,861 Payroll Taxes........................................... 9,963 3,321 13,284 Other taxes............................................. 1,333 445 1,778 Depreciation/auto leasing/other......................... 29,111 9,703 38,814 Interest................................................ 3,397 1,132 4,529 APA Dues................................................ 22,736 7,579 30,315 Utilities............................................... 32,716 10,906 43,622 Salaries................................................ 84,075 28,025 112,100 Accounting/Professional fees............................ 19,696 6,565 26,261 Pilot Training.......................................... 26,664 8,888 35,552 Other................................................... 25,228 8,409 33,637 ----------------------------------------------- Total Administrative Expenses....................... 401,973 133,991 535,964 ----------------------------------------------- Total Operating Expenses (Other Costs + Pilot 1,682,274 560,757 2,243,031 Boats + Admin)................................. Adjustments (Independent CPA): Pilot subsistence/Travel.................................... -67,933 -22,645 -90,578 Payroll taxes............................................... -14,175 -4,725 -18,901 Other expenses.............................................. -4,058 -1,353 -5,411 ----------------------------------------------- Total CPA Adjustments................................... -86,166 -28,723 -114,890 Adjustments (Director): Legal--shared counsel 3% lobbying fee (K&L Gates)........... -540 -180 -720 ----------------------------------------------- Total Director's Adjustments............................ -540 -180 -720 ----------------------------------------------- Total Operating Expenses (OpEx + Adjustments)....... 1,595,565 531,854 2,127,420 ---------------------------------------------------------------------------------------------------------------- * Values may not sum due to rounding. District 3 provided the Coast Guard data for Areas 6, 7, and 8. However, the Coast Guard combined areas 6 and 8 to present the operating expenses by designated and undesignated areas. B. Step 2--Projection of operating expenses Having ascertained the recognized 2015 operating expenses in Step 1, the next step is to estimate the current year's operating expenses by adjusting those expenses for inflation over the 3-year period. The Coast Guard calculated inflation using the Bureau of Labor Statistics data from the CPI for the Midwest Region of the United States \108\ and reports from the FOMC median economic projections for PCE inflation.\109\ Based on that information, the calculations for Step 2 for all three districts are shown in Tables 9 through 11. --------------------------------------------------------------------------- \108\ Annual average CPI for 2017, 2016, and 2015 is 229.874, 226.115, and 224.21, respectively. Operating expenses were updated to 2016 using 0.8% and to 2017 using 1.7%, as shown in the last column of the table found at https://www.bls.gov/regions/midwest/data/consumerpriceindexhistorical_midwest_table.pdf. \109\ Operating expenses were updated to 2018 using the median PCE inflation for 2018 found in Table 1: Economic projections of Federal Reserve Board members and Federal Reserve Bank presidents, under their individual assessments of projected appropriate monetary policy, December 2017. Available at https://www.federalreserve.gov/monetarypolicy/fomcminutes20171213ep.htm. Table 9--Adjusted Operating Expenses for District One ---------------------------------------------------------------------------------------------------------------- Designated Undesignated Total ---------------------------------------------------------------------------------------------------------------- Total Operating Expenses (Step 1)............................... $905,113 $730,344 $1,635,457 2016 Inflation Modification (@0.8%)............................. 7,241 5,843 13,084 [[Page 26179]] 2017 Inflation Modification (@1.7%)............................. 15,510 12,515 28,025 2018 Inflation Modification (@1.9%)............................. 17,629 14,225 31,854 ----------------------------------------------- Adjusted 2018 Operating Expenses............................ 945,493 762,927 1,708,420 ---------------------------------------------------------------------------------------------------------------- Table 10--Adjusted Operating Expenses for District Two ---------------------------------------------------------------------------------------------------------------- Undesignated Designated Total ---------------------------------------------------------------------------------------------------------------- Total Operating Expenses (Step 1)............................... $779,178 $1,168,764 $1,947,942 2016 Inflation Modification (@0.8%)............................. 6,233 9,350 15,583 2017 Inflation Modification (@1.7%)............................. 13,352 20,028 33,380 2018 Inflation Modification (@1.9%)............................. 15,176 22,765 37,941 ----------------------------------------------- Adjusted 2018 Operating Expenses................................ 813,939 1,220,907 2,034,846 ---------------------------------------------------------------------------------------------------------------- Table 11--Adjusted Operating Expenses for District Three ---------------------------------------------------------------------------------------------------------------- Undesignated Designated Total ---------------------------------------------------------------------------------------------------------------- Total Operating Expenses (Step 1)............................... $1,595,565 $531,854 $2,127,420 2016 Inflation Modification (@0.8%)............................. 12,765 4,255 17,020 2017 Inflation Modification (@1.7%)............................. 27,342 9,114 36,456 2018 Inflation Modification (@1.9%)............................. 31,078 10,359 41,437 ----------------------------------------------- Adjusted 2018 Operating Expenses................................ 1,666,750 555,582 2,222,333 ---------------------------------------------------------------------------------------------------------------- * Values may not sum due to rounding. District 3 provided the Coast Guard data for Areas 6, 7, and 8. However, the Coast Guard combined areas 6 and 8 to present the operating expenses by designated and undesignated areas. C. Step 3--Estimate Number of Working Pilots In accordance with the proposed text in Sec. 404.103, we estimated the number of working pilots in each district. Based on input from the Saint Lawrence Seaway Pilots Association, we estimate that there will be 17 working pilots in 2018 in District One. Based on input from the Lakes Pilots Association, we estimate there will be 14 working pilots in 2018 in District Two. Based on input from the Western Great Lakes Pilots Association, we estimate there will be 18 working pilots in 2018 in District Three. Furthermore, based on the staffing model employed to develop the total number of pilots needed, we assign a certain number of pilots to designated waters, and a certain number to undesignated waters. These numbers are used to determine the amount of revenue needed in their respective areas. Table 12--Authorized Pilots ---------------------------------------------------------------------------------------------------------------- District District One District Two Three ---------------------------------------------------------------------------------------------------------------- Maximum number of pilots (per Sec. 401.220(a)) \110\.......... 17 15 22 2018 Authorized pilots (total).................................. 17 14 18 Pilots assigned to designated areas............................. 10 7 4 Pilots assigned to undesignated areas........................... 7 7 14 ---------------------------------------------------------------------------------------------------------------- D. Step 4--Determine Target Pilot Compensation --------------------------------------------------------------------------- \110\ For a detailed calculation, see 82 FR 41466, Table 6 at 41480 (August 31, 2017). --------------------------------------------------------------------------- In Step 4, we determine the total pilot compensation for each area. Because we are conducting a ``full ratemaking'' this year, we follow the procedure outlined in the revised paragraph (a) of Sec. 404.104, which requires us to develop a benchmark after considering the most relevant currently available nonproprietary information. The compensation benchmark for 2018 is $352,485 per pilot. We derived this figure by using the number we calculated for the 2015 AMO rate ($325,110), and then adjusting for inflation to arrive at the interim benchmark number for 2018, using the ECI and PCE inflation indexes as discussed in Section VI.C. The calculations are shown in Table 13. [[Page 26180]] Table 13--Calculation of 2018 Target Compensation Benchmark ------------------------------------------------------------------------ Inflation (%) Target \111\ compensation ------------------------------------------------------------------------ 2015 AMO Pilot Compensation............. .............. $325,110 2016 Inflation Adjustment (2016 ECI).... 3.0 334,863 2017 Inflation Adjustment (2017 ECI).... 3.3 345,913 2018 Inflation Adjustment (2018 PCE).... 1.9 352,485 ------------------------------------------------------------------------ Next, we certify that the number of pilots estimated for 2018 is less than or equal to the number permitted under the staffing model in Sec. 401.220(a). The staffing model suggests that the number of pilots needed is 17 pilots for District One, 15 pilots for District Two, and 22 pilots for District Three,\112\ which is greater than or equal to the numbers of working pilots provided by the pilot associations. --------------------------------------------------------------------------- \111\ ECI for total compensation, for private industry workers, Transportation and material moving, percent changes for 12 months ended in December, found in Table 5 (p. 71) of the following: https://www.bls.gov/web/eci/echistrynaics.pdf. Median PCE inflation can be found at https://www.federalreserve.gov/monetarypolicy/fomcminutes20171213ep.htm. \112\ See Table 6 of the 2017 final rule, 82 FR 41466 at 41480. 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). \113\ We note that the policy discussion of this issue is located in Section V (``Discussion of Comments and Changes to Methodology''), above. The specific discussion about the working capital fund is located in Section V.E. \114\ Moody's Seasoned Aaa Corporate Bond Yield, average of 2017 monthly data (not seasonally adjusted), located at https://fred.stlouisfed.org/series/AAA. The Coast Guard uses the most recent complete year of data. --------------------------------------------------------------------------- Thus, in accordance with proposed Sec. 404.104(c), we use the revised target individual compensation level to derive the total pilot compensation by multiplying the individual target compensation by the estimated number of working pilots for each district, as shown in Tables 14 through 16. Table 14--Target Pilot Compensation for District One ---------------------------------------------------------------------------------------------------------------- Designated Undesignated Total ---------------------------------------------------------------------------------------------------------------- Target Pilot Compensation....................................... $352,485 $352,485 $352,485 Number of Pilots................................................ 10 7 17 ----------------------------------------------- Total Target Pilot Compensation............................. $3,524,850 $2,467,395 $5,992,245 ---------------------------------------------------------------------------------------------------------------- Table 15--Target Pilot Compensation for District Two ---------------------------------------------------------------------------------------------------------------- Undesignated Designated Total ---------------------------------------------------------------------------------------------------------------- Target Pilot Compensation....................................... $352,485 $352,485 $352,485 Number of Pilots................................................ 7 7 14 ----------------------------------------------- Total Target Pilot Compensation............................. 2,467,395 2,467,395 4,934,790 ---------------------------------------------------------------------------------------------------------------- Table 16--Target Pilot Compensation for District Three ---------------------------------------------------------------------------------------------------------------- Undesignated Designated Total ---------------------------------------------------------------------------------------------------------------- Target Pilot Compensation....................................... $352,485 $352,485 $352,485 Number of Pilots................................................ 14 4 18 ----------------------------------------------- Total Target Pilot Compensation............................. $4,934,790 $1,409,940 $6,344,730 ---------------------------------------------------------------------------------------------------------------- E. Step 5--Calculate Working Capital Fund Next, we calculate the working capital fund revenues needed for each area.\113\ First, we add the figures for projected operating expenses and total pilot compensation for each area. Then, we find the preceding year's average annual rate of return for new issues of high grade corporate securities. Using Moody's data, that number is 3.74 percent.\114\ By multiplying the two figures, we get the working capital fund contribution for each area, as shown in Tables 17 through 19. Table 17--Working Capital Fund Contribution for District One ---------------------------------------------------------------------------------------------------------------- Designated Undesignated Total ---------------------------------------------------------------------------------------------------------------- Adjusted Operating Expenses (Step 2)............................ $945,493 $762,927 $1,708,420 Total Target Pilot Compensation (Step 4)........................ 3,524,850 2,467,395 5,992,245 ----------------------------------------------- Total 2018 Expenses......................................... 4,470,343 3,230,322 7,700,665 ---------------------------------------------------------------------------------------------------------------- [[Page 26181]] Working Capital Fund (3.74%).................................... 167,191 120,814 288,005 ---------------------------------------------------------------------------------------------------------------- Table 18--Working Capital Fund Contribution for District Two ---------------------------------------------------------------------------------------------------------------- Undesignated Designated Total ---------------------------------------------------------------------------------------------------------------- Adjusted Operating Expenses (Step 2)............................ $813,939 $1,220,907 $2,034,846 Total Target Pilot Compensation (Step 4)........................ 2,467,395 2,467,395 4,934,790 ----------------------------------------------- Total 2018 Expenses......................................... 3,281,334 3,688,302 6,969,636 ---------------------------------------------------------------------------------------------------------------- Working Capital Fund (3.74%).................................... 122,722 137,942 260,664 ---------------------------------------------------------------------------------------------------------------- Table 19--Working Capital Fund Contribution for District Three ---------------------------------------------------------------------------------------------------------------- Undesignated Designated Total ---------------------------------------------------------------------------------------------------------------- Adjusted Operating Expenses (Step 2)............................ $1,666,750 $555,582 $2,222,332 Total Target Pilot Compensation (Step 4)........................ 4,934,790 1,409,940 6,344,730 ----------------------------------------------- Total 2018 Expenses......................................... 6,601,540 1,965,522 8,567,062 ---------------------------------------------------------------------------------------------------------------- Working Capital Fund (3.74%).................................... 246,898 73,511 320,409 ---------------------------------------------------------------------------------------------------------------- F. Step 6--Calculate Revenue Needed In Step 6, we add up all the expenses accrued to derive the total revenue needed for each area. These expenses include the projected operating expenses (from Step 2), the total pilot compensation (from Step 4), and the working capital fund contribution (from Step 5). The calculations are shown in Tables 20 through 22. Table 20--Revenue Needed for District One ---------------------------------------------------------------------------------------------------------------- Designated Undesignated Total ---------------------------------------------------------------------------------------------------------------- Adjusted Operating Expenses (Step 2)............................ $945,493 $762,927 $1,708,420 Total Target Pilot Compensation (Step 4)........................ 3,524,850 2,467,395 5,992,245 Working Capital Fund (Step 5)................................... 167,191 120,814 288,005 ----------------------------------------------- Total Revenue Needed........................................ 4,637,534 3,351,136 7,988,670 ---------------------------------------------------------------------------------------------------------------- Table 21--Revenue Needed for District Two ---------------------------------------------------------------------------------------------------------------- Undesignated Designated Total ---------------------------------------------------------------------------------------------------------------- Adjusted Operating Expenses (Step 2)............................ $813,939 $1,220,907 $2,034,846 Total Target Pilot Compensation (Step 4)........................ 2,467,395 2,467,395 4,934,790 Working Capital Fund (Step 5)................................... 122,722 137,942 260,664 ----------------------------------------------- Total Revenue Needed........................................ 3,404,056 3,826,244 7,230,300 ---------------------------------------------------------------------------------------------------------------- Table 22--Revenue Needed for District Three ---------------------------------------------------------------------------------------------------------------- Undesignated Designated Total ---------------------------------------------------------------------------------------------------------------- Adjusted Operating Expenses (Step 2)............................ $1,666,750 $555,582 $2,222,333 Total Target Pilot Compensation (Step 4)........................ 4,934,790 1,409,940 6,344,730 Working Capital Fund (Step 5)................................... 246,898 73,511 320,409 ----------------------------------------------- Total Revenue Needed........................................ 6,848,438 2,039,033 8,887,472 ---------------------------------------------------------------------------------------------------------------- G. Step 7--Calculate Initial Base Rates Having determined the revenue needed for each area in the previous six steps, we divide that number by the expected number of hours of traffic to develop an hourly rate. Step 7 is a two-part process. In the first part, we calculate the 10-year average of traffic in each district. Because we are calculating separate figures for designated and undesignated waters, there are two parts for each calculation. The calculations are shown in Tables 23 through 25. [[Page 26182]] Table 23--Time on Task for District One ------------------------------------------------------------------------ Designated Undesignated Year hours hours ------------------------------------------------------------------------ 2017.................................... 7,605 8,679 2016.................................... 5,434 6,217 2015.................................... 5,743 6,667 2014.................................... 6,810 6,853 2013.................................... 5,864 5,529 2012.................................... 4,771 5,121 2011.................................... 5,045 5,377 2010.................................... 4,839 5,649 2009.................................... 3,511 3,947 2008.................................... 5,829 5,298 Average................................. 5,545 5,934 ------------------------------------------------------------------------ Table 24--Time on Task for District Two ------------------------------------------------------------------------ Undesignated Designated Year hours hours ------------------------------------------------------------------------ 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 2009.................................... 3,386 3,017 2008.................................... 4,844 3,956 Average................................. 5,191 4,922 ------------------------------------------------------------------------ Table 25--Time on Task for District Three ------------------------------------------------------------------------ Undesignated Designated Year hours hours ------------------------------------------------------------------------ 2017.................................... 26,183 3,798 2016.................................... 23,421 2,769 2015.................................... 22,824 2,696 2014.................................... 25,833 3,835 2013.................................... 17,115 2,631 2012.................................... 15,906 2,163 2011.................................... 16,012 1,678 2010.................................... 20,211 2,461 2009.................................... 12,520 1,820 2008.................................... 14,287 2,286 Average................................. 19,431 2,614 ------------------------------------------------------------------------ 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 required to produce the revenue needed for each area, assuming the amount of traffic is as expected. The calculations for each area are shown in Tables 26 through 28. Table 26--Rate Calculations for District One ------------------------------------------------------------------------ Designated Undesignated ------------------------------------------------------------------------ Revenue needed (Step 6)................. $4,637,534 $3,351,136 Average time on task (hours)............ 5,545 5,934 Initial rate............................ $836 $565 ------------------------------------------------------------------------ Table 27--Rate Calculations for District Two ------------------------------------------------------------------------ Undesignated Designated ------------------------------------------------------------------------ Revenue needed (Step 6)................. $3,404,056 $3,826,244 Average time on task (hours)............ 5,191 4,922 Initial rate............................ $656 $777 ------------------------------------------------------------------------ [[Page 26183]] Table 28--Rate Calculations for District Three ------------------------------------------------------------------------ Undesignated Designated ------------------------------------------------------------------------ Revenue needed (Step 6)................. $6,848,438 $2,039,033 Average time on task (hours)............ 19,431 2,614 Initial rate............................ $352 $780 ------------------------------------------------------------------------ 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 29 through 34. Table 29--Average Weighting Factor for Area 1 [District 1, designated] ---------------------------------------------------------------------------------------------------------------- Number of Weighting Weighted Vessel class/year transits factor transits ---------------------------------------------------------------------------------------------------------------- Class 1 (2014).................................................. 31 1 31 Class 1 (2015).................................................. 41 1 41 Class 1 (2016).................................................. 31 1 31 Class 1 (2017).................................................. 28 1 28 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 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 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 ----------------------------------------------- Total....................................................... 2,464 .............. 3,149.5 ---------------------------------------------------------------------------------------------------------------- Average weighting factor (weighted transits/number of transits). .............. 1.28 .............. ---------------------------------------------------------------------------------------------------------------- Table 30--Average Weighting Factor for Area 2 [District 1, undesignated] ---------------------------------------------------------------------------------------------------------------- Number of Weighting Weighted Vessel class/year transits factor transits ---------------------------------------------------------------------------------------------------------------- Class 1 (2014).................................................. 25 1 25 Class 1 (2015).................................................. 28 1 28 Class 1 (2016).................................................. 18 1 18 Class 1 (2017).................................................. 19 1 19 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 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 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 ----------------------------------------------- Total....................................................... 2,290 .............. 2,965.75 ---------------------------------------------------------------------------------------------------------------- Average weighting factor (weighted transits/number of transits). .............. 1.30 .............. ---------------------------------------------------------------------------------------------------------------- [[Page 26184]] Table 31--Average Weighting Factor for Area 5 [District 2, undesignated] ---------------------------------------------------------------------------------------------------------------- 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 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 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 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 ----------------------------------------------- Total....................................................... 3,455 .............. 4,556.45 ---------------------------------------------------------------------------------------------------------------- Average weighting factor (weighted transits/number of transits). .............. 1.32 .............. ---------------------------------------------------------------------------------------------------------------- Table 32--Average Weighting Factor for Area 4 [District 2, designated] ---------------------------------------------------------------------------------------------------------------- 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 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 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 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 ----------------------------------------------- Total....................................................... 2,072 .............. 2,724.2 ---------------------------------------------------------------------------------------------------------------- Average weighting factor (weighted transits/number of transits). .............. 1.31 .............. ---------------------------------------------------------------------------------------------------------------- Table 33--Average Weighting Factor for Areas 6 and 8 [District 3, undesignated] ---------------------------------------------------------------------------------------------------------------- Number of Weighting Weighted Vessel class/year transits factor transits ---------------------------------------------------------------------------------------------------------------- Area 6: Class 1 (2014).............................................. 45 1 45 Class 1 (2015).............................................. 56 1 56 Class 1 (2016).............................................. 136 1 136 Class 1 (2017).............................................. 148 1 148 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 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 4 (2014).............................................. 394 1.45 571.3 [[Page 26185]] Class 4 (2015).............................................. 375 1.45 543.75 Class 4 (2016).............................................. 332 1.45 481.4 Class 4 (2017).............................................. 367 1.45 532.15 ----------------------------------------------- Total for Area 6........................................ 2,886 .............. 3,709.35 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 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 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 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 ----------------------------------------------- Total for Area 8........................................ 1,679 .............. 2,224.1 ----------------------------------------------- Combined total...................................... 4,565 .............. 5,933.45 ---------------------------------------------------------------------------------------------------------------- Average weighting factor (weighted transits/number of transits). .............. 1.30 .............. ---------------------------------------------------------------------------------------------------------------- Table 34--Average Weighting Factor for Area 7 [District 3, Designated] ---------------------------------------------------------------------------------------------------------------- Number of Weighting Weighted Vessel class/year transits factor transits ---------------------------------------------------------------------------------------------------------------- Class 1 (2014).................................................. 27 1 27 Class 1 (2015).................................................. 23 1 23 Class 1 (2016).................................................. 55 1 55 Class 1 (2017).................................................. 62 1 62 Class 2 (2014).................................................. 221 1.15 254.15 Class 2 (2015).................................................. 145 1.15 166.75 Class 2 (2016).................................................. 174 1.15 200.1 Class 2 (2017).................................................. 170 1.15 195.5 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 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 ----------------------------------------------- Total....................................................... 1,892 .............. 2,451.65 ---------------------------------------------------------------------------------------------------------------- Average weighting factor (weighted transits/number of transits). .............. 1.30 .............. ---------------------------------------------------------------------------------------------------------------- I. Step 9--Calculate Revised Base Rates In this step, we revise the base rates so that once the impact of the weighting factors are considered, the total cost of pilotage will be equal to the revenue needed. To do this, we divide the initial base rates, calculated in Step 7, by the average weighting factors calculated in Step 8, as shown in Table 35. [[Page 26186]] Table 35--Revised Base Rates ---------------------------------------------------------------------------------------------------------------- Revised rate Average (initial rate/ Area Initial rate weighting average (Step 7) factor (Step weighting 8) factor) ---------------------------------------------------------------------------------------------------------------- District One: Designated........................................ $836 1.28 $653 District One: Undesignated...................................... 565 1.30 435 District Two: Undesignated...................................... 656 1.32 497 District Two: Designated........................................ 777 1.31 593 District Three: Undesignated.................................... 352 1.30 271 District Three: Designated...................................... 780 1.30 600 ---------------------------------------------------------------------------------------------------------------- J. Step 10--Review and Finalize Rates In Step 10, 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. As detailed in the discussion sections of the NPRM, the proposed rates incorporate appropriate compensation for enough pilots to handle heavy traffic periods, cover operating expenses and infrastructure costs, and take into account average traffic and weighting factors. Therefore, we believe that these rates meet the goal of ensuring safe, efficient, and reliable pilotage. Thus, we are not making any alterations to the rates in this step. The final rates are shown in Table 36, and we will modify the text in Sec. 401.405(a) to reflect them. Table 36--Final Rates ---------------------------------------------------------------------------------------------------------------- Final 2017 Proposed 2018 Final 2018 Area Name pilotage rate pilotage rate pilotage rate ---------------------------------------------------------------------------------------------------------------- District One: Designated.............. St. Lawrence River...... $601 $622 $653 District One: Undesignated............ Lake Ontario............ 408 424 435 District Two: Undesignated............ Lake Erie............... 429 454 497 District Two: Designated.............. Navigable waters from 580 553 593 Southeast Shoal to Port Huron, MI. District Three: Undesignated.......... Lakes Huron, Michigan, 218 253 271 and Superior. District Three: Designated............ St. Mary's River........ 514 517 600 ---------------------------------------------------------------------------------------------------------------- K. Surcharges Because there are several applicant pilots in 2018, we are authorizing surcharges to cover the costs needed for training expenses. Consistent with previous years, we are assigning a cost of $150,000 per applicant pilot. To develop the surcharge, we multiply the number of applicant pilots by the average cost per pilot to develop a total amount of training costs needed. We then impose that amount as a surcharge to all areas in the respective district, consisting of a percentage of revenue needed. In this year, there are two applicant pilots for District One, one applicant pilot for District Two, and four applicant pilots for District Three. The calculations to develop the surcharges are shown in Table 37. While the percentages are rounded for simplicity, this rounding does not impact the revenue generated, as surcharges can no longer be collected once the surcharge total has been attained. Table 37--Surcharge Calculations ---------------------------------------------------------------------------------------------------------------- District One District Two District Three ---------------------------------------------------------------------------------------------------------------- Number of applicant pilots...................................... 2 1 4 Total applicant training costs.................................. $300,000 $150,000 $600,000 Revenue needed (Step 6)......................................... $7,988,670 $7,230,300 $8,887,472 ---------------------------------------------------------------------------------------------------------------- Total surcharge as percentage (total training costs/revenue).... 4% 2% 7% ---------------------------------------------------------------------------------------------------------------- VII. Regulatory Analyses We developed this final rule after considering numerous statutes and Executive orders related to rulemaking. Below we summarize our analyses based on these statutes or Executive orders. A. Regulatory Planning and Review Executive Orders 12866 (``Regulatory Planning and Review'') and 13563 (``Improving Regulation and Regulatory Review'') direct agencies to assess the costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety effects, distributive impacts, and equity). Executive Order 13563 emphasizes the importance of quantifying both costs and benefits, of reducing costs, of harmonizing rules, and of promoting flexibility. Executive Order 13771, ``Reducing Regulation and Controlling Regulatory Costs,'' directs agencies to reduce regulation and control regulatory costs and provides that ``for every one new regulation issued, at least two prior regulations be identified for elimination, and that the cost of planned regulations be prudently [[Page 26187]] managed and controlled through a budgeting process.'' The Office of Management and Budget (OMB) has not designated this rule a significant regulatory action under section 3(f) of Executive Order 12866. Accordingly, OMB has not reviewed it. Because this rule is not a significant regulatory action, this rule 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 final rule is to establish new base pilotage rates and surcharges for training. This rule also makes changes to the ratemaking methodology and revises the compensation benchmark. The last full ratemaking was concluded in 2017. Table 38 summarizes the regulatory changes that are expected to have no costs, and any qualitative benefits associated with them. The table also includes changes that affect portions of the methodology for calculating the base pilotage rates. While these changes affect the calculation of the rate, the costs of these changes are captured in the changes to the total revenue as a result of the rate change. Table 38--Regulatory Changes With No Cost or Costs Captured in the Rate Change ---------------------------------------------------------------------------------------------------------------- Change Description Basis for no costs Benefits ---------------------------------------------------------------------------------------------------------------- Codification of compensation Add regulatory text to Pilot compensation --Pilot compensation inflation adjustment. Sec. 404.104 to make costs are accounted will keep up with the adjustment for for in the base regional inflation. inflation automatic. pilotage rates. --Improves consistency, transparency, and efficiency in our ratemaking procedures. Target pilot compensation............ --Due to the 2016 court Pilot compensation Improves transparency opinion on pilot costs are accounted in our ratemaking compensation, the for in the base procedures. Coast Guard is pilotage rates. changing the pilot compensation benchmark. Relocation of staffing model Move the discussion of We are not adjusting or Improves the clarity of regulations. the staffing model modifying the the regulations and from 46 CFR 404.103 regulatory text, but improves the (as part of ``Step 3'' simply moving it to regulatory process. of the ratemaking Sec. 401.220. process), to the general regulations governing pilotage in Sec. 401.220. Delineation of full ratemakings and Set forth separate Change only clarifies Simplify ratemaking annual reviews. regulatory paragraphs that the benchmark procedures in interim detailing the level compensation years and better differences between will only be effect the statutory how the Coast Guard reconsidered during mandate in section undertakes an annual ``full ratemaking'' 9303(f) of the Great adjustment of the years. Lakes Pilotage Act. pilotage rates, and a full reassessment of the rates, which must be undertaken once every 5 years. Miscellaneous other changes.......... --Rename the step Minor editorial changes Provides clarification currently titled in this rule that do to regulatory text and ``Initially calculate not impact total the rulemaking. base rates'' to revenues. ``Calculate initial base rates'' for style purposes. --Adjust the reference to the staffing model in Step 7 to account for its relocation in text. ---------------------------------------------------------------------------------------------------------------- Table 39 summarizes the affected population, costs, and benefits of the rate changes that are expected to have costs associated with them. Table 39--Economic Impacts Due to Rate Changes ---------------------------------------------------------------------------------------------------------------- Affected Change Description population Costs Benefits ---------------------------------------------------------------------------------------------------------------- Rate Changes.................... Under the Great Owners and $2,830,061 Due to --New rates cover Lakes Pilotage operators of 215 change in Revenue an association's Act of 1960, the vessels Needed for 2018 necessary and Coast Guard is journeying the ($25,156,442) reasonable required to Great Lakes from Revenue operating review and adjust system annually, Needed for 2017 expenses. base pilotage 49 U.S. Great ($22,326,381) as --Provides fair rates annually. Lakes pilots, and shown in Table 40 compensation, 3 pilotage below. adequate associations. training, and sufficient rest periods for pilots. --Ensures the association receives sufficient revenues to fund future improvements. ---------------------------------------------------------------------------------------------------------------- The Coast Guard is required to review and adjust pilotage rates on the Great Lakes annually. See Sections III and IV of this preamble for detailed discussions of the legal basis and purpose for this rulemaking and for background [[Page 26188]] information on Great Lakes pilotage ratemaking. Based on our annual review for this rulemaking, we are adjusting the pilotage rates for the 2018 shipping season to generate sufficient revenues for each district to reimburse its necessary and reasonable operating expenses, fairly compensate trained and rested pilots, and provide an appropriate working capital fund to use for improvements. The rate changes in this final rule will lead to an increase in the cost per unit of service to shippers in all three districts, and result in an estimated annual cost increase to shippers. In addition to the increase in payments that will be incurred by shippers in all three districts from the previous year as a result of the rate changes, we are authorizing a temporary surcharge to allow the pilotage associations to recover training expenses that will be incurred in 2018. For 2018, we anticipate that there will be two applicant pilots in District One, one applicant pilot in District Two, and four applicant pilots in District Three. With a training cost of $150,000 per pilot, we estimate that Districts One, Two, and Three will incur $300,000, $150,000, and $600,000, respectively, in training expenses. These temporary surcharges will generate a combined $1,050,000 in revenue for the pilotage associations. Therefore, after accounting for the implementation of the temporary surcharges across all three districts, the total payments that will be made by shippers during the 2018 shipping season are estimated at $2,830,061 more than the total payments that were estimated in 2017 (Table 41).\115\ --------------------------------------------------------------------------- \115\ Total payments across all three districts are equal to the increase in payments incurred by shippers as a result of the rate changes plus the temporary surcharges applied to traffic in Districts One, Two, and Three. --------------------------------------------------------------------------- Table 40 summarizes the changes in the RA from the NPRM to the final rule. These changes were made as a result of public comments received after publication of the NPRM. Table 40--Summary of Changes From NPRM to Final Rule ---------------------------------------------------------------------------------------------------------------- Element of the analysis NPRM Final rule Resulting change in RA ---------------------------------------------------------------------------------------------------------------- Target Pilot Compensation............ $319,617............... $352,485............... Data indirectly affects the calculation of projected revenues. Updated analysis with 2017 inflation NPRM used data through Uses 2017 data, where Data indirectly affects and securities return data, when 2016, as this was the applicable and calculation of available. most current year available. projected revenues. available. ---------------------------------------------------------------------------------------------------------------- Affected Population The shippers affected by these rate changes are those owners and operators of domestic vessels operating ``on register'' (employed in foreign trade) and owners and operators of non-Canadian foreign vessels on routes within the Great Lakes system. These owners and operators must have pilots or pilotage service as required by 46 U.S.C. 9302. There is no minimum tonnage limit or exemption for these vessels. The statute applies only to commercial vessels and not to recreational vessels. United States-flagged vessels not operating on register and Canadian ``lakers,'' which account for most commercial shipping on the Great Lakes, are not required by 46 U.S.C. 9302 to have pilots. However, these U.S.- and Canadian-flagged lakers may voluntarily choose to engage a Great Lakes registered pilot. Vessels that are U.S.-flagged may opt to have a pilot for various reasons, such as unfamiliarity with designated waters and ports, or for insurance purposes. We used billing information from the years 2014 through 2016 from the Great Lakes Pilotage Management System (GLPMS) to estimate the average annual number of vessels affected by the rate adjustment. The GLPMS tracks data related to managing and coordinating the dispatch of pilots on the Great Lakes, and billing in accordance with the services. We found that a total of 387 vessels used pilotage services during the years 2014 through 2016. That is, these vessels had a pilot dispatched to the vessel, and billing information was recorded in the GLPMS. The number of invoices per vessel ranged from a minimum of 1 invoice per year to a maximum of 108 invoices per year. Of these vessels, 367 were foreign-flagged vessels and 20 were U.S.-flagged. Vessel traffic is affected by numerous factors and varies from year to year. Therefore, rather than the total number of vessels over the time period, an average of the unique vessels using pilotage services from the years 2014 through 2016 is the best representation of vessels estimated to be affected by the rate in this final rule. From the years 2014 through 2016, an average of 215 vessels used pilotage services annually. On average, 206 of these vessels were foreign-flagged vessels and 9 were U.S.-flagged vessels that voluntarily opted into the pilotage service. Total Cost to Shippers The rate changes resulting from the methodology will generate costs to industry in the form of higher payments for shippers. We estimate the effect of the rate changes on shippers by comparing the total projected revenues needed to cover costs in 2017 with the total projected revenues needed to cover costs in 2018, including any temporary surcharges we have authorized. We set pilotage rates so that pilot associations receive enough revenue to cover their necessary and reasonable expenses. Shippers pay these rates when they have a pilot as required by 46 U.S.C. 9302. Therefore, the aggregate payments of shippers to pilot associations are equal to the projected necessary revenues for pilot associations. The revenues each year represent the total costs that shippers must pay for pilotage services, and the change in revenue from the previous year is the additional cost to shippers discussed in this final rule. The impacts of the rate changes on shippers are estimated from the District pilotage projected revenues (shown in Tables 20 through 22 of this preamble) and the surcharges described in Section VI of this preamble. We estimate that for the 2018 shipping season, the projected revenue needed for all three districts is $24,106,442. Temporary surcharges on traffic in Districts One, Two, and Three will be applied for the duration of the 2018 season in order for the pilotage associations to recover training expenses incurred for applicant pilots. We estimate that the pilotage associations require an additional $300,000, $150,000, and $600,000 in revenue for applicant training expenses in Districts One, Two, and Three, respectively. This will be an additional cost to shippers of $1,050,000 during the 2018 shipping season. Adding the projected revenue of $24,106,442 to the surcharges, we estimate the pilotage [[Page 26189]] associations' total projected revenue needed for 2018 will be $25,156,442. To estimate the additional cost to shippers from this final rule, we compare the 2018 total projected revenues to the 2017 projected revenues. Because we review and prescribe rates for the Great Lakes Pilotage annually, the effects are estimated as a single year cost rather than annualized over a 10-year period. In the 2017 final rule,\116\ we estimated the total projected revenue needed for 2017, including surcharges, as $22,326,381. This is the best approximation of 2017 revenues as, at the time of this publication, we do not have enough audited data available for the 2017 shipping season to revise these projections. Table 41 shows the revenue projections for 2017 and 2018 and details the additional cost increases to shippers by area and district as a result of the rate changes and temporary surcharges on traffic in Districts One, Two, and Three. --------------------------------------------------------------------------- \116\ The 2017 projected revenues are from the 2017 Great Lakes Pilotage Ratemaking final rule (82 FR 41484 and 41489), Tables 9 and 14. \117\ The 2017 projected revenues are from the 2017 final rule (82 FR 41484 and 41489), Tables 9 and 14. The 2018 projected revenues are from Tables 20 through 22 of this final rule. \118\ The study is available under ``Documents'' entitled ``Analysis of Great Lakes Pilotage Costs 2017'' at http://www.dco.uscg.mil/Our-Organization/Assistant-Commandant-for-Prevention-Policy-CG-5P/Marine-Transportation-Systems-CG-5PW/Office-of-Waterways-and-Ocean-Policy/Office-of-Waterways-and-Ocean-Policy-Great-Lakes-Pilotage-Div/. Table 41--Effect of the Final Rule by Area and District [$U.S.; non-discounted] -------------------------------------------------------------------------------------------------------------------------------------------------------- Total 2017 Total 2018 Additional Area Revenue needed 2017 Temporary projected Revenue needed 2018 Temporary projected costs of this in 2017 surcharge revenue in 2018 surcharge revenue rule -------------------------------------------------------------------------------------------------------------------------------------------------------- Total, District 1....................... $7,109,019 $0 $7,109,019 $7,988,670 $300,000 $8,288,670 $1,179,651 Total, District 2....................... 6,633,491 300,000 6,933,491 7,230,300 150,000 7,380,300 446,809 Total, District 3....................... 7,233,871 1,050,000 8,283,871 8,887,472 600,000 9,487,472 1,203,601 --------------------------------------------------------------------------------------------------------------- System Total........................ 20,976,381 1,350,000 22,326,381 24,106,442 1,050,000 25,156,442 2,830,061 -------------------------------------------------------------------------------------------------------------------------------------------------------- The resulting difference between the projected revenue in 2017 and the projected revenue in 2018 is the annual change in payments from shippers to pilots as a result of the rate change that will be imposed by this rule. The effect of the rate change to shippers varies by area and district. The rate changes, after taking into account the increase in pilotage rates and the addition of temporary surcharges, will lead to affected shippers operating in District One, District Two, and District Three experiencing an increase in payments of $1,179,651, $446,809, and $1,203,601, respectively, over the previous year. The overall adjustment in payments will be an increase in payments by shippers of $2,830,061 across all three districts (a 13 percent increase over 2017). Again, because we review and set rates for Great Lakes Pilotage annually, the impacts are estimated as single year costs rather than annualized over a 10-year period. Table 42 shows the difference in revenue by component from 2017 to 2018.\117\ The majority of the increase in revenue is due to the inflation of operating expenses and to the addition of four pilots who were authorized in the 2017 rule. These four pilots will become full- time working pilots at the beginning of the 2018 shipping season. They will be compensated at the target compensation of $352,485 per pilot. The addition of these pilots to full working status accounts for $1,409,940 of the increase. The remaining amount is attributed to increases in the working capital fund, increases in the target compensation, and differences in the surcharges from 2017. Table 42--Difference in Revenue by Component ---------------------------------------------------------------------------------------------------------------- Difference Revenue component Revenue needed Revenue needed (2018 Revenue- in 2017 in 2018 2017 Revenue) ---------------------------------------------------------------------------------------------------------------- Adjusted Operating Expenses.................................. $5,155,280 $5,965,599 $810,319 Total Target Pilot Compensation.............................. 14,983,335 17,271,765 2,288,430 Working Capital Fund......................................... 837,766 869,078 31,312 Total Revenue Needed, without Surcharge...................... 20,976,381 24,106,442 3,130,061 Surcharge.................................................... 1,350,000 1,050,000 -300,000 -------------------------------------------------- Total Revenue Needed, with Surcharge..................... 22,326,381 25,156,442 2,830,061 ---------------------------------------------------------------------------------------------------------------- Pilotage Rates as a Percentage of Vessel Operating Costs To estimate the impact of U.S. pilotage costs on foreign-flagged vessels that will be affected by the rate adjustment, we looked at the pilotage costs as a percentage of a vessel's costs for an entire voyage. The portion of the trip on the Great Lakes using a pilot is only a portion of the whole trip. The affected vessels are often traveling from a foreign port, and the days without a pilot on the total trip often exceed the days a pilot is needed. To estimate this impact, we used the 2017 study titled, ``Analysis of Great Lakes Pilotage Costs on Great Lakes Shipping and the Potential Impact of Increases in U.S. Pilotage Charges.'' \118\ We conducted the study to explore additional frameworks and methodologies for assessing the cost of Great Lakes pilot's ratemaking regulations, with a focus on capturing industry and port level economic impacts. The study also included an analysis of the pilotage costs as a [[Page 26190]] percentage of the total voyage costs that we can use in RAs to estimate the direct impact of changes to the pilotage rates. The study developed a voyage cost model that is based on a vessel's daily costs. The daily costs included: Capital repayment costs; fuel costs; operating costs (such as crew, supplies, and insurance); port costs; speed of the vessel; stevedoring rates; and tolls. The daily operating costs were translated into total voyage costs using mileage between the ports for a number of voyage scenarios. In the study, the total voyage costs were then compared to the U.S. pilotage costs. The study found that, using the 2016 rates, the U.S. pilotage charges represent 10 percent of the total voyage costs for a vessel carrying grain, and between 8 and 9 percent of the total voyage costs for a vessel carrying steel.\119\ We updated the analysis to estimate the percentage U.S. pilotage charges represent using the percentage increase in revenues from the years 2016 to 2018. Since the study used 2016 as the latest year of data, we compared the revenues needed in 2018 and 2017 to the 2016 revenues in order to estimate the change in pilotage costs as a percentage of total voyage costs from 2017 to 2018. Table 43 shows the revenues needed for the years 2016, 2017, and 2018. --------------------------------------------------------------------------- \119\ Martin Associates, ``Analysis of Great Lakes Pilotage Costs on Great Lakes Shipping and the Potential Impact of Increases in U.S. Pilotage Charges,'' page 33. \120\ The 2016 projected revenues are from the 2016 final rule, 81 FR 11938. Figure 32, projected revenue needed in 2016 plus the temporary surcharge ($17,453,678 + $1,650,000 = $19,103,678). \121\ The 2017 projected revenues are from the 2017 final rule, 82 FR 41484 and 41489, Tables 9 and 14. \122\ Available at http://www.dco.uscg.mil/Portals/9/DCO%20Documents/Office%20of%20Waterways%20and%20Ocean%20Policy/2013%20MOU%20English.pdf?ver=2017-06-08-082809-150. \123\ See http://www.manta.com/. \124\ See http://resource.referenceusa.com/. Table 43--Revenue Needed in 2016, 2017, and 2018 ---------------------------------------------------------------------------------------------------------------- Revenue needed Revenue needed Revenue needed Revenue component in 2016 \120\ in 2017 \121\ in 2018 ---------------------------------------------------------------------------------------------------------------- Total Revenue Needed, with Surcharge...................... $19,103,678 $22,326,381 $25,156,442 ---------------------------------------------------------------------------------------------------------------- From 2016 to 2017, the total revenues needed increased by 17 percent. From 2017 to 2018, the total revenues needed will increase by 13 percent. From 2016 to 2018, the total revenues needed will increase by 32 percent. While the change in total voyage cost will vary by the trip, vessel class, and whether the vessel is carrying steel or grain, we used these percentages as an average increase to estimate the change in the impact. When we increased the pilotage charges by 17 percent from 2016, we found the U.S. pilotage costs represented an average of 11.3 percent of the total voyage costs. For this year, we increased the base 2016 rates by 32 percent. With this final rule's rates for 2018, pilotage costs are estimated to account for 12.6 percent of the total voyage costs, or a 1.3 percent increase over the percentage that U.S. pilotage costs represented of the total voyage in 2017. It is important to note that this analysis is based on a number of assumptions. The purpose of the study was to look at the impact of the U.S. pilotage rates. The study did not include an analysis of the GLPA rates. It was assumed that a U.S. pilot is assigned to all portions of a voyage where he or she could be assigned. In reality, the assignment of a United States or Canadian pilot is based on the order in which a vessel enters the system, as outlined in the Memorandum of Understanding between the GLPA and the Coast Guard.\122\ This analysis looks at only the impact of U.S. pilotage cost changes. All other costs were held constant at the 2016 levels, including Canadian pilotage costs, tolls, stevedoring, and port charges. This analysis estimates the impacts of Great Lakes pilotage rates holding all other factors constant. If other factors or sectors were not held constant but, instead, were allowed to adjust or fluctuate, it is likely that the impact of pilotage rates would be different. Many factors that drive the tonnage levels of foreign cargo on the Great Lakes and St. Lawrence Seaway were held constant for this analysis. These factors include, but are not limited to, demand for steel and grain, construction levels in the regions, tariffs, exchange rates, weather conditions, crop production, rail and alternative route pricing, tolls, vessel size restriction on the Great Lakes and St. Lawrence Seaway, and inland waterway river levels. Benefits This final rule will allow the Coast Guard to meet the requirements in 46 U.S.C. 9303 to review the rates for pilotage services on the Great Lakes. The rate changes will promote safe, efficient, and reliable pilotage service on the Great Lakes by: (1) Ensuring that rates cover an association's operating expenses; (2) providing fair pilot compensation, adequate training, and sufficient rest periods for pilots; and (3) ensuring the association produces enough revenue to fund future improvements. The rate changes will also help recruit and retain pilots, which will ensure a sufficient number of pilots to meet peak shipping demand, which will help reduce delays caused by pilot shortages. B. Small Entities Under the Regulatory Flexibility Act, 5 U.S.C. 601-612, we have considered whether this rule will 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 people. For this final rule, we reviewed recent company size and ownership data for the vessels identified in the GLPMS and we reviewed business revenue and size data provided by publicly available sources such as MANTA \123\ and ReferenceUSA.\124\ As described in Section VII.A. of this preamble, Regulatory Planning and Review, we found that a total of 387 unique vessels used pilotage services from 2014 through 2016. These vessels are owned by 59 entities. We found that of the 59 entities that own or operate vessels engaged in trade on the Great Lakes affected by this final rule, 48 are foreign entities that operate primarily outside the United States. The remaining 11 entities are U.S. entities. We compared the revenue and employee data found in the company search to the Small Business Administration's (SBA) Table [[Page 26191]] of Small Business Size Standards \125\ to determine how many of these companies are small entities. Table 44 shows the North American Industry Classification System (NAICS) codes of the U.S. entities and the small entity standard size established by the SBA. --------------------------------------------------------------------------- \125\ Source: https://www.sba.gov/contracting/getting-started-contractor/make-sure-you-meet-sba-size-standards/table-small-business-size-standards. SBA has established a Table of Small Business Size Standards, which is matched to NAICS industries. A size standard, which is usually stated in number of employees or average annual receipts (``revenues''), represents the largest size that a business (including its subsidiaries and affiliates) may be considered in order to remain classified as a small business for SBA and Federal contracting programs. Table 44--NAICS Codes and Small Entities Size Standards ---------------------------------------------------------------------------------------------------------------- NAICS Description Small business size standard ---------------------------------------------------------------------------------------------------------------- 238910...................... Site Preparation $15 million. Contractors. 483211...................... Inland Water Freight 750 employees. Transportation. 483212...................... Inland Water Passenger 500 employees. Transportation. 487210...................... Scenic & Sightseeing $7.5 million. Transportation, Water. 488320...................... Marine Cargo Handling..... $38.5 million. 488330...................... Navigational Services to $38.5 million. Shipping. 488510...................... Freight Transportation $15 million. Arrangement. ---------------------------------------------------------------------------------------------------------------- The entities all exceed the SBA's small business standards for small businesses. Further, these U.S. entities operate U.S.-flagged vessels and are not required to have pilots by 46 U.S.C. 9302. In addition to the owners and operators of vessels affected by this final rule, there are three U.S. entities affected by the rule that receive revenue from pilotage services. These are the three pilot associations that provide and manage pilotage services within the Great Lakes districts. Two of the associations operate as partnerships and one operates as a corporation. These associations are designated with the same NAICS industry classification and small-entity size standards described above, but they have fewer than 500 employees; combined, they have approximately 65 employees in total. We expect no adverse effect on these entities from this rule because all associations will receive enough revenue to balance the projected expenses associated with the projected number of bridge hours (time on task) and pilots. We did not find any small not-for-profit organizations that are independently owned and operated and are not dominant in their fields. We did not find any small governmental jurisdictions with populations of fewer than 50,000 people. Based on this analysis, we find this final rule will not affect a substantial number of small entities. Therefore, we certify under 5 U.S.C. 605(b) that this rule will not have a significant economic impact on a substantial number of small entities. C. Assistance for Small Entities Under section 213(a) of the Small Business Regulatory Enforcement Fairness Act of 1996, Public Law 104-121, we offer to assist small entities in understanding this rule so that they can better evaluate its effects on them and participate in the rulemaking. The Coast Guard will not retaliate against small entities that question or complain about this rule or any policy or action of the Coast Guard. Small businesses may send comments on the actions of Federal employees who enforce, or otherwise determine compliance with, Federal regulations to the Small Business and Agriculture Regulatory Enforcement Ombudsman and the Regional Small Business Regulatory Fairness Boards. The Ombudsman evaluates these actions annually and rates each agency's responsiveness to small business. If you wish to comment on actions by employees of the Coast Guard, call 1-888-REG-FAIR (1-888-734-3247). D. Collection of Information This rule calls for no new collection of information under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520). This rule will not change the burden in the collection currently approved by OMB under OMB Control Number 1625-0086, Great Lakes Pilotage Methodology. E. Federalism A rule has implications for federalism under Executive Order 13132 (``Federalism'') if it has a substantial direct effect on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government. We have analyzed this final 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 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 rule is consistent with the fundamental federalism principles and preemption requirements described in Executive Order 13132. While it is well settled that States may not regulate in categories in which Congress intended the Coast Guard to be the sole source of a vessel's obligations, the Coast Guard recognizes the key role that State and local governments may have in making regulatory determinations. Additionally, for rules with federalism implications and preemptive effect, Executive Order 13132 specifically directs agencies to consult with State and local governments during the rulemaking process. If you believe this rule has implications for federalism under Executive Order 13132, please contact the person listed in the FOR FURTHER INFORMATION CONTACT section of this preamble. F. Unfunded Mandates Reform Act The Unfunded Mandates Reform Act of 1995, 2 U.S.C. 1531-1538, requires Federal agencies to assess the effects of their discretionary regulatory actions. In particular, the Act addresses actions that may result in the expenditure by a [[Page 26192]] State, local, or tribal government, in the aggregate, or by the private sector of $100,000,000 (adjusted for inflation) or more in any one year. Although this rule will not result in such expenditure, we discuss the effects of this rule elsewhere in this preamble. G. Taking of Private Property This final rule will 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 final 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 final rule under Executive Order 13045 (``Protection of Children from Environmental Health Risks and Safety Risks''). This rule is not an economically significant rule and will not create an environmental risk to health or risk to safety that might disproportionately affect children. J. Indian Tribal Governments This final rule does not have tribal implications under Executive Order 13175 (``Consultation and Coordination with Indian Tribal Governments''), because it will 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 rule under Executive Order 13211 (``Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use''). We have determined that it is not a ``significant energy action'' under that order because it is not a ``significant regulatory action'' under Executive Order 12866 and is not likely to have a significant adverse effect on the supply, distribution, or use of energy. L. Technical Standards The National Technology Transfer and Advancement Act, codified as a note to 15 U.S.C. 272, directs agencies to use voluntary consensus standards in their regulatory activities unless the agency provides Congress, through OMB, with an explanation of why using these standards would be inconsistent with applicable law or otherwise impractical. Voluntary consensus standards are technical standards (e.g., specifications of materials, performance, design, or operation; test methods; sampling procedures; and related management systems practices) that are developed or adopted by voluntary consensus standards bodies. This rule does not use technical standards. Therefore, we did not consider the use of voluntary consensus standards. M. Environment We have analyzed this final rule under Department of Homeland Security (DHS) Directive 023-01, Revision (Rev) 01, Implementation of the National Environmental Policy Act [DHS Instruction Manual 023-01 (series)] and Commandant Instruction M16475.lD, which guide the Coast Guard in complying with the National Environmental Policy Act of 1969 (42 U.S.C. 4321-4370f), and have determined 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 Record of Environmental Consideration supporting this determination is available in the docket where indicated under the ADDRESSES section of this preamble. This rule is categorically excluded under paragraph A3 of Table 1, particularly subparts (a), (b), and (c) in Appendix A of DHS Directive 023- 01(series). CATEX A3 pertains to promulgation of rules and procedures that are: (a) Strictly administrative or procedural in nature; (b) that implement, without substantive change, statutory or regulatory requirements; or (c) that implement, without substantive change, procedures, manuals, and other guidance documents. This rule adjusts base pilotage rates and surcharges for administering the 2018 shipping season in accordance with applicable statutory and regulatory mandates, and also proposes several minor changes to the Great Lakes pilotage ratemaking methodology. List of Subjects 46 CFR Part 401 Administrative practice and procedure, Great Lakes, Navigation (water), Penalties, Reporting and recordkeeping requirements, Seamen. 46 CFR Part 404 Great Lakes, Navigation (water), Seamen. For the reasons discussed in the preamble, the Coast Guard amends 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). 0 2. Revise Sec. 401.220(a) to read as follows: Sec. 401.220 Registration of pilots. (a) The Director shall determine the number of pilots required to be registered in order to assure adequate and efficient pilotage service in the United States waters of the Great Lakes and to provide for equitable participation of United States Registered Pilots with Canadian Registered Pilots in the rendering of pilotage services. The Director determines the number of pilots needed as follows: (1) The Director determines the base number of pilots needed by dividing each area's peak pilotage demand data by its pilot work cycle. The pilot work cycle standard includes any time that the Director finds to be a necessary and reasonable component of ensuring that a pilotage assignment is carried out safely, efficiently, and reliably for each area. These components may include, but are not limited to-- (i) Amount of time a pilot provides pilotage service or is available to a vessel's master to provide pilotage service; (ii) Pilot travel time, measured from the pilot's base, to and from an assignment's starting and ending points; (iii) Assignment delays and detentions; (iv) Administrative time for a pilot who serves as a pilotage association's president; (v) Rest between assignments, as required by Sec. 401.451; (vi) Ten days' recuperative rest per month from April 15 through November 15 each year, provided that lesser rest allowances are approved by the Director at the pilotage association's request, if necessary to provide pilotage without interruption through that period; and (vii) Pilotage-related training. (2) Pilotage demand and the base seasonal work standard are based on available and reliable data, as so deemed by the Director, for a multi-year base period. The multi-year period is the 10 most recent full shipping seasons, and the data source is a system approved under 46 CFR 403.300. Where [[Page 26193]] such data are not available or reliable, the Director also may use data, from additional past full shipping seasons or other sources, that the Director determines to be available and reliable. (3) The number of pilots needed in each district is calculated by totaling the area results by district and rounding them to the nearest whole integer. For supportable circumstances, the Director may make reasonable and necessary adjustments to the rounded result to provide for changes that the Director anticipates will affect the need for pilots in the district over the period for which base rates are being established. * * * * * 0 3. Revise Sec. 401.405(a) to read as follows: Sec. 401.405 Pilotage rates and charges. (a) The hourly rate for pilotage service on-- (1) The St. Lawrence River is $653; (2) Lake Ontario is $435; (3) Lake Erie is $497; (4) The navigable waters from Southeast Shoal to Port Huron, MI is $593; (5) Lakes Huron, Michigan, and Superior is $271; and (6) The St. Mary's River is $600. * * * * * PART 404--GREAT LAKES PILOTAGE RATEMAKING 0 4. The authority citation for part 404 continues to read as follows: Authority: 46 U.S.C. 2103, 2104(a), 9303, 9304; Department of Homeland Security Delegation No. 0170.1(II)(92.a), (92.f). 0 5. Revise Sec. 404.100 to read as follows: Sec. 404.100 Ratemaking and annual reviews in general. (a) The Director establishes base pilotage rates by a full ratemaking pursuant to Sec. Sec. 404.101 through 404.110, which is conducted at least once every 5 years and completed by March 1 of the first year for which the base rates will be in effect. Base rates will be set to meet the goal specified in Sec. 404.1(a). (b) In the interim years preceding the next scheduled full rate review, the Director will adjust base pilotage rates by an interim ratemaking pursuant to Sec. Sec. 404.101 through 404.110. (c) Each year, the Director will announce whether the Coast Guard will conduct a full ratemaking or interim ratemaking procedure. 0 6. Revise Sec. 404.102 to read as follows: Sec. 404.102 Ratemaking step 2: Project operating expenses, adjusting for inflation or deflation. The Director projects the base year's non-compensation operating expenses for each pilotage association, using recognized operating expense items from Sec. 404.101. Recognized operating expense items subject to inflation or deflation factors are adjusted for those factors based on the subsequent year's U.S. government consumer price index data for the Midwest, projected through the year in which the new base rates take effect, or if that is unavailable, the Federal Open Market Committee median economic projections for Personal Consumption Expenditures inflation. 0 7. Revise Sec. 404.103 to read as follows: Sec. 404.103 Ratemaking step 3: Estimate number of working pilots. The Director projects, based on the number of persons applying under 46 CFR part 401 to become U.S. Great Lakes registered pilots, and on information provided by the district's pilotage association, the number of pilots expected to be fully working and compensated. 0 8. Revise Sec. 404.104 to read as follows: Sec. 404.104 Ratemaking step 4: Determine target pilot compensation benchmark. (a) In a full ratemaking year, the Director determines base individual target pilot compensation using a compensation benchmark, set after considering the most relevant currently available non- proprietary information. For supportable circumstances, the Director may make necessary and reasonable adjustments to the benchmark. (b) In an interim year, the Director adjusts the previous year's individual target pilot compensation level by the Bureau of Labor Statistics' Employment Cost Index for the Transportation and Materials sector, or if that is unavailable, the Federal Open Market Committee median economic projections for Personal Consumption Expenditures inflation. (c) The Director determines each pilotage association's total target pilot compensation by multiplying individual target pilot compensation computed in paragraph (a) or (b) of this section by the number of pilots projected under Sec. 404.103(d) or Sec. 401.220(a) of this chapter, whichever is lower. 0 9. Revise Sec. 404.107 to read as follows: Sec. 404.107 Ratemaking step 7: Calculate initial base rates. (a) The Director calculates initial base hourly rates by dividing the projected needed revenue from Sec. 404.106 by averages of past hours worked in each district's designated and undesignated waters, using available and reliable data for a multi-year period set in accordance with Sec. 401.220(a) of this chapter. Dated: May 30, 2018. Michael D. Emerson, Director, Marine Transportation Systems, U.S. Coast Guard. [FR Doc. 2018-11969 Filed 6-4-18; 8:45 am] BILLING CODE 9110-04-P
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DEPARTMENT OF HOMELAND H. Other Issues Relating to Pilotage setting the rates for pilotage services and
SECURITY Oversight adjusting them on an annual basis. The
1. Unnecessary Pilot Orders for Use of Tugs rates, which in the 2017 shipping year
Coast Guard 2. Mechanisms To Prevent or Discourage
ranged from $218 to $601 per pilot hour
Delays
3. Delays Related to Labor Disputes (depending on the specific area where
46 CFR Parts 401 and 404 4. Over-Realization of Revenues pilotage service is provided), are paid by
[Docket No. USCG–2017–0903] VI. Discussion of Rate Adjustments shippers to pilot associations. The three
A. Step 1—Recognition of Operating pilot associations that are the exclusive
RIN 1625–AC40 Expenses source of United States registered pilots
B. Step 2—Projection of Operating on the Great Lakes use this revenue to
Great Lakes Pilotage Rates—2018 Expenses cover operating expenses, maintain
Annual Review and Revisions to C. Step 3—Estimate Number of Working
infrastructure, compensate working
Methodology Pilots
D. Step 4—Determine Target Pilot pilots, and train new pilots. We have
AGENCY: Coast Guard, DHS. Compensation developed a ratemaking methodology in
ACTION: Final rule. E. Step 5—Calculate Working Capital Fund accordance with our statutory
F. Step 6—Calculate Revenue Needed requirements and regulations. Our
SUMMARY: In accordance with the Great G. Step 7—Calculate Initial Base Rates ratemaking methodology calculates the
Lakes Pilotage Act of 1960, the Coast H. Step 8—Calculate Average Weighting revenue needed for each pilotage
Guard is establishing new base pilotage Factors by Area association (including operating
rates and surcharges for the 2018 I. Step 9—Calculate Revised Base Rates expenses, compensation, and
shipping season. Additionally, the Coast J. Step 10—Review and Finalize Rates
K. Surcharges
infrastructure needs), and then divides
Guard is making several changes to the that amount by the expected shipping
VII. Regulatory Analyses
Great Lakes pilotage ratemaking A. Regulatory Planning and Review traffic over the course of the year to
methodology. These additional changes B. Small Entities produce an hourly rate. This process is
include creating clear delineation C. Assistance for Small Entities currently effected through a 10-step
between the Coast Guard’s annual rate D. Collection of Information methodology and supplemented with
adjustments and the Coast Guard’s E. Federalism surcharges, which are explained in
requirement to conduct a full F. Unfunded Mandates Reform Act detail in the notice of proposed
ratemaking every 5 years; the adoption G. Taking of Private Property rulemaking (NPRM) published on
of a revised compensation benchmark; H. Civil Justice Reform
I. Protection of Children
January 18, 2018.2
reorganization of the text regarding the
J. Indian Tribal Governments In this final rule, the Coast Guard is
staffing model for calculating the K. Energy Effects modifying the ratemaking methodology
number of pilots needed; and certain L. Technical Standards and establishing new pilotage rates for
editorial changes. M. Environment 2018 based on the new methodology.
DATES: This rule will be effective July 5, The modifications to the ratemaking
I. Abbreviations
2018. methodology consist of a new
FOR FURTHER INFORMATION CONTACT: For AMO American Maritime Officers Union compensation benchmark, updates and
CATEX Unique Categorical Exclusions for
information about this document, call or revisions to annually adjusted figures
the U.S. Coast Guard
email Mr. Todd Haviland, Director, CFR Code of Federal Regulations such as inflation rates and traffic
Great Lakes Pilotage, Commandant (CG– CPA Certified public accountant volumes, organizational changes, and
WWM–2), Coast Guard; telephone 202– CPI Consumer Price Index clarifications. In this final rule, we are
372–2037, email Todd.A.Haviland@ DHS Department of Homeland Security establishing a new compensation
uscg.mil, or fax 202–372–1914. ECI Employment Cost Index benchmark based on input from the
SUPPLEMENTARY INFORMATION: FOMC Federal Open Market Committee American Maritime Officers Union
FR Federal Register (AMO) 2015 contracts. Also, based on
Table of Contents for Preamble GLPA Great Lakes Pilotage Authority comments to the proposed rule that the
(Canadian)
I. Abbreviations
GLPAC Great Lakes Pilotage Advisory
Coast Guard received, we are changing
II. Executive Summary the inflation adjustment index from the
Committee
III. Basis and Purpose Consumer Price Index (CPI) to the
GLPMS Great Lakes Pilotage Management
IV. Background and Comment Topics Employment Cost Index (ECI).
System
V. Discussion of Comments and Changes to Additionally, from an organizational
NAICS North American Industry
Methodology
Classification System standpoint, we are moving, but not
A. Rationale for Change in Compensation
NPRM Notice of proposed rulemaking changing, the requirements of the
Benchmark
OMB Office of Management and Budget staffing model from their current
1. Challenges With Canadian Comparison
PCE Personal Consumption Expenditures location in title 46 of the Code of
2. Comparison With U.S. Pilotage
RA Regulatory analysis
Associations
SBA Small Business Administration
Federal Regulations (CFR) 404.103 (as
B. Revised Compensation Benchmark part of ‘‘Step 3’’ of the ratemaking
§ Section Symbol
Issues process), to the general regulations
The Act Great Lakes Pilotage Act of 1960
1. Use of AMO 2015 Aggregate Rate governing pilotage in 46 CFR 401.220(a).
U.S.C. United States Code
2. Overtime Compensation For clarification purposes, we are
3. Calculation of Number of Days in Pay II. Executive Summary
C. Inflation Adjustment Factor for
setting forth separate regulatory
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Adjustment Years Pursuant to the Great Lakes Pilotage paragraphs detailing the differences
D. Staffing Model Relocation and Act of 1960 (‘‘the Act’’),1 the Coast between how we undertake an annual
Calculations Guard regulates pilotage for oceangoing adjustment of the pilotage rates, and a
E. Working Capital Fund Basis and Use vessels on the Great Lakes—including
F. Use of 10-Year Traffic Baseline 2 Great Lakes Pilotage Rates—2018 Annual
G. Calculation of Surcharges and 1 46 U.S.C. Chapter 93; Public Law 86–555, 74 Review and Revisions to Methodology, 83 FR 2581,
Incorporation Into Operating Costs Stat. 259, as amended. January 18, 2018.
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response below, we note which benchmark on data provided by the increases of GLPA pilots, we applied an
commenters raised the specific points AMO regarding its contract for first additional 3.5 percent annual real wage
being addressed. In situations where mates on the Great Lakes in the 2011 to increase factor for each of the 3 years,
multiple commenters raised similar 2015 period. We used the information to arrive at $296,467 as the final
issues, we attempt to provide one from 2015, adjusting it for inflation to equivalent compensation figure for
response to those issues. an equivalent 2018 rate, because it was 2016.22 Finally, we increased that figure
Overall, the issues raised by the the most recent publically-available by an additional 10 percent to address
commenters fell into eight categories. information to which we had access. We the ‘‘difference in status between GLPA
The most substantive comments were in stated that we proposed to use this employees and independent U.S.
regard to the issue of the proposed benchmark to calculate compensation pilots,’’ 23 for a final ‘‘GLPA plus 10
interim compensation benchmark, until we identify another suitable percent’’ benchmark figure of $326,114.
which we address in Sections V.A and standard. We are currently conducting a While we were not certain that a 10
B of this preamble. We also received comprehensive, multi-year analysis of percent adjustment for these differences
comments on the proper measure of pilot compensation that we hope will was appropriate, we did note that the
inflation by which to adjust inform a new benchmark. This study figure had been cited in a July 2014
compensation figures annually. Other will not be available before the 2020 Great Lakes Pilotage Advisory
parts of the ratemaking methodology ratemaking proceeding. Committee (GLPAC) meeting as
were raised by commenters as well, Nearly all commenters made balancing the different status of the U.S.
including questions regarding the arguments regarding the proposal to and GLPA pilots.
placement and application of the change the compensation benchmark. This GLPA-plus-10-percent
staffing model used to calculate the Many commenters stated that the Coast benchmark of $326,114 formed the basis
needed number of pilots, the amount Guard should not have stopped using for our target compensation until the
and application of the working capital the Canadian compensation benchmark, 2017 memorandum opinion 24 found it
fund charges, the use of a 10-year but simply should have reanalyzed and to be arbitrary and capricious and in
average to calculate expected vessel adjusted the ten-percent increase it violation of the Administrative
traffic, and the collection and applied to account for health and Procedure Act. Specifically, the court
calculation of surcharges. Finally, pension differences. Alternatively, some found that certain statements made at
commenters raised a variety of pilotage commenters suggested that instead of the 2014 GLPAC meeting did not
issues not directly related to calculating using Canadian GLPA or AMO constitute an adequate basis for the 10-
the 2018 shipping rates. We address comparative information to establish a percent adjustment.25 Based on the 2017
each of these items in the subsections benchmark, the Coast Guard should use memorandum opinion, in the 2018
that follow. the benefit and salary information for NPRM, we proposed adopting the
other U.S. pilotage associations. We interim benchmark, based on AMO
A. Rationale for Change in
address these issues below. information.26 However, several
Compensation Benchmark
commenters suggested that we had not
The most substantive change 1. Challenges With Canadian responded appropriately to the court’s
proposed in the 2018 NPRM was the Comparison 2017 opinion. These commenters argued
change in the benchmark compensation In the 2016 ratemaking, the Coast that because the court found that only
model, with the proposed switch from Guard originally established a the 10-percent increase was arbitrary
using the GLPA as a baseline to the benchmark for target pilot compensation and capricious, the Coast Guard should
‘‘interim benchmark,’’ which uses the based on the total compensation of replace only that portion. One
AMO 13 2015 aggregated wage and Canadian GLPA.18 We chose the GLPA commenter stated that ‘‘all the Coast
benefit information. In the NPRM, we because ‘‘Canadian GLPA pilots provide Guard needs to do is return to the
stated that we proposed this change service that is almost identical to the administrative record for the 2016
because, pursuant to litigation 14 filed service provided by U.S. Great Lakes rulemaking, analyze the multiple
by the industry, a court had found that Pilots.’’ 19 To calculate this benchmark, comments in support of a 25- to 37-
the Coast Guard ‘‘failed to justify’’ 15 its we started with the 2013 Canadian percent adjustment, and explain its
decision to apply a 10-percent addition GLPA salaries, which we calculated to reasoning for the adjustment it
to the Canadian GLPA benchmark, and be $273,145 in Canadian dollars, or determines is most appropriate.27
thus was arbitrary and capricious.16 As $255,037 U.S.20 We then inflated that Another commenter stated that the court
this opinion was handed down in amount using Midwest CPI–U data for ‘‘require[d] the Coast Guard to
November 2017, the Coast Guard noted 2014 and 2015, and Federal Reserve reconsider more carefully the pilots’
that ‘‘there is a need for an interim inflation data for 2016, to arrive at an
benchmark level to be developed on inflation-adjusted figure of $267,534.21
22 See 81 FR 11908, at 11933, Figure 21.
23 80 FR 54484, at 54498. This referred to the fact
short notice and with limited time to Next, to match average annual wage that ‘‘GLPA pilots are Canadian government
gather new data.’’ 17 We based the new employees and therefore have guaranteed minimum
18 In this final rule, we refer to the U.S. dollar compensation with increases for high-traffic
13 We note that in the NPRM, we referred to the periods, retirement, healthcare and vacation
equivalent of the combined wages and benefits of
American Maritime Officers Union as the ‘‘AMOU’’, Canadian Great Lakes pilots, using the conversion benefits, and limited professional liability. In
but in their comments, they referred to themselves methodology described above, as the ‘‘Canadian addition, GLPA pilots have guaranteed time off
as ‘‘AMO’’. We use their preferred acronym in this benchmark,’’ although we did not use that while U.S. pilots must be available for service
document except when citing direct quotes that use terminology in the 2016 ratemaking documents. throughout the shipping season and without any
other terminology. 19 Great Lakes Pilotage Rates—2016 Annual guaranteed time off.’’ See 80 FR 54484, at 54497.
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14 American Great Lakes Ports Association, et al., 24 American Great Lakes Ports Association, et al.,
Review and Changes to Methodology, Notice of
v. Admiral Paul F. Zukunft, Civil Action No. 16– Proposed Rulemaking (September 10, 2015), 80 FR v. Admiral Paul F. Zukunft, Civil Action No. 16–
1019, D.C. District Court, November 3, 2017. 54484, at 54497. 1019, D.C. District Court, November 3, 2017, p. 25.
15 American Great Lakes Ports Association, et al., 20 See 81 FR 11908, at 11933 to determine how 25 American Great Lakes Ports Association, et al.,
v. Admiral Paul F. Zukunft, Civil Action No. 16– we arrived at 2013 compensation. We then v. Admiral Paul F. Zukunft, Civil Action No. 16–
1019, D.C. District Court, November 3, 2017, p. 5. converted that number to U.S. dollars at the 2013 1019, D.C. District Court, November 3, 2017, p. 25.
16 83 FR 2581, at 2587. exchange rate of 1.071 CAD to USD. 26 83 FR 2581, at 2587–88.
17 83 FR 2581, at 2588. 21 See 81 FR 11908, at 11933, Figure 19. 27 USCG–2017–0903–0004, p. 3.
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position that the Canadian benchmark 2016 GLPA annual report to calculate a Comparing the previously calculated
compensation should be increased by 25 new average total compensation figure. $312,069 (without the 10-percent
to 37 percent to account for differences Using that information, and applying increase, in 2018 dollars 31) Canadian
between the two pilotage groups, the same methodology as we did in the GLP total compensation with the
particularly the government health care 2016 ratemaking, we calculated that the $265,139 (in 2018 dollars) Canadian
and pensions received by the 2016 GLPA pilot average compensation GLP compensation calculated in 2018—
Canadians.’’ 28 was $235,136.29 Next, we inflated that using the same methodology—reveals a
We agree with the commenters that amount using 2017 ECI data and 2018 substantial problem with using GLPA
the court found only the 10-percent
Federal Reserve PCE inflation data,30 to compensation as a benchmark for U.S.
addition to be unjustified, and that the
arrive at an inflation-adjusted figure of pilots.32 Specifically, the exchange rate
Coast Guard would legally be able to
propose using the GLPA wages and $247,510. Finally, we applied an between the U.S. and Canadian dollars
benefits as a starting point to develop a additional 3.5 percent annual real wage underwent a shift of over 25 percent in
revised benchmark. Indeed, when increase factor for the 2 years, to match 3 years, which caused the benchmark to
considering a revised benchmark for the the calculation we performed in 2016 shift substantially as well. An analysis
2018 ratemaking, we did reanalyze for annual wage increases of GLPA of the U.S. to Canadian exchange rates
GLPA compensation. To update our pilots, to arrive at a final $265,139 reveals that this rate can fluctuate
information regarding the value of the equivalent compensation figure for substantially, as shown using IRS data 33
Canadian benchmark, we analyzed the 2018. in Table 2.
TABLE 2—U.S./CANADIAN DOLLAR EXCHANGE RATES
Year 2012 2013 2014 2015 2016 2017
Exchange Rate (USD/CAD) ............................................. 1.040 1.071 1.149 1.329 1.379 1.350
This fluctuation reveals a the very ‘‘substantial volatility regarding number, rather than use the interim
fundamental challenge with using the compensation’’ that the Coast Guard compensation benchmark. One
GLPA compensation as a benchmark. If says it wants to avoid . . . .’’ 35 We note commenter suggested that the Coast
we were to continue to use it, we would two flaws with this argument. First, as Guard should ‘‘analyze the multiple
have to adjust it every 5 years using the shown above, continuing to use the comments in support of a 25%–37%
current exchange rate. As shown, doing GLPA benchmark would have resulted adjustment, and explain its reasoning
so could lead to very substantial in a significant decrease in target for the adjustment it determines is most
fluctuations in the benchmark, which compensation, even below the level appropriate.’’ 36 Another commenter
would not relate to economic conditions derived from the interim benchmark. asserted the D.C. District Court, in its
in the United States or to the state of the Second, the Coast Guard believes the 2017 opinion, ‘‘require[d] the Coast
U.S. labor market. Such an increase in commenters misinterpret the issue of Guard to reconsider more carefully the
volatility would be counter to the Coast volatility. The fact that the target pilot’s position that the Canadian
Guard’s goals of rate and compensation compensation can decrease when it is benchmark compensation should be
stability and promoting recruitment and re-benchmarked is a feature of the increased by 25–37% to account for
retention of qualified United States system. It would hardly be fair if, upon differences between the two pilotage
registered pilots. a showing that the relevant groups, particularly the government
We note that two commenters compensation level had decreased, the health care and pensions received by
representing pilotage associations Coast Guard resorted to a new Canadians.’’ 37 We note that the court
argued that the Coast Guard should not benchmark as part of a scheme to keep itself not only suggested that the Coast
have abandoned the Canadian GLPA compensation rising. We hope to reduce Guard should have more closely
compensation benchmark, because volatility by selecting a relatively stable analyzed the pilots’ comments, but also
using the interim benchmark resulted in compensation benchmark, but may still suggested we consider the option of, ‘‘as
a proposed lower level of reduce target compensation and rates the shipping industry suggested,
compensation.34 One commenter stated when warranted by the data. foregoing an adjustment altogether.’’ 38
that one problem with using the In light of the court’s opinion, the In analyzing those comments, we
proposed revised benchmark is that it Coast Guard has also considered the found little evidence or data to warrant
‘‘reduces the compensation target by at commenters’ assertions that we should the substantial adjustments to arrive at
least $20,000 relative to retaining the re-analyze the 2016 comments on the the 25- and 37-percent figures suggested
GLPA benchmark and adjusting it for ‘‘adjustment factor’’ that is applied to by the commenters. The 25-percent
another year of inflation—resulting in GLPA rates, and simply use that figure, suggested by the Great Lakes
28 USCG–2017–0903–0006, p. 5. 12 months ended in December, is found in Table 33 This information is available at: https://
29 We performed the 2016 calculation as follows: 5 (p. 71) of the following: https://www.bls.gov/web/ www.irs.gov/individuals/international-taxpayers/
We used 2016 pilot compensation from the GLPA eci/echistrynaics.pdf. ECI for 2017 is 3.3 percent. yearly-average-currency-exchange-rates.
34 USCG–2017–0903–0004, p. 5; USCG–2017–
(available in the docket as USCG–2017–0903) to PCE inflation for 2018 is 1.9 percent, see https://
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derive the average Canadian pilot compensation of www.federalreserve.gov/monetarypolicy/ 0903–0006, p. 8.
approximately $324,252 CAD. To do so, we divided 35 USCG–2017–0903–0004, p. 5. Emphasis in
fomcminutes20171213ep.htm.
$17,769,000 total wages and benefits by 54.8 pilots. 31 This figure is the $296,467 we calculated in original.
We then converted that number to U.S. dollars at 2016, inflated to 2018 dollars using the ECI and PCE
36 USCG–2017–0903–0004, p. 3.
the 2016 exchange rate of 1.379 CAD to USD, to 37 USCG–2017–0903–0006, p. 5.
inflation.
derive a figure of $235,136. 32 If we then added 10 percent, the resultant
38 American Great Lakes Ports Association, et al.,
30 ECI for ‘‘total compensation for private industry v. Admiral Paul F. Zukunft, Civil Action No. 16–
figure would be $291,653.
workers, transportation and material moving,’’ for 1019, D.C. District Court, November 3, 2017, p. 25.
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Pilots,39 was not based on specific reason a properly-funded monetary for other independent compulsory pilots
information, but instead was simply pension should cost more in the United throughout the United States.’’ 45
asserted in light of the listing of 10 States than it does in Canada), we do While we agree with the commenters
general differences between U.S. and not believe these calculations are sound. that the final compensation information
Canadian pilots (e.g., ‘‘Canadian pilots In this particular instance, the of some other U.S. pilots is publicly
receive healthcare benefits as commenter stated that ‘‘[f]or pension available, we are not, at this time,
government employees. American pilots costs if we had used the MMP pension convinced that it is the best benchmark.
pay for their own healthcare.’’ 40) In the plan contribution rate of 18% of wages We note that there are over 60 pilotage
comment by the International plus a 5% IRAP the cost would be associations in the U.S., with huge
Organization of Masters, Mates, and $61,992. But the IRS has a cap on the variations in pay structure and levels.
Pilots, which produced the figure of 37 contribution for self-employed For example, in some of our research
percent, we found several questionable individuals at $53,000 and we will use involving pilot compensation, we found
assumptions.41 First, as noted in the that number.’’ 43 However, the that pilot compensation levels that
2016 final rule, the mathematical basis commenter did not assert whether the ranged from a low of $173,554
of adding a 37-percent premium to the Canadian pension plan is similar to the annually 46 to a high of $758,922.47
Canadian compensation level in order to MMP pension plan, rendering it Such a wide range does not provide
arrive at an equivalent level of impossible to understand why the sufficient information about the proper
compensation for a U.S. pilot requires contributions needed to fund the two compensation of Great Lakes pilots on
increasing the salary proportion of the plans are so different. its own.
component by 15 percent to account for Based on our analysis of the At this time, we do not have
a purported cost of living differential substantial changes in the exchange sufficient, reliable information regarding
between Detroit, Michigan, and rate, and the uncertainty regarding the how the baseline average compensation
Windsor, Ontario, resulting in an correct comparison of the Canadian and levels of other U.S. pilotage associations
additional $35,156 in salary. As we U.S. compensation systems, we decided are set, only information on the rate
noted in the 2016 final rule, ‘‘we do not not to continue using the GLPA changes from year to year. While the
think the 15 percent COLA differential information as a compensation final compensation levels are public, the
between Detroit, MI and Windsor, ON is benchmark. Instead, as described below, methods by which those compensation
relevant—a single comparison point we believe that a comparison with a levels were benchmarked (as opposed to
should not be utilized to establish the U.S. system is a better interim adjusted on a year-by-year basis) is not
regional comparison.’’ 42 The benchmark until the Coast Guard can apparent. As we mention above, the
commenter also makes the assumption complete its compensation study. Coast Guard continues to study the
that to match $49,716 in Canadian compensation structures of other
benefits, which includes health 2. Comparison With U.S. Pilotage pilotage systems as part of our
insurance, pension benefits, and tax Associations comprehensive study, and in the course
‘‘true-ups,’’ among other items, would of that study, has reached out to
require U.S. pilots be paid an additional Several commenters also repeated a numerous pilot associations and
$118,741 (which includes $43,231 in request that, instead of basing our shipping interests as to how
health insurance costs and $53,000 in compensation benchmark on Canadian compensation levels and shipping rates
pension contributions). We do not pilots or U.S. mates, we should instead are determined, but would certainly
believe that taxation differences should base it on a figure derived from the welcome input on how compensation is
be taken into account when determining compensation of other U.S. pilotage set and what factors contribute to that
whether compensation is equivalent for organizations. One commenter argued determination.
several reasons. First, taxation varies that ‘‘many pilots are comparably Further, as noted in the 2018 NPRM,
over time and by specific locality within regulated in other U.S. jurisdictions and the Coast Guard commissioned a study
both the U.S. and Canada. Second, their rates and compensation set in open to better understand the direct and
services are received in exchange for and evidence-based proceedings. The secondary impacts of the U.S. pilotage
taxes, and it would be unfair to pay an Coast Guard has never provided a charges. The report is titled ‘‘Analysis of
individual more to compensate for taxes convincing rationale for its failure to the Great Lakes Pilotage Costs on Great
that pay for services they receive. consider or adopt a benchmark based on Lakes Shipping and the Potential Impact
Finally, we note that tax policy is under the compensation of other U.S. of Increases in U.S. Pilotage Charges’’ 48
the control of neither the USCG nor the pilots.’’ 44 The commenter also provided and assessed the baseline economic
GLPA, but we could control whether the examples of other U.S. pilot conditions of maritime commerce on the
pre-tax compensation is similar. We also compensation, which it noted were Great Lakes, quantified the cost of
do not accept the commenter’s assertion considerably higher than any operating vessels on the Great Lakes,
that the pension costs require such a benchmark the Coast Guard had used in compared the cost of foreign trade on
tremendous increase in compensation. the past. The AMO, on whose contracts the Great Lakes to other modes of
Given that there is a mathematical basis the proposed interim benchmark was transportation and coastal ports, and
of pension contributions (i.e., there is no based, argued that, rather than using assessed the impact of changes in
AMO contracts with U.S. shipping
39 This comment is available at companies as a basis to determine the 45 USCG–2017–0903–0005, p. 1.
www.regulations.gov, docket number USCG–2015– target rate of compensation, ‘‘it would 46 https://www.governmentjobs.com/careers/
0497–0052. make considerably more sense for the lacity/jobs/1823743/port-pilot-5151?keywords=
amozie on DSK3GDR082PROD with RULES2
40 USCG–2015–0497–0052, p.16. We note that port%20pilot&pagetype=jobOpportunitiesJobs.
Coast Guard to use publicly available
health benefits were included in the estimate of 47 See ‘‘NOBRA 2017 Income Disclosure,’’ docket
Canadian compensation used to create the
information on the compensation levels
# USCG–2017–0903–0009.
benchmark. 48 ‘‘Analysis of Great Lakes Pilotage Costs on
41 This comment is available at 43 USCG–2015–0497–0038, p.5. Acronyms were
Great Lakes Shipping and the Potential Impact of
www.regulations.gov, docket number USCG–2015– undefined in original comment, internal citations to Increases in U.S. Pilotage Charges,’’ prepared by
0497–0038. U.S. statutes omitted. John C. Martin Associates, LLC, June 28, 2017
42 81 FR 11908, at 11915. 44 USCG–2017–0903–0006, p. 6. (hereinafter the ‘‘2017 Pilotage Cost Analysis’’).
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![26168 Federal Register / Vol. 83, No. 108 / Tuesday, June 5, 2018 / Rules and Regulations
pilotage rates to the Great Lakes from the other U.S. pilotage associations for shipping industry personnel to
shipping industry, including as the basis for the interim acquire data about AMO contracts with
surrounding ports. This study compensation benchmark in the 2018 shipping companies on their own.
demonstrated that pilotage costs play a NPRM. In this section, we respond to One commenter argued that basing
role in determining the amount of cargo comments regarding our choice to use the compensation on the 2015 AMO
shipped on the Great Lakes. Because the the 2015 AMO contract information as data was inappropriate. The commenter
Coast Guard considers the impact of the basis for the compensation stated that ‘‘the use of old, disputed,
shipping costs on Great Lakes pilotage benchmark instead. We received several extrapolated AMOU data does not
as part of its ratemaking considerations, comments on the AMO contract adhere to the Coast Guard’s own
this study provided evidence that large information’s validity and how to regulations (as proposed) in 404.104,’’ 52
increases in pilotage rates could implement it, which we address in which state that the Coast Guard will set
negatively affect shipping on the Great several subsections that follow. In the a compensation benchmark after
Lakes. While we recognize that the first subsection, we address why we considering the most relevant currently
study itself is not a comprehensive chose the 2015 rate. In the second available non-proprietary information.
analysis of all economic factors, it is one subsection, we discuss comments from The commenter argued that the
factor that the Coast Guard considered the AMO about the application of
information is old (it is from October
when setting rates for shipping. overtime compensation to the daily
2013), irrelevant (stating that it relates to
To assess the potential impact of the aggregate rate. Finally, in the third
laker-masters, not pilots), and
U.S. pilotage charges on the competitive subsection, we address industry
cost position of the Great Lakes/St. proprietary (as actual data from 2018 is
comments regarding the application of
Lawrence Seaway System and the not available), and thus should not be
the daily aggregate rate to the 270-day
associated impact on tonnage moving used as a basis for pilot compensation.
shipping season on the Great Lakes.
via the Great Lakes ports, the 2017 We disagree with the commenter, and
Pilotage Cost Analysis considered the 1. Use of AMO 2015 Aggregate Rate believe that the data supplied in the
actual increases in pilotage charges In addition to suggestions that we October 4, 2013, letter from the AMO
between 2015 and 2016, and assuming continue using the Canadian GLPA describing aggregate daily rates,53 meets
numerous other economic factors compensation as a benchmark or that the standard in 46 CFR 404.104 of being
remained constant,49 projected potential we base our compensation on those of the ‘‘most relevant currently-available
impacts in the event that similar other U.S. pilotage associations, we non-proprietary information’’ for the
increases in U.S. pilotage charges were received several comments specifically reasons described below.
to occur in the following year. While the regarding our decision to make use of First, we believe that the data in the
2017 rates did not actually increase in the AMO aggregate daily rates from AMO letter is the ‘most relevant’
accordance with the model’s 2015 (note this is separate from the information. Notwithstanding AMO’s
assumption, and thus the projected discussion of comments, in Section statement that ‘‘. . . the AMO is
impacts did not actually occur, the V.B.2., regarding how to apply the AMO disappointed to learn that the U.S. Coast
study provides evidence of the Great aggregate daily rates). A discussion of Guard is again attempting to rely on the
Lakes/St. Lawrence Seaway System’s the comments regarding use of AMO use [of] AMO contracts with U.S.
sensitivity to changes in the cost of U.S. 2015 aggregate rates and our responses shipping companies on the Great Lakes
pilotage, as a percentage of total voyage follows.
as a basis to determine the ‘target rate
costs. One commenter supported the use of
of compensation’ for U.S.-registered
The 2017 Pilotage Cost Analysis is AMO data, stating that this approach
was ‘‘a more rational approach to pilots on the Great Lakes,’’ for the
informative to our ratemaking process reasons described in the NPRM,54 we
and supports the notion that there is an identification of some analogous field of
endeavor against which to test the believe that it provides a highly relevant
upper limit to the amount that can be
reasonableness of pilot compensation gauge for how much experienced
charged for pilotage services before
levels.’’ 50 The commenter also stated mariners working on the Great Lakes are
shippers consider diverting cargo to
compensated. While AMO’s position on
other locations or other modes of that comparisons with AMO members
the matter are certainly highly relevant,
transportation. As pilot compensation aboard U.S.-flag vessels avoid
we still believe that the compensation of
costs constitute the bulk of the input difficulties, identified above in Section
U.S. masters on Great Lakes ships
into pilotage fees, the Coast Guard V.A.2, in trying to develop comparisons
provides a useful proxy for the
continues to carefully consider the across countries. However, the
compensation of U.S. pilots on Great
direct and secondary impacts of our commenter criticized the Coast Guard’s
Lakes ships, and the interim benchmark
annual rate adjustments. acceptance of the AMO’s decision to
methodology is an effective manner to
withhold contract information and
B. Revised Compensation Benchmark translate the AMO figure into a useable
obtain compensation data from other
Issues number for the latter. The interim
sources, and stated that the commenters
In the preceding subsections, we benchmark is based on the idea that a
‘‘lack information necessary to validate
described why we did not continue to Great Lakes pilot should earn, on
the stated ’daily aggregate rates’
use the Canadian GLPA data or data average, about 1.5 times the salary of a
identified in the NPRM.’’ 51 In response,
we note that (1) we do not have the
49 This study is a single sector analysis, which 52 USCG–2017–0903–0004, p. 4.
authority to compel anyone to provide 53 We
means it assumes that numerous other factors that refer to this document as the ‘‘AMO letter,’’
affect the cost of international shipping in the Great
confidential contract information; (2) we which is available at www.regulations.gov, docket
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Lakes/St. Lawrence Seaway System are held have been working to obtain other number USCG–2013–0534–0007. For a discussion
constant. If the other factors or sectors were not compensation data, and have about how the information from the 2013 AMO
held constant, but instead were allowed to fluctuate commissioned a comprehensive review letter was extrapolated to derive the 2015 baseline
as they actually do, it is likely that the impact from compensation figures, see Section VII of the 2018
changing pilotage rates would be different. It is
of that data; and (3) it may be possible NPRM, entitled ‘‘Revised Compensation
important to note that the results of a single sector Benchmark,’’ 83 FR 2581, at 2587.
50 USCG–2017–0903–0008, p. 4.
analysis should not be interpreted as a full regional 54 See Section entitled ‘‘Revised Compensation
or national impact analysis. 51 USCG–2017–0903–0008, p. 5, footnote 5. Benchmark’’, 83 FR 2581, 2587–2590.
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first mate,55 given the demanding nature represented the most current been explained. . . .’’ 62 The Coast
of Great Lakes pilotage work and the information we had to implement this Guard agrees that it would be better to
experience required. On that basis, the method of computing a benchmark. have incorporated the new information
AMO data—which describes what a first However, in its comments on the 2018 into the daily aggregate rates at the
mate earns for a day of work—is highly NPRM, the AMO indicated that the proposed rule stage. However, we
relevant, and perhaps the most relevant information it provided in the 2013 cannot now ignore highly relevant
piece of information possible.56 letter was incomplete. Specifically, it information simply because it was not
Second, we believe that the data in stated that the daily aggregate rates the apparent at the beginning of the
the AMO letter is currently-available. Coast Guard is using to determine the rulemaking process, and we further note
We interpret this term to mean benchmark compensation do not take that the Coast Guard has been criticized
‘‘available at the current time.’’ As the into account ‘‘standard overtime for not using AMO data provided during
letter has been posted in the public compensation that is consistently the course of the rulemaking process in
docket for years and is still available, we earned by U.S. merchant mariners under the past.63 Because it is our goal to base
believe it meets the definition of AMO contracts.’’ 58 The AMO stated our target compensation on the actual
‘‘currently available.’’ The purpose of that the average overtime for a U.S. compensation of mates under the AMO
this provision is to prohibit the use of credentialed chief mate under AMO contract, we believe it is appropriate to
data that is in existence but not contracts is 40 hours per month, which include the guaranteed overtime in the
available for public release. at the 2018 hourly pay rate would be daily aggregate rates. We note that the
Finally, we believe the data in the $60.07 per hour, or $21,625 for a 9- use of ‘‘overtime’’ as part of the AMO
AMO letter is non-proprietary. While month period. This was also stated by contract terms does not mean there is
the AMO asserts that the underlying the pilot associations, which stated that overtime compensation for U.S. pilots,
contract data is proprietary, and so we ‘‘this ‘overtime’ compensation is and shippers only pay for actual hours
did not rely on that information in planned and expected (by both the worked at the levels proscribed in the
setting the interim benchmark, the AMO shipping companies and the AMO regulatory text.
has publically released the daily merchant mariners) [as] part of the We have modified the overtime
aggregate compensation figure. Indeed, AMO-negotiated compensation package, number provided by the AMO to
the commenter cites language from our and represents a guaranteed payment account for the fact that they provided
2016 pilotage rates NPRM (2016 NPRM), [emphasis added], for an average of 40 2018 information. As stated in the 2018
the year the AMO stopped making its hours per month or more, for overtime NPRM, we are basing the target
information publically available, saying work (including clerical work) that is compensation on the 2015 AMO
‘‘the union now regards that data as expected and intended each mate will contract information, which contains
proprietary and will no longer disclose perform.’’ 59 the last information that is publically
it [emphasis added].’’ 57 We consider The information on guaranteed available, and using an inflation index
this an acknowledgement that the overtime is new to the Coast Guard. In to arrive at a comparable 2018 rate.
earlier data, which we are using, is not the past, when we based our Because our rates are based on 2015
proprietary information. We note that compensation rates on the daily information, and not 2018 information,
there are other non-proprietary sources aggregate rates provided by the AMO, we are not using the 2.5 percent annual
of information, and simply noting that guaranteed overtime was not included wage adjustment figures from 2015
a data source is non-proprietary does in those calculations. Nor was through 2018 that the AMO provides
not mean that it necessarily provides information on guaranteed overtime and the Great Lakes Pilots reiterate,
information that the Coast Guard is provided to the Coast Guard by the even though they assert that those are
obligated to incorporate into its AMO in the ‘‘settlement agreements’’ the actual wage increases. While this
ratemaking calculations. For example, from 2011,60 which listed factors that go may be true, it is not relevant for the
several pilotage organizations also into the daily aggregate wages. These purposes of determining the 2015 daily
provided overall information about pilot factors included wages, medical plan aggregate rate. As stated above in this
compensation without explaining the contributions, and pension plan section, in order to base the
factors that went into that information, contributions. We used this information compensation on 2015 rates, we are
but for the reasons described above in to validate the daily aggregate rates adjusting the 2015 rates for inflation to
Section V.A.2., we did not use that provided in the 2013 AMO letter.61 reach a 2018 rather than tracking
information to determine the target However, this formula did not include contract permutations. To incorporate
compensation for Great Lakes pilots. a guaranteed overtime bonus. We note the 2018 average overtime figure, we
the footnote in the shipping industry’s first deflated the hourly overtime rate to
2. Overtime Compensation
comment that they ‘‘lack information 2015, using the 2.5 percent annual
In the 2018 NPRM, we used the rate 64 provided by the AMO, to derive
public figures provided by AMO for its necessary to validate the stated ‘daily
aggregate rates’ identified in the NPRM its 2015 value, which is $55.68. We then
2014 compensation rate, expressed as a broke down the 40 hours per month of
daily aggregate rate, to determine the and submit that the underlying
calculation of those rates should have overtime into a daily average of 80
target compensation figure for the minutes over 30 days (or one and one
interim compensation benchmark. third hours per day), to arrive a total
58 USCG–2017–0903–0005, p. 2.
These figures were provided by AMO in 59 USCG–2017–0903–0006, pp. 9–10. value of $74.24 ($55.68 × 1.3333) in
its letter to the Coast Guard in 2013, and 60 These settlement agreements, between the
62 USCG–2017–0903–0008, p. 5, footnote 5.
AMO, Key Lakes, and Mittal Steel (Agreements ‘‘A’’
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55 For a full discussion of how the interim and ‘‘B’’, respectively), are not public information. 63 See St. Lawrence Seaway Pilots Association,
benchmark was derived, see 83 FR 2581, at 2587– Therefore, we cannot publicly reveal detailed Inc., et al. v. United States Coast Guard, No. 14–
2590. information about their contents. cv–392, (D.D.C., March 27, 2015), p. 11–12.
56 We also note that the commenters’ assertion 61 See 83 FR 2581, at 2588. The formula to derive 64 While the 2.5 percent rate is not relevant for
that the AMO data relates to ‘laker-masters’ is the aggregate daily rate multiplies the wage calculating the 2018 aggregate total, it is appropriate
incorrect; it relates to first mates. (including weekend, holiday, and bonus days) by for translating the AMO-provided 2018 dollar figure
57 USCG–2017–0903–0004, p. 5, citing 80 FR 1.5, adds a 5-percent 401k contribution, and adds to an actual 2015 figure, as that was the actual
54484. the medical plan and pension plan contributions. amount by which it was inflated, per the AMO.
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overtime compensation per day. We daily aggregate rates of $1,216.30 for calculations are similar to those
then added that value to the provided Agreement A, and $1,198.96 for performed in the NPRM, as shown in
daily aggregate rates to provide revised Agreement B.65 From that point, the Table 3.
TABLE 3—CALCULATION OF SEASONAL RATES BY AGREEMENT
Seasonal compensation
Aggregate (aggregate daily
daily rate rate × 270)
Agreement A .................................................................................................................................... $1,216.30 $328,401
Agreement B .................................................................................................................................... 1,198.96 323,719
Next, we apportion the compensation by companies under each agreement. As Agreement A contract, while
provided by each agreement according shown in Table 4, approximately 70 approximately 30 percent of cargo was
to the percentage of tonnage represented percent of cargo was carried under the carried under the Agreement B contract.
TABLE 4—WEIGHTED AVERAGE OF EACH AGREEMENT
Percentage of tonnage
Tonnage (total tonnage/1,215,811)
Agreement A .................................................................................................................................... 361,385 29.7237811
Agreement B .................................................................................................................................... 854,426 70.2762189
Total tonnage ............................................................................................................................ 1,215,811 100.00
Third, we develop an average of weighting each contract by its developed a figure of $325,110 for total
compensation based on the total percentage of total tonnage, as shown in compensation in 2015.
compensation under the two contracts, Table 5. Based on this calculation, we
TABLE 5—CALCULATION OF AVERAGED COMPENSATION
Weighted compensation
Percentage (seasonal compensation
of tonnage × percentage of tonnage)
(rounded)
Agreement A—weighted .................................................................................................................. 29.7237811 $97,613
Agreement B—weighted .................................................................................................................. 70.2762189 227,497
Total Compensation (Agreement A + B) .................................................................................. 100.00 325,110
3. Calculation of Number of Days in Pay attributable to mandatory rest (during the 7 months that are not the
periods.’’ 67 The industry commenters opening or closing of the season), pilots
As stated above, in the NPRM, we suggest that, instead of multiplying the are able to rest for 10 days, and we have
proposed to set the compensation daily aggregate rate by 270, the aggregate set the number of pilots so that there are
benchmark by multiplying the aggregate rate should be multiplied by only 200, approximately 1⁄3 more pilots than
daily rate by 270, the number of days in given that the AMO figures are tied to necessary to handle traffic during these
the shipping season, to derive a working days and that Great Lakes times, allowing an average pilot 10 days
‘‘seasonal average compensation pilots are only expected to work 200 of rest during an average non-peak
figure.’’ 66 Industry commenters argued days.68 traffic month. As we noted in the 2016
that the use of the 270-day figure was First, the Coast Guard notes that the NPRM when we proposed this system,
inappropriate. They stated that, while industry commenters have ‘‘we propose building into our base
‘‘in past ratemaking proceedings [the mischaracterized the 10 days of rest that seasonal work standard only 200
Coast Guard] has used the 270-day we have incorporated into the staffing workdays per pilot per season. The 70-
assumption as a basis for extrapolating model. Unlike Canadian pilots, AMO
AMOU compensation data to pilot day difference should facilitate a 10-day
mates, or other U.S. pilots, United States
compensation . . . the Coast Guard has recuperative rest period for each pilot in
registered pilots do not have guaranteed
since (see 2016 final rule) imposed each of the seven months (mid-April to
days off during the shipping season.
mandatory rest periods on pilots that mid-November) between peak traffic
Instead, Great Lakes pilots are expected
periods.’’ 69 As we noted in that
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limit their working days each month to be on call and available for work each
and has imposed on rate payers day during the entire 270-day season. document, ‘‘our goal is to regulate the
additional costs attributable to increased However, it is our goal that when pilot pilotage system to maximize the
staffing levels that are, in large part, demand is not at its highest level likelihood [emphasis added] for
65 $1,142.06 + $74.24 = $1,216.30 for Agreement 66 83 FR 2581, at 2589. 68 USCG–2017–0903–0008, p. 5.
A; $1,124.72 + $74.24 = $1,198.96 for Agreement B. 67 USCG–2017–0903–0008, p. 5, footnote 7. 69 80 FR 54484, at 54490.
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providing the full 10 days per understanding that this could have were supportive of an automatic
month.’’ 70 consequences for safety. increase for inflation. However, several
The industry commenters suggest While we believe that the industry commenters recommended that the
that, like AMO mates, Great Lakes pilots commenters’ suggestion of multiplying inflation benchmark used was
should be compensated only for days the aggregate daily wage by 200, rather inappropriate. While we proposed to
that they are actually expected to work, than 270, has merit, we have decided use the CPI for the Midwest Region,74
and thus that the aggregate daily wage that in the interests of recruiting and several commenters recommended
be multiplied by 200, rather than 270. retaining a suitable number of different inflation adjustments.
This calculation would mean that Great experienced pilots, a multiplier of 270 One commenter questioned why the
Lakes pilots would receive zero is the preferable course of action. While Coast Guard expected the CPI for the
compensation for being ‘‘on call’’ during we have considered the argument that it Midwest Region to track actual AMO
those additional 70 days of the season.71 would be more efficient to pay pilots wage increases year after year, and
On the other hand, we recognize that less or have fewer of them to generate stated that the AMO contract increased
multiplying the aggregate daily wage by lower shipping rates, we believe the wages at 3 percent per year.75 Another
270 means that Great Lakes pilots would effect on safety and reliability warrant a commenter argued that the Coast
receive full compensation for days on multiplier of 270. In the past, when Guard’s method of ‘‘guessing at current
call, even if the system is designed so compensation levels were lower, the AMOU compensation’’ using the CPI
that they are not expected to work for pilot associations asserted that they had was inherently flawed.76 In response,
those days. While neither number is trouble attracting and retaining qualified we note that the NPRM never proposed
perfect, we acknowledge that this is a pilots, and we believe offering higher that the compensation rate should track
consequence of using the AMO compensation will help the pilot yearly increases in the AMO rate, and
compensation model, which has a sharp associations attract and retain higher that its intent was to set a compensation
delineation between guaranteed days numbers of more experienced pilots. benchmark at a rate derived from the
worked and guaranteed days off, and of Furthermore, we continue to note that 2015 AMO rate, and then increase that
applying it to the Great Lakes pilots, the Great Lakes pilots’ target rate by an inflation factor. The Coast
where a day on the tour-de-roll may not compensation is within the range Guard explicitly stated that the goal was
correlate to a day actively undertaking compensation of other U.S. pilotage not to track AMO rates developed after
pilotage duties. associations (although we note we are 2015,77 and thus believes the
still gathering data as to how the commenters’ suggestions are not
The Coast Guard’s mission in
compensation and tariff levels of other warranted.
regulating pilotage on the Great Lakes is
U.S. pilotage associations are set). We Several commenters suggested that
to ‘‘promote safe, efficient, and reliable
also note that our economic analysis of instead of adjusting the compensation
pilotage service on the Great Lakes.’’ 72
shipping on the Great Lakes, discussed benchmark by the CPI, we should
However, there is a natural balancing in
above, demonstrates that pilotage costs instead adjust it by the ECI for the
this mission. To promote safe pilotage,
remain low enough to enable a robust transportation and material moving
the Coast Guard strives to attract the
trade of commodities. sector.78 One commenter noted that
most experienced pilots, and to attract Additionally, we point to an issue
sufficient numbers, so that each vessel ‘‘the [ECI] is the more relevant index
raised by commenters as an additional
assigned a pilot is assured an because unlike the CPI, it tracks the
reason to ensure that safety and
experienced, well-rested pilot. To parameter we’re talking about:
reliability are emphasized in the Coast
promote reliable pilotage, we must employment cost in the transportation
Guard’s analysis of Great Lakes pilotage.
ensure there are sufficient numbers of One commenter noted that cruise ships sector.’’ 79 We agree with the
pilots so that a rested pilot is available are becoming an increasingly important commenters that, for the purposes of
for duty at the required location at the source of business on the Great Lakes, inflating compensation costs, the ECI
required time, even in periods where and that unlike cargo ships, which can provides a better gauge of compensation
traffic is more than expected. Both of weather delays with relatively little inflation than the CPI does. Our goal is
these goals recommend that we hire impact, cruise ships are severely to promote recruitment and retention of
more pilots, and ensure competitive impacted by delays as they cannot keep skilled pilots, and that goal is
compensation, thus advocating for to their schedules.73 We believe that undermined if the wages of Great Lakes
higher pilotage rates. On the other hand, pilots increase less than the wages of
with cruise ships becoming a large share
the promotion of efficient pilotage pulls other skilled maritime professionals in
of business, the need to minimize delays
in the opposite direction. We can lower the transportation sector as the result of
by having an adequate number of pilots
pilotage rates by more efficiently an inflationary gauge that was not as
grows in importance.
utilizing a lower number of pilots— accurate as possible. Thus, we have
moving them around more, or giving C. Inflation Adjustment Factor for substituted the ECI for the CPI in our
them less rest—with the understanding Adjustment Years annual inflation adjustor for target
that this may result in less reliable In the NPRM, we proposed that in compensation. We note that this logic
service when traffic is higher than non-benchmark years, the target does not apply to the increase in
predicted. Similarly, we can lower compensation for Great Lakes pilots be
74 Specifically, we proposed to use the Midwest
compensation—improving efficiency by increased by an inflation factor to Region CPI or the Federal Open Market Committee
hiring less experienced pilots who will promote predictability and increase the (FOMC) median economic projections for Personal
work for less compensation—with the efficiency of the ratemaking process. All Consumption Expenditures (PCE) inflation. The
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commenters who discussed this issue PCE figure would be used for years where CPI data
70 80 FR 54484, at 54490, footnote 30. is not available.
75 USCG–2017–0903–0006, p. 9.
71 Or longer, as some recent shipping seasons 73 USCG–2017–0903–0004, p. 11. We note that
76 USCG–2017–0903–0004, p. 7.
have lasted longer than 270 days due to changes in the commenter also requested that the Coast Guard
77 See 83 FR 2581, at 2588.
ice patterns on the Great Lakes. For example, we adjust its regulations to allow pilots to give priority
note that the 2017 shipping season in District 1 to cruise ships for this reason. While such a request 78 USCG–2017–0903–0004, p. 9; USCG–2017–
lasted 296 days. is outside the scope of the ratemaking procedure, 0903–0007.
72 See 46 CFR 404.1(a). we will give the idea consideration. 79 USCG–2017–0903–0004, p. 9.
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operating costs, for which we will located in § 401.211 of the Great Lakes pilots to focus on pilotage duties, while
continue to use CPI as the benchmark Pilotage Regulations. We believe placing allowing an average of 10 days of rest
for inflation, because the ECI measures the staffing model text in part 401 is the for pilots during the remaining 7
the change in the cost of labor. best way to ensure transparency in the months. Pilot association presidents can
Finally, we note that in instances regulations, and makes clear that it is undertake their administrative
where BLS ECI or CPI inflation data is the number of working pilots that we responsibilities during this time, so
not available, the Coast Guard has authorize in the regulations—which there is no need to round up, and a
historically used the FOMC median PCE may not correspond to the number traditional rounding system can be
estimates. We have included language to generated by the staffing model—that is used.
that extent in the language for 46 CFR the relevant value for establishing
404.102 and 404.104, respectively, to E. Working Capital Fund Basis and Use
pilotage rates.
make the process more transparent. We One commenter stated that the Coast One commenter suggested that the
note that we did not include this as Guard had miscalculated the number of Coast Guard eliminate the working
proposed language in the NPRM, but pilots needed in Districts One and Two, capital fund, or alternatively, that the
given that the particular inflationary and that we should add an additional Coast Guard promulgate regulations that
gauges used in the rule have been raised pilot to each of those Districts pursuant segregate the working capital funds and
as a serious issue in comments, believe to the staffing model. In the calculations govern their use, and prevent their
that being more explicit about the exact for those Districts, we determined that distribution as compensation. While we
figures used in the calculations of both 17.25 and 15.41 pilots were needed, did not propose any modifications to
the NPRM and final rule is a logical which we rounded down to 17 and 15, the calculation or use of working capital
outgrowth of that issue. respectively.82 The commenter argued funds and are not incorporating them
that ‘‘the [staffing] model contemplates into the 2018 ratemaking procedure at
D. Staffing Model Relocation and this late stage, we do believe that some
Calculations additional duties of the Association
Presidents as a basis for rounding pilot of the ideas expressed by the commenter
In the NPRM, we proposed to relocate numbers. It is entirely nonsensical to merit discussion.
the staffing model regulations from 46 round down to account for extra First, we discuss the commenter’s
CFR 404.103(a) through (c) to 46 CFR workload and duties.’’ 83 argument that the value of the working
401.220(a). We did not propose making We disagree with the commenter’s capital fund ‘‘appears to be an entirely
any modification to the text of the analysis, and believe that the arbitrary ‘adder’ that bears no clear
staffing model. We stated that the commenter is referring to a rounding relationship to its supposed function or
rationale for moving the text was to convention that was applicable to a nomenclature.’’ 85 The commenter
improve the clarity of the regulations different staffing model. We did state, in stated that ‘‘the term ‘working capital’ is
and simplify the process for preparing the 2017 pilotage rates NPRM, that ‘‘[i]n commonly understood to be a balance
the annual rulemaking documents. all districts, when the calculation sheet measure that is the difference
Noting that, under the current results in a fraction of a pilot, we round between current assets and current
organizational scheme, ‘‘Ratemaking pilot numbers up to the nearest whole liabilities.’’ The commenter also stated
Step 3’’ produces two sets of pilot pilot. We do this to avoid shortening our that the relationship between the
numbers (one produced by the staffing demand calculation and also to amount of money collected pursuant to
model and a different one used in the compensate for the role of the district Step 5 of the ratemaking process and the
ratemaking calculation), the staffing presidents as both working pilots and infrastructure costs of the District is
model text should be moved to part 401, representatives of their associations.’’ 84 unclear. Finally, the commenter raised
where other pilotage inputs that inform However, that statement was made in the point that, in the past, surcharges
the ratemaking process, but are not part regard to a proposal to switch from a had been used to fund infrastructure
of the annual calculation, are located.80 ‘‘peak staffing model’’ to an ‘‘average improvements, and there should be a
We received one comment from a mechanism to ensure that it is used for
staffing model.’’ The proposed average
pilotage organization that protested this that purpose.
staffing model, which, based on
organizational change. The commenter In the 2016 NPRM, we discussed both
comments we received, was never
argued that this proposal allows the the purpose of the working capital fund
finalized, derived the number of pilots
Director of Great Lakes Pilotage to as well as its name.86 In our discussion
from their average workload during the
conduct the calculations whenever he or of why we proposed to change the name
year. Because a pilot association has
she believes it is necessary, which could of this step from ‘‘return on investment’’
responsibilities beyond pilotage, which
allow long periods of neglect.81 We note to ‘‘working capital fund,’’ we stated
takes up some of each pilot’s time, the
that, if the commenter believes the that ‘‘the intent of [this section of the
Coast Guard proposed to round up to
staffing levels are being neglected, the ratemaking methodology is] to provide
account for those responsibilities.
commenter is able to raise this concern the pilots with working capital for
However, this situation does not apply
in the many public forums, such as future expenses associated with capital
to the staffing model currently used,
GLPAC meetings, that are available for improvements, technology investments,
which is based on the number of pilots
input into the ratemaking process. We and future training needs, with the goal
needed at the beginning and close of the
also note that analyzing the number of of eliminating the need for surcharges
season, when traffic is highest and
pilots required is not a process currently [emphasis added].’’ 87 We also agree that
treacherous conditions often require
conducted once per year, but something there may be merit in a mechanism to
double pilotage. Under the current
that is continuously done. It is similar ensure that the funds are set aside for
staffing model, during the first and last
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to the system for determining the future projects, and will investigate the
months of the season, we expect all
number of applicant pilots, which, need for such regulation and how to
while it informs the methodology, is not 82 82 FR 41466, at 41480, Table 6. For District 3, best effect it. We encourage commenters
part of it. Instead, those regulations are we calculated 21.55 pilots, which was rounded up
to 22. 85 USCG–2017–0903–0008, p. 6.
80 83FR 2581, at 2586. 83 USCG–2017–0903–0007. 86 81 FR 72011, at 72017.
81 USCG–2017–0903–0004, p.11. 84 81 FR 72011, at 72015–16. 87 81 FR 72011, at 72017.
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![Federal Register / Vol. 83, No. 108 / Tuesday, June 5, 2018 / Rules and Regulations 26173
to engage with the Coast Guard on this should not be used as compensation. data. The industry commenters assert
issue with additional information. While we believe that this ratemaking that ‘‘the Coast Guard’s chronic
The commenter also suggested that proceeding is not the proper venue to underestimation of revenue in 2014–
the amount of money collected by the determine whether and how the Coast 2016 . . . is [partly] caused by
working capital fund calculation was Guard could or should implement some asymmetry in the time span of data in
incorrect, and that the Coast Guard limitations on the use of working capital the Revenue Needed and Time on Task
should re-evaluate what is the working fund money, we will take the idea under data in Step 7.’’ 94
capital fund’s function and relationship advisement. While we agree that, for the purposes
to pilot-compensation. However, the of the 2018 calculations, hourly pilotage
commenter did not suggest an F. Use of 10-Year Traffic Baseline
rates would be lower if we used a 3-year
alternative value for the fund. In the One issue raised by industry window, we do not believe that this
2017 final rule, we stated that the fund commenters concerns the use of a 10- argument is convincing. Given a normal
‘‘is structured so that the pilot year moving average to calculate average distribution of traffic, approximately 5
associations can demonstrate credit traffic. The commenters noted that ‘‘the years out of every 10 will have traffic
worthiness when seeking funds from a 10-year average is depressed by the above the 10-year average level, and
financial institution for needed significant reduction of traffic that approximately 5 will have traffic below
infrastructure projects, and those occurred in the 2008–2013 period,’’ 90 it. We note that traffic volumes on the
projects can produce a return on which was caused by the global Great Lakes can vary significantly from
investment at a rate commensurate to recession of 2008 and 2009. Noting that year to year, and a 10-year average is a
repay a financial institution.’’ 88 Because in years since 2013, traffic has been good way to smooth out variations in
the purpose of the working capital fund substantially higher, the commenters traffic caused by global economic
is that the pilot associations can assert that ‘‘it [is] rational to assume that conditions. Industry commenters
demonstrate credit worthiness when 2018 hours will be generally comparable provide data showing actual traffic
seeking funds from a financial to levels in the 2014–2017 period.’’ 91 If numbers from 2007 through 2016; those
institution for needed infrastructure those traffic numbers are reached, then numbers clearly demonstrate that traffic
projects, the value of the working actual revenue would be substantially can dramatically change from one year
capital fund contribution is tied to pilot higher than the ‘‘revenue needed’’ under to the next.95 We do not see this as
association revenue and prevailing Step 7 of the ratemaking methodology, support for the industry’s assertion that
corporate interest rate. and pilots will exceed their target it would be rational to assume 2018
Separate from the amount of the compensation. hours will be generally comparable to
working capital fund, the commenter To rectify this, the industry the 2014 through 2017 period.
suggested that the use of money commenters recommend that instead of Unlike operating expenses, which do
collected as part of the working capital using a 10-year average traffic volume to not have wide swings from year to year,
fund be clearly bounded, and any calculate revenue needed, the Coast and pilot staffing levels, which can be
unspent money should be segregated Guard should use a 3-year period determined with a high degree of
and carried forward from year to year, instead. This would result in precision, traffic averages are the
and not be distributed as substantially lower shipping costs, as hardest part of the ratemaking inputs to
compensation.89 The commenter stated the total revenue needed ($22,438,782, predict. Using a 3-year average would
that a number of surcharges have been as identified in Step 7 of the NPRM 92) lead to dramatic swings from year to
imposed on rate payers over the years would be divided by 51,607 hours of year, while a 10-year average smooths
for specific capital projects and traffic, rather than the 43,384 hours of out those transitions. For that reason,
expenses, and so the purpose of the traffic using the 10-year average. we have decided to continue using the
working capital fund is unclear. Applying this change would lower the 10-year average in our calculations.
Since 2016, when the ratemaking average rate across all areas from With regard to the idea that, in 2018,
methodology was updated, we have not $517.21 per hour to $434.80 per hour, this number may underestimate traffic,
used surcharges to finance a reduction of approximately 16 we note that in some years, the use of
infrastructure improvements or percent. the 10-year average overestimated
maintenance, only to train new pilots. Commenters assert that a 3-year traffic traffic.
The purpose of the working capital fund average convention would make more
is to demonstrate that pilots can achieve sense than a 10-year average, as the G. Calculation of Surcharges and
a return on investment, and thus have Coast Guard’s other parts of the Incorporation Into Operating Costs
the ability to acquire loans to finance ratemaking methodology that feed into In the NPRM, we proposed to add
needed capital improvements. In the the ‘‘Revenue Needed’’ use more recent surcharges totaling $1,050,000 to
event that loans are taken out for this data.93 The commenters note that subsidize the training of seven applicant
purpose, we would expect the working operating expenses, used in Step 1 of pilots. This was based on the fact that
capital funds to be used to finance those the ratemaking methodology, are based there are seven apprentice pilots, and
loans, and so we would not permit the on data that is 3 years old, and staffing we use the figure of $150,000 as an
financing expenses to be counted as levels, used in Step 3 of the ratemaking estimate for the total training costs of a
operating expenses. methodology, are based on current year pilot (this includes a stipend). In their
Currently, there are no requirements comments, industry commenters noted
for how money collected under this 90 USCG–2017–0903–0008, p. 6. that they support adequate training for
provision is spent or distributed. 91 USCG–2017–0903–0008, p. 7. pilot trainees, but stated that ‘‘the
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However, we agree that the idea has 92 83 FR 2581, at 2595. This figure is derived by
content and cost of all elements of the
merit. We believe that the money is adding the totals from Tables 20, 21, and 22. Note
training program must be put to a
meant to secure the financing for that it does not include revenues from surcharges.
93 We note that ‘‘revenue needed’’ is determined
infrastructure improvements, and by adding operating expenses, pilot compensation, 94 USCG–2017–0903–0008, p. 7.
and working capital fund contributions, and then 95 See,e.g., the change from 2009 to 2010,
88 82 FR 41466, at 41484. dividing by total number of hours. These numbers increasing by over 50% from 28,201 hours to 43,960
89 USCG–2017–0903–0008, p. 6. are calculated on an area-by-area basis. hours.
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process of public review.’’ 96 The than the actual cost incurred to train a generation.’’ 103 We do not believe such
commenter asserted that this element of new pilot. We note that this would not a mechanism is necessary at this time,
the NPRM should be withdrawn and a cause any additional paperwork costs, and again point to the mechanism above
supplemental NPRM should be issued because pilot organizations already where collected surcharges and audited
to permit public comment on the provide the Coast Guard with their training expenditures are ultimately
elements of a training program. operating expenses on a yearly basis. As balanced via adjustment to the operating
We disagree that industry commenters we noted in Section VII.D below, this expenses. In the case where the
have not had a chance to comment on rule will not change the burden in the collected surcharges did not cover the
the propriety of the $150,000 figure. collection currently approved by OMB actual cost of training a pilot, either
This amount has been used each year under OMB Control Number 1625–0086. because the surcharge was too low or it
since 2016, without change. In the 2016 While the current $150,000 surcharge was not collected, the pilot association
NPRM, when it was introduced, we practice began only in 2016, the process would be able to include any extra
discussed the basis for that figure. We of providing money up front for expenses in their allowable operating
stated that ‘‘[b]ased on historic pilot training, and then balancing that later expenses 3 years later.
costs, the stipend, per diem, and through the accounting of operating
expenses, is one we have used in the H. Other Issues Relating to Pilotage
training costs for each applicant pilot
past. For example, in 2014, we Oversight
are approximately $150,000.’’ 97 More
detail is provided in the financial authorized a 3 percent surcharge in We received several comments from
reports submitted by pilotage District One to recoup $48,995 in the shipping industry that did not relate
associations. For example, the 2016 expenses that the association incurred to the specific ratemaking in this rule,
financial reports submitted by the for training.99 However, because but touched on areas regulated by the
pilotage associations 98 contain the realized traffic in 2014 exceeded Coast Guard. While we are unable to
following line items for applicant pilots: projections (and at the time, there was make changes to the regulations in this
• Salaries—Applicant Pilots no mechanism to prevent the over final rule due to the fact that the scope
• Benefits—Applicant Pilots collection of surcharges), we note that of the NPRM covered only the proposed
• Housing Allowance—Applicant Pilots the pilot association collected 2018 adjustments to pilotage rates, we
• Subsistence/Travel—Applicant Pilots $146,424.01.100 The amount of the 2014 acknowledge that some of these matters
• Training—Applicant Pilots surcharge that exceeded actual training are important issues and should be
• Payroll Taxes—Applicant Pilots costs was deducted from operating addressed in the appropriate forum.
If it is unclear, the purpose of using expenses in the next 2 years. In the 2015
final rule, for example, we disallowed 1. Unnecessary Pilot Orders for Use of
surcharges to cover anticipated pilotage
the $48,314 ‘‘pilot training’’ item from Tugs
costs, instead of operating expenses, is
so that retiring pilots do not have to pay the operating expenses, because pilot One comment concerned situations in
costs that they will be unable to recoup, training expenses are deducted from which vessel masters or owners
as operating expenses are factored into surcharges.101 We made a further disagreed with pilots on the matter of
the ratemaking calculations only after a ‘‘surcharge adjustment’’ in the 2016 whether extra tugs were required. The
3-year delay. operating expenses to deduct for the commenter asserted that there has been
We also note that while the $150,000 remaining amount of $97,429.102 a sharp increase in ‘‘questionable pilot
figure is an approximation of the We also received a comment from a tug callouts’’ 104 and requested that the
amount required to train a new pilot, pilotage organization relating to the Coast Guard implement a procedure
the number is ultimately balanced with surcharge provision. Specifically, the whereby protests over these callouts can
the actual cost through the commenter argued that, in some be registered with the Captain of the
modifications of operating expenses. instances, pilot associations do not Port or District Commander. The
This means that pilotage associations collect the full amount of the authorized commenter further requested that, if the
will provide audited information surcharge during the shipping season. tug is ruled unnecessary, the relevant
relating to pilotage training costs each The commenter pointed out that, pilot association be required to
year as part of the public ratemaking because the 2017 rates did not become reimburse the vessel owner for the costs
process. Because operating expenses are effective until later in the season, the of the tug callout. At this time, there is
analyzed using a 3-year delay (see Step pilot associations did not collect the no mechanism by which a vessel owner
1 of the ratemaking process), and 2016 entirety of the authorized sum. Noting can contest such a charge, but we would
was the first year we authorized a that there is a provision to stop welcome additional discussion of this
surcharge for training applicant pilots, collecting surcharges when the issue at an appropriate venue.
these figures will become subject to authorized amount is reached, the
commenter requested that the Coast 2. Mechanisms To Prevent or
public review beginning with the 2019 Discourage Delays
ratemaking. When actual operating Guard revise 46 CFR 401.401 to ‘‘protect
expenses are provided, pilotage the pilots from surcharge under- Industry commenters also raised
associations will be able to add to their generation in the same way it protects concerns that they were experiencing
operating costs any expenditures that users from surcharge over- significant charges for pilotage
exceeded the $150,000 collected attributable to time on board vessels that
surcharge. Similarly, if they did not
99 Great Lakes Pilotage Rates—2014 Annual
are not in active navigation, but are
Review and Adjustment, final rule, 79 FR 12084, at delayed by issues beyond the control of
spend that much, the excess monies will 12088 (March 4, 2014).
be deducted from their authorized 100 See 81 FR 11908 at 11929, Figure 8, footnote. the vessel. These issues included items
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operating expenses. In this way, 101 Great Lakes Pilotage Rates—2015 Annual such as congestion, lack of available
ratepayers will never pay more or less Review and Adjustment, final rule, 80 FR 10365, at pilots at a change point, and
10370, Table 2 (February 26, 2015). unavailability of pilot boats. The
102 81 FR 11908, at 11929, Figure 8. In the
96 USCG–2017–0903–0008, p. 8. commenters made two suggestions: (1)
footnote to the table, we noted that ‘‘the adjustment
97 80FR 54484, at 54500. represents the difference between the collected
98 Available at www.regulations.gov, docket 103 USCG–2017–0903–0004, p. 10.
amount and the authorized amount of $48,995
number USCG–2016–0268. authorized in the 2014 final rule.’’ 104 USCG–2017–0903–0008, p. 9.
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TABLE 28—RATE CALCULATIONS FOR DISTRICT THREE
Undesignated Designated
Revenue needed (Step 6) ....................................................................................................................................... $6,848,438 $2,039,033
Average time on task (hours) .................................................................................................................................. 19,431 2,614
Initial rate ................................................................................................................................................................. $352 $780
H. Step 8—Calculate Average Weighting undesignated area. We collect the weighting factor for each area using the
Factors by Area weighting factors, set forth in 46 CFR data from each vessel transit from 2014
In this step, we calculate the average 401.400, for each vessel trip. Using this onward, as shown in Tables 29 through
weighting factor for each designated and database, we calculate the average 34.
TABLE 29—AVERAGE WEIGHTING FACTOR FOR AREA 1
[District 1, designated]
Number of Weighting Weighted
Vessel class/year transits factor transits
Class 1 (2014) ............................................................................................................................. 31 1 31
Class 1 (2015) ............................................................................................................................. 41 1 41
Class 1 (2016) ............................................................................................................................. 31 1 31
Class 1 (2017) ............................................................................................................................. 28 1 28
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 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 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
Total ...................................................................................................................................... 2,464 ........................ 3,149.5
Average weighting factor (weighted transits/number of transits) ................................................ ........................ 1.28 ........................
TABLE 30—AVERAGE WEIGHTING FACTOR FOR AREA 2
[District 1, undesignated]
Number of Weighting Weighted
Vessel class/year transits factor transits
Class 1 (2014) ............................................................................................................................. 25 1 25
Class 1 (2015) ............................................................................................................................. 28 1 28
Class 1 (2016) ............................................................................................................................. 18 1 18
Class 1 (2017) ............................................................................................................................. 19 1 19
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 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 4 (2014) ............................................................................................................................. 289 1.45 419.05
Class 4 (2015) ............................................................................................................................. 269 1.45 390.05
Class 4 (2016) ............................................................................................................................. 222 1.45 321.9
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Class 4 (2017) ............................................................................................................................. 285 1.45 413.25
Total ...................................................................................................................................... 2,290 ........................ 2,965.75
Average weighting factor (weighted transits/number of transits) ................................................ ........................ 1.30 ........................
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TABLE 31—AVERAGE WEIGHTING FACTOR FOR AREA 5
[District 2, undesignated]
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 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 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 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
Total ...................................................................................................................................... 3,455 ........................ 4,556.45
Average weighting factor (weighted transits/number of transits) ................................................ ........................ 1.32 ........................
TABLE 32—AVERAGE WEIGHTING FACTOR FOR AREA 4
[District 2, designated]
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 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 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 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
Total ...................................................................................................................................... 2,072 ........................ 2,724.2
Average weighting factor (weighted transits/number of transits) ................................................ ........................ 1.31 ........................
TABLE 33—AVERAGE WEIGHTING FACTOR FOR AREAS 6 AND 8
[District 3, undesignated]
Number of Weighting Weighted
Vessel class/year transits factor transits
Area 6:
Class 1 (2014) ...................................................................................................................... 45 1 45
Class 1 (2015) ...................................................................................................................... 56 1 56
Class 1 (2016) ...................................................................................................................... 136 1 136
Class 1 (2017) ...................................................................................................................... 148 1 148
Class 2 (2014) ...................................................................................................................... 274 1.15 315.1
Class 2 (2015) ...................................................................................................................... 207 1.15 238.05
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Class 2 (2016) ...................................................................................................................... 236 1.15 271.4
Class 2 (2017) ...................................................................................................................... 264 1.15 303.6
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 4 (2014) ...................................................................................................................... 394 1.45 571.3
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TABLE 33—AVERAGE WEIGHTING FACTOR FOR AREAS 6 AND 8—Continued
[District 3, undesignated]
Number of Weighting Weighted
Vessel class/year transits factor transits
Class 4 (2015) ...................................................................................................................... 375 1.45 543.75
Class 4 (2016) ...................................................................................................................... 332 1.45 481.4
Class 4 (2017) ...................................................................................................................... 367 1.45 532.15
Total for Area 6 ............................................................................................................. 2,886 ........................ 3,709.35
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 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 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 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
Total for Area 8 ............................................................................................................. 1,679 ........................ 2,224.1
Combined total ....................................................................................................... 4,565 ........................ 5,933.45
Average weighting factor (weighted transits/number of transits) ................................................ ........................ 1.30 ........................
TABLE 34—AVERAGE WEIGHTING FACTOR FOR AREA 7
[District 3, Designated]
Number of Weighting Weighted
Vessel class/year transits factor transits
Class 1 (2014) ............................................................................................................................. 27 1 27
Class 1 (2015) ............................................................................................................................. 23 1 23
Class 1 (2016) ............................................................................................................................. 55 1 55
Class 1 (2017) ............................................................................................................................. 62 1 62
Class 2 (2014) ............................................................................................................................. 221 1.15 254.15
Class 2 (2015) ............................................................................................................................. 145 1.15 166.75
Class 2 (2016) ............................................................................................................................. 174 1.15 200.1
Class 2 (2017) ............................................................................................................................. 170 1.15 195.5
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 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
Total ...................................................................................................................................... 1,892 ........................ 2,451.65
Average weighting factor (weighted transits/number of transits) ................................................ ........................ 1.30 ........................
I. Step 9—Calculate Revised Base Rates factors are considered, the total cost of base rates, calculated in Step 7, by the
In this step, we revise the base rates pilotage will be equal to the revenue average weighting factors calculated in
so that once the impact of the weighting needed. To do this, we divide the initial Step 8, as shown in Table 35.
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associations’ total projected revenue than annualized over a 10-year period. projections. Table 41 shows the revenue
needed for 2018 will be $25,156,442. To In the 2017 final rule,116 we estimated projections for 2017 and 2018 and
estimate the additional cost to shippers the total projected revenue needed for details the additional cost increases to
from this final rule, we compare the 2017, including surcharges, as shippers by area and district as a result
2018 total projected revenues to the $22,326,381. This is the best of the rate changes and temporary
2017 projected revenues. Because we approximation of 2017 revenues as, at surcharges on traffic in Districts One,
review and prescribe rates for the Great the time of this publication, we do not Two, and Three.
Lakes Pilotage annually, the effects are have enough audited data available for
estimated as a single year cost rather the 2017 shipping season to revise these
TABLE 41—EFFECT OF THE FINAL RULE BY AREA AND DISTRICT
[$U.S.; non-discounted]
Revenue 2017 Total 2017 Revenue 2018 Total 2018 Additional
Area needed in Temporary projected needed in Temporary projected costs of
2017 surcharge revenue 2018 surcharge revenue this rule
Total, District 1 ............. $7,109,019 $0 $7,109,019 $7,988,670 $300,000 $8,288,670 $1,179,651
Total, District 2 ............. 6,633,491 300,000 6,933,491 7,230,300 150,000 7,380,300 446,809
Total, District 3 ............. 7,233,871 1,050,000 8,283,871 8,887,472 600,000 9,487,472 1,203,601
System Total ......... 20,976,381 1,350,000 22,326,381 24,106,442 1,050,000 25,156,442 2,830,061
The resulting difference between the respectively, over the previous year. The of four pilots who were authorized in
projected revenue in 2017 and the overall adjustment in payments will be the 2017 rule. These four pilots will
projected revenue in 2018 is the annual an increase in payments by shippers of become full-time working pilots at the
change in payments from shippers to $2,830,061 across all three districts (a 13 beginning of the 2018 shipping season.
pilots as a result of the rate change that percent increase over 2017). Again, They will be compensated at the target
will be imposed by this rule. The effect because we review and set rates for compensation of $352,485 per pilot. The
of the rate change to shippers varies by Great Lakes Pilotage annually, the addition of these pilots to full working
area and district. The rate changes, after impacts are estimated as single year status accounts for $1,409,940 of the
taking into account the increase in costs rather than annualized over a 10- increase. The remaining amount is
pilotage rates and the addition of year period. attributed to increases in the working
temporary surcharges, will lead to Table 42 shows the difference in
capital fund, increases in the target
affected shippers operating in District revenue by component from 2017 to
One, District Two, and District Three 2018.117 The majority of the increase in compensation, and differences in the
experiencing an increase in payments of revenue is due to the inflation of surcharges from 2017.
$1,179,651, $446,809, and $1,203,601, operating expenses and to the addition
TABLE 42—DIFFERENCE IN REVENUE BY COMPONENT
Difference
Revenue Revenue
Revenue (2018
needed in needed in
component Revenue–
2017 2018 2017 Revenue)
Adjusted Operating Expenses ............................................................................................... $5,155,280 $5,965,599 $810,319
Total Target Pilot Compensation ........................................................................................... 14,983,335 17,271,765 2,288,430
Working Capital Fund ............................................................................................................ 837,766 869,078 31,312
Total Revenue Needed, without Surcharge .......................................................................... 20,976,381 24,106,442 3,130,061
Surcharge .............................................................................................................................. 1,350,000 1,050,000 ¥300,000
Total Revenue Needed, with Surcharge ........................................................................ 22,326,381 25,156,442 2,830,061
Pilotage Rates as a Percentage of Vessel only a portion of the whole trip. The Increases in U.S. Pilotage Charges.’’ 118
Operating Costs affected vessels are often traveling from We conducted the study to explore
a foreign port, and the days without a additional frameworks and
To estimate the impact of U.S.
pilot on the total trip often exceed the methodologies for assessing the cost of
pilotage costs on foreign-flagged vessels
that will be affected by the rate days a pilot is needed. Great Lakes pilot’s ratemaking
adjustment, we looked at the pilotage To estimate this impact, we used the regulations, with a focus on capturing
costs as a percentage of a vessel’s costs 2017 study titled, ‘‘Analysis of Great industry and port level economic
for an entire voyage. The portion of the Lakes Pilotage Costs on Great Lakes impacts. The study also included an
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trip on the Great Lakes using a pilot is Shipping and the Potential Impact of analysis of the pilotage costs as a
116 The 2017 projected revenues are from the 2017 14. The 2018 projected revenues are from Tables 20 Organization/Assistant-Commandant-for-
Great Lakes Pilotage Ratemaking final rule (82 FR through 22 of this final rule. Prevention-Policy-CG-5P/Marine-Transportation-
41484 and 41489), Tables 9 and 14. 118 The study is available under ‘‘Documents’’ Systems-CG-5PW/Office-of-Waterways-and-Ocean-
117 The 2017 projected revenues are from the 2017 entitled ‘‘Analysis of Great Lakes Pilotage Costs Policy/Office-of-Waterways-and-Ocean-Policy-
final rule (82 FR 41484 and 41489), Tables 9 and 2017’’ at http://www.dco.uscg.mil/Our- Great-Lakes-Pilotage-Div/.
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![26192 Federal Register / Vol. 83, No. 108 / Tuesday, June 5, 2018 / Rules and Regulations
State, local, or tribal government, in the OMB, with an explanation of why using For the reasons discussed in the
aggregate, or by the private sector of these standards would be inconsistent preamble, the Coast Guard amends 46
$100,000,000 (adjusted for inflation) or with applicable law or otherwise CFR parts 401 and 404 as follows:
more in any one year. Although this rule impractical. Voluntary consensus
will not result in such expenditure, we standards are technical standards (e.g., PART 401—GREAT LAKES PILOTAGE
discuss the effects of this rule elsewhere specifications of materials, performance, REGULATIONS
in this preamble. design, or operation; test methods;
■ 1. The authority citation for part 401
sampling procedures; and related
G. Taking of Private Property continues to read as follows:
management systems practices) that are
This final rule will not cause a taking developed or adopted by voluntary Authority: 46 U.S.C. 2103, 2104(a), 6101,
of private property or otherwise have consensus standards bodies. This rule 7701, 8105, 9303, 9304; Department of
taking implications under Executive does not use technical standards. Homeland Security Delegation No.
Order 12630 (‘‘Governmental Actions 0170.1(II)(92.a), (92.d), (92.e), (92.f).
Therefore, we did not consider the use
and Interference with Constitutionally of voluntary consensus standards. ■ 2. Revise § 401.220(a) to read as
Protected Property Rights’’). follows:
M. Environment
H. Civil Justice Reform § 401.220 Registration of pilots.
We have analyzed this final rule
This final rule meets applicable (a) The Director shall determine the
under Department of Homeland
standards in sections 3(a) and 3(b)(2) of number of pilots required to be
Security (DHS) Directive 023–01,
Executive Order 12988 (‘‘Civil Justice registered in order to assure adequate
Revision (Rev) 01, Implementation of
Reform’’), to minimize litigation, and efficient pilotage service in the
the National Environmental Policy Act
eliminate ambiguity, and reduce United States waters of the Great Lakes
[DHS Instruction Manual 023–01
burden. and to provide for equitable
(series)] and Commandant Instruction
I. Protection of Children M16475.lD, which guide the Coast participation of United States Registered
Guard in complying with the National Pilots with Canadian Registered Pilots
We have analyzed this final rule in the rendering of pilotage services.
under Executive Order 13045 Environmental Policy Act of 1969 (42
U.S.C. 4321–4370f), and have The Director determines the number of
(‘‘Protection of Children from pilots needed as follows:
Environmental Health Risks and Safety determined that this action is one of a
(1) The Director determines the base
Risks’’). This rule is not an category of actions that do not
number of pilots needed by dividing
economically significant rule and will individually or cumulatively have a
each area’s peak pilotage demand data
not create an environmental risk to significant effect on the human
by its pilot work cycle. The pilot work
health or risk to safety that might environment. A Record of
cycle standard includes any time that
disproportionately affect children. Environmental Consideration
the Director finds to be a necessary and
supporting this determination is
J. Indian Tribal Governments reasonable component of ensuring that
available in the docket where indicated
a pilotage assignment is carried out
This final rule does not have tribal under the ADDRESSES section of this
safely, efficiently, and reliably for each
implications under Executive Order preamble. This rule is categorically
area. These components may include,
13175 (‘‘Consultation and Coordination excluded under paragraph A3 of Table
but are not limited to—
with Indian Tribal Governments’’), 1, particularly subparts (a), (b), and (c) (i) Amount of time a pilot provides
because it will not have a substantial in Appendix A of DHS Directive 023– pilotage service or is available to a
direct effect on one or more Indian 01(series). CATEX A3 pertains to vessel’s master to provide pilotage
tribes, on the relationship between the promulgation of rules and procedures service;
Federal Government and Indian tribes, that are: (a) Strictly administrative or (ii) Pilot travel time, measured from
or on the distribution of power and procedural in nature; (b) that the pilot’s base, to and from an
responsibilities between the Federal implement, without substantive change, assignment’s starting and ending points;
Government and Indian tribes. statutory or regulatory requirements; or (iii) Assignment delays and
(c) that implement, without substantive detentions;
K. Energy Effects change, procedures, manuals, and other (iv) Administrative time for a pilot
We have analyzed this rule under guidance documents. This rule adjusts who serves as a pilotage association’s
Executive Order 13211 (‘‘Actions base pilotage rates and surcharges for president;
Concerning Regulations That administering the 2018 shipping season (v) Rest between assignments, as
Significantly Affect Energy Supply, in accordance with applicable statutory required by § 401.451;
Distribution, or Use’’). We have and regulatory mandates, and also (vi) Ten days’ recuperative rest per
determined that it is not a ‘‘significant proposes several minor changes to the month from April 15 through November
energy action’’ under that order because Great Lakes pilotage ratemaking 15 each year, provided that lesser rest
it is not a ‘‘significant regulatory action’’ methodology. allowances are approved by the Director
under Executive Order 12866 and is not List of Subjects at the pilotage association’s request, if
likely to have a significant adverse effect necessary to provide pilotage without
on the supply, distribution, or use of 46 CFR Part 401 interruption through that period; and
energy. (vii) Pilotage-related training.
Administrative practice and (2) Pilotage demand and the base
L. Technical Standards procedure, Great Lakes, Navigation
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seasonal work standard are based on
The National Technology Transfer (water), Penalties, Reporting and available and reliable data, as so
and Advancement Act, codified as a recordkeeping requirements, Seamen. deemed by the Director, for a multi-year
note to 15 U.S.C. 272, directs agencies 46 CFR Part 404 base period. The multi-year period is
to use voluntary consensus standards in the 10 most recent full shipping
their regulatory activities unless the Great Lakes, Navigation (water), seasons, and the data source is a system
agency provides Congress, through Seamen. approved under 46 CFR 403.300. Where
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such data are not available or reliable, which is conducted at least once every § 404.104 Ratemaking step 4: Determine
the Director also may use data, from 5 years and completed by March 1 of the target pilot compensation benchmark.
additional past full shipping seasons or first year for which the base rates will (a) In a full ratemaking year, the
other sources, that the Director be in effect. Base rates will be set to Director determines base individual
determines to be available and reliable. meet the goal specified in § 404.1(a). target pilot compensation using a
(3) The number of pilots needed in (b) In the interim years preceding the compensation benchmark, set after
each district is calculated by totaling the next scheduled full rate review, the considering the most relevant currently
area results by district and rounding Director will adjust base pilotage rates available non-proprietary information.
them to the nearest whole integer. For by an interim ratemaking pursuant to For supportable circumstances, the
supportable circumstances, the Director §§ 404.101 through 404.110. Director may make necessary and
may make reasonable and necessary (c) Each year, the Director will reasonable adjustments to the
adjustments to the rounded result to announce whether the Coast Guard will benchmark.
provide for changes that the Director conduct a full ratemaking or interim (b) In an interim year, the Director
anticipates will affect the need for pilots ratemaking procedure. adjusts the previous year’s individual
in the district over the period for which target pilot compensation level by the
■ 6. Revise § 404.102 to read as follows:
base rates are being established. Bureau of Labor Statistics’ Employment
* * * * * § 404.102 Ratemaking step 2: Project Cost Index for the Transportation and
■ 3. Revise § 401.405(a) to read as operating expenses, adjusting for inflation Materials sector, or if that is
follows: or deflation. unavailable, the Federal Open Market
The Director projects the base year’s Committee median economic
§ 401.405 Pilotage rates and charges. non-compensation operating expenses projections for Personal Consumption
(a) The hourly rate for pilotage service for each pilotage association, using Expenditures inflation.
on— recognized operating expense items (c) The Director determines each
(1) The St. Lawrence River is $653; from § 404.101. Recognized operating pilotage association’s total target pilot
(2) Lake Ontario is $435; expense items subject to inflation or compensation by multiplying individual
(3) Lake Erie is $497; deflation factors are adjusted for those target pilot compensation computed in
(4) The navigable waters from factors based on the subsequent year’s paragraph (a) or (b) of this section by the
Southeast Shoal to Port Huron, MI is U.S. government consumer price index number of pilots projected under
$593; data for the Midwest, projected through § 404.103(d) or § 401.220(a) of this
(5) Lakes Huron, Michigan, and the year in which the new base rates chapter, whichever is lower.
Superior is $271; and take effect, or if that is unavailable, the ■ 9. Revise § 404.107 to read as follows:
(6) The St. Mary’s River is $600. Federal Open Market Committee
* * * * * median economic projections for § 404.107 Ratemaking step 7: Calculate
Personal Consumption Expenditures initial base rates.
PART 404—GREAT LAKES PILOTAGE inflation. (a) The Director calculates initial base
RATEMAKING hourly rates by dividing the projected
■ 7. Revise § 404.103 to read as follows:
needed revenue from § 404.106 by
■ 4. The authority citation for part 404
§ 404.103 Ratemaking step 3: Estimate averages of past hours worked in each
continues to read as follows:
number of working pilots. district’s designated and undesignated
Authority: 46 U.S.C. 2103, 2104(a), 9303, waters, using available and reliable data
9304; Department of Homeland Security The Director projects, based on the
number of persons applying under 46 for a multi-year period set in accordance
Delegation No. 0170.1(II)(92.a), (92.f).
CFR part 401 to become U.S. Great with § 401.220(a) of this chapter.
■ 5. Revise § 404.100 to read as follows: Lakes registered pilots, and on Dated: May 30, 2018.
§ 404.100 Ratemaking and annual reviews information provided by the district’s Michael D. Emerson,
in general. pilotage association, the number of Director, Marine Transportation Systems,
(a) The Director establishes base pilots expected to be fully working and U.S. Coast Guard.
pilotage rates by a full ratemaking compensated. [FR Doc. 2018–11969 Filed 6–4–18; 8:45 am]
pursuant to §§ 404.101 through 404.110, ■ 8. Revise § 404.104 to read as follows: BILLING CODE 9110–04–P
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Document Created: 2018-11-02 11:46:00
Document Modified: 2018-11-02 11:46:00
| Category | Regulatory Information | |
| Collection | Federal Register | |
| sudoc Class | AE 2.7: GS 4.107: AE 2.106: | |
| Publisher | Office of the Federal Register, National Archives and Records Administration | |
| Section | Rules and Regulations | |
| Action | Final rule. | |
| Dates | This rule will be effective July 5, 2018. | |
| Contact | For information about this document, call or email Mr. Todd Haviland, Director, Great Lakes Pilotage, Commandant (CG-WWM-2), Coast Guard; telephone 202-372-2037, email [email protected], or fax 202-372-1914. | |
| FR Citation | 83 FR 26162 | |
| RIN Number | 1625-AC40 | |
| CFR Citation | 46
CFR
401 46 CFR 404 | |
| CFR Associated | Administrative Practice and Procedure; Great Lakes; Navigation (Water); Penalties; Reporting and Recordkeeping Requirements and Seamen |
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