SUPPLEMENTARY INFORMATION:

Table of Contents for Preamble

I. Abbreviations

II. Executive Summary

III. Basis and Purpose

IV. Background

V. Discussion of Comments and Changes

VI. Summary of the Ratemaking Methodology

VII. Historic Methodological and Other Changes

VIII. Individual Target Pilot Compensation Benchmark

IX. Discussion of Rate Adjustments

District One

A. Step 1: Recognize Previous Operating Expenses

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

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

D. Step 4: Determine Target Pilot Compensation Benchmark and Apprentice Pilot Wage Benchmark

E. Step 5: Project Working Capital Fund

F. Step 6: Project Needed Revenue

G. Step 7: Calculate Initial Base Rates

H. Step 8: Calculate Average Weighting Factors by Area

I. Step 9: Calculate Revised Base Rates

J. Step 10: Review and Finalize Rates

District Two

A. Step 1: Recognize Previous Operating Expenses

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

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

D. Step 4: Determine Target Pilot Compensation Benchmark and Apprentice Pilot Wage Benchmark

E. Step 5: Project Working Capital Fund

F. Step 6: Project Needed Revenue

G. Step 7: Calculate Initial Base Rates

H. Step 8: Calculate Average Weighting Factors by Area

I. Step 9: Calculate Revised Base Rates

J. Step 10: Review and Finalize Rates

District Three

A. Step 1: Recognize Previous Operating Expenses

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

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

D. Step 4: Determine Target Pilot Compensation Benchmark and Apprentice Pilot Wage Benchmark

E. Step 5: Project Working Capital Fund

F. Step 6: Project Needed Revenue

G. Step 7: Calculate Initial Base Rates

H. Step 8: Calculate Average Weighting Factors by Area

I. Step 9: Calculate Revised Base Rates

J. Step 10: Review and Finalize Rates

X. Regulatory Analyses

A. Regulatory Planning and Review

B. Small Entities

C. Assistance for Small Entities

D. Collection of Information

E. Federalism

F. Unfunded Mandates

G. Taking of Private Property

H. Civil Justice Reform

I. Protection of Children

J. Indian Tribal Governments

K. Energy Effects

L. Technical Standards

M. Environment

I. Abbreviations

2023 final rule Great Lakes Pilotage Rates—2023 Annual Ratemaking and Review of Methodology final rule

AMO American Maritime Officers Union

APA American Pilots' Association

BLS Bureau of Labor Statistics

CFR Code of Federal Regulations

CPA Certified public accountant

CPI Consumer Price Index

DHS Department of Homeland Security

Director U.S. Coast Guard's Director of the Great Lakes Pilotage

ECI Employment Cost Index

FOMC Federal Open Market Committee

FR Federal Register

GLPA Great Lakes Pilotage Authority (Canadian)

GLPAC Great Lakes Pilotage Advisory Committee

GLPMS Great Lakes Pilotage Management System ( printed page 9039)

LPA Lakes Pilots Association

NAICS North American Industry Classification System

NPRM Notice of proposed rulemaking

OMB Office of Management and Budget

PCE Personal Consumption Expenditures

§ Section

SBA Small Business Administration

SLSPA Saint Lawrence Seaway Pilotage Association

U.S.C. United States Code

WGLPA Western Great Lakes Pilots Association

II. Executive Summary

In accordance with Title 46 of the United States Code (U.S.C.), Chapter 93,^[1] the Coast Guard regulates pilotage for oceangoing vessels on the Great Lakes and St. Lawrence Seaway—including setting the rates for pilotage services and adjusting them on an annual basis for the upcoming shipping season. The shipping season begins when the locks open in the St. Lawrence Seaway, which allows traffic access to and from the Atlantic Ocean. The opening of the locks varies annually, depending on waterway conditions, but is generally in March or April. The rates, which for the 2024 season range from $430 to $927 per pilot hour (depending on which of the specific 6 areas pilotage service is provided), are paid by shippers to the pilot associations. The three pilot associations, which are the exclusive U.S. source of registered pilots on the Great Lakes, use this revenue to cover operating expenses, maintain infrastructure, compensate apprentice and registered pilots, acquire and implement technological advances, train new personnel, and provide for continuing professional development. These rates are the foundation for safe, efficient, and reliable pilotage service to facilitate maritime commerce, protect the marine environment, and comply with National Transportation Safety Board recommendations regarding staffing and pilot fatigue.

In accordance with statutory and regulatory requirements, the Coast Guard employs the ratemaking methodology introduced in 2016 ^[2] and last updated in 2022.^[3] Our ratemaking methodology calculates the revenue needed for each pilotage association (operating expenses, compensation for the number of pilots, and anticipated inflation), and then divides that amount by the expected demand for pilotage services over the course of the coming year to produce an hourly rate. This is a 10-step methodology to calculate rates, which is explained in detail in section VI., Summary of the Ratemaking Methodology, in the preamble to this rule.

In this final rule, we conduct our annual review and interim adjustment to the base pilotage rates for 2024. The Coast Guard last conducted a full ratemaking in 2023, with the “Great Lakes Pilotage Rates—2023 Annual Ratemaking and Review of Methodology” final rule (hereafter the “2023 final rule”) (88 FR 12226, published February 27, 2023).^[4] Per title 46 of the Code of Federal Regulations (CFR), section 404.100(b), via this final rule, the Coast Guard's Director of the Great Lakes Pilotage (“the Director”) establishes base pilotage rates by an interim ratemaking pursuant to §§ 404.101 through 404.110 .

The Coast Guard sets base rates to meet the goal of promoting safe, efficient, and reliable pilotage service on the Great Lakes by generating sufficient revenue for each pilotage association to reimburse its necessary and reasonable operating expenses, fairly compensate trained and rested pilots, and provide appropriate funds to use for improvements. A 10-year average is used when calculating traffic to smooth out anomalies caused by unexpected events, such as those caused by the COVID-19 pandemic. The Coast Guard estimates that this rule will result in $2,621,471 of additional costs. This represents an increase in revenue needed for target pilot compensation, an increase in revenue needed for the total apprentice pilot wage benchmark, an increase in the revenue needed for adjusted operating expenses, and an increase in the revenue needed for the working capital fund.

Based on the ratemaking model discussed in this final rule, the Coast Guard is establishing the rates shown in table 1.

This rule affects 58 U.S. Registered pilots, 6 apprentice pilots, 3 pilot associations, and the owners and operators of an average of 296 oceangoing vessels that transit the Great Lakes annually. This rule will not affect the Coast Guard's budget or increase Federal spending. The estimated overall annual regulatory economic impact of this rate change is a net increase of $2,621,471 in estimated payments made by shippers during the 2024 shipping season. This rule establishes the 2024 yearly target compensation for pilots on the Great Lakes at $440,658 per pilot (a $16,260 increase, or 3.83 percent, over their 2023 target compensation). Because the Coast Guard must review, and, if necessary, adjust rates each year, we analyze these as single-year costs and do not annualize them over 10 years. Section X., Regulatory Analyses, in this preamble provides the regulatory impact analyses of this rule.

III. Basis and Purpose

The legal basis of this rulemaking is 46 U.S.C. Chapter 93,^[5] which requires foreign merchant vessels and United States vessels operating “on register” (meaning United States vessels engaged in foreign trade) to use United States or Canadian pilots while transiting the United States waters of the St. Lawrence Seaway and the Great Lakes system.^[6] For U.S. Great Lakes pilots, the statute requires the Secretary to “prescribe by ( printed page 9040) regulation rates and charges for pilotage services, giving consideration to the public interest and the costs of providing the services.” ^[7] The statute requires that rates be established or reviewed and adjusted each year, no later than March 1.^[8] The statute also requires that base rates be established by a full ratemaking at least once every 5 years, and, in years when base rates are not established, they must be reviewed and, if necessary, adjusted.^[9] The Secretary's duties and authority under 46 U.S.C. Chapter 93 have generally been delegated to the Coast Guard.^[10]

Each pilot association is an independent business and is the sole provider of pilotage services in its district of operation. Each pilot association is responsible for funding its own operating expenses, maintaining infrastructure, compensating pilots and apprentice pilots,^[11] acquiring and implementing technological advances, and training personnel and partners.

The Coast Guard uses a 10-step ratemaking methodology to derive a pilotage rate, based on the estimated amount of traffic, which covers these expenses.^[12] The methodology is designed to measure how much revenue each pilotage association would need to cover expenses and to provide compensation to registered pilots. Since the Coast Guard cannot guarantee demand for pilotage services, target pilot compensation for registered pilots is a goal. The actual demand for service dictates the actual compensation for the registered pilots. We then divide that amount by the historic 10-year average for pilotage demand. We recognize that, in years where traffic is above average, pilot associations will accrue more revenue than projected while, in years where traffic is below average, they will take in less. We believe that, over the long term, however, this system ensures that infrastructure will be maintained, and that pilots will receive adequate compensation and work a reasonable number of hours, with adequate rest between assignments, to ensure retention of highly trained personnel.

The purpose of this rule is to issue new pilotage rates for the 2024 shipping season. The Coast Guard believes that the new rates will continue to promote our goal, as outlined in 46 CFR 404.1, of promoting safe, efficient, and reliable pilotage service to facilitate commerce and protect the marine environment in the Great Lakes by generating sufficient revenue for each pilotage association to reimburse its necessary and reasonable operating expenses, fairly compensate trained and rested pilots, and provide appropriate funds to use for improvements.

IV. Background

Pursuant to 46 U.S.C. 9303, the Coast Guard regulates shipping practices and rates on the Great Lakes. Under Coast Guard regulations, all vessels engaged in foreign trade (often referred to as “salties”) are required to engage United States or Canadian pilots during their transit through the regulated waters.^[13] United States and Canadian “lakers,” which account for most commercial shipping on the Great Lakes, are not affected.^[14] Generally, vessels are assigned a United States or Canadian pilot, depending on the order in which they transit a particular area of the Great Lakes, and do not choose the pilot they receive. If a vessel is assigned a U.S. pilot, that pilot will be assigned by the pilotage association responsible for the district in which the vessel is operating, and the vessel operator will pay the pilotage association for the pilotage services. The Great Lakes Pilotage Authority (Canadian) (GLPA) establishes the rates for Canadian registered pilots.

The waters of the Great Lakes and the St. Lawrence Seaway subject to U.S. jurisdiction are divided into three pilotage districts. Pilotage in each district is provided by an association certified by the Director to operate a pilotage pool. The Saint Lawrence Seaway Pilotage Association (SLSPA) provides pilotage services in District One, which includes all waters of the St. Lawrence River and Lake Ontario subject to U.S. jurisdiction. The Lakes Pilots Association (LPA) provides pilotage services in District Two, which includes all waters of Lake Erie, the Detroit River, Lake St. Clair, and the St. Clair River subject to U.S. jurisdiction. Finally, the Western Great Lakes Pilots Association (WGLPA) provides pilotage services in District Three, which includes all waters of the St. Mary's River; Sault Ste. Marie Locks; and Lakes Huron, Michigan, and Superior subject to U.S. jurisdiction.

Each pilotage district is further divided into “designated” and “undesignated” areas, depicted in table 2. Designated areas, classified as such by Presidential Proclamation, are waters in which pilots must direct the navigation of vessels at all times.^[15] Undesignated areas are open bodies of water not subject to the same pilotage requirements. While working in undesignated areas, pilots must “be on board and available to direct the navigation of the vessel at the discretion of and subject to the customary authority of the master.” ^[16] For these reasons, pilotage rates in designated areas can be significantly higher than those in undesignated areas. Table 2 shows the districts and areas of the Great Lakes and St. Lawrence Seaway.

Over the past several years, the Coast Guard has adjusted the Great Lakes pilotage ratemaking methodology, per our authority in 46 U.S.C. 9303(f), to conduct annual reviews of base pilotage rates, and to adjust such base rates in each intervening year in consideration of the public interest and the costs of providing the services. The current methodology was finalized in the 2022 final rule.^[19] We summarize the current methodology in section VI., Summary of the Ratemaking Methodology.

V. Discussion of Comments and Changes

In response to the notice of proposed rulemaking (NPRM) for this ratemaking (88 FR 55629, August 16, 2023) the Coast Guard received six comment submissions. These submissions include one comment filed jointly by the LPA, the SLSPA, and the WGLPA; one filed jointly by the Shipping Federation of Canada, the American Great Lakes Ports Association, and the United States Great Lakes Shipping Association (collectively, the Coalition); one from the president of the Saint Lawrence Seaway Pilots' Association (SLSPA); one from the president of the LPA; one from the Director of the Port of Monroe; and one from the president of the International Longshoreman Association (ILA).

As each of these commenters touched on numerous issues, for each response below, the Coast Guard notes which commenter raised the specific points addressed. In situations where multiple commenters raised similar issues, the Coast Guard provides one response to those issues.

A. Requests for Additional Pilots

One of the major requests made by the commenters was the addition of more pilots due to the increase in traffic, with several commenters pointing to cruise ship traffic as the driving force in the surge of vessels needing pilotage service. District One stated they estimate a need for three new pilots by 2025, and Districts Two and Three requested one additional pilot each to be added to this rulemaking.

The Coast Guard recognizes District One's need for more pilots going forward, but we believe that this need is addressed by the inclusion of an additional apprentice pilot as proposed in the NPRM. Added to the two existing apprentice pilots that were authorized in the 2023 ratemaking, this inclusion brings the total number of apprentice pilots in District One to three for the 2024 season. These apprentice pilots will be able to accommodate District One's projected need for three additional fully registered pilots for the 2025 season. The Coast Guard will, therefore, keep the pilot numbers for District One the same as they were in the proposed rule.

The LPA, WGLPA, ILA, and Capt. Paul C. Lamarre II all made comments that an additional pilot is needed in both District Two and District Three. After review of the provided documentation, the Coast Guard agrees with these comments. The Coast Guard verified the numbers that LPA provided, which show that another full member pilot is needed to safely provide pilotage service. Based on these comments, our analysis of the increase in demand for pilotage services created by cruise ship traffic,^[20] and the unanimous recommendation made by the 2023 Great Lake Pilot Advisory Committee (See transcript, pages 87 and 88), the Coast Guard has added an additional pilot to this year's ratemaking for both Districts Two and Three. For District Two, the Coast Guard reduced the number of apprentice pilots from two to one, since the additional pilot referenced earlier will no longer be an apprentice.

B. Bridge Hour Allocation

Numerous commenters noted discrepancies in the allocation of bridge hours between designated and undesignated waters for all three districts. The error occurs in the “area” field of the data extract provided by the associations, where each trip number is only labeled with the area in which the trip started, rather than noting each area that the trip passed through. This error causes miscalculation of the designated and undesignated bridge hours in Step 7 of the ratemaking methodology, and the transits by vessel class in Step 8. The commenters suggested to instead use monthly reports from SeaPro to provide the necessary bridge hour calculations for Step 7 and to use weight factor reports from SeaPro to provide the transits by vessel class for Step 8.

The Coast Guard agrees with these comments and has worked with the pilot associations to correct Steps 7 and 8 using the monthly reports and weight factor reports. The Coast Guard could not verify which trips had been incorrectly attributed to either a designated or undesignated area in the economist extract data set previously provided. The Coast Guard will work with the associations to refine the data extracts provided by the associations to ensure that all fields are correctly specified and interpreted.

The reports used for this final rule are available in the docket. We appreciate the commenters who brought this to our attention and will take measures to ensure this error is corrected in data used in future rulemakings. These corrections are set out in further detail in tables 4 and 5.

C. Methodology

Numerous commenters noted concerns with the methodology by which the Coast Guard calculates this rate. Concerns included that weighting factors should be calculated using bridge hours instead of vessel transits per visit; that the Coast Guard should audit the pilotage program to find operational efficiencies and cost-savings; and that the Coast Guard should conduct an annual look-back at expenses to find cost-savings. These comments are outside the scope of the current rulemaking, which does not modify the ratemaking methodology. The Coast Guard appreciates these comments and encourages the stakeholders to request that they be placed on a future GLPAC agenda for ( printed page 9042) discussion, or to resubmit them during the next full ratemaking in 2027.

D. Miscellaneous

We received a number of comments that we categorized as “Miscellaneous” and are best addressed one by one.

A few commenters urged the Coast Guard to continue having GLPAC meetings in person and in front of a stenographer, while another commenter urged the Coast Guard to investigate a hybrid in-person/virtual set up for future GLPAC meetings. These comments are outside the scope of this rule, but the Coast Guard will continue to engage with stakeholders to determine the best way to hold GLPAC meetings.

One commenter asked the Coast Guard to require an anonymous listing of each pilot's compensation in their annual reports. The Coast Guard disagrees with this recommendation. Compensation of individual pilots is not included in the expense base or methodology, and, therefore, we decline to add a regulatory requirement for pilot associations to publicly report the compensation of individual pilots. The Coast Guard does not use the actual earnings or average earnings; instead, we use target pilot compensation (described in Step 4 of the existing methodology), which the Coast Guard has determined to be reasonable and necessary. Because actual salary values are not used in the ratemaking, the Coast Guard believes that a requirement to report pilot compensation is not in the public interest or necessary to provide for the costs of services. Progress toward pilot retention can be reviewed through pilot turnover and the association's ability to promptly fill pilot vacancies for fully registered pilots and apprentice pilots.

Many commenters took the opportunity to recognize the Director's authority to add up to three additional pilots in each District. We agree with these commenters that the Director does have such authority, and, based on these comments and the unanimous recommendation at the 2023 GLPAC meeting, the Coast Guard has agreed to add one pilot each to Districts Two and Three, and one apprentice pilot to District One.

E. Changes to the Proposed Rule

Table 3 summarizes the changes between the 2024 Ratemaking NPRM and this final rule. This table includes changes from the proposed rule that are not based on comments from the NPRM.

F. Changes to Step 7 Bridge Hours and Step 8 Transits

Table 4 shows the difference between the published figures for bridge hours in Step 7 in the NPRM and the updated figures used for this final rule.

Further, the Coast Guard updated the number of transits by vessel class in Step 8, “Calculate Average Weighting Factors by Area,” using updated weighting factor reports provided by the associations from SeaPro. Table 5 details the changes by area and vessel class for 2022, which will be used in this final rule; no changes are made to the 2021 figures.

These refinements to the ratemaking continue to promote safe, efficient, and reliable pilotage service on the Great Lakes, and allow each pilotage association to generate sufficient revenue to cover its necessary and reasonable operating expenses, fairly compensate trained and rested pilots, and realize an appropriate revenue to use for improvements.

VI. Summary of the Ratemaking Methodology

As stated previously, the ratemaking methodology, outlined in 46 CFR 404.101 through 404.110, consists of 10 steps that are designed to account for the revenues needed and total traffic ( printed page 9044) expected in each district. The first several steps of the methodology establish base pilotage rates. Additional steps to incorporate the weighting factors are necessary to establish the final pilot rates. The result is an hourly rate, determined separately for each of the areas administered by the Coast Guard.

In Step 1, “Recognize previous operating expenses,” (§ 404.101), the Director reviews audited operating expenses from each of the three pilotage associations. Operating expenses include all allowable expenses, minus wages and benefits. This number forms the baseline amount that each association is budgeted. Because of the time delay between when the association submits raw numbers and when the Coast Guard receives audited numbers, this number is 3 years behind the projected year of expenses. Therefore, in calculating the 2024 rates in this rule, we begin with the audited expenses from the 2021 shipping season.

While each pilotage association operates in an entire district (including both designated and undesignated areas), the Coast Guard determines costs by area. We allocate certain operating expenses to designated areas and certain operating expenses to undesignated areas. In some cases, we can allocate the costs based on where they are accrued. For example, we can allocate the costs of insurance for apprentice pilots who operate in undesignated areas only. In other situations, such as general legal expenses, expenses are distributed between designated and undesignated waters on a pro rata basis, based upon the proportion of income forecasted from the respective portions of the district.

In Step 2, “Project operating expenses, adjusting for inflation or deflation,” (§ 404.102), the Director develops the 2024 projected operating expenses. To do this, we apply inflation adjustors for 3 years to the operating expense baseline received in Step 1. The inflation factors are from the Bureau of Labor Statistics' (BLS) Consumer Price Index (CPI) for the Midwest Region, or, if not available, the Federal Open Market Committee (FOMC) median economic projections for Personal Consumption Expenditures (PCE) inflation. This step produces the total operating expenses for each area and district.

In Step 3, “Estimate number of registered pilots and apprentice pilots,” (§ 404.103), the Director calculates how many registered and apprentice pilots, including apprentice pilots with limited registrations, are needed for each district. To do this, we employ a “staffing model,” described in § 401.220, paragraphs (a)(1) through (3), to estimate how many pilots would be needed to handle shipping during the beginning and close of the season. This number provides guidance to the Director in approving an appropriate number of pilots.

For the purpose of the ratemaking calculation, we determine the number of pilots provided by the pilotage associations (see § 404.103) and use that figure to determine how many pilots need to be compensated via the pilotage fees collected.

In the first part of Step 4, “Determine target pilot compensation benchmark and apprentice pilot wage benchmark,”(§ 404.104(b)), the previous year's target compensation value is first adjusted by actual inflation using the ECI inflation value. If the ECI inflation value is not available, § 404.104(b)(1) and (2) specify the compensation inflation process the Director will use instead.

In the second part of Step 4, (§ 404.104(c)), the Director determines the total compensation figure for each district. To do this, the Director multiplies the compensation benchmark by the number of pilots for each area and district (from Step 3), producing a figure for total pilot compensation.

In Step 5, “Project working capital fund,” (§ 404.105), the Director calculates an added value to pay for needed capital improvements and other non-recurring expenses, such as technology investments and infrastructure maintenance. This value is calculated by adding the total operating expenses (derived in Step 2) to the total pilot compensation and the total target apprentice pilot wage (derived in Step 4), then by multiplying that figure by the preceding year's average annual rate of return for new issues of high-grade corporate securities. This figure constitutes the “working capital fund” for each area and district.

In Step 6, “Project needed revenue,” (§ 404.106), the Director simply adds the totals produced by the preceding steps. The projected operating expense for each area and district (from Step 2) is added to the total pilot compensation, including apprentice pilot wage benchmarks (from Step 4), and the working capital fund contribution (from Step 5). The total figure, calculated separately for each area and district, is the “needed revenue.”

In Step 7, “Calculate initial base rates,” (§ 404.107), the Director calculates an hourly pilotage rate to cover the needed revenue, as calculated in Step 6. This step consists of first calculating the 10-year average of traffic hours for each area. Next, we divide the revenue needed in each area (calculated in Step 6) by the 10-year average of traffic hours to produce an initial base rate.

An additional element, the “weighting factor,” is required under § 401.400. Pursuant to that section, ships pay a multiple of the “base rate”, as calculated in Step 7, by a number ranging from 1.0 (for the smallest ships, or “Class I” vessels) to 1.45 (for the largest ships, or “Class IV” vessels). This significantly increases the revenue collected, and we need to account for the added revenue produced by the weighting factors to ensure that shippers are not overpaying for pilotage services. We do this in the next step.

In Step 8, “Calculate average weighting factors by Area,” (§ 404.108), the Director calculates how much extra revenue, as a percentage of total revenue, has historically been produced by the weighting factors in each area. We do this by using a historical average of the applied weighting factors for each year since 2014 (the first year the current weighting factors were applied).

In Step 9, “Calculate revised base rates,” (§ 404.109), the Director modifies the base rates by accounting for the extra revenue generated by the weighting factors. We do this by dividing the initial pilotage rate for each area (from Step 7) by the corresponding average weighting factor (from Step 8), to produce a revised rate.

In Step 10, “Review and finalize rates,” (§ 404.110), often referred to informally as “Director's discretion”, the Director reviews the revised base rates (from Step 9) to ensure that they meet the goals set forth in 46 U.S.C. 9303(f) and 46 CFR 404.1(a), which include promoting efficient, safe, and reliable pilotage service on the Great Lakes; generating sufficient revenue for each pilotage association to reimburse necessary and reasonable operating expenses; compensating trained and rested pilots fairly; and providing appropriate revenue for improvements.

After the base rates are set, § 401.401 permits the Coast Guard to apply surcharges. We are not using any surcharges in this final rule. In previous ratemakings, where apprentice pilot wages were not built into the rate, the Coast Guard used surcharges to cover applicant pilot compensation in those years to help with applicant recruitment. In this final rule, we include the applicant trainee compensation in the district's operating expenses used in Step 1. Consistent with the 2021, 2022, and 2023 rulemakings, in this final rule we ( printed page 9045) continue to believe that the pilot associations are able to plan for the costs associated with hiring applicant pilots to fill pilot vacancies without relying on the Coast Guard to impose surcharges to help with recruiting.

VII. Historic Methodological and Other Changes

The Coast Guard is using the existing ratemaking methodology to establish the base rates in this ratemaking. The Coast Guard is not issuing any methodological or other policy changes to the ratemaking within this final rule.

According to 46 U.S.C. 9303(f), and restated in 46 CFR 404.100(a), the Coast Guard must establish base rates by a full ratemaking at least once every 5 years. The Coast Guard has determined that the current base rates and methodology still adequately adhere to the Coast Guard's goals through rate and compensation stability, while promoting recruitment and retention of qualified U.S.-registered pilots.

The Coast Guard has made several changes to the ratemaking methodology over the last several years in consideration of the public interest and the costs of providing services. The recent changes and their impacts are summarized as follows.

In the 2017 ratemaking, Great Lakes Pilotage Rates—2017 Annual Review (82 FR 41466, published August 31, 2017),^[21] the Coast Guard modified the methodology to account for the additional revenue produced by the application of weighting factors. This is discussed in detail in Steps 7 through 9 for each district, in section IX., Discussion of Rate Adjustments, of this preamble.

In the 2018 ratemaking, Great Lakes Pilotage Rates—2018 Annual Review and Revisions to Methodology (83 FR 26162, published June 5, 2018),^[22] the Coast Guard adopted a new approach in the methodology for the compensation benchmark, based upon United States mariners, rather than Canadian working pilots.

In the 2020 ratemaking, Great Lakes Pilotage Rates—2020 Annual Review and Revisions to Methodology (85 FR 20088, published April 9, 2020),^[23] the Coast Guard revised the methodology to accurately capture all costs and revenues associated with Great Lakes pilotage requirements, and to produce an hourly rate that adequately and accurately compensates pilots and covers expenses.

The 2021 ratemaking, Great Lakes Pilotage Rates—2021 Annual Review and Revisions to Methodology (86 FR 14184, published March 12, 2021),^[24] changed the inflation calculation in Step 4, §  404.104(b), for interim ratemakings, so that the previous year's target compensation value is first adjusted by actual inflation value using the ECI. That change ensures that the target pilot compensation reimbursed to the association remains current with inflation and competitive with industry pay increases.

The 2022 ratemaking, Great Lakes Pilotage Rates—2022 Annual Review and Revisions to Methodology (87 FR 18488, published March 30, 2022),^[25] implemented an apprentice pilot wage benchmark in Steps 3 and 4 to provide predictability and stability to pilot associations training apprentice pilots. The 2022 final rule also codified rounding up the staffing model's final number to ensure that the ratemaking does not undercount the pilot need presented by the staffing model and association circumstances.

VIII. Individual Target Pilot Compensation Benchmark

The Coast Guard is issuing the target pilot compensation benchmark in this final rule at the target compensation for the ratemaking year 2023, adjusted for inflation. In an interim ratemaking year, the base target pilot compensation is adjusted annually in accordance with § 404.104(b). The Coast Guard arrived at this compensation benchmark as explained in the following paragraphs.

Before 2016, the Coast Guard based the compensation benchmark on data provided by the American Maritime Officers Union (AMOU) regarding its contract for first mates on the Great Lakes. However, in 2016, the AMOU elected to no longer provide this data to the Coast Guard. In the 2016 ratemaking, Great Lakes Pilotage Rates—2016 Annual Review and Changes to Methodology (81 FR 11908, published March 7, 2016),^[26] the Coast Guard used the average compensation for a Canadian pilot, plus a 10-percent adjustment. The shipping industry challenged the compensation benchmark, and the court found that the Coast Guard did not adequately support the 10-percent addition to the Canadian GLPA compensation benchmark. American Great Lakes Ports Association v. Zukunft, 296 F.Supp. 3d 27, 48 (D.D.C. 2017), aff'd sub nom. American Great Lakes Ports Association v. Schultz, 962 F.3d 510 (D.C. Cir. 2020). The Coast Guard then based the 2018 full ratemaking compensation benchmark on data provided by the AMOU, regarding its contract for first mates on the Great Lakes in the 2011 to 2015 period (83 FR 26162). The 2018 final rule adjusted the AMOU 2015 data for inflation using Federal Open Market FOMC median economic projections for PCE inflation.

In the 2020 interim year ratemaking final rule (85 FR 20088), the Coast Guard established its most recent pilot compensation benchmark. Given the lack of access to AMOU data, the Coast Guard did not rely on the AMOU aggregated wage and benefit information as the basis for the compensation benchmark. Instead, the Coast Guard adopted the 2019 target pilot compensation (with inflation) as our compensation benchmark going forward. The Coast Guard stated in the 2020 final rule that no other United States or Canadian pilot compensation data was appropriate to use as a benchmark at that time, and that the 2020 benchmark will be used for future rates (85 FR 20091). The Director determined that the ratemaking provided adequate compensation for pilots.

Based on our experience over the past four ratemakings (2020-2023), the Director continues to believe that the level of target pilot compensation for those years provided an appropriate level of compensation for U.S.-registered pilots. According to § 404.104(a), the Director may make necessary and reasonable adjustments to the benchmark based on current information. However, current circumstances do not indicate that an adjustment, other than for inflation, is necessary. The Director bases this decision on the fact that there is no indication that registered pilots are resigning due to their compensation, or that this compensation benchmark is causing shortfalls in achieving reliable pilotage service. The Coast Guard also does not believe that the pilot compensation benchmark is too high relative to the expertise required to perform the job. The compensation will continue to be adjusted annually, in accordance with published inflation rates, which will ensure the ( printed page 9046) compensation remains competitive and current for upcoming years.

Therefore, the Coast Guard does not seek alternative benchmarks for target compensation at this time and, instead, simply adjusts the amount of target pilot compensation for inflation as our target compensation benchmark for 2024, as shown in Step 4. This target compensation benchmark approach has advanced and will continue to advance the Coast Guard's goals through rate and compensation stability while also promoting recruitment and retention of qualified U.S. pilots.

The target compensation for 2024 is $440,658 per registered pilot and $158,637 per apprentice pilot, using the 2023 compensation as a benchmark. We follow the procedure outlined in paragraph (b) of § 404.104, which adjusts the existing compensation benchmark for inflation. We use a two-step process to adjust target pilot compensation for inflation. First, we adjust the 2023 target compensation benchmark of $424,398 by 1.2 percent for an adjusted value of $429,491. This first adjustment accounts for the difference in actual third quarter 2023 ECI inflation, which is 3.9 percent, and the 2023 PCE estimate of 2.7 percent.^[27] The second step accounts for projected inflation from 2023 to 2024, which is 2.6 percent.^[28] Based on the projected 2024 inflation estimate, the target compensation benchmark for 2024 is $440,658 per pilot. The apprentice pilot wage benchmark is 36 percent of the target pilot compensation, or $158,637 ($440,658 × 0.36).^[29]

IX. Discussion of Rate Adjustments

In this final rule, based on the policy changes described in the previous section, we are issuing new pilotage rates for 2024. We conducted the 2024 ratemaking as an interim ratemaking, as we last did in 2022 (87 FR 18488). Thus, the Coast Guard adjusted the compensation benchmark following the interim ratemaking year procedures under § 404.100(b) rather than the procedures for a full ratemaking year in § 404.100(a).

This section discusses the rate changes using the ratemaking steps provided in 46 CFR part 404. We will detail all 10 steps of the ratemaking procedure for each of the 3 districts to show how we arrive at the new rates.

District One

A. Step 1: Recognize Previous Operating Expenses

Step 1 in the ratemaking methodology requires that the Coast Guard review and recognize the operating expenses for the last full year for which figures are available (§ 404.101). To do so, we begin by reviewing the independent accountant's financial reports for each association's 2021 expenses and revenues.^[30] For accounting purposes, the financial reports divide expenses into designated and undesignated areas. For costs accrued by the pilot associations generally, such as employee benefits, the cost is divided between the designated and undesignated areas on a pro rata basis. The recognized operating expenses for District One are shown in table 6.

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

The Coast Guard continues to include apprentice salaries as an allowable expense in the 2024 ratemaking, as this final rule is based on 2021 operating expenses, when salaries were still an allowable expense. Beginning with the 2025 ratemaking, apprentice pilot salaries will no longer be included as a 2022 operating expense, because apprentice pilot wages will have already been factored into the ratemaking Steps 3 and 4 in calculation of the 2022 rates. Beginning in 2025, the applicant salaries' operating expenses for 2022 will consist of only applicant trainees (those who are not yet apprentice pilots). The recognized operating expenses for District One are shown in table 6.

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

In accordance with the text in § 404.102, having identified the recognized 2021 operating expenses in Step 1, the next step is to estimate the current year's operating expenses by adjusting for inflation over the 3-year period. We calculate inflation using the BLS data from the CPI for the Midwest Region of the United States for the 2022 inflation rate.^[31] Because the BLS does not provide forecasted inflation data, we use economic projections from the Federal Reserve for the 2023 and 2024 inflation modification.^[32] Based on that information, the calculations for Step 2 are as presented in table 7.

( printed page 9048)

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

In accordance with the text in § 404.103, the Coast Guard estimates the number of fully registered pilots in each district. We determine the number of fully registered pilots based on data provided by the SLSPA. Using these numbers, we estimate that there will be 18 registered pilots in 2024 in District One. We determine the number of apprentice pilots based on input from the district on anticipated retirements and staffing needs. Using these numbers, we estimate that there will be three apprentice pilots in 2024 in District One. Based on the seasonal staffing model discussed in the 2017 ratemaking (82 FR 41466) and rounding introduced in the 2022 ratemaking (87 FR 18488), a certain number of pilots are assigned to designated waters, and a certain number of pilots are assigned to undesignated waters, as shown in table 8. These numbers are used to determine the amount of revenue needed in their respective areas.

D. Step 4: Determine Target Pilot Compensation Benchmark and Apprentice Pilot Wage Benchmark

In this step, we determine the total pilot compensation for each area. Because we are issuing an “interim” ratemaking this year, we follow the procedure outlined in paragraph (b) of § 404.104, which adjusts the existing compensation benchmark by inflation. First, we adjust the 2023 target compensation benchmark of $424,398 by 1.2 percent for a value of $429,491. This accounts for the difference in actual third quarter 2023 ECI inflation, which is 3.9 percent, and the 2023 PCE estimate of 2.7 percent.^[33 34] The second step accounts for projected inflation from 2023 to 2024, which is 2.6 percent.^[35] Based on the projected 2024 inflation estimate, the target compensation benchmark for 2024 is $440,658 per pilot. The apprentice pilot wage benchmark is 36 percent of the target pilot compensation, or $158,637 ($440,658 × 0.36).

In accordance with § 404.104(c), we use the revised target individual compensation level to derive the total pilot compensation by multiplying the individual target compensation by the estimated number of registered pilots for District One, as shown in table 9. We estimate that the number of apprentice pilots with limited registration needed for District One in the 2024 season will be three. The total target wages for apprentices are allocated with 60 percent for the designated area and 40 percent for the undesignated area, in accordance with the allocation for operating expenses.

E. Step 5: Project Working Capital Fund

Next, the Coast Guard calculates the working capital fund revenues needed for each area. We first add the figures for projected operating expenses, total target pilot compensation, and total target apprentice pilot wage 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, the number is 4.0742 percent rounded.^[36] By multiplying the two figures, we obtain the working capital fund contribution for each area, as shown in table 10.

F. Step 6: Project Needed Revenue

In this step, we add the expenses accrued to derive the total revenue needed for each area. These expenses include the projected operating expenses (from Step 2), the target total pilot compensation (from Step 4), total target apprentice pilot wage (from Step 4), and the working capital fund contribution (from Step 5). We show these calculations in table 11.

G. Step 7: Calculate Initial Base Rates

Having determined the revenue needed for each area in the previous six steps, we divide that number by the expected number of traffic hours to develop an hourly rate.

Step 7 is a two-part process. The first part is calculating the 10-year traffic average in District One using the total time on task or pilot bridge hours. To calculate the time on task for each district from 2013-2020, the Coast Guard used billing data from SeaPro. The data is pulled from the system filtering by district, year, job status (including only processed jobs), and flagging code (including only U.S. jobs).

Because we calculate separate figures for designated and undesignated waters, there are two parts for each calculation. For 2021-2022, the Coast Guard used figures provided by the associations through SeaPro monthly reports. Where bridge hour figures did not match between the monthly reports and the weighted factor reports, the Coast Guard opted to use the figures from the monthly report for Step 7. We show these values in table 12.

Next, we derive the initial hourly rate by dividing the revenue needed by the average number of hours for each area. This produces an initial rate, which is necessary to produce the revenue needed for each area, assuming the amount of traffic is as expected. We present the calculations for District One in table 13.

H. Step 8: Calculate Average Weighting Factors by Area

In this step, the Coast Guard calculates the average weighting factor for each designated and undesignated area by first collecting the weighting factors, set forth in 46 CFR 401.400, for each vessel trip. Using this data, we calculate the average weighting factor for each area using the data from each vessel transit from 2014 to 2021, as shown in tables 14 and 15. Data for 2022 was provided by the associations in a weighting factor report.

I. Step 9: Calculate Revised Base Rates

In this step, we revise the base rates so that the total cost of pilotage will be equal to the revenue needed, after considering the impact of the weighting factors. To do this, the initial base rates calculated in Step 7 are divided by the average weighting factors calculated in Step 8, as shown in table 16. ( printed page 9052)

J. Step 10: Review and Finalize Rates

In this step, the Director reviews the rates set forth by the staffing model and ensures that they meet the goal of ensuring safe, efficient, and reliable pilotage. To establish this, the Director considers whether the rates incorporate appropriate compensation for pilots to handle heavy traffic periods, and whether there are enough pilots to handle those heavy traffic periods. The Director also considers whether the rates cover operating expenses and infrastructure costs, including average traffic and weighting factors. Based on the financial information submitted by the pilots, the Director is not establishing any alterations to the rates in this step. We modified § 401.405(a)(1) and (2) to reflect the final rates shown in table 17.

District Two

A. Step 1: Recognize Previous Operating Expenses

Step 1 in our ratemaking methodology requires that the Coast Guard review and recognize the previous year's operating expenses (§ 404.101). To do so, we begin by reviewing the independent accountant's financial reports for each association's 2021 expenses and revenues.^[37] For accounting purposes, the financial reports divide expenses into designated and undesignated areas. For costs generally accrued by the pilot associations, such as employee benefits, the cost is divided between the designated and undesignated areas on a pro rata basis.

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

The Coast Guard continues to include apprentice salaries as an allowable expense in the 2024 ratemaking, as this final rule is based on 2021 operating expenses, when salaries were still an allowable expense. Beginning with the 2025 ratemaking, apprentice pilot salaries will no longer be included as a 2022 operating expense, because apprentice pilot wages will have already been factored into the ratemaking Steps 3 and 4 in calculation of the 2022 rates. Beginning in 2025, the applicant salaries' operating expenses for 2022 will consist of only applicant trainees (those who are not yet apprentice pilots). The recognized operating expenses for District Two are shown in table 18.

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

In accordance with the text in § 404.102, having identified the recognized 2021 operating expenses in Step 1, the next step is to estimate the current year's operating expenses by adjusting for inflation over the 3-year period. We calculate inflation using the BLS data from the CPI for the Midwest Region of the United States for the 2022 inflation rate.^[38] Because the BLS does not provide forecasted inflation data, we use economic projections from the Federal Reserve for the 2023 and 2024 inflation modification.^[39] Based on that information, the calculations for Step 2 are presented in table 19.

( printed page 9054)

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

In accordance with the text in § 404.103, the Coast Guard estimates the number of fully registered pilots in each district. We determine the number of fully registered pilots based on data provided by the LPA. Using these numbers, we estimate that there will be 17 registered pilots in 2024 in District Two, including the additional pilot being granted for 2024. We determine the number of apprentice pilots based on input from the district on anticipated retirements and staffing needs. Using these numbers, we estimate that there will be one apprentice pilot in 2024 in District Two.

Based on the seasonal staffing model discussed in the 2017 ratemaking (82 FR 41466) and rounding introduced in the 2022 ratemaking (87 FR 18488), a certain number of pilots are assigned to designated waters, and a certain number of pilots are assigned to undesignated waters, as shown in table 20. These numbers are used to determine the amount of revenue needed in their respective areas.

D. Step 4: Determine Target Pilot Compensation Benchmark and Apprentice Pilot Wage Benchmark

In this step, we determine the total pilot compensation for each area. Because we are issuing an “interim” ratemaking this year, we follow the procedure outlined in paragraph (b) of § 404.104, which adjusts the existing compensation benchmark by inflation.

First, we adjust the 2023 target compensation benchmark of $424,398 by 1.2 percent for a value of $429,491. This accounts for the difference in actual third quarter 2023 ECI inflation, which is 3.9 percent, and the 2023 PCE estimate of 2.7 percent.^[40 41] The second step accounts for projected inflation from 2023 to 2024, which is 2.6 percent.^[42] Based on the projected 2024 inflation estimate, the target compensation benchmark for 2024 is $440,658 per pilot. The apprentice pilot wage benchmark is 36 percent of the target pilot compensation, or $158,637 ($440,658 × 0.36).

In accordance with § 404.104(c), the Coast Guard uses the revised target individual compensation level to derive the total pilot compensation by multiplying the individual target compensation by the estimated number of registered pilots for District Two, as shown in table 21. The Coast Guard estimates that the number of apprentice pilots with limited registration needed for District Two in the 2024 season will be one. The total target wages for apprentices are allocated at 60 percent for the designated area and 40 percent for the undesignated area, in accordance with the allocation for operating expenses.

E. Step 5: Project Working Capital Fund

Next, the Coast Guard calculates the working capital fund revenues needed for each area. We first add the figures for projected operating expenses, total target pilot compensation, and total target apprentice pilot wage for each area, and then we find the preceding year's average annual rate of return for new issues of high-grade corporate securities. Using Moody's data, the number is 4.0742 percent, rounded.^[43] By multiplying the two figures, we obtain the working capital fund contribution for each area, as shown in table 22.

F. Step 6: Project Needed Revenue

In this step, the Coast Guard adds all the expenses accrued to derive the total revenue needed for each area. These expenses include the projected operating expenses (from Step 2), the total target pilot compensation (from Step 4), total target apprentice pilot wage (from Step 4), and the working capital fund contribution (from Step 5). We show these calculations in table 23.

G. Step 7: Calculate Initial Base Rates

Having determined the revenue needed for each area in the previous six steps, the Coast Guard divides that number by the expected number of traffic hours to develop an hourly rate.

Step 7 is a two-part process. In the first part, we calculate the 10-year traffic average in District Two, using the total time on task or pilot bridge hours. To calculate the time on task for each district from 2013-2020, the Coast Guard used billing data from SeaPro. The data is pulled from the system filtering by district, year, job status (including only processed jobs), and flagging code (including only U.S. jobs).

Because we calculate separate figures for designated and undesignated waters, there are two parts for each calculation. For 2021-2022, the Coast Guard used figures provided by the associations through SeaPro monthly reports. Where bridge hour figures did not match between the monthly reports and the weighted factor reports, the Coast Guard opted to use the figures from the monthly report for Step 7. We show these values in table 24. ( printed page 9056)

Next, we derive the initial hourly rate by dividing the revenue needed by the average number of hours for each area. This produces an initial rate, which is necessary to produce the revenue needed for each area, assuming the amount of traffic is as expected. We present the calculations for District Two in table 25.

H. Step 8: Calculate Average Weighting Factors by Area

In this step, we calculate the average weighting factor for each designated and undesignated area. We collect the weighting factors, set forth in 46 CFR 401.400, for each vessel trip. Using this data, we calculate the average weighting factor for each area using the data from each vessel transit from 2014-2021, as shown in tables 26 and 27. Data for 2022 was provided by the associations in a weighting factor report.

I. Step 9: Calculate Revised Base Rates

In this step, the Coast Guard revises the base rates, so that the total cost of pilotage will be equal to the revenue needed after considering the impact of the weighting factors. To do this, we divide the initial base rates calculated in Step 7 by the average weighting factors calculated in Step 8, as shown in table 28. ( printed page 9058)

J. Step 10: Review and Finalize Rates

In this step, the Director reviews the rates set forth by the staffing model and ensures that they meet the goal of ensuring safe, efficient, and reliable pilotage. To establish this, the Director considers whether the rates incorporate appropriate compensation for pilots to handle heavy traffic periods, and whether there are enough pilots to handle those heavy traffic periods. The Director also considers whether the rates cover operating expenses and infrastructure costs, taking average traffic and weighting factors into consideration. Based on the financial information submitted by the pilots, the Director is not establishing any alterations to the rates in this step. We modify § 401.405(a)(3) and (4) to reflect the final rates shown in table 29.

District Three

A. Step 1: Recognize Previous Operating Expenses

Step 1 in our ratemaking methodology requires that the Coast Guard review and recognize the previous year's operating expenses (§ 404.101). To do so, we review the independent accountant's financial reports for each association's 2021 expenses and revenues.^[44] For accounting purposes, the financial reports divide expenses into designated and undesignated areas. For costs generally accrued by the pilot associations, such as employee benefits, the cost is divided between the designated and undesignated areas on a pro rata basis.

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

The Coast Guard continues to include apprentice salaries as an allowable expense in the 2024 ratemaking, as this final rule is based on 2021 operating expenses, when salaries were still an allowable expense. Beginning with the 2025 ratemaking, apprentice pilot salaries will no longer be included as a 2022 operating expense, because apprentice pilot wages will have already been factored into the ratemaking Steps 3 and 4 in calculation of the 2022 rates. Beginning in 2025, the applicant salaries' operating expenses for 2022 will consist of only applicant trainees (those who are not yet apprentice pilots). The recognized operating expenses for District Three are shown in table 30.

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

In accordance with the text in § 404.102, having identified the 2021 operating expenses in Step 1, the next step is to estimate the current year's operating expenses by adjusting those expenses for inflation over the 3-year period. We calculate inflation using the BLS data from the CPI for the Midwest Region of the United States for the 2022 inflation rate.^[45] Because the BLS does not provide forecasted inflation data, we use economic projections from the Federal Reserve for the 2023 and 2024 inflation modification.^[46] Based on that information, the calculations for Step 2 are as presented in table 31.

( printed page 9060)

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

In accordance with the text in § 404.103, the Coast Guard estimates the number of registered pilots in each district. We determine the number of registered pilots based on data provided by the WGLPA. Using these numbers, we estimate that there will be 23 registered pilots in 2024 in District Three, including the additional pilot granted by the Director. We determine the number of apprentice pilots based on input from the district on anticipated retirements and staffing needs. Using these numbers, the Coast Guard estimates that there will be two apprentice pilots in 2024 in District Three. Based on the seasonal staffing model discussed in the 2017 ratemaking (82 FR 41466) and rounding introduced in the 2022 ratemaking (87 FR 18488), a certain number of pilots are assigned to designated waters, and a certain number of pilots are assigned to undesignated waters, as shown in table 32. These numbers are used to determine the amount of revenue needed in their respective areas.

D. Step 4: Determine Target Pilot Compensation Benchmark and Apprentice Pilot Wage Benchmark

In this step, we determine the total pilot compensation for each area. Because we are issuing an “interim” ratemaking this year, we follow the procedure outlined in paragraph (b) of § 404.104, which adjusts the existing compensation benchmark by inflation. First, we adjust the 2023 target compensation benchmark of $424,398 by 1.2 percent for a value of $429,491. This accounts for the difference in actual third quarter 2023 ECI inflation, which is 3.9 percent, and the 2023 PCE estimate of 2.7 percent.^[47 48] The second step accounts for projected inflation from 2023 to 2024, which is 2.6 percent.^[49] Based on the projected 2024 inflation estimate, the target compensation benchmark for 2024 is $440,658 per pilot. The apprentice pilot wage benchmark is 36 percent of the target pilot compensation, or $158,637 ($440,658 × 0.36).

In accordance with § 404.104(c), we use the revised target individual compensation level to derive the total pilot compensation by multiplying the individual target compensation by the estimated number of registered pilots for District Three, as shown in table 33. We estimate that the number of apprentice pilots with limited registration needed for District Three in the 2024 season will be two. The total target wages for apprentices are allocated with 21 percent for the designated area and 79 percent (52 percent + 27 percent) for the undesignated area, in accordance with the allocation for operating expenses.

E. Step 5: Project Working Capital Fund

Next, the Coast Guard calculates the working capital fund revenues needed for each area. We first add the figures for projected operating expenses, total target pilot compensation, and total target apprentice pilot wage for each area, and then, we find the preceding year's average annual rate of return for new issues of high-grade corporate securities. Using Moody's data, the number is 4.0742 percent, rounded.^[50] By multiplying the two figures, we obtain the working capital fund contribution for each area, as shown in table 34.

F. Step 6: Project Needed Revenue

In this step, we add all the expenses accrued to derive the total revenue needed for each area. These expenses include the projected operating expenses (from Step 2), the total target pilot compensation (from Step 4), and the working capital fund contribution (from Step 5). The calculations are shown in table 35.

G. Step 7: Calculate Initial Base Rates

Having determined the revenue needed for each area in the previous six steps, we divide that number by the expected number of traffic hours to develop an hourly rate.

Step 7 is a two-part process. In the first part, the 10-year traffic average in District Three is calculated using the total time on task or pilot bridge hours. To calculate the time on task for each district from 2013-2020, the Coast Guard used billing data from SeaPro. The data is pulled from the system filtering by district, year, job status (including only processed jobs), and flagging code (including only U.S. jobs).

Because we calculate separate figures for designated and undesignated waters, there are two parts for each calculation. For 2021-2022, the Coast Guard used figures provided by the associations through SeaPro monthly reports. Where bridge hour figures did not match between the monthly reports and the weighted factor reports, the Coast Guard opted to use the figures from the monthly report for Step 7. We show these values in table 36. ( printed page 9062)

Next, we derive the initial hourly rate by dividing the revenue needed by the average number of hours for each area. This produces an initial rate, which is necessary to produce the revenue needed for each area, assuming the amount of traffic is as expected. The calculations for District Three are set forth in table 37.

H. Step 8: Calculate Average Weighting Factors by Area

In this step, we calculate the average weighting factor for each designated and undesignated area. We collect the weighting factors, set forth in 46 CFR 401.400, for each vessel trip. Using this data, we calculate the average weighting factor for each area using the data from each vessel transit from 2014 to 2021, as shown in tables 38 and 39. Data for 2022 was provided by the associations in a weighting factor report.

I. Step 9: Calculate Revised Base Rates

In this step, we revise the base rates, so that the total cost of pilotage will be equal to the revenue needed after considering the impact of the weighting factors. To do this, we divide the initial base rates calculated in Step 7 by the average weighting factors calculated in Step 8, as shown in table 40.

J. Step 10: Review and Finalize Rates

In this step, the Director reviews the rates set forth by the staffing model and ensures that they meet the goal of ensuring safe, efficient, and reliable pilotage. To establish this, the Director considers whether the rates incorporate appropriate compensation for pilots to handle heavy traffic periods, and whether there are enough pilots to handle those heavy traffic periods. The Director also considers whether the rates cover operating expenses and infrastructure costs, taking average traffic and weighting factors into consideration. Based on this information, the Director is not establishing any alterations to the rates in this step. We modified § 401.405(a)(5) and (6) to reflect the rates shown in table 41.

X. Regulatory Analyses

We developed this 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), as amended by ( printed page 9065) Executive Order 14094 (Modernizing Regulatory Review), and 13563 (Improving Regulation and Regulatory Review) direct agencies to assess the costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety effects, distributive impacts, and equity). Executive Order 13563 emphasizes the importance of quantifying both costs and benefits, of reducing costs, of harmonizing rules, and of promoting flexibility.

The Office of Management and Budget (OMB) has not designated this rule a significant regulatory action under section 3(f) of Executive Order 12866, as amended by Executive Order 14094. Accordingly, OMB has not reviewed this regulatory action.

The purpose of this final rule is to establish new pilotage rates, as 46 U.S.C. 9303(f) requires that rates be established or reviewed and adjusted each year. The statute also requires that base rates be established by a full ratemaking at least once every 5 years, and, in years when base rates are not established, they must be reviewed and, if necessary, adjusted. The Coast Guard concluded the last full ratemaking in February of 2023.^[51]

For this final rule, the Coast Guard estimates an increase in cost of approximately $2.62 million to industry from 2023 to 2024. This is approximately a 7-percent increase because of the change in revenue needed in 2024 compared to the revenue needed in 2023. See table 42.

The Coast Guard is required to review and adjust pilotage rates on the Great Lakes annually. See section III., Basis and Purpose, of this preamble for detailed discussions of the legal basis and purpose for this rulemaking. Based on our annual review for this rulemaking, we are adjusting the pilotage rates for the 2024 shipping season to generate sufficient revenues for each district to reimburse its necessary and reasonable operating expenses, fairly compensate properly trained and rested pilots, and provide an appropriate working capital fund to use for improvements. The result is an increase in rates for both areas in District One, the designated area for District Two, and both areas in District Three. There is a decrease in rates for the undesignated area in District Two. These changes also lead to a net increase in the cost of service to shippers. The change in per-unit cost to each individual shipper depends on their area of operation.

A detailed discussion of our economic impact analysis follows.

Affected Population

This final rule affects United States Great Lakes pilots and apprentice pilots, the 3 pilot associations, and the owners and operators of 296 oceangoing vessels that transit the Great Lakes annually on average from 2020 to 2022. The Coast Guard estimates that there will be 58 registered pilots and 6 apprentice pilots during the 2024 shipping season, an increase of 2 pilots and decrease of 1 apprentice pilot from the proposed numbers in the NPRM. The shippers affected by these rate changes are those owners and operators of domestic vessels operating “on register” (engaged in foreign trade) and the owners and operators of non-Canadian foreign vessels on routes within the Great Lakes system. These owners and operators must have pilots or pilotage service as required by 46 U.S.C. 9302. There is no minimum tonnage limit or exemption for these vessels.

The statute applies only to commercial vessels, not to recreational vessels. United States-flagged vessels not operating on register, and Canadian “lakers,” which account for most commercial shipping on the Great Lakes, are not required by 46 U.S.C. 9302 to have pilots. However, these United States- and Canadian-flagged lakers may voluntarily choose to engage a Great Lakes registered pilot. Vessels that are U.S.-flagged may opt to have a pilot for varying reasons, such as unfamiliarity with designated waters and ports, or for insurance purposes.

The Coast Guard used billing information from the years 2020 through 2022 from the SeaPro to estimate the average annual number of vessels affected by the rate adjustment. SeaPro tracks data related to managing and coordinating the dispatch of pilots on the Great Lakes, and billing in accordance with the services. As described in Step 7 of the ratemaking methodology, we use a 10-year average to estimate the traffic. We used 3 years of the most recent billing data to estimate the affected population. The associations did not provide updated trip-level billing data for 2022, as they did for 2021, to use to update the number of vessels or customers in this final rule, so we used what was provided in the NPRM. We believe that using 3 years of billing data is a better representation of the vessel population ( printed page 9066) currently using pilotage services and impacted by this final rule.

We found that 437 unique vessels used pilotage services during the years 2020 through 2022. That is, these vessels had a pilot dispatched to the vessel, and billing information was recorded in SeaPro. Of these vessels, 407 were foreign-flagged vessels, and 30 were U.S.-flagged vessels. As stated previously, U.S.-flagged vessels not operating on register are not required to have a registered pilot per 46 U.S.C. 9302, but they can voluntarily choose to have one.

Numerous factors affect vessel traffic, which varies from year to year. Therefore, rather than using the total number of vessels over the time period, the Coast Guard took an average of the unique vessels using pilotage services from the years 2020 through 2022 as the best representation of vessels estimated to be affected by the rates in this final rule. From 2020 through 2022, an average of 296 vessels used pilotage services annually.^[52] On average, 280 of these vessels were foreign-flagged and 16 were U.S.-flagged vessels that voluntarily opted into the pilotage service (these figures are rounded averages).

Total Cost to Shippers

The rate changes resulting from this adjustment to the rates result in a net increase in the cost of service to shippers. However, the change in per-unit cost to each individual shipper is dependent on their area of operation.

The Coast Guard estimates the effect of the rate changes on shippers by comparing the total projected revenues needed to cover costs in 2023 with the total projected revenues to cover costs in 2024. We set pilotage rates so pilot associations receive enough revenue to cover their necessary and reasonable expenses. Shippers pay these rates when they engage a pilot as required by 46 U.S.C. 9302. Therefore, the aggregate payments of shippers to pilot associations are equal to the projected necessary revenues for pilot associations. The revenues each year represent the total costs that shippers must pay for pilotage services. The change in revenue from the previous year is the additional cost to shippers discussed in this final rule.

The impacts of the rate changes on shippers are estimated from the district pilotage projected revenues (shown in tables 11, 23, and 35 of this preamble). The Coast Guard estimates that, for the 2024 shipping season, the projected revenue needed for all three districts is $40,280,666.

To estimate the change in cost to shippers from this final rule, the Coast Guard compared the 2024 total projected revenues to the 2023 projected revenues. Because we review and prescribe rates for Great Lakes pilotage annually, the effects are estimated as a single-year cost, rather than annualized over a 10-year period. In the 2023 final rule, we estimated the total projected revenue needed for 2023 as 37,659,195.^[53] This is the best approximation of 2023 revenues, as, at the time of publication of this final rule, the Coast Guard does not have enough audited data available for the 2023 shipping season to revise these projections. Table 43 shows the revenue projections for 2023 and 2024 and details the additional cost increases to shippers by district as a result of the rate changes in traffic in Districts One, Two, and Three.

The resulting difference between the projected revenue in 2023 and the projected revenue in 2024 is the annual change in payments from shippers to pilots as a result of the rate changes in this final rule. The effect of the rate changes to shippers varies by area and district. After considering the change in pilotage rates, the rate changes lead to affected shippers operating in District One experiencing an increase in payments of $1,086,334 over the previous year. Affected shippers operating in District Two and District Three experienced an increase in payments of $437,949 and $1,097,188, respectively, when compared with 2023. The overall adjustment in payments increased payments by shippers to $2,621,471 across all three districts (a7-percent increase when compared with 2023). Again, because the Coast Guard reviews and sets rates for Great Lakes pilotage annually, we estimate the impacts as single-year costs rather than annualizing them over a 10-year period.

Table 44 shows the difference in revenue by revenue-component from 2023 to 2024 and presents each revenue-component as a percentage of the total revenue needed. In both 2023 and 2024, the largest revenue-component was target pilotage compensation (63 percent of total revenue needed in 2023 and 63 percent of total revenue needed in 2024), followed by operating expenses (32 percent of total revenue needed in 2023 and 30 percent of total revenue needed in 2024). The large increase in the working capital fund, 59 percent from 2023 to 2024, is driven by a large increase in the target rate of return on investment from 2.7033 percent in 2021 to 4.0742 percent in 2022.^[54]

( printed page 9067)

As stated above, we estimate a total increase in revenue needed by the pilot associations of $2,621,471. This represents an increase in revenue needed for target pilot compensation of $1,791,876, for the total apprentice pilot wage benchmark of $35,122, $208,860 for adjusted operating expenses, and $585,613 for an increase in the revenue needed for the working capital fund.

The change in revenue needed for pilot compensation, $1,791,876, is due to two factors: (1) The changes to adjust 2023 pilotage compensation to account for the difference between actual ECI inflation ^[55] (3.9 percent) and predicted PCE inflation ^[56] (2.7 percent) for 2023; and (2) projected inflation of pilotage compensation in Step 2 of the methodology, using predicted inflation through 2024.

The target compensation is $440,658 per pilot in 2024, compared to $424,398 in 2023. The changes to modify the 2023 pilot compensation to account for the difference between predicted and actual inflation increase the 2023 target compensation value by 1.2 percent. As shown in table 45, this inflation adjustment increases total compensation by $5,093 per pilot, and the total revenue needed by $295,381, when accounting for all 58 pilots.

Similarly, table 46 shows the impact of the difference between predicted and actual inflation on the target apprentice pilot compensation benchmark. The inflation adjustment increases the compensation benchmark by $1,833 per apprentice pilot, and the total revenue needed by $11,000 when accounting for all six apprentice pilots.

As noted earlier, the Coast Guard predicts that 58 pilots will be needed for the 2024 season. This is two more pilots than in the 2023 final rule, which leads to an estimated $871,130 increase in revenue needed for pilot compensation, as shown in table 47.

Similarly, the Coast Guard predicts that six apprentice pilots will be needed for the 2024 season. This is the same as in the 2023 season, so there is no estimated change in revenue needed for pilot compensation, apart from the change in inflation accounted for in table 48.

Another increase, $647,699, is the result of increasing compensation for the 58 pilots to account for future inflation of 2.6 percent in 2024. This increased total compensation by $11,167 per pilot, as shown in table 48.

Similarly, an increase of $24,122 is the result of increasing compensation for the 6 apprentice pilots to account for future inflation of 2.6 percent in 2024. This increased total compensation by $4,020 per apprentice pilot, as shown in table 49.

Table 50 presents the percentage change in revenue by area and revenue-component, excluding surcharges, as they are applied at the district level.⁵⁷

( printed page 9069) ( printed page 9070)

Benefits

This final rule allows the Coast Guard to meet the requirements in 46 U.S.C. 9303 to review the rates for pilotage services on the Great Lakes. The rate changes promote safe, efficient, and reliable pilotage service on the Great Lakes by (1) ensuring that rates cover an association's operating expenses, (2) providing fair pilot compensation, adequate training, and sufficient rest periods for pilots, and (3) ensuring pilot associations produce enough revenue to fund future improvements. The rate changes also help recruit and retain pilots, which ensures enough pilots are available to meet peak shipping demand, helping to reduce delays caused by pilot shortages.

B. Small Entities

Under the Regulatory Flexibility Act, 5 U.S.C. 601-612, we have considered whether this rule would have a significant economic impact on a substantial number of small entities. The term “small entities” comprises small businesses, not-for-profit organizations that are independently owned and operated and are not dominant in their fields, and governmental jurisdictions with populations of less than 50,000.

For this final rule, the Coast Guard reviewed recent company size and ownership data for the vessels identified in SeaPro, and we reviewed business revenue and size data provided by publicly available sources such as ReferenceUSA.^[58] As described in section II., Executive Summary, and section X., Regulatory Analyses, of this preamble, we found that 437 unique vessels used pilotage services during the years 2020 through 2022. These vessels are owned by 57 entities, of which 44 are foreign entities that operate primarily outside the United States, and the remaining 13 entities are U.S. entities. We compared the revenue and employee data found in the company search to the Small Business Administration's (SBA) small business threshold, as defined in the SBA's “Table of Size Standards” for small businesses, to determine how many of these companies are considered small entities.^[59] Table 51 shows the North American Industry Classification System (NAICS) codes of the U.S. entities and the small entity standard size established by the SBA, either number of employees or annual revenue.

Of the 13 U.S. entities, 4 exceed the SBA's small business standards for small entities, and 1 only provided service to a public vessel. To estimate the potential impact on the remaining eight small entities, the Coast Guard used their 2022 invoice data to estimate their pilotage costs in 2024. We first increase their 2022 costs by 16 percent to account for the changes in pilotage rates resulting from the 2023 final rule, then by 7 percent to account for changes resulting from this final rule. Then, we estimated the change in cost to these entities resulting from this final rule by subtracting their estimated 2023 pilotage costs from their estimated 2024 pilotage costs, and found the average costs to small firms is approximately $10,075, with a range of $6,419 to $16,255. We then compared the estimated change in pilotage costs between 2023 and 2024 with each firm's annual revenue. For two entities, the impact of the change in estimated pilotage expenses is above 1 percent of revenues, at 3.27 percent and 4.28 percent.

In addition to the owners and operators discussed previously, three U.S. entities that receive revenue from pilotage services are affected by this final rule. These are the three pilot associations that provide and manage pilotage services within the Great Lakes districts. These associations are designated collectively as the Lake Carrier's Association, as well as individually by each separate district association, all with the same NAICS code, “Business Association” ^[60] with a small-entity size standard of $15,500,000 in annual revenue. Based on the reported revenues from audit reports, the associations individually qualify as small entities, but are not considered small by the reported revenue of the Lake Carrier's Association.

Finally, the Coast Guard did not find any small not-for-profit organizations that are independently owned and operated, and are not dominant in their fields, that are impacted by this final rule. We also did not find any small governmental jurisdictions with populations of fewer than 50,000 people that are impacted by this final rule. Based on this analysis, we conclude this final rule does not affect a substantial number of small entities, nor have a significant economic impact on any of the affected entities.

Therefore, the Coast Guard certifies under 5 U.S.C. 605(b) that this rule will not have a significant economic impact ( printed page 9071) 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. If the final rule affects your small business, organization, or governmental jurisdiction and you have questions concerning its provisions or options for compliance, please call or email the person in the FOR FURTHER INFORMATION CONTACT section of this final rule. 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 nor does it impact an existing collection of information under the Paperwork Reduction Act of 1995, 44 U.S.C. 3501-3520.

E. Federalism

A rule has implications for federalism under Executive Order 13132 (Federalism) if it has a substantial direct effect on States, on the relationship between the National Government and the States, or on the distribution of power and responsibilities among the various levels of government. We have analyzed this rule under Executive Order 13132 and have determined that it is consistent with the fundamental federalism principles and preemption requirements described in Executive Order 13132. Our analysis follows.

Congress directed the Coast Guard to establish “rates and charges for pilotage services.” See 46 U.S.C. 9303(f). This regulation is issued pursuant to that statute and is preemptive of State law as specified in 46 U.S.C. 9306. Under 46 U.S.C. 9306, a “State or political subdivision of a State may not regulate or impose any requirement on pilotage on the Great Lakes.” As a result, States or local governments are expressly prohibited from regulating within this category. Therefore, this rule is consistent with the fundamental federalism principles and preemption requirements described in Executive Order 13132.

It is well settled that States may not regulate in categories reserved for regulation by the Coast Guard. It is also well settled that all of the categories covered in 46 U.S.C. 3306, 3703, 7101, and 8101 (design, construction, alteration, repair, maintenance, operation, equipping, personnel qualification, and manning of vessels), as well as the reporting of casualties and any other category in which Congress intended the Coast Guard to be the sole source of a vessel's obligations, are within the field foreclosed from regulation by the States. See the Supreme Court's decision in United States v. Locke and Intertanko v. Locke, 529 U.S. 89, 120 S.Ct. 1135 (2000).

F. Unfunded Mandates

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

G. Taking of Private Property

This 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 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 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 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 rule under Department of Homeland Security Management Directive 023-01, Rev. 1, associated implementing instructions, and Environmental Planning COMDTINST 5090.1 (series), which guide the Coast Guard in complying with the National Environmental Policy Act of 1969 (42 U.S.C. 4321-4370f), and have made a determination that this action is one of a category of actions that do not individually or cumulatively have a significant effect on the human environment. A Record of Environmental Consideration supporting this determination is available in the docket. For instructions on locating the docket, see the ADDRESSES section of this preamble. This rule categorically excluded under paragraphs A3 and L54 of Appendix A, ( printed page 9072) Table 1 of DHS Instruction Manual 023-01-001-01, Rev. 1. Paragraph A3 pertains to the promulgation of rules of the following nature: (a) those of a strictly administrative or procedural nature; (b) those that implement, without substantive change, statutory or regulatory requirements; (c) those that implement, without substantive change, procedures, manuals, and other guidance documents; (d) those that interpret or amend an existing regulation without changing its environmental effect; (e) those that provide technical guidance on safety and security matters; and (f) those that provide guidance for the preparation of security plans. Paragraph L54 pertains to regulations which are editorial or procedural.

This rule involves adjusting the pilotage rates for the 2024 shipping season to account for changes in district operating expenses, changes in the number of pilots, and anticipated inflation. This rule is not part of a larger action, and it will not result in significant impacts to the human environment. All changes are consistent with the Coast Guard's maritime safety missions.

For the reasons discussed in the preamble, the Coast Guard amends 46 CFR part 401 as follows:

89 FR 9038