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

• Published date: 12 March 2021
• Citation: 86 FR 14184
• Record Number: 2021-05050
• Section: Rules and Regulations
• Court: Coast Guard

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Federal Register / Vol. 86, No. 47 / Friday, March 12, 2021 / Rules and Regulations

1

Title 46 of the United States Code (U.S.C.)

Chapter 93; Public Law 86–555, 74 Stat. 259, as

amended.

DEPARTMENT OF HOMELAND

SECURITY

Coast Guard

46 CFR Parts 401 and 404

[Docket No. USCG–2020–0457]

RIN 1625–AC67

Great Lakes Pilotage Rates—2021

Annual Review and Revisions to

Methodology

AGENCY

: Coast Guard, DHS.

ACTION

: Final rule.

SUMMARY

: In accordance with the Great

Lakes Pilotage Act of 1960, the Coast

Guard is establishing new base pilotage

rates for the 2021 shipping season. This

final rule will adjust the pilotage rates

to account for changes in district

operating expenses, an increase in the

number of pilots, and anticipated

inflation. The rule makes one change to

the ratemaking methodology to account

for actual inflation in step 4.

Additionally, the rule excludes legal

fees incurred in litigation against the

Coast Guard regarding ratemaking from

necessary and reasonable pilot

association operating expenses. When

combined with the changes above, this

results in a 7-percent net increase in

pilotage costs compared to the 2020

season.

DATES

: This final rule is effective April

12, 2021.

ADDRESSES

: To view documents and

comments mentioned in this preamble

as being available in the docket, go to

https://www.regulations.gov, type

USCG–2020–0457 in the ‘‘SEARCH’’

box and click ‘‘SEARCH.’’ Click on

Open Docket Folder on the line

associated with this rule.

FOR FURTHER INFORMATION CONTACT

: For

information about this document, call or

email Mr. Brian Rogers, Commandant

(CG–WWM–2), Coast Guard; telephone

202–372–1535, email Brian.Rogers@

uscg.mil, or fax 202–372–1914.

SUPPLEMENTARY INFORMATION

:

Table of Contents for Preamble

I. Abbreviations

II. Executive Summary

III. Basis and Purpose

IV. Background

V. Discussion of Methodological and Other

Changes

A. Inflation of Pilot Compensation

Calculation in Step 4

B. Exclusion of Legal Fees Incurred in

Lawsuits Against the Coast Guard

Related to Ratemaking and Regulating

From Pilots Associations’ Approved

Operating Expenses

C. Operation Expenses in Table 3—2018

Recognized Expenses for District One

VI. Discussion of Comments

VII. 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 Working

Pilots

D. Step 4: Determine Target Pilot

Compensation Benchmark

E. Step 5: Project Working Capital Fund

F. Step 6: Project Needed Revenue

G. Step 7: Calculate Initial Base Rates

H. Step 8: Calculate Average Weighting

Factors by Area

I. Step 9: Calculate Revised Base Rates

J. Step 10: Review and Finalize Rates

District Two

A. Step 1: Recognize Previous Operating

Expenses

B. Step 2: Project Operating Expenses,

Adjusting for Inflation or Deflation

C. Step 3: Estimate Number of Working

Pilots

D. Step 4: Determine Target Pilot

Compensation Benchmark

E. Step 5: Project Working Capital Fund

F. Step 6: Project Needed Revenue

G. Step 7: Calculate Initial Base Rates

H. Step 8: Calculate Average Weighting

Factors by Area

I. Step 9: Calculate Revised Base Rates

J. Step 10: Review and Finalize Rates

District Three

A. Step 1: Recognize Previous Operating

Expenses

B. Step 2: Project Operating Expenses,

Adjusting for Inflation or Deflation

C. Step 3: Estimate Number of Working

Pilots

D. Step 4: Determine Target Pilot

Compensation Benchmark

E. Step 5: Project Working Capital Fund

F. Step 6: Project Needed Revenue

G. Step 7: Calculate Initial Base Rates

H. Step 8: Calculate Average Weighting

Factors by Area

I. Step 9: Calculate Revised Base Rates

J. Step 10: Review and Finalize Rates

VIII. 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

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

EAJA Equal Access to Justice Act

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

I.R.C. Internal Revenue Code

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

Pilots Working Pilots

SBA Small Business Administration

SLSPA St. Lawrence Seaway Pilots’

Association

§ Section

The Act Great Lakes Pilotage Act of 1960

The Coalition The Shipping Federation of

Canada, the American Great Lakes Ports

Association, and the United States Great

Lakes Shipping Association

U.S.C. United States Code

User’s Coalition The Shipping Federation of

Canada, the American Great Lakes Ports

Association, and the United States Great

Lakes Shipping Association

WGLPA Western Great Lakes Pilot

Association

II. Executive Summary

Pursuant to the Great Lakes Pilotage

Act of 1960 (‘‘the Act’’),

1

the Coast

Guard regulates pilotage for oceangoing

vessels on the Great Lakes and St.

Lawrence Seaway—including setting

the rates for pilotage services and

adjusting them on an annual basis for

the upcoming shipping season.

Shipping season begins when the locks

are opened in the St. Lawrence Seaway,

which allows traffic access to and from

the Atlantic Ocean. The opening of the

locks varies annually depending on the

waterway conditions, but is generally in

March or April. The rates, which for the

2020 season range from $337 to $758

per pilot hour (depending on which of

the specific six areas pilotage service is

provided), are paid by shippers to pilot

associations. The three pilot

associations, which are the exclusive

U.S. source of registered pilots on the

Great Lakes, use this revenue to cover

operating expenses, maintain

infrastructure, compensate applicant

and registered pilots, acquire and

implement technological advances, train

new personnel, and allow partners to

participate in professional development.

To compute the rate for pilotage

services, we have been modifying our

methodology, originally introduced in

2016, each year since then, in

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2

46 U.S.C. Chapter 93; Public Law 86–555, 74

Stat. 259, as amended.

3

46 U.S.C. 9302(a)(1).

4

46 U.S.C. 9303(f).

5

Id.

6

Id.

7

Department of Homeland Security (DHS)

Delegation No. 0170.1, para. II (92.f).

8

See 46 CFR 401.

accordance with our statutory

requirements and regulations. Our

ratemaking methodology calculates the

revenue needed for each pilotage

association (operating expenses,

compensation for the number of pilots,

and anticipated inflation), and then

divides that amount by the expected

demand for pilotage services over the

course of the coming year, to produce an

hourly rate. This process is currently

effected through a 10-step methodology,

which is explained in detail in the

Summary of Ratemaking Methodology

in Section IV of the preamble to this

final rule.

As part of our annual review, in this

final rule we are implementing new

pilotage rates for 2021 based on the

existing methodology. The result is an

increase in rates for two areas, a

decrease for three areas, and no change

in the remaining area when compared to

the 2020 rates. In the 2021 ratemaking

NPRM, we estimated a 4 percent

increase in pilotage rates from the 2020

rates. In the 2021 ratemaking final rule,

the pilotage rates for 2021 are about 7

percent more than the 2020 rates. These

changes are due to a combination of five

factors:

(1) A decrease in the amount of

money needed for the working capital

fund;

(2) adjusting pilot compensation for

inflation;

(3) the net addition of two working

pilots (‘‘pilots’’) at the beginning of the

2021 shipping season;

(4) an increase in total operating

expenses for District One compared to

the previous year; and

(5) an increase in the average hours of

traffic for each area.

This increase in the average hours of

traffic resulted in lower hourly rates

despite a net increase in the amount of

revenue needed by the pilot

associations, because, when calculating

the base hourly rates, the total revenue

needed is divided by the average hours

of traffic annually (see Step 7 of the

ratemaking process). The Coast Guard

uses a 10-year average when calculating

traffic, to smooth out variations in traffic

caused by global economic conditions,

such as those caused by the COVID–19

pandemic.

In addition, the Coast Guard is

implementing one methodological

change to the inflation calculation for

pilot compensation in step 4, to account

for actual inflation. And, finally, this

rule will disallow legal fees for litigation

against the Coast Guard regarding the

ratemakings as redeemable operating

expenses. These changes are further

discussed in Sections V and VI of this

preamble.

Based on the ratemaking model

discussed in this final rule, we are

implementing the rates shown in Table

1.

T

ABLE

1—C

URRENT

, P

ROPOSED

,

AND

F

INAL

P

ILOTAGE

R

ATES ON THE

G

REAT

L

AKES

Area Name

Final 2020

pilotage rate Proposed 2021

pilotage rate Final 2021

pilotage rate

District One: Designated .............................. St. Lawrence River ...................................... $758 $757 $800

District One: Undesignated .......................... Lake Ontario ................................................ 463 428 498

District Two: Designated .............................. Navigable waters from Southeast Shoal to

Port Huron, MI. 618 577 580

District Two: Undesignated .......................... Lake Erie ..................................................... 586 566 566

District Three: Designated ........................... St. Marys River ............................................ 632 584 586

District Three: Undesignated ....................... Lakes Huron, Michigan, and Superior ........ 337 335 337

This rule will impact 54 United States

registered pilots, 3 pilot associations,

and the owners and operators of an

average of 279 oceangoing vessels that

transit the Great Lakes annually. This

rule is not economically significant

under Executive Order 12866 and does

not affect the Coast Guard’s budget or

increase Federal spending. The overall

annual regulatory economic impact of

this rate change is a net increase of

$2,064,622 in projected payments made

by consumers of pilotage services

during the 2020 shipping season.

Because the Coast Guard must review,

and, if necessary, adjust rates each year,

we analyze these as single-year costs

and do not annualize them over 10

years. Section VIII of this preamble

provides the regulatory impact analyses

of this rule.

III. Basis and Purpose

The legal basis of this rulemaking is

the Great Lakes Pilotage Act of 1960,

2

which requires foreign merchant vessels

and U.S. vessels operating ‘‘on register,’’

meaning U.S. vessels engaged in foreign

trade, to use U.S. or Canadian pilots

while transiting the U.S. waters of the

St. Lawrence Seaway and the Great

Lakes system.

3

For United States

registered pilots, the Act requires the

Secretary to ‘‘prescribe by regulation

rates and charges for pilotage services,

giving consideration to the public

interest and the costs of providing the

services.’’

4

The Act requires that rates

be established or reviewed and adjusted

each year, not later than March 1.

5

The

Act also requires that base rates be

established by a full ratemaking at least

once every 5 years, and, in years when

base rates are not established, they must

be reviewed and, if necessary, in

consideration of the public interest and

the costs of providing the services,

adjusted.

6

The Secretary’s duties and

authority under the Act have been

delegated to the Coast Guard.

7

The purpose of this final rule is to

establish new pilotage rates for the 2021

shipping season. The Coast Guard

believes that the new rates will continue

to promote our goals in title 46 of the

Code of Federal Regulations (CFR), part

404.1, for pilot retention, to ensure safe,

efficient, and reliable pilotage services

in order to facilitate maritime commerce

throughout the Great Lakes and Saint

Lawrence River System, and to provide

adequate funds to upgrade and maintain

infrastructure.

IV. Background

Pursuant to the Act, the Coast Guard,

in conjunction with the Canadian Great

Lakes Pilotage Authority (GLPA),

regulates shipping practices and rates

on the Great Lakes. Under Coast Guard

regulations, all vessels engaged in

foreign trade (often referred to as

‘‘salties’’) are required to engage U.S. or

Canadian pilots during their transit

through the regulated waters.

8

United

States and Canadian ‘‘lakers,’’ which

account for most commercial shipping

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The Coast Guard uses the term ‘‘laker’’ to

identify commercial cargo vessels especially

designed for and generally limited to use on the

Great Lakes. These vessels are excluded from the

requirement to use a pilot in the Great Lakes in 46

U.S.C. 9302(f).

10

Presidential Proclamation 3385, Designation of

restricted waters under the Great Lakes Pilotage Act

of 1960, December 22, 1960.

11

46 U.S.C. 9302(a)(1)(B).

12

Area 3 is the Welland Canal, which is serviced

exclusively by the Canadian GLPA and,

accordingly, is not included in the U.S. pilotage rate

structure.

13

The areas are listed by name at 46 CFR 401.405.

on the Great Lakes, are not affected.

9

Generally, vessels are assigned a U.S. or

Canadian registered pilot depending on

the order in which they transit a

particular area of the Great Lakes and do

not choose the pilot they receive. If a

vessel is assigned a U.S. pilot, that pilot

will be assigned by the pilotage

association responsible for the

particular district in which the vessel is

operating, and the vessel operator will

pay the pilotage association for the

pilotage services. The Canadian GLPA

establishes the rates for Canadian

working pilots.

The U.S. waters of the Great Lakes

and the St. Lawrence Seaway are

divided into three pilotage districts.

Pilotage in each district is provided by

an association certified by the Coast

Guard’s Director of the Great Lakes

Pilotage (‘‘the Director’’) to operate a

pilotage pool. The Saint Lawrence

Seaway Pilotage Association provides

pilotage services in District One, which

includes all U.S. waters of the St.

Lawrence River and Lake Ontario. The

Lakes Pilotage Association provides

pilotage services in District Two, which

includes all U.S. navigable waters from

Southeast Shoal to Port Huron, MI,

including all the U.S. waters of Lake

Erie, the Detroit River, Lake St. Clair,

and the St. Clair River. Finally, the

Western Great Lakes Pilotage

Association provides pilotage services

in District Three, which includes all

U.S. waters of the St. Marys River,

including the Sault Ste. Marie Locks;

and Lakes Huron, Michigan, and

Superior.

Each pilotage district is further

divided into ‘‘designated’’ and

‘‘undesignated’’ areas, which is depicted

in Table 2 below. Designated areas,

classified as such by Presidential

Proclamation, are waters in which pilots

must, at all times, be fully engaged in

the navigation of vessels in their

charge.

10

Undesignated areas, on the

other hand, are open bodies of water not

subject to the same pilotage

requirements. While working in

undesignated areas, pilots must ‘‘be on

board and available to direct the

navigation of the vessel at the discretion

of and subject to the customary

authority of the master.’’

11

For these

reasons, pilotage rates in designated

areas can be significantly higher than

those in undesignated areas.

T

ABLE

2—A

REAS OF THE

G

REAT

L

AKES AND

S

T

. L

AWRENCE

S

EAWAY

District Pilotage association Designation Area No.

12

Area name

13

One .......... Saint Lawrence Seaway Pilotage Association Designated .......... 1 St. Lawrence River.

Undesignated ...... 2 Lake Ontario.

Two .......... Lake Pilotage Association .............................. Designated .......... 5 Navigable waters from Southeast Shoal to

Port Huron, MI.

Undesignated ...... 4 Lake Erie.

Three ....... Western Great Lakes Pilotage Association .... Designated .......... 7 St. Marys River.

Undesignated ...... 6 Lakes Huron and Michigan.

8 Lake Superior.

Each pilot association is an

independent business and is the sole

provider of pilotage services in the

district in which it operates. Each pilot

association is responsible for funding its

own operating expenses, maintaining

infrastructure, compensating pilots and

applicant pilots, acquiring and

implementing technological advances,

and training personnel and partners.

The Coast Guard developed a 10-step

ratemaking methodology to derive a

pilotage rate, based on the estimated

amount of traffic, which covers these

expenses. The methodology is designed

to measure how much revenue each

pilotage association will need to cover

expenses and provide compensation to

working pilots. Since the Coast Guard

cannot guarantee demand for pilotage

services, target pilot compensation for

working pilots is a goal. The actual

demand for service dictates the actual

compensation for the working pilots.

We then divide that amount by the

historic 10-year average for pilotage

demand. We recognize that, in years

where traffic is above average, pilot

associations will accrue more revenue

than projected, while in years where

traffic is below average, they will take

in less. We believe that over the long

term, however, this system ensures that

infrastructure 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.

Over the past 4 years, the Coast Guard

has made adjustments to the Great Lakes

pilotage ratemaking methodology. In

2016, we made significant changes to

the methodology, moving to an hourly

billing rate for pilotage services and

changing the compensation benchmark

to a more transparent model. In 2017,

we added additional steps to the

ratemaking methodology, including new

steps that accurately account for the

additional revenue produced by the

application of weighting factors

(discussed in detail in Steps 7 through

9 for each district, in Section VII of this

preamble). In 2018, we revised the

methodology by which we develop the

compensation benchmark, based upon

U.S. mariners rather than Canadian

working pilots. The current

methodology, which was finalized in

the Great Lakes Pilotage Rates—2020

Annual Review and Revisions to

Methodology final rule (Volume 85 of

the Federal Register (FR) at Page

20088), published April 9, 2020, is

designed to accurately capture all of the

costs and revenues associated with

Great Lakes pilotage requirements and

produce an hourly rate that adequately

and accurately compensates pilots and

covers expenses. The current

methodology is summarized in the

section below.

Summary of Ratemaking Methodology

As stated above, the ratemaking

methodology, outlined in 46 CFR

404.101 through 404.110, consists of 10

steps that are designed to account for

the revenues needed and total traffic

expected in each district. The result is

an hourly rate, determined separately

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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

the Coast Guard receives audited

numbers, this number is 3 years behind

the projected year of expenses. So, in

calculating the 2021 rates in this rule,

we begin with the audited expenses

from the 2018 shipping season.

While each pilotage association

operates in an entire district, the Coast

Guard tries to determine costs by area.

Thus, with regard to operating expenses,

we allocate certain operating expenses

to designated areas, and certain

operating expenses to undesignated

areas. In some cases, we can allocate the

costs based on where they are actually

accrued. For example, we can allocate

the costs for insurance for applicant

pilots who operate in undesignated

areas only. In other situations, such as

general legal expenses, expenses are

distributed between designated and

undesignated waters on a pro rata basis,

based upon the proportion of income

forecasted from the respective portions

of the district.

In Step 2, ‘‘Project operating

expenses, adjusting for inflation or

deflation,’’ (§ 404.102) the Director

develops the 2021 projected operating

expenses. To do this, we apply inflation

adjustors for 3 years to the operating

expense baseline received in Step 1. The

inflation factors are from the Bureau of

Labor Statistics’ (BLS) Consumer Price

Index (CPI) for the Midwest Region, or,

if not available, the Federal Open

Market Committee (FOMC) median

economic projections for Personal

Consumption Expenditures (PCE)

inflation. This step produces the total

operating expenses for each area and

district.

In Step 3, ‘‘Estimate number of

working pilots,’’ (§ 404.103) the Director

calculates how many pilots are needed

for each district. To do this, we employ

a ‘‘staffing model,’’ described in

§ 401.220, paragraphs (a)(1) through

(a)(3), to estimate how many pilots will

be needed to handle shipping during the

beginning and close of the season. This

number is helpful in providing guidance

to the Director in approving an

appropriate number of credentials for

pilots.

For the purpose of the ratemaking

calculation, we determine the number of

pilots provided by the pilotage

associations (see § 404.103), which is

what we use to determine how many

pilots need to be compensated via the

pilotage fees collected.

In the first part of Step 4, ‘‘Determine

target pilot compensation benchmark,’’

(§ 404.104) the Director determines the

revenue needed for pilot compensation

in each area and district. For the 2020

ratemaking, the Coast Guard updated

the benchmark compensation model in

accordance with § 404.104(b), switching

from using the American Maritime

Officers Union 2015 aggregated wage

and benefit information to the 2019

compensation benchmark. Based on our

experience over the past two

ratemakings, the Coast Guard has

determined that the level of target pilot

compensation for those years provides

an appropriate level of compensation for

American Great Lakes pilots. The Coast

Guard, therefore, will not seek

alternative benchmarks for target

compensation for future ratemakings at

this time and will, instead, simply

adjust the amount of target pilot

compensation for inflation. This

benchmark has advanced the Coast

Guard’s goals of safety through rate and

compensation stability while also

promoting recruitment and retention of

qualified U.S. pilots.

In order to further this goal, for the

2021 ratemaking, the Coast Guard is also

changing the way inflation is calculated

in this step, to account for actual

inflation instead of predicted inflation.

See the Discussion of Methodological

and Other Changes at Section V of this

preamble for a detailed description of

the changes.

In the second part of Step 4, set forth

in § 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 a value that is added to pay

for needed capital improvements and

other non-recurring expenses, such as

technology investments and

infrastructure maintenance. This value

is calculated by adding the total

operating expenses (derived in Step 2)

to the total pilot compensation (derived

in Step 4), and multiplying that figure

by the preceding year’s average annual

rate of return for new issues of high-

grade corporate securities. This figure

constitutes the ‘‘working capital fund’’

for each area and district.

In Step 6, ‘‘Project needed revenue,’’

(§ 404.106) the Director simply adds up

the totals produced by the preceding

steps. The projected operating expense

for each area and district (from Step 2)

is added to the total pilot compensation

(from Step 4) and the working capital

fund contribution (from Step 5). The

total figure, calculated separately for

each area and district, is the ‘‘needed

revenue.’’

In Step 7, ‘‘Calculate initial base

rates,’’ (§ 404.107) the Director

calculates an hourly pilotage rate to

cover the needed revenue as calculated

in Step 6. This step consists of first

calculating the 10-year hours of traffic

average for each area. Next, the revenue

needed in each area (calculated in Step

6) is divided by the 10-year hours of

traffic average to produce an initial base

rate.

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). As

this significantly increases the revenue

collected, we need to account for the

added revenue produced by the

weighting factors to ensure that shippers

are not overpaying for pilotage services.

We do this in the next step.

In Step 8, ‘‘Calculate average

weighting factors by Area,’’ (§ 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 adjustment’’ or

‘‘Director’s discretion,’’ the Director

reviews the revised base rates (from

Step 9) to ensure that they meet the

goals set forth in the Act and 46 CFR

404.1(a), which include promoting

efficient, safe, and reliable pilotage

service on the Great Lakes; generating

sufficient revenue for each pilotage

association to reimburse necessary and

reasonable operating expenses;

compensating trained and rested pilots

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14

U.S. BLS ECI Q3 2020 data for Total

Compensation for Private Industry Workers in the

Transportation and Material Moving Sector (Series

ID: CIU2010000520000A). The third quarter data

was the most recently available data at the time of

analysis for this final rule, available at https://

www.bls.gov/news.release/archives/eci_

10302020.pdf in Table 5 on page 10. The NPRM

used the Q1 value of 3.4 percent, which is available

at https://www.bls.gov/news.release/archives/eci_

04302020.pdf in Table 5 on page 10.

15

46 U.S.C. 9303(f).

16

https://www.regulations.gov/

document?D=USCG-2020-0457-0005.

17

Table 3 can be found in the proposed rule

published at 85 FR 68219 (October 27, 2020).

fairly; and providing appropriate profit

for improvements.

After the base rates are set, § 401.401

permits the Coast Guard to apply

surcharges. We did not propose any

surcharges in the notice of proposed

rulemaking (NPRM) (85 FR 68210,

October 27, 2020), and the Coast Guard

will not be imposing surcharges in the

2021 ratemaking.

V. Discussion of Methodological and

Other Changes

In the 2021 ratemaking NPRM, the

Coast Guard proposed one

methodological change to Step 4 of the

ratemaking model and two policy

changes. In consideration of the

comments, this final rule only adopts

the change to the way we calculate

inflation of pilot compensation in Step

4 and the exclusion of legal fees

associated with lawsuits against the

Coast Guard’s ratemaking and oversight

requirements from pilot association

operating expenses. Additionally, this

final rule makes corrections to District

One’s operating expenses. This rule

does not make any changes to the

staffing model, for the reasons discussed

in Section VI, Discussion of Comments.

A. Inflation of Pilot Compensation

Calculation in Step 4

As proposed in the NPRM, this rule

changes the inflation calculation in

§ 404.104(b) for interim ratemakings so

that the previous year’s target

compensation value will first be

adjusted by actual inflation using the

Employment Cost Index (ECI) inflation

value. With this change, we will update

the previous year’s target compensation

value for actual inflation using ECI

inflation values in each ratemaking.

This ensures that any differences

between the predicted inflation rate and

the actual inflation rate will not be

compounded with each ratemaking

when the predicted PCE value is higher

or lower than actual inflation. We will

then multiply the ECI-adjusted target

compensation for past years by the

predicted future inflation value from the

PCE to account for future inflation.

The BLS ECI only provides historic

data; consequently, we use PCE data, in

accordance with § 404.104(b), as the

PCE provides estimates of future

inflation for the upcoming shipping

season. The PCE is a reflection of the

Government’s best prediction of what

will happen, and the Coast Guard will

continue to use it as our predicted

inflation value in Step 4 of the

ratemaking.

For 2020, the actual ECI inflation is

3.5 percent, which is 1.5 percent greater

than the predicted PCE inflation of 2

percent.

14

The difference between using

the 2020 predicted PCE inflation rates

and historic ECI actual inflation data in

§ 401.104(b) results in a 1.5 percent

increase for 2021 target pilot

compensation versus continuing to use

the predicted PCE inflation value. In

some years, however, it is possible that

the actual ECI inflation will be lower

than the predicted PCE inflation,

resulting in a lower value for target pilot

compensation than if we had continued

to use the PCE inflation.

B. Exclusion of Legal Fees Incurred in

Lawsuits Against the Coast Guard

Related to Ratemaking and Regulating

From Pilot Associations’ Approved

Operating Expenses

This final rule excludes legal fees

incurred in litigation against the Coast

Guard in relation to the ratemaking and

oversight requirements in 46 U.S.C.

9303, 9304, and 9305 from approved

pilot associations’ operating expenses

used in the calculation of pilotage rates.

As we proposed in the NPRM, this

exclusion will be added to § 404.2,

‘‘Procedure and criteria for recognizing

association expenses,’’ in paragraph

(b)(6).

Excluding these legal fees from

operating expenses in the ratemaking

and regulatory function is consistent

with ‘‘giving consideration to the public

interest and the costs of providing the

services,’’

15

because it places the

burden of paying the legal fees on the

Coast Guard, as the responsible party,

when the pilots prevail on the merits,

rather than the shipping companies that

have no choice but to pay the set rate

for pilotage services. Our reasoning is

discussed further in Section VI of this

preamble, Discussion of Comments.

Our process to exclude the legal fees

in our annual ratemaking will be as

follows. First, the unreimbursed pilot

associations’ legal fees incurred in

litigation against the Coast Guard will

be identified as an individual line item

in the operating expenses. Second, we

will remove the same amount by way of

a Director’s adjustment in a later step.

To clarify, any pilot association’s legal

fees associated with intervening on the

Coast Guard’s defense in a ratemaking

lawsuit will continue to be included as

an approved operating expense and will

not be removed by way of a Director’s

adjustment.

When a pilot association’s legal fees

are reimbursed fully or partially by way

of the Equal Access to Justice Act

(EAJA) or settlement, then the operating

expense amount will be reduced to

represent only the unreimbursed dollar

amount, and that same dollar amount

will be excluded by a Director’s

adjustment. Only the outstanding cost of

legal fees incurred in litigation against

the Coast Guard related to ratemaking

and oversight will be listed,

representing the true cost to the

association. Listing the dollar amount of

unreimbursed legal expenses and

removing it from the operating expenses

will provide transparency to the pilot

associations of the exact amount of legal

fees excluded by this change.

C. Operation Expenses in Table 3—2018

Recognized Expenses for District One

The St. Lawrence Seaway Pilots’

Association (SLSPA), District One,

comment from Captain Boyce,

16

Association President, described several

errors in the NPRM’s Table 3—2018

Recognized Expenses For District One.

17

He commented that the rate calculation

did not include 2018 operating expenses

for the following allowable items: (1)

Applicant pilot salaries, (2) a down

payment for a pilot boat, (3) loan

payments for the new pilot boat, and (4)

dock repairs. Per our requirements in

§ 404.101, the Coast Guard uses a third-

party auditing firm to produce financial

reports for the pilot associations. We

contracted CohnReznick (a professional

services firm that specializes in

accounting, taxes, and advising) to

create the 2018 financial reports, and

used them to establish the rates in the

2021 NPRM. We asked CohnReznick to

review the District One 2018 expense

report and SLSPA comment to verify the

four missing operating expenses raised

by the commenter and provide us with

updated numbers.

The commenter asserted that

applicant salaries were improperly

excluded from expenses and makes the

following points: (1) For apprentice

pilots, as K–1 partners, compensation is

not recorded as an expense by generally

accepted accounting principles (GAAP)

accounting standards, although it

clearly fits within what is, and has been,

recognized as an allowable expense in

the ratemaking; (2) the NPRM shows the

applicant salary amount by adding then

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18

Table 3 can be found in the proposed rule

published at 85 FR 68219 (October 27, 2020).

subtracting them from the expenses in

the Director’s adjustments in Table 3,

which, in itself, has no net effect; and

(3) the net result is that $594,521 needs

to be added to the expenses.

The Coast Guard agrees with the

commenter that applicant pilot salaries

are necessary expenses that we should

have included in the operating expense

base of the NPRM. However, we would

have adjusted them to reasonable

amounts. As the commenter notes, in

Table 3 of the NPRM, the salaries were

added in but immediately deducted.

The applicant salaries were not

otherwise included in the expense base,

so we should not have deducted them

from the ratemaking. Applicant salaries

are considered reasonable and necessary

expenses, subject to Director’s

adjustments, under our existing

ratemaking process and per § 404.2(a).

CohnReznick provided an updated

applicant salary expense of $594,331 for

the total applicant salaries for District

One. We will use the value verified by

the auditor, per our requirement in

§ 404.101. In this rule, we are removing

the deduction for applicant pilot

salaries in the District One expenses,

thus allowing $594,331 for applicant

pilot salaries as operating expenses,

before any Director’s adjustments, to

ensure the amount included in the total

operating expenses is reasonable. The

Director’s adjustments to the applicant

salaries, originally proposed in the

NPRM and adopted in this final rule,

include a deduction to bring the total

salaries down to an amount determined

reasonable by the Director, and a

deduction for the amount of applicant

salary surcharges the association

received in 2018 under that year’s

ratemaking (see Section VII of this

preamble).

In addition, the SLSPA comment

noted that District One had operating

expenses in 2018 related to the purchase

of a new pilot boat, a dock project, and

pilot boat loan expenses. The

commenter included a spreadsheet

detailing the expenses and errors in

District One’s operating expenses and

asserted that the NPRM’s Table 3—2018

Recognized Expenses for District One

did not cover their mortgaged

infrastructure and dock project. We

inquired with CohnReznick, and they

confirmed that the pilot boat, the loan

on the pilot boat, and the dock project

were not included in the original report

used to develop the NPRM; therefore,

they were not included in the

operational expenses in Table 3.

It is within our regulatory authority to

consider these infrastructure costs as

operating expenses. The regulations in

46 CFR 404.1(a) state that the goal of the

ratemaking is to reimburse pilot

associations’ ‘‘necessary and reasonable

operating expenses, fairly compensate

trained and rested pilots, and provide

an appropriate profit to use for

improvements.’’ Additionally, § 404.2(a)

requires the Director to review all

reported expenses and determine if they

are both necessary for providing

pilotage service and reasonable in

amount. Under § 404.2(b) criteria for

determining if an expense is necessary

and reasonable, these capital expenses

are not otherwise excluded from being

considered necessary and reasonable

operating expenses in this rule. The

costs for purchasing a new pilot boat,

loan costs associated with the new pilot

boat, and dock maintenance are

necessary for pilotage services because

the pilots use the pilot boats and docks

in their daily business. It is necessary to

maintain their infrastructure to be able

to perform their duties efficiently. For

the same reasons, these infrastructure

expenses are also necessary and

reasonable in amount when compared

to similar expenses paid by others in the

maritime or other comparable industry.

Therefore, our regulatory framework

requires the Coast Guard to allow these

expenses in the year they were paid.

Additionally, current Coast Guard

regulations do not require these costs be

paid out of the pilot association’s

working capital fund. The section

covering the working capital fund is 46

CFR 403.110, which states that pilot

associations may only spend the

working capital funds on items such as

infrastructure improvements, major

pilot boat repairs, and property

acquisition. There is no requirement

that they must use the working capital

fund for these expenses. The commenter

and district reported these as expenses

for 2018, not working capital funds. As

such, we do not have the regulatory

authority to require District One to use

the working capital fund to pay for these

purchases rather than including them as

operational expenses.

This final rule includes the

infrastructure costs in District One’s

operational expenses for 2018. These

updated numbers are reflected in Table

3 in this preamble under ‘‘Capital

Expenses.’’ CohnReznick, our auditor,

provided us verified numbers for these

expenses.

The SLSPA comment also stated that

in the NPRM’s Table 3—2018

Recognized Expenses for District One,

18

the CPA deduction for dues and

subscriptions of $6,600 is incorrect and

should be added back into total

operating expenses. In their inspection

of the CPA’s report for 2018, the SLSPA

found that the CPA did not deduct

$6,600 for dues and subscriptions,

meaning this is an allowable expense, in

their opinion. The Coast Guard verified

that this CPA deduction was not in the

audit report and, therefore, the

deduction in the NPRM was

unsupported. In Table 3 of this rule’s

preamble, we removed the $6,600 CPA

deduction, thus allowing the $6,600

operating expense for dues and

subscriptions for District 1. However, in

future rulemakings the Coast Guard will

be working with the auditors to identify

which dues and subscriptions fees

should be counted as necessary and

reasonable operating expenses and

which should be considered pilot

compensation.

VI. Discussion of Comments

In response to the October 27, 2020

NPRM (85 FR 68210), the Coast Guard

received seven comment letters as well

as a duplicate comment submission.

These letters included one comment

from the Great Lakes Pilots, which

represents the interests of the three

Great Lake pilot associations (‘‘Great

Lakes Pilots’ comment’’); a comment

from the Shipping Federation of

Canada, the American Great Lakes Ports

Association, and the United States Great

Lakes Shipping Association (‘‘the User’s

Coalition’’ or ‘‘the Coalition’’); a

comment from the American Pilots’

Association (‘‘APA’’); a comment from

the president of the St. Lawrence

Seaway Pilots’ Association (‘‘SLSPA’’); a

comment from the president of the

Lakes Pilots Association (‘‘LPA’’); a

comment from the president of the

Western Great Lakes Pilot Association

(‘‘WGLPA’’); and a comment made by

Captain John Swartout, a pilot working

for District Three. As each of these

commenters touched on numerous

issues, for each response below we note

which commenter raised the specific

points addressed. In situations where

multiple commenters raised similar

issues, we attempt to provide one

response to those issues.

1. Inflation of Pilot Compensation

Calculation in Step 4

We received several comments on the

proposed changes in the 2021 NPRM to

Step 4 of the ratemaking, which adjusts

target pilot compensation to account for

inflation. In prior ratemakings, the Coast

Guard adjusted the existing target pilot

compensation to account for inflation,

following the procedures outlined in

§ 404.104(b), which requires that the

U.S. Federal Reserve’s PCE price index

be used when data from the U.S. BLS

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19

https://www.regulations.gov/

document?D=USCG-2020-0457-0005.

20

https://www.regulations.gov/

document?D=USCG-2020-0457-0006.

21

https://www.regulations.gov/

document?D=USCG-2020-0457-0012.

22

https://www.regulations.gov/

document?D=USCG-2020-0457-0005.

23

https://www.regulations.gov/

document?D=USCG-2020-0457-0007.

24

https://www.regulations.gov/

document?D=USCG-2020-0457-0010.

ECI data is not available. In the 2021

NPRM, the Coast Guard proposed that

the previous year’s target compensation

value would first be adjusted by the

difference between predicted PCE

inflation value and actual ECI inflation

value, to ensure that the target

compensation value accounts for actual

inflation. We would then multiply this

adjusted target compensation value by

the predicted future inflation value from

the PCE to account for future inflation.

Comments from Captain Swartout,

19

WGLPA,

20

and the Great Lakes Pilots’

comment

21

stated that they agreed with

Coast Guard’s approach to adjust the

2020 target compensation (the previous

year’s target compensation) adjusted by

the difference between predicted PCE

inflation value and actual ECI inflation

value. However, they believed that the

Coast Guard should also adjust the 2018

and 2019 target compensation values by

the ECI inflation index. The Great Lakes

Pilots’ comment went on to state that

the ‘‘correct’’ target pilot compensation

figures can be calculated by applying

the ECI inflation value to the 2018 and

2019 rates, and calculates a target

compensation value of $388,900. They

stated that, in the 2018 final rule, the

Coast Guard ‘‘promised’’ to use the ECI

but instead used the PCE, causing

incorrect numbers.

The Coast Guard disagrees with the

implication that the target compensation

values were incorrectly or illogically

calculated. These values were

calculated following the methodology

outlined in § 404.104(b), which states

that, when ECI data is not available, the

Coast Guard will use the PCE. The Coast

Guard followed this approach in the

2018, 2019, and 2020 ratemakings, using

the method that was codified in the CFR

at the time. Based on comments

provided in the 2020 proposed

ratemaking, the Coast Guard reviewed

the methodology used to inflate target

pilot compensation and proposed a

modified approach for the 2021

ratemaking. This modified approach is

consistent with our past approach of

updating the previous year’s target

compensations in our ratemakings.

Therefore, this final rule does not adjust

the previous years’ target

compensations, because they were set

according to the regulations in place at

the time, and changing them now would

be akin to retroactive rulemaking. We

would have had to propose regulations

allowing us to adjust target

compensations from multiple prior

years in order to update the 2018 and

2019 target compensations. The Coast

Guard does not plan to recalculate target

compensation for previous years, as it

has been our consistent approach to

only update the previous year’s target

compensation when calculating the next

year’s target compensation.

The Coast Guard received a comment

from the User’s Coalition on the

inflation rate of 3.4 percent, which was

used to calculate the inflation

adjustment for target pilot compensation

in the NPRM. The commenter stated

that the highest inflation rate they could

find was 1.4 percent and suggested that

the Coast Guard follow the Bureau of

Labor Statistics’ recommended

guidelines for ‘‘use of the consumer

price index for escalation.’’ These

guidelines include identifying the CPI

series, reference period, frequency, and

establishing and adjustment formula.

The Coast Guard believes this

commenter misunderstands the BLS’s

CPI, which measures inflation of

consumer prices for goods and services,

for the ECI, which measures the cost of

employment and includes factors such

as employee wages and benefits. The

Coast Guard currently uses the CPI in

Step 2 of the ratemaking, where we use

the annual change in average inflation,

which was 1.5 percent in 2019. While

we cite this data in footnote 32 of the

NPRM (and footnote 30 of this final

rule), including a link where the user

may download the data themselves, we

do agree with the commenter that we

could provide more citation

information. Therefore, in this rule, we

added the BLS series ID to that footnote,

as well as additional clarification on

which numbers we are using. With

regards to the 3.4 percent inflation rate

in Step 4, that data was first-quarter data

from the ECI index for private industry

workers in the transportation and

moving materials sector. In this final

rule, we use 3.5 percent, from third-

quarter data. The information for this

series, including the series ID and a link

to download the data, is found in

footnote 35 of the NPRM (and footnote

14 of this final rule). However, in an

effort to increase transparency, we have

also added more information on the

reference period covered by this data.

2. Always Rounding Up in the Staffing

Model

In the NPRM, we proposed to always

round up the final number in the

staffing model, in § 401.220(a)(2), rather

than round to the nearest integer when

determining the maximum number of

pilots. Our justification for this

proposed change was based on previous

comments and submissions from

members of Great Lakes Pilotage

Advisory Committee (GLPAC) stating

that, due to the nature of associations’

presidential duties, the president is

expected to spend less time engaged in

piloting vessels. None of the

commenters who commented on this

change agreed that rounding up in the

staffing model was the best way to fill

the staffing problem. In response, we

will forego making any changes to the

staffing model in this final rule to gather

more information on the best way to

address this issue, based on concerns

raised by the commenters.

Commenter Captain Swartout

22

suggested that rounding up in the

staffing model is not sufficient because

the result is random, inconsistent, and

a matter of chance whether a district

gets an additional pilot or not. For

example, there is a significant difference

between rounding 15.1 up to 16 and

rounding 15.9 up to 16. In both cases,

16 pilots are authorized, but in the first

instance, nine-tenths of a pilot is

authorized for assisting in

administrative work, and in the second

instance, only one-tenth of a pilot is.

Captain Swartout also noted his

continued concern with pilots being

expected to work more hours than

industry standards and noted that the

rounding will not solve this. He

suggested, as an alternative, to add one

additional pilot to the staffing model for

administrative work, even after

rounding up. The Coast Guard agrees

that we need to consider other

alternatives to better the staffing model.

As stated above, we will not be

implementing the change in this

ratemaking in order to conduct more

research.

The APA comment

23

affirmed that

there is always one pilot ‘‘off the roles’’

in each association. Similarly, the

SLSPA

24

emphasized it is impossible to

operate as a president and pilot a vessel

at the same time and with no

opportunity to rest. The APA urged the

Coast Guard to consider authorizing an

additional pilot for each district, whose

principal duties would be to serve as an

‘‘operations pilot.’’ They said pilots on

ships, as well as dispatchers and

transportation coordinators, need

operational support readily available in

real time from a seasoned and

experienced piloting professional. This

professional is currently the association

president or the suggested extra

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‘‘operations pilot.’’ The APA comment

explained that piloting expertise is

necessary to perform these duties, and

that the president pilot should be

replaced with a pilot, not administrative

staff. The president is unable to delegate

certain administrative duties that keep

him from piloting a vessel.

The Coast Guard is considering these

suggestions and additional information

on the duties that an operational pilot

and association president typically

perform. Based on this information, we

understand that having a ‘‘pilot off the

roles’’ is a best practice in the state and

local pilots’ associations. Since we did

not propose this, we will plan to

address it during a future GLPAC

meeting before we consider proposing it

in a subsequent rule.

The Great Lakes Pilots’ comment

asserted that providing only a fractional

pilot authorization, rather than a full

pilot authorization to handle these

administrative and other operational

duties, while helpful, does not accord

with the reality of the time spent on

these functions. They explained that

rounding up one year will be of no help

in future years if that pilot is, for

example, eliminated the next year due

to differences in rounding results. The

commenter proposed that the operations

pilot slot added this year should be

made permanent, so that pilots can be

added as needed in the future without

concern that application of the rounding

approach could limit the pilots’ ability

to efficiently administer their

operations. For some of the reasons

mentioned by the commenter, we agree

that the rounding up method in the

staffing model needs more consideration

before we adopt a change. The Coast

Guard did not propose making the

rounding up permanent in the NPRM,

but we may consider this option and its

effects on the ratemaking in a future

rulemaking.

The User’s Coalition comment

claimed that rounding up in the staffing

model was an arbitrary change to

increase pilot counts. The commenter

suggested that an administrative

position could be filled at a much lower

cost than an additional pilot, thus

freeing up the president’s time. We

know that pilot association presidents

are often pulled away from their

pilotage duties by tasks they cannot

delegate, leaving less time for them to

engage in piloting a vessel. The Coast

Guard does not possess sufficient

qualitative data to determine this

estimated amount of time. However, the

Coast Guard will take this suggestion

into consideration when determining a

way forward.

The SLSPA comment described a

throttling effect on traffic flow caused

by the Great Lakes Pilotage

Association’s ability to handle traffic,

and requested eight pilots in area one

and five pilots in area two on the

assignment list during the season. The

commenter noted that this number will

be higher depending on Canadian GLPA

staffing. In order to accommodate 10

days restorative rest per month, the

SLSPA stated it needs to have 19.5,

rounded up to 20, fully registered pilots.

They also requested one additional

operations pilot, bringing the total to 21.

As per 46 CFR 401.220, the Director

determines the base number of pilots

needed by dividing each area’s peak

pilotage demand data by its pilot work

cycle. The pilot work cycle standard

includes any time that the Director finds

to be a necessary and reasonable

component of ensuring that a pilotage

assignment is carried out safely,

efficiently, and reliably for each area.

These components may include, but are

not limited to: (1) The amount of time

a pilot provides pilotage service; (2) the

amount of time available to a vessel’s

master to provide pilotage service; (3)

the pilot’s travel time, measured from

the pilot’s base to and from an

assignment’s starting and ending points;

(4) administrative time for a pilot who

serves as a pilot association’s president;

(5) rest between assignments, as

required by § 401.451; (6) the 10 days’

recuperative rest per month from April

15 through November 15 each year,

provided that lesser rest allowances are

approved by the Director at the pilotage

association’s request, if necessary to

provide pilotage without interruption

through that period; and (7) time for

pilotage-related training.

The Coast Guard is willing to bring up

this staffing issue during a future

GLPAC meeting. The additional

operational pilot requested appears to

be the SLSPA’s suggested alternative in

lieu of the NPRM’s proposed rounding

up in the staffing model. We will

consider this alternative in developing a

future rulemaking, but are not adopting

any changes to the staffing model at this

time, in order to conduct more research.

Additionally, the Coast Guard plans to

reconsider the recuperative rest

requirements in a future ratemaking, but

we did not propose any rest

requirement-related changes in the

NPRM that preceded this final rule.

3. Legal Fees Incurred in Lawsuits

Against the Coast Guard’s Ratemaking

and Oversight Requirements

The Coast Guard received several

comments on the exclusion of these

legal fees. Comments from Captain John

Swartout and the APA mentioned that

they successfully sued the Coast Guard

for being arbitrary and capricious in the

regulatory exclusion of legal fees

incurred in litigation against the U.S.

Government in our 2016 final rule.

Comments from these pilots requested

that we explain the difference between

the 2016 rulemaking attempt and this

year’s exclusion of legal fees against the

Coast Guard, and explain why we are no

longer recognizing litigation expenses

for actions against the Coast Guard as an

allowable and recognizable expense.

The APA comment also referenced the

preamble of our proposed rule for the

2003 Great Lakes pilotage ratemaking.

The relevant part of the 2003 ratemaking

said this: ‘‘The Coast Guard reviewed all

legal fees using the guidelines of

necessity and reasonableness in 46 CFR

404.5. Only reasonable and necessary

legal fees were approved as part of the

expense base. No legal fees were

allowed in connection with lobbying.

Legal fees for litigation against the

Government were allowed as long as

there was no court proceeding in which

there had been a finding of bad faith on

the part of the pilot organizations.’’ 68

FR 69566, Dec. 12, 2003. In addition,

the APA requested that we continue to

use the bad faith test for deciding

whether to recognize legal fees for

litigation against the Coast Guard.

In 2016, we excluded legal expenses

incurred in litigation against the U.S.

Government from approved operating

expenses (81 FR 11908, 11914, Mar. 7,

2016). However, the change in this final

rule is limited to litigation against the

Coast Guard and its agents as related to

the Great Lakes pilotage ratemaking and

oversight requirements. We narrowed

the language from the 2016 final rule

because we do not want to capture legal

fees incurred against other agencies,

states, or local governments in this

exclusion. The procedural error in the

2016 ratemaking was that we did not

acknowledge or explain the proposed

change in the NPRM or properly

respond to comments in the 2016 final

rule. The decision in the 2019 case

stated, ‘‘The Court takes no position on

the relative wisdom of the policy. A rule

excluding legal fees incurred against the

U.S. government may well be a rational

policy. But the process by which the

Coast Guard enacted it was arbitrary and

capricious.’’ St. Lawrence Seaway Pilots

Association v. U.S. Coast Guard, 357

F.Supp.3d 30, 38 (D.D.C. 2019).

The NPRM to this final rule explains

the reason for the change, and we

elaborate further in this preamble in our

response to the comments received.

Legal fees incurred in litigation against

the Coast Guard are reasonable and

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necessary if the pilot association

prevails in its litigation. In addition, the

reasonableness of legal fees depends on

the amount of those fees. The Coast

Guard believes that fees awarded as

reimbursement for pilots and pilots’

associations under the EAJA, or by

terms of settlement by the party

responsible for the error, will provide

reasonable reimbursements for the pilot

associations when they prevail.

Excluding legal expenses incurred in

litigation against the Coast Guard and its

agents, as related to the ratemaking and

oversight requirements, from the

ratemaking equation ensures that the

shippers do not have to pay for either

non-prevailing lawsuits or the Coast

Guard’s potential errors. By not

allowing these legal fees to be recovered

in the ratemaking operating expenses,

pilot associations’ will have the option

to seek recuperation of legal fees under

the EAJA and settlement negotiations,

where a judge or the limits of the EAJA

can determine fair legal fee

reimbursement. We believe this is a

more equitable approach to ensuring

that the necessary costs of providing

services are covered than the Coast

Guard allowing any and all legal fees to

be included, without regard to whether

the pilots prevailed on any of the merits

of the lawsuit.

We agree with the APA comment that

pilots’ legal fees should be excluded

from expenses where there is a finding

of bad faith, but the bad faith exclusion

mentioned in the 2003 ratemaking

NPRM preamble was not written into

our regulations. Before the changes

made by this 2021 ratemaking, all legal

fees incurred in litigation against the

Coast Guard were included as

operational expenses in the ratemaking,

regardless of bad faith. The Coast Guard

does not have the explicit authority that

the APA suggests, to exclude bad faith

proceedings from operating expenses.

We did not propose a bad faith legal fee

exclusion because it could be seen as an

arbitrary exclusion and also as an

unattainable administrative burden for

the Coast Guard. We review the legal

fees incurred in litigation against the

Coast Guard as a lump sum for each

district 3 years after the fees are paid. If

only part of a case is determined to be

in bad faith, we would be in the

impossible position of determining what

portion of the legal costs would count

toward a bad faith exclusion.

Additionally, we would have no way to

exclude legal fees in cases when the

pilots do not prevail on some or any of

the merits of the case, or where the

ratemaking is determined to be legally

sound. This alternative would leave the

Coast Guard open to the same concerns

we raised in the NPRM, such as the

policy against charging a party not

responsible for the ratemaking and

charging the ratepayers even if the pilots

do not prevail on the merits. Therefore,

in this final rule, we are excluding this

legal fee category altogether, leaving the

determination of legal fee

reimbursement to the courts.

Captain John Swartout commented

that his district, WGLPA (District

Three), is fast approaching the $7

million threshold of being eligible for

the EAJA, and the other districts will

not be far behind, meaning they would

not be eligible for reimbursement once

they reach that threshold. He

acknowledges, however, that all three

districts are currently eligible for

reimbursement under the EAJA. As

mentioned previously, pilots may

continue to seek reimbursement under

settlement negotiations if they do not

qualify under the EAJA for any reason.

Captain Swartout also argued that the

ratepayers—not the taxpayers—benefit

when the pilots sue over the Coast

Guard’s occasional failure to make rates

with due regard to the public interest

and the cost of providing service, in

accordance with the Administrative

Procedure Act, so it is reasonable that

the ratepayers, not the taxpayers, should

be ‘‘on the hook’’ for the cost. However,

the commenter fails to acknowledge that

the pilot associations usually first seek

reimbursement from the Coast Guard for

their legal fees when they prevail on the

merits. In other words, the taxpayers

were already footing that bill, by way of

the Coast Guard paying through terms

set by the court or settlement, before the

changes made by this final rule. The

EAJA is intended to benefit taxpayers,

like the pilots and their associations, by

helping them cover legal expenses to

challenge unlawful government actions.

The Great Lakes Pilots’ comment

assert that the EAJA cap on

reimbursement of legal fees is much

lower than their actual legal expenses,

estimating their reimbursement to be 25

cents for every dollar. This comment, as

well as comments from the APA and

John Swartout, claimed that we aim to

erect barriers to disincentivize pilots

from suing the Coast Guard on

meritorious claims.

As we noted in the NPRM, traditional

jurisprudence and case law says that a

party shall bear its own litigation costs.

Generally, there is no right to be fully

reconstituted for legal expenses,

especially by someone who is not

responsible for the injury. The purpose

of excluding these legal fees from the

ratemaking is to move the financial

responsibility of meritorious claims

onto the Coast Guard and off the

shippers. The Coast Guard agrees that

litigation is a legitimate way to ensure

agency compliance with mandates and

statutes. The exclusion of legal fees does

not take away any rights of action that

pilots have against the Coast Guard

related to the ratemaking or oversight

requirements. The Coast Guard can

continue to be held accountable via

judicial review. There are remedies to

recover legal fees from the Coast Guard

for meritorious claims, which pilots

have pursued in the past. Forcing the

shippers to incur legal fees above what

the EAJA or settlement covers, or when

pilots do not prevail on the merits, is

not in the public interest or necessary

for the costs of providing services.

In his comment, Captain Swartout

further asserted that the rate is the

proper funding source for all costs of

pilotage, including necessary legal fees,

arguing that litigation is necessary to

ensure the financial viability of service

providers. He contended that the legal

fees incurred in a year ‘‘doesn’t

permanently inflate the rate, paying

dividends on past expenses, as the Coast

Guard seems to imply’’ because rates are

based on expenses that are 3 years old.

The legal fee exclusion in this final

rule simply repositions the legal fees to

be reimbursed by the party responsible,

via the EAJA or terms of settlement,

when the pilots prevail. The amount of

legal fees we exclude in the 2021

ratemaking is approximately 0.1 percent

of the total revenue generated each year

by the pilot associations. Therefore,

when the operating expense adjustment

is factored into the ratemaking

methodology, it has a very small effect

on the final rates. We do not assert that

there is a permanent inflation, or

dividend, as a result of the legal

expenses incurred by pilot associations

in a given year. The Coast Guard

believes that a 0.1 percent operational

expense adjustment for legal fees

eligible for reimbursement by the Coast

Guard when pilots prevail on some of

the merits will not have any adverse

impact on future funding for pilot

associations and pilot recruitment and

retention. The reimbursement of eligible

legal fees under the EAJA and

settlement negotiations are often

available as soon as the parties prevail

on the merits, whereas, under the

previous scheme, it took 3 years for the

expended legal fees to factor into the

ratemaking.

The Great Lakes Pilots’ comment

contested our exclusion of the legal fees

by noting that business entities regularly

recover legal expenses from their

customers by including them in the

prices and rates they charge for their

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Table 3 in the proposed rule is published at 85

FR 68219 (October 27, 2020).

26

Table 28 in the proposed rule is published at

85 FR 68229–68230 (October 27, 2020).

products and services. The comment

recited the Director’s requirement in

§ 404.2(a) to recognize pilot association

expenses that are ‘‘both necessary for

providing pilotage service, and

reasonable as to its amount when

compared to similar expenses paid by

others in the maritime or other

comparable industry, or when compared

with Internal Revenue Service

guidelines.’’ The commenter requested

that the Coast Guard address the

deductibility of legal fees under

§ 404.2(a) and the Internal Revenue

Code (I.R.C.), which says that

professional fees are deductible if they

qualify as ‘‘ordinary and necessary’’

expenses under § 162 I.R.C. (26 U.S.C.

165), covering business expenses, or

§ 212 I.R.C. (26 U.S.C. 212), covering

expenses related to the production of

income.

The main reason the legal fee expense

is not necessary or reasonable to include

in operational expenses is that the costs

are reimbursable when the pilots prevail

by the responsible party—the Coast

Guard. As noted in this preamble, the

EAJA and settlement terms often

reimburse the pilots’ legal fees when the

pilots prevail. In those cases, a court can

determine a reasonable amount of legal

fees to include. Traditional

jurisprudence also says that the litigant

is the bearer of his or her own legal

expenses. ‘‘In the United States, the

prevailing litigant is ordinarily not

entitled to collect a reasonable

attorneys’ fee from the loser.’’ Alyeska

Pipeline Service Co. v. Wilderness Soc’y,

421 U.S. 240, 247 (1975). Additionally,

when the pilot association does not

prevail on the merits, the legal fees

associated with that lawsuit are,

arguably, per the court’s determination,

not necessary for the safeguarding or

production of their income. If pilots are

not victorious on any of the merits,

those legal fees inflate the shipper’s

rates. Unlike other businesses and

jurisdictions, shippers on the Great

Lakes cannot choose to purchase from

another firm or choose not to purchase

the service at all when they disagree

with a firm’s business practices. Among

these and the other reasons cited in this

preamble, the legal fees incurred in

lawsuits against the Coast Guard are

distinguishable from the I.R.C.

provisions provided by the commenter.

The User’s Coalition supported the

legal fee exclusion but urged the Coast

Guard to go further and exclude all pilot

associations’ legal fees related to

ratesetting, including instances where

pilots intervene as defendants in

support of the Coast Guard in a shipper-

initiated lawsuit. In cases where

shippers initiate litigation against the

Coast Guard, the pilots often have a

legitimate interest in, and will likely be

affected by, the outcome of the lawsuit.

Thus, the court typically allows the

pilots to intervene in the case to protect

their own interests. However, the Coast

Guard does not have the same

justification to exclude these intervener

legal expenses because they are not

eligible for reimbursement under the

EAJA or settlement from the Coast

Guard. These legal fees incurred by pilot

associations are not otherwise

reimbursed by a more responsible party,

so we must consider these costs of

providing services in the rates, per our

statutory mandate.

The Coalition also suggested that

allowing intervener pilot legal fees

would force vessel operators to finance

legal advocacy in support of the Coast

Guard’s position on any future

ratemaking challenge, incentivizing

pilot associations to come to the Coast

Guard’s aid without financial constraint.

The Coalition also alleged that the Coast

Guard is creating a financial

disincentive for our policies to be

challenged by industry stakeholders,

impeding stakeholders’ legitimate rights

to participate in the rulemaking process

and go to court to resolve

disagreements. The User’s Coalition will

have all the same legal causes of action

against the Coast Guard as before. The

exclusion of legal fees is intended to be

a small benefit to the shippers by taking

that financial responsibility out of the

rates and placing it on the responsible

regulatory agency; it is not intended nor

predicted to be an incentive for pilots to

come to the Coast Guard’s defense.

The Great Lakes Pilots’ comment

requested we include all the legal

expenses the pilots incurred in the 2016

ratemaking lawsuit where they

successfully intervened on the Coast

Guard’s side in a shipper-initiated

lawsuit. The comment stated that we

need to correct the legal fee amounts

disallowed for Districts One and Three’s

2018 legal expenses. In District One,

$12,905 was disallowed per Table 3—

Recognized Expenses for District One,

25

but the comment asserted that District

One only paid $9,988 in 2018 for the

pilot-initiated litigation on the 2016

ratemaking. The commenter asked

where the Coast Guard obtained the

higher number of $12,905. The

comment further stated that District

Three was disallowed $18,321 per Table

28—Recognized Expenses for District

Three,

26

but paid only $9,227 for the

2017 litigation against the Coast Guard

in the pilot-initiated suit. The

commenter stated the higher

disallowance was because the Coast

Guard improperly disallowed $9,093 for

2017 intervener litigation fees that

District Three paid on the shipper-

initiated lawsuit. The comment asserted

that the Director’s adjustment

disallowance should be limited to

$9,988 for District One and $9,227 for

District Three, even if the rule is validly

adopted.

Per our regulations, a third-party

auditor provided the amounts of legal

fees incurred in litigation against the

Coast Guard for use in the NPRM. Our

auditor reviewed the operating expenses

in response to this comment and did not

identify any allowable intervener

litigation fees for District One. For that

reason, for 2018 operating expenses in

District One, the final rule will continue

to remove $12,905 in Coast Guard

litigation fees via Director’s adjustment,

which is the same number used in the

NPRM.

The commenter is correct that, with

this change, pilot intervener legal fees

incurred in the 2016 ratemaking

shipper-initiated lawsuit should be

included as approved operating

expenses in the year they were incurred.

In this case, District Three incurred

intervener legal fees in 2018 which

should not have been excluded in the

NPRM. The 2018 operating expenses of

$18,321 reported to us during the NPRM

stage did not distinguish between

intervener legal fees and ratemaking

lawsuits initiated by the pilots against

the Coast Guard. We are correcting the

Director’s adjustments in the NPRM’s

District Three’s 2018 expense table to

only exclude litigation fees against the

Coast Guard in this final rule. For 2018

operating expenses in District Three, the

final rule will remove $9,227 in Coast

Guard litigation fees by Director’s

adjustment, which allows intervener

legal fees in the amount of $9,094

($18,321–$9,227). These updated

numbers are reflected in Table 28 in this

preamble.

4. Applicant Pilot Compensation

Request for Comments for Consideration

in a Future Ratemaking

The Coast Guard received many

helpful comments in response to our

request for comments on setting the

reimbursable cost associated with

apprentice pilot salaries at a set amount

based on a percentage of the previous

year’s target pilot compensation. As we

stated in the NPRM, we will consider

these comments and suggestions in a

future rulemaking. This final rule does

not make any methodological changes to

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27

Am. Great Lakes Ports Ass’n. v. Shultz, 962

F.3d 510, 520 (D.C. Cir. June 16, 2020).

the ratemaking for apprentice pilot

compensation from what we proposed

in the NPRM.

5. Coast Guard’s Authority To Remedy

Harms From Past Ratemakings in

Response to 2020 D.C. Appellate Court

Opinion

In the NPRM, we responded to the

D.C. Circuit Court’s request to ‘‘consider

if it [the Coast Guard] has the statutory

authority to remedy the harms from the

2016 Rule and if doing so would

comport with its mandate to consider

‘the public interest and the costs of

providing services’ 46 U.S.C. 9303(f).’’

27

We concluded that, while we may have

the authority to do so, it does not

comport with our mandate to make the

adjustment in this ratemaking, for three

main reasons discussed in the NPRM.

The Great Lakes Pilots’ comment was in

general agreement with the agency’s

approach to the Court of Appeals’

opinion and did not believe any

adjustment going forward was

warranted.

Based on our response in the NPRM,

Captain John Swartout opined that

when the pilots sue the Coast Guard and

win, no matter how long pilotage rates

are impaired before the court makes a

final ruling, the Coast Guard is certainly

not going to make the pilots whole. The

commenter makes an improper

assumption that we would never

attempt to remedy past ratemakings.

The Coast Guard explained in the

NPRM that our decision is limited to the

case of the 2016 ratemaking, where we

had no operative rate from which to

make a correction in the 2021 proposed

rule. We believe we have the authority

to remedy errors from past ratemakings

when we have reliable information and

there is a continuing extraordinary and

unjust circumstance.

The User’s Coalition comment did not

propose that the Coast Guard

retroactively recalculate rates but asked

for a flexible path forward to achieve

full repayment over time, through

credits in this rule and in future

ratemaking procedures or such other

methodology. The Coalition asserted the

weighting factor is known and the

amounts billed by the pilot associations

and the money collected are available,

and included an Exhibit detailing one

method to calculate the overpayment of

pilotage fees for 2016.

However, in addition to omitting the

weighting factors, the Coast Guard erred

in the 2016 ratemaking calculation of

target pilot compensation, and the

correct number could have been higher

or lower than the target pilot

compensation used. Consequently,

adjusting the rates merely to correct for

weighting factors, without a 2016 target

pilot compensation, would not provide

a ‘‘correct’’ operative rate for 2016, as

the commenter suggests. Therefore,

adjusting rates through a Director’s

adjustment now is not in accordance

with our mandate to consider the costs

of providing services for 2021. Neither

the Coast Guard nor commenters have

identified a continuing unjust

circumstance caused by the 2016

ratemaking warranting a remedy at this

stage.

The Coalition also challenged our

assertion that it is difficult to identify

those advantaged by the ratemaking by

stating that 80 percent of the traffic is

produced by 20 percent of the system

users, and all major clients continue to

send ships to the area. The User’s

Coalition noted that the St. Lawrence

Seaway keeps records of every ship and

its owner sailing in the area for at least

10 years, including 2016 and 2017. The

Coalition asked us how the fact that

some of the potential recipients of the

unlawfully paid funds cannot be

determined renders all of the monies

unrecoverable, including by those who

are identified and able to seek recovery.

Despite the fact that some of the

shippers may be identifiable for remedy,

the Coast Guard does not plan to pursue

a remedy at this time for other reasons,

also cited in the NPRM. We do not have

an operative rate for the 2016 shipping

season to determine a proper remedy to

return to the identifiable shippers. Nor

could we also give full consideration to

the costs of providing pilotage services

if we modify the rates according to the

User’s Coalition’s request. We believe

the risk of underfunding pilotage rates

for years to come would have a negative

impact on the Great Lake’s pilot

associations’ abilities to safely meet the

shipping demands and maintain their

infrastructure. Therefore, the fact that

we can identify some users of the 2016

rate is not sufficient to overcome our

mandate to consider the public interest

and covering the costs of services.

In response to the Coast Guard’s

assertion that we do not want to risk

underfunding pilots for upcoming rates

through a potential remedy, the User’s

Coalition asked what happened to the

millions of dollars collected by the pilot

associations, over and above those

operational expenses incurred in 2016

and 2017, as a result of the agency’s

remanded ratemaking. The Coast Guard

is not able to answer the commenter’s

question because we do not require pilot

associations to report the source of

funds they use to pay for certain items

or services. Because we do not have an

operative rate to use for 2016, we do not

know exactly how much the pilots

collected over operational expenses.

Without a clear way to determine that

number, a remedy now would be

arbitrary. In addition, the Coast Guard

made errors in calculating pilotage rates

for the 2013, 2014, and 2015, all of

which resulted in the pilots receiving

less revenue than was required by the

methodology in place at the time.

Reducing future rates to account for

alleged over-generation of revenue

based on the 2016 rates without also

correcting those errors would be

inconsistent with our mandate to

consider the public interest and

covering the costs of services.

6. Other Pilot Staffing and

Compensation Comments Unrelated to

Proposed Changes

The Great Lakes Pilots requested that

the Coast Guard undertake a more

comprehensive assessment of

compensation, as opposed to interim

ratemakings, to align Great Lakes pilots’

compensation with pilots of other

jurisdictions. The Great Lakes Pilots

also requested information about the

compensation study the Coast Guard

initiated but did not have completed.

The Coast Guard commissioned a study

to analyze methodologies to determine

pilot compensation, but decided not to

finalize this study. The compensation

study was a backup in the event that we

failed to identify a compensation

standard that remedied the recruitment

and retention issues identified in

previous rulemakings, and discussed

during previous GLPAC meetings. The

current compensation benchmark

addresses our goals of promoting the

recruitment and retention of highly

qualified mariners and experienced

United States registered pilots.

The LPA requested only 16 pilots, as

per the existing staffing model, without

rounding up, to keep up with pilotage

demand. Since the Coast Guard is no

longer adopting the rounding-up

method in the staffing model, the LPA’s

district, District Two, will be authorized

a maximum of 15 pilots for the 2021

shipping season under this rule. In the

NPRM, District Two was authorized a

maximum of 16 pilots instead of 15,

primarily because of the proposed

rounding up in the staffing model. The

comments were generally unsupportive

of the rounding up in the staffing model;

many commenters suggested alternative

changes to the staffing model, which we

will consider in a future rulemaking.

The LPA also provided suggestions for

calculating apprentice pilot

compensation, urging us to adopt a

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28

85 FR 68210 at 68214, October 27, 2020.

consistent approach. We will consider

those suggestions when developing a

future rulemaking.

The comment from the WGLPA

provided information on how many

registered pilots and apprentice pilots

on limited registrations they have, as

well as estimates on how many pilots

they expect to hire in 2021. The WGLPA

stated they have 17 fully registered

pilots and 7 apprentice pilots operating

on limited registrations because they

had 3 unexpected retirements in 2020.

The WGLPA expects to hire 2-to-4

apprentice pilots in 2021, in line with

the 3 they hired in 2020, and the 4 in

2019. The WGLPA comment also noted

that if a pilot in their district logs

approximately 1,000 hours per year as

‘‘bridge hours,’’ and if the level of traffic

in 2021 matches the traffic level in

2019, they will need 3 more pilots. To

offset unavoidable attrition or

retirement, they believe that 27 is the

appropriate number for the ‘‘Proposed

Maximum Number of Pilots’’ for District

Three.

The information provided by the

commenter will be helpful in

considering alternatives to always

rounding up in the staffing model. In

the NPRM, we authorized 22 fully

registered pilots for the WGLPA, with

the maximum number of allowed pilots

capped at 23 fully registered pilots.

Without adopting the proposed change

to always round up in the staffing

model, District Three is still authorized

22 pilots in this rule, and the cap will

remain at 22 pilots. These pilot numbers

represent the maximum for fully

registered pilots and temporary

registrations, but do not include limited

registrations for apprentice pilots. If the

District only has 17 fully registered

pilots, they will be able to hire 5

additional fully registered pilots in the

2021 season. District Three may have

additional apprentice pilots on the roles

and continue to hire new apprentice

pilots, as approved by the Director.

The WGLPA comment also contained

information contrary to our statement in

the 2021 NPRM, Summary of

Ratemaking Methodology, Step 10,

where we said: ‘‘As stated in the 2020

rulemaking, as the vast majority of

working pilots are not anticipated to

reach the regulatory required retirement

age of 70 in the next 20 years, we

continue to believe that the pilot

associations are now able to plan for the

costs associated with retirements

without relying on the Coast Guard to

impose surcharges.’’

28

The WGLPA

asserted that 65 percent of their fully

registered pilots will reach 70 in the

next 20 years, and it is unrealistic to

expect them all to work until 70. We

anticipate that, with the ability to hire

up to 5 more fully registered pilots in

2021, the WGLPA will have a lower rate

of planned retirement in the upcoming

years.

The SLSPA asserted that the current

staffing model is based on old traffic

patterns, with a rush at the beginning

and the end of each season, but now,

due to cruise ships and tankers,

shipping is linear throughout the year,

with a rush at the end. The comment

suggested that pilots lack meaningful

rest as a result of the November 15 end

of the restorative rest requirement. We

thank the commenter for raising this

issue. The Coast Guard believes that this

is a valid concern and requests more

information on this point. The current

staffing model is based on the historic

increased need for pilots at the start and

close of the season, and that, by staffing

to meet that need, it allows pilots to take

approximately 10 days of restorative rest

each month during the 7-month mid-

season period.

We are currently monitoring traffic

patterns. If the commenter’s assertion

proves accurate, this would cause us to

reevaluate the staffing model. While, at

this time, we are still gathering data, we

welcome additional data and

suggestions for alternative staffing

models in light of changes in traffic

patterns. We also welcome more

information and suggestions at a GLPAC

meeting on how to improve our

recuperative rest requirements to better

serve current traffic patterns. We may

consider this information in a future

rulemaking.

The SLSPA requested that bridge

hours associated with voluntary or non-

compulsory vessels should be removed

from the ratemaking methodology

because additional revenues generated

from servicing this traffic has associated

bridge hours with it. The commenter

asserted that these hours go into the

ratemaking methodology as part of the

10-year traffic average, in the

denominator of the hourly rate equation,

thereby reducing the rates for the next

10 years, benefitting foreign shipping.

Our use of historical traffic figures was

unanimously recommended by the

GLPAC in 2014, without distinction

between voluntary and required pilotage

services. If there is interest and

additional information for why the

current methodology is not producing

sufficient revenue for the associations,

the Coast Guard is willing to bring this

issue up at the next GLPAC meeting in

2021.

The User’s Coalition comment noted

that Canadian lakers have been hiring

U.S. and Canadian registered pilots to

assist with navigation due to a lack of

crew expertise, but expected this to be

temporary and eventually resolve itself.

The Coalition asked the Coast Guard to:

(1) Work with the three U.S. Great Lakes

pilot associations to identify and bring

on part-time contract pilots, if possible;

and (2) initiate a dialogue with the

GLPA and Canadian-flagged vessel

operators to assess their staffing

situation and better predict future pilot

demand. As the commenter noted, this

is expected to be temporary and

eventually resolve itself. The Coast

Guard welcomes additional information

from the commenter as to the exact

amount of voluntary pilotage demand

each year from Canada, as well as a

reasonable way to address it in the

ratemaking. In order to better predict

future pilot demand, the Coast Guard

would need to predict the demand for

global commodities (steel and grain),

tankers shipping petroleum products,

cruise ships, and winter demand

(ordering pilots while the locks are

closed for maintenance) on Lakes Erie,

Huron, and Michigan. The Coast Guard

has no control or influence over any of

these activities, and the variables in

global commodities are complex and

difficult to predict even if we do discuss

the matter with Canadian operators.

However, we desire to increase our

dialogue with all parties involved to

address the potential issues identified

by the commenter.

Additionally, the User’s Coalition

requested we make individual pilot

compensation available to the public, as

it was prior to 2016, as a way to review

our progress toward pilot recruitment

and retention, reportedly caused by

inadequate pilot compensation. The

Coast Guard previously cited substantial

privacy concerns and being unaware of

where individual pilot compensation is

made public, but the commenter does

not think that these are supportable

concerns. This comment did not request

any changes to the ratemaking

methodology and is not related to

changes proposed in the NPRM. The

Coast Guard is not inclined to add a

regulatory requirement for pilot

associations to publicly report the

compensation of their pilots, because

that number is not included in the

expense base or methodology. Because

those values are not used in the

ratemaking, we believe 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 other

means, such as pilot turnover and the

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These reports are available in the docket for

this rulemaking (see Docket # USCG–2019–0736).

ability to fill pilot vacancies for fully

registered pilots and apprentice pilots.

7. Other Ratemaking Comments

Unrelated to Proposed Changes

The User’s Coalition comment

asserted that it is unfair to spread the

unusual costs associated with pilotage

demand in winter months over all users

in the annual ratemaking process. The

Coalition suggested that winter

operators should be allowed to enter

into their own financial arrangement

with the pilot associations for off-season

service. The costs of providing services

in the winter months may be higher

than the typical shipping season, but

they are necessary costs to provide

pilotage service on the Great Lakes. Per

46 U.S.C. 9303(f), the Coast Guard is

required to set the rates for U.S. pilots

operating in the Great Lakes considering

the costs of providing services. We did

not propose this course of action;

therefore, we do not plan to implement

it in this final rule. We will include this

on the agenda for discussion during a

future GLPAC meeting before

determining the merits of such a

proposal.

VII. Discussion of Rate Adjustments

In this final rule, based on the two

changes to the existing methodology

described in Section V of this preamble,

we are implementing new pilotage rates

for 2021. We are conducting this 2021

ratemaking as an ‘‘interim year,’’ as was

done in 2020, rather than a full

ratemaking, as was conducted in 2018.

Thus, the Coast Guard will adjust the

compensation benchmark pursuant to

§ 404.104(b) for this purpose, rather

than § 404.104(a).

This section discusses the rate

changes using the ratemaking steps

provided in 46 CFR part 404,

incorporating the changes discussed in

Section V. 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 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 2018

expenses and revenues.

29

For

accounting purposes, the financial

reports divide expenses into designated

and undesignated areas. For costs

accrued by the pilot associations

generally, such as employee benefits, for

example, the cost is divided between

the designated and undesignated areas

on a pro rata basis.

As noted above, in 2016 the Coast

Guard began authorizing surcharges to

cover the training costs of applicant

pilots. The surcharges were intended to

reimburse pilot associations for training

applicants in a more timely fashion than

if those costs were listed as operating

expenses, which would have required 3

years to reimburse. The rationale for

using surcharges to cover these

expenses, rather than including the

costs as operating expenses, was to

allow these non-recurring costs to be

recovered in a more timely fashion and

prevent retiring pilots from having to

cover the costs of training their

replacements. Because operating

expenses incurred are not actually

recouped for a period of 3 years, the

Coast Guard added a $150,000 surcharge

per applicant pilot, beginning in 2016,

to recoup those costs in the year

incurred. Although the districts did not

collect any surcharges for the 2020

shipping season, they did collect a

surcharge for the 2018 season, which is

deducted by Director’s adjustments

reflected in the operating expenses of

the districts.

For District One, we finalized several

Director’s adjustments. District One had

two applicant pilots during the 2018

season. In total, the District paid these

two pilots $594,331, or $297,166 each.

The Coast Guard believes this amount is

above what is necessary and reasonable

for retention and recruitment. In the

2019 NPRM, the Coast Guard proposed

to make an adjustment to District Two’s

request for reimbursement of $571,248

for two applicant pilots ($285,624 per

applicant). Instead of permitting

$571,248 for two applicant pilots, we

proposed allowing $257,566, or

$128,783 per applicant pilot, based on

discussions with other pilot associations

at the time. This standard was utilized

in the final rule for 2019 and was not

opposed. To determine this percentage,

we reached out to several of the pilot

associations throughout the United

States to see what percentage they pay

their applicant pilots, then factored in

the sea time and experience required to

become an applicant pilot on the Great

Lakes. Finally, we discussed the

percentage with the president of each

association to determine if it was fair

and reasonable. The Coast Guard will

continue to use the same ratio of

applicant-to-target compensation for all

districts. For 2019, this was

approximately 36 percent of $359,887

which was the target pilot compensation

value for 2019 ($128,783 ÷ $359,887 =

35.78 percent). The Coast Guard is using

the rounded-up value of 36.0 percent of

target compensation as the benchmark

for applicant pilot compensation, for a

2021 target pilot compensation of

$132,151 ($367,085 × .36). This allows

adjustments to applicant pilot

compensation to fluctuate in line with

target compensation.

The other Director’s adjustments to

expenses occurred because District One

did not break out any costs associated

with applicant pilots after the audit, and

included these costs as part of pilotage

costs. For transparency, the Coast Guard

has included the applicant pilot costs as

Director’s adjustments. We then

deducted the same amount to avoid any

double counting of these costs, with the

exception of the applicant salary costs.

We did not deduct applicant salary

costs, as these costs were reported in the

audit as part of pilot salaries, which are

not included in operating expenses.

Therefore, these costs are included as a

Director’s adjustment. The costs

associated with applicant expenses are

necessary and reasonable for district

operations and are, therefore,

implemented in the rate.

A Director’s adjustment has also been

finalized for the amount collected using

the 2018 surcharge. A final Director’s

adjustment is made for the amount of

Coast Guard litigation legal fees. Other

adjustments have been made by the

auditors and are explained in the

auditor’s reports, which are available in

the docket for this rulemaking where

indicated under the

ADDRESSES

section

of the preamble.

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T

ABLE

3—2018 R

ECOGNIZED

E

XPENSES FOR

D

ISTRICT

O

NE

Reported operating expenses for 2018

District One

Designated Undesignated

Total

St. Lawrence

River Lake

Ontario

Pilotage Costs:

Subsistence/travel—Pilot ...................................................................................................... $799,507 $533,005 $1,332,512

License insurance—Pilots .................................................................................................... 45,859 30,573 76,432

Payroll taxes—Pilots ............................................................................................................. 202,848 135,232 338,080

Other ..................................................................................................................................... 15,474 10,316 25,790

Total Other Pilotage Costs ............................................................................................ 1,063,688 709,126 1,772,814

Pilot Boat and Dispatch Costs:

Pilot Boat Expense (Operational) ......................................................................................... 267,420 178,280 445,700

Dispatch Expense ................................................................................................................. 55,280 36,853 92,133

Payroll Taxes ........................................................................................................................ 19,100 12,733 31,833

Total Pilot and Dispatch Costs ...................................................................................... 341,800 227,866 569,666

Administrative Expenses:

Legal—general counsel ........................................................................................................ 8,550 5,700 14,250

Legal—shared counsel (K&L Gates) .................................................................................... 34,607 23,071 57,678

Legal—USCG Litigation ....................................................................................................... 7,743 5,162 12,905

Office Rent ............................................................................................................................ 0 0 0

Insurance .............................................................................................................................. 24,423 16,282 40,705

Employee benefits ................................................................................................................ 8,064 5,376 13,440

Other taxes ........................................................................................................................... 50,963 33,976 84,939

Real Estate taxes ................................................................................................................. 22,280 14,853 37,133

Depreciation/auto leasing/other ............................................................................................ 101,140 67,426 168,566

Interest .................................................................................................................................. 28,270 18,846 47,116

APA Dues ............................................................................................................................. 26,416 17,610 44,026

Dues and subscriptions ........................................................................................................ 3,960 2,640 6,600

Utilities .................................................................................................................................. 21,887 14,591 36,478

Travel .................................................................................................................................... 4,314 2,876 7,190

Salaries ................................................................................................................................. 74,763 49,842 124,605

Payroll Tax ............................................................................................................................ 7,323 4,882 12,205

Accounting/Professional fees ............................................................................................... 7,800 5,200 13,000

Pilot Training ......................................................................................................................... 0 0 0

Other ..................................................................................................................................... 21,276 14,184 35,460

Total Administrative Expenses ...................................................................................... 453,779 302,517 756,296

Capital Expenses:

Dock ...................................................................................................................................... 128,749 85,832 214,581

Pilot Boat .............................................................................................................................. 128,911 85,941 214,852

Infrastructure Loan Payment ................................................................................................ 106,458 70,972 177,430

Total Capital Expenses ................................................................................................. 364,118 242,745 606,863

Total Operating Expenses (Other Costs + Pilot Boats + Admin + Capital Expenses) 2,223,385 1,482,254 3,705,639

Adjustments (Director):

Director’s Adjustment (Applicant Salaries) ........................................................................... 356,599 237,732 594,331

Director’s Adjustment (Applicant Salaries) Deduction (Salary Adjustment) ......................... (198,018) (132,012) (330,030)

Director’s Adjustment (Applicant License insurance) ........................................................... 8,093 5,395 13,488

Director’s Adjustment (Applicant License insurance) Deduction ......................................... (8,093) (5,395) (13,488)

Director’s Adjustment (Applicant Health insurance) ............................................................. 10,336 6,891 17,227

Director’s Adjustment (Applicant Health insurance) Deduction ........................................... (10,336) (6,891) (17,227)

Director’s Adjustment (Applicant Expenses) ........................................................................ 94,989 63,326 158,315

Director’s Adjustment (Applicant Expenses) Deduction ....................................................... (94,989) (63,326) (158,315)

Director’s Adjustment (Applicant payroll tax) ....................................................................... 29,694 19,796 49,490

Director’s Adjustment (Applicant payroll tax) Deduction ...................................................... (29,694) (19,796) (49,490)

Director’s Adjustment Surcharge Collected in 2018 ............................................................ (144,770) (144,770) (289,540)

Director’s Adjustment Legal—USCG Litigation .................................................................... (7,743) (5,162) (12,905)

Total Director’s Adjustments ......................................................................................... 6,068 (44,212) (38,144)

Total Operating Expenses (OpEx + Adjustments) ................................................. 2,229,453 1,438,042 3,667,495

B. Step 2: Project Operating Expenses,

Adjusting for Inflation or Deflation

Having identified the recognized 2018

operating expenses in Step 1, the next

step is to estimate the current year’s

operating expenses by adjusting those

expenses for inflation over the 3-year

period. We calculate inflation using the

BLS data from the CPI for the Midwest

Region of the United States for the 2019

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The 2019 inflation rate is available at https://

www.bls.gov/regions/midwest/data/

consumerpriceindexhistorical_midwest_table.pdf.

For this analysis we use the average to average

percentage change as presented in the table on page

1. Specifically, the CPI is defined as ‘‘All Urban

Consumers (CPI–U), All Items, 1982–4=100’’ (BLS

Series ID CUUR0200SA0). Downloaded June 11,

2020.

31

The 2020 and 2021 inflation rates are available

at https://www.federalreserve.gov/monetarypolicy/

files/fomcprojtabl20200916.pdf. We used the PCE

median inflation value found in table 1,

Downloaded December 11, 2020.

32

For a detailed calculation, refer to the Great

Lakes Pilotage Rates—2017 Annual Review final

rule, which contains the staffing model. See 82 FR

41466, table 6 at 41480 (August 31, 2017).

33

U.S. Bureau of Labor Statistics Employment

Cost Index (ECI) Q3 2020 data for Total

Compensation for Private Industry Workers in the

Transportation and Material Moving Sector (Series

ID: CIU2010000520000A). The third quarter data

was the most recently available data at the time of

analysis for this final rule. The data is also available

at https://www.bls.gov/news.release/archives/eci_

10302020.pdf in Table 5 on page 10. The Coast

Guard is using the 12 month percentage change for

the month ending in Sept 2020.

34

In Step 2 of the ratemaking, the Coast Guard

uses the Federal Reserve’s predicted PCE inflation

rate of 1.2 percent to inflate operating expenses to

2020 dollars. This value differs from the ECI Q3

inflation rate of 3.5 percent. The reason for the

deviation between the values is what is included in

each dataset. The PCE is a measure of the Federal

Reserve’s best prediction of future inflation for all

goods and services in the U.S. economy, whereas

the ECI is a measure of historic employment costs.

When making their economic predictions, the

Federal Reserve may be considering economic

factors that were not relevant at the time the ECI

data was captured, or that have not yet impacted

labor costs. It is also important to note that labor

costs may be slower to respond to changes in

supply and demand than other commercial goods

and services.

35

The Federal Reserve, Table 1. Economic

projections of Federal Reserve Board members and

Federal Reserve Bank presidents, under their

individual assumptions of projected appropriate

monetary policy, https://www.federalreserve.gov/

monetarypolicy/files/fomcprojtabl20200916.pdf.

Downloaded December 11, 2020.

inflation rate.

30

Because the BLS does

not provide forecasted inflation data, we

use economic projections from the

Federal Reserve for the 2019 and 2020

inflation modification.

31

Based on that information, the calculations for Step 2

are as follows:

T

ABLE

4—A

DJUSTED

O

PERATING

E

XPENSES FOR

D

ISTRICT

O

NE

District One

Designated Undesignated Total

Total Operating Expenses (Step 1) ............................................................................................. $2,229,453 $1,438,042 $3,667,495

2019 Inflation Modification (@1.5%) ........................................................................................... 33,442 21,571 55,013

2020 Inflation Modification (@1.2%) ........................................................................................... 27,155 17,515 44,670

2021 Inflation Modification (@1.7%) ........................................................................................... 38,931 25,111 64,042

Adjusted 2021 Operating Expenses ..................................................................................... 2,328,981 1,502,239 3,831,220

C. Step 3: Estimate Number of Working

Pilots

In accordance with the text in

§ 404.103, we estimate the number of

registered pilots in each district. We

determine the number of registered

pilots based on data provided by the

Saint Lawrence Seaway Pilots

Association. Using these numbers, we

estimate that there will be 17 registered

pilots in 2021 in District One. Based on

the seasonal staffing model discussed in

the 2017 ratemaking (see 82 FR 41466),

we assign a certain number of pilots to

designated waters and a certain number

to undesignated waters, as shown in

Table 5. These numbers are used to

determine the amount of revenue

needed in their respective areas.

T

ABLE

5—A

UTHORIZED

P

ILOTS

Item District One

Maximum number of pilots (per § 401.220(a))

32

................................................................................................................................ 17

2021 Authorized pilots (total) ............................................................................................................................................................... 17

Pilots assigned to designated areas ................................................................................................................................................... 10

Pilots assigned to undesignated areas ............................................................................................................................................... 7

D. Step 4: Determine Target Pilot

Compensation Benchmark

In this step, we determine the total

pilot compensation for each area. As we

are conducting an ‘‘interim’’ ratemaking

this year, we will follow the procedure

outlined in paragraph (b) of § 404.104,

which adjusts the existing

compensation benchmark by inflation.

As stated in Section V.A of the

preamble, we are using a two-step

process to adjust target pilot

compensation for inflation. The first

step adjusts the 2019 target

compensation benchmark of $367,085

by 1.5 percent, for a total adjusted value

of $372,591. This adjustment accounts

for the difference between the predicted

2020 Median PCE inflation value of 2

percent and the actual 2020 ECI

inflation value of 3.5 percent.

33 34

Because we do not have a value for the

ECI for 2021, we multiply the adjusted

2020 compensation benchmark of

$372,591 by the Median PCE inflation

value of 1.70 percent.

35

Based on the

projected 2021 inflation estimate, the

compensation benchmark for 2021 is

$378,925 per pilot.

T

ABLE

6—T

ARGET

P

ILOT

C

OMPENSATION

2020 Target Compensation ................................................................................................................................................................. $367,085

Difference between Q1 2020 ECI Inflation Rate (3.5%) and the 2020 PCE Predicted Inflation Rate (2.0%) ................................... 1.500%

Adjusted 2020 Compensation ............................................................................................................................................................. $372,591

2020 to 2021 Inflation Factor .............................................................................................................................................................. 1.70%

2021 Target Compensation ................................................................................................................................................................. $378,925

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Moody’s Seasoned Aaa Corporate Bond Yield,

average of 2019 monthly data. The Coast Guard uses

the most recent year of complete data. Moody’s is

taken from Moody’s Investors Service, which is a

bond credit rating business of Moody’s Corporation.

Bond ratings are based on creditworthiness and

risk. The rating of ‘‘Aaa’’ is the highest bond rating

assigned with the lowest credit risk. See https://

fred.stlouisfed.org/series/AAA. (June 11, 2020).

37

To calculate the time on task for each district,

the Coast Guard uses billing data from the Great

Lakes Pilotage Management System (GLPMS). We

pull the data from the system filtering by district,

year, job status (we only include closed jobs), and

flagging code (we only include U.S. jobs). After we

have downloaded the data, we remove any overland

transfers from the dataset, if necessary, and sum the

total bridge hours, by area. We then subtract any

non-billable delay hours from the total.

Next, we certify that the number of

pilots estimated for 2021 is less than or

equal to the number permitted under

the changes to the staffing model in

§ 401.220(a). The number of pilots

needed is 17 pilots for District One,

which is equal to the number of

registered pilots provided by the pilot

associations. 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 7.

T

ABLE

7—T

ARGET

C

OMPENSATION FOR

D

ISTRICT

O

NE

District One

Designated Undesignated Total

Target Pilot Compensation .......................................................................................................... $378,925 $378,925 $378,925

Number of Pilots .......................................................................................................................... 10 7 17

Total Target Pilot Compensation .......................................................................................... $3,789,250 $2,652,475 $6,441,725

E. Step 5: Project Working Capital Fund

Next, we calculate the working capital

fund revenues needed for each area.

First, we add the figures for projected

operating expenses and total pilot

compensation for each area. Next, we

find the preceding year’s average annual

rate of return for new issues of high-

grade corporate securities. Using

Moody’s data, the number is 3.3875

percent.

36

By multiplying the two

figures, we obtain the working capital

fund contribution for each area, as

shown in Table 8.

T

ABLE

8—W

ORKING

C

APITAL

F

UND

C

ALCULATION FOR

D

ISTRICT

O

NE

District One

Designated Undesignated Total

Adjusted Operating Expenses (Step 2) ....................................................................................... $2,328,981 $1,502,239 $3,831,220

Total Target Pilot Compensation (Step 4) ................................................................................... 3,789,250 2,652,475 6,441,725

Total 2021 Expenses ................................................................................................................... 6,118,231 4,154,714 10,272,945

Working Capital Fund (3.3875%) ................................................................................................ 207,255 140,741 347,996

F. Step 6: Project Needed Revenue

In this step, we add all the expenses

accrued to derive the total revenue

needed for each area. These expenses

include the projected operating

expenses (from Step 2), the total pilot

compensation (from Step 4), and the

working capital fund contribution (from

Step 5). We show these calculations in

Table 9.

T

ABLE

9—R

EVENUE

N

EEDED FOR

D

ISTRICT

O

NE

District One

Designated Undesignated Total

Adjusted Operating Expenses (Step 2, see table 4) ................................................................... $2,328,981 $1,502,239 $3,831,220

Total Target Pilot Compensation (Step 4, see table 6) .............................................................. 3,789,250 2,652,475 6,441,725

Working Capital Fund (Step 5, see table 8) ................................................................................ 207,255 140,741 347,996

Total Revenue Needed ........................................................................................................ 6,325,486 4,295,455 10,620,941

G. Step 7: Calculate Initial Base Rates

Having determined the revenue

needed for each area in the previous six

steps, to develop an hourly rate we

divide that number by the expected

number of hours of traffic. Step 7 is a

two-part process. In the first part, we

calculate the 10-year average of traffic in

District One, using the total time on task

or pilot bridge hours.

37

Because we

calculate separate figures for designated

and undesignated waters, there are two

parts for each calculation. We show

these values in Table 10.

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To calculate the number of transits by vessel

class, we use the billing data from GLPMS, filtering by district, year, job status (we only include closed

jobs), and flagging code (we only include U.S. jobs).

We then count the number of jobs by vessel class

and area.

T

ABLE

10—T

IME ON

T

ASK FOR

D

ISTRICT

O

NE

[Hours]

Year District One

Designated Undesignated

2019 ......................................................................................................................................................................... 8,232 8,405

2018 ......................................................................................................................................................................... 6,943 8,445

2017 ......................................................................................................................................................................... 7,605 8,679

2016 ......................................................................................................................................................................... 5,434 6,217

2015 ......................................................................................................................................................................... 5,743 6,667

2014 ......................................................................................................................................................................... 6,810 6,853

2013 ......................................................................................................................................................................... 5,864 5,529

2012 ......................................................................................................................................................................... 4,771 5,121

2011 ......................................................................................................................................................................... 5,045 5,377

2010 ......................................................................................................................................................................... 4,839 5,649

Average ............................................................................................................................................................ 6,129 6,694

Next, we derive the initial hourly rate

by dividing the revenue needed by the

average number of hours for each area.

This produces an initial rate, which is

necessary to produce the revenue

needed for each area, assuming the

amount of traffic is as expected. We

present the calculations for each area in

Table 11.

T

ABLE

11—I

NITIAL

R

ATE

C

ALCULATIONS FOR

D

ISTRICT

O

NE

Designated Undesignated

Needed revenue (Step 6) ........................................................................................................................................ $6,325,486 $4,295,455

Average time on task (hours) .................................................................................................................................. 6,129 6,694

Initial rate ................................................................................................................................................................. $1,032 $642

H. Step 8: Calculate Average Weighting

Factors by Area

In this step, we calculate the average

weighting factor for each designated and

undesignated area. We collect the

weighting factors, set forth in 46 CFR

401.400, for each vessel trip. Using this

database, we calculate the average

weighting factor for each area using the

data from each vessel transit from 2014

onward, as shown in Tables 12 and

13.

38

T

ABLE

12—A

VERAGE

W

EIGHTING

F

ACTOR FOR

D

ISTRICT

O

NE

, D

ESIGNATED

A

REAS

Vessel class/year Number of

transits Weighting

factor Weighted

transits

Class 1 (2014) ............................................................................................................................. 31 1 31

Class 1 (2015) ............................................................................................................................. 41 1 41

Class 1 (2016) ............................................................................................................................. 31 1 31

Class 1 (2017) ............................................................................................................................. 28 1 28

Class 1 (2018) ............................................................................................................................. 54 1 54

Class 1 (2019) ............................................................................................................................. 72 1 72

Class 2 (2014) ............................................................................................................................. 285 1.15 327.75

Class 2 (2015) ............................................................................................................................. 295 1.15 339.25

Class 2 (2016) ............................................................................................................................. 185 1.15 212.75

Class 2 (2017) ............................................................................................................................. 352 1.15 404.8

Class 2 (2018) ............................................................................................................................. 559 1.15 642.85

Class 2 (2019) ............................................................................................................................. 378 1.15 434.7

Class 3 (2014) ............................................................................................................................. 50 1.3 65

Class 3 (2015) ............................................................................................................................. 28 1.3 36.4

Class 3 (2016) ............................................................................................................................. 50 1.3 65

Class 3 (2017) ............................................................................................................................. 67 1.3 87.1

Class 3 (2018) ............................................................................................................................. 86 1.3 111.8

Class 3 (2019) ............................................................................................................................. 122 1.3 158.6

Class 4 (2014) ............................................................................................................................. 271 1.45 392.95

Class 4 (2015) ............................................................................................................................. 251 1.45 363.95

Class 4 (2016) ............................................................................................................................. 214 1.45 310.3

Class 4 (2017) ............................................................................................................................. 285 1.45 413.25

Class 4 (2018) ............................................................................................................................. 393 1.45 569.85

Class 4 (2019) ............................................................................................................................. 730 1.45 1058.5

Total ...................................................................................................................................... 4,858 ........................ 6,252

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T

ABLE

12—A

VERAGE

W

EIGHTING

F

ACTOR FOR

D

ISTRICT

O

NE

, D

ESIGNATED

A

REAS

—Continued

Vessel class/year Number of

transits Weighting

factor Weighted

transits

Average weighting factor (weighted transits/number of transits) .................................. ........................ 1.29 ........................

T

ABLE

13—A

VERAGE

W

EIGHTING

F

ACTOR FOR

D

ISTRICT

O

NE

, U

NDESIGNATED

A

REAS

Vessel class/year Number of

transits Weighting

factor Weighted

transits

Class 1 (2014) ............................................................................................................................. 25 1 25

Class 1 (2015) ............................................................................................................................. 28 1 28

Class 1 (2016) ............................................................................................................................. 18 1 18

Class 1 (2017) ............................................................................................................................. 19 1 19

Class 1 (2018) ............................................................................................................................. 22 1 22

Class 1 (2019) ............................................................................................................................. 30 1 30

Class 2 (2014) ............................................................................................................................. 238 1.15 273.7

Class 2 (2015) ............................................................................................................................. 263 1.15 302.45

Class 2 (2016) ............................................................................................................................. 169 1.15 194.35

Class 2 (2017) ............................................................................................................................. 290 1.15 333.5

Class 2 (2018) ............................................................................................................................. 352 1.15 404.8

Class 2 (2019) ............................................................................................................................. 366 1.15 420.9

Class 3 (2014) ............................................................................................................................. 60 1.3 78

Class 3 (2015) ............................................................................................................................. 42 1.3 54.6

Class 3 (2016) ............................................................................................................................. 28 1.3 36.4

Class 3 (2017) ............................................................................................................................. 45 1.3 58.5

Class 3 (2018) ............................................................................................................................. 63 1.3 81.9

Class 3 (2019) ............................................................................................................................. 58 1.3 75.4

Class 4 (2014) ............................................................................................................................. 289 1.45 419.05

Class 4 (2015) ............................................................................................................................. 269 1.45 390.05

Class 4 (2016) ............................................................................................................................. 222 1.45 321.9

Class 4 (2017) ............................................................................................................................. 285 1.45 413.25

Class 4 (2018) ............................................................................................................................. 382 1.45 553.9

Class 4 (2019) ............................................................................................................................. 326 1.45 472.7

Total ...................................................................................................................................... 3,889 ........................ 5,027

Average weighting factor (weighted transits/number of transits) .................................. ........................ 1.29 ........................

I. Step 9: Calculate Revised Base Rates

In this step, we revise the base rates

so that, once the impact of the weighting

factors is considered; the total cost of

pilotage will be equal to the revenue

needed. To do this, we divide the initial

base rates calculated in Step 7 by the

average weighting factors calculated in

Step 8, as shown in Table 14.

T

ABLE

14—R

EVISED

B

ASE

R

ATES FOR

D

ISTRICT

O

NE

Area Initial rate

(Step 7)

Average

weighting

factor

(Step 8)

Revised rate

(Initial rate ÷

average

weighting

factor)

District One: Designated .............................................................................................................. $1,032 1.29 $800

District One: Undesignated .......................................................................................................... 642 1.29 498

J. Step 10: Review and Finalize Rates

In this step, the Director reviews the

rates set forth by the staffing model and

ensures that they meet the goal of

ensuring safe, efficient, and reliable

pilotage. To establish this, the Director

considers whether the proposed rates

incorporate appropriate compensation

for pilots to handle heavy traffic periods

and whether there is a sufficient number

of pilots to handle those heavy traffic

periods. The Director also considers

whether the proposed rates would cover

operating expenses and infrastructure

costs, including average traffic and

weighting factions. Based on the

financial information submitted by the

pilots, the Director is not making any

alterations to the rates in this step. We

will modify the text in § 401.405(a) to

reflect the final rates shown in Table 15.

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These reports are available in the docket for

this rulemaking (see Docket No. USCG–2019–0736).

T

ABLE

15—F

INAL

R

ATES FOR

D

ISTRICT

O

NE

Area Name

Final 2020

pilotage rate

Proposed

2021

pilotage rate

Final 2021

pilotage rate

District One: Designated ................................. St. Lawrence River ......................................... $758 $757 $800

District One: Undesignated ............................. Lake Ontario ................................................... 463 428 498

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 2018

expenses and revenues.

39

For

accounting purposes, the financial

reports divide expenses into designated

and undesignated areas. For costs

accrued by the pilot associations

generally, such as employee benefits, for

example, the cost is divided between

the designated and undesignated areas

on a pro rata basis. The recognized

operating expenses for District Two are

shown in Table 16.

For District Two, we finalized three

Director’s adjustments: (1) For the

amount collected from the 2018

surcharge; (2) for the amount in Coast

Guard litigation legal fees (allowing

intervener fees); and (3) for the amount

paid to the District’s applicant pilot.

District Two had one applicant pilot

during the 2018 season and paid

$334,659 in salary. The Coast Guard

believes this amount is above what is

necessary and reasonable for retention

and recruitment. In the 2019 NPRM, the

Coast Guard proposed to make an

adjustment to District Two’s request for

reimbursement of $571,248 for two

applicant pilots ($285,624 per

applicant). Instead of permitting

$571,248 for two applicant pilots, we

proposed allowing $257,566, or

$128,783 per applicant pilot. This

proposal went into the final rule for

2019 and was not opposed. Going

forward, the Coast Guard will continue

to use the same ratio of applicant to

target compensation. For 2019, this was

approximately 36 percent of $359,887,

which was the target pilot compensation

value for 2019 ($128,783 ÷ $359,887 =

35.78 percent). The Coast Guard is using

the rounded-up value of 36.0 percent of

target compensation as the benchmark

for applicant pilot compensation, for a

2021 target pilot compensation of

$132,151 ($367,085 × .36). This allows

adjustments to applicant pilot

compensation to fluctuate in line with

target compensation. Other adjustments

made by the auditors are explained in

the auditors’ reports (available in the

docket where indicated under the

ADDRESSES

portion of this document).

T

ABLE

16—2018 R

ECOGNIZED

E

XPENSES FOR

D

ISTRICT

T

WO

Reported operating expenses for 2018

District Two

Undesignated Designated

Total

Lake Erie

Southeast

Shoal to

Port Huron

Other Pilotage Costs:

Subsistence/Travel—Pilots ................................................................................................... $115,073 $172,608 $287,681

CPA DEDUCTION ................................................................................................................ (3,457) (5,185) (8,642)

Hotel/Lodging Cost ............................................................................................................... 50,464 75,696 126,160

License Insurance ................................................................................................................ 138 207 345

Payroll taxes ......................................................................................................................... 82,960 124,441 207,401

Other ..................................................................................................................................... 860 1,291 2,151

Total Other Pilotage Costs ............................................................................................ 246,038 369,058 615,096

Applicant Pilot Costs:

Applicant Salaries ................................................................................................................. 133,864 200,795 334,659

Applicant Health Insurance .................................................................................................. 18,691 28,036 46,727

Applicant Payroll Tax ............................................................................................................ 4,496 6,745 11,241

Applicant Subsistence .......................................................................................................... 9,872 14,807 24,679

Total Applicant Pilot Cost .............................................................................................. 166,923 250,383 417,306

Pilot Boat and Dispatch Costs:

Pilot Boat Cost ...................................................................................................................... 206,998 310,496 517,494

Employee Benefits ................................................................................................................ 80,906 121,358 202,264

Payroll Taxes ........................................................................................................................ 12,523 18,785 31,308

Total Pilot and Dispatch Costs ...................................................................................... 300,427 450,639 751,066

Administrative Expenses:

Legal—general counsel ........................................................................................................ 35,711 53,567 89,278

Legal—shared counsel (K&L Gates) .................................................................................... 17,037 25,555 42,592

Legal—USCG litigation ......................................................................................................... 2,185 3,277 5,462

Office rent ............................................................................................................................. 33,326 49,988 83,314

Insurance .............................................................................................................................. 20,357 30,536 50,893

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See footnote 30.

41

See footnote 31.

T

ABLE

16—2018 R

ECOGNIZED

E

XPENSES FOR

D

ISTRICT

T

WO

—Continued

Reported operating expenses for 2018

District Two

Undesignated Designated

Total

Lake Erie

Southeast

Shoal to

Port Huron

Employee Benefits ................................................................................................................ 89,999 134,999 224,998

Other taxes ........................................................................................................................... 25,620 38,430 64,050

Real Estate taxes ................................................................................................................. 6,066 9,099 15,165

Depreciation/Auto lease/Other ............................................................................................. 29,392 44,087 73,479

Interest .................................................................................................................................. 586 880 1,466

APA dues .............................................................................................................................. 13,703 20,554 34,257

Dues and Subscriptions ....................................................................................................... 676 1,015 1,691

Utilities .................................................................................................................................. 19,413 29,119 48,532

Salaries—Admin employees ................................................................................................ 53,170 79,755 132,925

Payroll taxes ......................................................................................................................... 5,558 8,338 13,896

Accounting ............................................................................................................................ 14,276 21,414 35,690

Pilot Training ......................................................................................................................... 14,434 21,414 35,848

Other ..................................................................................................................................... 15,310 22,966 38,276

Total Administrative Expenses ...................................................................................... 396,819 594,993 991,812

Total Operating Expenses (Other Costs + Pilot Boats + Admin) .......................... 1,110,207 1,665,073 2,775,280

Adjustments (Director):

Director’s Adjustment Surcharge Collected in 2018 ............................................................ (65,962) (65,962) (131,924)

Director’s Adjustment Applicant Pilot Salary ........................................................................ (81,003) (121,505) (202,508)

Legal Fee Removal—USCG Litigation ................................................................................. (2,185) (3,277) (5,462)

Total Director’s Adjustments ......................................................................................... (149,150) (190,744) (339,894)

Total Operating Expenses (OpEx + Adjustments) ................................................. 961,057 1,474,329 2,435,386

B. Step 2: Project Operating Expenses,

Adjusting for Inflation or Deflation

Having identified the recognized 2019

operating expenses in Step 1, the next

step is to estimate the current year’s

operating expenses by adjusting those

expenses for inflation over the 3-year

period. We calculate inflation using the

BLS data from the CPI for the Midwest

Region of the United States for the 2019

inflation rate.

40

Because the BLS does

not provide forecasted inflation data, we

use economic projections from the

Federal Reserve for the 2020 and 2021

inflation modification.

41

Based on that

information, the calculations for Step 1

are as follows:

T

ABLE

17—A

DJUSTED

O

PERATING

E

XPENSES FOR

D

ISTRICT

T

WO

Item District Two

Undesignated Designated Total

Total Operating Expenses (Step 1) ............................................................................................. $961,057 $1,474,329 $2,435,386

2019 Inflation Modification (@1.5%) ........................................................................................... 14,416 22,115 36,531

2020 Inflation Modification (@1.2%) ........................................................................................... 11,706 17,957 29,663

2021 Inflation Modification (@1.7%) ........................................................................................... 16,782 25,745 42,527

Adjusted 2021 Operating Expenses ..................................................................................... 1,003,961 1,540,146 2,544,107

C. Step 3: Estimate Number of Working

Pilots

In accordance with the text in

§ 404.103, we estimate the number of

working pilots in each district. We

determine the number of registered

pilots based on data provided by the

Lakes Pilots Association. Using these

numbers, we estimate that there will be

15 registered pilots in 2021 in District

Two. Furthermore, based on the

seasonal staffing model discussed in the

2017 ratemaking (see 82 FR 41466), we

assign a certain number of pilots to

designated waters and a certain number

to undesignated waters, as shown in

Table 18. These numbers are used to

determine the amount of revenue

needed in their respective areas.

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42

For a detailed calculation refer to the Great

Lakes Pilotage Rates—2017 Annual Review final

rule, which contains the staffing model. See 82 FR

41466, table 6 at 41480 (August 31, 2017).

43

See footnote 33.

44

See footnote 34.

45

See footnote 35.

46

See table 6 of the Great Lakes Pilotage Rates—

2017 Annual Review final rule, 82 FR 41466 at

41480 (August 31, 2017). The methodology of the

staffing model is discussed at length in the final

rule (see pages 41476–41480 for a detailed analysis

of the calculations).

47

See footnote 36.

T

ABLE

18—A

UTHORIZED

P

ILOTS

Item District Two

Maximum number of pilots (per § 401.220(a))

42

................................................................................................................................ 15

2021 Authorized pilots (total) ............................................................................................................................................................... 15

Pilots assigned to designated areas ................................................................................................................................................... 7

Pilots assigned to undesignated areas ............................................................................................................................................... 8

D. Step 4: Determine Target Pilot

Compensation Benchmark

In this step, we determine the total

pilot compensation for each area. As we

are conducting an ‘‘interim’’ ratemaking

this year, we will follow the procedure

outlined in paragraph (b) of § 404.104,

which adjusts the existing

compensation benchmark by inflation.

As stated in Section V.A of the

preamble, we are using a two-step

process to adjust target pilot

compensation for inflation. The first

step adjusts the 2019 target

compensation benchmark of $367,085

by 1.5 percent, for a total adjusted value

of $372,591. This adjustment accounts

for the difference between the predicted

2020 Median PCE inflation value of 2

percent and the actual 2020 ECI

inflation value of 3.5 percent.

43 44

Because we do not have a value for the

employment cost index for 2021, we

multiply the adjusted 2020

compensation benchmark of $372,591

by the Median PCE inflation value of

1.70 percent.

45

Based on the projected

2021 inflation estimate, the

compensation benchmark for 2021 is

$378,925 per pilot (see Table 6 for

calculations).

Next, we certify that the number of

pilots estimated for 2021 is less than or

equal to the number permitted under

the changes to the staffing model in

§ 401.220(a). The number of pilots

needed is 15 pilots for District Two,

which is more than or equal to 15, the

number of registered pilots provided by

the pilot associations.

46

Thus, 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 Two, as

shown in Table 19.

T

ABLE

19—T

ARGET

C

OMPENSATION FOR

D

ISTRICT

T

WO

Undesignated Designated Total

Target Pilot Compensation .......................................................................................................... $378,925 $378,925 $378,925

Number of Pilots .......................................................................................................................... 8 7 15

Total Target Pilot Compensation .......................................................................................... $3,031,400 $2,652,475 $5,683,875

E. Step 5: Project Working Capital Fund

Next, we calculate the working capital

fund revenues needed for each area.

First, we add the figures for projected

operating expenses and total pilot

compensation for each area. Next, we

find the preceding year’s average annual

rate of return for new issues of high-

grade corporate securities. Using

Moody’s data, the number is 3.3875

percent.

47

By multiplying the two

figures, we obtain the working capital

fund contribution for each area, as

shown in Table 20.

T

ABLE

20—W

ORKING

C

APITAL

F

UND

C

ALCULATION FOR

D

ISTRICT

T

WO

Item District Two

Undesignated Designated Total

Adjusted Operating Expenses (Step 2) ....................................................................................... $1,003,961 $1,540,146 $2,544,107

Total Target Pilot Compensation (Step 4) ................................................................................... 3,031,400 2,652,475 5,683,875

Total Expenses ............................................................................................................................ 4,035,361 4,192,621 8,227,982

Working Capital Fund (3.3875%) ................................................................................................ 136,698 142,025 278,723

F. Step 6: Project Needed Revenue

In this step, we add all the expenses

accrued to derive the total revenue

needed for each area. These expenses

include the projected operating

expenses (from Step 2), the total pilot

compensation (from Step 4), and the

working capital fund contribution (from

Step 5). We show these calculations in

Table 21.

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See footnote 37.

49

See footnote 38.

T

ABLE

21—R

EVENUE

N

EEDED FOR

D

ISTRICT

T

WO

District Two

Undesignated Designated Total

Adjusted Operating Expenses (Step 2, see Table 17) ............................................................... $1,003,961 $1,540,146 $2,544,107

Total Target Pilot Compensation (Step 4, see Table 19) ........................................................... 3,031,400 2,652,475 5,683,875

Working Capital Fund (Step 5, see Table 20) ............................................................................ 136,698 142,025 278,723

Total Revenue Needed ........................................................................................................ 4,172,059 4,334,646 8,506,705

G. Step 7: Calculate Initial Base Rates

Having determined the needed

revenue for each area in the previous six

steps, to develop an hourly rate, we

divide that number by the expected

number of hours of traffic. Step 7 is a

two-part process. In the first part, we

calculate the 10-year average of traffic in

District Two, using the total time on

task or pilot bridge hours.

48

Because we

calculate separate figures for designated

and undesignated waters, there are two

parts for each calculation. We show

these values in Table 22.

T

ABLE

22—T

IME ON

T

ASK FOR

D

ISTRICT

T

WO

[Hours]

Year Undesignated Designated

2019 ......................................................................................................................................................................... 6,512 7,715

2018 ......................................................................................................................................................................... 6,150 6,655

2017 ......................................................................................................................................................................... 5,139 6,074

2016 ......................................................................................................................................................................... 6,425 5,615

2015 ......................................................................................................................................................................... 6,535 5,967

2014 ......................................................................................................................................................................... 7,856 7,001

2013 ......................................................................................................................................................................... 4,603 4,750

2012 ......................................................................................................................................................................... 3,848 3,922

2011 ......................................................................................................................................................................... 3,708 3,680

2010 ......................................................................................................................................................................... 5,565 5,235

Average ............................................................................................................................................................ 5,634 5,661

Next, we derive the initial hourly rate

by dividing the revenue needed by the

average number of hours for each area.

This produces an initial rate, which is

necessary to produce the revenue

needed for each area, assuming the

amount of traffic is as expected. The

calculations for each area are set forth

in Table 23.

T

ABLE

23—I

NITIAL

R

ATE

C

ALCULATIONS FOR

D

ISTRICT

T

WO

Item Undesignated Designated

Needed revenue (Step 6) ........................................................................................................................................ $4,172,059 $4,334,646

Average time on task (hours) .................................................................................................................................. 5,634 5,661

Initial rate ................................................................................................................................................................. $741 $766

H. Step 8: Calculate Average Weighting

Factors by Area

In this step, we calculate the average

weighting factor for each designated and

undesignated area. We collect the

weighting factors, set forth in 46 CFR

401.400, for each vessel trip. Using this

database, we calculate the average

weighting factor for each area using the

data from each vessel transit from 2014

onward, as shown in Tables 24 and

25.

49

T

ABLE

24—A

VERAGE

W

EIGHTING

F

ACTOR FOR

D

ISTRICT

T

WO

, U

NDESIGNATED

A

REAS

Vessel class/year Number of

transits Weighting

factor Weighted

transits

Class 1 (2014) ............................................................................................................................. 31 1 31

Class 1 (2015) ............................................................................................................................. 35 1 35

Class 1 (2016) ............................................................................................................................. 32 1 32

Class 1 (2017) ............................................................................................................................. 21 1 21

Class 1 (2018) ............................................................................................................................. 37 1 37

Class 1 (2019) ............................................................................................................................. 54 1 54

Class 2 (2014) ............................................................................................................................. 356 1.15 409.4

Class 2 (2015) ............................................................................................................................. 354 1.15 407.1

Class 2 (2016) ............................................................................................................................. 380 1.15 437

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T

ABLE

24—A

VERAGE

W

EIGHTING

F

ACTOR FOR

D

ISTRICT

T

WO

, U

NDESIGNATED

A

REAS

—Continued

Vessel class/year Number of

transits Weighting

factor Weighted

transits

Class 2 (2017) ............................................................................................................................. 222 1.15 255.3

Class 2 (2018) ............................................................................................................................. 123 1.15 141.45

Class 2 (2019) ............................................................................................................................. 127 1.15 146.05

Class 3 (2014) ............................................................................................................................. 20 1.3 26

Class 3 (2015) ............................................................................................................................. 0 1.3 0

Class 3 (2016) ............................................................................................................................. 9 1.3 11.7

Class 3 (2017) ............................................................................................................................. 12 1.3 15.6

Class 3 (2018) ............................................................................................................................. 3 1.3 3.9

Class 3 (2019) ............................................................................................................................. 1 1.3 1.3

Class 4 (2014) ............................................................................................................................. 636 1.45 922.2

Class 4 (2015) ............................................................................................................................. 560 1.45 812

Class 4 (2016) ............................................................................................................................. 468 1.45 678.6

Class 4 (2017) ............................................................................................................................. 319 1.45 462.55

Class 4 (2018) ............................................................................................................................. 196 1.45 284.20

Class 4 (2019) ............................................................................................................................. 210 1.45 304.5

Total ...................................................................................................................................... 4,206 ........................ 5,529

Average weighting factor (weighted transits/number of transits) .................................. ........................ 1.31 ........................

T

ABLE

25—A

VERAGE

W

EIGHTING

F

ACTOR FOR

D

ISTRICT

T

WO

, D

ESIGNATED

A

REAS

Vessel class/year Number of

transits Weighting

factor Weighted

transits

Class 1 (2014) ............................................................................................................................. 20 1 20

Class 1 (2015) ............................................................................................................................. 15 1 15

Class 1 (2016) ............................................................................................................................. 28 1 28

Class 1 (2017) ............................................................................................................................. 15 1 15

Class 1 (2018) ............................................................................................................................. 42 1 42

Class 1 (2019) ............................................................................................................................. 48 1 48

Class 2 (2014) ............................................................................................................................. 237 1.15 272.55

Class 2 (2015) ............................................................................................................................. 217 1.15 249.55

Class 2 (2016) ............................................................................................................................. 224 1.15 257.6

Class 2 (2017) ............................................................................................................................. 127 1.15 146.05

Class 2 (2018) ............................................................................................................................. 153 1.15 175.95

Class 2 (2019) ............................................................................................................................. 281 1.15 323.15

Class 3 (2014) ............................................................................................................................. 8 1.3 10.4

Class 3 (2015) ............................................................................................................................. 8 1.3 10.4

Class 3 (2016) ............................................................................................................................. 4 1.3 5.2

Class 3 (2017) ............................................................................................................................. 4 1.3 5.2

Class 3 (2018) ............................................................................................................................. 14 1.3 18.2

Class 3 (2019) ............................................................................................................................. 1 1.3 1.3

Class 4 (2014) ............................................................................................................................. 359 1.45 520.55

Class 4 (2015) ............................................................................................................................. 340 1.45 493

Class 4 (2016) ............................................................................................................................. 281 1.45 407.45

Class 4 (2017) ............................................................................................................................. 185 1.45 268.25

Class 4 (2018) ............................................................................................................................. 379 1.45 549.55

Class 4 (2019) ............................................................................................................................. 403 1.45 584.35

Total ...................................................................................................................................... 3,393 ........................ 4,467

Average weighting factor (weighted transits/number of transits) .................................. ........................ 1.32 ........................

I. Step 9: Calculate Revised Base Rates

In this step, we revise the base rates

so that, once the impact of the weighting

factors are considered, the total cost of

pilotage will be equal to the revenue

needed. To do this, we divide the initial

base rates calculated in Step 7 by the

average weighting factors calculated in

Step 8, as shown in Table 26.

T

ABLE

26—R

EVISED

B

ASE

R

ATES FOR

D

ISTRICT

T

WO

Area Initial rate

(Step 7)

Average

weighting

factor

(Step 8)

Revised rate

(Initial rate ÷

Average

weighting

factor)

District Two: Designated .............................................................................................................. $766 1.32 $580

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These reports are available in the docket for

this rulemaking (see Docket No. USCG–2019–0736).

T

ABLE

26—R

EVISED

B

ASE

R

ATES FOR

D

ISTRICT

T

WO

—Continued

Area Initial rate

(Step 7)

Average

weighting

factor

(Step 8)

Revised rate

(Initial rate ÷

Average

weighting

factor)

District Two: Undesignated .......................................................................................................... 741 1.31 566

J. Step 10: Review and Finalize Rates

In this step, the Director reviews the

rates set forth by the staffing model and

ensures that they meet the goal of

ensuring safe, efficient, and reliable

pilotage. To establish this, the Director

considers whether the proposed rates

incorporate appropriate compensation

for pilots to handle heavy traffic

periods, and whether there is a

sufficient number of pilots to handle

those heavy traffic periods. The Director

also considers whether the proposed

rates would cover operating expenses

and infrastructure costs, and takes

average traffic and weighting factors

into consideration. Based on this

information, the Director is not making

any alterations to the rates in this step.

We will modify the text in § 401.405(a)

to reflect the final rates shown in Table

27.

T

ABLE

27—F

INAL

R

ATES FOR

D

ISTRICT

T

WO

Area Name

Final 2020

pilotage rate

Proposed

2021

pilotage rate

Final 2021

pilotage rate

District Two: Designated ................................. Navigable waters from Southeast Shoal to

Port Huron, MI. $618 $577 $580

District Two: Undesignated ............................. Lake Erie ........................................................ 586 566 566

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 begin by reviewing the

independent accountant’s financial

reports for each association’s 2018

expenses and revenues.

50

For

accounting purposes, the financial

reports divide expenses into designated

and undesignated areas. For costs

accrued by the pilot associations

generally, such as employee benefits, for

example, the cost is divided between

the designated and undesignated areas

on a pro rata basis. The recognized

operating expenses for District Three are

shown in Table 28.

For District Three, we finalized two

Director’s adjustments. One is for the

amount collected from the 2018

surcharge, and the other for $9,277,

which was the amount the district spent

on litigation legal fees against the Coast

Guard. The other $9,094 spent by

District Three on Coast Guard litigation

was for intervener fees, which are

allowable expenses. Other adjustments

made by the auditors are explained in

the auditors’ reports (available in the

docket where indicated in the

ADDRESSES

portion of this document).

We make no adjustments to the

District Three compensation for

applicant pilots. In the 2019 NPRM, the

Coast Guard proposed to make an

adjustment to District Three’s request

for reimbursement of $571,248 for two

applicant pilots ($285,624 per

applicant). Instead of permitting

$571,248 for two applicant pilots, we

proposed allowing $257,566, or

$128,783 per applicant pilot. This

proposal went into the final rule for

2019 and was not opposed. Going

forward, the Coast Guard will continue

to use the same ratio of applicant to

target compensation for all districts. For

2019, this was approximately 36 percent

of $359,887, which was the target pilot

compensation value for 2019 ($128,783

÷ $359,887 = 35.78 percent). The Coast

Guard is using 36.0 percent of target

compensation as the benchmark for

applicant pilot compensation, for a 2021

target pilot compensation of $132,151

($367,085 × .36). This allows

adjustments to applicant pilot

compensation to fluctuate in line with

target compensation.

T

ABLE

28—2018 R

ECOGNIZED

E

XPENSES FOR

D

ISTRICT

T

HREE

Reported expenses for 2018

District Three

Undesignated

51

(Area 6) Designated

(Area 7) Undesignated

(Area 8) Total

Lakes Huron and

Michigan St. Marys

River Lake

Superior

Operating Expenses:

Other Pilotage Costs.

Pilot subsistence/travel ......................................................................... $208,110 $110,697 $123,980 $442,787

Hotel/Lodging Cost ............................................................................... 88,982 47,331 53,011 189,324

License Insurance—Pilots .................................................................... 13,516 7,189 8,052 28,757

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51

The undesignated areas in District Three (areas

6 and 8) are treated separately in table 28. In table

29 and subsequent tables, both undesignated areas

are combined and analyzed as a single

undesignated area.

52

See footnote 30.

53

See footnote 31.

T

ABLE

28—2018 R

ECOGNIZED

E

XPENSES FOR

D

ISTRICT

T

HREE

—Continued

Reported expenses for 2018

District Three

Undesignated

51

(Area 6) Designated

(Area 7) Undesignated

(Area 8) Total

Lakes Huron and

Michigan St. Marys

River Lake

Superior

Payroll taxes ......................................................................................... 122,954 65,401 73,249 261,604

Other ..................................................................................................... 19,521 10,383 11,629 41,533

Total Other Pilotage Costs ............................................................ 453,083 241,001 269,921 964,005

Applicant Pilot Costs:

Applicant Salaries ................................................................................. 183,485 97,598 109,310 390,393

Applicant pilot subsistence/travel ......................................................... 16,411 8,729 9,777 34,917

Applicant Insurance .............................................................................. 38,312 20,379 22,823 81,514

Applicant Payroll Tax ............................................................................ 16,411 8,729 9,777 34,917

Applicant Total Cost ...................................................................... 254,619 135,435 151,687 541,741

Pilot Boat and Dispatch Costs:

Pilot boat costs ..................................................................................... 346,160 184,127 206,223 736,510

Dispatch costs ............................................................................................. 99,982 53,182 59,563 212,727

Payroll taxes ......................................................................................... 13,609 7,239 8,108 28,956

Total Pilot and Dispatch Costs ...................................................... 459,751 244,548 273,894 978,193

Administrative Expenses:

Legal—general counsel ........................................................................ 22,766 12,109 13,563 48,438

Legal—shared counsel (K&L Gates) .................................................... 19,426 10,333 11,573 41,332

Legal—USCG litigation ......................................................................... 8,611 4,580 5,130 18,321

Office rent ............................................................................................. 4,020 2,138 2,395 8,553

Insurance .............................................................................................. 11,354 6,040 6,764 24,158

Employee benefits ................................................................................ 68,303 36,331 40,691 145,325

Other taxes ........................................................................................... 131 70 78 279

Depreciation/Auto leasing/Other ........................................................... 57,315 30,487 34,145 121,947

Interest .................................................................................................. 7 4 4 15

APA Dues ............................................................................................. 20,628 10,973 12,289 43,890

Dues and subscriptions ........................................................................ 3,290 1,750 1,960 7,000

Utilities .................................................................................................. 31,860 16,947 18,980 67,787

Salaries ................................................................................................. 60,876 32,381 36,267 129,524

Payroll taxes ......................................................................................... 5,406 2,875 3,220 11,501

Accounting/Professional fees ............................................................... 8,069 4,292 4,807 17,168

Pilot training .......................................................................................... 18,586 9,886 11,073 39,545

Other expenses (D3–18–01) ................................................................ 8,907 4,738 5,306 18,951

(D3–18–01) CPA Deduction ................................................................. (2,030) (1,080) (1,210) (4,320)

Total Administrative Expenses ...................................................... 347,525 184,854 207,035 739,414

Total Operating Expenses (Other Costs + Pilot Boats +

Admin) ................................................................................ 1,514,978 805,838 902,537 3,223,353

Adjustments (Director):

Director’s Adjustment Surcharge Collected in 2018 ............................ (273,168) (273,168) (273,168) (819,504)

Legal Fee Removal—USCG Litigation ................................................. (4,337) (2,307) (2,584) (9,227)

Total Director’s Adjustments ......................................................... (277,505) (275,475) (275,752) (828,731)

Total Operating Expenses (OpEx + Adjustments) ................. 1,237,473 530,363 626,785 2,394,622

B. Step 2: Project Operating Expenses,

Adjusting for Inflation or Deflation

Having identified the recognized 2018

operating expenses in Step 1, the next

step is to estimate the current year’s

operating expenses by adjusting those

expenses for inflation over the 3-year

period. We calculate inflation using the

BLS data from the CPI for the Midwest

Region of the United States for the 2019

inflation rate.

52

Because the BLS does

not provide forecasted inflation data, we

use economic projections from the

Federal Reserve for the 2020 and 2021

inflation modification.

53

Based on that

information, the calculations for Step 1

are as follows:

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For a detailed calculation, refer to the Great

Lakes Pilotage Rates—2017 Annual Review final

rule, which contains the staffing model. See 82 FR

41466, table 6 at 41480 (August 31, 2017).

55

See footnote 33.

56

See footnote 34.

57

See footnote 35.

58

See Table 6 of the Great Lakes Pilotage Rates—

2017 Annual Review final rule, 82 FR 41466 at

41480 (August 31, 2017). The methodology of the

staffing model is discussed at length in the final

rule (see pages 41476–41480 for a detailed analysis

of the calculations).

59

See footnote 36.

T

ABLE

29—A

DJUSTED

O

PERATING

E

XPENSES FOR

D

ISTRICT

T

HREE

District Three

Undesignated Designated Total

Total Operating Expenses (Step 1) ............................................................................................. $1,864,259 $530,363 $2,394,622

2019 Inflation Modification (@1.5%) ........................................................................................... 27,964 7,955 35,919

2020 Inflation Modification (@1.2%) ........................................................................................... 22,707 6,460 29,167

2021 Inflation Modification (@1.7%) ........................................................................................... 32,554 9,261 41,815

Adjusted 2021 Operating Expenses ..................................................................................... 1,947,484 554,039 2,501,523

C. Step 3: Estimate Number of Working

Pilots

In accordance with the text in

§ 404.104(c), we estimate the number of

working pilots in each district. We

determine the number of registered

pilots based on data provided by the

Western Great Lakes Pilots Association.

Using these numbers, we estimate that

there will be 22 registered pilots in 2021

in District Three. Furthermore, based on

the seasonal staffing model discussed in

the 2017 ratemaking (see 82 FR 41466),

we assign a certain number of pilots to

designated waters and a certain number

to undesignated waters, as shown in

Table 30. These numbers are used to

determine the amount of revenue

needed in their respective areas.

T

ABLE

30—A

UTHORIZED

P

ILOTS

District Three

Maximum number of pilots

(per § 401.220(a))

54

.......... 22

2021 Authorized pilots (total) 22

Pilots assigned to designated

areas ................................. 4

T

ABLE

30—A

UTHORIZED

P

ILOTS

—

Continued

District Three

Pilots assigned to undesig-

nated areas ....................... 18

D. Step 4: Determine Target Pilot

Compensation Benchmark

In this step, we determine the total

pilot compensation for each area. As we

are conducting an ‘‘interim’’ ratemaking

this year, we will follow the procedure

outlined in paragraph (b) of § 404.104,

which adjusts the existing

compensation benchmark by inflation.

As stated in Section V.A of the

preamble, we are using a two-step

process to adjust target pilot

compensation for inflation. The first

step adjusts the 2019 target

compensation benchmark of $367,085

by 15 percent, for a total adjusted value

of $372,591. This adjustment accounts

for the difference between the predicted

2020 Median PCE inflation value of 2

percent and the actual 2020 ECI

inflation value of 3.3 percent.

55 56

Because we do not have a value for the

ECI for 2021, we multiply the adjusted

2020 compensation benchmark of

$372,591 by the Median PCE inflation

value of 1.70 percent.

57

Based on the

projected 2020 inflation estimate, the

compensation benchmark for 2021 is

$378,925 per pilot (see Table 6 for

calculations).

Next, we certify that the number of

pilots estimated for 2021 is less than or

equal to the number permitted under

the changes to the staffing model in

§ 401.220(a). The number of pilots

needed is 22 pilots for District Three,

58

which is more than or equal to 22, the

number of registered pilots provided by

the pilot associations.

Thus, 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 31.

T

ABLE

31—T

ARGET

C

OMPENSATION FOR

D

ISTRICT

T

HREE

District Three

Undesignated Designated Total

Target Pilot Compensation .......................................................................................................... $378,925 $378,925 $378,925

Number of Pilots .......................................................................................................................... 18 4 22

Total Target Pilot Compensation .......................................................................................... 6,820,650 1,515,700 8,336,350

E. Step 5: Project Working Capital Fund

Next, we calculate the working capital

fund revenues needed for each area.

First, we add the figures for projected

operating expenses and total pilot

compensation for each area. Next, we

find the preceding year’s average annual

rate of return for new issues of high

grade corporate securities. Using

Moody’s data, the number is 3.3875

percent.

59

By multiplying the two

figures, we obtain the working capital

fund contribution for each area, as

shown in Table 32.

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See footnote 37.

T

ABLE

32—W

ORKING

C

APITAL

F

UND

C

ALCULATION FOR

D

ISTRICT

T

HREE

District Three

Undesignated Designated Total

Adjusted Operating Expenses (Step 2) ....................................................................................... $1,947,484 $554,039 $2,501,523

Total Target Pilot Compensation (Step 4) ................................................................................... 6,820,650 1,515,700 8,336,350

Total Expenses ............................................................................................................................ 8,768,134 2,069,739 10,837,873

Working Capital Fund (3.3875) ................................................................................................... 297,021 70,112 367,133

F. Step 6: Project Needed Revenue

In this step, we add all the expenses

accrued to derive the total revenue

needed for each area. These expenses

include the projected operating

expenses (from Step 2), the total pilot

compensation (from Step 4), and the

working capital fund contribution (from

Step 5). The calculations are shown in

Table 33.

T

ABLE

33—R

EVENUE

N

EEDED FOR

D

ISTRICT

T

HREE

District Three

Undesignated Designated Total

Adjusted Operating Expenses (Step 2, see Table 29) ............................................................... $1,947,484 $554,039 $2,501,523

Total Target Pilot Compensation (Step 4, see Table 31) ........................................................... 6,820,650 1,515,700 8,336,350

Working Capital Fund (Step 5, see Table 32) ............................................................................ 297,021 70,112 367,133

Total Revenue Needed ........................................................................................................ 9,065,155 2,139,851 11,205,006

G. Step 7: Calculate Initial Base Rates

Having determined the revenue

needed for each area in the previous six

steps, to develop an hourly rate, we

divide that number by the expected

number of hours of traffic. Step 7 is a

two-part process. In the first part, we

calculate the 10-year average of traffic in

District Three, using the total time on

task or pilot bridge hours.

60

Because we

calculate separate figures for designated

and undesignated waters, there are two

parts for each calculation. We show

these values in Table 34.

T

ABLE

34—T

IME ON

T

ASK FOR

D

ISTRICT

T

HREE

[Hours]

Year District Three

Undesignated Designated

2019 ......................................................................................................................................................................... 24,851 3,395

2018 ......................................................................................................................................................................... 19,967 3,455

2017 ......................................................................................................................................................................... 20,955 2,997

2016 ......................................................................................................................................................................... 23,421 2,769

2015 ......................................................................................................................................................................... 22,824 2,696

2014 ......................................................................................................................................................................... 25,833 3,835

2013 ......................................................................................................................................................................... 17,115 2,631

2012 ......................................................................................................................................................................... 15,906 2,163

2011 ......................................................................................................................................................................... 16,012 1,678

2010 ......................................................................................................................................................................... 20,211 2,461

Average ............................................................................................................................................................ 20,710 2,808

Next, we derive the initial hourly rate

by dividing the revenue needed by the

average number of hours for each area.

This produces an initial rate, which is

necessary to produce the revenue

needed for each area, assuming the

amount of traffic is as expected. The

calculations for each area are set forth

in Table 35.

T

ABLE

35—I

NITIAL

R

ATE

C

ALCULATIONS FOR

D

ISTRICT

T

HREE

Undesignated Designated

Revenue needed (Step 6) ....................................................................................................................................... $9,065,155 $2,139,851

Average time on task (hours) .................................................................................................................................. 20,710 2,808

Initial rate ................................................................................................................................................................. $438 $762

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61

See footnote 38.

H. Step 8: Calculate Average Weighting

Factors by Area

In this step, we calculate the average

weighting factor for each designated and

undesignated area. We collect the

weighting factors, set forth in 46 CFR

401.400, for each vessel trip. Using this

database, we calculate the average

weighting factor for each area using the

data from each vessel transit from 2014

onward, as shown in Tables 36 and

37.

61

T

ABLE

36—A

VERAGE

W

EIGHTING

F

ACTOR FOR

D

ISTRICT

T

HREE

, U

NDESIGNATED

A

REAS

Vessel class/year Number of

transits Weighting

factor Weighted

transits

Area 6

Class 1 (2014) ............................................................................................................................. 45 1 45

Class 1 (2015) ............................................................................................................................. 56 1 56

Class 1 (2016) ............................................................................................................................. 136 1 136

Class 1 (2017) ............................................................................................................................. 148 1 148

Class 1 (2018) ............................................................................................................................. 103 1 103

Class 1 (2019) ............................................................................................................................. 173 1 173

Class 2 (2014) ............................................................................................................................. 274 1.15 315.1

Class 2 (2015) ............................................................................................................................. 207 1.15 238.05

Class 2 (2016) ............................................................................................................................. 236 1.15 271.4

Class 2 (2017) ............................................................................................................................. 264 1.15 303.6

Class 2 (2018) ............................................................................................................................. 169 1.15 194.35

Class 2 (2019) ............................................................................................................................. 279 1.15 320.85

Class 3 (2014) ............................................................................................................................. 15 1.3 19.5

Class 3 (2015) ............................................................................................................................. 8 1.3 10.4

Class 3 (2016) ............................................................................................................................. 10 1.3 13

Class 3 (2017) ............................................................................................................................. 19 1.3 24.7

Class 3 (2018) ............................................................................................................................. 9 1.3 11.7

Class 3 (2019) ............................................................................................................................. 9 1.3 11.7

Class 4 (2014) ............................................................................................................................. 394 1.45 571.3

Class 4 (2015) ............................................................................................................................. 375 1.45 543.75

Class 4 (2016) ............................................................................................................................. 332 1.45 481.4

Class 4 (2017) ............................................................................................................................. 367 1.45 532.15

Class 4 (2018) ............................................................................................................................. 337 1.45 488.65

Class 4 (2019) ............................................................................................................................. 334 1.45 484.3

Total for Area 6 .................................................................................................................... 4,299 ........................ 5,497

Area 8

Class 1 (2014) ............................................................................................................................. 3 1 3

Class 1 (2015) ............................................................................................................................. 0 1 0

Class 1 (2016) ............................................................................................................................. 4 1 4

Class 1 (2017) ............................................................................................................................. 4 1 4

Class 1 (2018) ............................................................................................................................. 0 1 0

Class 1 (2019) ............................................................................................................................. 0 1 0

Class 2 (2014) ............................................................................................................................. 177 1.15 203.55

Class 2 (2015) ............................................................................................................................. 169 1.15 194.35

Class 2 (2016) ............................................................................................................................. 174 1.15 200.1

Class 2 (2017) ............................................................................................................................. 151 1.15 173.65

Class 2 (2018) ............................................................................................................................. 102 1.15 117.3

Class 2 (2019) ............................................................................................................................. 120 1.15 138

Class 3 (2014) ............................................................................................................................. 3 1.3 3.9

Class 3 (2015) ............................................................................................................................. 0 1.3 0

Class 3 (2016) ............................................................................................................................. 7 1.3 9.1

Class 3 (2017) ............................................................................................................................. 18 1.3 23.4

Class 3 (2018) ............................................................................................................................. 7 1.3 9.1

Class 3 (2019) ............................................................................................................................. 6 1.3 7.8

Class 4 (2014) ............................................................................................................................. 243 1.45 352.35

Class 4 (2015) ............................................................................................................................. 253 1.45 366.85

Class 4 (2016) ............................................................................................................................. 204 1.45 295.8

Class 4 (2017) ............................................................................................................................. 269 1.45 390.05

Class 4 (2018) ............................................................................................................................. 188 1.45 272.6

Class 4 (2019) ............................................................................................................................. 254 1.45 368.3

Total for Area 8 ............................................................................................................. 2,356 ........................ 3,137

Combined total .............................................................................................................. 6,655 ........................ 8,634.10

Average weighting factor (weighted transits/number of transits) .......................... ........................ 1.30 ........................

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T

ABLE

37—A

VERAGE

W

EIGHTING

F

ACTOR FOR

D

ISTRICT

T

HREE

, D

ESIGNATED

A

REAS

Vessel class per year Number of

transits Weighting

factor Weighted

transits

Class 1 (2014) ............................................................................................................................. 27 1 27

Class 1 (2015) ............................................................................................................................. 23 1 23

Class 1 (2016) ............................................................................................................................. 55 1 55

Class 1 (2017) ............................................................................................................................. 62 1 62

Class 1 (2018) ............................................................................................................................. 47 1 47

Class 1 (2019) ............................................................................................................................. 45 1 45

Class 2 (2014) ............................................................................................................................. 221 1.15 254.15

Class 2 (2015) ............................................................................................................................. 145 1.15 166.75

Class 2 (2016) ............................................................................................................................. 174 1.15 200.1

Class 2 (2017) ............................................................................................................................. 170 1.15 195.5

Class 2 (2018) ............................................................................................................................. 126 1.15 144.9

Class 2 (2019) ............................................................................................................................. 162 1.15 186.3

Class 3 (2014) ............................................................................................................................. 4 1.3 5.2

Class 3 (2015) ............................................................................................................................. 0 1.3 0

Class 3 (2016) ............................................................................................................................. 6 1.3 7.8

Class 3 (2017) ............................................................................................................................. 14 1.3 18.2

Class 3 (2018) ............................................................................................................................. 6 1.3 7.8

Class 3 (2019) ............................................................................................................................. 3 1.3 3.9

Class 4 (2014) ............................................................................................................................. 321 1.45 465.45

Class 4 (2015) ............................................................................................................................. 245 1.45 355.25

Class 4 (2016) ............................................................................................................................. 191 1.45 276.95

Class 4 (2017) ............................................................................................................................. 234 1.45 339.3

Class 4 (2018) ............................................................................................................................. 225 1.45 326.25

Class 4 (2019) ............................................................................................................................. 308 1.45 446.6

Total ...................................................................................................................................... 2,814 ........................ 3,659

Average weighting factor (weighted transits per number of transits) ........................... ........................ 1.30 ........................

I. Step 9: Calculate Revised Base Rates

In this step, we revise the base rates

so that, once the impact of the weighting

factors are considered, the total cost of

pilotage will be equal to the revenue

needed. To do this, we divide the initial

base rates calculated in Step 7 by the

average weighting factors calculated in

Step 8, as shown in Table 38.

T

ABLE

38—R

EVISED

B

ASE

R

ATES FOR

D

ISTRICT

T

HREE

Area Initial rate

(Step 7)

Average

weighting

factor

(Step 8)

Revised rate

(Initial rate ÷

average

weighting

factor)

District Three: Designated ........................................................................................................... $762 1.30 $586

District Three: Undesignated ....................................................................................................... 438 1.30 337

J. Step 10: Review and Finalize Rates

In this step, the Director reviews the

rates set forth by the staffing model and

ensures that they meet the goal of

ensuring safe, efficient, and reliable

pilotage. To establish this, the Director

considers whether the proposed rates

incorporate appropriate compensation

for pilots to handle heavy traffic periods

and whether there is a sufficient number

of pilots to handle those heavy traffic

periods. The Director also considers

whether the proposed rates would cover

operating expenses and infrastructure

costs, and takes average traffic and

weighting factors into consideration.

Based on this information, the Director

is not making any alterations to the rates

in this step. We will modify the text in

§ 401.405(a) to reflect the final rates

shown in Table 39.

T

ABLE

39—F

INAL

R

ATES FOR

D

ISTRICT

T

HREE

Area Name

Final 2020

pilotage rate

Proposed

2021

pilotage rate

Final 2021

pilotage rate

District Three: Designated .............................. St. Marys River .............................................. $632 $584 $586

District Three: Undesignated .......................... Lakes Huron, Michigan, and Superior ........... 337 335 337

VIII. 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.

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62

Great Lakes Pilotage Rates-2018 Annual Review

and Revisions to Methodology (83 FR 26162),

published June 5, 2018.

A. Regulatory Planning and Review

Executive Orders 12866 (Regulatory

Planning and Review) and 13563

(Improving Regulation and Regulatory

Review) direct agencies to assess the

costs and benefits of available regulatory

alternatives and, if regulation is

necessary, to select regulatory

approaches that maximize net benefits

(including potential economic,

environmental, public health and safety

effects, distributive impacts, and

equity). Executive Order 13563

emphasizes the importance of

quantifying costs and benefits, reducing

costs, harmonizing rules, and promoting

flexibility.

The Office of Management and Budget

(OMB) has not designated this rule a

significant regulatory action under

section 3(f) of Executive Order 12866.

Accordingly, OMB has not reviewed it.

A regulatory analysis (RA) follows.

The purpose of this rule is to establish

new base pilotage rates. The Great Lakes

Pilotage Act of 1960 requires that rates

be established or reviewed and adjusted

each year. The Act requires that base

rates be established by a full ratemaking

at least once every five years, and in

years when base rates are not

established, they must be reviewed and,

if necessary, adjusted. The last full

ratemaking was concluded in June of

2018.

62

For this ratemaking, the Coast

Guard estimates an increase in cost of

approximately $2.06 million to industry

as a result of the change in revenue

needed in 2021 compared to the

revenue needed in 2020.

Table 40 summarizes changes with no

cost impacts or where the cost impacts

are captured in the rate change. Table 41

summarizes the affected population,

costs, and benefits of the rate change.

T

ABLE

40—C

HANGES

W

ITH

N

O

C

OSTS OR

C

OST

C

APTURED IN THE

F

INAL

R

ATE

C

HANGE

Change Description Affected population

Basis for no cost or cost captured

in the final rate Benefits

Legal expenses

for lawsuits

against the

Coast Guard in

relation to the

ratemaking are

not allowable

operating ex-

penses.

The Coast Guard is excluding

legal fees for litigation against

the Coast Guard from operating

expenses for calculation of pilot-

age rates. This exclusion only

applies to legal fees when pilots

associations sue the Coast

Guard in relation to the rate-

making and oversight require-

ment in 46 U.S.C. 9303, 9304

and 9305. As part of this

change, the Coast Guard is

also creating a new paragraph

46 CFR 404.2(b)(6), which de-

fines legal expenses.

Owners and operators of 279 ves-

sels journeying the Great Lakes

system annually, 54 United

States registered pilots, and 3

pilotage associations.

Changes in operating expenses

are accounted for in the base

pilotage rates. For the 2021

ratemaking, these legal fees

total $27,594 for all three dis-

tricts. After adjusting for inflation

and the working capital fund,

these expenses are $29,802, or

0.10% of the total revenue

needed for 2021. The pilot as-

sociations may still be reim-

bursed for these expenses by

the Coast Guard under the

EAJA.

The change will remove the

undue cost to shippers of effec-

tively paying for the pilots’ litiga-

tion expenses to sue the Coast

Guard.

Inflation of target

pilot compensa-

tion.

The Coast Guard is modifying 46

CFR 404.104(b) to change how

inflation of pilot compensation is

calculated by accounting for the

difference between the pre-

dicted PCE inflation rated and

the actual ECI inflation rate.

Owners and operators of 279 ves-

sels journeying the Great Lakes

system annually, 54 United

States registered Great Lakes

pilots, and 3 pilotage associa-

tions.

Pilot compensation costs are ac-

counted for in the base pilotage

rates.

This change ensures the Coast

Guard will be able to correct

any under- or over-estimates in

inflation, rather than keeping

these errors continuously in the

rate.

T

ABLE

41—E

CONOMIC

I

MPACTS

D

UE TO

C

HANGES

Change Description Affected population Costs Benefits

Rate and sur-

charge changes. Under the Great Lakes Pilotage

Act of 1960, the Coast Guard is

required to review and adjust

base pilotage rates annually.

Owners and operators of 279 ves-

sels transiting the Great Lakes

system annually, 54 United

States registered Great Lakes

pilots, and 3 pilotage associa-

tions.

Increase of $2,064,622 due to

change in revenue needed for

2021 ($30,332,652) from rev-

enue needed for 2020

($28,268,030), as shown in

Table 43 below.

New rates cover an association’s

necessary and reasonable oper-

ating expenses. Promotes safe,

efficient, and reliable pilotage

service on the Great Lakes.

Provides fair compensation,

adequate training, and sufficient

rest periods for pilots. Ensures

the association receives suffi-

cient revenues to fund future

improvements.

The Coast Guard did not receive any

comments on the regulatory analysis

itself, but we did receive comments on

the operating expenses that affected the

calculation of projected revenues. In

this final rule, the Coast Guard made six

adjustments to the operating expenses

(Step 1):

(1) We included intervener legal fees

paid by District Three in their operating

expenses. These fees were incorrectly

deducted via Directors adjustment in

the NPRM.

(2) We removed the Director’s

adjustment deducting District One’s

applicant pilot salaries.

(3) We removed a CPA deduction of

$6,600 for District One’s dues and

subscriptions, as this deduction was not

included in the auditor’s report.

(4) We added capital expenses to

District One for dock repairs, loan

repayment, and the down payment of a

new pilot boat.

(5) We adjusted District One’s

applicant expenses based on new

information provided by the

CohnReznick.

(6) We redistributed the applicant

pilot salary deduction for District Two

between the designated and

undesignated areas.

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In addition to the adjustments made

to the operating expenses, we made two

other changes that impacted the

calculation of projected revenues:

(1) We updated the PCE and ECI

inflation data to use the most recently

available information.

(2) Based on public comment, we

decided not to incorporate the proposed

rounding changes to the staffing model

in this final rule. As a result of this

change, District One will have one less

working pilot than was proposed.

Table 42 summarizes the changes in

the regulatory analysis from the NPRM

to this final rule. The Coast Guard made

these changes as a result of public

comments received after publication of

the NPRM and a review of each

district’s operating expenses by the

Coast Guard and CohnReznick. In

addition, the Coast Guard updated the

ECI and PCE inflation data to use more

recent published datasets, and removed

one working pilot from District One. An

in-depth discussion of the public

comments is located in Section VI of the

preamble, Discussion of Comments.

T

ABLE

42—S

UMMARY OF

C

HANGES

F

ROM

NPRM

TO

F

INAL

R

ULE

Element of the

analysis NPRM Final rule Impact Resulting change in RA

Operating Ex-

penses (Step 1). The Coast Guard deducted

$36,688 from total operating ex-

penses for legal fees for litiga-

tion against the Coast Guard.

Based on public comment, the

Coast Guard realized that

$9,094 worth of intervener legal

fees paid by District Three were

erroneously deducted as litiga-

tion expenses. We added that

amount back into the operating

expenses and are deducting

$27,594 in this final rule for liti-

gation fees against the Coast

Guard.

Increased District Three’s total op-

erating expenses by $9,094 be-

fore inflation and accounting for

the working capital fund adjust-

ments.

Data affects the calculation of pro-

jected revenues.

Operating Ex-

penses (Step 1). The Coast Guard deducted

$594,521 from District One’s

total operating expenses for ap-

plicant pilot salaries.

Based on public comment, the

Coast Guard removed the Di-

rector’s adjustment that re-

moved applicant salaries from

District One’s operating ex-

penses. In addition, based on

information provided by

CohnReznick, the Coast Guard

modified the applicant salary

amount from $594,521 to

$594,331.

Increased District One’s total op-

erating expenses by $594,331

before inflation and accounting

for the working capital fund ad-

justments.

Data affects the calculation of pro-

jected revenues.

Operating Ex-

penses (Step 1). The Coast Guard deducted

$6,600 from District One’s total

operating expenses for dues

and subscriptions.

Based on public comment, the

Coast Guard removed an erro-

neous CPA adjustment of

$6,600 from District One’s oper-

ating expenses.

Increased District One’s total op-

erating expenses by $6,600 be-

fore inflation and accounting for

the working capital fund adjust-

ments.

Data affects the calculation of pro-

jected revenues.

Operating Ex-

penses (Step 1). The NPRM did not include ex-

penses incurred by District One

for infrastructure expenditures

made in 2018.

Based on public comment, the

Coast Guard added $606,836

for infrastructure costs to Dis-

trict One’s total operating ex-

penses.

Increased District One’s total op-

erating expenses by $606,836

before inflation and accounting

for the working capital fund ad-

justments.

Data affects the calculation of pro-

jected revenues.

Operating Ex-

penses (Step 1). The Coast Guard calculated that

District One spent a total of

$228,526 on applicant pilot ex-

penses, excluding salaries. To

increase transparency, we pre-

sented these expenses as Di-

rector’s adjustments in Table 3

of the NPRM and then de-

ducted them to avoid double

counting.

The Coast Guard calculated that

District One spent a total of

$238,520 on applicant pilot ex-

penses, excluding salaries,

based on new information from

CohnReznick. To increase

transparency, we presented

these expenses as director’s

adjustments in Table 3 of this

final rule and then deducted

them to avoid double counting.

No impact. Because these ex-

penses are not included in the

final operating costs for District

One, modifying these amounts

does not impact District One’s

total operating costs.

None. There is no impact on pro-

jected revenues or the RA.

Operating Ex-

penses (Step 1). In the NPRM, the Coast Guard at-

tributed 40% of District Two’s

applicant salary costs to the un-

designated area and 60% to the

designated area. However, the

Director’s adjustment for appli-

cant salaries used a 33/67%

spilt between the undesignated

and designated areas.

The Coast Guard modified the

way the Director’s adjustment

for applicant salaries was allo-

cated to a 40/60 split, with 40%

of the Director’s adjustment at-

tributed to the undesignated

area and 60% attributed to the

designated area.

This change reduced the oper-

ating expenses for the undesig-

nated area by $14,175 and in-

creased them for the des-

ignated area by $14,175. There-

fore, this change had no net im-

pact on District Two’s total op-

erating expenses.

None. There is no impact on pro-

jected revenues or the RA.

Inflation of Oper-

ating Expenses

(Step 2).

The Coast Guard used a PCE in-

flation value of 0.8% for 2020

and 1.6% for 2021, based on

the most recent PCE data avail-

able at the time the NPRM was

completed. (June 2020 data).

The Coast Guard updated PCE

inflation value to 1.2% for 2020

and 1.7% for 2021, based on

the most recently published

PCE data (September 2020).

Increased total inflated operating

expenses for all three districts

by $43,779.

Data affects the calculation of pro-

jected revenues.

Estimate of Total

Number of

Working Pilots

(Step 3).

Estimated that there would be a

net addition of three additional

working pilots.

There will be a net addition of two

additional working pilots. Decreased the amount of revenue

needed for pilot compensation

by $378,925.

Data affects the calculation of pro-

jected revenues.

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63

See, 84 FR 20551 (May 10, 2019).

64

Some vessels entered the Great Lakes multiple

times in a single year, affecting the average number

of unique vessels utilizing pilotage services in any

given year.

65

While the Coast Guard implemented a

surcharge in 2019, we are not implementing any

surcharges for 2021.

T

ABLE

42—S

UMMARY OF

C

HANGES

F

ROM

NPRM

TO

F

INAL

R

ULE

—Continued

Element of the

analysis NPRM Final rule Impact Resulting change in RA

Target Pilot Com-

pensation (Step

4).

To calculate target pilot com-

pensation, the Coast Guard

used a Q1 ECI inflation value of

3.4% and a 2021 PCE value of

1.6% for 2021, based on the

most recently available data at

the time the NPRM was com-

pleted.

To calculate target pilot com-

pensation, the Coast Guard

used a Q3 ECI inflation value of

3.5% and a 2021 PCE value of

1.7% for 2021, based on the

most recently available data.

Target pilot compensation de-

creased by $745 per pilot, from

$378,180 to $378,925.

Data affects the calculation of pro-

jected revenues.

The Coast Guard is required to review

and adjust pilotage rates on the Great

Lakes annually. See Sections III and IV

of this preamble for detailed discussions

of the legal basis and purpose for this

rulemaking and for background

information on Great Lakes pilotage

ratemaking. Based on our annual review

for this rulemaking, we are adjusting the

pilotage rates for the 2021 shipping

season to generate sufficient revenues

for each district to reimburse its

necessary and reasonable operating

expenses, fairly compensate trained and

rested pilots, and provide an

appropriate working capital fund to use

for improvements. The rate changes in

this final rule will increase the rates for

District One and decrease them for

District Two and the designated area of

District Three. The rate for District

Three’s undesignated area will not

change from 2020. In addition, the rule

will not implement a surcharge for the

training of apprentice pilots as was last

implemented in the 2019 ratemaking.

63

These changes lead to a net increase in

the cost of service to shippers. However,

because the rates will increase for some

areas and decrease for others, the

change in per unit cost to each

individual shipper would be dependent

on their area of operation, and if they

previously paid a surcharge.

A detailed discussion of our economic

impact analysis follows.

Affected Population

This rule will impact United States

registered Great Lakes pilots, the 3 pilot

associations, and the owners and

operators of 279 oceangoing vessels that

transit the Great Lakes annually. We

estimate that there will be 54 pilots

registered during the 2021 shipping

season. The shippers affected by these

rate changes are those owners and

operators of domestic vessels operating

‘‘on register’’ (engaged in foreign trade)

and owners and operators of non-

Canadian foreign vessels on routes

within the Great Lakes system. These

owners and operators must have pilots

or pilotage service as required by 46

U.S.C. 9302. There is no minimum

tonnage limit or exemption for these

vessels. The statute applies only to

commercial vessels and not to

recreational vessels. United States-

flagged vessels not operating on register

and Canadian ‘‘lakers,’’ which account

for most commercial shipping on the

Great Lakes, are not required by 46

U.S.C. 9302 to have pilots. However,

these U.S. and Canadian-flagged lakers

may voluntarily choose to engage a

Great Lakes registered pilot. Vessels that

are U.S.-flagged may opt to have a pilot

for varying reasons, such as

unfamiliarity with designated waters

and ports, or for insurance purposes.

The Coast Guard used billing

information from the years 2017 through

2019 from the Great Lakes Pilotage

Management System (GLPMS) to

estimate the average annual number of

vessels affected by the rate adjustment.

The GLPMS tracks data related to

managing and coordinating the dispatch

of pilots on the Great Lakes, and billing

in accordance with the services. As

described in Step 7 of the methodology,

we use a 10-year average to estimate the

traffic. We used 3 years of the most

recent billing data to estimate the

affected population. When we reviewed

10 years of the most recent billing data,

we found the data included vessels that

have not used pilotage services in recent

years. We believe using 3 years of

billing data is a better representation of

the vessel population that is currently

using pilotage services and will be

impacted by this rulemaking. We found

that 474 unique vessels used pilotage

services during the years 2017 through

2019. That is, these vessels had a pilot

dispatched to the vessel and billing

information was recorded in the

GLPMS. Of these vessels, 434 were

foreign-flagged vessels and 40 were

U.S.-flagged vessels. As previously

stated, U.S.-flagged vessels not

operating on register are not required to

have a registered pilot per 46 U.S.C.

9302, but they can voluntarily choose to

have one.

Numerous factors affect vessel traffic,

which varies from year to year.

Therefore, rather than using the total

number of vessels over the time period,

we took an average of the unique vessels

using pilotage services from the years

2017 through 2019 as the best

representation of vessels estimated to be

affected by the rates in this rulemaking.

From 2017 through 2019, an average of

279 vessels used pilotage services

annually.

64

On average, 261 of these

vessels were foreign-flagged vessels and

18 were U.S.-flagged vessels that

voluntarily opted into the pilotage

service.

Total Cost to Shippers

The rate changes resulting from this

adjustment to the rates will result in a

net increase in the cost of service to

shippers. However, the change in per

unit cost to each individual shipper

would be dependent on their area of

operation.

The Coast Guard estimates the effect

of the rate changes on shippers by

comparing the total projected revenues

needed to cover costs in 2020 with the

total projected revenues to cover costs

in 2021, including any temporary

surcharges we have authorized.

65

We set

pilotage rates so pilot associations

receive enough revenue to cover their

necessary and reasonable expenses.

Shippers pay these rates when they

have a pilot as required by 46 U.S.C.

9302. Therefore, the aggregate payments

of shippers to pilot associations are

equal to the projected necessary

revenues for pilot associations. The

revenues each year represent the total

costs that shippers must pay for pilotage

services. The change in revenue from

the previous year is the additional cost

to shippers discussed in this rule.

The impacts of the rate changes on

shippers are estimated from the district

pilotage projected revenues (shown in

Tables 9, 21, and 33 of this preamble).

The Coast Guard estimates that for the

2021 shipping season, the projected

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66

85 FR 20088, see table 41.

67

The rates for 2021 do not account for the

impacts COVID–19 may have on shipping traffic

and subsequently pilotage revenue, as we do not

have complete data for 2020. The rates for 2022 will

take into account the impact of COVID–19 on

shipping traffic, because that future ratemaking will

include 2020 traffic data. However, the Coast Guard

uses 10-year average when calculating traffic in

order to smooth out variations in traffic caused by

global economic conditions, such as those caused

by the COVID–19 pandemic.

revenue needed for all three districts is

$30,332,652.

To estimate the change in cost to

shippers from this rule, the Coast Guard

compared the 2021 total projected

revenues to the 2020 projected

revenues. Because we review and

prescribe rates for the Great Lakes

Pilotage annually, the effects are

estimated as a single-year cost rather

than annualized over a 10-year period.

In the 2020 rulemaking, we estimated

the total projected revenue needed for

2020 as $28,268,030.

66

This is the best

approximation of 2020 revenues, as, at

the time of this publication, the Coast

Guard does not have enough audited

data available for the 2020 shipping

season to revise these projections.

67

Table 43 shows the revenue projections

for 2020 and 2021 and details the

additional cost increases to shippers by

area and district as a result of the rate

changes on traffic in Districts One, Two,

and Three.

T

ABLE

43—E

FFECT OF THE

R

ULE BY

A

REA AND

D

ISTRICT

[$U.S.; non-discounted]

Area Revenue

needed in

2020

Revenue

needed in

2021

Change in

costs of this

rule

Total, District One ........................................................................................................................ $9,210,888 $10,620,941 $1,410,053

Total, District Two ........................................................................................................................ 8,345,871 8,506,705 160,834

Total, District Three ..................................................................................................................... 10,711,271 11,205,006 493,735

System Total ......................................................................................................................... 28,268,030 30,332,652 2,064,622

The resulting difference between the

projected revenue in 2020 and the

projected revenue in 2021 is the annual

change in payments from shippers to

pilots as a result of the rate change

imposed by this rule. The effect of the

rate change to shippers varies by area

and district. After taking into account

the change in pilotage rates, the rate

changes will lead to affected shippers

operating in District One experiencing

an increase in payments of $1,410,053

over the previous year. District Two and

District Three will experience an

increase in payments of $160,834 and

$493,735, respectively, when compared

with 2020. The overall adjustment in

payments will be an increase in

payments by shippers of $2,064,622

across all three districts (a 7-percent

increase when compared with 2020).

Again, because the Coast Guard reviews

and sets rates for Great Lakes Pilotage

annually, we estimate the impacts as

single-year costs rather than annualizing

them over a 10-year period.

Table 44 shows the difference in

revenue-by-revenue-component from

2020 to 2021 and presents each revenue-

component as a percentage of the total

revenue needed. In both 2020 and 2021,

the largest revenue-component was pilot

compensation (68 percent of total

revenue needed in 2020 and 67 percent

of total revenue needed in 2021),

followed by operating expenses (29

percent of total revenue needed in both

2020 and 2021).

T

ABLE

44—D

IFFERENCE IN

R

EVENUE BY

C

OMPONENT

Revenue-component Revenue

needed in

2020

Percentage of

total revenue

needed in

2020

(percent)

Revenue

needed in

2021

Percentage of

total revenue

needed in

2021

(percent)

Difference

(2021

revenue

¥2020

revenue)

Percentage

change from

previous year

(percent)

Adjusted Operating Expenses .................................................. $8,110,685 29 $8,876,850 29 $766,165 9

Total Target Pilot Compensation .............................................. 19,088,420 68 20,461,950 67 1,373,530 7

Working Capital Fund ............................................................... 1,068,925 4 993,852 3 (75,073) (7)

Total Revenue Needed ............................................................. 28,268,030 100 30,332,652 100 2,064,622 7

Note: Totals may not sum due to rounding.

As stated above, we estimate that

there will be a total increase in revenue

needed by the pilot associations of

$2,064,622. This represents an increase

in revenue needed for target pilot

compensation and adjusted operating

expenses of $1,373,530 and $766,165,

respectively, and a decrease in the

revenue needed for the working capital

fund of $75,073. The removal of legal

fees associated with litigation against

the Coast Guard will reduce the revenue

needed in 2021 by $29,802. This

number includes adjustments made to

the base legal fee amount of $27,594 for

inflation and the working capital fund.

While the shippers will no longer

reimburse the legal fees associated with

litigation via the rate under the rule, the

pilot associations may still be

reimbursed for these expenses by the

Coast Guard under the EAJA.

The majority of the increase in

revenue needed, $1,373,530, is the

result of changes to target pilot

compensation. These changes are due to

three factors: (1) The changes to adjust

2020 pilotage compensation to account

for the difference between actual and

predicted inflation; (2) the net addition

of two additional pilots; and (3)

inflation of pilotage compensation to

adjust target compensation values from

2020 dollars to 2021 dollars.

The target compensation is $378,925

per pilot in 2021, compared to $367,085

in 2020. The changes to modify the 2020

pilot compensation to account for the

difference between predicted and actual

inflation will increase the 2020 target

compensation value by 1.5 percent. As

shown in Table 45, this inflation

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The 2020 projected revenues are from the Great

Lakes Pilotage Rates—2020 Annual Review and Revisions to Methodology final rule (85 FR 20088) Tables 8, 20, and 32. The 2021 projected revenues

are from Tables 9, 21, and 33 of this rule.

adjustment will increase total

compensation by $5,506 per pilot, and the total revenue needed by $297,339,

when accounting for all 54 pilots.

T

ABLE

45—C

HANGE IN

R

EVENUE

R

ESULTING

F

ROM THE

C

HANGE TO

I

NFLATION OF

P

ILOT

C

OMPENSATION

C

ALCULATION

IN

S

TEP

4

2020 Target Compensation ................................................................................................................................................................. $367,085

Adjusted 2020 Compensation ($367,085 × 1.015) ............................................................................................................................. 372,591

Difference between Adjusted Target 2020 Compensation and Target 2020 Compensation ($372,591¥$367,085) ........................ 5,506

Increase in total Revenue for 54 Pilots ($5,506 × 54) ........................................................................................................................ 297,339

The addition of two pilots to full

registered status accounts for $746,837

of the increase in needed revenue. As

shown in Table 46, to avoid double

counting, this value excludes the change

in revenue resulting from the change to

adjust 2020 pilotage compensation to

account for the difference between

actual and predicted inflation.

T

ABLE

46—C

HANGE IN

R

EVENUE

R

ESULTING

F

ROM

A

DDING

T

WO

A

DDITIONAL

P

ILOTS

2021 Target Compensation ................................................................................................................................................................. $378,925

Total Number of New Pilots ................................................................................................................................................................ 2

Total Cost of new Pilots ($378,925 × 2) ............................................................................................................................................. $757,850

Difference between Adjusted Target 2020 Compensation and Target 2020 Compensation ($372,591¥$367,085) ........................ $5,506

Increase in total Revenue for 2 Pilots ($5,506 × 2) ............................................................................................................................ $11,013

Net Increase in total Revenue 2 Pilots ($757,850¥$11,013) ............................................................................................................ $746,837

Finally, the remainder of the increase,

$329,354, is the result of increasing compensation for the other 52 pilots to

account for future inflation of 1.7 percent in 2021. This will increase total

compensation by $6,334 per pilot.

T

ABLE

47— C

HANGE IN

R

EVENUE

R

ESULTING

F

ROM

I

NFLATING

2020 C

OMPENSATION TO

2021

Adjusted 2020 Compensation ............................................................................................................................................................. $372,591

2021 Target Compensation ($372,591 × 1.017) ................................................................................................................................. 378,925

Difference between Target 2020 Compensation and Target 2020 Compensation ($378,925¥$372,591) ....................................... 6,334

Increase in total Revenue for 52 Pilots ($6,334 × 52) ........................................................................................................................ 329,354

Table 48 presents the percentage

change in revenue by area and revenue- component, excluding surcharges, as

they are applied at the district level.

68

T

ABLE

48—D

IFFERENCE IN

R

EVENUE BY

C

OMPONENT AND

A

REA

Area

Adjusted operating expenses Total target pilot compensation Working capital fund Total revenue needed

2020 2021

Percentage

change 2020 2021

Percentage

change 2020 2021

Percentage

change 2020 2021

Percentage

change

District One: Designated $1,573,286 $2,328,981 32% $3,670,850 $3,789,250 3% $206,095 $207,255 1% $5,450,231 $6,325,486 14%

District One: Undesig-

nated .......................... 1,048,857 1,502,239 30% 2,569,595 2,652,475 3% 142,205 140,741 (1%) 3,760,657 4,295,455 12%

District Two: Undesig-

nated .......................... 1,019,371 1,003,961 –2% 2,936,680 3,031,400 3% 155,473 136,698 (14%) 4,111,524 4,172,059 1%

District Two: Designated 1,504,635 1,540,146 2% 2,569,595 2,652,475 3% 160,117 142,025 (13%) 4,234,347 4,334,646 2%

District Three: Undesig-

nated .......................... 2,336,354 1,947,484 –20% 5,873,360 6,820,650 14% 322,642 297,021 (9%) 8,532,356 9,065,155 6%

District Three: Des-

ignated ....................... 628,182 554,039 –13% 1,468,340 1,515,700 3% 82,393 70,112 (18%) 2,178,915 2,139,851 (2%)

Benefits

This rule will allow the Coast Guard

to meet requirements in 46 U.S.C. 9303

to review the rates for pilotage services

on the Great Lakes. The rate changes

will promote safe, efficient, and reliable

pilotage service on the Great Lakes by

(1) ensuring that rates cover an

association’s operating expenses; (2)

providing fair pilot compensation,

adequate training, and sufficient rest

periods for pilots; and (3) ensuring pilot

associations produce enough revenue to

fund future improvements. The rate

changes will also help recruit and retain

pilots, which will ensure a sufficient

number of pilots to meet peak shipping

demand, 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 will have a significant

economic impact on a substantial

number of small entities. The term

‘‘small entities’’ comprises small

businesses, not-for-profit organizations

that are independently owned and

operated and are not dominant in their

fields, and governmental jurisdictions

with populations of less than 50,000.

For this rule, the Coast Guard

reviewed recent company size and

ownership data for the vessels identified

in the GLPMS, and we reviewed

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69

See https://www.manta.com/.

70

See http://resource.referenceusa.com/.

71

See: https://www.sba.gov/document/support--

table-size-standards. SBA has established a ‘‘Table

of Size Standards’’ for small businesses that sets

small business size standards by NAICS code. A

size standard, which is usually stated in number of

employees or average annual receipts (‘‘revenues’’),

represents the largest size that a business (including

its subsidiaries and affiliates) may be in order to

remain classified as a small business for SBA and

Federal contracting programs.

business revenue and size data provided

by publicly available sources such as

Manta

69

and ReferenceUSA.

70

As

described in Section VIII.A of this

preamble, Regulatory Planning and

Review, we found that a total of 474

unique vessels used pilotage services

from 2017 through 2019. These vessels

are owned by 49 entities. We found that

of the 49 entities that own or operate

vessels engaged in trade on the Great

Lakes that will be affected by this rule,

38 are foreign entities that operate

primarily outside the United States, and

the remaining 11 entities are U.S.

entities. We compared the revenue and

employee data found in the company

search to the Small Business

Administration’s (SBA) small business

threshold as defined in the SBA’s

‘‘Table of Size Standards’’ for small

businesses to determine how many of

these companies are considered small

entities.

71

Table 49 shows the North

American Industry Classification

System (NAICS) codes of the U.S.

entities and the small entity standard

size established by the SBA.

T

ABLE

49—NAICS C

ODES AND

S

MALL

E

NTITIES

S

IZE

S

TANDARDS

NAICS Description Small entity size standard

211120 .............. Crude Petroleum Extraction ........................................................................................................... 1,250 employees

237990 .............. Other Heavy and Civil Engineering Construction .......................................................................... $39.5 million

238910 .............. Site Preparation Contractors .......................................................................................................... $16.5 million

483212 .............. Inland Water Passenger Transportation ........................................................................................ 500 employees

487210 .............. Scenic and Sightseeing Transportation, Water ............................................................................. $8.0 million

488330 .............. Navigational Services to Shipping ................................................................................................. $41.5 million

523910 .............. Miscellaneous Intermediation ......................................................................................................... $41.5 million

561599 .............. All Other Travel Arrangement and Reservation Services ............................................................. $22.0 million

982100 .............. National Security ............................................................................................................................ Population of <= 50,000

People

Of the 11 U.S. entities, 8 exceed the

SBA’s small business standards for

small entities. To estimate the potential

impact on the 3 small entities, the Coast

Guard used their 2019 invoice data to

estimate their pilotage costs in 2021. We

increased their 2019 costs to account for

the changes in pilotage rates resulting

from this rule and the Great Lakes

Pilotage Rates—2020 Annual Review

and Revisions to Methodology final rule

(85 FR 20088). We estimated the change

in cost to these entities resulting from

this rule by subtracting their estimated

2020 costs from their estimated 2021

costs, and found the average costs to

small firms will be approximately

$2,146. We then compared the

estimated change in pilotage costs

between 2020 and 2021 with each firm’s

annual revenue. In all cases, their

estimated pilotage expenses were below

1 percent of their annual revenue.

In addition to the owners and

operators discussed above, three U.S.

entities that receive revenue from

pilotage services will be affected by this

rule. These are the three pilot

associations that provide and manage

pilotage services within the Great Lakes

districts. Two of the associations

operate as partnerships, and one

operates as a corporation. These

associations are designated with the

same NAICS code and small-entity size

standards described above, but have

fewer than 500 employees. Combined,

they have approximately 65 employees

in total and, therefore, are designated as

small entities. The Coast Guard expects

no adverse effect on these entities from

this rule because the three pilot

associations will receive enough

revenue to balance the projected

expenses associated with the projected

number of bridge hours (time on task)

and pilots.

Finally, the Coast Guard did not find

any small not-for-profit organizations

that are independently owned and

operated and are not dominant in their

fields that will be impacted by this rule.

We did not find any small governmental

jurisdictions with populations of fewer

than 50,000 people that will be

impacted by this rule. Based on this

analysis, we conclude this rule will not

affect a substantial number of small

entities, nor have a significant economic

impact on any of the affected entities.

Based on our analysis, this rule will

have a less than 1 percent annual

impact on 3 small entities; therefore, the

Coast Guard certifies under 5 U.S.C.

605(b) that this rule will not have a

significant economic impact on a

substantial number of small entities.

C. Assistance for Small Entities

Under section 213(a) of the Small

Business Regulatory Enforcement

Fairness Act of 1996, Public Law 104–

121, we offer to assist small entities in

understanding this rule so that they can

better evaluate its effects on them and

participate in the rulemaking. The Coast

Guard will not retaliate against small

entities that question or complain about

this rule or any policy or action of the

Coast Guard.

Small businesses may send comments

on the actions of Federal employees

who enforce, or otherwise determine

compliance with, Federal regulations to

the Small Business and Agriculture

Regulatory Enforcement Ombudsman

and the Regional Small Business

Regulatory Fairness Boards. The

Ombudsman evaluates these actions

annually and rates each agency’s

responsiveness to small business. If you

wish to comment on actions by

employees of the Coast Guard, call 1–

888–REG–FAIR (1–888–734–3247).

D. Collection of Information

This rule calls for no new collection

of information under the Paperwork

Reduction Act of 1995, 44 U.S.C. 3501–

3520, and will not alter or adjust any

existing collection of information.

E. Federalism

A rule has implications for federalism

under Executive Order 13132

(Federalism) if it has a substantial direct

effect on the States, on the relationship

between the national government and

the States, or on the distribution of

power and responsibilities among the

various levels of government. We have

analyzed this rule under Executive

Order 13132 and have determined that

it is consistent with the fundamental

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72

https://www.dhs.gov/sites/default/files/

publications/DHS_Instruction%20Manual%20023-

01-001-01%20Rev%2001_

508%20Admin%20Rev.pdf.

federalism principles and preemption

requirements as described in Executive

Order 13132. Our analysis follows.

Congress directed the Coast Guard to

establish ‘‘rates and charges for pilotage

services’’. See 46 U.S.C. 9303(f). This

regulation is issued pursuant to that

statute and is preemptive of State law as

specified in 46 U.S.C. 9306. Under 46

U.S.C. 9306, a ‘‘State or political

subdivision of a State may not regulate

or impose any requirement on pilotage

on the Great Lakes.’’ As a result, States

or local governments are expressly

prohibited from regulating within this

category. Therefore, this rule is

consistent with the fundamental

federalism principles and preemption

requirements described in Executive

Order 13132.

While it is well settled that States may

not regulate in categories in which

Congress intended the Coast Guard to be

the sole source of a vessel’s obligations,

the Coast Guard recognizes the key role

that State and local governments may

have in making regulatory

determinations. Additionally, for rules

with implications and preemptive

effect, Executive Order 13132

specifically directs agencies to consult

with State and local governments during

the rulemaking process.

F. Unfunded Mandates

The Unfunded Mandates Reform Act

of 1995, 2 U.S.C. 1531–1538, requires

Federal agencies to assess the effects of

their discretionary regulatory actions. In

particular, the Act addresses actions

that may result in the expenditure by a

State, local, or tribal government, in the

aggregate, or by the private sector of

$100 million (adjusted for inflation) or

more in any one year. Although this rule

will not result in such an 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) and have

determined that it is not a ‘‘significant

energy action’’ under that order because

it is not a ‘‘significant regulatory action’’

under Executive Order 12866 and is not

likely to have a significant adverse effect

on the supply, distribution, or use of

energy.

L. Technical Standards

The National Technology Transfer

and Advancement Act, codified as a

note to 15 U.S.C. 272, directs agencies

to use voluntary consensus standards in

their regulatory activities unless the

agency provides Congress, through

OMB, with an explanation of why using

these standards would be inconsistent

with applicable law or otherwise

impractical. Voluntary consensus

standards are technical standards

(specifications of materials,

performance, design, or operation; test

methods; sampling procedures; and

related management systems practices)

that are developed or adopted by

voluntary consensus standards bodies.

This rule does not use technical

standards. Therefore, we did not

consider the use of voluntary consensus

standards.

M. Environment

We have analyzed this final rule

under Department of Homeland

Security Management Directive 023–01,

Rev. 1 (DHS Directive 023–01),

associated implementing instructions,

and Environmental Planning

COMDTINST 5090.1 (series), which

guide the Coast Guard in complying

with the National Environmental Policy

Act of 1969 1969 (42 U.S.C. 4321–

4370f), and have made a 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 where indicated

under the

ADDRESSES

portion of this

preamble.

This final rule meets the criteria for

categorical exclusion (CATEX) under

paragraphs A3 and L54 of Appendix A,

Table 1 of DHS Instruction Manual 023–

001–01, Rev. 1.

72

Paragraph A3 pertains

to the promulgation of rules, issuance of

rulings or interpretations, and the

development and publication of

policies, orders, directives, notices,

procedures, manuals, advisory circulars,

and other guidance documents of the

following nature: (a) Those of a strictly

administrative or procedural nature; (b)

those that implement, without

substantive change, statutory or

regulatory requirements; or (c) those

that implement, without substantive

change, procedures, manuals, and other

guidance documents; and (d) those that

interpret or amend an existing

regulation without changing its

environmental effect. Paragraph L54

pertains to regulations, which are

editorial or procedural.

This rule involves adjusting the

pilotage rates to account for changes in

district operating expenses, an increase

in the number of pilots, and anticipated

inflation. Additionally, this rule makes

one change to the ratemaking

methodology to account for actual

inflation and excludes certain legal fees

incurred in litigation against the Coast

Guard related to ratemaking and

oversight requirements. All of these

changes are consistent with the Coast

Guard’s maritime safety missions. We

did not receive any comments related to

the environmental impact of this rule.

List of Subjects

46 CFR Part 401

Administrative practice and

procedure, Great Lakes; Navigation

(water), Penalties, Reporting and

recordkeeping requirements, Seamen.

46 CFR Part 404

Great Lakes, Navigation (water),

Seamen.

For the reasons discussed in the

preamble, the Coast Guard amends 46

CFR parts 401 and 404 as follows:

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PART 401—GREAT LAKES PILOTAGE

REGULATIONS

■1. The authority citation for part 401

continues to read as follows:

Authority: 46 U.S.C. 2103, 2104(a), 6101,

7701, 8105, 9303, 9304; Department of

Homeland Security Delegation No.

0170.1(II)(92.a), (92.d), (92.e), (92.f).

■2. Amend § 401.405 by revising

paragraphs (a)(1) through (6) to read as

follows:

§ 401.405 Pilotage Rates and Charges

(a) * * *

(1) The St. Lawrence River is $800;

(2) Lake Ontario is $498;

(3) Lake Erie is $566;

(4) The navigable waters from

Southeast Shoal to Port Huron, MI is

$580;

(5) Lakes Huron, Michigan, and

Superior is $337; and

(6) The St. Marys River is $586.

* * * * *

PART 404—GREAT LAKES PILOTAGE

RATEMAKING

■3. The authority citation for part 404

continues to read as follows:

Authority: 46 U.S.C. 2103, 2104(a), 9303,

9304; Department of Homeland Security

Delegation No. 0170.1(II)(92.a), (92.f).

■4. Amend § 404.2 by adding paragraph

(b)(6) to read as follows:

§ 404.2 Procedure and criteria for

recognizing association expenses.

* * * * *

(b) * * *

(6) Legal Expenses. These association

expenses are recognizable except for any

and all expenses associated with legal

action against the U.S. Coast Guard or

its agents in relation to the ratemaking

and oversight requirements in 46 U.S.C.

9303, 9304 and 9305.

* * * * *

■5. Amend § 404.104 by revising

paragraph (b) to read as follows:

§ 404.104 Ratemaking step 4: Determine

target pilot compensation benchmark.

* * * * *

(b) In an interim year, the Director

adjusts the previous year’s individual

target pilot compensation level by the

Bureau of Labor Statistics’ Employment

Cost Index for the Transportation and

Materials sector, or if that is

unavailable, the Director adjusts the

previous year’s individual target pilot

compensation level using a two-step

process:

(1) First, the Director adjusts the

previous year’s individual target pilot

compensation by the difference between

the previous year’s Bureau of Labor

Statistics’ Employment Cost Index for

the Transportation and Materials sector

and the Federal Open Market

Committee median economic

projections for Personal Consumption

Expenditures inflation value used to

inflate the previous year’s target pilot

compensation.

(2) Second, the Director then adjusts

that value by the Federal Open Market

Committee median economic

projections for Personal Consumption

Expenditures inflation for the upcoming

year.

* * * * *

Dated: March 8, 2021.

R.V. Timme,

Rear Admiral, U.S. Coast Guard, Assistant

Commandant for Prevention Policy.

[FR Doc. 2021–05050 Filed 3–11–21; 8:45 am]

BILLING CODE 9110–04–P

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