[Federal Register Volume 85, Number 208 (Tuesday, October 27, 2020)]
[Proposed Rules]
[Pages 68210-68241]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-23407]
[[Page 68209]]
Vol. 85
Tuesday,
No. 208
October 27, 2020
Part III
Department of Homeland Security
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Coast Guard
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46 CFR Parts 401 and 404
Great Lakes Pilotage Rates--2021 Annual Review and Revisions to
Methodology; Proposed Rules
Federal Register / Vol. 85 , No. 208 / Tuesday, October 27, 2020 /
Proposed Rules
[[Page 68210]]
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DEPARTMENT OF HOMELAND SECURITY
Coast Guard
46 CFR Parts 401 and 404
[USCG-2020-0457]
RIN 1625-AC67
Great Lakes Pilotage Rates--2021 Annual Review and Revisions to
Methodology
AGENCY: Coast Guard, DHS.
ACTION: Notice of proposed rulemaking; request for comments.
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SUMMARY: In accordance with the Great Lakes Pilotage Act of 1960, the
Coast Guard is proposing new base pilotage rates for the 2021 shipping
season. This proposed rule would adjust the pilotage rates to account
for changes in district operating expenses, an increase in the number
of pilots, and anticipated inflation. Additionally, this proposed rule
would make one change to the ratemaking methodology to account for
actual inflation, in step 4, and two policy changes. The first policy
change would be to always round up numbers, as opposed to rounding to
the nearest whole integer, in the staffing model. The second policy
change would be to exclude litigation fees incurred in litigation
against the Coast Guard regarding ratemaking from necessary and
reasonable pilot association operating expenses. The Coast Guard
estimates that this proposed rule would result in a 4-percent net
increase in pilotage costs compared to the 2020 season. Finally, the
Coast Guard is requesting comments on how apprentice pilots (a mariner
with a limited registration) should be compensated in future
rulemakings.
DATES: Comments and related material must be received by the Coast
Guard on or before November 27, 2020.
ADDRESSES: You may submit comments identified by docket number USCG-
2020-0457 using the Federal eRulemaking Portal at https://www.regulations.gov. See the ``Public Participation and Request for
Comments'' portion of the SUPPLEMENTARY INFORMATION section for further
instructions on submitting comments.
FOR FURTHER INFORMATION CONTACT: For information about this document,
call or email Mr. Brian Rogers, Commandant (CG-WWM-2), Coast Guard;
telephone 202-372-1535, email Brian.Rogers@uscg.mil, or fax 202-372-
1914.
SUPPLEMENTARY INFORMATION:
Table of Contents for Preamble
I. Public Participation and Request for Comments
II. Abbreviations
III. Executive Summary
IV. Basis and Purpose
V. Background
VI. Discussion of Proposed Methodological and Other Changes
A. Inflation of Pilot Compensation Calculation in Step 4
B. Changes to Rounding in the Staffing Model
C. Exclusion of Legal Fees Incurred in Lawsuits Against the
Coast Guard Related To Ratemaking and Regulating From Pilots
Associations' Approved Operating Expenses
D. Request for Comments on Changes to Apprentice Pilot
Compensation for Consideration in a Future Rulemaking
VII. Coast Guard's Authority To Remedy Harms From Past Ratemakings
in Response to 2020 D.C. Appellate Court Opinion
A. Coast Guard's Authority To Remedy Harms From Past Ratemakings
B. Does remedying harms from past ratemakings comport with our
statutory mandate?
VIII. Discussion of Proposed Rate Adjustment
District One
A. Step 1: Recognize Previous Operating Expenses
B. Step 2: Project Operating Expenses, Adjusting for Inflation
or Deflation
C. Step 3: Estimate Number of Working Pilots
D. Step 4: Determine Target Pilot Compensation Benchmark
E. Step 5: Project Working Capital Fund
F. Step 6: Project Needed Revenue
G. Step 7: Calculate Initial Base Rates
H. Step 8: Calculate Average Weighting Factors by Area
I. Step 9: Calculate Revised Base Rates
J. Step 10: Review and Finalize Rates
District Two
A. Step 1: Recognize Previous Operating Expenses
B. Step 2: Project Operating Expenses, Adjusting for Inflation
or Deflation
C. Step 3: Estimate Number of Registered Pilots
D. Step 4: Determine Target Pilot Compensation Benchmark
E. Step 5: Project Working Capital Fund
F. Step 6: Project Needed Revenue
G. Step 7: Calculate Initial Base Rates
H. Step 8: Calculate Average Weighting Factors by Area
I. Step 9: Calculate Revised Base Rates
J. Step 10: Review and Finalize Rates
District Three
A. Step 1: Recognize Previous Operating Expenses
B. Step 2: Project Operating Expenses, Adjusting for Inflation
or Deflation
C. Step 3: Estimate Number of Working Pilots
D. Step 4: Determine Target Pilot Compensation Benchmark
E. Step 5: Project Working Capital Fund
F. Step 6: Project Needed Revenue
G. Step 7: Calculate Initial Base Rates
H. Step 8: Calculate Average Weighting Factors by Area
I. Step 9: Calculate Revised Base Rates
J. Step 10: Review and Finalize Rates
IX. Regulatory Analyses
A. Regulatory Planning and Review
B. Small Entities
C. Assistance for Small Entities
D. Collection of Information
E. Federalism
F. Unfunded Mandates
G. Taking of Private Property
H. Civil Justice Reform
I. Protection of Children
J. Indian Tribal Governments
K. Energy Effects
L. Technical Standards
M. Environment
I. Public Participation and Request for Comments
The Coast Guard views public participation as essential to
effective rulemaking, and will consider all comments and material
received during the comment period. Your comment can help shape the
outcome of this rulemaking. If you submit a comment, please include the
docket number for this rulemaking, indicate the specific section of
this document to which each comment applies, and provide a reason for
each suggestion or recommendation.
We encourage you to submit comments through the Federal eRulemaking
Portal at https://www.regulations.gov. If you cannot submit your
material by using https://www.regulations.gov, call or email the person
in the FOR FURTHER INFORMATION CONTACT section of this proposed rule
for alternate instructions. Documents mentioned in this proposed rule,
and all public comments, will be available in our online docket at
https://www.regulations.gov, and can be viewed by following that
website's instructions. Additionally, if you visit the online docket
and sign up for email alerts, you will be notified when comments are
posted or if a final rule is published.
We accept anonymous comments. All comments received will be posted
without change to https://www.regulations.gov and will include any
personal information you have provided. For more about privacy and
submissions in response to this document, see DHS's Correspondence
System of Records notice (84 FR 48645, September 26, 2018).
We do not plan to hold a public meeting, but we will consider doing
so if we determine from public comments that a meeting would be
helpful. We would issue a separate Federal Register notice to announce
the date, time, and location of such a meeting.
II. Abbreviations
AMOU American Maritime Officers Union
[[Page 68211]]
APA American Pilots Association
BLS Bureau of Labor Statistics
CAD Canadian dollars
CFR Code of Federal Regulations
CPA Certified public accountant
CPI Consumer Price Index
DHS Department of Homeland Security
Director U.S. Coast Guard's Director of the Great Lakes Pilotage
EAJA Equal Access to Justice Act
FOMC Federal Open Market Committee
FR Federal Register
GLPA Great Lakes Pilotage Authority (Canadian)
GLPMS Great Lakes Pilotage Management System
NAICS North American Industry Classification System
NPRM Notice of proposed rulemaking
OMB Office of Management and Budget
PCE Personal Consumption Expenditures
Pilots Working pilots
SBA Small Business Administration
Sec. Section
The Act Great Lakes Pilotage Act of 1960
U.S.C. United States Code
III. Executive Summary
Pursuant to the Great Lakes Pilotage Act of 1960 (``the Act''),\1\
the Coast Guard regulates pilotage for oceangoing vessels on the Great
Lakes and St. Lawrence Seaway--including setting the rates for pilotage
services and adjusting them on an annual basis. The rates, which for
the 2020 season range from $337 to $758 per pilot hour (depending on
which of the specific six areas pilotage service is provided), are paid
by shippers to pilot associations. The three pilot associations, which
are the exclusive U.S. source of registered pilots on the Great Lakes,
use this revenue to cover operating expenses, maintain infrastructure,
compensate applicant and registered pilots, acquire and implement
technological advances, train new personnel, and allow partners to
participate in professional development.
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\1\ 46 U.S.C. Chapter 93; Public Law 86-555, 74 Stat. 259, as
amended.
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To compute the rate for pilotage services, we use a ratemaking
methodology that we have developed since 2016, in accordance with our
statutory requirements and regulations. Our ratemaking methodology
calculates the revenue needed for each pilotage association (operating
expenses, compensation for the number of pilots, and anticipated
inflation), and then divides that amount by the expected shipping
traffic over the course of the coming year, to produce an hourly rate.
This process is currently effected through a 10-step methodology, which
is explained in detail in the Summary of Ratemaking Methodology in
section V of the preamble to this notice of proposed rulemaking (NPRM).
As part of our annual review, in this NPRM we are proposing new
pilotage rates for 2021 based on the existing methodology. The result
is a decrease in rates for all areas. These changes are due to a
combination of four factors: (1) A decrease in the amount of money
needed for the working capital fund, (2) adjusting pilot compensation
for inflation, (3) the net addition of three working pilots
(``pilots'') at the beginning of the 2021 shipping season in District
One, and (4) an increase in the average hours of traffic for each area.
This increase in the average hours of traffic resulted in lower hourly
rates despite a net increase in the amount of revenue needed by the
pilot association, because when calculating the base hourly rates the
total revenue needed is divided by the average hours of traffic
annually (see Step 7 of the ratemaking process). The proposed rates for
2021 do not account for the impacts COVID-19 may have on shipping
traffic in the Great Lakes, because we use the most recent 10-years of
complete data in our average traffic calculations. For this proposed
ratemaking, that means the years 2010 through 2019. The rates for 2022
will take into account the impact of COVID-19 on shipping traffic,
because that ratemaking will include 2020 traffic data. The Coast Guard
uses a 10-year average when calculating traffic to smooth out
variations in traffic caused by global economic conditions, such as
those caused by the COVID-19 pandemic.
In addition, the Coast Guard proposes one methodological change to
the way we calculate the inflation of pilot compensation to account for
actual inflation; modifying the way we round the numbers used in the
staffing model (82 Federal Register (FR) at 41466 and table 6 at 41480,
August 31, 2017); and disallowing legal fees used in litigation against
the Coast Guard regarding the ratemaking rulemakings as redeemable
operating expenses. Last, the Coast Guard is requesting comments, for
consideration in a future rulemaking, on whether apprentice pilot
compensation should be calculated by using a percentage of the target
pilot compensation. These proposed changes are discussed in detail in
Section VI of this preamble.
Based on the ratemaking model discussed in this NPRM, we are
proposing the rates shown in table 1.
Table 1--Current and Proposed Pilotage Rates on the Great Lakes
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Final 2020 Proposed 2021
Area Name pilotage rate pilotage rate
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District One: Designated..................... St. Lawrence River............. $758 $757
District One: Undesignated................... Lake Ontario................... 463 428
District Two: Designated..................... Navigable waters from Southeast 618 577
Shoal to Port Huron, MI.
District Two: Undesignated................... Lake Erie...................... 586 566
District Three: Designated................... St. Marys River................ 632 584
District Three: Undesignated................. Lakes Huron, Michigan, and 337 335
Superior.
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This proposed rule would impact 55 U.S. Great Lakes pilots, 3 pilot
associations, and the owners and operators of an average of 279
oceangoing vessels that transit the Great Lakes annually. This proposed
rule is not economically significant under Executive Order 12866 and
would not affect the Coast Guard's budget or increase Federal spending.
The estimated overall annual regulatory economic impact of this rate
change is a net increase of $1,059,966 in estimated payments made by
shippers during the 2020 shipping season. Because the Coast Guard must
review, and, if necessary, adjust rates each year, we analyze these as
single-year costs and do not annualize them over 10 years. Section IX
of this preamble provides the regulatory impact analyses of this
proposed rule.
[[Page 68212]]
IV. Basis and Purpose
The legal basis of this rulemaking is the Great Lakes Pilotage Act
of 1960 (``the Act''),\2\ which requires foreign merchant vessels and
U.S. vessels operating ``on register,'' meaning U.S. vessels engaged in
foreign trade, to use U.S. or Canadian pilots while transiting the U.S.
waters of the St. Lawrence Seaway and the Great Lakes system.\3\ For
U.S. Great Lakes pilots, the Act requires the Secretary to ``prescribe
by regulation rates and charges for pilotage services, giving
consideration to the public interest and the costs of providing the
services.'' \4\ The Act requires that rates be established or reviewed
and adjusted each year, not later than March 1.\5\ The Act also
requires that base rates be established by a full ratemaking at least
once every 5 years, and, in years when base rates are not established,
they must be reviewed and, if necessary, adjusted.\6\ The Secretary's
duties and authority under the Act have been delegated to the Coast
Guard.\7\
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\2\ 46 U.S.C. Chapter 93; Public Law 86-555, 74 Stat. 259, as
amended.
\3\ 46 U.S.C. 9302(a)(1).
\4\ 46 U.S.C. 9303(f).
\5\ Id.
\6\ Id.
\7\ Department of Homeland Security (DHS) Delegation No. 0170.1,
para. II (92.f).
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The purpose of this NPRM is to propose new pilotage rates for the
2021 shipping season. The Coast Guard believes that the new rates would
continue to promote pilot retention, ensure safe, efficient, and
reliable pilotage services in order to facilitate maritime commerce
throughout the Great Lakes and Saint Lawrence River System, and provide
adequate funds to upgrade and maintain infrastructure.
V. Background
Pursuant to the Act, the Coast Guard, in conjunction with the
Canadian Great Lakes Pilotage Authority (GLPA), regulates shipping
practices and rates on the Great Lakes. Under Coast Guard regulations,
all vessels engaged in foreign trade (often referred to as ``salties'')
are required to engage U.S. or Canadian pilots during their transit
through the regulated waters.\8\ U.S. and Canadian ``lakers,'' which
account for most commercial shipping on the Great Lakes, are not
affected.\9\ Generally, vessels are assigned a U.S. or Canadian pilot
depending on the order in which they transit a particular area of the
Great Lakes and do not choose the pilot they receive. If a vessel is
assigned a U.S. pilot, that pilot will be assigned by the pilotage
association responsible for the particular district in which the vessel
is operating, and the vessel operator will pay the pilotage association
for the pilotage services. The Canadian GLPA establishes the rates for
Canadian working pilots.
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\8\ See 46 CFR part 401.
\9\ 46 U.S.C. 9302(f). A ``laker'' is a commercial cargo vessel
especially designed for and generally limited to use on the Great
Lakes.
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The U.S. waters of the Great Lakes and the St. Lawrence Seaway are
divided into three pilotage districts. Pilotage in each district is
provided by an association certified by the Coast Guard's Director of
the Great Lakes Pilotage (``the Director'') to operate a pilotage pool.
The Saint Lawrence Seaway Pilotage Association provides pilotage
services in District One, which includes all U.S. waters of the St.
Lawrence River and Lake Ontario. The Lakes Pilotage Association
provides pilotage services in District Two, which includes all U.S.
waters of Lake Erie, the Detroit River, Lake St. Clair, and the St.
Clair River. Finally, the Western Great Lakes Pilotage Association
provides pilotage services in District Three, which includes all U.S.
waters of the St. Marys River; Sault Ste. Marie Locks; and Lakes Huron,
Michigan, and Superior.
Each pilotage district is further divided into ``designated'' and
``undesignated'' areas, which is depicted in table 2 below. Designated
areas, classified as such by Presidential Proclamation, are waters in
which pilots must, at all times, be fully engaged in the navigation of
vessels in their charge.\10\ Undesignated areas, on the other hand, are
open bodies of water not subject to the same pilotage requirements.
While working in undesignated areas, pilots must ``be on board and
available to direct the navigation of the vessel at the discretion of
and subject to the customary authority of the master.'' \11\ For these
reasons, pilotage rates in designated areas can be significantly higher
than those in undesignated areas.
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\10\ Presidential Proclamation 3385, Designation of restricted
waters under the Great Lakes Pilotage Act of 1960, December 22,
1960.
\11\ 46 U.S.C. 9302(a)(1)(B).
Table 2--Areas of the Great Lakes and St. Lawrence Seaway
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District Pilotage association Designation Area No.\12\ Area name \13\
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One................. Saint Lawrence Seaway Designated.................. 1 St. Lawrence River.
Pilotage Association. Undesignated................ 2 Lake Ontario.
Two................. Lake Pilotage Designated.................. 5 Navigable waters from
Association. Undesignated................ 4 Southeast Shoal to
Port Huron, MI.
Lake Erie.
Three............... Western Great Lakes Designated.................. 7 St. Marys River.
Pilotage Association.
Undesignated................ 6 Lakes Huron and
Michigan.
Undesignated................ 8 Lake Superior.
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Each pilot association is an independent business and is the sole
provider of pilotage services in the district in which it operates.
Each pilot association is responsible for funding its own operating
expenses, maintaining infrastructure, compensating pilots and applicant
pilots, acquiring and implementing technological advances, and training
personnel and partners. The Coast Guard developed a 10-step ratemaking
methodology to derive a pilotage rate, based on the estimated amount of
traffic, which covers these expenses. The methodology is designed to
measure how much revenue each pilotage association would need to cover
expenses and provide competitive compensation goals to working pilots.
We then divide that amount by the historic 10-year average for pilotage
demand. We recognize that in years where traffic is above average,
pilot associations will accrue more revenue than projected, while in
years where traffic is below average, they will take in less. We
believe that over the long term, however, this system ensures that
infrastructure would be maintained and that pilots will receive
adequate
[[Page 68213]]
compensation and work a reasonable number of hours, with adequate rest
between assignments, to ensure retention of highly trained personnel.
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\12\ Area 3 is the Welland Canal, which is serviced exclusively
by the Canadian GLPA and, accordingly, is not included in the U.S.
pilotage rate structure.
\13\ The areas are listed by name at 46 CFR 401.405.
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Over the past 4 years, the Coast Guard has made adjustments to the
Great Lakes pilotage ratemaking methodology. In 2016, we made
significant changes to the methodology, moving to an hourly billing
rate for pilotage services and changing the compensation benchmark to a
more transparent model. In 2017, we added additional steps to the
ratemaking methodology, including new steps that accurately account for
the additional revenue produced by the application of weighting factors
(discussed in detail in Steps 7 through 9 for each district, in Section
VIII of this preamble). In 2018, we revised the methodology by which we
develop the compensation benchmark, based upon U.S. mariners rather
than Canadian working pilots. The current methodology, which was
finalized in the Great Lakes Pilotage Rates-2020 Annual Review and
Revisions to Methodology final rule (85 FR 20088), published April 9,
2020, is designed to accurately capture all of the costs and revenues
associated with Great Lakes pilotage requirements and produce an hourly
rate that adequately and accurately compensates pilots and covers
expenses. The current methodology is summarized in the section below.
Summary of Ratemaking Methodology
As stated above, the ratemaking methodology, outlined in 46 CFR
404.101 through 404.110, consists of 10 steps that are designed to
account for the revenues needed and total traffic expected in each
district. The result is an hourly rate, determined separately for each
of the areas administered by the Coast Guard.
In Step 1, ``Recognize previous operating expenses,'' (Sec.
404.101) the Director reviews audited operating expenses from each of
the three pilotage associations. Operating expenses include all
allowable expenses minus wages and benefits. This number forms the
baseline amount that each association is budgeted. Because of the time
delay between when the association submits raw numbers and the Coast
Guard receives audited numbers, this number is 3 years behind the
projected year of expenses. So, in calculating the 2021 rates in this
proposal, we begin with the audited expenses from the 2018 shipping
season.
While each pilotage association operates in an entire district, the
Coast Guard tries to determine costs by area. Thus, with regard to
operating expenses, we allocate certain operating expenses to
designated areas, and certain operating expenses to undesignated areas.
In some cases, we can allocate the costs based on where they are
actually accrued. For example, we can allocate the costs for insurance
for applicant pilots who operate in undesignated areas only. In other
situations, such as general legal expenses, expenses are distributed
between designated and undesignated waters on a pro rata basis, based
upon the proportion of income forecasted from the respective portions
of the district.
In Step 2, ``Project operating expenses, adjusting for inflation or
deflation,'' (Sec. 404.102) the Director develops the 2020 projected
operating expenses. To do this, we apply inflation adjustors for 3
years to the operating expense baseline received in Step 1. The
inflation factors are from the Bureau of Labor Statistics' (BLS)
Consumer Price Index (CPI) for the Midwest Region, or, if not
available, the Federal Open Market Committee (FOMC) median economic
projections for Personal Consumption Expenditures (PCE) inflation. This
step produces the total operating expenses for each area and district.
In Step 3, ``Estimate number of working pilots,'' (Sec. 404.103)
the Director calculates how many pilots are needed for each district.
To do this, we employ a ``staffing model,'' described in Sec. 401.220,
paragraphs (a)(1) through (a)(3), to estimate how many pilots would be
needed to handle shipping during the beginning and close of the season.
This number is helpful in providing guidance to the Director in
approving an appropriate number of credentials for pilots.
For the purpose of the ratemaking calculation, we determine the
number of pilots provided by the pilotage associations (see Sec.
404.103), which is what we use to determine how many pilots need to be
compensated via the pilotage fees collected.
In the first part of Step 4, ``Determine target pilot compensation
benchmark,'' (Sec. 404.104) the Director determines the revenue needed
for pilot compensation in each area and district. For the 2020
ratemaking, the Coast Guard updated the benchmark compensation model in
accordance with Sec. 404.104(b), switching from using the American
Maritime Officers Union (AMOU) 2015 aggregated wage and benefit
information, to the 2019 compensation benchmark. Based on our
experience over the past two ratemakings, the Coast Guard has
determined that the level of target pilot compensation for those years
provides an appropriate level of compensation for American Great Lakes
pilots. The Coast Guard, therefore, will not, at this time, seek
alternative benchmarks for target compensation for future ratemakings
and will instead simply adjust the amount of target pilot compensation
for inflation. This benchmark has advanced the Coast Guard's goals of
safety through rate and compensation stability while also promoting
recruitment and retention of qualified U.S. pilots.
In order to further this goal, for the 2021 ratemaking, the Coast
Guard is proposing to change the way inflation is calculated in this
step to account for actual inflation instead of predicted inflation.
See the Discussion of Proposed Methodological and Other Changes at
section VI of this preamble for a detailed description of the changes
proposed.
In the second part of Step 4, set forth in Sec. 404.104(c), the
Director determines the total compensation figure for each district. To
do this, the Director multiplies the compensation benchmark by the
number of pilots for each area and District (from Step 3), producing a
figure for total pilot compensation.
In Step 5, ``Project working capital fund,'' (Sec. 404.105) the
Director calculates a value that is added to pay for needed capital
improvements and other non-recurring expenses, such as technology
investments and infrastructure maintenance. This value is calculated by
adding the total operating expenses (derived in Step 2) to the total
pilot compensation (derived in Step 4), and multiplying that figure by
the preceding year's average annual rate of return for new issues of
high-grade corporate securities. This figure constitutes the ``working
capital fund'' for each area and district.
In Step 6, ``Project needed revenue,'' (Sec. 404.106) the Director
simply adds up the totals produced by the preceding steps. The
projected operating expense for each area and district (from Step 2) is
added to the total pilot compensation (from Step 4) and the working
capital fund contribution (from Step 5). The total figure, calculated
separately for each area and district, is the ``needed revenue.''
In Step 7, ``Calculate initial base rates,'' (Sec. 404.107) the
Director calculates an hourly pilotage rate to cover the needed revenue
as calculated in Step 6. This step consists of first calculating the
10-year hours of traffic average for each area. Next, the revenue
needed in each area (calculated in Step 6) is divided by the 10-year
hours of traffic average to produce an initial base rate.
[[Page 68214]]
An additional element, the ``weighting factor,'' is required under
Sec. 401.400. Pursuant to that section, ships pay a multiple of the
``base rate'' as calculated in Step 7 by a number ranging from 1.0 (for
the smallest ships, or ``Class I'' vessels) to 1.45 (for the largest
ships, or ``Class IV'' vessels). As this significantly increases the
revenue collected, we need to account for the added revenue produced by
the weighting factors to ensure that shippers are not overpaying for
pilotage services. We do this in the next step.
In Step 8, ``Calculate average weighting factors by area,'' (Sec.
404.108) the Director calculates how much extra revenue, as a
percentage of total revenue, has historically been produced by the
weighting factors in each area. We do this by using a historical
average of the applied weighting factors for each year since 2014 (the
first year the current weighting factors were applied).
In Step 9, ``Calculate revised base rates,'' (Sec. 404.109) the
Director modifies the base rates by accounting for the extra revenue
generated by the weighting factors. We do this by dividing the initial
pilotage rate for each area (from Step 7) by the corresponding average
weighting factor (from Step 8), to produce a revised rate.
In Step 10, ``Review and finalize rates,'' (Sec. 404.110) often
referred to informally as ``Director's discretion,'' the Director
reviews the revised base rates (from Step 9) to ensure that they meet
the goals set forth in the Act and 46 CFR 404.1(a), which include
promoting efficient, safe, and reliable pilotage service on the Great
Lakes; generating sufficient revenue for each pilotage association to
reimburse necessary and reasonable operating expenses; compensating
trained and rested pilots fairly; and providing appropriate profit for
improvements.
After the base rates are set, Sec. 401.401 permits the Coast Guard
to apply surcharges. As stated in the 2020 rulemaking, as the vast
majority of working pilots are not anticipated to reach the regulatory
required retirement age of 70 in the next 20 years, we continue to
believe that the pilot associations are now able to plan for the costs
associated with retirements without relying on the Coast Guard to
impose surcharges.
VI. Discussion of Proposed Methodological and Other Changes
For 2021, the Coast Guard is proposing one methodological change to
the ratemaking model and two policy changes. The proposed changes,
discussed in detail below, include changes to how we calculate
inflation of pilot compensation in step 4, how we round numbers in the
staffing model, and the proposed exclusion of legal expenses associated
with lawsuits against the Coast Guard's ratemaking rulemakings from
operating expenses. For consideration in a future rulemaking, we are
also requesting comments on how to calculate compensation for
apprentice pilots.
A. Inflation of Pilot Compensation Calculation in Step 4
Based on public comments received on the 2020 proposed rule, the
Coast Guard is proposing to change the inflation calculation in Step 4
of the ratemaking. This step discusses the use of the Federal Reserve's
projected PCE data, as opposed to using historic BLS ECI data.
Currently in Step 4, we adjust the existing target pilot compensation
to account for inflation, following the procedures outlined in Sec.
404.104(b), which require that PCE data only be used when ECI data is
not available. In each year's ratemaking, the Coast Guard projects
future values that requires forecasted inflation data. The BLS ECI only
provides historic data; consequently we use PCE data, in accordance
with Sec. 404.104(b), as the PCE provides estimates of future
inflation. The forecasted PCE inflation data is generated by the
Federal Reserve. The Federal Reserve is responsible for setting
monetary policy in the United States, which in turn influences
inflation. The Federal Reserve bases these estimates on predictions of
economic growth, the unemployment rate, other economic data, and the
future policy path the Federal Reserve expects to take to meet its
goals of maximizing employment and setting stable prices. The PCE is a
reflection of the government's best prediction of what will happen, and
the Coast Guard will continue to use it as our predicted inflation
value in Step 4 of the ratemaking.
However, as the Coast Guard updates the previous year's target
compensation value for inflation in each ratemaking, any differences
between the predicted inflation rate and the actual inflation rate will
be compounded with each ratemaking, if the predicted PCE value is
continually higher or lower than actual inflation. Therefore, for this
ratemaking, the Coast Guard is proposing to modify the way inflation is
calculated in Step 4 of the ratemaking to account for the difference
between the predicted inflation and actual inflation.
In this NPRM, the Coast Guard is proposing that the previous year's
target compensation value would first be adjusted by the difference
between predicted PCE inflation value and actual ECI inflation value,
to ensure the target compensation value accounts for actual inflation.
We would then multiply this adjusted target compensation value by the
predicted future inflation value from the PCE to account for future
inflation.
For 2020, the actual ECI inflation is 3.4 percent, which is 1.4
percent greater than the predicted PCE inflation of 2 percent.
Therefore, this proposed use of the difference between predicted PCE
inflation rates and historic ECI inflation data to account for actual
inflation in Sec. 401.104(b) would result in a 1.4 percent increase
for the 2021 pilotage fees versus continuing to use the predicted PCE
inflation value. In some years, however, it is possible that the actual
ECI inflation will be lower than the predicted PCE inflation, resulting
in a decrease for the pilotage fees.
B. Changes to Rounding in the Staffing Model
The first policy change is to how we round numbers in the staffing
model in 46 CFR 401.220(a)(2). This proposed rule would amend the text
to always round up in the staffing model, instead of rounding to the
nearest whole integer. We are proposing this change in response to
three comments we received on the proposed rule, ``Great Lakes Pilotage
Rates--2020 Annual Review and Revisions to Methodology'' (84 FR 58099,
Oct. 30, 2019), which are posted within docket number USCG-2019-0736.
The St. Lawrence Seaway Pilot's Association asserted that the
regulatory burden on the three pilotage associations has increased
substantially. The commenter suggested that rounding in the staffing
model does not account for the administrative time and effort required
of the three associations' Presidents and therefore one additional
pilot per district is necessary to cover the President's pilotage
duties. Lakes Pilots Association, Inc. also stated that the staffing
model should include an additional pilot in the rate for administrative
work of the president and committee members. Another commenter, on
behalf of all pilots within the three pilot associations, made similar
assertions that the pilot associations' presidents are spending more
time at meetings, conferences, traveling, and facilitating
communication between the pilots and Coast Guard. They requested that
we authorize an administrative position for each district to account
for these increased duties and prevent delays in responsiveness to the
Coast Guard. We rejected the proposal to add an ``administrative
pilot'' because this is
[[Page 68215]]
not consistent with industry standards. According to our discussions
with the American Pilots Association (APA), aside from the largest
pilot groups, many state and local groups recognize that the pool
president continues to work as a pilot. However, due to the
presidential duties, the president is expected to spend less time
engaged in piloting vessels.
Rounding up in the staffing model would account for extra staff or
extra time spent by the pilot associations' presidents, including
attending meetings and conferences, providing additional financial and
traffic information to increase transparency and accountability,
overseeing and ensuring the integrity of the association training
program, evaluating technology, and coordinating with the APA to
implement and share best practices. Rounding up in the staff model is
also consistent with industry standards, as is it not possible to have
a portion of a person. Therefore, if the staffing model requires 8.1
pilots for an area, 9 pilots are actually needed. In addition, we
currently estimate how many pilots each district needs for the upcoming
year without taking into account the administrative work that takes the
president of each association away from their role as a Great Lakes
pilot. We believe rounding up is prudent with regard to maritime safety
to help ensure enough pilots are allocated to each district to cover
the extra hours the association's president spends engaged in the non-
pilot tasks and administrative work discussed above. In sum, rounding
down in the staffing model could result in too few pilots allocated to
a district which, when coupled with the president's spending less time
serving as pilot, may adversely impact recuperative rest goals for
working pilots that are essential for safe navigation.
The Coast Guard agrees that, where the pilot associations'
presidents are spending an increased amount of their time on
administrative issues, the staffing model should account for that time
and allow for additional staff to assist. In light of the information
presented by the pilot association's comments, the Coast Guard is
proposing to always round up the final number, rather than round to the
nearest integer when determining the maximum number of pilots in the
staffing model. For the 2021 ratemaking, this proposed change to the
rounding in the staffing model would allow each association one
additional pilot that would not have otherwise been allowed.
C. Exclusion of Legal Fees Incurred in Lawsuits Against the Coast Guard
Related To Ratemaking and Regulating From Pilots Associations' Approved
Operating Expenses
This is the second policy change. The Coast Guard is proposing to
exclude legal fees incurred in litigation against the Coast Guard in
relation to the ratemaking and oversight requirements in Title 46 of
the United States Code (U.S.C.) at sections 9303, 9304, and 9305 from
approved pilot associations' operating expenses used in the calculation
of pilotage rates. We believe causing the shippers to pay for the
pilots' litigation expenses against the Coast Guard's annual ratemaking
is an undue burden, because the shippers are not responsible for the
ratemaking and the pilots can be reimbursed through other means.
The Coast Guard acknowledges that many legal fees are appropriately
included in the operating expenses of the pilot associations, and that
excluding legal fees incurred in lawsuits against the Coast Guard
related to ratemaking is a departure from our past policies. The
regulations will still provide for the inclusion of the legal fees
needed for the pilots to run their businesses, defend their licenses,
and to protect their interests when the shippers litigate. To clarify,
pilot associations who intervene as defendants alongside the Coast
Guard in a shipper-initiated lawsuit related to the ratemaking would be
able to continue to include those legal fees in their operating
expenses, because they are not incurred in a lawsuit against the Coast
Guard. As the U.S. District Court recently noted, ``each year, it
seems, either the shipping companies or the associations that supply
the pilots sue the Coast Guard to challenge aspects of the rulemaking.
The shippers perennially complain that the rates are too high, while
the pilots gripe that they are too low.'' \14\ The pilots have an
incentive to sue the Coast Guard annually on the ratemaking, regardless
of the outcome of the case, because the costs associated with the
lawsuit will inflate the pilot's associations operating expenses, and,
in turn, increase their annual rates. Regardless of outcome, those
legal fees go into the calculations that, ultimately, the shipper pays.
From the shippers' perspective, shippers are generally paying legal
fees for pilots to try and obtain higher fees from the shippers.
---------------------------------------------------------------------------
\14\ Am. Great Lake Ports Ass'n v. Coast Guard, 443 F. Supp. 3d
44, 47 (D.D.C. Mar. 10, 2020).
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The Coast Guard is proposing to remove this expense from the
ratemaking calculation, noting that under the Equal Access to Justice
Act (EAJA), 28 U.S.C. 2412, the Coast Guard can reimburse pilots if
they prevail on the merits. This more equitable solution places the
burden of paying legal fees on the Coast Guard when the pilots prevail
in such litigation. Excluding legal fees incurred by suing the Coast
Guard from the operating expenses on the annual ratemaking is a change
consistent with giving consideration to the public interest and the
costs of providing the services, as the pilots would be eligible for
reimbursement from the Coast Guard if their challenge prevails.
Additionally, shippers become a party in interest when the pilots
sue the Coast Guard. In some cases, shipping companies have intervened
as defendants in legal challenges to the ratemakings. Under the present
scheme, pilots are reimbursed for their legal expenses when they sue
the Coast Guard, irrespective of whether they win or lose. But it is
not the Government that bears the expense--shippers pay the pilots'
legal expenses, in the form of higher pilotage rates, when those legal
expenses are included in the operating expenses.
The general proposition in the American system of jurisprudence is
that litigants bears their own expenses for the litigation. ``In the
United States, the prevailing litigant is ordinarily not entitled to
collect a reasonable attorneys' fee from the loser.'' \15\ Under this
jurisprudence, the shippers, as a party in interest, should not
continue to bear the legal expenses each time the pilots sue the Coast
Guard in relation to the ratemaking and regulation, because the
shippers are not responsible for the ratemaking and regulatory
function.
---------------------------------------------------------------------------
\15\ Alyeska Pipeline Service Co. v. Wilderness Soc'y, 421 U.S.
240, 247 (1975).
---------------------------------------------------------------------------
The pilots have alternative remedies to recoup their legal fees in
lawsuits against the Coast Guard related to the ratemaking and
oversight requirements. Under the EAJA, a prevailing party in a suit
where the government agency is an opposing party can apply for its
legal fees under certain conditions. To be considered a prevailing
party entitled to an award of attorney fees under the EAJA, it is
sufficient if the claimant prevails on an important matter that
directly benefits them, but they need not prevail on all issues.\16\
One D.C. Circuit
[[Page 68216]]
Court of Appeals opinion, Select Milk Producers, Inc. v. Johanns,
affirmed that plaintiffs were prevailing parties entitled to attorney
fees under the EAJA even where the plaintiff secured a preliminary
injunction but a subsequent change in regulation rendered the case
moot.\17\ Plaintiffs can also become a prevailing party if they enter a
favorable settlement agreement under a court's consent decree.\18\ If
the prevailing party is awarded legal fees, the government agency, in
this case the Coast Guard, pays those fees. Similarly, if a case
involving the Coast Guard settles, attorney fees can be included as a
term of the settlement.
---------------------------------------------------------------------------
\16\ Ctr. for Food Safety v. Burwell, 126 F. Supp. 3d 114, 120
(D.D.C. 2015) (citing Tex. State Teachers Ass'n v. Garland Indep.
Sch. Dist., 489 U.S. 782, 790 (1989) (``At the same time, however, a
plaintiff need not prevail on the ``central issue'' in the
litigation to be a prevailing party under the EAJA; it is sufficient
for a party to prevail on an ``important matter'' in the course of
litigation, even when that party ``does not prevail on all issues.'
'').
\17\ 400 F. 3d 939, 195 (D.C. Cir. 2005).
\18\ Buckhannon Bd. & Care Home Inc. v. W. Va. Dep't of Health
and Human Res., 532 U.S. 598, 604 (2001).
---------------------------------------------------------------------------
Excluding these legal fees from operating expenses in the
ratemaking and regulatory function is consistent with ``giving
consideration to the public interest and the costs of providing the
services,'' \19\ as it would place the burden of paying the legal fees
on the Coast Guard as the regulatory agency, rather than the shipping
companies that pay for pilotage services. The Coast Guard finds that
continuing to allow these legal expenses to be included in the
operating expenses is not necessary for the costs of providing
services, because the legal fees incurred by the pilot associations are
eligible for reimbursement through settlement negotiations or through
the EAJA, when the pilots prevail on the merits. For these reasons, we
do not believe that excluding these narrowly defined legal expenses
from operating expenses when the pilots sue the Coast Guard will have a
deleterious effect on the safe, efficient operation of pilots or
otherwise militate against the public interest in the regulation of
pilotage services.
---------------------------------------------------------------------------
\19\ 46 U.S.C. 9303(f).
---------------------------------------------------------------------------
As such, we believe that repositioning the financial responsibility
for legal fees on the proper entity by removing them from pilots'
operating expenses is an equitable resolution that comports with our
statutory mandate to give consideration to both the public interest and
the costs of providing the services.
Our process to exclude the legal fees in our annual ratemaking
would be as follows. First, the unreimbursed pilot associations' legal
fees incurred in litigation against the Coast Guard would be identified
as an individual line item in the operating expenses. Second, we would
remove the same amount by way of a Director's adjustment in a later
step. If the pilot association is not reimbursed at all by the EAJA or
other settlement means, then the full unreimbursed cost of legal fees
for that year would be listed as an operating expense, and then the
same dollar amount would be excluded by a Director's adjustment. Where
a pilot association's legal fees are reimbursed fully or partially by
way of the EAJA or settlement, then the operating expense amount would
be reduced to represent only the unreimbursed dollar amount, and that
same dollar amount would be excluded by a Director's adjustment. Only
the outstanding cost of legal fees incurred in litigation against the
Coast Guard related to ratemaking and oversight would be listed,
representing the true cost to the association. Listing the dollar
amount of unreimbursed legal expenses and removing it from the
operating expenses would provide transparency to the pilot associations
of the exact amount of legal fees excluded by this proposed change.
D. Request for Comments on Changes to Apprentice Pilot Compensation for
Consideration in a Future Rulemaking
For consideration in a future ratemaking, we are requesting
comments on how we calculate compensation for apprentice pilots and
pilots with a limited registration. We are requesting comments on
setting the reimbursable cost associated with apprentice pilot salaries
at a set amount based on a percentage of the previous year's target
pilot compensation. This reimbursable cost would be included in the
approved operating expenses for pilotage associations.
Apprentice pilot salaries are currently based on a Director's
adjustment made in the 2019 rulemaking, which adjusted these salaries
to approximately 36 percent of target pilot compensation. The Coast
Guard is requesting comments on setting all future apprentice pilot
salaries at a rate equivalent to 36 percent of target pilot
compensation. This would align the compensation practices for
apprentice pilots across all three districts. The Coast Guard believes
setting this benchmark for apprentice pilot salaries would help recruit
highly qualified mariners to join and remain with the pilot
associations by providing apprentice pilots with the ability to earn an
equitable income during the training process, which can last from 6 to
48 months. This could also ensure that the pilot associations have
sufficient personnel to continue providing service, despite retirements
and unscheduled turn-over.
We would like to hear any comments, suggestions, or questions you
have pertaining to the Coast Guard's proposed recommendation to set
future apprentice pilot salaries at an amount equivalent to 36 percent
of the target pilot compensation. If you disagree with this proposed
percentage, please address your concerns and provide a substitute
amount or percentage along with your rationale supporting the proposed
substitution. If you agree with the proposed percentage for different
reasons than the Coast Guard noted above, please explain your rationale
and reasoning.
VII. Coast Guard's Authority To Remedy Harms From Past Ratemakings in
Response to 2020 D.C. Appellate Court Opinion
In American Great Lakes Ports Association, et al., v. Shultz, the
U.S. Court of Appeals for the District of Columbia Circuit affirmed the
District Court's decision with regard to the remedy in the challenge to
the 2016 pilotage rates.\20\ The D.C. Circuit agreed that the District
Court properly decided not to vacate the 2016 rates, noting the
``numerous disruptive consequences that would follow from vacating the
2016 Rule.'' \21\ The D.C. Circuit Court further affirmed that the
precise amount of any funds that would be needed to recoup and
redistribute funds was unknown, since there would be no operative 2016
rate.\22\ Finally, the Circuit Court urged the Coast Guard, in this
annual rate review, to ``consider if it has the statutory authority to
remedy the harms from the 2016 Rule and if doing so would comport with
its mandate to consider `the public interest and the costs of providing
services' 46 U.S.C. 9303(f).'' \23\
---------------------------------------------------------------------------
\20\ Am. Great Lakes Ports Ass'n. v. Shultz, 962 F. 3d 510 (D.C.
Cir. June 16, 2020).
\21\ Id. at 519-520.
\22\ Id. at 516.
\23\ Am. Great Lakes Ports Ass'n. v. Shultz, 962 F. 3d at 520.
---------------------------------------------------------------------------
A. Coast Guard's Authority To Remedy Harms From Past Ratemakings
First, the Coast Guard's longstanding position is that it has no
statutory authority to retroactively recalculate rates. The District
Court, in American Great Lakes Ports Assoc. v. Zukunft, confirmed that
no such statutory authority existed.\24\ Therefore, the question is
whether the Act authorizes discretionary prospective rate adjustments
to correct for or offset in part a past error. The relevant authority
in Sec. 9303(f) states ``[t]he Secretary shall prescribe by regulation
rates and charges for pilotage services, giving consideration to the
public interest and
[[Page 68217]]
the costs of providing the services. The Secretary shall establish new
pilotage rates by March 1 of each year.'' \25\ While the statute does
not allow the Coast Guard to retroactively re-calculate rates, based on
the broad grant of authority in the statute, the Coast Guard believes
that the statute grants the Coast Guard discretion to consider the
impact of past rates in setting annual rates that are just and
reasonable to ensure the public safety and reliability of the pilotage
services while also covering the allowable and reasonable costs of
those services.
---------------------------------------------------------------------------
\24\ Am. Great Lakes Ports Ass'n v. Zukunft, 301 F. Supp. 3d 99,
104 (D.D.C. Mar. 13, 2018).
\25\ See 46 U.S.C. 9303(f). This authority has been delegated to
the Coast Guard through DHS Delegation No. 0170.1, para. II (92.f).
---------------------------------------------------------------------------
Within the existing methodology, the Coast Guard includes an
allowance for the discretionary adjustment of rates. In Step 10,
``Review and finalize rates,'' (Sec. 404.110), often referred to
informally as Director's discretion, the Director of the Great Lakes
Pilotage reviews the revised base rates (from Step 9) to ensure that
they meet the goals set forth in the Act and in 46 CFR 404.1(a), which
include promoting efficient, safe, and reliable pilotage service on the
Great Lakes; generating sufficient revenue for each pilotage
association to reimburse necessary and reasonable operating expenses;
compensating trained and rested pilots fairly; and providing
appropriate capital for improvements.
The Coast Guard has yet to exercise this discretion under the 2016
methodology, and generally believes that its discretion is properly
limited to circumstances of clear error or mistake resulting in an
unjust rate or extraordinary circumstances. The annual ratemaking
ensures that the consequences of any error is limited in time. The 2016
methodology, as currently implemented, has survived legal challenge and
is producing stable rates based on, among other factors, an ever-
increasing amount of historical data.
The consideration of the impact of past rates includes the
consequences of any identified errors. The Coast Guard clarifies that
its longstanding policy against calculating retroactive rates does not
prevent its estimation of correcting for past rates when reliable
information for doing so is available, and it is in the public interest
and provides for the cost of services. In considering whether to
exercise our discretion to adjust current rates for issues in past
rates, the Coast Guard takes a retrospective look for extraordinary
circumstances associated with past rates that the Coast Guard concludes
were both unjust and unreasonable.
B. Does remedying harms from past ratemakings comport with our
statutory mandate?
Next, the Coast Guard will consider whether remedying any portion
of the identified harms from the 2016 ratemaking final rule in this
ratemaking is appropriate. More specifically, the Coast Guard will
consider whether a prospective rate adjustment aligns with our mandate
to consider the public interest and the costs of providing services per
46 U.S.C. 9303(f). Consistent with its longstanding position; \26\ that
is, that adjusting rates annually to correct for past events will tend
to result in greater swings in the rate from year to year, as the rates
constantly seek to correct for possible miscalculations used in past
ratemakings, the Coast Guard is generally of the view that exercising
its discretion to consider adjustments based on possible past errors
should be limited to clear error or extraordinary circumstances.\27\
The Coast Guard strives to accurately project demand for pilotage
services and required revenue each year, generally resulting in
incremental changes and rate stability. We believe this is in the
public interest, as it provides greater predictability to both shipping
companies and the pilots and promotes public confidence in the Coast
Guard.\28\
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\26\ Memorandum of Points and Authorities in Reply to
Plaintiffs' Opposition at par. III.B, Am. Great Lakes Ports Ass'n.
v. Zukunft, 301 F. Supp. 3d 99 (D.D.C. Mar. 13, 2018) (Civil Action
No.: 16-1019) 2017 WL 632501.
\27\ Memorandum of Points and Authorities in Reply to
Plaintiffs' Opposition at 3, par. III.B, Am. Great Lakes Ports
Ass'n. v. Zukunft, 301 F. Supp. 3d 99 (D.D.C. Mar. 13, 2018) (Civil
Action No.: 16-1019) 2017 WL 632501.
\28\ Id.
---------------------------------------------------------------------------
The Coast Guard exercises discretion to adjust the final rates in
step 10, to produce adequate revenue for the upcoming year. Ensuring
the rates are adjusted to sufficiently cover all the approved operating
expenses is consistent with our mandate to consider the public interest
and safety of navigating through the Great Lakes. Having considered all
of the information before it carefully, the Coast Guard does not intend
to make a prospective change in the 2021 rates to correct for 2016
errors for the following three reasons.
One: By the time the 2021 final rule publishes, 5 years will have
passed since the 2016 pilotage rates final rule was issued and
implemented. Since then, the Coast Guard has improved its ratemaking
methodology to remove the arbitrary calculations that led to the harm
identified in the opinions of the D.C. district court and the D.C.
Circuit. The passage of time weighs against a rate adjustment, and even
more significantly, we cannot calculate the actual error in 2016
because of the inherent difficulty of determining what the correct
target compensation should have been. As the D.C. District Court
opinion noted, with regard to target pilot compensation, there was
evidence in the record to support either a higher or a lower target
compensation, and the Coast Guard could, on remand, have supported the
10-percent adjustment.\29\ Therefore, it is not a simple arithmetic
exercise to determine what the 2016 rates should have been; indeed it
is unclear on the existing record whether they should have been higher
or lower or that some should have been higher and some lower. Due to
the changes in the methodology, the Coast Guard has no data from
subsequent years on which to estimate with reasonable reliability what
the 2016 rate would have been without the consideration of factors
found to be arbitrary or insufficiently justified by the courts.
Because the target compensation adjustment could have been lower or
higher than our 10-percent estimate, we cannot adjust the weighting
factors to produce a number without acting arbitrarily or risking being
perceived as arbitrary. Determining how to make all the necessary
corrections would be resource intensive, and likely controversial and
disruptive to the current participants in the market for pilotage
services, and we believe that our resources are better devoted to
getting this year's rates correct and published in a timely fashion
without adjustment for the 2016 errors. The Coast Guard does not
believe that, to date, either the pilots or the shippers have
convincingly showed a methodology for correcting the 2016 rate that
reliably produces a just and reasonable rate.
---------------------------------------------------------------------------
\29\ Am. Great Lakes Ports Ass'n v. Zukunft, 301 F. Supp. 3d at
103 (D.D.C. Mar. 13, 2018).
---------------------------------------------------------------------------
Two: Also related to the passage of significant time, pilot
turnover and changes in operators render a remedial rate adjustment to
compensate for circumstances 5 years ago less equitable and less in the
public interest because the remedy may not benefit those who were
actually disadvantaged by the ratemaking. As we stated in the 2020
ratemaking proposed rule, we found that 457 unique vessels used
pilotage services during the years 2016 through 2018.\30\ Of these
vessels, 420 were
[[Page 68218]]
foreign-flagged vessels and 37 were U.S.-flagged vessels. In 2016, 245
unique vessels used pilotage services compared with 287 unique vessels
in 2019. In addition, of those 287 vessels only 63 percent used
pilotage services in both 2016 and 2019. The number of unique vessels
that transit the area is an indication that any changes made for the
2021 ratemaking period would be unlikely to reach all those who were
disadvantaged by the 2016 ratemaking.
---------------------------------------------------------------------------
\30\ Great Lakes Pilotage Rates--2020 Annual Review and
Revisions to Methodology, 84 FR 58099 at 58120, Oct. 30, 2019.
---------------------------------------------------------------------------
Three: Using the discretionary adjustment in step 10 to correct for
potential overcharges in past years, by lowering the pilotage rates
from the result of the multi-step process, risks imposing rates below
the level needed to adequately fund operational expenses. In fact,
imposing a remedy through even a small, discretionary adjustment to the
2021 rate could disadvantage or harm pilots or shipping companies
unjustly for the upcoming year, and the harms likely outweigh the
uncertain benefits. As we have seen in the past, when the rates or
actual traffic volume do not produce predicted revenue, pilot attrition
increases, which leads to fewer qualified pilots and the additional
costs of training new pilots, which can take from 6 months to 48
months.
VIII. Discussion of Proposed Rate Adjustments
In this NPRM, based on the proposed changes to the existing
methodology described in the previous section, we are proposing new
pilotage rates for 2021. We propose to conduct the 2021 ratemaking as
an ``interim year,'' as was done in 2020, rather than a full ratemaking
as was conducted in 2018. Thus, the Coast Guard proposes to adjust the
compensation benchmark pursuant to Sec. 404.104(b) for this purpose,
rather than Sec. 404.104(a).
This section discusses the proposed rate changes using the
ratemaking steps provided in 46 CFR part 404, incorporating the
proposed changes discussed in section VI. We will detail all 10 steps
of the ratemaking procedure for each of the 3 districts to show how we
arrive at the proposed new rates.
District One
A. Step 1: Recognize Previous Operating Expenses
Step 1 in our ratemaking methodology requires that the Coast Guard
review and recognize the previous year's operating expenses (Sec.
404.101). To do so, we begin by reviewing the independent accountant's
financial reports for each association's 2018 expenses and
revenues.\31\ For accounting purposes, the financial reports divide
expenses into designated and undesignated areas. In certain instances,
costs are applied to the designated or undesignated area based on where
they were actually accrued.
---------------------------------------------------------------------------
\31\ These reports are available in the docket for this
rulemaking (see Docket #USCG-2019-0736).
---------------------------------------------------------------------------
As noted above, in 2016 the Coast Guard began authorizing
surcharges to cover the training costs of applicant pilots. The
surcharges were intended to reimburse pilot associations for training
applicants in a more timely fashion than if those costs were listed as
operating expenses, which would have required 3 years to reimburse. The
rationale for using surcharges to cover these expenses, rather than
including the costs as operating expenses, was so these non-recurring
costs could be recovered in a more timely fashion, and so that retiring
pilots would not have to cover the costs of training their
replacements. Because operating expenses incurred are not actually
recouped for a period of 3 years, the Coast Guard added a $150,000
surcharge per applicant pilot, beginning in 2016, to recoup those costs
in the year incurred. Although the districts did not collect any
surcharges for the 2020 shipping season, they did collect a surcharge
for the 2018 season, which will need to be reflected in the operating
expenses of the districts.
For District One, we propose several Director's adjustments.
District One had two applicant pilots during the 2018 season. In total,
the District paid these two pilots $594,521, or $297,261 each. The
Coast Guard believes this amount is above what is necessary and
reasonable for retention and recruitment. In the 2019 NPRM, the Coast
Guard proposed to make an adjustment to District Two's request for
reimbursement of $571,248 for two applicant pilots ($285,624 per
applicant). Instead of permitting $571,248 for two applicant pilots, we
proposed allowing $257,566, or $128,783 per applicant pilot based on
discussions with other pilot associations at the time. This standard
went into the final rule for 2019 and was not opposed. To determine
this percentage, we reached out to several of the pilot associations
throughout the United States to see what percentage they pay their
applicant pilots, then factored in the sea time and experience required
to become an applicant pilot on the Great Lakes. Finally, we discussed
the percentage with the presidents of each association to determine if
it was fair and reasonable. If we adopt this methodology, the Coast
Guard would continue to use the same ratio of applicant-to-target
compensation for all districts. For 2019, this was approximately 36
percent ($128,783 / $359,887 = 35.78 percent), so the Coast Guard is
proposing to use the rounded up value of 36.0 percent of target
compensation as the benchmark for applicant pilot compensation, for a
2021 target pilot compensation of $132,151 ($367,085 x .36). This
allows adjustments to applicant pilot compensation to fluctuate in line
with target compensation.
The other Director's adjustments to expenses occurred because
District One did not break out any costs associated with applicant
pilots after the audit, and included these costs as part of pilotage
costs. For transparency, the Coast Guard has included the applicant
pilot costs as Director's adjustments and has then deducted the same
amount to avoid any double counting of these costs. These costs are
necessary and reasonable for district operations and should, therefore,
be implemented in the rate.
A Director's adjustment has also been proposed for the amount
collected using the 2018 surcharge. A final Director's adjustment is
proposed for the amount of Coast Guard litigation legal fees. Other
adjustments have been made by the auditors and are explained in the
auditor's reports, which are available in the docket for this
rulemaking where indicated under the Public Participation and Request
for Comments portion of the preamble.
[[Page 68219]]
Table 3--2018 Recognized Expenses for District One
----------------------------------------------------------------------------------------------------------------
District one
-----------------------------------------------
Designated Undesignated
Reported operating expenses for 2018 --------------------------------
St. Lawrence Total
River Lake Ontario
----------------------------------------------------------------------------------------------------------------
Pilotage Costs:
Subsistence/travel--Pilot................................... $799,507 $533,005 $1,332,512
License insurance--Pilots................................... 45,859 30,573 76,432
Payroll taxes--Pilots....................................... 202,848 135,232 338,080
Other....................................................... 15,474 10,316 25,790
-----------------------------------------------
Total Other Pilotage Costs.............................. 1,063,688 709,126 1,772,814
Pilot Boat and Dispatch Costs:
Pilot Boat Expense.......................................... 267,420 178,280 445,700
Dispatch Expense............................................ 55,280 36,853 92,133
Payroll Taxes............................................... 19,100 12,733 31,833
-----------------------------------------------
Total Pilot and Dispatch Costs.......................... 341,800 227,866 569,666
Administrative Expenses:
Legal--general counsel...................................... 8,550 5,700 14,250
Legal--shared counsel (K&L Gates)........................... 34,607 23,071 57,678
Legal--USCG Litigation...................................... 7,743 5,162 12,905
Office Rent................................................. 0 0 0
Insurance................................................... 24,423 16,282 40,705
Employee benefits........................................... 8,064 5,376 13,440
Other taxes................................................. 50,963 33,976 84,939
Real Estate taxes........................................... 22,280 14,853 37,133
Depreciation/auto leasing/other............................. 101,140 67,426 168,566
Interest.................................................... 28,270 18,846 47,116
APA Dues.................................................... 26,416 17,610 44,026
Dues and subscriptions...................................... 3,960 2,640 6,600
CPA DEDUCTION............................................... (3,960) (2,640) (6,600)
Utilities................................................... 21,887 14,591 36,478
Travel...................................................... 4,314 2,876 7,190
Salaries.................................................... 74,763 49,842 124,605
Pay Roll Tax................................................ 7,323 4,882 12,205
Accounting/Professional fees................................ 7,800 5,200 13,000
Pilot Training.............................................. 0 0 0
Other....................................................... 21,276 14,184 35,460
-----------------------------------------------
Total Administrative Expenses........................... 449,819 299,877 749,696
-----------------------------------------------
Total Operating Expenses (Other Costs + Pilot Boats 1,855,307 1,236,869 3,092,176
+ Admin)...........................................
Proposed Adjustments (Director):
Directors Adjustment (Applicant Salaries)................... 356,712 237,809 594,521
Directors Adjustment (Applicant Salaries) Deduction......... (356,712) (237,809) (594,521)
Directors Adjustment (Applicant Salaries) Deduction (Salary (132,088) (198,132) (330,220)
Adjustment)................................................
Directors Adjustment (Applicant License insurance).......... 2,540 1,693 4,233
Directors Adjustment (Applicant License insurance) Deduction (2,540) (1,693) (4,233)
Directors Adjustment (Applicant Health insurance)........... 10,336 6,891 17,227
Directors Adjustment (Applicant Health insurance) Deduction. (10,336) (6,891) (17,227)
Directors Adjustment (Applicant Expenses)................... 93,296 62,197 155,493
Directors Adjustment (Applicant Expenses) Deduction......... (93,296) (62,197) (155,493)
Directors Adjustment (Applicant payroll tax)................ 30,944 20,629 51,573
Directors Adjustment (Applicant payroll tax) Deduction...... (30,944) (20,629) (51,573)
Directors Adjustment Surcharge Collected in 2018............ (144,770) (144,770) (289,540)
Directors Adjustment Legal--USCG Litigation................. (7,743) (5,162) (12,905)
-----------------------------------------------
Total Director's Adjustments............................ (284,601) (348,064) (632,665)
-----------------------------------------------
Total Operating Expenses (OpEx + Adjustments)....... 1,570,706 888,805 2,459,511
----------------------------------------------------------------------------------------------------------------
B. Step 2: Project Operating Expenses, Adjusting for Inflation or
Deflation
Having identified the recognized 2018 operating expenses in Step 1,
the next step is to estimate the current year's operating expenses by
adjusting those expenses for inflation over the 3-year period. We
calculate inflation using the BLS data from the CPI for the Midwest
Region of the United States for the 2019 inflation rate.\32\ Because
the BLS does not provide forecasted inflation data, we use economic
projections from the Federal Reserve for the 2019 and 2020
[[Page 68220]]
inflation modification.\33\ Based on that information, the calculations
for Step 2 are as follows:
---------------------------------------------------------------------------
\32\ The 2019 inflation rate is available at https://www.bls.gov/regions/midwest/data/consumerpriceindexhistorical_midwest_table.pdf. Specifically the CPI
is defined as ``All Urban Consumers (CPI-U), All Items, 1982-4 =
100''. Downloaded June 11, 2020.
\33\ The 2020 and 2021 inflation rates are available at https://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20200610.pdf. We used the PCE median inflation value
found in table 1, Downloaded June 11, 2020.
Table 4--Adjusted Operating Expenses for District One
----------------------------------------------------------------------------------------------------------------
District one
-----------------------------------------------
Designated Undesignated Total
----------------------------------------------------------------------------------------------------------------
Total Operating Expenses (Step 1)............................... $1,570,706 $888,805 $2,459,511
2019 Inflation Modification (@1.5%)............................. 23,561 13,332 36,893
2020 Inflation Modification (@0.8%)............................. 12,754 7,217 19,971
2021 Inflation Modification (@1.6%)............................. 25,712 14,550 40,262
-----------------------------------------------
Adjusted 2021 Operating Expenses............................ 1,632,733 923,904 2,556,637
----------------------------------------------------------------------------------------------------------------
C. Step 3: Estimate Number of Registered Pilots
In accordance with the text in Sec. 404.103, we estimate the
number of registered pilots in each district. We determine the number
of registered pilots based on data provided by the Saint Lawrence
Seaway Pilots Association. Using these numbers, we estimate that there
will be 18 registered pilots in 2021 in District One. Based on the
seasonal staffing model discussed in the 2017 ratemaking (see 82 FR
41466), and our proposed changes to that staffing model, we assigned a
certain number of pilots to designated waters and a certain number to
undesignated waters, as shown in table 5. These numbers are used to
determine the amount of revenue needed in their respective areas.
Table 5--Authorized Pilots
------------------------------------------------------------------------
Item District one
------------------------------------------------------------------------
Proposed Maximum number of pilots (per Sec. 18
401.220(a)) \34\.......................................
2021 Authorized pilots (total).......................... 18
Pilots assigned to designated areas..................... 11
Pilots assigned to undesignated areas................... 7
------------------------------------------------------------------------
D. Step 4: Determine Target Pilot Compensation Benchmark
In this step, we determine the total pilot compensation for each
area. As we are proposing an ``interim'' ratemaking this year, we
propose to follow the procedure outlined in paragraph (b) of Sec.
404.104, which adjusts the existing compensation benchmark by
inflation. As stated in Section VI.A of the preamble, we are proposing
to use a two-step process to adjust target pilot compensation for
inflation. The first step adjusts the 2019 target compensation
benchmark of $367,085 value by 1.4 percent for a total adjusted value
of $372,224. This adjustment accounts for the difference between the
predicted 2020 Median PCE inflation value of 2 percent and the actual
2020 ECI inflation value of 3.4 percent.35 36 Because we do
not have a value for the ECI for 2021, we multiply the adjusted 2020
compensation benchmark of $372,224 by the Median PCE inflation value of
1.60 percent.\37\ Based on the projected 2021 inflation estimate, the
proposed compensation benchmark for 2021 is $378,180 per pilot.
---------------------------------------------------------------------------
\34\ For a detailed calculation, refer to the Great Lakes
Pilotage Rates--2017 Annual Review final rule, which contains the
staffing model. See 82 FR 41466, table 6 at 41480 (August 31, 2017).
\35\ U.S. Bureau of Labor Statistics Employment Cost Index (ECI)
Q1 2020 data for Total Compensation for Private Industry Workers in
the Transportation and Material Moving Sector (Series ID:
CIU2010000520000A). The first quarter data was the most recently
available data at the time of analysis for this NPRM. The Coast
Guard will use updated 2020 ECI data in the final rule. https://www.bls.gov/news.release/archives/eci_01312020.pdf.
\36\ In Step 2 of the ratemaking, the Coast Guard uses the
Federal Reserve's predicted PCE inflation rate of 0.8% to inflate
operating expenses to 2020 dollars. This value differs from the ECI
Q1 inflation rate of 3.4%. The reason for the large deviation
between the values is the timing of each dataset. The ECI data is
only for Q1 of 2020 (January-March) and therefore does not capture
the impact of COVID-19. The PCE inflation predictions are from the
June 2020 and account for the impacts of the pandemic on the U.S.
economy.
\37\ The Federal Reserve, Table 1. Economic projections of
Federal Reserve Board members and Federal Reserve Bank presidents,
under their individual assumptions of projected appropriate monetary
policy, June 2020, (June 10, 2020, 2:00 p.m.), https://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20200610.pdf.
Table 6--Target Pilot Compensation
------------------------------------------------------------------------
------------------------------------------------------------------------
2020 Target Compensation................................ $367,085
Difference between Q12020 ECI Inflation Rate (3.4%) and 1.400%
the 2020 PCE Predicted Inflation Rate (2.0%)...........
Adjusted 2020 Compensation.............................. $372,224
2020 to 2021 Inflation Factor........................... 1.60%
2021 Target Compensation................................ $378,180
------------------------------------------------------------------------
Next, we certify that the number of pilots estimated for 2021 is
less than or equal to the number permitted under the proposed changes
to the staffing model in Sec. 401.220(a). The proposed changes to the
staffing model suggest that the number of pilots needed is 18 pilots
for District One, which is more than or equal to 18, the number of
registered pilots provided by the pilot associations. In accordance
with Sec. 404.104(c), we use the revised target individual
compensation level to derive the total pilot compensation by
multiplying the individual target compensation by the estimated number
of registered pilots for District One, as shown in table 7.
[[Page 68221]]
Table 7--Target Compensation for District One
----------------------------------------------------------------------------------------------------------------
District One
-----------------------------------------------
Designated Undesignated Total
----------------------------------------------------------------------------------------------------------------
Target Pilot Compensation....................................... $378,180 $378,180 $378,180
Number of Pilots................................................ 11 7 18
-----------------------------------------------
Total Target Pilot Compensation............................. 4,159,980 2,647,260 6,807,240
----------------------------------------------------------------------------------------------------------------
E. Step 5: Project Working Capital Fund
Next, we calculate the working capital fund revenues needed for
each area. First, we add the figures for projected operating expenses
and total pilot compensation for each area. Next, we find the preceding
year's average annual rate of return for new issues of high-grade
corporate securities. Using Moody's data, the number is 3.3875
percent.\38\ By multiplying the two figures, we obtain the working
capital fund contribution for each area, as shown in table 8.
---------------------------------------------------------------------------
\38\ Moody's Seasoned Aaa Corporate Bond Yield, average of 2019
monthly data. The Coast Guard uses the most recent year of complete
data. Moody's is taken from Moody's Investors Service, which is a
bond credit rating business of Moody's Corporation. Bond ratings are
based on creditworthiness and risk. The rating of ``Aaa'' is the
highest bond rating assigned with the lowest credit risk. See
https://fred.stlouisfed.org/series/AAA. (June 11, 2020)
Table 8--Working Capital Fund Calculation for District One
----------------------------------------------------------------------------------------------------------------
District one
-----------------------------------------------
Designated Undesignated Total
----------------------------------------------------------------------------------------------------------------
Adjusted Operating Expenses (Step 2)............................ $1,632,733 $923,904 $2,556,637
Total Target Pilot Compensation (Step 4)........................ 4,159,980 2,647,260 6,807,240
Total 2021 Expenses............................................. 5,792,713 3,571,164 9,363,877
Working Capital Fund (3. 3.875%)................................ 196,228 120,973 317,201
----------------------------------------------------------------------------------------------------------------
F. Step 6: Project Needed Revenue
In this step, we add all the expenses accrued to derive the total
revenue needed for each area. These expenses include the projected
operating expenses (from Step 2), the total pilot compensation (from
Step 4), and the working capital fund contribution (from Step 5). We
show these calculations in table 9.
Table 9--Revenue Needed for District One
----------------------------------------------------------------------------------------------------------------
District one
-----------------------------------------------
Designated Undesignated Total
----------------------------------------------------------------------------------------------------------------
Adjusted Operating Expenses (Step 2, see table 4)............... $1,632,733 $923,904 $2,556,637
Total Target Pilot Compensation (Step 4, see table 6)........... 4,159,980 2,647,260 6,807,240
Working Capital Fund (Step 5, see table 8)...................... 196,228 120,973 317,201
-----------------------------------------------
Total Revenue Needed........................................ 5,988,941 3,692,137 9,681,078
----------------------------------------------------------------------------------------------------------------
G. Step 7: Calculate Initial Base Rates
Having determined the revenue needed for each area in the previous
six steps, to develop an hourly rate we divide that number by the
expected number of hours of traffic. Step 7 is a two-part process. In
the first part, we calculate the 10-year average of traffic in District
One, using the total time on task or pilot bridge hours.\39\ Because we
calculate separate figures for designated and undesignated waters,
there are two parts for each calculation. We show these values in table
10.
---------------------------------------------------------------------------
\39\ To calculate the time on task for each district, the Coast
Guard uses billing data from the Great Lakes Pilotage Management
System (GLPMS). We pull the data from the system filtering by
district, year, job status (we only include closed jobs), and
flagging code (we only include U.S. jobs). After we have downloaded
the data, we remove any overland transfers from the dataset, if
necessary, and sum the total bridge hours, by area. We then subtract
any non-billable delay hours from the total.
Table 10--Time on Task for District One
[Hours]
------------------------------------------------------------------------
District one
Year -------------------------------
Designated Undesignated
------------------------------------------------------------------------
2019.................................... 8,232 8,405
2018.................................... 6,943 8,445
2017.................................... 7,605 8,679
2016.................................... 5,434 6,217
[[Page 68222]]
2015.................................... 5,743 6,667
2014.................................... 6,810 6,853
2013.................................... 5,864 5,529
2012.................................... 4,771 5,121
2011.................................... 5,045 5,377
2010.................................... 4,839 5,649
-------------------------------
Average............................. 6,129 6,694
------------------------------------------------------------------------
Next, we derive the initial hourly rate by dividing the revenue
needed by the average number of hours for each area. This produces an
initial rate, which is necessary to produce the revenue needed for each
area, assuming the amount of traffic is as expected. We present the
calculations for each area in table 11.
Table 11--Initial Rate Calculations for District One
------------------------------------------------------------------------
Designated Undesignated
------------------------------------------------------------------------
Needed revenue (Step 6)................. $5,988,941 $3,692,137
Average time on task (hours)............ 6,129 6,694
Initial rate............................ $977 $552
------------------------------------------------------------------------
H. Step 8: Calculate Average Weighting Factors by Area
In this step, we calculate the average weighting factor for each
designated and undesignated area. We collect the weighting factors, set
forth in 46 CFR 401.400, for each vessel trip. Using this database, we
calculate the average weighting factor for each area using the data
from each vessel transit from 2014 onward, as shown in tables 12 and
13.\40\
---------------------------------------------------------------------------
\40\ To calculate the number of transits by vessel class, we use
the billing data from GLPMS, filtering by district, year, job status
(we only include closed jobs), and flagging code (we only include
U.S. jobs). We then count the number of jobs by vessel class and
area.
Table 12--Average Weighting Factor for District One, Designated Areas
----------------------------------------------------------------------------------------------------------------
Number of Weighting Weighted
Vessel class/year transits factor transits
----------------------------------------------------------------------------------------------------------------
Class 1 (2014).................................................. 31 1 31
Class 1 (2015).................................................. 41 1 41
Class 1 (2016).................................................. 31 1 31
Class 1 (2017).................................................. 28 1 28
Class 1 (2018).................................................. 54 1 54
Class 1 (2019).................................................. 72 1 72
Class 2 (2014).................................................. 285 1.15 327.75
Class 2 (2015).................................................. 295 1.15 339.25
Class 2 (2016).................................................. 185 1.15 212.75
Class 2 (2017).................................................. 352 1.15 404.8
Class 2 (2018).................................................. 559 1.15 642.85
Class 2 (2019).................................................. 378 1.15 434.7
Class 3 (2014).................................................. 50 1.3 65
Class 3 (2015).................................................. 28 1.3 36.4
Class 3 (2016).................................................. 50 1.3 65
Class 3 (2017).................................................. 67 1.3 87.1
Class 3 (2018).................................................. 86 1.3 111.8
Class 3 (2019).................................................. 122 1.3 158.6
Class 4 (2014).................................................. 271 1.45 392.95
Class 4 (2015).................................................. 251 1.45 363.95
Class 4 (2016).................................................. 214 1.45 310.3
Class 4 (2017).................................................. 285 1.45 413.25
Class 4 (2018).................................................. 393 1.45 569.85
Class 4 (2019).................................................. 730 1.45 1,058.5
-----------------------------------------------
Total....................................................... 4,858 .............. 6,252
-----------------------------------------------
Average weighting factor (weighted transits/number of .............. 1.29 ..............
transits)..............................................
----------------------------------------------------------------------------------------------------------------
[[Page 68223]]
Table 13--Average Weighting Factor for District One, Undesignated Areas
----------------------------------------------------------------------------------------------------------------
Number of Weighting Weighted
Vessel class/year transits factor transits
----------------------------------------------------------------------------------------------------------------
Class 1 (2014).................................................. 25 1 25
Class 1 (2015).................................................. 28 1 28
Class 1 (2016).................................................. 18 1 18
Class 1 (2017).................................................. 19 1 19
Class 1 (2018).................................................. 22 1 22
Class 1 (2019).................................................. 30 1 30
Class 2 (2014).................................................. 238 1.15 273.7
Class 2 (2015).................................................. 263 1.15 302.45
Class 2 (2016).................................................. 169 1.15 194.35
Class 2 (2017).................................................. 290 1.15 333.5
Class 2 (2018).................................................. 352 1.15 404.8
Class 2 (2019).................................................. 366 1.15 420.9
Class 3 (2014).................................................. 60 1.3 78
Class 3 (2015).................................................. 42 1.3 54.6
Class 3 (2016).................................................. 28 1.3 36.4
Class 3 (2017).................................................. 45 1.3 58.5
Class 3 (2018).................................................. 63 1.3 81.9
Class 3 (2019).................................................. 58 1.3 75.4
Class 4 (2014).................................................. 289 1.45 419.05
Class 4 (2015).................................................. 269 1.45 390.05
Class 4 (2016).................................................. 222 1.45 321.9
Class 4 (2017).................................................. 285 1.45 413.25
Class 4 (2018).................................................. 382 1.45 553.9
Class 4 (2019).................................................. 326 1.45 472.7
-----------------------------------------------
Total....................................................... 3,889 .............. 5,027
-----------------------------------------------
Average weighting factor (weighted transits/number of .............. 1.29 ..............
transits)..............................................
----------------------------------------------------------------------------------------------------------------
I. Step 9: Calculate Revised Base Rates
In this step, we revise the base rates so that once the impact of
the weighting factors is considered; the total cost of pilotage will be
equal to the revenue needed. To do this, we divide the initial base
rates calculated in Step 7 by the average weighting factors calculated
in Step 8, as shown in table 14.
Table 14--Revised Base Rates for District One
----------------------------------------------------------------------------------------------------------------
Revised rate
Average (initial rate
Area Initial rate weighting average
(step 7) factor (step weighting
8) factor)
----------------------------------------------------------------------------------------------------------------
District One: Designated........................................ $977 1.29 $757
District One: Undesignated...................................... 552 1.29 428
----------------------------------------------------------------------------------------------------------------
J. Step 10: Review and Finalize Rates
In this step, the Director reviews the rates set forth by the
staffing model and ensures that they meet the goal of ensuring safe,
efficient, and reliable pilotage. To establish this, the Director
considers whether the proposed rates incorporate appropriate
compensation for pilots to handle heavy traffic periods and whether
there is a sufficient number of pilots to handle those heavy traffic
periods. The Director also considers whether the proposed rates would
cover operating expenses and infrastructure costs, including average
traffic and weighting factions. Based on the financial information
submitted by the pilots, the Director is not proposing any alterations
to the rates in this step. We propose to modify the text in Sec.
401.405(a) to reflect the final rates shown in table 15.
Table 15--Proposed Final Rates for District One
----------------------------------------------------------------------------------------------------------------
Final 2020 Proposed 2021
Area Name pilotage rate pilotage rate
----------------------------------------------------------------------------------------------------------------
District One: Designated..................... St. Lawrence River............. $758 $757
District One: Undesignated................... Lake Ontario................... 463 427
----------------------------------------------------------------------------------------------------------------
[[Page 68224]]
District Two
A. Step 1: Recognize Previous Operating Expenses
Step 1 in our ratemaking methodology requires that the Coast Guard
review and recognize the previous year's operating expenses (Sec.
404.101). To do so, we begin by reviewing the independent accountant's
financial reports for each association's 2018 expenses and
revenues.\41\ For accounting purposes, the financial reports divide
expenses into designated and undesignated areas. For costs accrued by
the pilot associations generally, such as employee benefits, for
example, the cost is divided between the designated and undesignated
areas on a pro rata basis. The recognized operating expenses for
District Two are shown in table 16.
---------------------------------------------------------------------------
\41\ These reports are available in the docket for this
rulemaking (see Docket No. USCG-2019-0736).
---------------------------------------------------------------------------
For District Two, we propose three Director's adjustments: (1) For
the amount collected from the 2018 surcharge; (2) for the amount in
Coast Guard litigation legal fees; and (3) for the amount paid to the
District's applicant pilot. District Two had one applicant pilot during
the 2018 season and paid $334,659 in salary. The Coast Guard believes
this amount is above what is necessary and reasonable for retention and
recruitment. In the 2019 NPRM, the Coast Guard proposed to make an
adjustment to District Two's request for reimbursement of $571,248 for
two applicant pilots ($285,624 per applicant). Instead of permitting
$571,248 for two applicant pilots, we proposed allowing $257,566, or
$128,783 per applicant pilot. This proposal went into the final rule
for 2019 and was not opposed. Going forward, the Coast Guard will
continue to use the same ratio of applicant to target compensation. For
2019, this was approximately 36 percent ($128,783 / $359,887 = 35.78
percent), so the Coast Guard is proposing to use the rounded up value
of 36.0 percent of target compensation as the benchmark for applicant
pilot compensation, for a 2021 target pilot compensation of $132,151
($367,085 x .36). This allows adjustments to applicant pilot
compensation to fluctuate in line with target compensation. Other
adjustments made by the auditors are explained in the auditors' reports
(available in the docket where indicated in the Public Participation
and Request for Comments portion of this document).
Table 16--2018 Recognized Expenses for District Two
----------------------------------------------------------------------------------------------------------------
District two
-----------------------------------------------
Undesignated Designated
Reported operating expenses for 2018 --------------------------------
Southeast Total
Lake Erie Shoal to Port
Huron
----------------------------------------------------------------------------------------------------------------
Other Pilotage Costs:
Subsistence/Travel--Pilots.................................. $115,073 $172,608 $287,681
CPA DEDUCTION............................................... (3,457) (5,185) (8,642)
Hotel/Lodging Cost.......................................... 50,464 75,696 126,160
License Insurance........................................... 138 207 345
Payroll taxes............................................... 82,960 124,441 207,401
Other....................................................... 860 1,291 2,151
-----------------------------------------------
Total Other Pilotage Costs.............................. 246,038 369,058 615,096
Applicant Pilot Costs:
Applicant Salaries.......................................... 133,864 200,795 334,659
Applicant Health Insurance.................................. 18,691 28,036 46,727
Applicant Payroll Tax....................................... 4,496 6,745 11,241
Applicant Subsistence....................................... 9,872 14,807 24,679
-----------------------------------------------
Total Applicant Pilot Cost.............................. 166,923 250,383 417,306
Pilot Boat and Dispatch Costs:
Pilot Boat Cost............................................. 206,998 310,496 517,494
Employee Benefits........................................... 80,906 121,358 202,264
Payroll Taxes............................................... 12,523 18,785 31,308
-----------------------------------------------
Total Pilot and Dispatch Costs.......................... 300,427 450,639 751,066
Administrative Expenses:
Legal--general counsel...................................... 35,711 53,567 $89,278
Legal--shared counsel (K&L Gates)........................... 17,037 25,555 42,592
Legal--USCG litigation...................................... 2,185 3,277 5,462
Office rent................................................. 33,326 49,988 83,314
Insurance................................................... 20,357 30,536 50,893
Employee Benefits........................................... 89,999 134,999 224,998
Other taxes................................................. 25,620 38,430 64,050
Real Estate taxes........................................... 6,066 9,099 15,165
Depreciation/Auto lease/Other............................... 29,392 44,087 73,479
Interest.................................................... 586 880 1,466
APA dues.................................................... 13,703 20,554 34,257
Dues and Subscriptions...................................... 676 1,015 1,691
Utilities................................................... 19,413 29,119 48,532
Salaries--Admin employees................................... 53,170 79,755 132,925
Payroll taxes............................................... 5,558 8,338 13,896
Accounting.................................................. 14,276 21,414 35,690
[[Page 68225]]
Pilot Training.............................................. 14,434 21,414 35,848
Other....................................................... 15,310 22,966 38,276
-----------------------------------------------
Total Administrative Expenses........................... 396,819 594,993 991,812
-----------------------------------------------
Total Operating Expenses (Other Costs + Pilot Boats 1,110,207 1,665,073 2,775,280
+ Admin)...........................................
Proposed Adjustments (Director):
Directors Adjustment Surcharge Collected in 2018............ (65,962) (65,962) (131,924)
Directors Adjustment Applicant Pilot Salary................. (66,828) (135,680) (202,508)
Proposed Legal Fee Removal--USCG Litigation................. (2,185) (3,277) (5,462)
-----------------------------------------------
Total Director's Adjustments............................ (134,975) (204,919) (339,894)
Total Operating Expenses (OpEx + Adjustments)....... 975,232 1,460,154 2,435,386
----------------------------------------------------------------------------------------------------------------
B. Step 2: Project Operating Expenses, Adjusting for Inflation or
Deflation
Having identified the recognized 2019 operating expenses in Step 1,
the next step is to estimate the current year's operating expenses by
adjusting those expenses for inflation over the 3-year period. We
calculate inflation using the BLS data from the CPI for the Midwest
Region of the United States for the 2019 inflation rate.\42\ Because
the BLS does not provide forecasted inflation data, we use economic
projections from the Federal Reserve for the 2020 and 2021 inflation
modification.\43\ Based on that information, the calculations for Step
1 are as follows:
---------------------------------------------------------------------------
\42\ Supra footnote 29, at 30.
\43\ Supra footnote 30, at 32.
Table 17--Adjusted Operating Expenses for District Two
----------------------------------------------------------------------------------------------------------------
District two
Item -----------------------------------------------
Undesignated Designated Total
----------------------------------------------------------------------------------------------------------------
Total Operating Expenses (Step 1)............................... $975,232 $1,460,154 $2,435,386
2019 Inflation Modification (@1.5%)............................. 14,628 21,902 36,530
2020 Inflation Modification (@0.8%)............................. 7,919 11,856 19,775
2021 Inflation Modification (@1.6%)............................. 15,964 23,903 39,867
-----------------------------------------------
Adjusted 2021 Operating Expenses............................ 1,013,743 1,517,815 2,531,558
----------------------------------------------------------------------------------------------------------------
C. Step 3: Estimate Number of Working Pilots
In accordance with the text in Sec. 404.103, we estimate the
number of working pilots in each district. We determine the number of
registered pilots based on data provided by the Lakes Pilots
Association. Using these numbers, we estimate that there will be 15
registered pilots in 2021 in District Two. Furthermore, based on the
seasonal staffing model discussed in the 2017 ratemaking (see 82 FR
41466) and our proposed changes to that staffing model, we assign a
certain number of pilots to designated waters and a certain number to
undesignated waters, as shown in table 18. These numbers are used to
determine the amount of revenue needed in their respective areas.
Table 18--Authorized Pilots
------------------------------------------------------------------------
Item District two
------------------------------------------------------------------------
Proposed Maximum number of pilots (per Sec. 16
401.220(a)) \44\.......................................
2021 Authorized pilots (total).......................... 15
Pilots assigned to designated areas..................... 7
Pilots assigned to undesignated areas................... 8
------------------------------------------------------------------------
D. Step 4: Determine Target Pilot Compensation Benchmark
---------------------------------------------------------------------------
\44\ For a detailed calculation refer to the Great Lakes
Pilotage Rates--2017 Annual Review final rule, which contains the
staffing model. See 82 FR 41466, table 6 at 41480 (August 31, 2017).
---------------------------------------------------------------------------
In this step, we determine the total pilot compensation for each
area. As we are proposing an ``interim'' ratemaking this year, we
propose to follow the procedure outlined in paragraph (b) of Sec.
404.104, which adjusts the existing compensation benchmark by
inflation. As stated in Section VI.A of the preamble, we are proposing
to use a two-step process to adjust target pilot compensation for
inflation. The first step adjusts the 2019 target compensation
benchmark of $367,085
[[Page 68226]]
by 1.4 percent, for a total adjusted value of $372,224. This adjustment
accounts for the difference between the predicted 2020 Median PCE
inflation value of 2 percent and the actual 2020 ECI inflation value of
3.4 percent.45 46 Because we do not have a value for the
employment cost index for 2021, we multiply the adjusted 2020
compensation benchmark of $372,224 by the Median PCE inflation value of
1.60 percent.\47\ Based on the projected 2021 inflation estimate, the
proposed compensation benchmark for 2021 is $378,180 per pilot (see
table 6 for calculations).
---------------------------------------------------------------------------
\45\ U.S. Bureau of Labor Statistics Employment Cost Index (ECI)
Q1 2020 data for Total Compensation for Private Industry Workers in
the Transportation and Material Moving Sector (Series ID:
CIU2010000520000A). The first quarter data was the most recently
available data at the time of analysis for this NPRM. The Coast
Guard will use updated 2020 ECI data in the final rule. https://www.bls.gov/news.release/archives/eci_01312020.pdf.
\46\ In Step 2 of the ratemaking, the Coast Guard uses the
Federal Reserve's predicted PCE inflation rate of 0.8% to inflate
operating expenses to 2020 dollars. This value differs from the ECI
Q1 inflation rate of 3.4%. The reason for the large deviation
between the values is the timing of each dataset. The ECI data is
only for Q1 of 2020 (January-March) and therefore does not capture
the impact of COVID-19. The PCE inflation predictions are from the
June 2020 and account for the impacts of the pandemic on the US
economy.
\47\ The Federal Reserve, Table 1. Economic projections of
Federal Reserve Board members and Federal Reserve Bank presidents,
under their individual assumptions of projected appropriate monetary
policy, June 2020, (June 10, 2020, 2:00 p.m.), https://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20200610.pdf).
---------------------------------------------------------------------------
Next, we certify that the number of pilots estimated for 2021 is
less than or equal to the number permitted under the proposed changes
to the staffing model in Sec. 401.220(a). The proposed changes to the
staffing model suggest that the number of pilots needed is 16 pilots
for District Two, which is more than or equal to 15, the number of
registered pilots provided by the pilot associations.\48\
---------------------------------------------------------------------------
\48\ See table 6 of the Great Lakes Pilotage Rates--2017 Annual
Review final rule, 82 FR 41466 at 41480 (August 31, 2017). The
methodology of the staffing model is discussed at length in the
final rule (see pages 41476-41480 for a detailed analysis of the
calculations).
---------------------------------------------------------------------------
Thus, in accordance with Sec. 404.104(c), we use the revised
target individual compensation level to derive the total pilot
compensation by multiplying the individual target compensation by the
estimated number of registered pilots for District Two, as shown in
table 19.
Table 19--Target Compensation for District Two
----------------------------------------------------------------------------------------------------------------
Undesignated Designated Total
----------------------------------------------------------------------------------------------------------------
Target Pilot Compensation....................................... $378,180 $378,180 $378,180
Number of Pilots................................................ 8 7 15
-----------------------------------------------
Total Target Pilot Compensation............................. $3,025,440 $2,647,260 $5,672,700
----------------------------------------------------------------------------------------------------------------
E. Step 5: Project Working Capital Fund
Next, we calculate the working capital fund revenues needed for
each area. First, we add the figures for projected operating expenses
and total pilot compensation for each area. Next, we find the preceding
year's average annual rate of return for new issues of high-grade
corporate securities. Using Moody's data, the number is 3.3875
percent.\49\ By multiplying the two figures, we obtain the working
capital fund contribution for each area, as shown in table 20.
---------------------------------------------------------------------------
\49\ See footnote 33.
Table 20--Working Capital Fund Calculation for District Two
----------------------------------------------------------------------------------------------------------------
District two
Item -----------------------------------------------
Undesignated Designated Total
----------------------------------------------------------------------------------------------------------------
Adjusted Operating Expenses (Step 2)............................ $1,013,743 $1,517,815 $2,531,558
Total Target Pilot Compensation (Step 4)........................ 3,025,440 2,647,260 5,672,700
Total Expenses.................................................. 4,039,183 4,165,075 8,204,258
Working Capital Fund (3.3875%).................................. 136,827 141,092 277,919
----------------------------------------------------------------------------------------------------------------
F. Step 6: Project Needed Revenue
In this step, we add all the expenses accrued to derive the total
revenue needed for each area. These expenses include the projected
operating expenses (from Step 2), the total pilot compensation (from
Step 4), and the working capital fund contribution (from Step 5). We
show these calculations in table 21.
Table 21--Revenue Needed for District Two
----------------------------------------------------------------------------------------------------------------
District two
-----------------------------------------------
Undesignated Designated Total
----------------------------------------------------------------------------------------------------------------
Adjusted Operating Expenses (Step 2, see Table 17).............. $1,013,743 $1,517,815 $2,531,558
Total Target Pilot Compensation (Step 4, see Table 19).......... 3,025,440 2,647,260 5,672,700
Working Capital Fund (Step 5, see Table 20)..................... 136,827 141,092 277,919
-----------------------------------------------
Total Revenue Needed........................................ 4,176,010 4,306,167 8,482,177
----------------------------------------------------------------------------------------------------------------
[[Page 68227]]
G. Step 7: Calculate Initial Base Rates
Having determined the needed revenue for each area in the previous
six steps, to develop an hourly rate we divide that number by the
expected number of hours of traffic. Step 7 is a two-part process. In
the first part, we calculate the 10-year average of traffic in District
Two, using the total time on task or pilot bridge hours.\50\ Because we
calculate separate figures for designated and undesignated waters,
there are two parts for each calculation. We show these values in table
22.
---------------------------------------------------------------------------
\50\ See footnote 34 for more information.
Table 22--Time on Task for District Two
[Hours]
------------------------------------------------------------------------
Year Undesignated Designated
------------------------------------------------------------------------
2019.................................... 6,512 7,715
2018.................................... 6,150 6,655
2017.................................... 5,139 6,074
2016.................................... 6,425 5,615
2015.................................... 6,535 5,967
2014.................................... 7,856 7,001
2013.................................... 4,603 4,750
2012.................................... 3,848 3,922
2011.................................... 3,708 3,680
2010.................................... 5,565 5,235
-------------------------------
Average............................. 5,634 5,661
------------------------------------------------------------------------
Next, we derive the initial hourly rate by dividing the revenue
needed by the average number of hours for each area. This produces an
initial rate, which is necessary to produce the revenue needed for each
area, assuming the amount of traffic is as expected. The calculations
for each area are set forth in table 23.
Table 23--Initial Rate Calculations for District Two
------------------------------------------------------------------------
Item Undesignated Designated
------------------------------------------------------------------------
Needed revenue (Step 6)................. $4,176,010 $4,306,167
Average time on task (hours)............ 5,634 5,661
Initial rate............................ $741 $761
------------------------------------------------------------------------
H. Step 8: Calculate Average Weighting Factors by Area
In this step, we calculate the average weighting factor for each
designated and undesignated area. We collect the weighting factors, set
forth in 46 CFR 401.400, for each vessel trip. Using this database, we
calculated the average weighting factor for each area using the data
from each vessel transit from 2014 onward, as shown in tables 24 and
25.\51\
---------------------------------------------------------------------------
\51\ Supra footnote 35, at 41.
Table 24--Average Weighting Factor for District Two, Undesignated Areas
----------------------------------------------------------------------------------------------------------------
Number of Weighting Weighted
Vessel class/year transits factor transits
----------------------------------------------------------------------------------------------------------------
Class 1 (2014).................................................. 31 1 31
Class 1 (2015).................................................. 35 1 35
Class 1 (2016).................................................. 32 1 32
Class 1 (2017).................................................. 21 1 21
Class 1 (2018).................................................. 37 1 37
Class 1 (2019).................................................. 54 1 54
Class 2 (2014).................................................. 356 1.15 409.4
Class 2 (2015).................................................. 354 1.15 407.1
Class 2 (2016).................................................. 380 1.15 437
Class 2 (2017).................................................. 222 1.15 255.3
Class 2 (2018).................................................. 123 1.15 141.45
Class 2 (2019).................................................. 127 1.15 146.05
Class 3 (2014).................................................. 20 1.3 26
Class 3 (2015).................................................. 0 1.3 0
Class 3 (2016).................................................. 9 1.3 11.7
Class 3 (2017).................................................. 12 1.3 15.6
Class 3 (2018).................................................. 3 1.3 3.9
Class 3 (2019).................................................. 1 1.3 1.3
Class 4 (2014).................................................. 636 1.45 922.2
Class 4 (2015).................................................. 560 1.45 812
Class 4 (2016).................................................. 468 1.45 678.6
Class 4 (2017).................................................. 319 1.45 462.55
Class 4 (2018).................................................. 196 1.45 284.20
[[Page 68228]]
Class 4 (2019).................................................. 210 1.45 304.5
-----------------------------------------------
Total....................................................... 4,206 .............. 5,529
-----------------------------------------------
Average weighting factor (weighted transits/number of .............. 1.31 ..............
transits)..............................................
----------------------------------------------------------------------------------------------------------------
Table 25--Average Weighting Factor for District Two, Designated Areas
----------------------------------------------------------------------------------------------------------------
Number of Weighting Weighted
Vessel class/year transits factor transits
----------------------------------------------------------------------------------------------------------------
Class 1 (2014).................................................. 20 1 20
Class 1 (2015).................................................. 15 1 15
Class 1 (2016).................................................. 28 1 28
Class 1 (2017).................................................. 15 1 15
Class 1 (2018).................................................. 42 1 42
Class 1 (2019).................................................. 48 1 48
Class 2 (2014).................................................. 237 1.15 272.55
Class 2 (2015).................................................. 217 1.15 249.55
Class 2 (2016).................................................. 224 1.15 257.6
Class 2 (2017).................................................. 127 1.15 146.05
Class 2 (2018).................................................. 153 1.15 175.95
Class 2 (2019).................................................. 281 1.15 323.15
Class 3 (2014).................................................. 8 1.3 10.4
Class 3 (2015).................................................. 8 1.3 10.4
Class 3 (2016).................................................. 4 1.3 5.2
Class 3 (2017).................................................. 4 1.3 5.2
Class 3 (2018).................................................. 14 1.3 18.2
Class 3 (2019).................................................. 1 1.3 1.3
Class 4 (2014).................................................. 359 1.45 520.55
Class 4 (2015).................................................. 340 1.45 493
Class 4 (2016).................................................. 281 1.45 407.45
Class 4 (2017).................................................. 185 1.45 268.25
Class 4 (2018).................................................. 379 1.45 549.55
Class 4 (2019).................................................. 403 1.45 584.35
-----------------------------------------------
Total....................................................... 3,393 .............. 4,467
-----------------------------------------------
Average weighting factor (weighted transits/number of .............. 1.32 ..............
transits)..............................................
----------------------------------------------------------------------------------------------------------------
I. Step 9: Calculate Revised Base Rates
In this step, we revise the base rates so that once the impact of
the weighting factors are considered, the total cost of pilotage will
be equal to the revenue needed. To do this, we divide the initial base
rates calculated in Step 7 by the average weighting factors calculated
in Step 8, as shown in table 26.
Table 26--Revised Base Rates for District Two
----------------------------------------------------------------------------------------------------------------
Revised Rate
Average (initial rate /
Area Initial rate (step 7) weighting average
factor (step 8) weighting
factor)
----------------------------------------------------------------------------------------------------------------
District Two: Designated..................... $741........................... 1.31 $566
District Two: Undesignated................... 761............................ 1.32 577
----------------------------------------------------------------------------------------------------------------
J. Step 10: Review and Finalize Rates
In this step, the Director reviews the rates set forth by the
staffing model and ensures that they meet the goal of ensuring safe,
efficient, and reliable pilotage. To establish this, the Director
considers whether the proposed rates incorporate appropriate
compensation for pilots to handle heavy traffic periods, and whether
there is a sufficient number of pilots to handle those heavy traffic
periods. The Director also considers whether the proposed rates would
cover operating expenses and infrastructure costs, and takes average
traffic and weighting factors into consideration. Based on this
information, the Director is not proposing any alterations to the rates
in this step. We propose to modify the text in Sec. 401.405(a) to
reflect the final rates shown in table 27.
[[Page 68229]]
Table 27--Proposed Final Rates for District Two
----------------------------------------------------------------------------------------------------------------
Final 2020 Proposed 2021
Area Name pilotage rate pilotage rate
----------------------------------------------------------------------------------------------------------------
District Two: Designated..................... Navigable waters from Southeast $586 $566
Shoal to Port Huron, MI.
District Two: Undesignated................... Lake Erie...................... 618 577
----------------------------------------------------------------------------------------------------------------
District Three
A. Step 1: Recognize Previous Operating Expenses
Step 1 in our ratemaking methodology requires that the Coast Guard
review and recognize the previous year's operating expenses (Sec.
404.101). To do so, we begin by reviewing the independent accountant's
financial reports for each association's 2018 expenses and
revenues.\52\ For accounting purposes, the financial reports divide
expenses into designated and undesignated areas. For costs accrued by
the pilot associations generally, such as employee benefits, for
example, the cost is divided between the designated and undesignated
areas on a pro rata basis. The recognized operating expenses for
District Three are shown in table 28.
---------------------------------------------------------------------------
\52\ These reports are available in the docket for this
rulemaking (see Docket No. USCG-2019-0736).
---------------------------------------------------------------------------
For District Three, we propose two Director's adjustments. One
would be for the amount collected from the 2018 surcharge and the other
for the amount of Coast Guard litigation legal fees. Other adjustments
made by the auditors are explained in the auditors' reports (available
in the docket where indicated in the Public Participation and Request
for Comments portion of this document).
We would make no adjustments to the District Three compensation for
applicant pilots. In the 2019 NPRM, the Coast Guard proposed to make an
adjustment to District Three's request for reimbursement of $571,248
for two applicant pilots ($285,624 per applicant). Instead of
permitting $571,248 for two applicant pilots, we proposed allowing
$257,566, or $128,783 per applicant pilot. This proposal went into the
final rule for 2019 and was not opposed. Going forward, the Coast Guard
will to continue to use the same ratio of applicant to target
compensation for all districts. For 2019, this was approximately 36
percent ($128,783 / $359,887 = 35.78 percent), so the Coast Guard will
use 36 percent of target compensation as the benchmark for applicant
pilot compensation. This allows adjustments to applicant pilot
compensation to fluctuate in line with target compensation.
Table 28--2018 Recognized Expenses for District Three
----------------------------------------------------------------------------------------------------------------
District three
---------------------------------------------------------------------
Undesignated \53\ Designated Undesignated
Reported expenses for 2018 (Area 6) (area 7) (area 8)
------------------------------------------------------ Total
Lakes Huron and St. Marys
Michigan River Lake Superior
----------------------------------------------------------------------------------------------------------------
Operating Expenses:
Other Pilotage Costs:
Pilot subsistence/travel.......... $208,110 $110,697 $123,980 $442,787
Hotel/Lodging Cost................ 88,982 47,331 53,011 189,324
License Insurance--Pilots......... 13,516 7,189 8,052 28,757
Payroll taxes..................... 122,954 65,401 73,249 261,604
Other............................. 19,521 10,383 11,629 41,533
---------------------------------------------------------------------
Total Other Pilotage Costs.... 453,083 241,001 269,921 964,005
Applicant Pilot Costs:
Applicant Salaries.................... 183,485 97,598 109,310 390,393
Applicant pilot subsistence/travel.... 16,411 8,729 9,777 34,917
Applicant Insurance................... 38,312 20,379 22,823 81,514
Applicant Payroll Tax................. 16,411 8,729 9,777 34,917
---------------------------------------------------------------------
Applicant Total Cost.............. 254,619 135,435 151,687 541,741
Pilot Boat and Dispatch Costs:
Pilot boat costs...................... 346,160 184,127 206,223 736,510
Dispatch costs........................ 99,982 53,182 59,563 212,727
Payroll taxes......................... 13,609 7,239 8,108 28,956
---------------------------------------------------------------------
Total Pilot and Dispatch Costs.... 459,751 244,548 273,894 978,193
Administrative Expenses:
Legal--general counsel................ 22,766 12,109 13,563 48,438
Legal--shared counsel (K&L Gates)..... 19,426 10,333 11,573 41,332
Legal--USCG litigation................ 8,611 4,580 5,130 18,321
Office rent........................... 4,020 2,138 2,395 8,553
Insurance............................. 11,354 6,040 6,764 24,158
Employee benefits..................... 68,303 36,331 40,691 145,325
Other taxes........................... 131 70 78 279
[[Page 68230]]
Depreciation/Auto leasing/Other....... 57,315 30,487 34,145 121,947
Interest.............................. 7 4 4 15
APA Dues.............................. 20,628 10,973 12,289 43,890
Dues and subscriptions................ 3,290 1,750 1,960 7,000
Utilities............................. 31,860 16,947 18,980 67,787
Salaries.............................. 60,876 32,381 36,267 129,524
Payroll taxes......................... 5,406 2,875 3,220 11,501
Accounting/Professional fees.......... 8,069 4,292 4,807 17,168
Pilot training........................ 18,586 9,886 11,073 39,545
Other expenses (D3-18-01)............. 8,907 4,738 5,306 18,951
(D3-18-01) CPA Deduction.............. (2,030) (1,080) (1,210) (4,320)
---------------------------------------------------------------------
Total Administrative Expenses..... 347,525 184,854 207,035 739,414
---------------------------------------------------------------------
Total Operating Expenses 1,514,978 805,838 902,537 3,223,353
(Other Costs + Pilot Boats +
Admin).......................
Proposed Adjustments (Director):
Directors Adjustment Surcharge (273,168) (273,168) (273,168) (819,504)
Collected in 2018....................
Proposed Legal Fee Removal--USCG (8,611) (4,580) (5,130) (18,321)
Litigation...........................
---------------------------------------------------------------------
Total Director's Adjustments...... (281,779) (277,748) (278,298) (837,825)
---------------------------------------------------------------------
Total Operating Expenses (OpEx 1,233,199 528,090 624,239 2,385,528
+ Adjustments)...............
----------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------
\53\ The undesignated areas in District Three (areas 6 and 8)
are treated separately in table 28. In table 29 and subsequent
tables, both undesignated areas are combined and analyzed as a
single undesignated area.
---------------------------------------------------------------------------
B. Step 2: Project Operating Expenses, Adjusting for Inflation or
Deflation
Having identified the recognized 2018 operating expenses in Step 1,
the next step is to estimate the current year's operating expenses by
adjusting those expenses for inflation over the 3-year period. We
calculate inflation using the BLS data from the CPI for the Midwest
Region of the United States for the 2019 inflation rate.\54\ Because
the BLS does not provide forecasted inflation data, we use economic
projections from the Federal Reserve for the 2020 and 2021 inflation
modification.\55\ Based on that information, the calculations for Step
1 are as follows:
---------------------------------------------------------------------------
\54\ Supra footnote 29, at 30.
\55\ Supra footnote 30, at 31.
Table 29--Adjusted Operating Expenses for District Three
----------------------------------------------------------------------------------------------------------------
District three
-----------------------------------------------
Undesignated Designated Total
----------------------------------------------------------------------------------------------------------------
Total Operating Expenses (Step 1)............................... $1,857,438 $528,090 $2,385,528
2019 Inflation Modification (@1.5%)............................. 27,862 7,921 35,783
2020 Inflation Modification (@0.8%)............................. 15,082 4,288 19,370
2021 Inflation Modification (@1.6%)............................. 30,406 8,645 39,051
-----------------------------------------------
Adjusted 2021 Operating Expenses............................ 1,930,788 548,944 2,479,732
----------------------------------------------------------------------------------------------------------------
C. Step 3: Estimate Number of Working Pilots
In accordance with the text in Sec. 404.104(c), we estimate the
number of working pilots in each district. We determine the number of
registered pilots based on data provided by the Western Great Lakes
Pilots Association. Using these numbers, we estimate that there will be
22 registered pilots in 2021 in District Three. Furthermore, based on
the seasonal staffing model discussed in the 2017 ratemaking (see 82 FR
41466), and our proposed changes to that staffing model, we assign a
certain number of pilots to designated waters and a certain number to
undesignated waters, as shown in table 30. These numbers are used to
determine the amount of revenue needed in their respective areas.
[[Page 68231]]
Table 30--Authorized Pilots
------------------------------------------------------------------------
District three
------------------------------------------------------------------------
Proposed Maximum number of pilots (per Sec. 23
401.220(a)) \56\.......................................
2021 Authorized pilots (total).......................... 22
Pilots assigned to designated areas..................... 4
Pilots assigned to undesignated areas................... 18
------------------------------------------------------------------------
D. Step 4: Determine Target Pilot Compensation Benchmark
---------------------------------------------------------------------------
\56\ For a detailed calculation, refer to the Great Lakes
Pilotage Rates--2017 Annual Review final rule, which contains the
staffing model. See 82 FR 41466, table 6 at 41480 (August 31, 2017).
---------------------------------------------------------------------------
In this step, we determine the total pilot compensation for each
area. As we are proposing an ``interim'' ratemaking this year, we
propose to follow the procedure outlined in paragraph (b) of Sec.
404.104, which adjusts the existing compensation benchmark by
inflation. As stated in Section VI.A of the preamble, we are proposing
to use a two-step process to adjust target pilot compensation for
inflation. The first step adjusts the 2019 target compensation
benchmark of $367,085 by 1.4 percent, for a total adjusted value of
$372,224. This adjustment accounts for the difference between the
predicted 2020 Median PCE inflation value of 2 percent and the actual
2020 ECI inflation value of 3.4 percent.57 58 Because we do
not have a value for the ECI for 2021, we multiply the adjusted 2020
compensation benchmark of $372,224 by the Median PCE inflation value of
1.60 percent.\59\ Based on the projected 2020 inflation estimate, the
proposed compensation benchmark for 2021 is $378,180 per pilot (see
table 6 for calculations).
---------------------------------------------------------------------------
\57\ U.S. Bureau of Labor Statistics Employment Cost Index (ECI)
Q1 2020 data for Total Compensation for Private Industry Workers in
the Transportation and Material Moving Sector (Series ID:
CIU2010000520000A). The first quarter data was the most recently
available data at the time of analysis for this NPRM. The Coast
Guard will use updated 2020 ECI data in the final rule. https://www.bls.gov/news.release/archives/eci_01312020.pdf.
\58\ In Step 2 of the ratemaking, the Coast Guard uses the
Federal Reserve's predicted PCE inflation rate of 0.8% to inflate
operating expenses to 2020 dollars. This value differs from the ECI
Q1 inflation rate of 3.4%. The reason for the large deviation
between the values is the timing of each dataset. The ECI data is
only for Q1 of 2020 (January-March) and therefore does not capture
the impact of COVID-19. The PCE inflation predictions are from the
June 2020 and account for the impacts of the pandemic on the U.S.
economy.
\59\ Supra footnote 33, at 39.
---------------------------------------------------------------------------
Next, we certify that the number of pilots estimated for 2021 is
less than or equal to the number permitted under the proposed changes
to the staffing model in Sec. 401.220(a). The proposed changes to the
staffing model suggest that the number of pilots needed is 23 pilots
for District Three,\60\ which is more than or equal to 22, the number
of registered pilots provided by the pilot associations.
---------------------------------------------------------------------------
\60\ See Table 6 of the Great Lakes Pilotage Rates--2017 Annual
Review final rule, 82 FR 41466 at 41480 (August 31, 2017). The
methodology of the staffing model is discussed at length in the
final rule (see pages 41476-41480 for a detailed analysis of the
calculations).
---------------------------------------------------------------------------
Thus, in accordance with Sec. 404.104(c), we use the revised
target individual compensation level to derive the total pilot
compensation by multiplying the individual target compensation by the
estimated number of registered pilots for District Three, as shown in
table 31.
Table 31--Target Compensation for District Three
----------------------------------------------------------------------------------------------------------------
District three
-----------------------------------------------
Undesignated Designated Total
----------------------------------------------------------------------------------------------------------------
Target Pilot Compensation....................................... $378,180 $378,180 $378,180
Number of Pilots................................................ 18 4 22
-----------------------------------------------
Total Target Pilot Compensation............................. $6,807,240 $1,512,720 $8,319,960
----------------------------------------------------------------------------------------------------------------
E. Step 5: Project Working Capital Fund
Next, we calculate the working capital fund revenues needed for
each area. First, we add the figures for projected operating expenses
and total pilot compensation for each area. Next, we find the preceding
year's average annual rate of return for new issues of high grade
corporate securities. Using Moody's data, the number is 3.3875
percent.\61\ By multiplying the two figures, we obtain the working
capital fund contribution for each area, as shown in table 32.
---------------------------------------------------------------------------
\61\ Moody's Seasoned Aaa Corporate Bond Yield, average of 2018
monthly data. The Coast Guard uses the most recent complete year of
data. See https://fred.stlouisfed.org/series/AAA. (June 12, 2019).
Table 32--Working Capital Fund Calculation for District Three
----------------------------------------------------------------------------------------------------------------
District three
-----------------------------------------------
Undesignated Designated Total
----------------------------------------------------------------------------------------------------------------
Adjusted Operating Expenses (Step 2)............................ $1,930,788 $548,944 $2,479,732
Total Target Pilot Compensation (Step 4)........................ 6,807,240 1,512,720 8,319,960
Total Expenses.................................................. 8,738,028 2,061,664 10,799,692
Working Capital Fund (3.3875)................................... 296,001 69,839 365,840
----------------------------------------------------------------------------------------------------------------
[[Page 68232]]
F. Step 6: Project Needed Revenue
In this step, we add all the expenses accrued to derive the total
revenue needed for each area. These expenses include the projected
operating expenses (from Step 2), the total pilot compensation (from
Step 4), and the working capital fund contribution (from Step 5). The
calculations are shown in table 33.
Table 33--Revenue Needed for District Three
----------------------------------------------------------------------------------------------------------------
District three
-----------------------------------------------
Undesignated Designated Total
----------------------------------------------------------------------------------------------------------------
Adjusted Operating Expenses (Step 2, see Table 9)............... $1,930,788 $548,944 $2,479,732
Total Target Pilot Compensation (Step 4, see Table 31).......... 6,807,240 1,512,720 8,319,960
Working Capital Fund (Step 5, see Table 32)..................... 296,001 69,839 365,840
-----------------------------------------------
Total Revenue Needed........................................ 9,034,029 2,131,503 11,165,532
----------------------------------------------------------------------------------------------------------------
G. Step 7: Calculate Initial Base Rates
Having determined the revenue needed for each area in the previous
six steps, to develop an hourly rate we divide that number by the
expected number of hours of traffic. Step 7 is a two-part process. In
the first part, we calculate the 10-year average of traffic in District
Three, using the total time on task or pilot bridge hours.\62\ Because
we calculate separate figures for designated and undesignated waters,
there are two parts for each calculation. We show these values in table
34.
---------------------------------------------------------------------------
\62\ See supra footnote 34, at 40 for more information.
Table 34--Time on task for District Three
[Hours]
------------------------------------------------------------------------
District three
Year -------------------------------
Undesignated Designated
------------------------------------------------------------------------
2019.................................... 24,851 3,395
2018.................................... 19,967 3,455
2017.................................... 20,955 2,997
2016.................................... 23,421 2,769
2015.................................... 22,824 2,696
2014.................................... 25,833 3,835
2013.................................... 17,115 2,631
2012.................................... 15,906 2,163
2011.................................... 16,012 1,678
2010.................................... 20,211 2,461
-------------------------------
Average............................. 20,710 2,808
------------------------------------------------------------------------
Next, we derive the initial hourly rate by dividing the revenue
needed by the average number of hours for each area. This produces an
initial rate, which is necessary to produce the revenue needed for each
area, assuming the amount of traffic is as expected. The calculations
for each area are set forth in table 35.
Table 35--Initial Rate Calculations for District Three
------------------------------------------------------------------------
Undesignated Designated
------------------------------------------------------------------------
Revenue needed (Step 6)............. $9,034,029 $2,131,503
Average time on task (hours)........ 20,710 2,808
Initial rate........................ $436 $759
------------------------------------------------------------------------
H. Step 8: Calculate Average Weighting Factors by Area
In this step, we calculate the average weighting factor for each
designated and undesignated area. We collect the weighting factors, set
forth in 46 CFR 401.400, for each vessel trip. Using this database, we
calculate the average weighting factor for each area using the data
from each vessel transit from 2014 onward, as shown in tables 36 and
37.\63\
---------------------------------------------------------------------------
\63\ See supra footnote 35, at 41 for more information.
Table 36--Average Weighting Factor for District Three, Undesignated Areas
----------------------------------------------------------------------------------------------------------------
Number of Weighting Weighted
Vessel class/year transits factor transits
----------------------------------------------------------------------------------------------------------------
Area 6:
[[Page 68233]]
Class 1 (2014).............................................. 45 1 45
Class 1 (2015).............................................. 56 1 56
Class 1 (2016).............................................. 136 1 136
Class 1 (2017).............................................. 148 1 148
Class 1 (2018).............................................. 103 1 103
Class 1 (2019).............................................. 173 1 173
Class 2 (2014).............................................. 274 1.15 315.1
Class 2 (2015).............................................. 207 1.15 238.05
Class 2 (2016).............................................. 236 1.15 271.4
Class 2 (2017).............................................. 264 1.15 303.6
Class 2 (2018).............................................. 169 1.15 194.35
Class 2 (2019).............................................. 279 1.15 320.85
Class 3 (2014).............................................. 15 1.3 19.5
Class 3 (2015).............................................. 8 1.3 10.4
Class 3 (2016).............................................. 10 1.3 13
Class 3 (2017).............................................. 19 1.3 24.7
Class 3 (2018).............................................. 9 1.3 11.7
Class 3 (2019).............................................. 9 1.3 11.7
Class 4 (2014).............................................. 394 1.45 571.3
Class 4 (2015).............................................. 375 1.45 543.75
Class 4 (2016).............................................. 332 1.45 481.4
Class 4 (2017).............................................. 367 1.45 532.15
Class 4 (2018).............................................. 337 1.45 488.65
Class 4 (2019).............................................. 334 1.45 484.3
-----------------------------------------------
Total for Area 6........................................ 4,299 .............. 5,497
Area 8:
Class 1 (2014).............................................. 3 1 3
Class 1 (2015).............................................. 0 1 0
Class 1 (2016).............................................. 4 1 4
Class 1 (2017).............................................. 4 1 4
Class 1 (2018).............................................. 0 1 0
Class 1 (2019).............................................. 0 1 0
Class 2 (2014).............................................. 177 1.15 203.55
Class 2 (2015).............................................. 169 1.15 194.35
Class 2 (2016).............................................. 174 1.15 200.1
Class 2 (2017).............................................. 151 1.15 173.65
Class 2 (2018).............................................. 102 1.15 117.3
Class 2 (2019).............................................. 120 1.15 138
Class 3 (2014).............................................. 3 1.3 3.9
Class 3 (2015).............................................. 0 1.3 0
Class 3 (2016).............................................. 7 1.3 9.1
Class 3 (2017).............................................. 18 1.3 23.4
Class 3 (2018).............................................. 7 1.3 9.1
Class 3 (2019).............................................. 6 1.3 7.8
Class 4 (2014).............................................. 243 1.45 352.35
Class 4 (2015).............................................. 253 1.45 366.85
Class 4 (2016).............................................. 204 1.45 295.8
Class 4 (2017).............................................. 269 1.45 390.05
Class 4 (2018).............................................. 188 1.45 272.6
Class 4 (2019).............................................. 254 1.45 368.3
-----------------------------------------------
Total for Area 8........................................ 2,356 .............. 3,137
-----------------------------------------------
Combined total...................................... 6,655 .............. 8,634.10
-----------------------------------------------
Average weighting factor (weighted transits/ .............. 1.30 ..............
number of transits)............................
----------------------------------------------------------------------------------------------------------------
Table 37--Average Weighting Factor for District Three, Designated Areas
----------------------------------------------------------------------------------------------------------------
Number of Weighting Weighted
Vessel class per year transits factor transits
----------------------------------------------------------------------------------------------------------------
Class 1 (2014).................................................. 27 1 27
Class 1 (2015).................................................. 23 1 23
Class 1 (2016).................................................. 55 1 55
Class 1 (2017).................................................. 62 1 62
Class 1 (2018).................................................. 47 1 47
Class 1 (2019).................................................. 45 1 45
Class 2 (2014).................................................. 221 1.15 254.15
Class 2 (2015).................................................. 145 1.15 166.75
[[Page 68234]]
Class 2 (2016).................................................. 174 1.15 200.1
Class 2 (2017).................................................. 170 1.15 195.5
Class 2 (2018).................................................. 126 1.15 144.9
Class 2 (2019).................................................. 162 1.15 186.3
Class 3 (2014).................................................. 4 1.3 5.2
Class 3 (2015).................................................. 0 1.3 0
Class 3 (2016).................................................. 6 1.3 7.8
Class 3 (2017).................................................. 14 1.3 18.2
Class 3 (2018).................................................. 6 1.3 7.8
Class 3 (2019).................................................. 3 1.3 3.9
Class 4 (2014).................................................. 321 1.45 465.45
Class 4 (2015).................................................. 245 1.45 355.25
Class 4 (2016).................................................. 191 1.45 276.95
Class 4 (2017).................................................. 234 1.45 339.3
Class 4 (2018).................................................. 225 1.45 326.25
Class 4 (2019).................................................. 308 1.45 446.6
-----------------------------------------------
Total....................................................... 2,814 .............. 3,659
-----------------------------------------------
Average weighting factor (weighted transits per number .............. 1.30 ..............
of transits)...........................................
----------------------------------------------------------------------------------------------------------------
I. Step 9: Calculate Revised Base Rates
In this step, we revise the base rates so that once the impact of
the weighting factors are considered, the total cost of pilotage will
be equal to the revenue needed. To do this, we divide the initial base
rates calculated in Step 7 by the average weighting factors calculated
in Step 8, as shown in table 38.
Table 38--Revised Base Rates for District Three
----------------------------------------------------------------------------------------------------------------
Revised rate
Average (Initial rate /
Area Initial rate weighting average
(step 7) factor (step 8) weighting
factor)
----------------------------------------------------------------------------------------------------------------
District Three: Designated................................... $759 1.30 $584
District Three: Undesignated................................. 436 1.30 335
----------------------------------------------------------------------------------------------------------------
J. Step 10: Review and Finalize Rates
In this step, the Director reviews the rates set forth by the
staffing model and ensures that they meet the goal of ensuring safe,
efficient, and reliable pilotage. To establish this, the Director
considers whether the proposed rates incorporate appropriate
compensation for pilots to handle heavy traffic periods and whether
there is a sufficient number of pilots to handle those heavy traffic
periods. The Director also considers whether the proposed rates would
cover operating expenses and infrastructure costs, and takes average
traffic and weighting factors into consideration. Based on this
information, the Director is not proposing any alterations to the rates
in this step. We propose to modify the text in Sec. 401.405(a) to
reflect the final rates shown in table 39.
Table 39--Proposed Final Rates for District Three
----------------------------------------------------------------------------------------------------------------
Final 2020 Proposed 2021
Area Name pilotage rate pilotage rate
----------------------------------------------------------------------------------------------------------------
District Three: Designated................... St. Marys River................ $632 $584
District Three: Undesignated................. Lakes Huron, Michigan, and 337 335
Superior.
----------------------------------------------------------------------------------------------------------------
IX. Regulatory Analyses
We developed this proposed rule after considering numerous statutes
and Executive orders related to rulemaking. A summary of our analyses
based on these statutes or Executive orders follows.
A. Regulatory Planning and Review
Executive Orders 12866 (Regulatory Planning and Review) and 13563
(Improving Regulation and Regulatory Review) direct agencies to assess
the costs and benefits of available regulatory alternatives and, if
regulation is necessary, to select regulatory approaches that maximize
net benefits (including potential economic, environmental, public
health and safety effects, distributive impacts, and equity). Executive
Order 13563 emphasizes the importance of quantifying costs and
benefits, reducing costs, harmonizing rules, and promoting flexibility.
Executive Order 13771 (Reducing Regulation and Controlling Regulatory
Costs) directs agencies to reduce regulation and control regulatory
costs and provides that ``for every one new regulation issued, at least
two prior regulations be identified for elimination, and that the cost
of planned regulations
[[Page 68235]]
be prudently managed and controlled through a budgeting process.''
The Office of Management and Budget (OMB) has not designated this
proposed rule a significant regulatory action under section 3(f) of
Executive Order 12866. Accordingly, OMB has not reviewed it. Because
this proposed rule is not a significant regulatory action, it is exempt
from the requirements of Executive Order 13771. See the OMB Memorandum
titled ``Guidance Implementing Executive Order 13771, titled `Reducing
Regulation and Controlling Regulatory Costs' '' (April 5, 2017). A
regulatory analysis (RA) follows.
The purpose of this proposed rule is to establish new base pilotage
rates. The Great Lakes Pilotage Act of 1960 requires that rates be
established or reviewed and adjusted each year. The Act requires that
base rates be established by a full ratemaking at least once every five
years, and in years when base rates are not established, they must be
reviewed and, if necessary, adjusted. The last full ratemaking was
concluded in June of 2018.\64\ For this ratemaking, the Coast Guard
estimates an increase in cost of approximately $1.06 million to
industry as a result of the change in revenue needed in 2021 compared
to the revenue needed in 2020.
---------------------------------------------------------------------------
\64\ Great Lakes Pilotage Rates--2018 Annual Review and
Revisions to Methodology (83 FR 26162), published June 5, 2018.
---------------------------------------------------------------------------
Table 40 summarizes proposed changes with no cost impacts or where
the cost impacts are captured in the proposed rate change. Table 41
summarizes the affected population, costs, and benefits of the proposed
rate change.
Table 40--Proposed Changes With No Costs or Cost Captured in the Proposed Rate Change
----------------------------------------------------------------------------------------------------------------
Basis for no cost
Change Description Affected or cost captured Benefits
population in the rate
----------------------------------------------------------------------------------------------------------------
Legal expenses for lawsuits The Coast Guard is Owners and Changes in The change would
against the U.S. Government are proposing to operators of 279 operating remove the undue
not allowable operating exclude legal vessels expenses are cost to shippers
expenses. fees for journeying the accounted for in of effectively
litigation Great Lakes the base pilotage paying for the
against the Coast system annually, rates. For the pilots'
Guard from 55 U.S. Great 2020 ratemaking, litigation
operating Lakes pilots, and these legal fees expenses to sue
expenses for 3 pilotage total $36,688 for the Coast Guard.
calculation of associations. all three
pilotage rates. districts. After
This proposal adjusting for
would only apply inflation and the
to legal fees working capital
when pilots fund, these
associations sue expenses are
the Coast Guard $39,430, or 0.13%
in relation to of the total
the ratemaking revenue needed
and oversight for 2021. The
requirement in 46 pilotage
U.S.C. 9303, 9304 associations may
and 9305. As part still be
of this proposed reimbursed for
change, the Coast these expenses by
Guard is also the Coast Guard
proposing to under the EAJA.
create a new
paragraph 46 CFR
404.2(b)(6) which
defines legal
expenses.
Changes to Staffing Model....... The Coast Guard is Owners and The total number Rounding up in the
proposing to operators of 279 of pilots is staffing model
modify the vessels accounted for in accounts for
staffing model at journeying the the base pilotage extra staff or
46 CFR Great Lakes rates. For the extra time spent
401.220(a)(3) to system annually, 2021 ratemaking, by the pilot
round up to the 55 U.S. Great this proposed associations
nearest integer, Lakes pilots, and change would presidents,
as opposed to the 3 pilotage allow for one including
existing method, associations. additional pilot attending
which rounds to that would not mandatory
the nearest have otherwise meetings with the
integer. In been allowed. Coast Guard,
total, this would complying with
increase the new reporting
maximum number of requirements, and
allowable pilots overseeing
by 3. projects that
enable the
associations to
provide safe,
efficient, and
reliable pilotage
service in order
to facilitate
maritime
commerce.
Inflation of Target pilot The Coast Guard is Owners and Pilot compensation This proposed
compensation. proposing to operators of 279 costs are change ensures
modify 46 CFR vessels accounted for in the Coast Guard
404.104(b) to journeying the the base pilotage will be able to
change how Great Lakes rates. correct any under-
inflation of system annually, or over-
pilot 55 U.S. Great estimates in
compensation is Lakes pilots, and inflation rather
calculated by 3 pilotage than keeping
accounting for associations. these errors
the difference continuously in
between the the rate.
predicted PCE
inflation rated
and the actual
ECI inflation
rate.
----------------------------------------------------------------------------------------------------------------
Table 41--Economic Impacts Due to Proposed Changes
----------------------------------------------------------------------------------------------------------------
Affected
Change Description population Costs Benefits
----------------------------------------------------------------------------------------------------------------
Rate and surcharge changes...... Under the Great Owners and Increase of New rates cover an
Lakes Pilotage operators of 279 $1,060,757 due to association's
Act of 1960, the vessels change in revenue necessary and
Coast Guard is transiting the needed for 2021 reasonable
required to Great Lakes ($29,328,787) operating
review and adjust system annually, from revenue expenses.
base pilotage 55 U.S. Great needed for 2020 Promotes safe,
rates annually. Lakes pilots, and ($28,268,030), as efficient, and
3 pilotage shown in table 42 reliable pilotage
associations. below. service on the
Great Lakes.
Provides fair
compensation,
adequate
training, and
sufficient rest
periods for
pilots. Ensures
the association
receives
sufficient
revenues to fund
future
improvements.
----------------------------------------------------------------------------------------------------------------
[[Page 68236]]
The Coast Guard is required to review and adjust pilotage rates on
the Great Lakes annually. See Sections IV and V of this preamble for
detailed discussions of the legal basis and purpose for this rulemaking
and for background information on Great Lakes pilotage ratemaking.
Based on our annual review for this rulemaking, we are proposing to
adjust the pilotage rates for the 2021 shipping season to generate
sufficient revenues for each district to reimburse its necessary and
reasonable operating expenses, fairly compensate trained and rested
pilots, and provide an appropriate working capital fund to use for
improvements. The rate changes in this proposed rule would decrease the
rates for all three districts. In addition, the proposed rule would not
implement a surcharge for the training of apprentice pilots as was last
implemented in the 2019 ratemaking.\65\ These changes lead to a net
increase in the cost of service to shippers. However, because the
proposed rates would increase for some areas and decrease for others,
the change in per unit cost to each individual shipper would be
dependent on their area of operation, and if they previously paid a
surcharge.
---------------------------------------------------------------------------
\65\ See, 84 FR 20551 (May 10, 2019).
---------------------------------------------------------------------------
A detailed discussion of our economic impact analysis follows.
Affected Population
This rule would impact U.S. Great Lakes pilots, the 3 pilot
associations, and the owners and operators of 279 oceangoing vessels
that transit the Great Lakes annually. We estimate that there would be
55 pilots registered during the 2021 shipping season. The shippers
affected by these rate changes are those owners and operators of
domestic vessels operating ``on register'' (engaged in foreign trade)
and owners and operators of non-Canadian foreign vessels on routes
within the Great Lakes system. These owners and operators must have
pilots or pilotage service as required by 46 U.S.C. 9302. There is no
minimum tonnage limit or exemption for these vessels. The statute
applies only to commercial vessels and not to recreational vessels.
U.S.-flagged vessels not operating on register and Canadian ``lakers,''
which account for most commercial shipping on the Great Lakes, are not
required by 46 U.S.C. 9302 to have pilots. However, these U.S. and
Canadian-flagged lakers may voluntarily choose to engage a Great Lakes
registered pilot. Vessels that are U.S.-flagged may opt to have a pilot
for varying reasons, such as unfamiliarity with designated waters and
ports, or for insurance purposes.
The Coast Guard used billing information from the years 2017
through 2019 from the Great Lakes Pilotage Management System (GLPMS) to
estimate the average annual number of vessels affected by the rate
adjustment. The GLPMS tracks data related to managing and coordinating
the dispatch of pilots on the Great Lakes, and billing in accordance
with the services. As described in Step 7 of the methodology, we use a
10-year average to estimate the traffic. We used 3 years of the most
recent billing data to estimate the affected population. When we
reviewed 10 years of the most recent billing data, we found the data
included vessels that have not used pilotage services in recent years.
We believe using 3 years of billing data is a better representation of
the vessel population that is currently using pilotage services and
would be impacted by this rulemaking. We found that 474 unique vessels
used pilotage services during the years 2017 through 2019. That is,
these vessels had a pilot dispatched to the vessel and billing
information was recorded in the GLPMS. Of these vessels, 434 were
foreign-flagged vessels and 40 were U.S.-flagged vessels. As previously
stated, U.S.-flagged vessels not operating on register are not required
to have a registered pilot per 46 U.S.C. 9302, but they can voluntarily
choose to have one.
Numerous factors affect vessel traffic, which varies from year to
year. Therefore, rather than using the total number of vessels over the
time period, we took an average of the unique vessels using pilotage
services from the years 2017 through 2019 as the best representation of
vessels estimated to be affected by the rates in this rulemaking. From
2017 through 2019, an average of 279 vessels used pilotage services
annually.\66\ On average, 261 of these vessels were foreign-flagged
vessels and 18 were U.S.-flagged vessels that voluntarily opted into
the pilotage service.
---------------------------------------------------------------------------
\66\ Some vessels entered the Great Lakes multiple times in a
single year, affecting the average number of unique vessels
utilizing pilotage services in any given year.
---------------------------------------------------------------------------
Total Cost to Shippers
The proposed rate changes resulting from this adjustment to the
rates would result in a net decrease in the cost of service to
shippers. However, the proposed change in per unit cost to each
individual shipper would be dependent on their area of operation.
The Coast Guard estimates the effect of the rate changes on
shippers by comparing the total projected revenues needed to cover
costs in 2020 with the total projected revenues to cover costs in 2021,
including any temporary surcharges we have authorized.\67\ We set
pilotage rates so pilot associations receive enough revenue to cover
their necessary and reasonable expenses. Shippers pay these rates when
they have a pilot as required by 46 U.S.C. 9302. Therefore, the
aggregate payments of shippers to pilot associations are equal to the
projected necessary revenues for pilot associations. The revenues each
year represent the total costs that shippers must pay for pilotage
services. The change in revenue from the previous year is the
additional cost to shippers discussed in this rule.
---------------------------------------------------------------------------
\67\ While the Coast Guard implemented a surcharge in 2019, we
are not proposing any surcharges for 2021.
---------------------------------------------------------------------------
The impacts of the rate changes on shippers are estimated from the
district pilotage projected revenues (shown in tables 9, 21, and 33 of
this preamble). The Coast Guard estimates that for the 2021 shipping
season, the projected revenue needed for all three districts is
$29,328,787.
To estimate the change in cost to shippers from this rule, the
Coast Guard compared the 2021 total projected revenues to the 2020
projected revenues. Because we review and prescribe rates for the Great
Lakes Pilotage annually, the effects are estimated as a single-year
cost rather than annualized over a 10-year period. In the 2020
rulemaking, we estimated the total projected revenue needed for 2020 as
$28,268,030.\68\ This is the best approximation of 2020 revenues, as at
the time of this publication, the Coast Guard does not have enough
audited data available for the 2020 shipping season to revise these
projections.\69\ Table 42 shows the revenue projections for 2020 and
2021 and details the additional cost increases to shippers by area and
district as a result of the rate changes on traffic in Districts One,
Two, and Three.
---------------------------------------------------------------------------
\68\ 85 FR 20088, see table 41.
\69\ The proposed rates for 2021 do not account for the impacts
COVID-19 may have on shipping traffic and subsequently pilotage
revenue, as we do not have complete data for 2020. The rates for
2022 will take into account the impact of COVID-19 on shipping
traffic, because that future ratemaking will include 2020 traffic
data. However, the Coast Guard uses 10-year average when calculating
traffic in order to smooth out variations in traffic caused by
global economic conditions, such as those caused by the COVID-19
pandemic.
[[Page 68237]]
Table 42--Effect of the Rule by Area and District
[$U.S.; non-discounted]
----------------------------------------------------------------------------------------------------------------
Change in
Area Revenue needed Revenue needed costs of this
in 2020 in 2021 proposed rule
----------------------------------------------------------------------------------------------------------------
Total, District One............................................. $9,210,888 $9,681,078 $470,190
Total, District Two............................................. 8,345,871 8,482,177 136,306
Total, District Three........................................... 10,711,271 11,165,532 454,261
-----------------------------------------------
System Total................................................ 28,268,030 29,328,787 1,060,757
----------------------------------------------------------------------------------------------------------------
The resulting difference between the projected revenue in 2020 and
the projected revenue in 2021 is the annual change in payments from
shippers to pilots as a result of the rate change imposed by this
proposed rule. The effect of the rate change to shippers varies by area
and district. After taking into account the change in pilotage rates,
the rate changes would lead to affected shippers operating in District
One experiencing an increase in payments of $470,190 over the previous
year. District Two and District Three would experience an increase in
payments of $136,306 and $454,261, respectively, when compared with
2020. The overall adjustment in payments would be an increase in
payments by shippers of $1,060,757 across all three districts (a 4-
percent increase when compared with 2020). Again, because the Coast
Guard reviews and sets rates for Great Lakes Pilotage annually, we
estimate the impacts as single-year costs rather than annualizing them
over a 10-year period.
Table 43 shows the difference in revenue by revenue-component from
2020 to 2021 and presents each revenue-component as a percentage of the
total revenue needed. In both 2020 and 2021, the largest revenue-
component was pilotage compensation (68 percent of total revenue needed
in 2020 and 71 percent of total revenue needed in 2021), followed by
operating expenses (29 percent of total revenue needed in 2020 and 26
percent of total revenue needed in 2021).
Table 43--Difference in Revenue by Component
--------------------------------------------------------------------------------------------------------------------------------------------------------
Difference
Revenue needed Percentage of Revenue needed Percentage of (2021 revenue- Percentage
Revenue component in 2020 total revenue in 2021 total revenue 2020 revenue) change from
needed in 2020 needed in 2021 previous year
--------------------------------------------------------------------------------------------------------------------------------------------------------
Adjusted Operating Expenses............................. $8,110,685 29 $7,567,927 26 ($542,758) (7)
Total Target Pilot Compensation......................... 19,088,420 68 20,799,900 71 1,711,480 9
Working Capital Fund.................................... 1,068,925 4 960,960 3 (107,965) (10)
-----------------------------------------------------------------------------------------------
Total Revenue Needed................................ 28,268,030 100 29,328,787 100 1,060,757 4
--------------------------------------------------------------------------------------------------------------------------------------------------------
Note: Totals may not sum due to rounding.
As stated above, we estimate that there will be a total increase in
revenue needed by the pilot associations of $1,060,757. This represents
an increase in revenue needed for target pilot compensation of
$1,711,480, and a decrease in the revenue needed for adjusted operating
expenses and the working capital fund of $542,758 and $107,965,
respectively. The proposed removal of legal fees associated with
litigation against the Coast Guard would reduce the revenue needed in
2021 by $39,430. While the shippers would no longer reimburse the legal
fees associated with litigation via the rate under the proposed rule,
the pilot associations may still be reimbursed for these expenses by
the Coast Guard under the EAJA.
The majority of the increase in revenue needed, $1,711,480, is the
result of changes to target pilot compensation. These changes are due
to three factors: (1) The proposed changes to adjust 2020 pilotage
compensation to account for the difference between actual and predicted
inflation; (2) the net addition of three additional pilots; and (3)
inflation of pilotage compensation.
The proposed target compensation is $378,180 per pilot in 2021,
compared to $367,085 in 2020. The proposed changes to modify the 2020
pilot compensation to account for the difference between predicted and
actual inflation would increase the 2020 target compensation value by
1.4 percent. As show in table 43, this inflation adjustment would
increase total compensation by $5,139 per pilot, and the total revenue
needed by $282,655 when accounting for all 55 pilots.
Table 44--Change in Revenue Resulting From the Proposed Change to
Inflation of Pilot Compensation Calculation in Step 4
------------------------------------------------------------------------
------------------------------------------------------------------------
2020 Target Compensation................................ $367,085
Adjusted 2020 Compensation ($367,085 x 1.014)........... 372,224
Difference between Target 2020 Compensation and Target 5,139
2020 Compensation ($372,224 - $367,085)................
Increase in total Revenue for 55 Pilots ($5,139 x 55)... 282,655
------------------------------------------------------------------------
The addition of 3 pilots to full registered status accounts for
$1,119,122 of the increase in needed revenue. As shown in table 44, to
avoid double counting, this value excludes the change in revenue
resulting from the proposed
[[Page 68238]]
change to adjust 2020 pilotage compensation to account for the
difference between actual and predicted inflation.
Table 45--Change in Revenue Resulting From Adding Three Additional
Pilots
------------------------------------------------------------------------
------------------------------------------------------------------------
2021 Target Compensation................................ $378,180
Total Number of New Pilots.............................. 3
Total Cost of new Pilots ($378,180 x 3)................. $1,134,540
Difference between Target 2020 Compensation and Target $5,139
2020 Compensation ($372,224 - $367,085)................
Increase in total Revenue for 3 Pilots ($5,139 x 3)..... $15,418
Net Increase in total Revenue 3 Pilots ($1,134,540- $1,119,122
$15,418)...............................................
------------------------------------------------------------------------
Finally, the remainder of the increase, $309,702, is the result of
increasing compensation for the other 52 pilots to account for future
inflation of 1.6 percent in 2021. This would increase total
compensation by $5,965 per pilot.
Table 46--Change in Revenue Resulting From Inflating 2020 Compensation
to 2021
------------------------------------------------------------------------
------------------------------------------------------------------------
Adjusted 2020 Compensation.............................. $372,224
2021 Target Compensation ($372,224 x 1.016)............. 378,180
Difference between Target 2020 Compensation and Target 5,956
2020 Compensation ($378,180 - $372,224)................
Increase in total Revenue for 52 Pilots ($5,956 x 52)... 309,702
------------------------------------------------------------------------
Table 46 presents the percentage change in revenue by area and
revenue-component, excluding surcharges, as they are applied at the
district level.\70\
---------------------------------------------------------------------------
\70\ The 2020 projected revenues are from the Great Lakes
Pilotage Rates--2020 Annual Review and Revisions to Methodology
final rule (85 FR 20088) Tables 8, 20, and 32. The 2021 projected
revenues are from tables 9, 21, and 33 of this proposed rule.
Table 47--Difference in Revenue by Component and Area
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Adjusted operating expenses Total target pilot compensation Working capital fund Total revenue needed
---------------------------------------------------------------------------------------------------------------------------------------------------
Area Percentage Percentage Percentage Percentage
2020 2021 change 2020 2021 change 2020 2021 change 2020 2021 change
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
District One: Designated.................... $1,573,286 $1,632,733 4 $3,670,850 $4,159,980 12 $206,095 $196,228 (5) $5,450,231 $5,988,941 9
District One: Undesignated.................. 1,048,857 923,904 (14) 2,569,595 2,647,260 3 142,205 120,973 (18) 3,760,657 3,692,137 (2)
District Two: Undesignated.................. 1,019,371 1,013,743 (1) 2,936,680 3,025,440 3 155,473 136,827 (14) 4,111,524 4,176,010 2
District Two: Designated.................... 1,504,635 1,517,815 1 2,569,595 2,647,260 3 160,117 141,092 (13) 4,234,347 4,306,167 2
District Three: Undesignated................ 2,336,354 1,930,788 (21) 5,873,360 6,807,240 14 322,642 296,001 (9) 8,532,356 9,034,029 6
District Three: Designated.................. 628,182 548,944 (14) 1,468,340 1,512,720 3 82,393 69,839 (18) 2,178,915 2,131,503 (2)
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Benefits
This proposed rule would allow the Coast Guard to meet requirements
in 46 U.S.C. 9303 to review the rates for pilotage services on the
Great Lakes. The rate changes would promote safe, efficient, and
reliable pilotage service on the Great Lakes by (1) ensuring that rates
cover an association's operating expenses; (2) providing fair pilot
compensation, adequate training, and sufficient rest periods for
pilots; and (3) ensuring pilot associations produce enough revenue to
fund future improvements. The rate changes would also help recruit and
retain pilots, which would ensure a sufficient number of pilots to meet
peak shipping demand, helping to reduce delays caused by pilot
shortages.
B. Small Entities
Under the Regulatory Flexibility Act, 5 U.S.C. 601-612, we have
considered whether this proposed rule would have a significant economic
impact on a substantial number of small entities. The term ``small
entities'' comprises small businesses, not-for-profit organizations
that are independently owned and operated and are not dominant in their
fields, and governmental jurisdictions with populations of less than
50,000.
For the proposed rule, the Coast Guard reviewed recent company size
and ownership data for the vessels identified in the GLPMS, and we
reviewed business revenue and size data provided by publicly available
sources such as Manta \71\ and ReferenceUSA.\72\ As described in
Section IX.A of this preamble, Regulatory Planning and Review, we found
that a total of 474 unique vessels used pilotage services from 2017
through 2019. These vessels are owned by 49 entities. We found that of
the 49 entities that own or operate vessels engaged in trade on the
Great Lakes that would be affected by this rule, 38 are foreign
entities that operate primarily outside the United States, and the
remaining 11 entities are U.S. entities. We compared the revenue and
employee data found in the company search to the Small Business
Administration's (SBA) small business threshold as defined in the SBA's
``Table of Size Standards'' for small businesses to determine how many
of these companies are considered small entities.\73\ Table 48 shows
the North American Industry Classification System (NAICS) codes of the
U.S. entities and the small entity standard size established by the
SBA.
---------------------------------------------------------------------------
\71\ See https://www.manta.com/.
\72\ See http://resource.referenceusa.com/.
\73\ See: https://www.sba.gov/document/support--table-size-standards. SBA has established a ``Table of Size Standards'' for
small businesses that sets small business size standards by NAICS
code. A size standard, which is usually stated in number of
employees or average annual receipts (``revenues''), represents the
largest size that a business (including its subsidiaries and
affiliates) may be in order to remain classified as a small business
for SBA and Federal contracting programs.
[[Page 68239]]
Table 48--NAICS Codes and Small Entities Size Standards
----------------------------------------------------------------------------------------------------------------
NAICS Description Small entity size standard
----------------------------------------------------------------------------------------------------------------
211120......................... Crude Petroleum Extraction..... 1,250 employees.
237990......................... Other Heavy and Civil $39.5 million.
Engineering Construction.
238910......................... Site Preparation Contractors... $16.5 million.
483212......................... Inland Water Passenger 500 employees.
Transportation.
487210......................... Scenic and Sightseeing $8.0 million.
Transportation, Water.
488330......................... Navigational Services to $41.5 million.
Shipping.
523910......................... Miscellaneous Intermediation... $41.5 million.
561599......................... All Other Travel Arrangement $22.0 million.
and Reservation Services.
982100......................... National Security.............. Population of 50,000 People.
----------------------------------------------------------------------------------------------------------------
Of the 11 U.S. entities, 8 exceed the SBA's small business
standards for small entities. To estimate the potential impact on the 3
small entities, the Coast Guard used their 2019 invoice data to
estimate their pilotage costs in 2021. We increased their 2019 costs to
account for the changes in pilotage rates resulting from this proposed
rule and the Great Lakes Pilotage Rates--2020 Annual Review and
Revisions to Methodology final rule (85 FR 20088). We estimated the
change in cost to these entities resulting from this rule by
subtracting their estimated 2020 costs from their estimated 2021 costs,
and found the average costs to small firms would be approximately
$1,226. We then compared the estimated change in pilotage costs between
2020 and 2021 with each firm's annual revenue. In all cases, their
estimated pilotage expenses were below 1 percent of their annual
revenue.
In addition to the owners and operators discussed above, three U.S.
entities that receive revenue from pilotage services would be affected
by this proposed rule. These are the three pilot associations that
provide and manage pilotage services within the Great Lakes districts.
Two of the associations operate as partnerships, and one operates as a
corporation. These associations are designated with the same NAICS code
and small-entity size standards described above, but have fewer than
500 employees. Combined, they have approximately 65 employees in total
and, therefore, are designated as small entities. The Coast Guard
expects no adverse effect on these entities from this rule because the
three pilot associations would receive enough revenue to balance the
projected expenses associated with the projected number of bridge hours
(time on task) and pilots.
Finally, the Coast Guard did not find any small not-for-profit
organizations that are independently owned and operated and are not
dominant in their fields that would be impacted by this rule. We did
not find any small governmental jurisdictions with populations of fewer
than 50,000 people that would be impacted by this rule. Based on this
analysis, we conclude this rulemaking would not affect a substantial
number of small entities, nor have a significant economic impact on any
of the affected entities.
Based on our analysis, this proposed rule would have a less than 1
percent annual impact on 3 small entities; therefore, the Coast Guard
certifies under 5 U.S.C. 605(b) that this proposed rule would not have
a significant economic impact on a substantial number of small
entities. If you think that your business, organization, or
governmental jurisdiction qualifies as a small entity and that this
proposed rule would have a significant economic impact on it, please
submit a comment to the docket at the address listed in the ADDRESSES
section of this preamble. In your comment, explain why you think it
qualifies and how and to what degree this proposed rule would
economically affect it.
C. Assistance for Small Entities
Under section 213(a) of the Small Business Regulatory Enforcement
Fairness Act of 1996, Public Law 104-121, we want to assist small
entities in understanding this proposed rule so that they can better
evaluate its effects on them and participate in the rulemaking. If the
proposed rule would affect your small business, organization, or
governmental jurisdiction and you have questions concerning its
provisions or options for compliance, please contact the person in the
FOR FURTHER INFORMATION section of this proposed rule. The Coast Guard
will not retaliate against small entities that question or complain
about this proposed rule or any policy or action of the Coast Guard.
Small businesses may send comments on the actions of Federal
employees who enforce, or otherwise determine compliance with, Federal
regulations to the Small Business and Agriculture Regulatory
Enforcement Ombudsman and the Regional Small Business Regulatory
Fairness Boards. The Ombudsman evaluates these actions annually and
rates each agency's responsiveness to small business. If you wish to
comment on actions by employees of the Coast Guard, call 1-888-REG-FAIR
(1-888-734-3247).
D. Collection of Information
The Paperwork Reduction Act of 1995 (44 3501-3520) requires that
the Coast Guard consider the impact of paperwork and other information
collection burdens imposed on the public. According to the 1995
amendments to the Paperwork Reduction Act (5 CFR 1320(b)(2)(vi), an
agency may not collect or sponsor the collection of information, nor
may it impose an information collection requirement unless it displays
a currently valid Office of Management and Budget (OMB) control number.
The Coast Guard has determined that there would be no new
information collection associated with this proposed rule. Approval to
collect such information previously was approved by OMB and was
assigned OMB Control Number 1625-0086, Great Lakes Pilotage
Methodology.
E. Federalism
A rule has implications for federalism under Executive Order 13132
(Federalism) if it has a substantial direct effect on the States, on
the relationship between the national government and the States, or on
the distribution of power and responsibilities among the various levels
of government. We have analyzed this proposed rule under Executive
Order 13132 and have determined that it is consistent with the
fundamental federalism principles and preemption requirements as
described in Executive Order 13132. Our analysis follows.
Congress directed the Coast Guard to establish ``rates and charges
for pilotage services''. See 46 U.S.C. 9303(f). This regulation is
issued pursuant to that statute and is preemptive of State law as
specified in 46 U.S.C. 9306. Under 46 U.S.C. 9306, a ``State or
political
[[Page 68240]]
subdivision of a State may not regulate or impose any requirement on
pilotage on the Great Lakes.'' As a result, States or local governments
are expressly prohibited from regulating within this category.
Therefore, this proposed rule is consistent with the fundamental
federalism principles and preemption requirements described in
Executive Order 13132.
While it is well settled that States may not regulate in categories
in which Congress intended the Coast Guard to be the sole source of a
vessel's obligations, the Coast Guard recognizes the key role that
State and local governments may have in making regulatory
determinations. Additionally, for rules with implications and
preemptive effect, Executive Order 13132 specifically directs agencies
to consult with State and local governments during the rulemaking
process. If you believe this rule has implications for federalism under
Executive Order 13132, please contact the person listed in the FOR
FURTHER INFORMATION section of this preamble.
F. Unfunded Mandates
The Unfunded Mandates Reform Act of 1995, 2 U.S.C. 1531-1538,
requires Federal agencies to assess the effects of their discretionary
regulatory actions. In particular, the Act addresses actions that may
result in the expenditure by a State, local, or tribal government, in
the aggregate, or by the private sector of $100 million (adjusted for
inflation) or more in any one year. Although this proposed rule would
not result in such an expenditure, we do discuss the effects of this
proposed rule elsewhere in this preamble.
G. Taking of Private Property
This proposed rule would not cause a taking of private property or
otherwise have taking implications under Executive Order 12630
(Governmental Actions and Interference with Constitutionally Protected
Property Rights).
H. Civil Justice Reform
This proposed rule meets applicable standards in sections 3(a) and
3(b)(2) of Executive Order 12988, (Civil Justice Reform), to minimize
litigation, eliminate ambiguity, and reduce burden.
I. Protection of Children
We have analyzed this proposed rule under Executive Order 13045
(Protection of Children from Environmental Health Risks and Safety
Risks). This proposed rule is not an economically significant rule and
would not create an environmental risk to health or risk to safety that
might disproportionately affect children.
J. Indian Tribal Governments
This proposed rule does not have tribal implications under
Executive Order 13175 (Consultation and Coordination with Indian Tribal
Governments), because it would not have a substantial direct effect on
one or more Indian tribes, on the relationship between the Federal
Government and Indian tribes, or on the distribution of power and
responsibilities between the Federal Government and Indian tribes.
K. Energy Effects
We have analyzed this proposed rule under Executive Order 13211
(Actions Concerning Regulations That Significantly Affect Energy
Supply, Distribution, or Use). We have determined that it is not a
``significant energy action'' under that order because it is not a
``significant regulatory action'' under Executive Order 12866 and is
not likely to have a significant adverse effect on the supply,
distribution, or use of energy.
L. Technical Standards
The National Technology Transfer and Advancement Act, codified as a
note to 15 U.S.C. 272, directs agencies to use voluntary consensus
standards in their regulatory activities unless the agency provides
Congress, through OMB, with an explanation of why using these standards
would be inconsistent with applicable law or otherwise impractical.
Voluntary consensus standards are technical standards (specifications
of materials, performance, design, or operation; test methods; sampling
procedures; and related management systems practices) that are
developed or adopted by voluntary consensus standards bodies.
This proposed rule does not use technical standards. Therefore, we
did not consider the use of voluntary consensus standards. If you
disagree with our analysis or are aware of voluntary consensus
standards that might apply, please send a comment explaining your
disagreement or identifying appropriate standards to the docket using
the method listed in the ADDRESSES section of this preamble.
M. Environment
We have analyzed this proposed rule under Department of Homeland
Security Management Directive 023-01, Rev. 1 (DHS Directive 023-01),
associated implementing instructions, and Environmental Planning
COMDTINST 5090.1 (series), which guide the Coast Guard in complying
with the National Environmental Policy Act of 1969 1969 (42 U.S.C.
4321-4370f), and have made a preliminary determination that this action
is one of a category of actions that do not individually or
cumulatively have a significant effect on the human environment. A
preliminary Record of Environmental Consideration supporting this
determination is available in the docket where indicated under the
ADDRESSES portion of this preamble.
This proposed rule meets the criteria for categorical exclusion
(CATEX) under paragraphs A3 and L54 of Appendix A, Table 1 of DHS
Instruction Manual 023-001-01, Rev. 1.\74\ Paragraph A3 pertains to the
promulgation of rules, issuance of rulings or interpretations, and the
development and publication of policies, orders, directives, notices,
procedures, manuals, advisory circulars, and other guidance documents
of the following nature: (a) Those of a strictly administrative or
procedural nature; (b) those that implement, without substantive
change, statutory or regulatory requirements; or (c) those that
implement, without substantive change, procedures, manuals, and other
guidance documents; and (d) those that interpret or amend an existing
regulation without changing its environmental effect. Paragraph L54
pertains to regulations, which are editorial or procedural.
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This proposed rule involves adjusting the pilotage rates to account
for changes in district operating expenses, an increase in the number
of pilots, and anticipated inflation. In addition, the Coast Guard is
proposing how apprentice pilots will be compensated in future
rulemakings. All of these proposed changes are consistent with the
Coast Guard's maritime safety missions. We seek any comments or
information that may lead to the discovery of a significant
environmental impact from this proposed rule.
List of Subjects
46 CFR Part 401
Administrative practice and procedure, Great Lakes; Navigation
(water), Penalties, Reporting and recordkeeping requirements, Seamen.
46 CFR Part 404
Great Lakes, Navigation (water), Seamen.
[[Page 68241]]
For the reasons discussed in the preamble, the Coast Guard proposes
to amend 46 CFR parts 401, and 404 as follows:
PART 401--GREAT LAKES PILOTAGE REGULATIONS
0
1. The authority citation for part 401 continues to read as follows:
Authority: 46 U.S.C. 2103, 2104(a), 6101, 7701, 8105, 9303,
9304; Department of Homeland Security Delegation No.
0170.1(II)(92.a), (92.d), (92.e), (92.f).
Sec. 401.220 [Amended]
0
2. Amend Sec. 401.220, by revising the first sentence of paragraph
(a)(3) to read as follows:
Sec. 401.220 Registration of pilots.
(a) * * *
(3) The number of pilots needed in each district is calculated by
totaling the area results by district and rounding them up to a whole
integer.* * *
* * * * *
Sec. 401.405 Pilotage Rates and Charges.
0
3. Amend Sec. 401.405 by revising paragraphs (a)(1) through (6) to
read as follows:
(a) * * *
(1) The St. Lawrence River is $757;
(2) Lake Ontario is $428;
(3) Lake Erie is $566;
(4) The navigable waters from Southeast Shoal to Port Huron, MI is
$577;
(5) Lakes Huron, Michigan, and Superior is $335; and
(6) The St. Marys River is $584.
* * * * *
PART 404--GREAT LAKES PILOTAGE RATEMAKING
0
4. The authority citation for part 404 continues to read as follows:
Authority: 46 U.S.C. 2103, 2104(a), 9303, 9304; Department of
Homeland Security Delegation No. 0170.1(II)(92.a), (92.f).
0
5. Amend Sec. 404.2 by adding paragraph (b)(6) to read as follows:
Sec. 404.2 Procedure and criteria for recognizing association
expenses.
* * * * *
(b) * * *
(6) Legal Expenses. These association expenses are recognizable
except for any and all expenses associated with legal action against
the U.S. Coast Guard or its agents in relation to the ratemaking and
oversight requirements in 46 U.S.C. 9303, 9304 and 9305.
* * * * *
0
6. Amend Sec. 404.104 by revising paragraph (b) to read as follows:
Sec. 404.104 Ratemaking step 4: Determine target pilot compensation
benchmark.
* * * * *
(b) In an interim year, the Director adjusts the previous year's
individual target pilot compensation level by the Bureau of Labor
Statistics' Employment Cost Index for the Transportation and Materials
sector, or if that is unavailable, the Director adjusts the previous
year's individual target pilot compensation level using a two-step
process:
(1) First, the Director adjusts the previous year's individual
target pilot by the difference between the previous year's Bureau of
Labor Statistics' Employment Cost Index for the Transportation and
Materials sector and the Federal Open Market Committee median economic
projections for Personal Consumption Expenditures inflation value used
to inflate the previous year's target pilot compensation.
(2) Second, the Director then adjusts that value by the Federal
Open Market Committee median economic projections for Personal
Consumption Expenditures inflation for the upcoming year.
* * * * *
Dated: October 16, 2020.
R.V. Timme,
Rear Admiral, U.S. Coast Guard Assistant Commandant for Prevention
Policy.
[FR Doc. 2020-23407 Filed 10-23-20; 8:45 am]
BILLING CODE 9110-04-P