# Great Lakes Pilotage Rates-2024 Annual Review > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/fr%3A2024-02410 ## Record - **Collection:** Federal Register - **Document type:** Rule - **Published:** February 9, 2024 - **Citation:** 89 FR 9038 ## Text DEPARTMENT OF HOMELAND SECURITY Coast Guard 46 CFR Part 401 [Docket No. USCG-2023-0438] RIN 1625-AC89 Great Lakes Pilotage Rates—2024 Annual Review AGENCY: Coast Guard, DHS. ACTION: Final rule. SUMMARY: In accordance with the statutory provisions enacted by the Great Lakes Pilotage Act of 1960, the Coast Guard is issuing new pilotage rates for the 2024 shipping season. This rule adjusts the pilotage rates to account for changes in district operating expenses, an increase in the number of pilots, and anticipated inflation. These changes, when combined, result in a 7-percent net increase in pilotage costs compared to the 2023 season. DATES: This final rule is effective March 11, 2024. ADDRESSES: To view documents mentioned in this preamble as being available in the docket, go to www.regulations.gov, type USCG-2023-0438 in the search box and click “Search.” Next, in the Document Type column, select “Supporting & Related Material.” FOR FURTHER INFORMATION CONTACT: For information about this document, call or email Mr. Brian Rogers, Commandant, Office of Waterways and Ocean Policy—Great Lakes Pilotage Division (CG-WWM-2), Coast Guard; telephone 410-360-9260, email Brian.Rogers@uscg.mil. SUPPLEMENTARY INFORMATION: Table of Contents for Preamble I. Abbreviations II. Executive Summary III. Basis and Purpose IV. Background V. Discussion of Comments and Changes VI. Summary of the Ratemaking Methodology VII. Historic Methodological and Other Changes VIII. Individual Target Pilot Compensation Benchmark IX. Discussion of Rate Adjustments District One A. Step 1: Recognize Previous Operating Expenses B. Step 2: Project Operating Expenses, Adjusting for Inflation or Deflation C. Step 3: Estimate Number of Registered Pilots and Apprentice Pilots D. Step 4: Determine Target Pilot Compensation Benchmark and Apprentice Pilot Wage Benchmark E. Step 5: Project Working Capital Fund F. Step 6: Project Needed Revenue G. Step 7: Calculate Initial Base Rates H. Step 8: Calculate Average Weighting Factors by Area I. Step 9: Calculate Revised Base Rates J. Step 10: Review and Finalize Rates District Two A. Step 1: Recognize Previous Operating Expenses B. Step 2: Project Operating Expenses, Adjusting for Inflation or Deflation C. Step 3: Estimate Number of Registered Pilots and Apprentice Pilots D. Step 4: Determine Target Pilot Compensation Benchmark and Apprentice Pilot Wage Benchmark E. Step 5: Project Working Capital Fund F. Step 6: Project Needed Revenue G. Step 7: Calculate Initial Base Rates H. Step 8: Calculate Average Weighting Factors by Area I. Step 9: Calculate Revised Base Rates J. Step 10: Review and Finalize Rates District Three A. Step 1: Recognize Previous Operating Expenses B. Step 2: Project Operating Expenses, Adjusting for Inflation or Deflation C. Step 3: Estimate Number of Registered Pilots and Apprentice Pilots D. Step 4: Determine Target Pilot Compensation Benchmark and Apprentice Pilot Wage Benchmark E. Step 5: Project Working Capital Fund F. Step 6: Project Needed Revenue G. Step 7: Calculate Initial Base Rates H. Step 8: Calculate Average Weighting Factors by Area I. Step 9: Calculate Revised Base Rates J. Step 10: Review and Finalize Rates X. Regulatory Analyses A. Regulatory Planning and Review B. Small Entities C. Assistance for Small Entities D. Collection of Information E. Federalism F. Unfunded Mandates G. Taking of Private Property H. Civil Justice Reform I. Protection of Children J. Indian Tribal Governments K. Energy Effects L. Technical Standards M. Environment I. Abbreviations 2023 final rule Great Lakes Pilotage Rates—2023 Annual Ratemaking and Review of Methodology final rule AMO American Maritime Officers Union APA American Pilots' Association BLS Bureau of Labor Statistics CFR Code of Federal Regulations CPA Certified public accountant CPI Consumer Price Index DHS Department of Homeland Security Director U.S. Coast Guard's Director of the Great Lakes Pilotage ECI Employment Cost Index FOMC Federal Open Market Committee FR Federal Register GLPA Great Lakes Pilotage Authority (Canadian) GLPAC Great Lakes Pilotage Advisory Committee GLPMS Great Lakes Pilotage Management System LPA Lakes Pilots Association NAICS North American Industry Classification System NPRM Notice of proposed rulemaking OMB Office of Management and Budget PCE Personal Consumption Expenditures § Section SBA Small Business Administration SLSPA Saint Lawrence Seaway Pilotage Association U.S.C. United States Code WGLPA Western Great Lakes Pilots Association II. Executive Summary In accordance with Title 46 of the United States Code (U.S.C.), Chapter 93, 1 the Coast Guard regulates pilotage for oceangoing vessels on the Great Lakes and St. Lawrence Seaway—including setting the rates for pilotage services and adjusting them on an annual basis for the upcoming shipping season. The shipping season begins when the locks open in the St. Lawrence Seaway, which allows traffic access to and from the Atlantic Ocean. The opening of the locks varies annually, depending on waterway conditions, but is generally in March or April. The rates, which for the 2024 season range from $430 to $927 per pilot hour (depending on which of the specific 6 areas pilotage service is provided), are paid by shippers to the pilot associations. The three pilot associations, which are the exclusive U.S. source of registered pilots on the Great Lakes, use this revenue to cover operating expenses, maintain infrastructure, compensate apprentice and registered pilots, acquire and implement technological advances, train new personnel, and provide for continuing professional development. These rates are the foundation for safe, efficient, and reliable pilotage service to facilitate maritime commerce, protect the marine environment, and comply with National Transportation Safety Board recommendations regarding staffing and pilot fatigue. 1 46 U.S.C. 9301-9308. In accordance with statutory and regulatory requirements, the Coast Guard employs the ratemaking methodology introduced in 2016 2 and last updated in 2022. 3 Our ratemaking methodology calculates the revenue needed for each pilotage association (operating expenses, compensation for the number of pilots, and anticipated inflation), and then divides that amount by the expected demand for pilotage services over the course of the coming year to produce an hourly rate. This is a 10-step methodology to calculate rates, which is explained in detail in section VI., Summary of the Ratemaking Methodology, in the preamble to this rule. 2 81 FR 11908, March 7, 2016. 3 87 FR 18488. March 30, 2022. In this final rule, we conduct our annual review and interim adjustment to the base pilotage rates for 2024. The Coast Guard last conducted a full ratemaking in 2023, with the “Great Lakes Pilotage Rates—2023 Annual Ratemaking and Review of Methodology” final rule (hereafter the “2023 final rule”) (88 FR 12226, published February 27, 2023). 4 Per title 46 of the Code of Federal Regulations (CFR), section 404.100(b), via this final rule, the Coast Guard's Director of the Great Lakes Pilotage (“the Director”) establishes base pilotage rates by an interim ratemaking pursuant to §§ 404.101 through 404.110 . 4 https://www.govinfo.gov/content/pkg/FR-2023-02-27/pdf/2023-03212.pdf. (Last accessed 5/12/2023.) The Coast Guard sets base rates to meet the goal of promoting safe, efficient, and reliable pilotage service on the Great Lakes by generating sufficient revenue for each pilotage association to reimburse its necessary and reasonable operating expenses, fairly compensate trained and rested pilots, and provide appropriate funds to use for improvements. A 10-year average is used when calculating traffic to smooth out anomalies caused by unexpected events, such as those caused by the COVID-19 pandemic. The Coast Guard estimates that this rule will result in $2,621,471 of additional costs. This represents an increase in revenue needed for target pilot compensation, an increase in revenue needed for the total apprentice pilot wage benchmark, an increase in the revenue needed for adjusted operating expenses, and an increase in the revenue needed for the working capital fund. Based on the ratemaking model discussed in this final rule, the Coast Guard is establishing the rates shown in table 1. Table 1—Current and 2024 Pilotage Rates on the Great Lakes Area Name Final 2023 pilotage rate Final 2024 pilotage rate District One: Designated St. Lawrence River $876 $927 District One: Undesignated Lake Ontario 586 608 District Two: Designated Navigable waters from Southeast Shoal to Port Huron, MI 601 667 District Two: Undesignated Lake Erie 704 597 District Three: Designated St. Mary's River 834 836 District Three: Undesignated Lakes Huron, Michigan, and Superior 410 430 This rule affects 58 U.S. Registered pilots, 6 apprentice pilots, 3 pilot associations, and the owners and operators of an average of 296 oceangoing vessels that transit the Great Lakes annually. This rule will not affect the Coast Guard's budget or increase Federal spending. The estimated overall annual regulatory economic impact of this rate change is a net increase of $2,621,471 in estimated payments made by shippers during the 2024 shipping season. This rule establishes the 2024 yearly target compensation for pilots on the Great Lakes at $440,658 per pilot (a $16,260 increase, or 3.83 percent, over their 2023 target compensation). Because the Coast Guard must review, and, if necessary, adjust rates each year, we analyze these as single-year costs and do not annualize them over 10 years. Section X., Regulatory Analyses, in this preamble provides the regulatory impact analyses of this rule. III. Basis and Purpose The legal basis of this rulemaking is 46 U.S.C. Chapter 93, 5 which requires foreign merchant vessels and United States vessels operating “on register” (meaning United States vessels engaged in foreign trade) to use United States or Canadian pilots while transiting the United States waters of the St. Lawrence Seaway and the Great Lakes system. 6 For U.S. Great Lakes pilots, the statute requires the Secretary to “prescribe by regulation rates and charges for pilotage services, giving consideration to the public interest and the costs of providing the services.” 7 The statute requires that rates be established or reviewed and adjusted each year, no later than March 1. 8 The statute also requires that base rates be established by a full ratemaking at least once every 5 years, and, in years when base rates are not established, they must be reviewed and, if necessary, adjusted. 9 The Secretary's duties and authority under 46 U.S.C. Chapter 93 have generally been delegated to the Coast Guard. 10 5 46 U.S.C. 9301-9308. 6 46 U.S.C. 9302(a)(1). 7 46 U.S.C. 9303(f). 8 Ibid. 9 Ibid. 10 Department of Homeland Security (DHS) Delegation No. 00170.1 (II)(92)(f), Revision No. 01.3. The Secretary retains the authority under section 9307 to establish, and appoint members to, a Great Lakes Pilotage Advisory Committee. https://dhsconnect.dhs.gov/org/comp/mgmt/policies/Delegations/00170.1.pdf. (Last accessed 11/8/2023.) Each pilot association is an independent business and is the sole provider of pilotage services in its district of operation. Each pilot association is responsible for funding its own operating expenses, maintaining infrastructure, compensating pilots and apprentice pilots, 11 acquiring and implementing technological advances, and training personnel and partners. 11 Apprentice pilots and applicant pilots are compensated by the pilot association they are training with, which is funded through the pilotage rates. The ratemaking methodology accounts for an apprentice pilot wage benchmark in Step 4 per 46 CFR 404.104(d). The applicant pilot salaries are included in the pilot associations' operating expenses used in Step 1 per 46 CFR 404.101. The Coast Guard uses a 10-step ratemaking methodology to derive a pilotage rate, based on the estimated amount of traffic, which covers these expenses. 12 The methodology is designed to measure how much revenue each pilotage association would need to cover expenses and to provide compensation to registered pilots. Since the Coast Guard cannot guarantee demand for pilotage services, target pilot compensation for registered pilots is a goal. The actual demand for service dictates the actual compensation for the registered pilots. We then divide that amount by the historic 10-year average for pilotage demand. We recognize that, in years where traffic is above average, pilot associations will accrue more revenue than projected while, in years where traffic is below average, they will take in less. We believe that, over the long term, however, this system ensures that infrastructure will be maintained, and that pilots will receive adequate compensation and work a reasonable number of hours, with adequate rest between assignments, to ensure retention of highly trained personnel. 12 46 CFR part 404.101-404.110. https://www.ecfr.gov/current/title-46/chapter-III/part-404. (Last accessed 5/17/23.) The purpose of this rule is to issue new pilotage rates for the 2024 shipping season. The Coast Guard believes that the new rates will continue to promote our goal, as outlined in 46 CFR 404.1, of promoting safe, efficient, and reliable pilotage service to facilitate commerce and protect the marine environment in the Great Lakes by generating sufficient revenue for each pilotage association to reimburse its necessary and reasonable operating expenses, fairly compensate trained and rested pilots, and provide appropriate funds to use for improvements. IV. Background Pursuant to 46 U.S.C. 9303, the Coast Guard regulates shipping practices and rates on the Great Lakes. Under Coast Guard regulations, all vessels engaged in foreign trade (often referred to as “salties”) are required to engage United States or Canadian pilots during their transit through the regulated waters. 13 United States and Canadian “lakers,” which account for most commercial shipping on the Great Lakes, are not affected. 14 Generally, vessels are assigned a United States or Canadian pilot, depending on the order in which they transit a particular area of the Great Lakes, and do not choose the pilot they receive. If a vessel is assigned a U.S. pilot, that pilot will be assigned by the pilotage association responsible for the district in which the vessel is operating, and the vessel operator will pay the pilotage association for the pilotage services. The Great Lakes Pilotage Authority (Canadian) (GLPA) establishes the rates for Canadian registered pilots. 13 See 46 CFR part 401. https://www.ecfr.gov/current/title-46/chapter-III/part-401 (Last accessed 5/17/23). 14 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. https://uscode.house.gov/view.xhtml?req=granuleid:U.S.C.-prelim-title46-section9302&num=0&edition=prelim (Last accessed 5/17/23). The waters of the Great Lakes and the St. Lawrence Seaway subject to U.S. jurisdiction are divided into three pilotage districts. Pilotage in each district is provided by an association certified by the Director to operate a pilotage pool. The Saint Lawrence Seaway Pilotage Association (SLSPA) provides pilotage services in District One, which includes all waters of the St. Lawrence River and Lake Ontario subject to U.S. jurisdiction. The Lakes Pilots Association (LPA) provides pilotage services in District Two, which includes all waters of Lake Erie, the Detroit River, Lake St. Clair, and the St. Clair River subject to U.S. jurisdiction. Finally, the Western Great Lakes Pilots Association (WGLPA) provides pilotage services in District Three, which includes all waters of the St. Mary's River; Sault Ste. Marie Locks; and Lakes Huron, Michigan, and Superior subject to U.S. jurisdiction. Each pilotage district is further divided into “designated” and “undesignated” areas, depicted in table 2. Designated areas, classified as such by Presidential Proclamation, are waters in which pilots must direct the navigation of vessels at all times. 15 Undesignated areas are open bodies of water not subject to the same pilotage requirements. While working in undesignated areas, pilots must “be on board and available to direct the navigation of the vessel at the discretion of and subject to the customary authority of the master.” 16 For these reasons, pilotage rates in designated areas can be significantly higher than those in undesignated areas. Table 2 shows the districts and areas of the Great Lakes and St. Lawrence Seaway. 15 Presidential Proclamation 3385, Designation of restricted waters under the Great Lakes Pilotage Act of 1960, December 22, 1960 ( https://www.archives.gov/federal-register/codification/proclamations/03385.html ) (Last accessed 5/31/23). 16 46 U.S.C. 9302(a)(1)(B). Table 2—Areas of the Great Lakes and St. Lawrence Seaway District Pilotage association Designation Area No. 17 Area name 18 One Saint Lawrence Seaway Pilotage Association (SLPA) Designated Undesignated 1 2 St. Lawrence River. Lake Ontario. Two Lakes Pilots Association (LPA) Designated 5 Navigable waters from Southeast Shoal to Port Huron, MI. Undesignated 4 Lake Erie. Three Western Great Lakes Pilots Association (WGLPA) Designated Undesignated Undesignated 7 6 8 St. Mary's River. Lakes Huron and Michigan. Lake Superior. Over the past several years, the Coast Guard has adjusted the Great Lakes pilotage ratemaking methodology, per our authority in 46 U.S.C. 9303(f), to conduct annual reviews of base pilotage rates, and to adjust such base rates in each intervening year in consideration of the public interest and the costs of providing the services. The current methodology was finalized in the 2022 final rule. 19 We summarize the current methodology in section VI., Summary of the Ratemaking Methodology. 17 Area 3 is the Welland Canal, which is serviced exclusively by the Canadian GLPA and, accordingly, is not included in the United States pilotage rate structure. 18 The areas are listed by name at 46 CFR 401.405. https://www.ecfr.gov/current/title-46/chapter-III/part-401/subpart-D/section-401.405 (Last accessed 5/17/23). 19 87 FR 18488, March 30, 2022. V. Discussion of Comments and Changes In response to the notice of proposed rulemaking (NPRM) for this ratemaking (88 FR 55629, August 16, 2023) the Coast Guard received six comment submissions. These submissions include one comment filed jointly by the LPA, the SLSPA, and the WGLPA; one filed jointly by the Shipping Federation of Canada, the American Great Lakes Ports Association, and the United States Great Lakes Shipping Association (collectively, the Coalition); one from the president of the Saint Lawrence Seaway Pilots' Association (SLSPA); one from the president of the LPA; one from the Director of the Port of Monroe; and one from the president of the International Longshoreman Association (ILA). As each of these commenters touched on numerous issues, for each response below, the Coast Guard notes which commenter raised the specific points addressed. In situations where multiple commenters raised similar issues, the Coast Guard provides one response to those issues. A. Requests for Additional Pilots One of the major requests made by the commenters was the addition of more pilots due to the increase in traffic, with several commenters pointing to cruise ship traffic as the driving force in the surge of vessels needing pilotage service. District One stated they estimate a need for three new pilots by 2025, and Districts Two and Three requested one additional pilot each to be added to this rulemaking. The Coast Guard recognizes District One's need for more pilots going forward, but we believe that this need is addressed by the inclusion of an additional apprentice pilot as proposed in the NPRM. Added to the two existing apprentice pilots that were authorized in the 2023 ratemaking, this inclusion brings the total number of apprentice pilots in District One to three for the 2024 season. These apprentice pilots will be able to accommodate District One's projected need for three additional fully registered pilots for the 2025 season. The Coast Guard will, therefore, keep the pilot numbers for District One the same as they were in the proposed rule. The LPA, WGLPA, ILA, and Capt. Paul C. Lamarre II all made comments that an additional pilot is needed in both District Two and District Three. After review of the provided documentation, the Coast Guard agrees with these comments. The Coast Guard verified the numbers that LPA provided, which show that another full member pilot is needed to safely provide pilotage service. Based on these comments, our analysis of the increase in demand for pilotage services created by cruise ship traffic, 20 and the unanimous recommendation made by the 2023 Great Lake Pilot Advisory Committee (See transcript, pages 87 and 88), the Coast Guard has added an additional pilot to this year's ratemaking for both Districts Two and Three. For District Two, the Coast Guard reduced the number of apprentice pilots from two to one, since the additional pilot referenced earlier will no longer be an apprentice. 20 At least 76 Great Lakes cruises are listed online as scheduled for the 2024 season. Cruises listed at vikingcruises.com, hl-cruises.com, pearlseacruises.com, and us.ponant.com. (Last accessed 11/29/2023.) B. Bridge Hour Allocation Numerous commenters noted discrepancies in the allocation of bridge hours between designated and undesignated waters for all three districts. The error occurs in the “area” field of the data extract provided by the associations, where each trip number is only labeled with the area in which the trip started, rather than noting each area that the trip passed through. This error causes miscalculation of the designated and undesignated bridge hours in Step 7 of the ratemaking methodology, and the transits by vessel class in Step 8. The commenters suggested to instead use monthly reports from SeaPro to provide the necessary bridge hour calculations for Step 7 and to use weight factor reports from SeaPro to provide the transits by vessel class for Step 8. The Coast Guard agrees with these comments and has worked with the pilot associations to correct Steps 7 and 8 using the monthly reports and weight factor reports. The Coast Guard could not verify which trips had been incorrectly attributed to either a designated or undesignated area in the economist extract data set previously provided. The Coast Guard will work with the associations to refine the data extracts provided by the associations to ensure that all fields are correctly specified and interpreted. The reports used for this final rule are available in the docket. We appreciate the commenters who brought this to our attention and will take measures to ensure this error is corrected in data used in future rulemakings. These corrections are set out in further detail in tables 4 and 5. C. Methodology Numerous commenters noted concerns with the methodology by which the Coast Guard calculates this rate. Concerns included that weighting factors should be calculated using bridge hours instead of vessel transits per visit; that the Coast Guard should audit the pilotage program to find operational efficiencies and cost-savings; and that the Coast Guard should conduct an annual look-back at expenses to find cost-savings. These comments are outside the scope of the current rulemaking, which does not modify the ratemaking methodology. The Coast Guard appreciates these comments and encourages the stakeholders to request that they be placed on a future GLPAC agenda for discussion, or to resubmit them during the next full ratemaking in 2027. D. Miscellaneous We received a number of comments that we categorized as “Miscellaneous” and are best addressed one by one. A few commenters urged the Coast Guard to continue having GLPAC meetings in person and in front of a stenographer, while another commenter urged the Coast Guard to investigate a hybrid in-person/virtual set up for future GLPAC meetings. These comments are outside the scope of this rule, but the Coast Guard will continue to engage with stakeholders to determine the best way to hold GLPAC meetings. One commenter asked the Coast Guard to require an anonymous listing of each pilot's compensation in their annual reports. The Coast Guard disagrees with this recommendation. Compensation of individual pilots is not included in the expense base or methodology, and, therefore, we decline to add a regulatory requirement for pilot associations to publicly report the compensation of individual pilots. The Coast Guard does not use the actual earnings or average earnings; instead, we use target pilot compensation (described in Step 4 of the existing methodology), which the Coast Guard has determined to be reasonable and necessary. Because actual salary values are not used in the ratemaking, the Coast Guard believes that a requirement to report pilot compensation is not in the public interest or necessary to provide for the costs of services. Progress toward pilot retention can be reviewed through pilot turnover and the association's ability to promptly fill pilot vacancies for fully registered pilots and apprentice pilots. Many commenters took the opportunity to recognize the Director's authority to add up to three additional pilots in each District. We agree with these commenters that the Director does have such authority, and, based on these comments and the unanimous recommendation at the 2023 GLPAC meeting, the Coast Guard has agreed to add one pilot each to Districts Two and Three, and one apprentice pilot to District One. E. Changes to the Proposed Rule Table 3 summarizes the changes between the 2024 Ratemaking NPRM and this final rule. This table includes changes from the proposed rule that are not based on comments from the NPRM. Table 3—Changes Between Proposed Rule and Final Rule Change Reasoning Revise number of pilots in District Two from 16 to 17 and adjust number of apprentice pilots from 2 to 1. Revise number of pilots in District Three from 22 to 23 An additional pilot will help Districts Two and Three handle an expected increase in cruise ship traffic in 2024. Correct traffic data in Steps 7 and 8 for all districts to reflect discrepancy in the assignment of bridge hours and transits by vessel class to designated and undesignated areas These corrections will improve the accuracy of our ratemaking as it pertains to designated and undesignated areas. Update inflation figures: • Updates 2022 Employment Cost Index (ECI) inflation from 4.4%, listed in the NPRM, to 3.9% More recent figures were published since the Coast Guard conducted the analysis for the NPRM. • Updates 2023 Personal Consumption Expenditures (PCE) inflation from 3.5%, listed in the NPRM, to 3.9%. • Updates 2024 PCE inflation from 2.5%, listed in the NPRM, to 2.6%. Change average vessel population from 277 to 296. Change average customer count from 40 to 41 In the 2023 final ratemaking, District Three provided updated traffic data that was used to revise bridge hours and transits by vessel class but was not used to update the Regulatory Flexibility Act analysis. This final rule corrects that oversight. The revised data included additional trips that introduced new vessels and customers to the affected population and relabeled the vessel for trip 26879. F. Changes to Step 7 Bridge Hours and Step 8 Transits Table 4 shows the difference between the published figures for bridge hours in Step 7 in the NPRM and the updated figures used for this final rule. Table 4—Changes to Step 7 Bridge Hours from Proposed Rule to Final Rule Previously published Undesignated Designated Updated Undesignated Designated Difference Undesignated Designated District 1 2021 7,871 6,188 7,893 6,166 22 −22 2022 8,574 6,785 8,356 6,573 −218 −212 District 2 2021 8,826 3,266 5,290 6,762 −3,536 3,496 2022 12,306 3,975 7,668 8,613 −4,638 4,638 District 3 2021 18,286 2,516 18,149 2,484 −137 −32 2022 23,985 4,424 23,914 3,345 −71 −1,079 Further, the Coast Guard updated the number of transits by vessel class in Step 8, “Calculate Average Weighting Factors by Area,” using updated weighting factor reports provided by the associations from SeaPro. Table 5 details the changes by area and vessel class for 2022, which will be used in this final rule; no changes are made to the 2021 figures. Table 5—Changes to Step 8 From Proposed Rule to Final Rule Area/vessel class Previous Updated Difference Number of Transits (2022) Area 1—Designated Class 2 466 482 16 Class 3 104 106 2 Class 4 461 478 17 Area 2—Undesignated Class 1 32 41 9 Class 2 358 371 13 Class 3 69 73 4 Class 4 393 401 8 Area 5—Designated Class 1 34 117 83 Class 2 184 717 533 Class 3 3 13 10 Class 4 273 1230 957 Area 4—Undesignated Class 1 79 121 42 Class 2 275 478 203 Class 3 3 8 5 Class 4 349 642 293 Area 7—Designated Class 1 102 104 2 Class 2 176 198 22 Class 4 344 392 48 Area 6—Undesignated Class 1 94 162 68 Class 2 278 452 174 Class 4 385 482 97 Area 8—Undesignated Class 1 13 12 −1 Class 2 103 95 −8 Class 3 6 5 −1 Class 4 271 306 35 These refinements to the ratemaking continue to promote safe, efficient, and reliable pilotage service on the Great Lakes, and allow each pilotage association to generate sufficient revenue to cover its necessary and reasonable operating expenses, fairly compensate trained and rested pilots, and realize an appropriate revenue to use for improvements. VI. Summary of the Ratemaking Methodology As stated previously, the ratemaking methodology, outlined in 46 CFR 404.101 through 404.110, consists of 10 steps that are designed to account for the revenues needed and total traffic expected in each district. The first several steps of the methodology establish base pilotage rates. Additional steps to incorporate the weighting factors are necessary to establish the final pilot rates. The result is an hourly rate, determined separately for each of the areas administered by the Coast Guard. In Step 1, “Recognize previous operating expenses,” (§ 404.101), the Director reviews audited operating expenses from each of the three pilotage associations. Operating expenses include all allowable expenses, minus wages and benefits. This number forms the baseline amount that each association is budgeted. Because of the time delay between when the association submits raw numbers and when the Coast Guard receives audited numbers, this number is 3 years behind the projected year of expenses. Therefore, in calculating the 2024 rates in this rule, we begin with the audited expenses from the 2021 shipping season. While each pilotage association operates in an entire district (including both designated and undesignated areas), the Coast Guard determines costs by area. We allocate certain operating expenses to designated areas and certain operating expenses to undesignated areas. In some cases, we can allocate the costs based on where they are accrued. For example, we can allocate the costs of insurance for apprentice pilots who operate in undesignated areas only. In other situations, such as general legal expenses, expenses are distributed between designated and undesignated waters on a pro rata basis, based upon the proportion of income forecasted from the respective portions of the district. In Step 2, “Project operating expenses, adjusting for inflation or deflation,” (§ 404.102), the Director develops the 2024 projected operating expenses. To do this, we apply inflation adjustors for 3 years to the operating expense baseline received in Step 1. The inflation factors are from the Bureau of Labor Statistics' (BLS) Consumer Price Index (CPI) for the Midwest Region, or, if not available, the Federal Open Market Committee (FOMC) median economic projections for Personal Consumption Expenditures (PCE) inflation. This step produces the total operating expenses for each area and district. In Step 3, “Estimate number of registered pilots and apprentice pilots,” (§ 404.103), the Director calculates how many registered and apprentice pilots, including apprentice pilots with limited registrations, are needed for each district. To do this, we employ a “staffing model,” described in § 401.220, paragraphs (a)(1) through (3), to estimate how many pilots would be needed to handle shipping during the beginning and close of the season. This number provides guidance to the Director in approving an appropriate number of pilots. For the purpose of the ratemaking calculation, we determine the number of pilots provided by the pilotage associations (see § 404.103) and use that figure to determine how many pilots need to be compensated via the pilotage fees collected. In the first part of Step 4, “Determine target pilot compensation benchmark and apprentice pilot wage benchmark,”(§ 404.104(b)), the previous year's target compensation value is first adjusted by actual inflation using the ECI inflation value. If the ECI inflation value is not available, § 404.104(b)(1) and (2) specify the compensation inflation process the Director will use instead. In the second part of Step 4, (§ 404.104(c)), the Director determines the total compensation figure for each district. To do this, the Director multiplies the compensation benchmark by the number of pilots for each area and district (from Step 3), producing a figure for total pilot compensation. In Step 5, “Project working capital fund,” (§ 404.105), the Director calculates an added value to pay for needed capital improvements and other non-recurring expenses, such as technology investments and infrastructure maintenance. This value is calculated by adding the total operating expenses (derived in Step 2) to the total pilot compensation and the total target apprentice pilot wage (derived in Step 4), then by multiplying that figure by the preceding year's average annual rate of return for new issues of high-grade corporate securities. This figure constitutes the “working capital fund” for each area and district. In Step 6, “Project needed revenue,” (§ 404.106), the Director simply adds the totals produced by the preceding steps. The projected operating expense for each area and district (from Step 2) is added to the total pilot compensation, including apprentice pilot wage benchmarks (from Step 4), and the working capital fund contribution (from Step 5). The total figure, calculated separately for each area and district, is the “needed revenue.” In Step 7, “Calculate initial base rates,” (§ 404.107), the Director calculates an hourly pilotage rate to cover the needed revenue, as calculated in Step 6. This step consists of first calculating the 10-year average of traffic hours for each area. Next, we divide the revenue needed in each area (calculated in Step 6) by the 10-year average of traffic hours to produce an initial base rate. An additional element, the “weighting factor,” is required under § 401.400. Pursuant to that section, ships pay a multiple of the “base rate”, as calculated in Step 7, by a number ranging from 1.0 (for the smallest ships, or “Class I” vessels) to 1.45 (for the largest ships, or “Class IV” vessels). This significantly increases the revenue collected, and we need to account for the added revenue produced by the weighting factors to ensure that shippers are not overpaying for pilotage services. We do this in the next step. In Step 8, “Calculate average weighting factors by Area,” (§ 404.108), the Director calculates how much extra revenue, as a percentage of total revenue, has historically been produced by the weighting factors in each area. We do this by using a historical average of the applied weighting factors for each year since 2014 (the first year the current weighting factors were applied). In Step 9, “Calculate revised base rates,” (§ 404.109), the Director modifies the base rates by accounting for the extra revenue generated by the weighting factors. We do this by dividing the initial pilotage rate for each area (from Step 7) by the corresponding average weighting factor (from Step 8), to produce a revised rate. In Step 10, “Review and finalize rates,” (§ 404.110), often referred to informally as “Director's discretion”, the Director reviews the revised base rates (from Step 9) to ensure that they meet the goals set forth in 46 U.S.C. 9303(f) and 46 CFR 404.1(a), which include promoting efficient, safe, and reliable pilotage service on the Great Lakes; generating sufficient revenue for each pilotage association to reimburse necessary and reasonable operating expenses; compensating trained and rested pilots fairly; and providing appropriate revenue for improvements. After the base rates are set, § 401.401 permits the Coast Guard to apply surcharges. We are not using any surcharges in this final rule. In previous ratemakings, where apprentice pilot wages were not built into the rate, the Coast Guard used surcharges to cover applicant pilot compensation in those years to help with applicant recruitment. In this final rule, we include the applicant trainee compensation in the district's operating expenses used in Step 1. Consistent with the 2021, 2022, and 2023 rulemakings, in this final rule we continue to believe that the pilot associations are able to plan for the costs associated with hiring applicant pilots to fill pilot vacancies without relying on the Coast Guard to impose surcharges to help with recruiting. VII. Historic Methodological and Other Changes The Coast Guard is using the existing ratemaking methodology to establish the base rates in this ratemaking. The Coast Guard is not issuing any methodological or other policy changes to the ratemaking within this final rule. According to 46 U.S.C. 9303(f), and restated in 46 CFR 404.100(a), the Coast Guard must establish base rates by a full ratemaking at least once every 5 years. The Coast Guard has determined that the current base rates and methodology still adequately adhere to the Coast Guard's goals through rate and compensation stability, while promoting recruitment and retention of qualified U.S.-registered pilots. The Coast Guard has made several changes to the ratemaking methodology over the last several years in consideration of the public interest and the costs of providing services. The recent changes and their impacts are summarized as follows. In the 2017 ratemaking, Great Lakes Pilotage Rates—2017 Annual Review (82 FR 41466, published August 31, 2017), 21 the Coast Guard modified the methodology to account for the additional revenue produced by the application of weighting factors. This is discussed in detail in Steps 7 through 9 for each district, in section IX., Discussion of Rate Adjustments, of this preamble. 21 https://www.govinfo.gov/content/pkg/FR-2017-08-31/pdf/2017-18411.pdf (last accessed 5/12/2023). In the 2018 ratemaking, Great Lakes Pilotage Rates—2018 Annual Review and Revisions to Methodology (83 FR 26162, published June 5, 2018), 22 the Coast Guard adopted a new approach in the methodology for the compensation benchmark, based upon United States mariners, rather than Canadian working pilots. 22 https://www.govinfo.gov/content/pkg/FR-2018-06-05/pdf/2018-11969.pdf (last accessed 5/12/2023). In the 2020 ratemaking, Great Lakes Pilotage Rates—2020 Annual Review and Revisions to Methodology (85 FR 20088, published April 9, 2020), 23 the Coast Guard revised the methodology to accurately capture all costs and revenues associated with Great Lakes pilotage requirements, and to produce an hourly rate that adequately and accurately compensates pilots and covers expenses. 23 https://www.govinfo.gov/content/pkg/FR-2020-04-09/pdf/2020-06968.pdf (last accessed 5/12/2023). The 2021 ratemaking, Great Lakes Pilotage Rates—2021 Annual Review and Revisions to Methodology (86 FR 14184, published March 12, 2021), 24 changed the inflation calculation in Step 4, §  404.104(b), for interim ratemakings, so that the previous year's target compensation value is first adjusted by actual inflation value using the ECI. That change ensures that the target pilot compensation reimbursed to the association remains current with inflation and competitive with industry pay increases. 24 https://www.govinfo.gov/content/pkg/FR-2021-03-12/pdf/2021-05050.pdf (last accessed 5/12/2023). The 2022 ratemaking, Great Lakes Pilotage Rates—2022 Annual Review and Revisions to Methodology (87 FR 18488, published March 30, 2022), 25 implemented an apprentice pilot wage benchmark in Steps 3 and 4 to provide predictability and stability to pilot associations training apprentice pilots. The 2022 final rule also codified rounding up the staffing model's final number to ensure that the ratemaking does not undercount the pilot need presented by the staffing model and association circumstances. 25 https://www.govinfo.gov/content/pkg/FR-2022-03-30/pdf/2022-06394.pdf (last accessed 5/12/2023). VIII. Individual Target Pilot Compensation Benchmark The Coast Guard is issuing the target pilot compensation benchmark in this final rule at the target compensation for the ratemaking year 2023, adjusted for inflation. In an interim ratemaking year, the base target pilot compensation is adjusted annually in accordance with § 404.104(b). The Coast Guard arrived at this compensation benchmark as explained in the following paragraphs. Before 2016, the Coast Guard based the compensation benchmark on data provided by the American Maritime Officers Union (AMOU) regarding its contract for first mates on the Great Lakes. However, in 2016, the AMOU elected to no longer provide this data to the Coast Guard. In the 2016 ratemaking, Great Lakes Pilotage Rates—2016 Annual Review and Changes to Methodology (81 FR 11908, published March 7, 2016), 26 the Coast Guard used the average compensation for a Canadian pilot, plus a 10-percent adjustment. The shipping industry challenged the compensation benchmark, and the court found that the Coast Guard did not adequately support the 10-percent addition to the Canadian GLPA compensation benchmark. American Great Lakes Ports Association v. Zukunft, 296 F.Supp. 3d 27, 48 (D.D.C. 2017), aff'd sub nom. American Great Lakes Ports Association v. Schultz, 962 F.3d 510 (D.C. Cir. 2020). The Coast Guard then based the 2018 full ratemaking compensation benchmark on data provided by the AMOU, regarding its contract for first mates on the Great Lakes in the 2011 to 2015 period (83 FR 26162). The 2018 final rule adjusted the AMOU 2015 data for inflation using Federal Open Market FOMC median economic projections for PCE inflation. 26 https://www.govinfo.gov/content/pkg/FR-2016-03-07/pdf/2016-04894.pdf (last accessed 5/12/2023). In the 2020 interim year ratemaking final rule (85 FR 20088), the Coast Guard established its most recent pilot compensation benchmark. Given the lack of access to AMOU data, the Coast Guard did not rely on the AMOU aggregated wage and benefit information as the basis for the compensation benchmark. Instead, the Coast Guard adopted the 2019 target pilot compensation (with inflation) as our compensation benchmark going forward. The Coast Guard stated in the 2020 final rule that no other United States or Canadian pilot compensation data was appropriate to use as a benchmark at that time, and that the 2020 benchmark will be used for future rates (85 FR 20091). The Director determined that the ratemaking provided adequate compensation for pilots. Based on our experience over the past four ratemakings (2020-2023), the Director continues to believe that the level of target pilot compensation for those years provided an appropriate level of compensation for U.S.-registered pilots. According to § 404.104(a), the Director may make necessary and reasonable adjustments to the benchmark based on current information. However, current circumstances do not indicate that an adjustment, other than for inflation, is necessary. The Director bases this decision on the fact that there is no indication that registered pilots are resigning due to their compensation, or that this compensation benchmark is causing shortfalls in achieving reliable pilotage service. The Coast Guard also does not believe that the pilot compensation benchmark is too high relative to the expertise required to perform the job. The compensation will continue to be adjusted annually, in accordance with published inflation rates, which will ensure the compensation remains competitive and current for upcoming years. Therefore, the Coast Guard does not seek alternative benchmarks for target compensation at this time and, instead, simply adjusts the amount of target pilot compensation for inflation as our target compensation benchmark for 2024, as shown in Step 4. This target compensation benchmark approach has advanced and will continue to advance the Coast Guard's goals through rate and compensation stability while also promoting recruitment and retention of qualified U.S. pilots. The target compensation for 2024 is $440,658 per registered pilot and $158,637 per apprentice pilot, using the 2023 compensation as a benchmark. We follow the procedure outlined in paragraph (b) of § 404.104, which adjusts the existing compensation benchmark for inflation. We use a two-step process to adjust target pilot compensation for inflation. First, we adjust the 2023 target compensation benchmark of $424,398 by 1.2 percent for an adjusted value of $429,491. This first adjustment accounts for the difference in actual third quarter 2023 ECI inflation, which is 3.9 percent, and the 2023 PCE estimate of 2.7 percent. 27 The second step accounts for projected inflation from 2023 to 2024, which is 2.6 percent. 28 Based on the projected 2024 inflation estimate, the target compensation benchmark for 2024 is $440,658 per pilot. The apprentice pilot wage benchmark is 36 percent of the target pilot compensation, or $158,637 ($440,658 × 0.36). 29 27 Employment Cost Index, Total Compensation for Private Industry workers in Transportation and Material Moving, Annual Average, Series ID: CIU2010000520000A. https://beta.bls.gov/dataViewer/view/timeseries/CIU2010000520000A (Last accessed 11/01/23); and Table 1 Summary of Economic Projections, Median PCE Inflation. https://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20220316.pdf (Last accessed 05/17/23). 28 Table 1 Summary of Economic Projections, Median Core PCE Inflation June Projection. https://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20230920.pdf (Last accessed 09/2023). 29 For more information on the apprentice pilot wage benchmark, see the Coast Guard's 2022 Annual Review and Revisions to Methodology. 87 FR 18488. IX. Discussion of Rate Adjustments In this final rule, based on the policy changes described in the previous section, we are issuing new pilotage rates for 2024. We conducted the 2024 ratemaking as an interim ratemaking, as we last did in 2022 (87 FR 18488). Thus, the Coast Guard adjusted the compensation benchmark following the interim ratemaking year procedures under § 404.100(b) rather than the procedures for a full ratemaking year in § 404.100(a). This section discusses the rate changes using the ratemaking steps provided in 46 CFR part 404. We will detail all 10 steps of the ratemaking procedure for each of the 3 districts to show how we arrive at the new rates. District One A. Step 1: Recognize Previous Operating Expenses Step 1 in the ratemaking methodology requires that the Coast Guard review and recognize the operating expenses for the last full year for which figures are available (§ 404.101). To do so, we begin by reviewing the independent accountant's financial reports for each association's 2021 expenses and revenues. 30 For accounting purposes, the financial reports divide expenses into designated and undesignated areas. For costs accrued by the pilot associations generally, such as employee benefits, the cost is divided between the designated and undesignated areas on a pro rata basis. The recognized operating expenses for District One are shown in table 6. 30 These reports are available in the docket for this final rule. In the 2021 expenses used as the basis for this final rule, districts used the term “applicant” to describe applicant trainees and persons who will be called apprentices (applicant pilots), under the definition of “apprentice pilot”, which was introduced in the 2022 final rule. Therefore, when describing past expenses, the term “applicant” is used to match what was reported from 2021, which includes both applicant and apprentice pilots. The term “apprentice” is used to distinguish apprentice pilot wages and describe the impacts of the ratemaking going forward. The Coast Guard continues to include apprentice salaries as an allowable expense in the 2024 ratemaking, as this final rule is based on 2021 operating expenses, when salaries were still an allowable expense. Beginning with the 2025 ratemaking, apprentice pilot salaries will no longer be included as a 2022 operating expense, because apprentice pilot wages will have already been factored into the ratemaking Steps 3 and 4 in calculation of the 2022 rates. Beginning in 2025, the applicant salaries' operating expenses for 2022 will consist of only applicant trainees (those who are not yet apprentice pilots). The recognized operating expenses for District One are shown in table 6. Table 6—2021 Recognized Expenses for District One District One reported operating expenses for 2021 Designated St. Lawrence River Undesignated Lake Ontario Total Applicant Pilot Compensation Salaries $247,735 $165,157 $412,892 Employee Benefits 10,367 6,911 17,278 Total Applicant Pilot Compensation 258,102 172,068 430,170 Other Applicant Cost Applicant Subsistence 1,723 1,148 2,871 Travel 1,832 1,221 3,053 License Insurance 752 502 1,254 Payroll taxes 1,945 1,296 3,241 Other—Pilotage Cost 833 555 1,388 Total Other Applicant Cost 7,085 4,722 11,807 Other Pilotage Cost Subsistence 133,993 89,329 223,322 Hotel/Lodging 32,424 21,616 54,040 Travel 453,718 302,478 756,196 License renewal 1,200 800 2,000 Payroll Taxes 198,901 132,601 331,502 License Insurance 53,174 35,450 88,624 Total Other Pilotage Costs 873,410 582,274 1,455,684 Pilot Boat and Dispatch Costs Pilot boat expense (Operating) 200,672 133,782 334,454 Dispatch expense 167,291 111,527 278,818 Employee Benefits 50,560 33,707 84,267 Salaries 249,396 166,264 415,660 Payroll taxes 10,269 6,846 17,115 Total Pilot Boat and Dispatch Costs 678,188 452,126 1,130,314 Administrative Expenses Legal—general counsel 1,078 719 1,797 Legal—shared counsel (K&L Gates) 4,402 2,935 7,337 Legal—Coast Guard Litigation 14,641 9,760 24,401 Insurance 44,108 29,405 73,513 Employee benefits 4,470 2,980 7,450 Payroll Taxes 42,464 28,310 70,774 Other taxes 79,200 52,800 132,000 Real Estate taxes 22,918 15,278 38,196 Travel 1,568 1,045 2,613 Depreciation 186,517 124,345 310,862 Interest 54,271 36,180 90,451 APA Dues 25,250 16,834 42,084 APA Dues (D1-21-01) 2,971 1,980 4,951 Dues and subscriptions 4,320 2,880 7,200 Utilities 41,343 27,562 68,905 Salaries 73,890 49,260 123,150 Accounting/Professional fees 4,320 2,880 7,200 Pilot Training 4,680 3,120 7,800 Applicant Pilot Training 18,911 12,607 31,518 Other 28,422 18,948 47,370 Total Administrative Expenses 659,744 439,828 1,099,572 Total Operating Expenses (OpEx) 2,476,529 1,651,018 4,127,547 B. Step 2: Project Operating Expenses, Adjusting for Inflation or Deflation In accordance with the text in § 404.102, having identified the recognized 2021 operating expenses in Step 1, the next step is to estimate the current year's operating expenses by adjusting for inflation over the 3-year period. We calculate inflation using the BLS data from the CPI for the Midwest Region of the United States for the 2022 inflation rate. 31 Because the BLS does not provide forecasted inflation data, we use economic projections from the Federal Reserve for the 2023 and 2024 inflation modification. 32 Based on that information, the calculations for Step 2 are as presented in table 7. 31 The CPI is defined as “All Urban Consumers (CPI-U), All Items, 1982-84=100.” Series CUUR0200SA0 (Downloaded March 21, 2023). Available at https://www.bls.gov/cpi/data.htm., All Urban Consumers (Current Series), multiscreen data, not seasonally adjusted, 0200 Midwest, Current, All Items, Monthly, 12-month Percent Change and Annual Data. 32 The 2023 and 2024 inflation rates are available at https://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20230920.pdf. We used the Median Core PCE June Projection found in table 1. ( Downloaded September 2023). Table 7—Adjusted Operating Expenses for District One District One Designated Undesignated Total Total Operating Expenses (Step 1) $2,476,529 $1,651,018 $4,127,547 2022 Inflation Modification (@8%) 198,122 132,081 330,203 2023 Inflation Modification (@3.9%) 104,311 69,541 173,852 2024 Inflation Modification (@2.6%) 72,253 48,169 120,422 Adjusted 2024 Operating Expenses 2,851,215 1,900,809 4,752,024 * Figures are rounded to the nearest dollar and may not sum to totals. C. Step 3: Estimate Number of Registered Pilots and Apprentice Pilots In accordance with the text in § 404.103, the Coast Guard estimates the number of fully registered pilots in each district. We determine the number of fully registered pilots based on data provided by the SLSPA. Using these numbers, we estimate that there will be 18 registered pilots in 2024 in District One. We determine the number of apprentice pilots based on input from the district on anticipated retirements and staffing needs. Using these numbers, we estimate that there will be three apprentice pilots in 2024 in District One. Based on the seasonal staffing model discussed in the 2017 ratemaking (82 FR 41466) and rounding introduced in the 2022 ratemaking (87 FR 18488), a certain number of pilots are assigned to designated waters, and a certain number of pilots are assigned to undesignated waters, as shown in table 8. These numbers are used to determine the amount of revenue needed in their respective areas. Table 8—Authorized Pilots for District One Item District One Maximum Number of Pilots (per § 401.220(a)) * 18 2024 Authorized Pilots (total) 18 Pilots Assigned to Designated Areas 10 Pilots Assigned to Undesignated Areas 8 2024 Apprentice Pilots 3 * 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). D. Step 4: Determine Target Pilot Compensation Benchmark and Apprentice Pilot Wage Benchmark In this step, we determine the total pilot compensation for each area. Because we are issuing an “interim” ratemaking this year, we follow the procedure outlined in paragraph (b) of § 404.104, which adjusts the existing compensation benchmark by inflation. First, we adjust the 2023 target compensation benchmark of $424,398 by 1.2 percent for a value of $429,491. This accounts for the difference in actual third quarter 2023 ECI inflation, which is 3.9 percent, and the 2023 PCE estimate of 2.7 percent. 33 34 The second step accounts for projected inflation from 2023 to 2024, which is 2.6 percent. 35 Based on the projected 2024 inflation estimate, the target compensation benchmark for 2024 is $440,658 per pilot. The apprentice pilot wage benchmark is 36 percent of the target pilot compensation, or $158,637 ($440,658 × 0.36). 33 Employment Cost Index, Total Compensation for Private Industry workers in Transportation and Material Moving, Annual Average, Series ID: CIU2010000520000A. https://beta.bls.gov/dataViewer/view/timeseries/CIU2010000520000A . (Last accessed 11/01/23.) 34 Table 1 Summary of Economic Projections, Median PCE Inflation. https://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20220316.pdf . (Last accessed 05/17/23.) 35 Table 1 Summary of Economic Projections, Median Core PCE Inflation June Projection. https://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20230920.pdf . (Last accessed 09/2023.) In accordance with § 404.104(c), we use the revised target individual compensation level to derive the total pilot compensation by multiplying the individual target compensation by the estimated number of registered pilots for District One, as shown in table 9. We estimate that the number of apprentice pilots with limited registration needed for District One in the 2024 season will be three. The total target wages for apprentices are allocated with 60 percent for the designated area and 40 percent for the undesignated area, in accordance with the allocation for operating expenses. Table 9—Target Compensation for District One District One Designated Undesignated Total Target Pilot Compensation $440,658 $440,658 $440,658 Number of Pilots 10 8 18 Total Target Pilot Compensation $4,406,580 $3,525,264 $7,931,844 Target Apprentice Pilot Compensation $158,637 $158,637 $158,637 Number of Apprentice Pilots 3 Total Target Apprentice Pilot Compensation $285,547 $190,364 $475,911 E. Step 5: Project Working Capital Fund Next, the Coast Guard calculates the working capital fund revenues needed for each area. We first add the figures for projected operating expenses, total target pilot compensation, and total target apprentice pilot wage for each area, then we find the preceding year's average annual rate of return for new issues of high-grade corporate securities. Using Moody's data, the number is 4.0742 percent rounded. 36 By multiplying the two figures, we obtain the working capital fund contribution for each area, as shown in table 10. 36 Moody's Seasoned Aaa Corporate Bond Yield, average of 2022 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 . (Last accessed 03/21/23.) Table 10—Working Capital Fund Calculation for District One District One Designated Undesignated Total Adjusted Operating Expenses (Step 2) $2,851,215 $1,900,809 $4,752,024 Total Target Pilot Compensation (Step 4) 4,406,580 3,525,264 7,931,844 Total Target Apprentice Pilot Compensation (Step 4) 285,547 190,364 475,911 Total 2024 Expenses 7,543,342 5,616,437 13,159,779 Working Capital Fund (4.0742%) 307,331 228,825 536,156 F. Step 6: Project Needed Revenue In this step, we add the expenses accrued to derive the total revenue needed for each area. These expenses include the projected operating expenses (from Step 2), the target total pilot compensation (from Step 4), total target apprentice pilot wage (from Step 4), and the working capital fund contribution (from Step 5). We show these calculations in table 11. Table 11—Revenue Needed for District One District One Designated Undesignated Total Adjusted Operating Expenses (Step 2) $2,851,215 $1,900,809 $4,752,024 Total Target Pilot Compensation (Step 4) 4,406,580 3,525,264 7,931,844 Total Target Apprentice Pilot Compensation (Step 4) 285,547 190,364 475,911 Working Capital Fund (Step 5) 307,331 228,825 536,156 Total Revenue Needed 7,850,673 5,845,262 13,695,935 G. Step 7: Calculate Initial Base Rates Having determined the revenue needed for each area in the previous six steps, we divide that number by the expected number of traffic hours to develop an hourly rate. Step 7 is a two-part process. The first part is calculating the 10-year traffic average in District One using the total time on task or pilot bridge hours. To calculate the time on task for each district from 2013-2020, the Coast Guard used billing data from SeaPro. The data is pulled from the system filtering by district, year, job status (including only processed jobs), and flagging code (including only U.S. jobs). Because we calculate separate figures for designated and undesignated waters, there are two parts for each calculation. For 2021-2022, the Coast Guard used figures provided by the associations through SeaPro monthly reports. Where bridge hour figures did not match between the monthly reports and the weighted factor reports, the Coast Guard opted to use the figures from the monthly report for Step 7. We show these values in table 12. Table 12—Time on Task for District One [Hours] District One Designated Undesignated 2022 6,573 8,356 2021 6,166 7,893 2020 6,265 7,560 2019 8,232 8,405 2018 6,943 8,445 2017 7,605 8,679 2016 5,434 6,217 2015 5,743 6,667 2014 6,810 6,853 2013 5,864 5,529 Average 6,564 7,460 Next, we derive the initial hourly rate by dividing the revenue needed by the average number of hours for each area. This produces an initial rate, which is necessary to produce the revenue needed for each area, assuming the amount of traffic is as expected. We present the calculations for District One in table 13. Table 13—Initial Rate Calculations for District One District One Designated Undesignated Revenue needed (Step 6) $7,850,673 $5,845,262 Average time on task (hours) 6,564 7,460 Initial rate $1,196 $784 H. Step 8: Calculate Average Weighting Factors by Area In this step, the Coast Guard calculates the average weighting factor for each designated and undesignated area by first collecting the weighting factors, set forth in 46 CFR 401.400, for each vessel trip. Using this data, we calculate the average weighting factor for each area using the data from each vessel transit from 2014 to 2021, as shown in tables 14 and 15. Data for 2022 was provided by the associations in a weighting factor report. Table 14—Average Weighting Factor for District One, Designated Areas Vessel class/year Number of transits Weighting factor Weighted transits Class 1 (2014) 31 1 31 Class 1 (2015) 41 1 41 Class 1 (2016) 31 1 31 Class 1 (2017) 28 1 28 Class 1 (2018) 54 1 54 Class 1 (2019) 72 1 72 Class 1 (2020) 8 1 8 Class 1 (2021) 10 1 10 Class 1 (2022) 39 1 39 Class 2 (2014) 285 1.15 328 Class 2 (2015) 295 1.15 339 Class 2 (2016) 185 1.15 213 Class 2 (2017) 352 1.15 405 Class 2 (2018) 559 1.15 643 Class 2 (2019) 378 1.15 435 Class 2 (2020) 560 1.15 644 Class 2 (2021) 315 1.15 362 Class 2 (2022) 482 1.15 554 Class 3 (2014) 50 1.3 65 Class 3 (2015) 28 1.3 36 Class 3 (2016) 50 1.3 65 Class 3 (2017) 67 1.3 87 Class 3 (2018) 86 1.3 112 Class 3 (2019) 122 1.3 159 Class 3 (2020) 67 1.3 87 Class 3 (2021) 52 1.3 68 Class 3 (2022) 106 1.3 138 Class 4 (2014) 271 1.45 393 Class 4 (2015) 251 1.45 364 Class 4 (2016) 214 1.45 310 Class 4 (2017) 285 1.45 413 Class 4 (2018) 393 1.45 570 Class 4 (2019) 730 1.45 1059 Class 4 (2020) 427 1.45 619 Class 4 (2021) 407 1.45 590 Class 4 (2022) 478 1.45 693 Total 7,809 10,064 Average weighting factor (weighted transits ÷ number of transits) 1.29 * Figures may not sum due to rounding. Table 15—Average Weighting Factor for District One, Undesignated Areas Vessel class/year Number of transits Weighting factor Weighted transits Class 1 (2014) 25 1 25 Class 1 (2015) 28 1 28 Class 1 (2016) 18 1 18 Class 1 (2017) 19 1 19 Class 1 (2018) 22 1 22 Class 1 (2019) 30 1 30 Class 1 (2020) 3 1 3 Class 1 (2021) 19 1 19 Class 1 (2022) 41 1 41 Class 2 (2014) 238 1.15 274 Class 2 (2015) 263 1.15 302 Class 2 (2016) 169 1.15 194 Class 2 (2017) 290 1.15 334 Class 2 (2018) 352 1.15 405 Class 2 (2019) 366 1.15 421 Class 2 (2020) 358 1.15 412 Class 2 (2021) 463 1.15 532 Class 2 (2022) 371 1.15 427 Class 3 (2014) 60 1.3 78 Class 3 (2015) 42 1.3 55 Class 3 (2016) 28 1.3 36 Class 3 (2017) 45 1.3 59 Class 3 (2018) 63 1.3 82 Class 3 (2019) 58 1.3 75 Class 3 (2020) 35 1.3 46 Class 3 (2021) 71 1.3 92 Class 3 (2022) 73 1.3 95 Class 4 (2014) 289 1.45 419 Class 4 (2015) 269 1.45 390 Class 4 (2016) 222 1.45 322 Class 4 (2017) 285 1.45 413 Class 4 (2018) 382 1.45 554 Class 4 (2019) 326 1.45 473 Class 4 (2020) 334 1.45 484 Class 4 (2021) 466 1.45 676 Class 4 (2022) 401 1.45 581 Total 6,524 8,435 Average weighting factor (weighted transits/number of transits) 1.29 * Figures may not sum due to rounding. I. Step 9: Calculate Revised Base Rates In this step, we revise the base rates so that the total cost of pilotage will be equal to the revenue needed, after considering the impact of the weighting factors. To do this, the initial base rates calculated in Step 7 are divided by the average weighting factors calculated in Step 8, as shown in table 16. Table 16—Revised Base Rates for District One Area Initial rate (Step 7) Average weighting factor (Step 8) Revised rate (Initial rate ÷ average weighting factor) District One: Designated $1,196 1.29 $927 District One: Undesignated 784 1.29 608 J. Step 10: Review and Finalize Rates In this step, the Director reviews the rates set forth by the staffing model and ensures that they meet the goal of ensuring safe, efficient, and reliable pilotage. To establish this, the Director considers whether the rates incorporate appropriate compensation for pilots to handle heavy traffic periods, and whether there are enough pilots to handle those heavy traffic periods. The Director also considers whether the rates cover operating expenses and infrastructure costs, including average traffic and weighting factors. Based on the financial information submitted by the pilots, the Director is not establishing any alterations to the rates in this step. We modified § 401.405(a)(1) and (2) to reflect the final rates shown in table 17. Table 17—Final Rates for District One Area Name Final 2023 pilotage rate Final 2024 pilotage rate District One: Designated St. Lawrence River $876 $927 District One: Undesignated Lake Ontario 586 608 District Two A. Step 1: Recognize Previous Operating Expenses Step 1 in our ratemaking methodology requires that the Coast Guard review and recognize the previous year's operating expenses (§ 404.101). To do so, we begin by reviewing the independent accountant's financial reports for each association's 2021 expenses and revenues. 37 For accounting purposes, the financial reports divide expenses into designated and undesignated areas. For costs generally accrued by the pilot associations, such as employee benefits, the cost is divided between the designated and undesignated areas on a pro rata basis. 37 These reports are available in the docket for this final rule. In the 2021 expenses used as the basis for this final rule, districts used the term “applicant” to describe applicant trainees and persons who will be called apprentices (applicant pilots), under the definition of “apprentice pilot”, which was introduced in the 2022 final rule. Therefore, when describing past expenses, the term “applicant” is used to match what was reported from 2021, which includes both applicant and apprentice pilots. The term “apprentice” is used to distinguish apprentice pilot wages and describe the impacts of the ratemaking going forward. The Coast Guard continues to include apprentice salaries as an allowable expense in the 2024 ratemaking, as this final rule is based on 2021 operating expenses, when salaries were still an allowable expense. Beginning with the 2025 ratemaking, apprentice pilot salaries will no longer be included as a 2022 operating expense, because apprentice pilot wages will have already been factored into the ratemaking Steps 3 and 4 in calculation of the 2022 rates. Beginning in 2025, the applicant salaries' operating expenses for 2022 will consist of only applicant trainees (those who are not yet apprentice pilots). The recognized operating expenses for District Two are shown in table 18. Table 18—2021 Recognized Expenses for District Two Reported operating expenses for 2021 Undesignated Lake Erie Designated Southeast Shoal to Port Huron Total Applicant Pilot Compensation Salaries $79,538 $119,306 $198,844 Employee Benefits 11,066 16,599 27,665 Total Applicant Pilot Compensation 90,604 135,905 226,509 Other Applicant Cost Applicant Subsistence 5,280 7,920 13,200 Hotel/Lodging Costs 2,976 4,464 7,440 Hotel/Lodging Costs (D2-21-01) (2,976) (4,464) (7,440) Payroll taxes 6,901 10,352 17,253 Total Other Applicant Cost 12,181 18,272 30,453 Other Pilotage Cost Subsistence 73,921 110,880 184,800 Hotel/Lodging 62,496 93,744 156,240 Hotel/Lodging (D2-21-01) (55,307) (82,960) (138,267) Travel 42,625 63,937 106,562 License renewal 1,958 2,938 4,896 Payroll Taxes 87,620 131,430 219,050 License Insurance 9,007 13,510 22,517 Total Other Pilotage Costs 222,320 333,479 555,798 Pilot Boat and Dispatch Costs Pilot boat costs 60,067 90,101 150,168 Employee Benefits 80,273 120,410 200,683 Insurance 4,317 6,475 10,792 Salaries 148,260 222,391 370,651 Payroll taxes 13,277 19,915 33,192 Total Pilot and Dispatch Costs 306,194 459,292 765,486 Administrative Expenses Legal 2,186 3,278 5,464 Legal—shared counsel (K&L Gates) 7,167 10,751 17,918 Office Rent 27,627 41,440 69,067 Insurance 15,084 22,627 37,711 Employee benefits 35,010 52,516 87,526 Payroll Taxes 5,161 7,741 12,902 Other taxes 55,252 82,879 138,131 Real Estate taxes 7,879 11,819 19,698 Travel 8,688 13,033 21,721 Depreciation 11,121 16,682 27,803 Interest 2 2 4 APA Dues 14,683 22,025 36,708 Dues and subscriptions 505 757 1,262 Utilities 24,356 36,535 60,891 Salaries 48,532 72,797 121,329 Accounting/Professional fees 17,846 26,769 44,615 Pilot Training 23,909 35,864 59,773 Applicant Pilot Training 209 313 522 Other 21,252 31,879 53,131 Total Administrative Expenses 326,469 489,707 816,176 Total Expenses (OPEX + Applicant + Pilot Boats + Admin + Capital) 957,768 1,436,655 2,394,422 Total Operating Expenses (OpEx + Adjustments) 957,768 1,436,655 2,394,422 B. Step 2: Project Operating Expenses, Adjusting for Inflation or Deflation In accordance with the text in § 404.102, having identified the recognized 2021 operating expenses in Step 1, the next step is to estimate the current year's operating expenses by adjusting for inflation over the 3-year period. We calculate inflation using the BLS data from the CPI for the Midwest Region of the United States for the 2022 inflation rate. 38 Because the BLS does not provide forecasted inflation data, we use economic projections from the Federal Reserve for the 2023 and 2024 inflation modification. 39 Based on that information, the calculations for Step 2 are presented in table 19. 38 The CPI is defined as “All Urban Consumers (CPI-U), All Items, 1982-84=100.” Series CUUR0200SA0 (Downloaded March 21, 2023). Available at https://www.bls.gov/cpi/data.htm., All Urban Consumers (Current Series), multiscreen data, not seasonally adjusted, 0200 Midwest, Current, All Items, Monthly, 12-month Percent Change and Annual Data. 39 The 2023 and 2024 inflation rates are available at Table 1 Summary of Economic Projections, Median Core PCE Inflation June Projection. https://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20230920.pdf. (Last accessed 12/4/2023). Table 19—Adjusted Operating Expenses for District Two District Two Undesignated Designated Total Total Operating Expenses (Step 1) $957,768 $1,436,655 $2,394,422 2022 Inflation Modification (@8%) $76,621 114,932 191,553 2023 Inflation Modification (@3.9%) 40,341 60,512 100,853 2024 Inflation Modification (@2.6%) 27,943 41,915 69,858 Adjusted 2024 Operating Expenses 1,102,673 1,654,014 2,756,686 * Figures are rounded to the nearest dollar and may not sum to totals. C. Step 3: Estimate Number of Registered Pilots and Apprentice Pilots In accordance with the text in § 404.103, the Coast Guard estimates the number of fully registered pilots in each district. We determine the number of fully registered pilots based on data provided by the LPA. Using these numbers, we estimate that there will be 17 registered pilots in 2024 in District Two, including the additional pilot being granted for 2024. We determine the number of apprentice pilots based on input from the district on anticipated retirements and staffing needs. Using these numbers, we estimate that there will be one apprentice pilot in 2024 in District Two. Based on the seasonal staffing model discussed in the 2017 ratemaking (82 FR 41466) and rounding introduced in the 2022 ratemaking (87 FR 18488), a certain number of pilots are assigned to designated waters, and a certain number of pilots are assigned to undesignated waters, as shown in table 20. These numbers are used to determine the amount of revenue needed in their respective areas. Table 20—Authorized Pilots for District Two Item District Two Maximum Number of Pilots (per § 401.220(a)) * 16 2024 Authorized Pilots (total) 17 Pilots Assigned to Designated Areas 9 Pilots Assigned to Undesignated Areas 8 2024 Apprentice Pilots 1 * 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). D. Step 4: Determine Target Pilot Compensation Benchmark and Apprentice Pilot Wage Benchmark In this step, we determine the total pilot compensation for each area. Because we are issuing an “interim” ratemaking this year, we follow the procedure outlined in paragraph (b) of § 404.104, which adjusts the existing compensation benchmark by inflation. First, we adjust the 2023 target compensation benchmark of $424,398 by 1.2 percent for a value of $429,491. This accounts for the difference in actual third quarter 2023 ECI inflation, which is 3.9 percent, and the 2023 PCE estimate of 2.7 percent. 40 41 The second step accounts for projected inflation from 2023 to 2024, which is 2.6 percent. 42 Based on the projected 2024 inflation estimate, the target compensation benchmark for 2024 is $440,658 per pilot. The apprentice pilot wage benchmark is 36 percent of the target pilot compensation, or $158,637 ($440,658 × 0.36). 40 Employment Cost Index, Total Compensation for Private Industry workers in Transportation and Material Moving, Annual Average, Series ID: CIU2010000520000A. https://beta.bls.gov/dataViewer/view/timeseries/CIU2010000520000A. (Last accessed 11/01/23.) 41 Table 1 Summary of Economic Projections, Median PCE Inflation. https://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20220316.pdf. (Last accessed 05/17/23.) 42 Table 1 Summary of Economic Projections, Median Core PCE Inflation June Projection. https://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20230920.pdf (Last accessed 12/4/2023). In accordance with § 404.104(c), the Coast Guard uses the revised target individual compensation level to derive the total pilot compensation by multiplying the individual target compensation by the estimated number of registered pilots for District Two, as shown in table 21. The Coast Guard estimates that the number of apprentice pilots with limited registration needed for District Two in the 2024 season will be one. The total target wages for apprentices are allocated at 60 percent for the designated area and 40 percent for the undesignated area, in accordance with the allocation for operating expenses. Table 21—Target Compensation for District Two District Two Undesignated Designated Total Target Pilot Compensation $440,658 $440,658 $440,658 Number of Pilots 8 9 17 Total Target Pilot Compensation 3,525,264 3,965,922 7,491,186 Target Apprentice Pilot Compensation 158,637 158,637 158,637 Number of Apprentice Pilots 1 Total Target Apprentice Pilot Compensation 63,455 95,182 158,637 E. Step 5: Project Working Capital Fund Next, the Coast Guard calculates the working capital fund revenues needed for each area. We first add the figures for projected operating expenses, total target pilot compensation, and total target apprentice pilot wage for each area, and then we find the preceding year's average annual rate of return for new issues of high-grade corporate securities. Using Moody's data, the number is 4.0742 percent, rounded. 43 By multiplying the two figures, we obtain the working capital fund contribution for each area, as shown in table 22. 43 Moody's Seasoned Aaa Corporate Bond Yield, average of 2022 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. (Last accessed 03/21/2023). Table 22—Working Capital Fund Calculation for District Two District Two Undesignated Designated Total Adjusted Operating Expenses (Step 2) $1,102,673 $1,654,014 $2,756,686 Total Target Pilot Compensation (Step 4) 3,525,264 3,965,922 7,491,186 Total Target Apprentice Pilot Compensation (Step 4) 63,455 95,182 158,637 Total 2024 Expenses 4,691,392 5,715,118 10,406,509 Working Capital Fund (4.0742%) 191,137 232,845 423,982 F. Step 6: Project Needed Revenue In this step, the Coast Guard adds all the expenses accrued to derive the total revenue needed for each area. These expenses include the projected operating expenses (from Step 2), the total target pilot compensation (from Step 4), total target apprentice pilot wage (from Step 4), and the working capital fund contribution (from Step 5). We show these calculations in table 23. Table 23—Revenue Needed for District Two District Two Undesignated Designated Total Adjusted Operating Expenses (Step 2) $1,102,673 $1,654,014 $2,756,686 Total Target Pilot Compensation (Step 4) 3,525,264 3,965,922 7,491,186 Total Target Apprentice Pilot Compensation (Step 4) 63,455 95,182 158,637 Working Capital Fund (Step 5) 191,137 232,845 423,982 Total Revenue Needed 4,882,529 5,947,963 10,830,491 G. Step 7: Calculate Initial Base Rates Having determined the revenue needed for each area in the previous six steps, the Coast Guard divides that number by the expected number of traffic hours to develop an hourly rate. Step 7 is a two-part process. In the first part, we calculate the 10-year traffic average in District Two, using the total time on task or pilot bridge hours. To calculate the time on task for each district from 2013-2020, the Coast Guard used billing data from SeaPro. The data is pulled from the system filtering by district, year, job status (including only processed jobs), and flagging code (including only U.S. jobs). Because we calculate separate figures for designated and undesignated waters, there are two parts for each calculation. For 2021-2022, the Coast Guard used figures provided by the associations through SeaPro monthly reports. Where bridge hour figures did not match between the monthly reports and the weighted factor reports, the Coast Guard opted to use the figures from the monthly report for Step 7. We show these values in table 24. Table 24—Time on Task for District Two [Hours] Year District Two Undesignated Designated 2022 7,668 8,613 2021 5,290 6,762 2020 6,232 8,401 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 Average 6,241 6,755 Next, we derive the initial hourly rate by dividing the revenue needed by the average number of hours for each area. This produces an initial rate, which is necessary to produce the revenue needed for each area, assuming the amount of traffic is as expected. We present the calculations for District Two in table 25. Table 25—Initial Rate Calculations for District Two Undesignated Designated Revenue needed (Step 6) $4,882,529 $5,947,963 Average time on task (hours) 6,241 6,755 Initial rate $782 $881 H. Step 8: Calculate Average Weighting Factors by Area In this step, we calculate the average weighting factor for each designated and undesignated area. We collect the weighting factors, set forth in 46 CFR 401.400, for each vessel trip. Using this data, we calculate the average weighting factor for each area using the data from each vessel transit from 2014-2021, as shown in tables 26 and 27. Data for 2022 was provided by the associations in a weighting factor report. Table 26—Average Weighting Factor for District Two, Undesignated Areas Vessel class/year Number of transits Weighting factor Weighted transits Class 1 (2014) 31 1 31 Class 1 (2015) 35 1 35 Class 1 (2016) 32 1 32 Class 1 (2017) 21 1 21 Class 1 (2018) 37 1 37 Class 1 (2019) 54 1 54 Class 1 (2020) 1 1 1 Class 1 (2021) 7 1 7 Class 1 (2022) 121 1 121 Class 2 (2014) 356 1.15 409 Class 2 (2015) 354 1.15 407 Class 2 (2016) 380 1.15 437 Class 2 (2017) 222 1.15 255 Class 2 (2018) 123 1.15 141 Class 2 (2019) 127 1.15 146 Class 2 (2020) 165 1.15 190 Class 2 (2021) 206 1.15 237 Class 2 (2022) 478 1.15 550 Class 3 (2014) 20 1.3 26 Class 3 (2015) 0 1.3 0 Class 3 (2016) 9 1.3 12 Class 3 (2017) 12 1.3 16 Class 3 (2018) 3 1.3 4 Class 3 (2019) 1 1.3 1 Class 3 (2020) 1 1.3 1 Class 3 (2021) 5 1.3 7 Class 3 (2022) 8 1.3 10 Class 4 (2014) 636 1.45 922 Class 4 (2015) 560 1.45 812 Class 4 (2016) 468 1.45 679 Class 4 (2017) 319 1.45 463 Class 4 (2018) 196 1.45 284 Class 4 (2019) 210 1.45 305 Class 4 (2020) 201 1.45 291 Class 4 (2021) 227 1.45 329 Class 4 (2022) 642 1.45 931 Total 6,268 8,204 Average weighting factor (weighted transits/number of transits) 1.31 * Figures may not sum due to rounding. Table 27—Average Weighting Factor for District Two, Designated Areas Vessel class/year Number of transits Weighting factor Weighted transits Class 1 (2014) 20 1 20 Class 1 (2015) 15 1 15 Class 1 (2016) 28 1 28 Class 1 (2017) 15 1 15 Class 1 (2018) 42 1 42 Class 1 (2019) 48 1 48 Class 1 (2020) 7 1 7 Class 1 (2021) 12 1 12 Class 1 (2022) 117 1 117 Class 2 (2014) 237 1.15 273 Class 2 (2015) 217 1.15 250 Class 2 (2016) 224 1.15 258 Class 2 (2017) 127 1.15 146 Class 2 (2018) 153 1.15 176 Class 2 (2019) 281 1.15 323 Class 2 (2020) 342 1.15 393 Class 2 (2021) 240 1.15 276 Class 2 (2022) 717 1.15 825 Class 3 (2014) 8 1.3 10 Class 3 (2015) 8 1.3 10 Class 3 (2016) 4 1.3 5 Class 3 (2017) 4 1.3 5 Class 3 (2018) 14 1.3 18 Class 3 (2019) 1 1.3 1 Class 3 (2020) 5 1.3 7 Class 3 (2021) 2 1.3 3 Class 3 (2022) 13 1.3 17 Class 4 (2014) 359 1.45 521 Class 4 (2015) 340 1.45 493 Class 4 (2016) 281 1.45 407 Class 4 (2017) 185 1.45 268 Class 4 (2018) 379 1.45 550 Class 4 (2019) 403 1.45 584 Class 4 (2020) 405 1.45 587 Class 4 (2021) 268 1.45 389 Class 4 (2022) 1,230 1.45 1,784 Total 6,751 8,882 Average weighting factor (weighted transits/number of transits) 1.32 * Figures may not sum due to rounding. I. Step 9: Calculate Revised Base Rates In this step, the Coast Guard revises the base rates, so that the total cost of pilotage will be equal to the revenue needed after considering the impact of the weighting factors. To do this, we divide the initial base rates calculated in Step 7 by the average weighting factors calculated in Step 8, as shown in table 28. Table 28—Revised Base Rates for District Two Area Initial rate (Step 7) Average weighting factor (Step 8) Revised rate (initial rate ÷ average weighting factor) District Two: Undesignated $782 1.31 $597 District Two: Designated 881 1.32 667 J. Step 10: Review and Finalize Rates In this step, the Director reviews the rates set forth by the staffing model and ensures that they meet the goal of ensuring safe, efficient, and reliable pilotage. To establish this, the Director considers whether the rates incorporate appropriate compensation for pilots to handle heavy traffic periods, and whether there are enough pilots to handle those heavy traffic periods. The Director also considers whether the rates cover operating expenses and infrastructure costs, taking average traffic and weighting factors into consideration. Based on the financial information submitted by the pilots, the Director is not establishing any alterations to the rates in this step. We modify § 401.405(a)(3) and (4) to reflect the final rates shown in table 29. Table 29—Final Rates for District Two Area Name Final 2023 pilotage rate Final 2024 pilotage rate District Two: Designated Navigable waters from Southeast Shoal to Port Huron, MI $601 $667 District Two: Undesignated Lake Erie 704 597 District Three A. Step 1: Recognize Previous Operating Expenses Step 1 in our ratemaking methodology requires that the Coast Guard review and recognize the previous year's operating expenses (§ 404.101). To do so, we review the independent accountant's financial reports for each association's 2021 expenses and revenues. 44 For accounting purposes, the financial reports divide expenses into designated and undesignated areas. For costs generally accrued by the pilot associations, such as employee benefits, the cost is divided between the designated and undesignated areas on a pro rata basis. 44 These reports are available in the docket for this final rule. In the 2021 expenses used as the basis for this final rule, districts used the term “applicant” to describe applicant trainees and persons who will be called apprentices (applicant pilots), under the definition of “apprentice pilot”, which was introduced in the 2022 final rule. Therefore, when describing past expenses, the term “applicant” is used to match what was reported in 2021, which includes both applicant and apprentice pilots. The term “apprentice” is used to distinguish apprentice pilot wages and to describe the impacts of the ratemaking going forward. The Coast Guard continues to include apprentice salaries as an allowable expense in the 2024 ratemaking, as this final rule is based on 2021 operating expenses, when salaries were still an allowable expense. Beginning with the 2025 ratemaking, apprentice pilot salaries will no longer be included as a 2022 operating expense, because apprentice pilot wages will have already been factored into the ratemaking Steps 3 and 4 in calculation of the 2022 rates. Beginning in 2025, the applicant salaries' operating expenses for 2022 will consist of only applicant trainees (those who are not yet apprentice pilots). The recognized operating expenses for District Three are shown in table 30. Table 30—2021 Recognized Expenses for District Three Reported operating expenses for 2021 Undesignated Lakes Huron and Michigan Designated St. Mary's River Undesignated Lake Superior Total Applicant Cost Applicant Salaries $336,149 $140,111 $176,330 $652,590 Applicant Benefits 58,306 24,303 30,585 113,194 Total Applicant Cost 394,455 164,414 206,915 765,784 Other Pilotage Costs Pilot subsistence/travel 149,993 62,519 78,680 291,192 Hotel/Lodging Cost 136,769 57,007 71,744 265,520 Hotel/Lodging Cost (D3-21-03) (18,162) (7,570) (9,527) (35,260) Travel 55,936 23,315 29,342 108,592 License Insurance—Pilots 881 367 462 1,710 Payroll taxes Payroll Tax (D3-21-04) 155,779 64,931 81,715 302,425 License Insurance 15,328 6,389 8,040 29,757 Total Other Pilotage Costs 496,524 206,958 260,456 963,938 Pilot Boat and Dispatch Costs Pilot boat costs 445,549 185,710 233,716 864,975 Pilot Boat Coast (D2-21-02) (10,901) (4,544) (5,718) (21,163) Dispatch costs 38,156 15,904 20,015 74,074 Employee Benefits 1,748 729 917 3,394 Insurance 20,141 8,395 10,565 39,101 Insurance (D3-21-05, D3-21-09) 1,735 723 910 3,369 Salaries 140,294 58,476 73,592 272,363 Payroll taxes 123 51 64 238 Total Pilot boat and dispatch costs 636,845 265,444 334,061 1,236,350 Administrative Cost Legal—general counsel 9,560 3,985 5,015 18,560 Legal—shared counsel (K&L Gates) 6,227 2,595 3,266 12,088 Legal—shared counsel (K&L Gates) (D3-21-07) (1,307) (545) (686) (2,538) Travel 58,104 24,219 30,479 112,802 Travel (D3-21-03) (14,093) (5,874) (7,393) (27,360) Insurance 29,480 12,288 15,464 57,232 Insurance (D3-21-05, D3-21-09) (5,112) (2,131) (2,681) (9,924) Employee benefits 126,390 52,681 66,299 245,369 Payroll Tax 54,544 22,735 28,611 105,890 Other taxes 25,489 10,624 13,370 49,483 Other taxes (D3-21-02) (25,006) (10,423) (13,117) (48,545) Real Estate Taxes 1,396 582 732 2,710 Depreciation/Auto leasing/Other 112,215 46,772 58,863 217,850 Depreciation/Auto leasing/Other (D3-21-02) (4,465) (1,861) (2,342) (8,668) Interest 3,432 1,431 1,800 6,663 APA Dues 25,946 10,814 13,610 50,370 APA Dues (D3-21-08) (1,297) (541) (680) (2,519) Dues and subscriptions 4,044 1,685 2,121 7,850 Salaries 63,591 26,506 33,357 123,454 Utilities 41,681 17,373 21,864 80,919 Utilities (D3-21-03) (34,248) (14,275) (17,965) (66,488) Accounting/Professional fees 22,765 9,489 11,941 44,195 Pilot Training 44,259 18,448 23,216 85,923 Other expenses 24,741 10,312 12,978 48,032 Total Administrative Expenses 568,336 236,889 298,122 1,103,347 Total Operating Expenses (OpEx) 2,096,160 873,705 1,099,554 4,069,419 B. Step 2: Project Operating Expenses, Adjusting for Inflation or Deflation In accordance with the text in § 404.102, having identified the 2021 operating expenses in Step 1, the next step is to estimate the current year's operating expenses by adjusting those expenses for inflation over the 3-year period. We calculate inflation using the BLS data from the CPI for the Midwest Region of the United States for the 2022 inflation rate. 45 Because the BLS does not provide forecasted inflation data, we use economic projections from the Federal Reserve for the 2023 and 2024 inflation modification. 46 Based on that information, the calculations for Step 2 are as presented in table 31. 45 The CPI is defined as “All Urban Consumers (CPI-U), All Items, 1982-84=100.” Series CUUR0200SA0 (Downloaded March 21, 2023). Available at https://www.bls.gov/cpi/data.htm., All Urban Consumers (Current Series), multiscreen data, not seasonally adjusted, 0200 Midwest, Current, All Items, Monthly, 12-month Percent Change and Annual Data. 46 The 2022 and 2023 inflation rates are available at https://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20230920.pdf. We used the Median Core PCE June Projection found in table 1. (Downloaded September 2023). Table 31—Adjusted Operating Expenses for District Three District Three Undesignated Designated Total Total Operating Expenses (Step 1) $3,195,714 $873,705 $4,069,419 2022 Inflation Modification (@8%) 255,657 69,896 325,553 2023 Inflation Modification (@3.9%) 134,603 36,800 171,403 2024 Inflation Modification (@2.6%) 93,235 25,490 118,725 Adjusted 2024 Operating Expenses 3,679,209 1,005,891 4,685,100 * Figures are rounded to the nearest dollar and may not sum to totals. C. Step 3: Estimate Number of Registered Pilots and Apprentice Pilots In accordance with the text in § 404.103, the Coast Guard estimates the number of registered pilots in each district. We determine the number of registered pilots based on data provided by the WGLPA. Using these numbers, we estimate that there will be 23 registered pilots in 2024 in District Three, including the additional pilot granted by the Director. We determine the number of apprentice pilots based on input from the district on anticipated retirements and staffing needs. Using these numbers, the Coast Guard estimates that there will be two apprentice pilots in 2024 in District Three. Based on the seasonal staffing model discussed in the 2017 ratemaking (82 FR 41466) and rounding introduced in the 2022 ratemaking (87 FR 18488), a certain number of pilots are assigned to designated waters, and a certain number of pilots are assigned to undesignated waters, as shown in table 32. These numbers are used to determine the amount of revenue needed in their respective areas. Table 32—Authorized Pilots for District Three Item District Three Maximum Number of Pilots (per § 401.220(a)) * 22 2024 Authorized Pilots (total) 23 Pilots Assigned to Designated Areas 5 Pilots Assigned to Undesignated Areas 18 2024 Apprentice Pilots 2 * 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). D. Step 4: Determine Target Pilot Compensation Benchmark and Apprentice Pilot Wage Benchmark In this step, we determine the total pilot compensation for each area. Because we are issuing an “interim” ratemaking this year, we follow the procedure outlined in paragraph (b) of § 404.104, which adjusts the existing compensation benchmark by inflation. First, we adjust the 2023 target compensation benchmark of $424,398 by 1.2 percent for a value of $429,491. This accounts for the difference in actual third quarter 2023 ECI inflation, which is 3.9 percent, and the 2023 PCE estimate of 2.7 percent. 47 48 The second step accounts for projected inflation from 2023 to 2024, which is 2.6 percent. 49 Based on the projected 2024 inflation estimate, the target compensation benchmark for 2024 is $440,658 per pilot. The apprentice pilot wage benchmark is 36 percent of the target pilot compensation, or $158,637 ($440,658 × 0.36). 47 Employment Cost Index, Total Compensation for Private Industry workers in Transportation and Material Moving, Annual Average, Series ID: CIU2010000520000A. https://beta.bls.gov/dataViewer/view/timeseries/CIU2010000520000A. (Last accessed 11/01/23.) 48 Table 1 Summary of Economic Projections, Median PCE Inflation. https://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20220316.pdf. (Last accessed 05/17/23.) 49 Table 1 Summary of Economic Projections, Median Core PCE Inflation June Projection. https://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20230920.pdf (Last accessed 12/4/2023). In accordance with § 404.104(c), we use the revised target individual compensation level to derive the total pilot compensation by multiplying the individual target compensation by the estimated number of registered pilots for District Three, as shown in table 33. We estimate that the number of apprentice pilots with limited registration needed for District Three in the 2024 season will be two. The total target wages for apprentices are allocated with 21 percent for the designated area and 79 percent (52 percent + 27 percent) for the undesignated area, in accordance with the allocation for operating expenses. Table 33—Target Compensation for District Three District Three Undesignated Designated Total Target Pilot Compensation $440,658 $440,658 $440,658 Number of Pilots 18 5 23 Total Target Pilot Compensation $7,931,844 $2,203,290 $10,135,134 Target Apprentice Pilot Compensation $158,637 $158,637 $158,637 Number of Apprentice Pilots 2 Total Target Apprentice Pilot Compensation $250,646 $66,628 $317,274 E. Step 5: Project Working Capital Fund Next, the Coast Guard calculates the working capital fund revenues needed for each area. We first add the figures for projected operating expenses, total target pilot compensation, and total target apprentice pilot wage for each area, and then, we find the preceding year's average annual rate of return for new issues of high-grade corporate securities. Using Moody's data, the number is 4.0742 percent, rounded. 50 By multiplying the two figures, we obtain the working capital fund contribution for each area, as shown in table 34. 50 Moody's Seasoned Aaa Corporate Bond Yield, average of 2022 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. (Last accessed 03/21/2023.) Table 34—Working Capital Fund Calculation for District Three District Three Undesignated Designated Total Adjusted Operating Expenses (Step 2) $3,679,209 $1,005,891 $4,685,100 Total Target Pilot Compensation (Step 4) 7,931,844 2,203,290 10,135,134 Total Target Apprentice Pilot Compensation (Step 4) 250,646 66,628 317,274 Total 2024 Expenses 11,861,699 3,275,809 15,137,508 Working Capital Fund (4.0742%) 483,269 133,463 616,732 F. Step 6: Project Needed Revenue In this step, we add all the expenses accrued to derive the total revenue needed for each area. These expenses include the projected operating expenses (from Step 2), the total target pilot compensation (from Step 4), and the working capital fund contribution (from Step 5). The calculations are shown in table 35. Table 35—Revenue Needed for District Three District Three Undesignated Designated Total Adjusted Operating Expenses (Step 2) $3,679,209 $1,005,891 $4,685,100 Total Target Pilot Compensation (Step 4) 7,931,844 2,203,290 10,135,134 Total Target Apprentice Pilot Compensation (Step 4) 250,646 66,628 317,274 Working Capital Fund (Step 5) 483,269 133,463 616,732 Total Revenue Needed 12,344,968 3,409,272 15,754,240 G. Step 7: Calculate Initial Base Rates Having determined the revenue needed for each area in the previous six steps, we divide that number by the expected number of traffic hours to develop an hourly rate. Step 7 is a two-part process. In the first part, the 10-year traffic average in District Three is calculated using the total time on task or pilot bridge hours. To calculate the time on task for each district from 2013-2020, the Coast Guard used billing data from SeaPro. The data is pulled from the system filtering by district, year, job status (including only processed jobs), and flagging code (including only U.S. jobs). Because we calculate separate figures for designated and undesignated waters, there are two parts for each calculation. For 2021-2022, the Coast Guard used figures provided by the associations through SeaPro monthly reports. Where bridge hour figures did not match between the monthly reports and the weighted factor reports, the Coast Guard opted to use the figures from the monthly report for Step 7. We show these values in table 36. Table 36—Time on Task for District Three [Hours] Year District Three Undesignated Designated 2022 23,914 3,345 2021 18,149 2,484 2020 23,678 3,520 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 Average 22,071 3,113 Next, we derive the initial hourly rate by dividing the revenue needed by the average number of hours for each area. This produces an initial rate, which is necessary to produce the revenue needed for each area, assuming the amount of traffic is as expected. The calculations for District Three are set forth in table 37. Table 37—Initial Rate Calculations for District Three Undesignated Designated Revenue needed (Step 6) $12,344,968 $3,409,272 Average time on task (hours) 22,071 3,113 Initial rate $559 $1,095 H. Step 8: Calculate Average Weighting Factors by Area In this step, we calculate the average weighting factor for each designated and undesignated area. We collect the weighting factors, set forth in 46 CFR 401.400, for each vessel trip. Using this data, we calculate the average weighting factor for each area using the data from each vessel transit from 2014 to 2021, as shown in tables 38 and 39. Data for 2022 was provided by the associations in a weighting factor report. Table 38—Average Weighting Factor for District Three, Undesignated Areas Vessel class/year Number of transits Weighting factor Weighted transits Area 6 Class 1 (2014) 45 1 45 Class 1 (2015) 56 1 56 Class 1 (2016) 136 1 136 Class 1 (2017) 148 1 148 Class 1 (2018) 103 1 103 Class 1 (2019) 173 1 173 Class 1 (2020) 4 1 4 Class 1 (2021) 8 1 8 Class 1 (2022) 162 1 162 Class 2 (2014) 274 1.15 315 Class 2 (2015) 207 1.15 238 Class 2 (2016) 236 1.15 271 Class 2 (2017) 264 1.15 304 Class 2 (2018) 169 1.15 194 Class 2 (2019) 279 1.15 321 Class 2 (2020) 332 1.15 382 Class 2 (2021) 273 1.15 314 Class 2 (2022) 452 1.15 520 Class 3 (2014) 15 1.3 20 Class 3 (2015) 8 1.3 10 Class 3 (2016) 10 1.3 13 Class 3 (2017) 19 1.3 25 Class 3 (2018) 9 1.3 12 Class 3 (2019) 9 1.3 12 Class 3 (2020) 4 1.3 5 Class 3 (2021) 5 1.3 7 Class 3 (2022) 3 1.3 4 Class 4 (2014) 394 1.45 571 Class 4 (2015) 375 1.45 544 Class 4 (2016) 332 1.45 481 Class 4 (2017) 367 1.45 532 Class 4 (2018) 337 1.45 489 Class 4 (2019) 334 1.45 484 Class 4 (2020) 339 1.45 492 Class 4 (2021) 356 1.45 516 Class 4 (2022) 482 1.45 699 Total for Area 6 6,719 8,609 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 1 (2020) 1 1 1 Class 1 (2021) 5 1 5 Class 1 (2022) 12 1 12 Class 2 (2014) 177 1.15 204 Class 2 (2015) 169 1.15 194 Class 2 (2016) 174 1.15 200 Class 2 (2017) 151 1.15 174 Class 2 (2018) 102 1.15 117 Class 2 (2019) 120 1.15 138 Class 2 (2020) 180 1.15 207 Class 2 (2021) 124 1.15 143 Class 2 (2022) 95 1.15 109 Class 3 (2014) 3 1.3 4 Class 3 (2015) 0 1.3 0 Class 3 (2016) 7 1.3 9 Class 3 (2017) 18 1.3 23 Class 3 (2018) 7 1.3 9 Class 3 (2019) 6 1.3 8 Class 3 (2020) 1 1.3 1 Class 3 (2021) 1 1.3 1 Class 3 (2022) 5 1.3 7 Class 4 (2014) 243 1.45 352 Class 4 (2015) 253 1.45 367 Class 4 (2016) 204 1.45 296 Class 4 (2017) 269 1.45 390 Class 4 (2018) 188 1.45 273 Class 4 (2019) 254 1.45 368 Class 4 (2020) 265 1.45 384 Class 4 (2021) 319 1.45 463 Class 4 (2022) 306 1.45 444 Total for Area 8 3,670 4,914 Combined total 10,389 13,522 Average weighting factor (weighted transits/number of transits) 1.30 * Figures may not sum due to rounding. Table 39—Average Weighting Factor for District Three, Designated Areas Vessel class/year Number of transits Weighting factor Weighted transits Class 1 (2014) 27 1 27 Class 1 (2015) 23 1 23 Class 1 (2016) 55 1 55 Class 1 (2017) 62 1 62 Class 1 (2018) 47 1 47 Class 1 (2019) 45 1 45 Class 1 (2020) 15 1 15 Class 1 (2021) 15 1 15 Class 1 (2022) 104 1 104 Class 2 (2014) 221 1.15 254 Class 2 (2015) 145 1.15 167 Class 2 (2016) 174 1.15 200 Class 2 (2017) 170 1.15 196 Class 2 (2018) 126 1.15 145 Class 2 (2019) 162 1.15 186 Class 2 (2020) 218 1.15 251 Class 2 (2021) 131 1.15 151 Class 2 (2022) 198 1.15 228 Class 3 (2014) 15 1.3 20 Class 3 (2015) 0 1.3 0 Class 3 (2016) 6 1.3 8 Class 3 (2017) 14 1.3 18 Class 3 (2018) 6 1.3 8 Class 3 (2019) 3 1.3 4 Class 3 (2020) 1 1.3 1 Class 3 (2021) 2 1.3 3 Class 3 (2022) 5 1.3 7 Class 4 (2014) 321 1.45 465 Class 4 (2015) 245 1.45 355 Class 4 (2016) 191 1.45 277 Class 4 (2017) 234 1.45 339 Class 4 (2018) 225 1.45 326 Class 4 (2019) 308 1.45 447 Class 4 (2020) 336 1.45 487 Class 4 (2021) 258 1.45 374 Class 4 (2022) 392 1.45 568 Total 4,500 5,877 Average weighting factor (weighted transits/number of transits) 1.31 * Figures may not sum due to rounding. I. Step 9: Calculate Revised Base Rates In this step, we revise the base rates, so that the total cost of pilotage will be equal to the revenue needed after considering the impact of the weighting factors. To do this, we divide the initial base rates calculated in Step 7 by the average weighting factors calculated in Step 8, as shown in table 40. Table 40—Revised Base Rates for District Three Area Initial rate (Step 7) Average weighting factor (Step 8) Revised rate (initial rate ÷ average weighting factor) District Three: Undesignated $559 1.30 $430 District Three: Designated 1,095 1.31 836 J. Step 10: Review and Finalize Rates In this step, the Director reviews the rates set forth by the staffing model and ensures that they meet the goal of ensuring safe, efficient, and reliable pilotage. To establish this, the Director considers whether the rates incorporate appropriate compensation for pilots to handle heavy traffic periods, and whether there are enough pilots to handle those heavy traffic periods. The Director also considers whether the rates cover operating expenses and infrastructure costs, taking average traffic and weighting factors into consideration. Based on this information, the Director is not establishing any alterations to the rates in this step. We modified § 401.405(a)(5) and (6) to reflect the rates shown in table 41. Table 41—Final Rates for District Three Area Name Final 2023 pilotage rate Final 2024 pilotage rate District Three: Designated St. Mary's River $834 $836 District Three: Undesignated Lakes Huron, Michigan, and Superior 410 430 X. Regulatory Analyses We developed this rule after considering numerous statutes and Executive orders related to rulemaking. Below we summarize our analyses based on these statutes or Executive orders. A. Regulatory Planning and Review Executive Orders 12866 (Regulatory Planning and Review), as amended by Executive Order 14094 (Modernizing Regulatory Review), and 13563 (Improving Regulation and Regulatory Review) direct agencies to assess the costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety effects, distributive impacts, and equity). Executive Order 13563 emphasizes the importance of quantifying both costs and benefits, of reducing costs, of harmonizing rules, and of promoting flexibility. The Office of Management and Budget (OMB) has not designated this rule a significant regulatory action under section 3(f) of Executive Order 12866, as amended by Executive Order 14094. Accordingly, OMB has not reviewed this regulatory action. The purpose of this final rule is to establish new pilotage rates, as 46 U.S.C. 9303(f) requires that rates be established or reviewed and adjusted each year. The statute also requires that base rates be established by a full ratemaking at least once every 5 years, and, in years when base rates are not established, they must be reviewed and, if necessary, adjusted. The Coast Guard concluded the last full ratemaking in February of 2023. 51 51 Great Lakes Pilotage Rates—2023 Annual Ratemaking and Review of Methodology (88 FR 12226), published February 27, 2023. For this final rule, the Coast Guard estimates an increase in cost of approximately $2.62 million to industry from 2023 to 2024. This is approximately a 7-percent increase because of the change in revenue needed in 2024 compared to the revenue needed in 2023. See table 42. Table 42—Economic Impacts Due to Rate Changes Change Description Affected population Costs Benefits Rate changes In accordance with 46 U.S.C. Chapter 93, the Coast Guard is required to review and adjust pilotage rates annually Owners and operators of 296 vessels transiting the Great Lakes system annually, 58 United States Great Lakes pilots, 6 apprentice pilots, and 3 pilotage associations Increase of $2,621,471 due to change in revenue needed for 2024 ($40,280,666) from revenue needed for 2023 ($37,659,195) as shown in table 43 New rates cover an association's necessary and reasonable operating expenses. Promotes safe, efficient, and reliable pilotage service on the Great Lakes. Provides fair compensation, adequate training, and sufficient rest periods for pilots. Ensures the association receives sufficient revenues to fund future improvements. The Coast Guard is required to review and adjust pilotage rates on the Great Lakes annually. See section III., Basis and Purpose, of this preamble for detailed discussions of the legal basis and purpose for this rulemaking. Based on our annual review for this rulemaking, we are adjusting the pilotage rates for the 2024 shipping season to generate sufficient revenues for each district to reimburse its necessary and reasonable operating expenses, fairly compensate properly trained and rested pilots, and provide an appropriate working capital fund to use for improvements. The result is an increase in rates for both areas in District One, the designated area for District Two, and both areas in District Three. There is a decrease in rates for the undesignated area in District Two. These changes also lead to a net increase in the cost of service to shippers. The change in per-unit cost to each individual shipper depends on their area of operation. A detailed discussion of our economic impact analysis follows. Affected Population This final rule affects United States Great Lakes pilots and apprentice pilots, the 3 pilot associations, and the owners and operators of 296 oceangoing vessels that transit the Great Lakes annually on average from 2020 to 2022. The Coast Guard estimates that there will be 58 registered pilots and 6 apprentice pilots during the 2024 shipping season, an increase of 2 pilots and decrease of 1 apprentice pilot from the proposed numbers in the NPRM. The shippers affected by these rate changes are those owners and operators of domestic vessels operating “on register” (engaged in foreign trade) and the owners and operators of non-Canadian foreign vessels on routes within the Great Lakes system. These owners and operators must have pilots or pilotage service as required by 46 U.S.C. 9302. There is no minimum tonnage limit or exemption for these vessels. The statute applies only to commercial vessels, not to recreational vessels. United States-flagged vessels not operating on register, and Canadian “lakers,” which account for most commercial shipping on the Great Lakes, are not required by 46 U.S.C. 9302 to have pilots. However, these United States- and Canadian-flagged lakers may voluntarily choose to engage a Great Lakes registered pilot. Vessels that are U.S.-flagged may opt to have a pilot for varying reasons, such as unfamiliarity with designated waters and ports, or for insurance purposes. The Coast Guard used billing information from the years 2020 through 2022 from the SeaPro to estimate the average annual number of vessels affected by the rate adjustment. SeaPro tracks data related to managing and coordinating the dispatch of pilots on the Great Lakes, and billing in accordance with the services. As described in Step 7 of the ratemaking methodology, we use a 10-year average to estimate the traffic. We used 3 years of the most recent billing data to estimate the affected population. The associations did not provide updated trip-level billing data for 2022, as they did for 2021, to use to update the number of vessels or customers in this final rule, so we used what was provided in the NPRM. We believe that using 3 years of billing data is a better representation of the vessel population currently using pilotage services and impacted by this final rule. We found that 437 unique vessels used pilotage services during the years 2020 through 2022. That is, these vessels had a pilot dispatched to the vessel, and billing information was recorded in SeaPro. Of these vessels, 407 were foreign-flagged vessels, and 30 were U.S.-flagged vessels. As stated previously, U.S.-flagged vessels not operating on register are not required to have a registered pilot per 46 U.S.C. 9302, but they can voluntarily choose to have one. Numerous factors affect vessel traffic, which varies from year to year. Therefore, rather than using the total number of vessels over the time period, the Coast Guard took an average of the unique vessels using pilotage services from the years 2020 through 2022 as the best representation of vessels estimated to be affected by the rates in this final rule. From 2020 through 2022, an average of 296 vessels used pilotage services annually. 52 On average, 280 of these vessels were foreign-flagged and 16 were U.S.-flagged vessels that voluntarily opted into the pilotage service (these figures are rounded averages). 52 Some vessels entered the Great Lakes multiple times in a single year, affecting the average number of unique vessels using pilotage services in any given year. Total Cost to Shippers The rate changes resulting from this adjustment to the rates result in a net increase in the cost of service to shippers. However, the change in per-unit cost to each individual shipper is dependent on their area of operation. The Coast Guard estimates the effect of the rate changes on shippers by comparing the total projected revenues needed to cover costs in 2023 with the total projected revenues to cover costs in 2024. We set pilotage rates so pilot associations receive enough revenue to cover their necessary and reasonable expenses. Shippers pay these rates when they engage a pilot as required by 46 U.S.C. 9302. Therefore, the aggregate payments of shippers to pilot associations are equal to the projected necessary revenues for pilot associations. The revenues each year represent the total costs that shippers must pay for pilotage services. The change in revenue from the previous year is the additional cost to shippers discussed in this final rule. The impacts of the rate changes on shippers are estimated from the district pilotage projected revenues (shown in tables 11, 23, and 35 of this preamble). The Coast Guard estimates that, for the 2024 shipping season, the projected revenue needed for all three districts is $40,280,666. To estimate the change in cost to shippers from this final rule, the Coast Guard compared the 2024 total projected revenues to the 2023 projected revenues. Because we review and prescribe rates for Great Lakes pilotage annually, the effects are estimated as a single-year cost, rather than annualized over a 10-year period. In the 2023 final rule, we estimated the total projected revenue needed for 2023 as 37,659,195. 53 This is the best approximation of 2023 revenues, as, at the time of publication of this final rule, the Coast Guard does not have enough audited data available for the 2023 shipping season to revise these projections. Table 43 shows the revenue projections for 2023 and 2024 and details the additional cost increases to shippers by district as a result of the rate changes in traffic in Districts One, Two, and Three. 53 88 FR 12226. See table 42. https://www.govinfo.gov/content/pkg/FR-2023-02-27/pdf/2023-03212.pdf. (Last accessed 5/17/23.) Table 43—Effect of the Final Rule by District [U.S. Dollars; Non-discounted] Area Revenue needed in 2023 Revenue needed in 2024 Additional costs of this rule Total, District One $12,609,601 $13,695,935 $1,086,334 Total, District Two 10,392,542 10,830,491 437,949 Total, District Three 14,657,052 15,754,240 1,097,188 System Total 37,659,195 40,280,666 2,621,471 * All figures are rounded to the nearest dollar and may not sum. The resulting difference between the projected revenue in 2023 and the projected revenue in 2024 is the annual change in payments from shippers to pilots as a result of the rate changes in this final rule. The effect of the rate changes to shippers varies by area and district. After considering the change in pilotage rates, the rate changes lead to affected shippers operating in District One experiencing an increase in payments of $1,086,334 over the previous year. Affected shippers operating in District Two and District Three experienced an increase in payments of $437,949 and $1,097,188, respectively, when compared with 2023. The overall adjustment in payments increased payments by shippers to $2,621,471 across all three districts (a7-percent increase when compared with 2023). Again, because the Coast Guard reviews and sets rates for Great Lakes pilotage annually, we estimate the impacts as single-year costs rather than annualizing them over a 10-year period. Table 44 shows the difference in revenue by revenue-component from 2023 to 2024 and presents each revenue-component as a percentage of the total revenue needed. In both 2023 and 2024, the largest revenue-component was target pilotage compensation (63 percent of total revenue needed in 2023 and 63 percent of total revenue needed in 2024), followed by operating expenses (32 percent of total revenue needed in 2023 and 30 percent of total revenue needed in 2024). The large increase in the working capital fund, 59 percent from 2023 to 2024, is driven by a large increase in the target rate of return on investment from 2.7033 percent in 2021 to 4.0742 percent in 2022. 54 54 Moody's Seasoned Aaa Corporate Bond Yield, average of 2022 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. (Last accessed 03/21/2023.) Table 44—Difference in Revenue by Revenue-Component Revenue component Revenue needed in 2023 Percentage of total revenue needed in 2023 (%) Revenue needed in 2024 Percentage of total revenue needed in 2024 Difference (2024 revenue- 2023 revenue) Percentage change from previous year (%) Adjusted Operating Expenses $11,984,950 32 $12,193,810 30 $208,860 2 Total Target Pilot Compensation 23,766,288 63 25,558,164 63 1,791,876 8 Total Target Apprentice Pilot Compensation 916,700 2 951,822 2 35,122 4 Working Capital Fund 991,257 3 1,576,870 4 585,613 59 Total Revenue Needed 37,659,195 100 40,280,666 100 2,621,471 7 * All figures are rounded to the nearest dollar and may not sum. As stated above, we estimate a total increase in revenue needed by the pilot associations of $2,621,471. This represents an increase in revenue needed for target pilot compensation of $1,791,876, for the total apprentice pilot wage benchmark of $35,122, $208,860 for adjusted operating expenses, and $585,613 for an increase in the revenue needed for the working capital fund. The change in revenue needed for pilot compensation, $1,791,876, is due to two factors: (1) The changes to adjust 2023 pilotage compensation to account for the difference between actual ECI inflation 55 (3.9 percent) and predicted PCE inflation 56 (2.7 percent) for 2023; and (2) projected inflation of pilotage compensation in Step 2 of the methodology, using predicted inflation through 2024. 55 Employment Cost Index, Total Compensation for Private Industry workers in Transportation and Material Moving, Annual Average, Series ID: CIU2010000520000A. https://beta.bls.gov/dataViewer/view/timeseries/CIU2010000520000A. (Last accessed 08/28/23.) 56 Table 1 Summary of Economic Projections, Median PCE Inflation. https://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20220316.pdf. (Last accessed 5/17/23.) The target compensation is $440,658 per pilot in 2024, compared to $424,398 in 2023. The changes to modify the 2023 pilot compensation to account for the difference between predicted and actual inflation increase the 2023 target compensation value by 1.2 percent. As shown in table 45, this inflation adjustment increases total compensation by $5,093 per pilot, and the total revenue needed by $295,381, when accounting for all 58 pilots. Table 45—Change in Revenue Resulting From the Change to Inflation of Pilot Compensation Calculation in Step 4 2023 Target Pilot Compensation $424,398 Adjusted 2023 Compensation ($424,398 × 1.012) $429,491 Difference between Adjusted Target 2023 Compensation and Target 2023 Compensation ($429,491−$424,398) $5,093 Increase in total Revenue for 58 Pilots ($5,093 × 58) $295,381 * All [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/fr%3A2024-02410. Public record. Not legal advice.