----------------------------------------------------------------------------------------------------------------
Operating Expenses:
    Other Pilotage Costs:
        Pilot subsistence/travel................................        $457,393        $152,465        $609,858
        Applicant pilot subsistence/travel......................               0  ..............               0
        License insurance.......................................          16,803           5,601          22,404
        Payroll taxes...........................................         160,509          53,503         214,012
        Applicant pilot payroll taxes...........................               0  ..............               0
        Other...................................................           1,546             515           2,061
                                                                 -----------------------------------------------

            Total other pilotage costs..........................         636,251         212,084         848,335
    Pilot Boat and Dispatch Costs:
        Pilot boat costs........................................         488,246         162,748         650,994
        Dispatch costs..........................................         128,620          42,873         171,493
        Employee benefits.......................................          12,983           4,327          17,310
        Payroll taxes...........................................          14,201           4,734          18,935
                                                                 -----------------------------------------------
            Total pilot and dispatch costs......................         644,050         214,682         858,732
    Administrative Expenses:
        Legal--general counsel..................................          16,798           5,599          22,397
        Legal--shared counsel (K&L Gates).......................          18,011           6,004          24,015
        Legal--USCG litigation..................................               0  ..............               0
        Office rent.............................................           6,372           2,124           8,496
        Insurance...............................................          12,227           4,076          16,303
        Employee benefits.......................................          93,646          31,215         124,861
        Payroll Taxes...........................................           9,963           3,321          13,284
        Other taxes.............................................           1,333             445           1,778
        Depreciation/auto leasing/other.........................          29,111           9,703          38,814
        Interest................................................           3,397           1,132           4,529
        APA Dues................................................          22,736           7,579          30,315
        Utilities...............................................          32,716          10,906          43,622
        Salaries................................................          84,075          28,025         112,100
        Accounting/Professional fees............................          19,696           6,565          26,261
        Pilot Training..........................................          26,664           8,888          35,552
        Other...................................................          25,228           8,409          33,637
                                                                 -----------------------------------------------
            Total Administrative Expenses.......................         401,973         133,991         535,964
                                                                 -----------------------------------------------
                Total Operating Expenses (Other Costs + Pilot          1,682,274         560,757       2,243,031
                 Boats + Admin).................................
Adjustments (Independent CPA):
    Pilot subsistence/Travel....................................         -67,933         -22,645         -90,578
    Payroll taxes...............................................         -14,175          -4,725         -18,901
    Other expenses..............................................          -4,058          -1,353          -5,411
                                                                 -----------------------------------------------
        Total CPA Adjustments...................................         -86,166         -28,723        -114,890
Adjustments (Director):
    Legal--shared counsel 3% lobbying fee (K&L Gates)...........            -540            -180            -720
                                                                 -----------------------------------------------
        Total Director's Adjustments............................            -540            -180            -720
                                                                 -----------------------------------------------
            Total Operating Expenses (OpEx + Adjustments).......       1,595,565         531,854       2,127,420
----------------------------------------------------------------------------------------------------------------
* Values may not sum due to rounding. District 3 provided the Coast Guard data for Areas 6, 7, and 8. However,
  the Coast Guard combined areas 6 and 8 to present the operating expenses by designated and undesignated areas.

B. Step 2--Projection of operating expenses

    Having ascertained the recognized 2015 operating expenses in Step
1, the next step is to estimate the current year's operating expenses
by adjusting those expenses for inflation over the 3-year period. The
Coast Guard calculated inflation using the Bureau of Labor Statistics
data from the CPI for the Midwest Region of the United States \108\ and
reports from the FOMC median economic projections for PCE
inflation.\109\ Based on that information, the calculations for Step 2
for all three districts are shown in Tables 9 through 11.
---------------------------------------------------------------------------

    \108\ Annual average CPI for 2017, 2016, and 2015 is 229.874,
226.115, and 224.21, respectively. Operating expenses were updated
to 2016 using 0.8% and to 2017 using 1.7%, as shown in the last
column of the table found at https://www.bls.gov/regions/midwest/data/consumerpriceindexhistorical_midwest_table.pdf.
    \109\ Operating expenses were updated to 2018 using the median
PCE inflation for 2018 found in Table 1: Economic projections of
Federal Reserve Board members and Federal Reserve Bank presidents,
under their individual assessments of projected appropriate monetary
policy, December 2017. Available at https://www.federalreserve.gov/monetarypolicy/fomcminutes20171213ep.htm.

                              Table 9--Adjusted Operating Expenses for District One
----------------------------------------------------------------------------------------------------------------
                                                                    Designated     Undesignated        Total
----------------------------------------------------------------------------------------------------------------
Total Operating Expenses (Step 1)...............................        $905,113        $730,344      $1,635,457
2016 Inflation Modification (@0.8%).............................           7,241           5,843          13,084

2017 Inflation Modification (@1.7%).............................          15,510          12,515          28,025
2018 Inflation Modification (@1.9%).............................          17,629          14,225          31,854
                                                                 -----------------------------------------------
    Adjusted 2018 Operating Expenses............................         945,493         762,927       1,708,420
----------------------------------------------------------------------------------------------------------------

                             Table 10--Adjusted Operating Expenses for District Two
----------------------------------------------------------------------------------------------------------------
                                                                   Undesignated     Designated         Total
----------------------------------------------------------------------------------------------------------------
Total Operating Expenses (Step 1)...............................        $779,178      $1,168,764      $1,947,942
2016 Inflation Modification (@0.8%).............................           6,233           9,350          15,583
2017 Inflation Modification (@1.7%).............................          13,352          20,028          33,380
2018 Inflation Modification (@1.9%).............................          15,176          22,765          37,941
                                                                 -----------------------------------------------
Adjusted 2018 Operating Expenses................................         813,939       1,220,907       2,034,846
----------------------------------------------------------------------------------------------------------------

                            Table 11--Adjusted Operating Expenses for District Three
----------------------------------------------------------------------------------------------------------------
                                                                   Undesignated     Designated         Total
----------------------------------------------------------------------------------------------------------------
Total Operating Expenses (Step 1)...............................      $1,595,565        $531,854      $2,127,420
2016 Inflation Modification (@0.8%).............................          12,765           4,255          17,020
2017 Inflation Modification (@1.7%).............................          27,342           9,114          36,456
2018 Inflation Modification (@1.9%).............................          31,078          10,359          41,437
                                                                 -----------------------------------------------
Adjusted 2018 Operating Expenses................................       1,666,750         555,582       2,222,333
----------------------------------------------------------------------------------------------------------------
* Values may not sum due to rounding. District 3 provided the Coast Guard data for Areas 6, 7, and 8. However,
  the Coast Guard combined areas 6 and 8 to present the operating expenses by designated and undesignated areas.

C. Step 3--Estimate Number of Working Pilots

    In accordance with the proposed text in Sec.  404.103, we estimated
the number of working pilots in each district. Based on input from the
Saint Lawrence Seaway Pilots Association, we estimate that there will
be 17 working pilots in 2018 in District One. Based on input from the
Lakes Pilots Association, we estimate there will be 14 working pilots
in 2018 in District Two. Based on input from the Western Great Lakes
Pilots Association, we estimate there will be 18 working pilots in 2018
in District Three.
    Furthermore, based on the staffing model employed to develop the
total number of pilots needed, we assign a certain number of pilots to
designated waters, and a certain number to undesignated waters. These
numbers are used to determine the amount of revenue needed in their
respective areas.

                                           Table 12--Authorized Pilots
----------------------------------------------------------------------------------------------------------------
                                                                                District
                                                                   District  One   District  Two       Three
----------------------------------------------------------------------------------------------------------------
Maximum number of pilots (per Sec.   401.220(a)) \110\..........              17              15              22
2018 Authorized pilots (total)..................................              17              14              18
Pilots assigned to designated areas.............................              10               7               4
Pilots assigned to undesignated areas...........................               7               7              14
----------------------------------------------------------------------------------------------------------------

D. Step 4--Determine Target Pilot Compensation
---------------------------------------------------------------------------

    \110\ For a detailed calculation, see 82 FR 41466, Table 6 at
41480 (August 31, 2017).
---------------------------------------------------------------------------

    In Step 4, we determine the total pilot compensation for each area.
Because we are conducting a ``full ratemaking'' this year, we follow
the procedure outlined in the revised paragraph (a) of Sec.  404.104,
which requires us to develop a benchmark after considering the most
relevant currently available nonproprietary information. The
compensation benchmark for 2018 is $352,485 per pilot. We derived this
figure by using the number we calculated for the 2015 AMO rate
($325,110), and then adjusting for inflation to arrive at the interim
benchmark number for 2018, using the ECI and PCE inflation indexes as
discussed in Section VI.C. The calculations are shown in Table 13.

       Table 13--Calculation of 2018 Target Compensation Benchmark
------------------------------------------------------------------------
                                          Inflation  (%)      Target
                                               \111\       compensation
------------------------------------------------------------------------
2015 AMO Pilot Compensation.............  ..............        $325,110
2016 Inflation Adjustment (2016 ECI)....             3.0         334,863
2017 Inflation Adjustment (2017 ECI)....             3.3         345,913
2018 Inflation Adjustment (2018 PCE)....             1.9         352,485
------------------------------------------------------------------------

    Next, we certify that the number of pilots estimated for 2018 is
less than or equal to the number permitted under the staffing model in
Sec.  401.220(a). The staffing model suggests that the number of pilots
needed is 17 pilots for District One, 15 pilots for District Two, and
22 pilots for District Three,\112\ which is greater than or equal to
the numbers of working pilots provided by the pilot associations.
---------------------------------------------------------------------------

    \111\ ECI for total compensation, for private industry workers,
Transportation and material moving, percent changes for 12 months
ended in December, found in Table 5 (p. 71) of the following:
https://www.bls.gov/web/eci/echistrynaics.pdf. Median PCE inflation
can be found at https://www.federalreserve.gov/monetarypolicy/fomcminutes20171213ep.htm.
    \112\ See Table 6 of the 2017 final rule, 82 FR 41466 at 41480.
The methodology of the staffing model is discussed at length in the
final rule (see pages 41476-41480 for a detailed analysis of the
calculations).
    \113\ We note that the policy discussion of this issue is
located in Section V (``Discussion of Comments and Changes to
Methodology''), above. The specific discussion about the working
capital fund is located in Section V.E.
    \114\ Moody's Seasoned Aaa Corporate Bond Yield, average of 2017
monthly data (not seasonally adjusted), located at https://fred.stlouisfed.org/series/AAA. The Coast Guard uses the most recent
complete year of data.
---------------------------------------------------------------------------

    Thus, in accordance with proposed Sec.  404.104(c), we use the
revised target individual compensation level to derive the total pilot
compensation by multiplying the individual target compensation by the
estimated number of working pilots for each district, as shown in
Tables 14 through 16.

                              Table 14--Target Pilot Compensation for District One
----------------------------------------------------------------------------------------------------------------
                                                                    Designated     Undesignated        Total
----------------------------------------------------------------------------------------------------------------
Target Pilot Compensation.......................................        $352,485        $352,485        $352,485
Number of Pilots................................................              10               7              17
                                                                 -----------------------------------------------
    Total Target Pilot Compensation.............................      $3,524,850      $2,467,395      $5,992,245
----------------------------------------------------------------------------------------------------------------

                              Table 15--Target Pilot Compensation for District Two
----------------------------------------------------------------------------------------------------------------
                                                                   Undesignated     Designated         Total
----------------------------------------------------------------------------------------------------------------
Target Pilot Compensation.......................................        $352,485        $352,485        $352,485
Number of Pilots................................................               7               7              14
                                                                 -----------------------------------------------
    Total Target Pilot Compensation.............................       2,467,395       2,467,395       4,934,790
----------------------------------------------------------------------------------------------------------------

                             Table 16--Target Pilot Compensation for District Three
----------------------------------------------------------------------------------------------------------------
                                                                   Undesignated     Designated         Total
----------------------------------------------------------------------------------------------------------------
Target Pilot Compensation.......................................        $352,485        $352,485        $352,485
Number of Pilots................................................              14               4              18
                                                                 -----------------------------------------------
    Total Target Pilot Compensation.............................      $4,934,790      $1,409,940      $6,344,730
----------------------------------------------------------------------------------------------------------------

E. Step 5--Calculate Working Capital Fund

    Next, we calculate the working capital fund revenues needed for
each area.\113\ First, we add the figures for projected operating
expenses and total pilot compensation for each area. Then, we find the
preceding year's average annual rate of return for new issues of high
grade corporate securities. Using Moody's data, that number is 3.74
percent.\114\ By multiplying the two figures, we get the working
capital fund contribution for each area, as shown in Tables 17 through
19.

                          Table 17--Working Capital Fund Contribution for District One
----------------------------------------------------------------------------------------------------------------
                                                                    Designated     Undesignated        Total
----------------------------------------------------------------------------------------------------------------
Adjusted Operating Expenses (Step 2)............................        $945,493        $762,927      $1,708,420
Total Target Pilot Compensation (Step 4)........................       3,524,850       2,467,395       5,992,245
                                                                 -----------------------------------------------
    Total 2018 Expenses.........................................       4,470,343       3,230,322       7,700,665
----------------------------------------------------------------------------------------------------------------

Working Capital Fund (3.74%)....................................         167,191         120,814         288,005
----------------------------------------------------------------------------------------------------------------

                          Table 18--Working Capital Fund Contribution for District Two
----------------------------------------------------------------------------------------------------------------
                                                                   Undesignated     Designated         Total
----------------------------------------------------------------------------------------------------------------
Adjusted Operating Expenses (Step 2)............................        $813,939      $1,220,907      $2,034,846
Total Target Pilot Compensation (Step 4)........................       2,467,395       2,467,395       4,934,790
                                                                 -----------------------------------------------
    Total 2018 Expenses.........................................       3,281,334       3,688,302       6,969,636
----------------------------------------------------------------------------------------------------------------
Working Capital Fund (3.74%)....................................         122,722         137,942         260,664
----------------------------------------------------------------------------------------------------------------

                         Table 19--Working Capital Fund Contribution for District Three
----------------------------------------------------------------------------------------------------------------
                                                                   Undesignated     Designated         Total
----------------------------------------------------------------------------------------------------------------
Adjusted Operating Expenses (Step 2)............................      $1,666,750        $555,582      $2,222,332
Total Target Pilot Compensation (Step 4)........................       4,934,790       1,409,940       6,344,730
                                                                 -----------------------------------------------
    Total 2018 Expenses.........................................       6,601,540       1,965,522       8,567,062
----------------------------------------------------------------------------------------------------------------
Working Capital Fund (3.74%)....................................         246,898          73,511         320,409
----------------------------------------------------------------------------------------------------------------

F. Step 6--Calculate Revenue Needed

    In Step 6, we add up all the expenses accrued to derive the total
revenue needed for each area. These expenses include the projected
operating expenses (from Step 2), the total pilot compensation (from
Step 4), and the working capital fund contribution (from Step 5). The
calculations are shown in Tables 20 through 22.

                                    Table 20--Revenue Needed for District One
----------------------------------------------------------------------------------------------------------------
                                                                    Designated     Undesignated        Total
----------------------------------------------------------------------------------------------------------------
Adjusted Operating Expenses (Step 2)............................        $945,493        $762,927      $1,708,420
Total Target Pilot Compensation (Step 4)........................       3,524,850       2,467,395       5,992,245
Working Capital Fund (Step 5)...................................         167,191         120,814         288,005
                                                                 -----------------------------------------------
    Total Revenue Needed........................................       4,637,534       3,351,136       7,988,670
----------------------------------------------------------------------------------------------------------------

                                    Table 21--Revenue Needed for District Two
----------------------------------------------------------------------------------------------------------------
                                                                   Undesignated     Designated         Total
----------------------------------------------------------------------------------------------------------------
Adjusted Operating Expenses (Step 2)............................        $813,939      $1,220,907      $2,034,846
Total Target Pilot Compensation (Step 4)........................       2,467,395       2,467,395       4,934,790
Working Capital Fund (Step 5)...................................         122,722         137,942         260,664
                                                                 -----------------------------------------------
    Total Revenue Needed........................................       3,404,056       3,826,244       7,230,300
----------------------------------------------------------------------------------------------------------------

                                   Table 22--Revenue Needed for District Three
----------------------------------------------------------------------------------------------------------------
                                                                   Undesignated     Designated         Total
----------------------------------------------------------------------------------------------------------------
Adjusted Operating Expenses (Step 2)............................      $1,666,750        $555,582      $2,222,333
Total Target Pilot Compensation (Step 4)........................       4,934,790       1,409,940       6,344,730
Working Capital Fund (Step 5)...................................         246,898          73,511         320,409
                                                                 -----------------------------------------------
    Total Revenue Needed........................................       6,848,438       2,039,033       8,887,472
----------------------------------------------------------------------------------------------------------------

G. Step 7--Calculate Initial Base Rates

    Having determined the revenue needed for each area in the previous
six steps, we divide that number by the expected number of hours of
traffic to develop an hourly rate. Step 7 is a two-part process. In the
first part, we calculate the 10-year average of traffic in each
district. Because we are calculating separate figures for designated
and undesignated waters, there are two parts for each calculation. The
calculations are shown in Tables 23 through 25.

                 Table 23--Time on Task for District One
------------------------------------------------------------------------
                                            Designated     Undesignated
                  Year                         hours           hours
------------------------------------------------------------------------
2017....................................           7,605           8,679
2016....................................           5,434           6,217
2015....................................           5,743           6,667
2014....................................           6,810           6,853
2013....................................           5,864           5,529
2012....................................           4,771           5,121
2011....................................           5,045           5,377
2010....................................           4,839           5,649
2009....................................           3,511           3,947
2008....................................           5,829           5,298
Average.................................           5,545           5,934
------------------------------------------------------------------------

                 Table 24--Time on Task for District Two
------------------------------------------------------------------------
                                           Undesignated     Designated
                  Year                         hours           hours
------------------------------------------------------------------------
2017....................................           5,139           6,074
2016....................................           6,425           5,615
2015....................................           6,535           5,967
2014....................................           7,856           7,001
2013....................................           4,603           4,750
2012....................................           3,848           3,922
2011....................................           3,708           3,680
2010....................................           5,565           5,235
2009....................................           3,386           3,017
2008....................................           4,844           3,956
Average.................................           5,191           4,922
------------------------------------------------------------------------

                Table 25--Time on Task for District Three
------------------------------------------------------------------------
                                           Undesignated     Designated
                  Year                         hours           hours
------------------------------------------------------------------------
2017....................................          26,183           3,798
2016....................................          23,421           2,769
2015....................................          22,824           2,696
2014....................................          25,833           3,835
2013....................................          17,115           2,631
2012....................................          15,906           2,163
2011....................................          16,012           1,678
2010....................................          20,211           2,461
2009....................................          12,520           1,820
2008....................................          14,287           2,286
Average.................................          19,431           2,614
------------------------------------------------------------------------

    Next, we derive the initial hourly rate by dividing the revenue
needed by the average number of hours for each area. This produces an
initial rate required to produce the revenue needed for each area,
assuming the amount of traffic is as expected. The calculations for
each area are shown in Tables 26 through 28.

              Table 26--Rate Calculations for District One
------------------------------------------------------------------------
                                            Designated     Undesignated
------------------------------------------------------------------------
Revenue needed (Step 6).................      $4,637,534      $3,351,136
Average time on task (hours)............           5,545           5,934
Initial rate............................            $836            $565
------------------------------------------------------------------------

              Table 27--Rate Calculations for District Two
------------------------------------------------------------------------
                                           Undesignated     Designated
------------------------------------------------------------------------
Revenue needed (Step 6).................      $3,404,056      $3,826,244
Average time on task (hours)............           5,191           4,922
Initial rate............................            $656            $777
------------------------------------------------------------------------

             Table 28--Rate Calculations for District Three
------------------------------------------------------------------------
                                           Undesignated     Designated
------------------------------------------------------------------------
Revenue needed (Step 6).................      $6,848,438      $2,039,033
Average time on task (hours)............          19,431           2,614
Initial rate............................            $352            $780
------------------------------------------------------------------------

H. Step 8--Calculate Average Weighting Factors by Area

    In this step, we calculate the average weighting factor for each
designated and undesignated area. We collect the weighting factors, set
forth in 46 CFR 401.400, for each vessel trip. Using this database, we
calculate the average weighting factor for each area using the data
from each vessel transit from 2014 onward, as shown in Tables 29
through 34.

                                  Table 29--Average Weighting Factor for Area 1
                                            [District 1, designated]
----------------------------------------------------------------------------------------------------------------
                                                                     Number of       Weighting       Weighted
                        Vessel class/year                            transits         factor         transits
----------------------------------------------------------------------------------------------------------------
Class 1 (2014)..................................................              31               1              31
Class 1 (2015)..................................................              41               1              41
Class 1 (2016)..................................................              31               1              31
Class 1 (2017)..................................................              28               1              28
Class 2 (2014)..................................................             285            1.15          327.75
Class 2 (2015)..................................................             295            1.15          339.25
Class 2 (2016)..................................................             185            1.15          212.75
Class 2 (2017)..................................................             352            1.15           404.8
Class 3 (2014)..................................................              50             1.3              65
Class 3 (2015)..................................................              28             1.3            36.4
Class 3 (2016)..................................................              50             1.3              65
Class 3 (2017)..................................................              67             1.3            87.1
Class 4 (2014)..................................................             271            1.45          392.95
Class 4 (2015)..................................................             251            1.45          363.95
Class 4 (2016)..................................................             214            1.45           310.3
Class 4 (2017)..................................................             285            1.45          413.25
                                                                 -----------------------------------------------
    Total.......................................................           2,464  ..............         3,149.5
----------------------------------------------------------------------------------------------------------------
Average weighting factor (weighted transits/number of transits).  ..............            1.28  ..............
----------------------------------------------------------------------------------------------------------------

                                  Table 30--Average Weighting Factor for Area 2
                                           [District 1, undesignated]
----------------------------------------------------------------------------------------------------------------
                                                                     Number of       Weighting       Weighted
                        Vessel class/year                            transits         factor         transits
----------------------------------------------------------------------------------------------------------------
Class 1 (2014)..................................................              25               1              25
Class 1 (2015)..................................................              28               1              28
Class 1 (2016)..................................................              18               1              18
Class 1 (2017)..................................................              19               1              19
Class 2 (2014)..................................................             238            1.15           273.7
Class 2 (2015)..................................................             263            1.15          302.45
Class 2 (2016)..................................................             169            1.15          194.35
Class 2 (2017)..................................................             290            1.15           333.5
Class 3 (2014)..................................................              60             1.3              78
Class 3 (2015)..................................................              42             1.3            54.6
Class 3 (2016)..................................................              28             1.3            36.4
Class 3 (2017)..................................................              45             1.3            58.5
Class 4 (2014)..................................................             289            1.45          419.05
Class 4 (2015)..................................................             269            1.45          390.05
Class 4 (2016)..................................................             222            1.45           321.9
Class 4 (2017)..................................................             285            1.45          413.25
                                                                 -----------------------------------------------
    Total.......................................................           2,290  ..............        2,965.75
----------------------------------------------------------------------------------------------------------------
Average weighting factor (weighted transits/number of transits).  ..............            1.30  ..............
----------------------------------------------------------------------------------------------------------------

                                  Table 31--Average Weighting Factor for Area 5
                                           [District 2, undesignated]
----------------------------------------------------------------------------------------------------------------
                                                                     Number of       Weighting       Weighted
                        Vessel class/year                            transits         factor         transits
----------------------------------------------------------------------------------------------------------------
Class 1 (2014)..................................................              31               1              31
Class 1 (2015)..................................................              35               1              35
Class 1 (2016)..................................................              32               1              32
Class 1 (2017)..................................................              21               1              21
Class 2 (2014)..................................................             356            1.15           409.4
Class 2 (2015)..................................................             354            1.15           407.1
Class 2 (2016)..................................................             380            1.15             437
Class 2 (2017)..................................................             222            1.15           255.3
Class 3 (2014)..................................................              20             1.3              26
Class 3 (2015)..................................................               0             1.3               0
Class 3 (2016)..................................................               9             1.3            11.7
Class 3 (2017)..................................................              12             1.3            15.6
Class 4 (2014)..................................................             636            1.45           922.2
Class 4 (2015)..................................................             560            1.45             812
Class 4 (2016)..................................................             468            1.45           678.6
Class 4 (2017)..................................................             319            1.45          462.55
                                                                 -----------------------------------------------
    Total.......................................................           3,455  ..............        4,556.45
----------------------------------------------------------------------------------------------------------------
Average weighting factor (weighted transits/number of transits).  ..............            1.32  ..............
----------------------------------------------------------------------------------------------------------------

                                  Table 32--Average Weighting Factor for Area 4
                                            [District 2, designated]
----------------------------------------------------------------------------------------------------------------
                                                                     Number of       Weighting       Weighted
                        Vessel class/year                            transits         factor         transits
----------------------------------------------------------------------------------------------------------------
Class 1 (2014)..................................................              20               1              20
Class 1 (2015)..................................................              15               1              15
Class 1 (2016)..................................................              28               1              28
Class 1 (2017)..................................................              15               1              15
Class 2 (2014)..................................................             237            1.15          272.55
Class 2 (2015)..................................................             217            1.15          249.55
Class 2 (2016)..................................................             224            1.15           257.6
Class 2 (2017)..................................................             127            1.15          146.05
Class 3 (2014)..................................................               8             1.3            10.4
Class 3 (2015)..................................................               8             1.3            10.4
Class 3 (2016)..................................................               4             1.3             5.2
Class 3 (2017)..................................................               4             1.3             5.2
Class 4 (2014)..................................................             359            1.45          520.55
Class 4 (2015)..................................................             340            1.45             493
Class 4 (2016)..................................................             281            1.45          407.45
Class 4 (2017)..................................................             185            1.45          268.25
                                                                 -----------------------------------------------
    Total.......................................................           2,072  ..............         2,724.2
----------------------------------------------------------------------------------------------------------------
Average weighting factor (weighted transits/number of transits).  ..............            1.31  ..............
----------------------------------------------------------------------------------------------------------------

                              Table 33--Average Weighting Factor for Areas 6 and 8
                                           [District 3, undesignated]
----------------------------------------------------------------------------------------------------------------
                                                                     Number of       Weighting       Weighted
                        Vessel class/year                            transits         factor         transits
----------------------------------------------------------------------------------------------------------------
Area 6:
    Class 1 (2014)..............................................              45               1              45
    Class 1 (2015)..............................................              56               1              56
    Class 1 (2016)..............................................             136               1             136
    Class 1 (2017)..............................................             148               1             148
    Class 2 (2014)..............................................             274            1.15           315.1
    Class 2 (2015)..............................................             207            1.15          238.05
    Class 2 (2016)..............................................             236            1.15           271.4
    Class 2 (2017)..............................................             264            1.15           303.6
    Class 3 (2014)..............................................              15             1.3            19.5
    Class 3 (2015)..............................................               8             1.3            10.4
    Class 3 (2016)..............................................              10             1.3              13
    Class 3 (2017)..............................................              19             1.3            24.7
    Class 4 (2014)..............................................             394            1.45           571.3

    Class 4 (2015)..............................................             375            1.45          543.75
    Class 4 (2016)..............................................             332            1.45           481.4
    Class 4 (2017)..............................................             367            1.45          532.15
                                                                 -----------------------------------------------
        Total for Area 6........................................           2,886  ..............        3,709.35
Area 8:
    Class 1 (2014)..............................................               3               1               3
    Class 1 (2015)..............................................               0               1               0
    Class 1 (2016)..............................................               4               1               4
    Class 1 (2017)..............................................               4               1               4
    Class 2 (2014)..............................................             177            1.15          203.55
    Class 2 (2015)..............................................             169            1.15          194.35
    Class 2 (2016)..............................................             174            1.15           200.1
    Class 2 (2017)..............................................             151            1.15          173.65
    Class 3 (2014)..............................................               3             1.3             3.9
    Class 3 (2015)..............................................               0             1.3               0
    Class 3 (2016)..............................................               7             1.3             9.1
    Class 3 (2017)..............................................              18             1.3            23.4
    Class 4 (2014)..............................................             243            1.45          352.35
    Class 4 (2015)..............................................             253            1.45          366.85
    Class 4 (2016)..............................................             204            1.45           295.8
    Class 4 (2017)..............................................             269            1.45          390.05
                                                                 -----------------------------------------------
        Total for Area 8........................................           1,679  ..............         2,224.1
                                                                 -----------------------------------------------
            Combined total......................................           4,565  ..............        5,933.45
----------------------------------------------------------------------------------------------------------------
Average weighting factor (weighted transits/number of transits).  ..............            1.30  ..............
----------------------------------------------------------------------------------------------------------------

                                  Table 34--Average Weighting Factor for Area 7
                                            [District 3, Designated]
----------------------------------------------------------------------------------------------------------------
                                                                     Number of       Weighting       Weighted
                        Vessel class/year                            transits         factor         transits
----------------------------------------------------------------------------------------------------------------
Class 1 (2014)..................................................              27               1              27
Class 1 (2015)..................................................              23               1              23
Class 1 (2016)..................................................              55               1              55
Class 1 (2017)..................................................              62               1              62
Class 2 (2014)..................................................             221            1.15          254.15
Class 2 (2015)..................................................             145            1.15          166.75
Class 2 (2016)..................................................             174            1.15           200.1
Class 2 (2017)..................................................             170            1.15           195.5
Class 3 (2014)..................................................               4             1.3             5.2
Class 3 (2015)..................................................               0             1.3               0
Class 3 (2016)..................................................               6             1.3             7.8
Class 3 (2017)..................................................              14             1.3            18.2
Class 4 (2014)..................................................             321            1.45          465.45
Class 4 (2015)..................................................             245            1.45          355.25
Class 4 (2016)..................................................             191            1.45          276.95
Class 4 (2017)..................................................             234            1.45           339.3
                                                                 -----------------------------------------------
    Total.......................................................           1,892  ..............        2,451.65
----------------------------------------------------------------------------------------------------------------
Average weighting factor (weighted transits/number of transits).  ..............            1.30  ..............
----------------------------------------------------------------------------------------------------------------

I. Step 9--Calculate Revised Base Rates

    In this step, we revise the base rates so that once the impact of
the weighting factors are considered, the total cost of pilotage will
be equal to the revenue needed. To do this, we divide the initial base
rates, calculated in Step 7, by the average weighting factors
calculated in Step 8, as shown in Table 35.

                                          Table 35--Revised Base Rates
----------------------------------------------------------------------------------------------------------------
                                                                                Revised rate
                                                                                Average     (initial rate/
                              Area                                 Initial rate      weighting        average
                                                                     (Step 7)      factor (Step      weighting
                                                                                8)            factor)
----------------------------------------------------------------------------------------------------------------
District One: Designated........................................            $836            1.28            $653
District One: Undesignated......................................             565            1.30             435
District Two: Undesignated......................................             656            1.32             497
District Two: Designated........................................             777            1.31             593
District Three: Undesignated....................................             352            1.30             271
District Three: Designated......................................             780            1.30             600
----------------------------------------------------------------------------------------------------------------

J. Step 10--Review and Finalize Rates

    In Step 10, the Director reviews the rates set forth by the
staffing model and ensures that they meet the goal of ensuring safe,
efficient, and reliable pilotage. As detailed in the discussion
sections of the NPRM, the proposed rates incorporate appropriate
compensation for enough pilots to handle heavy traffic periods, cover
operating expenses and infrastructure costs, and take into account
average traffic and weighting factors. Therefore, we believe that these
rates meet the goal of ensuring safe, efficient, and reliable pilotage.
Thus, we are not making any alterations to the rates in this step. The
final rates are shown in Table 36, and we will modify the text in Sec.
401.405(a) to reflect them.

                                              Table 36--Final Rates
----------------------------------------------------------------------------------------------------------------
                                                                    Final 2017     Proposed 2018    Final 2018
                 Area                             Name             pilotage rate   pilotage rate   pilotage rate
----------------------------------------------------------------------------------------------------------------
District One: Designated..............  St. Lawrence River......            $601            $622            $653
District One: Undesignated............  Lake Ontario............             408             424             435
District Two: Undesignated............  Lake Erie...............             429             454             497
District Two: Designated..............  Navigable waters from                580             553             593
                                         Southeast Shoal to Port
                                         Huron, MI.
District Three: Undesignated..........  Lakes Huron, Michigan,               218             253             271
                                         and Superior.
District Three: Designated............  St. Mary's River........             514             517             600
----------------------------------------------------------------------------------------------------------------

K. Surcharges

    Because there are several applicant pilots in 2018, we are
authorizing surcharges to cover the costs needed for training expenses.
Consistent with previous years, we are assigning a cost of $150,000 per
applicant pilot. To develop the surcharge, we multiply the number of
applicant pilots by the average cost per pilot to develop a total
amount of training costs needed. We then impose that amount as a
surcharge to all areas in the respective district, consisting of a
percentage of revenue needed. In this year, there are two applicant
pilots for District One, one applicant pilot for District Two, and four
applicant pilots for District Three. The calculations to develop the
surcharges are shown in Table 37. While the percentages are rounded for
simplicity, this rounding does not impact the revenue generated, as
surcharges can no longer be collected once the surcharge total has been
attained.

                                        Table 37--Surcharge Calculations
----------------------------------------------------------------------------------------------------------------
                                                                   District One    District Two   District Three
----------------------------------------------------------------------------------------------------------------
Number of applicant pilots......................................               2               1               4
Total applicant training costs..................................        $300,000        $150,000        $600,000
Revenue needed (Step 6).........................................      $7,988,670      $7,230,300      $8,887,472
----------------------------------------------------------------------------------------------------------------
Total surcharge as percentage (total training costs/revenue)....              4%              2%              7%
----------------------------------------------------------------------------------------------------------------

VII. Regulatory Analyses

    We developed this final rule after considering numerous statutes
and Executive orders related to rulemaking. Below we summarize our
analyses based on these statutes or Executive orders.

A. Regulatory Planning and Review

    Executive Orders 12866 (``Regulatory Planning and Review'') and
13563 (``Improving Regulation and Regulatory Review'') direct agencies
to assess the costs and benefits of available regulatory alternatives
and, if regulation is necessary, to select regulatory approaches that
maximize net benefits (including potential economic, environmental,
public health and safety effects, distributive impacts, and equity).
Executive Order 13563 emphasizes the importance of quantifying both
costs and benefits, of reducing costs, of harmonizing rules, and of
promoting flexibility. Executive Order 13771, ``Reducing Regulation and
Controlling Regulatory Costs,'' directs agencies to reduce regulation
and control regulatory costs and provides that ``for every one new
regulation issued, at least two prior regulations be identified for
elimination, and that the cost of planned regulations be prudently

managed and controlled through a budgeting process.''
    The Office of Management and Budget (OMB) has not designated this
rule a significant regulatory action under section 3(f) of Executive
Order 12866. Accordingly, OMB has not reviewed it. Because this rule is
not a significant regulatory action, this rule is exempt from the
requirements of Executive Order 13771. See the OMB Memorandum titled
``Guidance Implementing Executive Order 13771, titled `Reducing
Regulation and Controlling Regulatory Costs' '' (April 5, 2017). A
regulatory analysis (RA) follows.
    The purpose of this final rule is to establish new base pilotage
rates and surcharges for training. This rule also makes changes to the
ratemaking methodology and revises the compensation benchmark. The last
full ratemaking was concluded in 2017.
    Table 38 summarizes the regulatory changes that are expected to
have no costs, and any qualitative benefits associated with them. The
table also includes changes that affect portions of the methodology for
calculating the base pilotage rates. While these changes affect the
calculation of the rate, the costs of these changes are captured in the
changes to the total revenue as a result of the rate change.

                 Table 38--Regulatory Changes With No Cost or Costs Captured in the Rate Change
----------------------------------------------------------------------------------------------------------------
                Change                       Description           Basis for no costs            Benefits
----------------------------------------------------------------------------------------------------------------
Codification of compensation           Add regulatory text to   Pilot compensation       --Pilot compensation
 inflation adjustment.                  Sec.   404.104 to make   costs are accounted      will keep up with
                                        the adjustment for       for in the base          regional inflation.
                                        inflation automatic.     pilotage rates.         --Improves consistency,
                                                                                transparency, and
                                                                                efficiency in our
                                                                                ratemaking procedures.
Target pilot compensation............  --Due to the 2016 court  Pilot compensation       Improves transparency
                                        opinion on pilot         costs are accounted      in our ratemaking
                                        compensation, the        for in the base          procedures.
                                        Coast Guard is           pilotage rates.
                                        changing the pilot
                                        compensation benchmark.
Relocation of staffing model           Move the discussion of   We are not adjusting or  Improves the clarity of
 regulations.                           the staffing model       modifying the            the regulations and
                                        from 46 CFR 404.103      regulatory text, but     improves the
                                        (as part of ``Step 3''   simply moving it to      regulatory process.
                                        of the ratemaking        Sec.   401.220.
                                        process), to the
                                        general regulations
                                        governing pilotage in
                                        Sec.   401.220.
Delineation of full ratemakings and    Set forth separate       Change only clarifies    Simplify ratemaking
 annual reviews.                        regulatory paragraphs    that the benchmark       procedures in interim
                                        detailing the            level compensation       years and better
                                        differences between      will only be             effect the statutory
                                        how the Coast Guard      reconsidered during      mandate in section
                                        undertakes an annual     ``full ratemaking''      9303(f) of the Great
                                        adjustment of the        years.                   Lakes Pilotage Act.
                                        pilotage rates, and a
                                        full reassessment of
                                        the rates, which must
                                        be undertaken once
                                        every 5 years.
Miscellaneous other changes..........  --Rename the step        Minor editorial changes  Provides clarification
                                        currently titled         in this rule that do     to regulatory text and
                                        ``Initially calculate    not impact total         the rulemaking.
                                        base rates'' to          revenues.
                                        ``Calculate initial
                                        base rates'' for style
                                        purposes.
                                       --Adjust the reference
                                        to the staffing model
                                        in Step 7 to account
                                        for its relocation in
                                        text.
----------------------------------------------------------------------------------------------------------------

    Table 39 summarizes the affected population, costs, and benefits of
the rate changes that are expected to have costs associated with them.

                                 Table 39--Economic Impacts Due to Rate Changes
----------------------------------------------------------------------------------------------------------------
                                                           Affected
             Change                   Description         population             Costs             Benefits
----------------------------------------------------------------------------------------------------------------
Rate Changes....................  Under the Great     Owners and          $2,830,061 Due to   --New rates cover
                                   Lakes Pilotage      operators of 215    change in Revenue   an association's
                                   Act of 1960, the    vessels             Needed for 2018     necessary and
                                   Coast Guard is      journeying the      ($25,156,442)       reasonable
                                   required to         Great Lakes         from Revenue        operating
                                   review and adjust   system annually,    Needed for 2017     expenses.
                                   base pilotage       49 U.S. Great       ($22,326,381) as   --Provides fair
                                   rates annually.     Lakes pilots, and   shown in Table 40   compensation,
                                                       3 pilotage          below.              adequate
                                                       associations.                           training, and
                                                                                sufficient rest
                                                                                periods for
                                                                                pilots.
                                                                                --Ensures the
                                                                                association
                                                                                receives
                                                                                sufficient
                                                                                revenues to fund
                                                                                future
                                                                                improvements.
----------------------------------------------------------------------------------------------------------------

    The Coast Guard is required to review and adjust pilotage rates on
the Great Lakes annually. See Sections III and IV of this preamble for
detailed discussions of the legal basis and purpose for this rulemaking
and for background

information on Great Lakes pilotage ratemaking. Based on our annual
review for this rulemaking, we are adjusting the pilotage rates for the
2018 shipping season to generate sufficient revenues for each district
to reimburse its necessary and reasonable operating expenses, fairly
compensate trained and rested pilots, and provide an appropriate
working capital fund to use for improvements. The rate changes in this
final rule will lead to an increase in the cost per unit of service to
shippers in all three districts, and result in an estimated annual cost
increase to shippers.
    In addition to the increase in payments that will be incurred by
shippers in all three districts from the previous year as a result of
the rate changes, we are authorizing a temporary surcharge to allow the
pilotage associations to recover training expenses that will be
incurred in 2018. For 2018, we anticipate that there will be two
applicant pilots in District One, one applicant pilot in District Two,
and four applicant pilots in District Three. With a training cost of
$150,000 per pilot, we estimate that Districts One, Two, and Three will
incur $300,000, $150,000, and $600,000, respectively, in training
expenses. These temporary surcharges will generate a combined
$1,050,000 in revenue for the pilotage associations. Therefore, after
accounting for the implementation of the temporary surcharges across
all three districts, the total payments that will be made by shippers
during the 2018 shipping season are estimated at $2,830,061 more than
the total payments that were estimated in 2017 (Table 41).\115\
---------------------------------------------------------------------------

    \115\ Total payments across all three districts are equal to the
increase in payments incurred by shippers as a result of the rate
changes plus the temporary surcharges applied to traffic in
Districts One, Two, and Three.
---------------------------------------------------------------------------

    Table 40 summarizes the changes in the RA from the NPRM to the
final rule. These changes were made as a result of public comments
received after publication of the NPRM.

                              Table 40--Summary of Changes From NPRM to Final Rule
----------------------------------------------------------------------------------------------------------------
       Element of the analysis                   NPRM                  Final rule         Resulting change in RA
----------------------------------------------------------------------------------------------------------------
Target Pilot Compensation............  $319,617...............  $352,485...............  Data indirectly affects
                                                                                the calculation of
                                                                                projected revenues.
Updated analysis with 2017 inflation   NPRM used data through   Uses 2017 data, where    Data indirectly affects
 and securities return data, when       2016, as this was the    applicable and           calculation of
 available.                             most current year        available.               projected revenues.
                                        available.
----------------------------------------------------------------------------------------------------------------

Affected Population
    The shippers affected by these rate changes are those owners and
operators of domestic vessels operating ``on register'' (employed in
foreign trade) and owners and operators of non-Canadian foreign vessels
on routes within the Great Lakes system. These owners and operators
must have pilots or pilotage service as required by 46 U.S.C. 9302.
There is no minimum tonnage limit or exemption for these vessels. The
statute applies only to commercial vessels and not to recreational
vessels. United States-flagged vessels not operating on register and
Canadian ``lakers,'' which account for most commercial shipping on the
Great Lakes, are not required by 46 U.S.C. 9302 to have pilots.
However, these U.S.- and Canadian-flagged lakers may voluntarily choose
to engage a Great Lakes registered pilot. Vessels that are U.S.-flagged
may opt to have a pilot for various reasons, such as unfamiliarity with
designated waters and ports, or for insurance purposes.
    We used billing information from the years 2014 through 2016 from
the Great Lakes Pilotage Management System (GLPMS) to estimate the
average annual number of vessels affected by the rate adjustment. The
GLPMS tracks data related to managing and coordinating the dispatch of
pilots on the Great Lakes, and billing in accordance with the services.
We found that a total of 387 vessels used pilotage services during the
years 2014 through 2016. That is, these vessels had a pilot dispatched
to the vessel, and billing information was recorded in the GLPMS. The
number of invoices per vessel ranged from a minimum of 1 invoice per
year to a maximum of 108 invoices per year. Of these vessels, 367 were
foreign-flagged vessels and 20 were U.S.-flagged.
    Vessel traffic is affected by numerous factors and varies from year
to year. Therefore, rather than the total number of vessels over the
time period, an average of the unique vessels using pilotage services
from the years 2014 through 2016 is the best representation of vessels
estimated to be affected by the rate in this final rule. From the years
2014 through 2016, an average of 215 vessels used pilotage services
annually. On average, 206 of these vessels were foreign-flagged vessels
and 9 were U.S.-flagged vessels that voluntarily opted into the
pilotage service.
Total Cost to Shippers
    The rate changes resulting from the methodology will generate costs
to industry in the form of higher payments for shippers. We estimate
the effect of the rate changes on shippers by comparing the total
projected revenues needed to cover costs in 2017 with the total
projected revenues needed to cover costs in 2018, including any
temporary surcharges we have authorized. We set pilotage rates so that
pilot associations receive enough revenue to cover their necessary and
reasonable expenses. Shippers pay these rates when they have a pilot as
required by 46 U.S.C. 9302. Therefore, the aggregate payments of
shippers to pilot associations are equal to the projected necessary
revenues for pilot associations. The revenues each year represent the
total costs that shippers must pay for pilotage services, and the
change in revenue from the previous year is the additional cost to
shippers discussed in this final rule.
    The impacts of the rate changes on shippers are estimated from the
District pilotage projected revenues (shown in Tables 20 through 22 of
this preamble) and the surcharges described in Section VI of this
preamble. We estimate that for the 2018 shipping season, the projected
revenue needed for all three districts is $24,106,442. Temporary
surcharges on traffic in Districts One, Two, and Three will be applied
for the duration of the 2018 season in order for the pilotage
associations to recover training expenses incurred for applicant
pilots. We estimate that the pilotage associations require an
additional $300,000, $150,000, and $600,000 in revenue for applicant
training expenses in Districts One, Two, and Three, respectively. This
will be an additional cost to shippers of $1,050,000 during the 2018
shipping season. Adding the projected revenue of $24,106,442 to the
surcharges, we estimate the pilotage

associations' total projected revenue needed for 2018 will be
$25,156,442. To estimate the additional cost to shippers from this
final rule, we compare the 2018 total projected revenues to the 2017
projected revenues. Because we review and prescribe rates for the Great
Lakes Pilotage annually, the effects are estimated as a single year
cost rather than annualized over a 10-year period. In the 2017 final
rule,\116\ we estimated the total projected revenue needed for 2017,
including surcharges, as $22,326,381. This is the best approximation of
2017 revenues as, at the time of this publication, we do not have
enough audited data available for the 2017 shipping season to revise
these projections. Table 41 shows the revenue projections for 2017 and
2018 and details the additional cost increases to shippers by area and
district as a result of the rate changes and temporary surcharges on
traffic in Districts One, Two, and Three.
---------------------------------------------------------------------------

    \116\ The 2017 projected revenues are from the 2017 Great Lakes
Pilotage Ratemaking final rule (82 FR 41484 and 41489), Tables 9 and
14.
    \117\ The 2017 projected revenues are from the 2017 final rule
(82 FR 41484 and 41489), Tables 9 and 14. The 2018 projected
revenues are from Tables 20 through 22 of this final rule.
    \118\ The study is available under ``Documents'' entitled
``Analysis of Great Lakes Pilotage Costs 2017'' at http://www.dco.uscg.mil/Our-Organization/Assistant-Commandant-for-Prevention-Policy-CG-5P/Marine-Transportation-Systems-CG-5PW/Office-of-Waterways-and-Ocean-Policy/Office-of-Waterways-and-Ocean-Policy-Great-Lakes-Pilotage-Div/.

                                                 Table 41--Effect of the Final Rule by Area and District
                                                                 [$U.S.; non-discounted]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                            Total 2017                                      Total 2018      Additional
                  Area                    Revenue needed  2017 Temporary     projected    Revenue needed  2018 Temporary     projected     costs of this
                                              in 2017        surcharge        revenue         in 2018        surcharge        revenue          rule
--------------------------------------------------------------------------------------------------------------------------------------------------------
Total, District 1.......................      $7,109,019              $0      $7,109,019      $7,988,670        $300,000      $8,288,670      $1,179,651
Total, District 2.......................       6,633,491         300,000       6,933,491       7,230,300         150,000       7,380,300         446,809
Total, District 3.......................       7,233,871       1,050,000       8,283,871       8,887,472         600,000       9,487,472       1,203,601
                                         ---------------------------------------------------------------------------------------------------------------
    System Total........................      20,976,381       1,350,000      22,326,381      24,106,442       1,050,000      25,156,442       2,830,061
--------------------------------------------------------------------------------------------------------------------------------------------------------

    The resulting difference between the projected revenue in 2017 and
the projected revenue in 2018 is the annual change in payments from
shippers to pilots as a result of the rate change that will be imposed
by this rule. The effect of the rate change to shippers varies by area
and district. The rate changes, after taking into account the increase
in pilotage rates and the addition of temporary surcharges, will lead
to affected shippers operating in District One, District Two, and
District Three experiencing an increase in payments of $1,179,651,
$446,809, and $1,203,601, respectively, over the previous year. The
overall adjustment in payments will be an increase in payments by
shippers of $2,830,061 across all three districts (a 13 percent
increase over 2017). Again, because we review and set rates for Great
Lakes Pilotage annually, the impacts are estimated as single year costs
rather than annualized over a 10-year period.
    Table 42 shows the difference in revenue by component from 2017 to
2018.\117\ The majority of the increase in revenue is due to the
inflation of operating expenses and to the addition of four pilots who
were authorized in the 2017 rule. These four pilots will become full-
time working pilots at the beginning of the 2018 shipping season. They
will be compensated at the target compensation of $352,485 per pilot.
The addition of these pilots to full working status accounts for
$1,409,940 of the increase. The remaining amount is attributed to
increases in the working capital fund, increases in the target
compensation, and differences in the surcharges from 2017.

                                  Table 42--Difference in Revenue by Component
----------------------------------------------------------------------------------------------------------------
                                                                                Difference
                      Revenue  component                       Revenue  needed  Revenue  needed  (2018  Revenue-
                                                                   in  2017         in  2018      2017 Revenue)
----------------------------------------------------------------------------------------------------------------
Adjusted Operating Expenses..................................       $5,155,280       $5,965,599         $810,319
Total Target Pilot Compensation..............................       14,983,335       17,271,765        2,288,430
Working Capital Fund.........................................          837,766          869,078           31,312
Total Revenue Needed, without Surcharge......................       20,976,381       24,106,442        3,130,061
Surcharge....................................................        1,350,000        1,050,000         -300,000
                                                              --------------------------------------------------
    Total Revenue Needed, with Surcharge.....................       22,326,381       25,156,442        2,830,061
----------------------------------------------------------------------------------------------------------------

Pilotage Rates as a Percentage of Vessel Operating Costs
    To estimate the impact of U.S. pilotage costs on foreign-flagged
vessels that will be affected by the rate adjustment, we looked at the
pilotage costs as a percentage of a vessel's costs for an entire
voyage. The portion of the trip on the Great Lakes using a pilot is
only a portion of the whole trip. The affected vessels are often
traveling from a foreign port, and the days without a pilot on the
total trip often exceed the days a pilot is needed.
    To estimate this impact, we used the 2017 study titled, ``Analysis
of Great Lakes Pilotage Costs on Great Lakes Shipping and the Potential
Impact of Increases in U.S. Pilotage Charges.'' \118\ We conducted the
study to explore additional frameworks and methodologies for assessing
the cost of Great Lakes pilot's ratemaking regulations, with a focus on
capturing industry and port level economic impacts. The study also
included an analysis of the pilotage costs as a

percentage of the total voyage costs that we can use in RAs to estimate
the direct impact of changes to the pilotage rates.
    The study developed a voyage cost model that is based on a vessel's
daily costs. The daily costs included: Capital repayment costs; fuel
costs; operating costs (such as crew, supplies, and insurance); port
costs; speed of the vessel; stevedoring rates; and tolls. The daily
operating costs were translated into total voyage costs using mileage
between the ports for a number of voyage scenarios. In the study, the
total voyage costs were then compared to the U.S. pilotage costs. The
study found that, using the 2016 rates, the U.S. pilotage charges
represent 10 percent of the total voyage costs for a vessel carrying
grain, and between 8 and 9 percent of the total voyage costs for a
vessel carrying steel.\119\ We updated the analysis to estimate the
percentage U.S. pilotage charges represent using the percentage
increase in revenues from the years 2016 to 2018. Since the study used
2016 as the latest year of data, we compared the revenues needed in
2018 and 2017 to the 2016 revenues in order to estimate the change in
pilotage costs as a percentage of total voyage costs from 2017 to 2018.
Table 43 shows the revenues needed for the years 2016, 2017, and 2018.
---------------------------------------------------------------------------

    \119\ Martin Associates, ``Analysis of Great Lakes Pilotage
Costs on Great Lakes Shipping and the Potential Impact of Increases
in U.S. Pilotage Charges,'' page 33.
    \120\ The 2016 projected revenues are from the 2016 final rule,
81 FR 11938. Figure 32, projected revenue needed in 2016 plus the
temporary surcharge ($17,453,678 + $1,650,000 = $19,103,678).
    \121\ The 2017 projected revenues are from the 2017 final rule,
82 FR 41484 and 41489, Tables 9 and 14.
    \122\ Available at http://www.dco.uscg.mil/Portals/9/DCO%20Documents/Office%20of%20Waterways%20and%20Ocean%20Policy/2013%20MOU%20English.pdf?ver=2017-06-08-082809-150.
    \123\ See http://www.manta.com/.
    \124\ See http://resource.referenceusa.com/.

                                Table 43--Revenue Needed in 2016, 2017, and 2018
----------------------------------------------------------------------------------------------------------------
                                                             Revenue  needed   Revenue  needed   Revenue  needed
                    Revenue  component                       in  2016 \120\    in  2017 \121\       in  2018
----------------------------------------------------------------------------------------------------------------
Total Revenue Needed, with Surcharge......................      $19,103,678       $22,326,381       $25,156,442
----------------------------------------------------------------------------------------------------------------

    From 2016 to 2017, the total revenues needed increased by 17
percent. From 2017 to 2018, the total revenues needed will increase by
13 percent. From 2016 to 2018, the total revenues needed will increase
by 32 percent. While the change in total voyage cost will vary by the
trip, vessel class, and whether the vessel is carrying steel or grain,
we used these percentages as an average increase to estimate the change
in the impact. When we increased the pilotage charges by 17 percent
from 2016, we found the U.S. pilotage costs represented an average of
11.3 percent of the total voyage costs. For this year, we increased the
base 2016 rates by 32 percent. With this final rule's rates for 2018,
pilotage costs are estimated to account for 12.6 percent of the total
voyage costs, or a 1.3 percent increase over the percentage that U.S.
pilotage costs represented of the total voyage in 2017.
    It is important to note that this analysis is based on a number of
assumptions. The purpose of the study was to look at the impact of the
U.S. pilotage rates. The study did not include an analysis of the GLPA
rates. It was assumed that a U.S. pilot is assigned to all portions of
a voyage where he or she could be assigned. In reality, the assignment
of a United States or Canadian pilot is based on the order in which a
vessel enters the system, as outlined in the Memorandum of
Understanding between the GLPA and the Coast Guard.\122\
    This analysis looks at only the impact of U.S. pilotage cost
changes. All other costs were held constant at the 2016 levels,
including Canadian pilotage costs, tolls, stevedoring, and port
charges. This analysis estimates the impacts of Great Lakes pilotage
rates holding all other factors constant. If other factors or sectors
were not held constant but, instead, were allowed to adjust or
fluctuate, it is likely that the impact of pilotage rates would be
different. Many factors that drive the tonnage levels of foreign cargo
on the Great Lakes and St. Lawrence Seaway were held constant for this
analysis. These factors include, but are not limited to, demand for
steel and grain, construction levels in the regions, tariffs, exchange
rates, weather conditions, crop production, rail and alternative route
pricing, tolls, vessel size restriction on the Great Lakes and St.
Lawrence Seaway, and inland waterway river levels.
Benefits
    This final rule will allow the Coast Guard to meet the requirements
in 46 U.S.C. 9303 to review the rates for pilotage services on the
Great Lakes. The rate changes will promote safe, efficient, and
reliable pilotage service on the Great Lakes by: (1) Ensuring that
rates cover an association's operating expenses; (2) providing fair
pilot compensation, adequate training, and sufficient rest periods for
pilots; and (3) ensuring the association produces enough revenue to
fund future improvements. The rate changes will also help recruit and
retain pilots, which will ensure a sufficient number of pilots to meet
peak shipping demand, which will help reduce delays caused by pilot
shortages.

B. Small Entities

    Under the Regulatory Flexibility Act, 5 U.S.C. 601-612, we have
considered whether this rule will have a significant economic impact on
a substantial number of small entities. The term ``small entities''
comprises small businesses, not-for-profit organizations that are
independently owned and operated and are not dominant in their fields,
and governmental jurisdictions with populations of less than 50,000
people.
    For this final rule, we reviewed recent company size and ownership
data for the vessels identified in the GLPMS and we reviewed business
revenue and size data provided by publicly available sources such as
MANTA \123\ and ReferenceUSA.\124\ As described in Section VII.A. of
this preamble, Regulatory Planning and Review, we found that a total of
387 unique vessels used pilotage services from 2014 through 2016. These
vessels are owned by 59 entities. We found that of the 59 entities that
own or operate vessels engaged in trade on the Great Lakes affected by
this final rule, 48 are foreign entities that operate primarily outside
the United States. The remaining 11 entities are U.S. entities. We
compared the revenue and employee data found in the company search to
the Small Business Administration's (SBA) Table

of Small Business Size Standards \125\ to determine how many of these
companies are small entities. Table 44 shows the North American
Industry Classification System (NAICS) codes of the U.S. entities and
the small entity standard size established by the SBA.
---------------------------------------------------------------------------

    \125\ Source: https://www.sba.gov/contracting/getting-started-contractor/make-sure-you-meet-sba-size-standards/table-small-business-size-standards. SBA has established a Table of Small
Business Size Standards, which is matched to NAICS industries. A
size standard, which is usually stated in number of employees or
average annual receipts (``revenues''), represents the largest size
that a business (including its subsidiaries and affiliates) may be
considered in order to remain classified as a small business for SBA
and Federal contracting programs.

                             Table 44--NAICS Codes and Small Entities Size Standards
----------------------------------------------------------------------------------------------------------------
            NAICS                     Description                      Small business  size standard
----------------------------------------------------------------------------------------------------------------
238910......................  Site Preparation            $15 million.
                               Contractors.
483211......................  Inland Water Freight        750 employees.
                               Transportation.
483212......................  Inland Water Passenger      500 employees.
                               Transportation.
487210......................  Scenic & Sightseeing        $7.5 million.
                               Transportation, Water.
488320......................  Marine Cargo Handling.....  $38.5 million.
488330......................  Navigational Services to    $38.5 million.
                               Shipping.
488510......................  Freight Transportation      $15 million.
                               Arrangement.
----------------------------------------------------------------------------------------------------------------

    The entities all exceed the SBA's small business standards for
small businesses. Further, these U.S. entities operate U.S.-flagged
vessels and are not required to have pilots by 46 U.S.C. 9302.
    In addition to the owners and operators of vessels affected by this
final rule, there are three U.S. entities affected by the rule that
receive revenue from pilotage services. These are the three pilot
associations that provide and manage pilotage services within the Great
Lakes districts. Two of the associations operate as partnerships and
one operates as a corporation. These associations are designated with
the same NAICS industry classification and small-entity size standards
described above, but they have fewer than 500 employees; combined, they
have approximately 65 employees in total. We expect no adverse effect
on these entities from this rule because all associations will receive
enough revenue to balance the projected expenses associated with the
projected number of bridge hours (time on task) and pilots.
    We did not find any small not-for-profit organizations that are
independently owned and operated and are not dominant in their fields.
We did not find any small governmental jurisdictions with populations
of fewer than 50,000 people. Based on this analysis, we find this final
rule will not affect a substantial number of small entities.
    Therefore, we certify under 5 U.S.C. 605(b) that this rule will not
have a significant economic impact on a substantial number of small
entities.

C. Assistance for Small Entities

    Under section 213(a) of the Small Business Regulatory Enforcement
Fairness Act of 1996, Public Law 104-121, we offer to assist small
entities in understanding this rule so that they can better evaluate
its effects on them and participate in the rulemaking. The Coast Guard
will not retaliate against small entities that question or complain
about this rule or any policy or action of the Coast Guard.
    Small businesses may send comments on the actions of Federal
employees who enforce, or otherwise determine compliance with, Federal
regulations to the Small Business and Agriculture Regulatory
Enforcement Ombudsman and the Regional Small Business Regulatory
Fairness Boards. The Ombudsman evaluates these actions annually and
rates each agency's responsiveness to small business. If you wish to
comment on actions by employees of the Coast Guard, call 1-888-REG-FAIR
(1-888-734-3247).

D. Collection of Information

    This rule calls for no new collection of information under the
Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520). This rule will
not change the burden in the collection currently approved by OMB under
OMB Control Number 1625-0086, Great Lakes Pilotage Methodology.

E. Federalism

    A rule has implications for federalism under Executive Order 13132
(``Federalism'') if it has a substantial direct effect on the States,
on the relationship between the national government and the States, or
on the distribution of power and responsibilities among the various
levels of government. We have analyzed this final rule under Executive
Order 13132 and have determined that it is consistent with the
fundamental federalism principles and preemption requirements as
described in Executive Order 13132. Our analysis follows.
    Congress directed the Coast Guard to establish ``rates and charges
for pilotage services.'' See 46 U.S.C. 9303(f). This regulation is
issued pursuant to that statute and is preemptive of State law as
specified in 46 U.S.C. 9306. Under 46 U.S.C. 9306, a ``State or
political subdivision of a State may not regulate or impose any
requirement on pilotage on the Great Lakes.'' As a result, States or
local governments are expressly prohibited from regulating within this
category. Therefore, this rule is consistent with the fundamental
federalism principles and preemption requirements described in
Executive Order 13132.
    While it is well settled that States may not regulate in categories
in which Congress intended the Coast Guard to be the sole source of a
vessel's obligations, the Coast Guard recognizes the key role that
State and local governments may have in making regulatory
determinations. Additionally, for rules with federalism implications
and preemptive effect, Executive Order 13132 specifically directs
agencies to consult with State and local governments during the
rulemaking process. If you believe this rule has implications for
federalism under Executive Order 13132, please contact the person
listed in the FOR FURTHER INFORMATION CONTACT section of this preamble.

F. Unfunded Mandates Reform Act

    The Unfunded Mandates Reform Act of 1995, 2 U.S.C. 1531-1538,
requires Federal agencies to assess the effects of their discretionary
regulatory actions. In particular, the Act addresses actions that may
result in the expenditure by a

State, local, or tribal government, in the aggregate, or by the private
sector of $100,000,000 (adjusted for inflation) or more in any one
year. Although this rule will not result in such expenditure, we
discuss the effects of this rule elsewhere in this preamble.

G. Taking of Private Property

    This final rule will not cause a taking of private property or
otherwise have taking implications under Executive Order 12630
(``Governmental Actions and Interference with Constitutionally
Protected Property Rights'').

H. Civil Justice Reform

    This final rule meets applicable standards in sections 3(a) and
3(b)(2) of Executive Order 12988 (``Civil Justice Reform''), to
minimize litigation, eliminate ambiguity, and reduce burden.

I. Protection of Children

    We have analyzed this final rule under Executive Order 13045
(``Protection of Children from Environmental Health Risks and Safety
Risks''). This rule is not an economically significant rule and will
not create an environmental risk to health or risk to safety that might
disproportionately affect children.

J. Indian Tribal Governments

    This final rule does not have tribal implications under Executive
Order 13175 (``Consultation and Coordination with Indian Tribal
Governments''), because it will not have a substantial direct effect on
one or more Indian tribes, on the relationship between the Federal
Government and Indian tribes, or on the distribution of power and
responsibilities between the Federal Government and Indian tribes.

K. Energy Effects

    We have analyzed this rule under Executive Order 13211 (``Actions
Concerning Regulations That Significantly Affect Energy Supply,
Distribution, or Use''). We have determined that it is not a
``significant energy action'' under that order because it is not a
``significant regulatory action'' under Executive Order 12866 and is
not likely to have a significant adverse effect on the supply,
distribution, or use of energy.

L. Technical Standards

    The National Technology Transfer and Advancement Act, codified as a
note to 15 U.S.C. 272, directs agencies to use voluntary consensus
standards in their regulatory activities unless the agency provides
Congress, through OMB, with an explanation of why using these standards
would be inconsistent with applicable law or otherwise impractical.
Voluntary consensus standards are technical standards (e.g.,
specifications of materials, performance, design, or operation; test
methods; sampling procedures; and related management systems practices)
that are developed or adopted by voluntary consensus standards bodies.
This rule does not use technical standards. Therefore, we did not
consider the use of voluntary consensus standards.

M. Environment

    We have analyzed this final rule under Department of Homeland
Security (DHS) Directive 023-01, Revision (Rev) 01, Implementation of
the National Environmental Policy Act [DHS Instruction Manual 023-01
(series)] and Commandant Instruction M16475.lD, which guide the Coast
Guard in complying with the National Environmental Policy Act of 1969
(42 U.S.C. 4321-4370f), and have determined that this action is one of
a category of actions that do not individually or cumulatively have a
significant effect on the human environment. A Record of Environmental
Consideration supporting this determination is available in the docket
where indicated under the ADDRESSES section of this preamble. This rule
is categorically excluded under paragraph A3 of Table 1, particularly
subparts (a), (b), and (c) in Appendix A of DHS Directive 023-
01(series). CATEX A3 pertains to promulgation of rules and procedures
that are: (a) Strictly administrative or procedural in nature; (b) that
implement, without substantive change, statutory or regulatory
requirements; or (c) that implement, without substantive change,
procedures, manuals, and other guidance documents. This rule adjusts
base pilotage rates and surcharges for administering the 2018 shipping
season in accordance with applicable statutory and regulatory mandates,
and also proposes several minor changes to the Great Lakes pilotage
ratemaking methodology.

List of Subjects

46 CFR Part 401

    Administrative practice and procedure, Great Lakes, Navigation
(water), Penalties, Reporting and recordkeeping requirements, Seamen.

46 CFR Part 404

    Great Lakes, Navigation (water), Seamen.

    For the reasons discussed in the preamble, the Coast Guard amends
46 CFR parts 401 and 404 as follows:

PART 401--GREAT LAKES PILOTAGE REGULATIONS

0
1. The authority citation for part 401 continues to read as follows:

    Authority: 46 U.S.C. 2103, 2104(a), 6101, 7701, 8105, 9303,
9304; Department of Homeland Security Delegation No.
0170.1(II)(92.a), (92.d), (92.e), (92.f).

0
2. Revise Sec.  401.220(a) to read as follows:

Sec.  401.220  Registration of pilots.

    (a) The Director shall determine the number of pilots required to
be registered in order to assure adequate and efficient pilotage
service in the United States waters of the Great Lakes and to provide
for equitable participation of United States Registered Pilots with
Canadian Registered Pilots in the rendering of pilotage services. The
Director determines the number of pilots needed as follows:
    (1) The Director determines the base number of pilots needed by
dividing each area's peak pilotage demand data by its pilot work cycle.
The pilot work cycle standard includes any time that the Director finds
to be a necessary and reasonable component of ensuring that a pilotage
assignment is carried out safely, efficiently, and reliably for each
area. These components may include, but are not limited to--
    (i) Amount of time a pilot provides pilotage service or is
available to a vessel's master to provide pilotage service;
    (ii) Pilot travel time, measured from the pilot's base, to and from
an assignment's starting and ending points;
    (iii) Assignment delays and detentions;
    (iv) Administrative time for a pilot who serves as a pilotage
association's president;
    (v) Rest between assignments, as required by Sec.  401.451;
    (vi) Ten days' recuperative rest per month from April 15 through
November 15 each year, provided that lesser rest allowances are
approved by the Director at the pilotage association's request, if
necessary to provide pilotage without interruption through that period;
and
    (vii) Pilotage-related training.
    (2) Pilotage demand and the base seasonal work standard are based
on available and reliable data, as so deemed by the Director, for a
multi-year base period. The multi-year period is the 10 most recent
full shipping seasons, and the data source is a system approved under
46 CFR 403.300. Where

such data are not available or reliable, the Director also may use
data, from additional past full shipping seasons or other sources, that
the Director determines to be available and reliable.
    (3) The number of pilots needed in each district is calculated by
totaling the area results by district and rounding them to the nearest
whole integer. For supportable circumstances, the Director may make
reasonable and necessary adjustments to the rounded result to provide
for changes that the Director anticipates will affect the need for
pilots in the district over the period for which base rates are being
established.
* * * * *

0
3. Revise Sec.  401.405(a) to read as follows:

Sec.  401.405  Pilotage rates and charges.

    (a) The hourly rate for pilotage service on--
    (1) The St. Lawrence River is $653;
    (2) Lake Ontario is $435;
    (3) Lake Erie is $497;
    (4) The navigable waters from Southeast Shoal to Port Huron, MI is
$593;
    (5) Lakes Huron, Michigan, and Superior is $271; and
    (6) The St. Mary's River is $600.
* * * * *

PART 404--GREAT LAKES PILOTAGE RATEMAKING

0
 4. The authority citation for part 404 continues to read as follows:

    Authority: 46 U.S.C. 2103, 2104(a), 9303, 9304; Department of
Homeland Security Delegation No. 0170.1(II)(92.a), (92.f).

0
 5. Revise Sec.  404.100 to read as follows:

Sec.  404.100  Ratemaking and annual reviews in general.

    (a) The Director establishes base pilotage rates by a full
ratemaking pursuant to Sec. Sec.  404.101 through 404.110, which is
conducted at least once every 5 years and completed by March 1 of the
first year for which the base rates will be in effect. Base rates will
be set to meet the goal specified in Sec.  404.1(a).
    (b) In the interim years preceding the next scheduled full rate
review, the Director will adjust base pilotage rates by an interim
ratemaking pursuant to Sec. Sec.  404.101 through 404.110.
    (c) Each year, the Director will announce whether the Coast Guard
will conduct a full ratemaking or interim ratemaking procedure.

0
6. Revise Sec.  404.102 to read as follows:

Sec.  404.102  Ratemaking step 2: Project operating expenses, adjusting
for inflation or deflation.

    The Director projects the base year's non-compensation operating
expenses for each pilotage association, using recognized operating
expense items from Sec.  404.101. Recognized operating expense items
subject to inflation or deflation factors are adjusted for those
factors based on the subsequent year's U.S. government consumer price
index data for the Midwest, projected through the year in which the new
base rates take effect, or if that is unavailable, the Federal Open
Market Committee median economic projections for Personal Consumption
Expenditures inflation.

0
7. Revise Sec.  404.103 to read as follows:

Sec.  404.103  Ratemaking step 3: Estimate number of working pilots.

    The Director projects, based on the number of persons applying
under 46 CFR part 401 to become U.S. Great Lakes registered pilots, and
on information provided by the district's pilotage association, the
number of pilots expected to be fully working and compensated.

0
8. Revise Sec.  404.104 to read as follows:

Sec.  404.104  Ratemaking step 4: Determine target pilot compensation
benchmark.

    (a) In a full ratemaking year, the Director determines base
individual target pilot compensation using a compensation benchmark,
set after considering the most relevant currently available non-
proprietary information. For supportable circumstances, the Director
may make necessary and reasonable adjustments to the benchmark.
    (b) In an interim year, the Director adjusts the previous year's
individual target pilot compensation level by the Bureau of Labor
Statistics' Employment Cost Index for the Transportation and Materials
sector, or if that is unavailable, the Federal Open Market Committee
median economic projections for Personal Consumption Expenditures
inflation.
    (c) The Director determines each pilotage association's total
target pilot compensation by multiplying individual target pilot
compensation computed in paragraph (a) or (b) of this section by the
number of pilots projected under Sec.  404.103(d) or Sec.  401.220(a)
of this chapter, whichever is lower.

0
9. Revise Sec.  404.107 to read as follows:

Sec.  404.107  Ratemaking step 7: Calculate initial base rates.

    (a) The Director calculates initial base hourly rates by dividing
the projected needed revenue from Sec.  404.106 by averages of past
hours worked in each district's designated and undesignated waters,
using available and reliable data for a multi-year period set in
accordance with Sec.  401.220(a) of this chapter.

    Dated: May 30, 2018.
Michael D. Emerson,
Director, Marine Transportation Systems, U.S. Coast Guard.
[FR Doc. 2018-11969 Filed 6-4-18; 8:45 am]
BILLING CODE 9110-04-P