[Federal Register Volume 88, Number 38 (Monday, February 27, 2023)]
[Rules and Regulations]
[Pages 12226-12258]
[FR Doc No: 2023-03212]

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DEPARTMENT OF HOMELAND SECURITY

Coast Guard

46 CFR Part 401

[Docket No. USCG-2022-0370]
RIN 1625-AC82

Great Lakes Pilotage Rates--2023 Annual Ratemaking and Review of
Methodology

AGENCY: Coast Guard, DHS.

ACTION: Final rule.

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SUMMARY: In accordance with the statutory provisions enacted by the
Great Lakes Pilotage Act of 1960, the Coast Guard is issuing new base
pilotage rates for the 2023 shipping season. This rule adjusts the
pilotage rates to account for changes in district operating expenses,
an increase in the number of pilots, and anticipated inflation. These
changes, when combined, result in a 16-percent net increase in pilotage
costs compared to the 2022 season.

DATES: This final rule is effective March 29, 2023.

ADDRESSES: To view documents mentioned in this preamble as being
available in the docket, go to www.regulations.gov, type USCG-2022-0370
in the search box and click ``Search.'' Next, in the Document Type
column, select ``Supporting & Related Material.''

FOR FURTHER INFORMATION CONTACT: For information about this document
call or email Mr. Brian Rogers, Commandant, Office of Waterways and
Ocean Policy--Great Lakes Pilotage Division (CG-WWM-2), Coast Guard;
telephone<PHONE_NUMBER>, email [email protected], or fax 202-372-
1914.

SUPPLEMENTARY INFORMATION:

Table of Contents for Preamble

I. Abbreviations
II. Executive Summary

III. Basis and Purpose
IV. Discussion of Comments and Changes
    A. Great Lakes Pilotage Ratemaking Methodology
    B. The Staffing Model
    C. 2023 Great Lakes Pilotage Rate
    D. Cruise Line Traffic
    E. Fair Business Practices
    G. Changes to the NPRM's Estimate for District Three Pilot
Numbers
    F. Miscellaneous Concerns
V. Discussion of Methodological and Other Changes
VI. Individual Target Pilot Compensation Benchmark
VII. Discussion of Rate Adjustments

District One

    A. Step 1: Recognize Previous Operating Expenses
    B. Step 2: Project Operating Expenses, Adjusting for Inflation
or Deflation
    C. Step 3: Estimate Number of Registered Pilots and Apprentice
Pilots
    D. Step 4: Determine Target Pilot Compensation Benchmark and
Apprentice Pilot Wage Benchmark
    E. Step 5: Project Working Capital Fund
    F. Step 6: Project Needed Revenue
    G. Step 7: Calculate Initial Base Rates
    H. Step 8: Calculate Average Weighting Factors by Area
    I. Step 9: Calculate Revised Base Rates
    J. Step 10: Review and Finalize Rates

District Two

    A. Step 1: Recognize Previous Operating Expenses
    B. Step 2: Project Operating Expenses, Adjusting for Inflation
or Deflation
    C. Step 3: Estimate Number of Registered Pilots and Apprentice
Pilots
    D. Step 4: Determine Target Pilot Compensation Benchmark and
Apprentice Pilot Wage Benchmark
    E. Step 5: Project Working Capital Fund
    F. Step 6: Project Needed Revenue
    G. Step 7: Calculate Initial Base Rates
    H. Step 8: Calculate Average Weighting Factors by Area
    I. Step 9: Calculate Revised Base Rates
    J. Step 10: Review and Finalize Rates

District Three

    A. Step 1: Recognize Previous Operating Expenses
    B. Step 2: Project Operating Expenses, Adjusting for Inflation
or Deflation
    C. Step 3: Estimate Number of Registered Pilots and Apprentice
Pilots
    D. Step 4: Determine Target Pilot Compensation Benchmark and
Apprentice Pilot Wage Benchmark
    E. Step 5: Project Working Capital Fund
    F. Step 6: Project Needed Revenue
    G. Step 7: Calculate Initial Base Rates
    H. Step 8: Calculate Average Weighting Factors by Area
    I. Step 9: Calculate Revised Base Rates
    J. Step 10: Review and Finalize Rates
VIII. Regulatory Analyses
    A. Regulatory Planning and Review
    B. Small Entities
    C. Assistance for Small Entities
    D. Collection of Information
    E. Federalism
    F. Unfunded Mandates
    G. Taking of Private Property
    H. Civil Justice Reform
    I. Protection of Children
    J. Indian Tribal Governments
    K. Energy Effects
    L. Technical Standards
    M. Environment

I. Abbreviations

AMOU American Maritime Officers Union
APA American Pilots' Association
BLS Bureau of Labor Statistics
CFR Code of Federal Regulations
CPA Certified public accountant
CPI Consumer Price Index
DHS Department of Homeland Security
Director U.S. Coast Guard's Director of the Great Lakes Pilotage
ECI Employment Cost Index
FOMC Federal Open Market Committee
FR Federal Register
GLPA Great Lakes Pilotage Authority (Canadian)
GLPAC Great Lakes Pilotage Advisory Committee
GLPMS Great Lakes Pilotage Management System
LPA Lakes Pilots Association
NAICS North American Industry Classification System
NPRM Notice of proposed rulemaking
OMB Office of Management and Budget
PCE Personal Consumption Expenditures
Sec.  Section
SBA Small Business Administration
SLSPA Saint Lawrence Seaway Pilotage Association
The Act The Great Lakes Pilotage Act
U.S.C. United States Code
WGLPA Western Great Lakes Pilots Association

II. Executive Summary

    In accordance with Title 46 of the United States Code (U.S.C.),
Chapter 93,\1\ the Coast Guard regulates pilotage for oceangoing
vessels on the Great Lakes and St. Lawrence Seaway--including setting
the rates for pilotage services and adjusting them on an annual basis
for the upcoming shipping season. The shipping season begins when the
locks open in the St. Lawrence Seaway, which allows traffic access to
and from the Atlantic Ocean. The opening of the locks varies annually,
depending on waterway conditions, but is generally in March or April.
The rates, which for the 2023 season range from $410 to $876 per pilot
hour (depending on which of the specific six areas pilotage service is
provided), are paid by shippers to the pilot associations. The three
pilot associations, which are the exclusive U.S. source of registered
pilots on the Great Lakes, use this revenue to cover operating
expenses, maintain infrastructure, compensate apprentice and registered
pilots, acquire and implement technological advances, train new
personnel, and provide for continuing professional development.
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    \1\ 46 U.S.C. 9301-9308.
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    In accordance with statutory and regulatory requirements, the Coast
Guard employs the ratemaking methodology introduced in 2016. Our
ratemaking methodology calculates the revenue needed for each pilotage
association (operating expenses, compensation for the number of pilots,
and anticipated inflation), and then divides that amount by the
expected demand for pilotage services over the course of the coming
year, to produce an hourly rate. This is a 10-step methodology to
calculate rates, which is explained in detail in the ``Discussion of
Methodological and Other Changes'' in section V of the preamble to this
rule.
    As part of our annual review, the Coast Guard is issuing a full
ratemaking and establishing new pilotage rates for 2023 based on the
existing 10-step ratemaking methodology. The Coast Guard conducted the
last full ratemaking 5 years ago, in 2018 (83 FR 26162, June 5, 2018).
Per Title 46 of the Code of Federal Regulations (CFR), section
404.100(a), in this final rule, the Coast Guard's Director of the Great
Lakes Pilotage (``the Director'') is establishing base pilotage rates
via a full ratemaking pursuant to Sec. Sec.  404.101 through 404.110.
The Coast Guard sets base rates to meet the goal of promoting safe,
efficient, and reliable pilotage service on the Great Lakes by
generating sufficient revenue for each pilotage association to
reimburse its necessary and reasonable operating expenses, fairly
compensate trained and rested pilots, and provide appropriate funds to
use for improvements. A 10-year average is used when calculating
traffic to smooth out anomalies in traffic caused by unexpected events,
such as those caused by the COVID-19 pandemic. The Coast Guard
estimates that this rule results in $5,172,200 of additional costs.
    Based on the ratemaking model discussed in this final rule, the
Coast Guard is establishing the rates shown in table 1.

                           Table 1--Current and 2023 Pilotage Rates on the Great Lakes
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                                                                                Final 2022      Final 2023
                     Area                                     Name                 pilotage rate   pilotage rate
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District One: Designated......................  St. Lawrence River..............            $834            $876
District One: Undesignated....................  Lake Ontario....................             568             586
District Two: Designated......................  Navigable waters from Southeast              536             601
                                                 Shoal to Port Huron, MI.
District Two: Undesignated....................  Lake Erie.......................             610             704
District Three: Designated....................  St. Mary's River................             662             834
District Three: Undesignated..................  Lakes Huron, Michigan, and                   342             410
                                                 Superior.
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    This rule affects 56 U.S. Great Lakes pilots, 6 apprentice pilots,
3 pilot associations, and the owners and operators of an average of 285
oceangoing vessels that transit the Great Lakes annually. This rule is
not economically significant under Executive Order 12866 and will not
affect the Coast Guard's budget or increase Federal spending. The
estimated overall annual regulatory economic impact of this rate change
is a net increase of $5,172,200 in estimated payments made by shippers
during the 2023 shipping season. This final rule establishes the 2023
yearly compensation for pilots on the Great Lakes at $424,398 per pilot
(a $25,132 increase, or 6.29 percent, over their 2022 compensation).
Because the Coast Guard must review, and, if necessary, adjust rates
each year, the Coast Guard analyzes these as single-year costs and does
not annualize them over 10 years. Section VIII of this preamble
provides the regulatory impact analyses of this rule.

III. Basis and Purpose

    The legal basis of this rulemaking is 46 U.S.C. Chapter 93,\2\
which requires foreign merchant vessels and United States vessels
operating ``on register'' (meaning United States vessels engaged in
foreign trade) to use United States or Canadian pilots while transiting
the United States waters of the St. Lawrence Seaway and the Great Lakes
system.\3\ For U.S. Great Lakes pilots, the statute requires the
Secretary to ``prescribe by regulation rates and charges for pilotage
services, giving consideration to the public interest and the costs of
providing the services.'' \4\ The statute requires that rates be
established or reviewed and adjusted each year, no later than March
1.\5\ The statute also requires that base rates be established by a
full ratemaking at least once every 5 years, and, in years when base
rates are not established, they must be reviewed and, if necessary,
adjusted.\6\ The Secretary's duties and authority under 46 U.S.C.
Chapter 93 have generally been delegated to the Coast Guard.\7\
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    \2\ 46 U.S.C. 9301-9308.
    \3\ 46 U.S.C. 9302(a)(1).
    \4\ 46 U.S.C. 9303(f).
    \5\ Id.
    \6\ Id.
    \7\ DHS Delegation No. 00170.1 (II)(92)(f), Revision No. 01.3.
The Secretary retains the authority under Section 9307 to establish,
and appoint members to, a Great Lakes Pilotage Advisory Committee.
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    The purpose of this rule is to issue new pilotage rates for the
2023 shipping season. The Coast Guard believes that the new rates will
continue to promote our goal, as outlined in 46 CFR 404.1, of promoting
safe, efficient, and reliable pilotage service in the Great Lakes by
generating for each pilotage association sufficient revenue to
reimburse its necessary and reasonable operating expenses, fairly
compensate trained and rested pilots, and provide appropriate funds to
use for improvements.

IV. Discussion of Comments and Changes

    In response to the notice of proposed rulemaking (NPRM) for this
ratemaking (87 FR 52870, August 30, 2022) the Coast Guard received six
comment submissions. These submissions include one comment filed
jointly by the Lakes Pilots Association, the Saint Lawrence Seaway
Pilotage Association, and the Western Great Lakes Pilots Association
(the Great Lakes Pilots' comment); one filed jointly by the Shipping
Federation of Canada, the American Great Lakes Ports Association, and
the United States Great Lakes Shipping Association (collectively, the
Coalition); one from the president of the St. Lawrence Seaway Pilots'
Association (SLSPA); one from the president of the Lakes Pilots
Association (LPA); one from the president of the Western Great Lakes
Pilot Association (WGLPA); and one from an individual who did not
provide an affiliation to any stakeholder. As each of these commenters
touched on numerous issues, for each response below, the Coast Guard
notes which commenter raised the specific points addressed. In
situations where multiple commenters raised similar issues, the Coast
Guard provides one response to those issues.

A. Great Lakes Pilotage Ratemaking Methodology

    The Coalition recommended that the Coast Guard define what the term
``necessary and reasonable'' means. In 46 CFR 404.2(b), the Coast Guard
lists criteria to recognize an expense item as necessary and
reasonable. In general, necessary and reasonable operating expenses are
those with a clear business reason to operate the pilotage pool or
provide pilotage, and for which the cost is consistent with market
conditions and not excessive, to ensure safe and reliable pilotage
service to foreign-flag vessels.
    The Coalition recommended the addition of a line-by-line review of
the previous year's operating expenses in order to better shape future
projections of operating expenses. The Coast Guard disagrees with this
recommendation because the recommendation is already in place and
conducted by both the Coast Guard and an independent third party. The
Coast Guard's current practice is to receive yearly financial
statements in April of each year from each district and compare them to
the previous year's expenses. For transparency, we place the financial
statements on the Coast Guard's Office of Waterways and Ocean Policy--
Great Lakes Pilotage Division website so the public can also look at
these documents.\8\ The Coast Guard also hires an independent
accounting firm to conduct, in conjunction with the Coast Guard,
extensive reviews of the pilot association's financial information,
including but not limited to variance analysis of previous operating
expenses, which enables the Coast Guard to determine the necessity and
reasonableness of association expenses. This practice was reviewed by
the Government Accountability Office in 2019 and was deemed a best
practice

when developing rates, as it keeps the Coast Guard impartial.
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    \8\ Financial statements can be found at https://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/.
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    The Coalition recommended a reevaluation of the framework for
pilotage operation in ``designated'' and ``undesignated'' waters. The
Coast Guard does not have the authority to accommodate this
recommendation. The Great Lakes Pilotage Act (``the Act'') created the
designated and undesignated categories for the System. In undesignated
waters, the United States- or Canadian-registered pilot must be onboard
and available to the master. In designated waters, the pilot must be on
the bridge and direct the navigation of the vessel. Through the Act,
Congress bestowed the authority to classify these waters onto the
President of the United States. Such designation can be accomplished
only by Executive order or Presidential proclamation, which the Coast
Guard has no authority to issue, and would only oppose if the change
compromised maritime safety.
    The Coalition recommended that the Coast Guard make the
compensation level of individual pilots available to the public. The
Coast Guard disagrees with this recommendation. Compensation of
individual pilots is not included in the expense base or methodology,
and, therefore, we decline to add a regulatory requirement for pilot
associations to publicly report the compensation of individual pilots.
The Coast Guard does not use the actual earnings or average earnings;
instead, target pilot compensation is used (described in Step 4 of the
existing methodology), which the Coast Guard has determined to be
reasonable and necessary. Because actual salary values are not used in
the ratemaking, the Coast Guard believes that a requirement to report
pilot compensation is not in the public interest or necessary to
provide for the costs of services. Progress toward pilot retention can
be reviewed through pilot turnover and the association's ability to
promptly fill pilot vacancies for fully registered pilots and
apprentice pilots.
    The Coalition recommended that the Coast Guard include an
additional layer of review in the methodology by taking an annual look
back at the actual revenues and comparing it with the previous year's
projections for accuracy. The Coast Guard acknowledges the utility of
such an exercise and already has a process during which we take the
financial statements that are submitted annually by each District under
46 CFR 401.320(d)(4) and compare the actual revenue reported with the
projected revenue from the previous year's rate.
    Any substantial difference between actual and projected revenue is
a result of incorrectly predicting vessel traffic or average vessel
weight. The Coast Guard uses a ten-year moving average to predict
traffic, which has been demonstrated to be sufficiently accurate over
time while also providing a measure of rate stability that pilots and
shippers alike can rely on.\9\ No commenter has provided a more
accurate methodology to predict traffic.
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    \9\ See Am. Great Lake Ports Assn. v. United States Coast Guard,
443 F. Supp. 3d 44, 64 (D.D.C. 2020), holding that ``the Coast Guard
made an intentional choice to use a wider window for calculating the
traffic average in order to minimize volatility. Although the agency
acknowledged that using a ten-year moving average meant that in
2018, Plaintiffs would have to pay more than they would have had the
Coast Guard used a three-year moving average, the agency determined
that the ten-year average was nonetheless preferable in order to
smooth out historically observed spikes in traffic data. That was a
rational choice, even if the traffic data included data from the
period of the last recession.'' The Court also cited ``data [that]
clearly support[ed] the Coast Guard's decision to use a ten-year
moving average in order to prevent `dramatic swings' in rates from
year to year.'' Am. Great Lake Ports Assn., 443 F. Supp. 3d at 65.
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    While we acknowledge the value of looking back on the accuracy of
recent projections, such analysis is not as simple as comparing one
number to another. First, our estimates for projected needed revenue
are based on 3-year-old expense data, which means the analysis may not
be as accurate as it would be if it were based on real-time expense
data. This delay is out of the Coast Guard's control, as we must wait
for the numbers to be audited before we receive them. Second, there is
a necessary offset in comparing the realized revenues because they have
to match the earlier year, when the base of expenses occurred. Lastly,
there is prevailing inflation that occurs between when expenses are
realized and then put into the ratemaking, and when we receive the
realized revenue figure to compare back. These factors can cause minor
differences between the projected and actual revenue figures and would
need to be included in a discussion on the accuracy of past
projections.
    The Coast Guard is amenable to including a discussion of the
already existing ``look back'' exercise into its ratemaking process and
would welcome feedback on where and how to do this. The Coast Guard
encourages the Coalition to bring this matter up at the next advisory
committee meeting, so we can see exactly how they would like this added
to the methodology.

B. The Staffing Model

    The WGLPA made the recommendation that the Coast Guard amend the
final rule to reflect four apprentice pilots. The Coast Guard disagrees
with this recommendation. District Three currently has 20 full member
pilots along with 5 apprentice pilots. According to our records, two
apprentice pilots will become fully registered pilots at the beginning
of the year. When these 2 apprentice pilots become full members, that
will bring the number to 22 full member pilots. The WGLPA does not have
any additional trainees or apprentice pilots in its training program
and did not provide the names of any expected hires for the Coast Guard
to consider adjusting this number. If the District would like to add an
additional apprentice pilot to their roster for 2023, the matter can be
discussed with the Director prior to the opening of the 2023 shipping
season.
    The WGLPA commented that it has six pilots assigned to the
designated area and requested that the Coast Guard adjust the rate to
reflect six pilots, not the five pilots currently implemented in the
rate. The Coast Guard disagrees. The Coast Guard is willing to evaluate
potential adjustments based on specific delays or safety concerns in
the designated area of District Three, but the commenter did not
provide any supporting documentation for last year or this year
demonstrating that the current split between designated and
undesignated pilots in the staffing model is causing delays or safety
concerns in the system. The Coast Guard did not see a significant
enough change in bridge hours to justify the addition of a sixth pilot.
    The LPA made the comment, that they will have 16 registered pilots
and 1 trainee pilot in District Two for the 2023 shipping season, as
opposed to the 2 apprentice pilots listed in the NPRM. The Coast Guard
agrees with this comment. Based on reviews from the apprentice pilot
training evaluations for 2022, one of the two apprentice pilots
finished the apprentice program more rapidly than anticipated. Because
of this, the Coast Guard has determined that District Two will have 16
registered pilots and only 1 apprentice pilot at the beginning of the
2023 shipping season and will adjust the numbers in the rate
accordingly.
    The LPA, WGLPA, and SLSPA all recommended that the staffing model
increase the number of pilots in their districts. The Coast Guard
agrees with this comment and is amenable to addressing the current
staffing model further. A decision is necessary regarding which changes
will be implemented to reflect the correct number of pilots needed in
the staffing model in order to conduct safe and continuous pilotage
service. The Coast Guard will discuss this issue with stakeholders
throughout the year and at

the next GLPAC meeting so that this issue is resolved for the next
ratemaking.
    The SLSPA commented that they will need three additional trainee
pilots for the 2023 season to safely and reliably meet the future
traffic demand in District One. The Coast Guard agrees to the addition
of three trainee pilots. This addition does not have any impact on this
ratemaking because the districts are reimbursed for trainee pilot
expenses, via the rate, 3 calendar years after the expenses are
incurred in Step 1 of the methodology. The Coast Guard understands that
changes to the staffing model will need to be incorporated in the 2024
ratemaking in order to accommodate these potential pilots in future
rates. The Coast Guard will discuss this issue with stakeholders
throughout the year and at the next GLPAC meeting so that this issue is
resolved for the next ratemaking.

C. 2023 Great Lakes Pilotage Rate

    The Coalition commented on the rate, stating that rates are too
high, landing Great Lakes pilots within the wealthiest 2 percent of
Americans. The Coast Guard does not find this comment to be relevant to
the proposed rates established by this rulemaking. The commenter
provided no supporting documentation. The Coast Guard suggests that the
commenter provide supporting documentation at a future GLPAC meeting or
submit supporting documentation for further consideration.
    The WGLPA requested an explanation for the ``Director's
Adjustments--Applicant Surcharge Collected'' number in table 27 of the
NPRM. The Coast Guard placed a Director's adjustment of $122,539 in the
NPRM and final rule. This number, $105,668.60, was derived from
surcharges collected from vessel trips between April 6, 2020, and
December 9, 2020, and $16,870.58, summed from vessel trips before April
6, 2020. The Coast Guard did not authorize these surcharges.

D. Cruise Line Traffic

    The commenters were almost unanimously concerned about an explosion
of cruise vessel traffic on the Great Lakes and the resulting impact on
pilot demand. The Coast Guard recognizes that a blossoming cruise ship
sector is of concern to all Great Lakes stakeholders and considered the
concerns of each commenter in this arena. Each commenter urged the
Coast Guard to stay abreast of this issue and to address it in the
staffing model sooner rather than later.
    The Coast Guard understands the importance of this issue and has
already begun studying the growth of the cruise sector traffic. At the
September 13, 2022, GLPAC meeting, the Coast Guard addressed the issue
of cruise ship traffic with Great Lakes stakeholders. Among the issues
discussed was a recognition that the staffing model, which is based on
pilot assignment cycle hours, may not be as helpful when vessels such
as cruise ships have a different calculus of their movement.\10\ For
example, cruise ships holding hundreds of passengers will be less
tolerant of delays than a typical shipping vessel and will also have
scheduled delays while passengers visit port city attractions. Another
issue is that because of the novelty of the sector, lack of historic
data, and COVID-19 preventing any cruise ship traffic in 2020 and 2021,
our 10-year moving average does not capture very much cruise ship
traffic, which could result in a systemic error.
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    \10\ See discussion on pages 4-5 of the Memorandum For the
Record of the Sept. 13, 2022 GLPAC Meeting. The transcript is
available in the docket at https://www.regulations.gov/document/USCG-2022-0370-0018.
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    The experts at GLPAC, having recognized these deficiencies,
ultimately recommended that the Director use his discretion to
accommodate cruise line traffic demand, irrespective of the current
staffing model ceiling, if no changes to the model or ratemaking
methodology itself are viable this year.
    The Coast Guard is committed to addressing this new demand but will
not make changes to the staffing model without the ``robust analysis''
called for by GLPAC.\11\ The Coast Guard will collaborate with GLPAC to
gather more definitive pilot hour data for the cruise ship sector,
including ship assignment and bridge hour numbers for cruise ships in
each District. We acknowledge that this is a sector that could be a
permanent factor in the Great Lakes, and we are committed to finding a
reasonable solution to increased pilot demand without disregarding this
year's statutory deadline. In addition to the Coast Guard's future
efforts, we encourage stakeholders to work together, as there may be
solutions to this issue outside of this ratemaking process.
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    \11\ See discussion on pages 43-54 of the GLP Advisory Committee
Sept. 1, 2021 Meeting Minutes, available online at https://www.regulations.gov/document/USCG-2022-0370-0009.
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    In the meantime, the Director will use his discretion, as
recommended by GLPAC, to take measures to accommodate demand in the
2023 season. Such measures may include hiring contract pilots or
allowing retired pilots to return to work on a temporary basis. The
Coast Guard encourages stakeholders to gather relevant data before the
next meeting of the GLPAC, which will be announced in the Federal
Register.

E. Fair Business Practices

    One commenter opposed the rate increase on the basis that it forces
hiring a Coast Guard pilot, is creating a monopoly, and is bad for
business. The Coast Guard disagrees. The Coast Guard does not and has
never employed Coast Guard pilots for any trade, as the commenter
suggests. The Coast Guard has no authority in determining market
structures. In 46 U.S.C. 9302, Congress requires vessels to employ
United States or Canadian registered pilots. The Coast Guard is only
responsible for providing clear and timely regulations, policy, and
direction to the affected population.

F. Temporary Pilot Services

    The LPA requested recuperation of operating expenses related to
wages paid to a retired pilot, which they needed on a temporary
registration to meet demand surges. The Coast Guard agrees with the
recommendation and finds this is a necessary and reasonable cost
related to the costs of providing pilotage. In addition, at the most
recent GLPAC meeting, on September 13, 2022, the appointed members
unanimously agreed that this expense should be an allowable operating
expense. The Coast Guard posted a summary of the GLPAC meeting minutes,
titled, ``GLPAC Sept 13, 2022, Meeting Memorandum for the Record USCG''
to the rulemaking docket, USCG-2022-0370, on September 20, 2022. A
subsequent ``GLPAC Sept 13, 2022, Meeting Memorandum for the Record
v2,'' posted on October 3, 2022, made unrelated corrections to Coast
Guard statements and replaced the original September 20, 2022, version.
The ``Memorandum for the Record'' summarizes the GLPAC discussion and
approval of the temporary pilot wages as an operating expense. The
Coast Guard plans to issue guidelines regarding the reimbursement of
temporary registered pilot costs.
    The GLPAC consists of the three pilot association presidents and
four additional members representing the ports, vessel operators,
shippers, and labor organizations, who all concurred with adding this
expense to meet the shipping demands for timely service. The expenses
associated with the hiring of a temporary pilot in the operating
expenses are included in this

ratemaking, in Step 1 of the methodology.

G. Bridge Hours

    The WGLPA made a comment that the number of hours for District
Three ``Time on Task'' should be amended to reflect 3,520 hours in
their designated area in 2020, 23,678 hours in their undesignated area
in 2020, 2,516 hours in their designated area in 2021, and 18,286 hours
in their undesignated area for 2021. The Coast Guard agrees with this
comment. Previous figures, extracted from the data the Coast Guard
received, was inaccurate. The Coast Guard has detailed this difference
in trips in the ``SeaPro Sept 27 2022 Error Conversation Memorandum for
the Record'', which can be found at www.regulations.gov/document/USCG-2022-0370-0019. After reviewing the updated numbers, the Coast Guard
agrees to incorporate the commenter's submitted numbers into the
rulemaking.

V. Discussion of Methodological and Other Changes

    The Coast Guard is using the existing ratemaking methodology for
establishing the base rates in this full ratemaking. The Coast Guard is
not issuing any methodological or other policy changes to the
ratemaking within this final rule.
    According to 46 U.S.C. 9303(f), and restated in 46 CFR 404.100(a),
the Coast Guard must establish base rates by a full ratemaking at least
once every 5 years. The Coast Guard determined that the current base
rate and methodology still adequately adheres to the Coast Guard's
goals of safety through rate and compensation stability, while
promoting recruitment and retention of qualified U.S. registered
pilots. The Coast Guard has made several changes to the ratemaking over
the last several years in consideration of the public interest and the
costs of providing services. The recent changes and their impacts are
summarized as follows.
    In the 2017 ratemaking (82 FR 41466, August 31, 2017), the Coast
Guard modified the methodology to account for the additional revenue
produced by the application of weighting factors (discussed in detail
in Steps 7 through 9 for each district, in section VII of this
preamble).
    In the 2018 ratemaking (83 FR 26162, June 5, 2018), the Coast Guard
adopted a new approach in the methodology for the compensation
benchmark, based upon United States mariners rather than Canadian
working pilots.
    In the 2020 ratemaking (85 FR 20088, April 9, 2020), the Coast
Guard revised the methodology to accurately capture all costs and
revenues associated with Great Lakes pilotage requirements and produce
an hourly rate that adequately and accurately compensates pilots and
covers expenses.
    The 2021 ratemaking (86 FR 14184, March 12, 2021) changed the
inflation calculation in Step 4, Sec.  404.104(b) for interim
ratemakings, so that the previous year's target compensation value is
first adjusted by actual inflation value using the Employment Cost
Index (ECI). That change ensures that the target pilot compensation
reimbursed to the association remains current with inflation and
competitive with industry pay increases.
    The 2022 ratemaking (87 FR 18488, March 30, 2022) implemented an
apprentice pilot wage benchmark in Steps 3 and 4 to provide
predictability and stability to pilot associations training apprentice
pilots. The 2022 final rule also codified rounding up the staffing
model's final number to ensure the ratemaking does not undercount the
pilot need presented by the staffing model and association
circumstances.
    Table 2 summarizes the changes between the 2023 Ratemaking NPRM and
this final rule.

          Table 2--Changes Between Proposed Rule and Final Rule
------------------------------------------------------------------------
                 Change                             Reasoning
------------------------------------------------------------------------
Revise number of pilots in District Two  District Two reported that one
 from 15 to 16 and adjust apprentice      of their two apprentice pilots
 pilots from 2 to 1.                      listed in the NPRM would
                                          become a fully registered
                                          pilot for the 2023 season.
Correct traffic data for District Three  District Three commented that
 to reflect discrepancy in the            the hours listed in Step 7
 assignment of bridge hours to            were incorrect and provided a
 designated and undesignated areas.       corrected sheet of traffic
                                          hours, which correctly
                                          attribute hours between the
                                          designated and undesignated
                                          areas. See further details
                                          below.
Update inflation figures...............  More recent figures were
 Updates 2021 Employment Cost     published since the Coast
 Index (ECI) inflation from 5.1%,         Guard conducted the analysis
 listed in the NPRM, to 5.7%.             for the NPRM.
 Updates 2022 Personal
 Consumption Expenditures (PCE)
 inflation from 2.7%, listed in the
 NPRM, to 4.3%.
 Updates 2023 PCE inflation
 from 2.3%, listed in the NPRM, to
 2.7%.
------------------------------------------------------------------------

    Using the corrected traffic data for 2020, the Coast Guard removed
34 trips from District Three that occurred before March 24, 2020 (the
opening of the 2020 season). The Coast Guard identified eight
incorrectly specified trips with errors or missing data in the ``Area''
and/or ``District'' columns.\12\ With these corrections, the total
bridge hours decreased by 500 hours for the undesignated areas and
decreased by 162 hours for the designated areas. Similarly, for 2021,
the Coast Guard removed 19 trips that occurred before March 21, 2021
(the opening of the 2021 season) and identified 12 incorrectly
specified trips with errors or missing data in the ``Area'' and/or
``District'' columns. The 2021 total bridge hours increased by 67 hours
for the undesignated areas and decreased by 68 hours for the designated
area. Table 3 shows the difference between the published figures for
bridge hours in Step 7 and the updated figures used for this final
rule.
---------------------------------------------------------------------------

    \12\ The ``Area'' column is a written description either as Lake
(undesignated) or River (designated), while ``District'' is the
numerical Area, six, seven, or eight. An example of an incorrect
specification was a trip described as Lake in the ``Area'' column,
and area seven in the ``District'' column, meaning it was listed as
simultaneously designated and undesignated.

                                        Table 3--Changes to Step 7 Bridge Hours From Proposed Rule to Final Rule
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                  Previously published                                                Updated                       Difference
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                           Undesignated     Designated     Undesignated     Designated     Undesignated     Designated
--------------------------------------------------------------------------------------------------------------------------------------------------------
2020....................................................          24,178           3,682          23,678           3,520            -500            -162
Average.................................................          21,106           2,930          21,056           2,914             -50             -16
2021....................................................          18,219           2,584          18,286           2,516              67             -68
Average.................................................          21,327           3,021          21,284           2,998             -43             -23
--------------------------------------------------------------------------------------------------------------------------------------------------------

    Further, the Coast Guard updated Step 8, ``Average Weighting Factor
by Area'' to reflect the changes in the number of transits by vessel
class in each area. This includes corrections to the 8 incorrectly
specified trips in 2020, the 12 incorrectly specified trips in 2021,
and the general corrections from the change in bridge hours in the
updated data provided by District Three. Table 4 details the changes by
area and vessel class for both 2020 and 2021 which will be used in this
final rule. The Coast Guard will not otherwise publish a correction to
the previously published 2020 data used in the 2022 ratemaking.

                           Table 4--Changes to Step 8 From Proposed Rule to Final Rule
----------------------------------------------------------------------------------------------------------------
                                                                                Number of transits
                                                                 -----------------------------------------------
                        Area/vessel class                           Previously
                                                                     published        Updated       Difference
----------------------------------------------------------------------------------------------------------------
                                              Area 6--Undesignated
----------------------------------------------------------------------------------------------------------------
Class 1 (2021)..................................................               7               8               1
Class 2 (2020)..................................................             395             332             -63
Class 2 (2021)..................................................             261             273              12
Class 3 (2021)..................................................               7               5              -2
Class 4 (2020)..................................................             413             339             -74
Class 4 (2021)..................................................             312             356              44
----------------------------------------------------------------------------------------------------------------
                                               Area 7--Designated
----------------------------------------------------------------------------------------------------------------
Class 1 (2020)..................................................              16              15              -1
Class 1 (2021)..................................................              12              15               3
Class 2 (2020)..................................................             250             218             -32
Class 2 (2021)..................................................             128             131               3
Class 3 (2020)..................................................               4               1              -3
Class 4 (2020)..................................................             385             336             -49
Class 4 (2021)..................................................             299             258             -41
----------------------------------------------------------------------------------------------------------------
                                              Area 8--Undesignated
----------------------------------------------------------------------------------------------------------------
Class 1 (2021)..................................................               4               5               1
Class 2 (2020)..................................................             239             180             -59
Class 2 (2021)..................................................              96             124              28
Class 3 (2020)..................................................               2               1              -1
Class 4 (2020)..................................................             456             265            -191
Class 4 (2021)..................................................             182             319             137
----------------------------------------------------------------------------------------------------------------

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

VI. Individual Target Pilot Compensation Benchmark

    The Coast Guard is issuing the target pilot compensation benchmark
in this ratemaking at the target compensation for the ratemaking year
2022, adjusted for inflation. In a full ratemaking year, per 46 CFR
404.104(a), the Director determines a base individual target pilot
compensation using a compensation benchmark in consideration of
relevant currently available non-proprietary information. The Director
may make necessary and reasonable adjustments to the benchmark if
circumstances require. The compensation benchmark will be used in Step
4 of the existing methodology. In the following interim year
ratemakings, the base target pilot compensation will be adjusted
annually in accordance with Sec.  404.104(b). How the Coast Guard
arrived at this compensation benchmark is explained below.
    Prior to 2016, the Coast Guard based the compensation benchmark on
data provided by the American Maritime Officers Union (AMOU) regarding
its contract for first mates on the Great Lakes. However, in 2016, the
AMOU elected to no longer provide this data to the Coast Guard. In the
2016 ratemaking (81 FR 11907, March 7, 2016), the Coast Guard used the
average compensation for a Canadian pilot plus a 10-percent adjustment.
The shipping industry challenged the compensation benchmark, and the
court found that the Coast Guard did not adequately support the 10-
percent addition to the Canadian GLPA compensation benchmark. American
Great Lakes Ports Association v. Zukunft, 296 F.Supp. 3d 27, 48 (D.D.C.
2017), aff'd sub nom. American Great Lakes Ports Association v.
Schultz, 962 F.3d 510 (D.C. Cir. 2020). The Coast Guard then based the
2018 full ratemaking compensation benchmark on data provided by the
AMOU, regarding its contract for first mates on the Great Lakes in the
2011 to 2015 period (83 FR 26162, June 5, 2018). The 2018 final rule
adjusted the AMOU 2015 data for inflation using Federal Open Market
Committee median economic projections for PCE inflation.
    In the 2020 interim year ratemaking final rule, the Coast Guard
established its most recent pilot compensation benchmark. Given the
lack of access to AMOU data, the Coast Guard did not rely on the AMOU
aggregated wage and benefit information as the basis for the
compensation benchmark. Instead, the Coast Guard adopted the 2019
target pilot compensation (with inflation) as our compensation
benchmark going forward. The Coast Guard stated in the 2020 final rule
that no other United States or Canadian pilot compensation data was
appropriate to use as a benchmark at that time. See 85 FR 20088, 20091
(April 9, 2020). The Director determined that the ratemaking provided
adequate compensation for pilots. In the 2020 ratemaking, the Coast
Guard announced that the 2020 benchmark will be used for future rates.
See 85 FR 20091 (April 9, 2020).
    Based on our experience over the past three ratemakings (2020-
2022), the Director continues to believe that the level of target pilot
compensation for those years provided an appropriate level of
compensation for U.S.-registered pilots. According to Sec.  404.101(a),
the Director may make necessary and reasonable adjustments to the
benchmark based on current information. However, current circumstances
do not indicate that an adjustment, other than for inflation, is
necessary. The Director bases this decision on the fact that there is
no indication that registered pilots are resigning due to their
compensation, or that this compensation benchmark is causing shortfalls
in achieving reliable pilotage. The Coast Guard also does not believe
that the pilot compensation benchmark is too high relative to the
expertise required to perform the job. The compensation will continue
to be adjusted annually, in accordance with published inflation rates,
which will ensure the compensation remains competitive and current for
upcoming years.
    Therefore, the Coast Guard is not seeking alternative benchmarks
for target compensation at this time and, instead, will simply adjust
the amount of target pilot compensation for inflation as our target
compensation benchmark for 2023, as shown in Step 4. This target
compensation benchmark approach has advanced and will continue to
advance the Coast Guard's goals of safety through rate and compensation
stability while also promoting recruitment and retention of qualified
U.S. pilots.
    The compensation benchmark for 2023 is $399,266 per registered
pilot and $143,736 per apprentice pilot, using the 2022 compensation as
a benchmark. The Coast Guard then follows the procedure outlined in
paragraph (b) of Sec.  404.104, which adjusts the existing compensation
benchmark for inflation using a two-step process. First, the Coast
Guard adjusts the 2022 target compensation benchmark of $399,266 by 3.5
percent, for an adjusted value of $413,240. This first adjustment
accounts for the difference in actual first quarter 2022 ECI inflation,
which is 5.7 percent, and the 2022 PCE estimate of 2.2
percent.13 14 The second step accounts for projected
inflation from 2022 to 2023, which is 2.7 percent.\15\ Based on the
projected 2023 inflation estimate, the target compensation benchmark
for 2023 is $424,398 per pilot. The apprentice pilot wage benchmark is
36 percent of the target pilot compensation, or $152,783 ($424,398 x
0.36).
---------------------------------------------------------------------------

    \13\ Employment Cost Index, Total Compensation for Private
Industry workers in Transportation and Material Moving, Annual
Average, Series ID: CIU2010000520000A. Accessed September 29, 2022.
https://www.bls.gov/news.release/eci.t05.htm.
    \14\ Table 1 Summary of Economic Projections, PCE Inflation June
Projection. Accessed September 2022 https://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20220921.pdf.
    \15\ Table 1 Summary of Economic Projections, PCE Inflation
December Projection. Accessed March 2022 https://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20220316.pdf..
---------------------------------------------------------------------------

VII. Discussion of Rate Adjustments

    In this final rule, based on the policy changes described in the
previous section, the Coast Guard is issuing new pilotage rates for
2023. The Coast Guard is conducting the 2023 ratemaking as a full
ratemaking, as was done in 2018 (83 FR 26162). Thus, the Coast Guard
adjusted the compensation benchmark following the full ratemaking year
procedures under Sec.  404.100(a) rather than following the procedure
for an interim ratemaking year under Sec.  404.100(b).
    This section discusses the rate changes using the ratemaking steps
provided in 46 CFR part 404. The Coast Guard details all 10 steps of
the ratemaking procedure for each of the 3 districts to show how the
Coast Guard arrives at the new rates.

District One

A. Step 1: Recognize Previous Operating Expenses

    Step 1 in the ratemaking methodology requires that the Coast Guard
review and recognize the operating expenses for the last full year for
which figures are available (Sec.  404.101). To do so, the Coast Guard
begins by reviewing the independent accountant's financial reports for
each association's 2020 expenses and revenues.\16\ For accounting
purposes, the financial reports divide expenses into designated and
undesignated areas. For costs accrued by the pilot associations
generally, such as employee benefits, for example, the cost is divided
between the designated and undesignated areas on a pro rata basis.
---------------------------------------------------------------------------

    \16\ These reports are available in the docket for this
rulemaking.
---------------------------------------------------------------------------

    In the 2020 expenses used as the basis for this rulemaking,
districts used the term ``applicant'' to describe applicant

trainees and persons who will be called apprentices (applicant pilots),
under the definition of ``apprentice pilot'', which was introduced in
the 2022 final rule. Therefore, when describing past expenses, the term
``applicant'' is used to match what was reported from 2020, which
includes both applicant and apprentice pilots. The term ``apprentice''
is used to distinguish apprentice pilot wages and describe the impacts
of the ratemaking going forward.
    The Coast Guard will continue to include apprentice salaries as an
allowable expense in the 2023 ratemaking, as it is based on 2020
operating expenses, when salaries were still an allowable expense. The
apprentice salaries paid in the years 2020 and 2021 have not been
reimbursed in the ratemaking as of publication of this rule. Applicant
salaries (including applicant trainees and apprentice pilots) will
continue to be an allowable operating expense through the 2024
ratemaking, which uses operating expenses from 2021, when the wages for
apprentice pilots were still authorized as operating expenses.
    Beginning with the 2025 ratemaking, apprentice pilot salaries will
no longer be included as a 2022 operating expense, because apprentice
pilot wages will have already been factored into the ratemaking Steps 3
and 4 in calculation of the 2022 rates. Beginning in 2025, the
applicant salaries' operating expenses for 2022 will consist of only
applicant trainees (those who are not yet apprentice pilots). The
recognized operating expenses for District One are shown in table 5.

                               Table 5--2020 Recognized Expenses for District One
----------------------------------------------------------------------------------------------------------------
                                                                                District One
                                                                 -----------------------------------------------
                                                                    Designated     Undesignated
              Reported operating expenses for 2020               --------------------------------
                                                                   St. Lawrence                        Total
                                                                       River       Lake Ontario
----------------------------------------------------------------------------------------------------------------
Applicant Pilot Compensation:
    Salaries....................................................        $257,250        $171,500        $428,750
    Employee Benefits...........................................          13,633           9,089          22,722
    Applicant Subsistence/Travel................................          14,901           9,934          24,835
    Applicant License Insurance.................................           1,771           1,181           2,952
    Applicant Payroll Tax.......................................          20,823          13,882          34,705
                                                                 -----------------------------------------------
        Total Applicant Pilot Compensation......................         308,378         205,586         513,964
Other Pilot Cost:
    Subsistence/Travel- Pilot...................................         575,475         383,650         959,125
    Hotel/Lodging Cost..........................................          32,802          21,868          54,671
    License Insurance-Pilots....................................          45,859          30,573          76,432
    Payroll Taxes-Pilots........................................         188,318         125,546         313,864
    Other.......................................................          26,433          17,621          44,054
                                                                 -----------------------------------------------
        Total other pilotage costs..............................         868,887         579,258       1,448,145
Pilot Boat and Dispatch Costs:
    Pilot Boat Expense (Operating)..............................         325,904         217,269         543,173
    Pilot Boat Cost (D1-20-01)..................................         104,658          69,772         174,430
    Dispatch Expense............................................         139,916          93,277         233,193
    Payroll Taxes...............................................          22,930          15,287          38,217
                                                                 -----------------------------------------------
        Total Pilot and Dispatch Costs..........................         593,408         395,605         989,013
Administrative Expenses:
    Legal-General Counsel.......................................           3,124           2,083           5,207
    Legal-Shared Counsel (K&L Gates)............................          62,906          41,937         104,843
    Legal-USCG Litigation.......................................           8,793           5,862          14,655
    Insurance...................................................          35,040          23,360          58,400
    Employee Benefits...........................................           5,541           3,694           9,235
    Payroll Taxes...............................................           6,511           4,341          10,852
    Other Taxes.................................................          69,000          46,000         115,000
    Real Estate Taxes...........................................          23,298          15,532          38,830
    Travel......................................................          21,516          14,344          35,860
    Depreciation................................................         152,071         101,381         253,452
    Certified Public Accountant (CPA) Deduction (D1-19-01)......        (44,623)        (29,748)        (74,371)
    Interest....................................................          36,924          24,616          61,540
    CPA Deduction (D1-19-01)....................................        (18,710)        (12,473)        (31,183)
    American Pilots' Association (APA) Dues.....................          27,172          18,115          45,287
    Dues and Subscriptions......................................           4,080           2,720           6,800
    Utilities...................................................          15,618          10,412          26,030
    Salaries....................................................          69,848          46,565         116,413
    Accounting/Professional Fees................................           8,220           5,480          13,700
    Other.......................................................          55,213          36,809          92,022
Applicant Administrative Expense
    Pilot Training..............................................          26,787          17,858          44,645
    Supplies....................................................             481             320             801
                                                                 -----------------------------------------------
        Total Administrative Expenses...........................         568,810         379,208         948,018
----------------------------------------------------------------------------------------------------------------
Total Expenses (OpEx + Applicant + Pilot Boats + Admin +               2,339,483       1,559,657       3,899,140
 Capital).......................................................

    Director's Adjustments--Applicant Surcharge Collected.......        (10,814)         (7,209)        (18,024)
                                                                 -----------------------------------------------
    Director's Adjustments--Applicant Salaries..................        (19,379)        (12,919)        (32,298)
                                                                 -----------------------------------------------
        Total Director's Adjustments............................        (30,193)        (20,129)        (50,322)
            Total Operating Expenses (OpEx + Adjustments).......       2,309,290       1,539,528       3,848,818
----------------------------------------------------------------------------------------------------------------

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

    In accordance with the text in Sec.  404.102, having identified the
recognized 2020 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
calculates inflation using the BLS data from the CPI for the Midwest
Region of the United States for the 2021 inflation rate.\17\ Because
the BLS does not provide forecasted inflation data, the Coast Guard
uses economic projections from the Federal Reserve for the 2022 and
2023 inflation modification.\18\ Based on that information, the
calculations for Step 2 are as presented in table 6.
---------------------------------------------------------------------------

    \17\ The 2021 inflation rate is available at https://data.bls.gov/pdq/SurveyOutputServlet?data_tool=dropmap&series_id=CUUR0200SA0,CUUS0200SA0. Specifically, the CPI is defined as ``All Urban Consumers (CPI-
U), All Items, 1982-4=100.'' Series CUUS0200SAO. (Downloaded
September 2022.)
    \18\ The 2022 and 2023 inflation rates are available at https://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20220921.pdf. We used the Core PCE Inflation June
Projection found in table 2. (Downloaded September 2022.)

                              Table 6--Adjusted Operating Expenses for District One
----------------------------------------------------------------------------------------------------------------
                                                                                District One
                                                                 -----------------------------------------------
                                                                    Designated     Undesignated        Total
----------------------------------------------------------------------------------------------------------------
Total Operating Expenses (Step 1)...............................      $2,309,290      $1,539,528      $3,848,818
2021 Inflation Modification (@5.1%).............................         117,774          78,516         196,290
2022 Inflation Modification (@4.3%).............................         104,364          69,576         173,940
2023 Inflation Modification (@2.7%).............................          68,349          45,566         113,915
                                                                 -----------------------------------------------
    Adjusted 2023 Operating Expenses............................       2,599,777       1,733,186       4,332,963
----------------------------------------------------------------------------------------------------------------

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

    In accordance with the text in Sec.  404.103, the Coast Guard
estimates the number of fully registered pilots in each district. The
Coast Guard determines the number of fully registered pilots based on
data provided by the SLSPA. Using these numbers, the Coast Guard
estimates that there will be 18 registered pilots in 2023 in District
One. The Coast Guard determines the number of apprentice pilots based
on input from the district on anticipated retirements and staffing
needs. Using these numbers, the Coast Guard estimates that there will
be two apprentice pilots in 2023 in District One. Based on the seasonal
staffing model discussed in the 2017 ratemaking (see 82 FR 41466
(August 31, 2017)), a certain number of pilots are assigned to
designated waters and a certain number to undesignated waters, as shown
in table 7. These numbers are used to determine the amount of revenue
needed in their respective areas.

               Table 7--Authorized Pilots for District One
------------------------------------------------------------------------
                          Item                             District One
------------------------------------------------------------------------
Maximum Number of Pilots (per Sec.   401.220(a)) *......              18
2023 Authorized Pilots (total)..........................              18
Pilots Assigned to Designated Areas.....................              10
Pilots Assigned to Undesignated Areas...................               8
2023 Apprentice Pilots..................................               2
------------------------------------------------------------------------
* For a detailed calculation, refer to the Great Lakes Pilotage Rates--
  2017 Annual Review final rule, which contains the staffing model. See
  82 FR 41466, table 6 at 41480 (August 31, 2017).

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

    In this step, the Coast Guard determines the total pilot
compensation for each area. Because a full ratemaking is being issued
this year, the Coast Guard follows the procedure outlined in paragraph
(a) of Sec.  404.104, which requires developing a benchmark after
considering the most relevant currently available non-proprietary
information. In accordance with the discussion in section VI.
``Individual Target Pilot Compensation Benchmark'' of this preamble,
the compensation benchmark for 2023 uses the 2022 compensation of
$399,266 per registered pilot as a base, then adjusts for inflation
following the procedure outlined in paragraph (a) of Sec.  404.104. The
target pilot compensation for 2023 is $424,398 per pilot. The
apprentice pilot wage benchmark is 36 percent of the target pilot
compensation, or $152,783 ($424,398 x 0.36).
    Next, the Coast Guard certifies that the number of pilots estimated
for 2023 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 18 pilots for District One, which is
less than or equal to 18, the number of registered pilots provided by
the pilot association. In accordance with Sec.  404.104(c), the Coast
Guard uses the revised target individual compensation level to derive
the total pilot compensation by multiplying the individual target
compensation by the estimated number of registered pilots for District
One, as shown in table 8. The Coast Guard estimates that the number of
apprentice pilots with limited registration needed will be two for
District One in the 2023 season. The total target wages for apprentices
are allocated at 60 percent for the designated area and 40 percent for
the undesignated area, in accordance with the allocation for operating
expenses.

                                  Table 8--Target Compensation for District One
----------------------------------------------------------------------------------------------------------------
                                                                                District One
                                                                 -----------------------------------------------
                                                                    Designated     Undesignated        Total
----------------------------------------------------------------------------------------------------------------
Target Pilot Compensation.......................................        $424,398        $424,398        $424,398
Number of Pilots................................................              10               8              18
                                                                 -----------------------------------------------
    Total Target Pilot Compensation.............................      $4,243,980      $3,395,184      $7,639,164
Target Apprentice Pilot Compensation............................        $152,783        $152,783        $152,783
Number of Apprentice Pilots.....................................  ..............  ..............               2
                                                                 -----------------------------------------------
    Total Target Apprentice Pilot Compensation..................        $183,340        $122,227        $305,567
----------------------------------------------------------------------------------------------------------------

E. Step 5: Project Working Capital Fund

    Next, the Coast Guard calculates the working capital fund revenues
needed for each area by first adding the figures for projected
operating expenses, total pilot compensation, and total target
apprentice pilot wage for each area and then finding the preceding
year's average annual rate of return for new issues of high-grade
corporate securities. Using Moody's data, the number is 2.7033
percent.\19\ By multiplying the two figures, the Coast Guard obtains
the working capital fund contribution for each area, as shown in table
9.
---------------------------------------------------------------------------

    \19\ Moody's Seasoned Aaa Corporate Bond Yield, average of 2021
monthly data. The Coast Guard uses the most recent year of complete
data. Moody's is taken from Moody's Investors Service, which is a
bond credit rating business of Moody's Corporation. Bond ratings are
based on creditworthiness and risk. The rating of ``Aaa'' is the
highest bond rating assigned with the lowest credit risk. See
https://fred.stlouisfed.org/series/AAA. (Downloaded March 4, 2022.)

                           Table 9--Working Capital Fund Calculation for District One
----------------------------------------------------------------------------------------------------------------
                                                                                District One
                                                                 -----------------------------------------------
                                                                    Designated     Undesignated        Total
----------------------------------------------------------------------------------------------------------------
Adjusted Operating Expenses (Step 2)............................      $2,599,777      $1,733,186      $4,332,963
Total Target Pilot Compensation (Step 4)........................       4,243,980       3,395,184       7,639,164
Total Target Apprentice Pilot Compensation (Step 4).............         183,340         122,227         305,567
                                                                 -----------------------------------------------
    Total 2023 Expenses.........................................       7,027,097       5,250,597      12,277,694
----------------------------------------------------------------------------------------------------------------
Working Capital Fund (2.7%).....................................         189,966         141,941         331,907
----------------------------------------------------------------------------------------------------------------

F. Step 6: Project Needed Revenue

    In this step, the Coast Guards adds all the expenses accrued to
derive the total revenue needed for each area. These expenses include
the projected operating expenses (from Step 2), the total pilot
compensation (from Step 4), total target apprentice pilot wage, (from
Step 4) and the working capital fund contribution (from Step 5). These
calculations are shown in table 10.

                                    Table 10--Revenue Needed for District One
----------------------------------------------------------------------------------------------------------------
                                                                                District One
                                                                 -----------------------------------------------
                                                                    Designated     Undesignated        Total
----------------------------------------------------------------------------------------------------------------
Adjusted Operating Expenses (Step 2)............................      $2,599,777      $1,733,186      $4,332,963

Total Target Pilot Compensation (Step 4)........................       4,243,980       3,395,184       7,639,164
Total Target Apprentice Pilot Compensation (Step 4).............         183,340         122,227         305,567
Working Capital Fund (Step 5)...................................         189,966         141,941         331,907
                                                                 -----------------------------------------------
    Total Revenue Needed........................................       7,217,063       5,392,538      12,609,601
----------------------------------------------------------------------------------------------------------------

G. Step 7: Calculate Initial Base Rates

    Having determined the revenue needed for each area in the previous
six steps, to develop an hourly rate, the Coast Guard divides that
number by the expected number of hours of traffic.
    Step 7 is a two-part process. The first part is calculating the 10-
year average of traffic in District One, using the total time on task
or pilot bridge hours. To calculate the time on task for each district,
the Coast Guard uses billing data from the GLPMS. The data is pulled
from the system filtering by district, year, job status (including only
closed jobs), and flagging code (including only U.S. jobs). Because
separate figures are calculated for designated and undesignated waters,
there are two parts for each calculation, as shown in table 11.

                 Table 11--Time on Task for District One
                                 [Hours]
------------------------------------------------------------------------
                                                     District One
                    Year                    ----------------------------
                                              Designated   Undesignated
------------------------------------------------------------------------
2021.......................................        6,188           7,871
2020.......................................        6,265           7,560
2019.......................................        8,232           8,405
2018.......................................        6,943           8,445
2017.......................................        7,605           8,679
2016.......................................        5,434           6,217
2015.......................................        5,743           6,667
2014.......................................        6,810           6,853
2013.......................................        5,864           5,529
2012.......................................        4,771           5,121
                                            ----------------------------
  Average..................................        6,386           7,135
------------------------------------------------------------------------

    Next, the Coast Guard derives the initial hourly rate by dividing
the revenue needed by the average number of hours for each area. This
produces an initial rate, which is necessary to produce the revenue
needed for each area, assuming the amount of traffic is as expected.
The calculations for District One are presented in table 12.

          Table 12--Initial Rate Calculations for District One
------------------------------------------------------------------------
                                            Designated     Undesignated
------------------------------------------------------------------------
Revenue needed (Step 6).................      $7,217,063      $5,392,538
Average time on task (hours)............           6,386           7,135
Initial rate............................           1,130             756
------------------------------------------------------------------------

H. Step 8: Calculate Average Weighting Factors by Area

    In this step, the Coast Guard calculates the average weighting
factor for each designated and undesignated area by first collecting
the weighting factors, set forth in 46 CFR 401.400, for each vessel
trip. Using this database, the average weighting factor for each area
is calculated, using the data from each vessel transit from 2014
onward, as shown in tables 13 and 14.

                      Table 13--Average Weighting Factor for District One, Designated Areas
----------------------------------------------------------------------------------------------------------------
                                                                     Number of       Weighting       Weighted
                        Vessel class/year                            transits         factor         transits
----------------------------------------------------------------------------------------------------------------
Class 1 (2014)..................................................              31               1              31
Class 1 (2015)..................................................              41               1              41
Class 1 (2016)..................................................              31               1              31
Class 1 (2017)..................................................              28               1              28
Class 1 (2018)..................................................              54               1              54
Class 1 (2019)..................................................              72               1              72
Class 1 (2020)..................................................               8               1               8
Class 1 (2021)..................................................              10               1              10
Class 2 (2014)..................................................             285            1.15             328
Class 2 (2015)..................................................             295            1.15             339
Class 2 (2016)..................................................             185            1.15             213
Class 2 (2017)..................................................             352            1.15             405
Class 2 (2018)..................................................             559            1.15             643
Class 2 (2019)..................................................             378            1.15             435
Class 2 (2020)..................................................             560            1.15             644
Class 2 (2021)..................................................             315            1.15             362
Class 3 (2014)..................................................              50             1.3              65
Class 3 (2015)..................................................              28             1.3              36

Class 3 (2016)..................................................              50             1.3              65
Class 3 (2017)..................................................              67             1.3              87
Class 3 (2018)..................................................              86             1.3             112
Class 3 (2019)..................................................             122             1.3             159
Class 3 (2020)..................................................              67             1.3              87
Class 3 (2021)..................................................              52             1.3              68
Class 4 (2014)..................................................             271            1.45             393
Class 4 (2015)..................................................             251            1.45             364
Class 4 (2016)..................................................             214            1.45             310
Class 4 (2017)..................................................             285            1.45             413
Class 4 (2018)..................................................             393            1.45             570
Class 4 (2019)..................................................             730            1.45            1059
Class 4 (2020)..................................................             427            1.45             619
Class 4 (2021)..................................................             407            1.45             590
                                                                 -----------------------------------------------
    Total.......................................................           6,704  ..............           8,640
                                                                 -----------------------------------------------
Average weighting factor (weighted transits / number of           ..............            1.29  ..............
 transits)......................................................
----------------------------------------------------------------------------------------------------------------

                     Table 14--Average Weighting Factor for District One, Undesignated Areas
----------------------------------------------------------------------------------------------------------------
                                                                     Number of       Weighting       Weighted
                        Vessel class/year                            transits         factor         transits
----------------------------------------------------------------------------------------------------------------
Class 1 (2014)..................................................              25               1              25
Class 1 (2015)..................................................              28               1              28
Class 1 (2016)..................................................              18               1              18
Class 1 (2017)..................................................              19               1              19
Class 1 (2018)..................................................              22               1              22
Class 1 (2019)..................................................              30               1              30
Class 1 (2020)..................................................               3               1               3
Class 1 (2021)..................................................              19               1              19
Class 2 (2014)..................................................             238            1.15             274
Class 2 (2015)..................................................             263            1.15             302
Class 2 (2016)..................................................             169            1.15             194
Class 2 (2017)..................................................             290            1.15             334
Class 2 (2018)..................................................             352            1.15             405
Class 2 (2019)..................................................             366            1.15             421
Class 2 (2020)..................................................             358            1.15             412
Class 2 (2021)..................................................             463            1.15             532
Class 3 (2014)..................................................              60             1.3              78
Class 3 (2015)..................................................              42             1.3              55
Class 3 (2016)..................................................              28             1.3              36
Class 3 (2017)..................................................              45             1.3              59
Class 3 (2018)..................................................              63             1.3              82
Class 3 (2019)..................................................              58             1.3              75
Class 3 (2020)..................................................              35             1.3              46
Class 3 (2021)..................................................              71             1.3              92
Class 4 (2014)..................................................             289            1.45             419
Class 4 (2015)..................................................             269            1.45             390
Class 4 (2016)..................................................             222            1.45             322
Class 4 (2017)..................................................             285            1.45             413
Class 4 (2018)..................................................             382            1.45             554
Class 4 (2019)..................................................             326            1.45             473
Class 4 (2020)..................................................             334            1.45             484
Class 4 (2021)..................................................             466            1.45             676
                                                                 -----------------------------------------------
    Total.......................................................           5,638  ..............           7,291
----------------------------------------------------------------------------------------------------------------
Average weighting factor (weighted transits / number of           ..............  ..............            1.29
 transits)......................................................
----------------------------------------------------------------------------------------------------------------

I. Step 9: Calculate Revised Base Rates

    In this step, the Coast Guard revises the base rates so that the
total cost of pilotage is equal to the revenue needed after considering
the impact of the weighting factors. To do this, the initial base rates
calculated in Step 7 are divided by the average weighting factors
calculated in Step 8, as shown in table 15.

                                  Table 15--Revised Base Rates for District One
----------------------------------------------------------------------------------------------------------------
                                                                                Revised rate
                                                                                Average      (initial rate
                              Area                                 Initial rate      weighting       average /
                                                                     (Step 7)      factor  (Step     weighting
                                                                                8)            factor)
----------------------------------------------------------------------------------------------------------------
District One: Designated........................................          $1,130            1.29            $876
District One: Undesignated......................................             756            1.29             586
----------------------------------------------------------------------------------------------------------------

J. Step 10: Review and Finalize Rates

    In this step, the Director reviews the rates set forth by the
staffing model and ensures that they meet the goal of ensuring safe,
efficient, and reliable pilotage. To establish this, the Director
considers whether the rates incorporate appropriate compensation for
pilots to handle heavy traffic periods and whether there is a
sufficient number of pilots to handle those heavy traffic periods. The
Director also considers whether the rates will cover operating expenses
and infrastructure costs, including average traffic and weighting
factions. Based on the financial information submitted by the pilots,
the Director is not issuing any alterations to the rates in this step.
By means of this rule, Sec.  401.405(a)(1) and (2) are modified to
reflect the final rates shown in table 16.

                                     Table 16--Final Rates for District One
----------------------------------------------------------------------------------------------------------------
                                                                                Final 2022      Final 2023
                     Area                                     Name                 pilotage rate   pilotage rate
----------------------------------------------------------------------------------------------------------------
District One: Designated......................  St. Lawrence River..............            $834            $876
District One: Undesignated....................  Lake Ontario....................             568             586
----------------------------------------------------------------------------------------------------------------

District Two

A. Step 1: Recognize Previous Operating Expenses

    Step 1 in the ratemaking methodology requires that the Coast Guard
review and recognize the operating expenses of the last full year for
which figures are available (Sec.  404.101). To do so, the Coast Guard
begins by reviewing the independent accountant's financial reports for
each association's 2020 expenses and revenues.\20\ For accounting
purposes, the financial reports divide expenses into designated and
undesignated areas. For costs accrued by the pilot associations
generally, such as employee benefits, for example, the cost is divided
between the designated and undesignated areas on a pro rata basis.
---------------------------------------------------------------------------

    \20\ These reports are available in the docket for this
rulemaking.
---------------------------------------------------------------------------

    In the 2020 expenses used as the basis for this rulemaking,
districts used the term ``applicant'' to describe applicant trainees
and persons who will be called apprentices (applicant pilots), under
the definition introduced by the 2022 final rule. Therefore, when
describing past expenses, the term ``applicant'' is used to match what
was reported from 2020, which includes both applicant and apprentice
pilots. The term ``apprentice'' is used to distinguish apprentice pilot
wages and describe the impacts of the ratemaking going forward.
    The Coast Guard continues to include apprentice salaries as an
allowable expense in the 2023 ratemaking, as it is based on 2020
operating expenses, when salaries were still an allowable expense. The
apprentice salaries paid in the years 2020 and 2021 have not been
reimbursed in the ratemaking as of publication of this rule. Applicant
salaries (including applicant trainees and apprentice pilots) will
continue to be an allowable operating expense through the 2024
ratemaking, which uses operating expenses from 2021, where the wages
for apprentice pilots were still authorized as operating expenses.
    Beginning with the 2025 ratemaking, apprentice pilot salaries will
no longer be included as a 2022 operating expense, because apprentice
pilot wages will have already been factored into the ratemaking Steps 3
and 4 in calculation of the 2022 rates. Beginning in 2025, the
applicant salaries' operating expenses for 2022 will consist of only
applicant trainees (those who are not yet apprentice pilots). The
recognized operating expenses for District Two are shown in table 17.

                               Table 17--2020 Recognized Expenses for District Two
----------------------------------------------------------------------------------------------------------------
                                                                                District Two
                                                                 -----------------------------------------------
                                                                   Undesignated     Designated
              Reported operating expenses for 2020               --------------------------------
                                                                                Southeast         Total
                                                                     Lake Erie     Shoal to Port
                                                                                Huron
----------------------------------------------------------------------------------------------------------------
Applicant Salaries..............................................        $101,810        $152,715        $254,525
Applicant Health Insurance......................................          12,706          19,058          31,764
Applicant Subsistence/Travel....................................           6,732          10,098          16,830
Applicant Hotel/Lodging Cost....................................           3,652           5,478           9,130

Applicant Payroll Tax...........................................           4,888           7,332          12,220
                                                                 -----------------------------------------------
    Total Applicant Cost........................................         129,788         194,681         324,469
Pilot Subsistence/Travel........................................         124,953         187,427         312,380
Hotel/Lodging Cost..............................................          40,744          61,116         101,860
License Renewal.................................................           1,606           2,409           4,015
Payroll Taxes...................................................          94,996         142,495         237,491
Insurance.......................................................           8,666          12,999          21,665
                                                                 -----------------------------------------------
    Total Other Pilotage Costs..................................         270,965         406,446         677,411
Pilot Boat and Dispatch Costs:
    Pilot Boat Cost.............................................         218,840         328,261         547,101
    Employee Benefits...........................................          92,554         138,831         231,385
    Payroll taxes...............................................          13,565          20,347          33,912
                                                                 -----------------------------------------------
        Total Pilot Boat and Dispatch Costs.....................         324,959         487,439         812,398
Administrative Expense:
    Legal--General Counsel......................................           4,016           6,024          10,040
    Legal--Shared Counsel (K&L Gates)...........................           9,898          14,846          24,744
    Legal--Shared Counsel (K&L Gates) (D2-20-01)................           3,233           4,850           8,083
    Office Rent.................................................          27,627          41,440          69,067
    Insurance...................................................          12,357          18,536          30,893
    Employee Benefits...........................................         157,650         236,476         394,126
    Payroll Taxes...............................................           5,007           7,510          12,517
    Other Taxes.................................................          43,400          65,100         108,500
    Real Estate Taxes...........................................           8,285          12,427          20,712
    Depreciation/Auto Lease/Other...............................           7,783          11,674          19,457
    Interest....................................................             114             171             285
    APA Dues....................................................          14,683          22,025          36,708
    Dues and Subscriptions......................................             819           1,229           2,048
    Utilities...................................................          18,453          27,679          46,132
    Salaries--Admin Employees...................................          50,250          75,374         125,624
    Accounting..................................................          14,360          21,540          35,900
    Pilot Training..............................................             146             219             365
    Other.......................................................          24,604          36,906          61,510
                                                                 -----------------------------------------------
        Total Administrative Expenses...........................         402,685         604,026       1,006,711
----------------------------------------------------------------------------------------------------------------
Total OpEx (Pilot Costs + Applicant Cost + Pilot Boats + Admin).       1,128,397       1,692,592       2,820,989
                                                                 ===============================================
    TOTAL DIRECTOR'S ADJUSTMENTS................................  ..............  ..............  ..............
                                                                 -----------------------------------------------
        Total Operating Expenses (OpEx + Adjustments)...........       1,128,397       1,692,592       2,820,989
----------------------------------------------------------------------------------------------------------------

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

    In accordance with the text in Sec.  404.102, having identified the
recognized 2020 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
calculates inflation using the BLS data from the CPI for the Midwest
Region of the United States for the 2021 inflation rate.\21\ Because
the BLS does not provide forecasted inflation data, economic
projections are used from the Federal Reserve for the 2022 and 2023
inflation modification.\22\ Based on that information, the calculations
for Step 2 are as presented in table 18.
---------------------------------------------------------------------------

    \21\ The 2021 inflation rate is available at https://data.bls.gov/pdq/SurveyOutputServlet?data_tool=dropmap&series_id=CUUR0200SA0,CUUS0200SA0. Specifically, the CPI is defined as ``All Urban Consumers (CPI-
U), All Items, 1982-4=100.'' Series CUUS0200SAO. (Downloaded
September 2022.)
    \22\ The 2022 and 2023 inflation rates are available at https://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20220921.pdf. We used the Core PCE Inflation June
Projection found in table 1. (Downloaded September 2022.)

                             Table 18--Adjusted Operating Expenses for District Two
----------------------------------------------------------------------------------------------------------------
                                                                                District Two
                                                                 -----------------------------------------------
                                                                   Undesignated     Designated         Total
----------------------------------------------------------------------------------------------------------------
Total Operating Expenses (Step 1)...............................      $1,128,397      $1,692,592      $2,820,989
2021 Inflation Modification (@5.1%).............................          57,548          86,322         143,870
2022 Inflation Modification (@4.3%).............................          50,996          76,493         127,489
2023 Inflation Modification (@2.7%).............................          33,397          50,096          83,493
                                                                 -----------------------------------------------
    Adjusted 2023 Operating Expenses............................       1,270,338       1,905,503       3,175,841
----------------------------------------------------------------------------------------------------------------

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

    In accordance with the text in Sec.  404.103, the Coast Guard
estimates the number of fully registered pilots in each district. The
Coast Guard determines the number of fully registered pilots based on
data provided by the LPA. Using these numbers, the Coast Guard
estimates that there will be 16 registered pilots in 2023 in District
Two. The Coast Guard determines the number of apprentice pilots based
on input from the district on anticipated retirements and staffing
needs. Using these numbers, the Coast Guard estimates that there will
be one apprentice pilot in 2023 in District Two. Based on the seasonal
staffing model discussed in the 2017 ratemaking (see 82 FR 41466), a
certain number of pilots are assigned to designated waters and a
certain number to undesignated waters, as shown in table 19. These
numbers are used to determine the amount of revenue needed in their
respective areas.

              Table 19--Authorized Pilots for District Two
------------------------------------------------------------------------
                          Item                             District Two
------------------------------------------------------------------------
Maximum Number of Pilots (per Sec.   401.220(a)) *......              16
2023 Authorized Pilots (total)..........................              16
Pilots Assigned to Designated Areas.....................               6
Pilots Assigned to Undesignated Areas...................              10
2023 Apprentice Pilots..................................               1
------------------------------------------------------------------------
* For a detailed calculation, refer to the Great Lakes Pilotage Rates--
  2017 Annual Review final rule, which contains the staffing model. See
  82 FR 41466, table 6 at 41480 (August 31, 2017).

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

    In this step, the Coast Guard determines the total pilot
compensation for each area. Because a full ratemaking is being issued
this year, the Coast Guard follows the procedure outlined in paragraph
(a) of Sec.  404.104, which requires developing a benchmark after
considering the most relevant currently available non-proprietary
information. In accordance with the discussion in section V of this
preamble, the compensation benchmark for 2023 uses the 2022
compensation of $399,266 per registered pilot as a base, then adjusts
for inflation following the procedure outlined in paragraph (b) of
Sec.  404.104. The target pilot compensation for 2023 is $424,398 per
pilot. The apprentice pilot wage benchmark is 36 percent of the target
pilot compensation, or $152,783 ($424,398 x 0.36).
    Next, the Coast Guard certifies that the number of pilots estimated
for 2023 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 16 pilots for District Two, which is
less than or equal to 16, the number of registered pilots provided by
the pilot association. In accordance with Sec.  404.104(c), the Coast
Guard uses the revised target individual compensation level to derive
the total pilot compensation by multiplying the individual target
compensation by the estimated number of registered pilots for District
Two, as shown in table 20. The Coast Guard estimates that the number of
apprentice pilots with limited registration needed will be one for
District Two in the 2023 season. The total target wages for apprentices
are allocated at 60 percent for the designated area and 40 percent for
the undesignated area, in accordance with the allocation for operating
expenses.

                                 Table 20--Target Compensation for District Two
----------------------------------------------------------------------------------------------------------------
                                                                                District Two
                                                                 -----------------------------------------------
                                                                   Undesignated     Designated         Total
----------------------------------------------------------------------------------------------------------------
Target Pilot Compensation.......................................        $424,398        $424,398        $424,398
Number of Pilots................................................              10               6              16
                                                                 -----------------------------------------------
    Total Target Pilot Compensation.............................      $4,243,980      $2,546,388      $6,790,368
Target Apprentice Pilot Compensation............................        $152,783        $152,783        $152,783
Number of Apprentice Pilots.....................................  ..............  ..............               1
                                                                 -----------------------------------------------
    Total Target Apprentice Pilot Compensation..................      $61,113.39      $91,669.89        $152,783
----------------------------------------------------------------------------------------------------------------

E. Step 5: Project Working Capital Fund

    Next, the Coast Guard calculates the working capital fund revenues
needed for each area by first adding the figures for projected
operating expenses, total pilot compensation, and total target
apprentice pilot wage for each area and then finding the preceding
year's average annual rate of return for new issues of high-grade
corporate securities. Using Moody's data, the number is 2.7033
percent.\23\ By multiplying the two figures, the Coast Guard obtains
the working capital fund contribution for each area, as shown in table
21.
---------------------------------------------------------------------------

    \23\ Moody's Seasoned Aaa Corporate Bond Yield, average of 2021
monthly data. The Coast Guard uses the most recent year of complete
data. Moody's is taken from Moody's Investors Service, which is a
bond credit rating business of Moody's Corporation. Bond ratings are
based on creditworthiness and risk. The rating of ``Aaa'' is the
highest bond rating assigned with the lowest credit risk. See
https://fred.stlouisfed.org/series/AAA. (Downloaded March 4, 2022.)

                           Table 21--Working Capital Fund Calculation for District Two
----------------------------------------------------------------------------------------------------------------
                                                                                District Two
                                                                 -----------------------------------------------
                                                                   Undesignated     Designated         Total
----------------------------------------------------------------------------------------------------------------
Adjusted Operating Expenses (Step 2)............................      $1,270,338      $1,905,503      $3,175,841
Total Target Pilot Compensation (Step 4)........................       4,243,980       2,546,388       6,790,368
Total Target Apprentice Pilot Compensation (Step 4).............          61,113          91,670         152,783
                                                                 -----------------------------------------------
    Total 2023 Expenses.........................................       5,575,431       4,543,561      10,118,992
----------------------------------------------------------------------------------------------------------------
Working Capital Fund (2.7%).....................................         150,722         122,828         273,550
----------------------------------------------------------------------------------------------------------------

F. Step 6: Project Needed Revenue

    In this step, the Coast Guard adds all the expenses accrued to
derive the total revenue needed for each area. These expenses include
the projected operating expenses (from Step 2), the total pilot
compensation (from Step 4), total target apprentice pilot wage, (from
Step 4) and the working capital fund contribution (from Step 5). These
calculations are shown in table 22.

                                    Table 22--Revenue Needed for District Two
----------------------------------------------------------------------------------------------------------------
                                                                                District Two
                                                                 -----------------------------------------------
                                                                   Undesignated     Designated         Total
----------------------------------------------------------------------------------------------------------------
Adjusted Operating Expenses (Step 2)............................      $1,270,338      $1,905,503      $3,175,841
Total Target Pilot Compensation (Step 4)........................       4,243,980       2,546,388       6,790,368
Total Target Apprentice Pilot Compensation (Step 4).............          61,113          91,670         152,783
Working Capital Fund (Step 5)...................................         150,722         122,828         273,550
                                                                 -----------------------------------------------
    Total Revenue Needed........................................       5,726,153       4,666,389      10,392,542
----------------------------------------------------------------------------------------------------------------

G. Step 7: Calculate Initial Base Rates

    Having determined the revenue needed for each area in the previous
six steps, to develop an hourly rate, the Coast Guard divides that
number by the expected number of hours of traffic. Step 7 is a two-part
process. In the first part, the Coast Guard calculates the 10-year
average of traffic in District Two, using the total time on task or
pilot bridge hours. To calculate the time on task for each district,
the Coast Guard uses billing data from SeaPro, pulling the data from
the system filtering by district, year, job status (including only
processed jobs), and flagging code (including only U.S. jobs). Because
separate figures are calculated for designated and undesignated waters,
there are two parts for each calculation, as shown in table 23.

                 Table 23--Time on Task for District Two
                                 [Hours]
------------------------------------------------------------------------
                                                   District Two
                  Year                   -------------------------------
                                           Undesignated     Designated
------------------------------------------------------------------------
2021....................................           8,826           3,226
2020....................................           6,232           8,401
2019....................................           6,512           7,715
2018....................................           6,150           6,655
2017....................................           5,139           6,074
2016....................................           6,425           5,615
2015....................................           6,535           5,967
2014....................................           7,856           7,001
2013....................................           4,603           4,750
2012....................................           3,848           3,922
                                         -------------------------------
  Average...............................           6,213           5,933
------------------------------------------------------------------------

    Next, the Coast Guard derives the initial hourly rate by dividing
the revenue needed by the average number of hours for each area. This
produces an initial rate, which is necessary to produce the revenue
needed for each area, assuming the amount of traffic is as expected.
The calculations for District Two are presented in table 24.

          Table 24--Initial Rate Calculations for District Two
------------------------------------------------------------------------
                                           Undesignated     Designated
------------------------------------------------------------------------
Revenue needed (Step 6).................      $5,726,153      $4,666,389
Average time on task (hours)............           6,213           5,933
Initial rate............................            $922            $787
------------------------------------------------------------------------

H. Step 8: Calculate Average Weighting Factors by Area

    In this step, the Coast Guard calculate the average weighting
factor for each designated and undesignated area by first collecting
the weighting factors, set forth in 46 CFR 401.400, for each vessel
trip. Using this database, the Coast Guard calculates the average
weighting factor for each area using the data from each vessel transit
from 2014 onward, as shown in tables 25 and 26.

                     Table 25--Average Weighting Factor for District Two, Undesignated Areas
----------------------------------------------------------------------------------------------------------------
                                                                     Number of       Weighting       Weighted
                        Vessel class/year                            transits         factor         transits
----------------------------------------------------------------------------------------------------------------
Class 1 (2014)..................................................              31               1              31
Class 1 (2015)..................................................              35               1              35
Class 1 (2016)..................................................              32               1              32
Class 1 (2017)..................................................              21               1              21
Class 1 (2018)..................................................              37               1              37
Class 1 (2019)..................................................              54               1              54
Class 1 (2020)..................................................               1               1               1
Class 1 (2021)..................................................               7               1               7
Class 2 (2014)..................................................             356            1.15             409
Class 2 (2015)..................................................             354            1.15             407
Class 2 (2016)..................................................             380            1.15             437
Class 2 (2017)..................................................             222            1.15             255
Class 2 (2018)..................................................             123            1.15             141
Class 2 (2019)..................................................             127            1.15             146
Class 2 (2020)..................................................             165            1.15             190
Class 2 (2021)..................................................             206            1.15             237
Class 3 (2014)..................................................              20             1.3              26
Class 3 (2015)..................................................               0             1.3               0
Class 3 (2016)..................................................               9             1.3              12
Class 3 (2017)..................................................              12             1.3              16
Class 3 (2018)..................................................               3             1.3               4
Class 3 (2019)..................................................               1             1.3               1
Class 3 (2020)..................................................               1             1.3               1
Class 3 (2021)..................................................               5             1.3               7
Class 4 (2014)..................................................             636            1.45             922
Class 4 (2015)..................................................             560            1.45             812
Class 4 (2016)..................................................             468            1.45             679
Class 4 (2017)..................................................             319            1.45             463
Class 4 (2018)..................................................             196            1.45             284
Class 4 (2019)..................................................             210            1.45             305
Class 4 (2020)..................................................             201            1.45             291
Class 4 (2021)..................................................             227            1.45             329
                                                                 -----------------------------------------------
    Total.......................................................           5,019  ..............           6,592
----------------------------------------------------------------------------------------------------------------
Average weighting factor (weighted transits / number of           ..............            1.31  ..............
 transits)......................................................
----------------------------------------------------------------------------------------------------------------

                      Table 26--Average Weighting Factor for District Two, Designated Areas
----------------------------------------------------------------------------------------------------------------
                                                                     Number of       Weighting       Weighted
                        Vessel class/year                            transits         factor         transits
----------------------------------------------------------------------------------------------------------------
Class 1 (2014)..................................................              20               1              20
Class 1 (2015)..................................................              15               1              15
Class 1 (2016)..................................................              28               1              28
Class 1 (2017)..................................................              15               1              15
Class 1 (2018)..................................................              42               1              42
Class 1 (2019)..................................................              48               1              48
Class 1 (2020)..................................................               7               1               7
Class 1 (2021)..................................................              12               1              12
Class 2 (2014)..................................................             237            1.15             273

Class 2 (2015)..................................................             217            1.15             250
Class 2 (2016)..................................................             224            1.15             258
Class 2 (2017)..................................................             127            1.15             146
Class 2 (2018)..................................................             153            1.15             176
Class 2 (2019)..................................................             281            1.15             323
Class 2 (2020)..................................................             342            1.15             393
Class 2 (2021)..................................................             240            1.15             276
Class 3 (2014)..................................................               8             1.3              10
Class 3 (2015)..................................................               8             1.3              10
Class 3 (2016)..................................................               4             1.3               5
Class 3 (2017)..................................................               4             1.3               5
Class 3 (2018)..................................................              14             1.3              18
Class 3 (2019)..................................................               1             1.3               1
Class 3 (2020)..................................................               5             1.3               7
Class 3 (2021)..................................................               2             1.3               3
Class 4 (2014)..................................................             359            1.45             521
Class 4 (2015)..................................................             340            1.45             493
Class 4 (2016)..................................................             281            1.45             407
Class 4 (2017)..................................................             185            1.45             268
Class 4 (2018)..................................................             379            1.45             550
Class 4 (2019)..................................................             403            1.45             584
Class 4 (2020)..................................................             405            1.45             587
Class 4 (2021)..................................................             268            1.45             389
                                                                 -----------------------------------------------
    Total.......................................................           4,674  ..............           6,140
----------------------------------------------------------------------------------------------------------------
Average weighting factor (weighted transits / number of           ..............            1.31  ..............
 transits)......................................................
----------------------------------------------------------------------------------------------------------------

I. Step 9: Calculate Revised Base Rates

    In this step, the Coast Guard revises the base rates so that the
total cost of pilotage is equal to the revenue needed after considering
the impact of the weighting factors. To do this, the initial base rates
calculated in Step 7 are divided by the average weighting factors
calculated in Step 8, as shown in table 27.

                                  Table 27--Revised Base Rates for District Two
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                                                                                Revised rate
                                                                                Average     (initial rate/
                              Area                                 Initial rate      weighting        average
                                                                     (Step 7)      factor  (Step     weighting
                                                                                8)            factor)
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District Two: Undesignated......................................            $922            1.31            $704
District Two: Designated........................................             787            1.31             601
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J. Step 10: Review and Finalize Rates

    In this step, the Director reviews the rates set forth by the
staffing model and ensures that they meet the goal of ensuring safe,
efficient, and reliable pilotage. To establish this, the Director
considers whether the rates incorporate appropriate compensation for
pilots to handle heavy traffic periods, and whether there is a
sufficient number of pilots to handle those heavy traffic periods. The