[Federal Register Volume 83, Number 12 (Thursday, January 18, 2018)]
[Proposed Rules]
[Pages 2581-2607]
[FR Doc No: 2018-00781]

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DEPARTMENT OF HOMELAND SECURITY

Coast Guard

46 CFR Parts 401 and 404

[USCG-2017-0903]
RIN 1625-AC40

Great Lakes Pilotage Rates--2018 Annual Review and Revisions to
Methodology

AGENCY: Coast Guard, DHS.

ACTION: Notice of proposed rulemaking.

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SUMMARY: In accordance with the Great Lakes Pilotage Act of 1960, the
Coast Guard proposes new base pilotage rates and surcharges for the
2018 shipping season. Additionally, the Coast Guard is proposing
several changes to the Great Lakes pilotage ratemaking methodology.
These additional proposed changes include creating clear delineation
between the Coast Guard's annual rate adjustments and the Coast Guard's
requirement to conduct a full ratemaking every five years; the adoption
of a revised compensation benchmark; reorganization of the text
regarding the staffing model for calculating the number of pilots
needed; and certain editorial changes.

DATES: Comments and related material must be submitted to the online
docket via https://www.regulations.gov, or reach the Docket Management
Facility, on or before February 20, 2018.

ADDRESSES: You may submit comments identified by docket number USCG-
2017-0903 using the Federal eRulemaking Portal at https://www.regulations.gov. See the ``Public Participation and Request for
Comments'' portion of the SUPPLEMENTARY INFORMATION section of this
document for further instructions on submitting comments.

FOR FURTHER INFORMATION CONTACT: For information about this document,
call or

email Mr. Michael Moyers, Great Lakes Pilotage, Commandant (CG-WWM-2),
Coast Guard; telephone<PHONE_NUMBER>, email [email protected],
or fax<PHONE_NUMBER>.

SUPPLEMENTARY INFORMATION:

Table of Contents for Preamble

I. Public Participation and Request for Comments
II. Abbreviations
III. Executive Summary
IV. Basis and Purpose
V. Background
VI. Discussion of Proposed Methodological and Other Changes
    A. Codification of Compensation Inflation Adjustment
    B. Relocation of Staffing Model Regulations
    C. Additional Changes to Ratemaking Steps 3 and 4
    D. Delineation of Full Ratemakings and Annual Adjustments
    E. Other Miscellaneous Changes
VII. Revised Compensation Benchmark
VIII. Discussion of Proposed Rate Adjustments
    A. Step 1: Recognition of Operating Expenses
    B. Step 2: Projection of Operating Expenses
    C. Step 3: Estimate Number of Working Pilots
    D. Step 4: Determine Target Pilot Compensation
    E. Step 5: Calculate Working Capital Fund
    F. Step 6: Calculate Revenue Needed
    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
    K. Surcharges
IX. Regulatory Analyses
    A. Regulatory Planning and Review
    B. Small Entities
    C. Assistance for Small Entities
    D. Collection of Information
    E. Federalism
    F. Unfunded Mandates Reform Act
    G. Taking of Private Property
    H. Civil Justice Reform
    I. Protection of Children
    J. Indian Tribal Governments
    K. Energy Effects
    L. Technical Standards
    M. Environment

I. Public Participation and Request for Comments

    We view public participation as essential to effective rulemaking,
and will consider all comments and material received during the comment
period. Your comment can help shape the outcome of this rulemaking. If
you submit a comment, please include the docket number for this
rulemaking, indicate the specific section of this document to which
each comment applies, and provide a reason for each suggestion or
recommendation.
    We encourage you to submit comments through the Federal eRulemaking
Portal at https://www.regulations.gov. If your material cannot be
submitted using https://www.regulations.gov, contact the person in the
FOR FURTHER INFORMATION CONTACT section of this proposed rule for
alternate instructions. Documents mentioned in this proposed rule, and
all public comments, are available in our online docket at https://www.regulations.gov, and can be viewed by following that website's
instructions. Additionally, if you go to the online docket and sign up
for email alerts, you will be notified when comments are posted or a
final rule is published.
    We accept anonymous comments. All comments received will be posted
without change to https://www.regulations.gov and will include any
personal information you have provided. For more about privacy and the
docket, visit https://www.regulations.gov/privacyNotice.
    We are not planning to hold a public meeting but will consider
doing so if public comments indicate a meeting would be helpful. We
would issue a separate Federal Register notice to announce the date,
time, and location of such a meeting.

II. Abbreviations

APA American Pilots Association
AMOU American Maritime Officers Union
CATEX Unique Categorical Exclusions for the U.S. Coast Guard
CFR Code of Federal Regulations
CPA Certified public accountant
DHS Department of Homeland Security
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
NAICS North American Industry Classification System
NPRM Notice of proposed rulemaking
OMB Office of Management and Budget
PCE Personal Consumption Expenditures
RA Regulatory analysis
SBA Small Business Administration
Sec.  Section symbol
The Act Great Lakes Pilotage Act of 1960
U.S.C. United States Code

III. Executive Summary

    Pursuant to the Great Lakes Pilotage Act of 1960 (``the Act''),\1\
the Coast Guard regulates pilotage for oceangoing vessels on the Great
Lakes--including setting the rates for pilotage services and adjusting
them on an annual basis. The rates, which currently range from $218 to
$601 per pilot hour (depending on the specific area where pilotage
service is provided), are paid by shippers to pilot associations. The
three pilot associations, which are the exclusive source of registered
pilots on the Great Lakes, use this revenue to cover operating
expenses, maintain infrastructure, compensate working pilots, and train
new pilots. We have developed a ratemaking methodology in accordance
with our statutory requirements and regulations. Our ratemaking
methodology calculates the revenue needed for each pilotage association
(including operating expenses, compensation, and infrastructure needs),
and then divides that amount by the expected shipping traffic over the
course of the year to produce an hourly rate. This process is currently
effected through a 10-step methodology and supplemented with
surcharges, which are explained in detail in this notice of proposed
rulemaking (NPRM).
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    \1\ 46 U.S.C. Chapter 93; Public Law 86-555, 74 Stat. 259, as
amended.
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    In this NPRM, we are proposing to make modifications to the
ratemaking methodology and proposing new pilotage rates for 2018 based
on the new proposed methodology. The proposed modifications to the
ratemaking methodology consist of a new compensation benchmark,
organizational changes, and clarifications. We are proposing a new
compensation benchmark to comply with a recent court decision holding
that the Coast Guard had not adequately justified the previous
benchmark, established in the 2016 rulemaking, which set compensation
at the level of Canadian wages plus ten percent.\2\ From an
organizational standpoint, we propose to move the discussion of the
staffing model from its current location in title 46 of the Code of
Federal Regulation (CFR) 404.103 (as part of ``Step 3'' of the
ratemaking process), to the general regulations governing pilotage in
46 CFR 401.220(a). For clarification purposes, we are proposing to set
forth separate regulatory paragraphs detailing the differences between
how we undertake an annual adjustment of the pilotage rates, and a full
reassessment of the rates, which must be undertaken once every 5 years.
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    \2\ We have included the court's opinion in the docket at USCG-
2017-0903.
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    As part of our annual review, we are proposing in this NPRM new
rates for the 2018 shipping season. Based on the ratemaking model
discussed in this NPRM, we are proposing the rates shown in Table 1.

     Table 1--Current and Proposed Pilotage Rates on the Great Lakes
------------------------------------------------------------------------
                                           2017 pilotage   Proposed 2018
                  Area                         rate        pilotage rate
------------------------------------------------------------------------
St. Lawrence River......................            $601            $622
Lake Ontario............................             408             424
Navigable waters from Southeast Shoal to             580             553
 Port Huron, MI.........................
Lake Erie...............................             429             454
St. Mary's River........................             514             517
Lakes Huron, Michigan, and Superior.....             218             253
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    This proposed rule is not economically significant under E.O.
12866. This proposed rule would impact 49 U.S. Great Lakes pilots, 3
pilot associations, and the owners and operators of an average of 215
oceangoing vessels that transit the Great Lakes annually. The estimated
overall annual regulatory economic impact of this rate change is a net
increase of $1,162,401 in payments made by shippers from the 2017
shipping season. Because we must review, and, if necessary, adjust
rates each year, we analyze these as single year costs and do not
annualize them over 10 years. This rule does not affect the Coast
Guard's budget or increase Federal spending. Section IX of this
preamble discusses the regulatory impact analyses of this proposed
rule.

IV. Basis and Purpose

    The legal basis of this rulemaking is the Great Lakes Pilotage Act
of 1960 (``the Act''), which requires U.S. vessels operating ``on
register'' and foreign merchant vessels to use U.S. or Canadian
registered pilots while transiting the U.S. waters of the St. Lawrence
Seaway and the Great Lakes system.\3\ For the U.S. Registered Great
Lakes Pilots (``pilots''), the Act requires the Secretary to
``prescribe by regulation rates and charges for pilotage services,
giving consideration to the public interest and the costs of providing
the services.'' \4\ The Act requires that rates be established or
reviewed and adjusted each year, not later than March 1. The Act
requires that base rates be established by a full ratemaking at least
once every 5 years, and in years when base rates are not established,
they must be reviewed and, if necessary, adjusted. The Secretary's
duties and authority under the Act have been delegated to the Coast
Guard.\5\ The purpose of this NPRM is to propose new changes to the
methodology in projecting pilotage rates as well as revised pilotage
rates and surcharges. Our goals for this and all future rates are to
ensure safe, efficient, and reliable pilotage services on the Great
Lakes, and provide adequate funds to maintain infrastructure.
Additionally, we believe that the new methodology will increase
transparency and predictability in the ratemaking process and ensure
that annual adjustments of rates are completed in a timely manner.
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    \3\ See 46 U.S.C. 9301(2) and 9302(a)(1).
    \4\ See 46 U.S.C. 9303(f).
    \5\ Department of Homeland Security (DHS) Delegation No. 0170.1,
para. II (92.f).
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V. Background

    Pursuant to the Great Lakes Pilotage Act, the Coast Guard, in
conjunction with the Canadian Great Lakes Pilotage Authority, regulates
shipping practices and pilotage rates on the Great Lakes. Under Coast
Guard regulations, all U.S. vessels sailing on register and all non-
Canadian, foreign merchant vessels (often referred to as ``salties''),
are required to engage U.S. or Canadian pilots during their transit
through regulated waters. United States and Canadian ``lakers,'' which
account for most commercial shipping on the Great Lakes, are not
subject to the Act.\6\ Generally, vessels are assigned a U.S. or
Canadian pilot depending on the order in which they transit a
particular area of the Great Lakes, and do not choose the pilot they
receive. If a vessel is assigned a U.S. pilot, that pilot will be
assigned by the pilotage association responsible for the particular
district in which the vessel is operating, and the vessel operator will
pay the pilotage association for the pilotage services.
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    \6\ See 46 U.S.C. 9302. A ``laker'' is a commercial cargo vessel
especially designed for and generally limited to use on the Great
Lakes.
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    The U.S. waters of the Great Lakes and the St. Lawrence Seaway are
divided into three pilotage districts. Pilotage in each district is
provided by an association certified by the Coast Guard Director of the
Great Lakes Pilotage Office (``the Director'') to operate a pilotage
pool. The Saint Lawrence Seaway Pilotage Association provides pilotage
services in District One, which includes all U.S. waters of the St.
Lawrence River and Lake Ontario. The Lakes Pilotage Association
provides pilotage services in District Two, which includes all U.S.
waters of Lake Erie, the Detroit River, Lake St. Clair, and the St.
Clair River. Finally, the Western Great Lakes Pilotage Association
provides pilotage services in District Three, which includes all U.S.
waters of the St. Mary's River; Sault Ste. Marie Locks; and Lakes
Huron, Michigan, and Superior.
    Each pilotage district is further divided into ``designated'' and
``undesignated'' areas. Designated areas are classified as such by
Presidential Proclamation \7\ to be waters in which pilots must, at all
times, be fully engaged in the navigation of vessels in their charge.
Undesignated areas, on the other hand, are open bodies of water, and
thus are not subject to the same pilotage requirements. While working
in those undesignated areas, pilots must ``be on board and available to
direct the navigation of the vessel at the discretion of and subject to
the customary authority of the master.'' \8\ As such, pilotage rates in
designated areas are higher than those in undesignated areas.
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    \7\ Presidential Proc. 3385, Designation of restricted waters
under the Great Lakes Pilotage Act of 1960, December 22, 1960.
    \8\ 46 U.S.C. 9302(a)(1)(B).

                           Table 2--Areas of the Great Lakes and Saint Lawrence Seaway
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                                         Pilotage                              Area number
             District                  association          Designation            \9\          Area name \10\
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One..............................  Saint Lawrence       Designated.........               1  St. Lawrence River.
                                    Seaway Pilotage     Undesignated.......               2  Lake Ontario.
                                    Association.
Two..............................  Lake Pilotage        Designated.........               5  Navigable waters
                                    Association.                                              from Southeast
                                                                                Shoal to Port
                                                                                Huron, MI.
                                                        Undesignated.......               4  Lake Erie.
Three............................  Western Great Lakes  Designated.........               7  St. Mary's River.
                                    Pilotage            Undesignated.......               6  Lakes Huron and
                                    Association.        Undesignated.......               8   Michigan.
                                                                                Lake Superior.
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    Each pilot association is an independent business and is the sole
provider of pilotage services in the district in which it operates.
Each pilot associations is responsible for funding its own operating
expenses, maintaining infrastructure, acquiring and implementing
technological advances, training personnel/partners and pilot
compensation. We developed a 10-step ratemaking methodology to derive a
pilotage rate that covers these expenses based on the estimated amount
of traffic. In short, the methodology is designed to measure how much
revenue each pilotage association will need to cover expenses and
provide competitive compensation to working pilots. The Coast Guard
then divides that amount by the historical average traffic transiting
through the district. We recognize that in years where traffic is above
average, pilot associations will take in more revenue than projected,
while in years where traffic is below average, they will take in less.
We believe that over the long term, however, this system ensures that
infrastructure will be maintained and that pilots will receive adequate
compensation and work a reasonable number of hours with adequate rest
between assignments to ensure retention of highly-trained personnel.
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    \9\ Area 3 is the Welland Canal, which is serviced exclusively
by the Canadian Great Lakes Pilotage Authority (GLPA) and,
accordingly, is not included in the United States pilotage rate
structure.
    \10\ The areas are listed by name in 46 CFR 401.405.
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    Over the past 2 years, the Coast Guard has made major adjustments
to the Great Lakes pilotage ratemaking methodology. In 2016, we made
significant changes to the methodology, moving to an hourly billing
rate for pilotage services and changing the compensation benchmark to a
more transparent model. In 2017, we added additional steps to the
ratemaking methodology, including new steps that will accurately
account for the additional revenue produced by the application of
weighting factors (discussed in detail in Steps 7 through 9 of this
preamble). The current methodology, which was finalized in the August
31, 2017 Federal Register (82 FR 41466), is designed to accurately
capture all the costs and revenues associated with Great Lakes pilotage
requirements and produce an hourly rate that adequately, and
accurately, compensates pilots and covers expenses. The Coast Guard
summarizes the current methodology in the section below.

Summary of Ratemaking Methodology

    As stated above, the ratemaking methodology, currently outlined in
46 CFR 404.101 through 404.110, consists of 10 steps that are designed
to account for the revenues needed and total traffic expected in each
district. The result is an hourly rate (determined separately for each
of the areas administered by the Coast Guard).
    In Step 1, ``Recognize previous operating expenses,'' (Sec.
404.101) we review audited operating expenses from each of the three
pilotage associations. This number forms the baseline amount that each
association is budgeted. Because of the time delay between when the
association submits raw numbers and the Coast Guard receives audited
numbers, this number is 3 years behind the projected year of expenses.
So in calculating the 2018 rates in this proposal, we are beginning
with the audited expenses from calendar year 2015.
    While each pilotage association operates in an entire district, we
further break down the costs by area. Thus, with regard to operating
expenses, we allocate certain operating expenses to undesignated areas,
and certain expenses to designated areas. In some cases (e.g.,
insurance for applicant pilots who operate in undesignated areas only),
we can allocate the costs based on where they are actually accrued. In
other situations (e.g., general legal expenses), expenses are
distributed between designated and undesignated waters on a pro rata
basis, based upon the proportion of income forecasted from the
respective portions of the district.
    In Step 2, ``Project operating expenses, adjusting for inflation or
deflation,'' (Sec.  404.102) we develop the 2018 projected operating
expenses. To do this, we apply inflation adjustors for 3 years to the
operating expense baseline received in Step 1. The inflation factors
used are from the Bureau of Labor Statistics' Consumer Price Index for
the Midwest Region, or if not available, the Federal Open Market
Committee (FOMC) median economic projections for Personal Consumption
Expenditures (PCE) inflation. This step produces the total operating
expenses for each area and district.
    In Step 3, ``Determine number of pilots needed,'' (Sec.  404.103)
we calculate how many pilots are needed for each district. To do this,
we employ a ``staffing model,'' described in Sec.  404.103(a) through
(c), to estimate how many pilots would be needed to handle shipping
during the beginning and close of the season. This number is helpful in
providing guidance to the Director of the Coast Guard Great Lakes
Pilotage Office in approving an appropriate number of credentials for
pilots.
    For the purpose of the ratemaking calculation, we determine the
number of working pilots provided by the pilotage associations (see
Sec.  404.103(d)) which is what we use to determine how many pilots
need to be compensated via the pilotage fees collected.
    In Step 4, ``Determine target pilot compensation benchmark,''
(Sec.  404.104) we determine the revenue needed for pilot compensation
in each area and district. This step contains two processes. In the
first process, we calculate the total compensation for each pilot using
a ``compensation benchmark.'' Next, we multiply the individual pilot
compensation by the number of working pilots for each area and district
(from Step 3), producing a figure for total pilot compensation. Because
pilots are paid by the associations, but the costs of pilotage is
divided up by area for accounting purposes, we assign a certain number
of pilots for the designated areas and a certain number of pilots for
the undesignated areas for purposes of determining the revenues needed
for each area. To make the determination of how many pilots to assign,
we use the staffing model designed to determine

the total number of pilots, described in Step 3, above.
    In Step 5, ``Project working capital fund,'' (Sec.  404.105) we
calculate a return on investment by adding the total operating expenses
(derived in Step 2) and the total pilot compensation (derived in Step
4), and multiply that figure by the preceding year's average annual
rate of return for new issues of high-grade corporate securities. This
figure constitutes the ``working capital fund'' for each area and
district.
    In Step 6, ``Project needed revenue,'' (Sec.  404.106) we simply
add up the totals produced by the preceding steps. For each area and
district, we add the projected operating expense (from Step 2), the
total pilot compensation (from Step 4), and the working capital fund
contribution (from Step 5). The total figure, calculated separately for
each area and district, is the ``revenue needed.''
    In Step 7, ``Initially calculate base rates,'' (Sec.  404.107) we
calculate an hourly pilotage rate to cover the revenue needed
calculated in step 6. This step consists of first calculating the 10-
year traffic average for each area. Next, we divide the revenue needed
in each area (calculated in Step 6) by the 10-year traffic average to
produce an initial base rate.
    An additional element, the ``weighting factor,'' is required under
Sec.  401.400. Pursuant to that section, ships pay a multiple of the
``base rate'' as calculated in Step 7 by a number ranging from 1.0 (for
the smallest ships, or ``Class I'' vessels) to 1.45 (for the largest
ships, or ``Class IV'' vessels). As this significantly increases the
revenue collected, we need to account for the added revenue produced by
the weighting factors to ensure that shippers are not overpaying for
pilotage services.
    In Step 8, ``Calculate average weighting factors by area,'' (Sec.
404.108) we calculate how much extra revenue, as a percentage of total
revenue, has historically been produced by the weighting factors in
each area. We do this by using a historical average of applied
weighting factors for each year since 2014 (the first year the current
weighting factors were applied).
    In Step 9, ``Calculate revised base rates,'' (Sec.  404.109) we
modify the base rates by accounting for the extra revenue generated by
the weighting factors. We do this by simply dividing the initial
pilotage rate for each area (from Step 7) by the corresponding average
weighting factor (from Step 8), to produce a revised rate.
    In Step 10, ``Review and finalize rates,'' (Sec.  404.110) often
referred to informally as ``director's discretion,'' we review the
revised base rates (from Step 9) to ensure that they meet the goals set
forth in the Act and 46 CFR 404.1(a), which include promoting
efficient, safe, and reliable pilotage service on the Great Lakes;
generating sufficient revenue for each pilotage association to
reimburse necessary and reasonable operating expenses; compensating
pilots fairly, who are trained and rested; and providing appropriate
profit for improvements. Because it is our goal to be as transparent as
possible in our ratemaking procedure, we use this step sparingly to
adjust rates.
    Finally, after the base rates are set, Sec.  401.401 permits the
Coast Guard to apply surcharges. Currently, we use surcharges to pay
for the training of new pilots, rather than incorporating training
costs into the overall ``revenue needed'' that is used in the
calculation of the base rates. In recent years, we have allocated
$150,000 per applicant pilot to be collected via surcharges. This
amount is calculated as a percentage of total revenue for each
district, and that percentage is applied to each bill. When the total
amount of the surcharge has been collected, the pilot associations are
prohibited from collecting further surcharges. Thus, in years where
traffic is heavier than expected, shippers early in the season could
pay more than shippers employing pilots later in the season, after the
surcharge cap has been met.

VI. Discussion of Proposed Methodological and Other Changes

    For 2018, we are proposing a number of changes to the ratemaking
methodology. These changes are both revisions to the rate-setting
process, as well as organizational changes that will simplify and
streamline rate-setting procedures in future years. While we realize
that yearly adjustments of the ratemaking methodology can lead to
unpredictability, we believe that modest modifications to the
ratemaking methodology in order to improve accuracy, simplify its
steps, and make it more transparent complies with our statutory
requirement to consider public interest and the costs of providing
pilotage services. These proposed changes are intended to provide rate
stability and predictability beneficial to the U.S. Great Lakes pilot
associations, shippers, cruise ships, and voluntary employment of U.S.
registered pilots.\11\ Additionally, in this section, we discuss
several other proposed changes to the Great Lakes pilotage regulations,
which, while related to the annual ratemakings, are not limited to the
specific methodological steps.
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    \11\ In some cases, U.S.-registered vessels that are not
required to use a pilot by law will do so voluntarily for business
reasons.
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A. Codification of Compensation Inflation Adjustment

    One change we are proposing in this NPRM is to add regulatory text
to Sec.  404.104 that would automatically adjust the pilot compensation
figure for inflation annually. Under the current regulations, while
pilot compensation is determined in Step 4 annually, there is no
specific provision that it will change with inflation. This issue is
often raised in comments. For example, in the 2016 Great Lakes pilotage
rate adjustment final rule,\12\ we set target pilot compensation at
$326,114 annually. Then, in the 2017 NPRM,\13\ we proposed leaving that
amount unchanged. This prompted comments stating that leaving the
nominal target compensation of pilots unchanged undermined the Coast
Guard's stated goal of compensation stability, because the pilots'
earning power would not keep up with regional inflation. In the 2017
final rule, we increased the target compensation number by the
inflation rate, to the current level of $332,963.\14\ In that rule, we
stated that ``we intend to adjust the compensation figure for inflation
annually in future ratemaking actions, the same way that operating
expenses are adjusted for inflation.'' \15\
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    \12\ See 81 FR 11908 (March 7, 2016).
    \13\ See 81 FR 72011 (October 19, 2016).
    \14\ See 82 FR 41466 (August 31, 2017).
    \15\ Id., at 41483.
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    Based on these considerations, we propose to add regulatory text to
Sec.  404.104 to make the adjustment for inflation automatic. This
would serve a variety of interests. First, it would improve consistency
in our ratemaking procedures. While the operating expenses are
automatically adjusted for inflation, compensation is not. This
proposed change would treat the two types of expenses equally.
Additionally, because the revenue for the working capital fund is based
in part on compensation (see the discussion in the Background section
of this Preamble), automatically adjusting pilot compensation for
inflation would have a similar effect on contributions to the working
capital fund.
    Automatically adjusting pilot compensation for inflation would
improve transparency and efficiency in our ratemaking procedures. Also,
replacing the current process with an automatic and predictable
inflationary adjustment would increase predictability. As previously
stated, we believe this predictability benefits the

U.S. registered pilots who provide the service and those stakeholders
who employ the pilots. Given variations in traffic, compensation as a
pilot is uncertain, and we believe that this proposed change would
reduce some of the uncertainty related to target pilot compensation. It
would also increase the efficiency of the ratemaking process by making
the inflation adjustment automatic, so that we would be better able to
process our annual ratemaking in a timely fashion.
    To implement this increase, we propose adding regulatory text to
Sec.  404.104 stating that the Director will adjust the previous year's
individual target pilot compensation level by BLS CPI for the Midwest
Region, or if that is unavailable, the FOMC median economic projections
for PCE inflation \16\. See proposed Sec.  404.104(b). The BLS CPI
tracks the changes in prices of all goods and services purchased for
consumption by urban households. The BLS releases CPI data monthly, for
the previous month. The FOMC PCE inflation tracks the projected change
in prices of goods and services purchased by consumers throughout the
US economy for the current and future years. We note that this would
occur only in years in which we conduct an annual review of pilotage
rates, and not in years when we conduct a ``full ratemaking, because in
those years the target compensation figure is reset and no inflation
adjustment is needed.'' \17\ We invite comment on the effect of this
proposal as well as the particular inflation index chosen to implement
it.
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    \16\ https://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20170920.pdf.
    \17\ For more information on this topic, see section VI.D.
titled, ``Delineation of full ratemakings and annual reviews'' in
this preamble.
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B. Relocation of Staffing Model Regulations

    Another change that we propose in this NPRM is to relocate the
``staffing model'' regulatory text, currently located in Sec.
404.103(a) through (c). We are not proposing to adjust or modify the
regulatory text, but simply move it to Sec.  401.220(a), ``Registration
of pilots,'' rather than keep it as part of the ratemaking methodology
text. For the reasons below, we believe that this change will both
improve the clarity of the regulations and improve the regulatory
process. The staffing model informs the Coast Guard's administration of
the Great Lakes Pilotage program, but is distinct from the ratemaking
methodology. Specifically, the staffing model provides guidance to the
Director on implementing the requirement currently in Sec.  401.220(a),
which requires the Director to determine the number of pilots needed to
assure adequate and efficient pilotage service in the United States
waters of the Great Lakes and to provide for equitable participation of
United States Registered Pilots with Canadian Registered Pilots.
    The current way in which Sec.  404.103, entitled ``Ratemaking Step
3: Determine number of pilots needed,'' is written produces two
distinct sets of numbers. In Sec.  404.103(a) through (c), we employ a
``staffing model'' to determine the number of pilots needed in each
district to provide safe and reliable pilotage services in periods of
high seasonal demand. This staffing model produces a number of pilots
for each district that we believe is needed to minimize delays and
allow for some instances of double pilotage (that is, where two pilots
are employed on a vessel simultaneously because of particularly
hazardous conditions). In the 2017 final rule, the staffing model
produced a figure of 54 total pilots on the Great Lakes: 17 for
District One, 15 for District Two, and 22 for District Three.\18\
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    \18\ See 82 FR 41466, at 41484 (August 31, 2018).
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    The Director of the Great Lakes Pilotage Office is required in
Sec.  404.103(d) to project the number of pilots expected to be working
in the current year based on the numbers provided by the pilotage
associations, as well as the number of applications for pilot
positions.\19\ As shown by the calculations used in the next, and all
subsequent steps of the ratemaking process, the pilot numbers derived
under Sec.  404.103(d), not those from the staffing model text in
paragraphs (a)-(c), were used to calculate the pilotage rates. The
reason that the numbers produced by the text in paragraphs (a)-(c) are
not used in the ratemaking is because while the staffing model is
related to the annual ratemaking methodology, it is only through its
impact on the number derived in paragraph (d). Instead, the function of
the staffing model is to provide guidance to the Director regarding the
number of pilots needed. While the number of pilots needed, as
ascertained by the Director, certainly has an impact on the number of
working pilots, the two numbers are not necessarily identical. We also
note that, over the past several years, the number of pilots actually
working has been significantly lower than the amount the staffing model
suggests are needed. While the staffing model itself does not directly
affect the ratemaking, the fact that the text appears in Sec.  404.103,
rather than as a modifier to Sec.  401.220(a), creates some confusion.
To begin, we note that inclusion of the staffing model text in the
annual ratemaking section implies that we reevaluate the staffing model
every year as part of the annual ratemaking procedure. While this is
incorrect, it has led to confusion about the role of the staffing
model, and significant resources have been expended by commenters in
past years regarding its use and application. We believe part 401 is
the best place to locate the staffing model text as it contains many
similar items pertaining to pilotage that, while they affect the
ratemaking process, are not part of it and do not need to be reanalyzed
on an annual basis.
---------------------------------------------------------------------------

    \19\ See, for example, table 7, ``Calculations of total
compensation,'' 82 FR 41466, at 41483 (August 31, 2017).
---------------------------------------------------------------------------

    Finally, we note that the movement of the staffing model to Sec.
401.220(a) would have an organizational impact on future pilotage rate
regulatory actions. In the past, we included detailed, and sometimes
repetitive, calculations of the staffing model in our annual ratemaking
publication. However, if we move the staffing model text to part 401,
and do not make any changes to the inputs or staffing methodology, we
would not include a full analysis of the staffing model in each
regulatory document. Instead, we propose to simply certify that the
number of pilots working under Step 3 of the ratemaking process was
less than or equal to the number of pilots authorized by the
regulations in Sec.  401.220. However, in circumstances where the
staffing model produced a changed result in the number of pilots needed
to ensure safe and reliable pilotage, we would include an analysis of
the number of pilots recommended by the staffing model in the proposed
rule. In this year's ratemaking, we note that the staffing model
analysis remains unchanged from 2017, and for that reason is not
repeated here.
    For the reasons stated above, we propose moving the current
staffing model text, located in Sec.  404.103(a) through (c) to Sec.
401.220(a), where it will be renumbered as Sec.  401.220(a)(1) through
(a)(3). The existing text would not be changed in any way other than
being relocated, and we are not proposing any changes to the staffing
model in this ratemaking.

C. Additional Changes to Ratemaking Steps 3 and 4

    Additionally, we are proposing a change to the remaining text of
Sec.  404.103. Specifically, we propose to remove the words ``during
the first year of the period for which base rates are being
established'' from Sec.  404.103(d). This phrase, carried over from
previous

years, does not apply under the current methodology where base rates
are established annually. We believe that this change would help to
improve clarity and regulatory efficiency in future annual ratemakings.
    Finally, we are proposing to change the name of the section. The
section, currently titled, ``Determine number of pilots needed,'' is
misleading, as the number of pilots needed to ensure safe and reliable
pilotage is determined by the Director in Sec.  401.220(a). Thus, we
propose to change the section heading to ``Estimate number of working
pilots,'' to more accurately reflect what we are doing in this step of
the ratemaking process. In a related matter, we are also proposing a
change to Sec.  404.104 to explicitly establish the relationship
between the staffing model and the annual ratemaking. While in the
past, the number of pilots has been below the number derived from the
staffing model, there is no regulatory text indicating that this is a
limiting factor. To eliminate this ambiguity, we propose to add text to
Sec.  404.104, ``Ratemaking step 4: Determine target pilot
compensation,'' that would limit the total number of working pilots for
ratemaking purposes to the maximum number allowed by the staffing
model. This does not prohibit pilotage associations from hiring more
pilots than the staffing model suggests are needed to handle peak
traffic (if, for example, pilots wanted to work fewer hours for less
pay, and the Director approved), but it would limit pilotage rates by
preventing those extra pilots from being considered in the ratemaking
calculations.

D. Delineation of Full Ratemakings and Annual Adjustments

    In this NPRM, we are proposing an organizational change to the
regulations in part 404 to better delineate the full ratemaking
procedure from the interim ratemaking procedure. Pursuant to the Act,
we are required to establish new pilotage rates by March 1 of each
year.\20\ However, the Act sets forth two types of ratemaking
procedures. The Act states that the Coast Guard must establish base
pilotage rates by a ``full ratemaking'' at least once every 5 years,
and that it must ``conduct annual reviews of such base pilotage rates,
and make adjustments to such base rates, in each intervening year.''
\21\ In order to more clearly effect the Act's mandate, we propose to
include in the regulatory text sections that differentiate between a
``full ratemaking'' and an ``interim ratemaking.'' We would announce,
in the NPRM of each annual ratemaking, whether we were conducting a
full or interim ratemaking procedure (while the Act requires that the
Coast Guard perform a full ratemaking at least once every 5 years, we
note that it may occur more frequently if circumstances warrant).
---------------------------------------------------------------------------

    \20\ See 46 U.S.C. 9303(f).
    \21\ Id.
---------------------------------------------------------------------------

    We note that the existing regulatory text in part 404 already
contains a provision that considers the difference between a full
ratemaking and an interim ratemaking. Existing Sec.  404.100,
``Ratemaking and annual reviews in general,'' states that once every 5
years, the Director establishes base pilotage rates by a full
ratemaking pursuant to Sec. Sec.  404.101 through 404.110, and that in
``interim years,'' the Director may adjust rates according to one of
several methods (either automatic adjustments, annual adjustments for
inflation, or a new full ratemaking).\22\ However, after adopting the
new ratemaking methodology in 2016, we do not currently have a
regulatory provision for implementing the interim ratemaking other than
conducting a full ratemaking analysis. With the new methodology,
adopted in 2016, refined in 2017, and with the additional changes
proposed for 2018, we believe that the ratemaking procedures generally
defined in this part can be used in both full and interim ratemaking
years, with certain differences, as described below.
---------------------------------------------------------------------------

    \22\ See 33 CFR 404.100(b)(1) through (b)(3).
---------------------------------------------------------------------------

    The only substantive difference between a full and interim
ratemaking concerns Step 4 of the ratemaking procedure, ``Determine
target pilot compensation.'' This step of the ratemaking analysis, in
which the total compensation for pilots is determined, comprises the
majority of the revenue total needed to operate Great Lakes pilotage.
In past ratemaking actions, we received numerous comments and
substantial amounts of data when considering the ``benchmark'' for
pilot compensation. Even in years where we did not propose adjusting
the compensation benchmark, we received substantial data about ways in
which it could be adjusted. However, we do not believe that it is in
the interest of Great Lakes shipping to calculate a new benchmark
compensation level every year. Such a system could lead to substantial
volatility regarding compensation. This, in turn, could lead to the
pilot recruitment and retention problems that affected the Great Lakes
region prior to the ratemaking methodology changes introduced in the
past few years.
    For these reasons, we are proposing regulatory language in part 404
to clarify that the benchmark pilot compensation would only be
reconsidered during ``full ratemaking'' years, which occur at least
once every 5 years. Conversely, during ``interim years,'' we would not
consider changes to the benchmark pilot compensation. Instead, during
those years, we would adjust the target compensation according to
Bureau of Labor Statistics' Consumer Price Index for the Midwest
Region, or if that is not available, the FOMC median economic
projections for PCE inflation, allowing compensation to stay in line
with inflation. We believe that this system would simplify ratemaking
procedures in interim years and better effect the statutory mandate in
section 9303(f) of the Act. In this NPRM, we have proposed regulatory
changes to Sec.  404.100(b) and (c), as well as in Sec.  404.104(a) and
(b), that would enact these changes to the methodology.

E. Other Miscellaneous Changes

    We propose several minor editorial changes in this NPRM. In section
404.107, we propose renaming Step 7, currently titled, ``Initially
calculate base rates'' to ``Calculate initial base rates'' for style
purposes and to make an accompanying edit to the text by changing the
words ``initially calculates base rates'' to ``calculates initial base
rates'' in the text of that section. We also propose to adjust the
reference to the staffing model in Step 7 to account for its relocation
in text (proposed section 401.220(a)).

VII. Revised Compensation Benchmark

    In this NPRM, the Coast Guard is proposing a new compensation
benchmark for pilots on the Great Lakes. It is doing so to comply with
a court decision holding that the Coast Guard's existing compensation
benchmark, which based on the salaries of Canadian Great Lakes pilot
salaries plus a 10% increase, was arbitrary and capricious. We are
following the court's decision and are moving to implement a new
benchmark in this proposed rule.
    When the Coast Guard adopted the existing compensation benchmark in
the 2016 annual adjustment, we recognized that the number was based on
somewhat uncertain data, and have undertaken a comprehensive, multi-
year analysis of pilot compensation practices to develop a more
appropriate benchmark.\23\ However, as we do not expect to be able to
make any proposals based on this study until at least the 2020 rate
adjustment, and we cannot continue to

use the existing model, there is a need for an interim benchmark level
to be developed on short notice and with limited time to gather new
data.
---------------------------------------------------------------------------

    \23\ See 82 FR 41466 (March 8, 2017) at 41469.
---------------------------------------------------------------------------

    Therefore, the Coast Guard is proposing a new compensation
benchmark based, in part, on the previous model of compensation that
was used by the Coast Guard prior to the new ratemaking methodology
introduced in the 2016 annual ratemaking.\24\ Under the previous
methodology, each year the Coast Guard gathered contract information
from the American Maritime Officers Union (AMOU), and used details from
their contracts to estimate rates for Great Lakes pilots. Ultimately,
however, the AMOU stopped providing information to the Coast Guard,
which was one basis for moving to other models. However, in the context
of the previous rate adjustments, the AMOU did provide information up
through the 2015 calendar year. Given that in this document, we have
proposed to develop a new benchmark compensation level every 5 years,
and then index that number for inflation each year in between, we
believe the most efficient solution for an interim compensation
benchmark is to derive a compensation figure using the 2015 AMOU data,
and then apply inflationary adjustments to that data to arrive at an
equivalent level for the 2018 shipping season. We note that this method
is different than using data for the 2018 AMOU contracts, for which
there is no public information and which this proposed compensation
benchmark does not utilize. Because the interim benchmark proposed in
this NPRM is explicitly based on the terms of the AMOU contract as they
existed in 2015, we note that comments that relate to AMOU contract
information from years other than 2015 would not be relevant to this
proposed compensation benchmark and will not be considered. However, we
do request comments on whether we have correctly applied the terms of
the 2015 contract, or used correct data, to the calculation of target
pilot compensation under this proposed model and note that we may
adjust the interim compensation benchmark if we receive validated data
relating to total compensation pursuant to the 2015 AMOU contract terms
that improves our understanding of that contract.
---------------------------------------------------------------------------

    \24\ We note that the 2016 ratemaking significantly overhauled
the entire ratemaking process, not just the method for computing the
compensation benchmark, and that methodology is still the basis of
the current proposed ratemaking process.
---------------------------------------------------------------------------

    The data we are using, provided in a letter from the AMOU from
October 4, 2013,\25\ consists of ``daily aggregate rates'' for two
contracts between Great Lakes shipping companies for the services of
AMOU mates.\26\ These numbers were provided to the Coast Guard as a
public comment to be used as a basis for compensation in the 2014
ratemaking procedure. These daily aggregate rates include daily wages,
vacation pay, pension plan contributions, and medical plan
contributions for AMOU officers. The relevant 2015 numbers include a
$1,142.06 aggregate rate for Agreement A,\27\ and $1,124.72 aggregate
rate for Agreement B,\28\ which are the amounts used to calculate the
compensation for pilots on designated waters. We note that the while
the 2014 ratemaking methodology calculated different compensation
targets for pilots in undesignated areas and those in designated areas,
the ratemaking methodology used today calculates a single wage rate, so
only the numbers used in designated waters would be relevant. We
explain how we propose to translate this information into a proposed
annual pilot compensation benchmark below.
---------------------------------------------------------------------------

    \25\ We refer to this document as the ``2013 AMOU letter,''
which is available in the docket at USCG-2017-0903, as well as in
the docket for the 2014 Great Lakes Pilotage rulemaking, at USCG-
2013-0534-0007.
    \26\ We acknowledge that the American pilotage associations sued
the Coast Guard and won in a lawsuit on the 2014 ratemaking
regarding the inappropriate use of AMOU daily aggregate rate data.
However, that was because in that ratemaking, the Coast Guard did
not use the updated daily aggregate rate data provided in the
October 4, 2013 letter, but instead relied on older data that the
AMOU had explicitly disavowed. In this proposal, we are correcting
that mistake by using the updated data. The opinion from the 2014
court case is available on the docket at USCG-2017-0903.
    \27\ ``Agreement A'' refers to the contract between AMOU and
vessels operated by Key Lakes, Inc.
    \28\ ``Agreement B'' refers to the contract between AMOU and
vessels operated by Mittal Steel USA, Inc.
---------------------------------------------------------------------------

    Despite the fact that the aggregated data in the 2013 AMOU letter
is not broken down into specific costs, we believe that the data points
provided are generally accurate. Prior to 2014, the Coast Guard
received confidential copies of the AMOU contracts with detailed
breakdowns of compensation components including wages, medical costs,
defined contribution and defined benefit pension costs. The latest
contract we have covered the 2011 through the 2015 shipping seasons,
which is one reason we believe that basing our interim benchmark on the
2015 season is a reasonable measure, as we have the underlying contract
for that season. Using the estimated out-year figures set forth in the
2011 contract, and applying the detailed compensation methodology used
in the 2012 Great Lakes Pilotage annual ratemaking final rule,\29\ we
were able to calculate aggregate figures that were within 1% of the
figures provided in the 2013 AMOU letter.\30\
---------------------------------------------------------------------------

    \29\ 2012 Rates for Pilotage on the Great Lakes, 77 FR 11752
(February 28, 2012).
    \30\ Because the out-year figures, including those for 2015,
were estimates, we would not expect the 2015 numbers as calculated
in 2011 and 2013 to match exactly, as component items such as
medical cost expenditures often defy exact predictions. We believe
that the very close match between our own calculations and the
figures provided by AMOU is strong evidence that the AMOU data
accurately accounts for the total compensation of Great Lakes
masters and thus provides a reasonable facsimile for Great Lakes
pilots.
---------------------------------------------------------------------------

    In the notice of proposed rulemaking for the 2014 Great Lakes
pilotage annual rate adjustment, we described how we use the daily
aggregate rates to develop a total pilot compensation figure. The
annual rates included the ``daily wage rate, vacation pay, pension plan
contributions, and medical plan contributions.'' \31\ We stated that
``because we are interested in annual compensation, we must convert
these to daily rates. We use a 270-day multiplier which reflects an
average 30-day month, over the 9 months of the average shipping
season.'' \32\ Subsequently, ``[w]e apportion the compensation provided
by each agreement according to the percentage of tonnage represented by
companies under each agreement.'' \33\
---------------------------------------------------------------------------

    \31\ Great Lakes Pilotage Rates--2014 Annual Review and
Adjustment, notice of proposed rulemaking, 78 FR 48374, at
48381(August 8, 2013).
    \32\ Id.
    \33\ Id., at 48382.
---------------------------------------------------------------------------

    After publication of the 2014 Final Rule, the Coast Guard was sued
by the three American pilotage associations, in part, because the AMOU
aggregate data it had used to calculate the 2014 compensation figures
did not include a seasonal bonus component. In that case, the Coast
Guard relied on previous aggregate data figures provided by the AMOU in
2012, instead of using the figures provided by the AMOU in its October
4, 2013 public comment, where the AMOU stated that the previous figures
were inaccurate. While the court found that the use of the old figures
was arbitrary, the use of AMOU aggregate data generally was not
disputed.\34\ Instead, it was the use of the disavowed aggregate data
that was not supported. We intend to correct this by basing our interim
methodology on the new figures provided by the AMOU for the year

2015, which were also contained in the 2013 letter.
---------------------------------------------------------------------------

    \34\ This was the information AMOU provided to correct what it
alleged was inaccurate data the Coast Guard had proposed using. The
aggregate data in the 2013 AMOU letter included a comprehensive wage
component, which included work days, weekend days, holidays, and the
``seasonal bonus'' days.
---------------------------------------------------------------------------

    To apply the 2015 aggregate data figures to the current ratemaking
methodology, we need only use the figures for designated waters. Prior
to the 2016 ratemaking, the Coast Guard calculated separate
compensation figures for designated and undesignated waters--
compensating pilots assigned to designated waters an equivalent rate to
masters, while compensating pilots assigned to undesignated waters the
equivalent rate of AMOU mates, who are paid considerably less. However,
in 2016, the Coast Guard ended the practice of calculating separate
compensation figures for pilots on the Great Lakes. In the 2016 Great
Lakes pilotage NPRM, we stated that ``we see no reasonable basis for
discriminating between the target compensation of pilots on the basis
of the distinction between designated or undesignated waters. In any
waters and in any district, pilots need the same skills, and therefore
we propose a single individual target compensation figure across all
three districts.'' \35\ As all pilots must be trained to navigate the
more-complex designated waters, we believe it is appropriate that they
receive the level of compensation associated with that task.
---------------------------------------------------------------------------

    \35\ Great Lakes Pilotage Rates--2016 Annual Review and Changes
to Methodology, 80 FR 54484, at 54490 (September 10, 2015).
---------------------------------------------------------------------------

    Because of these factors, we believe we can develop an interim
benchmark compensation level based on the 2015 AMOU aggregate data for
wages in designated waters that has been publically provided. Based on
our calculations, the new benchmark compensation figure would be
$319,617 per pilot. The numbers are derived as follows:
    In the first step of calculating the interim compensation
benchmark, shown as Table 3 below, we multiply the daily aggregate
rates for Agreement A and Agreement B by 270, the estimated number of
days in the shipping season, to derive a seasonal average compensation
figure.

           Table 3--Calculation of Seasonal Rates by agreement
------------------------------------------------------------------------
                                                             Seasonal
                                                           compensation
                                             Aggregate      (aggregate
                                            daily rate     daily rate x
                                                               270)
------------------------------------------------------------------------
Agreement A.............................       $1,142.06        $308,356
Agreement B.............................        1,124.72         303,674
------------------------------------------------------------------------

    Next, as stated above, we apportion the compensation provided by
each agreement according to the percentage of tonnage represented by
companies under each agreement. As shown in Table 4 below,
approximately 70% of cargo was carried under the Agreement A contract,
while approximately 30% of cargo was carried under the Agreement B
contract.

               Table 4--Weighted Average of Each Agreement
------------------------------------------------------------------------
                                                             % Tonnage
                                              Tonnage     (total tonnage/
                                                            1,215,811)
------------------------------------------------------------------------
Agreement A.............................         361,385      29.7237811
Agreement B.............................         854,426      70.2762189
                                         -------------------------------
    Total tonnage.......................       1,215,811             100
------------------------------------------------------------------------

    Third, we develop an average of compensation based on the total
compensation under the two contracts, weighting each contract by its
percentage of total tonnage. Based on this calculation, we have
developed a figure of $305,066 (rounded) for total compensation in
2015.

              Table 5--Calculation of Averaged Compensation
------------------------------------------------------------------------
                                                             Weighted
                                                           compensation
                                                             (seasonal
                                             % Tonnage    compensation x
                                                            % tonnage)
                                                             (rounded)
------------------------------------------------------------------------
Agreement A--weighted...................      29.7237811         $91,655
Agreement B--weighted...................      70.2762189         213,411
                                         -------------------------------
    Total compensation (Agreement A + B)             100         305,066
------------------------------------------------------------------------

    Finally, we adjust that figure for inflation. As we propose to do
in our overall ratemaking methodology, we use the BLS Consumer Price
Index for the Midwest region to inflate to 2016, and FOMC median
economic projections for PCE inflation to inflate the total
compensation to 2017 and 2018. Based on three years of inflation
adjustments, we arrive at the proposed 2018 target compensation figure,
which is $319,617 annually.

              Table 6--Inflation Adjustments--2015 to 2018
------------------------------------------------------------------------
                                                              Target
                                           Inflation (%)   compensation
------------------------------------------------------------------------
2015 Target Pilot Compensation..........  ..............        $305,066
2016 Inflation Adjustment \36\..........             0.8         307,507
2017 Inflation Adjustment \37\..........             1.9         313,350
2018 Inflation Adjustment...............             2.0         319,617
------------------------------------------------------------------------

VIII. Discussion of Proposed Rate Adjustments

    In this NPRM, based on the proposed updated methodology described
in the previous section, we are proposing new pilotage rates for 2018.
This section discusses the proposed rate changes using the ratemaking
steps provided in 46 CFR part 404, as they would be written according
to the proposed revisions discussed above. Here we will detail each
step of the ratemaking procedure to show how we arrived at the proposed
new rates.
---------------------------------------------------------------------------

    \36\ Inflation adjustment from 2015 to 2016 calculated from
Bureau of Labor Statistics, CPI--All Urban Consumers for Midwest
Urban, found at https://data.bls.gov/timeseries/CUUR0200SA0?data_tool=Xgtable.
    \37\ Inflation to 2017 and 2018 found using Federal Open Market
Committee, Summary of Economic Projections, found at https://www.federalreserve.gov/monetarypolicy/fomcprojtabl20160316.htm.
---------------------------------------------------------------------------

    The 2018 ratemaking is an ``annual review,'' rather than a full
ratemaking. Thus, for this purpose, we propose using the annual review
methodology in Sec.  404.104.

A. Step 1: Recognition of Operating Expenses

    Step 1 in our ratemaking methodology requires that we review and
recognize the previous year's operating expenses (Sec.  404.101). To do
this, we begin by reviewing the independent accountant's financial
reports for each association's 2015 expenses and revenues.\38\ For
accounting purposes, the financial reports divide expenses into
designated and undesignated areas. In certain instances, for example,
costs are applied to the undesignated or designated area based on where
they were actually accrued. For example, costs for ``Applicant pilot
license insurance'' in District One are assigned entirely to the
undesignated areas, as applicant pilots work exclusively in those
areas. For costs that accrued to the pilot associations generally, for
example, insurance, the cost is divided between the designated and
undesignated areas on a pro rata basis. The recognized operating
expenses for the three districts are laid out in Tables 7 through 9.
---------------------------------------------------------------------------

    \38\ These reports are available in the docket for this
rulemaking (see https://www.regulations.gov, Docket #USCG-2017-
0903).

                               Table 7--2015 Recognized Expenses for District One
----------------------------------------------------------------------------------------------------------------
                                                                    Designated     Undesignated
                                                                 --------------------------------
                   Reported expenses for 2015                      St. Lawrence                        Total
                                                                       River       Lake Ontario
----------------------------------------------------------------------------------------------------------------
Operating Expenses:
    Other Pilotage Costs:
    Pilot subsistence/travel....................................        $344,718        $267,669        $612,387
    Applicant Pilot subsistence/travel..........................          59,992          88,313         148,305
    License insurance...........................................          26,976          26,976          53,952
    Applicant Pilot license insurance...........................               0           2,271           2,271
    Payroll taxes...............................................          97,531          61,656         159,187
    Applicant Pilot payroll taxes...............................           8,200          12,583          20,783
    Other.......................................................           5,679           5,341          11,020
                                                                 -----------------------------------------------
        Total other pilotage costs..............................         543,096         464,809       1,007,905
Pilot Boat and Dispatch Costs:
    Pilot boat expense..........................................         134,400         106,064         240,464
    Dispatch expense............................................               0               0               0
    Payroll taxes...............................................           9,688           7,645          17,333
                                                                 -----------------------------------------------
        Total pilot and dispatch costs..........................         144,088         113,709         257,797
Administrative Expenses:
    Legal--general counsel......................................          12,388           9,733          22,121
    Legal--shared counsel (K&L Gates)...........................             904             710           1,614
    Legal--USCG litigation......................................               0               0               0
    Insurance...................................................          16,261          12,832          29,093
    Employee benefits...........................................           8,752           6,907          15,659
    Payroll taxes...............................................           5,628           4,441          10,069
    Other taxes.................................................           9,447           7,455          16,902
    Travel......................................................             795             627           1,422
    Depreciation/auto leasing/other.............................          55,850          31,763          87,613
    Interest....................................................          12,337           9,736          22,073

    Dues and subscriptions......................................          15,867          15,513          31,380
    Utilities...................................................           9,573             461          10,034
    Salaries....................................................          56,126          44,291         100,417
    Accounting/Professional fees................................           5,254           4,146           9,400
    Pilot Training..............................................               0               0               0
    Applicant Pilot training....................................               0               0               0
    Other.......................................................           9,118           6,446          15,564
----------------------------------------------------------------------------------------------------------------
        Total Administrative Expenses...........................         218,300         155,061         373,361
                                                                 -----------------------------------------------
        Total Operating Expenses (Other Costs + Pilot Boats +            905,484         733,579       1,639,063
         Admin).................................................
Proposed Adjustments (Independent certified public accountant
 (CPA)):
    Pilot subsistence/travel....................................               0          -2,943          -2,943
    Payroll taxes...............................................               0               0               0
    Applicant Pilot payroll taxes...............................               0               0               0
                                                                 -----------------------------------------------
        TOTAL CPA ADJUSTMENTS...................................               0          -2,943          -2,943
Proposed Adjustments (Director):
    Legal--general counsel (corrected number)...................             904             710           1,614
    Legal--general counsel (corrected number)...................         -12,388          -9,733         -22,121
    Legal--shared counsel (K&L Gates) (corrected number)........          12,388           9,733          22,121
    Legal--shared counsel (K&L Gates) (corrected number)........            -904            -710          -1,614
    Legal--shared counsel--3% lobbying fee (K&L Gates)..........            -371            -292            -663
                                                                 -----------------------------------------------
        TOTAL DIRECTOR'S ADJUSTMENTS............................            -371            -292            -663
                                                                 -----------------------------------------------
            Total Operating Expenses (OpEx + Adjustments).......         905,113         730,344       1,635,457
----------------------------------------------------------------------------------------------------------------

                               Table 8--2015 Recognized Expenses for District Two
----------------------------------------------------------------------------------------------------------------
                                                                   Undesignated     Designated
                                                                 --------------------------------
                   Reported expenses for 2015                                       SES to Port        Total
                                                                     Lake Erie         Huron
----------------------------------------------------------------------------------------------------------------
Operating Expenses:
    Other Pilotage Costs:
    Pilot subsistence/travel....................................        $163,276        $244,915        $408,191
    Applicant Pilot subsistence/travel..........................               0               0               0
    License insurance...........................................           6,798          10,196          16,994
    Applicant Pilot license insurance...........................               0               0               0
    Payroll taxes...............................................          53,242          79,863         133,105
    Applicant Pilot payroll taxes...............................               0               0               0
    Other.......................................................             457             686           1,143
                                                                 -----------------------------------------------
        Total other pilotage costs..............................         223,773         335,660         559,433
Pilot Boat and Dispatch Costs:
    Pilot boat expense..........................................         175,331         262,997         438,328
    Dispatch expense............................................           9,000          13,500          22,500
    Employee benefits...........................................          74,855         112,282         187,137
    Payroll taxes...............................................           9,724          14,585          24,309
                                                                 -----------------------------------------------
        Total pilot and dispatch costs..........................         268,910         403,364         672,274
Administrative Expenses:
    Legal--general counsel......................................          10,282          15,422          25,704
    Legal--shared counsel (K&L Gates)...........................           8,346          12,520          20,866
    Legal--USCG litigation......................................               0               0               0
    Office rent.................................................          26,275          39,413          65,688
    Insurance...................................................          10,618          15,926          26,544
    Employee benefits...........................................          23,930          35,896          59,826
    Workman's compensation--pilots..............................          47,636          71,453         119,089
    Payroll taxes...............................................           5,428           8,141          13,569
    Other taxes.................................................          29,220          43,830          73,050
    Depreciation/auto leasing/other.............................          19,757          29,636          49,393
    Interest....................................................           4,159           6,238          10,397
    APA Dues....................................................          11,827          17,741          29,568
    Utilities...................................................          15,850          23,775          39,625
    Salaries....................................................          51,365          77,048         128,413
    Accounting/Professional fees................................          10,721          16,081          26,802

    Pilot Training..............................................               0               0               0
    Other.......................................................          11,775          17,662          29,437
                                                                 -----------------------------------------------
        Total Administrative Expenses...........................         287,189         430,782         717,971
                                                                 -----------------------------------------------
        Total Operating Expenses (Other Costs + Pilot Boats +            779,872       1,169,806       1,949,678
         Admin).................................................
Proposed Adjustments (Independent CPA):
    Pilot boat costs............................................            -444            -666          -1,110
                                                                 -----------------------------------------------
        TOTAL CPA ADJUSTMENTS...................................            -444            -666          -1,110
Proposed Adjustments (Director):
    Legal--shared counsel 3% lobbying fee (K&L Gates)...........            -250            -376            -626
                                                                 -----------------------------------------------
        TOTAL DIRECTOR'S ADJUSTMENTS............................            -250            -376            -626
                                                                 -----------------------------------------------
            Total Operating Expenses (OpEx + Adjustments).......         779,178       1,168,764       1,947,942
----------------------------------------------------------------------------------------------------------------

                              Table 9--2015 Recognized Expenses for District Three
----------------------------------------------------------------------------------------------------------------
                                                                   Undesignated     Designated
                                                                 --------------------------------
                                                                    Lakes Huron
                   Reported expenses for 2015                      and Michigan     St. Mary's         Total
                                                                     and Lake          River
                                                                     Superior
----------------------------------------------------------------------------------------------------------------
Operating Expenses:
    Other Pilotage Costs:
    Pilot subsistence/travel....................................        $457,393        $152,465        $609,858
    Applicant pilot subsistence/travel..........................               0  ..............               0
    License insurance...........................................          16,803           5,601          22,404
    Payroll taxes...............................................         160,509          53,503         214,012
    Applicant pilot payroll taxes...............................               0  ..............               0
    Other.......................................................           1,546             515           2,061
                                                                 -----------------------------------------------
        Total other pilotage costs..............................         636,251         212,084         848,335
Pilot Boat and Dispatch Costs:
    Pilot boat costs............................................         488,246         162,748         650,994
    Dispatch costs..............................................         128,620          42,873         171,493
    Employee benefits...........................................          12,983           4,327          17,310
    Payroll taxes...............................................          14,201           4,734          18,935
                                                                 -----------------------------------------------
        Total pilot and dispatch costs..........................         644,050         214,682         858,732
Administrative Expenses:
    Legal--general counsel......................................          16,798           5,599          22,397
    Legal--shared counsel (K&L Gates)...........................          18,011           6,004          24,015
    Legal--USCG litigation......................................               0  ..............               0
    Office rent.................................................           6,372           2,124           8,496
    Insurance...................................................          12,227           4,076          16,303
    Employee benefits...........................................          93,646          31,215         124,861
    Payroll Taxes...............................................           9,963           3,321          13,284
    Other taxes.................................................           1,333             445           1,778
    Depreciation/auto leasing/other.............................          29,111           9,703          38,814
    Interest....................................................           3,397           1,132           4,529
    APA Dues....................................................          22,736           7,579          30,315
    Utilities...................................................          32,716          10,906          43,622
    Salaries....................................................          84,075          28,025         112,100
    Accounting/Professional fees................................          19,696           6,565          26,261
    Pilot Training..............................................          26,664           8,888          35,552
    Other.......................................................          25,228           8,409          33,637
                                                                 -----------------------------------------------
        Total Administrative Expenses...........................         401,973         133,991         535,964
                                                                 -----------------------------------------------
        Total Operating Expenses (Other Costs + Pilot Boats +          1,682,274         560,757       2,243,031
         Admin).................................................
Proposed Adjustments (Independent CPA):
    Pilot subsistence/Travel....................................         -67,933         -22,645         -90,578
    Payroll taxes...............................................         -14,175          -4,725         -18,901
    Other expenses..............................................          -4,058          -1,353          -5,411
                                                                 -----------------------------------------------
        TOTAL CPA ADJUSTMENTS...................................         -86,166         -28,723        -114,890

Proposed Adjustments (Director):
    Legal--shared counsel 3% lobbying fee (K&L Gates)...........            -540            -180            -720
                                                                 -----------------------------------------------
        TOTAL DIRECTOR'S ADJUSTMENTS............................            -540            -180            -720
                                                                 -----------------------------------------------
            Total Operating Expenses (OpEx + Adjustments).......       1,595,565         531,854       2,127,420
----------------------------------------------------------------------------------------------------------------
* Values may not sum due to rounding. District 3 provided the Coast Guard data for Areas 6, 7, and 8. However,
  the Coast Guard combined areas 6 and 8 to present the operating expenses by designated and undesignated areas.

B. Step 2: Projection of Operating Expenses

    Having ascertained the recognized 2015 operating expenses in Step
1, the next step is to estimate the current year's operating expenses
by adjusting those expenses for inflation over the 3-year period. We
calculated inflation using the Bureau of Labor Statistics' data from
the Consumer Price Index for the Midwest Region of the United States
\39\ and reports from the Federal Reserve. Based on that information,
the calculations for Step 1 are as follows:
---------------------------------------------------------------------------

    \39\ Available at https://www.bls.gov/regions/midwest/data/consumerpriceindexhistorical_midwest_table.pdf.
    \40\ See https://data.bls.gov/timeseries/CUUR0200SA0?data_tool=Xgtable.
    \41\ See https://www.federalreserve.gov/monetarypolicy/fomcprojtabl20160316.htm.
    \42\ See https://www.federalreserve.gov/monetarypolicy/fomcprojtabl20160316.htm.

                             Table 10--Adjusted Operating Expenses for District One
----------------------------------------------------------------------------------------------------------------
                                                                    Designated     Undesignated        Total
----------------------------------------------------------------------------------------------------------------
Total Operating Expenses (Step 1)...............................        $905,113        $730,344      $1,635,457
2016 Inflation Modification (@0.8%) \40\........................           7,241           5,843          13,084
2017 Inflation Modification (@1.9%) \41\........................          17,335          13,988          31,323
2018 Inflation Modification (@2.0%) \42\........................          18,594          15,004          33,598
                                                                 -----------------------------------------------
    Adjusted 2018 Operating Expenses............................         948,283         765,179       1,713,462
----------------------------------------------------------------------------------------------------------------

                             Table 11--Adjusted Operating Expenses for District Two
----------------------------------------------------------------------------------------------------------------
                                                                   Undesignated     Designated         Total
----------------------------------------------------------------------------------------------------------------
Total Operating Expenses (Step 1)...............................        $779,178      $1,168,764      $1,947,942
2016 Inflation Modification (@0.8%).............................           6,233           9,350          15,583
2017 Inflation Modification (@1.9%).............................          14,923          22,384          37,307
2018 Inflation Modification (@2.0%).............................          16,007          24,010          40,017
                                                                 -----------------------------------------------
    Adjusted 2018 Operating Expenses............................         816,341       1,224,508       2,040,849
----------------------------------------------------------------------------------------------------------------

                            Table 12--Adjusted Operating Expenses for District Three
----------------------------------------------------------------------------------------------------------------
                                                                   Undesignated     Designated         Total
----------------------------------------------------------------------------------------------------------------
Total Operating Expenses (Step 1)...............................      $1,595,565        $531,854      $2,127,420
2016 Inflation Modification (@0.8%).............................          12,765           4,255          17,020
2017 Inflation Modification (@1.9%).............................          30,558          10,186          40,744
2018 Inflation Modification (@2.0%).............................          32,778          10,926          43,704
                                                                 -----------------------------------------------
    Adjusted 2018 Operating Expenses............................       1,671,666         557,221       2,228,888
----------------------------------------------------------------------------------------------------------------

C. Step 3: Estimate Number of Working Pilots

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

used to determine the amount of revenue needed in their respective
areas.

                                           Table 13--Authorized Pilots
----------------------------------------------------------------------------------------------------------------
                                                                   District One    District Two   District Three
----------------------------------------------------------------------------------------------------------------
Maximum number of pilots (per Sec.   401.220(a)) \43\...........              17              15              22
2018 Authorized pilots (total)..................................              17              14              18
Pilots assigned to designated areas.............................              10               7               4
Pilots assigned to undesignated areas...........................               7               7              14
----------------------------------------------------------------------------------------------------------------

D. Step 4: Determine Target Pilot Compensation

    In this step, we determine the total pilot compensation for each
area. Because we are proposing a ``full ratemaking'' this year, we
propose to follow the procedure outlined in paragraph (a) of Sec.
404.104, which requires us to develop a benchmark after considering the
most relevant currently available non-proprietary information. In
accordance with the discussion in Section VII above, the proposed
compensation benchmark for 2018 is $319,617 per pilot.
---------------------------------------------------------------------------

    \43\ For a detailed calculation, see 82 FR 41466, table 6 at
41480 (August 31, 2017).
---------------------------------------------------------------------------

    Next, we certify that the number of pilots estimated for 2018 is
less than or equal to the number permitted under the staffing model in
Sec.  401.220(a). The staffing model suggests that the number of pilots
needed is 17 pilots for District One, 15 pilots for District Two, and
22 pilots for District Three,\44\ which is more than or equal to the
numbers of working pilots provided by the pilot associations.
---------------------------------------------------------------------------

    \44\ See Table 6 of the 2017 final rule, 82 FR 41466 at 41480
(August 31, 2017). The methodology of the staffing model is
discussed at length in the final rule (see pages 41476-41480 for a
detailed analysis of the calculations).
---------------------------------------------------------------------------

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

                              Table 14--Target Pilot Compensation for District One
----------------------------------------------------------------------------------------------------------------
                                                                    Designated     Undesignated        Total
----------------------------------------------------------------------------------------------------------------
Target Pilot Compensation.......................................        $319,617        $319,617        $319,617
Number of Pilots................................................              10               7              17
                                                                 -----------------------------------------------
    Total Target Pilot Compensation.............................      $3,196,170      $2,237,319      $5,433,489
----------------------------------------------------------------------------------------------------------------

                              Table 15--Target Pilot Compensation for District Two
----------------------------------------------------------------------------------------------------------------
                                                                   Undesignated     Designated         Total
----------------------------------------------------------------------------------------------------------------
Target Pilot Compensation.......................................        $319,617        $319,617        $319,617
Number of Pilots................................................               7               7              14
                                                                 -----------------------------------------------
    Total Target Pilot Compensation.............................      $2,237,319      $2,237,319      $4,474,638
----------------------------------------------------------------------------------------------------------------

                             Table 16--Target Pilot Compensation for District Three
----------------------------------------------------------------------------------------------------------------
                                                                   Undesignated     Designated         Total
----------------------------------------------------------------------------------------------------------------
Target Pilot Compensation.......................................        $319,617        $319,617        $319,617
Number of Pilots................................................              14               4              18
                                                                 -----------------------------------------------
    Total Target Pilot Compensation.............................      $4,474,638      $1,278,468      $5,753,106
----------------------------------------------------------------------------------------------------------------

E. Step 5: Calculate Working Capital Fund

    Next, we calculate the working capital fund revenues needed for
each area. First, we add the figures for projected operating expenses
and total pilot compensation for each area. Next, we find the preceding
year's average annual rate of return for new issues of high grade
corporate securities. Using Moody's data, that number is 3.67
percent.\45\ By multiplying the two figures, we get the working capital
fund contribution for each area, as shown in Table 17.
---------------------------------------------------------------------------

    \45\ Moody's Seasoned Aaa Corporate Bond Yield, average of 2016
monthly data, located at http://research.stlouisfed.org/fred2/series/AAA/downloaddata?cid=119. The Coast Guard uses the most
recent complete year of data.

                          Table 17--Working Capital Fund Contribution for District One
----------------------------------------------------------------------------------------------------------------
                                                                    Designated     Undesignated        Total
----------------------------------------------------------------------------------------------------------------
Adjusted Operating Expenses (Step 2)............................        $948,283        $765,179      $1,713,462
Total Target Pilot Compensation (Step 4)........................       3,196,170       2,237,319       5,433,489
                                                                 -----------------------------------------------
    Total 2018 Expenses.........................................       4,144,453       3,002,498       7,146,951
----------------------------------------------------------------------------------------------------------------
Working Capital Fund Contribution (Total 2018 Expenses x 3.67%).         152,101         110,192         262,293
----------------------------------------------------------------------------------------------------------------

                          Table 18--Working Capital Fund Contribution for District Two
----------------------------------------------------------------------------------------------------------------
                                                                   Undesignated     Designated         Total
----------------------------------------------------------------------------------------------------------------
Adjusted Operating Expenses (Step 2)............................        $816,341      $1,224,508      $2,040,849
Total Target Pilot Compensation (Step 4)........................       2,237,319       2,237,319       4,474,638
                                                                 -----------------------------------------------
    Total 2018 Expenses.........................................       3,053,660       3,461,827       6,515,487
----------------------------------------------------------------------------------------------------------------
Working Capital Fund Contribution (Total 2018 Expenses x 3.67%).         112,069         127,049         239,118
----------------------------------------------------------------------------------------------------------------

                         Table 19--Working Capital Fund Contribution for District Three
----------------------------------------------------------------------------------------------------------------
                                                                   Undesignated     Designated         Total
----------------------------------------------------------------------------------------------------------------
Adjusted Operating Expenses (Step 2)............................      $1,671,666        $557,221      $2,228,887
Total Target Pilot Compensation (Step 4)........................       4,474,638       1,278,468       5,753,106
                                                                 -----------------------------------------------
    Total 2018 Expenses.........................................       6,146,304       1,835,689       7,981,993
----------------------------------------------------------------------------------------------------------------
Working Capital Fund Contribution (Total 2018 Expenses x 3.67%).         225,569          67,370         292,939
----------------------------------------------------------------------------------------------------------------

F. Step 6: Calculate Revenue Needed

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

                                    Table 20--Revenue Needed for District One
----------------------------------------------------------------------------------------------------------------
                                                                    Designated     Undesignated        Total
----------------------------------------------------------------------------------------------------------------
Adjusted Operating Expenses (Step 2)............................        $948,283        $765,179      $1,713,462
Total Target Pilot Compensation (Step 4)........................       3,196,170       2,237,319       5,433,489
Return on Investment (Step 5)...................................         152,101         110,192         262,293
                                                                 -----------------------------------------------
    Total Revenue Needed........................................       4,296,554       3,112,690       7,409,244
----------------------------------------------------------------------------------------------------------------

                                    Table 21--Revenue Needed for District Two
----------------------------------------------------------------------------------------------------------------
                                                                   Undesignated     Designated         Total
----------------------------------------------------------------------------------------------------------------
Adjusted Operating Expenses (Step 2)............................        $816,341      $1,224,508      $2,040,849
Total Target Pilot Compensation (Step 4)........................       2,237,319       2,237,319       4,474,638
Return on Investment (Step 5)...................................         112,069         127,049         239,118
                                                                 -----------------------------------------------
    Total Revenue Needed........................................       3,165,729       3,588,876       6,754,605
----------------------------------------------------------------------------------------------------------------

                                   Table 22--Revenue Needed for District Three
----------------------------------------------------------------------------------------------------------------
                                                                   Undesignated     Designated         Total
----------------------------------------------------------------------------------------------------------------
Adjusted Operating Expenses (Step 2)............................      $1,671,666        $557,221      $2,228,888
Total Target Pilot Compensation (Step 4)........................       4,474,638       1,278,468       5,753,106
Return on Investment (Step 5)...................................         225,569          67,370         292,939
                                                                 -----------------------------------------------
    Total Revenue Needed........................................       6,371,873       1,903,059       8,274,933
----------------------------------------------------------------------------------------------------------------

G. Step 7: Calculate Initial Base Rates

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

                 Table 23--Time on Task for District One
------------------------------------------------------------------------
                    Year                      Undesignated   Designated
------------------------------------------------------------------------
2016........................................         6,217         5,434
2015........................................         6,667         5,743
2014........................................         6,853         6,810
2013........................................         5,529         5,864
2012........................................         5,121         4,771
2011........................................         5,377         5,045
2010........................................         5,649         4,839
2009........................................         3,947         3,511
2008........................................         5,298         5,829
2007........................................         5,929         6,099
Average.....................................         5,659         5,395
------------------------------------------------------------------------

                 Table 24--Time on Task for District Two
------------------------------------------------------------------------
                    Year                      Undesignated   Designated
------------------------------------------------------------------------
2016........................................         6,425         5,615
2015........................................         6,535         5,967
2014........................................         7,856         7,001
2013........................................         4,603         4,750
2012........................................         3,848         3,922
2011........................................         3,708         3,680
2010........................................         5,565         5,235
2009........................................         3,386         3,017
2008........................................         4,844         3,956
2007........................................         6,223         6,049
Average.....................................         5,299         4,919
------------------------------------------------------------------------

                Table 25--Time on Task for District Three
------------------------------------------------------------------------
                    Year                      Undesignated   Designated
------------------------------------------------------------------------
2016........................................        23,421         2,769
2015........................................        22,824         2,696
2014........................................        25,833         3,835
2013........................................        17,115         2,631
2012........................................        15,906         2,163
2011........................................        16,012         1,678
2010........................................        20,211         2,461
2009........................................        12,520         1,820
2008........................................        14,287         2,286
2007........................................        24,811         5,944
Average.....................................        19,294         2,828
------------------------------------------------------------------------

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

              Table 26--Rate Calculations for District One
------------------------------------------------------------------------
                                            Designated     Undesignated
------------------------------------------------------------------------
Revenue needed (Step 6).................      $4,296,554      $3,112,690
Average time on task....................           5,395           5,659
Initial rate............................             796             550
------------------------------------------------------------------------

              Table 27--Rate Calculations for District Two
------------------------------------------------------------------------
                                            Designated     Undesignated
------------------------------------------------------------------------
Revenue needed (Step 6).................      $3,588,876      $3,165,729
Average time on task....................           4,919           5,299
Initial rate............................             730             597
------------------------------------------------------------------------

             Table 28--Rate Calculations for District Three
------------------------------------------------------------------------
                                            Designated     Undesignated
------------------------------------------------------------------------
Revenue needed (Step 6).................      $1,903,059      $6,371,873
Average time on task....................           2,828          19,294
Initial rate............................             673             330
------------------------------------------------------------------------

H. Step 8: Calculate Weighting Factors by Area

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

                                  Table 29--Average Weighting Factor for Area 1
                                            [District 1, designated]
----------------------------------------------------------------------------------------------------------------
                                                                     Number of       Weighting       Weighted
                        Vessel class/year                            transits         factor         transits
----------------------------------------------------------------------------------------------------------------
Class 1 (2014)..................................................              31            1.00              31
Class 1 (2015)..................................................              41            1.00              41
Class 1 (2016)..................................................              31            1.00              31
Class 2 (2014)..................................................             285            1.15          327.75
Class 2 (2015)..................................................             295            1.15          339.25
Class 2 (2016)..................................................             185            1.15          212.75
Class 3 (2014)..................................................              50            1.30              65

Class 3 (2015)..................................................              28            1.30            36.4
Class 3 (2016)..................................................              50            1.30              65
Class 4 (2014)..................................................             271            1.45          392.95
Class 4 (2015)..................................................             251            1.45          363.95
Class 4 (2016)..................................................             214            1.45           310.3
                                                                 -----------------------------------------------
    Total.......................................................           1,732  ..............        2,216.35
----------------------------------------------------------------------------------------------------------------
Average weighting factor (weighted transits/number of transits).  ..............            1.28  ..............
----------------------------------------------------------------------------------------------------------------

                                  Table 30--Average Weighting Factor for Area 2
                                           [District 1, undesignated]
----------------------------------------------------------------------------------------------------------------
                                                                     Number of       Weighting       Weighted
                        Vessel class/year                            transits         factor         transits
----------------------------------------------------------------------------------------------------------------
Class 1 (2014)..................................................              25            1.00              25
Class 1 (2015)..................................................              28            1.00              28
Class 1 (2016)..................................................              18            1.00              18
Class 2 (2014)..................................................             238            1.15           273.7
Class 2 (2015)..................................................             263            1.15          302.45
Class 2 (2016)..................................................             169            1.15          194.35
Class 3 (2014)..................................................              60            1.30              78
Class 3 (2015)..................................................              42            1.30            54.6
Class 3 (2016)..................................................              28            1.30            36.4
Class 4 (2014)..................................................             289            1.45          419.05
Class 4 (2015)..................................................             269            1.45          390.05
Class 4 (2016)..................................................             222            1.45           321.9
                                                                 -----------------------------------------------
    Total.......................................................           1,651  ..............         2,141.6
----------------------------------------------------------------------------------------------------------------
Average weighting factor (weighted transits/number of transits).  ..............            1.30  ..............
----------------------------------------------------------------------------------------------------------------

                                  Table 31--Average Weighting Factor for Area 4
                                            [District 2, designated]
----------------------------------------------------------------------------------------------------------------
                                                                     Number of       Weighting       Weighted
                        Vessel class/year                            transits         factor         transits
----------------------------------------------------------------------------------------------------------------
Class 1 (2014)..................................................              20            1.00              20
Class 1 (2015)..................................................              15            1.00              15
Class 1 (2016)..................................................              28            1.00              28
Class 2 (2014)..................................................             237            1.15          272.55
Class 2 (2015)..................................................             217            1.15          249.55
Class 2 (2016)..................................................             224            1.15           257.6
Class 3 (2014)..................................................               8            1.30            10.4
Class 3 (2015)..................................................               8            1.30            10.4
Class 3 (2016)..................................................               4            1.30             5.2
Class 4 (2014)..................................................             359            1.45          520.55
Class 4 (2015)..................................................             340            1.45             493
Class 4 (2016)..................................................             281            1.45          407.45
                                                                 -----------------------------------------------
    Total.......................................................           1,741  ..............         2,289.7
----------------------------------------------------------------------------------------------------------------
Average weighting factor (weighted transits/number of transits).  ..............            1.32  ..............
----------------------------------------------------------------------------------------------------------------

                                  Table 32--Average Weighting Factor for Area 5
                                           [District 2, undesignated]
----------------------------------------------------------------------------------------------------------------
                                                                     Number of       Weighting       Weighted
                        Vessel class/year                            transits         factor         transits
----------------------------------------------------------------------------------------------------------------
Class 1 (2014)..................................................              31            1.00              31
Class 1 (2015)..................................................              35            1.00              35
Class 1 (2016)..................................................              32            1.00              32
Class 2 (2014)..................................................             356            1.15           409.4
Class 2 (2015)..................................................             354            1.15           407.1

Class 2 (2016)..................................................             380            1.15             437
Class 3 (2014)..................................................              20            1.30              26
Class 3 (2015)..................................................               0            1.30               0
Class 3 (2016)..................................................               9            1.30            11.7
Class 4 (2014)..................................................             636            1.45           922.2
Class 4 (2015)..................................................             560            1.45             812
Class 4 (2016)..................................................             468            1.45           678.6
                                                                 -----------------------------------------------
    Total.......................................................           2,881  ..............           3,802
----------------------------------------------------------------------------------------------------------------
Average weighting factor (weighted transits/number of transits).  ..............            1.32  ..............
----------------------------------------------------------------------------------------------------------------

                              Table 33--Average Weighting Factor for Areas 6 and 8
                                           [District 3, undesignated]
----------------------------------------------------------------------------------------------------------------
                                                                     Number of       Weighting       Weighted
                        Vessel class/year                            transits         factor         transits
----------------------------------------------------------------------------------------------------------------
Area 6:
    Class 1 (2014)..............................................              45            1.00              45
    Class 1 (2015)..............................................              56            1.00              56
    Class 1 (2016)..............................................             136            1.00             136
    Class 2 (2014)..............................................             274            1.15           315.1
    Class 2 (2015)..............................................             207            1.15          238.05
    Class 2 (2016)..............................................             236            1.15           271.4
    Class 3 (2014)..............................................              15            1.30            19.5
    Class 3 (2015)..............................................               8            1.30            10.4
    Class 3 (2016)..............................................              10            1.30              13
    Class 4 (2014)..............................................             394            1.45           571.3
    Class 4 (2015)..............................................             375            1.45          543.75
    Class 4 (2016)..............................................             332            1.45           481.4
                                                                 -----------------------------------------------
        Total for Area 6........................................           2,088  ..............         2,700.9
Area 8:
    Class 1 (2014)..............................................               3            1.00               3
    Class 1 (2015)..............................................               0            1.00               0
    Class 1 (2016)..............................................               4            1.00               4
    Class 2 (2014)..............................................             177            1.15          203.55
    Class 2 (2015)..............................................             169            1.15          194.35
    Class 2 (2016)..............................................             174            1.15           200.1
    Class 3 (2014)..............................................               3            1.30             3.9
    Class 3 (2015)..............................................               0            1.30               0
    Class 3 (2016)..............................................               7            1.30             9.1
    Class 4 (2014)..............................................             243            1.45          352.35
    Class 4 (2015)..............................................             253            1.45          366.85
    Class 4 (2016)..............................................             204            1.45           295.8
                                                                 -----------------------------------------------
        Total for Area 8........................................           1,237  ..............           1,633
                                                                 -----------------------------------------------
            Combined total......................................           3,325  ..............         4,333.9
----------------------------------------------------------------------------------------------------------------
Average weighting factor (weighted transits/number of transits).  ..............            1.30  ..............
----------------------------------------------------------------------------------------------------------------

                                  Table 34--Average Weighting Factor for Area 7
                                            [District 3, designated]
----------------------------------------------------------------------------------------------------------------
                                                                     Number of       Weighting       Weighted
                        Vessel class/year                            transits         factor         transits
----------------------------------------------------------------------------------------------------------------
Class 1 (2014)..................................................              27            1.00              27
Class 1 (2015)..................................................              23            1.00              23
Class 1 (2016)..................................................              55            1.00              55
Class 2 (2014)..................................................             221            1.15          254.15
Class 2 (2015)..................................................             145            1.15          166.75
Class 2 (2016)..................................................             174            1.15           200.1
Class 3 (2014)..................................................               4            1.30             5.2
Class 3 (2015)..................................................               0            1.30               0
Class 3 (2016)..................................................               6            1.30             7.8

Class 4 (2014)..................................................             321            1.45          465.45
Class 4 (2015)..................................................             245            1.45          355.25
Class 4 (2016)..................................................             191            1.45          276.95
                                                                 -----------------------------------------------
    Total.......................................................           1,412  ..............        1,836.65
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Average weighting factor (weighted transits/number of transits).  ..............            1.30  ..............