annual pension contributions from a randomly selected group of GLPA
pilots. The commenter did note that the typical Canadian pilot
contributes an average of $10,000-16,000 annually to a pension plan,
while an American pilot might contribute ``multiple times that amount,
receiving no contribution from his government, and not being eligible
for any similar lifetime government-sponsored defined pension plan.''
The commenter stated the difference an American pilot would need to
contribute to a pension alone requires a factor greater than 10 percent
to adjust target compensation. They also stated that data from the
International Organization of Masters, Mates & Pilots (MM&P) American
labor union indicates the pension contribution for a pilot would be
$61,992 annually for a plan similar to the Canadian defined benefit
pension plan.
---------------------------------------------------------------------------

    \68\ Docket #USCG-2016-0268-0028, p. 4.
    \69\ Docket #USCG-2016-0268-0028. p. 4.
---------------------------------------------------------------------------

    The same commenter also stated the healthcare compensation is
different between American and Canadian pilots, and further supports a
factor higher than 10 percent. The commenter noted a Canadian pilot
pays no out-of-pocket expenses for dental or general healthcare
coverage, while an American pilot typically pays $25,000 annually for a
reasonably comprehensive healthcare plan. The commenter cited that the
MM&P Pilot Membership Health plan annual cost is $28,965 and an
American pilot association includes $30,000 annually per pilot for
healthcare. Further, American pilots must pay for long-term disability
insurance while Canadian pilots have no out-of-pocket costs for long-
term disability coverage. For these reasons, the commenter requested
``the Coast Guard to revise its factor to at least 25 percent and
perhaps more in order to achieve its goal of equivalency''.\70\
---------------------------------------------------------------------------

    \70\ Docket #USCG-2016-0268-0028, p. 5.
---------------------------------------------------------------------------

    Despite the importance of these issues, this information does not
relate to an issue that the Coast Guard proposed to address in the 2017
ratemaking process. In 2016, the Coast Guard conducted a substantial
re-baselining of the compensation benchmark, and considered these
issues closely, arriving at the $326,114 annual compensation figure. In
the 2017 ratemaking, it was not our intention to

reanalyze all of these issues, and we did not propose a change in the
value we established in 2016. Much like recalculating U.S. pilot
salaries on the fluctuating U.S.-Canada exchange rate, recalculating
these issues on an annual basis could produce an extraordinary amount
of volatility in both the shipping rates and the overall compensation
levels, which is why we proposed using a 10-year compensation benchmark
rather than recalculating the target compensation on an annual basis.
As we stated in the NPRM, we do not believe it is in the public
interest to introduce such volatility into the market based on these
difficult-to-calculate and predict forces. We believe that the system
needs target pilot compensation stability in order to achieve and
maintain workforce stability, and that this concern strongly supports
using a consistent compensation benchmark. For that reason, while we
consider all of these factors to be valid concerns, we are not
utilizing them in this rulemaking.
    We did receive one comment on the compensation figure that did not
involve re-examining the benchmark. This commenter suggested that the
2016 figure should be adjusted for inflation so that pilots would
continue to receive the same income in real terms. We agree with this
commenter. To remain stable in real terms, such a benchmark would need
be adjusted for inflation on an annual basis. This will achieve the
Coast Guard's goal of maintaining stability in real (as opposed to
nominal) compensation. For this reason, we are adjusting the 2017
target compensation by the Midwest Consumer Price Index of 2.1 percent,
for a total figure of $332,963 per year. We intend to adjust the
compensation figure for inflation annually in future ratemaking
actions, the same way that operating expenses are adjusted for
inflation.
    Based on the analysis, the calculations for step 4 are as follows:

                                   Table 7--Calculations of Total Compensation
----------------------------------------------------------------------------------------------------------------
                                                                 Area 2            Area 1
                       District One                          (undesignated)     (designated)          Total
----------------------------------------------------------------------------------------------------------------
Target Pilot Compensation.................................          $332,963          $332,963          $332,963
Number of Pilots (step 3).................................                10                 7                17
                                                           -----------------------------------------------------
    Total pilot compensation..............................        $3,329,630        $2,330,741        $5,660,371
----------------------------------------------------------------------------------------------------------------

                                                                 Area 4            Area 5
                       District Two                          (undesignated)     (designated)          Total
----------------------------------------------------------------------------------------------------------------
Target Pilot Compensation.................................          $332,963          $332,963          $332,963
Number of Pilots (step 3).................................                 6                 7                13
                                                           -----------------------------------------------------
    Total pilot compensation..............................        $1,997,778        $2,330,741        $4,328,519
----------------------------------------------------------------------------------------------------------------

                                                                  Area              Area
                      District Three                         (undesignated)     (designated)          Total
----------------------------------------------------------------------------------------------------------------
Target Pilot Compensation.................................          $332,963          $332,963          $332,963
Number of Pilots (step 3).................................                11                 4                15
                                                           -----------------------------------------------------
    Total pilot compensation..............................        $3,662,593        $1,331,852        $4,994,445
----------------------------------------------------------------------------------------------------------------

5. Working Capital Fund
    Step 5 in our ratemaking methodology requires that the Coast Guard
determine the working capital fund (proposed Sec.  404.105). In the
NPRM, we proposed changing the term for this step from ``Project return
on investment'' to ``Determine working capital fund.'' Even though we
proposed changing the name of the step, we did not propose changing the
calculation.
    The Coast Guard described the calculation of the working capital
fund in the NPRM.\71\ We calculated the working capital fund by
multiplying the 2014 average rate of return for new issues of high-
grade corporate securities, using the Moody's AAA bond rate information
to determine the average annual rate of return for new issues of high-
grade corporate securities, and Total Expenses from step 4 of the
ratemaking analysis. The 2014 average annual rate of return for new
issues of high-grade corporate securities was 4.16 percent.\72\ This
figure is added to the total revenue needed in the next stage.
---------------------------------------------------------------------------

    \71\ 81 FR 72014-5.
    \72\ Based on Moody's AAA corporate bonds, which can be found
at: http://research.stlouisfed.org/fred2/series/AAA/downloaddata?cid=119.
---------------------------------------------------------------------------

    One commenter stated the Coast Guard is not using the working
capital fund to attract capital, and that this fund is better described
as ``cash reserves for operating expenses.'' Similarly, the commenter
\73\ stated the Coast Guard failed to address why the pilotage should
cover any expenses beyond direct expenses. The commenter stated that
working capital fund is inappropriate under conventional regulatory
ratemaking principles, and the rate payers should only pay for all
operating expenses via the rates and surcharges. The commenter
requested the Coast Guard eliminate the working capital fund. In its
place, the Coast Guard should review and approve projects for funding
with surcharges, ``assuming surcharges are structured in a manner that
permits close pre-approved scrutiny to ensure the expenditure adds
value to pilotage services and the surcharge is terminated when the
specific need is met.'' \74\ The commenter stated he or she prefers the
use of surcharges as it provides more clarity in the use of the funds
than a working capital fund.
---------------------------------------------------------------------------

    \73\ Docket #USCG-2016-0268-0033, p. 23.
    \74\ Docket #USCG-2016-0268-0033, p. 23.
---------------------------------------------------------------------------

    We disagree that the working capital fund should be abolished and
that infrastructure improvements should only be paid for with
surcharges. We believe that surcharges are a poor method for paying for
infrastructure projects, which are often capital-intensive, with large
upfront costs. It would be risky to try and recover these large upfront
costs through surcharges due to general volatility in shipping levels,
which might not cover the fixed costs of infrastructure. Using
surcharges

for infrastructure projects would also increase volatility in shipping
charges, which is not desirable. That is why the working capital fund
is not structured to be a ``cash reserve'' for infrastructure projects.
Instead, it is structured so that the pilot associations can
demonstrate credit worthiness when seeking funds from a financial
institution for needed infrastructure projects, and those projects can
produce a return on investment at a rate commensurate to repay a
financial institution. While we acknowledge that, currently, capital
improvements are funded via surcharges, it is our belief that the
working capital fund should allow us to limit the need for surcharges
in the future.

                                    Table 8--Working Capital Fund Calculation
----------------------------------------------------------------------------------------------------------------
                                                                 Area 2            Area 1
                       District One                          (undesignated)     (designated)          Total
----------------------------------------------------------------------------------------------------------------
Adjusted Operating Expenses (Step 2)......................          $648,371          $516,353        $1,164,724
    Total Target Pilot Compensation (Step 4)..............         3,329,630         2,330,741         5,660,371
Total 2017 Expenses (lines 1+2)...........................         3,978,001         2,847,094         6,825,095
Multiply by Moody' High Grade Security Rate (4.16%).......           165,485           118,439           283,924
----------------------------------------------------------------------------------------------------------------

                                                                 Area 4            Area 5
                       District Two                          (undesignated)     (designated)          Total
----------------------------------------------------------------------------------------------------------------
Adjusted Operating Expenses (Step 2)......................           816,016         1,224,024         2,040,040
Total Target Pilot Compensation (Step 4)..................         1,997,778         2,330,741         4,328,519
    Total 2017 Expenses (lines 1+2).......................         2,813,794         3,554,765         6,368,559
Multiply by Moody' High Grade Security Rate (4.16%).......           117,054           147,878           264,932
----------------------------------------------------------------------------------------------------------------

                                                              Areas 6 and 8        Area 7
                      District Three                         (undesignated)     (designated)          Total
----------------------------------------------------------------------------------------------------------------
Adjusted Operating Expenses (Step 2)......................         1,463,402           487,114         1,950,516
Total Target Pilot Compensation (Step 4)..................         3,662,593         1,331,852         4,994,445
    Total 2017 Expenses (lines 1+2).......................         5,125,995         1,818,966         6,944,961
Multiply by Moody' High Grade Security Rate (4.16%).......           213,241            75,669           288,910
----------------------------------------------------------------------------------------------------------------

6. Calculation of Needed Revenue
    Step 6 in our ratemaking methodology requires that the Coast Guard
determine the projected revenue for the next year (Sec.  404.106). The
needed revenue is determined by adding the proposed Sec.  404.102
operating expense, the proposed Sec.  404.104 total target
compensation, and the proposed Sec.  404.105 working capital fund. We
did not receive any comments related to this step.

                                     Table 9--Calculation of Needed Revenue
----------------------------------------------------------------------------------------------------------------
                                                                 Area 1            Area 2
                       District One                           (designated)     (undesignated)         Total
----------------------------------------------------------------------------------------------------------------
Adjusted Operating Expenses (Step 2)......................          $648,371          $516,353        $1,164,724
Total Target Pilot Compensation (Step 4)..................         3,329,630         2,330,741         5,660,371
Working Capital Fund (Step 5).............................           165,485           118,439           283,924
                                                           -----------------------------------------------------
    Total Revenue Needed..................................         4,143,486         2,965,533         7,109,019
----------------------------------------------------------------------------------------------------------------

                                                                 Area 4            Area 5
                       District Two                          (undesignated)     (designated)          Total
----------------------------------------------------------------------------------------------------------------
Adjusted Operating Expenses (Step 2)......................           816,016         1,224,024         2,040,040
Total Target Pilot Compensation (Step 4)..................         1,997,778         2,330,741         4,328,519
Working Capital Fund (Step 5).............................           117,054           147,878           264,932
                                                           -----------------------------------------------------
    Total Revenue Needed..................................         2,930,848         3,702,643         6,633,491
----------------------------------------------------------------------------------------------------------------

                                                              Areas 6 and 8        Area 7
                      District Three                         (undesignated)     (designated)          Total
----------------------------------------------------------------------------------------------------------------
Adjusted Operating Expenses (Step 2)......................         1,463,402           487,114         1,950,516
Total Target Pilot Compensation (Step 4)..................         3,662,593         1,331,852         4,994,445
Working Capital Fund (Step 5).............................           213,241            75,669           288,910
                                                           -----------------------------------------------------
    Total Revenue Needed..................................         5,339,236         1,894,635         7,233,871
----------------------------------------------------------------------------------------------------------------

7. Projection of Future Revenue and Calculation of Initial Base Rates
    Step 7 in our ratemaking methodology requires that the Coast Guard
make the initial base rate calculations. To make our initial base rate
calculations, we first establish a multi-year base period from which we
can draw available and reliable data on actual pilot hours worked in
each district's designated and undesignated waters. In the NPRM, we
proposed using data covering 2007

through 2015. We then calculated the new rates by dividing each
association's projected needed revenue, from Sec.  404.106, by the
average number of bridge hours and rounding to the nearest whole
number. We did not receive comments on this step.

                Table 10a--Calculation of Average Traffic
------------------------------------------------------------------------
                                           Area 2            Area 1
            District One               (undesignated)     (designated)
------------------------------------------------------------------------
2016................................  ................  ................
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...........................             5,597             5,390
------------------------------------------------------------------------

                                           Area 4            Area 5
            District Two               (undesignated)     (designated)
------------------------------------------------------------------------
2016................................  ................  ................
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...........................             5,174             4,842
------------------------------------------------------------------------

                                        Areas 6 and 8        Area 7
           District Three              (undesignated)     (designated)
------------------------------------------------------------------------
2016................................  ................  ................
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...........................            18,835             2,835
------------------------------------------------------------------------

              Table 10b--Calculation of Initial Base Rates
------------------------------------------------------------------------
                                           Area 2            Area 1
            District One               (undesignated)     (designated)
------------------------------------------------------------------------
Revenue Needed (Step 6).............        $2,965,533        $4,143,486
Average traffic.....................             5,597             5,390
Initial hourly rate.................              $530              $769
------------------------------------------------------------------------

                                           Area 4            Area 5
            District Two               (undesignated)     (designated)
------------------------------------------------------------------------
Revenue Needed (Step 6).............        $2,930,848        $3,702,643
Average traffic.....................             5,174             4,842
Initial hourly rate.................              $566              $765
------------------------------------------------------------------------

                                        Areas 6 and 8        Area 7
           District Three              (undesignated)     (designated)
------------------------------------------------------------------------
Revenue Needed (Step 6).............        $5,339,236        $1,894,635
Average traffic.....................            18,835             2,835
Initial hourly rate.................              $283              $668
------------------------------------------------------------------------

8. Calculation of an Average Weighting Factor
    In the NPRM, the Coast Guard sought public comment on how we should
handle weighting factors in 46 CFR 401.400, which outlines the
calculations for determining the weighting factors for a vessel subject
to compulsory pilotage. This calculation determines which
multiplication factor will be applied to the pilotage fees. The Coast
Guard presented three options and requested public comment on which
option should be implemented for future ratemakings. After receiving
public comments on the NPRM, the Coast Guard decided to seek additional
comments on this issue in a Supplemental Notice of Proposed
Rulemaking.\75\
---------------------------------------------------------------------------

    \75\ 82 FR 16542, April 5, 2017.
---------------------------------------------------------------------------

    The first option was to maintain the status quo. This would
maintain the collection of the current weighting factors and continue
to exclude this revenue from the ratemaking calculation.
    The second option was to remove weighting factors completely from
the regulations and charge every vessel equally for pilotage service
because a ship's dimensions have little impact on the experience and
skill level of the pilot providing the service. We note that this
option could mean simply charging every vessel the current ``base
rate,'' or it could mean adjusting the rates for vessels so all vessels
pay the current average weighted rate.
    The third option was to incorporate weighting factors into the
ratemaking through an additional step that examines and projects their
impact on the revenues of the pilot associations. This might enable us
to better forecast revenue, but it would add another variable to the
projections in the ratemaking methodology.
    One commenter said that they ``strongly urge the Coast Guard to
maintain the status quo on weighting factors, at least until actual
data suggest that changes are necessary and appropriate.'' \76\ The
commenter stated that the pilots have consistently failed to reach the
target pilot compensation over the last decade, with the weighting
factors included, and therefore changing the weighting factors would
risk further contributing to the difficulty attracting and retaining
pilots.
---------------------------------------------------------------------------

    \76\ Docket #USCG-2016-0268-0028, p. 9.
---------------------------------------------------------------------------

    One commenter \77\ stated that the Coast Guard's revenue
projections would not be accurate if we did not include weighting
factors to reflect vessel size. The commenter suggested that since the
rates in the NPRM do not reflect weighting factors, the Coast Guard
overstates the rates needed to generate the pilotage revenue. The
actual pilotage charges include a weighting factor multiplier and
additional charges. If the actual traffic is equal to the expected
demand, then the pilot associations would receive revenue above the
target revenue. The commenter provided an example using a 1.25
weighting factor, which is close to the 1.26 average weighting factor
provided in GLPA data.\78\ The commenter argued that if an average
weighting factor of 1.25 for all traffic were applied for the 2017
shipping season, the pilot associations would receive pilotage rates
sufficient to reach the $20.4 million target revenue, plus an
additional 25 percent in weighting factor revenue, plus any additional
amount charged to vessel operators.\79\
---------------------------------------------------------------------------

    \77\ Docket #USCG-2016-0268-0033, p. 29.
    \78\ Docket #USCG-2016-0268-0033, Exhibit I, Weighting Factor
Data.
    \79\ Docket #USCG-2016-0268-0033, p. 31.
---------------------------------------------------------------------------

    The commenter stated that they support the Coast Guard's proposed
third alternative for weighting factors, and suggested we use an
average weighting factor from either the current navigation season or
the last full year of available data in order to project revenues for
the next ratemaking. The commenter suggested we use an average
weighting factor between 1.2 and 1.3.
    The argument that not including the revenue from the weighting
factors into our calculation of total revenue would throw off the
calculations made intrinsic sense. Under the new methodology introduced
in 2016, pilotage is billed on an hourly basis, and if actual revenues
were approximately 25 percent higher than traffic would suggest they
should be, then the weighting factors would appear to be the cause of
that discrepancy. Under its own initiative, the Coast Guard examined
the initial revenue reports from the 2016 shipping season from all
three districts, and compared that to an average of weighting factor
charges collected through the Great Lakes Pilotage Management System.
The resulting comparison showed that the actual revenues were
substantially higher than predicted--even given the higher-than-average
traffic in 2016. The difference in expected revenue tracked closely,
but not exactly, with the calculated average weighting factor in each
District. This meant that shippers were paying approximately $5 million
more annually in shipping charges than the needed revenue figure would
suggest. It is important to note that non-compulsory pilotage did not
significantly change the disparity between projected and collected
revenues. Even though the three pilot associations generated in excess
of $3 million for providing non-compulsory service, once we removed the
bridge hours for those efforts, the revenues still revealed a $5
million difference.\80\
---------------------------------------------------------------------------

    \80\ District 1 had 920 hours of non-compulsory pilotage that
generated $619,218. Removing those hours and revenues leaves 98
percent of projected pilotage service and 122 percent of projected
revenues. District 2 had 1,920 hours of non-compulsory pilotage that
generated $1,674,256. Removing those hours and revenues leaves 101
percent of projected pilotage service and 133 percent of projected
revenues. District 3 had 2,745 hours of non-compulsory pilotage that
generated $1,030,570. Removing those hours and revenues leaves 111
percent of projected pilotage service and 135 percent of projected
revenues. Based on this analysis, we do not believe the non-
compulsory pilotage significantly altered the measured disparity
between traffic and revenue.
---------------------------------------------------------------------------

    With this new information, the Coast Guard decided that there was
an urgent need to address the extra revenues being brought in by the
weighting factors in the 2017 ratemaking. To that end, we issued an
SNPRM to address the weighting factors and to propose a modification to
the methodology. Our intention, as stated in the SNPRM, is to establish
a methodology that aligns projected revenues with actual collections.
    In the SNPRM, we proposed a two-step process for accounting for the
fees generated by the weighting factors. First, in a step we proposed
to designate Step 8, we would calculate the average actual weighting
factor in each area by using a weighted average of each class of
vessels. We would create a rolling multi-year average of that number
beginning with 2014, the year the weighting factors were set to current
levels. Then, in Step 9, we would divide the initial base rate for each
area, calculated in Step 7, by the weighting factor derived in Step 8,
to produce a final shipping rate. This would have the effect of
incorporating the additional revenues brought in by the weighting
factors into the revenue model used to set rates. As expected, this led
to significant reductions in pilotage fees, between the NPRM and SNPRM,
across all three districts, as expressed in the table below.

                                  Table 11--Comparison of Hourly Pilotage Rates
----------------------------------------------------------------------------------------------------------------
                                                          Pilotage charges
                          Area                             per hour  (per     NPRM proposed      SNPRM proposed
                                                          2016 final rule)   charges per hour   charges per hour
----------------------------------------------------------------------------------------------------------------
St. Lawrence River.....................................               $580               $757               $601
Lake Ontario...........................................                398                522                408
Navigable waters from Southeast Shoal to Port Huron, MI                684                720                580
Lake Erie..............................................                448                537                429
St. Mary's River.......................................                528                661                514
Lakes Huron, Michigan, and Superior....................                264                280                218
----------------------------------------------------------------------------------------------------------------

    We solicited comments on this revision of methodology, and received
an additional nine comment letters on this issue, which are addressed
below. Several commenters expressed concern that pilot salaries on the
Great Lakes were already too low, and that by incorporating the
weighting factors into the revenue analysis, we would jeopardize safety
on the Great Lakes as more pilots would leave the system. We
respectfully disagree with this analysis. As explained in great detail
in the NPRM and this final rule, we have significantly raised pilot
compensation in recent years. In 2016, we raised target pilot
compensation to $326,114 annually. Despite proposing no change in the
2017 NPRM, we have agreed with commenters who argued that this should
be increased by inflation, to a total of $332,963. For the reasons
described above, we believe this salary has been shown to dramatically
reduce the recruitment and retention problems the Great Lakes pilots
experienced in the past. Incorporating the revenue generated by the
weighting factors into our analysis allows the Coast Guard to set a
pilotage rate that achieves that outcome.
    Several commenters made the argument that the Coast Guard's
analysis was procedurally defective as a matter of law due to the way
we undertook them. These commenters suggested that the Coast Guard used
unaudited revenue figures to arrive at the revised analysis in the
SNPRM, and that the use of those figures violated the requirement in 46
CFR 404.1(b), which states that annual reviews of pilotage association
expenses and revenue will be based on audited data, and that data from
completed reviews will be used in ratemaking.
    We disagree with the commenters, and believe that they have
fundamentally misinterpreted how the Coast Guard arrived at the SNPRM's
proposal to adjust weighting factors. As described above, the Coast
Guard's analysis of the weighting factors was not the result of the
over-generation of revenue by the pilot associations. Rather, we were
spurred to examine them by the commenters' logical arguments that the
weighting factor produces revenue that goes to the pilot associations,
and that by not accounting for that revenue, our ratemaking model was
flawed. Mathematical logic suggested that if the weighting factors
added, on average, 28 percent to the total fees collected that were not
accounted for in the ratemaking model, then the pilot associations
would be collecting 28 percent more revenues than would be expected
given the amount of traffic measured.
    We are aware that the commenters had made this argument in past
years, but we had not accepted it. What was different this year is that
it was the first year where the pilotage rates had been set under the
new ratemaking model, adopted in the 2016 final rule. In previous
years, where the old ratemaking model was used, data had always shown
that actual revenues fell short of anticipated revenues. However, for
the first time in 2017 there was data--the preliminary 2016 revenue
numbers--that could be used to determine a rough estimate of the
magnitude of any revenue surplus. When we compared the preliminary
revenue numbers from 2016 to see if they bore out this hypothesis, we
found that the numbers were similar. We are cognizant that traffic on
the Great Lakes experienced a sharp rise in 2016, and that there would
be a commensurate increase in revenues, but as expected, the increase
in revenues far outpaced the increase in traffic.
    We noted, however, that there were still some discrepancies in the
figures. While the mathematics of the weighting factor would indicate
that revenues would run approximately 28 percent higher, the revenue
figures showed slightly lower numbers. We requested comments on this
discrepancy in the SNPRM, but did not receive comments that would
explain or correct it. Whatever the cause, we did not base the
weighting factor reduction proposed in the SNPRM on those unaudited
numbers. Doing so would have resulted in a slightly lower reduction
than what was proposed, but on the actual calculated average of the
billed weighting factors. We did not base the reduction on the
preliminary, unaudited revenues provided by the pilot associations
precisely because they were preliminary and unaudited.
    Given the comments received, the Coast Guard does not see any
reason to deviate from the weighting factors analysis in this final
rule. We used the same multi-year rolling average standard for this
calculation as we used for historic pilotage demand. Since the current
weighting factors came into place in 2014, we used the data between
2014 and 2016 and will expand this data set until we reach our 10-year
goal. They are calculated as follows:

                               Table 12--Calculation of Average Weighting Factors
----------------------------------------------------------------------------------------------------------------
                                                                     Number of       Weighting
                          Vessel class                               transits         factor        Multiplier
----------------------------------------------------------------------------------------------------------------
District One: Undesignated (Area 2):
    Class 1.....................................................              71            1.00              71
    Class 2.....................................................             670            1.15           770.5
    Class 3.....................................................             130            1.30             169
    Class 4.....................................................             780            1.45           1,131
                                                                 -----------------------------------------------

        Total Transits..........................................           1,651  ..............         2,141.5
        Average Weighting Factor................................  ..............  ..............            1.30
District One: Designated (Area 1):
    Class 1.....................................................             103            1.00             103
    Class 2.....................................................             765            1.15          879.75
    Class 3.....................................................             128            1.30           166.4
    Class 4.....................................................             736            1.45         1,067.2
                                                                 -----------------------------------------------
        Total Transits..........................................           1,732  ..............        2,216.35
        Average Weighting Factor................................  ..............  ..............            1.28
District Two: Undesignated (Area 4):
    Class 1.....................................................              63            1.00              63
    Class 2.....................................................             678            1.15           779.7
    Class 3.....................................................              20            1.30              26
    Class 4.....................................................             980            1.45           1,421
                                                                 -----------------------------------------------
        Total Transits..........................................           1,741  ..............         2,289.7
        Average Weighting Factor................................  ..............  ..............            1.32
District Two: Designated (Area 5):
    Class 1.....................................................              98            1.00              98
    Class 2.....................................................           1,090            1.15         1,253.5
    Class 3.....................................................              29            1.30            37.7
    Class 4.....................................................           1,664            1.45         2,412.8
                                                                 -----------------------------------------------
        Total Transits..........................................           2,881  ..............           3,802
        Average Weighting Factor................................  ..............  ..............            1.32
District Three: Undesignated (Areas 6 and 8):
    Class 1.....................................................             244            1.00             244
    Class 2.....................................................           1,237            1.15        1,422.55
    Class 3.....................................................              43            1.30            55.9
    Class 4.....................................................           1,801            1.45        2,611.45
                                                                 -----------------------------------------------
        Total Transits..........................................           3,325  ..............         4,333.9
        Average Weighting Factor................................  ..............  ..............            1.30
District Three: Designated (Area 7):
    Class 1.....................................................             105            1.00             105
    Class 2.....................................................             540            1.15             621
    Class 3.....................................................              10            1.30              13
    Class 4.....................................................             757            1.45        1,097.65
                                                                 -----------------------------------------------
        Total Transits..........................................           1,412  ..............        1,836.65
        Average Weighting Factor................................  ..............  ..............            1.30
----------------------------------------------------------------------------------------------------------------

Step 9: Calculation of Revised Rate
    In this penultimate step, we calculate the revised rate by
incorporating the average weighting factor into the initial rate. The
revised rate is calculated as follows:

                                      Table 13--Calculation of Revised Rate
----------------------------------------------------------------------------------------------------------------
                                                                                Average
                                                                   Initial rate      weighting     Revised rate
                                                                     (Step 7)      factor  (Step     (Step 9)
                                                                                8)
----------------------------------------------------------------------------------------------------------------
                                                  District One
----------------------------------------------------------------------------------------------------------------
District One Designated.........................................            $769            1.28            $601
District One Undesignated.......................................             530            1.30             408
----------------------------------------------------------------------------------------------------------------
                                                  District Two
----------------------------------------------------------------------------------------------------------------
District Two Designated.........................................             765            1.32             580
District Two Undesignated.......................................             566            1.32             429
----------------------------------------------------------------------------------------------------------------
                                                 District Three
----------------------------------------------------------------------------------------------------------------
District Three Designated.......................................             668            1.30             514
District Three Undesignated.....................................             283            1.30             218
----------------------------------------------------------------------------------------------------------------

Step 10: Review and Finalize Rates
    Section 401.10, often known as ``Director's discretion,'' allows
the Coast Guard to adjust rates to ensure they meet the goal of
providing safe and reliable pilotage. In the NPRM, we did not propose
to use this discretion in our ratemaking, and we are not using it in
this ratemaking. While we received comments suggesting we add language
limiting the use of our discretion, we do not feel such language is
necessary or appropriate to include in this final rule as the current
methodology provides a fair and transparent means to meet the goals
outlined in 46 CFR 404.1(a).
Surcharge Calculation
    After the pilotage rates have been determined, the Coast Guard can
authorize the pilot associations to impose a surcharge. In the NPRM, we
proposed a 5 percent surcharge for District Two and a 15 percent
surcharge for District Three to cover training expenses for nine
applicant pilots. We proposed this number based on historical pilot
costs, stipends, per diems, and training costs, which are approximately
$150,000 per pilot per shipping season. We continue to find that
allowing associations to recoup necessary and reasonable training
expenses, both to help achieve a full complement of needed pilots and
to ensure skill maintenance and development for current pilots, will
facilitate safe, efficient, and reliable pilotage. Thus we are imposing
a necessary and reasonable temporary surcharge, as authorized by 46 CFR
401.401. Based upon our records and communications with the various
pilot associations, for 2017, we anticipate that there will be two
applicant pilots in District Two, and seven applicant pilots in
District Three.
    We received one comment on this subject, stating that the surcharge
adjustment of $150,000 was not enough for District Two, and that the
amount for that district should be set instead at $250,000 to properly
recover costs.\81\ The same commenter, in a separate comment, also
wrote that the 2014 applicant pilot salaries were $281,588.00 and the
benefits were $96,613.00.\82\ However, we were unable to confirm these
assertions, because the commenter did not provide sufficient
documentation with the comment. Any difference between the actual and
assumed cost may be included in a future rulemaking. Again, we will
determine which incurred expenses are necessary and reasonable, and
ensure that the shippers are not double-charged for these same
expenses.
---------------------------------------------------------------------------

    \81\ Docket #USCG-2016-0268-0031.
    \82\ Docket #USCG-2016-0268-0032.
---------------------------------------------------------------------------

    Based on historic pilot costs, the stipend, per diem, and training
costs, we continue to believe that the total costs for each applicant
pilot are approximately $150,000 per shipping season. Thus, we estimate
that the training expenses that each association will incur will be
approximately $300,000 in District Two and $1,050,000 in District
Three. Table 14 derives the proposed percentage surcharge for each
district by comparing this estimate to each district's projected needed
revenue.

                    Table 14--Surcharge Calculations
------------------------------------------------------------------------

------------------------------------------------------------------------
                              District Two
------------------------------------------------------------------------
Projected Needed Revenue (Sec.   404.106)...............      $6,663,002
Anticipated Training Expenses...........................        $300,000
Surcharge Needed *......................................              5%
------------------------------------------------------------------------
                             District Three
------------------------------------------------------------------------
Projected Needed Revenue (Sec.   404.106)...............      $7,262,089
Anticipated Training Expenses...........................      $1,050,000
Surcharge Needed *......................................             15%
------------------------------------------------------------------------
* Surcharge rounded up to the nearest whole percent.

V. Regulatory Analyses

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

A. Regulatory Planning and Review

    Executive Orders 12866 (``Regulatory Planning and Review'') and
13563 (``Improving Regulation and Regulatory Review'') direct agencies
to assess the costs and benefits of available regulatory alternatives
and, if regulation is necessary, to select regulatory approaches that
maximize net benefits (including potential economic, environmental,
public health and safety effects, distributive impacts, and equity).
Executive Order 13563 emphasizes the importance of quantifying both
costs and benefits, of reducing costs, of harmonizing rules, and of
promoting flexibility. Executive Order 13771 (``Reducing Regulation and
Controlling Regulatory Costs''), directs agencies to reduce regulation
and control regulatory costs and provides that ``for every one new
regulation issued, at least two prior regulations be identified for
elimination, and that the cost of planned regulations be prudently
managed and controlled through a budgeting process.''
    The Office of Management and Budget (OMB) has not designated this
rule a significant regulatory action under section 3(f) of Executive
Order 12866. Accordingly, OMB has not reviewed it. As this rule is not
a significant regulatory action, this rule is exempt from the
requirements of Executive Order 13771. See OMB's Memorandum ``Guidance
Implementing Executive Order 13771, Titled `Reducing Regulation and
Controlling Regulatory Costs' '' (April 5, 2017). A regulatory analysis
(RA) follows.
    We developed an analysis of the costs and benefits of the rule to
ascertain its probable impacts on industry.
    Table 15 summarizes the regulatory changes that are expected to
have no costs, and any qualitative benefits associated with them. The
table also includes changes that affect portions of the methodology for
calculating the base pilotage rates.

                 Table 15--Regulatory Changes With No Cost or Costs Captured in the Rate Change
----------------------------------------------------------------------------------------------------------------
               Changes                       Description           Basis for no costs            Benefits
----------------------------------------------------------------------------------------------------------------
Mandatory change point on the Saint    Mandatory change point   The addition of the      Staffing additional
 Lawrence River between Iroquois Lock   on the Saint Lawrence    change point will not    pilots will help meet
 and the area of Ogdensburg, NY.        River between Iroquois   require capital          the increased demand
                                        Lock and the area of     expenses. The only       for pilots to handle
                                        Ogdensburg, NY, that     cost is for the new      the additional
                                        would become effective   pilots, who are          assignments
                                        with the                 accounted for in the     anticipated to be
                                        implementation of this   base pilotage rates      caused by the new
                                        final rule.              and training             change point.
                                                                 surcharges.              Additional pilots due
                                                                                to this change point
                                                                                should also serve to
                                                                                mitigate any potential
                                                                                delays and any
                                                                                potential fatigue that
                                                                                would occur from high
                                                                                pilotage demand
                                                                                without them.
Cancellation charges.................  Amending the             Clarification of         --Clarifies the current
                                        cancellation charge      existing text and        language to eliminate
                                        provision in Sec.        current practice.        any potential
                                        401.120(b) to ensure                              confusion on the
                                        it explicitly states                              minimum charge for
                                        that the minimum                                  cancellations.
                                        charge for a                                     --Clarification of the
                                        cancellation is 4                                 minimum charge ensures
                                        hours plus necessary                              the recognition of
                                        and reasonable travel                             pilots as a limited
                                        expenses for the                                  resource and
                                        travel that occurs.                               encourages efficient
                                                                                use.
Surcharge provision..................  Adding a requirement to  Ensures the goal         Prevents excess amounts
                                        the surcharge            surcharge amount built   from being recouped
                                        regulation in Sec.       into the year's          from industry via the
                                        401.401 to stop          rulemaking will not be   following year's rule.
                                        collecting funds once    surpassed, and
                                        the assigned value has   prevents additional
                                        been recovered for the   costs on industry.
                                        season.
Rename Return on Investment..........  Renaming Return on       Clarifies the intent of  Clarifies the intent of
                                        Investment as Working    the fund but does not    this fund.
                                        Capital Fund.            change the method of
                                                                 calculation. Costs are
                                                                 included in the total
                                                                 revenues.
Set Pilot compensation for a 10-year   Addition of new          Pilot staffing costs     Promotes target
 period.                                language in Sec.         are accounted for in     compensation stability
                                        404.104 that allows      the base pilotage        and rate
                                        the Director to set      rates.                   predictability.
                                        compensation for a 10-
                                        year period to a
                                        compensation benchmark.
Weighting Factors....................  Additional step in the   Impacts the base         Factors the impact of
                                        ratemaking that          pilotage rates, but      extra revenue
                                        accounts for the         does not impact the      generated by the
                                        weighting factors.       revenue projections.     weighting factors into
                                                                                the ratemaking
                                                                                analysis.
----------------------------------------------------------------------------------------------------------------

    Table 16 summarizes the affected population, costs, and benefits of
the regulatory requirements that are expected to have associated costs
as a result of the rate change.

                              Table 16--Regulatory Economic Impacts of Rate Change
----------------------------------------------------------------------------------------------------------------
             Change                   Description      Affected population       Costs             Benefits
----------------------------------------------------------------------------------------------------------------
Rate Changes....................  Under the Great      Owners and               $3,222,703   --New rates cover
                                   Lakes Pilotage Act   operators of 230                      an association's
                                   of 1960, the Coast   vessels journeying                    necessary and
                                   Guard is required    the Great Lakes                       reasonable
                                   to review and        system annually.                      operating
                                   adjust base                                                expenses.
                                   pilotage rates                                            --Provides fair
                                   annually.                                                  compensation,
                                                                                adequate training,
                                                                                and sufficient
                                                                                rest periods for
                                                                                pilots.
                                                                                --Ensures the
                                                                                association makes
                                                                                enough money to
                                                                                fund future
                                                                                improvements.
----------------------------------------------------------------------------------------------------------------

    The Coast Guard is required to review and adjust pilotage rates on
the Great Lakes annually. See Sections II and III of this preamble for
detailed discussions of the Coast Guard's legal basis and purpose for
this rulemaking and for background information on Great Lakes pilotage
ratemaking. Based on our annual review for this rulemaking, we are
adjusting the pilotage rates for the 2017 shipping season to generate
sufficient revenues for each district to reimburse their necessary and
reasonable operating expenses, fairly compensate trained and rested
pilots, and provide an appropriate working capital fund to use for
improvements. The rate changes in this rule will lead to an increase in
the cost per unit of service to shippers in all three districts, and
result in an estimated annual cost increase to shippers.
    In addition to the increase in payments that would be incurred by
shippers in all three districts from the previous year as a result of
the rate changes, we propose authorizing a temporary surcharge to allow
the pilotage associations to recover training expenses that would be
incurred in 2017. For 2017, we anticipate that there

will be no applicant pilots in District One, two applicant pilots in
District Two, and seven applicant pilots in District Three. With a
training cost of $150,000 per pilot, we estimate that Districts Two and
Three will incur $300,000 and $1,050,000 in training expenses,
respectively. These temporary surcharges would generate a combined
$1,350,000 in revenue for the pilotage associations. Therefore, after
accounting for the implementation of the temporary surcharges across
all three districts, the payments made by shippers during the 2017
shipping season are estimated to be approximately $3,222,703 more than
the payments that were estimated in 2016 (table 18).\83\
---------------------------------------------------------------------------

    \83\ Total payments across all three districts are equal to the
increase in payments incurred by shippers as a result of the rate
changes plus the temporary surcharges applied to traffic in
Districts One, Two, and Three.
---------------------------------------------------------------------------

    The purpose of this rulemaking is to propose new base pilotage
rates and surcharges for training. The last full ratemaking was
concluded in 2016. Table 17 summarizes the changes in the RA from the
NPRM to the final rule. These changes were the result of public
comments received after publication of the NPRM and SNPRM.

                              Table 17--Summary of Changes From NPRM to Final Rule
----------------------------------------------------------------------------------------------------------------
       Element of the analysis                   NPRM                  Final rule         Resulting change in RA
----------------------------------------------------------------------------------------------------------------
Target Pilot Compensation............  $326,114...............  $332,963...............  Data indirectly affects
                                                                                the calculation of
                                                                                projected revenues.
Operating expenses...................  Incorrectly omitted      Corrected for this       Data indirectly affects
                                        payment of applicant     error, added amount of   the calculation of
                                        pilot salaries from D2   $281,588 to operating    projected revenues.
                                        operating expenses.      expenses in District
                                                                 Two.
Staffing Model.......................  Proposed to modify 46    Leaving 46 CFR 404.103   No impact on RA.
                                        CFR 404.103 to change    as is. Staffing model    Revenue is based on
                                        the calculation to       found 49 pilots are      the expected 45
                                        focus on pilot work      needed in the Great      working pilots that
                                        cycle. Staffing model    Lakes system.            will be working during
                                        found 54 pilots are                               the 2017 season, which
                                        needed in the Great                               is less than the
                                        Lakes system.                                     projected needed
                                                                                pilots.
APA dues.............................  Attributed 15% of APA    Corrected to attribute   Data directly affects
                                        dues to legal fees.      5% of APA dues to        operating expenses,
                                                                 legal fees.              which indirectly
                                                                                affects the
                                                                                calculation of
                                                                                projected revenues.
Weighting factors....................  Did not account for      Incorporates weighting   No impact on RA.
                                        weighting factors.       factors into base        Affects the
                                                                 rates.                   calculation of the
                                                                                base rates, but not
                                                                                the projected
                                                                                revenues.
----------------------------------------------------------------------------------------------------------------

Affected Population
    The shippers affected by these rate changes are those owners and
operators of domestic vessels operating on register (employed in
foreign trade) and owners and operators of foreign vessels on routes
within the Great Lakes system. These owners and operators must have
pilots or pilotage service as required by 46 U.S.C. 9302. There is no
minimum tonnage limit or exemption for these vessels. The statute
applies only to commercial vessels and not to recreational vessels.
U.S.-flagged vessels not operating on register and Canadian ``lakers,''
which account for most commercial shipping on the Great Lakes, are not
required to have pilots by 46 U.S.C. 9302. However, these U.S.- and
Canadian-flagged lakers may voluntarily choose to have a pilot.
    We used 2013 through 2015 billing information from the Great Lakes
Pilotage Management System (GLPMS) to estimate the average annual
number of vessels affected by the rate adjustment. The GLPMS tracks
data related to managing and coordinating the dispatch of pilots on the
Great Lakes and billing in accordance with the services. Using that
period, we found that a total of 407 unique vessels used pilotage
services over the years 2013 through 2015. These vessels had a pilot
dispatched to the vessel and billing information was recorded in the
GLPMS. The number of invoices per vessel ranged from a minimum of 1
invoice per year to a maximum of 65 invoices per year. Of these
vessels, 383 were foreign-flagged vessels and 24 were U.S.-flagged. The
U.S.-flagged vessels were not operating on register and are not
required to have a pilot per 46 U.S.C. 9302, but they can voluntarily
choose to have a pilot. U.S.-flagged vessels may opt to have a pilot
for varying reasons such as unfamiliarity with designated waters and
ports, or for insurance purposes.
    Vessel traffic is affected by numerous factors and varies from year
to year. Therefore, rather than the total number of vessels over the
time period, an average of the unique vessels using pilotage services
from 2013 through 2015 is the best representation of vessels estimated
to be affected by this rule's rate. From 2013 through 2015, an average
of 230 vessels used pilotage services annually.\84\ On average, 219 of
these vessels are foreign-flagged vessels and 11 are U.S.-flagged
vessels that voluntarily opt into the pilotage service.
---------------------------------------------------------------------------

    \84\ Some vessels entered the Great Lakes multiple years,
affecting the average number of unique vessels utilizing pilotage
services in any given year.
---------------------------------------------------------------------------

Costs
    The rate changes would generate costs on industry in the form of
higher payments for shippers. We calculate the cost in two ways in this
RA, as the total cost to shippers and as a percentage of vessel
operating costs.
Total Cost to Shippers
    We estimate the effect of the rate changes on shippers by comparing
the total projected revenues needed to cover costs in 2016 with the
total projected revenues to cover costs in 2017, including any
temporary surcharges authorized by the Coast Guard. The Coast Guard
sets pilotage rates so that the pilot associations receive enough
revenue to cover their necessary and reasonable expenses. The shippers
pay these rates when they have a pilot as required by 46 U.S.C. 9302,
or when U.S.-flagged vessels not operating on register voluntarily
choose to have a pilot. Therefore, the aggregate payments of the
shippers to the pilot associations are equal to the projected necessary
revenues for the pilot associations. The revenues each year represent
the total costs that shippers must pay for pilotage services, and the
change in the revenues from the previous year is the additional cost to
shippers from this rulemaking.

    The effect of the rate changes on shippers is estimated from the
district pilotage projected revenues and the surcharges described in
this preamble. We estimate that for the 2017 shipping season, the
projected revenue needed for all three districts is $20,976,381.
Temporary surcharges on traffic in District Two and District Three
would be applied for the duration of the 2017 season in order for the
pilotage associations to recover training expenses incurred for
applicant pilots. We estimate that the pilotage associations require an
additional $300,000 and $1,050,000 in revenue for applicant training
expenses in Districts Two and Three, respectively. This is an
additional cost to shippers of $1,350,000 during the 2017 shipping
season. Adding the projected revenue to the surcharges, we estimate the
pilotage associations' total projected needed revenue for 2017 would be
$22,326,381. The 2017 projected revenues for the districts are from
table 9 of this preamble. To estimate the additional cost to shippers
from this rule, we compare the 2017 total projected revenues to the
2016 projected revenues. In the 2016 rulemaking,\85\ we estimated the
total projected revenue needed for 2016, including surcharges, is
$19,103,678. This is the best approximation of 2016 revenues as, at the
time of this publication, we do not have audited data available for the
2016 shipping season to revise these projections. Table 18 shows the
revenue projections for 2016 and 2017 and details the additional cost
increases to shippers by area and district as a result of the rate
changes and temporary surcharges on traffic in Districts One, Two, and
Three.
---------------------------------------------------------------------------

    \85\ 2016 projected revenues are from the 2016 rulemaking, 81 FR
11937, Figures 31 and 32.

                                                    Table 18--Effect of the Rule by Area and District
                                                                 [$U.S.; Non-discounted]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                               2016         Total 2016                         2017         Total 2017      Additional
                  Area                    Revenue needed     temporary       projected    Revenue needed     Temporary       projected     costs of this
                                              in 2016        surcharge        revenue         in 2017        surcharge        revenue          rule
--------------------------------------------------------------------------------------------------------------------------------------------------------
Total, District One.....................      $5,354,945        $450,000      $5,804,945      $7,109,019              $0      $7,109,019      $1,304,074
Total, District Two.....................       5,629,641         300,000       5,929,641       6,633,491         300,000       6,933,491       1,003,850
Total, District Three...................       6,469,092         900,000       7,369,092       7,233,871       1,050,000       8,283,871         914,779
                                         ---------------------------------------------------------------------------------------------------------------
    System Total........................      17,453,678       1,650,000      19,103,678      20,976,381       1,350,000      22,326,381       3,222,703
--------------------------------------------------------------------------------------------------------------------------------------------------------

    The resulting difference between the projected revenue in 2016 and
the projected revenue in 2017 is the annual change in payments from
shippers to pilots as a result of the rate change imposed by this rule.
The effect of the rate change in this rule on shippers varies by area
and district. The rate changes, after taking into account the increase
in pilotage rates and the addition of temporary surcharges, would lead
to affected shippers operating in District One, District Two, and
District Three experiencing an increase in payments of $1,304,074,
$1,003,850, and $914,779, respectively, from the previous year. The
overall adjustment in payments would be an increase in payments by
shippers of $3,222,703 across all three districts (a 17 percent
increase over 2016, including surcharges). Because the Coast Guard must
review and prescribe rates for Great Lakes Pilotage annually, the
effects are estimated as single year costs rather than annualized over
a 10-year period.
    Table 19 shows the difference in revenue by component from 2016 to
2017.\86\ The majority of the increase in revenue is due to the
addition of 8 pilots that were authorized in the 2016 rule. These eight
pilots trained during 2016 are full-time working pilots during the 2017
shipping season. These pilots will be compensated at the target
compensation established in the 2016 final rule, plus inflation
($332,963 per pilot). The addition of these pilots to full working
status accounts for $2,663,704 of the increase. The remaining amount is
attributed to inflation of operating expenses, working capital fund,
and differences in the surcharges from 2016.
---------------------------------------------------------------------------

    \86\ The 2016 projected revenues are from the 2016 rulemaking,
81 FR 11934, Figures 24 and 28. The 2017 projected revenues are from
Table 106 of this NPRM.

                                  Table 19--Difference in Revenue by Component
----------------------------------------------------------------------------------------------------------------
                                                                                Difference  (2017
                   Revenue component                     Revenue needed in  Revenue needed in    revenue -2016
                                                                2016               2017             Revenue)
----------------------------------------------------------------------------------------------------------------
Adjusted Operating Expenses............................         $4,677,518         $5,155,280           $477,762
Total Target Pilot Compensation........................         12,066,226         14,983,335          2,917,109
Working Capital Fund...................................            709,934            837,766            127,832
                                                        --------------------------------------------------------
    Total Revenue Needed, without Surcharge............         17,453,678         20,976,381          3,522,703
Surcharge..............................................          1,650,000          1,350,000           -300,000
                                                        --------------------------------------------------------
    Total Revenue Needed, with Surcharge...............         19,103,678         22,326,381          3,222,703
----------------------------------------------------------------------------------------------------------------

Pilotage Rates as a Percentage of Vessel Operating Costs
    To estimate the impact of U.S. pilotage costs on the foreign
vessels affected by the rate adjustment, we looked at the pilotage
costs as a percentage of a vessel's costs for an entire voyage. The
part of the trip on the Great Lakes using a pilot is only a portion of
the whole trip. The affected vessels are often traveling from a foreign
port, and the days without a pilot on the total trip often exceed the
days a pilot is needed.

    To estimate this impact, we used 2013 through 2015 vessel arrival
data from the Coast Guard's Ship Arrival Notification System and
pilotage billing data from the GLPMS. A random sample of 50 arrivals
was taken from GLPMS data. To estimate the impact of pilotage costs on
the costs of an entire trip, we estimated the length of each one-way
trip. We used the vessel name and the date of the arrival to find the
last port of call before entering the Great Lakes system. The date of
the departure from this port was used as the start date of the trip. To
find the end date of the trip we used GLPMS data to find all the
pilotage charges associated with this vessel during this trip in the
Great Lakes system. The last pilotage charge before beginning the trip
to exit the system was used as the end date of the one-way trip. We
estimated the total operating cost by multiplying the number of days
for each trip by the 2015 average daily operating cost and added this
to the total pilotage costs from GLPMS for each trip. In 2015 the
average daily operating costs, excluding fixed costs, for Great Lakes
bulkers and tankers ranged roughly from $5,191 to $7,879.\87\ The total
pilotage charges for each trip were updated to the 2016 rates using the
average rate increases in the Great Lakes Pilotage Rates 2013-2016
Annual Review and Adjustments final rules.\88\ The total updated
pilotage charges for each trip were then divided by the total operating
cost of the trip. We found that for a vessel's one-way trips, the U.S.
pilotage costs could account for approximately 16.9 percent \89\ of the
total operating costs for a foreign vessel's voyage using 2016 rates.
---------------------------------------------------------------------------

    \87\ ``Ship operating costs: Current and future trends,''
Richard Grenier, Moore Stephens LLP, December 2015. The 2015
weighted average operating cost is estimated at $5,191 for a
handysize bulker, $5,771 for a handymax bulker, and $7,879 for a
product tanker. These costs include only the costs of operating and
do not include any fixed costs of the vessels, such as amortization
of vessel construction costs. The operating costs include crew
wages, provisions, other crew costs, lubricating oils and store
costs, spares, repair and maintenance, P&I insurance, marine
insurance, registration costs, management fees, and sundry expenses.
    \88\ The average percentage changes in the rates for 2013-2016,
were 1.87 percent, 2.5 percent, 10 percent, and 12 percent,
respectively.
    \89\ For the random sample of 50 arrivals, the average of the
pilotage costs as a percentage of the total operating costs was 16.9
percent. The percentages ranged from a low of 3.2 percent to a high
of 35.2 percent.
---------------------------------------------------------------------------

    We also estimated the impact of the rate increase in this rule. We
took the same 50 trips and updated the pilotage costs to the 2017
rates, an average increase of 20 percent, excluding surcharges. With
this rule's rates for 2017, pilotage costs are estimated to account for
19.6 percent of total operating costs, or a 2.7 percentage point
increase \90\ over the current cost. The total operating costs do not
include the fixed costs of the vessels. If these costs were included in
the total costs, the pilotage rates as a percentage of total costs
would be lower.
---------------------------------------------------------------------------

    \90\ 19.6 percent of total operating costs in 2017 -16.9 percent
of total operating costs in 2016 = 2.7 percent incremental increase
of pilotage costs as a percentage of total operating costs.
---------------------------------------------------------------------------

Benefits
    This rule allows the Coast Guard to meet the requirements in 46
U.S.C. 9303 to review the rates for pilotage services on the Great
Lakes. The rate changes will promote safe, efficient, and reliable
pilotage service on the Great Lakes by ensuring rates cover an
association's operating expenses; provide fair pilot compensation,
adequate training, and sufficient rest periods for pilots; and ensures
the association makes enough money to fund future improvements. The
rate changes will also help recruit and retain pilots, which will
ensure a sufficient number of pilots to meet peak shipping demand,
which would help reduce delays caused by pilot shortages.
    The amendment of the cancellation charge in Sec.  401.120(b) will
prevent confusion and help ensure that it explicitly states that the
minimum charge for a cancellation is 4 hours. The limitation to the
surcharge regulation in Sec.  401.401 would prevent excess amounts from
being recouped via the following year's rule. The changes to Sec.
404.104 will promote target compensation stability and rate
predictability.

B. Small Entities

    Under the Regulatory Flexibility Act, 5 U.S.C. 601-612, we have
considered whether this rule would have a significant economic effect
on a substantial number of small entities. The term ``small entities''
comprises small businesses, not-for-profit organizations that are
independently owned and operated and are not dominant in their fields,
and governmental jurisdictions with populations of less than 50,000
people.
    For the rule, we reviewed recent company size and ownership data
for the vessels identified in GLPMS and we reviewed business revenue
and size data provided by publicly available sources such as MANTA \91\
and ReferenceUSA.\92\ As described in Section VI.A of this preamble,
Regulatory Planning and Review, we found that a total of 407 unique
vessels used pilotage services from 2013 through 2015. These vessels
are owned by 119 entities. We found that of the 119 entities that own
or operate vessels engaged in trade on the Great Lakes affected by this
rule, 104 are foreign entities that operate primarily outside of the
United States. The remaining 15 entities are U.S. entities. We compared
the revenue and employee data found in the company search to the Small
Business Administration's (SBA) Table of Small Business Size Standards
\93\ to determine how many of these companies are small entities. Table
20 shows the NAICS codes of the U.S. entities and the small entity
standard size established by the SBA.
---------------------------------------------------------------------------

    \91\ See http://www.manta.com/.
    \92\ See http://resource.referenceusa.com/.
    \93\ Source: https://www.sba.gov/contracting/getting-started-contractor/make-sure-you-meet-sba-size-standards/table-small-business-size-standards. SBA has established a Table of Small
Business Size Standards, which is matched to NAICS industries. A
size standard, which is usually stated in number of employees or
average annual receipts (``revenues''), represents the largest size
that a business (including its subsidiaries and affiliates) may be
considered in order to remain classified as a small business for SBA
and Federal contracting programs.

                             Table 20--NAICS Codes and Small Entities Size Standards
----------------------------------------------------------------------------------------------------------------
                 NAICS                                 Description                 Small business size standard
----------------------------------------------------------------------------------------------------------------
238910................................  Site Preparation Contractors............  $15 million.
441222................................  Boat Dealers............................  $32.5 million.
483113................................  Coastal & Great Lakes Freight             750 employees.
                                         Transportation.
483211................................  Inland Water Freight Transportation.....  750 employees.
483212................................  Inland Water Passenger Transportation...  500 employees.
487210................................  Scenic & Sightseeing Transportation,      $7.5 million.
                                         Water.
488320................................  Marine Cargo Handling...................  $38.5 million.

488330................................  Navigational Services to Shipping.......  $38.5 million.
488510................................  Freight Transportation Arrangement......  $15 million.
----------------------------------------------------------------------------------------------------------------

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

C. Assistance for Small Entities

    Under section 213(a) of the Small Business Regulatory Enforcement
Fairness Act of 1996, Public Law 104-121, we want to assist small
entities in understanding this rule so that they can better evaluate
its effects on them and participate in the rulemaking. If the rule
would affect your small business, organization, or governmental
jurisdiction and you have questions concerning its provisions or
options for compliance, please consult Mr. Todd Haviland, Director,
Great Lakes Pilotage, Commandant (CG-WWM-2), Coast Guard; telephone
202-372-2037, email<EMAIL_ADDRESS>or fax<PHONE_NUMBER>. The
Coast Guard will not retaliate against small entities that question or
complain about this rule or any policy or action of the Coast Guard.
    Small businesses may send comments on the actions of Federal
employees who enforce, or otherwise determine compliance with, Federal
regulations to the Small Business and Agriculture Regulatory
Enforcement Ombudsman and the Regional Small Business Regulatory
Fairness Boards. The Ombudsman evaluates these actions annually and
rates each agency's responsiveness to small business. If you wish to
comment on actions by employees of the Coast Guard, call 1-888-REG-FAIR
(1-888-734-3247).

D. Collection of Information

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

E. Federalism

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

F. Unfunded Mandates Reform Act

    The Unfunded Mandates Reform Act of 1995, 2 U.S.C. 1531-1538,
requires Federal agencies to assess the effects of their discretionary
regulatory actions. In particular, the Act addresses actions that may
result in the expenditure by a State, local, or tribal government, in
the aggregate, or by the private sector of $100,000,000 (adjusted for
inflation) or more in any one year. Though this rule will not result in
such an expenditure, we do discuss the effects of this rule elsewhere
in this preamble.

G. Taking of Private Property

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

H. Civil Justice Reform

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

I. Protection of Children

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

J. Indian Tribal Governments

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

K. Energy Effects

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

L. Technical Standards

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

M. Environment

    We have analyzed this rule under Department of Homeland Security
Management Directive 023-01 and Commandant Instruction M16475.lD, which
guide the Coast Guard in complying with the National Environmental
Policy Act of 1969 (42 U.S.C. 4321-4370f), and have determined that it
is one of a category of actions that do not individually or
cumulatively have a significant effect on the human environment. A
Record of Environmental Consideration supporting this determination is
available in the docket where indicated in the ADDRESSES section of
this preamble. This rule is categorically excluded under paragraphs
34(a), regulations which are editorial or procedural, of the Coast
Guard's NEPA Implementing Procedures and Policy for Considering
Environmental Impacts, COMDTINST M16475.1D.

List of Subjects

46 CFR Part 401

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

46 CFR Part 404

    Great Lakes, Navigation (water), Seamen.

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

PART 401--GREAT LAKES PILOTAGE REGULATIONS

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

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

0
2. Revise Sec.  401.401 to read as follows:

Sec.  401.401  Surcharges.

    To facilitate safe, efficient, and reliable pilotage, and for good
cause, the Director may authorize surcharges on any rate or charge
authorized by this subpart. Surcharges must be proposed for prior
public comment and may not be authorized for more than 1 year. Once the
approved amount has been received, the pilot association is not
authorized to collect any additional funds under the surcharge
authority and must cease such collections for the remainder of that
shipping season.

0
3. Revise Sec.  401.405 to read as follows:

Sec.  401.405  Pilotage rates and charges.

    (a) The hourly rate for pilotage service on--
    (1) The St. Lawrence River is $601;
    (2) Lake Ontario is $408;
    (3) Lake Erie is $429;
    (4) The navigable waters from Southeast Shoal to Port Huron, MI is
$580;
    (5) Lakes Huron, Michigan, and Superior is $218; and
    (6) The St. Mary's River is $514.
* * * * *

0
4. Revise Sec.  401.420 to read as follows:

Sec.  401.420  Cancellation, delay, or interruption in rendition of
services.

* * * * *
    (b) When an order for a U.S. pilot's service is cancelled, the
vessel can be charged for the pilot's reasonable travel expenses for
travel that occurred to and from the pilot's base, and the greater of--
    (1) Four hours; or
    (2) The time of cancellation and the time of the pilot's scheduled
arrival, or the pilot's reporting for duty as ordered, whichever is
later.
* * * * *

0
5. Revise Sec.  401.450 as follows:
0
a. Redesignate paragraphs (b) through (j) as paragraphs (c) through
(k), respectively; and
0
b. Add new paragraph (b) to read as follows:

Sec.  401.450  Pilotage change points.

* * * * *
    (b) The Saint Lawrence River between Iroquois Lock and the area of
Ogdensburg, NY, beginning October 2, 2017;

PART 404--GREAT LAKES PILOTAGE RATEMAKING

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

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

0
7. Amend Sec.  404.101(a) as follows:

Sec.  404.100   Ratemaking and annual reviews in general.

    (a) The Director establishes base pilotage rates by a full
ratemaking pursuant to Sec.  404.101-404.110 of this part, conducted at
least once every 5 years and completed by March 1 of the first year for
which the base rates will be in effect. Base rates will be set to meet
the goal specified in Sec.  404.1(a) of this part.

0
8. Amend Sec.  404.103 as follows:
0
a. In paragraph (a), following the words ``dividing each area's''
remove the word ``peak'' and add, in its place, the word ``seasonal'';
and
0
b. Revise paragraph (b) to read as follows:

Sec.  404.103  Ratemaking step 3: Determine number of pilots needed.

* * * * *
    (b) Pilotage demand and the base seasonal work standard are based
on available and reliable data, as so deemed by the Director, for a
multi-year base period. The multi-year period is the 10 most recent
full shipping seasons, and the data source is a system approved under
46 CFR 403.300. Where such data are not available or reliable, the
Director also may use data, from additional past full shipping seasons
or other sources, that the Director determines to be available and
reliable.
* * * * *

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

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

    At least once every 10 years, the Director will set a base target
pilot compensation benchmark using the most relevant available non-
proprietary information. In years in which a base compensation
benchmark is not set, target pilot compensation will be adjusted for
inflation using the CPI for the Midwest region or a published
predetermined amount. The Director determines each pilotage
association's total target pilot compensation by multiplying individual
target pilot compensation by the number of pilots projected under Sec.
404.103(d) of this part.

Sec.  404.105   [Amended]

0
10. In the section heading of Sec.  404.105, remove the words ``return
on investment'' and add, in their place, the words ``working capital
fund.''

0
11. In the first sentence of Sec.  404.105, remove the words ``return
on investment'' and add, in their place, the words ``working capital
fund.''

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

Sec.  404.107   Ratemaking step 7: Initially calculate base rates.

    The Director initially calculates base hourly rates by dividing the
projected needed revenue from Sec.  404.106 of this part by averages of
past hours worked in each district's designated and undesignated
waters, using available and reliable data for a multi-year period set
in accordance with Sec.  404.103(b) of this part.

0
13. Revise Sec.  404.108 to read as follows:

Sec.  404.108   Ratemaking step 8: Calculate average weighting factors
by Area.

    The Director calculates the average weighting factor for each area
by computing the 10-year rolling average of weighting factors applied
in that area, beginning with the year 2014. If less than 10 years of
data are available, the Director calculates the average weighting
factor using data from each year beginning with 2014.

0
14. Add new Sec.  404.109 to read as follows:

Sec.  404.109   Ratemaking step 9: Calculate revised base rates.

    The Director calculates revised base rates for each area by
dividing the initial base rate (from Step 7) by the average weighting
factor (from Step 8) to produce a revised base rate for each area.

0
15. Add new Sec.  404.110 to read as follows:

Sec.  404.110   Ratemaking step 10: Review and finalize rates.

    The Director reviews the base pilotage rates calculated in Sec.
404.109 of this part to ensure they meet the goal set in Sec.  404.1(a)
of this part, and either finalizes them or first makes necessary and
reasonable adjustments to them based on requirements of Great Lakes
pilotage agreements between the United States and Canada, or other
supportable circumstances.

    Dated: August 24, 2017.
Michael D. Emerson,
Director, Marine Transportation Systems, U.S. Coast Guard.
[FR Doc. 2017-18411 Filed 8-30-17; 8:45 am]
BILLING CODE 9110-04-P