[Federal Register Volume 82, Number 64 (Wednesday, April 5, 2017)]
[Proposed Rules]
[Pages 16542-16550]
[FR Doc No: 2017-06662]

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Proposed Rules
                                                Federal Register
________________________________________________________________________

This section of the FEDERAL REGISTER contains notices to the public of
the proposed issuance of rules and regulations. The purpose of these
notices is to give interested persons an opportunity to participate in
the rule making prior to the adoption of the final rules.

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Federal Register / Vol. 82, No. 64 / Wednesday, April 5, 2017 /
Proposed Rules

DEPARTMENT OF HOMELAND SECURITY

Coast Guard

46 CFR Parts 401, 403, and 404

[USCG-2016-0268]
RIN 1625-AC34

Great Lakes Pilotage Rates--2017 Annual Review

AGENCY: Coast Guard, DHS.

ACTION: Supplemental notice of proposed rulemaking.

-----------------------------------------------------------------------

SUMMARY: The Coast Guard proposes to modify its calculations for hourly
pilotage rates on the Great Lakes by accounting for the ``weighting
factor,'' which is a multiplier that can increase the pilotage costs
for larger vessels traversing areas in the Great Lakes by a factor of
up to 1.45. While the weighting factor has existed for decades, it has
never been included in any of the previous ratemaking calculations. We
propose to add steps to our rate-setting methodology to adjust hourly
rates downwards by an amount equal to the average weighting factor, so
that when the weighting factor is applied, the cost to the shippers and
the corresponding revenue generated for the pilot associations will
adjust to what was originally intended. We note that until a final rule
is produced, the 2016 rates will stay in effect, even if a final rule
is not published by the start of the 2017 season.

DATES: Comments and related material must be submitted to the online
docket via www.regulations.gov on or before May 5, 2017.

ADDRESSES: You may submit comments identified by docket number USCG-
2016-0268 using the Federal eRulemaking Portal at http://www.regulations.gov. See the ``Public Participation and Request for
Comments'' portion of the SUPPLEMENTARY INFORMATION section for further
instructions on submitting comments.

FOR FURTHER INFORMATION CONTACT: For information about this document,
call or email Mr. Todd Haviland, Director, Great Lakes Pilotage,
Commandant (CG-WWM-2), Coast Guard; telephone<PHONE_NUMBER>, email
<EMAIL_ADDRESS>or fax<PHONE_NUMBER>.

SUPPLEMENTARY INFORMATION:

Table of Contents for Preamble

I. Public Participation and Request for Comments
II. Abbreviations
III. Executive Summary
IV. Basis and Purpose
V. Background
VI. Discussion of Proposed Changes
VII. Regulatory Analyses
    A. Regulatory Planning and Review
    B. Small Entities
    C. Assistance for Small Entities
    D. Collection of Information
    E. Federalism
    F. Unfunded Mandates Reform Act
    G. Taking of Private Property
    H. Civil Justice Reform
    I. Protection of Children
    J. Indian Tribal Governments
    K. Energy Effects
    L. Technical Standards
    M. Environment

I. Public Participation and Request for Comments

    We view public participation as essential to effective rulemaking,
and will consider all comments and material received during the comment
period. Your comment can help shape the outcome of this rulemaking. If
you submit a comment, please include the docket number for this
rulemaking, indicate the specific section of this document to which
each comment applies, and provide a reason for each suggestion or
recommendation.
    We note that, in this supplemental notice of proposed rulemaking
(SNPRM), we are only soliciting comments regarding the addition of the
weighting factor adjustment into the Coast Guard's Great Lakes pilotage
methodology. The Coast Guard is neither soliciting, nor are we
considering, comments relating to any other part of the Great Lakes
Pilotage rate setting methodology. Although we left all other items in
the proposed October 2016 notice of proposed rulemaking (NPRM) as if
they were unchanged, we note that those items are still under
consideration by the Coast Guard and may be amended in the final rule.
Any changes in the final rule will be based only on (1) comments
submitted prior to the December 19, 2016 deadline for the NPRM comment
period, and (2) comments submitted in response to this SNPRM regarding
the weighting factor adjustment.
    We encourage you to submit comments through the Federal eRulemaking
Portal at http://www.regulations.gov. If your material cannot be
submitted using http://www.regulations.gov, contact the person in the
FOR FURTHER INFORMATION CONTACT section of this document for alternate
instructions. Documents mentioned in this notice, and all public
comments, are in our online docket at http://www.regulations.gov and
can be viewed by following that Web site's instructions. Additionally,
if you go to the online docket and sign up for email alerts, you will
be notified when comments are posted or a final rule is published.
    We accept anonymous comments. All comments received will be posted
without change to http://www.regulations.gov and will include any
personal information you have provided. For more about privacy and the
docket, you may review a Privacy Act notice regarding the Federal
Docket Management System in the March 24, 2005, issue of the Federal
Register (70 FR 15086).
    We are not planning to hold a public meeting but will consider
doing so if public comments indicate a meeting would be helpful. We
would issue a separate Federal Register notice to announce the date,
time, and location of such a meeting.

II. Abbreviations

CFR Code of Federal Regulations
CPI Consumer Price Index
FR Federal Register
NPRM Notice of proposed rulemaking
OMB Office of Management and Budget
SNPRM Supplemental notice of proposed rulemaking
U.S.C. United States Code

III. Executive Summary

    In this SNPRM, the Coast Guard proposes changes in its methodology
to adjust for the weighting factor charged for larger vessels. The
result of the adjustment would be a reduction in the hourly pilotage
rates in the Great Lakes region from amounts proposed in the NPRM,
published in October 2016 (81 FR 72011, October 19, 2016). This

action does not change the total amount of projected revenue we deem
necessary for the pilot associations to provide safe, efficient, and
reliable service, but would have the practical effect of reducing the
actual amount of money paid as pilotage fees by shippers by
approximately 28 to 32 percent. The Coast Guard believes that this
adjustment in hourly rates would allow us to more accurately project
the amount of revenue to be collected that we consider necessary for
the pilot associations to carry out their duties.
    We note that until a final rule is produced, the 2016 rates will
stay in effect, even if a final rule is not published by the start of
the 2017 season.
    Pursuant to the Great Lakes Pilotage Act, the Coast Guard sets
hourly rates for pilot services on the Great Lakes. While all vessels
must pay these base rates, larger vessels pay a higher rate, as a
``weighting factor'' multiplies the base rates they pay by a factor of
1.15 to 1.45. In past rate-settings, the methodology used to calculate
hourly rates on the Great Lakes did not adjust the rates for the
weighting factor. During the 2016 shipping season, under the revised
methodology, preliminary estimates of actual revenues exceeded the
projected revenues, even when adjusted for increased shipping traffic.
    Based on the 2016 data, we believe it is necessary to account for
the weighting factors in the hourly rate calculation in the methodology
in order for the U.S. Great Lakes pilot associations to more accurately
generate total revenues. Our projections for total revenues are
intended to ensure safe, efficient, and reliable pilotage service. One
goal of our methodology is to produce revenues that reflect the level
of actual pilotage demand. While we recognize that traffic varies from
year to year, in years where traffic is higher than the 10-year rolling
average, the rates should generate more revenue than our projections.
In years where traffic is lower than the 10-year rolling average, the
rates should generate less than our projections. The variance in actual
demand for pilotage services should align with the variance in actual
revenues.
    The preliminary information we have available to us after 1 year
under the revised methodology indicates that not adjusting for the
weighting factor in the calculation of hourly rates has contributed to
actual revenues exceeding our projected revenues. We believe that
revising the methodology to adjust hourly rates for the weighting
factors would improve the ability of the methodology to more closely
match projections of total revenue with the actual revenue generated.
    Table 1 shows the proposed changes in the pilotage charges per
hour. The first column lists the current pilotage charges in force, the
second column shows the rate increase that the Coast Guard proposed in
October of 2016, and the third column shows the revised rates, which
incorporate an adjustment for the weighting factors into the ratemaking
methodology. We note that this rule does not change the weighting
factors themselves, only the methodology used to calculate base hourly
pilotage rates. Additionally, this does not change the overall revenue
we project as necessary to provide safe, efficient, and reliable
pilotage service. As this action does not change the amount of
projected revenue we deem necessary for the pilot associations, the
Regulatory Analyses remains unchanged from the NPRM.

                   Table 1--Summary of Current and Proposed Pilotage Fees, From 46 CFR 401.405
----------------------------------------------------------------------------------------------------------------
                                                                      Current                          SNPRM
                                                                     pilotage     NPRM  proposed     proposed
                              Area                                  charges per     charges per     charges per
                                                                       hour            hour            hour
----------------------------------------------------------------------------------------------------------------
St. Lawrence River..............................................            $580            $757            $592
Lake Ontario....................................................             398             522             402
Navigable waters from Southeast Shoal to Port Huron, MI.........             684             720             546
Lake Erie.......................................................             448             537             408
St. Mary's River................................................             528             661             508
Lakes Huron, Michigan, and Superior.............................             264             280             215
----------------------------------------------------------------------------------------------------------------

IV. Basis and Purpose

    The legal basis of this rulemaking is the Great Lakes Pilotage Act
of 1960 (``the Act''), which requires U.S.-flagged and foreign-flagged
vessels to use U.S. or Canadian registered pilots while transiting the
U.S. waters of the St. Lawrence Seaway and the Great Lakes system. For
the U.S. registered Great Lakes pilots, the Act requires the Secretary
to ``prescribe by regulation rates and charges for pilotage services,
giving consideration to the public interest and the costs of providing
the services.'' The Act requires that rates be established or reviewed
and adjusted each year, not later than March 1. Also, the Act requires
the establishment of a full ratemaking at least once every 5 years, and
in years when base rates are not established, they must be reviewed
and, if necessary, adjusted. The Secretary's duties and authority under
the Act have been delegated to the Coast Guard.
    In this SNPRM, the Coast Guard proposes to incorporate the
weighting factor into its method of calculating pilotage rates set
forth in the previously-published NPRM (81 FR 72011, October 19, 2016).
This SNPRM does not propose to make any other adjustments to the
methodology proposed in that NPRM.

V. Background

    Because the Coast Guard is charged by statute with setting pilotage
rates by regulation, taking into account the public interest and the
cost of providing services, we have in the past used a methodology that
attempts to determine the amount of traffic, the number of pilots
needed to handle that traffic, allowable operating expenses, and a fair
pilot compensation. It uses these calculations to set a mandatory cost
of pilotage for each of six areas in the Great Lakes region.\1\ In the
past, the Coast Guard's modeling efforts fell short, leaving pilots in
the Great Lakes substantially undercompensated compared to their peers,
and resulting in retention and attrition problems, as well as shipping
delays, which led to a disruption of commerce. These revenue shortfalls
also prevented the pilot associations from investing in infrastructure,
obtaining educational opportunities, and acquiring the latest
technological tools to improve service. In order to correct these
problems, the Coast Guard undertook a major overhaul of its rate-
setting program in 2016, substantially revising how it made those

calculations and adjusting the per-hour pilotage rates accordingly.
---------------------------------------------------------------------------

    \1\ See 46 CFR 401.405.
---------------------------------------------------------------------------

    Because the Coast Guard sets pilotage rates on a yearly basis, we
proposed changes to the 2016 methodology for 2017, issuing an NPRM in
October 2016 that proposed various modifications to the 2016
methodology for the 2017 shipping season. In our NPRM, we proposed a
substantial number of changes in how to determine operating expenses
and the number of pilots needed. The proposed methodology is carried
out in an eight-step process, separately for each area, as described
briefly below. For a fuller explanation of the process, please refer to
the NPRM, at 81 FR 72011 beginning on page 72013.
    Step 1: Recognize previous year's operating expenses. In this step,
the Coast Guard would use audited financial information from the
pilot's association to determine recognized operating expenses from the
previous year. These include expenses such as insurance, administrative
expenses, payroll taxes, and other items. However, they do not include
pilot compensation or money for infrastructure projects.
    Step 2: Project next year's operating expenses. In this step, we
would multiply the previous year's operating expenses by the Consumer
Price Index (CPI) for the Midwest region.
    Step 3: Determine the number of pilots needed. In this step, we
would determine the number of pilots needed by dividing the total
number of hours worked by the average pilot cycle (that is, the full
cycle, including work time, travel time, and rest time). That number is
multiplied by an ``efficiency factor'' to account for times of double
pilotage as well as time spent waiting for ships.
    Step 4: Determine target pilot compensation. In this step, we would
establish a goal for what an average pilot should earn over the course
of the shipping season.
    Step 5: Determine working capital fund. In this step, we would
determine the amount of money needed to fund future capital projects by
multiplying the operating expenses and pilot compensation by the
average annual rate of return for new issuances of high-grade corporate
securities, currently set at 4.16 percent.
    Step 6: Project needed revenue for next year. In this step, we
would add the projected operating expenses, the target pilot
compensation, and the working capital fund to arrive at a total amount
needed to cover the upcoming year's revenue needs.
    Step 7: Make initial base rate calculations. In this step, we would
divide the revenue needed by the 10-year running average of hours
worked, to arrive at preliminary hourly rate figures.
    Step 8: Review and finalize rates. This step would allow the
Director of the Great Lakes Pilotage Office to impose surcharges for
the training of new pilots and other unexpected expenses.
    Using this process, the Coast Guard produced the following proposed
changes to the hourly pilotage rates, as summarized in Table 2. As
shown by the figures in the table, the NPRM proposed increases of
varying sizes for rates in each of the six regions.

 Table 2--Proposed Changes to the Hourly Pilotage Rates in the 2017 NPRM
------------------------------------------------------------------------
                                              Current
                                             pilotage     NPRM  proposed
                  Area                      charge per      charges per
                                               hour            hour
------------------------------------------------------------------------
St. Lawrence River (District One                    $580            $757
 Designated)............................
(District One Undesignated) Lake Ontario             398             522
(District Two Undesignated) Lake Erie...             448             537
Navigable waters from Southeast Shoal to             684             720
 Port Huron, MI (District Two
 Designated)............................
District Three Undesignated Lakes Huron,             264             280
 Michigan, and Superior.................
St. Mary's River (District Three                     528             661
 Designated)............................
------------------------------------------------------------------------

    While we believe that the ratemaking calculations proposed in the
NPRM are fairly comprehensive, there is one item that is currently not
captured by that methodology. This item is the ``weighting factor.''
The weighting factor is a multiplier of between 1.0 and 1.45, which is
applied to the total pilot costs for larger vessels. The weighting
factor has been used to ensure that larger vessels, which can absorb
more in pilotage costs than smaller ones, pay a larger percentage of
the total costs of pilotage in the Great Lakes. However, while the
weighting factor increases the total pilotage revenue generated, it is
not used in the calculation of pilotage rates. Instead, as shown
earlier in Step 7 of the rate-setting process, we use only the total
number of hours to set pilotage rates, which is not adjusted to include
additional revenues brought in due to the weighting factor.

VI. Discussion of Proposed Changes

    In the NPRM, the Coast Guard did not propose to incorporate the
weighting factors into the rate-setting methodology. We stated that we
did not have sufficient data at the time of the NPRM to incorporate
them into the calculations. While we discussed three options on how to
proceed, we specifically stated that ``we request public comment on
which of three options should be implemented for future ratemakings.''
The three options were as follows: (1) Maintain the status quo, by
continuing to mandate the weighting factors while leaving them out of
the ratemaking calculation; (2) remove the weighting factors completely
and charge each vessel equally for pilotage service; and (3)
incorporate weighting factors into the rulemaking through an additional
step that examines and projects their impact on the revenues of the
pilot associations. We note that this third option ``might enable us to
better forecast revenue, but it would add another variable to the
projections in the rate methodology.'' (81 FR at 72027)
    In the comments to the NPRM, the Coast Guard received data and
commentary from both shippers and pilots regarding the weighting
factors. One commenter, representing the pilots, stated that the Coast
Guard has ``correctly explained that the weighting factors are separate
from the ratemaking calculation.'' \2\ The commenter noted that ``over
the last decade, the pilots have consistently failed to reach target
compensation even with the weighting factors included. Changing this
practice would exacerbate an already unfortunate situation and risk
further contributing to the pilot attraction and retention
difficulties.'' The commenter also stated that although the final
numbers for the 2016 season were not

available at the time of the NPRM's publication, they believe there is
nothing in this most recent shipping season that suggests the trend of
failing to reach the target compensation level is abating.
---------------------------------------------------------------------------

    \2\ Commenter docket number (USCG-2016-0268-0028), p. 9, citing
the NPRM at 81 FR 72027.
---------------------------------------------------------------------------

    Shippers, on the other hand, argued that the weighting factors
should be included in the revenue calculations. The shipping industry
commenters stated that revenue projections in the Coast Guard's
regulations will not be accurate if they do not include some value
reflecting vessel size, and that it is an ``arithmetic certainty'' that
the revenue projections in the NPRM would overstate the rates needed to
generate a given level of pilotage revenue.\3\ The shipping industry
comments included data indicating that the average weighting factor
applied to all ships over a period from 2010 through 2015 as 1.26.\4\
Similarly, comments from the Shipping Federation of Canada, included as
an enclosure, stated that the weighting factor adds an average of over
20 percent to the pilotage invoice revenue.
---------------------------------------------------------------------------

    \3\ Commenter docket number (USCG-2016-0268-0033), pp. 29-30.
    \4\ Commenter docket number (USCG-2016-0268-0033, Exhibit I).
While the commenter found some lower weighting factor averages in
the years prior to 2014, we have focused on the later years because
the classification parameters for weighting factors changed in 2013,
producing overall lower values.
---------------------------------------------------------------------------

    Because the weighting factors were adjusted in 2014, we propose
using the measured average of weighting factors from the years 2014
through 2016 to calculate an average weighting factor to use in the
ratemaking calculations. We calculated the average multiplier by
weighting each class of vessels according to the number of transits,
for each district, and for designated and undesignated areas. We note
this is a different method than used by the shipping industry in their
comments, which we averaged by the number of ships. We believe our
methodology is more accurate as some ships will transit multiple times
per year, paying the weighted pilotage cost each time. The following
tables show the calculations we used to determine proposed average
weighting factors in both designated and undesignated waters for each
district.

             Table 3a--Calculation of Average Weighting Factor for Designated Waters in District One
----------------------------------------------------------------------------------------------------------------
                                                                     Number of       Weighting
                          Vessel class                               transits         factor        Multiplier
----------------------------------------------------------------------------------------------------------------
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
----------------------------------------------------------------------------------------------------------------

            Table 3b--Calculation of Average Weighting Factor for Undesignated Waters in District One
----------------------------------------------------------------------------------------------------------------
                                                                     Number of       Weighting
                          Vessel class                               transits         factor        Multiplier
----------------------------------------------------------------------------------------------------------------
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.......................................................           1,651  ..............         2,141.5
Average weighting factor........................................  ..............  ..............            1.30
----------------------------------------------------------------------------------------------------------------

             Table 3c--Calculation of Average Weighting Factor for Designated Waters in District Two
----------------------------------------------------------------------------------------------------------------
                                                                     Number of       Weighting
                          Vessel class                               transits         factor        Multiplier
----------------------------------------------------------------------------------------------------------------
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.......................................................           2,881  ..............           3,802
Average weighting factor........................................  ..............  ..............            1.32
----------------------------------------------------------------------------------------------------------------

            Table 3d--Calculation of Average Weighting Factor for Undesignated Waters in District Two
----------------------------------------------------------------------------------------------------------------
                                                                     Number of       Weighting
                          Vessel class                               transits         factor        Multiplier
----------------------------------------------------------------------------------------------------------------
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.......................................................           1,741  ..............         2,289.7
Average weighting factor........................................  ..............  ..............            1.32
----------------------------------------------------------------------------------------------------------------

            Table 3e--Calculation of Average Weighting Factor for Designated Waters in District Three
----------------------------------------------------------------------------------------------------------------
                                                                     Number of       Weighting
                          Vessel class                               transits         factor        Multiplier
----------------------------------------------------------------------------------------------------------------
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.......................................................           1,412  ..............        1,836.65
Average weighting factor........................................  ..............  ..............            1.30
----------------------------------------------------------------------------------------------------------------

           Table 3f--Calculation of Average Weighting Factor for Undesignated Waters in District Three
----------------------------------------------------------------------------------------------------------------
                                                                     Number of       Weighting
                          Vessel class                               transits         factor        Multiplier
----------------------------------------------------------------------------------------------------------------
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.......................................................           3,325  ..............         4,333.9
Average weighting factor........................................  ..............  ..............            1.30
----------------------------------------------------------------------------------------------------------------

                          Table 3g--Summary of Average Weighting Factors by Association
----------------------------------------------------------------------------------------------------------------
                                                                   Undesignated     Designated         Total
                           Association                               weighting       weighting       weighting
                                                                      factor          factor          factor
----------------------------------------------------------------------------------------------------------------
Saint Lawrence Seaway Pilots Association (District One).........            1.28            1.30            1.29
Lakes Pilots Association (District Two).........................            1.32            1.32            1.32
Western Great Lakes Pilots Association (District Three).........            1.30            1.30            1.30
----------------------------------------------------------------------------------------------------------------

    Using preliminary data from the pilot associations for the entire
2016 season with regard to revenues and surcharges, as well as internal
Coast Guard systems, we examined disparities between the revenue raised
from pilotage services and the total number of hours worked. We expect
a relatively simple relationship between hours billed and total revenue
raised.\5\ However, an examination of the relationship between traffic
and revenue in each district appears to produce a significant disparity
as shown in Table 4.
---------------------------------------------------------------------------

    \5\ We note that other factors can cause discrepancies in the
ratio between the actual traffic and actual revenue raised. These
other factors include shipping delays, a pilot being detained on the
ship or overcarried for the convenience of the vessel, cancelled
orders, and weather delays during certain times of the year. We
believe that the impact of these factors is often small and we do
not believe that they would cause discrepancies of the magnitude
experienced in 2016.

                          Table 4--Comparison of Actual 2016 Pilot Demand and Revenues
----------------------------------------------------------------------------------------------------------------
                                                     Projected     Actual pilot
                   Association                     pilot demand       demand         Projected        Actual
                                                      (hours)         (hours)      revenue  ($)    revenue  ($)
----------------------------------------------------------------------------------------------------------------
Saint Lawrence Seaway Pilots Association........          10,987          11,651       5,804,945       7,718,852
(District One)..................................
Lakes Pilots Association (District Two).........          10,016          12,022       5,929,641       9,181,265
Western Great Lakes Pilots Association (District          21,670          26,868       7,369,092      10,949,257
 Three).........................................
----------------------------------------------------------------------------------------------------------------

    Furthermore, the disparities between revenue and demand
substantially correlate with the average weighting factors. Table 5
demonstrates this disparity.

                          Table 5--Proportional Differences Between Demand and Revenue
----------------------------------------------------------------------------------------------------------------
                                                     Measured        Measured                         Average
                                                    percent of      percent of     Proportional      weighting
              Association/district                   projected       projected      difference     factor  (From
                                                      revenue         demand                         Table 3g)
----------------------------------------------------------------------------------------------------------------
Saint Lawrence Seaway Pilots Association........             133             106           1.254            1.29
(District One)..................................
Lakes Pilots Association........................             155             120            1.29            1.32
(District Two)..................................
Western Great Lakes Pilots Association..........             149             124           1.198            1.30
(District Three)................................
----------------------------------------------------------------------------------------------------------------

    For example, for District Two, actual pilot demand was above the
pilot demand that the Coast Guard projected in the 2016 ratemaking at a
ratio of 120 percent (12,022/10,016). Actual revenue generated was
above projected revenue by 155 percent (9,181,265/5,929,641). The ratio
of the increase in revenues to the increase in pilot demand is 1.29,
compared to the average weighting factor of 1.32.
    Based on this analysis, we believe that there is a likelihood that
the weighting factors are a factor in the difference between projected
and a preliminary review of actual revenue experienced in 2016 under
the revised methodology. In this SNPRM, we propose to incorporate the
weighting factors into the ratemaking model. The practical result of
this would be substantial net reductions in hourly pilotage fees,
producing reductions of 28 to 32 percent, depending on the area. We
request comments on both the new data introduced by the Coast Guard, as
well as this specific proposal.
    We note that, given the above calculations (more detailed figures
underpinning these calculations are available in the docket for this
rulemaking), the proposed weighting factors are higher--particularly in
the case of District Three \6\--than the measured disparity between
traffic and revenue. As it is our goal that the methodology produces a
close relationship between measured traffic and revenue, and gets as
close as possible to the published target compensation, we seek
comments on any factors that could have an effect on the relationship
between those factors. Additionally, we specifically request comment on
the validity of our calculations of the weighting factors for each
area, as well as suggestions as to how it could be improved. We
understand that in the past, the methodology did not produce the
anticipated revenue and it is our goal to correct this issue.
---------------------------------------------------------------------------

    \6\ We believe that the provision, currently located in 46 CFR
404.107(b) (Step 7), limiting the pilotage rate in designated waters
to twice the rate of the pilotage rate in undesignated waters,
contributed to the particularly large disparity for District Three.
In the NPRM, we proposed to eliminate that provision, and believe
that this would help to lessen the future traffic-to-revenue
disparity for District Three.
---------------------------------------------------------------------------

    Because the weighting factors were adjusted in 2014, we propose
using the measured average of weighting factors from the years 2014 to
2016 to calculate an average weighting factor to use in the ratemaking
calculations. We calculated the average multiplier by weighting each
class of vessel according to the number of transits. We note this is a
different method than used by the shipping industry in their comments,
which averaged by number of ships. We believe our methodology is more
accurate as some ships will transit multiple times per year, paying the
weighted pilotage cost each time.
    Using these weighting factor averages, the Coast Guard proposes to
add two additional steps to our rate making procedure. We propose
renumbering existing step 8, the Director's discretion, to step 10, and
adding new steps 8 and 9 to account for the influence the weighting
factors have on total generated revenues.
    In Step 8, which would be codified as 404.108, ``Calculate average
weighting factors by Area,'' the Coast Guard proposes to calculate the
rolling average of the weighting factors for the designated and
undesignated waters of each pilotage district. We propose using the
same 10-year rolling average standard for this calculation as we use
for historic pilotage demand. Since the current weighting factors came
into place in 2013, we propose using the data between 2014 and 2016 and
expand this data set until we reach our 10-year goal. Tables 3a through
3f featured earlier, show the data used in these calculations for this
SNPRM.
    In Step 9, which would be codified as 404.109, ``Calculation of
Revised Base Rates,'' the Coast Guard proposes to divide the initial
rate calculation, from Step 7 (calculation of the initial base rates),
by the average weighting factor calculated in Step 8.

                                   Table 6--Calculation of Revised Base Rates
----------------------------------------------------------------------------------------------------------------
                                                                                Average      Revised rate
                                                                   Initial base      weighting    (initial rate/
                              Area                                rate  (Step 7)   factor  (Step     weighting
                                                                                8)            factor)
----------------------------------------------------------------------------------------------------------------
District One: Designated (St. Lawrence River)...................            $757            1.28            $592
District One: Undesignated (Lake Ontario).......................             522            1.30             402
District Two: Designated (Southeast Shoal to Port Huron, MI)....             720            1.32             546
District Two: Undesignated (Lake Erie)..........................             537            1.32             408
District Three: Designated (St. Mary's River)...................             661            1.30             508
District Three: Undesignated (Lakes Huron, Michigan, and                     280            1.30             215
 Superior)......................................................
----------------------------------------------------------------------------------------------------------------

    Finally, we propose renaming the Director's Discretion as Step 10,
but otherwise leave it unchanged.

VII. Regulatory Analyses

    We developed this proposed 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

    As this action does not change the amount of projected revenue we
deem necessary for the pilot associations, the Regulatory Planning and
Review remains unchanged from the NPRM.
    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 titled
``Interim Guidance Implementing Section 2 of the Executive Order of
January 30, 2017 titled `Reducing Regulation and Controlling Regulatory
Costs''' (February 2, 2017).
    We developed an analysis of the costs and benefits of the NPRM to
ascertain its probable impacts on industry. We consider all estimates
and analysis in that Regulatory Analysis (RA) to be subject to change
in consideration of public comments. As this SNPRM does not change the
total required revenue or any other items that would alter the analysis
of the impact of the proposed rule we have not included a separate
regulatory analysis in this document. Instead, we refer you to the
previously published NPRM to see the analysis of the costs and benefit
of the proposed rule.

B. Small Entities

    As this action does not change the amount of projected revenue we
deem necessary for the pilot associations, the Small Entities analysis
remains unchanged from the NPRM.
    Under the Regulatory Flexibility Act, 5 U.S.C. 601-612, we have
considered whether the proposed 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.
    Based on the analysis in the NPRM, we found this proposed
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 proposed rule would not have a significant economic impact on a
substantial number of small entities. If you think that your business,
organization, or governmental jurisdiction qualifies as a small entity
and that this proposed rule would have a significant economic impact on
it, please submit a comment to the Docket Management Facility at the
address under ADDRESSES. In your comment, explain why you think it
qualifies, as well as how and to what degree this proposed rule would
economically affect it.

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 proposed rule so that they can better
evaluate its effects on them and participate in the rulemaking. If the
proposed 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<PHONE_NUMBER>, email<EMAIL_ADDRESS>or fax 202-372-
1914. 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 proposed rule would call for no new collection of information
under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520). This
proposed rule would 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 proposed 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.'' 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 CONTACT
section of this preamble.

F. Unfunded Mandates Reform Act

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

G. Taking of Private Property

    This proposed rule would 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 proposed 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 proposed rule under Executive Order 13045,
Protection of Children from Environmental Health Risks and Safety
Risks. This proposed rule is not an economically significant rule and
would not create an environmental risk to health or risk to safety that
might disproportionately affect children.

J. Indian Tribal Governments

    This proposed 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 proposed 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 Executive 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. The Administrator of the Office of
Information and Regulatory Affairs has not designated it as a
significant energy action. Therefore, it does not require a Statement
of Energy Effects under Executive Order 13211.

L. Technical Standards

    The National Technology Transfer and Advancement Act (15 U.S.C.
272, note) directs agencies to use voluntary consensus standards in
their regulatory activities unless the agency provides Congress,
through the 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
proposed rule does not use technical standards. Therefore, we did not
consider the use of voluntary consensus standards.

M. Environment

    We have analyzed this proposed 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 made
a preliminary determination that this action is one of a category of
actions that do not individually or cumulatively have a significant
effect on the human environment. A preliminary environmental analysis
checklist supporting this determination is available in the docket
where indicated under the ``Public Participation and Request for
Comments'' section of this preamble. This proposed rule is
categorically excluded under section 2.B.2, and figure 2-1, paragraph
34(a) of the Instruction. Paragraph 34(a) pertains to minor regulatory
changes that are editorial or procedural in nature. This proposed rule
adjusts rates in accordance with applicable statutory and regulatory
mandates. We seek any comments or information that may lead to the
discovery of a significant environmental impact from this proposed
rule.

List of Subjects

 46 CFR Part 401

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

46 CFR Part 403

    Great Lakes, Navigation (water), Reporting and recordkeeping
requirements, Seamen, Uniform System of Accounts.

46 CFR Part 404

    Great Lakes, Navigation (water), Seamen.

    For the reasons discussed in the preamble, the Coast Guard proposes
to amend 46 CFR parts 401, 403, and 404 as follows:

Title 46--Shipping

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(a) to read as follows:

Sec.  401.405  Pilotage rates and charges.

    (a) The hourly rate for pilotage service on--
    (1) The St. Lawrence River is $592;
    (2) Lake Ontario is $402;
    (3) Lake Erie is $408;
    (4) The navigable waters from Southeast Shoal to Port Huron, MI is
$546;
    (5) Lakes Huron, Michigan, and Superior is $215; and
    (6) The St. Mary's River is $508.
* * * * *
0
4. Revise Sec.  401.420(b) 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 January 31, 2017;
* * * * *

PART 403--GREAT LAKES PILOTAGE UNIFORM ACCOUNTING SYSTEM

0
 6. The authority citation for part 403 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. Revise Sec.  403.300(c) to read as follows:

Sec.  403.300  Financial reporting requirements.

* * * * *
    (c) By January 24 of each year, each association must obtain an
unqualified audit report for the preceding year that is audited and
prepared in accordance with generally accepted accounting principles by
an independent certified public accountant. Each association must
electronically submit that report with any associated settlement
statements and all accompanying notes to the Director by January 31.

PART 404--GREAT LAKES PILOTAGE RATEMAKING

0
 8. 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
9. Revise 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
10. 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
11. In 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 Sec.  404.109 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 Sec.  404.110 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: March 30, 2017.
Michael D. Emerson,
Director, Marine Transportation Systems, U.S. Coast Guard.
[FR Doc. 2017-06662 Filed 4-4-17; 8:45 am]
 BILLING CODE 9110-04-P