[Federal Register Volume 88, Number 157 (Wednesday, August 16, 2023)]
[Proposed Rules]
[Pages 55629-55660]
[FR Doc No: 2023-17474]

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DEPARTMENT OF HOMELAND SECURITY

Coast Guard

46 CFR Part 401

[Docket No. USCG-2023-0438]
RIN 1625-AC89

Great Lakes Pilotage Rates--2024 Annual Review

AGENCY: Coast Guard, DHS.

ACTION: Notice of proposed rulemaking.

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SUMMARY: In accordance with the statutory provisions enacted by the
Great Lakes Pilotage Act of 1960, the Coast Guard is proposing new
pilotage rates for the 2024 shipping season. The Coast Guard estimates
that this proposed rule would result in approximately a 5-percent
increase in operating costs compared to the 2023 season.

DATES: Comments and related material must be received by the Coast
Guard on or before September 15, 2023.

ADDRESSES: You may submit comments identified by docket number USCG-
2023-0438 using the Federal Decision Making Portal at
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. Brian Rogers, Commandant, Office of Waterways and
Ocean Policy--Great Lakes Pilotage Division (CG-WWM-2), Coast Guard;
telephone<PHONE_NUMBER>, email [email protected].

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. Summary of the Ratemaking Methodology
VII. Historic Methodological and Other Changes
VIII. Individual Target Pilot Compensation Benchmark
IX. Discussion of Proposed Rate Adjustments

District One

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

District Two

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

District Three

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

I. Public Participation and Request for Comments

    The Coast Guard views 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.
    Submitting comments. We encourage you to submit comments through
the Federal Decision Making Portal at www.regulations.gov. To do so, go
to www.regulations.gov, type USCG-2023-0438 in the search box and click
``Search.'' Next, look for this document in the Search Results column,
and click on it. Then click on the Comment option. If you cannot submit
your material by using www.regulations.gov, call or email the person in
the FOR FURTHER INFORMATION CONTACT section of this proposed rule for
alternate instructions.
    Viewing material in docket. To view documents mentioned in this
proposed rule as being available in the docket, find the docket as
described in the previous paragraph, and then select ``Supporting &
Related Material'' in the Document Type column. Public comments will
also be placed in our online docket and can be viewed by following
instructions on the www.regulations.gov Frequently Asked Questions web
page. This web page also explains how to subscribe for email alerts
that will notify you when comments are posted or if a final rule is
published. We review all comments received, but we will only post
comments that address the topic of the proposed rule. We may choose not
to post off-topic, inappropriate, or duplicate comments that we
receive.
    Personal information. We accept anonymous comments. Comments we
post to www.regulations.gov will include any personal information you
have provided. For more about privacy and submissions to the docket in
response to this document, see DHS's eRulemaking System of Records
notice (85 FR 14226, March 11, 2020).
    Public meeting. We do not plan to hold a public meeting, but we
will consider doing so if we determine from public comments that 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

2023 final rule Great Lakes Pilotage Rates--2023 Annual Ratemaking
and Review of Methodology final rule
AMOU American Maritime Officers Union
APA American Pilots' Association
BLS Bureau of Labor Statistics
CFR Code of Federal Regulations
CPA Certified public accountant
CPI Consumer Price Index
DHS Department of Homeland Security
Director U.S. Coast Guard's Director of the Great Lakes Pilotage
ECI Employment Cost Index
FOMC Federal Open Market Committee
FR Federal Register
GLPA Great Lakes Pilotage Authority (Canadian)
GLPAC Great Lakes Pilotage Advisory Committee
GLPMS Great Lakes Pilotage Management System
LPA Lakes Pilots Association
NAICS North American Industry Classification System
NPRM Notice of proposed rulemaking
OMB Office of Management and Budget
PCE Personal Consumption Expenditures
Sec.  Section
SBA Small Business Administration
SLSPA Saint Lawrence Seaway Pilotage Association
U.S.C. United States Code
WGLPA Western Great Lakes Pilots Association

III. Executive Summary

    In accordance with Title 46 of the United States Code (U.S.C.),
Chapter 93,\1\ the Coast Guard regulates pilotage for oceangoing
vessels on the Great Lakes and St. Lawrence Seaway--including setting
the rates for pilotage services and adjusting them on an annual basis
for the upcoming shipping season. The shipping season begins when the
locks open in the St. Lawrence Seaway, which allows traffic access to
and from the Atlantic Ocean. The opening of the locks varies annually,
depending on waterway conditions, but is generally in March or April.
The rates, which for the 2024 season range from a proposed $413 to $925
per pilot hour (depending on which of the specific 6 areas pilotage
service is provided), are paid by shippers to the pilot associations.
The three pilot associations, which are the exclusive U.S. source of
registered pilots on the Great Lakes, use this revenue to cover
operating expenses, maintain infrastructure, compensate apprentice and
registered pilots, acquire and implement technological advances, train
new personnel, and provide for continuing professional development.
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    \1\ 46 U.S.C. 9301-9308.
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    In accordance with statutory and regulatory requirements, the Coast
Guard employs the ratemaking methodology introduced in 2016 and
finalized in 2023. Our ratemaking methodology calculates the revenue
needed for each pilotage association (operating expenses, compensation
for the number of pilots, and anticipated inflation), and then divides
that amount by the expected demand for pilotage services over the
course of the coming year to produce an hourly rate. This is a 10-step
methodology to calculate rates, which is explained in detail in section
VI., Summary of the Ratemaking Methodology, in the preamble to this
proposed rule.
    In this notice of proposed rulemaking (NPRM), we are conducting our
annual review and interim adjustment to the base pilotage rates for
2024. The Coast Guard last conducted a full ratemaking in 2023, with
the ``Great Lakes Pilotage Rates--2023 Annual Ratemaking and Review of
Methodology'' final rule (hereafter the ``2023 final rule'') (88 FR
12226, published February 27, 2023).\2\ Per title 46 of the Code of
Federal Regulations (CFR), section 404.100(b), via this NPRM, the Coast
Guard's Director of the Great Lakes Pilotage (``the Director'')
proposes to establish base pilotage rates by an interim ratemaking
pursuant to Sec. Sec.  404.101 through 404.110.
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    \2\ https://www.govinfo.gov/content/pkg/FR-2023-02-27/pdf/2023-03212.pdf (last visited 5/12/2023).
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    The Coast Guard sets base rates to meet the goal of promoting safe,
efficient, and reliable pilotage service on the Great Lakes by
generating sufficient revenue for each pilotage association to
reimburse its necessary and reasonable operating expenses, fairly
compensate trained and rested pilots, and provide appropriate funds to
use for improvements. A 10-year average is used when calculating
traffic to smooth out anomalies caused by unexpected events, such as
those caused by the COVID-19 pandemic. The Coast Guard estimates that
this proposed rule would result in $1,914,438 of additional costs. This
represents an increase in revenue needed for target pilot compensation,
an increase in revenue needed for the total apprentice pilot wage
benchmark, an increase in the revenue needed for adjusted operating
expenses, and an increase in the revenue needed for the working capital
fund.
    Based on the ratemaking model discussed in this NPRM, the Coast
Guard is proposing the rates shown in table 1.

                      Table 1--Current and Proposed 2024 Pilotage Rates on the Great Lakes
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                                                                                Final 2023    Proposed  2024
                     Area                                     Name                 pilotage rate   pilotage rate
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District One: Designated......................  St. Lawrence River..............            $876            $925
District One: Undesignated....................  Lake Ontario....................             586             606
District Two: Designated......................  Navigable waters from Southeast              601             660
                                                 Shoal to Port Huron, MI.
District Two: Undesignated....................  Lake Erie.......................             704             586
District Three: Designated....................  St. Mary's River................             834             805
District Three: Undesignated..................  Lakes Huron, Michigan, and                   410             413
                                                 Superior.
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    This proposed rule would affect 56 U.S. Great Lakes pilots, 7
apprentice pilots, 3 pilot associations, and the owners and operators
of an average of 277 oceangoing vessels that transit the Great Lakes
annually. This proposed rule is not economically significant under
Executive Order 12866 and would not affect the Coast Guard's budget or
increase Federal spending. The estimated overall annual regulatory
economic impact of this rate change would be a net increase of
$1,914,438 in estimated payments made by shippers during the 2024
shipping season. This proposed rule would establish the 2024 yearly
target compensation for pilots on the Great Lakes at $442,403 per pilot
(a $18,005 increase, or 4.24 percent, over their 2023 target
compensation). Because the Coast Guard must review, and, if necessary,
adjust rates each year, we analyze these as single-year costs and do
not annualize them over 10 years. Section X., Regulatory Analyses, in
this preamble provides the regulatory impact analyses of this proposed
rule.

IV. Basis and Purpose

    The legal basis of this rulemaking is 46 U.S.C. Chapter 93,\3\
which requires foreign merchant vessels and United States vessels
operating ``on register'' (meaning United States vessels engaged in
foreign trade) to use United States or Canadian pilots while transiting
the United States waters of the St. Lawrence Seaway and the Great Lakes
system.\4\ For U.S. Great Lakes pilots, the statute requires the
Secretary to ``prescribe by regulation rates and charges for pilotage
services, giving consideration to the public interest and the costs of
providing the services.'' \5\ The statute requires that rates be
established or reviewed and adjusted each year, no later than March
1.\6\ The statute also requires that base rates be established by a
full ratemaking at least once every 5 years, and, in years when base
rates are not established, they must be reviewed and, if necessary,
adjusted.\7\ The Secretary's duties and authority under 46 U.S.C.
Chapter 93 have generally been delegated to the Coast Guard.\8\
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    \3\ 46 U.S.C. 9301-9308.
    \4\ 46 U.S.C. 9302(a)(1).
    \5\ 46 U.S.C. 9303(f).
    \6\ Ibid.
    \7\ Ibid.
    \8\ Department of Homeland Security (DHS) Delegation No. 00170.1
(II)(92)(f), Revision No. 01.3. The Secretary retains the authority
under Section 9307 to establish, and appoint members to, a Great
Lakes Pilotage Advisory Committee.
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    Each pilot association is an independent business and is the sole
provider of pilotage services in its district of operation. Each pilot
association is responsible for funding its own operating expenses,
maintaining infrastructure, compensating pilots and apprentice
pilots,\9\ acquiring and implementing technological advances, and
training personnel and partners.
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    \9\ Apprentice pilots and applicant pilots are compensated by
the pilot association they are training with, which is funded
through the pilotage rates. The ratemaking methodology accounts for
an apprentice pilot wage benchmark in Step 4 per 46 CFR 404.104(d).
The applicant pilot salaries are included in the pilot associations'
operating expenses used in Step 1 per 46 CFR 404.101.
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    The Coast Guard uses a 10-step ratemaking methodology to derive a
pilotage rate, based on the estimated amount of traffic, which covers
these expenses.\10\ The methodology is designed to measure how much
revenue each pilotage association would need to cover expenses and to
provide competitive compensation to registered pilots. Since the Coast
Guard cannot guarantee demand for pilotage services, target pilot
compensation for registered pilots is a goal. The actual demand for
service dictates the actual compensation for the registered pilots. We
then divide that amount by the historic 10-year average for pilotage
demand. We recognize that, in years where traffic is above average,
pilot associations will accrue more revenue than projected while, in
years where traffic is below average, they will take in less. We
believe that, over the long term, however, this system ensures that
infrastructure will be maintained, and that pilots will receive
adequate compensation and work a reasonable number of hours, with
adequate rest between assignments, to ensure retention of highly
trained personnel.
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    \10\ 46 CFR part 404.101-404.110. https://www.ecfr.gov/current/title-46/chapter-III/part-404 (Last visited 5/17/23).
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    The purpose of this proposed rule is to issue new pilotage rates
for the 2024 shipping season. The Coast Guard believes that the new
rates will continue to promote our goal, as outlined in 46 CFR 404.1,
of promoting safe, efficient, and reliable pilotage service in the
Great Lakes by generating sufficient revenue for each pilotage
association to reimburse its necessary and reasonable operating
expenses, fairly compensate trained and rested pilots, and provide
appropriate funds to use for improvements.

V. Background

    Pursuant to 46 U.S.C. 9303, the Coast Guard regulates shipping
practices and rates on the Great Lakes. Under Coast Guard regulations,
all vessels engaged in foreign trade (often referred to as ``salties'')
are required to engage United States or Canadian pilots during their
transit through the regulated waters.\11\ United States and Canadian
``lakers,'' which account for most commercial shipping on the Great
Lakes, are not affected.\12\ Generally, vessels are assigned a United
States or Canadian pilot, depending on the order in which they transit
a particular area of the Great Lakes, and do not choose the pilot they
receive. If a vessel is assigned a U.S. pilot, that pilot will be
assigned by the pilotage association responsible for the district in
which the vessel is operating, and the vessel operator will pay the
pilotage association for the pilotage services. The Great Lakes
Pilotage Authority (Canadian) (GLPA) establishes the rates for Canadian
registered pilots.
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    \11\ See 46 CFR part 401. https://www.ecfr.gov/current/title-46/chapter-III/part-401 (Last visited 5/17/23).
    \12\ 46 U.S.C. 9302(f). A ``laker'' is a commercial cargo vessel
especially designed for and generally limited to use on the Great
Lakes. https://uscode.house.gov/view.xhtml?req=granuleid:U.S.C.-prelim-title46-section9302#=0&edition=prelim (Last visited 5/17/
23).
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    The U.S. waters of the Great Lakes and the St. Lawrence Seaway are
divided into three pilotage districts. Pilotage in each district is
provided by an association certified by the Director to operate a
pilotage pool. The Saint Lawrence Seaway Pilotage Association (SLSPA)
provides pilotage services in District One, which includes all U.S.
waters of the St. Lawrence River and Lake Ontario. The Lakes Pilots
Association (LPA) provides pilotage services in District Two, which
includes all U.S. waters of Lake Erie, the Detroit River, Lake St.
Clair, and the St. Clair River. Finally, the Western Great Lakes Pilots
Association (WGLPA) provides pilotage services in District Three, which
includes all U.S. waters of the St. Mary's River; Sault Ste. Marie
Locks; and Lakes Huron, Michigan, and Superior.
    Each pilotage district is further divided into ``designated'' and
``undesignated'' areas, depicted in table 2. Designated areas,
classified as such by Presidential Proclamation, are waters in which
pilots must direct the navigation of vessels at all times.\13\
Undesignated areas are open bodies of water not subject to the same
pilotage requirements. While working in undesignated areas, pilots must
``be on board and available to direct the navigation of the vessel at
the discretion of and subject to the customary authority of the
master.'' \14\ For these reasons, pilotage rates in designated areas
can be significantly higher than those in undesignated areas. Table 2
shows the districts and areas of the Great Lakes and St. Lawrence
Seaway.
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    \13\ Presidential Proclamation 3385, Designation of restricted
waters under the Great Lakes Pilotage Act of 1960, December 22, 1960
(https://www.archives.gov/federal-register/codification/proclamations/03385.html) (Last visited 5/31/23).
    \14\ 46 U.S.C. 9302(a)(l)(B).

                            Table 2--Areas of the Great Lakes and St. Lawrence Seaway
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                                        Pilotage                                     Area
            District                  association             Designation        Number \15\    Area Name \16\
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One.............................  Saint Lawrence       Designated..............            1  St. Lawrence
                                   Seaway Pilotage                                             River.
                                   Association
                                   (SLPSA).
                                                       Undesignated............            2  Lake Ontario.
Two.............................  Lakes Pilots         Designated..............            5  Navigable waters
                                   Association (LPA).                                          from Southeast
                                                                                Shoal to Port
                                                                                Huron, MI.
                                                       Undesignated............            4  Lake Erie.
Three...........................  Western Great Lakes  Designated..............            7  St. Marys River.
                                   Pilots Association
                                   (WGLPA).
                                                       Undesignated............            6  Lakes Huron and
                                                                                Michigan.
                                                       Undesignated............            8  Lake Superior.
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    Over the past several years, the Coast Guard has adjusted the Great
Lakes pilotage ratemaking methodology per our authority in 46 U.S.C.
9303(f) to conduct annual reviews of base pilotage rates and adjust
such base rates in each intervening year in consideration of the public
interest and the costs of providing the services. The current
methodology was finalized in the 2023 final rule.\17\ We summarize the
current methodology in the following section.
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    \15\ Area 3 is the Welland Canal, which is serviced exclusively
by the Canadian GLPA and, accordingly, is not included in the United
States pilotage rate structure.
    \16\ The areas are listed by name at 46 CFR 401.405. https://www.ecfr.gov/current/title-46/chapter-III/part-401/subpart-D/section-401.405 (Last visited 5/17/23).
    \17\ 88 FR 12226.
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VI. Summary of the Ratemaking Methodology

    As stated previously, the ratemaking methodology, outlined in 46
CFR 404.101 through 404.110, consists of 10 steps that are designed to
account for the revenues needed and total traffic expected in each
district. The first several steps of the methodology establish base
pilotage rates. Additional steps to incorporate the weighting factors
are necessary to establish the final pilot rates. The result is an
hourly rate, determined separately for each of the areas administered
by the Coast Guard.
    In Step 1, ``Recognize previous operating expenses,'' (Sec.
404.101), the Director reviews audited operating expenses from each of
the three pilotage associations. Operating expenses include all
allowable expenses, minus wages and benefits. This number forms the
baseline amount that each association is budgeted. Because of the time
delay between when the association submits raw numbers and when the
Coast Guard receives audited numbers, this number is 3 years behind the
projected year of expenses. Therefore, in calculating the 2024 rates in
this proposal, we begin with the audited expenses from the 2021
shipping season.
    While each pilotage association operates in an entire district
(including both designated and undesignated areas), the Coast Guard
determines costs by area. We allocate certain operating expenses to
designated areas and certain operating expenses to undesignated areas.
In some cases, we can allocate the costs based on where they are
accrued. For example, we can allocate the costs of insurance for
apprentice pilots who operate in undesignated areas only. In other
situations, such as general legal expenses, expenses are distributed
between designated and undesignated waters on a pro rata basis, based
upon the proportion of income forecasted from the respective portions
of the district.
    In Step 2, ``Project operating expenses, adjusting for inflation or
deflation,'' (Sec.  404.102), the Director develops the 2024 projected
operating expenses. To do this, we apply inflation adjustors for 3
years to the operating expense baseline received in Step 1. The
inflation factors are from the Bureau of Labor Statistics' (BLS)
Consumer Price Index (CPI) for the Midwest Region, or, if not
available, the Federal Open Market Committee (FOMC) median economic
projections for Personal Consumption Expenditures (PCE) inflation. This
step produces the total operating expenses for each area and district.
    In Step 3, ``Estimate number of registered pilots and apprentice
pilots,'' (Sec.  404.103), the Director calculates how many registered
and apprentice pilots, including apprentice pilots with limited
registrations, are needed for each district. To do this, we employ a
``staffing model,'' described in Sec.  401.220, paragraphs (a)(1)
through (3), to estimate how many pilots would be needed to handle
shipping during the beginning and close of the season. This number
provides guidance to the Director in approving an appropriate number of
pilots.
    For the purpose of the ratemaking calculation, we determine the
number of pilots provided by the pilotage associations (see Sec.
404.103) and use that figure to determine how many pilots need to be
compensated via the pilotage fees collected.
    In the first part of Step 4, ``Determine target pilot compensation
benchmark and apprentice pilot wage benchmark,'' (Sec.  404.104(a)),
the Director determines the revenue needed for pilot compensation in
each area and district and calculates the total compensation for each
pilot using a ``compensation benchmark.''
    In the second part of Step 4, (Sec.  404.104(c)), the Director
determines the total compensation figure for each district. To do this,
the Director multiplies the compensation benchmark by the number of
pilots for each area and district (from Step 3), producing a figure for
total pilot compensation.
    In Step 5, ``Project working capital fund,'' (Sec.  404.105), the
Director calculates an added value to pay for needed capital
improvements and other non-recurring expenses, such as technology
investments and infrastructure maintenance. This value is calculated by
adding the total operating expenses (derived in Step 2) to the total
pilot compensation and the total target apprentice pilot wage (derived
in Step 4), then by multiplying that figure by the preceding year's
average annual rate of return for new issues of high-grade corporate
securities. This figure constitutes the ``working capital fund'' for
each area and district.
    In Step 6, ``Project needed revenue,'' (Sec.  404.106), the
Director simply adds the totals produced by the preceding steps. The
projected operating expense for each area and district (from Step 2) is
added to the total pilot compensation, including apprentice pilot wage
benchmarks (from Step 4), and the working capital fund contribution
(from Step 5). The total figure, calculated

separately for each area and district, is the ``needed revenue.''
    In Step 7, ``Calculate initial base rates,'' (Sec.  404.107), the
Director calculates an hourly pilotage rate to cover the needed
revenue, as calculated in Step 6. This step consists of first
calculating the 10-year average of traffic hours for each area. Next,
we divide the revenue needed in each area (calculated in Step 6) by the
10-year average of traffic hours to produce an initial base rate.
    An additional element, the ``weighting factor,'' is required under
Sec.  401.400. Pursuant to that section, ships pay a multiple of the
``base rate'', as calculated in Step 7, by a number ranging from 1.0
(for the smallest ships, or ``Class I'' vessels) to 1.45 (for the
largest ships, or ``Class IV'' vessels). This significantly increases
the revenue collected, and we need to account for the added revenue
produced by the weighting factors to ensure that shippers are not
overpaying for pilotage services. We do this in the next step.
    In Step 8, ``Calculate average weighting factors by Area,'' (Sec.
404.108), the Director calculates how much extra revenue, as a
percentage of total revenue, has historically been produced by the
weighting factors in each area. We do this by using a historical
average of the applied weighting factors for each year since 2014 (the
first year the current weighting factors were applied).
    In Step 9, ``Calculate revised base rates,'' (Sec.  404.109), the
Director modifies the base rates by accounting for the extra revenue
generated by the weighting factors. We do this by dividing the initial
pilotage rate for each area (from Step 7) by the corresponding average
weighting factor (from Step 8), to produce a revised rate.
    In Step 10, ``Review and finalize rates,'' (Sec.  404.110), often
referred to informally as ``Director's discretion'', the Director
reviews the revised base rates (from Step 9) to ensure that they meet
the goals set forth in 46 U.S.C. 9303(f) and 46 CFR 404.1(a), which
include promoting efficient, safe, and reliable pilotage service on the
Great Lakes; generating sufficient revenue for each pilotage
association to reimburse necessary and reasonable operating expenses;
compensating trained and rested pilots fairly; and providing
appropriate revenue for improvements.
    After the base rates are set, Sec.  401.401 permits the Coast Guard
to apply surcharges. We are not proposing to use any surcharges in this
proposed rule. In previous ratemakings, where apprentice pilot wages
were not built into the rate, the Coast Guard used surcharges to cover
applicant pilot compensation in those years to help with applicant
recruitment. In this proposed rule, we include the applicant trainee
compensation in the district's operating expenses used in Step 1.
Consistent with the 2021, 2022, and 2023 rulemakings, in this proposed
rule, we continue to believe that the pilot associations are able to
plan for the costs associated with hiring applicant pilots to fill
pilot vacancies without relying on the Coast Guard to impose surcharges
to help with recruiting.

VII. Historic Methodological and Other Changes

    The Coast Guard is proposing to use the existing ratemaking
methodology for establishing the base rates in this interim ratemaking.
The Coast Guard is not proposing any methodological or other policy
changes to the ratemaking within this NPRM.
    According to 46 U.S.C. 9303(f), and restated in 46 CFR 404.100(a),
the Coast Guard must only establish base rates by a full ratemaking at
least once every 5 years. The Coast Guard has determined that the
current base rate and methodology still adequately adheres to the Coast
Guard's goals through rate and compensation stability, while promoting
recruitment and retention of qualified U.S.-registered pilots. The
Coast Guard has made several changes to the ratemaking methodology over
the last several years in consideration of the public interest and the
costs of providing services. The recent changes and their impacts are
summarized as follows.
    In the 2017 ratemaking, Great Lakes Pilotage Rates--2017 Annual
Review (82 FR 41466, published August 31, 2017),\18\ the Coast Guard
modified the methodology to account for the additional revenue produced
by the application of weighting factors. This is discussed in detail in
Steps 7 through 9 for each district, in section IX., Discussion of
Proposed Rate Adjustments, of this preamble.
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    \18\ https://www.govinfo.gov/content/pkg/FR-2017-08-31/pdf/2017-18411.pdf (last visited 5/12/2023).
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    In the 2018 ratemaking, Great Lakes Pilotage Rates--2018 Annual
Review and Revisions to Methodology (83 FR 26162, published June 5,
2018),\19\ the Coast Guard adopted a new approach in the methodology
for the compensation benchmark, based upon United States mariners,
rather than Canadian working pilots.
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    \19\ https://www.govinfo.gov/content/pkg/FR-2018-06-05/pdf/2018-11969.pdf (last visited 5/12/2023).
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    In the 2020 ratemaking, Great Lakes Pilotage Rates--2020 Annual
Review and Revisions to Methodology (85 FR 20088, published April 9,
2020),\20\ the Coast Guard revised the methodology to accurately
capture all costs and revenues associated with Great Lakes pilotage
requirements and to produce an hourly rate that adequately and
accurately compensates pilots and covers expenses.
---------------------------------------------------------------------------

    \20\ https://www.govinfo.gov/content/pkg/FR-2020-04-09/pdf/2020-06968.pdf (last visited 5/12/2023).
---------------------------------------------------------------------------

    The 2021 ratemaking, Great Lakes Pilotage Rates--2021 Annual Review
and Revisions to Methodology (86 FR 14184, published March 12,
2021),\21\ changed the inflation calculation in Step 4, Sec.
404.104(b), for interim ratemakings, so that the previous year's target
compensation value is first adjusted by actual inflation value using
the Employment Cost Index (ECI). That change ensures that the target
pilot compensation reimbursed to the association remains current with
inflation and competitive with industry pay increases.
---------------------------------------------------------------------------

    \21\ https://www.govinfo.gov/content/pkg/FR-2021-03-12/pdf/2021-05050.pdf (last visited 5/12/2023).
---------------------------------------------------------------------------

    The 2022 ratemaking, Great Lakes Pilotage Rates--2022 Annual Review
and Revisions to Methodology (87 FR 18488, published March 30,
2022),\22\ implemented an apprentice pilot wage benchmark in Steps 3
and 4 to provide predictability and stability to pilot associations
training apprentice pilots. The 2022 final rule also codified rounding
up the staffing model's final number to ensure that the ratemaking does
not undercount the pilot need presented by the staffing model and
association circumstances.
---------------------------------------------------------------------------

    \22\ https://www.govinfo.gov/content/pkg/FR-2022-03-30/pdf/2022-06394.pdf (last visited 5/12/2023).
---------------------------------------------------------------------------

VIII. Individual Target Pilot Compensation Benchmark

    The Coast Guard is proposing to set the target pilot compensation
benchmark in this NPRM at the target compensation for the ratemaking
year 2023, adjusted for inflation. In an interim ratemaking year, the
base target pilot compensation would be adjusted annually in accordance
with Sec.  404.104(b). The Coast Guard arrived at this proposed
compensation benchmark as explained in the following paragraphs.
    Before 2016, the Coast Guard based the compensation benchmark on
data provided by the American Maritime Officers Union (AMOU) regarding
its contract for first mates on the Great Lakes. However, in 2016, the
AMOU elected to no longer provide this data to the Coast Guard. In the
2016 ratemaking, Great Lakes Pilotage Rates--2016 Annual Review and
Changes to Methodology (81 FR 11908, published

March 7, 2016),\23\ the Coast Guard used the average compensation for a
Canadian pilot, plus a 10-percent adjustment. The shipping industry
challenged the compensation benchmark, and the court found that the
Coast Guard did not adequately support the 10-percent addition to the
Canadian GLPA compensation benchmark. American Great Lakes Ports
Association v. Zukunft, 296 F.Supp. 3d 27, 48 (D.D.C. 2017), aff'd sub
nom. American Great Lakes Ports Association v. Schultz, 962 F.3d 510
(D.C. Cir. 2020). The Coast Guard then based the 2018 full ratemaking
compensation benchmark on data provided by the AMOU, regarding its
contract for first mates on the Great Lakes in the 2011 to 2015 period
(83 FR 26162). The 2018 final rule adjusted the AMOU 2015 data for
inflation using Federal Open Market FOMC median economic projections
for PCE inflation.
---------------------------------------------------------------------------

    \23\ https://www.govinfo.gov/content/pkg/FR-2016-03-07/pdf/2016-04894.pdf (last visited 5/12/2023).
---------------------------------------------------------------------------

    In the 2020 interim year ratemaking final rule,\24\ the Coast Guard
established its most recent pilot compensation benchmark. Given the
lack of access to AMOU data, the Coast Guard did not rely on the AMOU
aggregated wage and benefit information as the basis for the
compensation benchmark. Instead, the Coast Guard adopted the 2019
target pilot compensation (with inflation) as our compensation
benchmark going forward. The Coast Guard stated in the 2020 final rule
that no other United States or Canadian pilot compensation data was
appropriate to use as a benchmark at that time (85 FR 20091). The
Director determined that the ratemaking provided adequate compensation
for pilots. In the 2020 ratemaking, the Coast Guard announced that the
2020 benchmark will be used for future rates (85 FR 20091).
---------------------------------------------------------------------------

    \24\ 85 FR 20088.
---------------------------------------------------------------------------

    Based on our experience over the past four ratemakings (2020-2023),
the Director continues to believe that the level of target pilot
compensation for those years provided an appropriate level of
compensation for U.S.-registered pilots. According to Sec.  404.104(a),
the Director may make necessary and reasonable adjustments to the
benchmark based on current information. However, current circumstances
do not indicate that an adjustment, other than for inflation, is
necessary. The Director bases this decision on the fact that there is
no indication that registered pilots are resigning due to their
compensation, or that this compensation benchmark is causing shortfalls
in achieving reliable pilotage service. The Coast Guard also does not
believe that the pilot compensation benchmark is too high relative to
the expertise required to perform the job. The compensation will
continue to be adjusted annually, in accordance with published
inflation rates, which will ensure the compensation remains competitive
and current for upcoming years.
    Therefore, the Coast Guard proposes to not seek alternative
benchmarks for target compensation at this time and, instead, to simply
adjust the amount of target pilot compensation for inflation as our
target compensation benchmark for 2024, as shown in Step 4. This target
compensation benchmark approach has advanced and will continue to
advance the Coast Guard's goals through rate and compensation stability
while also promoting recruitment and retention of qualified U.S.
pilots.
    The proposed compensation benchmark for 2024 is $442,403 per
registered pilot and $159,265 per apprentice pilot, using the 2023
compensation as a benchmark. We follow the procedure outlined in
paragraph (b) of Sec.  404.104, which adjusts the existing compensation
benchmark for inflation. We use a two-step process to adjust target
pilot compensation for inflation. First, we adjust the 2023 target
compensation benchmark of $424,398 by 1.7 percent for an adjusted value
of $431,613. This first adjustment accounts for the difference in
actual first quarter 2023 ECI inflation, which is 4.4 percent, and the
2023 PCE estimate of 2.7 percent.\25\ The second step accounts for
projected inflation from 2023 to 2024, which is 2.5 percent.\26\ Based
on the projected 2024 inflation estimate, the proposed target
compensation benchmark for 2024 is $442,403 per pilot. The proposed
apprentice pilot wage benchmark is 36 percent of the target pilot
compensation, or $159,265 ($442,403 x 0.36).\27\
---------------------------------------------------------------------------

    \25\ Employment Cost Index, Total Compensation for Private
Industry workers in Transportation and Material Moving, Annual
Average, Series ID: CIU2010000520000A. https://www.bls.gov/news.release/eci.t05.htm (Last visited 04/28/23); and Table 1
Summary of Economic Projections, PCE Inflation. https://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20220316.pdf
(Last visited 05/17/23).
    \26\ Table 1 Summary of Economic Projections, PCE Inflation
December Projection. https://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20230322.pdf (Last visited 03/2023).
    \27\ For more information on the proposed apprentice pilot wage
benchmark, see the Coast Guard's 2022 Annual Review and Revisions to
Methodology. 87 FR 18488.
---------------------------------------------------------------------------

IX. Discussion of Proposed Rate Adjustments

    In this NPRM, based on the proposed policy changes described in the
previous section, we are proposing new pilotage rates for 2024. We
propose to conduct the 2024 ratemaking as an interim ratemaking, as we
last did in 2022 (87 FR 18488). Thus, the Coast Guard proposes to
adjust the compensation benchmark following the interim ratemaking year
procedures under Sec.  404.100(b) rather than the procedures for a full
ratemaking year in Sec.  404.100(a).
    This section discusses the proposed rate changes using the
ratemaking steps provided in 46 CFR part 404. We will detail all 10
steps of the ratemaking procedure for each of the 3 districts to show
how we arrive at the proposed new rates.

District One

A. Step 1: Recognize Previous Operating Expenses

    Step 1 in the ratemaking methodology requires that the Coast Guard
review and recognize the operating expenses for the last full year for
which figures are available (Sec.  404.101). To do so, we begin by
reviewing the independent accountant's financial reports for each
association's 2021 expenses and revenues.\28\ For accounting purposes,
the financial reports divide expenses into designated and undesignated
areas. For costs accrued by the pilot associations generally, such as
employee benefits, the cost is divided between the designated and
undesignated areas on a pro rata basis. The recognized operating
expenses for District One are shown in table 3.
---------------------------------------------------------------------------

    \28\ These reports are available in the docket for this proposed
rule.
---------------------------------------------------------------------------

    Adjustments have been made by the auditors and are explained in the
auditor's reports, which are available in the docket for this
rulemaking, where indicated under the Public Participation and Request
for Comments portion of the preamble.
    In the 2021 expenses used as the basis for this proposed rule,
districts used the term ``applicant'' to describe applicant trainees
and persons who will be called apprentices (applicant pilots), under
the definition of ``apprentice pilot'', which was introduced in the
2022 final rule. Therefore, when describing past expenses, the term
``applicant'' is used to match what was reported from 2021, which
includes both applicant and apprentice pilots. The term ``apprentice''
is used to distinguish apprentice pilot wages and describe the

impacts of the ratemaking going forward.
    The Coast Guard continues to include apprentice salaries as an
allowable expense in the 2024 ratemaking, as this proposed rule is
based on 2021 operating expenses, when salaries were still an allowable
expense. Beginning with the 2025 ratemaking, apprentice pilot salaries
will no longer be included as a 2022 operating expense, because
apprentice pilot wages will have already been factored into the
ratemaking Steps 3 and 4 in calculation of the 2022 rates. Beginning in
2025, the applicant salaries' operating expenses for 2022 will consist
of only applicant trainees (those who are not yet apprentice pilots).

                               Table 3--2021 Recognized Expenses for District One
----------------------------------------------------------------------------------------------------------------
                                                                 Designated        Undesignated
     District One Reported Operating Expenses for 2021     --------------------------------------      Total
                                                             St. Lawrence River    Lake Ontario
----------------------------------------------------------------------------------------------------------------
Applicant Pilot Compensation:
    Salaries..............................................              $247,735        $165,157        $412,892
    Employee Benefits.....................................                10,367           6,911          17,278
                                                           -----------------------------------------------------
        Total Applicant Pilot Compensation................               258,102         172,068         430,170
Other Applicant Cost:
    Applicant Subsistence.................................                 1,723           1,148           2,871
    Travel................................................                 1,832           1,221           3,053
    License Insurance.....................................                   752             502           1,254
    Payroll taxes.........................................                 1,945           1,296           3,241
    Other--Pilotage Cost..................................                   833             555           1,388
                                                           -----------------------------------------------------
        Total Other Applicant Cost........................                 7,085           4,722          11,807
Other Pilotage Cost:
    Subsistence...........................................               133,993          89,329         223,322
    Hotel/Lodging.........................................                32,424          21,616          54,040
    Travel................................................               453,718         302,478         756,196
    License renewal.......................................                 1,200             800           2,000
    Payroll Taxes.........................................               198,901         132,601         331,502
    License Insurance.....................................                53,174          35,450          88,624
                                                           -----------------------------------------------------
        Total Other Pilotage Costs........................               873,410         582,274       1,455,684
Pilot Boat and Dispatch Costs:
    Pilot boat expense (Operating)........................               200,672         133,782         334,454
    Dispatch expense......................................               167,291         111,527         278,818
    Employee Benefits.....................................                50,560          33,707          84,267
    Salaries..............................................               249,396         166,264         415,660
    Payroll taxes.........................................                10,269           6,846          17,115
                                                           -----------------------------------------------------
        Total Pilot and Dispatch Costs....................               678,188         452,126       1,130,314
Administrative Expenses:
    Legal--general counsel................................                 1,078             719           1,797
    Legal--shared counsel (K&L Gates).....................                 4,402           2,935           7,337
    Legal--USCG Litigation................................                14,641           9,760          24,401
    Insurance.............................................                44,108          29,405          73,513
    Employee benefits.....................................                 4,470           2,980           7,450
    Payroll Taxes.........................................                42,464          28,310          70,774
    Other taxes...........................................                79,200          52,800         132,000
    Real Estate taxes.....................................                22,918          15,278          38,196
    Travel................................................                 1,568           1,045           2,613
    Depreciation..........................................               186,517         124,345         310,862
    Interest..............................................                54,271          36,180          90,451
    APA Dues..............................................                25,250          16,834          42,084
    APA Dues (D1-21-01)...................................                 2,971           1,980           4,951
    Dues and subscriptions................................                 4,320           2,880           7,200
    Utilities.............................................                41,343          27,562          68,905
    Salaries..............................................                73,890          49,260         123,150
    Accounting/Professional fees..........................                 4,320           2,880           7,200
    Pilot Training........................................                 4,680           3,120           7,800
    Applicant Pilot Training..............................                18,911          12,607          31,518
    Other.................................................                28,422          18,948          47,370
                                                           -----------------------------------------------------
        Total Administrative Expenses.....................               659,744         439,828       1,099,572
                                                           -----------------------------------------------------
        Total Expenses (OPEX + Applicant + Pilot Boats +               2,476,529       1,651,018       4,127,547
         Admin + Capital).................................
                                                           -----------------------------------------------------
        Total Operating Expenses (OpEx + Adjustments).....             2,476,529       1,651,018       4,127,547
----------------------------------------------------------------------------------------------------------------

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

    In accordance with the text in Sec.  404.102, having identified the
recognized 2021 operating expenses in Step 1, the next step is to
estimate the current year's operating expenses by adjusting for
inflation over the 3-year period. We calculate inflation using the BLS
data from the CPI for the Midwest Region of the United States for the
2022 inflation rate.\29\ Because the BLS does not provide forecasted
inflation data, we use economic projections from the Federal Reserve
for the 2023 and 2024 inflation modification.\30\ Based on that
information, the calculations for Step 2 are as presented in table 4.
---------------------------------------------------------------------------

    \29\ The CPI is defined as ``All Urban Consumers (CPI-U), All
Items, 1982-4=100.'' Series CUUR0200SAO (Downloaded March 21, 2023).
Available at https://www.bls.gov/cpi/data.htm., All Urban Consumers
(Current Series), multiscreen data, not seasonally adjusted, 0200
Midwest, Current, All Items, Monthly, 12-month Percent Change and
Annual Data.
    \30\ The 2022 and 2023 inflation rates are available at https://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20230322.pdf. We used the Core PCE December Projection
found in table 1. (Downloaded April 2023).

                              Table 4--Adjusted Operating Expenses for District One
----------------------------------------------------------------------------------------------------------------
                                                                                District One
                                                                 -----------------------------------------------
                                                                    Designated     Undesignated        Total
----------------------------------------------------------------------------------------------------------------
Total Operating Expenses (Step 1)...............................      $2,476,529      $1,651,018      $4,127,547
2022 Inflation Modification (@8%)...............................         198,122         132,081         330,203
2023 Inflation Modification (@3.5%).............................          93,613          62,408         156,021
2024 Inflation Modification (@2.5%).............................          69,207          46,138         115,345
                                                                 -----------------------------------------------
    Adjusted 2024 Operating Expenses............................       2,837,471       1,891,645       4,729,116
----------------------------------------------------------------------------------------------------------------

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

    In accordance with the text in Sec.  404.103, the Coast Guard
estimates the number of fully registered pilots in each district. We
determine the number of fully registered pilots based on data provided
by the SLSPA. Using these numbers, we estimate that there will be 18
registered pilots in 2024 in District One. We determine the number of
apprentice pilots based on input from the district on anticipated
retirements and staffing needs. Using these numbers, we estimate that
there will be three apprentice pilots in 2024 in District One. Based on
the seasonal staffing model discussed in the 2017 ratemaking (82 FR
41466), a certain number of pilots are assigned to designated waters,
and a certain number of pilots are assigned to undesignated waters, as
shown in table 5. These numbers are used to determine the amount of
revenue needed in their respective areas.

               Table 5--Authorized Pilots for District One
------------------------------------------------------------------------
                         Item                             District One
------------------------------------------------------------------------
Proposed Maximum Number of Pilots (per Sec.                           18
 401.220(a)) *.......................................
2024 Authorized Pilots (total).......................                 18
Pilots Assigned to Designated Areas..................                 10
Pilots Assigned to Undesignated Areas................                  8
2024 Apprentice Pilots...............................                  3
------------------------------------------------------------------------
* For a detailed calculation, refer to the Great Lakes Pilotage Rates--
  2017 Annual Review final rule, which contains the staffing model. See
  82 FR 41466, table 6 at 41480 (August 31, 2017).

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

    In this step, we determine the total pilot compensation for each
area. Because we are issuing an ``interim'' ratemaking this year, we
follow the procedure outlined in paragraph (b) of Sec.  404.104, which
adjusts the existing compensation benchmark by inflation. First, we
adjust the 2023 target compensation benchmark of $424,398 by 1.7
percent for a value of $431,613. This accounts for the difference in
actual first quarter 2023 ECI inflation, which is 4.4 percent, and the
2023 PCE estimate of 2.7 percent.31 32 The second step
accounts for projected inflation from 2023 to 2024, which is 2.5
percent.\33\ Based on the projected 2024 inflation estimate, the
proposed target compensation benchmark for 2024 is $442,403 per pilot.
The proposed apprentice pilot wage benchmark is 36 percent of the
target pilot compensation, or $159,265 ($442,403 x 0.36).
---------------------------------------------------------------------------

    \31\ Employment Cost Index, Total Compensation for Private
Industry workers in Transportation and Material Moving, Annual
Average, Series ID: CIU2010000520000A. https://www.bls.gov/news.release/eci.t05.htm (Last visited 04/28/23).
    \32\ Table 1 Summary of Economic Projections, PCE Inflation.
https://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20220316.pdf (Last visited 05/17/23).
    \33\ Table 1 Summary of Economic Projections, PCE Inflation
December Projection. https://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20230322.pdf (Last visited 03/2023).
---------------------------------------------------------------------------

    Next, the Coast Guard certifies that the number of pilots estimated
for 2024 is less than or equal to the number permitted under the
staffing model in Sec.  401.220(a). The staffing model suggests that
District One needs 18 pilots, which is less than or equal to the number
of registered pilots provided by the pilot association. In accordance
with Sec.  404.104(c), we use the revised target individual
compensation level to derive the total pilot compensation by
multiplying the individual target compensation by the estimated number
of registered pilots for District One, as shown in table 6. We estimate
that the number of apprentice pilots with limited registration needed
will be three for District One in the 2024 season. The total target
wages for apprentices are allocated with 60 percent for the designated
area and 40 percent for the undesignated area, in accordance with the
allocation for operating expenses.

                                  Table 6--Target Compensation for District One
----------------------------------------------------------------------------------------------------------------
                                                                                District One
                                                                 -----------------------------------------------
                                                                    Designated     Undesignated        Total
----------------------------------------------------------------------------------------------------------------
Target Pilot Compensation.......................................        $442,403        $442,403        $442,403
Number of Pilots................................................              10               8              18
Total Target Pilot Compensation.................................       4,424,030       3,539,224       7,963,254
Target Apprentice Pilot Compensation............................         159,265         159,265         159,265
Number of Apprentice Pilots.....................................  ..............  ..............               3
Total Target Apprentice Pilot Compensation......................         286,677         191,118         477,795
----------------------------------------------------------------------------------------------------------------

E. Step 5: Project Working Capital Fund

    Next, the Coast Guard calculates the working capital fund revenues
needed for each area. We first add the figures for projected operating
expenses, total pilot compensation, and total target apprentice pilot
wage for each area, and then, we find the preceding year's average
annual rate of return for new issues of high-grade corporate
securities. Using Moody's data, the number is 4.0742 percent
rounded.\34\ By multiplying the two figures, we obtain the working
capital fund contribution for each area, as shown in table 7.
---------------------------------------------------------------------------

    \34\ Moody's Seasoned Aaa Corporate Bond Yield, average of 2022
monthly data. The Coast Guard uses the most recent year of complete
data. Moody's is taken from Moody's Investors Service, which is a
bond credit rating business of Moody's Corporation. Bond ratings are
based on creditworthiness and risk. The rating of ``Aaa'' is the
highest bond rating assigned with the lowest credit risk. See
https://fred.stlouisfed.org/series/AAA (Last visited 03/21/23).

                           Table 7--Working Capital Fund Calculation for District One
----------------------------------------------------------------------------------------------------------------
                                                                                District One
                                                                 -----------------------------------------------
                                                                    Designated     Undesignated        Total
----------------------------------------------------------------------------------------------------------------
Adjusted Operating Expenses (Step 2)............................      $2,837,471      $1,891,645      $4,729,116
Total Target Pilot Compensation (Step 4)........................       4,424,030       3,539,224       7,963,254
Total Target Apprentice Pilot Compensation (Step 4).............         286,677         191,118         477,795
Total 2024 Expenses.............................................       7,548,178       5,621,987      13,170,165
Working Capital Fund (4.0742%)..................................         307,525         229,049         536,574
----------------------------------------------------------------------------------------------------------------

F. Step 6: Project Needed Revenue

    In this step, we add the expenses accrued to derive the total
revenue needed for each area. These expenses include the projected
operating expenses (from Step 2), the total pilot compensation (from
Step 4), total target apprentice pilot wage (from Step 4), and the
working capital fund contribution (from Step 5). We show these
calculations in table 8.

                                    Table 8--Revenue Needed for District One
----------------------------------------------------------------------------------------------------------------
                                                                                District One
                                                                 -----------------------------------------------
                                                                    Designated     Undesignated        Total
----------------------------------------------------------------------------------------------------------------
Adjusted Operating Expenses (Step 2)............................      $2,837,471      $1,891,645      $4,729,116
Total Target Pilot Compensation (Step 4)........................       4,424,030       3,539,224       7,963,254
Total Target Apprentice Pilot Compensation (Step 4).............         286,677         191,118         477,795
Working Capital Fund (Step 5)...................................         307,525         229,049         536,574
                                                                 -----------------------------------------------
    Total Revenue Needed........................................       7,855,703       5,851,036      13,706,739
----------------------------------------------------------------------------------------------------------------

G. Step 7: Calculate Initial Base Rates

    Having determined the revenue needed for each area in the previous
six steps, we divide that number by the expected number of traffic
hours to develop an hourly rate.
    Step 7 is a two-part process. The first part is calculating the 10-
year traffic average in District One using the total time on task or
pilot bridge hours. To calculate the time on task for each district,
the Coast Guard uses billing data from SeaPro. The data is pulled from
the system filtering by district, year, job status (including only
processed jobs), and flagging code (including only U.S. jobs). Because
we calculate separate figures for designated and undesignated waters,
there are two parts for each calculation. We show these values in table
9.

                 Table 9--Time on Task for District One
                                 [Hours]
------------------------------------------------------------------------
                                                   District One
                  Year                   -------------------------------
                                            Designated     Undesignated
------------------------------------------------------------------------
2022....................................           6,785           8,574
2021....................................           6,188           7,871
2020....................................           6,265           7,560
2019....................................           8,232           8,405
2018....................................           6,943           8,445
2017....................................           7,605           8,679
2016....................................           5,434           6,217
2015....................................           5,743           6,667
2014....................................           6,810           6,853
2013....................................           5,864           5,529
                                         -------------------------------
    Average.............................           6,587           7,480
------------------------------------------------------------------------

    Next, we derive the initial hourly rate by dividing the revenue
needed by the average number of hours for each area. This produces an
initial rate, which is necessary to produce the revenue needed for each
area, assuming the amount of traffic is as expected. We present the
calculations for District One in table 10.

          Table 10--Initial Rate Calculations for District One
------------------------------------------------------------------------
                                            Designated     Undesignated
------------------------------------------------------------------------
Revenue needed (Step 6).................      $7,855,703      $5,851,036
Average time on task (hours)............           6,587           7,480
Initial rate............................           1,193             782
------------------------------------------------------------------------

H. Step 8: Calculate Average Weighting Factors by Area

    In this step, the Coast Guard calculates the average weighting
factor for each designated and undesignated area by first collecting
the weighting factors, set forth in 46 CFR 401.400, for each vessel
trip. Using this data, we calculate the average weighting factor for
each area using the data from each vessel transit from 2014 onward, as
shown in tables 11 and 12.

                      Table 11--Average Weighting Factor for District One, Designated Areas
----------------------------------------------------------------------------------------------------------------
                                                                     Number of       Weighting       Weighted
                        Vessel class/year                            transits         factor         transits
----------------------------------------------------------------------------------------------------------------
Class 1 (2014)..................................................              31               1              31
Class 1 (2015)..................................................              41               1              41
Class 1 (2016)..................................................              31               1              31
Class 1 (2017)..................................................              28               1              28
Class 1 (2018)..................................................              54               1              54
Class 1 (2019)..................................................              72               1              72
Class 1 (2020)..................................................               8               1               8
Class 1 (2021)..................................................              10               1              10
Class 1 (2022)..................................................              39               1              39
Class 2 (2014)..................................................             285            1.15             328
Class 2 (2015)..................................................             295            1.15             339
Class 2 (2016)..................................................             185            1.15             213
Class 2 (2017)..................................................             352            1.15             405
Class 2 (2018)..................................................             559            1.15             643
Class 2 (2019)..................................................             378            1.15             435
Class 2 (2020)..................................................             560            1.15             644
Class 2 (2021)..................................................             315            1.15             362
Class 2 (2022)..................................................             466            1.15             536
Class 3 (2014)..................................................              50             1.3              65
Class 3 (2015)..................................................              28             1.3              36
Class 3 (2016)..................................................              50             1.3              65
Class 3 (2017)..................................................              67             1.3              87
Class 3 (2018)..................................................              86             1.3             112
Class 3 (2019)..................................................             122             1.3             159
Class 3 (2020)..................................................              67             1.3              87
Class 3 (2021)..................................................              52             1.3              68
Class 3 (2022)..................................................             104             1.3             135
Class 4 (2014)..................................................             271            1.45             393
Class 4 (2015)..................................................             251            1.45             364

Class 4 (2016)..................................................             214            1.45             310
Class 4 (2017)..................................................             285            1.45             413
Class 4 (2018)..................................................             393            1.45             570
Class 4 (2019)..................................................             730            1.45            1059
Class 4 (2020)..................................................             427            1.45             619
Class 4 (2021)..................................................             407            1.45             590
Class 4 (2022)..................................................             461            1.45             668
                                                                 -----------------------------------------------
    Total.......................................................           7,774  ..............          10,019
                                                                 -----------------------------------------------
        Average weighting factor (weighted transits / number of   ..............            1.29  ..............
         transits)..............................................
----------------------------------------------------------------------------------------------------------------

                     Table 12--Average Weighting Factor for District One, Undesignated Areas
----------------------------------------------------------------------------------------------------------------
                                                                     Number of       Weighting       Weighted
                        Vessel class/year                            transits         factor         transits
----------------------------------------------------------------------------------------------------------------
Class 1 (2014)..................................................              25               1              25
Class 1 (2015)..................................................              28               1              28
Class 1 (2016)..................................................              18               1              18
Class 1 (2017)..................................................              19               1              19
Class 1 (2018)..................................................              22               1              22
Class 1 (2019)..................................................              30               1              30
Class 1 (2020)..................................................               3               1               3
Class 1 (2021)..................................................              19               1              19
Class 1 (2022)..................................................              32               1              32
Class 2 (2014)..................................................             238            1.15             274
Class 2 (2015)..................................................             263            1.15             302
Class 2 (2016)..................................................             169            1.15             194
Class 2 (2017)..................................................             290            1.15             334
Class 2 (2018)..................................................             352            1.15             405
Class 2 (2019)..................................................             366            1.15             421
Class 2 (2020)..................................................             358            1.15             412
Class 2 (2021)..................................................             463            1.15             532
Class 2 (2022)..................................................             358            1.15             412
Class 3 (2014)..................................................              60             1.3              78
Class 3 (2015)..................................................              42             1.3              55
Class 3 (2016)..................................................              28             1.3              36
Class 3 (2017)..................................................              45             1.3              59
Class 3 (2018)..................................................              63             1.3              82
Class 3 (2019)..................................................              58             1.3              75
Class 3 (2020)..................................................              35             1.3              46
Class 3 (2021)..................................................              71             1.3              92
Class 3 (2022)..................................................              69             1.3              90
Class 4 (2014)..................................................             289            1.45             419
Class 4 (2015)..................................................             269            1.45             390
Class 4 (2016)..................................................             222            1.45             322
Class 4 (2017)..................................................             285            1.45             413
Class 4 (2018)..................................................             382            1.45             554
Class 4 (2019)..................................................             326            1.45             473
Class 4 (2020)..................................................             334            1.45             484
Class 4 (2021)..................................................             466            1.45             676
Class 4 (2022)..................................................             393            1.45             570
                                                                 -----------------------------------------------
    Total.......................................................           6,490  ..............           8,395
                                                                 -----------------------------------------------
        Average weighting factor (weighted transits/number of     ..............            1.29  ..............
         transits)..............................................
----------------------------------------------------------------------------------------------------------------

I. Step 9: Calculate Revised Base Rates

    In this step, we revise the base rates so that the total cost of
pilotage will be equal to the revenue needed, after considering the
impact of the weighting factors. To do this, the initial base rates
calculated in Step 7 are divided by the average weighting factors
calculated in Step 8, as shown in table 13.

                                  Table 13--Revised Base Rates for District One
----------------------------------------------------------------------------------------------------------------
                                                                                Revised rate
                                                           Initial rate    Average weighting    (initial rate /
                          Area                               (Step 7)       factor (Step 8)    average weighting
                                                                                factor)
----------------------------------------------------------------------------------------------------------------
District One: Designated................................          $1,193                1.29                $925
District One: Undesignated..............................             782                1.29                 606
----------------------------------------------------------------------------------------------------------------

J. Step 10: Review and Finalize Rates

    In this step, the Director reviews the rates set forth by the
staffing model and ensures that they meet the goal of ensuring safe,
efficient, and reliable pilotage. To establish this, the Director
considers whether the proposed rates incorporate appropriate
compensation for pilots to handle heavy traffic periods and whether
there are enough pilots to handle those heavy traffic periods. The
Director also considers whether the proposed rates would cover
operating expenses and infrastructure costs, including average traffic
and weighting factions. Based on the financial information submitted by
the pilots, the Director is not proposing any alterations to the rates
in this step. We propose to modify Sec.  401.405(a)(1) and (2) to
reflect the final rates shown in table 14.

                                 Table 14--Proposed Final Rates for District One
----------------------------------------------------------------------------------------------------------------
                                                                                Final 2023     Proposed 2024
                     Area                                    Name                pilotage rate    pilotage rate
----------------------------------------------------------------------------------------------------------------
District One: Designated.....................  St. Lawrence River.............             $876             $925
District One: Undesignated...................  Lake Ontario...................              586              606
----------------------------------------------------------------------------------------------------------------

District Two

A. Step 1: Recognize Previous Operating Expenses

    Step 1 in our ratemaking methodology requires that the Coast Guard
review and recognize the previous year's operating expenses (Sec.
404.101). To do so, we begin by reviewing the independent accountant's
financial reports for each association's 2021 expenses and
revenues.\35\ For accounting purposes, the financial reports divide
expenses into designated and undesignated areas. For costs generally
accrued by the pilot associations, such as employee benefits, the cost
is divided between the designated and undesignated areas on a pro rata
basis.
---------------------------------------------------------------------------

    \35\ These reports are available in the docket for this proposed
rule.
---------------------------------------------------------------------------

    Adjustments have been made by the auditors and are explained in the
auditor's reports, which are available in the docket for this
rulemaking, where indicated under the Public Participation and Request
for Comments portion of the preamble.
    In the 2021 expenses used as the basis for this proposed rule,
districts used the term ``applicant'' to describe applicant trainees
and persons who will be called apprentices (applicant pilots), under
the definition of ``apprentice pilot'', which was introduced in the
2022 final rule. Therefore, when describing past expenses, the term
``applicant'' is used to match what was reported from 2021, which
includes both applicant and apprentice pilots. The term ``apprentice''
is used to distinguish apprentice pilot wages and describe the impacts
of the ratemaking going forward.
    The Coast Guard continues to include apprentice salaries as an
allowable expense in the 2024 ratemaking, as this proposed rule is
based on 2021 operating expenses, when salaries were still an allowable
expense. Beginning with the 2025 ratemaking, apprentice pilot salaries
will no longer be included as a 2022 operating expense, because
apprentice pilot wages will have already been factored into the
ratemaking Steps 3 and 4 in calculation of the 2022 rates. Beginning in
2025, the applicant salaries' operating expenses for 2022 will consist
of only applicant trainees (those who are not yet apprentice pilots).
The recognized operating expenses for District Two are shown in table
15.

                               Table 15--2021 Recognized Expenses for District Two
----------------------------------------------------------------------------------------------------------------
                                                                                District Two
                                                               -------------------------------------------------
                                                                 Undesignated      Designated
             Reported Operating Expenses for 2021              ----------------------------------
                                                                                Southeast Shoal       Total
                                                                   Lake Erie      to Port Huron
----------------------------------------------------------------------------------------------------------------
Applicant Pilot Compensation:
    Salaries..................................................         $79,538          $119,306        $198,844
    Employee Benefits.........................................          11,066            16,599          27,665
                                                               -------------------------------------------------
        Total Applicant Pilot Compensation....................          90,604           135,905         226,509
                                                               -------------------------------------------------
Other Applicant Cost:
    Applicant Subsistence.....................................           5,280             7,920          13,200
    Hotel/Lodging Cost........................................           2,976             4,464           7,440
    Hotel/Lodging Cost (D2-21-01).............................         (2,976)           (4,464)         (7,440)

    Payroll taxes.............................................           6,901            10,352          17,253
                                                               -------------------------------------------------
        Total Other Applicant Cost............................          12,181            18,272          30,453
Other Pilotage Cost:
    Subsistence...............................................          73,921           110,880         184,800
    Hotel/Lodging.............................................          62,496            93,744         156,240
    Hotel/Lodging (D2-21-01)..................................        (55,307)          (82,960)       (138,267)
    Travel....................................................          42,625            63,937         106,562
    License renewal...........................................           1,958             2,938           4,896
    Payroll Taxes.............................................          87,620           131,430         219,050
    License Insurance.........................................           9,007            13,510          22,517
                                                               -------------------------------------------------
        Total Other Pilotage Costs............................         222,320           333,479         555,798
Pilot Boat and Dispatch Costs:
    Pilot boat expense (Operating)............................          60,067            90,101         150,168
    Employee Benefits.........................................          80,273           120,410         200,683
    Insurance.................................................           4,317             6,475          10,792
    Salaries..................................................         148,260           222,391         370,651
    Payroll taxes.............................................          13,277            19,915          33,192
                                                               -------------------------------------------------
        Total Pilot and Dispatch Costs........................         306,194           459,292         765,486
Administrative Expenses:
    Legal--general counsel....................................           2,186             3,278           5,464
    Legal--shared counsel (K&L Gates).........................           7,167            10,751          17,918
    Office Rent...............................................          27,627            41,440          69,067
    Insurance.................................................          15,084            22,627          37,711
    Employee benefits.........................................          35,010            52,516          87,526
    Payroll Taxes.............................................           5,161             7,741          12,902
    Other taxes...............................................          55,252            82,879         138,131
    Real Estate taxes.........................................           7,879            11,819          19,698
    Travel....................................................           8,688            13,033          21,721
    Depreciation..............................................          11,121            16,682          27,803
    Interest..................................................               2                 2               4
    APA Dues..................................................          14,683            22,025          36,708
    Dues and subscriptions....................................             505               757           1,262
    Utilities.................................................          24,356            36,535          60,891
    Salaries..................................................          48,532            72,797         121,329
    Accounting/Professional fees..............................          17,846            26,769          44,615
    Pilot Training............................................          23,909            35,864          59,773
    Applicant Pilot Training..................................             209               313             522
    Other.....................................................          21,252            31,879          53,131
                                                               -------------------------------------------------
        Total Administrative Expenses.........................         326,469           489,707         816,176
                                                               -------------------------------------------------
            Total Expenses (OPEX + Applicant + Pilot Boats +           957,768         1,436,655       2,394,423
             Admin + Capital).................................
                                                               -------------------------------------------------
        Total Directors Adjustments...........................  ..............  ................  ..............
                                                               -------------------------------------------------
            Total Operating Expenses (OpEx + Adjustments).....         957,768         1,436,655       2,394,422
----------------------------------------------------------------------------------------------------------------

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

    In accordance with the text in Sec.  404.102, having identified the
recognized 2021 operating expenses in Step 1, the next step is to
estimate the current year's operating expenses by adjusting for
inflation over the 3-year period. We calculate inflation using the BLS
data from the CPI for the Midwest Region of the United States for the
2022 inflation rate.\36\ Because the BLS does not provide forecasted
inflation data, we use economic projections from the Federal Reserve
for the 2023 and 2024 inflation modification.\37\ Based on that
information, the calculations for Step 2 are presented in table 16:
---------------------------------------------------------------------------

    \36\ The CPI is defined as ``All Urban Consumers (CPI-U), All
Items, 1982-4=100.'' Series CUUR0200SAO (Downloaded March 21, 2023).
Available at https://www.bls.gov/cpi/data.htm., All Urban Consumers
(Current Series), multiscreen data, not seasonally adjusted, 0200
Midwest, Current, All Items, Monthly, 12-month Percent Change and
Annual Data.
    \37\ The 2023 and 2024 inflation rates are available at https://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20230322.pdf. We used the Core PCE December Projection
found in table 1. (Last visited 04/2023).

                             Table 16--Adjusted Operating Expenses for District Two
----------------------------------------------------------------------------------------------------------------
                                                                                District Two
                                                                 -----------------------------------------------
                                                                   Undesignated     Designated         Total
----------------------------------------------------------------------------------------------------------------
Total Operating Expenses (Step 1)...............................        $957,768      $1,436,655      $2,394,422
2022 Inflation Modification (@8%)...............................          76,621         114,932         191,553
2023 Inflation Modification (@3.5%).............................          36,204          54,306          90,510
2024 Inflation Modification (@2.5%).............................          26,765          40,147          66,912
Adjusted 2024 Operating Expenses................................       1,097,358       1,646,040       2,743,397
----------------------------------------------------------------------------------------------------------------

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

    In accordance with the text in Sec.  404.103, the Coast Guard
estimates the number of fully registered pilots in each district. We
determine the number of fully registered pilots based on data provided
by the LPA. Using these numbers, we estimate that there will be 16
registered pilots in 2024 in District Two. We determine the number of
apprentice pilots based on input from the district on anticipated
retirements and staffing needs. Using these numbers, we estimate that
there will be two apprentice pilots in 2024 in District Two. Based on
the seasonal staffing model discussed in the 2017 ratemaking (82 FR
41466), a certain number of pilots are assigned to designated waters,
and a certain number of pilots are assigned to undesignated waters, as
shown in table 17. These numbers are used to determine the amount of
revenue needed in their respective areas.

              Table 17--Authorized Pilots for District Two
------------------------------------------------------------------------
                         Item                             District Two
------------------------------------------------------------------------
Proposed Maximum Number of Pilots (per Sec.                           16
 401.220(a)) *.......................................
2024 Authorized Pilots (total).......................                 16
Pilots Assigned to Designated Areas..................                  7
Pilots Assigned to Undesignated Areas................                  9
2024 Apprentice Pilots...............................                  2
------------------------------------------------------------------------
* For a detailed calculation, refer to the Great Lakes Pilotage Rates--
  2017 Annual Review final rule, which contains the staffing model. See
  82 FR 41466, table 6 at 41480 (August 31, 2017).

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

    In this step, we determine the total pilot compensation for each
area. Because we are issuing an interim ratemaking this year, we follow
the procedure outlined in paragraph (b) of Sec.  404.104, which adjusts
the existing compensation benchmark by inflation. First, we adjust the
2023 target compensation benchmark of $424,398 by 1.7 percent for a
value of $431,613. This accounts for the difference in actual first
quarter 2023 ECI inflation, which is 4.4 percent, and the 2023 PCE
estimate of 2.7 percent.38 39 The second step accounts for
projected inflation from 2023 to 2024, which is 2.5 percent.\40\ Based
on the projected 2024 inflation estimate, the proposed target
compensation benchmark for 2024 is $442,403 per pilot. The proposed
apprentice pilot wage benchmark is 36 percent of the target pilot
compensation, or $159,265 ($442,403 x 0.36).
---------------------------------------------------------------------------

    \38\ Employment Cost Index, Total Compensation for Private
Industry workers in Transportation and Material Moving, Annual
Average, Series ID: CIU2010000520000A. https://www.bls.gov/news.release/eci.t05.htm (Last visited 04/28/23).
    \39\ Table 1 Summary of Economic Projections, PCE Inflation.
https://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20220316.pdf (Last visited 5/17/23).
    \40\ Table 1 Summary of Economic Projections, PCE Inflation
December Projection. https://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20230322.pdf (Last visited 03/2023).
---------------------------------------------------------------------------

    Next, the Coast Guard certifies that the number of pilots estimated
for 2024 is less than or equal to the number permitted under the
staffing model in Sec.  401.220(a). The staffing model suggests that
District Two needs 16 pilots, which is less than or equal to the number
of registered pilots provided by the pilot association. In accordance
with Sec.  404.104(c), the Coast Guard uses the revised target
individual compensation level to derive the total pilot compensation by
multiplying the individual target compensation by the estimated number
of registered pilots for District Two, as shown in table 18. The Coast
Guard estimates that the number of apprentice pilots with limited
registration needed will be two for District Two in the 2024 season.
The total target wages for apprentices are allocated at 60 percent for
the designated area and 40 percent for the undesignated area, in
accordance with the allocation for operating expenses.

                                 Table 18--Target Compensation for District Two
----------------------------------------------------------------------------------------------------------------
                                                                                District Two
                                                                 -----------------------------------------------
                                                                   Undesignated     Designated         Total
----------------------------------------------------------------------------------------------------------------
Target Pilot Compensation.......................................        $442,403        $442,403        $442,403
Number of Pilots................................................               9               7              16
Total Target Pilot Compensation.................................       3,981,627       3,096,821       7,078,448
Target Apprentice Pilot Compensation............................         159,265         159,265         159,265
Number of Apprentice Pilots.....................................  ..............  ..............               2

Total Target Apprentice Pilot Compensation......................         127,412         191,118         318,530
----------------------------------------------------------------------------------------------------------------

E. Step 5: Project Working Capital Fund

    Next, the Coast Guard calculates the working capital fund revenues
needed for each area. We first add the figures for projected operating
expenses, total pilot compensation, and total target apprentice pilot
wage for each area, and then we find the preceding year's average
annual rate of return for new issues of high-grade corporate
securities. Using Moody's data, the number is 4.0742 percent,
rounded.\41\ By multiplying the two figures, we obtain the working
capital fund contribution for each area, as shown in table 19.
---------------------------------------------------------------------------

    \41\ Moody's Seasoned Aaa Corporate Bond Yield, average of 2022
monthly data. The Coast Guard uses the most recent year of complete
data. Moody's is taken from Moody's Investors Service, which is a
bond credit rating business of Moody's Corporation. Bond ratings are
based on creditworthiness and risk. The rating of ``Aaa'' is the
highest bond rating assigned with the lowest credit risk. See
https://fred.stlouisfed.org/series/AAA. (Last visited 03/21/2023).

                           Table 19--Working Capital Fund Calculation for District Two
----------------------------------------------------------------------------------------------------------------
                                                                                District Two
                                                                 -----------------------------------------------
                                                                   Undesignated     Designated         Total
----------------------------------------------------------------------------------------------------------------
Adjusted Operating Expenses (Step 2)............................      $1,097,358      $1,646,040      $2,743,398
Total Target Pilot Compensation (Step 4)........................       3,981,627       3,096,821       7,078,448
Total Target Apprentice Pilot Compensation (Step 4).............         127,412         191,118         318,530
Total 2024 Expenses.............................................       5,206,397       4,933,979      10,140,376
Working Capital Fund (4.0742%)..................................         212,117         201,019         413,135
----------------------------------------------------------------------------------------------------------------

F. Step 6: Project Needed Revenue

    In this step, the Coast Guard adds all the expenses accrued to
derive the total revenue needed for each area. These expenses include
the projected operating expenses (from Step 2), the total pilot
compensation (from Step 4), total target apprentice pilot wage (from
Step 4), and the working capital fund contribution (from Step 5). We
show these calculations in table 20.

                                    Table 20--Revenue Needed for District Two
----------------------------------------------------------------------------------------------------------------
                                                                                District Two
                                                                 -----------------------------------------------
                                                                   Undesignated     Designated         Total
----------------------------------------------------------------------------------------------------------------
Adjusted Operating Expenses (Step 2)............................      $1,097,358      $1,646,040      $2,743,398
Total Target Pilot Compensation (Step 4)........................       3,981,627       3,096,821       7,078,448
Total Target Apprentice Pilot Compensation (Step 4).............         127,412         191,118         318,530
Working Capital Fund (Step 5)...................................         212,117         201,019         413,136
Total Revenue Needed............................................       5,418,514       5,134,998      10,553,511
----------------------------------------------------------------------------------------------------------------

G. Step 7: Calculate Initial Base Rates

    Having determined the revenue needed for each area in the previous
six steps, the Coast Guard divides that number by the expected number
of traffic hours to develop an hourly rate. Step 7 is a two-part
process. In the first part, we calculate the 10-year traffic average in
District Two, using the total time on task or pilot bridge hours. To
calculate the time on task for each district, the Coast Guard uses
billing data from SeaPro. We pull the data from the system filtering by
district, year, job status (we only include processed jobs), and
flagging code (we only include U.S. jobs). Because we calculate
separate figures for designated and undesignated waters, there are two
parts for each calculation. We show these values in table 21.

                 Table 21--Time on Task for District Two
                                 [Hours]
------------------------------------------------------------------------
                                                   District Two
                  Year                   -------------------------------
                                           Undesignated     Designated
------------------------------------------------------------------------
2022....................................          12,306           3,975
2021....................................           8,826           3,226
2020....................................           6,232           8,401
2019....................................           6,512           7,715
2018....................................           6,150           6,655
2017....................................           5,139           6,074

2016....................................           6,425           5,615
2015....................................           6,535           5,967
2014....................................           7,856           7,001
2013....................................           4,603           4,750
                                         -------------------------------
    Average.............................           7,058           5,938
------------------------------------------------------------------------

    Next, we derive the initial hourly rate by dividing the revenue
needed by the average number of hours for each area. This produces an
initial rate, which is necessary to produce the revenue needed for each
area, assuming the amount of traffic is as expected. We present the
calculations for District Two in table 22.

          Table 22--Initial Rate Calculations for District Two
------------------------------------------------------------------------
                                           Undesignated     Designated
------------------------------------------------------------------------
Revenue needed (Step 6).................      $5,418,514      $5,134,998
Average time on task (hours)............           7,058           5,938
Initial rate............................             768             865
------------------------------------------------------------------------

H. Step 8: Calculate Average Weighting Factors by Area

    In this step, we calculate the average weighting factor for each
designated and undesignated area. We collect the weighting factors, set
forth in 46 CFR 401.400, for each vessel trip. Using this data, we
calculate the average weighting factor for each area using the data
from each vessel transit from 2014 onward, as shown in tables 23 and
24.

                     Table 23--Average Weighting Factor for District Two, Undesignated Areas
----------------------------------------------------------------------------------------------------------------
                                                                     Number of       Weighting       Weighted
                        Vessel class/year                            transits         factor         transits
----------------------------------------------------------------------------------------------------------------
Class 1 (2014)..................................................              31               1              31
Class 1 (2015)..................................................              35               1              35
Class 1 (2016)..................................................              32               1              32
Class 1 (2017)..................................................              21               1              21
Class 1 (2018)..................................................              37               1              37
Class 1 (2019)..................................................              54               1              54
Class 1 (2020)..................................................               1               1               1
Class 1 (2021)..................................................               7               1               7
Class 1 (2022)..................................................              79               1              79
Class 2 (2014)..................................................             356            1.15             409
Class 2 (2015)..................................................             354            1.15             407
Class 2 (2016)..................................................             380            1.15             437
Class 2 (2017)..................................................             222            1.15             255
Class 2 (2018)..................................................             123            1.15             141
Class 2 (2019)..................................................             127            1.15             146
Class 2 (2020)..................................................             165            1.15             190
Class 2 (2021)..................................................             206            1.15             237
Class 2 (2022)..................................................             275            1.15             316
Class 3 (2014)..................................................              20             1.3              26
Class 3 (2015)..................................................               0             1.3               0
Class 3 (2016)..................................................               9             1.3              12
Class 3 (2017)..................................................              12             1.3              16
Class 3 (2018)..................................................               3             1.3               4
Class 3 (2019)..................................................               1             1.3               1
Class 3 (2020)..................................................               1             1.3               1
Class 3 (2021)..................................................               5             1.3               7
Class 3 (2022)..................................................               3             1.3               4
Class 4 (2014)..................................................             636            1.45             922
Class 4 (2015)..................................................             560            1.45             812
Class 4 (2016)..................................................             468            1.45             679
Class 4 (2017)..................................................             319            1.45             463
Class 4 (2018)..................................................             196            1.45             284
Class 4 (2019)..................................................             210            1.45             305
Class 4 (2020)..................................................             201            1.45             291
Class 4 (2021)..................................................             227            1.45             329

Class 4 (2022)..................................................             349            1.45             506
                                                                 -----------------------------------------------
    Total.......................................................           5,725  ..............           7,497
                                                                 -----------------------------------------------
        Average weighting factor (weighted transits/number of     ..............            1.31  ..............
         transits)..............................................
----------------------------------------------------------------------------------------------------------------

                      Table 24--Average Weighting Factor for District Two, Designated Areas
----------------------------------------------------------------------------------------------------------------
                                                                     Number of       Weighting       Weighted
                        Vessel class/year                            transits         factor         transits
----------------------------------------------------------------------------------------------------------------
Class 1 (2014)..................................................              20               1              20
Class 1 (2015)..................................................              15               1              15
Class 1 (2016)..................................................              28               1              28
Class 1 (2017)..................................................              15               1              15
Class 1 (2018)..................................................              42               1              42
Class 1 (2019)..................................................              48               1              48
Class 1 (2020)..................................................               7               1               7
Class 1 (2021)..................................................              12               1              12
Class 1 (2022)..................................................              34               1              34
Class 2 (2014)..................................................             237            1.15             273
Class 2 (2015)..................................................             217            1.15             250
Class 2 (2016)..................................................             224            1.15             258
Class 2 (2017)..................................................             127            1.15             146
Class 2 (2018)..................................................             153            1.15             176
Class 2 (2019)..................................................             281            1.15             323
Class 2 (2020)..................................................             342            1.15             393
Class 2 (2021)..................................................             240            1.15             276
Class 2 (2022)..................................................             184            1.15             212
Class 3 (2014)..................................................               8             1.3              10
Class 3 (2015)..................................................               8             1.3              10
Class 3 (2016)..................................................               4             1.3               5
Class 3 (2017)..................................................               4             1.3               5
Class 3 (2018)..................................................              14             1.3              18
Class 3 (2019)..................................................               1             1.3               1
Class 3 (2020)..................................................               5             1.3               7
Class 3 (2021)..................................................               2             1.3               3
Class 3 (2022)..................................................               3             1.3               4
Class 4 (2014)..................................................             359            1.45             521
Class 4 (2015)..................................................             340            1.45             493
Class 4 (2016)..................................................             281            1.45             407
Class 4 (2017)..................................................             185            1.45             268
Class 4 (2018)..................................................             379            1.45             550
Class 4 (2019)..................................................             403            1.45             584
Class 4 (2020)..................................................             405            1.45             587
Class 4 (2021)..................................................             268            1.45             389
Class 4 (2022)..................................................             273            1.45             396
                                                                 -----------------------------------------------
    Total.......................................................           5,168  ..............           6,785
                                                                 -----------------------------------------------
        Average weighting factor (weighted transits/number of     ..............            1.31  ..............
         transits)..............................................
----------------------------------------------------------------------------------------------------------------

I. Step 9: Calculate Revised Base Rates

    In this step, the Coast Guard revises the base rates so that the
total cost of pilotage will be equal to the revenue needed after
considering the impact of the weighting factors. To do this, we divide
the initial base rates calculated in Step 7 by the average weighting
factors calculated in Step 8, as shown in table 25.

                                  Table 25--Revised Base Rates for District Two
----------------------------------------------------------------------------------------------------------------
                                                                                Revised rate
                                                                                Average     (initial rate
                              Area                                 Initial rate      weighting        average
                                                                     (Step 7)      factor (Step      weighting
                                                                                8)            factor)
----------------------------------------------------------------------------------------------------------------
District Two: Undesignated......................................            $768            1.31            $586
District Two: Designated........................................             865            1.31             660
----------------------------------------------------------------------------------------------------------------

J. Step 10: Review and Finalize Rates

    In this step, the Director reviews the rates set forth by the
staffing model and ensures that they meet the goal of ensuring safe,
efficient, and reliable pilotage. To establish this, the Director
considers whether the proposed rates incorporate appropriate
compensation for pilots to handle heavy traffic periods, and whether
there are enough pilots to handle those heavy traffic periods. The
Director also considers whether the proposed rates would cover
operating expenses and infrastructure costs, taking average traffic and
weighting factors into consideration. Based on the financial
information submitted by the pilots, the Director is not proposing any
alterations to the rates in this step. We propose to modify Sec.
401.405(a)(3) and (4) to reflect the final rates shown in table 26.

                                 Table 26--Proposed Final Rates for District Two
----------------------------------------------------------------------------------------------------------------
                                                                                Final 2023       Proposed 2024
                    Area                                   Name                 pilotage rate     pilotage rate
----------------------------------------------------------------------------------------------------------------
District Two: Designated....................  Navigable waters from                       $601              $660
                                               Southeast Shoal to Port
                                               Huron, MI.
District Two: Undesignated..................  Lake Erie.....................               704               586
----------------------------------------------------------------------------------------------------------------

District Three

A. Step 1: Recognize Previous Operating Expenses

    Step 1 in our ratemaking methodology requires that the Coast Guard
review and recognize the previous year's operating expenses (Sec.
404.101). To do so, we review the independent accountant's financial
reports for each association's 2021 expenses and revenues.\42\ For
accounting purposes, the financial reports divide expenses into
designated and undesignated areas. For costs generally accrued by the
pilot associations, such as employee benefits, the cost is divided
between the designated and undesignated areas on a pro rata basis.
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    \42\ These reports are available in the docket for this proposed
rule.
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    Adjustments have been made by the auditors and are explained in the
auditor's reports, which are available in the docket for this
rulemaking, where indicated under the Public Participation and Request
for Comments portion of the preamble.
    In the 2021 expenses used as the basis for this proposed rule,
districts used the term ``applicant'' to describe applicant trainees
and persons who will be called apprentices (applicant pilots), under
the definition of ``apprentice pilot'', which was introduced in the
2022 final rule. Therefore, when describing past expenses, the term
``applicant'' is used to match what was reported in 2021, which
includes both applicant and apprentice pilots. The term ``apprentice''
is used to distinguish apprentice pilot wages and to describe the
impacts of the ratemaking going forward.
    The Coast Guard continues to include apprentice salaries as an
allowable expense in the 2024 ratemaking, as this proposed rule is
based on 2021 operating expenses, when salaries were still an allowable
expense. Beginning with the 2025 ratemaking, apprentice pilot salaries
will no longer be included as a 2022 operating expense, because
apprentice pilot wages will have already been factored into the
ratemaking Steps 3 and 4 in calculation of the 2022 rates. Beginning in
2025, the applicant salaries' operating expenses for 2022 will consist
of only applicant trainees (those who are not yet apprentice pilots).
The recognized operating expenses for District Three are shown in table
27.

                              Table 27--2021 Recognized Expenses for District Three
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                                                                          District Three
                                                 ---------------------------------------------------------------
                                                   Undesignated     Designated     Undesignated
      Reported operating expenses for 2021       ------------------------------------------------
                                                    Lakes Huron      St. Marys                         Total
                                                   and Michigan        River       Lake Superior
----------------------------------------------------------------------------------------------------------------
Applicant Cost:
    Applicant Salaries..........................        $336,149        $140,111        $176,330        $652,590
    Applicant Benefits..........................          58,306          24,303          30,585         113,194
                                                 ---------------------------------------------------------------
        Total Applicant Cost....................         394,455         164,414         206,915         765,784
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Other Pilotage Costs: