[Federal Register Volume 87, Number 167 (Tuesday, August 30, 2022)]
[Proposed Rules]
[Pages 52870-52900]
[FR Doc No: 2022-18690]

=======================================================================
-----------------------------------------------------------------------

DEPARTMENT OF HOMELAND SECURITY

Coast Guard

46 CFR Part 401

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

Great Lakes Pilotage Rates--2023 Annual Review and Revisions to
Methodology

AGENCY: Coast Guard, Department of Homeland Security (DHS).

ACTION: Notice of proposed rulemaking.

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

SUMMARY: In accordance with the statutory provisions enacted by the
Great Lakes Pilotage Act of 1960, the Coast Guard is proposing new base
pilotage rates for the 2023 shipping season. The Coast Guard estimates
that this proposed rule would result in an approximately 14-percent
increase in operating costs compared to the 2022 season. Additionally,
in accordance with the requirement to conduct a full ratemaking every 5
years, the Coast Guard is accepting comments on the Great Lakes
pilotage ratemaking methodology. We are also accepting suggestions for
changes to the staffing model, for consideration in a future
ratemaking.

DATES: Comments and related material must be received by the Coast
Guard on or before September 29, 2022.

ADDRESSES: You may submit comments identified by docket number USCG-
2022-0370 using the Federal Decision Making Portal at https://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], or fax 202-372-
1914.

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. Discussion of Proposed 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 https://www.regulations.gov. To
do so, go to https://www.regulations.gov, type USCG-1625-AC82 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 https://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 https://www.regulations.gov Frequently Asked
Questions web page. 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 https://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 the Department of
Homeland Security'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
notification to announce the date, time, and location of such a
meeting.

II. Abbreviations

AMOU American Maritime Officers Union
APA American Pilots' Association
BLS Bureau of Labor Statistics
CFR Code of Federal Regulations
CPA Certified public accountant
CPI Consumer Price Index
DHS Department of Homeland Security
Director U.S. Coast Guard's Director of the Great Lakes Pilotage
ECI Employment Cost Index
FOMC Federal Open Market Committee
FR Federal Register
GLPA Great Lakes Pilotage Authority (Canadian)
GLPAC Great Lakes Pilotage Advisory Committee
GLPMS Great Lakes Pilotage Management System
LPA Lakes Pilots Association
NAICS North American Industry Classification System
NPRM Notice of proposed rulemaking
OMB Office of Management and Budget
PCE Personal Consumption Expenditures
Sec.  Section
SBA Small Business Administration
SLSPA Saint Lawrence Seaway Pilotage Association
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 2023 season range from a proposed $407 to $867
per pilot hour (depending on which of the specific six areas pilotage
service is provided), are paid by shippers to the pilot associations.
The three pilot associations, which are the exclusive U.S. source of
registered pilots on the Great Lakes, use this revenue to cover
operating expenses, maintain infrastructure, compensate apprentice and
registered pilots, acquire and implement technological advances, train
new personnel, and allow partners to participate in professional
development.
---------------------------------------------------------------------------

    \1\ 46 U.S.C. 9301-9308.
---------------------------------------------------------------------------

    In accordance with statutory and regulatory requirements, we have
employed the ratemaking methodology we introduced in 2016. Our
ratemaking methodology calculates the revenue needed for each pilotage
association (operating expenses, compensation for the number of pilots,
and anticipated inflation), and then divides that amount by the
expected demand for pilotage services over the course of the coming
year, to produce an hourly rate. This is a 10-step methodology to
calculate rates. The 10-step methodology is explained in section VI of
this preamble.
    In this notice of proposed rulemaking (NPRM), we are proposing a
full ratemaking, setting new pilotage rates for 2023 based on the 10-
step ratemaking methodology, and accepting comments on the methodology.
We conducted the last full ratemaking 5 years ago, in 2018. Per title
46 of the Code of Federal Regulations (CFR), Sec.  404.100(a), in this
NPRM, the Coast Guard's Director of the Great Lakes Pilotage (``the
Director'') proposes to establish base pilotage rates by a full
ratemaking pursuant to Sec. Sec.  404.101 through 404.110. Base rates
would be set to meet the goals 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. We use a
10-year average when calculating traffic to smooth out variations in
traffic caused by global economic conditions, such as those caused by
the COVID-19 pandemic. The Coast Guard estimates that this proposed
rule would result in $4,535,400 in additional costs.
    Based on the ratemaking model discussed in this NPRM, we are
proposing the rates shown in table 1.

                         Table 1--Current and Proposed Pilotage Rates on the Great Lakes
----------------------------------------------------------------------------------------------------------------
                                                                                Final 2022     Proposed 2023
                     Area                                    Name                pilotage rate    pilotage rate
----------------------------------------------------------------------------------------------------------------
District One: Designated.....................  St. Lawrence River.............             $834             $867
District One: Undesignated...................  Lake Ontario...................              568              581
District Two: Designated.....................  Navigable waters from Southeast              536              606
                                                Shoal to Port Huron, MI.
District Two: Undesignated...................  Lake Erie......................              610              652
District Three: Designated...................  St. Mary's River...............              662              818
District Three: Undesignated.................  Lakes Huron, Michigan, and                   342              407
                                                Superior.
----------------------------------------------------------------------------------------------------------------

    This proposed rule would affect 55 U.S. Great Lakes pilots, 7
apprentice pilots, 3 pilot associations, and the owners and operators
of an average of 285 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
$4,535,400 in estimated payments made by shippers during the 2023
shipping season. This NPRM establishes the 2023 yearly compensation for
pilots on the Great Lakes at $422,336 per pilot (a $23,070 increase, or
5.78 percent, over their 2022 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 of 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,\2\
which requires foreign merchant vessels and United States vessels
operating ``on register'' (meaning United States vessels engaged in
foreign trade) to use United States or Canadian pilots while transiting
the United States waters of the St. Lawrence Seaway and the Great Lakes
system.\3\ For U.S. Great Lakes pilots, the statute requires the
Secretary of Homeland Security to ``prescribe by regulation rates and
charges for pilotage services, giving consideration to the public
interest and the costs of providing the services.'' \4\ The statute
requires that rates be established or reviewed and adjusted each year,
not later than March 1.\5\ The statute also requires that base rates be
established by a full ratemaking at least once every 5 years, and, in
years when base rates are not established, they must be reviewed and,
if necessary, adjusted.\6\ The Secretary's duties and authority under
46 U.S.C. Chapter 93 have been delegated to the Coast Guard.\7\
---------------------------------------------------------------------------

    \2\ 46 U.S.C. 9301-9308.
    \3\ 46 U.S.C. 9302(a)(1).
    \4\ 46 U.S.C. 9303(f).
    \5\ Id.
    \6\ Id.
    \7\ Department of Homeland Security (DHS) Delegation 00170.1,
Revision No. 01.2, paragraph (II)(92)(f).
---------------------------------------------------------------------------

    The purpose of this rule is to issue new pilotage rates for the
2023 shipping season. The Coast Guard believes that the new rates will
continue to promote our goal, as outlined in 46 CFR 404.1, of promoting
safe, efficient, and reliable pilotage service in the Great Lakes by
generating for each pilotage association sufficient revenue to
reimburse its necessary and reasonable operating expenses, fairly
compensate trained and rested pilots, and provide appropriate funds to
use for improvements.

V. Background

    Pursuant to 46 U.S.C. 9303, the Coast Guard, in conjunction with
the Canadian Great Lakes Pilotage Authority (GLPA), 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.\8\ United States and Canadian
``lakers,'' which account for most commercial shipping on the Great
Lakes, are not affected.\9\ 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 particular
district in which the vessel is operating, and the vessel operator will
pay the pilotage association for the pilotage services. The GLPA
establishes the rates for Canadian registered pilots.
---------------------------------------------------------------------------

    \8\ See 46 CFR part 401.
    \9\ 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.
---------------------------------------------------------------------------

    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. Marys 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 below. Designated areas,
classified as such by Presidential Proclamation, are waters in which
pilots must direct the navigation of vessels at all times.\10\
Undesignated areas, on the other hand, 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.'' \11\ For these reasons, pilotage
rates in designated areas can be significantly higher than those in
undesignated areas.
---------------------------------------------------------------------------

    \10\ Presidential Proclamation 3385, Designation of restricted
waters under the Great Lakes Pilotage Act of 1960, December 22,
1960.
    \11\ 46 U.S.C. 9302(a)(1)(b).

                            Table 2--Areas of the Great Lakes and St. Lawrence Seaway
----------------------------------------------------------------------------------------------------------------
                                        Pilotage                                 Area number
            District                  association             Designation            \12\       Area name \13\
----------------------------------------------------------------------------------------------------------------
One.............................  Saint Lawrence       Designated..............            1  St. Lawrence
                                   Seaway Pilotage     Undesignated............            2   River.
                                   Association.                                               Lake Ontario.
Two.............................  Lakes Pilots         Designated..............            5  Navigable waters
                                   Association.                                                from Southeast
                                                                                Shoal to Port
                                                                                Huron, MI.
                                                       Undesignated............            4  Lake Erie.
Three...........................  Western Great Lakes  Designated..............            7  St. Marys River
                                   Pilots Association. Undesignated............            6  Lakes Huron and
                                                                                Michigan.
                                                       Undesignated............            8  Lake Superior.
----------------------------------------------------------------------------------------------------------------

    Each pilot association is an independent business and is the sole
provider of pilotage services in the district in which it operates.
Each pilot association is responsible for funding its own operating
expenses, maintaining infrastructure, compensating pilots and
apprentice pilots,\14\ acquiring and implementing technological
advances, and training personnel and partners. 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.\15\ The
methodology is designed to measure how much revenue each pilotage
association would need to cover expenses and provide competitive
compensation goals 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.
---------------------------------------------------------------------------

    \12\ 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.
    \13\ The areas are listed by name at 46 CFR 401.405.
    \14\ 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.
    \15\ 46 CFR part 404.
---------------------------------------------------------------------------

    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 Great Lakes Pilotage Rates--2022
Annual Review and Revisions to Methodology final rule (87 FR 18488,
March 30, 2022). We summarize the current and proposed methodology in
the section below.

VI. Summary of the Ratemaking Methodology

    As stated above, 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 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 the Coast
Guard receives audited numbers, this number is 3 years behind the
projected year of expenses. Therefore, in calculating the 2023 rates in
this proposal, we begin with the audited expenses from the 2020
shipping season.
    While each pilotage association operates in an entire district
(including both designated and undesignated areas), the Coast Guard
determines costs by area. With regard to operating expenses, 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 actually accrued. For
example, we can allocate the costs for 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 2023 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
registration, 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 is
helpful in providing 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) 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, set forth in 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 a value that is added 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 total target apprentice pilot wage (derived in
Step 4) and 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 up 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 hours of traffic average for each area. Next, we divide the
revenue needed in each area (calculated in Step 6) by the 10-year hours
of traffic average to produce an initial base rate.
    An additional element, the ``weighting factor,'' is required under
Sec.  401.400. Pursuant to that section, ships pay a multiple of the
``base rate'' as calculated in Step 7 by a number ranging from 1.0 (for
the smallest ships, or ``Class I'' vessels) to 1.45 (for the largest
ships, or ``Class IV'' vessels). As this significantly increases the
revenue collected, we need to account for the added revenue produced by
the weighting factors to ensure that shippers are not overpaying for
pilotage services. 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
ratemaking. 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 ratemaking, we include the applicant trainee
compensation in the district's operating expenses used in step 1 of the
ratemaking. Consistent with the 2021 and 2022 rulemakings, we continue
to believe that the pilot associations are now 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. Discussion of Proposed Methodological and Other Changes

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

    The Coast Guard is requesting input on the staffing model due to
the diversification of traffic and increased demand for pilotage
services, for consideration in a future rulemaking. The annual Great
Lakes Pilotage Advisory Committee (GLPAC) meeting of September 1, 2021,
produced a recommendation for the Coast Guard to review the staffing
model. A copy of the GLPAC September 1, 2021, meeting transcript is
available in the docket, where indicated under the Public Participation
and Request for Comments portion of the preamble (section I). The
recommendation is on page 53 of the transcript. We are interested in
the public's suggestions on what changes may improve the staffing model
to accurately capture staffing demand. We would consider the comments
and determine any changes to propose in a future ratemaking.

VIII. Individual Target Pilot Compensation Benchmark

    The Coast Guard is proposing to set the target pilot compensation
benchmark in this ratemaking at the target compensation for the
ratemaking year 2022, adjusted for inflation. In a full ratemaking
year, per 46 CFR 404.104(a), the Director determines a base individual
target pilot compensation using a compensation benchmark in
consideration of relevant currently available non-proprietary
information. The Director may make necessary and reasonable adjustments
to the benchmark if circumstances require. The compensation benchmark
would be used in Step 4 of the existing methodology. In the following
interim year ratemakings, the base target pilot compensation would be
inflated annually in accordance with Sec.  404.104(b). We discuss how
we arrived at this proposed compensation benchmark next.
    Prior to 2016, the Coast Guard based the compensation benchmark on
data provided by the American Maritime Officers Union (AMOU) regarding
its contract for first mates on the Great Lakes. However, in 2016 the
AMOU elected to no longer provide this data to the Coast Guard. In the
2016 ratemaking (81 FR 11908, March 7, 2016), we used 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 (D.D.C. 2017).
The Coast Guard then based the 2018 full ratemaking compensation
benchmark on data provided by the AMOU regarding its contract for first
mates on the Great Lakes in the 2011 to 2015 period (83 FR 26162, June
5, 2018). The 2018 final rule adjusted the AMOU 2015 data for inflation
using FOMC median economic projections for PCE inflation.
    In the 2020 interim year ratemaking final rule, the Coast Guard
established its most recent pilot compensation benchmark. Given the
lack of access to AMOU data, we did not rely on the AMOU aggregated
wage and benefit information as the basis for the compensation
benchmark, and instead adopted the 2019 target pilot compensation (with
inflation) as our compensation benchmark going forward. We stated in
the 2020 final rule that no other United States or Canadian pilot
compensation data was appropriate to use as a benchmark at that time.
See 85 FR 20091. The Director determined that the ratemaking provided
adequate compensation for pilots. In the 2020 ratemaking, we announced
we would use the 2020 benchmark for future rates. See 85 FR 20091.
    Based on our experience over the past three ratemakings (2020-
2022), the Director continues to believe that the level of target pilot
compensation for those years provided an appropriate level of
compensation for U.S. Registered pilots. According to Sec.  401.101(a),
the Director may make necessary and reasonable adjustments to the
benchmark based on current information. However, current circumstances
do not indicate that an adjustment, other than for inflation, is
necessary. The Director bases this decision on the fact that there is
no indication that registered pilots are resigning due to their
compensation or that this compensation benchmark is causing shortfalls
in achieving reliable pilotage. We also do not believe that the pilot
compensation benchmark is too high relative to the expertise required
to perform the job. The compensation would continue to be adjusted
annually in accordance with published inflation rates, which would
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 2023, as shown in Step 4. This target
compensation benchmark approach has advanced and will continue to
advance the Coast Guard's goals of safety through rate and compensation
stability while also promoting recruitment and retention of qualified
U.S. pilots.
    The proposed compensation benchmark for 2023 is $399,266 per
registered pilot, and $143,736 per apprentice pilot, using the 2022
compensation as a benchmark. We then follow the procedure outlined in
paragraph (b) of Sec.  404.104, which adjusts the existing compensation
benchmark for inflation. We are using a two-step process to adjust
target pilot compensation for inflation. First, we adjust the 2022
target compensation benchmark of $399,266 by 3.4 percent for an
adjusted value of $412,841. This first adjustment accounts for the
difference in actual first quarter 2022 ECI inflation, which is 5.6
percent, and the 2022 PCE estimate of 2.2 percent.\16\ \17\ The second
step accounts for projected inflation from 2022 to 2023, which is 2.3
percent.\18\ Based on the projected 2023 inflation estimate, the
proposed target compensation benchmark for 2023 is $422,336 per pilot.
The proposed apprentice pilot wage benchmark is 36 percent of the
target pilot compensation, or $152,041 ($422,336 x 0.36).
---------------------------------------------------------------------------

    \16\ Employment Cost Index, Total Compensation for Private
Industry workers in Transportation and Material Moving, Annual
Average, Series ID: CIU2010000520000A. Accessed April 29, 2022.
https://www.bls.gov/news.release/eci.t05.htm.
    \17\ Table 1 Summary of Economic Projections, PCE Inflation
September Projection. Accessed December, 2021 https://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20211215.pdf.
    \18\ Table 1 Summary of Economic Projections, PCE Inflation
December Projection. Accessed March 2022 https://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20220316.pdf.
---------------------------------------------------------------------------

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 2023. We
propose to conduct the 2023 ratemaking as a full ratemaking, as we last
did in 2018 (83 FR 26162). Thus, the Coast Guard proposes to adjust the
compensation benchmark following the full ratemaking year procedures
under Sec.  404.100(a) rather than the procedures for an interim
ratemaking year in Sec.  404.100(b).
    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 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 2020 expenses and
revenues.\19\ For accounting purposes, the financial reports divide
expenses into designated and undesignated areas. For costs accrued by
the pilot associations generally, such as employee benefits, for
example, the cost is divided between the designated and undesignated
areas on a pro rata basis. The recognized operating expenses for
District One are shown in table 3.
---------------------------------------------------------------------------

    \19\ These reports are available in the docket for this
rulemaking.
---------------------------------------------------------------------------

    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 2020 expenses used as the basis for this rulemaking,
districts used the term ``applicant'' to describe applicant trainees
and persons who would be called apprentices (applicant pilots) under
the definition of ``Apprentice pilot'' introduced in the 2022 final
rule. Therefore, when describing past expenses, we use the term
``applicant'' to match what was reported from 2020, which includes both
applicant and apprentice pilots. We use ``apprentice'' to distinguish
apprentice pilot wages and describe the impacts of the ratemaking going
forward.
    We continue to include applicant salaries as an allowable expense
in the 2023 ratemaking, as it is based on 2020 operating expenses, when
salaries were still an allowable expense. The apprentice salaries paid
in the years 2020 and 2021 have not been reimbursed in the ratemaking
as of publication of this proposed rule. Applicant salaries (including
applicant trainees and apprentice pilots) will continue to be an
allowable operating expense through the 2024 ratemaking, which uses
operating expenses from 2021, where the wages for apprentice pilots
were still authorized as operating expenses. Beginning with the 2025
ratemaking, apprentice pilot salaries will no longer be included as a
2022 operating expense, because apprentice pilot wages would 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--2020 Recognized Expenses for District One
----------------------------------------------------------------------------------------------------------------
                                                                                District One
                                                           -----------------------------------------------------
           Reported operating expenses for 2020                  Designated        Undesignated
                                                           --------------------------------------      Total
                                                             St. Lawrence River    Lake Ontario
----------------------------------------------------------------------------------------------------------------
Applicant Pilot Compensation:
    Salaries..............................................              $257,250        $171,500        $428,750
    Employee Benefits.....................................                13,633           9,089          22,722
    Applicant Subsistence/Travel..........................                14,901           9,934          24,835
    Applicant License Insurance...........................                 1,771           1,181           2,952
    Applicant Payroll Tax.................................                20,823          13,882          34,705
                                                           -----------------------------------------------------
        Total Applicant Pilot Compensation................               308,378         205,586         513,964
----------------------------------------------------------------------------------------------------------------
Other Pilot Cost:
    Subsistence/Travel--Pilot.............................               575,475         383,650         959,125
    Hotel/Lodging Cost....................................                32,802          21,868          54,671
    License Insurance--Pilots.............................                45,859          30,573          76,432
    Payroll Taxes--Pilots.................................               188,318         125,546         313,864
    Other.................................................                26,433          17,621          44,054
                                                           -----------------------------------------------------
        Total other pilotage costs........................               868,887         579,258       1,448,145
----------------------------------------------------------------------------------------------------------------
Pilot Boat and Dispatch Costs:
    Pilot Boat Expense (Operating)........................               325,904         217,269         543,173
    Pilot Boat Cost (D1-20-01)............................               104,658          69,772         174,430
    Dispatch Expense......................................               139,916          93,277         233,193
    Payroll Taxes.........................................                22,930          15,287          38,217
                                                           -----------------------------------------------------
        Total Pilot and Dispatch Costs....................               593,408         395,605         989,013
----------------------------------------------------------------------------------------------------------------
Administrative Expenses:
    Legal--General Counsel................................                 3,124           2,083           5,207
    Legal--Shared Counsel (K&L Gates).....................                62,906          41,937         104,843
    Legal--USCG Litigation................................                 8,793           5,862          14,655
    Insurance.............................................                35,040          23,360          58,400
    Employee Benefits.....................................                 5,541           3,694           9,235
    Payroll Taxes.........................................                 6,511           4,341          10,852
    Other Taxes...........................................                69,000          46,000         115,000
    Real Estate Taxes.....................................                23,298          15,532          38,830
    Travel................................................                21,516          14,344          35,860
    Depreciation..........................................               152,071         101,381         253,452
    Certified Public Accountant (CPA) Deduction (D1-19-01)              (44,623)        (29,748)        (74,371)

    Interest..............................................                36,924          24,616          61,540
    CPA Deduction (D1-19-01)..............................              (18,710)        (12,473)        (31,183)
    American Pilots' Association (APA) Dues...............                27,172          18,115          45,287
    Dues and Subscriptions................................                 4,080           2,720           6,800
    Utilities.............................................                15,618          10,412          26,030
    Salaries..............................................                69,848          46,565         116,413
    Accounting/Professional Fees..........................                 8,220           5,480          13,700
    Other.................................................                55,213          36,809          92,022
Applicant Administrative Expense:
    Pilot Training........................................                26,787          17,858          44,645
    Supplies..............................................                   481             320             801
                                                           -----------------------------------------------------
        Total Administrative Expenses.....................               568,810         379,208         948,018
                                                           -----------------------------------------------------
            Total Expenses (OpEx + Applicant + Pilot Boats             2,339,483       1,559,657       3,899,140
             + Admin + Capital)...........................
----------------------------------------------------------------------------------------------------------------
Director's Adjustments--Applicant Surcharge Collected.....              (10,814)         (7,209)        (18,024)
Director's Adjustments--Applicant Salaries................              (19,379)        (12,919)        (32,298)
                                                           -----------------------------------------------------
    Total Director's Adjustments..........................              (30,193)        (20,129)        (50,322)
                                                           -----------------------------------------------------
    Total Operating Expenses (OpEx + Adjustments).........             2,309,290       1,539,528       3,848,818
----------------------------------------------------------------------------------------------------------------

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

    Having identified the recognized 2020 operating expenses in Step 1,
the next step is to estimate the current year's operating expenses by
adjusting those expenses for inflation over the 3-year period. We
calculate inflation using the BLS data from the CPI for the Midwest
Region of the United States for the 2021 inflation rate.\20\ Because
the BLS does not provide forecasted inflation data, we use economic
projections from the Federal Reserve for the 2022 and 2023 inflation
modification.\21\ Based on that information, the calculations for Step
2 are as follows:
---------------------------------------------------------------------------

    \20\ The 2021 inflation rate is available at https://data.bls.gov/pdq/SurveyOutputServlet. Specifically, the CPI is
defined as ``All Urban Consumers (CPI-U), All Items, 1982-4=100.''
Series CUUS0200SAO (Downloaded March 2022)
    \21\ The 2022 and 2023 inflation rates are available at https://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20220316.pdf. We used the PCE median inflation value
found in table 1. (Downloaded March 2022).

                              Table 4--Adjusted Operating Expenses for District One
----------------------------------------------------------------------------------------------------------------
                                                                                District One
                                                                 -----------------------------------------------
                                                                    Designated     Undesignated        Total
----------------------------------------------------------------------------------------------------------------
Total Operating Expenses (Step 1)...............................      $2,309,290      $1,539,528      $3,848,818
2021 Inflation Modification (@5.1%).............................         117,774          78,516         196,290
2022 Inflation Modification (@2.7033%)..........................          65,531          43,687         109,218
2023 Inflation Modification (@2.3%).............................          57,330          38,220          95,550
                                                                 -----------------------------------------------
    Adjusted 2023 Operating Expenses............................       2,549,925       1,699,951       4,249,876
----------------------------------------------------------------------------------------------------------------

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

    In accordance with the text in Sec.  404.103, we estimate 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 2023 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 two
apprentice pilots in 2023 in District One. Based on the seasonal
staffing model discussed in the 2017 ratemaking (see 82 FR 41466), we
assign a certain number of pilots to designated waters and a certain
number 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)) *..........................................
2023 Authorized Pilots (total)..........................              18
Pilots Assigned to Designated Areas.....................              10
Pilots Assigned to Undesignated Areas...................               8
2023 Apprentice Pilots..................................               2
------------------------------------------------------------------------
* For a detailed calculation, refer to the Great Lakes Pilotage Rates--
  2017 Annual Review final rule, which contains the staffing model. See
  82 FR 41466, table 6 at 41480 (August 31, 2017).

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

    In this step, we determine the total pilot compensation for each
area. Because we are proposing a full ratemaking this year, we propose
to follow the procedure outlined in paragraph (a) of Sec.  404.104,
which requires us to develop a benchmark after considering the most
relevant currently available non-proprietary information. In accordance
with the discussion in Section VII of this preamble, the proposed
compensation benchmark for 2023 uses the 2022 compensation of $399,266
per registered pilot as a base, then adjusts for inflation following
the procedure outlined in paragraph (b) of Sec.  404.104. The proposed
target pilot compensation for 2023 is $422,336 per pilot. The proposed
apprentice pilot wage benchmark is 36 percent of the target pilot
compensation, or $152,041 ($422,336 x 0.36).
    Next, we certify that the number of pilots estimated for 2022 is
less than or equal to the number permitted under the staffing model in
Sec.  401.220(a). The staffing model suggests that the number of pilots
needed is 18 pilots for District One, which is less than or equal to
18, the number of registered pilots provided by the pilot association.
In accordance with Sec.  404.104(c), 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 two for District One in the 2023 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.......................................        $422,336        $422,336        $422,336
Number of Pilots................................................              10               8              18
Total Target Pilot Compensation.................................      $4,223,360      $3,378,688      $7,602,048
Target Apprentice Pilot Compensation............................        $152,041        $152,041        $152,041
Number of Apprentice Pilots.....................................  ..............  ..............               2
Total Target Apprentice Pilot Compensation......................     $182,449.00     $121,632.92        $304,082
----------------------------------------------------------------------------------------------------------------

E. Step 5: Project Working Capital Fund

    Next, we calculate the working capital fund revenues needed for
each area. First, we add the figures for projected operating expenses,
total pilot compensation, and total target apprentice pilot wage for
each area. Next, we find the preceding year's average annual rate of
return for new issues of high-grade corporate securities. Using Moody's
data, the number is 2.7033 percent.\22\ By multiplying the two figures,
we obtain the working capital fund contribution for each area, as shown
in table 7.
---------------------------------------------------------------------------

    \22\ Moody's Seasoned Aaa Corporate Bond Yield, average of 2021
monthly data. The Coast Guard uses the most recent year of complete
data. Moody's is taken from Moody's Investors Service, which is a
bond credit rating business of Moody's Corporation. Bond ratings are
based on creditworthiness and risk. The rating of ``Aaa'' is the
highest bond rating assigned with the lowest credit risk. See
https://fred.stlouisfed.org/series/AAA. (Downloaded March, 2022)

                           Table 7--Working Capital Fund Calculation for District One
----------------------------------------------------------------------------------------------------------------
                                                                                District One
                                                                 -----------------------------------------------
                                                                    Designated     Undesignated        Total
----------------------------------------------------------------------------------------------------------------
Adjusted Operating Expenses (Step 2)............................      $2,549,925      $1,699,951      $4,249,876
Total Target Pilot Compensation (Step 4)........................       4,223,360       3,378,688       7,602,048
Total Target Apprentice Pilot Compensation (Step 4).............         182,449         121,633         304,082
Total 2023 Expenses.............................................       6,955,734       5,200,272      12,156,006
Working Capital Fund (2.7033%)..................................         188,037         140,581         328,618
----------------------------------------------------------------------------------------------------------------

F. Step 6: Project Needed Revenue

    In this step, we add 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 8.

                                    Table 8--Revenue Needed for District One
----------------------------------------------------------------------------------------------------------------
                                                                                District One
                                                                 -----------------------------------------------
                                                                    Designated     Undesignated        Total
----------------------------------------------------------------------------------------------------------------
Adjusted Operating Expenses (Step 2)............................      $2,549,925      $1,699,951      $4,249,876
Total Target Pilot Compensation (Step 4)........................       4,223,360       3,378,688       7,602,048
Total Target Apprentice Pilot Compensation (Step 4).............         182,449         121,633         304,082
Working Capital Fund (Step 5)...................................         188,037         140,581         328,618
                                                                 -----------------------------------------------
    Total Revenue Needed........................................       7,143,771       5,340,853      12,484,624
----------------------------------------------------------------------------------------------------------------

G. Step 7: Calculate Initial Base Rates

    Having determined the revenue needed for each area in the previous
six steps, to develop an hourly rate we divide that number by the
expected number of hours of traffic. Step 7 is a two-part process. In
the first part, we calculate the 10-year average of traffic in District
One, using the total time on task or pilot bridge hours. To calculate
the time on task for each district, the Coast Guard uses billing data
from the Great Lakes Pilotage Management System (GLPMS). We pull the
data from the system filtering by district, year, job status (we only
include closed 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 9.

                 Table 9--Time on Task for District One
                                 [Hours]
------------------------------------------------------------------------
                                                   District One
                  Year                   -------------------------------
                                            Designated     Undesignated
------------------------------------------------------------------------
2021....................................           6,188           7,871
2020....................................           6,265           7,560
2019....................................           8,232           8,405
2018....................................           6,943           8,445
2017....................................           7,605           8,679
2016....................................           5,434           6,217
2015....................................           5,743           6,667
2014....................................           6,810           6,853
2013....................................           5,864           5,529
2012....................................           4,771           5,121
                                         -------------------------------
    Average.............................           6,386           7,135
------------------------------------------------------------------------

    Next, 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).................      $7,143,771      $5,340,853
Average time on task (hours)............           6,386           7,135
Initial rate............................          $1,119            $749
------------------------------------------------------------------------

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 database, 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 2 (2014)..................................................             285            1.15             328
Class 2 (2015)..................................................             295            1.15             339
Class 2 (2016)..................................................             185            1.15             213
Class 2 (2017)..................................................             352            1.15             405
Class 2 (2018)..................................................             559            1.15             643
Class 2 (2019)..................................................             378            1.15             435
Class 2 (2020)..................................................             560            1.15             644
Class 2 (2021)..................................................             315            1.15             362
Class 3 (2014)..................................................              50             1.3              65
Class 3 (2015)..................................................              28             1.3              36
Class 3 (2016)..................................................              50             1.3              65
Class 3 (2017)..................................................              67             1.3              87
Class 3 (2018)..................................................              86             1.3             112
Class 3 (2019)..................................................             122             1.3             159
Class 3 (2020)..................................................              67             1.3              87
Class 3 (2021)..................................................              52             1.3              68
Class 4 (2014)..................................................             271            1.45             393
Class 4 (2015)..................................................             251            1.45             364
Class 4 (2016)..................................................             214            1.45             310
Class 4 (2017)..................................................             285            1.45             413
Class 4 (2018)..................................................             393            1.45             570
Class 4 (2019)..................................................             730            1.45            1059
Class 4 (2020)..................................................             427            1.45             619
Class 4 (2021)..................................................             407            1.45             590
                                                                 -----------------------------------------------
    Total.......................................................           6,704  ..............           8,640
                                                                 -----------------------------------------------
        Average weighting factor (weighted transits / number of   ..............            1.29  ..............
         transits)..............................................
----------------------------------------------------------------------------------------------------------------

                     Table 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 2 (2014)..................................................             238            1.15             274
Class 2 (2015)..................................................             263            1.15             302
Class 2 (2016)..................................................             169            1.15             194
Class 2 (2017)..................................................             290            1.15             334
Class 2 (2018)..................................................             352            1.15             405
Class 2 (2019)..................................................             366            1.15             421
Class 2 (2020)..................................................             358            1.15             412
Class 2 (2021)..................................................             463            1.15             532
Class 3 (2014)..................................................              60             1.3              78
Class 3 (2015)..................................................              42             1.3              55
Class 3 (2016)..................................................              28             1.3              36
Class 3 (2017)..................................................              45             1.3              59
Class 3 (2018)..................................................              63             1.3              82
Class 3 (2019)..................................................              58             1.3              75
Class 3 (2020)..................................................              35             1.3              46
Class 3 (2021)..................................................              71             1.3              92
Class 4 (2014)..................................................             289            1.45             419
Class 4 (2015)..................................................             269            1.45             390
Class 4 (2016)..................................................             222            1.45             322
Class 4 (2017)..................................................             285            1.45             413

Class 4 (2018)..................................................             382            1.45             554
Class 4 (2019)..................................................             326            1.45             473
Class 4 (2020)..................................................             334            1.45             484
Class 4 (2021)..................................................             466            1.45             676
                                                                 -----------------------------------------------
    Total.......................................................           5,638  ..............           7,291
                                                                 -----------------------------------------------
        Average weighting factor (weighted transits / number of   ..............  ..............            1.29
         transits)..............................................
----------------------------------------------------------------------------------------------------------------

I. Step 9: Calculate Revised Base Rates

    In this step, 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, we divide the initial base
rates calculated in Step 7 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................................          $1,119                1.29                $867
District One: Undesignated..............................             749                1.29                 581
----------------------------------------------------------------------------------------------------------------

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 is a sufficient number of 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 2022     Proposed 2023
                     Area                                    Name                pilotage rate    pilotage rate
----------------------------------------------------------------------------------------------------------------
District One: Designated.....................  St. Lawrence River.............             $834             $867
District One: Undesignated...................  Lake Ontario...................              568              581
----------------------------------------------------------------------------------------------------------------

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 2020 expenses and
revenues.\23\ For accounting purposes, the financial reports divide
expenses into designated and undesignated areas. For costs accrued by
the pilot associations generally, such as employee benefits, for
example, the cost is divided between the designated and undesignated
areas on a pro rata basis. The recognized operating expenses for
District Two are shown in table 15.
---------------------------------------------------------------------------

    \23\ These reports are available in the docket for this
rulemaking.
---------------------------------------------------------------------------

    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 2020 expenses used as the basis for this rulemaking,
districts used the term ``applicant'' to describe applicant trainees
and persons who would be called apprentices (applicant pilots) under
the definition introduced by the 2022 final rule. Therefore, when
describing past expenses, we use the term ``applicant'' to match what
was reported from 2020, which includes both applicant and apprentice
pilots. We use ``apprentice'' to distinguish apprentice pilot wages and
describe the impacts of the ratemaking going forward.
    We continue to include applicant salaries as an allowable expense
in the 2023 ratemaking, as it is based on 2020 operating expenses, when
salaries were still an allowable expense. The apprentice salaries paid
in the years 2020 and 2021 have not been reimbursed in the ratemaking
as of publication of this proposed rule. Applicant salaries (including
applicant trainees and apprentice pilots) will continue to be an
allowable operating expense through the 2024 ratemaking, which uses
operating expenses from 2021 where the wages for apprentice pilots were
still authorized as operating expenses. Beginning with the 2025
ratemaking, apprentice pilot salaries would no longer be included as a
2022 operating expense, because apprentice

pilot wages would 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 15--2020 Recognized Expenses for District Two
----------------------------------------------------------------------------------------------------------------
                                                                                District Two
                                                               -------------------------------------------------
                                                                 Undesignated      Designated
             Reported operating expenses for 2020              ----------------------------------
                                                                                Southeast Shoal       Total
                                                                   Lake Erie      to Port Huron
----------------------------------------------------------------------------------------------------------------
Applicant Salaries............................................        $101,810          $152,715        $254,525
Applicant Health Insurance....................................          12,706            19,058          31,764
Applicant Subsistence/Travel..................................           6,732            10,098          16,830
Applicant Hotel/Lodging Cost..................................           3,652             5,478           9,130
Applicant Payroll Tax.........................................           4,888             7,332          12,220
                                                               -------------------------------------------------
    Total Applicant Cost......................................         129,788           194,681         324,469
----------------------------------------------------------------------------------------------------------------
Pilot Subsistence/Travel......................................         124,953           187,427         312,380
Hotel/Lodging Cost............................................          40,744            61,116         101,860
License Renewal...............................................           1,606             2,409           4,015
Payroll Taxes.................................................          94,996           142,495         237,491
Insurance.....................................................           8,666            12,999          21,665
                                                               -------------------------------------------------
    Total Other Pilotage Costs................................         270,965           406,446         677,411
----------------------------------------------------------------------------------------------------------------
Pilot Boat and Dispatch Costs:
    Pilot Boat Cost...........................................         218,840           328,261         547,101
    Employee Benefits.........................................          92,554           138,831         231,385
    Payroll taxes.............................................          13,565            20,347          33,912
                                                               -------------------------------------------------
        Total Pilot Boat and Dispatch Costs...................         324,959           487,439         812,398
----------------------------------------------------------------------------------------------------------------
Administrative Expense:
    Legal--General Counsel....................................           4,016             6,024          10,040
    Legal--Shared Counsel (K&L Gates).........................           9,898            14,846          24,744
    Legal--Shared Counsel (K&L Gates) (D2-20-01)..............           3,233             4,850           8,083
    Office Rent...............................................          27,627            41,440          69,067
    Insurance.................................................          12,357            18,536          30,893
    Employee Benefits.........................................         157,650           236,476         394,126
    Payroll Taxes.............................................           5,007             7,510          12,517
    Other Taxes...............................................          43,400            65,100         108,500
    Real Estate Taxes.........................................           8,285            12,427          20,712
    Depreciation/Auto Lease/Other.............................           7,783            11,674          19,457
    Interest..................................................             114               171             285
    APA Dues..................................................          14,683            22,025          36,708
    Dues and Subscriptions....................................             819             1,229           2,048
    Utilities.................................................          18,453            27,679          46,132
    Salaries--Admin Employees.................................          50,250            75,374         125,624
    Accounting................................................          14,360            21,540          35,900
    Pilot Training............................................             146               219             365
    Other.....................................................          24,604            36,906          61,510
                                                               -------------------------------------------------
        Total Administrative Expenses.........................         402,685           604,026       1,006,711
                                                               -------------------------------------------------
            Total OpEx (Pilot Costs + Applicant Cost + Pilot         1,128,397         1,692,592       2,820,989
             Boats + Admin)...................................
----------------------------------------------------------------------------------------------------------------
Director's Adjustments for Pilot Salaries:
    Total Director's Adjustments..............................
    Total Operating Expenses (OpEx + Adjustments).............       1,128,397         1,692,592       2,820,989
----------------------------------------------------------------------------------------------------------------

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

    Having identified the recognized 2020 operating expenses in Step 1,
the next step is to estimate the current year's operating expenses by
adjusting those expenses for inflation over the 3-year period. We
calculate inflation using the BLS data from the CPI for the Midwest
Region of the United States for the 2021 inflation rate.\24\
---------------------------------------------------------------------------

    \24\ The 2021 inflation rate is available at https://data.bls.gov/pdq/SurveyOutputServlet. Specifically, the CPI is
defined as ``All Urban Consumers (CPI-U), All Items, 1982-4=100.''
Series CUUS0200SAO. (Downloaded March 2022).

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

Because the BLS does not provide forecasted inflation data, we use
economic projections from the Federal Reserve for the 2022 and 2023
inflation modification.\25\ Based on that information, the calculations
for Step 2 are as follows:
---------------------------------------------------------------------------

    \25\ The 2022 and 2023 inflation rates are available at https://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20220316.pdf. We used the PCE median inflation value
found in table 1. (Downloaded March 2022).

                             Table 16--Adjusted Operating Expenses for District Two
----------------------------------------------------------------------------------------------------------------
                                                                                District Two
                                                                 -----------------------------------------------
                                                                   Undesignated     Designated         Total
----------------------------------------------------------------------------------------------------------------
Total Operating Expenses (Step 1)...............................      $1,128,397      $1,692,592      $2,820,989
2021 Inflation Modification (@5.1%).............................          57,548          86,322         143,870
2022 Inflation Modification (@2.7033%)..........................          32,021          48,031          80,052
2023 Inflation Modification (@2.3%).............................          28,013          42,020          70,033
    Adjusted 2023 Operating Expenses............................       1,245,979       1,868,965       3,114,944
----------------------------------------------------------------------------------------------------------------

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

    In accordance with the text in Sec.  404.103, we estimate 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 2023 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 2023 in District Two. Based on the seasonal
staffing model discussed in the 2017 ratemaking (see 82 FR 41466), we
assign a certain number of pilots to designated waters and a certain
number 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)) *..........................................
2023 Authorized Pilots (total)..........................              15
Pilots Assigned to Designated Areas.....................               6
Pilots Assigned to Undesignated Areas...................               9
2023 Apprentice Pilots..................................               2
------------------------------------------------------------------------
* For a detailed calculation, refer to the Great Lakes Pilotage Rates--
  2017 Annual Review final rule, which contains the staffing model. See
  82 FR 41466, table 6 at 41480 (August 31, 2017).

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

    In this step, we determine the total pilot compensation for each
area. Because we are proposing a full ratemaking this year, we propose
to follow the procedure outlined in paragraph (a) of Sec.  404.104,
which requires us to develop a benchmark after considering the most
relevant currently available non-proprietary information. In accordance
with the discussion in Section VII of this preamble, the proposed
compensation benchmark for 2023 uses the 2022 compensation of $399,266
per registered pilot as a base, then adjusts for inflation following
the procedure outlined in paragraph (b) of Sec.  404.104. The proposed
target pilot compensation for 2023 is $422,336 per pilot. The proposed
apprentice pilot wage benchmark is 36 percent of the target pilot
compensation, or $152,041 ($422,336 x 0.36).
    Next, we certify that the number of pilots estimated for 2022 is
less than or equal to the number permitted under the staffing model in
Sec.  401.220(a). The staffing model suggests that the number of pilots
needed is 15 pilots for District Two, which is less than or equal to
15, 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 Two, as shown in table 18. We
estimate that the number of apprentice pilots with limited registration
needed will be two for District Two in the 2023 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 18--Target Compensation for District Two
----------------------------------------------------------------------------------------------------------------
                                                                                District Two
                                                                 -----------------------------------------------
                                                                   Undesignated     Designated         Total
----------------------------------------------------------------------------------------------------------------
Target Pilot Compensation.......................................        $422,336        $422,336        $422,336
Number of Pilots................................................               9               6              15
Total Target Pilot Compensation.................................      $3,801,024      $2,534,016      $6,335,040
Target Apprentice Pilot Compensation............................        $152,041        $152,041        $152,041
Number of Apprentice Pilots.....................................  ..............  ..............               2

Total Target Apprentice Pilot Compensation......................     $121,632.92     $182,449.00        $304,082
----------------------------------------------------------------------------------------------------------------

E. Step 5: Project Working Capital Fund

    Next, we calculate the working capital fund revenues needed for
each area. First, we add the figures for projected operating expenses,
total pilot compensation, and total target apprentice pilot wage for
each area. 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 2.7033 percent.\26\ By multiplying the two figures,
we obtain the working capital fund contribution for each area, as shown
in table 19.
---------------------------------------------------------------------------

    \26\ Moody's Seasoned Aaa Corporate Bond Yield, average of 2021
monthly data. The Coast Guard uses the most recent year of complete
data. Moody's is taken from Moody's Investors Service, which is a
bond credit rating business of Moody's Corporation. Bond ratings are
based on creditworthiness and risk. The rating of ``Aaa'' is the
highest bond rating assigned with the lowest credit risk. See
https://fred.stlouisfed.org/series/AAA. (Downloaded March 2022).

                           Table 19--Working Capital Fund Calculation for District Two
----------------------------------------------------------------------------------------------------------------
                                                                                District Two
                                                                 -----------------------------------------------
                                                                   Undesignated     Designated         Total
----------------------------------------------------------------------------------------------------------------
Adjusted Operating Expenses (Step 2)............................      $1,245,979      $1,868,965      $3,114,944
Total Target Pilot Compensation (Step 4)........................       3,801,024       2,534,016       6,335,040
Total Target Apprentice Pilot Compensation (Step 4).............         121,633         182,449         304,082
Total 2023 Expenses.............................................       5,168,636       4,585,430       9,754,066
Working Capital Fund (2.7033%)..................................         139,725         123,959         263,684
----------------------------------------------------------------------------------------------------------------

F. Step 6: Project Needed Revenue

    In this step, we add 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)............................      $1,245,979      $1,868,965      $3,114,944
Total Target Pilot Compensation (Step 4)........................       3,801,024       2,534,016       6,335,040
Total Target Apprentice Pilot Compensation (Step 4).............         121,633         182,449         304,082
Working Capital Fund (Step 5)...................................         139,725         123,959         263,684
                                                                 -----------------------------------------------
    Total Revenue Needed........................................       5,308,361       4,709,389      10,017,750
----------------------------------------------------------------------------------------------------------------

G. Step 7: Calculate Initial Base Rates

    Having determined the revenue needed for each area in the previous
six steps, to develop an hourly rate we divide that number by the
expected number of hours of traffic. Step 7 is a two-part process. In
the first part, we calculate the 10-year average of traffic in District
Two, using the total time on task or pilot bridge hours. To calculate
the time on task for each district, the Coast Guard uses billing data
from SeaPro. 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
------------------------------------------------------------------------
2021....................................           8,826           3,226
2020....................................           6,232           8,401
2019....................................           6,512           7,715
2018....................................           6,150           6,655
2017....................................           5,139           6,074
2016....................................           6,425           5,615

2015....................................           6,535           5,967
2014....................................           7,856           7,001
2013....................................           4,603           4,750
2012....................................           3,848           3,922
                                         -------------------------------
    Average.............................           6,213           5,933
------------------------------------------------------------------------

    Next, 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).................      $5,308,361      $4,709,389
Average time on task (hours)............           6,213           5,933
Initial rate............................            $854            $794
------------------------------------------------------------------------

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 database, 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 2 (2014)..................................................             356            1.15             409
Class 2 (2015)..................................................             354            1.15             407
Class 2 (2016)..................................................             380            1.15             437
Class 2 (2017)..................................................             222            1.15             255
Class 2 (2018)..................................................             123            1.15             141
Class 2 (2019)..................................................             127            1.15             146
Class 2 (2020)..................................................             165            1.15             190
Class 2 (2021)..................................................             206            1.15             237
Class 3 (2014)..................................................              20             1.3              26
Class 3 (2015)..................................................               0             1.3               0
Class 3 (2016)..................................................               9             1.3              12
Class 3 (2017)..................................................              12             1.3              16
Class 3 (2018)..................................................               3             1.3               4
Class 3 (2019)..................................................               1             1.3               1
Class 3 (2020)..................................................               1             1.3               1
Class 3 (2021)..................................................               5             1.3               7
Class 4 (2014)..................................................             636            1.45             922
Class 4 (2015)..................................................             560            1.45             812
Class 4 (2016)..................................................             468            1.45             679
Class 4 (2017)..................................................             319            1.45             463
Class 4 (2018)..................................................             196            1.45             284
Class 4 (2019)..................................................             210            1.45             305
Class 4 (2020)..................................................             201            1.45             291
Class 4 (2021)..................................................             227            1.45             329
                                                                 -----------------------------------------------
    Total.......................................................           5,019  ..............           6,592
        Average weighting factor (weighted transits / number of   ..............            1.31  ..............
         transits)..............................................
----------------------------------------------------------------------------------------------------------------

                      Table 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 2 (2014)..................................................             237            1.15             273
Class 2 (2015)..................................................             217            1.15             250
Class 2 (2016)..................................................             224            1.15             258
Class 2 (2017)..................................................             127            1.15             146
Class 2 (2018)..................................................             153            1.15             176
Class 2 (2019)..................................................             281            1.15             323
Class 2 (2020)..................................................             342            1.15             393
Class 2 (2021)..................................................             240            1.15             276
Class 3 (2014)..................................................               8             1.3              10
Class 3 (2015)..................................................               8             1.3              10
Class 3 (2016)..................................................               4             1.3               5
Class 3 (2017)..................................................               4             1.3               5
Class 3 (2018)..................................................              14             1.3              18
Class 3 (2019)..................................................               1             1.3               1
Class 3 (2020)..................................................               5             1.3               7
Class 3 (2021)..................................................               2             1.3               3
Class 4 (2014)..................................................             359            1.45             521
Class 4 (2015)..................................................             340            1.45             493
Class 4 (2016)..................................................             281            1.45             407
Class 4 (2017)..................................................             185            1.45             268
Class 4 (2018)..................................................             379            1.45             550
Class 4 (2019)..................................................             403            1.45             584
Class 4 (2020)..................................................             405            1.45             587
Class 4 (2021)..................................................             268            1.45             389
                                                                 -----------------------------------------------
    Total.......................................................           4,674  ..............           6,140
        Average weighting factor (weighted transits / number of   ..............  ..............            1.31
         transits)..............................................
----------------------------------------------------------------------------------------------------------------

I. Step 9: Calculate Revised Base Rates

    In this step, 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, 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......................................            $854            1.31            $652
District Two: Designated........................................             794            1.31             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 is a sufficient number of pilots to handle those heavy traffic
periods. The Director also considers whether the proposed rates would
cover operating expenses and infrastructure costs, and takes 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 2022       Proposed 2023
                    Area                                   Name                 pilotage rate     pilotage rate
----------------------------------------------------------------------------------------------------------------
District Two: Designated....................  Navigable waters from                       $536              $606
                                               Southeast Shoal to Port
                                               Huron, MI.
District Two: Undesignated..................  Lake Erie.....................               610               652
----------------------------------------------------------------------------------------------------------------

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 begin by reviewing the independent accountant's
financial reports for each association's 2020 expenses and
revenues.\27\ For accounting purposes, the financial reports divide
expenses into designated and undesignated areas. For costs accrued by
the pilot associations generally, such as employee benefits, for
example, the cost is divided between the designated and undesignated
areas on a pro rata basis. The recognized operating expenses for
District Three are shown in table 27.
---------------------------------------------------------------------------

    \27\ These reports are available in the docket for this
rulemaking.
---------------------------------------------------------------------------

    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 2020 expenses used as the basis for this rulemaking,
districts used the term ``applicant'' to describe applicant trainees
and persons who would be called apprentices (applicant pilots) under
the definition introduced by the 2022 final rule. Therefore, when
describing past expenses, we use the term ``applicant'' to match what
was reported from 2020, which includes both applicant and apprentice
pilots. We use ``apprentice'' to distinguish apprentice pilot wages and
describe the impacts of the ratemaking going forward.
    We continue to include applicant salaries as an allowable expense
in the 2023 ratemaking, as it is based on 2020 operating expenses, when
salaries were still an allowable expense. The apprentice salaries paid
in the years 2020 and 2021 have not been reimbursed in the ratemaking
as of publication of this proposed rule. Applicant salaries (including
applicant trainees and apprentice pilots) will continue to be an
allowable operating expense through the 2024 ratemaking, which uses
operating expenses from 2021 where the wages for apprentice pilots were
still authorized as operating expenses. Beginning with the 2025
ratemaking, apprentice pilot salaries would no longer be included as a
2022 operating expense, because apprentice pilot wages would 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 27--2020 Recognized Expenses for District Three
----------------------------------------------------------------------------------------------------------------
                                                                          District Three
                                                 ---------------------------------------------------------------
                                                   Undesignated     Designated     Undesignated
      Reported operating expenses for 2020       ------------------------------------------------
                                                    Lakes Huron     St. Mary's                         Total
                                                   and Michigan        River      Lake Superior
----------------------------------------------------------------------------------------------------------------
Other Pilotage Costs:
    Pilot Subsistence/Travel....................        $284,547        $118,603        $149,261        $552,411
    Hotel/Lodging Cost..........................          87,208          36,349          45,745         169,302
    License Insurance- Pilots...................          16,749           6,981           8,786          32,516
    Payroll Taxes...............................  ..............  ..............  ..............  ..............
    Payroll Tax (D3-19-01)......................         151,266          63,049          79,348         293,663
    Other.......................................           6,505           2,711           3,412          12,628
                                                 ---------------------------------------------------------------
        Total Other Pilotage Costs..............         546,275         227,693         286,552       1,060,520
----------------------------------------------------------------------------------------------------------------
Applicant Cost:
    Applicant Salaries..........................         340,677         141,998         178,705         661,380
    Applicant Benefits..........................          66,083          27,544          34,665         128,292
    Applicant Payroll Tax.......................          25,711          10,717          13,487          49,915
    Applicant Hotel/Lodging.....................          31,313          13,052          16,425          60,790
                                                 ---------------------------------------------------------------
        Total Applicant Cost....................         463,784         193,311         243,282         900,377
----------------------------------------------------------------------------------------------------------------
Pilot Boat and Dispatch costs:
    Pilot Boat Costs............................         515,075         214,689         270,187         999,951
    Dispatch Costs..............................         112,008          46,686          58,755         217,449
    Employee Benefits...........................          41,153          17,153          21,587          79,893
    Payroll Taxes...............................          16,771           6,991           8,798          32,560
                                                 ---------------------------------------------------------------
        Total Pilot Boat and Dispatch costs.....         685,007         285,519         359,327       1,329,853
----------------------------------------------------------------------------------------------------------------

Administrative Cost:
    Legal--General Counsel......................           1,921             801           1,008           3,730
    Legal--Shared Counsel (K&L Gates)...........          21,650           9,024          11,357          42,031
    Legal--Shared Counsel (K&L Gates) CPA                  3,601           1,501           1,889           6,991
     Deduction (D3-20-03).......................
    Legal--USCG Litigation......................           8,575           3,574           4,498          16,647
    Insurance...................................          18,811           7,841           9,867          36,519
    Employee Benefits...........................          80,117          33,394          42,026         155,537
    Payroll Tax.................................           8,101           3,377           4,250          15,728
    Other Taxes.................................          15,797           6,584           8,286          30,667
    Real Estate Taxes...........................           2,001             834           1,050           3,885
    Depreciation/Auto Leasing/Other.............          61,096          25,465          32,048         118,609
    Interest....................................           2,940           1,225           1,542           5,707
    APA Dues....................................          23,860           9,945          12,516          46,321
    Dues and Subscriptions......................           4,971           2,072           2,607           9,650
    Salaries....................................          50,795          21,172          26,645          98,612
    Utilities...................................          54,212          22,596          28,438         105,246
    Accounting/Professional Fees................          23,823           9,930          12,496          46,249
    Other Expenses..............................          38,507          16,050          20,199          74,756
    Other Expenses CPA Deduction (D3-18-01).....         (4,684)         (1,952)         (2,457)         (9,093)
                                                 ---------------------------------------------------------------
        Total Administrative Expenses...........         416,094         173,433         218,265         807,792
            Total Operating Expenses (Other            2,111,160         879,956       1,107,426       4,098,542
             Costs + Applicant Cost + Pilot
             Boats + Admin).....................
----------------------------------------------------------------------------------------------------------------
Director's Adjustments--Applicant Surcharge             (63,120)        (26,309)        (33,110)       (122,539)
 Collected......................................
                                                 ---------------------------------------------------------------
    Total Director's Adjustments................        (63,120)        (26,309)        (33,110)       (122,539)
    Total Operating Expenses (OpEx +                   2,048,040         853,647       1,074,316       3,976,003
     Adjustments)...............................
----------------------------------------------------------------------------------------------------------------

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

    Having identified the recognized 2020 operating expenses in Step 1,
the next step is to estimate the current year's operating expenses by
adjusting those expenses for inflation over the 3-year period. We