2010....................................           5,565           5,235
                                         -------------------------------
    Average.............................           5,634           5,661
------------------------------------------------------------------------

    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. The calculations
for each area are set forth in table 23.

          Table 23--Initial Rate Calculations for District Two
------------------------------------------------------------------------
                  Item                     Undesignated     Designated
------------------------------------------------------------------------
Needed revenue (Step 6).................      $4,176,010      $4,306,167
Average time on task (hours)............           5,634           5,661
Initial rate............................            $741            $761
------------------------------------------------------------------------

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
calculated the average weighting factor for each area using the data
from each vessel transit from 2014 onward, as shown in tables 24 and
25.\51\
---------------------------------------------------------------------------

    \51\ Supra footnote 35, at 41.

                     Table 24--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 2 (2014)..................................................             356            1.15           409.4
Class 2 (2015)..................................................             354            1.15           407.1
Class 2 (2016)..................................................             380            1.15             437
Class 2 (2017)..................................................             222            1.15           255.3
Class 2 (2018)..................................................             123            1.15          141.45
Class 2 (2019)..................................................             127            1.15          146.05
Class 3 (2014)..................................................              20             1.3              26
Class 3 (2015)..................................................               0             1.3               0
Class 3 (2016)..................................................               9             1.3            11.7
Class 3 (2017)..................................................              12             1.3            15.6
Class 3 (2018)..................................................               3             1.3             3.9
Class 3 (2019)..................................................               1             1.3             1.3
Class 4 (2014)..................................................             636            1.45           922.2
Class 4 (2015)..................................................             560            1.45             812
Class 4 (2016)..................................................             468            1.45           678.6
Class 4 (2017)..................................................             319            1.45          462.55
Class 4 (2018)..................................................             196            1.45          284.20

Class 4 (2019)..................................................             210            1.45           304.5
                                                                 -----------------------------------------------
    Total.......................................................           4,206  ..............           5,529
                                                                 -----------------------------------------------
        Average weighting factor (weighted transits/number of     ..............            1.31  ..............
         transits)..............................................
----------------------------------------------------------------------------------------------------------------

                      Table 25--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 2 (2014)..................................................             237            1.15          272.55
Class 2 (2015)..................................................             217            1.15          249.55
Class 2 (2016)..................................................             224            1.15           257.6
Class 2 (2017)..................................................             127            1.15          146.05
Class 2 (2018)..................................................             153            1.15          175.95
Class 2 (2019)..................................................             281            1.15          323.15
Class 3 (2014)..................................................               8             1.3            10.4
Class 3 (2015)..................................................               8             1.3            10.4
Class 3 (2016)..................................................               4             1.3             5.2
Class 3 (2017)..................................................               4             1.3             5.2
Class 3 (2018)..................................................              14             1.3            18.2
Class 3 (2019)..................................................               1             1.3             1.3
Class 4 (2014)..................................................             359            1.45          520.55
Class 4 (2015)..................................................             340            1.45             493
Class 4 (2016)..................................................             281            1.45          407.45
Class 4 (2017)..................................................             185            1.45          268.25
Class 4 (2018)..................................................             379            1.45          549.55
Class 4 (2019)..................................................             403            1.45          584.35
                                                                 -----------------------------------------------
    Total.......................................................           3,393  ..............           4,467
                                                                 -----------------------------------------------
        Average weighting factor (weighted transits/number of     ..............            1.32  ..............
         transits)..............................................
----------------------------------------------------------------------------------------------------------------

I. Step 9: Calculate Revised Base Rates

    In this step, we revise the base rates so that once the impact of
the weighting factors are considered, the total cost of pilotage will
be equal to the revenue needed. 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 26.

                                  Table 26--Revised Base Rates for District Two
----------------------------------------------------------------------------------------------------------------
                                                                                Revised Rate
                                                                                Average      (initial rate /
                     Area                           Initial rate (step 7)          weighting         average
                                                                                factor (step 8)     weighting
                                                                                factor)
----------------------------------------------------------------------------------------------------------------
District Two: Designated.....................  $741...........................             1.31             $566
District Two: Undesignated...................  761............................             1.32              577
----------------------------------------------------------------------------------------------------------------

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 this
information, the Director is not proposing any alterations to the rates
in this step. We propose to modify the text in Sec.  401.405(a) to
reflect the final rates shown in table 27.

                                 Table 27--Proposed Final Rates for District Two
----------------------------------------------------------------------------------------------------------------
                                                                                Final 2020     Proposed 2021
                     Area                                    Name                pilotage rate    pilotage rate
----------------------------------------------------------------------------------------------------------------
District Two: Designated.....................  Navigable waters from Southeast             $586             $566
                                                Shoal to Port Huron, MI.
District Two: Undesignated...................  Lake Erie......................              618              577
----------------------------------------------------------------------------------------------------------------

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 2018 expenses and
revenues.\52\ 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 28.
---------------------------------------------------------------------------

    \52\ These reports are available in the docket for this
rulemaking (see Docket No. USCG-2019-0736).
---------------------------------------------------------------------------

    For District Three, we propose two Director's adjustments. One
would be for the amount collected from the 2018 surcharge and the other
for the amount of Coast Guard litigation legal fees. Other adjustments
made by the auditors are explained in the auditors' reports (available
in the docket where indicated in the Public Participation and Request
for Comments portion of this document).
    We would make no adjustments to the District Three compensation for
applicant pilots. In the 2019 NPRM, the Coast Guard proposed to make an
adjustment to District Three's request for reimbursement of $571,248
for two applicant pilots ($285,624 per applicant). Instead of
permitting $571,248 for two applicant pilots, we proposed allowing
$257,566, or $128,783 per applicant pilot. This proposal went into the
final rule for 2019 and was not opposed. Going forward, the Coast Guard
will to continue to use the same ratio of applicant to target
compensation for all districts. For 2019, this was approximately 36
percent ($128,783 / $359,887 = 35.78 percent), so the Coast Guard will
use 36 percent of target compensation as the benchmark for applicant
pilot compensation. This allows adjustments to applicant pilot
compensation to fluctuate in line with target compensation.

                              Table 28--2018 Recognized Expenses for District Three
----------------------------------------------------------------------------------------------------------------
                                                                       District three
                                           ---------------------------------------------------------------------
                                            Undesignated \53\    Designated       Undesignated
        Reported expenses for 2018               (Area 6)         (area 7)          (area 8)
                                           ------------------------------------------------------      Total
                                             Lakes Huron and      St. Marys
                                                 Michigan           River        Lake Superior
----------------------------------------------------------------------------------------------------------------
Operating Expenses:
    Other Pilotage Costs:
        Pilot subsistence/travel..........           $208,110        $110,697           $123,980        $442,787
        Hotel/Lodging Cost................             88,982          47,331             53,011         189,324
        License Insurance--Pilots.........             13,516           7,189              8,052          28,757
        Payroll taxes.....................            122,954          65,401             73,249         261,604
        Other.............................             19,521          10,383             11,629          41,533
                                           ---------------------------------------------------------------------
            Total Other Pilotage Costs....            453,083         241,001            269,921         964,005
Applicant Pilot Costs:
    Applicant Salaries....................            183,485          97,598            109,310         390,393
    Applicant pilot subsistence/travel....             16,411           8,729              9,777          34,917
    Applicant Insurance...................             38,312          20,379             22,823          81,514
    Applicant Payroll Tax.................             16,411           8,729              9,777          34,917
                                           ---------------------------------------------------------------------
        Applicant Total Cost..............            254,619         135,435            151,687         541,741
Pilot Boat and Dispatch Costs:
    Pilot boat costs......................            346,160         184,127            206,223         736,510
    Dispatch costs........................             99,982          53,182             59,563         212,727
    Payroll taxes.........................             13,609           7,239              8,108          28,956
                                           ---------------------------------------------------------------------
        Total Pilot and Dispatch Costs....            459,751         244,548            273,894         978,193
Administrative Expenses:
    Legal--general counsel................             22,766          12,109             13,563          48,438
    Legal--shared counsel (K&L Gates).....             19,426          10,333             11,573          41,332
    Legal--USCG litigation................              8,611           4,580              5,130          18,321
    Office rent...........................              4,020           2,138              2,395           8,553
    Insurance.............................             11,354           6,040              6,764          24,158
    Employee benefits.....................             68,303          36,331             40,691         145,325
    Other taxes...........................                131              70                 78             279

    Depreciation/Auto leasing/Other.......             57,315          30,487             34,145         121,947
    Interest..............................                  7               4                  4              15
    APA Dues..............................             20,628          10,973             12,289          43,890
    Dues and subscriptions................              3,290           1,750              1,960           7,000
    Utilities.............................             31,860          16,947             18,980          67,787
    Salaries..............................             60,876          32,381             36,267         129,524
    Payroll taxes.........................              5,406           2,875              3,220          11,501
    Accounting/Professional fees..........              8,069           4,292              4,807          17,168
    Pilot training........................             18,586           9,886             11,073          39,545
    Other expenses (D3-18-01).............              8,907           4,738              5,306          18,951
    (D3-18-01) CPA Deduction..............            (2,030)         (1,080)            (1,210)         (4,320)
                                           ---------------------------------------------------------------------
        Total Administrative Expenses.....            347,525         184,854            207,035         739,414
                                           ---------------------------------------------------------------------
            Total Operating Expenses                1,514,978         805,838            902,537       3,223,353
             (Other Costs + Pilot Boats +
             Admin).......................
Proposed Adjustments (Director):
    Directors Adjustment Surcharge                  (273,168)       (273,168)          (273,168)       (819,504)
     Collected in 2018....................
    Proposed Legal Fee Removal--USCG                  (8,611)         (4,580)            (5,130)        (18,321)
     Litigation...........................
                                           ---------------------------------------------------------------------
        Total Director's Adjustments......          (281,779)       (277,748)          (278,298)       (837,825)
                                           ---------------------------------------------------------------------
            Total Operating Expenses (OpEx          1,233,199         528,090            624,239       2,385,528
             + Adjustments)...............
----------------------------------------------------------------------------------------------------------------

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

    \53\ The undesignated areas in District Three (areas 6 and 8)
are treated separately in table 28. In table 29 and subsequent
tables, both undesignated areas are combined and analyzed as a
single undesignated area.
---------------------------------------------------------------------------

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

    Having identified the recognized 2018 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 2019 inflation rate.\54\ Because
the BLS does not provide forecasted inflation data, we use economic
projections from the Federal Reserve for the 2020 and 2021 inflation
modification.\55\ Based on that information, the calculations for Step
1 are as follows:
---------------------------------------------------------------------------

    \54\ Supra footnote 29, at 30.
    \55\ Supra footnote 30, at 31.

                            Table 29--Adjusted Operating Expenses for District Three
----------------------------------------------------------------------------------------------------------------
                                                                                District three
                                                                 -----------------------------------------------
                                                                   Undesignated     Designated         Total
----------------------------------------------------------------------------------------------------------------
Total Operating Expenses (Step 1)...............................      $1,857,438        $528,090      $2,385,528
2019 Inflation Modification (@1.5%).............................          27,862           7,921          35,783
2020 Inflation Modification (@0.8%).............................          15,082           4,288          19,370
2021 Inflation Modification (@1.6%).............................          30,406           8,645          39,051
                                                                 -----------------------------------------------
    Adjusted 2021 Operating Expenses............................       1,930,788         548,944       2,479,732
----------------------------------------------------------------------------------------------------------------

C. Step 3: Estimate Number of Working Pilots

    In accordance with the text in Sec.  404.104(c), we estimate the
number of working pilots in each district. We determine the number of
registered pilots based on data provided by the Western Great Lakes
Pilots Association. Using these numbers, we estimate that there will be
22 registered pilots in 2021 in District Three. Furthermore, based on
the seasonal staffing model discussed in the 2017 ratemaking (see 82 FR
41466), and our proposed changes to that staffing model, we assign a
certain number of pilots to designated waters and a certain number to
undesignated waters, as shown in table 30. These numbers are used to
determine the amount of revenue needed in their respective areas.

                       Table 30--Authorized Pilots
------------------------------------------------------------------------
                                                          District three
------------------------------------------------------------------------
Proposed Maximum number of pilots (per Sec.                           23
 401.220(a)) \56\.......................................
2021 Authorized pilots (total)..........................              22
Pilots assigned to designated areas.....................               4
Pilots assigned to undesignated areas...................              18
------------------------------------------------------------------------

D. Step 4: Determine Target Pilot Compensation Benchmark
---------------------------------------------------------------------------

    \56\ 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).
---------------------------------------------------------------------------

    In this step, we determine the total pilot compensation for each
area. As we are proposing an ``interim'' ratemaking this year, we
propose to follow the procedure outlined in paragraph (b) of Sec.
404.104, which adjusts the existing compensation benchmark by
inflation. As stated in Section VI.A of the preamble, we are proposing
to use a two-step process to adjust target pilot compensation for
inflation. The first step adjusts the 2019 target compensation
benchmark of $367,085 by 1.4 percent, for a total adjusted value of
$372,224. This adjustment accounts for the difference between the
predicted 2020 Median PCE inflation value of 2 percent and the actual
2020 ECI inflation value of 3.4 percent.57 58 Because we do
not have a value for the ECI for 2021, we multiply the adjusted 2020
compensation benchmark of $372,224 by the Median PCE inflation value of
1.60 percent.\59\ Based on the projected 2020 inflation estimate, the
proposed compensation benchmark for 2021 is $378,180 per pilot (see
table 6 for calculations).
---------------------------------------------------------------------------

    \57\ U.S. Bureau of Labor Statistics Employment Cost Index (ECI)
Q1 2020 data for Total Compensation for Private Industry Workers in
the Transportation and Material Moving Sector (Series ID:
CIU2010000520000A). The first quarter data was the most recently
available data at the time of analysis for this NPRM. The Coast
Guard will use updated 2020 ECI data in the final rule. https://www.bls.gov/news.release/archives/eci_01312020.pdf.
    \58\ In Step 2 of the ratemaking, the Coast Guard uses the
Federal Reserve's predicted PCE inflation rate of 0.8% to inflate
operating expenses to 2020 dollars. This value differs from the ECI
Q1 inflation rate of 3.4%. The reason for the large deviation
between the values is the timing of each dataset. The ECI data is
only for Q1 of 2020 (January-March) and therefore does not capture
the impact of COVID-19. The PCE inflation predictions are from the
June 2020 and account for the impacts of the pandemic on the U.S.
economy.
    \59\ Supra footnote 33, at 39.
---------------------------------------------------------------------------

    Next, we certify that the number of pilots estimated for 2021 is
less than or equal to the number permitted under the proposed changes
to the staffing model in Sec.  401.220(a). The proposed changes to the
staffing model suggest that the number of pilots needed is 23 pilots
for District Three,\60\ which is more than or equal to 22, the number
of registered pilots provided by the pilot associations.
---------------------------------------------------------------------------

    \60\ See Table 6 of the Great Lakes Pilotage Rates--2017 Annual
Review final rule, 82 FR 41466 at 41480 (August 31, 2017). The
methodology of the staffing model is discussed at length in the
final rule (see pages 41476-41480 for a detailed analysis of the
calculations).
---------------------------------------------------------------------------

    Thus, in accordance with 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 Three, as shown in
table 31.

                                Table 31--Target Compensation for District Three
----------------------------------------------------------------------------------------------------------------
                                                                                District three
                                                                 -----------------------------------------------
                                                                   Undesignated     Designated         Total
----------------------------------------------------------------------------------------------------------------
Target Pilot Compensation.......................................        $378,180        $378,180        $378,180
Number of Pilots................................................              18               4              22
                                                                 -----------------------------------------------
    Total Target Pilot Compensation.............................      $6,807,240      $1,512,720      $8,319,960
----------------------------------------------------------------------------------------------------------------

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
and total pilot compensation for each area. Next, we find the preceding
year's average annual rate of return for new issues of high grade
corporate securities. Using Moody's data, the number is 3.3875
percent.\61\ By multiplying the two figures, we obtain the working
capital fund contribution for each area, as shown in table 32.
---------------------------------------------------------------------------

    \61\ Moody's Seasoned Aaa Corporate Bond Yield, average of 2018
monthly data. The Coast Guard uses the most recent complete year of
data. See https://fred.stlouisfed.org/series/AAA. (June 12, 2019).

                          Table 32--Working Capital Fund Calculation for District Three
----------------------------------------------------------------------------------------------------------------
                                                                                District three
                                                                 -----------------------------------------------
                                                                   Undesignated     Designated         Total
----------------------------------------------------------------------------------------------------------------
Adjusted Operating Expenses (Step 2)............................      $1,930,788        $548,944      $2,479,732
Total Target Pilot Compensation (Step 4)........................       6,807,240       1,512,720       8,319,960
Total Expenses..................................................       8,738,028       2,061,664      10,799,692
Working Capital Fund (3.3875)...................................         296,001          69,839         365,840
----------------------------------------------------------------------------------------------------------------

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), and the working capital fund contribution (from Step 5). The
calculations are shown in table 33.

                                   Table 33--Revenue Needed for District Three
----------------------------------------------------------------------------------------------------------------
                                                                                District three
                                                                 -----------------------------------------------
                                                                   Undesignated     Designated         Total
----------------------------------------------------------------------------------------------------------------
Adjusted Operating Expenses (Step 2, see Table 9)...............      $1,930,788        $548,944      $2,479,732
Total Target Pilot Compensation (Step 4, see Table 31)..........       6,807,240       1,512,720       8,319,960
Working Capital Fund (Step 5, see Table 32).....................         296,001          69,839         365,840
                                                                 -----------------------------------------------
    Total Revenue Needed........................................       9,034,029       2,131,503      11,165,532
----------------------------------------------------------------------------------------------------------------

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
Three, using the total time on task or pilot bridge hours.\62\ Because
we calculate separate figures for designated and undesignated waters,
there are two parts for each calculation. We show these values in table
34.
---------------------------------------------------------------------------

    \62\ See supra footnote 34, at 40 for more information.

                Table 34--Time on task for District Three
                                 [Hours]
------------------------------------------------------------------------
                                                  District three
                  Year                   -------------------------------
                                           Undesignated     Designated
------------------------------------------------------------------------
2019....................................          24,851           3,395
2018....................................          19,967           3,455
2017....................................          20,955           2,997
2016....................................          23,421           2,769
2015....................................          22,824           2,696
2014....................................          25,833           3,835
2013....................................          17,115           2,631
2012....................................          15,906           2,163
2011....................................          16,012           1,678
2010....................................          20,211           2,461
                                         -------------------------------
    Average.............................          20,710           2,808
------------------------------------------------------------------------

    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. The calculations
for each area are set forth in table 35.

         Table 35--Initial Rate Calculations for District Three
------------------------------------------------------------------------
                                        Undesignated       Designated
------------------------------------------------------------------------
Revenue needed (Step 6).............        $9,034,029        $2,131,503
Average time on task (hours)........            20,710             2,808
Initial rate........................              $436              $759
------------------------------------------------------------------------

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 36 and
37.\63\
---------------------------------------------------------------------------

    \63\ See supra footnote 35, at 41 for more information.

                    Table 36--Average Weighting Factor for District Three, Undesignated Areas
----------------------------------------------------------------------------------------------------------------
                                                                     Number of       Weighting       Weighted
                        Vessel class/year                            transits         factor         transits
----------------------------------------------------------------------------------------------------------------
Area 6:

    Class 1 (2014)..............................................              45               1              45
    Class 1 (2015)..............................................              56               1              56
    Class 1 (2016)..............................................             136               1             136
    Class 1 (2017)..............................................             148               1             148
    Class 1 (2018)..............................................             103               1             103
    Class 1 (2019)..............................................             173               1             173
    Class 2 (2014)..............................................             274            1.15           315.1
    Class 2 (2015)..............................................             207            1.15          238.05
    Class 2 (2016)..............................................             236            1.15           271.4
    Class 2 (2017)..............................................             264            1.15           303.6
    Class 2 (2018)..............................................             169            1.15          194.35
    Class 2 (2019)..............................................             279            1.15          320.85
    Class 3 (2014)..............................................              15             1.3            19.5
    Class 3 (2015)..............................................               8             1.3            10.4
    Class 3 (2016)..............................................              10             1.3              13
    Class 3 (2017)..............................................              19             1.3            24.7
    Class 3 (2018)..............................................               9             1.3            11.7
    Class 3 (2019)..............................................               9             1.3            11.7
    Class 4 (2014)..............................................             394            1.45           571.3
    Class 4 (2015)..............................................             375            1.45          543.75
    Class 4 (2016)..............................................             332            1.45           481.4
    Class 4 (2017)..............................................             367            1.45          532.15
    Class 4 (2018)..............................................             337            1.45          488.65
    Class 4 (2019)..............................................             334            1.45           484.3
                                                                 -----------------------------------------------
        Total for Area 6........................................           4,299  ..............           5,497
Area 8:
    Class 1 (2014)..............................................               3               1               3
    Class 1 (2015)..............................................               0               1               0
    Class 1 (2016)..............................................               4               1               4
    Class 1 (2017)..............................................               4               1               4
    Class 1 (2018)..............................................               0               1               0
    Class 1 (2019)..............................................               0               1               0
    Class 2 (2014)..............................................             177            1.15          203.55
    Class 2 (2015)..............................................             169            1.15          194.35
    Class 2 (2016)..............................................             174            1.15           200.1
    Class 2 (2017)..............................................             151            1.15          173.65
    Class 2 (2018)..............................................             102            1.15           117.3
    Class 2 (2019)..............................................             120            1.15             138
    Class 3 (2014)..............................................               3             1.3             3.9
    Class 3 (2015)..............................................               0             1.3               0
    Class 3 (2016)..............................................               7             1.3             9.1
    Class 3 (2017)..............................................              18             1.3            23.4
    Class 3 (2018)..............................................               7             1.3             9.1
    Class 3 (2019)..............................................               6             1.3             7.8
    Class 4 (2014)..............................................             243            1.45          352.35
    Class 4 (2015)..............................................             253            1.45          366.85
    Class 4 (2016)..............................................             204            1.45           295.8
    Class 4 (2017)..............................................             269            1.45          390.05
    Class 4 (2018)..............................................             188            1.45           272.6
    Class 4 (2019)..............................................             254            1.45           368.3
                                                                 -----------------------------------------------
        Total for Area 8........................................           2,356  ..............           3,137
                                                                 -----------------------------------------------
            Combined total......................................           6,655  ..............        8,634.10
                                                                 -----------------------------------------------
                Average weighting factor (weighted transits/      ..............            1.30  ..............
                 number of transits)............................
----------------------------------------------------------------------------------------------------------------

                     Table 37--Average Weighting Factor for District Three, Designated Areas
----------------------------------------------------------------------------------------------------------------
                                                                     Number of       Weighting       Weighted
                      Vessel class per year                          transits         factor         transits
----------------------------------------------------------------------------------------------------------------
Class 1 (2014)..................................................              27               1              27
Class 1 (2015)..................................................              23               1              23
Class 1 (2016)..................................................              55               1              55
Class 1 (2017)..................................................              62               1              62
Class 1 (2018)..................................................              47               1              47
Class 1 (2019)..................................................              45               1              45
Class 2 (2014)..................................................             221            1.15          254.15
Class 2 (2015)..................................................             145            1.15          166.75

Class 2 (2016)..................................................             174            1.15           200.1
Class 2 (2017)..................................................             170            1.15           195.5
Class 2 (2018)..................................................             126            1.15           144.9
Class 2 (2019)..................................................             162            1.15           186.3
Class 3 (2014)..................................................               4             1.3             5.2
Class 3 (2015)..................................................               0             1.3               0
Class 3 (2016)..................................................               6             1.3             7.8
Class 3 (2017)..................................................              14             1.3            18.2
Class 3 (2018)..................................................               6             1.3             7.8
Class 3 (2019)..................................................               3             1.3             3.9
Class 4 (2014)..................................................             321            1.45          465.45
Class 4 (2015)..................................................             245            1.45          355.25
Class 4 (2016)..................................................             191            1.45          276.95
Class 4 (2017)..................................................             234            1.45           339.3
Class 4 (2018)..................................................             225            1.45          326.25
Class 4 (2019)..................................................             308            1.45           446.6
                                                                 -----------------------------------------------
    Total.......................................................           2,814  ..............           3,659
                                                                 -----------------------------------------------
        Average weighting factor (weighted transits per number    ..............            1.30  ..............
         of transits)...........................................
----------------------------------------------------------------------------------------------------------------

I. Step 9: Calculate Revised Base Rates

    In this step, we revise the base rates so that once the impact of
the weighting factors are considered, the total cost of pilotage will
be equal to the revenue needed. 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 38.

                                 Table 38--Revised Base Rates for District Three
----------------------------------------------------------------------------------------------------------------
                                                                                Revised rate
                                                                                Average      (Initial rate /
                             Area                                Initial rate      weighting         average
                                                                   (step 7)     factor (step 8)     weighting
                                                                                factor)
----------------------------------------------------------------------------------------------------------------
District Three: Designated...................................             $759             1.30             $584
District Three: Undesignated.................................              436             1.30              335
----------------------------------------------------------------------------------------------------------------

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 this
information, the Director is not proposing any alterations to the rates
in this step. We propose to modify the text in Sec.  401.405(a) to
reflect the final rates shown in table 39.

                                Table 39--Proposed Final Rates for District Three
----------------------------------------------------------------------------------------------------------------
                                                                                Final 2020     Proposed 2021
                     Area                                    Name                pilotage rate    pilotage rate
----------------------------------------------------------------------------------------------------------------
District Three: Designated...................  St. Marys River................             $632             $584
District Three: Undesignated.................  Lakes Huron, Michigan, and                   337              335
                                                Superior.
----------------------------------------------------------------------------------------------------------------

IX. Regulatory Analyses

    We developed this proposed rule after considering numerous statutes
and Executive orders related to rulemaking. A summary of our analyses
based on these statutes or Executive orders follows.

A. Regulatory Planning and Review

    Executive Orders 12866 (Regulatory Planning and Review) and 13563
(Improving Regulation and Regulatory Review) direct agencies to assess
the costs and benefits of available regulatory alternatives and, if
regulation is necessary, to select regulatory approaches that maximize
net benefits (including potential economic, environmental, public
health and safety effects, distributive impacts, and equity). Executive
Order 13563 emphasizes the importance of quantifying costs and
benefits, reducing costs, harmonizing rules, and promoting flexibility.
Executive Order 13771 (Reducing Regulation and Controlling Regulatory
Costs) directs agencies to reduce regulation and control regulatory
costs and provides that ``for every one new regulation issued, at least
two prior regulations be identified for elimination, and that the cost
of planned regulations

be prudently managed and controlled through a budgeting process.''
    The Office of Management and Budget (OMB) has not designated this
proposed rule a significant regulatory action under section 3(f) of
Executive Order 12866. Accordingly, OMB has not reviewed it. Because
this proposed rule is not a significant regulatory action, it is exempt
from the requirements of Executive Order 13771. See the OMB Memorandum
titled ``Guidance Implementing Executive Order 13771, titled `Reducing
Regulation and Controlling Regulatory Costs' '' (April 5, 2017). A
regulatory analysis (RA) follows.
    The purpose of this proposed rule is to establish new base pilotage
rates. The Great Lakes Pilotage Act of 1960 requires that rates be
established or reviewed and adjusted each year. The Act requires that
base rates be established by a full ratemaking at least once every five
years, and in years when base rates are not established, they must be
reviewed and, if necessary, adjusted. The last full ratemaking was
concluded in June of 2018.\64\ For this ratemaking, the Coast Guard
estimates an increase in cost of approximately $1.06 million to
industry as a result of the change in revenue needed in 2021 compared
to the revenue needed in 2020.
---------------------------------------------------------------------------

    \64\ Great Lakes Pilotage Rates--2018 Annual Review and
Revisions to Methodology (83 FR 26162), published June 5, 2018.
---------------------------------------------------------------------------

    Table 40 summarizes proposed changes with no cost impacts or where
the cost impacts are captured in the proposed rate change. Table 41
summarizes the affected population, costs, and benefits of the proposed
rate change.

              Table 40--Proposed Changes With No Costs or Cost Captured in the Proposed Rate Change
----------------------------------------------------------------------------------------------------------------
                                                                           Basis for no cost
             Change                   Description          Affected        or cost captured        Benefits
                                                          population          in the rate
----------------------------------------------------------------------------------------------------------------
Legal expenses for lawsuits       The Coast Guard is  Owners and          Changes in          The change would
 against the U.S. Government are   proposing to        operators of 279    operating           remove the undue
 not allowable operating           exclude legal       vessels             expenses are        cost to shippers
 expenses.                         fees for            journeying the      accounted for in    of effectively
                                   litigation          Great Lakes         the base pilotage   paying for the
                                   against the Coast   system annually,    rates. For the      pilots'
                                   Guard from          55 U.S. Great       2020 ratemaking,    litigation
                                   operating           Lakes pilots, and   these legal fees    expenses to sue
                                   expenses for        3 pilotage          total $36,688 for   the Coast Guard.
                                   calculation of      associations.       all three
                                   pilotage rates.                         districts. After
                                   This proposal                           adjusting for
                                   would only apply                        inflation and the
                                   to legal fees                           working capital
                                   when pilots                             fund, these
                                   associations sue                        expenses are
                                   the Coast Guard                         $39,430, or 0.13%
                                   in relation to                          of the total
                                   the ratemaking                          revenue needed
                                   and oversight                           for 2021. The
                                   requirement in 46                       pilotage
                                   U.S.C. 9303, 9304                       associations may
                                   and 9305. As part                       still be
                                   of this proposed                        reimbursed for
                                   change, the Coast                       these expenses by
                                   Guard is also                           the Coast Guard
                                   proposing to                            under the EAJA.
                                   create a new
                                   paragraph 46 CFR
                                   404.2(b)(6) which
                                   defines legal
                                   expenses.
Changes to Staffing Model.......  The Coast Guard is  Owners and          The total number    Rounding up in the
                                   proposing to        operators of 279    of pilots is        staffing model
                                   modify the          vessels             accounted for in    accounts for
                                   staffing model at   journeying the      the base pilotage   extra staff or
                                   46 CFR              Great Lakes         rates. For the      extra time spent
                                   401.220(a)(3) to    system annually,    2021 ratemaking,    by the pilot
                                   round up to the     55 U.S. Great       this proposed       associations
                                   nearest integer,    Lakes pilots, and   change would        presidents,
                                   as opposed to the   3 pilotage          allow for one       including
                                   existing method,    associations.       additional pilot    attending
                                   which rounds to                         that would not      mandatory
                                   the nearest                             have otherwise      meetings with the
                                   integer. In                             been allowed.       Coast Guard,
                                   total, this would                                           complying with
                                   increase the                                                new reporting
                                   maximum number of                                           requirements, and
                                   allowable pilots                                            overseeing
                                   by 3.                                                       projects that
                                                                                enable the
                                                                                associations to
                                                                                provide safe,
                                                                                efficient, and
                                                                                reliable pilotage
                                                                                service in order
                                                                                to facilitate
                                                                                maritime
                                                                                commerce.
Inflation of Target pilot         The Coast Guard is  Owners and          Pilot compensation  This proposed
 compensation.                     proposing to        operators of 279    costs are           change ensures
                                   modify 46 CFR       vessels             accounted for in    the Coast Guard
                                   404.104(b) to       journeying the      the base pilotage   will be able to
                                   change how          Great Lakes         rates.              correct any under-
                                   inflation of        system annually,                         or over-
                                   pilot               55 U.S. Great                           estimates in
                                   compensation is     Lakes pilots, and                       inflation rather
                                   calculated by       3 pilotage                              than keeping
                                   accounting for      associations.                           these errors
                                   the difference                                              continuously in
                                   between the                                                 the rate.
                                   predicted PCE
                                   inflation rated
                                   and the actual
                                   ECI inflation
                                   rate.
----------------------------------------------------------------------------------------------------------------

                               Table 41--Economic Impacts Due to Proposed Changes
----------------------------------------------------------------------------------------------------------------
                                                           Affected
             Change                   Description         population             Costs             Benefits
----------------------------------------------------------------------------------------------------------------
Rate and surcharge changes......  Under the Great     Owners and          Increase of         New rates cover an
                                   Lakes Pilotage      operators of 279    $1,060,757 due to   association's
                                   Act of 1960, the    vessels             change in revenue   necessary and
                                   Coast Guard is      transiting the      needed for 2021     reasonable
                                   required to         Great Lakes         ($29,328,787)       operating
                                   review and adjust   system annually,    from revenue        expenses.
                                   base pilotage       55 U.S. Great       needed for 2020     Promotes safe,
                                   rates annually.     Lakes pilots, and   ($28,268,030), as   efficient, and
                                                       3 pilotage          shown in table 42   reliable pilotage
                                                       associations.       below.              service on the
                                                                                Great Lakes.
                                                                                Provides fair
                                                                                compensation,
                                                                                adequate
                                                                                training, and
                                                                                sufficient rest
                                                                                periods for
                                                                                pilots. Ensures
                                                                                the association
                                                                                receives
                                                                                sufficient
                                                                                revenues to fund
                                                                                future
                                                                                improvements.
----------------------------------------------------------------------------------------------------------------

    The Coast Guard is required to review and adjust pilotage rates on
the Great Lakes annually. See Sections IV and V of this preamble for
detailed discussions of the legal basis and purpose for this rulemaking
and for background information on Great Lakes pilotage ratemaking.
Based on our annual review for this rulemaking, we are proposing to
adjust the pilotage rates for the 2021 shipping season to generate
sufficient revenues for each district to reimburse its necessary and
reasonable operating expenses, fairly compensate trained and rested
pilots, and provide an appropriate working capital fund to use for
improvements. The rate changes in this proposed rule would decrease the
rates for all three districts. In addition, the proposed rule would not
implement a surcharge for the training of apprentice pilots as was last
implemented in the 2019 ratemaking.\65\ These changes lead to a net
increase in the cost of service to shippers. However, because the
proposed rates would increase for some areas and decrease for others,
the change in per unit cost to each individual shipper would be
dependent on their area of operation, and if they previously paid a
surcharge.
---------------------------------------------------------------------------

    \65\ See, 84 FR 20551 (May 10, 2019).
---------------------------------------------------------------------------

    A detailed discussion of our economic impact analysis follows.
Affected Population
    This rule would impact U.S. Great Lakes pilots, the 3 pilot
associations, and the owners and operators of 279 oceangoing vessels
that transit the Great Lakes annually. We estimate that there would be
55 pilots registered during the 2021 shipping season. The shippers
affected by these rate changes are those owners and operators of
domestic vessels operating ``on register'' (engaged in foreign trade)
and owners and operators of non-Canadian foreign vessels on routes
within the Great Lakes system. These owners and operators must have
pilots or pilotage service as required by 46 U.S.C. 9302. There is no
minimum tonnage limit or exemption for these vessels. The statute
applies only to commercial vessels and not to recreational vessels.
U.S.-flagged vessels not operating on register and Canadian ``lakers,''
which account for most commercial shipping on the Great Lakes, are not
required by 46 U.S.C. 9302 to have pilots. However, these U.S. and
Canadian-flagged lakers may voluntarily choose to engage a Great Lakes
registered pilot. Vessels that are U.S.-flagged may opt to have a pilot
for varying reasons, such as unfamiliarity with designated waters and
ports, or for insurance purposes.
    The Coast Guard used billing information from the years 2017
through 2019 from the Great Lakes Pilotage Management System (GLPMS) to
estimate the average annual number of vessels affected by the rate
adjustment. The GLPMS tracks data related to managing and coordinating
the dispatch of pilots on the Great Lakes, and billing in accordance
with the services. As described in Step 7 of the methodology, we use a
10-year average to estimate the traffic. We used 3 years of the most
recent billing data to estimate the affected population. When we
reviewed 10 years of the most recent billing data, we found the data
included vessels that have not used pilotage services in recent years.
We believe using 3 years of billing data is a better representation of
the vessel population that is currently using pilotage services and
would be impacted by this rulemaking. We found that 474 unique vessels
used pilotage services during the years 2017 through 2019. That is,
these vessels had a pilot dispatched to the vessel and billing
information was recorded in the GLPMS. Of these vessels, 434 were
foreign-flagged vessels and 40 were U.S.-flagged vessels. As previously
stated, U.S.-flagged vessels not operating on register are not required
to have a registered pilot per 46 U.S.C. 9302, but they can voluntarily
choose to have one.
    Numerous factors affect vessel traffic, which varies from year to
year. Therefore, rather than using the total number of vessels over the
time period, we took an average of the unique vessels using pilotage
services from the years 2017 through 2019 as the best representation of
vessels estimated to be affected by the rates in this rulemaking. From
2017 through 2019, an average of 279 vessels used pilotage services
annually.\66\ On average, 261 of these vessels were foreign-flagged
vessels and 18 were U.S.-flagged vessels that voluntarily opted into
the pilotage service.
---------------------------------------------------------------------------

    \66\ Some vessels entered the Great Lakes multiple times in a
single year, affecting the average number of unique vessels
utilizing pilotage services in any given year.
---------------------------------------------------------------------------

Total Cost to Shippers
    The proposed rate changes resulting from this adjustment to the
rates would result in a net decrease in the cost of service to
shippers. However, the proposed change in per unit cost to each
individual shipper would be dependent on their area of operation.
    The Coast Guard estimates the effect of the rate changes on
shippers by comparing the total projected revenues needed to cover
costs in 2020 with the total projected revenues to cover costs in 2021,
including any temporary surcharges we have authorized.\67\ We set
pilotage rates so pilot associations receive enough revenue to cover
their necessary and reasonable expenses. Shippers pay these rates when
they have a pilot as required by 46 U.S.C. 9302. Therefore, the
aggregate payments of shippers to pilot associations are equal to the
projected necessary revenues for pilot associations. The revenues each
year represent the total costs that shippers must pay for pilotage
services. The change in revenue from the previous year is the
additional cost to shippers discussed in this rule.
---------------------------------------------------------------------------

    \67\ While the Coast Guard implemented a surcharge in 2019, we
are not proposing any surcharges for 2021.
---------------------------------------------------------------------------

    The impacts of the rate changes on shippers are estimated from the
district pilotage projected revenues (shown in tables 9, 21, and 33 of
this preamble). The Coast Guard estimates that for the 2021 shipping
season, the projected revenue needed for all three districts is
$29,328,787.
    To estimate the change in cost to shippers from this rule, the
Coast Guard compared the 2021 total projected revenues to the 2020
projected revenues. Because we review and prescribe rates for the Great
Lakes Pilotage annually, the effects are estimated as a single-year
cost rather than annualized over a 10-year period. In the 2020
rulemaking, we estimated the total projected revenue needed for 2020 as
$28,268,030.\68\ This is the best approximation of 2020 revenues, as at
the time of this publication, the Coast Guard does not have enough
audited data available for the 2020 shipping season to revise these
projections.\69\ Table 42 shows the revenue projections for 2020 and
2021 and details the additional cost increases to shippers by area and
district as a result of the rate changes on traffic in Districts One,
Two, and Three.
---------------------------------------------------------------------------

    \68\ 85 FR 20088, see table 41.
    \69\ The proposed rates for 2021 do not account for the impacts
COVID-19 may have on shipping traffic and subsequently pilotage
revenue, as we do not have complete data for 2020. The rates for
2022 will take into account the impact of COVID-19 on shipping
traffic, because that future ratemaking will include 2020 traffic
data. However, the Coast Guard uses 10-year average when calculating
traffic in order to smooth out variations in traffic caused by
global economic conditions, such as those caused by the COVID-19
pandemic.

                                Table 42--Effect of the Rule by Area and District
                                             [$U.S.; non-discounted]
----------------------------------------------------------------------------------------------------------------
                                                                                Change in
                              Area                                Revenue needed  Revenue needed   costs of this
                                                                      in 2020         in 2021      proposed rule
----------------------------------------------------------------------------------------------------------------
Total, District One.............................................      $9,210,888      $9,681,078        $470,190
Total, District Two.............................................       8,345,871       8,482,177         136,306
Total, District Three...........................................      10,711,271      11,165,532         454,261
                                                                 -----------------------------------------------
    System Total................................................      28,268,030      29,328,787       1,060,757
----------------------------------------------------------------------------------------------------------------

    The resulting difference between the projected revenue in 2020 and
the projected revenue in 2021 is the annual change in payments from
shippers to pilots as a result of the rate change imposed by this
proposed rule. The effect of the rate change to shippers varies by area
and district. After taking into account the change in pilotage rates,
the rate changes would lead to affected shippers operating in District
One experiencing an increase in payments of $470,190 over the previous
year. District Two and District Three would experience an increase in
payments of $136,306 and $454,261, respectively, when compared with
2020. The overall adjustment in payments would be an increase in
payments by shippers of $1,060,757 across all three districts (a 4-
percent increase when compared with 2020). Again, because the Coast
Guard reviews and sets rates for Great Lakes Pilotage annually, we
estimate the impacts as single-year costs rather than annualizing them
over a 10-year period.
    Table 43 shows the difference in revenue by revenue-component from
2020 to 2021 and presents each revenue-component as a percentage of the
total revenue needed. In both 2020 and 2021, the largest revenue-
component was pilotage compensation (68 percent of total revenue needed
in 2020 and 71 percent of total revenue needed in 2021), followed by
operating expenses (29 percent of total revenue needed in 2020 and 26
percent of total revenue needed in 2021).

                                                      Table 43--Difference in Revenue by Component
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                Difference
                                                          Revenue needed   Percentage of  Revenue needed   Percentage of  (2021 revenue-    Percentage
                    Revenue component                         in 2020      total revenue      in 2021      total revenue   2020 revenue)    change from
                                                                          needed in 2020                  needed in 2021                   previous year
--------------------------------------------------------------------------------------------------------------------------------------------------------
Adjusted Operating Expenses.............................      $8,110,685              29      $7,567,927              26      ($542,758)             (7)
Total Target Pilot Compensation.........................      19,088,420              68      20,799,900              71       1,711,480               9
Working Capital Fund....................................       1,068,925               4         960,960               3       (107,965)            (10)
                                                         -----------------------------------------------------------------------------------------------
    Total Revenue Needed................................      28,268,030             100      29,328,787             100       1,060,757               4
--------------------------------------------------------------------------------------------------------------------------------------------------------
Note: Totals may not sum due to rounding.

    As stated above, we estimate that there will be a total increase in
revenue needed by the pilot associations of $1,060,757. This represents
an increase in revenue needed for target pilot compensation of
$1,711,480, and a decrease in the revenue needed for adjusted operating
expenses and the working capital fund of $542,758 and $107,965,
respectively. The proposed removal of legal fees associated with
litigation against the Coast Guard would reduce the revenue needed in
2021 by $39,430. While the shippers would no longer reimburse the legal
fees associated with litigation via the rate under the proposed rule,
the pilot associations may still be reimbursed for these expenses by
the Coast Guard under the EAJA.
    The majority of the increase in revenue needed, $1,711,480, is the
result of changes to target pilot compensation. These changes are due
to three factors: (1) The proposed changes to adjust 2020 pilotage
compensation to account for the difference between actual and predicted
inflation; (2) the net addition of three additional pilots; and (3)
inflation of pilotage compensation.
    The proposed target compensation is $378,180 per pilot in 2021,
compared to $367,085 in 2020. The proposed changes to modify the 2020
pilot compensation to account for the difference between predicted and
actual inflation would increase the 2020 target compensation value by
1.4 percent. As show in table 43, this inflation adjustment would
increase total compensation by $5,139 per pilot, and the total revenue
needed by $282,655 when accounting for all 55 pilots.

    Table 44--Change in Revenue Resulting From the Proposed Change to
          Inflation of Pilot Compensation Calculation in Step 4
------------------------------------------------------------------------

------------------------------------------------------------------------
2020 Target Compensation................................        $367,085
Adjusted 2020 Compensation ($367,085 x 1.014)...........         372,224
Difference between Target 2020 Compensation and Target             5,139
 2020 Compensation ($372,224 - $367,085)................
Increase in total Revenue for 55 Pilots ($5,139 x 55)...         282,655
------------------------------------------------------------------------

    The addition of 3 pilots to full registered status accounts for
$1,119,122 of the increase in needed revenue. As shown in table 44, to
avoid double counting, this value excludes the change in revenue
resulting from the proposed

change to adjust 2020 pilotage compensation to account for the
difference between actual and predicted inflation.

   Table 45--Change in Revenue Resulting From Adding Three Additional
                                 Pilots
------------------------------------------------------------------------

------------------------------------------------------------------------
2021 Target Compensation................................        $378,180
Total Number of New Pilots..............................               3
Total Cost of new Pilots ($378,180 x 3).................      $1,134,540
Difference between Target 2020 Compensation and Target            $5,139
 2020 Compensation ($372,224 - $367,085)................
Increase in total Revenue for 3 Pilots ($5,139 x 3).....         $15,418
Net Increase in total Revenue 3 Pilots ($1,134,540-           $1,119,122
 $15,418)...............................................
------------------------------------------------------------------------

    Finally, the remainder of the increase, $309,702, is the result of
increasing compensation for the other 52 pilots to account for future
inflation of 1.6 percent in 2021. This would increase total
compensation by $5,965 per pilot.

 Table 46--Change in Revenue Resulting From Inflating 2020 Compensation
                                 to 2021
------------------------------------------------------------------------

------------------------------------------------------------------------
Adjusted 2020 Compensation..............................        $372,224
2021 Target Compensation ($372,224 x 1.016).............         378,180
Difference between Target 2020 Compensation and Target             5,956
 2020 Compensation ($378,180 - $372,224)................
Increase in total Revenue for 52 Pilots ($5,956 x 52)...         309,702
------------------------------------------------------------------------

    Table 46 presents the percentage change in revenue by area and
revenue-component, excluding surcharges, as they are applied at the
district level.\70\
---------------------------------------------------------------------------

    \70\ The 2020 projected revenues are from the Great Lakes
Pilotage Rates--2020 Annual Review and Revisions to Methodology
final rule (85 FR 20088) Tables 8, 20, and 32. The 2021 projected
revenues are from tables 9, 21, and 33 of this proposed rule.

                                                                      Table 47--Difference in Revenue by Component and Area
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                  Adjusted operating expenses        Total target pilot compensation            Working capital fund                 Total revenue needed
                                             ---------------------------------------------------------------------------------------------------------------------------------------------------
                    Area                                               Percentage                           Percentage                           Percentage                           Percentage
                                                 2020        2021        change       2020        2021        change       2020        2021        change       2020        2021        change
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
District One: Designated....................  $1,573,286  $1,632,733            4  $3,670,850  $4,159,980           12    $206,095    $196,228          (5)  $5,450,231  $5,988,941            9
District One: Undesignated..................   1,048,857     923,904         (14)   2,569,595   2,647,260            3     142,205     120,973         (18)   3,760,657   3,692,137          (2)
District Two: Undesignated..................   1,019,371   1,013,743          (1)   2,936,680   3,025,440            3     155,473     136,827         (14)   4,111,524   4,176,010            2
District Two: Designated....................   1,504,635   1,517,815            1   2,569,595   2,647,260            3     160,117     141,092         (13)   4,234,347   4,306,167            2
District Three: Undesignated................   2,336,354   1,930,788         (21)   5,873,360   6,807,240           14     322,642     296,001          (9)   8,532,356   9,034,029            6
District Three: Designated..................     628,182     548,944         (14)   1,468,340   1,512,720            3      82,393      69,839         (18)   2,178,915   2,131,503          (2)
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Benefits
    This proposed rule would allow the Coast Guard to meet requirements
in 46 U.S.C. 9303 to review the rates for pilotage services on the
Great Lakes. The rate changes would promote safe, efficient, and
reliable pilotage service on the Great Lakes by (1) ensuring that rates
cover an association's operating expenses; (2) providing fair pilot
compensation, adequate training, and sufficient rest periods for
pilots; and (3) ensuring pilot associations produce enough revenue to
fund future improvements. The rate changes would also help recruit and
retain pilots, which would ensure a sufficient number of pilots to meet
peak shipping demand, helping to reduce delays caused by pilot
shortages.

B. Small Entities

    Under the Regulatory Flexibility Act, 5 U.S.C. 601-612, we have
considered whether this proposed rule would have a significant economic
impact on a substantial number of small entities. The term ``small
entities'' comprises small businesses, not-for-profit organizations
that are independently owned and operated and are not dominant in their
fields, and governmental jurisdictions with populations of less than
50,000.
    For the proposed rule, the Coast Guard reviewed recent company size
and ownership data for the vessels identified in the GLPMS, and we
reviewed business revenue and size data provided by publicly available
sources such as Manta \71\ and ReferenceUSA.\72\ As described in
Section IX.A of this preamble, Regulatory Planning and Review, we found
that a total of 474 unique vessels used pilotage services from 2017
through 2019. These vessels are owned by 49 entities. We found that of
the 49 entities that own or operate vessels engaged in trade on the
Great Lakes that would be affected by this rule, 38 are foreign
entities that operate primarily outside the United States, and the
remaining 11 entities are U.S. entities. We compared the revenue and
employee data found in the company search to the Small Business
Administration's (SBA) small business threshold as defined in the SBA's
``Table of Size Standards'' for small businesses to determine how many
of these companies are considered small entities.\73\ Table 48 shows
the North American Industry Classification System (NAICS) codes of the
U.S. entities and the small entity standard size established by the
SBA.
---------------------------------------------------------------------------

    \71\ See https://www.manta.com/.
    \72\ See http://resource.referenceusa.com/.
    \73\ See: https://www.sba.gov/document/support--table-size-standards. SBA has established a ``Table of Size Standards'' for
small businesses that sets small business size standards by NAICS
code. A size standard, which is usually stated in number of
employees or average annual receipts (``revenues''), represents the
largest size that a business (including its subsidiaries and
affiliates) may be in order to remain classified as a small business
for SBA and Federal contracting programs.

                             Table 48--NAICS Codes and Small Entities Size Standards
----------------------------------------------------------------------------------------------------------------
             NAICS                         Description                      Small entity size standard
----------------------------------------------------------------------------------------------------------------
211120.........................  Crude Petroleum Extraction.....  1,250 employees.
237990.........................  Other Heavy and Civil            $39.5 million.
                                  Engineering Construction.
238910.........................  Site Preparation Contractors...  $16.5 million.
483212.........................  Inland Water Passenger           500 employees.
                                  Transportation.
487210.........................  Scenic and Sightseeing           $8.0 million.
                                  Transportation, Water.
488330.........................  Navigational Services to         $41.5 million.
                                  Shipping.
523910.........................  Miscellaneous Intermediation...  $41.5 million.
561599.........................  All Other Travel Arrangement     $22.0 million.
                                  and Reservation Services.
982100.........................  National Security..............  Population of 50,000 People.
----------------------------------------------------------------------------------------------------------------

    Of the 11 U.S. entities, 8 exceed the SBA's small business
standards for small entities. To estimate the potential impact on the 3
small entities, the Coast Guard used their 2019 invoice data to
estimate their pilotage costs in 2021. We increased their 2019 costs to
account for the changes in pilotage rates resulting from this proposed
rule and the Great Lakes Pilotage Rates--2020 Annual Review and
Revisions to Methodology final rule (85 FR 20088). We estimated the
change in cost to these entities resulting from this rule by
subtracting their estimated 2020 costs from their estimated 2021 costs,
and found the average costs to small firms would be approximately
$1,226. We then compared the estimated change in pilotage costs between
2020 and 2021 with each firm's annual revenue. In all cases, their
estimated pilotage expenses were below 1 percent of their annual
revenue.
    In addition to the owners and operators discussed above, three U.S.
entities that receive revenue from pilotage services would be affected
by this proposed rule. These are the three pilot associations that
provide and manage pilotage services within the Great Lakes districts.
Two of the associations operate as partnerships, and one operates as a
corporation. These associations are designated with the same NAICS code
and small-entity size standards described above, but have fewer than
500 employees. Combined, they have approximately 65 employees in total
and, therefore, are designated as small entities. The Coast Guard
expects no adverse effect on these entities from this rule because the
three pilot associations would receive enough revenue to balance the
projected expenses associated with the projected number of bridge hours
(time on task) and pilots.
    Finally, the Coast Guard did not find any small not-for-profit
organizations that are independently owned and operated and are not
dominant in their fields that would be impacted by this rule. We did
not find any small governmental jurisdictions with populations of fewer
than 50,000 people that would be impacted by this rule. Based on this
analysis, we conclude this rulemaking would not affect a substantial
number of small entities, nor have a significant economic impact on any
of the affected entities.
    Based on our analysis, this proposed rule would have a less than 1
percent annual impact on 3 small entities; therefore, the Coast Guard
certifies under 5 U.S.C. 605(b) that this proposed rule would not have
a significant economic impact on a substantial number of small
entities. If you think that your business, organization, or
governmental jurisdiction qualifies as a small entity and that this
proposed rule would have a significant economic impact on it, please
submit a comment to the docket at the address listed in the ADDRESSES
section of this preamble. In your comment, explain why you think it
qualifies and how and to what degree this proposed rule would
economically affect it.

C. Assistance for Small Entities

    Under section 213(a) of the Small Business Regulatory Enforcement
Fairness Act of 1996, Public Law 104-121, we want to assist small
entities in understanding this proposed rule so that they can better
evaluate its effects on them and participate in the rulemaking. If the
proposed rule would affect your small business, organization, or
governmental jurisdiction and you have questions concerning its
provisions or options for compliance, please contact the person in the
FOR FURTHER INFORMATION section of this proposed rule. The Coast Guard
will not retaliate against small entities that question or complain
about this proposed rule or any policy or action of the Coast Guard.
    Small businesses may send comments on the actions of Federal
employees who enforce, or otherwise determine compliance with, Federal
regulations to the Small Business and Agriculture Regulatory
Enforcement Ombudsman and the Regional Small Business Regulatory
Fairness Boards. The Ombudsman evaluates these actions annually and
rates each agency's responsiveness to small business. If you wish to
comment on actions by employees of the Coast Guard, call 1-888-REG-FAIR
(1-888-734-3247).

D. Collection of Information

    The Paperwork Reduction Act of 1995 (44 3501-3520) requires that
the Coast Guard consider the impact of paperwork and other information
collection burdens imposed on the public. According to the 1995
amendments to the Paperwork Reduction Act (5 CFR 1320(b)(2)(vi), an
agency may not collect or sponsor the collection of information, nor
may it impose an information collection requirement unless it displays
a currently valid Office of Management and Budget (OMB) control number.
    The Coast Guard has determined that there would be no new
information collection associated with this proposed rule. Approval to
collect such information previously was approved by OMB and was
assigned OMB Control Number 1625-0086, Great Lakes Pilotage
Methodology.

E. Federalism

    A rule has implications for federalism under Executive Order 13132
(Federalism) if it has a substantial direct effect on the States, on
the relationship between the national government and the States, or on
the distribution of power and responsibilities among the various levels
of government. We have analyzed this proposed rule under Executive
Order 13132 and have determined that it is consistent with the
fundamental federalism principles and preemption requirements as
described in Executive Order 13132. Our analysis follows.
    Congress directed the Coast Guard to establish ``rates and charges
for pilotage services''. See 46 U.S.C. 9303(f). This regulation is
issued pursuant to that statute and is preemptive of State law as
specified in 46 U.S.C. 9306. Under 46 U.S.C. 9306, a ``State or
political

subdivision of a State may not regulate or impose any requirement on
pilotage on the Great Lakes.'' As a result, States or local governments
are expressly prohibited from regulating within this category.
Therefore, this proposed rule is consistent with the fundamental
federalism principles and preemption requirements described in
Executive Order 13132.
    While it is well settled that States may not regulate in categories
in which Congress intended the Coast Guard to be the sole source of a
vessel's obligations, the Coast Guard recognizes the key role that
State and local governments may have in making regulatory
determinations. Additionally, for rules with implications and
preemptive effect, Executive Order 13132 specifically directs agencies
to consult with State and local governments during the rulemaking
process. If you believe this rule has implications for federalism under
Executive Order 13132, please contact the person listed in the FOR
FURTHER INFORMATION section of this preamble.

F. Unfunded Mandates

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

G. Taking of Private Property

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

H. Civil Justice Reform

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

I. Protection of Children

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

J. Indian Tribal Governments

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

K. Energy Effects

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

L. Technical Standards

    The National Technology Transfer and Advancement Act, codified as a
note to 15 U.S.C. 272, directs agencies to use voluntary consensus
standards in their regulatory activities unless the agency provides
Congress, through OMB, with an explanation of why using these standards
would be inconsistent with applicable law or otherwise impractical.
Voluntary consensus standards are technical standards (specifications
of materials, performance, design, or operation; test methods; sampling
procedures; and related management systems practices) that are
developed or adopted by voluntary consensus standards bodies.
    This proposed rule does not use technical standards. Therefore, we
did not consider the use of voluntary consensus standards. If you
disagree with our analysis or are aware of voluntary consensus
standards that might apply, please send a comment explaining your
disagreement or identifying appropriate standards to the docket using
the method listed in the ADDRESSES section of this preamble.

M. Environment

    We have analyzed this proposed rule under Department of Homeland
Security Management Directive 023-01, Rev. 1 (DHS Directive 023-01),
associated implementing instructions, and Environmental Planning
COMDTINST 5090.1 (series), which guide the Coast Guard in complying
with the National Environmental Policy Act of 1969 1969 (42 U.S.C.
4321-4370f), and have made a preliminary determination that this action
is one of a category of actions that do not individually or
cumulatively have a significant effect on the human environment. A
preliminary Record of Environmental Consideration supporting this
determination is available in the docket where indicated under the
ADDRESSES portion of this preamble.
    This proposed rule meets the criteria for categorical exclusion
(CATEX) under paragraphs A3 and L54 of Appendix A, Table 1 of DHS
Instruction Manual 023-001-01, Rev. 1.\74\ Paragraph A3 pertains to the
promulgation of rules, issuance of rulings or interpretations, and the
development and publication of policies, orders, directives, notices,
procedures, manuals, advisory circulars, and other guidance documents
of the following nature: (a) Those of a strictly administrative or
procedural nature; (b) those that implement, without substantive
change, statutory or regulatory requirements; or (c) those that
implement, without substantive change, procedures, manuals, and other
guidance documents; and (d) those that interpret or amend an existing
regulation without changing its environmental effect. Paragraph L54
pertains to regulations, which are editorial or procedural.
---------------------------------------------------------------------------

    \74\ https://www.dhs.gov/sites/default/files/publications/DHS_Instruction%20Manual%20023-01-001-01%20Rev%2001_508%20Admin%20Rev.pdf.
---------------------------------------------------------------------------

    This proposed rule involves adjusting the pilotage rates to account
for changes in district operating expenses, an increase in the number
of pilots, and anticipated inflation. In addition, the Coast Guard is
proposing how apprentice pilots will be compensated in future
rulemakings. All of these proposed changes are consistent with the
Coast Guard's maritime safety missions. We seek any comments or
information that may lead to the discovery of a significant
environmental impact from this proposed rule.

List of Subjects

46 CFR Part 401

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

46 CFR Part 404

    Great Lakes, Navigation (water), Seamen.

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

PART 401--GREAT LAKES PILOTAGE REGULATIONS

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

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

Sec.  401.220  [Amended]

0
2. Amend Sec.  401.220, by revising the first sentence of paragraph
(a)(3) to read as follows:

Sec.  401.220  Registration of pilots.

    (a) * * *
    (3) The number of pilots needed in each district is calculated by
totaling the area results by district and rounding them up to a whole
integer.* * *
* * * * *

Sec.  401.405  Pilotage Rates and Charges.

0
3. Amend Sec.  401.405 by revising paragraphs (a)(1) through (6) to
read as follows:
    (a) * * *
    (1) The St. Lawrence River is $757;
    (2) Lake Ontario is $428;
    (3) Lake Erie is $566;
    (4) The navigable waters from Southeast Shoal to Port Huron, MI is
$577;
    (5) Lakes Huron, Michigan, and Superior is $335; and
    (6) The St. Marys River is $584.
* * * * *

PART 404--GREAT LAKES PILOTAGE RATEMAKING

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

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

0
5. Amend Sec.  404.2 by adding paragraph (b)(6) to read as follows:

Sec.  404.2  Procedure and criteria for recognizing association
expenses.

* * * * *
    (b) * * *
    (6) Legal Expenses. These association expenses are recognizable
except for any and all expenses associated with legal action against
the U.S. Coast Guard or its agents in relation to the ratemaking and
oversight requirements in 46 U.S.C. 9303, 9304 and 9305.
* * * * *
0
6. Amend Sec.  404.104 by revising paragraph (b) to read as follows:

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

* * * * *
    (b) In an interim year, the Director adjusts the previous year's
individual target pilot compensation level by the Bureau of Labor
Statistics' Employment Cost Index for the Transportation and Materials
sector, or if that is unavailable, the Director adjusts the previous
year's individual target pilot compensation level using a two-step
process:
    (1) First, the Director adjusts the previous year's individual
target pilot by the difference between the previous year's Bureau of
Labor Statistics' Employment Cost Index for the Transportation and
Materials sector and the Federal Open Market Committee median economic
projections for Personal Consumption Expenditures inflation value used
to inflate the previous year's target pilot compensation.
    (2) Second, the Director then adjusts that value by the Federal
Open Market Committee median economic projections for Personal
Consumption Expenditures inflation for the upcoming year.
* * * * *

    Dated: October 16, 2020.
R.V. Timme,
Rear Admiral, U.S. Coast Guard Assistant Commandant for Prevention
Policy.
[FR Doc. 2020-23407 Filed 10-23-20; 8:45 am]
BILLING CODE 9110-04-P