denominator of the revenue needed divided by bridge hours larger, and
therefore making the initial rate lower.

          Table 23--Initial Rate Calculations for District Two
------------------------------------------------------------------------
                  Item                     Undesignated     Designated
------------------------------------------------------------------------
Revenue Needed (Step 6).................      $4,864,527      $4,530,801
Average Time on Task (Hours)............           5,701           5,978
Initial Rate............................            $853            $758
------------------------------------------------------------------------

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 24 and
25.\39\
---------------------------------------------------------------------------

    \39\ See footnote 24 for more information.

                     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 1 (2020)..................................................               1               1               1
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 2 (2020)..................................................             165            1.15          189.75
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 3 (2020)..................................................               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          304.50
Class 4 (2020)..................................................             201            1.45          291.45
                                                                 -----------------------------------------------
    Total.......................................................           4,574  ..............           6,012
----------------------------------------------------------------------------------------------------------------
Average weighting factor (weighted transits/number of transits).  ..............            1.31  ..............
----------------------------------------------------------------------------------------------------------------

                      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 1 (2020)..................................................               7               1               7
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 2 (2020)..................................................             342            1.15           393.3
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 3 (2020)..................................................               5             1.3             6.5
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
Class 4 (2020)..................................................             405            1.45          587.25
                                                                 -----------------------------------------------
    Total.......................................................           4,152  ..............           5,461
----------------------------------------------------------------------------------------------------------------
Average weighting factor (weighted transits/number of transits).  ..............            1.32  ..............
----------------------------------------------------------------------------------------------------------------

I. Step 9: Calculate Revised Base Rates

    In this step, we revise the base rates so that once the impact of
the weighting factors is 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      weighting        average
                                                                     (step 7)      factor (step      weighting
                                                                                8)            factor)
----------------------------------------------------------------------------------------------------------------
District Two: Designated........................................            $758            1.32            $574
District Two: Undesignated......................................             853            1.31             651
----------------------------------------------------------------------------------------------------------------

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. The proposed 2021 rate for the designated area of
District Two is lower than the 2020 final rate because of the increased
traffic shown in Step 7. We propose to modify Sec.  401.405(a)(3) and
(4) 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             $580            $574
                                                 Shoal to Port Huron, MI.
District Two: Undesignated....................  Lake Erie.......................             566             651
----------------------------------------------------------------------------------------------------------------

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.\40\ 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.
---------------------------------------------------------------------------

    \40\ These reports are available in the docket for this
rulemaking (see Docket No. USCG-2019-0736).
---------------------------------------------------------------------------

    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).
    In the 2019 expenses used as the basis for this rulemaking,
districts used the

term ``applicant'' to describe applicant trainees and persons who would
be called apprentices under the new definition proposed in this
rulemaking. Therefore, when describing past expenses, we use the term
``applicant'' to match what was reported from 2019, but use
``apprentice'' to describe the impacts of the ratemaking going forward.
    There are two Director's adjustments for District Three. The first
deduction is $746,802, the amount of surcharge collected in 2019 to
recoup expenses of four applicant pilots, which is greater than the
allowable surcharge of $150,000 per applicant pilot. The second
deduction of $1,921 reduces the allowable expenses for applicant pilots
to 36 percent of target pilot compensation. District Three reported
$520,158 in expenses for the salary of four applicant pilots. Using the
36 percent target, the allowable applicant salary would have been
$129,559 per applicant for a total of $518,237 for four applicant
pilots, meaning the district paid an excess of $1,921 in applicant
salaries ($520,158-$518,237 = $1,921). Applicant salaries (including
applicant trainees and apprentice pilots) will continue to be an
allowable operating expense through the 2024 ratemaking, which uses
operating expenses from 2021 where the wages for apprentice pilots were
still authorized as operating expenses. Starting in the 2025
ratemaking, apprentice pilot salaries would no longer be included as a
2022 operating expense, because apprentice pilot wages would have
already been factored into the ratemaking Steps 3 and 4 in calculation
of the 2022 rates. Starting in 2025, the applicant salaries operating
expenses for 2022 will consist of only applicant trainees (those who
are not apprentice pilots).

                              Table 28--2019 Recognized Expenses for District Three
----------------------------------------------------------------------------------------------------------------
                                                                  District Three
                                                 ------------------------------------------------
                                                   Undesignated     Designated     Undesignated
      Reported operating expenses for 2019       ------------------------------------------------      Total
                                                    Lakes Huron     St. Mary's
                                                   and Michigan        River       Lake Superior
----------------------------------------------------------------------------------------------------------------
Other Pilotage Costs:
    Pilot Subsistence/Travel....................        $274,911        $114,586        $144,207        $533,704
    Hotel/Lodging Cost..........................         118,533          49,406          62,178         230,117
    License Insurance--Pilots...................          16,171           6,740           8,483          31,394
    Payroll Taxes...............................  ..............  ..............  ..............               0
    Payroll Tax (D3-19-01)......................         146,545          61,082          76,871         284,498
    Pilot Training..............................          40,017          16,680          20,991          77,688
    Other.......................................          12,551           5,232           6,584          24,367
                                                 ---------------------------------------------------------------
        Total Other Pilotage Costs..............         608,728         253,726         319,314       1,181,768
Applicant Cost:
    Applicant Salaries..........................         267,933         111,678         140,547         520,158
    Applicant Benefits..........................          77,627          32,356          40,720         150,703
    Applicant Payroll Tax.......................          21,713           9,050          11,390          42,153
                                                 ---------------------------------------------------------------
        Total Applicant Cost....................         367,273         153,084         192,657         713,014
Pilot Boat and Dispatch Costs:
    Pilot Boat Costs............................         415,908         173,356         218,168         807,432
    Dispatch Costs..............................         126,807          52,855          66,518         246,180
    Employee Benefits...........................           7,550           3,147           3,960          14,657
    Payroll Taxes...............................          10,534           4,391           5,526          20,451
                                                 ---------------------------------------------------------------
        Total Pilot Boat and Dispatch Costs.....         560,799         233,749         294,172       1,088,720
Administrative Cost:
    Legal--General Counsel......................           9,453           3,940           4,958          18,351
    Legal--Shared Counsel (K&L Gates)...........          26,858          11,195          14,089          52,142
    Legal--USCG Intervener Litigation...........          19,050           7,940           9,993          36,983
    Office Rent.................................           3,369           1,404           1,767           6,540
    Insurance...................................          27,622          11,513          14,489          53,624
    Employee Benefits...........................          77,435          32,276          40,619         150,330
    Payroll Tax.................................          18,984           7,913           9,958          36,855
    Other Taxes.................................             480             200             252             932
    Depreciation/Auto Leasing/Other.............          51,287          21,377          26,903          99,567
    Interest....................................           5,754           2,398           3,018          11,170
    APA Dues....................................          24,311          10,133          12,752          47,196
    Dues and Subscriptions......................           4,198           1,750           2,202           8,150
    Utilities...................................          38,585          16,083          20,240          74,908
    Salaries....................................          75,200          31,344          39,447         145,991
    Accounting/Professional Fees................          19,865           8,280          10,420          38,565
    Other Expenses..............................          23,945           9,981          12,561          46,487
    CPA Deduction (D3-18-01)....................         (4,117)         (1,716)         (2,160)         (7,993)
                                                 ---------------------------------------------------------------
        Total Administrative Expenses...........         422,279         176,011         221,508         819,798
----------------------------------------------------------------------------------------------------------------
Total Operating Expenses (Other Costs+ Applicant       1,959,079         816,570       1,027,651       3,803,300
 Cost + Pilot Boats + Admin)....................
    Directors Adjustments--Applicant Surcharge         (384,678)       (160,339)       (201,786)       (746,802)
     Collected..................................
    Directors Adjustments--Excess Applicant             (989.36)        (412.38)        (518.98)         (1,921)
     Salary Paid................................
                                                 ---------------------------------------------------------------

        Total Directors Adjustments.............       (385,667)       (160,751)       (202,305)       (748,723)
                                                 ---------------------------------------------------------------
            Total Operating Expenses (OpEx +           1,573,412         655,819         825,346       3,054,577
             Adjustments).......................
----------------------------------------------------------------------------------------------------------------

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

    Having identified the recognized 2019 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 2020 inflation rate.\41\
Because the BLS does not provide forecasted inflation data, we use
economic projections from the Federal Reserve for the 2021 and 2022
inflation modification.\42\ Based on that information, the calculations
for Step 2 are as follows:
---------------------------------------------------------------------------

    \41\ The 2020 inflation rate is available at https://beta.bls.gov/dataViewer/view/timeseries/CUUR0200SA0. Specifically
the CPI is defined as ``All Urban Consumers (CPI-U), All Items,
1982-4 = 100''. (Downloaded April 2021)
    \42\ The 2021 and 2022 inflation rates are available at https://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20210317.pdf. We used the PCE median inflation value
found in table 1. (Downloaded March 24, 2021)

                            Table 29--Adjusted Operating Expenses for District Three
----------------------------------------------------------------------------------------------------------------
                                                                                District Three
                                                                 -----------------------------------------------
                                                                   Undesignated     Designated         Total
----------------------------------------------------------------------------------------------------------------
Total Operating Expenses (Step 1)...............................      $2,398,758        $655,819      $3,054,577
2020 Inflation Modification (@1%)...............................          23,988           6,558          30,546
2021 Inflation Modification (@2.4%).............................          58,146          15,897          74,043
2022 Inflation Modification (@2%)...............................          49,618          13,565          63,183
                                                                 -----------------------------------------------
    Adjusted 2022 Operating Expenses............................       2,530,510         691,839       3,222,349
----------------------------------------------------------------------------------------------------------------

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

    In accordance with the text in Sec.  404.104(c), we estimate the
number of registered pilots in each district. We determine the number
of registered pilots based on data provided by the WGLPA. Using these
numbers, we estimate that there will be 22 registered pilots in 2022 in
District Three. We determine the number of apprentice pilots based on
input from the district on anticipated retirements and staffing needs.
Using these numbers, we estimate that there will be five apprentice
pilots in 2022 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
------------------------------------------------------------------------
                          Item                            District Three
------------------------------------------------------------------------
Proposed Maximum Number of Pilots (per Sec.                           22
 401.220(a)) \43\.......................................
2022 Authorized Pilots (total)..........................              22
Pilots Assigned to Designated Areas.....................               4
Pilots Assigned to Undesignated Areas...................              18
2022 Apprentice Pilots..................................               5
------------------------------------------------------------------------

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

    \43\ 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 issuing an ``interim'' ratemaking this year, we follow
the procedure outlined in paragraph (b) of Sec.  404.104, which adjusts
the existing compensation benchmark by inflation. First, we adjust the
2021 percent target compensation benchmark of $378,925 by 1.8 percent
for an adjusted value of $385,746. The adjustment accounts for the
difference in actual Q4 2020 ECI inflation, 3.5 percent, and the 2020
PCE estimate of 1.7 percent.44 45 The second step accounts
for projected inflation from

2021 to 2022, 2.0 percent.\46\ Based on the projected 2022 inflation
estimate, the proposed compensation benchmark for 2022 is $393,461 per
pilot as shown in table 6. The target apprentice pilot wage is 36
percent of the target pilot compensation, $141,646 (= $393,461 x 0.36).
---------------------------------------------------------------------------

    \44\ Employment Cost Index, Total Compensation for Private
Industry workers in Transportation and Material Moving, Series ID:
CIU2010000520000A.
    \45\ CPI for All Urban Consumers, Series ID CUUR0200SA0.
    \46\ https://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20210317.pdf.
---------------------------------------------------------------------------

    Next, we certify that the number of pilots estimated for 2022 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 22 pilots
for District Three, which is less than or equal to 22, the number of
registered pilots provided by the pilot associations.\47\
---------------------------------------------------------------------------

    \47\ 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.......................................        $393,461        $393,461        $393,461
Number of Pilots................................................              18               4              22
                                                                 -----------------------------------------------
    Total Target Pilot Compensation.............................      $7,082,298      $1,573,844      $8,656,142
Target Apprentice Pilot Wage....................................        $141,646        $141,646        $141,646
Number of Apprentice Pilots.....................................  ..............  ..............               5
                                                                 -----------------------------------------------
    Total Target Apprentice Pilot Wages.........................        $424,938        $283,292     $708,229.80
----------------------------------------------------------------------------------------------------------------

E. Step 5: Project Working Capital Fund

    Next, we calculate the working capital fund revenues needed for
each area. First, we add the figures for projected operating expenses,
total pilot compensation, and total target apprentice pilot wages for
each area. Next, we find the preceding year's average annual rate of
return for new issues of high-grade corporate securities. Using Moody's
data, the number is 2.4767 percent.\48\ By multiplying the two figures,
we obtain the working capital fund contribution for each area, as shown
in table 32.
---------------------------------------------------------------------------

    \48\ Moody's Seasoned Aaa Corporate Bond Yield, average of 2020
monthly data. The Coast Guard uses the most recent year of complete
data. Moody's is taken from Moody's Investors Service, which is a
bond credit rating business of Moody's Corporation. Bond ratings are
based on creditworthiness and risk. The rating of ``Aaa'' is the
highest bond rating assigned with the lowest credit risk. See
https://fred.stlouisfed.org/series/AAA. (March 26, 2021)

                          Table 32--Working Capital Fund Calculation for District Three
----------------------------------------------------------------------------------------------------------------
                                                                                District Three
                                                                 -----------------------------------------------
                                                                   Undesignated     Designated         Total
----------------------------------------------------------------------------------------------------------------
Adjusted Operating Expenses (Step 2)............................      $2,530,510        $691,839      $3,222,349
Total Target Pilot Compensation (Step 4)........................       7,082,298       1,573,844       8,656,142
Total Target Apprentice Pilot Wages (Step 4)....................         424,938         283,292         708,230
                                                                 -----------------------------------------------
    Total 2022 Expenses.........................................      10,037,746       2,548,975      12,586,721
----------------------------------------------------------------------------------------------------------------
Working Capital Fund (2.48%)....................................         248,602          63,130         311,732
----------------------------------------------------------------------------------------------------------------

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)............................      $2,530,510        $691,839      $3,222,349
Total Target Pilot Compensation (Step 4)........................       7,082,298       1,573,844       8,656,142
Total Target Apprentice Pilot Wages (Step 4)....................         424,938         283,292         708,230
Working Capital Fund (Step 5)...................................         248,602          63,130         311,732
                                                                 -----------------------------------------------
    Total Revenue Needed........................................      10,286,348       2,612,105      12,898,453
----------------------------------------------------------------------------------------------------------------

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.\49\ Because
we calculate separate figures for designated and undesignated waters,
there are two parts for each calculation. We show these values in table
34.
---------------------------------------------------------------------------

    \49\ See footnote 22 for more information.

                Table 34--Time on Task for District Three
                                 [Hours]
------------------------------------------------------------------------
                                                  District Three
                  Year                   -------------------------------
                                           Undesignated     Designated
------------------------------------------------------------------------
2020....................................          24,178           3,682
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
                                         -------------------------------
    Average.............................          21,106           2,930
------------------------------------------------------------------------

    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).................     $10,287,977      $2,612,550
Average Time on Task (Hours)............          21,106           2,930
Initial Rate............................             487             891
------------------------------------------------------------------------

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.\50\
---------------------------------------------------------------------------

    \50\ See footnote 23 for more information.

                    Table 36--Average Weighting Factor for District Three, Undesignated Areas
----------------------------------------------------------------------------------------------------------------
                                                                     Number of       Weighting       Weighted
                        Vessel class/year                            transits         factor         transits
----------------------------------------------------------------------------------------------------------------
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 1 (2020)..................................................               4               1               4
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 2 (2020)..................................................             395            1.15          454.25
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 3 (2020)..................................................               4             1.3             5.2

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
Class 4 (2020)..................................................             413            1.45          598.85
                                                                 -----------------------------------------------
    Total for Area 6............................................           5,115  ..............           6,559
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 1 (2020)..............................................               1               1               1
    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 2 (2020)..............................................             239            1.15          274.85
    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 3 (2020)..............................................               2             1.3             2.6
    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
    Class 4 (2020)..............................................             456            1.45           661.2
                                                                 -----------------------------------------------
    Total for Area 8............................................           3,054  ..............           4,077
                                                                 -----------------------------------------------
        Combined total..........................................           8,169  ..............       10,636.05
----------------------------------------------------------------------------------------------------------------
Average weighting factor (weighted transits/number of transits).  ..............            1.30  ..............
----------------------------------------------------------------------------------------------------------------

                     Table 37--Average Weighting Factor for District Three, Designated Areas
----------------------------------------------------------------------------------------------------------------
                                                                     Number of       Weighting       Weighted
                        Vessel class/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 1 (2020)..................................................              16               1              16
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 2 (2020)..................................................             250            1.15           287.5
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 3 (2020)..................................................               4             1.3             5.2

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
Class 4 (2020)..................................................             385            1.45          558.25
                                                                 -----------------------------------------------
    Total.......................................................           3,469  ..............           4,526
----------------------------------------------------------------------------------------------------------------
Average weighting factor (weighted transits/number of transits).  ..............            1.30  ..............
----------------------------------------------------------------------------------------------------------------

I. Step 9: Calculate Revised Base Rates

    In this step, we revise the base rates so that once the impact of
the weighting factors is 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      weighting
                                                                                8)            factor)
----------------------------------------------------------------------------------------------------------------
District Three: Designated......................................            $891            1.30            $685
District Three: Undesignated....................................             487            1.30             375
----------------------------------------------------------------------------------------------------------------

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 Sec.  401.405(a)(5) and (6) 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.................            $586            $685
District Three: Undesignated..................  Lakes Huron, Michigan, and                   337             375
                                                 Superior.
----------------------------------------------------------------------------------------------------------------

VIII. 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.
    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. A
regulatory analysis (RA) follows. The purpose of this proposed rule is
to establish new base pilotage rates, as 46 U.S.C. 9303(f) requires
that rates be established or reviewed and adjusted each year. The
statute also requires that base rates be established by a full
ratemaking at least once every 5 years, and in years when base rates
are not established, they must be reviewed and, if necessary, adjusted.
The last full ratemaking was concluded in June of 2018.\51\ For this
ratemaking, the Coast Guard estimates an increase in cost of
approximately $3.53 million to industry, an approximate 12-percent
increase, because of the change in revenue needed in 2022 compared to
the revenue needed in 2021.
---------------------------------------------------------------------------

    \51\ 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
----------------------------------------------------------------------------------------------------------------
Add a definition of apprentice    Distinguishes       Owners and          No cost, strictly   Provides clarity
 pilot.                            between             operators of 293    a definitional      by distinguishing
                                   applicants who      vessels             change.             apprentice pilots
                                   have not yet        transiting the                          from applicant
                                   entered training    Great Lakes                             trainees when
                                   and apprentices,    system annually,                        calculating the
                                   persons approved    56 U.S. Great                           apprentice pilot
                                   and certified by    Lakes pilots, 9                         operating
                                   the Director who    apprentice                              expenses,
                                   are participating   pilots, and 3                           estimates and
                                   in an approved      pilotage                                wage benchmark.
                                   U.S. Great Lakes    associations.
                                   pilot training
                                   and qualification
                                   program and meet
                                   all the minimum
                                   requirements
                                   listed in 46 CFR
                                   401.211.
Changes to staffing model.......  The Coast Guard is  Owners and          The total number    Rounding up in the
                                   proposing to        operators of 293    of pilots is        staffing model
                                   modify the          vessels             accounted for in    accounts for
                                   staffing model at   transiting the      the base pilotage   extra staff or
                                   46 CFR              Great Lakes         rates. For the      extra time spent
                                   401.220(a)(3) to    system annually,    2022 ratemaking,    by the pilot
                                   round up to the     56 U.S. Great       this proposed       associations
                                   nearest integer,    Lakes pilots, 9     change would        presidents not
                                   as opposed to the   apprentice          allow for two       performing
                                   existing method,    pilots, and 3       additional pilots   pilotage service.
                                   which rounds to     pilotage            that would not      Rounding up
                                   the nearest         associations.       have otherwise      allows us to
                                   integer. In                             been allowed.       account for this
                                   total, this would                       This increases      time and promote
                                   increase the                            the total revenue   safety and
                                   maximum number of                       needed by           restorative rest,
                                   allowable pilots                        $773,281.           while minimizing
                                   by 2, adding one                                            delays in
                                   pilot to each of                                            providing
                                   the undesignated                                            pilotage
                                   areas of District                                           services.
                                   One and District
                                   Two.
Adding number of apprentice       The Coast Guard is  Owners and          Total cost of       Setting a target
 pilots to Step 3 and setting      proposing to        operators of 293    $1,274,814 for      wage of 36% of
 target apprentice pilot wage in   modify the          vessels             the wages of 9      registered pilot
 Step 4.                           staffing model at   transiting the      apprentice pilots   compensation
                                   46 CFR 404.103 to   Great Lakes         for the 2022        better matches
                                   predict the         system annually,    season. This        changes in
                                   number of           56 U.S. Great       amount is           registered pilot
                                   apprentice pilots   Lakes pilots, 9     incorporated into   compensation and
                                   each district       apprentice          the rate increase.  inflation and
                                   would need for      pilots, and 3                           more evenly
                                   the next season.    pilotage                                distributes the
                                   46 CFR 404.103      associations.                           additional cost
                                   would establish                                             of apprentice
                                   the target                                                  pilots compared
                                   apprentice pilot                                            to the surcharge
                                   wage at 36% of                                              method.
                                   registered pilot
                                   compensation for
                                   that year.
----------------------------------------------------------------------------------------------------------------

                               Table 41--Economic Impacts Due to Proposed Changes
----------------------------------------------------------------------------------------------------------------
                                                           Affected
             Change                   Description         population             Costs             Benefits
----------------------------------------------------------------------------------------------------------------
Rate and surcharge changes......  In accordance with  Owners and          Increase of         New rates cover an
                                   46 U.S.C. Chapter   operators of 293    $3,527,425 due to   association's
                                   93, the Coast       vessels             change in revenue   necessary and
                                   Guard is required   transiting the      needed for 2022     reasonable
                                   to review and       Great Lakes         ($33,860,077)       operating
                                   adjust base         system annually,    from revenue        expenses.
                                   pilotage rates      56 U.S. Great       needed for 2021     Promotes safe,
                                   annually.           Lakes pilots, 9     ($30,332,652), as   efficient, and
                                                       apprentice          shown in table 42.  reliable pilotage
                                                       pilots, and 3                           service on the
                                                       pilotage                                Great Lakes.
                                                       associations.                           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 2022 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 result
would be an increase in rates for all areas in Districts One and Three
and the undesignated area of District Two. The rate for the designated
area of District Two would decrease. These changes would 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.
    A detailed discussion of our economic impact analysis follows.
Affected Population
    This rule would affect U.S. Great Lakes pilots, the 3 pilot
associations, and the owners and operators of 293 oceangoing vessels
that transit the Great Lakes annually. We estimate that there would be
56 registered pilots and 9 apprentice pilots during the 2022 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 2018
through 2020 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 514 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 or SeaPro. Of these vessels, 465
were foreign-flagged vessels and 49 were U.S.-flagged vessels. As
stated previously, 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 2018 through 2020 as the best representation of
vessels estimated to be affected by the rates in this rulemaking. From
2018 through 2020, an average of 293 vessels used pilotage services
annually.\52\ On average, 275 of these vessels were foreign-flagged
vessels and 19 were U.S.-flagged vessels that voluntarily opted into
the pilotage service.
---------------------------------------------------------------------------

    \52\ 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 increase 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 2021 with the total projected revenues to cover costs in 2022,
including any temporary surcharges we have authorized.\53\ 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.
---------------------------------------------------------------------------

    \53\ While the Coast Guard implemented a surcharge in 2019, we
are not proposing any surcharges for 2022.
---------------------------------------------------------------------------

    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 2022 shipping
season, the projected revenue needed for all three districts is
$33,860,077.
    To estimate the change in cost to shippers from this rule, the
Coast Guard compared the 2022 total projected revenues to the 2021
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 2021
rulemaking, we estimated the total projected revenue needed for 2021 as
$30,332,652.\54\ This is the best approximation of 2021 revenues, as at
the time of this publication the Coast Guard does not have enough
audited data available for the 2021 shipping season to revise these
projections.\55\ Table 42 shows the revenue projections for 2021 and
2022 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.
---------------------------------------------------------------------------

    \54\ 85 FR 20088, see table 41.
    \55\ The proposed rates for 2021 do not account for the impacts
COVID-19 may have had on shipping traffic and subsequently pilotage
revenue, as we do not have complete data for 2020. The rates for
2022 will take into account for all and any pertinent impacts 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 2021         in 2022      proposed rule
----------------------------------------------------------------------------------------------------------------
Total, District One.............................................     $10,620,941     $11,566,297        $945,356
Total, District Two.............................................       8,506,705       9,395,327         888,622
Total, District Three...........................................      11,205,006      12,898,453       1,693,447
                                                                 -----------------------------------------------
    System Total................................................      30,332,652      33,860,077       3,527,425
----------------------------------------------------------------------------------------------------------------

    The resulting difference between the projected revenue in 2021 and
the projected revenue in 2022 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 $945,356 over the previous
year. District Two and District Three would experience an increase in
payments of $888,622 and $1,693,447, respectively, when compared with
2021. The overall adjustment in payments would be an increase in
payments by shippers of $3,527,425 across all three districts (a 12-
percent increase when compared with 2021). 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
2021 to 2022 and presents each revenue-component as a percentage of the
total revenue needed. In both 2021 and 2022, the largest revenue-
component was pilotage compensation (71 percent of total revenue needed
in 2021 and 65 percent of total revenue needed in 2022), followed by
operating expenses (26 percent of total revenue needed in 2021 and 29
percent of total revenue needed in 2022).

                                                      Table 43--Difference in Revenue by Component
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                         Percentage of                   Percentage of  Difference (2022    Percentage
                   Revenue-component                    Revenue needed   total revenue  Revenue needed   total revenue    revenue- 2021     change from
                                                            in 2021     needed in 2021      in 2022     needed in 2022      revenue)       previous year
--------------------------------------------------------------------------------------------------------------------------------------------------------
Adjusted Operating Expenses...........................      $8,876,850              29      $9,733,112              29          $856,262              10
Total Target Pilot Compensation.......................      20,461,950              67      22,033,816              65         1,571,866               8
Total Target Apprentice Pilot Wages...................  ..............  ..............       1,274,814               4         1,274,814  ..............
Working Capital Fund..................................         993,852               3         818,335               2         (175,517)            (18)
                                                       -------------------------------------------------------------------------------------------------
    Total Revenue Needed..............................      30,332,652             100      33,860,077             100         3,527,425              12
--------------------------------------------------------------------------------------------------------------------------------------------------------
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 $3,527,425. This represents
an increase in revenue needed for target pilot compensation of
$1,571,866, the now-codified revenue needed for total apprentice pilot
wages of $1,274,814, and an increase in the revenue needed for adjusted
operating expenses of $856,262 and a decrease in the revenue needed for
the working capital fund of ($175,517).
    The majority of the increase in revenue needed, $1,571,866, is the
result of changes to target pilot compensation. These changes are due
to three factors: (1) The proposed changes to adjust 2021 pilotage
compensation to account for the difference between actual ECI inflation
(3.5 percent) \56\ and predicted PCE inflation (1.7 percent) \57\ for
2021; (2) the net addition of two additional pilots; and (3) inflation
of pilotage compensation in step 2 of the methodology using CPI from
2019 and predicted inflation through 2022.
---------------------------------------------------------------------------

    \56\ https://www.bls.gov/news.release/archives/eci_01292021.htm.
    \57\ https://www.federalreserve.gov/monetarypolicy/fomcprojtabl20201216.htm.
---------------------------------------------------------------------------

    The proposed target compensation is $393,461 per pilot in 2022,
compared to $378,925 in 2021. The proposed changes to modify the 2020
pilot compensation to account for the difference between predicted and
actual inflation would increase the 2021 target compensation value by
1.8 percent. As shown in table 44, this inflation adjustment would
increase total compensation by $6,821 per pilot, and the total revenue
needed by $381,956 when accounting for all 56 pilots.

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

------------------------------------------------------------------------
2021 target compensation................................        $378,925
Adjusted 2021 Compensation ($378,925 x 1.018)...........         385,746
Difference between Target 2021 Compensation and Adjusted           6,821
 Target 2021 Compensation ($385,746-$378,925)...........
Increase in Total Revenue for 56 Pilots ($6,821 x 56)...         381,956
------------------------------------------------------------------------

    Adjusting rounding in the staffing model to always round up, rather
than round to the nearest integer, would add an additional pilot to the
undesignated areas of District One and District Two. The proposed
addition of two fully registered pilots accounts for $773,281 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 2021 pilotage compensation to account for the
difference between actual and predicted inflation.

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

------------------------------------------------------------------------
2022 Target Compensation................................        $393,461
Total Number of New Pilots..............................               2
Total Cost of New Pilots ($393,461 x 2).................        $786,922
Difference between Adjusted Target 2021 Compensation and          $6,821
 Target 2021 Compensation ($378,925-$385,746)...........
Increase in Total Revenue for 2 Pilots ($6,821 x 2).....         $13,641
Net Increase in Total Revenue for 2 Pilots ($786,922-           $773,281
 $13,641)...............................................
------------------------------------------------------------------------

    Another proposed increase, $432,060, is the result of increasing
compensation for the 56 pilots to account for future inflation of 2.0
percent in 2022. This would increase total compensation by $7,715 per
pilot, as shown in table 46.

 Table 46--Change in Revenue Resulting From Inflating 2021 Compensation
                                 to 2022
------------------------------------------------------------------------

------------------------------------------------------------------------
Adjusted 2021 Compensation..............................        $385,746
2022 Target Compensation ($385,746 x 1.02)..............         393,461
Difference between Adjusted 2021 Compensation and Target           7,715
 2022 Compensation ($393,461-$385,746)..................
Increase in Total Revenue for 56 Pilots ($7,715 x 56)...         432,060
------------------------------------------------------------------------

    Finally, the second-largest part of the increase in revenue needed
would be to account for the target apprentice pilot wage, now
incorporated into the rate. First, in Step 3, we estimate the need for
9 apprentice pilots for the 2022 shipping season. Based on the 2022
target pilot compensation of $393,461, the target apprentice pilot wage
would be $141,646 ($393,461 x 0.36 = $141,646). Setting the target in
this manner, rather than through a surcharge, better allows apprentice
pilot wages to match fluctuations in the pilot wage, which follows
changes in traffic and better accounts for changes in inflation than
the surcharge. Additionally, unlike a surcharge, this method will not
need to be ``turned off,'' which makes rates throughout the season more
predictable for shippers. The total cost of wages for the 9 apprentice
pilots would be $1,274,814, as shown in table 47.
---------------------------------------------------------------------------

    \58\ The 2020 projected revenues are from the Great Lakes
Pilotage Rate--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 NPRM.

Table 47--Change in Revenue Resulting From Target Apprentice Pilot Wages
------------------------------------------------------------------------

------------------------------------------------------------------------
2022 Target Apprentice Pilot Wage.......................        $141,646
Total Number of Apprentice Pilots.......................               9
Total Cost of Apprentice Pilots ($141,646 x 9)..........      $1,274,814
------------------------------------------------------------------------

    Table 48 presents the percentage change in revenue by area and
revenue-component, excluding surcharges, as they are applied at the
district level.\58\

                                                                                Table 48--Difference in Revenue by Component and Area
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                      Adjusted operating expenses          Total target pilot compensation        Total              Working capital fund                   Total revenue needed
                                                                ------------------------------------------------------------------------------    target   -----------------------------------------------------------------------------
                                                                                apprentice
                                                                                Percentage                             Percentage   pilot wage                             Percentage                             Percentage
                                                                     2021         2022        change        2021         2022        change   -------------     2021         2022        change        2021         2022        change
                                                                                2022
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
District One: Designated.......................................   $2,328,981   $2,352,634            1   $3,789,250   $4,104,585            8     $169,975     $207,255     $159,924         (30)   $6,325,486   $6,617,143            4
District One: Undesignated.....................................    1,502,239    1,568,537            4    2,652,475    3,261,005           19      113,317      140,741      119,612         (18)    4,295,455    4,949,154           13
District Two: Undesignated.....................................    1,003,961    1,035,837            3    3,031,400    3,711,124           18      169,975      136,698      117,566         (16)    4,172,059    4,864,527           14
District Two: Designated.......................................    1,540,146    1,553,756            1    2,652,475    2,867,544            8      113,317      142,025      109,501         (30)    4,334,646    4,530,801            4
District Three: Undesignated...................................    1,947,484    2,530,510           23    6,820,650    7,507,236            9      424,938      297,021      248,602         (19)    9,065,155   10,286,348           12
District Three: Designated.....................................      554,039      691,839           20    1,515,700    1,857,136           18      283,292       70,112       63,130         (11)    2,139,851    2,612,105           18
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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 \59\ and ReferenceUSA.\60\ As described in
section VIII.A of this preamble, Regulatory Planning and Review, we
found that 513 unique vessels used pilotage services during the years
2018 through 2020. These vessels are owned by 58 entities, of which 44
are foreign entities that operate primarily outside the United States
and the remaining 14 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.\61\ Table 49
shows the North American Industry Classification System (NAICS) codes
of the U.S. entities and the small entity standard size established by
the SBA.
---------------------------------------------------------------------------

    \59\ See https://www.manta.com/.
    \60\ See https://resource.referenceusa.com/.
    \61\ 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 49--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 14 U.S. entities, 7 exceed the SBA's small business
standards for small entities. To estimate the potential impact on the
seven small entities, the Coast Guard used their 2020 invoice data to
estimate their pilotage costs in 2022. Of the seven entities from 2018
to 2020, only three used pilotage services in 2020. We increased their
2020 costs to account for the changes in pilotage rates resulting from
this proposed rule and the Great Lakes Pilotage Rates--2021 Annual
Review and Revisions to Methodology final rule (86 FR 14184). We
estimated the change in cost to these entities resulting from this
proposed rule by subtracting their estimated 2021 costs from their
estimated 2022 costs and found the average costs to small firms would
be approximately $16,072, with a range of $607 to $70,853.\62\ We then
compared the estimated change in pilotage costs between 2021 and 2022
with each firm's annual revenue. In all cases, their estimated pilotage
expenses were below 1 percent of their annual revenue.
---------------------------------------------------------------------------

    \62\ One company had a particularly disproportionate impact
because its vessel operated in all three districts. The impact for
that company was more than 15 times greater than the next smallest
company.
---------------------------------------------------------------------------

    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 proposed rule.
We also did not find any small governmental jurisdictions with
populations of fewer than 50,000 people that would be impacted by this
proposed 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 three 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 call or email 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

    This proposed rule would call for no new collection of information
under the Paperwork Reduction Act of 1995, 44 U.S.C. 3501-3520.

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, 46 U.S.C. Chapter 93 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 (e.g.,
specifications of materials, performance, design, or operation; test
methods; sampling procedures; and related management systems practices)
that are developed or adopted by voluntary consensus standards bodies.
    This proposed rule does not use technical standards. Therefore, we
did not consider the use of voluntary consensus standards. 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
one of the methods listed in the ADDRESSES section of this preamble.

M. Environment

    We have analyzed this proposed rule under DHS Management Directive
023-01, Rev. 1, 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.
For instructions on locating the docket, see the ADDRESSES section 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.\63\ 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.
---------------------------------------------------------------------------

    \63\ 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 is revised to read as follows:

    Authority: 46 U.S.C. 2103, 2104(a), 6101, 7701, 8105, 9303,
9304; DHS Delegation 00170.1, Revision No. 01.2, paragraphs
(II)(92)(a), (d), (e), (f).

0
2. Amend Sec.  401.110 by adding paragraphs (a)(18) and (19) to read as
follows:

Sec.  401.110   Definitions.

    (a) * * *
    (18) Apprentice Pilot means a person approved and certified by the
Director who is participating in an approved U.S. Great Lakes pilot
training and qualification program. This individual meets all the
minimum requirements listed in 46 CFR 401.211. This definition is only
applicable to determining which pilots may be included in the operating
expenses, estimates, and wage benchmark in Sec. Sec.  404.2(b)(7),
404.103(b), and 404.104(d) and (e).
    (19) Limited Registration is a certificate issued by the Director,
upon the request of the respective pilots association, to an Apprentice
Pilot to provide pilotage service without direct supervision from a
fully registered pilot in a specific area or waterway.
0
3. 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. * * *
* * * * *
0
4. Amend Sec.  401.405 by revising paragraphs (a)(1) through (6) to
read as follows:

Sec.  401.405  Pilotage rates and charges.

    (a) * * *
    (1) The St. Lawrence River is $818;
    (2) Lake Ontario is $557;
    (3) Lake Erie is $651;
    (4) The navigable waters from Southeast Shoal to Port Huron, MI is
$574;
    (5) Lakes Huron, Michigan, and Superior is $375; and
    (6) The St. Marys River is $685.
* * * * *

PART 404--GREAT LAKES PILOTAGE RATEMAKING

0
5. The authority citation for part 404 is revised to read as follows:

    Authority: 46 U.S.C. 2103, 2104(a), 9303, 9304; DHS Delegation
00170.1, Revision No. 01.2, paragraphs (II)(92)(a), (f).

0
6. Amend Sec.  404.2 by adding paragraph (b)(7) to read as follows:

Sec.  404.2  Procedure and criteria for recognizing association
expenses.

* * * * *
    (b) * * *
    (7) Apprentice Pilot Expenses. The association's expenses for
Apprentice Pilots with limited registrations, such as health care,
travel expenses, training, and other expenses are recognizable when
determined to be necessary and reasonable.
* * * * *
0
7. Amend Sec.  404.103 as follows:
0
a. Revise the section heading;
0
b. Redesignate the introductory text as paragraph (a); and
0
c. Add new paragraph (b).
    The revisions and additions read as follows:

Sec.  404.103  Ratemaking step 3: Estimate number of registered pilots
and apprentice pilots.

* * * * *
    (b) The Director projects, based on the number of persons applying
under 46 CFR part 401 to become apprentice pilots, traffic projections,
information provided by the pilotage association regarding upcoming
retirements, and any other relevant data, the number of apprentice
pilots with limited registrations expected to be in training and
compensated.
0
8. Amend Sec.  404.104 as follows:
0
a. Revise the section heading; and
0
b. Add new paragraphs (d) and (e).
    The revisions and additions read as follows:

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

* * * * *
    (d) The Director determines the individual apprentice pilot wage
benchmark at the rate of 36 percent of the individual target pilot
compensation, as calculated according to paragraphs (a) or (b) of this
section.
    (e) The Director determines each pilot association's total
apprentice pilot wage benchmark by multiplying the apprentice pilot
compensation computed in paragraph (d) of this section by the number of
apprentice pilots with limited registrations projected under Sec.
404.103(b).
* * * * *

    Dated: September 3, 2021.
J.W. Mauger,
Rear Admiral, U.S. Coast Guard, Assistant Commandant for Prevention
Policy.
[FR Doc. 2021-19570 Filed 9-13-21; 8:45 am]
BILLING CODE 9110-04-P