[Federal Register Volume 84, Number 210 (Wednesday, October 30, 2019)]
[Proposed Rules]
[Pages 58099-58125]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-23510]
[[Page 58099]]
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DEPARTMENT OF HOMELAND SECURITY
Coast Guard
46 CFR Parts 401, 403, and 404
[USCG-2019-0736]
RIN 1625-AC56
Great Lakes Pilotage Rates--2020 Annual Review and Revisions to
Methodology
AGENCY: Coast Guard, DHS.
ACTION: Notice of proposed rulemaking.
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SUMMARY: In accordance with the Great Lakes Pilotage Act of 1960, the
Coast Guard is proposing new base pilotage rates for the 2020 shipping
season. This proposed rule would adjust the pilotage rates to account
for changes in district operating expenses, an increase in the number
of pilots, and anticipated inflation. The net result of decreased
operating expenses for the associations compared to the previous year,
inflation of pilot compensation, and the addition of one working pilot
at the beginning of the 2020 shipping season is a 3 percent increase in
pilotage rates. In addition, the Coast Guard is not proposing any
surcharges for the 2020 shipping season, which would result in a 1
percent net decrease in pilotage costs compared to the 2019 season,
when combined with the changes above. The Coast Guard is also proposing
to clarify the rules related to the working capital fund.
DATES: Comments and related material must be received by the Coast
Guard on or before November 29, 2019.
ADDRESSES: You may submit comments identified by docket number USCG-
2019-0736 using the Federal eRulemaking Portal at https://www.regulations.gov. See the ``Public Participation and Request for
Comments'' portion of the SUPPLEMENTARY INFORMATION section for further
instructions on submitting comments.
FOR FURTHER INFORMATION CONTACT: For information about this document,
call or email Mr. Brian Rogers, Commandant (CG-WWM-2), Coast Guard;
telephone 202-372-1535, email [email protected], or fax 202-372-
1914.
SUPPLEMENTARY INFORMATION:
Table of Contents for Preamble
I. Public Participation and Request for Comments
II. Abbreviations
III. Executive Summary
IV. Basis and Purpose
V. Background
VI. Discussion of Proposed Methodological and Other Changes
VII. Discussion of Proposed Rate Adjustment
District One:
A. Step 1: Recognize Previous Operating Expenses
B. Step 2: Project Operating Expenses, Adjusting for Inflation
or Deflation
C. Step 3: Estimate Number of Working Pilots
D. Step 4: Determine Target Pilot Compensation Benchmark
E. Step 5: Project Working Capital Fxund
F. Step 6: Project Needed Revenue
G. Step 7: Calculate Initial Base Rates
H. Step 8: Calculate Average Weighting Factors by Area
I. Step 9: Calculate Revised Base Rates
J. Step 10: Review and Finalize Rates
District Two:
A. Step 1: Recognize Previous Operating Expenses
B. Step 2: Project Operating Expenses, Adjusting for Inflation
or Deflation
C. Step 3: Estimate Number of Working Pilots
D. Step 4: Determine Target Pilot Compensation Benchmark
E. Step 5: Project Working Capital Fund
F. Step 6: Project Needed Revenue
G. Step 7: Calculate Initial Base Rates
H. Step 8: Calculate Average Weighting Factors by Area
I. Step 9: Calculate Revised Base Rates
J. Step 10: Review and Finalize Rates
District Three:
A. Step 1: Recognize Previous Operating Expenses
B. Step 2: Project Operating Expenses, Adjusting for Inflation
or Deflation
C. Step 3: Estimate Number of Working Pilots
D. Step 4: Determine Target Pilot Compensation Benchmark
E. Step 5: Project Working Capital Fund
F. Step 6: Project Needed Revenue
G. Step 7: Calculate Initial Base Rates
H. Step 8: Calculate Average Weighting Factors by Area
I. Step 9: Calculate Revised Base Rates
J. Step 10: Review and Finalize Rates
K. Surcharges
VIII. Regulatory Analyses
A. Regulatory Planning and Review
B. Small Entities
C. Assistance for Small Entities
D. Collection of Information
E. Federalism
F. Unfunded Mandates
G. Taking of Private Property
H. Civil Justice Reform
I. Protection of Children
J. Indian Tribal Governments
K. Energy Effects
L. Technical Standards
M. Environment
I. Public Participation and Request for Comments
The Coast Guard views public participation as essential to
effective rulemaking, and will consider all comments and material
received during the comment period. Your comment can help shape the
outcome of this rulemaking. If you submit a comment, please include the
docket number for this rulemaking, indicate the specific section of
this document to which each comment applies, and provide a reason for
each suggestion or recommendation.
We encourage you to submit comments through the Federal eRulemaking
Portal at https://www.regulations.gov. If you cannot submit your
material by using https://www.regulations.gov, call or email the person
in the FOR FURTHER INFORMATION CONTACT section of this proposed rule
for alternate instructions. Documents mentioned in this proposed rule,
and all public comments, will be available in our online docket at
https://www.regulations.gov, and can be viewed by following that
website's instructions. Additionally, if you visit the online docket
and sign up for email alerts, you will be notified when comments are
posted or if a final rule is published.
We accept anonymous comments. All comments received will be posted
without change to https://www.regulations.gov and will include any
personal information you have provided. For more about privacy and
submissions in response to this document, see DHS's Correspondence
System of Records notice (84 FR 48645, September 26, 2018)..
We do not plan to hold a public meeting, but we will consider doing
so if public comments indicate a meeting would be helpful. We would
issue a separate Federal Register notice to announce the date, time,
and location of such a meeting.
II. Abbreviations
AMOU American Maritime Officers Union
APA American Pilots Association
BLS Bureau of Labor Statistics
CAD Canadian dollars
CFR Code of Federal Regulations
CPA Certified public accountant
CPI Consumer Price Index
DHS Department of Homeland Security
FOMC Federal Open Market Committee
FR Federal Register
GLPA Great Lakes Pilotage Authority (Canadian)
GLPAC Great Lakes Pilotage Advisory Committee
GLPMS Great Lakes Pilotage Management System
NAICS North American Industry Classification System
NPRM Notice of proposed rulemaking
NTSB National Transportation Safety Board
OMB Office of Management and Budget
PCE Personal Consumption Expenditures
RA Regulatory analysis
SBA Small Business Administration
Sec. Section symbol
SLSMC Saint Lawrence Seaway Management Corporation
U.S.C. United States Code
USD United States dollars
[[Page 58100]]
III. Executive Summary
Pursuant to the Great Lakes Pilotage Act of 1960 (``the Act''),\1\
the Coast Guard regulates pilotage for oceangoing vessels on the Great
Lakes and St. Lawrence Seaway -- including setting the rates for
pilotage services and adjusting them on an annual basis. The rates,
which currently range from $306 to $733 per pilot hour (depending on
which of the specific six areas pilotage service is provided), are paid
by shippers to pilot associations. The three pilot associations, which
are the exclusive U.S. source of registered pilots on the Great Lakes,
use this revenue to cover operating expenses, maintain infrastructure,
compensate working pilots, and train new pilots. We use a ratemaking
methodology that we have developed since 2016 in accordance with our
statutory requirements and regulations. Our ratemaking methodology
calculates the revenue needed for each pilotage association (including
operating expenses, compensation, and infrastructure needs), and then
divides that amount by the expected shipping traffic over the course of
the coming year to produce an hourly rate. This process is currently
effected through a 10-step methodology which is explained in detail in
this notice of proposed rulemaking (NPRM).
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\1\ Title 46 of the United States Code (U.S.C.) Chapter 93;
Public Law 86-555, 74 Stat. 259, as amended.
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In this NPRM, as part of our annual review, we are proposing new
pilotage rates for 2020 based on the existing methodology. The result
is an increase in rates for four areas, and a decrease in rates for the
remaining two areas. These changes are due to a combination of four
factors: (1) Decreased total operating expenses for the associations
compared to the previous year,\2\ (2) an increase in the amount of
money needed for the working capital fund, (3) inflation of pilot
compensation by 2 percent, and (4) the net addition of one working
pilot at the beginning of the 2020 shipping season in District Two.
Based on the ratemaking model discussed in this NPRM, we are proposing
the rates shown in Table 1.
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\2\ Operating expenses decreased for the District One:
Undesignated area and all of District Two. They increased for the
District One: Designated area and all of District Three.
Table 1--Current and Proposed Pilotage Rates on the Great Lakes
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Final 2019 Proposed 2020
Area Name pilotage rate pilotage rate
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District One: Designated..................... St. Lawrence River............. $733 $757
District One: Undesignated................... Lake Ontario................... 493 462
District Two: Designated..................... Navigable waters from Southeast 603 602
Shoal to Port Huron, MI.
District Two: Undesignated................... Lake Erie...................... 531 573
District Three: Designated................... St. Mary's River............... 594 621
District Three: Undesignated................. Lakes Huron, Michigan, and 306 327
Superior.
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This proposed rule would impact 52 U.S. Great Lakes pilots, 3 pilot
associations, and the owners and operators of an average of 266
oceangoing vessels that transit the Great Lakes annually. This proposed
rule is not economically significant under Executive Order 12866 and
would not affect the Coast Guard's budget or increase Federal spending.
The estimated overall annual regulatory economic impact of this rate
change is a net decrease of $225,658 in estimated payments made by
shippers from the 2019 shipping season. Because the Coast Guard must
review, and, if necessary, adjust rates each year, we analyze these as
single-year costs and do not annualize them over 10 years. Section VIII
of this preamble provides the regulatory impact analyses of this
proposed rule.
IV. Basis and Purpose
The legal basis of this rulemaking is the Great Lakes Pilotage Act
of 1960 (``the Act''),\3\ which requires foreign vessels and U.S.
vessels operating ``on register, meaning '' those U.S. vessels engaged
in foreign trade, to use U.S. or Canadian registered pilots while
transiting the U.S. waters of the St. Lawrence Seaway and the Great
Lakes system.\4\ For the U.S. registered Great Lakes pilots
(``pilots''), the Act requires the Secretary to ``prescribe by
regulation rates and charges for pilotage services, giving
consideration to the public interest and the costs of providing the
services.'' \5\ The Act requires that rates be established or reviewed
and adjusted each year, not later than March 1.\6\ The Act requires
that base rates be established by a full ratemaking at least once every
5 years, and in years when base rates are not established, they must be
reviewed and, if necessary, adjusted.\7\ The Secretary's duties and
authority under the Act have been delegated to the Coast Guard.\8\
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\3\ 46 U.S.C. Chapter 93; Public Law 86-555, 74 Stat. 259, as
amended.
\4\ 46 U.S.C. 9302(a)(1).
\5\ 46 U.S.C. 9303(f).
\6\ Id.
\7\ Id.
\8\ Department of Homeland Security (DHS) Delegation No. 0170.1,
para. II (92.f).
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The purpose of this NPRM is to propose new pilotage rates for the
2020 shipping season. The Coast Guard believes that the new rates would
continue to promote pilot retention, ensure safe, efficient, and
reliable pilotage services on the Great Lakes, and provide adequate
funds to upgrade and maintain infrastructure.
V. Background
Pursuant to the Act, the Coast Guard, in conjunction with the
Canadian Great Lakes Pilotage Authority (GLPA), regulates shipping
practices and rates on the Great Lakes. Under Coast Guard regulations,
all vessels engaged in foreign trade (often referred to as ``salties'')
are required to engage U.S. or Canadian pilots during their transit
through the regulated waters.\9\ U.S. and Canadian ``lakers,'' which
account for most commercial shipping on the Great Lakes, are not
affected.\10\ Generally, vessels are assigned a U.S. or Canadian pilot
depending on the order in which they transit a particular area of the
Great Lakes and do not choose the pilot they receive. If a vessel is
assigned a U.S. pilot, that pilot will be assigned by the pilotage
association responsible for the particular district in which the vessel
is operating, and the vessel operator will pay the pilotage association
for the pilotage services. The Canadian GLPA
[[Page 58101]]
establishes the rates for Canadian registered pilots.
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\9\ See title 46 of the Code of Federal Regulations (CFR) part
401.
\10\ 46 U.S.C. 9302(f). A ``laker'' is a commercial cargo vessel
especially designed for and generally limited to use on the Great
Lakes.
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The U.S. waters of the Great Lakes and the St. Lawrence Seaway are
divided into three pilotage districts. Pilotage in each district is
provided by an association certified by the Coast Guard's Director of
the Great Lakes Pilotage (``the Director'') to operate a pilotage pool.
The Saint Lawrence Seaway Pilotage Association provides pilotage
services in District One, which includes all U.S. waters of the St.
Lawrence River and Lake Ontario. The Lakes Pilotage Association
provides pilotage services in District Two, which includes all U.S.
waters of Lake Erie, the Detroit River, Lake St. Clair, and the St.
Clair River. Finally, the Western Great Lakes Pilotage Association
provides pilotage services in District Three, which includes all U.S.
waters of the St. Mary's River; Sault Ste. Marie Locks; and Lakes
Huron, Michigan, and Superior.
Each pilotage district is further divided into ``designated'' and
``undesignated'' areas, which is depicted in Table 2 below. Designated
areas, classified as such by Presidential Proclamation, are waters in
which pilots must, at all times, be fully engaged in the navigation of
vessels in their charge.\11\ Undesignated areas, on the other hand, are
open bodies of water not subject to the same pilotage requirements.
While working in undesignated areas, pilots must ``be on board and
available to direct the navigation of the vessel at the discretion of
and subject to the customary authority of the master.'' \12\ For these
reasons, pilotage rates in designated areas can be significantly higher
than those in undesignated areas.
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\11\ Presidential Proclamation 3385, Designation of restricted
waters under the Great Lakes Pilotage Act of 1960, December 22,
1960.
\12\ 46 U.S.C. 9302(a)(1)(B).
Table 2--Areas of the Great Lakes and St. Lawrence Seaway
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District Pilotage association Designation Area No. \13\ Area name \14\
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One................. Saint Lawrence Seaway Designated.................. 1 St. Lawrence River.
Pilotage Association.
Undesignated................ 2 Lake Ontario.
Two................. Lake Pilotage Designated.................. 5 Navigable waters from
Association. Southeast Shoal to
Port Huron, MI.
Undesignated................ 4 Lake Erie.
Three............... Western Great Lakes Designated.................. 7 St. Mary's River.
Pilotage Association.
Undesignated................ 6 Lakes Huron and
Michigan.
Undesignated................ 8 Lake Superior.
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Each pilot association is an independent business and is the sole
provider of pilotage services in the district in which it operates.
Each pilot association is responsible for funding its own operating
expenses, maintaining infrastructure, acquiring and implementing
technological advances, training personnel/partners and pilot
compensation. The Coast Guard developed a 10-step ratemaking
methodology to derive a pilotage rate that covers these expenses based
on the estimated amount of traffic. The methodology is designed to
measure how much revenue each pilotage association would need to cover
expenses and provide competitive compensation to working pilots. We
then divide that amount by the historic 10-year average for pilotage
demand. We recognize that in years where traffic is above average,
pilot associations will accrue more revenue than projected, while in
years where traffic is below average, they will take in less. We
believe that over the long term, however, this system ensures that
infrastructure would be maintained and that pilots will receive
adequate compensation and work a reasonable number of hours, with
adequate rest between assignments, to ensure retention of highly
trained personnel.
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\13\ Area 3 is the Welland Canal, which is serviced exclusively
by the Canadian GLPA and, accordingly, is not included in the United
States pilotage rate structure.
\14\ The areas are listed by name in the Code of Federal
Regulations, see 46 CFR 401.405.
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Over the past 4 years, the Coast Guard has made adjustments to the
Great Lakes pilotage ratemaking methodology. In 2016, we made
significant changes to the methodology, moving to an hourly billing
rate for pilotage services and changing the compensation benchmark to a
more transparent model. In 2017, we added additional steps to the
ratemaking methodology, including new steps that accurately account for
the additional revenue produced by the application of weighting factors
(discussed in detail in Steps 7 through 9 of this preamble). In 2018,
we revised the methodology by which we develop the compensation
benchmark, based upon U.S. mariners rather than Canadian registered
pilots. The current methodology, which was finalized in the Great Lakes
Pilotage Rates--2019 Annual Review and Revisions to Methodology final
rule (84 FR 20551), published May 10, 2019, is designed to accurately
capture all of the costs and revenues associated with Great Lakes
pilotage requirements and produce an hourly rate that adequately and
accurately compensates pilots and covers expenses. The current
methodology is summarized in the section below.
Summary of Ratemaking Methodology
As stated above, the ratemaking methodology, outlined in 46 CFR
404.101 through 404.110, consists of 10 steps that are designed to
account for the revenues needed and total traffic expected in each
district. The result is an hourly rate, determined separately for each
of the areas administered by the Coast Guard.
In Step 1, ``Recognize previous operating expenses,'' (Sec.
404.101) the Director reviews audited operating expenses from each of
the three pilotage associations. This number forms the baseline amount
that each association is budgeted. Because of the time delay between
when the association submits raw numbers and the Coast Guard receives
audited numbers, this number is 3 years behind the projected year of
expenses. So in calculating the 2020 rates in this proposal, we are
beginning with the audited expenses from the 2017 shipping season.
While each pilotage association operates in an entire district, the
Coast Guard tries to determine costs by area. Thus, with regard to
operating expenses, we allocate certain operating expenses to
undesignated areas, and certain expenses to designated areas. In some
cases (e.g., insurance for applicant pilots who operate in undesignated
areas
[[Page 58102]]
only), we can allocate the costs based on where they are actually
accrued. In other situations (e.g., general legal expenses), expenses
are distributed between designated and undesignated waters on a pro
rata basis, based upon the proportion of income forecasted from the
respective portions of the district.
In Step 2, ``Project operating expenses, adjusting for inflation or
deflation,'' (Sec. 404.102) the Director develops the 2020 projected
operating expenses. To do this, we apply inflation adjustors for 3
years to the operating expense baseline received in Step 1. The
inflation factors used are from the Bureau of Labor Statistics' (BLS)
Consumer Price Index (CPI) for the Midwest Region, or, if not
available, the Federal Open Market Committee (FOMC) median economic
projections for Personal Consumption Expenditures (PCE) inflation. This
step produces the total operating expenses for each area and district.
In Step 3, ``Estimate number of working pilots,'' (Sec. 404.103)
the Director calculates how many pilots are needed for each district.
To do this, we employ a ``staffing model,'' described in Sec. 401.220,
paragraphs (a)(1) through (a)(3), to estimate how many pilots would be
needed to handle shipping during the beginning and close of the season.
This number is helpful in providing guidance to the Director in
approving an appropriate number of credentials for pilots.
For the purpose of the ratemaking calculation, we determine the
number of working pilots provided by the pilotage associations (see
Sec. 404.103), which is what we use to determine how many pilots need
to be compensated via the pilotage fees collected.
In Step 4, ``Determine target pilot compensation benchmark,''
(Sec. 404.104) the Director determines the revenue needed for pilot
compensation in each area and district. This step contains two
processes. In previous years, in the first process, we calculated the
total compensation for each pilot using a ``compensation benchmark.''
Next, we multiplied the individual pilot compensation by the number of
working pilots for each area and district (from Step 3), producing a
figure for total pilot compensation. Because pilots are paid by the
associations, but the costs of pilotage is divided by area for
accounting purposes, we assigned a certain number of pilots for the
designated areas and a certain number of pilots for the undesignated
areas to determine the revenues needed for each area. To make the
determination of how many pilots to assign, we used the staffing model
designed to determine the total number of pilots, described in Step 3,
above.
For the 2020 ratemaking, the Coast Guard is proposing to update the
benchmark compensation model in accordance with Sec. 404.104(b),
switching from using the American Maritime Officers Union (AMOU) 2015
aggregated wage and benefit information, to using the 2019 compensation
benchmark. Prior to 2016, the Coast Guard based the compensation
benchmark on data provided by the AMOU regarding its contract for first
mates on the Great Lakes. However, in 2016 the AMOU elected to no
longer provide this data to the Coast Guard, and thus, in the 2016
ratemaking, we used average compensation for a Canadian pilot plus a 10
percent adjustment. As a result of a legal challenge filed by the
shipping industry, the court found that the Coast Guard did not
adequately support the 10 percent addition to the Canadian GLPA
benchmark, and thus its use was deemed arbitrary and capricious. The
Coast Guard then based the 2018 benchmark on data provided by the AMOU
regarding its contract for first mates on the Great Lakes in the 2011
to 2015 period, and adjusted it for inflation using FOMC median
economic projections for PCE inflation. We used the information
provided by the AMOU because it was the most recent publicly available
information to which we had access. This benchmark has successfully
achieved the Coast Guard's goals of safety through rate and
compensation stability while also promoting recruitment and retention
of qualified United States registered pilots. Therefore, the Coast
Guard proposes to use this as the compensation benchmark for future
rates.
In the second process of Step 4, set forth in Sec. 404.104(c), the
Director determines the total compensation figure for each District. To
do this, the Director multiplies the compensation benchmark by the
number of working pilots for each area and district (from Step 3),
producing a figure for total pilot compensation.
In Step 5, ``Project working capital fund,'' (Sec. 404.105) the
Director calculates a value that is added to pay for needed capital
improvements. This value is calculated by adding the total operating
expenses (derived in Step 2) to the total pilot compensation (derived
in Step 4), and multiplying that figure by the preceding year's average
annual rate of return for new issues of high-grade corporate
securities. This figure constitutes the ``working capital fund'' for
each area and district.
In Step 6, ``Project needed revenue,'' (Sec. 404.106) the Director
simply adds up the totals produced by the preceding steps. The
projected operating expense for each area and district (from Step 2) is
added to the total pilot compensation (from Step 4) and the working
capital fund contribution (from Step 5). The total figure, calculated
separately for each area and district, is the ``needed revenue.''
In Step 7, ``Calculate initial base rates,'' (Sec. 404.107) the
Director calculates an hourly pilotage rate to cover the needed revenue
as calculated in Step 6. This step consists of first calculating the
10-year hours of traffic average for each area. Next, the revenue
needed in each area (calculated in Step 6) is divided by the 10-year
hours of traffic average to produce an initial base rate.
An additional element, the ``weighting factor,'' is required under
Sec. 401.400. Pursuant to that section, ships pay a multiple of the
``base rate'' as calculated in Step 7 by a number ranging from 1.0 (for
the smallest ships, or ``Class I'' vessels) to 1.45 (for the largest
ships, or ``Class IV'' vessels). As this significantly increases the
revenue collected, we need to account for the added revenue produced by
the weighting factors to ensure that shippers are not overpaying for
pilotage services.
In Step 8, ``Calculate average weighting factors by area,'' (Sec.
404.108) the Director calculates how much extra revenue, as a
percentage of total revenue, has historically been produced by the
weighting factors in each area. We do this by using a historical
average of the applied weighting factors for each year since 2014 (the
first year the current weighting factors were applied).
In Step 9, ``Calculate revised base rates,'' (Sec. 404.109) the
Director modifies the base rates by accounting for the extra revenue
generated by the weighting factors. We do this by dividing the initial
pilotage rate for each area (from Step 7) by the corresponding average
weighting factor (from Step 8), to produce a revised rate.
In Step 10, ``Review and finalize rates,'' (Sec. 404.110) often
referred to informally as ``director's discretion,'' the Director
reviews the revised base rates (from Step 9) to ensure that they meet
the goals set forth in the Act and 46 CFR 404.1(a), which include
promoting efficient, safe, and reliable pilotage service on the Great
Lakes; generating sufficient revenue for each pilotage association to
reimburse necessary and reasonable operating expenses; compensating
trained and rested pilots fairly; and providing appropriate profit for
improvements. Because it is our goal
[[Page 58103]]
to be as transparent as possible in our ratemaking procedure, we use
this step sparingly to adjust rates.
After the base rates are set, Sec. 401.401 permits the Coast Guard
to apply surcharges. We previously used surcharges to pay for the
training of new pilots, rather than incorporating training costs into
the overall ``needed revenue'' used in the calculation of the base
rates. The surcharge accelerates the reimbursement of certain necessary
and reasonable expense. Last year, we applied a surcharge to account
for the associations' expenses for the Applicant Trainee and Apprentice
Pilots, which included providing a stipend, lodging, training, and per
diem. We implemented these surcharges because of a large number of
pending pilot retirements, and a large amount of recruitment at the
pilot associations. Without the surcharge, the associations would have
been reimbursed for expenses associated with training new pilots 3
years later via the rate. However, any pilot who retired prior to that
3-year date would not have been reimbursed. Therefore, we applied a
surcharge to ensure that these pilots would not have to incur the costs
of training their replacements. As the vast majority of registered
pilots are not anticipated to reach the regulatory required retirement
age of 70 in the next 20 years, we believe that pilot associations are
now able to plan for the costs associated with retirements without
relying on the Coast Guard to impose surcharges.
VI. Discussion of Proposed Methodological and Other Changes
For 2020, the Coast Guard is proposing no new methodological
changes to the ratemaking model. We believe that the methodology laid
out in the 2019 Annual Review would produce rates for the 2020 shipping
season that would ensure safe and reliable pilotage services are
available on the Great Lakes.
In previous years, several commenters have raised issues regarding
the working capital fund. The purpose of the working capital fund is to
ensure that associations have a way to set aside money to pay for high
cost items and infrastructure improvements. The Coast Guard is
proposing changes in this proposed rule to codify the procedures
related to the use of funds and accounting requirements related to the
working capital fund.
The Coast Guard is proposing two changes to the regulatory text
related to the working capital fund, formerly called ``return on
investment.'' In 46 CFR 404.106, the Coast Guard proposes to change the
words ``return on investment'' to ``working capital fund,'' as that is
the current name for that fund. This change was made in the Great Lakes
Pilotage Rates 2017 Annual Review final rule (82 FR 41466, August 31,
2017), but the entry was overlooked in that rule. Prior to 2017, the
working capital fund described in 46 CFR 404.105 was called ``return on
investment.'' In the Great Lakes Pilotage Rates 2017 Annual Review
final rule (82 FR 41466, August 31, 2017), the Coast Guard changed the
name of that fund to the ``working capital fund.'' However, the 2017
final rule did not change a reference to ``return on investment'' in 46
CFR 404.106. This proposed change corrects that oversight so that 46
CFR 404.105 and 46 CFR 404.106 will use consistent terminology. In
addition, the Coast Guard proposes to incorporate into regulations the
policy currently being followed by the pilots associations regarding
these funds. The Coast Guard proposes to add text to 46 CFR 403.110
requiring each pilot association set aside, in a separate account, an
amount at least equal to the amount calculated in Step 5 of the
ratemaking, and place restrictions on how those funds are expended.
Under the proposed rule, pilot associations can only apply these funds
in the working capital fund account to capital projects, infrastructure
improvements, infrastructure maintenance, and non-recurring technology
purchases that are necessary for providing pilotage services. The pilot
associations may grow the working capital fund over successive shipping
seasons for a future significant purchase, including for a down payment
on a purchase that would also be financed in part. If needed, pilot
associations could request a waiver from the requirements from the
Director. We invite interested parties to provide their input and
recommendations on this issue.
VII. Discussion of Proposed Rate Adjustments
In this NPRM, based on the current methodology described in the
previous section, we are proposing new pilotage rates for 2020. We
propose to conduct the 2020 ratemaking as an ``interim year,'' as was
done in 2019, rather than a full ratemaking as was conducted in 2018.
Thus, the Coast Guard proposes to adjust the compensation benchmark
pursuant to Sec. 404.104(b) for this purpose, rather than Sec.
404.104(a).
This section discusses the proposed rate changes using the
ratemaking steps provided in 46 CFR part 404. We will detail all ten
steps of the ratemaking procedure for each of the three districts to
show how we arrived at the proposed new rates.
District One
A. Step 1: Recognize Previous Operating Expenses
Step 1 in our ratemaking methodology requires that the Coast Guard
review and recognize the previous year's operating expenses (Sec.
404.101). To do so, we begin by reviewing the independent accountant's
financial reports for each association's 2017 expenses and
revenues.\15\ For accounting purposes, the financial reports divide
expenses into designated and undesignated areas. In certain instances,
costs are applied to the designated or undesignated area based on where
they were actually accrued. For example, costs for ``Applicant pilot
license insurance'' in District One are assigned entirely to the
undesignated areas, as applicant pilots work exclusively in those
areas. For costs accrued by the pilot associations generally, for
example, such as employee benefits, the cost is divided between the
designated and undesignated areas on a pro rata basis. The recognized
operating expenses for District One is shown in Table 3.
---------------------------------------------------------------------------
\15\ These reports are available in the docket for this
rulemaking (see Docket #USCG-2019-0736).
---------------------------------------------------------------------------
As noted above, in 2016, the Coast Guard began authorizing
surcharges to cover the training costs of applicant pilots. The
surcharges were intended to reimburse pilot associations for training
applicants in a more timely fashion than if those costs were listed as
operating expenses, which would have required 3 years to reimburse. The
rationale for using surcharges to cover these expenses, rather than
including the costs as operating expenses, was so these non-recurring
costs could be recovered in a more timely fashion, and so that retiring
pilots would not have to cover the costs of training their
replacements. Because operating expenses incurred are not actually
recouped for a period of 3 years, the Coast Guard added a $150,000
surcharge per applicant pilot, beginning in 2016, to recoup those costs
in the year incurred. Now that these issues are no longer a concern, we
are not proposing any surcharges for the 2020 shipping season.
We also propose to deduct 3 percent of the ``shared counsel''
expenses, as stated in the auditor's reports for each district to
account for lobbying expenditures. Pursuant to 46 CFR 404.2(c)(3),
lobbying expenses are not permitted to be recouped as operating
expenses.
[[Page 58104]]
For District One, we do not propose any Director's adjustments,
other than the surcharge adjustment and lobbying expenses described
above. Other adjustments have been made by the auditors and are
explained in the auditor's reports, which are available in the docket
for this rulemaking where indicated under the ADDRESSES portion of the
preamble.
Table 3--2017 Recognized Expenses for District One
----------------------------------------------------------------------------------------------------------------
District One
-----------------------------------------------
Designated Undesignated
Reported expenses for 2017 --------------------------------
St. Lawrence Total
River Lake Ontario
----------------------------------------------------------------------------------------------------------------
Operating Expenses:
Other Pilotage Costs:
Subsistence/Travel--Pilot............................... $440,456 $293,637 $734,093
Certified Public Accountant (CPA) Deduction............. -189 -126 -315
Subsistence/Travel--Trainee............................. 22,008 14,672 36,680
License Insurance--Pilots............................... 48,620 32,413 81,033
License Insurance--Trainee.............................. 0 0 0
Payroll Taxes--Pilots................................... 137,788 91,858 229,646
Payroll Taxes--Trainee.................................. 705 470 1,175
Training--Full Pilots Continuing Education.............. 32,197 21,464 53,661
Cell and Internet Allowance--Pilots..................... 24,312 16,208 40,520
Cell and Internet Allowance--Applicants................. 2,210 1,474 3,684
Other................................................... 675 450 1,125
-----------------------------------------------
Total Other Pilotage Costs.......................... 708,782 472,520 1,181,302
Pilot Boat and Dispatch Costs:
Pilot Boat Expense.......................................... 297,942 198,628 496,570
Dispatch Expense............................................ 50,100 33,400 83,500
Payroll Taxes............................................... 19,706 13,137 32,843
-----------------------------------------------
Total Pilot and Dispatch Costs.......................... 367,748 245,165 612,913
Administrative Expenses:
Legal--General Counsel...................................... 2,098 1,399 3,497
Legal--Shared Counsel (K&L Gates)........................... 26,835 17,890 44,725
CPA Adjustment.............................................. -5,020 -3,347 -8,367
Office Rent................................................. 0 0 0
Insurance................................................... 21,593 14,395 35,988
Employee Benefits........................................... 7,720 5,146 12,866
Payroll Taxes............................................... 6,665 4,444 11,109
Other Taxes................................................. 70,942 47,294 118,236
Travel...................................................... 4,091 2,728 6,819
Depreciation/Auto Leasing/other............................. 94,944 63,296 158,240
Interest.................................................... 35,143 23,428 58,571
Dues and Subscriptions...................................... 19,471 12,981 32,452
Utilities................................................... 18,479 12,320 30,799
Salaries.................................................... 69,953 46,636 116,589
Accounting/Professional Fees................................ 6,111 4,074 10,185
Pilot Training.......................................... 0 0 0
Applicant Pilot Training................................ 0 0 0
Other....................................................... 26,338 17,559 43,897
-----------------------------------------------
Total Administrative Expenses........................... 405,363 270,243 675,606
-----------------------------------------------
Total Operating Expenses (Other Costs + Pilot Boats 1,481,893 987,928 2,469,821
+ Admin)...........................................
Proposed Adjustments (Director):
Total Director's Adjustments................................ 0 0 0
-----------------------------------------------
Total Operating Expenses (OpEx + Adjustments)........... 1,481,893 987,928 2,469,821
----------------------------------------------------------------------------------------------------------------
B. Step 2: Project Operating Expenses, Adjusting for Inflation or
Deflation
Having identified the recognized 2017 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 2018 inflation rate.\16\ Because
the BLS does not provide forecasted inflation data, we use economic
projections from the Federal Reserve for the 2019 and 2020 inflation
modification.\17\ Based on that information, the calculations for Step
2 are as follows:
---------------------------------------------------------------------------
\16\ The 2018 inflation rate is available at https://www.bls.gov/regions/midwest/data/consumerpriceindexhistorical_midwest_table.pdf. Specifically the CPI
is defined as ``All Urban Consumers (CPI-U), All Items, 1982-
4=100''. Downloaded June 12, 2019.
\17\ The 2019 and 2020 inflation rates are available at https://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20190320.pdf. We used the PCE median inflation value
found in table 1, Downloaded June 12, 2019.
[[Page 58105]]
Table 4--Adjusted Operating Expenses for District One
----------------------------------------------------------------------------------------------------------------
District One
-----------------------------------------------
Designated Undesignated Total
----------------------------------------------------------------------------------------------------------------
Total Operating Expenses (Step 1)............................... $1,481,893 $987,928 $2,469,821
2018 Inflation Modification (@1.9%)............................. 28,156 18,771 46,927
2019 Inflation Modification (@1.8%)............................. 27,181 18,121 45,302
2020 Inflation Modification (@2%)............................... 30,745 20,496 51,241
Adjusted 2020 Operating Expenses................................ 1,567,975 1,045,316 2,613,291
----------------------------------------------------------------------------------------------------------------
C. Step 3: Estimate Number of Working Pilots
In accordance with the text in Sec. 404.103, we estimate the
number of working pilots in each district. We determine the number of
working pilots based on data provided by the Saint Lawrence Seaway
Pilots Association. Using these numbers, we estimate that there will be
17 working pilots in 2020 in District One. Furthermore, based on the
seasonal staffing model discussed in the 2017 ratemaking (see 82 FR
41466), we assign a certain number of pilots to designated waters and a
certain number to undesignated waters, as shown in Table 5. These
numbers are used to determine the amount of revenue needed in their
respective areas.
Table 5--Authorized Pilots
------------------------------------------------------------------------
Item District One
------------------------------------------------------------------------
Maximum number of pilots (per Sec. 401.220(a)) \18\... 17
2020 Authorized pilots (total).......................... 17
Pilots assigned to designated areas..................... 10
Pilots assigned to undesignated areas................... 7
------------------------------------------------------------------------
D. Step 4: Determine Target Pilot Compensation Benchmark
---------------------------------------------------------------------------
\18\ For a detailed calculation, refer to the Great Lakes
Pilotage Rates--2017 Annual Review final rule, which contains the
staffing model. See 82 FR 41466, table 6 at 41480 (August 31, 2017).
---------------------------------------------------------------------------
In this step, we determine the total pilot compensation for each
area. As we are proposing an ``interim'' ratemaking this year, we
propose to follow the procedure outlined in paragraph (b) of Sec.
404.104, which adjusts the existing compensation benchmark by
inflation. Because we do not have a value for the employment cost index
for 2020, we multiply the 2019 compensation benchmark of $359,887 by
the Median PCE Inflation value of 2.0 percent.\19\ Based on the
projected 2020 inflation estimate, the proposed compensation benchmark
for 2020 is $367,085 per pilot.
---------------------------------------------------------------------------
\19\ https://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20190320.pdf.
---------------------------------------------------------------------------
Next, we certify that the number of pilots estimated for 2020 is
less than or equal to the number permitted under the staffing model in
Sec. 401.220(a). The staffing model suggests that the number of pilots
needed is 17 pilots for District One, which is more than or equal to
the numbers of working pilots provided by the pilot associations. 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 working pilots for District One, as shown in Table 6.
Table 6--Target Compensation for District One
----------------------------------------------------------------------------------------------------------------
District One
-----------------------------------------------
Designated Undesignated Total
----------------------------------------------------------------------------------------------------------------
Target Pilot Compensation....................................... $367,085 $367,085 $367,085
Number of Pilots................................................ 10 7 17
-----------------------------------------------
Total Target Pilot Compensation............................. $3,670,850 $2,569,595 $6,240,445
----------------------------------------------------------------------------------------------------------------
E. Step 5: Project Working Capital Fund
Next, we calculate the working capital fund revenues needed for
each area. First, we add together the figures for projected operating
expenses and total pilot compensation for each area. Next, we find the
preceding year's average annual rate of return for new issues of high-
grade corporate securities. Using Moody's data, the number is 3.93
percent.\20\ By multiplying the two figures, we obtain the working
capital fund contribution for each area, as shown in Table 7.
---------------------------------------------------------------------------
\20\ Moody's Seasoned Aaa Corporate Bond Yield, average of 2018
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. (June 12, 2019)
[[Page 58106]]
Table 7--Working Capital Fund Calculation for District One
----------------------------------------------------------------------------------------------------------------
District One
-----------------------------------------------
Designated Undesignated Total
----------------------------------------------------------------------------------------------------------------
Adjusted Operating Expenses (Step 2)............................ $1,567,975 $1,045,316 $2,613,291
Total Target Pilot Compensation (Step 4)........................ 3,670,850 2,569,595 6,240,445
-----------------------------------------------
Total 2018 Expenses......................................... 5,238,825 3,614,911 8,853,736
-----------------------------------------------
Working Capital Fund (3.93%)............................ 205,886 142,066 347,952
----------------------------------------------------------------------------------------------------------------
F. Step 6: Project Needed Revenue
In this step, we add together all of 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). We show these calculations in Table 8.
Table 8--Revenue Needed for District One
----------------------------------------------------------------------------------------------------------------
District One
-----------------------------------------------
Designated Undesignated Total
----------------------------------------------------------------------------------------------------------------
Adjusted Operating Expenses (Step 2, See Table 4)............... $1,567,975 $1,045,316 $2,613,291
Total Target Pilot Compensation (Step 4, See Table 6)........... 3,670,850 2,569,595 6,240,445
Working Capital Fund (Step 5, See Table 7)...................... 205,886 142,066 347,952
-----------------------------------------------
Total Revenue Needed........................................ 5,444,711 3,756,977 9,201,688
----------------------------------------------------------------------------------------------------------------
G. Step 7: Calculate Initial Base Rates
Having determined the revenue needed for each area in the previous
six steps, to develop an hourly rate we divide that number by the
expected number of hours of traffic. Step 7 is a two-part process. In
the first part, we calculate the 10-year average of traffic in District
One, using the total time on task or pilot bridge hours.\21\ Because we
calculate separate figures for designated and undesignated waters,
there are two parts for each calculation. We show these values in Table
9.
---------------------------------------------------------------------------
\21\ To calculate the time on task for each district, the Coast
Guard uses billing data from the Great Lakes Pilotage Management
System (GLPMS). We pull the data from the system filtering by
district, year, job status (we only include closed jobs), and
flagging code (we only include U.S. jobs). After we have downloaded
the data, we remove any overland transfers from the dataset, if
necessary, and sum the total bridge hours, by area. We then subtract
any non-billable delay hours from the total.
Table 9--Time on Task for District One
[Hours]
------------------------------------------------------------------------
District One
Year -------------------------------
Designated Undesignated
------------------------------------------------------------------------
2018.................................... 6,943 8,445
2017.................................... 7,605 8,679
2016.................................... 5,434 6,217
2015.................................... 5,743 6,667
2014.................................... 6,810 6,853
2013.................................... 5,864 5,529
2012.................................... 4,771 5,121
2011.................................... 5,045 5,377
2010.................................... 4,839 5,649
2009.................................... 3,511 3,947
-------------------------------
Average............................. 5,657 6,248
------------------------------------------------------------------------
Next, we derive the initial hourly rate by dividing the revenue
needed by the average number of hours for each area. This produces an
initial rate, which is necessary to produce the revenue needed for each
area, assuming the amount of traffic is as expected. We present the
calculations for each area in Table 10.
Table 10--Initial Rate Calculations for District One
------------------------------------------------------------------------
Designated Undesignated
------------------------------------------------------------------------
Needed revenue (Step 6)................. $5,444,711 $3,756,977
[[Page 58107]]
Average time on task (hours)............ 5,657 6,248
Initial rate............................ $962 $601
------------------------------------------------------------------------
H. Step 8: Calculate Average Weighting Factors by Area
In this step, we calculate the average weighting factor for each
designated and undesignated area. We collect the weighting factors, set
forth in 46 CFR 401.400, for each vessel trip. Using this database, we
calculate the average weighting factor for each area using the data
from each vessel transit from 2014 onward, as shown in Tables 11 and
12.\22\
---------------------------------------------------------------------------
\22\ To calculate the number of transits by vessel class, we use
the billing data from GLPMS, filtering by district, year, job status
(we only include closed jobs), and flagging code (we only include
U.S. jobs). We then count the number of jobs by vessel class and
area.
Table 11--Average Weighting Factor for District One, Designated Areas
----------------------------------------------------------------------------------------------------------------
Number of Weighting Weighted
Vessel class/year transits factor transits
----------------------------------------------------------------------------------------------------------------
Class 1 (2014).................................................. 31 1 31
Class 1 (2015).................................................. 41 1 41
Class 1 (2016).................................................. 31 1 31
Class 1 (2017).................................................. 28 1 28
Class 1 (2018).................................................. 54 1 54
Class 2 (2014).................................................. 285 1.15 327.75
Class 2 (2015).................................................. 295 1.15 339.25
Class 2 (2016).................................................. 185 1.15 212.75
Class 2 (2017).................................................. 352 1.15 404.8
Class 2 (2018).................................................. 559 1.15 642.85
Class 3 (2014).................................................. 50 1.3 65
Class 3 (2015).................................................. 28 1.3 36.4
Class 3 (2016).................................................. 50 1.3 65
Class 3 (2017).................................................. 67 1.3 87.1
Class 3 (2018).................................................. 86 1.3 111.8
Class 4 (2014).................................................. 271 1.45 392.95
Class 4 (2015).................................................. 251 1.45 363.95
Class 4 (2016).................................................. 214 1.45 310.3
Class 4 (2017).................................................. 285 1.45 413.25
Class 4 (2018).................................................. 393 1.45 569.85
-----------------------------------------------
Total....................................................... 3,556 .............. 4,528
-----------------------------------------------
Average weighting factor (weighted transits/number of .............. 1.27 ..............
transits)..............................................
----------------------------------------------------------------------------------------------------------------
Table 12--Average Weighting Factor for District One, Undesignated Areas
----------------------------------------------------------------------------------------------------------------
Number of Weighting Weighted
Vessel class/year transits factor transits
----------------------------------------------------------------------------------------------------------------
Class 1 (2014).................................................. 25 1 25
Class 1 (2015).................................................. 28 1 28
Class 1 (2016).................................................. 18 1 18
Class 1 (2017).................................................. 19 1 19
Class 1 (2018).................................................. 22 1 22
Class 2 (2014).................................................. 238 1.15 273.7
Class 2 (2015).................................................. 263 1.15 302.45
Class 2 (2016).................................................. 169 1.15 194.35
Class 2 (2017).................................................. 290 1.15 333.5
Class 2 (2018).................................................. 352 1.15 404.8
Class 3 (2014).................................................. 60 1.3 78
Class 3 (2015).................................................. 42 1.3 54.6
Class 3 (2016).................................................. 28 1.3 36.4
Class 3 (2017).................................................. 45 1.3 58.5
Class 3 (2018).................................................. 63 1.3 81.9
Class 4 (2014).................................................. 289 1.45 419.05
Class 4 (2015).................................................. 269 1.45 390.05
Class 4 (2016).................................................. 222 1.45 321.9
Class 4 (2017).................................................. 285 1.45 413.25
Class 4 (2018).................................................. 382 1.45 553.9
-----------------------------------------------
Total....................................................... 3,109 .............. 4,028
-----------------------------------------------
[[Page 58108]]
Average weighting factor (weighted transits/number of .............. 1.30 ..............
transits)..............................................
----------------------------------------------------------------------------------------------------------------
I. Step 9: Calculate Revised Base Rates
In this step, we revise the base rates so that once the impact of
the weighting factors are considered; the total cost of pilotage would
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 13.
Table 13--Revised Base Rates for District One
----------------------------------------------------------------------------------------------------------------
Revised rate
Average (initial rate/
Area Initial rate weighting average
(Step 7) factor (Step weighting
8) factor)
----------------------------------------------------------------------------------------------------------------
District One: Designated........................................ $962 1.27 $757
District One: Undesignated...................................... 601 1.30 462
----------------------------------------------------------------------------------------------------------------
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 that the proposed rates
do meet the goal of ensuring safe, efficient and reliable pilotage, the
Director considers whether the proposed rates incorporate appropriate
compensation for pilots to handle heavy traffic periods and whether
there is a sufficient number of pilots to handle those heavy traffic
periods. The Director also considers whether the proposed rates would
cover operating expenses and infrastructure costs, and takes average
traffic and weighting factors into consideration. Based on this
information, the Director is not proposing any alterations to the rates
in this step. We propose to modify the text in Sec. 401.405(a) to
reflect the final rates shown in Table 14.
Table 14--Proposed Final Rates for District One
----------------------------------------------------------------------------------------------------------------
Final 2019 Proposed 2020
Area Name pilotage rate pilotage rate
----------------------------------------------------------------------------------------------------------------
District One: Designated..................... St. Lawrence River............. $733 $757
District One: Undesignated................... Lake Ontario................... 493 462
----------------------------------------------------------------------------------------------------------------
District Two
A. Step 1: Recognize Previous Operating Expenses
Step 1 in our ratemaking methodology requires that the Coast Guard
review and recognize the previous year's operating expenses (Sec.
404.101). To do so, we begin by reviewing the independent accountant's
financial reports for each association's 2017 expenses and
revenues.\23\ For accounting purposes, the financial reports divide
expenses into designated and undesignated areas. In certain instances,
costs are applied to the designated or undesignated area based on where
they were actually incurred. For example, costs for ``Applicant pilot
license insurance'' in District One are assigned entirely to the
undesignated areas, as applicant pilots work exclusively in those
areas. For costs accrued by the pilot associations generally, such as
employee benefits, for example, the cost is divided between the
designated and undesignated areas on a pro rata basis. The recognized
operating expenses for District Two are shown in Table 15.
---------------------------------------------------------------------------
\23\ These reports are available in the docket for this
rulemaking (see Docket No. USCG-2019-0736).
---------------------------------------------------------------------------
In addition to the surcharge adjustment and lobbying expenses
described for District One in Section VII A. Step 1: Recognize previous
operating expenses, and the adjustments made by the auditors, as
explained in the auditors' reports (available in the docket where
indicated in the ADDRESSES portion of this document), the Director is
proposing one adjustment to District Two's operating expenses. The
Director proposes an adjustment to disallow $120,350 in ``housing
allowance'' expenses. The Coast Guard agrees with the Internal Revenue
Service (IRS) that an employer-provided housing allowance is a fringe
benefit, and we consider it to be employee compensation. In addition,
we expect those appointed as registered pilots to live in the region in
which they are employed. We expect that if a pilot chooses to live
outside their region of employment, they should have to pay for their
accommodations, and this cost should not be passed on to the shippers
via the rate. Therefore, we propose not including any housing allowance
the district chooses to provide their pilots in the ratemaking
calculation.
[[Page 58109]]
Table 15--2017 Recognized Expenses for District Two
----------------------------------------------------------------------------------------------------------------
District Two
-----------------------------------------------
Undesignated Designated
Reported expenses for 2017 --------------------------------
Southeast Total
Lake Erie Shoal to Port
Huron
----------------------------------------------------------------------------------------------------------------
Operating Expenses:
Other Pilotage Costs:
Subsistence/Travel--Pilots.............................. $116,402 $174,602 $291,004
Subsistence/Travel--Applicants.......................... 52,212 78,317 130,529
Housing Allowance--Pilots............................... 30,212 45,318 75,530
Housing Allowance--Applicants........................... 17,928 26,892 44,820
Winter Meeting Allowance................................ 8,280 12,420 20,700
Telecommunication Allowance............................. 11,662 17,493 29,155
Payroll taxes--Pilots................................... 57,126 85,688 142,814
Payroll taxes--Applicants............................... 26,025 39,038 65,063
License Insurance....................................... 8,326 12,490 20,816
Training................................................ 2,079 3,119 5,198
-----------------------------------------------
Total Other Pilotage Costs.......................... 330,252 495,377 825,629
Pilot Boat and Dispatch Costs:
Pilot Boat Cost............................................. 217,514 326,272 543,786
CPA Adjustment.............................................. -34,860 -52,291 -87,151
Dispatch Expense............................................ 0 0 0
Employee Benefits........................................... 78,680 118,020 196,700
Payroll Taxes............................................... 12,230 18,344 30,574
-----------------------------------------------
Total Pilot and Dispatch Costs.......................... 273,564 410,345 683,909
Cost Affiliated Entity Expenses:
Office Rent............................................. 26,275 39,413 65,688
CPA Adjustment.......................................... -4,742 -7,113 -11,855
-----------------------------------------------
Total Affiliated Entity Expense......................... 21,533 32,300 53,833
Administrative Expenses:
Legal--General Counsel...................................... 3,505 5,258 8,763
Legal--Shared Counsel (K&L Gates)........................... 15,604 23,405 39,009
CPA Adjustment.............................................. -7,086 -10,630 -17,716
Employee benefits--Admin employees.......................... 79,534 119,301 198,835
Workman's Compensation--Pilots.............................. 48,663 72,994 121,657
Payroll taxes--Admin Employees.............................. 6,872 10,308 17,180
Insurance................................................... 10,844 16,265 27,109
Other Taxes................................................. 12,065 18,097 30,162
Admin Travel................................................ 6,316 9,475 15,791
Depreciation/Auto Lease/Other............................... 24,168 36,251 60,419
Interest.................................................... 21,526 32,288 53,814
CPA Adjustment.............................................. -20,920 -31,379 -52,299
Dues and subscriptions...................................... 10,760 16,140 26,900
CPA Adjustment.............................................. -581 -871 -1,452
Utilities................................................... 6,277 9,415 15,692
Salaries--Admin employees................................... 60,568 90,852 151,420
Accounting.................................................. 14,507 21,761 36,268
Other....................................................... 13,936 20,904 34,840
-----------------------------------------------
Total Administrative Expenses........................... 306,558 459,834 766,392
-----------------------------------------------
Total Operating Expenses (Other Costs + Pilot Boats 931,907 1,397,856 2,329,763
+ Admin)...........................................
Proposed Adjustments (Director):
Housing allowance for Pilots................................ -30,212 -45,318 -75,530
Housing allowance for Applicants............................ -17,928 -26,892 -44,820
-----------------------------------------------
Total Director's Adjustments............................ -48,140 -72,210 -120,350
-----------------------------------------------
Total Operating Expenses (OpEx + Adjustments)....... 883,767 1,325,646 2,209,413
----------------------------------------------------------------------------------------------------------------
B. Step 2: Project Operating Expenses, Adjusting for Inflation or
Deflation
Having identified the recognized 2017 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 2018 inflation rate. \24\ Because
the BLS does not provide forecasted inflation data, we use economic
projections from the Federal Reserve for the 2019 and 2020
[[Page 58110]]
inflation modification.\25\ Based on that information, the calculations
for Step 1 are as follows:
---------------------------------------------------------------------------
\24\ See footnote 13.
\25\ See footnote 14.
Table 16--Adjusted Operating Expenses for District Two
----------------------------------------------------------------------------------------------------------------
District Two
Item -----------------------------------------------
Undesignated Designated Total
----------------------------------------------------------------------------------------------------------------
Total Operating Expenses (Step 1)............................... $883,767 $1,325,646 $2,209,413
2018 Inflation Modification (@1.9%)............................. 16,792 25,187 41,979
2019 Inflation Modification (@1.8%)............................. 16,210 24,315 40,525
2020 Inflation Modification (@2%)............................... 18,335 27,503 45,838
Adjusted 2020 Operating Expenses................................ 935,104 1,402,651 2,337,755
----------------------------------------------------------------------------------------------------------------
C. Step 3: Estimate Number of Working Pilots
In accordance with the text in Sec. 404.103, we estimate the
number of working pilots in each district. We determine the number of
working pilots based on input from the Lakes Pilots Association. Using
these numbers, we estimate that there will be 15 working pilots in 2020
in District Two. Furthermore, based on the seasonal staffing model
discussed in the 2017 ratemaking (see 82 FR 41466), we assign a certain
number of pilots to designated waters and a certain number to
undesignated waters, as shown in Table 17. These numbers are used to
determine the amount of revenue needed in their respective areas.
Table 17--Authorized Pilots
------------------------------------------------------------------------
Item District Two
------------------------------------------------------------------------
Maximum number of pilots (per Sec. 401.220(a)) \26\... 15
2020 Authorized pilots (total).......................... 15
Pilots assigned to designated areas..................... 7
Pilots assigned to undesignated areas................... 8
------------------------------------------------------------------------
D. Step 4: Determine Target Pilot Compensation Benchmark
---------------------------------------------------------------------------
\26\ For a detailed calculation refer to the Great Lakes
Pilotage Rates--2017 Annual Review final rule, which contains the
staffing model. See 82 FR 41466, table 6 at 41480 (August 31, 2017).
---------------------------------------------------------------------------
In this step, we determine the total pilot compensation for each
area. As we are proposing an ``interim'' ratemaking this year, we
propose to follow the procedure outlined in paragraph (b) of Sec.
404.104, which adjusts the existing compensation benchmark by
inflation. Because we do not have a value for the employment cost index
for 2020, we multiply the 2019 compensation benchmark of $359,887 by
the Median PCE Inflation value of 2.0 percent.\27\ Based on the
projected 2020 inflation estimate, the proposed compensation benchmark
for 2020 is $367,085 per pilot.
---------------------------------------------------------------------------
\27\ https://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20190320.pdf.
---------------------------------------------------------------------------
Next, we certify that the number of pilots estimated for 2020 is
less than or equal to the number permitted under the staffing model in
Sec. 401.220(a). The staffing model suggests that the number of pilots
needed is 15 pilots for District Two, which is more than or equal to
the numbers of working pilots provided by the pilot associations.\28\
---------------------------------------------------------------------------
\28\ 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 working pilots for District Two, as shown in Table
18.
Table 18--Target Compensation for District Two
----------------------------------------------------------------------------------------------------------------
Undesignated Designated Total
----------------------------------------------------------------------------------------------------------------
Target Pilot Compensation....................................... $367,085 $367,085 $367,085
Number of Pilots................................................ 8 7 15
-----------------------------------------------
Total Target Pilot Compensation............................. $2,936,680 $2,569,595 $5,506,275
----------------------------------------------------------------------------------------------------------------
E. Step 5: Project Working Capital Fund
Next, we calculate the working capital fund revenues needed for
each area. First, we add together the figures for projected operating
expenses and total pilot compensation for each area. Next, we find the
preceding year's average annual rate of return for new issues of high-
grade corporate securities. Using Moody's data, the number is 3.93
percent.\29\ By multiplying the two figures, we obtain the working
capital fund contribution for each area, as shown in Table 19.
---------------------------------------------------------------------------
\29\ See footnote 17.
[[Page 58111]]
Table 19--Working Capital Fund Calculation for District Two
----------------------------------------------------------------------------------------------------------------
District Two
Item -----------------------------------------------
Undesignated Designated Total
----------------------------------------------------------------------------------------------------------------
Adjusted Operating Expenses (Step 2)............................ $935,104 $1,402,651 $2,337,755
Total Target Pilot Compensation (Step 4)........................ 2,936,680 2,569,595 5,506,275
Total 2018 Expenses............................................. 3,871,784 3,972,246 7,844,030
Working Capital Fund (3.93%).................................... 152,161 156,109 308,270
----------------------------------------------------------------------------------------------------------------
F. Step 6: Project Needed Revenue
In this step, we add together all of 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). We show these calculations in Table 20.
Table 20--Revenue Needed for District Two
----------------------------------------------------------------------------------------------------------------
District Two
-----------------------------------------------
Undesignated Designated Total
----------------------------------------------------------------------------------------------------------------
Adjusted Operating Expenses (Step 2, See Table 16).............. $935,104 $1,402,651 $2,337,755
Total Target Pilot Compensation (Step 4, See Table 18).......... 2,936,680 2,569,595 5,506,275
Working Capital Fund (Step 5, See Table 19)..................... 152,161 156,109 308,270
-----------------------------------------------
Total Revenue Needed........................................ 4,023,945 4,128,355 8,152,300
----------------------------------------------------------------------------------------------------------------
G. Step 7: Calculate Initial Base Rates
Having determined the needed revenue for each area in the previous
six steps, to develop an hourly rate, we divide that number by the
expected number of hours of traffic. Step 7 is a two-part process. In
the first part, we calculate the 10-year average of traffic in District
Two, using the total time on task or pilot bridge hours.\30\ Because we
calculate separate figures for designated and undesignated waters,
there are two parts for each calculation. We show these values in Table
21.
---------------------------------------------------------------------------
\30\ See footnote 18 for more information.
Table 21--Time on Task for District Two
[Hours]
------------------------------------------------------------------------
Year Undesignated Designated
------------------------------------------------------------------------
2018.................................... 6,150 6,655
2017.................................... 5,139 6,074
2016.................................... 6,425 5,615
2015.................................... 6,535 5,967
2014.................................... 7,856 7,001
2013.................................... 4,603 4,750
2012.................................... 3,848 3,922
2011.................................... 3,708 3,680
2010.................................... 5,565 5,235
2009.................................... 3,386 3,017
-------------------------------
Average............................. 5,322 5,192
------------------------------------------------------------------------
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 22.
Table 22--Initial Rate Calculations for District Two
------------------------------------------------------------------------
Item Undesignated Designated
------------------------------------------------------------------------
Needed revenue (Step 6)................. $4,023,945 $4,128,355
Average time on task (hours)............ 5,322 5,192
Initial rate............................ $756 $795
------------------------------------------------------------------------
[[Page 58112]]
H. Step 8: Calculate Average Weighting Factors by Area
In this step, we calculate the average weighting factor for each
designated and undesignated area. We collect the weighting factors, set
forth in 46 CFR 401.400, for each vessel trip. Using this database, we
calculated the average weighting factor for each area using the data
from each vessel transit from 2014 onward, as shown in Tables 23 and
24.\31\
---------------------------------------------------------------------------
\31\ See footnote 19 for more information.
Table 23--Average Weighting Factor for District Two, Undesignated Areas
----------------------------------------------------------------------------------------------------------------
Number of Weighting Weighted
Vessel class/year transits factor transits
----------------------------------------------------------------------------------------------------------------
Class 1 (2014).................................................. 31 1 31
Class 1 (2015).................................................. 35 1 35
Class 1 (2016).................................................. 32 1 32
Class 1 (2017).................................................. 21 1 21
Class 1 (2018).................................................. 37 1 37
Class 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 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 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
-----------------------------------------------
Total....................................................... 3,814 .............. 5,023
-----------------------------------------------
Average weighting factor (weighted transits/number of .............. 1.32 ..............
transits)..............................................
----------------------------------------------------------------------------------------------------------------
Table 24--Average Weighting Factor for District Two, Designated Areas
----------------------------------------------------------------------------------------------------------------
Number of Weighting Weighted
Vessel class/year transits factor transits
----------------------------------------------------------------------------------------------------------------
Class 1 (2014).................................................. 20 1 20
Class 1 (2015).................................................. 15 1 15
Class 1 (2016).................................................. 28 1 28
Class 1 (2017).................................................. 15 1 15
Class 1 (2018).................................................. 42 1 42
Class 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 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 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
-----------------------------------------------
Total....................................................... 2,660 .............. 3,510
-----------------------------------------------
Average weighting factor (weighted transits/number of .............. 1.32 ..............
transits)..............................................
----------------------------------------------------------------------------------------------------------------
I. Step 9: Calculate Revised Base Rates
In this step, we revise the base rates so that once the impact of
the weighting factors are considered, the total cost of pilotage would
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 25.
[[Page 58113]]
Table 25--Revised Base Rates for District Two
----------------------------------------------------------------------------------------------------------------
Revised rate
Average (initial rate/
Area Initial rate weighting average
(Step 7) factor (Step weighting
8) factor)
----------------------------------------------------------------------------------------------------------------
District Two: Designated........................................ $795 1.32 $602
District Two: Undesignated...................................... 756 1.32 573
----------------------------------------------------------------------------------------------------------------
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 that the proposed rates
do meet the goal of ensuring safe, efficient and reliable pilotage, the
Director considers whether the proposed rates incorporate appropriate
compensation for pilots to handle heavy traffic periods, and whether
there is a sufficient number of pilots to handle those heavy traffic
periods. The Director also considers whether the proposed rates would
cover operating expenses and infrastructure costs, and takes average
traffic and weighting factors into consideration. Based on this
information, the Director is not proposing any alterations to the rates
in this step. We propose to modify the text in Sec. 401.405(a) to
reflect the final rates shown in Table 26.
Table 26--Proposed Final Rates for District Two
----------------------------------------------------------------------------------------------------------------
Final 2019 Proposed 2020
Area Name pilotage rate pilotage rate
----------------------------------------------------------------------------------------------------------------
District Two: Undesignated................... Lake Erie...................... $531 $573
District Two: Designated..................... Navigable waters from Southeast 603 602
Shoal to Port Huron, MI.
----------------------------------------------------------------------------------------------------------------
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 2017 expenses and
revenues.\32\ For accounting purposes, the financial reports divide
expenses into designated and undesignated areas. In certain instances,
costs are applied to the undesignated or designated area based on where
they were actually accrued. For example, costs for ``Applicant pilot
license insurance'' in District One are assigned entirely to the
undesignated areas, as applicant pilots work exclusively in those
areas. For costs accrued by the pilot associations generally, for
example, employee benefits, the cost is divided between the designated
and undesignated areas on a pro rata basis. The recognized operating
expenses for District Three is laid out in Table 27.
---------------------------------------------------------------------------
\32\ These reports are available in the docket for this
rulemaking (see Docket #USCG-2019-0736).
---------------------------------------------------------------------------
In addition to the surcharge adjustment and lobbying expenses
described for District One in Section VII A. Step 1: Recognize previous
operating expenses and the adjustments made by the auditors, as
explained in the auditors' reports, which are available in the docket
for this rulemaking where indicated in the ADDRESSES portion of this
document, the Director is proposing one adjustment to District Three's
operating expenses. The Director proposes an adjustment to disallow
$32,800 in ``housing allowance'' expenses. The Coast Guard agrees with
the IRS that an employer-provided housing allowance is a fringe
benefit, and we consider it to be employee compensation. In addition,
we expect those appointed as registered pilots pilot to live in the
region in which they are employed. We expect that if a pilot chooses to
live outside their region of employment, they should have to pay for
their accommodations, and this cost should not be passed on to the
shippers via the rate. Therefore, we propose not including any housing
allowance the district chooses to provide their pilots in the
ratemaking calculation.
Table 27--2017 Recognized Expenses for District Three
----------------------------------------------------------------------------------------------------------------
District Three
--------------------------------------------------------------
Undesignated Designated Undesignated \34\
Reported expenses for 2017 \33\ (Area 6) (Area 7) (Area 8)
--------------------------------------------------- Total
Lakes Huron St. Mary's
and Michigan River Lake Superior
----------------------------------------------------------------------------------------------------------------
Operating Expenses:
Other Pilotage Costs:
Subsistence/Travel--Pilot................ $237,036 $93,461 $92,458 $422,955
CPA Adjustment........................... -11,178 -4,407 -4,360 -19,945
Subsistence/Travel--Applicant.................... 90,123 35,535 35,154 160,812
Payroll Taxes--Pilots............................ 124,088 48,927 48,402 221,417
[[Page 58114]]
Payroll Taxes--Applicants........................ 25,553 10,075 9,967 45,595
License Insurance--Pilots........................ 15,631 6,163 6,097 27,891
Training--Pilots................................. 25,830 10,185 10,075 46,090
Training--Applicants............................. 16,325 6,437 6,368 29,130
Housing Allowance................................ 18,382 7,248 7,170 32,800
Winter Meeting................................... 14,795 5,834 5,771 26,400
Cell Phone Allowance............................. 26,186 10,325 10,214 46,725
Other Pilotage Costs............................. 49,252 19,420 19,211 87,883
CPA Adjustment................................... -3,699 -1,446 -1,431 -6,576
rrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrr
Total Other Pilotage Costs........... 628,324 247,757 245,096 1,121,177
Pilot Boat and Dispatch Costs:
Pilot boat costs............................. 397,610 156,774 155,092 709,476
CPA Adjustment............................... -27,756 -10,944 -10,826 -49,526
Dispatch costs............................... 99,705 39,313 38,891 177,909
Payroll taxes................................ 9,351 3,687 3,648 16,686
Dispatch Employee Benefits................... 3,927 1,548 1,532 7,007
rrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrr
Total Pilot and Dispatch Costs........... 482,837 190,378 188,337 861,552
Administrative Expenses:
Legal--General Counsel....................... 32,149 12,676 12,540 57,365
Legal--Shared Counsel (K&L Gates)............ 18,730 7,385 7,306 33,421
CPA Adjustment............................... -5,595 -2,206 -2,183 -9,984
Office Rent.................................. 4,733 1,866 1,846 8,445
Insurance.................................... 3,715 1,465 1,449 6,629
Employee benefits............................ 76,093 30,003 29,681 135,777
Workers Compensation......................... 1,513 597 590 2,700
Payroll Taxes................................ 6,408 2,527 2,500 11,435
Other Taxes.................................. 1,034 408 403 1,845
Admin Travel................................. 676 267 264 1,207
Depreciation/Auto Leasing/Other.............. 50,959 20,093 19,877 90,929
Interest..................................... 2,262 892 882 4,036
APA Dues..................................... 20,544 8,100 8,013 36,657
Utilities.................................... 5,335 2,103 2,081 9,519
Admin Salaries............................... 64,004 25,236 24,966 114,206
Accounting/Professional Fees................. 34,390 13,560 13,414 61,364
Other........................................ 6,170 2,433 2,407 11,010
rrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrr
Total Administrative Expenses............ 323,120 127,405 126,036 576,561
rrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrr
Total Operating Expenses (Other Costs 1,434,281 565,540 559,469 2,559,290
+ Pilot Boats + Admin)..............
Proposed Adjustments (Director):
Housing Allowance............................ -18,382 -7,248 -7,170 -32,800
rrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrr
Total Director's Adjustments............. -18,382 -7,248 -7,170 -32,800
rrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrr
Total Operating Expenses (OpEx + 1,415,899 558,292 552,299 2,526,490
Adjustments)........................
----------------------------------------------------------------------------------------------------------------
B. Step 2: Project Operating Expenses, Adjusting for Inflation or
Deflation
Having identified the recognized 2017 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 2018 inflation rate.\35\ Because
the BLS does not provide forecasted inflation data, we use economic
projections from the Federal Reserve for the 2019 and 2020 inflation
modification.\36\ Based on that information, the calculations for Step
1 are as follows:
---------------------------------------------------------------------------
\33\ The undesignated areas in District Three (areas 6 and 8)
are treated separately in Table 27. In Table 28 and subsequent
tables, both undesignated areas are combined and analyzed as a
single undesignated area.
\34\ See footnote 31.
\35\ See footnote 13.
\36\ See footnote 14.
[[Page 58115]]
Table 28--Adjusted Operating Expenses for District Three
----------------------------------------------------------------------------------------------------------------
District Three
-----------------------------------------------
Undesignated Designated Total
----------------------------------------------------------------------------------------------------------------
Total Operating Expenses (Step 1)............................... $1,968,198 $558,292 $2,526,490
2018 Inflation Modification (@1.9%)............................. 37,396 10,608 48,004
2019 Inflation Modification (@1.8%)............................. 36,101 10,240 46,341
2020 Inflation Modification (@2%)............................... 40,834 11,583 52,417
Adjusted 2020 Operating Expenses................................ 2,082,529 590,723 2,673,252
----------------------------------------------------------------------------------------------------------------
C. Step 3: Estimate Number of Working Pilots
In accordance with the text in Sec. 404.103, we estimate the
number of working pilots in each district. We determine the number of
working pilots based on input from the Western Great Lakes Pilots
Association. Using these number, we estimate that there will be 20
working pilots in 2020 in District Three. Furthermore, based on the
seasonal staffing model discussed in the 2017 ratemaking (see 82 FR
41466), we assign a certain number of pilots to designated waters and a
certain number to undesignated waters, as shown in Table 29. These
numbers are used to determine the amount of revenue needed in their
respective areas.
Table 29--Authorized Pilots
------------------------------------------------------------------------
District Three
------------------------------------------------------------------------
Maximum number of pilots (per Sec. 401.220(a)) \37\... 22
2020 Authorized pilots (total).......................... 20
Pilots assigned to designated areas..................... 4
Pilots assigned to undesignated areas................... 16
------------------------------------------------------------------------
D. Step 4: Determine Target Pilot Compensation Benchmark
---------------------------------------------------------------------------
\37\ For a detailed calculation refer to the Great Lakes
Pilotage Rates--2017 Annual Review final rule, which contains the
staffing model. See 82 FR 41466, table 6 at 41480 (August 31, 2017).
---------------------------------------------------------------------------
In this step, we determine the total pilot compensation for each
area. As we are proposing an ``interim'' ratemaking this year, we
propose to follow the procedure outlined in paragraph (b) of Sec.
404.104, which adjusts the existing compensation benchmark by
inflation. Because we do not have a value for the employment cost index
for 2020, we multiply the 2019 compensation benchmark of $359,887 by
the Median PCE Inflation value of 2.0 percent.\38\ Based on the
projected 2020 inflation estimate, the proposed compensation benchmark
for 2020 is $367,085 per pilot.
---------------------------------------------------------------------------
\38\ https://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20190320.pdf.
---------------------------------------------------------------------------
Next, we certify that the number of pilots estimated for 2020 is
less than or equal to the number permitted under the staffing model in
Sec. 401.220(a). The staffing model suggests that the number of pilots
needed for District Three is 22 pilots,\39\ which is more than or equal
to the numbers of working pilots provided by the pilot associations.
---------------------------------------------------------------------------
\39\ 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 working pilots for District Three, as shown in
Table 30.
Table 30--Target Compensation for District Three
----------------------------------------------------------------------------------------------------------------
District Three
-----------------------------------------------
Undesignated Designated Total
----------------------------------------------------------------------------------------------------------------
Target Pilot Compensation....................................... $367,085 $367,085 $367,085
Number of Pilots................................................ 16 4 20
-----------------------------------------------
Total Target Pilot Compensation............................. $5,873,360 $1,468,340 $7,341,700
----------------------------------------------------------------------------------------------------------------
E. Step 5: Project Working Capital Fund
Next, we calculate the working capital fund revenues needed for
each area. First, we add together the figures for projected operating
expenses and total pilot compensation for each area. Next, we find the
preceding year's average annual rate of return for new issues of high
grade corporate securities. Using Moody's data, the number is 3.93
percent.\40\ By multiplying the two figures, we obtain the working
capital fund contribution for each area, as shown in Table 31.
---------------------------------------------------------------------------
\40\ Moody's Seasoned Aaa Corporate Bond Yield, average of 2018
monthly data. The Coast Guard uses the most recent complete year of
data. See https://fred.stlouisfed.org/series/AAA. (June 12, 2019)
[[Page 58116]]
Table 31--Working Capital Fund Calculation for District Three
----------------------------------------------------------------------------------------------------------------
District Three
-----------------------------------------------
Undesignated Designated Total
----------------------------------------------------------------------------------------------------------------
Adjusted Operating Expenses (Step 2)............................ $2,082,529 $590,723 $2,673,252
Total Target Pilot Compensation (Step 4)........................ 5,873,360 1,468,340 7,341,700
Total 2018 Expenses............................................. 7,955,889 2,059,063 10,014,952
Working Capital Fund (3.93%).................................... 312,666 80,921 393,587
----------------------------------------------------------------------------------------------------------------
F. Step 6: Project Needed Revenue
In this step, we add together all of 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 is shown in Table 32.
Table 32--Revenue Needed for District Three
----------------------------------------------------------------------------------------------------------------
District Three
-----------------------------------------------
Undesignated Designated Total
----------------------------------------------------------------------------------------------------------------
Adjusted Operating Expenses (Step 2, See Table 28).............. $2,082,529 $590,723 $2,673,252
Total Target Pilot Compensation (Step 4, See Table 30).......... 5,873,360 1,468,340 7,341,700
Working Capital Fund (Step 5, See Table 31)..................... 312,666 80,921 393,587
-----------------------------------------------
Total Revenue Needed........................................ 8,268,555 2,139,984 10,408,539
----------------------------------------------------------------------------------------------------------------
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.\41\ Because
we calculate separate figures for designated and undesignated waters,
there are two parts for each calculation. We show these values in Table
33.
---------------------------------------------------------------------------
\41\ See footnote 18 for more information.
Table 33--Time on Task for District Three
[Hours]
------------------------------------------------------------------------
District Three
Year -------------------------------
Undesignated Designated
------------------------------------------------------------------------
2018.................................... 19,967 3,455
2017.................................... 20,955 2,997
2016.................................... 23,421 2,769
2015.................................... 22,824 2,696
2014.................................... 25,833 3,835
2013.................................... 17,115 2,631
2012.................................... 15,906 2,163
2011.................................... 16,012 1,678
2010.................................... 20,211 2,461
2009.................................... 12,520 1,820
-------------------------------
Average............................. 19,476 2,651
------------------------------------------------------------------------
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 34.
Table 34--Initial Rate Calculations for District Three
------------------------------------------------------------------------
Undesignated Designated
------------------------------------------------------------------------
Revenue needed (Step 6)................. $8,268,555 $2,139,984
Average time on task (hours)............ 19,476 2,651
Initial rate............................ $425 $807
------------------------------------------------------------------------
[[Page 58117]]
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 35 and
36.\42\
---------------------------------------------------------------------------
\42\ See footnote 19 for more information
Table 35--Average Weighting Factor for District Three, Undesignated Areas
----------------------------------------------------------------------------------------------------------------
Number of Weighting Weighted
Vessel class/year transits factor transits
----------------------------------------------------------------------------------------------------------------
Area 6
----------------------------------------------------------------------------------------------------------------
Class 1 (2014).................................................. 45 1 45
Class 1 (2015).................................................. 56 1 56
Class 1 (2016).................................................. 136 1 136
Class 1 (2017).................................................. 148 1 148
Class 1 (2018).................................................. 103 1 103
Class 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 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 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
-----------------------------------------------
Total for Area 6............................................ 3,504 .............. 4,507.05
----------------------------------------------------------------------------------------------------------------
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 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 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 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
-----------------------------------------------
Total for Area 8............................................ 1,976 .............. 2623.1
-----------------------------------------------
Combined total.......................................... 5,480 .............. 7,130.15
-----------------------------------------------
Average weighting factor (weighted transits/number .............. 1.30 ..............
of transits).......................................
----------------------------------------------------------------------------------------------------------------
Table 36--Average Weighting Factor for District Three, Designated Areas
----------------------------------------------------------------------------------------------------------------
Number of Weighting Weighted
Vessel class per year transits factor transits
----------------------------------------------------------------------------------------------------------------
Class 1 (2014).................................................. 27 1 27
Class 1 (2015).................................................. 23 1 23
Class 1 (2016).................................................. 55 1 55
Class 1 (2017).................................................. 62 1 62
[[Page 58118]]
Class 1 (2018).................................................. 47 1 47
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 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 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
-----------------------------------------------
Total....................................................... 2,296 .............. 2,977
-----------------------------------------------
Average weighting factor (weighted transits per number .............. 1.30 ..............
of transits)...........................................
----------------------------------------------------------------------------------------------------------------
I. Step 9: Calculate Revised Base Rates
In this step, we revise the base rates so that once the impact of
the weighting factors are considered, the total cost of pilotage would
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 37.
Table 37--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...................................... $807 1.30 $621
District Three: Undesignated.................................... 425 1.30 327
----------------------------------------------------------------------------------------------------------------
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 that the proposed rates
do meet the goal of ensuring safe, efficient and reliable pilotage, the
Director considers whether the proposed rates incorporate appropriate
compensation for pilots to handle heavy traffic periods and whether
there is a sufficient number of pilots to handle those heavy traffic
periods. The Director also considers whether the proposed rates would
cover operating expenses and infrastructure costs, and takes average
traffic and weighting factors into consideration. Based on this
information, the Director is not proposing any alterations to the rates
in this step. We propose to modify the text in Sec. 401.405(a) to
reflect the final rates shown in Table 38.
Table 38--Proposed Final Rates for District Three
----------------------------------------------------------------------------------------------------------------
Final 2019 Proposed 2020
Area Name pilotage rate pilotage rate
----------------------------------------------------------------------------------------------------------------
District Three: Designated................... St. Mary's River............... $594 $621
District Three: Undesignated................. Lakes Huron, Michigan, and 306 327
Superior.
----------------------------------------------------------------------------------------------------------------
K. Surcharges
The Coast Guard is not proposing any surcharges in this ratemaking.
As stated earlier, we previously used surcharges to pay for the
training of new pilots, rather than incorporating training costs into
the overall ``needed revenue'' that is used in the calculation of the
base rate, because the surcharge accelerates the reimbursement of
certain necessary and reasonable expense. For the 2019 ratemaking, this
reimbursement needed to be accelerated because of the large number of
registered pilots retiring, and the large number of new pilots being
trained to replace them. As the vast majority of registered pilots are
not anticipated to retire in the next 20 years, we believe that pilot
associations are now able to plan for the costs associated with
retirements without relying on the Coast Guard to impose surcharges.
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.
[[Page 58119]]
A. Regulatory Planning and Review
Executive Orders 12866 (Regulatory Planning and Review) and 13563
(Improving Regulation and Regulatory Review) direct agencies to assess
the costs and benefits of available regulatory alternatives and, if
regulation is necessary, to select regulatory approaches that maximize
net benefits (including potential economic, environmental, public
health and safety effects, distributive impacts, and equity). Executive
Order 13563 emphasizes the importance of quantifying costs and
benefits, reducing costs, harmonizing rules, and promoting flexibility.
Executive Order 13771 (Reducing Regulation and Controlling Regulatory
Costs) directs agencies to reduce regulation and control regulatory
costs and provides that ``for every one new regulation issued, at least
two prior regulations be identified for elimination, and that the cost
of planned regulations be prudently managed and controlled through a
budgeting process.''
The Office of Management and Budget (OMB) has not designated this
proposed rule a significant regulatory action under section 3(f) of
Executive Order 12866. Accordingly, OMB has not reviewed it. Because
this proposed rule is not a significant regulatory action, it is exempt
from the requirements of Executive Order 13771. See the OMB Memorandum
titled ``Guidance Implementing Executive Order 13771, titled `Reducing
Regulation and Controlling Regulatory Costs' '' (April 5, 2017). A
regulatory analysis (RA) follows.
The purpose of this proposed rule is to establish new base pilotage
rates. The Great Lakes Pilotage Act of 1960 requires that rates be
established or reviewed and adjusted each year. The Act requires that
base rates be established by a full ratemaking at least once every five
years, and in years when base rates are not established, they must be
reviewed and, if necessary, adjusted. The last full ratemaking was
concluded in June of 2018.\43\ Table 39 summarizes proposed changes
with no cost impacts or where the cost impacts are captured in the
proposed rate change. Table 40 summarizes the affected population,
costs, and benefits of the proposed rate change. The Coast Guard
estimates a decrease in cost of approximately $0.23 million to industry
as a result of the change in revenue needed in 2020 compared to the
revenue needed in 2019.
---------------------------------------------------------------------------
\43\ Great Lakes Pilotage Rates--2018 Annual Review and
Revisions to Methodology (83 FR 26162), published June 5, 2018.
Table 39--Proposed Changes With No Costs or Cost Captured in the Proposed Rate Change
----------------------------------------------------------------------------------------------------------------
Affected
Change Description population Basis for no cost Benefits
----------------------------------------------------------------------------------------------------------------
Working capital fund The Coast Guard is The 3 pilotage All three Provides increased
requirements. proposing to add associations. districts opened transparency and
regulatory text accounts for the oversight of how
to Sec. 403.110 working capital the money in the
requiring the fund in response working capital
pilotage to a policy fund is spent and
associations keep letter sent by how much each
money allocated the Coast Guard association has
to the working in November, allocated for
capital fund in a 2018; therefore, infrastructure
separate account there is no expenses.
and limit the use additional cost
of the funds to as a result of
infrastructure this rulemaking.
expenses. In addition,
based on
discussion with
the associations,
we believe the
cost to open
these accounts
was negligible,
as each
association was
able to open a
bank account
online with their
existing
financial
institutions with
minimal effort.
We estimate that
any recordkeeping
or reporting
requirements
associated with
the working
capital fund
would also be
minimal. The
associations must
already report
and keep records
on their
infrastructure
expense as part
of their
reporting
requirements
under Sec.
403.105. We
believe any
recordkeeping
associated with
the new bank
accounts may be
conducted
simultaneously
with the
recordkeeping for
the existing
accounts, as all
accounts are with
the same
financial
institution.
Address inconsistent terms...... The Coast Guard is The 3 pilotage The Coast Guard Creates
proposing to associations. previously consistency
replace the text renamed ``return across the CFR
in Sec. on investment'' and reduces
404.106, ``return as the ``working confusion.
on investment'' capital fund'' in
with ``working the Great Lakes
capital fund''. Pilotage Rates
2017 Annual
Review final rule
(82 FR 41466);
however, this
text was not
modified in that
rulemaking.
Target pilot compensation....... The Coast Guard is Owners and Pilot compensation This compensation
proposing to operators of 266 costs are target achieves
change the base vessels accounted for in the Coast Guard's
pilot journeying the the base pilotage goals of safety
compensation Great Lakes rates. through rate and
benchmark in Sec. system annually, compensation
401.405(a) to 52 U.S. Great stability, while
the 2019 Lakes pilots, and promoting
compensation 3 pilotage recruitment and
benchmark after associations. retention of
adjusting for qualified U.S.
inflation. registered
pilots.
----------------------------------------------------------------------------------------------------------------
[[Page 58120]]
Table 40--Economic Impacts Due to Proposed Changes
----------------------------------------------------------------------------------------------------------------
Affected
Change Description population Costs Benefits
----------------------------------------------------------------------------------------------------------------
Rate and surcharge changes...... Under the Great Owners and Decrease of New rates cover an
Lakes Pilotage operators of 266 $225,658 due to association's
Act of 1960, the vessels change in revenue necessary and
Coast Guard is transiting the needed for 2020 reasonable
required to Great Lakes ($27,762,527) operating
review and adjust system annually, from revenue expenses.
base pilotage 52 U.S. Great needed for 2019 Promotes safe,
rates annually. Lakes pilots, and ($27,988,185) as efficient, and
3 pilotage shown in Table 41 reliable pilotage
associations. below. service on the
Great Lakes.
Provides fair
compensation,
adequate
training, and
sufficient rest
periods for
pilots.
Ensures the
association
receives
sufficient
revenues to fund
future
improvements.
----------------------------------------------------------------------------------------------------------------
The Coast Guard is required to review and adjust pilotage rates on
the Great Lakes annually. See Sections IV and V of this preamble for
detailed discussions of the legal basis and purpose for this rulemaking
and for background information on Great Lakes pilotage ratemaking.
Based on our annual review for this rulemaking, we are proposing to
adjust the pilotage rates for the 2020 shipping season to generate
sufficient revenues for each district to reimburse its necessary and
reasonable operating expenses, fairly compensate trained and rested
pilots, and provide an appropriate working capital fund to use for
improvements. The rate changes in this proposed rule would increase the
rates for four areas (District One: Designated, District Two:
Undesignated, and all of District Three), and decrease the rates for
the remaining two areas (District One: Undesignated, and District Two:
Designated). In addition, the proposed rule would not implement a
surcharge. These changes lead to a net decrease 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 impact U.S. Great Lakes pilots, the three pilot
associations, and the owners and operators of oceangoing vessels that
transit the Great Lakes annually. We estimate that there would be 52
pilots working during the 2020 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 2016
through 2018 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 457 unique vessels
used pilotage services during the years 2016 through 2018. That is,
these vessels had a pilot dispatched to the vessel, and billing
information was recorded in the GLPMS. Of these vessels, 420 were
foreign-flagged vessels and 37 were U.S.-flagged vessels. As previously
stated, U.S.-flagged vessels not operating on register are not required
to have a registered pilot per 46 U.S.C. 9302, but they can voluntarily
choose to have one.
Numerous factors affect vessel traffic, which varies from year to
year. Therefore, rather than using the total number of vessels over the
time period, we took an average of the unique vessels using pilotage
services from the years 2016 through 2018 as the best representation of
vessels estimated to be affected by the rates in this rulemaking. From
2016 through 2018, an average of 266 vessels used pilotage services
annually.\44\ On average, 248 of these vessels were foreign-flagged
vessels and 18 were U.S.-flagged vessels that voluntarily opted into
the pilotage service.
---------------------------------------------------------------------------
\44\ Some vessels entered the Great Lakes multiple times in a
single year, affecting the average number of unique vessels
utilizing pilotage services in any given year.
---------------------------------------------------------------------------
Total Cost to Shippers
The proposed rate changes resulting from this adjustment to the
rates would result in a net decrease in the cost of service to
shippers. However, because the rates would increase for some areas and
decrease for others, the proposed change in per unit cost to each
individual shipper would be dependent on their area of operation, and
if they previously paid a surcharge.
The Coast Guard estimates the effect of the rate changes on
shippers by comparing the total projected revenues needed to cover
costs in 2019 with the total projected revenues to cover costs in 2020,
including any temporary surcharges we have authorized.\45\ We set
pilotage rates so that 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
[[Page 58121]]
services. The change in revenue from the previous year is the
additional cost to shippers discussed in this rule.
---------------------------------------------------------------------------
\45\ While the Coast Guard implemented a surcharge in 2019, we
are not proposing any surcharges for 2020.
---------------------------------------------------------------------------
The impacts of the rate changes on shippers are estimated from the
district pilotage projected revenues (shown in Tables 8, 20, and 32 of
this preamble). The Coast Guard estimates that for the 2020 shipping
season, the projected revenue needed for all three districts is
$27,762,527.
To estimate the change in cost to shippers from this rule, the
Coast Guard compared the 2020 total projected revenues to the 2019
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 2019
rulemaking, we estimated the total projected revenue needed for 2019,
including surcharges, as $27,988,185.\46\ This is the best
approximation of 2019 revenues as, at the time of this publication, we
do not have enough audited data available for the 2019 shipping season
to revise these projections. Table 41 shows the revenue projections for
2019 and 2020 and details the additional cost increases to shippers by
area and district as a result of the rate changes on traffic in
Districts One, Two, and Three.
---------------------------------------------------------------------------
\46\ 84 FR 20551, see table 36.
Table 41--Effect of the Rule by Area and District
[$U.S.; Non-discounted]
--------------------------------------------------------------------------------------------------------------------------------------------------------
Total 2019 Total 2020 Change in
Area Revenue needed 2019 Temporary projected Revenue needed 2020 Temporary projected costs of this
in 2019 surcharge revenue in 2020 surcharge revenue proposed rule
--------------------------------------------------------------------------------------------------------------------------------------------------------
Total, district one..................... $9,271,852 $300,000 $9,571,852 $9,201,688 $0 $9,201,688 -$370,164
Total, district two..................... 7,864,224 150,000 8,014,224 8,152,300 0 8,152,300 138,076
Total, district three................... 9,802,109 600,000 10,402,109 10,408,539 0 10,408,539 6,430
rrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrr
System total........................ 26,938,185 1,050,000 27,988,185 27,762,527 0 27,762,527 -$225,658
--------------------------------------------------------------------------------------------------------------------------------------------------------
The resulting difference between the projected revenue in 2019 and
the projected revenue in 2020 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. The rate changes, after taking into account the change in
pilotage rates, would lead to affected shippers operating in District
One experiencing a decrease in payments of $370,164, over the previous
year. District Two and District Three would experience an increase in
payments of $138,076 and, $6,430 respectively, when compared with 2019.
The overall adjustment in payments would be a decrease in payments by
shippers of $225,658 across all three districts (a 1-percent decrease
when compared with 2019). 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 42 shows the difference in revenue by revenue-component from
2019 to 2020, and presents each revenue-component as a percentage of
the total revenue needed. In both 2019 and 2020, the largest revenue-
component was pilotage compensation (66% of total revenue needed in
2019 and 69% of total revenue needed in 2020), followed by operating
expenses (27% of total revenue needed in 2019 and 2020).
Table 42--Difference in Revenue by Component
--------------------------------------------------------------------------------------------------------------------------------------------------------
Difference
Revenue needed Percentage of Revenue needed Percentage of (2020 revenue- Percentage
Revenue-component in 2019 total revenue in 2020 total revenue 2019 revenue) change from
needed in 2019 needed in 2020 previous year
--------------------------------------------------------------------------------------------------------------------------------------------------------
Adjusted Operating Expenses............................. $7,565,310 27 $7,624,298 27 $58,988 1
Total Target Pilot Compensation......................... 18,354,237 66 19,088,420 69 734,183 4
Working Capital Fund.................................... 1,018,638 4 1,049,809 4 31,171 3
Total Revenue Needed, without Surcharge................. 26,938,185 96 27,762,527 100 824,342 3
Surcharge............................................... 1,050,000 4 0 0 -1,050,000 -100
Total Revenue Needed, with Surcharge.................... 27,988,185 100 27,762,527 100 -225,658 -1
--------------------------------------------------------------------------------------------------------------------------------------------------------
Note: Totals may not sum due to rounding.
Table 43 presents the percentage change in revenue by area and
revenue-component, excluding surcharges as they are applied at the
district level.\47\ The majority of the decrease in revenue is due to
the removal of surcharges to cover the cost of applicant pilot training
expenses and decreased operating expenses. The change in revenue also
accounts for the inflation of pilotage compensation and the net
addition of one additional pilot. The target compensation for these
pilots is $367,085 per pilot. The addition of this pilot to full
working status accounts for $367,085 of the increase ($734,183 is the
difference between the revenues needed in 2019 to the revenues needed
in 2020, which takes into account the effect of increasing compensation
for the other 51 pilots). The remaining amount is attributed to
increases in the working capital fund.
---------------------------------------------------------------------------
\47\ The 2019 projected revenues are from the Great Lakes
Pilotage Rates--2019 Annual Review and Revisions to Methodology
final rule (84 FR 20551) Tables 15-17. The 2020 projected revenues
are from tables 8, 20, and 32 of this proposed rule.
[[Page 58122]]
Table 43--Difference in Revenue by Component and Area
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Adjusted operating expenses Total target pilot compensation Working capital fund Total revenue needed
---------------------------------------------------------------------------------------------------------------------------------------------------
Area Percentage Percentage Percentage Percentage
2019 2020 change 2019 2020 change 2019 2020 change 2019 2020 change
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
District One: Designated.................... $1,467,171 $1,567,975 6 $3,598,870 $3,670,850 2 $199,095 $205,886 3 $5,265,136 $5,444,711 3
District One: Undesignated.................. 1,335,997 1,045,316 -28 2,519,209 2,569,595 2 151,510 142,066 -7 4,006,716 3,756,977 -7
District Two: Undesignated.................. 1,072,441 935,104 -15 2,519,209 2,936,680 14 141,152 152,161 7 3,732,802 4,023,945 7
District Two: Designated.................... 1,455,988 1,402,651 -4 2,519,209 2,569,595 2 156,225 156,109 0 4,131,422 4,128,355 0
District Three: Undesignated................ 1,703,896 2,082,529 18 5,758,192 5,873,360 2 293,260 312,666 6 7,755,348 8,268,555 6
District Three: Designated.................. 529,817 590,723 10 1,439,548 1,468,340 2 77,396 80,921 4 2,046,761 2,139,984 4
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Benefits
This proposed rule would allow the Coast Guard to meet the
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 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 \48\ and ReferenceUSA.\49\ As described in Section VIII.A
of this preamble, Regulatory Planning and Review, we found that a total
of 457 unique vessels used pilotage services from 2016 through 2018.
These vessels are owned by 55 entities. We found that of the 55
entities that own or operate vessels engaged in trade on the Great
Lakes that would be affected by this rule, 43 are foreign entities that
operate primarily outside the United States. The remaining 12 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 small
entities.\50\ Table 44 shows the North American Industry Classification
System (NAICS) codes of the U.S. entities and the small entity standard
size established by the SBA.
---------------------------------------------------------------------------
\48\ See https://www.manta.com/.
\49\ See http://resource.referenceusa.com/.
\50\ 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 44--NAICS Codes and Small Entities Size Standards
----------------------------------------------------------------------------------------------------------------
NAICS Description Small entity size standard
----------------------------------------------------------------------------------------------------------------
211120......................... Crude Petroleum Extraction..... 1,250 employees.
238910......................... Site Preparation Contractors... $15.0 million.
488330......................... Navigational Services to $38.5 million.
Shipping.
523910......................... Miscellaneous Intermediation... $38.5 million.
532411......................... Commercial Air, Rail, and Water $32.5 million.
Transportation Equipment
Rental and Leasing.
551111......................... Offices of Bank Holding $20.5 million.
Companies.
561510......................... Travel Agencies................ $20.5 million.
928110......................... National Security.............. Population of 50,000 people.
----------------------------------------------------------------------------------------------------------------
Of the 12 U.S. entities, 10 exceed the SBA's small business
standards for small entities. To estimate the potential impact on the 2
small entities, the Coast Guard used their 2018 invoice data to
estimate their pilotage costs in 2020. We increased their 2018 costs to
account for the changes in pilotage rates resulting from this rule and
the Great Lakes Pilotage Rates--2019 Annual Review and Revisions to
Methodology final rule (84 FR 20551). We estimated the change in cost
to these entities resulting from this rule by subtracting their
estimated 2019 costs from their estimated 2020 costs. We then compared
the estimated change in pilotage costs between 2019 and 2020 with each
firm's annual revenue and compared their total estimated 2020 pilotage
costs to their annual revenue. In both cases, their estimated pilotage
expenses were below 1 percent of their annual revenue. Table 44
presents the calculation of these cost estimates for both entities.
[[Page 58123]]
Table 44--Estimated 2020 Pilotage Costs for Small Entities
[Thousands of dollars]
--------------------------------------------------------------------------------------------------------------------------------------------------------
Estimated change
in pilotage Estimated change Estimated change
Entity 2018 pilotage costs between Estimated 2019 in pilotage Estimated 2020 in pilotage
expenses 2018 and 2019 pilotage expenses cost between pilotage expenses expenses from
\51\ 2018 and 2019 2019 to 2020
(a) (b) (c) = (a) x (1 + (d) (e) = (c) x (1 + (f) = (e) - (c)
(b)) (d))
--------------------------------------------------------------------------------------------------------------------------------------------------------
Small Entity A.......................... $4.75 11 5.27 -1 5.22 -$0.05
Small Entity B.......................... 148.39 11 164.71 -1 163.06 -1.65
--------------------------------------------------------------------------------------------------------------------------------------------------------
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.
---------------------------------------------------------------------------
\51\ 84 FR 20551, see table 37.
---------------------------------------------------------------------------
Finally, the Coast Guard did not find any small not-for-profit
organizations that are independently owned and operated and are not
dominant in their fields that would be impacted by this rule. We did
not find any small governmental jurisdictions with populations of fewer
than 50,000 people that would be impacted by this rule. Based on this
analysis, we conclude this rulemaking would not affect a substantial
number of small entities, nor have a significant economic impact on any
of the affected entities.
Based on our analysis, this proposed rule would have a less than 1
percent annual impact on 2 small entities; therefore, the Coast Guard
certifies under 5 U.S.C. 605(b) that this proposed rule would not have
a significant economic impact on a substantial number of small
entities. If you think that your business, organization, or
governmental jurisdiction qualifies as a small entity and that this
proposed rule would have a significant economic impact on it, please
submit a comment to the docket at the address listed in the ADDRESSES
section of this preamble. In your comment, explain why you think it
qualifies and how and to what degree this proposed rule would
economically affect it.
C. Assistance for Small Entities
Under section 213(a) of the Small Business Regulatory Enforcement
Fairness Act of 1996, Public Law 104-121, we want to assist small
entities in understanding this proposed rule so that they can better
evaluate its effects on them and participate in the rulemaking. If the
proposed rule would affect your small business, organization, or
governmental jurisdiction and you have questions concerning its
provisions or options for compliance, please contact the person in the
FOR FURTHER INFORMATION section of this proposed rule. The Coast Guard
will not retaliate against small entities that question or complain
about this proposed rule or any policy or action of the Coast Guard.
Small businesses may send comments on the actions of Federal
employees who enforce, or otherwise determine compliance with, Federal
regulations to the Small Business and Agriculture Regulatory
Enforcement Ombudsman and the Regional Small Business Regulatory
Fairness Boards. The Ombudsman evaluates these actions annually and
rates each agency's responsiveness to small business. If you wish to
comment on actions by employees of the Coast Guard, call 1-888-REG-FAIR
(1-888-734-3247).
D. Collection of Information
This proposed rule would call for no new collection of information
under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520). This
proposed rule would not change the burden in the collection currently
approved by OMB under OMB Control Number 1625-0086, Great Lakes
Pilotage Methodology.
E. Federalism
A rule has implications for federalism under Executive Order 13132
(Federalism) if it has a substantial direct effect on the States, on
the relationship between the national government and the States, or on
the distribution of power and responsibilities among the various levels
of government. We have analyzed this proposed rule under Executive
Order 13132 and have determined that it is consistent with the
fundamental federalism principles and preemption requirements as
described in Executive Order 13132. Our analysis follows.
Congress directed the Coast Guard to establish ``rates and charges
for pilotage services.'' See 46 U.S.C. 9303(f). This regulation is
issued pursuant to that statute and is preemptive of State law as
specified in 46 U.S.C. 9306. Under 46 U.S.C. 9306, a ``State or
political subdivision of a State may not regulate or impose any
requirement on pilotage on the Great Lakes.'' As a result, States or
local governments are expressly prohibited from regulating within this
category. Therefore, this proposed rule is consistent with the
fundamental federalism principles and preemption requirements described
in Executive Order 13132.
While it is well settled that States may not regulate in categories
in which Congress intended the Coast Guard to be the sole source of a
vessel's obligations, the Coast Guard recognizes the key role that
State and local governments may have in making regulatory
determinations. Additionally, for rules with implications and
preemptive effect, Executive Order 13132 specifically directs agencies
to consult with State and local governments during the rulemaking
process. If you believe this rule has implications for federalism under
Executive Order 13132, please contact the person listed in the FOR
FURTHER INFORMATION section of this preamble.
F. Unfunded Mandates
The Unfunded Mandates Reform Act of 1995, 2 U.S.C. 1531-1538,
requires Federal agencies to assess the effects of their discretionary
regulatory actions. In particular, the Act addresses actions that may
result in the expenditure by a State, local, or tribal government, in
the aggregate, or by the private sector of $100 million (adjusted for
inflation) or more in any one year. Although this proposed rule would
not result in such
[[Page 58124]]
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
the method listed in the ADDRESSES section of this preamble.
M. Environment
We have analyzed this proposed rule under Department of Homeland
Security Management Directive 023-01-001-01, Revision 1 (DHS Directive
023-01), Commandant Instruction 5090.1 (COMDTINST 5090.1), and U.S.
Coast Guard Environmental Planning Policy (April 2019), which guide the
Coast Guard in complying with the National Environmental Policy Act of
1969 (42 U.S.C. 4321-4370f), and have made a preliminary determination
that this action is one of a category of actions that do not
individually or cumulatively have a significant effect on the human
environment. A preliminary Record of Environmental Consideration
supporting this determination is available in the docket where
indicated under the ADDRESSES portion of this preamble. This proposed
rule appears to meet the criteria for categorical exclusion (CATEX)
under paragraphs A3 and L54 in Table 3-1 of U.S. Coast Guard
Environmental Planning Implementing Procedures, which is available in
the docket at www.regulations.gov. 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.
This proposed rule involves: (1) Clarifying the rules related to
the working capital fund, (2) adjusting the base pilotage rates, and
(3) eliminating surcharges for administering the 2020 shipping season
in accordance with applicable statutory and regulatory mandates
pursuant to the Great Lakes Pilotage Act of 1960. We seek any comments
or information that may lead to the discovery of a significant
environmental impact from this proposed rule.
List of Subjects
46 CFR Part 401
Administrative practice and procedure, Great Lakes, Navigation
(water), Penalties, Reporting and recordkeeping requirements, Seamen.
46 CFR Part 403
Great Lakes, Navigation (water), Reporting and recordkeeping
requirements, Seamen, Uniform System of Accounts.
46 CFR Part 404
Great Lakes, Navigation (water), Seamen.
For the reasons discussed in the preamble, the Coast Guard proposes
to amend 46 CFR parts 401, 403, and 404 as follows:
PART 401--GREAT LAKES PILOTAGE REGULATIONS
0
1. The authority citation for part 401 continues to read as follows:
Authority: 46 U.S.C. 2103, 2104(a), 6101, 7701, 8105, 9303,
9304; Department of Homeland Security Delegation No.
0170.1(II)(92.a), (92.d), (92.e), (92.f).
0
2. Revise Sec. 401.405(a) to read as follows:
Sec. 401.405 Pilotage rates and charges.
(a) The hourly rate for pilotage service on--
(1) The St. Lawrence River is $757;
(2) Lake Ontario is $462;
(3) Lake Erie is $573;
(4) The navigable waters from Southeast Shoal to Port Huron, MI is
$602;
(5) Lakes Huron, Michigan, and Superior is $302; and
(6) The St. Mary's River is $621.
* * * * *
PART 403--GREAT LAKES PILOTAGE UNIFORM ACCOUNTING SYSTEM
0
3. The authority citation for part 403 continues to read as follows:
Authority: 46 U.S.C. 2103, 2104(a), 9303, 9304; Department of
Homeland Security Delegation No. 0170.1(II)(92.a), (92.f).
[[Page 58125]]
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4. Amend Sec. 403.110 by:
0
(a) Designating the text as paragraph (a); and
0
(b) Adding paragraph (b).
The addition to read as follows:
Sec. 403.110 Accounting entities
(a) * * *
(b) Each Association will maintain a separate account called the
``Working Capital Fund.'' Each Association will deposit into the
working capital fund an amount each year at least equal to the amount
calculated in Step 5, 46 CFR 404.105. Working capital funds may only be
used for infrastructure improvements and infrastructure maintenance
necessary to provide safe, efficient, and reliable pilot service such
as pilot boat replacements, major repairs to pilot boats, non-recurring
technology purchases necessary for providing pilot services, or for the
acquisition of real property for use as a dispatch center, office
space, or pilot lodging. The Director may grant exceptions to the
requirements of this paragraph (403.110(b)) upon request by an
Association.
PART 404--GREAT LAKES PILOTAGE RATEMAKING
0
5. The authority citation for part 404 continues to read as follows:
Authority: 46 U.S.C. 2103, 2104(a), 9303, 9304; Department of
Homeland Security Delegation No. 0170.1(II)(92.a), (92.f).
Sec. 404.106 [Amended]
0
6. In Sec. 404.106, remove the words ``return on investment'' and add
in their place ``working capital fund''.
Dated: October 23, 2019.
R.V. Timme,
Rear Admiral, U.S. Coast Guard, Assistant Commandant for Prevention
Policy.
[FR Doc. 2019-23510 Filed 10-29-19; 8:45 am]
BILLING CODE 9110-04-P