Legislature(2009 - 2010)

04/02/2009 03:06 PM House JUD


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03:06:19 PM Start
03:06:47 PM Overview(s): Review of the 2004 Consent Decree Entered into by the State of Alaska and Crowley Marine Service, Inc., Et Al.
04:25:21 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
                    ALASKA STATE LEGISLATURE                                                                                  
               HOUSE JUDICIARY STANDING COMMITTEE                                                                             
                         April 2, 2009                                                                                          
                           3:06 p.m.                                                                                            
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Representative Jay Ramras, Chair                                                                                                
Representative John Coghill                                                                                                     
Representative Carl Gatto                                                                                                       
Representative Max Gruenberg                                                                                                    
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
Representative Nancy Dahlstrom, Vice Chair                                                                                      
Representative Bob Lynn                                                                                                         
Representative Lindsey Holmes                                                                                                   
                                                                                                                                
COMMITTEE CALENDAR                                                                                                            
                                                                                                                                
OVERVIEW(S):  REVIEW OF THE 2004 CONSENT DECREE ENTERED INTO BY                                                                 
THE STATE OF ALASKA AND CROWLEY MARINE SERVICE, INC., ET AL.                                                                    
                                                                                                                                
     - HEARD                                                                                                                    
                                                                                                                                
PREVIOUS COMMITTEE ACTION                                                                                                     
                                                                                                                                
No Previous Action to Report                                                                                                    
                                                                                                                                
WITNESS REGISTER                                                                                                              
                                                                                                                                
DAN LEINBERGER, Member                                                                                                          
City Council                                                                                                                    
City of Bethel                                                                                                                  
Bethel, Alaska                                                                                                                  
POSITION STATEMENT:  Provided comments during a review of the                                                                 
2004 consent decree entered into by the State of Alaska and                                                                     
Crowley Marine Service, Inc., et al.                                                                                            
                                                                                                                                
CLYDE (ED) SNIFFEN, JR., Senior Assistant Attorney General                                                                      
Commercial/Fair Business Section                                                                                                
Civil Division (Anchorage)                                                                                                      
Department of Law (DOL)                                                                                                         
Anchorage, Alaska                                                                                                               
POSITION  STATEMENT:     Provided   comments  and   responded  to                                                             
questions  during a  review of  the 2004  consent decree  entered                                                               
into by  the State  of Alaska and  Crowley Marine  Service, Inc.,                                                               
et al.                                                                                                                          
                                                                                                                                
REPRESENTATIVE BOB HERRON                                                                                                       
Alaska State Legislature                                                                                                        
Juneau, Alaska                                                                                                                  
POSITION  STATEMENT:    Asked  questions  and  provided  comments                                                             
during a  review of the 2004  consent decree entered into  by the                                                               
State of Alaska and Crowley Marine Service, Inc., et al.                                                                        
                                                                                                                                
MEERA KOHLER, President & CEO                                                                                                   
Alaska Village Electric Cooperative, Inc. (AVEC)                                                                                
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:   Provided  comments during  a review  of the                                                             
2004  consent decree  entered into  by  the State  of Alaska  and                                                               
Crowley Marine Service, Inc., et al.                                                                                            
                                                                                                                                
MYRON P. NANENG, SR., President                                                                                                 
Association of Village Council Presidents (AVCP)                                                                                
Bethel, Alaska                                                                                                                  
POSITION STATEMENT:   Provided  comments during  a review  of the                                                             
2004  consent decree  entered into  by  the State  of Alaska  and                                                               
Crowley Marine Service, Inc., et al.                                                                                            
                                                                                                                                
BOB CHARLES, Energy Development Coordinator                                                                                     
Association of Village Council Presidents (AVCP);                                                                               
President                                                                                                                       
Nuvista Light and Electric Cooperative, Inc.                                                                                    
Calista Corporation                                                                                                             
(No address provided)                                                                                                           
POSITION  STATEMENT:     Provided   comments  and   responded  to                                                             
questions  during a  review of  the 2004  consent decree  entered                                                               
into by  the State  of Alaska and  Crowley Marine  Service, Inc.,                                                               
et al.                                                                                                                          
                                                                                                                                
RAYMOND THOR WILLIAMS, Member                                                                                                   
City Council                                                                                                                    
City of Bethel;                                                                                                                 
Member                                                                                                                          
District 9                                                                                                                      
Board of Directors                                                                                                              
Alaska Municipal League (AML)                                                                                                   
Bethel, Alaska                                                                                                                  
POSITION  STATEMENT:     Provided   comments  and   responded  to                                                             
questions  during a  review of  the 2004  consent decree  entered                                                               
into by  the State  of Alaska and  Crowley Marine  Service, Inc.,                                                               
et al.                                                                                                                          
                                                                                                                                
REPRESENTATIVE BRYCE EDGMON                                                                                                     
Alaska State Legislature                                                                                                        
Juneau, Alaska                                                                                                                  
POSITION  STATEMENT:    Provided  comments  and  asked  questions                                                             
during a  review of the 2004  consent decree entered into  by the                                                               
State of Alaska and Crowley Marine Service, Inc., et al.                                                                        
                                                                                                                                
ACTION NARRATIVE                                                                                                              
                                                                                                                                
3:06:19 PM                                                                                                                    
                                                                                                                                
CHAIR JAY  RAMRAS called the  House Judiciary  Standing Committee                                                             
meeting to order  at 3:06 p.m.   Representatives Ramras, Coghill,                                                               
and  Gatto were  present at  the call  to order.   Representative                                                               
Gruenberg arrived as the meeting was in progress.                                                                               
                                                                                                                                
^Overview(s):  Review of the  2004 Consent Decree Entered into by                                                             
the State of Alaska and Crowley Marine Service, Inc., et al.                                                                  
                                                                                                                                
3:06:47 PM                                                                                                                    
                                                                                                                                
CHAIR RAMRAS announced  that the only order of  business would be                                                               
a review of the 2004 consent  decree entered into by the State of                                                               
Alaska and Crowley Marine Service, Inc., et al.                                                                                 
                                                                                                                                
3:10:39 PM                                                                                                                    
                                                                                                                                
DAN LEINBERGER,  Member, City Council, City  of Bethel, explained                                                               
that  approximately five  or six  years ago,  Yukon Fuel  Company                                                               
("Yukon")  was   purchased  by  Crowley  Marine   Services,  Inc.                                                               
("Crowley"), and a consent decree  was negotiated by the attorney                                                               
general's office.   Now that  some time  has passed, the  City of                                                               
Bethel feels  it would  be prudent to  review the  consent decree                                                               
regarding  its effectiveness  and whether  competitive conditions                                                               
within  the  Western Alaska  fuel  market  still exist.    Market                                                               
capacity in Bethel for fuel  is approximately 14 million gallons,                                                               
and  the decree  mandates that  29  percent of  that capacity  be                                                               
allocated to another competitor; in  this instance, that would be                                                               
Delta Western, Inc.  ("Delta").  He mentioned that  section XI of                                                               
the decree addresses compliance inspections.                                                                                    
                                                                                                                                
3:14:52 PM                                                                                                                    
                                                                                                                                
CLYDE  (ED)  SNIFFEN,  JR., Senior  Assistant  Attorney  General,                                                               
Commercial/Fair  Business  Section, Civil  Division  (Anchorage),                                                               
Department of  Law (DOL), noted  that he was  largely responsible                                                               
for  drafting  the consent  decree,  that  he'd investigated  the                                                               
purchase  of  Yukon  by  Crowley,  and that  in  looking  at  the                                                               
economic issues when crafting the  decree, the DOL had assistance                                                               
from Barry Pulliam  of Econ One Research, Inc. ("Econ  One").  He                                                               
mentioned that  the decree  was reviewed by  the court,  and that                                                               
there had been a considerable  amount of opposition to the decree                                                               
by residents of Bethel and "the  Western Alaska fuel group."  The                                                               
court  ultimately  found  that  the  decree  was  in  the  public                                                               
interest and was subsequently court ordered.                                                                                    
                                                                                                                                
MR.  SNIFFEN explained  that the  purpose  of the  decree was  to                                                               
[maintain  a   competitive  marketplace  for  delivery   of  fuel                                                               
consistent  with Alaska's  antitrust  laws], and  that to  effect                                                               
that, the decree required Crowley to  sell two sets of barges and                                                               
tugs to  Delta; to divest itself  of 4 million gallons'  worth of                                                               
storage space in  Bethel; and to make  storage capacity available                                                               
at   its   Nome,   Kotzebue,   and   Saint   Michael   terminals.                                                               
Additionally,  other actions  on the  part of  Crowley were  also                                                               
required by  the decree.   He  explained that  section XI  of the                                                               
consent   decree   serves   to   ensure   compliance   with   the                                                               
aforementioned requirements, and that  Delta would be the primary                                                               
beneficiary of a lot of those  requirements.  He pointed out that                                                               
neither Delta nor any other  competitor has complained to the DOL                                                               
regarding  a  lack of  compliance  by  Crowley  - which  is  also                                                               
required by  the consent decree  to submit  reports to the  DOL -                                                               
and thus there doesn't appear to be any problem at this time.                                                                   
                                                                                                                                
3:21:37 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  BOB  HERRON,   Alaska  State  Legislature,  asked                                                               
whether there  was any  consideration given  to including  in the                                                               
consent   decree  "an   automatic   reopener"   or  a   scheduled                                                               
independent review.                                                                                                             
                                                                                                                                
MR. SNIFFEN  said there was  not, and  remarked that such  is not                                                               
typically  done  in the  antitrust  realm  when resolving  issues                                                               
pertaining  to  asset  acquisition;   instead,  finality  in  the                                                               
process and  a reliance  on the  marketplace are  preferable over                                                               
providing any  lingering authority  to "overturn  the applecart."                                                               
Again, the  consent decree  requires Crowley  to provide  the DOL                                                               
with compliance reports; furthermore,  should it be determined at                                                               
some point that Crowley is  engaging in conduct inconsistent with                                                               
the decree requirements, the DOL could act at that time.                                                                        
                                                                                                                                
REPRESENTATIVE  HERRON  asked  whether  those  reports  would  be                                                               
public documents.                                                                                                               
                                                                                                                                
MR.  SNIFFEN said  it would  depend on  what information  Crowley                                                               
provided  in those  reports, though  the DOL  prefers to  keep as                                                               
much  information public  as possible;  for example,  if the  DOL                                                               
requested  proprietary information  from Crowley,  the DOL  would                                                               
make public as  much of the ensuing information as  it could that                                                               
was not proprietary.   In response to comments  and questions, he                                                               
said   that  regardless   that  folks   in  Western   Alaska  are                                                               
dissatisfied  with the  amount of  competition, unless  something                                                               
illegal is  actually going on,  the DOL is  not in a  position to                                                               
take any action,  and so would only  be investigating allegations                                                               
of illegal  activity such as  collusion or price fixing  or other                                                               
types of illegal  conduct.  A simple lack of  competition - which                                                               
wasn't much even before the decree  was ordered - and rising fuel                                                               
prices -  which are rising  everywhere, he noted -  won't warrant                                                               
an investigation,  and there isn't  a lot  that the DOL  could do                                                               
about those things anyway.                                                                                                      
                                                                                                                                
REPRESENTATIVE  HERRON,   referring  to  the  City   of  Bethel's                                                               
Resolution  09-16, said  he  doesn't believe  that  there is  any                                                               
actual collusion  occurring; instead,  the concern is  that there                                                               
is  a  sort  of  "lazy   collusion"  or  "indifferent  collusion"                                                               
occurring.                                                                                                                      
                                                                                                                                
MR. SNIFFEN said it can be  difficult to find violations of state                                                               
law  in   instances  where  a   company  simply   isn't  actively                                                               
attempting  to   keep  prices   down.     He  then   offered  his                                                               
understanding  of some  of the  effects of  and responses  to the                                                               
"bidding markets."                                                                                                              
                                                                                                                                
3:34:34 PM                                                                                                                    
                                                                                                                                
MEERA   KOHLER,  President   &  CEO,   Alaska  Village   Electric                                                               
Cooperative,  Inc.   (AVEC),  relayed  that  the   AVEC  provides                                                               
electric service  to 53 villages,  the bulk  of which are  in the                                                               
Yukon-Kuskokwim  Delta (Y-K  Delta)  area, and  buys about  5-5.5                                                               
million gallons of fuel per year.                                                                                               
                                                                                                                                
[Chair Ramras turned the gavel over to Representative Gatto.]                                                                   
                                                                                                                                
MS. KOHLER, recounting  the steps that the AVEC took  once it got                                                               
wind  of the  proposed [purchase  of  Yukon by  Crowley] and  the                                                               
steps it's since taken, explained  that what the AVEC has noticed                                                               
is  that the  fuel transportation  costs appear  to have  doubled                                                               
what they once  were before Crowley purchased  Yukon, adding that                                                               
this  dramatic increase  seems quite  excessive and  will have  a                                                               
significant impact  on the area's  villages.  In  conclusion, she                                                               
elaborated,  "It  is  clear  that   there  have  been  some  very                                                               
significant increases in  the cost of transporting  fuel; to what                                                               
extent  those are  because of  lack of  competition, and  to what                                                               
extent they  are because costs have  gone up, I don't  know and I                                                               
can't speculate, but it's certainly  ... a huge burden in Western                                                               
Alaska."                                                                                                                        
                                                                                                                                
[Representative Gatto returned the gavel to Chair Ramras.]                                                                      
                                                                                                                                
3:39:33 PM                                                                                                                    
                                                                                                                                
MYRON P.  NANENG, SR., President, Association  of Village Council                                                               
Presidents (AVCP),  after mentioning that the  AVCP represents 56                                                               
villages in  the Y-K  Delta, explained  that these  villages have                                                               
seen a  dramatic increase in the  price of fuel and  are affected                                                               
by it, some to the point  of having to choose between buying food                                                               
and buying  fuel.   He also recounted  an incident  to illustrate                                                               
that in Bethel, the [amount  of storage space] the consent decree                                                               
requires  Crowley to  provide its  competitor is  insufficient to                                                               
meet  the demand  of those  who wish  to pay  a lower  price than                                                               
Crowley  is  charging.    Last  fall,  for  example,  a  lack  of                                                               
competition in  the area  resulted in  Kwethluk and  Napaskiak on                                                               
the Kuskokwim  River, and  Emmonak on the  Yukon, running  out of                                                               
fuel  even before  "freeze up"  occurred.   Something  has to  be                                                               
done, he  concluded, to reduce the  cost of fuel in  Bethel.  The                                                               
AVCP, therefore, supports a review of the consent decree.                                                                       
                                                                                                                                
3:44:14 PM                                                                                                                    
                                                                                                                                
BOB  CHARLES,  Energy  Development  Coordinator,  Association  of                                                               
Village Council  Presidents (AVCP); President, Nuvista  Light and                                                               
Electric Cooperative,  Inc., Calista Corporation,  explained that                                                               
the  local, small,  individual utility  companies  in the  region                                                               
have seen their fuel prices  skyrocket well over 100 percent from                                                               
2007, and  this in turn  has resulted  in increased costs  to the                                                               
communities  as well  as to  the State  of Alaska.   The  people,                                                               
utilities,  and   fuel  operators  and  buyers   in  the  region,                                                               
therefore,  have  been  asking questions  regarding  whether  the                                                               
consent decree has  had the desired effect on  fuel prices; these                                                               
questions  -   several  of  which   he  listed  -   deserve  some                                                               
consideration because the effectiveness,  or lack thereof, of the                                                               
consent decree  is having  an impact on  both Western  Alaska and                                                               
the state economy.   In response to questions,  he concurred that                                                               
it  would   be  worthwhile  for   the  DOL  to   investigate  the                                                               
effectiveness of the consent decree,  particularly with regard to                                                               
whether there is sufficient competition in the market.                                                                          
                                                                                                                                
3:52:19 PM                                                                                                                    
                                                                                                                                
RAYMOND  THOR WILLIAMS,  Member,  City Council,  City of  Bethel;                                                               
Member, District  9, Board of Directors,  Alaska Municipal League                                                               
(AML), noting that the AML's District  9 includes a lot of small,                                                               
Native communities  that are  very much  impacted by  the consent                                                               
decree and the cost of the  energy they must purchase in order to                                                               
heat, feed, and educate their  children, surmised that because of                                                               
a lack  of competition in  the Bethel  area, the costs  for State                                                               
services  are  increasing extremely  quickly,  and  that if  this                                                               
continues, things  will soon get to  the point where some  of the                                                               
villages won't be able to keep  going.  He asked the committee to                                                               
request  that  the  DOL investigate  these  issues  and  evaluate                                                               
whether the consent decree is  still in everyone's best interest.                                                               
He suggested that  the consent decree was agreed  upon because it                                                               
would make it  easier for some corporations to  make money rather                                                               
than  because  it  would  ensure   sufficient  competition.    In                                                               
response to  questions, he  agreed that  fair trade  practices in                                                               
Bethel and surrounding communities  have become an issue; offered                                                               
a comparison  between fuel  prices in Bethel  and fuel  prices in                                                               
Nome;  and surmised  that the  higher  prices in  Bethel are  the                                                               
result of a lack of competition.                                                                                                
                                                                                                                                
REPRESENTATIVE HERRON  disclosed that up  until 1998, he  owned a                                                               
gas station  in Bethel, that  he was  the city manager  in Bethel                                                               
when the consent decree was proposed,  and that his son works for                                                               
Delta.                                                                                                                          
                                                                                                                                
MR. SNIFFEN, in response to a  question, said it would be helpful                                                               
to  receive specific  examples of  insufficient competition,  and                                                               
acknowledged  that  the  issue   of  whether  sufficient  storage                                                               
capacity  has been  provided for  via the  consent decree  is one                                                               
that the DOL could look into.                                                                                                   
                                                                                                                                
4:05:18 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE   BRYCE   EDGMON,    Alaska   State   Legislature,                                                               
questioned whether  the terms "unfair practices"  and "legitimate                                                               
business  practices" have  been defined  specifically to  address                                                               
today's [fuel pricing] environments.                                                                                            
                                                                                                                                
MR. SNIFFEN explained that those  are terms of art that encompass                                                               
a broad range  of potential activities, both  obvious and subtle,                                                               
and that  investigating such  issues is a  broad charge  for both                                                               
regulators  and  the courts.    In  response  to a  question,  he                                                               
outlined the steps the DOL might  take and the questions it might                                                               
ask  in investigating  the effectiveness  of the  consent decree,                                                               
noting  that  the DOL  has  broad  investigatory authority  under                                                               
Alaska's  antitrust   and  consumer  protection  statutes.     In                                                               
response  to  a further  question,  he  explained that  the  term                                                               
"market power" is generally defined as  the power of an entity to                                                               
control  prices or  restrict competition,  but  pointed out  that                                                               
having market power  isn't against the law in and  of itself - at                                                               
issue  instead  is whether  such  market  power is  obtained  via                                                               
illegal  behavior.   Some  costs  are just  very  high, and  fuel                                                               
companies  have  to  pass  those  costs  on,  and  they  are  not                                                               
necessarily  making  a  large   profit,  though  collusion  among                                                               
companies  to keep  prices high  is  something that  would be  of                                                               
concern to the DOL and could engender an investigation.                                                                         
                                                                                                                                
REPRESENTATIVE  HERRON made  some suggestions  for questions  the                                                               
DOL could ask during an  investigation, offered his understanding                                                               
of  how Crowley  and Delta  conduct their  businesses in  various                                                               
locations around the state, and  relayed that people want the DOL                                                               
to conduct  an investigation  in order  to determine  whether the                                                               
consent decree is still functioning as intended.                                                                                
                                                                                                                                
CHAIR  RAMRAS suggested  that  both the  DOL  and the  Regulatory                                                               
Commission  of Alaska  (RCA) ought  to  investigate these  issues                                                               
further.                                                                                                                        
                                                                                                                                
REPRESENTATIVE  EDGMON, in  conclusion, surmised  that people  in                                                               
Western Alaska  are simply questioning  what factors  are causing                                                               
their fuel costs to be so high.                                                                                                 
                                                                                                                                
REPRESENTATIVE HERRON, in conclusion,  characterized the price of                                                               
fuel products in  Western Alaska as volatile,  and reiterated his                                                               
understanding of how Crowley and  Delta conduct their businesses,                                                               
surmising  that some  people  are concerned  that  Crowley has  a                                                               
competitive advantage in Bethel.                                                                                                
                                                                                                                                
CHAIR RAMRAS,  in conclusion, indicated that  the committee would                                                               
be  issuing  a  formal  request  for  the  DOL  to  undertake  an                                                               
investigation into this matter.                                                                                                 
                                                                                                                                
4:25:21 PM                                                                                                                    
                                                                                                                                
ADJOURNMENT                                                                                                                   
                                                                                                                                
There being no  further business before the  committee, the House                                                               
Judiciary Standing Committee meeting was adjourned at 4:25 p.m.                                                                 

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