Legislature(1995 - 1996)
04/19/1995 03:10 PM House L&C
* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
HB 260 - MARINE PILOTS Number 026 CHAIRMAN KOTT introduced Representative Gary Davis, prime sponsor of HB 260. REPRESENTATIVE GARY DAVIS, Sponsor and Chairman of the House Transportation Committee introduced HB 260. He said the House Transportation Committee had some rather extensive hearings on this legislation and would briefly go over what they did in that committee concerning HB 260. REPRESENTATIVE DAVIS said HB 260 extends the Board of Marine Pilots which will sunset June 30 and there is a portion of the existing law that sunsetted earlier; that being the maximum tariff provision which was Alaska Statute 08.62.045. Representative Davis said in the House Transportation Committee hearings, there was a list of recommendations from the Administration to do a number of house cleaning measures and those are all incorporated in the bill. There wasn't a lot of debate or contention among those house cleaning issues. The sectional analysis is rather extensive; there are 22 sections. He said the bottom line is that after the House Transportation Committee heard the debate, the contentious item is unquestionably the provision that he had included in the legislation which referred to conflict resolution and was addressed through binding arbitration. The discussion in the committee and the result of a committee vote, pulled that provision from the legislation so there is currently no conflict resolution in the legislation. Representative Davis said it is felt, and there will undoubtedly be discussion from the interested and involved parties that some feel there is no need for it, others feel there is a strong need for it, and others will probably remain neutral. Number 054 REPRESENTATIVE DAVIS pointed out that there may be a question on Section 2. One thing the House Transportation Committee did was increase the size of the Marine Pilots Board. They increased the pilot organizations members by one and increased the industry representation by one on the board. Some people question if that isn't an increase in cost. Representative Davis said it is, but not to the state. The dues and fees paid for by the organizations pay for the activities of the board, so that is not a concern as far as a fiscal note to the state. Representative Davis commented there wasn't a lot of debate on that; it was somewhat accepted, but he wasn't exactly sure because it had been a couple of weeks since the House Transportation Committee heard it and there's been opportunity for people to reconsider everything that has been done. Number 067 REPRESENTATIVE DAVIS commented that he would leave the majority of the debate up to the involved parties. He said there was a maximum tariff before. There is some question in the Department of Law and he indicated he would leave that up to the Department of Law to discuss and explain the antitrust provisions and possible problems from that area as it relates to what will be referred to as the state action exemption. If the state gets an exemption from the federal antitrust laws, then there has to be some rate setting scenario in the legislation. Representative Davis said he would probably lean toward the maximum tariff provision. His whole argument in including a conflict resolution clause in the legislation is, since this is mandated by the state, is there an opportunity or will there be an opportunity out there, for any emergency provision to provide these services. Is there or could there be an opportunity for a vessel movement where a pilot would not be provided. If that could ever be the case, how is it going to be handled? What is the resolution to that conflict? He commented that was his feeling and it still is that the best interest of the state should have something included in the legislation that would address that. Most of the debate will be centered around that issue. He said since maximum tariff was a provision and had been a provision previously, it would be a strong contender for reinsertion to address that conflict resolution. Representative Davis said he was available to answer any questions. Number 095 CHAIRMAN KOTT said it was his understanding that under existing law, there is a $250,000 liability limitation and he thought there was an exception if the accident is based on incompetence. He didn't think that exception was there in the new bill, which would indicate to him a problem as to who would pick up the bill if it exceeded that $250,000 liability limitation. REPRESENTATIVE DAVIS commented that issue wasn't debated extensively enough to where he could recollect exactly what the debate was. He said he would leave that up to the Department of Law to respond. CHAIRMAN KOTT asked if there were any questions for the sponsor. Hearing none, he asked Gayle Horetski to give the committee her position. Ms. Horetski responded that Jeff Bush from the Department of Commerce and Economic Development was present to testify and said she was available to answer questions. Number 111 JEFF BUSH, Deputy Commissioner, Department of Commerce and Economic Development; and the Commissioner's representative on the Board of Marine Pilots, said he was present to testify that the department is fully in support of this legislation. He commented that the bill before the committee is a bill that just about everybody here, can agree is good. The issue isn't what is here; it is what isn't here and that is where the debate will go. Mr. Bush pointed out that the department does mildly disagree with the changes made in Section 2 to increase the Board of Marine Pilot membership by adding an extra pilot member and an extra industry representative, because that does in fact increase the cost. He said as the legislature well knows, the cost for occupational licensing boards has to be borne by the licensees, by statute, and the Board of Marine Pilots licenses, for example, are $3200 a piece per year. So, we're talking about a significant amount of money and the department is interested in trying to keep those costs down in whatever way possible. Increasing a board0 from seven members to nine members does a couple of things: It increases the number of people who have to attend the meetings, airfares, etc.; and it also can make board meetings take longer in that every time you add more people, it takes longer to complete business. Mr. Bush said it was a very mild objection, but it is something the department would like to point out to the committee for consideration. Number 136 MR. BUSH referred to the conflict resolution issue and said the department has and will continue to take a neutral position on this issue of whether we have conflict resolution or dispute resolution, binding arbitration or maximum tariff placed in the bill. Whatever device, or no device, that the legislature feels is appropriate, the department does not take a position on any of those. The department's interest is in maintaining enough pilots and maintaining safety in terms of quality pilots, out on the waters. He didn't think the state should be in the middle of disputes over what a particular pilot should be paid. Mr. Bush said he would entertain any questions from the committee. Number 147 CHAIRMAN KOTT asked Mr. Bush what the state's primary responsibility was. MR. BUSH said, safety - no question. He said we talk about two things -- safety and availability of pilots, but he thought availability of pilots is actually a subgroup of safety. Making sure that you have enough pilots and quality pilots available so that every ship gets a pilot. He said in some sense they have another interest which is commerce, which is raised in the availability of pilots issue and we certainly don't want commerce to come to a halt because there is not enough pilots. Number 153 REPRESENTATIVE BRIAN PORTER asked (indisc.) the safety issue is (indisc.) primarily by the qualifications and licensing of (indisc.). MR. BUSH said, "Yes, I do and the board has over the past several years been making those qualifications tougher and has focused and concentrated on safety issues in making sure the pilots are well trained and keep up their training." Number 158 REPRESENTATIVE GENE KUBINA asked why two of the groups were being increased, but not the public person? MR. BUSH responded that the groups must have come forward and recommended those changes. The department's position was that everything was fine before. The argument was made in the earlier committee that there are in fact three public representatives because there's two plus the Commissioner of the Department of Commerce and Economic Development, and this is merely equalizing it between industry and the pilots. It is in fact a dilution of the public representation on the board. Even though he has never talked to anyone about it, he thought the department would be concerned about that. However, it's not a significant concern because quite frankly, Mr. Bush said he has a lot of respect for the people on the board and felt they did a good job. Even though you hear about issues like safety and concerns about safety, he felt the primary interest of every one of the various interests groups was safety. The ship owners want to move their products at a reasonable price, but the fact is, when you're dealing with ships of that size and that value, any accident whatsoever is extremely costly, so everybody is concerned about making sure accidents don't occur. Number 174 REPRESENTATIVE KIM ELTON said what he found unusual about the makeup of the board is that someone from the commissioner's office is on period. He asked how many occupational boards the department has where the commissioner or the commissioner's designee serves and why is it on this one? MR. BUSH responded this was the only one, and the why is -- Mr. Bush said he wasn't around when this was done, but he thought it essentially has been tradition. He said quite frankly when he took this job, originally one of the things he wanted look at was why the deputy commissioner should be on this board. He raised that issue and everyone said it was important for that person to be there because this board, at least in terms at the moment, there is so much safety interest from the public's standpoint that there is a need for someone who is in the government sector, who is also concerned with the public interest, to sit on this particular board until, at least, this board works more smoothly and has had a longer chance and more time as an occupational licensing organization to get used to regulating itself. Mr. Bush said that is the rationale. He said it makes several things occur: One is that it makes him in an unusual situation where he has to build a Chinese wall between his own staff on investigations and quasi- judicial proceedings. That doesn't occur in any other licensing board. On the other hand, the Department of Commerce and Economic Development is much more active on this board than any other because of (indisc.). Number 199 CHAIRMAN KOTT said he had asked the sponsor of the bill about the $250,000 limit regarding liability and wasn't sure if he dismissed it or if it has been removed from the current version. If so, what would happen if that liability exceeded $250,000 if an act of negligence or incompetence... MR. BUSH responded that it was still in Section 15. He said it doesn't apply essentially in cases of gross negligence, willfulness or, he believed, alcohol or drug abuse kinds of situations. Number 221 PAUL FUHS, Lobbyist, Southwest Alaska Pilots Association, said he was representing Captain Eric Eliassen, who is the Chairman of the Southwest Pilots Association, who pilots ships in Southcentral Alaska -- Cook Inlet, Prince William Sound and Kodiak. Captain Eliassen is also the chairman of the Alaska Statewide Pilots Alliance. Mr. Fuhs said this issue has been very contentious, so this was an effort to try to pull the pilots together and see if the level of contention could be reduced and come up with recommendations for the legislature on marine pilotage that could reduce some of the fees, the lawsuits, etc., and he thought this legislation does that. He said the Department of Law had some concerns about level of litigation and this really helps solve many of those problems. One of the things the group agree to is they would accept the competitive model that the legislature adopted in 1991, where you can have more than one pilot group per region. Here is where the rub comes in terms of tariffs. You have competing groups that are negotiating for contracts and yet, here comes a proposal for the government to come in and set tariffs when they are supposed to be competing. It just doesn't add up, and that's why there has been some friction on this. You have one or the other. The Southwest Pilots Association said they would accept binding arbitration and he thought they were the only group that said that. That would allow them to negotiate freely with industry, like any other industry, and have a method of conflict resolution without the government being involved in the business of setting tariffs. Apparently, that was not acceptable. He said the Southwest Pilots Association would have gladly accepted that provision, but it's not in there. In the absence of that, the association does not support the government setting tariffs. They would like to see the bill go through as it is in its current form. He commented that he wanted to explain that as to why this doesn't seem to add up - the competitive position with also imposing tariffs by the government. Number 249 MR. FUHS referenced the other issue of liability and thought he could answer Chairman Kott's question. He said it was something that the pilots agreed on. The legislation says that you've got a limit of your liability of $250,000 for what you can go after a pilot for if they make a mistake and a ship runs aground. You would lose that limitation of the liability if you did it on purpose, if it was willful, if it was grossly negligent, or if you were on alcohol or drugs. That means that if you were drunk and ran a ship aground, they could after your house, they could go after any holdings that you had - unlimited. They could take everything that you own. So, it is unlimited liability. He explained the previous law said if you are under board sanction, you would lose the limitation of liability. That could be for something as small as the board wrote you a letter of reprimand because you didn't file your paperwork properly. It wasn't felt that was justified - losing your limitation of liability. It is actually a double insurance because every ship is insured anyway, but in addition to that, the pilot knows they could lose everything they own if they willfully run a ship aground or are grossly negligent or on alcohol or drugs. He felt that was a significant incentive to make sure these pilots operate to the best of their ability in a safe manner. CHAIRMAN KOTT interjected for clarification that for common negligence, the cap is $250,000. MR. FUHS responded that was correct. CHAIRMAN KOTT asked if beyond that, you would have to go after the shipper? MR. FUHS said the shipper's insurance would cover any damage beyond that. The shipper could actually have a claim against the pilot, if the pilot was on drugs or alcohol, or were willfully negligent, also. If the damage was $2 million, and the pilot had a $2 million house, you could go after it if it was for those provisions, but not if the pilot had a letter of reprimand in his file from the board on paperwork. It was felt that was just too wide open. That is why this issue was addressed. It is the same limit of liability that an airline pilot has also. He said there have been other issues raised, including the issue of cross regionalization. It was his understanding that would not be brought up at this meeting, so he was not going to address it. He expressed to the committee that this bill is a substantial improvement, should help stabilize the industry, and encouraged the committee to pass it out in its current form. He added that the Southwest Pilots Association did not take a position on the composition of the board. They did not support it or testify against adding people to the board. Number 288 DAN TWOHIG, Marine Pilot Coordinator, Board of Marine Pilots, Department of Commerce and Economic Development, said his position was created by the Marine Pilotage Act of 1991 and his job was to oversee the day-to-day operations of the Board of Marine Pilots as their executive secretary. He works as a licensing examiner with the Department of Commerce and Economic Development and acts as the state's investigator for maritime matters. He said he fully agreed with Jeff Bush in that this is a good bill and most of the housekeeping measures that are contained in the bill were written by Mr. Twohig. He said he was available to answer questions from the committee. Number 301 REPRESENTATIVE KUBINA asked where did adding board members come from? MR. TWOHIG responded the adding of board members was an amendment that was added from somewhere outside of the Department of Commerce and Economic Development. He was not sure who exactly wanted it added. CHAIRMAN KOTT referred to page 3, line 9, relating to temporary licenses for a period of not more than one year and asked if a temporary license could be reissued or renewed, or are there additional requirements? MR. TWOHIG said the addition of that language was suggested by the Alaska Pilots Alliance. The original bill has a clause in 08.62.080 that states, "A pilot may not be licensed in more than one region at a time unless the board determines it is in the best interest of the state to do so." The Pilot Alliance wanted that better defined. In answer to Chairman Kott's question, he thought a temporary license in this case, was designed to take care of a specific problem of a shortage of pilots. For instance, if there is a plane crash and 20 pilots die, there is going to be an instantaneous shortage that has to be addressed somehow and in order for the system to keep moving and to bring things in line until the pilot associations in that area can cover the shortage, there has to be a mechanism for the state to issue these licenses on a temporary basis. CHAIRMAN KOTT asked if the license would be reissued or renewed if after one year that shortage still existed. MR. TWOHIG said it was his understanding that the license would be renewable, at the discretion of the board, or in this case if the commissioner makes a determination there is still a shortage. If the shortage still exists, the problem is still there and the license can be reissued. He assumed that would need to be cleaned up in regulation to decide exactly what that process would be. The current regulations do not address this. CHAIRMAN KOTT asked what the process is for issuing the temporary licenses. MR. TWOHIG said right now, there is no process. Since the Marine Pilot Act of 1991, there has only been one instance where the board has determined that they needed endorsements to licenses for more than one region. That was a transitional regulation that was written that allowed pilots in region 2 to train pilots in the newly created region 3 and to bring them up to speed in the Port of Dutch Harbor. Those endorsements to those licenses had their own life; they had a cutoff date on them and what was discovered was that the training problem had been taken care of before that time period elapsed and the licenses went away by themselves, of their own accord. If there had continued to be a shortage, he was fairly certain the board would have extended it through regulation. Number 350 REPRESENTATIVE ELTON referred to Chairman Kott's question on liability and said he thought it changes. The new language in Section 15 essentially means that the cap of $250,000 would apply now even if a pilot is determined incompetent in the performance of pilotage duties or is guilty of misconduct during the course of employment. He felt it was more than housekeeping to take that out of the existing statute and apply the cap. He thought that was fairly substantive. MR. TWOHIG said this amendment to the law was also requested by the Pilots Alliance. The Department of Commerce and Economic Development had no problem with it. The thing that needs to be looked at closely is again the pilots now have a limitation of liability of $250,000. In a maritime accident, $250,000 goes very fast. By removing the portions of the law that say, for instance, you are incompetent -- it's a legal question, but you can be incompetent for a moment, you can be incompetent for a long period of time, you could be totally incompetent. He felt the teeth was still there in the law. There's willful misconduct, there's gross negligence which is something that is often tried to be proven in maritime cases, and also there are the drug and alcohol provisions. He said as Mr. Fuhs testified, the pilots were concerned that literally if they got a letter of reprimand from the board for something very minor, they would lose this limitation of liability. REPRESENTATIVE ELTON expressed concern about having a cap imposed because a person is incompetent may not seem fair. MR. TWOHIG said that you have to look at the legal definition of incompetent. Because you could be incompetent for the moment. You could have a heart attack and fall over so therefore you were incompetent to do that job. If you are incompetent over a long period of time, hopefully the licensing examination process would have weeded you out and you would not have gotten that far. He felt the concern centered around the legal definition of incompetent. It is a broadly defined term, which makes it difficult to put incompetent in this law and decide exactly what that means in each and every case. Number 400 MICHAEL SPENCE, Representative, Alaska Coastwise Pilots, stated he had been a marine pilot in Southeastern Alaska for going on 19 years. He also holds federal pilot licenses in Puget Sound, San Francisco, and the common waters of New Jersey and New York and has also worked as a marine pilot in those waters. He supported the legislation as written and wanted to comment on the issue of competition (indisc.). From his firsthand observation in Alaska and also in the other states that he had worked, competition is not only widespread, it is increasing nationally. There have been no findings by any state agency or federal agency that this competition has adversely affected the public safety. Since the public safety is the primary objective of the regulation of pilotage, the Alaska Coastwise Pilots feel that the state of Alaska is taking a wise course to neither promote nor discourage competition in marine pilotage. They feel this policy allows the state to focus on the issues that are directly pertinent to public safety, and that is competence of pilots, accountability to safe standards of pilotage. MR. SPENCE referred to the issue of membership and the composition of the board. He said in the early 1970s when the present makeup of the board was set up, there were two regions of pilotage in the state in practice and there were approximately 30 pilots in the entire state. Now there are four regions, as defined in statute, and there are approximately 80 plus licensed pilots. Commerce has increased dramatically in the Western region, also the Southeastern region. So, the situation that has evolved is that with two members on the board, inevitably one region is not represented with any expertise on the board. Questions come up to the board routinely that require the expertise of a pilot on the board in a particular region. As presently composed, there is a built-in limitation that you are going to be represented in two of the regions. Three of the four regions, he believed, should not go without representation on the board for the simple reason that the board cannot adequately address the issues that are unique to each of these regions without having the additional member. So the intent was to add the additional expertise for an additional region without disturbing the balance of power, as it might be referred to on the board. Therefore, the request was made by industry to also increase their member on the board by the same number. Number 454 MR. SPENCE referred to the issue of the $250,000 limitation of liability and said this is a feature that was added in the 1991 legislation as a result of the great difficulty that marine pilots had in obtaining any insurance for any kind of civil liability. He explained they could get insurance for defense against license actions, but no underwriter would touch the potential liabilities that would arise in a marine disaster. So, following the models that had been set in other states where pilots have been bonded or have been given statutory limits of liability, we asked for this and it was granted in the 1991 legislation. However, the wording as it was written in that legislation, says that any kind of a sanction issued by either the Coast Guard or the state, which could be a very minor sanction, that exclusion or that limitation of liability becomes invalid. The changes made in this legislation are to let it happen that the limitation of liability can be struck in a case of gross negligence or involvement of drugs of alcohol, but for more minor violations, that limitation of liability stands. MR. SPENCE said the Alaska Coastwise Pilots are supporting this legislation as written and encouraged the committee to pass it. Number 480 REPRESENTATIVE KUBINA said he thought this board's main function is obviously safety and he didn't care if the board was increased to include a pilot from every region, but he personally wanted to see a private person also on that board. It was his understanding this board is paid for by their fees and if they want to raise the fees to do that, he didn't object but he wanted to see the private individual also on the board. MR. SPENCE commented that the point made by Mr. Bush is very well taken that in practice now, you have two public members on the board and you have the commissioner's designee, who also is, in practice, a representative from the public sector. He felt there is a balance there now; although, Alaska Coastwise Pilots would not oppose the addition of another member from the public if it was felt that would preserve a balance. MR. SPENCE said on the issue of tariffs, the Alaska Coastwise Pilots strongly urge the legislature to get away from the practice of economic regulations of pilotage in the form of tariffs. If it is found to be necessary to satisfy other interests to have some form of tariff regulation, they would hope that it would be a maximum tariff, not a fixed tariff. Again, the reason for this is that the primary purpose of the state's regulation of pilotage is safety. Tariff regulation has proven to be something that is very burdensome, time consuming, and the board has lacked the expertise to deal with it effectively. He thought all parties involved have agreed that tariff regulation is a dead loser for a state that has limited resources with which to manage the board. Number 482 HANS ANTONSEN, Representative, Southeastern Alaska Pilots Association (SEAPA), said the association operates in region 1 from Dixon Entrance as far west as Yakutat Bay and employs approximately 31 pilots, both full-time and part-time, to cover the needs of ships in that region. He referenced Section 2 and said that SEAPA supports maintaining the seven person board. The primary reason for that is they believe that the public constituency on the board should not be watered down. The public is that representation on the board that looks out primarily for safety and they would support a seven man board composed of all public members if there was no need for pilots to be on the board for licensing, exams, expertise for the licensing examination process. As it is, SEAPA supports the board in the form that it has worked fine for a number of years. SEAPA believes that a nine-man board gets cumbersome and difficult to work with and there is too much chance of a balance and quorum to shift representation unduly away from the public's interest. They don't see where having a representative from the department constitutes public representation. He felt that was the state and the department representation, so he didn't believe that there were three public members on the board. SEAPA does not see a need to increase the board and does not favor the increase. He said it was not important whether their association is represented on the board or not, they think the most important thing is that the board is able to, in an efficient and timely way, address the matters before it and a seven man board works a lot better than a nine man board. A five man board works even better, but they support the seven man board. Number 499 MR. ANTONSEN wished to comment on the questions asked concerning the limitation of liability. At the hearings in the House Transportation Committee, it was stated that upon research, the average limitation on pilot's liability is $5,000 in pilotage regions in the United States. We have $250,000 and the reason that number came to be was, in some cases it was chance but in other cases it was a number they felt they could get; it was a number they felt was a reasonable cap that they could actually get insurance for. They have only two major carriers of insurance that even provide coverage for pilots. They are listed as high risk in some regards as to the type of work they do, so it is difficult to get any insurance, period. That is the highest limitation on liability anywhere in the United States for marine pilots. Marine pilots are not like airline pilots. A marine pilot when he is on the bridge of a ship, does not have sole control over the handling of the ship and the decisions being made and they get navigating that ship through waters, transiting and also docking the ship. The man who is ultimately responsible for that ship and the safety of that ship and the crew is the master. The pilot is an advisor to the master, so the concern that a pilot may not have unlimited liability in some cases where the ship may run aground and spill oil, is addressed because there is also a master, through his sea- going experience and knowledge must be able to look out after the safety of his ship and recognize when his ship is heading into danger. There is a difference as far as marine pilots and airline pilots go. That is why SEAPA believes that limitation liability is acceptable where they are able to get insurance for that amount. MR. ANTONSEN said SEAPA believes the measure contained in the legislation to create temporary licenses in regions to address a sudden need for pilots, addresses the concerns that some industry people may have about running into a shortage of pilots and not having pilots sufficient to move the volume of ships that come in from year to year. SEAPA also believes that if industry and pilots were able to work a little closer together in communicating new expected traffic in the future, pilots would then have a better ability to address their present and future pilot needs and be able to recruit and train pilots sufficiently to be able to serve the pilot needs of that region. But oftentimes, with a competitive environment, they don't get firsthand information of new ships coming on line because there is always the question of who is going to do the piloting. Is it going to be group A or is it going to be group B. So, SEAPA feels that with more communication they could better address industry's and the state's concern in keeping qualified pilots aboard. MR. ANTONSEN said as far as the tariff issue is concerned, they also concur that they would like to see tariff not addressed in this legislation and not in the hands of the state, while we are in this.... TAPE 95-41, SIDE B Number 001 MR. ANTONSEN...addressed industry's concerns, our customer's concerns, including extending contracts if there is a dispute among particulars of the contract, including conflict resolution in the form of binding arbitration, including not having binding arbitration. In each instance, we have addressed industry's concern and done our best that within the context of a contract to give industry assurance or whatever we can to address the concerns that they may not have pilots for ships. We feel we have been very successful in directly negotiating with industry, to private parties, and addressing all those concerns. If there is anything else we can do within the context of these contracts that were signed, (indisc.) of industry that would address the state's further concerns, or the legislator's concerns, we would be more than happy to take any suggestion and implement it to the best of our ability. REPRESENTATIVE PORTER wanted clarification on Mr. Antonsen's testimony that the average limit of liability requirement outside is $5,000 or was that the average claim. MR. ANTONSEN responded the average limitation on liability of pilots is $5,000 across the United States and that statement, he believed, was made by Bob Evans at a previous hearing. He checked that out and that $5,000 compares with our limitation of $250,000. Number 017 REPRESENTATIVE KUBINA apologized for having to leave the meeting. Number 023 DAVE SANDERS, Vice President of Alaska Marine Pilots, one of the pilot groups out in region 3, which is the Western Alaska region including Dutch Harbor, Aleutian Islands, Bristol Bay and Alaska Peninsula south and west of Kodiak Island. He said Alaska Marine Pilots supports HB 260 as written. They like it just like they see it. They believe the board should stay as it is, with the exception they believe the board should stay as it is -- two members. He commented that it is expensive. The fees for the licenses have gone up every year since he had started piloting and now it is $3200 biennially. Those are significant costs, and they feel the board is working fine like it has with a seven man board. Therefore, they do not see a need to increase the size of the board to nine members. CHAIRMAN KOTT asked if they were not in support of the current legislation, as it is written. MR. SANDERS responded they were with the exception of the increase to the board. Mr. Sanders said the limitation of liability had been addressed by other pilots, but added that insurance costs the pilots around $3200 a piece per year. It is another substantial expense and it is quite high. It's a redundant insurance - the ships carry insurance as well. He believed Captain Antonsen's comments were succinct in that it's not the same with just the pilot of the ship being in total control. The master is there to oversee his ship. In reference to the tariff issues, Mr. Sanders said they do not feel any tariff should be addressed in this legislation. Things are working well for them in Western Alaska with the absence of the maximum tariff. They haven't been able to get contracts previous to the lapse of the maximum tariff and in the last 10 months they have been able to get contracts with one of their main customers. In those contracts, conflict resolution was addressed. They have three to five year contracts and they have contracts on the table with the other customers in the region, which they don't believe they would have been able to get with a maximum tariff. He reiterated they would like to see no tariff language at all in the legislation. CHAIRMAN KOTT asked Gayle Horetski to address the antitrust tariff issue. Number 056 GAYLE HORETSKI, Assistant Attorney General, Commercial Section, Civil Division, Department of Law, said her present assignment is to assist in occupational licensing matters, and the Board of Marine Pilots is one of the boards that she has been working on. She said from the viewpoint of the Department of Law, this is a very good bill. There has been a lot of litigation since she began working with the Board of Marine Pilots on various aspects of the present statute, license issues, examination issues, etc. She commented she had not seen a level of litigation regarding board matters ever in her legal career, as she has seen in connection with this Board of Marine Pilots. Ms. Horetski commented that she and Mr. Twohig had worked closely in drafting and reviewing this bill, and obviously there are sections that were put in by the Pilots Alliance and committees. However, by and large from their point of view the amendments in this bill clear up areas that have lead to litigation in the past. She said they have been trying to calm the waters and make it clear, as best they can, based on her approximate 18-months of experience in working with the board. Number 072 MS. HORETSKI stated the board has expired. She referred to previous testimony that indicated the board was going to expire. She referred to Section 1, and said the board expired in 1994. It is in its wind down year. If it is not extended, it is gone. So, from the Department of Law's point of view, this bill is extremely important and the extension of the board is absolutely essential. It has to occur during this legislative session because it is in its wind down year. It doesn't have a wind down year left, it is in it right now. CHAIRMAN KOTT pointed out for the record that even though this particular bill has the extension, there is another vehicle that is currently in the House Rules Committee (indisc.) for a floor vote (indisc.) the Board of Marine Pilots. MS. HORETSKI said at one point that bill had had only a one year extension in it. CHAIRMAN KOTT interjected that it had been changed. MS. HORETSKI said that would at least preserve the existence of the board. She felt that the changes in this bill, if it is adopted this session, will vastly improve the board's ability to regulate in this area in a manner that decreases this exposure to litigation, which is one of her goals on behalf of the state. Number 087 MS. HORETSKI referred to the antitrust/tariff issue and stated the Board of Marine Pilots had the authority to set tariffs before and what they had under the statute was a maximum tariff that was set at a certain level and pilot associations were free to charge less than that if they wanted, but that became a ceiling. That tariff provision expired by its own terms in June 1994. Since that time, there has been no tariff of any sort regarding marine pilotage services in the state of Alaska -- maximum, fixed or nothing. The board has continued to operate and shipping has continued since the expiration of that tariff. The concern is basically a public policy concern. The reason that these ships of a certain size, of a certain type, have to have a pilot is because the state says they have to have a pilot and safety, of course, is the reason for that. Nonetheless, the reason they need a pilot at all is because the state law says they have to. So, if they are required to take a pilot and in fact, face possible criminal sanctions and a substantial civil fine if they don't take a pilot, then right now we have a situation where the law is absolutely silent about what that pilot or that pilot association can charge for that service. As the bill is presently structured, there is no fixed tariff provision, there is no maximum tariff provision, and there is no dispute resolution mechanism. So, if a shipper needs a pilot and he calls up and asks for a pilot, and the pilot says it will be x amount, if a dispute arises between the shipper and the pilot as to the reasonableness of those quoted rates, there is no dispute mechanism right now specified. So the shipper's choice is to move the ship without a pilot, which causes safety concerns; to not move, which causes commerce concerns; or to pay whatever rate the pilot is asking. She said there may be other options in addition to those, but those are the three come to mind. The shipper is required by law to have a pilot, and that is what the law says. She said the concern that has come up in other committee hearings is that there is a state antitrust law pilot associations are immune by a specific exception in the state law from any antitrust liability, so that's fine under state law. There is also federal antitrust law, generally it's the Sherman Act, and the U.S. Supreme Court has said in a whole line of case law since the Sherman Act was adopted, that if a state chooses to regulate in an area - fine, the federal government won't fuss in that area. The state basically preempts and regulates, then there is no antitrust liability on the part of the people who are regulated by the state. That is a sensible policy, of course. In a case that came out in June 1992, which is after the 1991 act was adopted in Alaska, the U.S. Supreme Court ruled in the TICORE Title Insurance case that -- what happened is the FTC had issued a complaint against the title insurance companies in several states for basically fixing prices. She explained what the title insurance companies were doing was sending in rates to a rate setting bureau and the rate bureau set the rates. Those rates are the ones that applied in the states unless the state disapproved within a certain period of time. It was kind of a negative option. The rates were originally set by the rate bureau, but then the state had some oversight authority where they could review it, and approve it or disapprove it. What the evidence showed in that case in the hearing before the FTC was that in essence, in those states that were concerned, there was no active state supervision of that rate setting process. It was more or less a rubber stamp. In fact, some of these provisions were not even checked for accuracy, for arithmetic. They were just sort of filed and that was the rate that applied. The U.S. Supreme Court said for the antitrust immunity to be afforded to these people - in that case, the title insurance companies - there must be two things present: There must be a clearly articulated state policy that they are going to regulate in this area, and there was in that case because there were statutes that were passed that established these rate bureaus; but then the U.S. Supreme Court in the TICORE title case said there also has to be active state supervision of that particular area - whether it is utilities, title insurance, pilots or whatever, and the U.S. Supreme Court ruled on the facts of that case, that there was not sufficient state oversight in order to allow the title insurance companies to avail themselves of the immunity as it (indisc.). She stated this is something the Department of Law has brought to the attention of the legislature because the department's concern was possible antitrust liability of the pilots or the pilot associations under federal law if the state regulation was not sufficient under the TICORE title standards to (indisc.) this immunity upon them. As it has developed in some of the hearings and based on testimony that Ms. Horetski has heard, it appears the pilot associations don't want tariff provisions and really don't want dispute resolution mechanisms that were in an earlier version of the bill. So, it is like they are saying, "We'll assume the risk of that possible liability under the federal law if and when we do anything that would violate the federal law." She said that is a policy call and there are possible dangers presented to the associations under that approach; however, she emphasized it was not a danger that the state is facing, because the state would not be charged with anything under the federal antitrust. It would be the associations and the members of the associations that are possibly at risk. Number 162 REPRESENTATIVE PORTER asked what kinds of behavior would the pilots typically do to get themselves in trouble with federal antitrust, assuming that they lost their state exemption? MS. HORETSKI said in the past, there have been some concerns about associations, by their actions, keeping pilots out of the profession, whether out of the particular association or out of the profession, in general, through not giving the training and experience and the ability to qualify for the licenses. Price fixing is another thing, but federal antitrust laws (indisc.), but whether or not a pilot association would be liable under the federal law for something like that is not clear under the present committee substitute that is proposed because there are two things in that bill: One, it says the pilot associations may enter into agreements with shippers to provide these services; and then it also says that pilots may not charge rates that are different than the one set by their association. So, the bill contains authority for the associations basically to set their own tariff. They don't call it a tariff, but to set their own price. Ms. Horetski said she wasn't saying that anybody is going to do anything that would violate federal antitrust law, but collusive behavior that establishes a monopoly -- that either goes to getting all the business or setting the price at which services are offered -- collusive activity of that sort is the kind of thing that ordinarily, absent state intervention, would most likely violate federal antitrust laws. Number 184 REPRESENTATIVE PORTER commented that in an area that is serviced by one association, this bill provides that that association will negotiate with shippers. MS. HORETSKI interjected "may." Section 12 says, "The board shall impose a sanction on the person licensed under chapter when the board finds that the person....." and on page 5, line 25, says "... collects, charges or receives an amount of services that is different from the amount set by the organization." That is the language that says a pilot has to abide by the rate that the organization has set. She referred to page 7, subsection F, says, "A pilot organization recognized by the board may enter into agreements with the master, owner or agent of a vessel concerning the terms and conditions." It doesn't say negotiate, it says "may" enter into agreements. Negotiate is clearly implied in there, because an agreement will never reached if you don't talk about it. REPRESENTATIVE PORTER said he wasn't all that familiar with federal antitrust laws. He asked Ms. Horetski if she would say that if an association that represents one district, that has no competition, that sets its own price, is price fixing and that would be a violation? MS. HORETSKI responded that she would not say that, because the law gives the association the authority to do that. She said the antitrust law is odd in that it allows private parties to enforce it. So, one association can sue another association and seek treble damages under the antitrust law, and the state is not involved at all, the FTC is not at all; nobody is charging that association in an official sense, with any conduct, but yet you have an antitrust lawsuit... REPRESENTATIVE DAVIS asked if under the antitrust laws, was the TICORE case related to the prices of employees or was it contractors? Because in this case where an organization, and the pilots are contractors to the organization, not employees, does that have any bearing or any relation to the antitrust case that Ms. Horetski cited. MS. HORETSKI said the facts of the TICORE title insurance case were that the title insurance companies in the states involved put in their request for rates and the rates were those that were charged by the title insurance company to members of the public for things like title search fees and that kind of thing in connection with a house or checking out who owns land, so it was a fee charged by the companies to members of the public that were trying to sell and purchase real property. She commented that if pilot associations were business entities and the people who work for them were employees, then she thought you would get away from the antitrust issue because one company can't conspire with itself. For example, General Motors can't conspire with itself, it has to conspire with someone else, and that's where you get the collusive activity. She explained the pilots are independent contractors, not employees, so then you have the question of all the pilots coming together, as independent contractors in this association, and what are the possible liabilities of the pilots or the possible liabilities of the association. The pilots are required by state law to be a member of an association. It's an offense if they are not. Number 246 GINNY FAY, testified on behalf of Bill Walker, President, Prince William Sound Regional Citizens Advisory Council (RCAC). She said RCAC's work is guided by its contract with the Alyeska Pipeline Service Company and sanctioned under the Oil Pollution Act of 1990. The residents of Prince William Sound and Southcentral Alaska are acutely aware of issues regarding marine pilotage and what can happen when there are oversights or minor adjustments in pilotage areas, as happened with the Exxon Valdez oil spill. Safety is RCAC's primary concern. They have no economic interest; all they care about is safe pilotage. They appreciate the work done by the Department of Commerce and Development during recent years in improving safety, licensing and examination. She commented there has been a great deal of improvement made to the system; however, RCAC questions whether or not a competitive system is really the safest system. Alaska is somewhat unique in that it is the state in the country that has competition the way that we do, because we require pilots and require shippers to use pilots, but then pilot associations can compete against each other based on fees. While Prince William Sound has had a very good piloting system and has not been affected by it, they question whether or not the competitive system is a threat to safety in that area. They've had pilots express that they do not feel that they can openly say what some of their safety concerns are because of the threat of competition. RCAC's primarily concerned about this because it doesn't appear that the legislature really is interested in addressing the issues of competition, which is probably one of their greatest concerns. Number 280 MS. FAY said the most significant problem RCAC has with the bill right now is the change in the board makeup. The Marine Pilot Board is a safety board, it's a licensing board. The reason industry traditionally has sat on the board was because the board was setting tariffs, and so it made sense to have the pilots and the industry when the tariffs were being set, sit there along with the public, who is interested in safety. If they are not going to be setting tariffs, then the questions arises, why not just have the pilots and the public on the board. She commented that is unlikely to happen, but she thought the changes that were made in the composition was that the public is really not highly represented in these hearings, and so the pilots wanted another member on the board, industry wanted another member on the board and there really wasn't anyone to say, "wait a minute, this is supposed to be a public safety issue." Ms. Fay did not think there was another board in the state that calls an employee of the state agency, a public member. Technically, any public members on any boards are public members, not agency members. She concluded that RCAC's position is that they would like the board either left alone or they would like a public member added along with the additional pilot and industry member, because they think the public interest is diluted with that change. Number 300 REPRESENTATIVE NORMAN ROKEBERG asked Ms. Fay if she had testified that the legislature wasn't interested in competition or what? MS. FAY responded that she has been under the impression from the hearings to date that the issue of competition to going to a fixed tariff and being a much more regulated system, as it was prior to 1991. She said she may be mistaken, but it was her impression that the legislature is unlikely to do that. REPRESENTATIVE DAVIS clarified that the legislation put together here was an attempt to deal with the issues that the pilots and industry were dealing with and that was not something that was brought forth. The regulated monopoly question was not something that was proposed by anyone and we wanted to deal with the involved parties. It came up in discussions, but it was never formulated as to being included in the bill. Number 322 JOE KYLE, Representative, Alaska Steamship Association (ASA), testified he was the only person before the committee testifying on behalf of the shipping industry. He said their membership includes everybody in the state that is required to use state pilots with the exception of Prince William Sound and the agencies that work there are in their association, but not ARCO, BP or Deep River. That may sound like a huge exception; however, if you look at how many state pilot moves are required throughout the state over the course of a year, their membership represents about 80 to 90 percent of the revenue that is paid out to pilot associations because of all the moves in Southeast with cruise ships, Cook Inlet oil and the tramper trade in the Bering Sea, Sea-Land and APL. So, they are the most significant user of state pilots in the state. MR. KYLE said as far as the bill that was before the committee, much as Deputy Commissioner Bush said, ASA thinks it is a great bill, with one major glaring deficiency; that is there is nothing in this act that addresses dispute resolution or conflict resolution or maximum tariff between industry and pilots. He said it is just polyanna, pie-in-the-sky to think that pilots and industry are not going to fuss over what it costs to move a ship. It is somewhat simplistic to say, "you've got competition, why do you need somebody to help you adjust price, if you can't agree." He explained they have a very limited number of service providers. They can't go shop around for another service provider if they reach an impasse with a pilot association over price. There were over 120 licenses in the state a couple of years ago, there is about 80 right now. At the same time that over 40 licensed pilots have been lost in the state, the number of ships and vessel traffic is moving up, so there is a greater demand for pilot services at the same time the number of licensed pilots in the state is going down. Likewise, through regulatory action taken by the board, there are significant impediments to entry into this profession. And they are legitimate impediments; we want a rigorous training program and certification program. So what he was saying, is that it is really wrong to push somebody through the pipeline to make that number that is around 80 right now, move to a higher number. The state said they are very concerned about safety and availability of pilots, and Mr. Kyle said he could tell the committee today, that it is possible that we will run short of pilots in Southeast Alaska this summer with the increased cruise traffic and it is almost a certainty that we will be short of pilots in Southeast Alaska in 1996. He said under that scenario, it is just not possible that we are going to get in a situation with pilots where we've got a new ship, there is no existing contract, what's the number to move this ship and we feel the number that is going to be presented to us is way too high, and we're going to say that we can't live with that number - can we negotiate, and we really don't have anybody to negotiate with. Even where we have competition, there is two associations in Southeast Alaska right now. They used to all be the same. They were the same group and they splintered and next week they can go back together. Then we've really got nobody to negotiate with. Mr. Kyle explained the same situation exists out west. There are two associations out west; they splintered. You can't go grow a third very quickly. They are just going to come from who they are, and next week they could join back together and be one pilot association. It is all up to them as to whether there is competition or not. And yet we've got to bargain with them and deal with them on rates. Mr. Kyle said he supposed they could take care of themselves under that scenario, however, they run a great risk of moving a ship without a pilot, but there is also a state interest involved here and we are required to use their services - the state requires that we use their services and we want to use their services - but what do we do when we can't agree on price. Personally, he didn't understand how the state can walk away from that and say that's not an issue they are concerned about, because when it happens that we do move a ship into state waters without a pilot, God forbid an accident would occur on that same ship that didn't have a pilot aboard, the industry is going to pay no matter what, but he felt the state is going to pay a severe price for not having some mechanism in its Marine Piloting Act to resolve disputes. MR. KYLE commented they have tried everything they could to get the pilots to like something. For various and sundry reasons, they oppose it. In their judgment, the (indisc.) to all this is regulated monopoly versus free and open competition. There are certain, very strong pilot associations that just desperately want a regulated monopoly and there are legitimate reasons for them to feel that way. They definitely want that and they are going to do anything they can to prove competition doesn't work. Mr. Kyle mentioned that the committee had heard the argument this afternoon that we've got competition, why do we need conflict resolution if you can't agree on rates. The state shouldn't be involved in setting a tariff. Mr. Kyle said we don't have competition in the sense of there is a half a dozen vendors we can go shop with if we don't like dealing with this hardware store. We've only got two. It's just like when we had Exxon and Union 76 here in town. We had competition in gasoline stations, but the price was $1.65 and $1.66 and every month or two they flip flopped around. Then Mapco came to town, and prices dropped 30 or 40 cents a gallon for gas. That's the kind of competitive situation we live with right now. He stated we have two and they all came from the same group, they all trained each other, they are professional colleagues, and he fully expects they will go back together one day, probably. Mr. Kyle emphasized they think it is poor public policy if this act cannot, if in some way, get a conflict resolution section in it. He said the maximum tariff was tried and it worked for three years. They tried desperately to get the maximum tariff extended last session, but they were fought by the same pilot associations this year. So we said, "fine, you don't like the maximum tariff, how about binding arbitration. Most public employees/public service- type occupations like binding arbitration. We ran that up the flagpole. Nope, they don't want binding arbitration. So, we said how about conflict mediation. Let's go through a mediation process so that if you and me disagree over price, you'll still provide the state's mission by moving my ship, and I'll pay into an escrow account someplace, while a third party figures out what the right price should be. No, we don't want that. You've got a comparative environment, we're not going to deal with that either." Mr. Kyle said they don't know where to go. They've pulled all the rabbits out of the hat they have - binding arbitration, conflict resolution and they tried to get the maximum tariff last session. He commented they were willing to give you anything you might want that will help get us out of this box, but the pilots - there are some pilots that are philosophically opposed to competition - are going to oppose anything that might help it work. That gets us back to conflict resolution, maximum tariff, or binding arbitration. Mr. Kyle said they were not going to be happy or be able to support this bill if there isn't something in there - be it binding arbitration or conflict resolution mediation or maximum tariff that provides them some rate protection when they have a very limited market to deal with and a compulsory service to use. Number 440 CHAIRMAN KOTT asked Mr. Kyle what they did right now when they transverse a ship to an area that only has one pilot group in that region and they establish the rate and it's a rate that you can't live with? MR. KYLE said, "The reality of where we have that right now is in Prince William Sound, Cook Inlet and the Kodiak area and we negotiated a contract with that single service provider, I want to say in the summer of 1993, that was a three year deal, that would take us past the maximum tariff expiring last summer and the board maybe this summer, so when we negotiated a contract with them, that contract would take us through to some certainty in the legislature. Right now we have a good contract with them, we deal very professionally with them, they deal very professionally with us, and we've got a good relationship and I think that will continue. When we do have new business with them they sit down and negotiate with us in a very respectful and professional manner and we've been able to reach an agreement with them up to this point. One thing that induces them, of course, to deal with us that way is that there is always the threat of competition in their area. It would be easy for a group, say to splinter off and form a Cook Inlet Pilot Association or a Kodiak Pilot Association, so they want to do business well with us and they'd like to stay intact and not have disgruntled members and form a new association. So, the threat of competition in that region, I think, helps bring them to the table with us and they do a hell of a job for us and they provide a great service and so that's what brings us to the table to want to negotiate with them." He said the relationships in the other regions aren't as harmonious. They weren't before - there was a splintering off and they haven't been since. CHAIRMAN KOTT referenced the makeup of the board and asked Mr. Kyle if it was safe to assume that industry supports the bill as it is written with the additional member from industry on the board. MR. KYLE said from an intellectual point of view, the region out west should be represented on the board by both pilots and industry. It is a totally different business out there, a totally different trade. It is mostly Pacific Rim shipping companies in the fishing business bringing trampers that are Korean, Japanese or Chinese into the Bering Sea. They hit the Western Alaska ports and go back to the Far East. It's a very different shipping trade than what's in Southeast, Prince William Sound or Cook Inlet. There is Sea-Land and APL out there that somewhat are more Cook Inlet and Southeast in their make up. So academically, there should be a pilot from the Western Alaska area on the board. The industry problems are unique out there. He commented that the gentleman from out there who testified, said they have never had signed contracts with industry out West. Mr. Kyle said he would disagree with him as to why they do have a few now. He reiterated that the trade is totally different. It's oriented around the fishing industry, it's very seasonal, it's nonpredictable, the ships come over when the herring, salmon or crab come in. With cruise ships, they know years in advance how many will be coming in. Cook Inlet oil runs are very predictable. So, from an academic point of view, absolutely that representation should be on the board. He said they were concerned about the public input as well. They feel the department is on the board to represent the public. They don't divorce the state from the public. It comes down to money. In his opinion, the board has been very generous about letting the Western region pilots come up and speak to their problems in front of the board. They've let the industry do that as well. Number 499 CHAIRMAN KOTT referred to Ms. Fay's testimony that the state is really responsible for safety. He said based on his understanding of what the board does and albeit that this provision does not establish a fixed tariff or a maximum tariff, what would the role of industry be on that board? MR. KYLE explained that he objected strongly with several things that Ms. Fay said. First of all, she said Alaska is the only state in the country with competition. He said that is a gross misrepresentation or inaccurate statement. It is rare on the East Coast and he thought Connecticut and maybe either Maryland or Virginia is about it. However, on the West Coast, the way piloting is done is all over the board. Hawaii has got a competitive system, the Port of San Diego does not require state pilots if you come into the Port more than 10 times a year, San Francisco has a regulated monopoly, Long Beach has a private company but contract pilots that the city hires, in the Port of Los Angeles, they are municipal employees of the city of Los Angeles, so it is all over the board on the West Coast. In terms of industry's interest on the board, he felt Ms. Fay's statement was cynical. He explained that we need pilots to help us around waters that ships don't come into that often. Mr. Kyle stressed they are very interested in the level of training that pilots get, what the training program is, what the recertification program is, what the licensing program is. He said, "We pay their ticket, if you will and as long as we're paying that tariff and we're paying their ticket and they're going to be advising our masters on how to move ships in and out of state waters, we want to be part of that process. We're a stake holder in this." He said it is a significant financial issue for them in terms of whether they make money or lose money operating in Alaska. They want pilots that are well-trained and they want to have a hand in that training program. CHAIRMAN KOTT said in Ms. Fay's defense, he wasn't sure that she said there shouldn't be industry on the board. That was what he was leading into. MR. KYLE said in that case, he would apologize to Ms. Fay. CHAIRMAN KOTT closed public testimony on HB 260 and the bill was held over until Friday at 3:00 p.m.