SENATE RESOURCES SUBCOMMITTEE March 23, 1995 1:16 p.m. SUBCOMMITTEE MEMBERS PRESENT Senator Drue Pearce, Chair Senator Rick Halford SUBCOMMITTEE MEMBERS ABSENT Senator Lyman Hoffman COMMITTEE CALENDAR SENATE BILL NO. 130 "An Act relating to marine pilots and the Board of Marine Pilots; extending the termination date of the Board of Marine Pilots; and providing for an effective date." PREVIOUS SENATE COMMITTEE ACTION SB 130 - See Resources minutes dated 3/20/95. WITNESS REGISTER Brad Pierce, Policy Analyst Offfice of Management & Budget Office of the Governor P.O. Box 110020 Juneau, AK 99811-0020 Randy Welker, Legislative Auditor Legislative Audit Division P.O. Box 113300 Juneau, AK 99811-3300 Jeff Bush, Deputy Commissioner Department of Commerce & Economic Development P.O. Box 110800 Juneau, AK 99811-0800 Dan Twohig Division of Occupational Licensing Department of Commerce & Economic Development P.O. Box 110806 Juneau, AK 99811-0806 Benee Braden Western Alaska Pilots Association P.O. Box 792 Anchorage, AK 99508 Michael Spence Alaska Coastwise Pilots Association Box 6337 Ketchikan, AK 99901 Eric Eliason, President Southwest Pilots P.O. Box 977 Homer, AK 99603 Stuart Mork Alaska Marine Pilots, Region 3 P.O. Box 730 Kodiak, AK 99615 Joe Kyle Alaska Steamship Association 234 Gold St. Juneau, AK 99801 Hans Antonsen Southeastern Alaska Pilots Association Box 6100 Ketchikan, AK 99901 Ron Lorensen, Attorney One Sealaska Plaza, #300 Juneau, AK 99801 Mike O'Hara Box 1443 Palmer, AK 99645 Bob Evans Alaska Marine Pilots 2822 Iliamna Ave. Anchorage, AK 99517 ACTION NARRATIVE TAPE 95-25, SIDE A SRES - 3/23/95 SB 130 MARINE PILOTS SENATOR PEARCE called the meeting of the Senate Resources Subcommittee on SB 130 to order at 1:16 p.m. She noted Senator Hoffman was out of town, and that Senator Leman, chairman of the full committee, was in attendance. Number 055 BRAD PIERCE, a policy analyst with the Office of Management & Budget, Office of the Governor, said he was appearing before the committee to discuss a briefing paper he wrote for the incoming commissioner of commerce on the two times the Alaska Marine Piloting System was revisited. He stated he doesn't represent the administration's position on either the Senate bill or the House bill concerning marine pilots. Mr. Pierce said his briefing paper, which was designed to give the new administration a quick overview on the status of the marine pilot system, focused on conflict of interest problems with board members, difficulties in training of new pilots, movements of ships without pilots, sunset of the board's authorities, tariff setting, and the sunsetting of the board itself. The basic findings were that the state and the board are having great difficulty in governing the profession and the problems in it have potentially catastrophic consequences, like the Exxon Valdez disaster. Mr. Pierce said the economic interests of pilots and the shippers have tended to usurp the state's basic public safety interest in the political arena. He cited incidents of foreign flag ships moving through state waters without pilots; a pilot abandoning his ship in a storm with the tanker stalled to avoid having a grounding on his record; and a pilot association refusing to dispatch a pilot because the ship's agent had used another association. There have been numerous lawsuits against the state and between pilots, as well as multiple ethics complaints against the board members. His overall conclusion is that the state is not meeting its obligation to protect lives and property in the marine environment here. He said these incidents and others are indicative of deeper problems within the profession, and he believes they can be related to the sort of quasi-competitive system set up in the Marine Pilot Act of 1991. Mr. Pierce said a system was created where the board was supposed to set a maximum tariff and then allow pilots to compete under this cap. However, the board failed miserably in setting maximum tariffs and their tariff setting sunset last year, so there is no oversight on the tariff. He said there are pilotage groups making deals with shippers with no public oversight, and this is just not allowed anywhere else that he is aware of. Mr. Pierce believes that the independence of pilots from shippers is of paramount importance. The pilot's decision to move a ship should be based solely on safety considerations and not on the shipper's schedule. The pressures of market competition allow shippers to play off pilot's groups against each other, which is the source of many of the problems, particularly in southeast and the Aleutians where there are competing associations. There is also the problem of competition for licenses. The group with the most fully licensed pilots gets the largest market share, so big money rides on licensing these aims. It is a recipe for corruption and for lawsuits and there have been numerous lawsuits. Virtually, every board decision on a license has been legally challenged. Speaking to training problems, Mr. Pierce said there are fully licensed pilots unwilling to train their potential competitors. There have been lawsuits over access to train, and there are instructor pilots worried about lawsuits if they flunk somebody. He said the state has lost quality control over the profession and the ability to weed out people who just shouldn't pilot. Mr. Pierce said the state's best interests are protected by high quality standards, high qualification standards, a lengthy apprenticeship program in local waters. Pressures of competition have made license requirements in southeast and the Aleutians the lowest in the state and, maybe, in the nation. Pilots are suing the state to have their experience in other regions applied to the region they want to be licensed in. These folks are hired for their local knowledge and they should have extensive experience in the region in which they are going to be licensed, he said. Turning to the tariff issue, Mr. Pierce said the pressure of competition has resulted in illegal actions, either to gain market share or to gain on another group, and the tariff competition between groups is the worst part of it. The tariff for moving a ship is a minuscule part of a shipper's cost, and the purpose of a standard published tariff is to prevent gouging by pilots and to keep them independent from shippers. A published tariff schedule and not having pilot groups negotiate the deals with shippers would go a long ways towards solving these problems. Mr. Pierce said SB 130 is a good start at reforming the system and making the board more effective. HB 260 is similar except that it contains a provision for binding arbitration between pilots and shippers and tariff extremes. He believes this is bad policy because it gives the foreign corporate greater control over Alaska piloting. In his concluding comments, Mr. Pierce said he thinks the state's interest in safety must predominate over the economic interests of both the pilots and the shippers, and that is the yardstick by which all these decisions should be weighed. Number 285 SENATOR HALFORD asked Mr. Pierce if he supports the pilotgage regions, as well as one port licensing. BRAD PIERCE acknowledged that he supports pilotage regions because of the importance of local knowledge, but the pilotage regions are so large that he thinks they eventually should be made smaller. Administratively, it works better to restrict marine pilots to exclusive regions. Number 363 RANDY WELKER, Legislative Auditor, referred to an audit report prepared in late 1993, and commented that there have been some changes since that report, and there may be some changes that he is not aware of that may affect some of the statements in the report. The overall conclusion of the report is that the Board of Marine Pilots should be extended for four years. One of the primary concerns addressed in the report and one of the things that frustrates the operation of the board is the conflict of interest issues that they have to deal with, both in terms of having the profession represented on the board and then having to deal with tariff issues, is having to deal with licensing matters of their competitors. Also, another concern is the makeup of the board and not having the expertise in a financial background to efficiently deal with the tariff issue. The report recommends removing the tariff setting function from the Board of Marine Pilots, thereby letting them deal more with the matters that they do have the expertise in. Mr. Welker said it was felt that the board was spending time promoting the non-competitive aspects of marine pilotage and that it should be focusing more effort on some of the problems that are out there in dealing in a competitive market. However, he pointed out that the situation did change later on to a more neutral position by the board. Number 410 SENATOR HALFORD asked Mr. Welker where he would put the tariff setting function. RANDY WELKER responded that it was felt that it should not be in the Board of Marine Pilots and they did not conclude where it would be more appropriately placed, but it was recommended that an alternative should be explored as to where it might be better placed. Number 435 JEFF BUSH, Deputy Commissioner, Department of Commerce & Economic Development, noted he served on the Board of Marine Pilots briefly in 1989 when he was also deputy commissioner of the Department of Commerce under a previous administration. Deputy Commissioner Bush stated the department's strong support for SB 130 and the continuation of the Board of Marine Pilots. He also stated the administration agrees with Mr. Pierce's recognition of the problems with the marine pilot system, but they do not agree that the cause is the competitive structure of the Marine Pilot Act at this point in time. In 1991 the legislature decided to essentially adopt a semi-competitive system, which he believes is getting better. Deputy Commissioner Bush said the state's interest is two-fold: safety for ship movements and maintaining availability of pilots. The board needs to deal with safety concerns and training concerns, if they exist. He said we need to accept the system we have now and move on to trying to improve the current system to make it work. Number 500 SENATOR HALFORD asked if the administration has a position on licensing in more than one region or the establishment of the regions. JEFF BUSH responded that they support the system where an individual can only hold a license in one region. However, when a particular region is identified where there is a shortage of pilots, the board should be able to essentially grant temporary licenses to deal with these kind of emergency situations. SENATOR HALFORD also asked if the administration supports a provision that requires membership in an organization after licensure to be able to operate under that license. JEFF BUSH replied that at the present time that is a requirement, but he does not know what the administration's position would be on that provision. Number 529 SENATOR PEARCE asked if the department has a position on the conflict of interest of board members question. JEFF BUSH answered that there has been no formal position taken on the question, but he does not believe that this board has any more significant or less significant problems than any other board. Number 542 DAN TWOHIG, Division of Occupational Licensing, Department of Commerce & Economic Development, explained his duties consist of: assisting the board in administering and enforcing the Marine Pilots Act; reviewing correspondence and qualifications of pilot candidates before they go to the board; serving as executive secretary of the board; and being the state's investigator on maritime accidents. He said he was available to respond to technical questions about the Marine Pilots Act or the amendments to it as provided in the bill. Number 560 BENEE BRADEN, representing the Western Alaska Pilots Association in Region 3 and testifying from Anchorage, said that while she has few problems with the amendments proposed in SB 130, she encourages the committee to continue to look as the issues of whether or not changing the composition of board would help provide better representation across the state, and giving better direction to the board. She stated the association is uncomfortable with binding arbitration language and would be opposed to it being included in the statute. TAPE 95-25, SIDE B Number 001 MICHAEL SPENCE, representing the Alaska Coastwise Pilots Association, responding to earlier comments made in regard to competition and the status of pilotage in Alaska, said the competition was not created in this state in 1991. When he came to the state in 1974, there was competitive pilotage in both regions of the state at that time. There was competition again in the middle eighties in the Southcentral Region, which later became divided into two different regions, and there was in the late eighties in Southeastern Alaska preceding the 1991. The impact of the 1991 legislature was to support the continued existence of competitive pilotage, it was not to cause it to happen at that time. Referring to Section 2 of SB 130, Mr. Spence asked that the committee consider adding back the provision which provides for three pilot members on the board. Mr. Spence referred to Section 6 and said the basis for present regulation that relates to cross-regional pilotage is based on the reasonable limitation of competence that pilots may have in geographical areas. It was not based on limiting competition. However, his organization does not necessarily oppose the proposed change in the language. Speaking to Section 13, which authorizes the Board of Marine Pilots to suspend or revoke the recognition of a pilot organization that fails to comply with its articles, bylaws, and rules, Mr. Spence said it is a reflection of what already exists in regulation. He said his organization has always advocated and supported increased accountability on the part of the pilots and pilot organizations, but he thinks this particular rule is not particularly well reasoned and will result in some problems in its implementation, given that in two of the four regions of the state, there is only one pilot organization. He requested that the committee consider changes to the language in Section 13. Mr. Spence said that although binding arbitration is not covered in the SB 130, it is in the House bill. However, the Alaska Coastwise Pilots Association is neutral on the issue of arbitration at this time. Mr. Spence pointed out that there are parties in the piloting profession in the state who are not happy with the competitive environment, who would like to disrupt the competitive process. One way in which the process could be disrupted is in the deliberate and many-fold increase in the tariff simply to make the point that the competitive system, as it is, does not work. He also pointed out that while there is competition in some of the regions of Alaska, the competition is very limited and, in many cases, during certain parts of the year, it practically has no effect on the ability of shipowners to seek out competitive alternatives. Number 125 SENATOR HALFORD directed attention to Section 12 and pointed out that the changes in the tariff setting basically take out the provision that allows the board to set the maximum tariff and makes it a violation for a member to charge a tariff that is different from the amount set by the pilotage organization for which that pilot is a member. He asked Mr. Spence if he supports that section. MICHAEL SPENCE responded that they have no objection to that section in that it does provide for an organized manner where organizations can announce their tariffs, and they have not had a problem adhering to that standard. However, he thinks the board has not closely reviewed or scrutinized the tariffs that have been set by pilot organizations. Number 195 SENATOR HALFORD, speaking to Section 14 which relates to pilots not being liable for damages in excess of $250,000, said his concern is that when that liability limit is there, the liability for that loss then passes through to the state because the state has, in fact, protected somebody else from liability. MICHAEL SPENCE commented he thinks there is an acceptance in historical maritime law that pilots cannot be expected to be liable for the total liability of a potential maritime accident. Number 225 ERIC ELIASON, President of Southwest Pilots, voiced the organization's support for SB 130. However, they do have some concern with paragraphs (2) and (6) in Section 8, but it is his understanding that the department will offer an amendment that will address their concern. Mr. Eliason said the Southwest Pilots strongly favor a regionalization concept. On the liability issue, he said in trying to promote a safe and efficient pilotage system, the best way to do this is to have high increase in standards and high training standards, which are in the state's best interest. He added the fines, suspension or revocation of a license are already extremely potent deterrents. Number 315 STUART MORK, representing Alaska Marine Pilots, Region 3, said one of the more important functions of the pilot organizations is a pool of pilots that travel throughout the various ports collecting current information relating to those ports which they then pass along to the other pilots in their organization. If an individual is on his own and does not belong to a group, then he does not have access to that information. He referred to Section 6 which relates to the conditions under which a pilot can be licensed in a second region. His organization feels the state has already recognized the importance of having distinct regions, and to allow a pilot to go another region is a matter of safety and concern. As a safety consideration, they would like to see the provision amended to require that a pilot licensed in a second region under a temporary condition be required to join one of the existing recognized marine pilot organizations in the region so that he has access to all of the up-to-date information. Mr. Mork spoke to concerns with Section 15. He said this is the first time the state is requiring two private parties, whether it is the shipper and the pilot organization, to enter into agreement. Also, the provision requires that the pilots who are regulated by the state enter into an agreement with agents or operators who are not regulated by the state which puts the pilots at a disadvantage. Number 395 JOE KYLE, representing the Alaska Steamship Association, said in terms of the number of pilot moves in the state that require the services of a state licensed pilot, their membership, by far, represents the vast majority of the moves that require the services of a ship's pilot. He said their is an excellent group of pilots in the state and the state of piloting in Alaska is very solid. Mr. Kyle said they were looking for two things in the bill this year to address corrections to the Marine Pilotage Act, but neither one appears in SB 130 at this time. One is language that would provide that the industry members be actively engaged in either the management or the operation of a company in the steamship industry. They would also like to see some form of conflict resolution or way to resolve disputes so that they are not faced with a situation of having a lapsed contract with a pilot association. Number 545 HANS ANTONSEN, representing Southeastern Alaska Pilots Association, stated they are highly in favor in maintaining the present composition of the board and not diluting the public membership. Mr. Antonsen, speaking to the liability issue, said contrary to some professions where an airline pilot may be the sole man in charge, pilots are advisors on board that vessel and do not in any way supersede or eliminate the masters ultimate responsibility for the conduct of his vessel. Mr. Antonsen pointed out it is only the industry representatives that create a chaotic situation of when a contract between the shipping company and the pilots, or the agents that represent those ships and pilots run out. The pilot associations try far in advance to secure contracts, both with the cruise industry and the cargo industry. He said they are very concerned with not having a contract run out, as is the situation right now. They have contracts that are expiring and they have not secured, even at this late date, final contracts with cruise ship companies. TAPE 95-26, SIDE A Number 005 RON LORENSEN, an attorney in private practice in Juneau, testified on behalf of a Canadian company, Northern Transportation Company Limited (NTCL). He explained that in the last few years NTCL has begun making shipments of petroleum products to a number of communities on the North Slope. Last summer NTCL was informed by the Board of Marine Pilots that they should be using a pilot at least at the Point Hope location. There is a provision in the law that exempts U.S. registered tugs from having to use a marine pilot in Alaska. So although U.S. registered vessels performing exactly the same services have never had to use a pilot, the Canadian company has been told that it has to use a pilot. Mr. Lorensen has filed a lawsuit on behalf of NTCL on the legality of exempting only U.S. registered tugs and not foreign companies. However, he suggested a better way to address this problem would be to amend the law to extend the same exemption to Canadian vessels that presently is enjoyed by U.S. vessels of the same class. Number 095 SENATOR LEMAN asked if the U.S. has a reciprocal agreement with Canada. RON LORENSEN responded that with respect to operations on the North Slope or on the Canadian Arctic Slope, there are no Canadian pilotage requirements so there is no reciprocity necessary. Number 155 MIKE O'HARA, a pilot in Region 2 and a member of the Board of Marine Pilots, referred to Section 8 paragraphs (2) & (6) and said he had two recommended changes to the section. Mr. O'Hara said the Act, as written now, demands command experience and paragraph (6) essentially eliminates the command experience for initial entry into the training programs. He recommend that a form of apprentiship be put into a training program. In paragraph (2) of Section 8, Mr. O'Hara suggested it be changed to read "two years of service as a master on inspected vessels" because inspected vessels are more safety conscious and that is the kind of master they are looking for. Regarding single port regions, Mr. O'Hara said ideally the best situation for a pilot is to work in only one port. He noted Region 3 is very large now, and Canadian tugs have to pay for a pilot to go all the way from Dutch Harbor. He suggested that region could be split into two regions. Number 210 SENATOR PEARCE asked if the exemption Mr. Lorensen spoke to has always been in the pilotage Act. MIKE O'HARA answered that as far as he knows, it has. It came in because of the ferries running between British Columbia and Southeast Alaska so that the Alaska ferry wouldn't need a pilot, and similarly the Canadian ferry or tug wouldn't need a pilot coming into Alaska. SENATOR PEARCE asked for a definition of "command experience." MIKE O'HARA said command experience is a master of a ship; the captain has the responsibility of a ship. Number 262 BOB EVANS, representing Alaska Marine Pilots, speaking to binding arbitration which is not in SB 130, but is in the House bill, observed that if it were to become law, it probably would be the first time that the state has mandated that two private businesses enter into binding arbitration. He said under Title 9, you either petition the court for an arbitrator, or you go to a arbitrator as a result of collective bargaining agreement, and that not being the case here, he questioned who was going to pay for the binding arbitration and if it is fair to compel the parties who are mandated to go into binding arbitration, or should the state take on that responsibility. Number 285 SENATOR PEARCE announced that due to travel schedules of committee members, it would possibly be two weeks before another meeting would be scheduled on SB 130, but a draft committee substitute would be worked on and circulated for comments before that meeting. She then adjourned the meeting at 3:14 p.m.