BILL ANALYSIS                                                                                                                                                                                                    






                                                       Bill No:  AB 
          907
          
                 SENATE COMMITTEE ON GOVERNMENTAL ORGANIZATION
                       Senator Roderick D. Wright, Chair
                           2011-2012 Regular Session
                                 Staff Analysis

          AB 907  Author:  Ma
          As Amended:  June 8, 2011
          Hearing Date:  June 14, 2011
          Consultant:  Art Terzakis

                                     SUBJECT  
              Bays of Monterey, San Francisco, San Pablo & Suisun: 
                                 pilotage rates

                                   DESCRIPTION
           
          AB 907 makes the following changes to various provisions of 
          the Harbors and Navigation Code relating to bar pilotage 
          rates for Monterey Bay and the Bays of San Francisco, San 
          Pablo and Suisun:

             1.   Establishes a fuel surcharge for all vessel moves 
               using pilot services that shall be determined by the 
               Board of Pilot Commissioner's (Board) executive 
               director according to specified criteria.  Also, 
               requires the amount of any fuel surcharge to be posted 
               on the Board's Internet Web site.

             2.   Increases the draft foot and mill rates in effect 
               under Harbors and Navigation Code Section 1190(a)(1) 
               as follows: those rates that are in effect  on 
               December 31, 2011, shall be increased by 1.5% on 
               January 1, 2012; those that are in effect on December 
               31, 2012, shall be increased by 1.5% on January 1, 
               2013; those that are in effect on December 31, 2013, 
               shall be increased by 1.5% on January 1, 2014; and 
               those that are in effect on December 31, 2014, shall 
               be increased by 1.5% on January 1, 2015.

             3.   Provides that effective January 1, 2012, the 
               schedule of pilotage rates for ship movements and 
               special operations in effect under Section 1191 of the 
               Harbors and Navigation Code shall be those in the 




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               Appendix to the Board's findings and Recommendations 
               to the Legislature, dated May 25, 2011, with 
               additional increases of 1.5% effective January 1, 
               2013, January 1, 2014, and January 1, 2015.  Also, 
               requires the Board to post the schedule of rates on 
               its Internet Web site.   

             4.   Increases the current charge against the owner, 
               operator, or agent of any vessel that carries a pilot 
               to sea against his will or unnecessarily detains a 
               pilot when a pilot vessel is standing by to receive to 
               $2,058 per day with additional increases of 1.5% 
               effective January 1, 2013, January 1, 2014, and 
               January 1, 2015.

             5.   Makes other minor, technical and conforming 
               changes.
                                         
                                  EXISTING LAW

           Existing law establishes in state government the Board of 
          Pilot Commissioners, with jurisdiction over Monterey Bay 
          and the Bays of San Francisco, San Pablo, and Suisun.  
          Existing law directs the Board to regulate pilotage and 
          provides for the licensing, regulation, and management of 
          pilots in these Bays.  The Board consists of 7 members 
          appointed by the Governor, with the consent of the Senate, 
          as follows:  (1) two members must be licensed pilots; (2) 
          two members must represent the industry and be substantial 
          users of Monterey Bay and any of the waters of the Bays of 
          San Francisco, San Pablo, or Suisun; and, (3) three must be 
          "public" members.  

          Existing law prescribes pilotage rates for vessels and 
          requires vessels spoken inward or outward bound to pay a 
          specified rate of bar pilotage through the Golden Gate and 
          into or out of the Bays of San Francisco, San Pablo and 
          Suisun and vessels navigating the waters of Monterey Bay 
          are also required to pay a specified rate.

          Existing law requires the Board to adopt a schedule of 
          pilotage rates applicable to pilots and inland pilots for 
          those operations that are not otherwise provided for under 
          existing law.  Existing law also requires the board to 
          establish a surcharge for each movement of a vessel using 
          pilot services to be used for the pilot and inland pilot 




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          continuing education program established by the board.

          Under existing law, whenever suspected safety standard 
          violations concerning pilot hoists, pilot ladders, or the 
          proper rigging of pilot hoists or pilot ladders are 
          reported to the Board, the Board's executive director is 
          required to assign a commission investigator to personally 
          inspect the equipment for its compliance with specified 
          safety standards. This requirement applies to vessels in 
          certain defined pilotage grounds.

          Existing law makes the owner, operator, and agents of a 
          vessel jointly and severally liable for $600 per day when a 
          pilot is unwillingly carried out to sea or unnecessarily 
          detained on board a vessel.

                                    BACKGROUND
          
           Brief Historical Perspective:   Bar pilots have been guiding 
          ships into San Francisco Bay, one of the most treacherous 
          passages in the world, since at least 1835.  The work that 
          bar pilots performed was so important that one of the first 
          legislative enactments by the newly formed California 
          Legislature that met in San Jose in 1850 was to address the 
          regulation of bar pilots.

          California's history of piloting parallels to a large 
          extent the history of pilotage throughout the United 
          States.  Prior to the American Revolution, pilotage was 
          regulated by colonial legislatures.  They generally 
          provided for the commissioning of pilots, apprenticeship 
          requirements to become a pilot, specified the type and size 
          of pilot boats used in the service, and established fees to 
          be charged.  When the United States Constitution was 
          adopted, it recognized that pilotage fell within the domain 
          of the federal government because it involved regulation of 
          instruments of foreign commerce.  One of the first acts of 
          the newly formed Congress in 1789 was to recognize the 
          existing state laws regulating pilots and delegate to the 
          states the authority to continue to regulate pilotage 
          because of its unique character.

          Bar pilots are responsible for steering an arriving vessel 
          through the Golden Gate of San Francisco Bay, the Bay 
          waters and adjoining navigable waters, which include San 
          Pablo Bay, Suisun Bay, the Sacramento River and its 




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          tributaries.  When a vessel approaches the "SF" buoy 
          several miles west of the Golden Gate Bridge, a bar pilot 
          boards the ship and takes navigational control.  (Pilots in 
          San Francisco are called "Bar Pilots" because they board 
          and disembark ships just beyond a treacherous sand bar 
          which provides a natural obstacle to shipping.)  It becomes 
          the pilot's responsibility to guide the ship to its berth.  
          The bar pilots provide service to all types of vessels, 
          from 100-foot tugs to 1000-foot supertankers.

           Purpose of AB 907:   Pilots are generally mandatory in every 
          major port throughout the world and their pilotage service 
          is paid for by the vessel owner/agent.  As noted above, the 
          San Francisco Bar Pilots (SFBP) have been state regulated 
          and licensed since 1850 to pilot vessels to various ports 
          in the Bay Area such as San Francisco, Oakland, Redwood 
          City, Martinez, Richmond, Pittsburgh, Vallejo, Rodeo, 
          Antioch, Stockton, Sacramento and more recently including 
          Monterey.  

          According to the author's office, this measure is intended 
          to implement pilotage rate recommendations issued by the 
          Board of Pilot Commissioners (Board) for Monterey Bay and 
          the Bays of San Francisco, San Pablo and Suisun.  The SFBP 
          estimate that for bulk cargo, the increase proposed by this 
          measure will result in $0.08 per ton; for tankers, $0.04 
          per barrel; for containers, $0.16-$0.18 per container.

          On February 11, 2011, the Pacific Merchant Shipping 
          Association (PMSA) and the SFBP filed separate petitions 
          for adjustment of pilotage rates under Chapter 6, Sections 
          1200-1203 of the Harbors and Navigation Code.  In early 
          April 2011, in response to the petitions from the PMSA and 
          the SFBP, the Board held a hearing to consider possible 
          recommendations to the legislature concerning adjustments 
          in pilotage rates.  Such hearings are authorized by 
          Sections 1991 and 1200-1203 of the Harbors and Navigation 
          Code.  In summary, the Board recommended:

                 Adoption of a quarterly fuel surcharge that would 
               be implemented if and when average per-gallon fuel 
               costs to the pilots in a preceding three-month period 
               have exceeded a benchmark level.  The surcharge would 
               be a flat amount for each vessel move during the 
               following quarter.  





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                 Adoption of four new charges in the rate schedule 
               authorized by Harbors and Navigation Code Section 
               1191.  Three of the charges involve use of an 
               additional pilot in situations where safety requires 
               it.  The fourth charge is for late cancellation of 
               pilot services for vessel departures from the Ports of 
               Sacramento and Stockton.  The Board recommended that 
               these four new charges be incorporated in a restated 
               Schedule of Pilotage Rates for Ship Movements or 
               Special Operations, in furtherance of Harbors and 
               Navigation Code Section 1191(a) which provides that 
               the Board "shall recommend that the Legislature, by 
               statute, adopt a schedule of pilotage rates providing 
               fair and reasonable return to pilots and inland pilots 
               engaged in ship movements or special operations where 
               rates for those movements or operations are not 
               specified in Section 1190."  There is currently no 
               such schedule that sets forth current rates.

                 Adoption of four successive annual increases of 
               1.5% each year in the rates provided for in Sections 
               1190 and 1191 of the Harbors and Navigation Code.  The 
               first increase would be effective January 1, 2012 and 
               the last would be effective January 1, 2015.  Please 
               note that the pilotage fees currently set forth in 
               Harbors and Navigation Code Sections 1122 and 1190 are 
               not the current fees.  The current fees are higher, 
               reflecting intervening legislative increases.

           Arguments in Support:   Proponents point out that the SFBP 
          move $1.2 billion in cargo every day and help sustain over 
          44,000 jobs in Northern California.  Proponents note that 
          state pilotage is fundamental to the safe and efficient 
          flow of commerce in Northern California and in order to 
          ensure the region has the best qualified pilots to fulfill 
          this mission it is critical that California remain 
          competitive with comparable ports.  Proponents also contend 
          that this measure is not about pilot income, which rises 
          and falls based on shipping traffic calling at various Bay 
          area ports.
           
           Proponents emphasize that the Board has carefully reviewed 
          all of the evidence and economic factors and has concluded 
          that a modest increase in rates is necessary.  Proponents 
          claim that the proposed pilotage service increases are 
          insignificant (approximately $0.16-$0.18 per container) - 




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          particularly at a time when shipping companies are reaping 
          average profits of approximately $560 per container. 
           
          Arguments in Opposition:   According to PMSA, this measure 
          would impose higher pilot rates on vessels, create new 
          surcharges and allow for levies of arbitrary additional 
          charges of 50% to 100% on large vessels calling the Ports 
          in San Francisco Bay and River system. PMSA believes these 
          pilot rate increases are "unjustified, ill-timed and, in 
          the context of the greater economy, state budget and 
          existing pilot incomes, outrageous giveaways to the extent 
          of being oppressive and confiscatory."  PMSA also claims 
          that AB 907 does not reflect the Board's "full and 
          unadulterated recommendation - rather this bill has 
          selectively incorporated the recommended language and seeks 
          to hide the language that highlights the newest and most 
          controversial surcharges."

          PMSA points out that in 2010 the average net income per San 
          Francisco Bar Pilot was $393,207 - that figure was down 
          from the average net income of $427,153 per pilot in 2009 
          because of the overall decline in ship traffic using the 
          San Francisco Bay system as a result of the ongoing 
          recession.  PMSA states that "overall tonnage is up 16.5 
          percent already in 2011, and it is anticipated that pilots' 
          salaries will, once again, exceed $400,000 without any 
          benefit of a rate increase, since the rate increase 
          proposed by this measure will not go into effect until 
          January 1, 2012."  

          PMSA notes that the continuing economic recession, 
          additional regulations, emissions controls, taxes, and fees 
          have proven significant challenges to the health of the 
          industry and that increasing fees makes it more expensive 
          for every ship arriving or departing. This measure could in 
          fact give shippers further incentive to use port facilities 
          elsewhere.

          PMSA also points out that ultimately, all of the additional 
          costs of doing business in California are not paid by ocean 
          carriers, but rather by their customers.  This will impact 
          the agricultural industry in particular which has few 
          choices in how they transport their goods to market for 
          export.  Their costs will rise making California produce 
          more expensive and less desirable overseas.  To remain 
          viable in international trade, PMSA believes our ports must 




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          remain cost competitive - and while the many different 
          costs that go into shipping may each seem individually 
          insignificant, considering the massive size of these ships, 
          and on a per ton basis, they all add up.   In addition, 
          PMSA argues that these rate increases will also exacerbate 
          the current situation facing the pilot pension program, 
          which currently is facing an unfunded liability of over 
          $250 million. 

          Furthermore, PMSA states that "since the rate portions of 
          this measure are so highly charged and controversial, the 
          non-controversial and non-rate related portions which refer 
          exclusively to Board operations and licensing issues should 
          be removed by this Committee (the Senate G.O. Committee) 
          and placed in AB 1025 (Skinner) - a consensus good 
          government bill supported by the Board, the SFBP and PMSA." 


           Staff Comments:   As noted above, vessels entering the San 
          Francisco Bay are required by law to utilize the services 
          of a licensed SFBP and are charged fees for those services. 
          The Board regulates and contracts for the services of the 
          bar pilots who are independent contractors, not state 
          employees.  The San Francisco Bar Pilots Association is 
          essentially a "regulated monopoly," with membership and 
          rates fixed by statute.  There are no competitive options 
          for ship-owners who use San Francisco Bay ports other than 
          to employ the services of this legal monopoly.  The SFBP 
          are the only coastal pilots that have their rates set in 
          statute by the Legislature.  For example, the Los Angeles 
          Pilot Service, which dates back to 1907, and ensures a safe 
          flow of ship traffic to and from Los Angeles Harbor, 
          consists of pilots who are employees of the City of Los 
          Angeles.  Additionally, the Port of Long Beach contracts 
          with a private pilot service.

          In 2014, the new Panama Canal, with a modified series of 
          locks capable of handling the world's largest ships is 
          expected to open.  With the opening of this new system of 
          locks that will allow ships that exceed 1,200 feet in 
          length and carry three times the cargo of current "Panamax" 
          ships, a greater share of Asian mega container-ships may 
          very well sail directly to the eastern United States, 
          bypassing California ports entirely. 
                                         
                           PRIOR/RELATED LEGISLATION




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           AB 1025 (Skinner) 2011-12 Session.   Among other things, 
          would authorize the Board of Pilot Commissioners to charge 
          an examination fee, as specified, to each applicant to the 
          pilot trainee training program to cover administrative 
          costs.  Also, would require the executive director of the 
          Board to be responsible for safety investigations and 
          authorizes the executive director to personally inspect 
          equipment involved in the injury of a bar pilot.  
          Additionally, would require that the board's assistant 
          director be appointed by the Secretary of Business, 
          Transportation and Housing, instead of being appointed by 
          the governor, and serve at the pleasure of the secretary.  
          (Pending in this Committee)

           AB 656 (Huber) 2011-12 Session.   Would sunset, as of 
          January 1, 2011, the Board of Pilot Commissioners and 
          transfer, as of that date, the board's duties to the 
          Secretary of Business, Transportation and Housing.  
          (Pending in this Committee)
           
          AB 1888 (Ma) Chapter 455, Statutes of 2010.  Among other 
          things, revised the terms for members of the board who are 
          licensed pilots and members who represent the industry and 
          exempted from those pilotage fees and surcharges 
          noncommercial vessels that are maritime academy training 
          vessels and vessels owned and operated by nonprofit museums 
          or foundations. These vessels would be subject to the board 
          operations surcharge.
           
          SB 300 (Yee) Chapter 497, Statutes of 2009.    Established a 
          surcharge for payment of navigational aids for bar pilots 
          and revised the pilotage rate based upon the current number 
          of bar pilots.
           
          SB 1627 (Wiggins) Chapter 567, Statutes of 2008.   Made 
          numerous substantive, clarifying and technical changes to 
          the body of law relating to the Board of Pilot 
          Commissioners.  Specifically, injected ongoing and 
          continuous legislative oversight and administrative 
          responsibility within the existing pilot licensing 
          framework, without altering the Board, its charge, or 
          composition and without changing current pilotage rates, 
          pilot pension benefits, or duties and responsibilities of 
          current, past or future licensed pilots.  Also, directed 
          the Bureau of State Audits to conduct a comprehensive 




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          performance and financial audit of the Board.

           SB 1217 (Yee) Chapter 568, Statutes of 2008.  Required the 
          Board of Pilot Commissioners to appoint a physician or 
          physicians who are qualified to determine the suitability 
          of a person to perform his or her duties as a pilot, an 
          inland pilot, or a pilot trainee in accordance with 
          specified requirements.  Also, required the Board to 
          terminate a pilot trainee or suspend or revoke the license 
          of a pilot or an inland pilot who fails to submit the 
          prescribed medication information required by these 
          provisions.  

           AB 852 (Leno) Chapter 129, Statutes of 2005.   Among other 
          things, authorized revenue generated by the pilot boat 
          surcharge to be used to pay for pilot boat design and 
          engineering modifications intended to extend the service 
          life of existing boats, in addition to the existing purpose 
          of purchasing new pilot boats.
           
          SB 1303 (Torlakson) Chapter 560, Statutes of 2004.  Made a 
          minor change to an existing provision of law relative to 
          representation on the Board of Pilot Commissioners by 
          clarifying that the Board's two industry members must be 
          substantial users of any of the waters of the Bays of San 
          Francisco, San Pablo, Suisun, or Monterey.

           SB 1353 (Perata) Chapter 765, Statutes of 2002.  
          Established a schedule of incremental changes (through 
          January 1, 2006) to the rates and special surcharges that 
          bar pilots may impose on vessels that move in and out of 
          the Bays of San Francisco, San Pablo and Suisun.   

          SB 637 (McPherson) Chapter 177, Statutes of 2001.   Allowed 
          San Francisco bar pilots to pilot commercial vessels 
          calling on ports in "Monterey Bay" by including Monterey 
          Bay within the system of state regulated pilotage for the 
          Bays of San Francisco, San Pablo and Suisun.  

          SB 2177 (McPherson) 1999-2000 Session.   Would have applied 
          existing provisions of law relative to the regulation, 
          licensing, and management of pilots for the Bays of San 
          Francisco, San Pablo and Suisun to persons who pilot 
          vessels into or out of the waters of Monterey Bay.  (Held 
          in Assembly policy committee at author's request) 
           SB 2144 (Perata) Chapter 394, Statutes of 2000.   Made 




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          various modifications to provisions of law governing the 
          licensing of bar pilots.  
          
           SB 1109 (Burton) Chapter 786, Statutes of 2000.   Among 
          other things, required a vessel owner and its operators to 
          defend, indemnify, and hold harmless, a bar pilot from any 
          liability and expenses in connection with any civil claim 
          suit as action arising out of the pilot's performance of 
          the pilotage services, except for acts of willful 
          misconduct.  
           
          AB 951 (Wiggins) Chapter 261, Statutes of 1999.   Codified 
          the agreement on bar pilot rate increases reached between 
          the San Francisco Bar Pilots and the Pacific Merchant 
          Shipping Association.
           
          SB 1741 (Johnston) Chapter 1115, Statutes of 1996.   Among 
          other things, established a schedule of bar pilotage rate 
          increases that were phased in over a three-year period 
          (1997-99).

           SB 496 (M. Thompson) Chapter 711, Statutes of 1995.   
          Revised the formula the fiduciary uses to calculate the 
          quarterly adjustment for pilotage rates.  Also, changed the 
          schedule of pilotage fees for ship movements and internal 
          operations, as specified.
           
          SB 2068 (Johnston) Chapter 385, Statutes of 1994.   
          Increased the pilotage rate from 60.70 mills to 64.88 mills 
          and required the board to temporarily reduce the additional 
          charge, as specified, if maintenance and repair costs of 
          two pilot boats are less than $200,000.
           
          SB 238 (Lockyer) Chapter 1192, Statutes of 1993.   Increased 
          the rate of the additional pilotage charge from 60.56 mills 
                                                                    per high gross registered ton to 60.70 mills.  Also, 
          included inland pilots, as defined, in the pension benefit 
          program. 

           AB 1768 (Papan) Chapter 1653, Statutes of 1984.   Among 
          other things, established a unified system of state 
          regulated pilotage whereby inland pilots became members of 
          the San Francisco Bar Pilots Association and the combined 
          group assumed joint responsibility for all pilotage moves 
          on the pilotage grounds (e.g., San Francisco, San Pablo, 
          and Suisun Bays and all other ports included therein.)  




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           SUPPORT:   As of June 10, 2011:

          American Maritime Officers
          California Labor Federation
          International Boatmen's Union
          International Longshore and Warehouse Union
          International Organization of Masters, Mates & Pilot 
          Marine Engineers Beneficial Association
          Marine Firemen and Oilers Union
          Masters, Mates and Pilots
          San Francisco Bar Pilots
          Sailors' Union of the Pacific
          Seafarers International Union

           
          OPPOSE:   As of June 10, 2011:

          Pacific Merchant Shipping Association
          California Chamber of Commerce
          California Citrus Mutual
          California Cotton Ginners and Growers Associations
          California Farm Bureau Federation
          California Grape and Tree Fruit League
          California Grocers Association
          California Manufacturers & Technology Association
          California Rice Industry Association
          California Trade Coalition
          Cruise Lines International Association
          Nisei Farmers League
          Western Agricultural Processors Association 

           FISCAL COMMITTEE:   Senate Appropriations Committee

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