Docket TV-971477 August 12, 1998 Page 1 Agenda Date: August 12, 1998 Agenda Item: Docket: TV-971477 Rulemaking for Motor Carriers of Household Goods Staff: Kim Dobyns, Program Development Analyst Bonnie Allen, Program Coordinator Carolyn Caruso, Secretary Cathie Anderson, Program Coordinator Diana Otto, Consumer Affairs Foster Hernandez, Transportation Specialist Gene Eckhardt, Assistant Director, Water and Transportation Tom MacLean, Commission Staff Economist Marjorie Schaer, Review Judge Mary Sprouffske, Rules Coordinator Pat Dutton, Assistant Director, Operations Ray Gardner, Transportation Specialist Ann Rendahl, Assistant Attorney General Recommendation: Direct the Secretary to file a proposed rulemaking (CR 102) in Docket No. TV-971477 to repeal all rules in chapter 480-12 WAC, except WAC 480-12-100 and 480-12-375, and establish a new chapter 480-15 WAC governing carriers of household goods. Discussion: 1. Background: Chapter 81.80 RCW requires the Commission to regulate household goods carriers by issuing permits to carriers if they are fit, willing and able to provide service, the proposed service is in the public interest and granting authority is necessary for the current and future public convenience and necessity. Under the same chapter, the Commission must also establish fair, just and reasonable rates for household goods carriers and ensure household goods carriers operate in a safe manner. Historically, Chapter 81.80 RCW has governed all motor carriers of property including those transporting general freight and a number of specialized commodities, including household goods. However, in late 1994, Congress passed and the President signed the Federal Aviation Authorization Act, which preempted state regulation of rates, routes, and services of motor carriers of property, except household goods carriers, brokers, and freight forwarders. In 1995, Congress passed and the President signed the ICC Termination Act which preempted most state regulation of brokers and freight forwarders and redefined household goods to exclude office and commercial moves from state regulation. 2. The Rulemaking Process: On November 4, 1997, the Commission filed a Preproposal Statement of Inquiry (CR101) with the Code Reviser, giving notice of its intent to review all rules in chapter 480-12 WAC governing household goods carriers, as well as freight forwarders and brokers. The Commission stated its intent to develop rules for household goods carriers that promote competition where it can protect the public interest at least as well as regulation; reform and improve regulation of services to be more efficient and increase consumer choice; eliminate rules that are no longer needed to protect the public, and clearly define consumer protection elements. In addition, the Commission indicated it would review the rules in Chapter 480-12 in compliance with Executive Order 97-02, Commission Docket No. A-971104 and the Commission’s strategic plan. Since January 1998, staff has held several workshops, brainstorming sessions, stakeholder meetings, and solicited written comments to seek and encourage involvement of all interested persons. The staff has developed and mailed out to interested persons several different drafts of rules for discussion purposes. The Commission has received numerous letters and e-mails since issuing the Preproposal Statement of Inquiry in November 1997, proposing options for the Commission to consider, comments on discussion drafts, and practices the Commission should address. In addition, staff has reviewed the historical policies and decisions of the Commission concerning household goods carriers, other state and federal practices, and intrastate carrier practices and concerns of consumers. During the rulemaking process, staff determined rules concerning brokers would not be addressed in this rulemaking and is recommending the rules relating to brokers, WAC 480-12-100 and WAC 480-12-375, be retained in Chapter 480-12 WAC. The Commission hired an economist under contract to prepare a Small Business Economic Impact Statement to measure the administrative cost of compliance with the proposed rules. Copies of all meeting notices mailed by the Commission, discussion drafts, letters and e-mails, any responses by staff, and all materials upon which staff has relied in this rulemaking process are included in the rulemaking file, which is located in the commission’s records management section. 3. Overview of the proposed rule changes: The proposed rules make several significant changes to existing rules. They ease entry requirements by changing the application process and interpreting the standards of public interest and public convenience and necessity to address the concerns of the consumer. The proposed rules allow carriers greater opportunities to operate in the state by eliminating rules which require carriers to obtain specific operating authority (local cartage and commercial zones) to provide services in specific cities and metropolitan areas of the state. These changes are necessary to allow more carriers to provide household goods moving services and allow carrier to expand their operations. It is expected these changes will increase competition and consumer choice. Additionally, the proposed rules provide for pricing flexibility through the use of an interim rule which allows carriers to price their services within a range of the current tariff rates. This policy change is necessary to allow for service expansion in the industry and will also increase consumer choice where pricing is a determining factor. The proposed rules strengthen consumer protection by capping the amount a carrier can charge a consumer above their estimate, providing carriers the option to issue binding estimates, clarifying credit options, reducing carrier complaint response time, and providing a more complete range of valuation options. The proposed rules also clarify Commission policy and authority in the areas of compliance, complaint resolution and, what constitutes household goods. Finally, the proposed rules are drafted in clear language, as directed by Executive Order 97-02. 4. Key Issues The following section highlights the major areas of change in the rules, proposals that will benefit consumers, and issues on which consensus could not be achieved. For those issues on which consensus could not be achieved, the Washington Movers Conference (WMC) has submitted alternate language which is reflected in Attachment 1, the proposed rules. Their discussion for why the alternate language should be used is included in this section. a. Easing Entry The Commission is required, by statute, to apply a “public convenience and necessity” standard when considering applications for new authority to operate as a household goods carrier. Staff believes the new processes identified in the rules concerning temporary and permanent authority allow the applicant to more effectively prove its ability to provide quality service, and the need for service. The Commission must also consider whether an applicant is “fit, willing and able” to provide service when considering whether to grant authority to operate as a household goods carrier. The proposed rules governing new entrants allow the Commission to better determine whether a carrier is fit, willing and able to provide service by monitoring the service provided to consumers under a temporary permit. The proposed rules require new applicants to apply, receive Commission approval, and operate for at least 180 days under temporary authority before the Commission will consider granting permanent authority. During this 180 day period, staff will evaluate the applicant’s fitness, willingness and ability to provide household goods carriers service, whether the service is in the public interest and whether the service is needed for the current or future public convenience and necessity. Staff will also provide the applicant with an appropriate level of education, technical assistance, safety evaluation, and will monitor customer satisfaction of the services provided by the applicant. Based on this analysis, the Commission will be in a better position to determine if the applicant is fit, willing and able to provide service, if that service is in the public interest, and if that service is needed for the current or future “public convenience and necessity.” Easing entry process requirements will provide consumers with more choice and allow greater competition in this market. b. Eliminating Area of Operations Restrictions Existing Commission rules created a patchwork of authorized areas of operations, such that a carrier with authority to serve King County could not serve Seattle unless the carrier also had local cartage or commercial zone authority for the city. Staff proposes to eliminate these restrictions and grant household goods carriers authority to operate statewide unless a carrier chooses to provide service in a smaller area. Staff proposes the smallest area in which a carrier may restrict its services would be at the county level but that no city level authority will be required. See Attachment 1: WAC 480-15-190. The Washington Movers Conference proposes alternate language, set apart with a bold border, which opposes the elimination of local cartage for the following reasons: WMC Discussion: To provide the ability to control and maintain an economically stabilized and professional HHG carrier base in these large metropolitan population centers within Washington State. Staff respectfully disagrees. Staff believes it is in the public interest to eliminate these restrictions because the restrictions limit consumer choice and make enforcement more difficult. Staff also believes carriers will benefit from these proposed rule changes. Under the proposed rules, the opportunities for business growth will not be hampered by artificial boundaries. c. Rate Flexibility In addition to easing entry and area of operations requirements, staff believes pricing flexibility is necessary to allow effective competition between carriers. The ability for a carrier to make business decisions with regard to price is equally important to assure a viable industry continues to prosper. Staff proposes an interim rule be put in place until such time as the Commission or the industry decides to initiate a rate case. The interim rule proposal is for a band of rates a carrier may offer set at 15% above and 35% below the existing tariff rates in effect on the adoption date of these rules. Attachment 2 is a staff memo which describes the methodology and reasons these percentages are recommended. See Attachment 1: WAC 480-15-490. The Washington Movers Conference proposes alternate language recommending a rate band range of 10 percent above and 10 percent below the existing rates and charges. Their discussion follows: WMC Discussion: A 10% band, up and down from the base rate, provides sufficient flexibility for carriers to conduct operations with all levels of customers during all times of the year, while still being compensatorily compensated for their efforts. Until such time as the Commission can demonstrate that a broader band is still compensatory through a fully allocated rate study, the WMC can not concur with percentages greater than 10%. The Commission must assure a level playing field for all concerned. Staff respectfully disagrees. Different carriers have different fixed and variable costs based on geography, level of service offered, equipment maintenance, time of year, and other factors. In addition to allowing carriers to base pricing on their individual business strategies, pricing flexibility will promote competition within the industry. The staff proposed price band percentages include an upper limit based on the Implicit Price Deflator for the Gross Domestic Product of 10% and an additional 5% is recommended to provide carriers with the opportunity to develop high end services. The lower limit of the band is based on discounts permitted carriers offer to government and rates new entrants are likely to charge for lower end services. Under the proposed rules, consumers will benefit from a range of prices and a range of service levels. d. Estimate Percentage Limits The Commission has received several complaints from consumers regarding underestimating, and has issued penalties against carriers for this practice. Although underestimating does not appear to be as great a problem in Washington as in other states, such as New York and Florida, the staff proposes taking a proactive approach to strengthening consumer protection rules. Further, when the Commission does receive complaints from consumers, even under our stringent existing rules, the nature of the complaint is often very serious, e.g., 200% above the estimate. The strongest protection for consumers proposed in these rules sets a limit on the amount a carrier may charge a customer above their non-binding written estimate. The proposed rule states a carrier may not charge more than 25% above its written estimate (plus supplemental estimates) for an hourly-rated move, nor may a carrier charge more than 15% above its long-distance rated moves. Accessorial charges are also limited to 15% above the written estimate. See Attachment 1: WAC 480-15-690. The Washington Movers Conference is opposed to limiting the amount a carrier may charge above its non-binding written estimate, because: WMC Discussion: The listed language makes the non-binding estimate and any supplemental estimate a binding estimate and contradicts the paragraph beginning at line 1316 and continuing through line 1319. Staff respectfully disagrees. Staff proposed allowable ranges do not constitute a written binding estimate. They make carriers accountable for the written estimates they provide to their customers. These percentages are set at the level the Commission penalizes a carrier for underestimating its bid. Under existing rules, if a carrier underestimates the cost of a move by the percentages noted above, the Commission may penalize the carrier but the consumer is still required to pay the full amount. The proposed rules allow the Commission to not only penalize the carrier but also provide relief to the consumer. Lastly, this rule would allow a carrier the flexibility to satisfy its customer in a way that has not been possible in the past. Carriers have not had authority to say, “We made a mistake in our estimate and do not want to charge our customer for that mistake.” e. Binding Estimates The second strongest protection for consumers in these rules concerns binding estimates. Currently rules do not allow for this option. Staff proposes that, at the carrier’s option, it may offer a binding estimate to its customer. See Attachment 1: WAC 480-15-630. The Washington Movers Conference is opposed to binding estimates as an option for carriers, and proposes alternate language as follows: WMC Discussion: Both forms of estimates, Binding and Non-Binding, include the language “this estimate includes only the items and services listed herein, any additional items or services not included in the original estimate will be assessed additional charges at lawful tariff rates.” Certainly price certainty is an important aspect for all parties involved in any transaction. However, because of the typical changes which occur during the preparation of the household goods move, and the possibilities of changes or complications which often occur during the move, by providing a customer absolute certainty of no change in the final price for the move would be misleading. Many of the issues that are dealt with today by both Commission enforcement staff and professional movers regarding underestimating are a result of unanticipated changes or unforseen circumstances which occurred during the relocation process. Adjustments for additional services or items shipped must be compensated for. Additionally, many customers moving for the first time perceive that by receiving a “Firm Bid” or Binding Estimate provides concrete assurance their costs for the move are not going to change. Further, this concept has been deceptively used as a sales tool by unscrupulous movers to dupe the customer into believing that they are getting the best possible price for their move. This is not only unfair to the customer but typically results in an unfair pricing tactic against the competition, commonly referred to as “Low Balling.” Staff respectfully disagrees. “Low Balling” complaints occur in Washington where binding estimates have not been allowed. Rather, in Washington, a lack of binding estimates appear to have led to “low balling complaints. For example, a customer may get three non-binding estimates and select the carrier who offered the lowest price. Then, when it comes time to pay the bill, the customer is presented with the full cost for services with an explanation that the commission requires that the full bill be paid at the tariff rates regardless of the carrier’s written estimate. Binding estimates are allowed for interstate moves. Allowing binding estimates at the intrastate level will reflect what some carriers offer their Washington customers for interstate moves. The household goods transportation industry is confusing and complicated to many consumers who do not routinely transact business to move property. Informal consumer complaints received by the Commission often center around misunderstanding transportation terminology, tariff language, and the concept of regulating an industry regarding pricing. Staff believes binding estimates will aid in eliminating some confusion and will increase consumer confidence that the written binding estimate is the price they will pay. f. Cargo Insurance Requiring carriers to have a minimum level of cargo insurance is a new rule. It is designed to ensure that an insurance policy backs up a carrier’s legal liability for the household goods they move. The cargo insurance minimum levels in the proposed rules are slightly higher than the federal cargo insurance requirement for common carriers, due to comments received at the last stakeholder meeting. Stakeholders believed the federal levels were too low. See Attachment 1: WAC 480-15-550. The Washington Movers Conference recommends higher minimum levels of cargo insurance, and proposes alternate language as follows: WMC Discussion: To be able to insure the consumer’s goods are properly insured while in the contractual control of the HHG carrier with adequate minimum levels of cargo insurance in the event of an unintentional, unfortunate incident resulting in total shipment loss - the minimum levels of coverage need to be raised to $20,000. In addition, insurance companies do not typically issue cargo insurance policies with split levels of coverage depending on the size of trucks the company owns, i.e., large trucks and small trucks. Staff respectfully disagrees. Staff believes the minimum level of cargo insurance ought to be set to accommodate carriers who only operate smaller vehicles. g. Valuation Coverage The proposed rules retain the industry standard for a carrier’s legal liability for the cargo they carry at .60 cents, per pound, per item. Existing rules allow consumers to increase the carrier’s legal liability for cargo by purchasing valuation. Purchasing valuation coverage from a carrier allows the consumer to evaluate their own needs with respect to the value of their goods, insurance policies they may have, and the level of risk they are comfortable assuming. Changes in the proposed rules have provided for a wider range of options, increased levels of coverage and terminology changes that will make it easier for consumers to evaluate their options. h. Credit New proposed rules allow carriers the option of extending credit to their customers by accepting personal checks or credit cards. The proposed rules also provide that a carrier that extends credit to a customer at the beginning of a move must accept the same credit arrangements, during all phases of the move and to satisfy the final bill at the end of the move. This protection is in keeping with the proposed rules issued by the Federal Highway Administration (FHWA) concerning interstate household goods carriers. See 63 Fed. Reg. 27126 (May 15, 1998). Both carriers and consumers have expressed an interest in having a credit option. i. Reduction in Time to Acknowledge Receipt of Claim or Complaint Another proposed rule will reduce the amount of time a carrier may take to acknowledge the receipt of a consumer’s claim or complaint from 30 days to 10 days. Consumers will benefit from a shorter time frame in which to know if the carrier has received their claim or complaint. j. Definition The proposed rules define household goods by clarifying that household goods refer to residential rather than commercial goods, and clarifies the services that fall under Commission regulation. Previously, the Commission has excluded from regulation “the transportation of customer packed and sealed self storage containers when no accessorial services are provided by the carrier in connection with the transportation of the container” through staff opinion of the permit interpretation committee. See Attachment 1: WAC 480-15-020. The Washington Movers Conference proposes alternate language for the following reasons: WMC Discussion: Personal effects and property picked up at a private residence at the request of the consumer and transported over the public highways for compensation by a motor carrier are, by definition, household goods. The type of container the personal effects or property (HHG) are placed into is inconsequential. They may be placed into boxes, crates, vaults, or specifically designed storage containers, etc.; but once placed onto or into the motor carrier’s truck for transportation over the public highways for compensation - the regulated activity is the transportation of household goods over the public highways from a residence to another destination whether temporary or permanent. To apply a different standard for new programs initiated by public storage businesses is unfair. Staff respectfully disagrees. Staff considers this service to be the transportation of freight as the carrier provides no specialized services, such as loading, packing or wrapping household goods for transportation. The definition of household goods in the proposed rules retains this position. Staff believes this position is in keeping with the position taken by federal agencies and other states. Shurgard Storage to Go and Door to Door Storage Inc., support the household goods definition as written in staff’s proposal. k. Compliance Rules The proposed rules in Part 1.3 describe authority the legislation has given to the Commission to enforce the state laws and rules, describe what actions the Commission may take in any given circumstance, and describe the Commission’s policy on compliance. These rules are offered so a carrier may know what to expect and what options are available to the Commission to address non-compliance. The Washington Movers Conference submitted comments that indicate Part 1.3 is weak and refer to previously submitted comments. The majority of the Washington Movers Conference’s comments were incorporated into the proposed rules with the exception of the following type of language, e.g., “[the Commission will] effectively and expeditiously prosecute violations that are found,” and “Dedicated Commission enforcement officers will . . ..” Staff respectively disagrees. Further, staff believes the terms effectively and expeditiously are subjective and are not measurable. Staff believes that stating staff resources will be dedicated to a specific function is inappropriate. Assigning staff and resources is more appropriate as an internal policy decision and provides the Commission with the flexibility to make assignments based on need, and to retain its prosecutorial discretion. Staff believes they can appropriately enforce these rules with the language as proposed. 5. Small Business Economic Impact Statement The Commission hired a consultant to research and develop a small business economic impact statement (SBEIS) to determine the cost of compliance of the proposed rules for small businesses and to recommend mitigation measures the Commission could adopt to alleviate disproportionate burdens on small businesses. The SBEIS, including a summary of the consultant’s findings, are included in Attachment 3. Staff recommends the Commission adopt the following mitigation measures for small businesses: a. The rules propose that a carrier whose permit authority is suspended has 30 days to correct the reason for suspension and apply for reinstatement. The time limit for reinstatement should be extended to 60 days for small businesses. If accepted, this mitigation measure should be added to the proposed rules. b. The proposed rules require carriers to produce records requested by the Commission within 5 days. The time limit should be extended to 10 days for small businesses. If accepted this mitigation measure should be added to the proposed rules. c. The proposed rules require carriers to submit an annual report (including an income statement) to the Commission every year. Staff recommends that small businesses file the annual report every year but file the income statement once every four years. If accepted, this mitigation measure can be accomplished outside the rulemaking. d. The proposed rules allow for binding estimates which would require changes to industry forms. Staff recommends the Commission develop an optional form that could be used by carriers in lieu of developing their own form. If accepted, this mitigation measure could be accomplished outside the rulemaking. e. The proposed rules require carriers to maintain a complaint and claims register which requires the development of a register form. Staff recommends the Commission develop an optional register form that could be used by carriers in lieu of developing their own register form. If accepted, this mitigation measure could be accomplished outside the rulemaking. Therefore, staff recommends that the Secretary be directed to file a proposed rulemaking (CR102) in Docket No. TV-971477 to repeal all rules in chapter 480-12 WAC, except WAC 480-12-100 and 480-12-375, and establish a new chapter 480-15 WAC governing carriers of household goods. Attachments