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1 Pages: 1-186 MID-ATLANTIC FISHERY MANAGEMENT COUNCIL 800 North State Street, Suite 201 Dover, Delaware 19901-3910 COUNCIL MEET

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1 Pages: 1-186 MID-ATLANTIC FISHERY MANAGEMENT COUNCIL 800 North State Street, Suite 201 Dover, Delaware 19901-3910 COUNCIL MEET 1 Pages: 1-186 MID-ATLANTIC FISHERY MANAGEMENT COUNCIL 800 North State Street, Suite 201 Dover, Delaware 19901-3910 COUNCIL MEETING 13-15 DECEMBER 2011 at Kingsmill 1010 Kingsmill Road Williamsburg, VA 23185 TUESDAY DECEMBER 13, 2011 2 I N D E X TOPIC PAGE INTRODUCTIONS AND ANNOUNCEMENTS RICHARD ROBINS 3 CIE REPORT - EXCESSIVE SHARES JOHN WALDEN 4 ATLANTIC WIND CONNECTION PROJECT KRIS OHLETH 68 PRESENTATION FROM REGIONAL OFFICE HABITAT DIVISION CHRIS BOELKE 110 ECOSYSTEM AND OCEAN PLANNING COMMITTEE REPORT PETER deFUR 140 NMFS NEFSC DIRECTOR REPORT JAMES WEINBERG 151 3 1 [1:05 p.m.] 2 _______________________________ 3 INTRODUCTIONS AND ANNOUNCEMENTS 4 COUNCIL CHAIRMAN RICHARD ROBINS: 5 Let's go and take our seats so we can get started, 6 please. I hope you find the venue to be 7 satisfactory. I spent all night decorating it for 8 the holidays, so. The view behind us here is rich 9 in history. 10 As a Virginian, I'm obligated in any 11 fisheries discussion to channel Captain John Smith, 12 who of course sailed 403 years ago from just up 13 river to chart the Chesapeake Bay and its natural 14 resources. 15 He found it to be teaming with 16 herring and what he called white salmon, what we 17 would now call striped bass or rock fish, sturgeon, 18 and certainly very thick with oysters. 19 It's an area very rich in, I think, 20 lessons for the management of marine ecosystem and 21 anthropogenic impacts on those resources. All of 22 those fisheries have gone through very trying times, 23 and some of them significantly recovered and are now 24 quite productive. 4 1 Others have been essentially wiped 2 out. So there's a lot of history here behind us in 3 the river, and I think it's quite a neat setting for 4 a council meeting and discussion on fisheries. 5 But our first item today is going to 6 be a presentation by John Walden from the Northeast 7 Fisheries Science Center on the CIE report covering 8 the excessive shares study in the Surfclam and Ocean 9 Quahog Fishery. That study was commissioned last 10 year and now is completed, and it has been reviewed 11 by the CIE. So we have a review of that by John 12 Walden. John. 13 _____________________________ 14 CIE REPORT - EXCESSIVE SHARES 15 JOHN WALDEN: Thank you, Rick. Thank 16 you, Mr. Chairman, for the opportunity to come here 17 and talk a little bit about the excessive shares 18 work. I appreciate this time that the Council has 19 given me. 20 I'd like to thank everybody for their 21 patience through this whole process. I recognize 22 that the whole issue causes anxiety for many people, 23 and I'd just like to say thank you for your patience 24 and everybody who cooperated with the project. 5 1 I'd also like to introduce to my 2 right John Bender, an economist with the Antitrust 3 Division at the Department of Justice. And I'm 4 going to hand the mic. over to John after I'm done. 5 He has a few points he'd like to make concerning 6 excessive shares and perhaps his perspective on this 7 whole issue. 8 I'm going to start off talking about 9 the Compass Lexecon Report, which was the report we 10 had originally commissioned. And it was completed 11 in May of 2011. 12 The consultants involved were Bob 13 Willard, Clyde Mitchell and Steve Peterson. Bob 14 Willard was one of the original authors of the 15 Horizontal Merger Guidelines that Department of 16 Justice has. And we were quite pleased to get these 17 three individuals. They were very qualified, and I 18 think they did a good job with what they were given. 19 You have to understand when we do a 20 contract there's two things key about a contract. 21 One is the time that you give the consultants. And 22 the second is really the funding level you have for 23 them. 24 And we gave the consultants a very 6 1 short timeframe for this report. We gave them 2 essentially six months to come up with something. 3 And I just want to bring that up because in some of 4 the comments by the CIE you need to take them 5 understanding that perspective, that the contract 6 was a very short duration contract and really we 7 didn't have the money to do this contract until June 8 of 2010. 9 And so we had to put the contract in 10 place in a very short timeframe and get the 11 consultants that we were able to get for this and go 12 forward. 13 Now, they started the work in 14 September of 2010, and we had a webinar in October 15 so they could gather information from industry 16 participants and they could ask questions of the 17 various participants. And I thought that was very 18 successful. They finished their draft in February 19 of 2011, and again, we conducted another webinar so 20 people could comment on that draft. And I must say 21 that I think we had excellent cooperation from 22 industry through this, and I really appreciate their 23 time and effort. 24 They presented their final report in 7 1 May of 2011, and then we put together the CIE panel 2 to review this, and we had that meeting in June of 3 2011. 4 Now, these were the terms of 5 reference they were given. And I don't want to read 6 the whole thing, but the key to this is that we 7 started them off saying: using the U.S. Department 8 of Justice Horizontal Merger Guidelines or another 9 accepted rule. 10 So we sort of gave them that out, 11 that they could use the Department of Justice 12 Horizontal Merger Guidelines if they couldn't come 13 up with another rule, and that's the path they 14 proceeded down. 15 They used the Department of Justice 16 guidelines to form their recommendations, and in 17 some ways that's good because it's consistent now 18 with other industries, but it's not the only way to 19 look at this issue. Now, there were a lot of 20 challenges, and one thing I'd like to point out is 21 that the challenges they saw were the same that the 22 FMAT faced. I was somewhat relieved because during 23 the FMAT process, I was worried we'd miss something, 24 and we really didn't. They saw the same challenges 8 1 that we did, the first being lack of information 2 regarding control of quota and arrangements between 3 quota holders, vessels, and processors. 4 Really the key to this is 5 understanding who controls the quota, and we didn't 6 have good information on the FMAT, and they didn't 7 have really good information when they started 8 looking at this issue. 9 Lack of valid price data. This was 10 something that was seen by all of the consultants 11 with price data that we have really don't reflect 12 market prices. They all saw it as a problem. 13 Lack of cost data. We don't have 14 good cost data for the vessels. We certainly don't 15 have it for the processors. It's difficult to come 16 up with an excessive share rule when you don't have 17 cost data or valid price data. 18 Lack of quantity and price in 19 downstream markets, meaning who the processors sell 20 to. Really, once the clams leave the dock, we don't 21 have good information going past that point: who 22 are the downstream customers, how much do they buy, 23 what prices are they paying, information like that. 24 They also made this point, that really an excessive 9 1 share cap is a blunt instrument for controlling 2 market power. We were told to come up with an 3 excessive share cap, and that's the way they 4 proceeded, but they all understand -- and the CIE 5 pointed out this too -- that excessive share cap is 6 a blunt instrument. 7 And finally, another point that they 8 made: really a share cap you have a tradeoff 9 between controlling market power and over 10 regulating, so people are less efficient. 11 And so it's a fine line that you 12 walk, and sometimes it's difficult to tell when 13 you've crossed over that line. So what they really 14 came up with was a process, a seven-step process for 15 determining excessive shares, and they're really 16 based on this modification of what we call the 17 Herfindahl-Hirschman Index or HHI, which is used by 18 Department of Justice, Federal Trade Commission, and 19 others for examining mergers. 20 And the seven steps are: the first, 21 we have to accurately access existing levels of 22 concentration and ownership of quota. And that's a 23 difficult thing to do at this point. I believe part 24 of Amendment 15 we're supposed to be able to collect 10 1 that information so we could do that, but at this 2 point we don't have that information. You need to 3 access the availability of required competitive 4 information, meaning supply of substitute products, 5 excess capacity in both the processing and harvest 6 sector, private heritage innately [phonetic] 7 bargaining power of buyers and sellers, ability to 8 price discriminate, things like that; and questions 9 like if you're a processor and you have a hundred 10 percent of the quota, are your competitors going to 11 be able to either obtain supply from state fisheries 12 or import to make up for that lack of quota from the 13 federal resource? So those are all questions that 14 need to be examined to put in a share cap.
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