Legislature(1997 - 1998)
01/28/1998 01:02 PM House TRA
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HB 328 - APPROPRIATION FOR M/V MALASPINA Number 0030 CHAIRMAN WILLIAMS announced the committee would be taking up HOUSE BILL 328, "An Act making appropriations for continued maintenance and operation of the Motor Vessel Malaspina; and providing for an effective date." Number 0042 CHAIRMAN WILLIAMS stated the Alaska Marine Highway System (AMHS) led to island communities in Southeast Alaska. He indicated the new ferry, Marine Vessel Kennicott, is scheduled to come on-line soon and hoped it would be on time. 0144 KURT PARKAN, Deputy Commissioner, Department of Transportation and Public Facilities (DOT/PF), expounded on Captain Bob Doll's distinguished maritime background. He said Mr. Doll spent 30 years in the Navy commanding destroyers and cruisers - including a squadron of destroyers. He has extensive shore and off-shore management experience, he spent two years with deep-sea merchant service and is a licensed master. Mr. Parkan said they were very fortunate to have Captain Doll at the helm of the marine highway system. Number 0157 ROBERT DOLL, Captain, General Manager of the AMHS, DOT/PF, read his statement: "Thank you for the opportunity to describe this proposed legislation [HB 328], which seeks your approval to operate the Malaspina in the Lynn Canal in the summer of 1998. The timing of this improved service was prompted, in large part, by two imperatives that required action. "The first was the need to publish the summer 1998 schedule not later than early January. Earlier publication was, of course, desirable but at the latest the schedule had to be available for the travel trade shows that occur following the holidays. The advertisers who had purchased space in the schedule book, the show attendees and individual travelers depend upon early publication in order to make their plans. We had agreed to provide the schedules to the printer in September, but events following the Prince Rupert blockade prevented that. The necessity to get the schedule to the printer was urgent, and I'm glad to tell you that we have a finished product. "The Second requirement was to provide for the contingency that the introduction of our new ship, the Kennicott, might be delayed or interrupted. In the spring of 1977, the Marine Highway Advisory Board had cited a requirement for a backup ship. The logical ship for that purpose, and the only one with a capability approaching that of Kennicott, is the Malaspina. "Neither of the other mainline ships has the speed or capacity to meet the backup requirement, and in any case, both would be fully employed in other routes. "Like all of our ships, Malaspina must hold a U.S. Coast Guard Certificate of Inspection - issued each year. The certificate in the case of the Malaspina expired on October 31, 1997. If she is to operate at all in 1998, either as a temporary replacement for the Kennicott or in the Lynn Canal, she must be dry-docked and inspected. In addition, her engines and generators have reached their maximum operating hours and require overhaul. We have already begun this work, which is not intended to do anything more than to make it legally possible for her to operate - carrying passengers in 1998. "Having gone to the effort of restoring the ship's capability to operate it seemed to me that, if she were not required to substitute for the Kennicott, we would have a significant state capital asset which would not earn any income if she were merely lying alongside the pier. The most prudent choice of a site for the Malaspina to operate this summer is the Lynn Canal where her revenues can be maximized. That choice is based on a result of studies which show a 7.3 percent annual growth rate in the Juneau to Skagway city pair. The same studies show that, in calendar year 1995, ridership wholly within Lynn Canal exceeded 96,000 passengers and 27,000 vehicles and generated nearly $3.4 million in revenue. Additional traffic demand to ports of call, south of Juneau, generated an additional 43,000 passengers and more than 11,000 vehicles, adding another $1.7 million in marginal revenue fare attributable to the Lynn Canal segment. Operating seven days a week this summer, I believe the Malaspina can pay her way. She will bring to the marine highway something that it has not had until now - daily, predictable service on a high-demand route. Passengers and their servicing travel agents will be confident that they can move north or south in the Lynn Canal every day at reasonable hours. It's the kind of service that individuals and businesses, served by the marine highway, have been seeking for years. Now the opportunity is in our grasp. "Earlier efforts to develop a Lynn Canal service had floundered on the issue of labor agreements. While we were not successful in reducing manning levels as much as had once been hoped, we were able to obtain an agreement that if the ship's hotel services do not earn adequate revenue to justify the initial employment levels, those shipboard positions can be adjusted. In other words, we are able to monitor revenue and if that income is not sufficient, adjust the crew level in the hotel area. I would like to take this opportunity, by the way, to congratulate all of the unions involved in reaching the Malaspina agreement and most especially the Inland Boatmen's Union for the vision and imagination they have displayed. The willingness to break new ground, I trust, will prompt a similar response to this legislation. "I think it's important to point out that the Malaspina labor agreement is the first example of a labor management document that does not increase shipboard labor costs in the entire history of the AMHS and, as far as I know, in the history of the state of Alaska. The agreement creates an ongoing relationship between shipboard manning levels and the vessel's success as a business enterprise. That is, to say, I think it's a rare provision in any labor contract. The agreement is, as far as I know, the first which establishes a relationship between the profitability of a marine highway operation and the number of jobs it supports. "The Malaspina labor agreement is unique. It's a stand-alone document, intended only for the special circumstances surrounding the Malaspina in the Lynn Canal setting. But I'd like to suggest that it's in the best interest of the State of Alaska to encourage imaginative approaches to labor issues and to welcome the profitability concepts embodied in the proposed Malaspina operations. "And, finally, the Malaspina/Lynn Canal proposal is offered as an innovation in meeting our transportation needs. It provides an opportunity to test, at a minimum cost, one approach to a possible future system - namely the "dayboat" system. If our operational experience so indicates, it's possible that the Malaspina could be replaced by a purpose-built ship. Perhaps one designed for the Lynn Canal setting and offering even greater advantages. The conceptualization and design of that ship could be accomplished using the data we have gained from operating the Malaspina for a time in this role. This proposal will collect real data in a controlled environment - in a kind of clinical setting. "In researching this proposal I noted that every recent study of the AMHS operations had one element that appeared repeatedly - a day boat in the Lynn Canal. Many other conclusions in those studies were in conflict with one another, but the Lynn Canal day boat idea was persistent. I believe the persistent is because it makes both economic and operational sense. "To summarize the Malaspina/Lynn Canal proposal offers an opportunity to: Obtain maximum use of a capital asset. Provide long-sought daily service on a heavy demand route. To establish a profit-related basis for AMHS operations. To implement an innovative and lower-cost labor agreement. To test and evaluate the potential for dayboat operations. And to operate the ship on a revenue-neutral basis. "I am aware that this proposal is viewed by some as radical and that it has evoked alarm in some quarters. The mere fact that it contemplates a ninth ship in the marine highway inventory is enough to cause some to object to it. I'd like to suggest that the proposal is, in fact, consistent with the legislature's stated objective to reduce AMHS costs while augmenting service. Those objectives cannot be met unless we alter our current operating concepts. I urge the legislature to make a start by approving the legislation and I look forward to cooperating with both houses as you examine this proposal." Number 0855 REPRESENTATIVE JOHN COWDERY asked what the present value is of the Malaspina. He noted Mr. Doll addressed only the assets. Number 0871 MR. DOLL referred to it's market value. He said that it is very difficult to establish since the Malaspina is not authorized to operate under international rules in the open ocean. "So, [it is an] archipelago kind of operation. Perhaps in the setting like the Phillippines might be one of the few places where she could be marketed." He stressed he would only be guessing if he told them what he thought the market value would be. He added that it depends on what the competition is at any particular time. Number 0916 REPRESENTATIVE COWDERY asked if the present rates have been established and advertised. MR. DOLL responded in the affirmative. Number 0930 REPRESENTATIVE COWDERY noted Goldbelt, Incorporated, is opening a line to take passengers only. He asked if any thought had been given to raise the rates to pay for the operation rather than have it subsidized. Number 0951 MR. DOLL said, "I spoke with the Chief Executive Officer of Goldbelt [Incorporated] about that just this morning. And I said, 'I don't think we're in competition with one another except in the most general sense because not only is their service very limited, but it has an audience to whom it's directed which is cruise line operations, and so forth. But, I told him that I expected that in order to make a profit that we were in fact going to manipulate our rates. And I expect to do that. Hotel is a good example, if we leave Juneau at seven in the morning, and we start back at about five or six in the evening - start south, how many rooms will we sell. If we offered it at the standard rate, maybe not very many. But if I offered a discount on those rooms I might. If the ship is crowded enough people will use those rooms just to get away from the crowds, or to get away from the kids, or because they want to read. So, the answer to you question is that I will manipulate the tariffs in order to induce the business and I do expect to take reservations, so if people buy a room well in advance they'll pay whatever they are charged at that time. But after the ship gets underway, I might well walk around and say, 'hey, I've got a room for you,' - do a little scalping, whatever it takes to make a profit on that operation. I have a chance here with a confined audience between two points to induce them to spend money and that's what I'm going to try to get them to do." Number 1061 REPRESENTATIVE COWDERY asked if Goldbelt, Incorporated, would be operating four months this year. Number 1065 MR. DOLL replied yes, mid-May to mid-September. Number 1074 REPRESENTATIVE COWDERY stated it was his understanding Goldbelt, Incorporated, would take the cruise ship passengers under contract, any other seats will be for sale - no vehicles. He asked what is the expectation of capacity for vehicles on the Malaspina. Number 1096 MR. DOLL said he expected the Malaspina to be full. He said, "Not only is the demand there in any case, but I also have the opportunity to direct callers who are trying to book on the marine highway to the Malaspina and make certain it's revenue is always maximized." He didn't expect any difficulty. However, Mr. Doll stated the car deck will probably be the limiting factor - it usually is - and he expects it will be again. Number 1119 REPRESENTATIVE COWDERY suggested DOT/PF charge $10 or $11 more per head and $30 to $35 per vehicle - this could probably make it a paying situation without any subsidy. He asked if it was realistic to charge user fees. Number 1144 MR. DOLL said it is a possibility. He believed it was realistic in economic terms - it is a bargain to make that transportation connection and do it on a daily basis with confidence the ship will depart on schedule. How AMHS would approach the freedom to manipulate the tariffs, Mr. Doll said that would need more consideration. Number 1203 REPRESENTATIVE BEVERLY MASEK referenced the Governor's letter. She asked what the cost would be to run the Malaspina for an additional 14 weeks. Number 1227 MR. DOLL pointed out the cost of $3,979,600 and revenues of $2,215,157. He said that is assuming the costs are steady throughout the summers and indicated that his job was to make sure the costs and revenues match. Number 1306 REPRESENTATIVE MASEK noticed there were no fiscal notes attached. Number 1314 MR. DOLL said HB 328 represents the equivalent of the fiscal note. Number 1343 REPRESENTATIVE COWDERY stated this was a temporary fix on some things that are absolutely needed. He asked if DOT/PF had an estimate to bring the vessel up to code. Number 1364 MR. DOLL said, "There are, what could be classed as repairs in Malaspina which have been deferred in anticipation of other service. These include some things which the Coast Guard would like to see us get done, and others that I think are wise. These amount to a capital budget of $2,457,000 which I would like to accomplish. I would like to get those things done over the winter(s) of 1998 and 1999, if the legislature agrees to that." Mr. Doll said it would give DOT/PF a long-term, five years or so, to bring it up to code. He did not expect, however, to necessary leave the Malaspina operating in the Lynn Canal indefinitely. He said DOT/PF has a transportation plan under development in which the Malaspina or north Lynn Canal service appears very prominently. Mr. Doll said he was sure this would be woven into that plan. Number 1431 REPRESENTATIVE ALBERT KOOKESH stated it was his understanding that, regardless of what the AMHS does, they have to do the repairs anyway - even if we decided we did not want it for a day boat for Lynn Canal. Number 1446 MR. DOLL stated the $2,457,000 are repairs that do not have to be done until the winter(s) of 1998 and 1999. He said he could operate throughout the summer without accomplishing those. However, if it is a success, and he believes it will be, the AMHS will want to capitalize on that. Work is now being done on the engine and generator overhaul. The dry docking will allow DOT/PF to operate the ship through the summer and take the Malaspina to the end of her certification period next October. Mr. Doll said, "If we want to operate her beyond that, then I would like to get these other capital kind of things done." Number 1481 REPRESENTATIVE KOOKESH said AMHS future plans for the Malaspina does not include having it as a day boat for everybody. He asked if it doesn't preclude that either. Number 1491 MR. DOLL responded not at all. He said he did not want to preclude or preempt the results of the Southeast Transportation Plan which is under development and other studies going on. He offered the possibility that the Malaspina could operate in Lynn Canal at a profit for a long time in the future. Number 1522 REPRESENTATIVE KIM ELTON referred to the $2 million plus to bring the Malaspina up to standard. He asked if it accomplished the safety of life at sea concerns (SOLAS). Number 1539 MR. DOLL replied no it does not. He pointed out some of them are SOLAS related, but there is no effort to establish a long-term SOLAS improvement. He did not have complete facts but confidently predicted the price of doing that might be deterring. REPRESENTATIVE JERRY SANDERS asked what percent of capacity were they [AMHS] using last year. Number 1582 MR. DOLL replied that they operate in 100 percent of capacity. He said, "One of the tests that we have for how much of our capacity is meeting the demand is how many times do we sail from any given port leaving people behind who are on standby. Skagway and Haines provide us with the largest examples of that. And we typically make, I'd say over the years, our typical number of trips to Skagway and Haines are nine trips a week. In the summer of 1998, I will have more like 13 which is more than I would really prefer. The reason for that is I have some mainliners making the trip all the way to Skagway. That's a hedge on not knowing whether the Malaspina is going to be available. But in the summer of 1999, I would like to cut that back to the typical nine trips. So there would be seven by the Malaspina, and have one each by the Kennicott and Columbia." Number 1649 MR. DOLL indicated the real difference, however, will be Malaspina's capacity. Department of Transportation and Public Facilities will probably increase their total capacity in Lynn Canal by about 30 percent in car deck space as opposed to, for example taking the Le Conte on several of those trips. He said the two ships do not match at all in terms of capacity. By assigning the Malaspina to the Lynn Canal we would be increasing our carrying capacity about 30 percent. Number 1673 MR. DOLL said the real benefit is the regularity - predictability. Number 1684 REPRESENTATIVE SANDERS referred to selling rooms to obtain additional revenue. He asked what percentage of the customers buy a room on this particular run. Number 1694 MR. DOLL stated he did not have the figures readily at hand. Department of Transportation and Public Facilities did not have anything that resembles this because all of the ships that are traveling now are coming from someplace south of here. If you even travel from Ketchikan you would have to get a room. However, a few people boarding in Juneau may not get one. Mr. Doll again stated he did not have a ready answer to that question. Number 1718 REPRESENTATIVE COWDERY stated it would not apply. Number 1725 MR. DOLL noted the circumstances are going to be a little different. He said for example, if the Juneau passengers are scheduled to depart at 7:00 a.m. they would probably want breakfast. If they board in Skagway they would most likely want dinner. He believed those are predictable uses for the hotel. To induce the passengers to take a room AMHS would have to offer some incentives and encourage them. The crew understands this is what they have to do. Number 1760 CHAIRMAN WILLIAMS noted they have been hearing about the Southeastern plan for a number of years, but the legislature has not seen one. Chairman Williams said he did not want to spend more money on something that would not be in the plan. Number 1813 MR. DOLL understood Chairman Williams desire to not embark on something that is going to turn out to be a variance with a wider study. He was not able to give a date to expect the plan since he was not personally involved in the production of it. Mr. Doll informed the committee that a replica, of what HB 328 requests, appears in every version of the draft plan that has been circulated to the communities, of which they have all had a chance to make comments. He noted that it is assumed that there is going to be a day boat in the Lynn Canal in every option that the draft Southeast Transportation Plan has produced thus far. Number 1865 CHAIRMAN WILLIAMS asked for clarification of the plan regarding the day boat. Number 1871 MR. DOLL believed he would not find any resistance to the day boat appearing in the plan. He said he would exert every effort to see to it that it did appear. The plan is coming to that conclusion on it's own. Mr. Doll indicated that it was not being muscled into the plan at all. Number 1919 BERNE MILLER, Executive Director, Southeast Conference, stated the conference was formed over 40 years ago by the municipalities of Southeast Alaska to get the state to create the AMHS. Because that transportation system is the lifeblood of Southeast's economic and social well-being, the conference has taken a very keen interest in the system, it's operations, it's budget and performance ever since. Number 1941 MR. MILLER noted the Southeast Conference is in favor of HB 328 for three reasons. First, not providing backup for the Kennicott would be irresponsible. Second, keeping the Malaspina in service would be a prudent use of a valuable resource. Third, keeping the Malaspina in service would help meet some of the transportation needs of Southeast Alaska in a time of economic vulnerability and uncertainty. Number 1966 MR. MILLER stressed he has 15 years of experience in shipbuilding. He urged system management to make plans to have a backup for the Kennicott when, not if, one of those two things happen. System management made a plan to use the Malaspina because it would irresponsible not to have a backup. MR. MILLER said their second reason for supporting this is that our communities have been clamoring for better service. Everyone acknowledges that there is a bottleneck in north Lynn Canal that keeps us from moving as many ferries through as we might otherwise. Therefore, it limits to some extent the revenue the system can generate. Number 2009 MR. MILLER pointed out less that two years ago, Commissioner Perkins, DOT/PF, told the mayors of Southeast Alaska that if they wanted to keep the Malaspina in service and expand system he would be happy to try to make it so. Mr. Miller said, "The director at that time [AMHS] said that if the mayors wanted the system to go forward with operating the Malaspina as a day boat in north Lynn Canal, the system would be happy to take that on as an experiment. What was discussed at that time was that, as an experiment the operation would have to be revenue neutral. And the director said to the mayors, 'I m willing to try this. There's some risk here, but I'm willing to try this if you will agree not to fry me if this thing does not prove to be revenue neutral. If it proves to be a revenue hemorrhage that I've got to cut off to not hurt the system in other places." And the mayors agreed to that. Number 2051 MR. MILLER stated the third reason for supporting keeping the Malaspina in service is because trailers, from whom we gain most of the revenue that the system operates during the winter, are already leery of using the system because of their experience with the blockade in Prince Rupert. We simply can not afford another year of scheduled chaos. We must do whatever is necessary to provide scheduled stability and to maximize system revenue. Mr. Miller said, "And quite frankly, the system needs your help to do that. And if we are going to do it, we need to make the decision soon so we can get the information out to the public so they can book it and bring the revenue that we need." Number 2083 MR. MILLER concluded the conference believes it would be irresponsible not to have the Malaspina available as a backup for Kennicott until she is reliably in service. It would be prudent to use the valuable resource that Malaspina represents to see whether we can improve service (indisc.), thereby increasing revenue. If the Malaspina doesn't work well we can terminate it at a minimum loss. That is why we support timely appropriation of the dollars needed to make sure Malaspina is available to backup Kennicott and that it is used as a revenue neutral compliment for increasing the system's revenue generating capacity. Number 2109 MR. MILLER provided the committee with several resolutions. He asked Chairman Williams keep the record open until Friday because the region's mayors are currently meeting in Juneau and are considering another resolution on the subject and would like to get it on the record also. Number 2137 REPRESENTATIVE COWDERY asked what the present value of the Malaspina is. Number 2147 MR. MILLER said he would not even hazard a guess. He backed up Mr. Doll's statement. He believed it would depend on the service a buyer would want to use it for, if a buyer had to take it and make it SOLAS certifiable it probably have a reasonably low value. If somebody was going to take it and use it where they did not have to make all of that investment to put it in SOLAS service, then it probably would have a greater value. However, he would not speculate as to what somebody would pay. Number 2185 CHAIRMAN WILLIAMS said HB 328 would be heard next in the House Finance Committee and indicated he would like to move the bill today. Number 2204 REPRESENTATIVE BILL HUDSON made a motion to move HB 328 out of committee. There being no objection HB 328 moved from the House Transportation Standing Committee with individual recommendations.
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