Legislature(2015 - 2016)CAPITOL 17
01/21/2016 01:00 PM House TRANSPORTATION
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| Audio | Topic |
|---|---|
| Start | |
| Presentation(s): "alaska Marine Highway System" by Commissioner Luiken and Deputy Commissioner Neussl, Department of Transportation & Public Facilities | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
ALASKA STATE LEGISLATURE
HOUSE TRANSPORTATION STANDING COMMITTEE
January 21, 2016
1:01 p.m.
MEMBERS PRESENT
Representative Neal Foster, Co-Chair
Representative Shelley Hughes, Co-Chair
Representative Charisse Millett
Representative Benjamin Nageak
Representative Louise Stutes
Representative Matt Claman
Representative Dan Ortiz
MEMBERS ABSENT
All members present
OTHER LEGISLATORS PRESENT
Representative Sam Kito
Representative Liz Vazquez
COMMITTEE CALENDAR
PRESENTATION(S): "ALASKA MARINE HIGHWAY SYSTEM" BY COMMISSIONER
LUIKEN AND DEPUTY COMMISSIONER NEUSSL~ DEPARTMENT OF
TRANSPORTATION & PUBLIC FACILITIES
- HEARD
PREVIOUS COMMITTEE ACTION
No previous action to record
WITNESS REGISTER
MARC LUIKEN, Commissioner
Department of Transportation & Public Facilities (DOTPF)
Juneau, Alaska
POSITION STATEMENT: Co-presented a report on the Alaska Marine
Highway System (AMHS).
MICHAEL NEUSSL, Deputy Commissioner
Office of the Commissioner
Department of Transportation & Public Facilities (DOTPF)
Juneau, Alaska
POSITION STATEMENT: Co-presented a report on the Alaska Marine
Highway System (AMHS).
ACTION NARRATIVE
1:01:42 PM
CO-CHAIR NEAL FOSTER called the House Transportation Standing
Committee meeting to order at 1:01 p.m. Representatives Foster,
Hughes, Claman, Ortiz, and Nageak were present at the call to
order. Representatives Stutes and Millett arrived as the
meeting was in progress.
^PRESENTATION(S): "Alaska Marine Highway System" by
Commissioner Luiken and Deputy Commissioner Neussl, Department
of Transportation & Public Facilities
PRESENTATION(S): "Alaska Marine Highway System" by Commissioner
Luiken and Deputy Commissioner Neussl, Department of
Transportation & Public Facilities
1:02:11 PM
CO-CHAIR FOSTER announced that the only order of business would
the presentation regarding the Alaska Marine Highway System
(AMHS) by Marc Luiken, Commissioner, and Michael Neussl, Deputy
Commissioner, Department of Transportation & Public Facilities
(DOTPF).
1:03:29 PM
MARC LUIKEN, Commissioner, Department of Transportation & Public
Facilities (DOTPF), explained that today's presentation is
essentially the same briefing that the DOTPF used when the
department visited six communities in coastal Alaska to discuss
AMHS and solicit feedback from those communities about the
impacts of recent budget cuts. He emphasized that the
department was clearly advised that AMHS is a very important
part of the state's transportation system for coastal Alaska, as
well as all of Alaska. The department also learned from the
communities that they are much more interested in reliable,
predictable, consistent service, to the point where they would
be willing to pay a little bit more for that service, willing to
accept less frequency of service provided the schedule published
by the department is actually sailed every year. The Alaska
Marine Highway System learned that if the department's budget is
changed and sailings are cancelled, it hurts people who have
reservations on those sailings, as well as significantly impacts
communities dependent on those ships for passengers and
commerce. He pointed out that the passengers traveling into
coastal communities do not just stop in those coastal
communities; they continue onward into Interior Alaska where
they will spend money and have an impact on the economy of
Interior communities.
1:06:25 PM
MICHAEL NEUSSL, Deputy Commissioner, Office of the Commissioner,
Department of Transportation & Public Facilities (DOTPF),
explained that as Deputy Commissioner he oversees AMHS. Mr.
Neussl began a Power point presentation and drew attention to
slide 2, "Agenda," which outlined the topics included in the
presentation. Turning to slide 3, "Mission Statement," he noted
that the mission statement for DOTPF is to "Keep Alaska Moving
through service and infrastructure," with the key word for him
and his staff being "service." The three main customer groups
that AMHS attempts to serve are residents of Alaska, visitors to
Alaska, and commercial shippers that use AMHS to get their goods
and services in and out of Alaska. He pointed out that it is a
balancing act to write a schedule that meets the needs of all
three groups. He summarized that the mission statement for AMHS
is to provide service and transportation in a cost-effective
manner and to be reliable, safe, and efficient.
1:09:12 PM
MR. NEUSSL reviewed slide 4, "AMHS Fleet Profile," pointing out
that when it comes time to make hard decisions about fleet size
and which ships should serve what areas, there are limitations;
not every ship can go every place. He noted that the Motor
Vessel (M/V) Matanuska, the M/V Malaspina, and the M/V Taku were
all built in 1963 and began as identical ships. The M/V
Matanuska and M/V Malaspina were later lengthened by 50 feet and
car deck, passenger, and cabin capacity added to make them more
capable ships. The M/V Tustumena and the M/V Kennicott are
unique in that they have vehicle elevators and are able to serve
anywhere in the system, including Homer, Kodiak, Old Harbor, and
the Aleutian Chain, regardless of whether a port has a fixed or
floating dock. This plays into which vessels can be laid up and
which vessels have to remain in service in order to continue to
provide service. The M/V Aurora and the M/V LeConte are unique
in that both vessels have a ramp on the stern of the vessel that
actually drops onto the shore. All other vessels use a ramp
structure on the shore that drop onto the ship to connect the
ship to shore. Places like Pelican, Tatitlek, and Chenega Bay
have ramp/dock systems that work with the M/V Aurora and the M/V
LeConte. Due to the aforementioned, the work of the AMHS
scheduler is like putting a big jigsaw puzzle together, since
not all of these ships fit in the places where service is
needed.
1:11:56 PM
CO-CHAIR HUGHES surmised there are different costs for the
different ships, with some being more efficient and more
effective. She inquired whether the increased cost of accessing
certain communities with vessels more expensive to operate is
figured into the fare in and out of those communities, or
whether those higher costs are spread across all of the fares.
MR. NEUSSL replied that, generally, it is not figured in,
because, currently, the ferry system tariff structure is not
robust enough to handle unique fares for specific vessel types.
When the fast ferries originally came online, there was a fast
ferry surcharge, but that went by the wayside for an unknown
reason. Thus, the fare structure is a big pool rather than a
fare specific to each vessel. He agreed to address whether
specific vessel fares could be considered by AMHS later in his
presentation.
MR. NEUSSL continued with slide 4, "AMHS Fleet Profile," stating
that the two fast ferries were built with a door only on the
forward starboard side, not a door on the forward port side. In
communities such as, Tenakee Springs, a vessel can only moor
port side and these vessels do not work. This lack of complete
standardization makes the scheduling difficult for AMHS, he
said.
1:14:27 PM
REPRESENTATIVE ORTIZ offered his understanding that the fast
ferries incur greater fuel cost. He asked the status of the
fast ferries and whether today's lower fuel prices make them
more useable and purposeful for AMHS.
MR. NEUSSL confirmed that lower fuel costs do make the fast
ferries more useable. He noted that both fast ferries are
currently in federal capital improvement projects in a Seattle
shipyard. The current operating plans are to keep the M/V
Chenega in layup status once that project is complete, while the
M/V Fairweather will be brought back into service the beginning
of May, operating on a winter-time schedule of four days a week,
which is less expensive to run than a full summer-time schedule
of seven days a week.
REPRESENTATIVE ORTIZ inquired as to the reasons for the M/V
Chenega being laid up for an extended period of time.
MR. NEUSSL replied, "Inability to fund its operation."
1:15:49 PM
MR. NEUSSL addressed slide 5, "AMHS Ports of Call," noting that
AMHS provides service to 33 Alaskan communities, plus Prince
Rupert, B.C. and Bellingham, WA. He pointed out the distinct
differences between the Southeast system and the Southwest
systems, as follows: the docks and mooring structures are all
different between the two regions; the vessels operate on
different schedules; and, the labor contracts paying the crews
that operate the vessels are different.
MR. NEUSSL moved to slide 6, "Fiscal Year 2015 Statistics." He
said that in Fiscal Year (FY) 2015 AMHS earned a record $53.9
million in revenue, up 6 percent from FY 14. He clarified that
none of the $53.9 million in revenue is profit; rather, it is
rolled back in to the AMHS budget. The system's FY 15 operating
cost was $160.8 million, which is $5.2 million less than that of
FY 14. The difference between revenue and cost is made up by an
appropriation from the legislature. Mr. Neussl related that in
FY 15 AMHS provided 378 ship weeks of service, carried 309,521
passengers and 106,215 vehicles, and made 6,478 port calls, and
all of those figures are historically stable. He noted that
AMHS also redesigned and implemented a more user-friendly
website, a new reservation system, and now has over 140,000
followers on social media.
1:19:04 PM
REPRESENTATIVE CLAMAN requested confirmation that the total
revenue is approximately one-third of the operating cost.
MR. NEUSSL confirmed Representative Claman's observation and
mentioned an upcoming slide discussing the 30-year history of
the cost recovery process.
REPRESENTATIVE CLAMAN inquired as to how the, previously
mentioned, revenue to operating cost ratio compares with that of
the state's highway system.
MR. NEUSSL replied that it is difficult to compare the two,
given that all revenue from AMHS rolls back into the AMHS
budget; whereas the highway system has multiple funding sources.
The revenue generated by sources, such as the gas tax, do not
roll directly into the highway budget. Referencing slide 7, he
discussed the FY 09-FY 15 Traffic Report, noting that for the
past seven years, both passenger traffic and seasonal trends
were consistent. He pointed out that traffic was highest in the
summer months, peaking in July, followed by a significant
decrease in traffic from September to April. Historically,
these differences in passenger volume were addressed by running
all 11 vessels during the peak summer season, then reducing the
operating fleet to 4-6 ships during winter months, and placing
the others into cost-saving layup periods, or performing
necessary maintenance. He stated that because of the current
reduced funding environment, AMHS cannot afford to run as many
ships as in the past. When considering cost-saving measures, it
is unrealistic to reduce service in the winter, because regions
such as Prince William Sound or Kodiak would lose service
completely. Mr. Neussl said the remaining option is to reduce
the number of ships operating during summer months. He stated
that in response to budget constraints, AMHS implemented this
strategy by reducing the fleet from 11 ships to 10 ships last
summer.
1:23:14 PM
CO-CHAIR HUGHES asked how the 378 ship weeks served in 2015
compares with historical levels of service.
MR. NEUSSL indicated that the question would be addressed in a
later slide. He then transitioned to slide 8, "Historical
Revenue & Operating Cost," displaying the 30-year history of the
ratio between AMHS revenue and operating cost. He explained
that this ratio is the level of cost-recovery for each given
year. Over this 30-year time period, revenue generation by AMHS
has remained relatively stable, with a slight increase, but no
significant spike. Conversely, the operating cost was
relatively stable for the first 20 years of this data set, but
significantly increased from 2005 onward. Consequently, the
cost recovery of this system, which was consistently in the 50-
to 60-percent range until 2004, dropped into the 30-percent
range, where it has remained fairly stable in recent years. He
noted that in 2015, as a result of efforts to increase revenue
and decrease cost, cost recovery has increased.
CO-CHAIR HUGHES asked why operating costs increased
significantly after 2004.
MR. NEUSSL responded that there were several causes for the
increase, such that the price of fuel and the price of labor
increased. He said there was a three-year period wherein the
labor contracts for the state gave significant raises. He opined
that the raises for years one through three were 5 percent, 5
percent, and 6 percent, respectively. Finally, from 2004-2006
the fleet size grew from 9 ships to 11 ships. He explained that
not only is AMHS operating more ships and burning more fuel, but
also has more employees, with greater labor costs. All of these
compounding factors, plus increased maintenance costs,
contributed to the increase of operating costs.
CO-CHAIR HUGHES requested clarification that the increase in
labor cost was due to both raises and an increased number of
employees.
MR. NEUSSL responded that is correct. In response to a follow
up question, he opined that the primary cause of the increase in
the number of employees was the addition of the two new vessels
to the fleet. Security officer requirements following [the
terrorist attacks of September 11, 2001] may also have increased
the number of crew needed on each ship, he said.
1:27:34 PM
CO-CHAIR HUGHES commented that she understands from
conversations with former AMHS employees there has been an
increase in shore side support staff. She inquired as to
whether there is a standardization requirement on crew size for
a given size vessel from the United States Coast Guard (USCG),
or whether union negotiations have increased crew size beyond
minimum standards. She stated her understanding of the
importance of AMHS, but expressed concern about the huge jump in
costs in 2005, and asked for clarification, especially with
regard to increased labor costs.
MR. NEUSSL responded that he would specifically address the
question regarding shore staff and vessel staff later in the
presentation. He then explained there are two factors
influencing crew size. One is the USCG's Certificate of
Inspection requirement. He explained that AMHS is licensed and
regulated by the USCG to operate passenger-carrying vessels.
Each year a Certificate of Inspection is issued to each ship,
specifying a minimum level of crewing necessary to operate the
vessel safely, which is driven by the number of people necessary
to perform all emergency procedures. The USCG Certificate of
Inspection mandates a crew size based on those requirements. He
stated the second factor influencing crew size involves the
number of people needed to cook, clean state rooms, or perform
any other passenger services provided due to the long voyages.
That staffing level is a function of AMHS setting passenger
service standards based on the number of people that will be on
board, while ensuring adequate watch rotation and crew rest.
Mr. Neussl concluded that the crew size indicated on the
Certificate of Inspection number is not the actual crew size for
any given vessel.
CO-CHAIR HUGHES inquired whether there had been a comparison
with similar vessels in other places, and whether unions are
part of the negotiations with the USCG regarding crew size.
MR. NEUSSL responded that AMHS has not done a detailed
comparison with other ferry providers, but stated that Alaska
has a unique system. The ferry system in British Columbia,
Canada has some similarities; it has some long runs from Port
Hardy to Prince Rupert. The ferry systems in the [Lower 48] are
generally short haul ferries wherein passengers embark and
disembark within a short time frame, thus there is no
requirement for food service, state rooms, cabins, or similar
amenities. He said AMHS runs a much longer route system, with
passengers on board for a much longer period of time, which
requires crew to provide more passenger services. He stated
that he did not know whether unions communicate with the USCG
regarding crewing requirements. The Alaska Marine Highway
System does negotiate with its labor unions to provide adequate
staffing and crewing on the vessels. There are requirements in
the collective bargaining agreements for mandatory crew size
during certain events, such as shipyard periods and reductions
in force.
1:33:40 PM
CO-CHAIR HUGHES asked why some AMHS employees have defined
benefits, while others have defined contribution.
MR. NEUSSL replied that the retirement plan contributions for
the three maritime unions are all different and described the
need for simplified union contracts, emphasizing that the
negotiations are slow processes.
1:35:13 PM
REPRESENTATIVE STUTES asked how many unions are involved in the
operation of the ferries.
MR. NEUSSL noted that there are three maritime unions, which
would be discussed in detail on a later slide.
1:35:39 PM
REPRESENTATIVE CLAMAN inquired as to whether wage rates
increased during the 2005-2007 time period, or whether it was
primarily the number of employees that increased.
MR. NEUSSL answered that he did not have specific figures, but
during that time period there was a significant pay raise for
members of the maritime unions.
1:36:38 PM
REPRESENTATIVE NAGEAK asked whether more fuel efficient engines
had been considered as a means of reducing operating costs.
MR. NEUSSL replied that some vessels have already been repowered
with more fuel efficient engines. The M/V Columbia recently
received new engines using less fuel; AMHS is still collecting
data to determine exactly how much less fuel. There are plans
in progress to repower the M/V Matanuska with more fuel
efficient engines, as well. Mr. Neussl continued to discuss
slide 8, noting in FY 15, AMHS had successfully reduced
operating costs and increased revenue, thus increasing the cost
recovery rate to 33.5 percent. He stated his goal is to ensure
that this upward trend continues.
MR. NEUSSL continued on to slide 9, "Historical Ridership," to
display a chart showing 30 years of data for annual traffic,
including historical ridership. He said the top, blue line
indicated a downward trend in the number of passengers carried
over that time period. This is primarily due to the fact that
air transportation, which competes with AMHS for passenger
traffic only, has become more reliable and more available in the
recent past than it was 30 years ago. Passengers can fly
between destinations more quickly than they can motor via ferry,
which he believes has impacted ferry traffic. He pointed out
that vehicle traffic, indicated by the bottom orange line, has
remained extremely stable for the past 30 years, with between
100,000 and 110,000 vehicles transported per year.
CO-CHAIR HUGHES inquired whether the increased cruise traffic
has negatively influenced passenger ridership, perhaps as a
result of the amenities available on board the cruises.
MR. NEUSSL replied that it is quite possible that cruise ships
have also increased competition for passenger traffic, as the
cruise industry has expanded greatly over the last 30 years.
Some passengers that may once have taken a cruise on AMHS now
take cruises on cruise ships.
MR. NEUSSL transitioned to slide 10, "Historical Operating Weeks
& Fleet Size," which displayed a comparison of operating weeks
and fleet size from 2000 to 2015. In 2000, AMHS operated a 305-
week schedule with nine ships. This fleet included the M/V
Bartlett, but did not include the two fast ferries or the M/V
Lituya. In 2005, the fleet composition began to change; the two
fast ferries came online, the M/V Bartlett was decommissioned,
and the M/V Lituya came online, resulting in an 11 ship fleet.
With the increased number of ships and funding to operate them,
AMHS began to provide more service, resulting in an increase
from a 300-week schedule to a 400-week schedule throughout the
mid-2000s, and up to a record 427 weeks of service in 2007. Mr.
Neussl related that in the recent past, 2013 was a 400-week
schedule, 2014 was a 377-week schedule, and 2015 was a 378-week
schedule. This year AMHS is scheduled to provide 357 operating
weeks, and the plan for the FY17 schedule is to reduce that to
about 320 weeks. The AMHS, due to funding, is essentially going
back to a level of service from the early-2000s, but with 11
ships operating instead of 9, despite running a reduced
schedule.
1:41:30 PM
REPRESENTATIVE ORTIZ asked whether the main factor influencing
reduced operating costs in recent years is the reduction in
weeks of service.
MR. NEUSSL responded that reducing operating weeks was one of
several cost reduction measures implemented, all of which would
be discussed in a subsequent slide.
REPRESENTATIVE ORTIZ requested a quick overview of which
communities have been impacted by the reduction in operating
weeks.
MR. NEUSSL stated there is a process used to determine where
service can be reduced. If budget cuts are implemented, there
are ways to cut service without cutting people off from service.
He explained that this is why the unique vessels were mentioned
at the beginning. He offered the following example to
illustrate: the M/V Tustumena cannot be placed in a cost-saving
layup for six weeks or six months in order to save money. That
action would cut off the entire Southwest system, as it is the
only ship that serves that system. In contrast, Prince William
Sound was typically served by two vessels, the M/V Aurora and a
fast ferry. Both of these vessels served the majority of the
communities in Prince William Sound; one of them cannot serve a
certain town, but that is a minor issue. Mr. Neussl stated that
it is possible to reduce the service in Prince William Sound to
one vessel as a cost-saving measure and still provide service to
all of the communities there. Ferry service would be less
frequent, with less capacity, but there would still be service
without completely eliminating a community from the system. He
said the same logic holds in Southeast: for District 36, the
M/V Taku and the M/V Matanuska both provided service to Prince
Rupert, essentially competing with each other for traffic. The
M/V Taku was placed in layup, forcing all of that traffic on to
the M/V Matanuska, which has been able to meet the demand for
the reduced capacity now provided there.
1:44:04 PM
CO-CHAIR HUGHES noted that the intended 320 operating weeks for
FY 17 is a similar figure to the operating weeks from 2004 and
2005, but with 11 vessels operating versus 9. She inquired
whether it would be a viable cost-saving measure to return to a
9-ship fleet, and whether, based on population decreases in
ferry-served communities in recent years, this hypothetical
reduction would provide service comparable to what was provided
prior to 2005.
MR. NEUSSL replied that AMHS has more ships than needed, which
he would discuss later in the presentation. He said AMHS has
more ships than it can afford to operate; therefore, AMHS should
scale back the size of its fleet in order to save money. A ship
in layup costs money: there is still a skeleton crew assigned
to it; it still has some expenses; and - depending on where it
is tied up - those expenses could be significant. Mr. Neussl
said he had not examined historical population levels for AMHS
ports, but stated his belief that the population of Southeast
Alaska had remained relatively stable and there have not been
significant changes in population in the communities served by
AMHS. Most population growth within the state has occurred in
the interior of "Alaska Rail Belt" communities, such as
Anchorage and the Matanuska Susitna valleys.
CO-CHAIR HUGHES commented that, in general, she does not recall
"the services that we received as Alaskans" ten years ago - not
just regarding the ferry system and transportation - as being
particularly bad. She admitted that she did not live in
Southeast Alaska, but indicated she had family members who did,
and she did not recall hearing them complain. She posited that
there were no "huge gaps" and "we had a pretty good state ten
years ago." She encouraged residents of Southeast to realize
that they will still be able to get from point A to point B,
because "we did it back in 2004/2005; we can do it again."
1:47:14 PM
MR. NEUSSL summarized the slides relating to historical revenue
and operating cost, historical ridership, and historical
operating weeks and fleet size by stating that since traffic
numbers are relatively stable, AMHS has taken a fixed amount of
traffic, which used to be fit and forced onto a 9-ship fleet
with a 300-week schedule; and diluted it by spreading it over an
11-ship fleet with a 400-week schedule. This change was
implemented with no significant increase in ridership or revenue
generated, but at a much higher cost, due to the increased costs
associated with operating 11 ships versus 9 ships. The
situation AMHS finds itself in now, with the fiscal challenges
that the state faces and the funding available to operate, is
that the schedule is shrinking back to 300 weeks of service. He
stated that the fleet size needs to decrease, as well. This
does not account for the new vessels in the process of coming
online. He suggested that AMHS will need to divest itself of
some vessels, sooner, rather than later. He said AMHS is
strongly considering this option, and there are plans in
progress to make it happen.
1:48:32 PM
REPRESENTATIVE CLAMAN commented that he enjoys crossing Prince
William Sound each summer, on the M/V Chenega or on the M/V
Aurora. He suggested, based on conversations with crewmembers
and when looking back historically, that since adding the fast
ferries, AMHS has experienced more problems, including
maintenance issues. He asked whether the fast ferries should be
eliminated, and suggested that perhaps they should be at the top
of the list to consider for downsizing.
MR. NEUSSL responded that it was certainly an option. He said
the M/V Taku has been laid up since last June, for a variety of
reasons he would discuss later and is forecasted to remain laid
up for the indefinite future, with no "return to service" date
for that vessel. Based on its smaller size, lesser capacity,
and its age of over 53 years it is a logical candidate for fleet
reduction. Mr. Neussl stated that the fast ferries might be
candidates, and there are plans to keep one laid up for an
extended period of time due to operating costs. He said this
relates to Representative Hughes' point: the fleet used be 9
ships, but the consumer base has become accustomed to an 11-ship
fleet, with more frequent service and more frequent port calls.
Prince William Sound in particular has grown accustomed to
having a fast ferry serve the connection between Cordova and
Whittier. He explained that if the funds are there, it's very
easy to provide more service, for example, offer six port calls
a week instead of four port calls a week; people accept that
without challenge. He emphasized the difficulty in telling a
given community that their service will be cut from six to four
or even two days a week, because businesses, enterprises, local
communities, and tourists have all grown accustomed to a certain
service and often based their business models or travel plans
around it. Cutting back on service not only hurts the
individual passenger who rides a vessel, he stated, but also
decreases revenue for ancillary businesses that extend
throughout the state, not just in a given local community.
1:51:27 PM
REPRESENTATIVE ORTIZ inquired as to whether, during this period
of increased costs, any new ports that had not been served in
the past were added in addition to the new ships.
MR. NEUSSL responded that ports have been both added and removed
from service. In the recent past, AMHS has added Ouzinkie, near
Kodiak, and Gustavus in Southeast, while Seward has been
eliminated from service. Mr. Neussl said he had been told many
times that AMHS should not provide service to places with road
access, and he said, "That is true." He explained that is a
large part of why service is no longer provided to Seward; it is
out of the way, takes a long time to get to, and is connected by
road to Homer and Whittier. He explained that Ouzinkie is an
island community, without road service, along an existing route,
with a compatible dock and, as a result, was able to be added to
service at very little additional cost. Gustavus was added for
similar reasons, namely its proximity to an existing route, and
the presence of a compatible dock. In the case of Gustavus,
there was some initial opposition to ferry service coming there,
but since service is now provided, it is difficult to pull back
out. He reiterated that people have grown accustomed to the
service and business models have been built on it. He said,
"It's not something you can just back out ports that have been
added based on seniority of when they were added to the system."
He stated that this question was also raised at one of the
community meetings he had attended.
1:53:21 PM
REPRESENTATIVE STUTES noted that although the intention is to
reduce the size of the fleet and cut costs, there are a limited
number of vessels capable of service out the Aleutian Chain.
She noted that it has been well publicized that the M/V
Tustumena is approaching the end of its service life, and she
inquired as to a projection for its replacement, emphasizing
that its absence would leave many Southwest communities at a
loss for service.
MR. NEUSSL responded that the M/V Tustumena is in its "twilight
years," but it is still a safe vessel. It has been sailed
across the Gulf of Alaska twice and will be sailed across next
week to transport vehicles to Juneau. The vessel is approaching
the end of its service life; it has had a hard life in a
difficult operating environment and has provided a lot of
service for over 53 years. He said the design process for the
yet unnamed the M/V Tustumena replacement vessel has just been
completed. The contractor, Glosten, has just completed the
design of the vessel, which is on its way to his office to be
reviewed by himself and his staff. The process for constructing
that vessel is the next step, which is part of the Statewide
Transportation Improvement Plan (STIP). Construction of the
replacement vessel is listed in the current STIP, but it is
listed as a "fiscal year 19 and beyond" project. He stated his
opinion that starting construction on that vessel cannot wait
until FY 19, and needs to be pulled forward. The issue of
timing is currently being worked on via the amendment process of
the STIP, specifically to pull the project forward and do a one-
for-one replacement with the M/V Tustumena. The new vessel will
double the capacity for the number of vehicles and passengers
that can be carried, which is good for the region. It will fit
at every dock currently serviced by the M/V Tustumena, thus
avoiding costs associated with rebuilding new infrastructure.
1:55:47 PM
CO-CHAIR HUGHES requested the names of the two fast ferries and
the communities they serve. She inquired if, despite their cost
to operate, if there are efficiencies gained by using them in
certain locations, based on ridership.
MR. NEUSSL replied that the two fast ferries are the M/V
Fairweather and the M/V Chenega. The M/V Chenega's homeport is
Cordova, Alaska; there is a fast ferry support facility in
Cordova. The M/V Chenega typically operates in Prince William
Sound. The M/V Fairweather's homeport is Juneau, Alaska; it has
a support building and a stern berth in Auke Bay. The M/V
Fairweather typically operates in Lynn Canal or to Sitka or
Petersburg. Those vessels are not immediately available to go
to all communities at will because of route certifications,
training requirements, and special USCG certifications that must
be met before they can transit a particular route. He
explained, for example, that AMHS cannot just decide to sail the
M/V Fairweather to Ketchikan one day, because there is not a
route certified crew to carry passengers on that trip. The M/V
Chenega is typically route certified for the Cordova, Whittier,
and Valdez routes. The M/V Fairweather is down in Southeast
Alaska, either up Lynn Canal to Haines and Skagway, or down to
Sitka, Angoon, or Petersburg.
MR. NEUSSL stated that in terms of operational costs, there is a
trade-off. He said he did not have the specific numbers in
front of him for weekly operational costs for the fast ferries,
but he could get them. He said there is a misconception that
because they are fast ferries, they burn excessive amounts of
fuel and are expensive to operate. While it is true that a fast
ferry burns fuel at a faster rate, it is over a shorter period
of time, because it arrives at its destination in half the time
a typical ferry would. Additionally, the crew is typically much
smaller than on a mainliner, because they operate for a shorter
period of time. When all these factors are taken into
consideration, the operating cost is not actually much different
when compared to a mainliner. He stated that specific numbers
were available if desired.
CO-CHAIR HUGHES asked how the fast ferries compare to "day
ferries."
MR. NEUSSL responded that a fast ferry is a classification of
vessel that operates at high speed, following the "High Speed
Code." The Alaska Marine Highway System's fast ferries typically
travel at 32-34 knots; a typical mainline ferry is in the 12-15
knot range. The term "day ferry" or a "day boat" pertains to a
scheduling requirement. Fast ferries are day boats in that they
have no overnight accommodations for passengers or crew. Their
typical mission profile is to leave port, go to a destination or
destinations, and come back to the original port, potentially
multiple times. The general operating mode is to return to the
port of origin each day, after a 12-hour shift, which is what
the crew operates on due to work/rest standards. A mainliner,
which has crew and, in some cases, passenger accommodations, can
operate around the clock. It does not have to return to the
same port. It could run, like the M/V Columbia does,
continually from Bellingham to Skagway and back, on a weekly
cycle. It does not return to a homeport or have a crew that
works just a day shift, where the term day boat comes from.
MR. NEUSSL, in response to a follow up question from Co-Chair
Hughes, emphasized that that the terms "fast ferry" and "day
ferry" are not interchangeable and should be used carefully.
"Fast ferry" specifically refers to the two high speed ferries:
the M/V Chenega and the M/V Fairweather. The term "day boat"
includes the fast ferries, but can also include conventional
vessels. Mr. Neussl said the M/V Lituya in Metlakatla, for
example, is a day boat; it does not operate for more than 12
hours in a day. The M/V Aurora and the M/V Chenega could
operate as day boats. The Alaska Class ferries will be day
boats, as they will not have crew quarters on board and will
have 12-hour operating day limit before the crew must return the
vessel to port to rest.
2:00:54 PM
REPRESENTATIVE STUTES asked whether there were significant
issues with running fast ferries during periods of bad weather -
particularly during high wind events - out of places like
Cordova, where the ferry is their only source of transportation.
MR. NEUSSL confirmed that there are more stringent weather
limitations on the fast ferries than there are on conventional
hulled vessels; cancellations in response to certain weather
conditions are more frequent. The typical operating model has
the fast ferries operating in the summer, when the weather is
generally nicer and is unlikely to exceed wave height limits,
and laying them up for cost-saving measures in the winter, as
mentioned in discussion of the traffic curve slide. [In 2015]
more stringent limitations were placed on the two fast ferries
because of some corrosion on the hulls. Mr. Neussl said AMHS
imposed operating limitations based on an analysis of that
corrosion. The damaged hull sections are scheduled to be
replaced during the current federal projects in progress on the
fast ferries, after which the normal operating limits will be
reinstated. Due to the reduced operating limit, there were some
cancellations last summer that would not normally have occurred.
2:02:29 PM
REPRESENTATIVE STUTES inquired whether the intention of AMHS is
to run the fast ferries just in the summer months when the
weather is conducive to them and lay them up in the winter so
that the communities served by the fast ferries will not be
dependent on them for winter transportation.
MR. NEUSSL confirmed that intention, noting that there are many
variables that influence those decisions.
2:02:54 PM
REPRESENTATIVE NAGEAK asked how many ports of origin AMHS has.
MR. NEUSSL replied that there are 35 places where a passenger
can embark on an AMHS ferry. He listed the following vessels
and their homeports: the M/V Tustumena in Homer; the M/V
Chenega in Cordova; the M/V Aurora in Valdez; the M/V
Fairweather and the M/V LeConte in Juneau; the M/V Kennicott,
the M/V Columbia, the M/V Matanuska in Ketchikan. He said the
ports are referred to as "change ports." They are where crew
changes occur and where the vessels are essentially based. He
reiterated that the schedule is being reduced to 300 weeks, but
there are still 11 ships in the fleet, which presents a
challenge that will need to be addressed.
2:04:22 PM
MR. NEUSSL continued on to slide 11, "Fiscal Year 2016 Operating
Plan," to discuss the process of working within a proposed
budget to create a schedule used by travelers to book
reservations, and he addressed some of the risks associated with
that process. He stated that every July or August, the
Department meets with the Office of Management and Budget (OMB)
at a "heads-up" meeting to inform them of what AMHS is looking
at in terms of budget, and AMHS brings a proposal and options to
the meeting. For example, option A is 340 weeks of service,
option B is 320 weeks of service, and option C is 300 weeks of
service; each option has a cost associated with it. Based on
the expected budget and the funding levels resulting from the
state's current budget situation, and meetings with OMB and
discussions between OMB and the governor, AMHS gets direction to
proceed with a certain option that has a certain number of weeks
of service and is told to expect funding for that option, which
is then submitted as part of the governor's budget proposal. He
offered his understanding that this year the governor's budget
proposal has an operating plan for 320 weeks of service.
MR. NEUSSL, referencing slide 11, titled "Fiscal Year 2016
Operating Plan," stated that the FY 16 operating plan developed
by AMHS comprises all the vessels, the months of the fiscal
year, and is filled in with specific scheduled maintenance
projects. For example, the M/V Columbia is currently in a
Federal Capital Improvement Project and is thus blocked out on
the chart. The same holds true for the M/V Fairweather and the
M/V Chenega. He indicated that AMHS fills the remainder of the
vessels' schedules with yellow bars indicating periods of
service and tries to meet all routes and provide service to all
AMHS ports. When this is not possible, AMHS places vessels into
cost-saving layup periods, indicated in dark blue. He pointed
out that the M/V Taku has a dark blue bar all the way across;
AMHS does not plan to operate the M/V Taku this year. The
decision essentially essentially reduces the fleet size to 11
ships; however, there are still large expenses associated with
keeping the M/V Taku in layup, such as keeping a partial crew,
providing security, paying for insurance, and similar
requirements.
MR. NEUSSL explained that all of this information is laid out in
the operating plan; AMHS provides service to all of its ports
and attempts to eliminate scheduling gaps associated with
vessels cycling through the annual overhaul period - such as the
ones that existed in Prince William Sound - a requirement for
the Certificate of Inspection. The scheduler develops a
schedule from the agreed upon operating plan, based on knowledge
of which vessels are in service and which routes need to be met,
and assigns appropriate vessels to the planned routes. The
draft schedule is then released to the public for a 2- to 4-
week public comment period, at the end of which a teleconference
is held with the public to discuss whether the schedule meets
their needs and to field suggestions on what could be improved.
Based on that feedback, AMHS makes changes to the schedule where
they can and where it makes sense to do so, before publishing a
final schedule and releasing it to the public for reservations.
Mr. Neussl said that the process works fairly well for the
winter schedule, but is very challenging in the summer. This is
due to the desire to publish the summer schedule - which covers
the months of May, June, July, August, and September - in the
month of October, in order to allow tourists, visitors, and
residents enough time to know what the schedule is, make
reservations far in advance, and plan trips, and to encourage
travel to Alaska.
2:08:28 PM
MR. NEUSSL stated that AMHS does not have a budget for three
months of the five-month summer season until after the
legislative session, in April, if the session ends in April.
This means that the schedule, which was just released in January
2016, has three months of assumed budget, which is a risky
assumption. He explained that when budgets were status quo,
that action seemed logical; people like getting the schedule
early, and the budget was rarely subject to change. He said
that last year, AMHS learned painfully that when budget
reductions are applied to a schedule that has already been
published and sold, it is very challenging to cancel
reservations for a previously promised date and time. He
related that this situation was very trying last summer;
however, AMHS was not forced to cancel reservations to the
extent they expected, because they found one-time, excess fuel
trigger money, which essentially bailed out the summer schedule.
The Alaska Marine Highway System is potentially in the same
situation for this coming year.
MR. NEUSSL related that a schedule has been published based on
the governor's budget, which included a $5.3 million operating
fund reduction from last year. He said AMHS wrote a schedule
based on that assumed cut, published it, and is now taking
reservations on that schedule. Three months of that schedule
are unfunded, essentially, until this legislative session
convenes and an operating budget is finalized, which he
reemphasized is a risk. The winter scheduling process works
more smoothly; there are fewer ships, fewer people scheduling
them, and it does not span a fiscal year.
2:10:30 PM
MR. NEUSSL moved on to slide 12, regarding "Budget Progression,"
and addressed the key topic of funding. The slide displayed a
budget progression chart for AMHS from FY 10 to FY 16. He
explained that the red box highlighted indicates the
undesignated general fund (UGF) allocation for AMHS. This is
essentially the funding that the legislature provides to operate
AMHS in addition to the revenue that AMHS generates to operate
itself. He said some people use the term subsidy, but it's not
really a subsidy, because the state does not subsidize itself.
In FY 13 that funding was $123.7 million; in FY 14 it dropped to
$116 million; in FY 15 it dropped to $112 million; this year it
is $96 million; and in the governor's requested budget for FY 17
it is $92 million. Mr. Neussl said has taken a $31 million
budget cut over 5 years in UGF and has adjusted the system to
compensate for that by providing less service and making some
cuts and reductions. He added that AMHS lives within the means
of the budget, and there are significant budget cuts that have
occurred. All of this falls under the category of "operating
funds," and on the operating side, the UGF is one of the four
sources of funding for AMHS.
MR. NEUSSL said another source of funding is the capital fund,
also from the general fund, which is used for overhauls,
maintenance, and deferred maintenance on the vessels. In FY 13
the capital fund was a $15 million revenue stream for AMHS,
which allowed overhaul of all 11 ships, renewal of Certificates
of Inspections, and maintenance of terminals. In FY 14 that was
a $14.8 million budget line item, which again allowed AMHS to
overhaul all 11 ships, renew their Certificates of Inspection,
maintain the terminals, and operate. He stated that in FY 15,
AMHS received essentially the same amount of money, $14.5
million it did not overhaul and obtain Certificates of
Inspection for all 11 ships, because when it came time for the
eleventh ship in line that year, the M/V Taku, to be overhauled
and have its Certificate of Inspection renewed, AMHS was out of
capital funding. That shortfall in funding, even though it was
the same amount, was not due to mismanagement. It was due to
the fact that when the other ten ships in the fleet were
overhauled prior to the M/V Taku, "discovery work" resulted in
unexpected costs.
MR. NEUSSL explained that when a ship goes into an overhaul
period, certain inspections are performed and things are found,
such as wasted steel, rust, corrosion, et cetera. The USCG then
requires that these discrepancies be addressed before they will
issue a Certificate of Inspection, without which the vessel is
not allowed to sail and such repairs cost more money, take more
time, and delay completion of the overhaul process. Which in
turn causes schedule disruptions. Mr. Neussl stated that as a
result of the shortfall in the capital fund, the M/V Taku was
placed in layup because AMHS could not afford to overhaul it and
get its Certificate of Inspection renewed. In FY 16 that
overhaul and maintenance funding was reduced from $14.5 million
to $10.6 million. Mr. Neussl emphasized that there is no way
that AMHS will be able to afford to overhaul and renew
Certificates of Inspection for 11 ships with $10.6 million.
This is why the M/V Taku remains in layup status and is not
planned to return to service. The governor's FY 17 budget
request for general fund capital expenditures is to return to
$12 million for overhaul and $3 million for deferred
maintenance, which would yield AMHS's typical funding of $15
million for capital maintenance projects. In response to
previous questions regarding the size of shoreside staff and
maintenance, Mr. Neussl pointed out that section of the chart on
slide 12 applies to marine vessel operations, and the section
below it applies to shoreside costs.
2:14:47 PM
MR. NEUSSL explained that in FY 16 88 percent of the operating
cost of AMHS is directly related to marine vessel operations:
labor, fuel, travel, commodities, food, sheets, and all the
supplies that keep the vessels going. The other 12 percent of
the AMHS budget is spent on shoreside costs, which include all
the terminals and terminal staff that essentially complete the
link between the ships and the shore. He emphasized that
shoreside costs are not overhead, because they are essential
components of the system that cover shore operations, vessel
operations management, reservations, marketing, engineering
staff in Ketchikan, overhead, and similar costs. He said that
it is not "out of line" in terms of budget.
2:16:10 PM
CO-CHAIR HUGHES asked if there are employees who live out of
state and are receiving a Cost of Living Adjustment (COLA).
MR. NEUSSL replied affirmatively.
CO-CHAIR HUGHES inquired whether the "free pass" employee
benefit had been or was intended to be removed. She said she
recognizes that this is probably not a major component, but
opined that in the current situation, even small costs need to
be considered.
MR. NEUSSL responded that AMHS is tracking that, but it has not
been removed. In the negotiation session with each of the three
maritime unions, AMHS negotiated a $100 fee for the annual pass
that employees have historically received for free. That has
not yet been implemented, because the Marine Engineering
Beneficial Association (MEBA) contract is still unsigned, and
AMHS' intention is to implement the change simultaneously on all
three unions.
2:18:19 PM
REPRESENTATIVE STUTES inquired whether out-of-state employees
are responsible for their own travel costs to and from Alaska.
MR. NEUSSL responded that in general, yes, but not in every
instance. If an employee has a bid position on a ship - for
example, if they bid to be the master on the M/V LeConte and
based on their seniority, experience, training, and
qualifications they meet all of the requirements and are
assigned the position - then they are responsible for travel to
and from work. Even if the employee who bid the position lives
in Seattle, they are responsible for travel costs to and from
Juneau for each two week assignment period. However, if an
employee has the necessary qualifications, training, pilotage,
route certification, or other needed skill, and he/she is needed
to fill in on an emergency basis on a ship that is not his/her
normal bid position, AMHS will pay for his/her travel from the
change port to their temporary assignment port. For example,
travel costs will not be covered from Bellingham to a temporary
assignment in Valdez if the employee's change port is Juneau;
costs would be covered from Juneau to Valdez, but the employee
would be responsible for the rest of that expense. He said AMHS
has worked very hard to make sure that all employees have an
identified change port, as per their contract.
2:20:09 PM
MR. NEUSSL transitioned to slide 13, which discussed AMHS
Workforce Statistics. He said that all the employees that work
on the vessels are represented by three different unions: Inland
Boatmen's Union (IBU), Marine Engineers Beneficial Association
(MEBA), and the Masters, Mates, and Pilots union (MMP).
Shoreside, there are four different unions and exempt employees.
Most shoreside employees are in the general government union,
which includes terminal agents, reservations clerks, most of the
employees in the Ketchikan central office. Supervisors, the
lead person at each ferry terminal, and some Ketchikan employees
with supervisory duties are represented by the Supervisory
Union. There are also a few workers represented by the Labor,
Trades, and Crafts Union; and by the Confidential Union. The
seven-person shoreside maintenance team based in Ketchikan is
represented by the Labor, Trades, and Crafts union; and does
maintenance on the terminals, docks, hydraulic systems, transfer
bridges, lighting, and the terminal buildings themselves. The
CU represents the dispatchers, who deal with employees' personal
information, including home phone numbers, home email addresses,
and other confidential information. He said that there are five
exempt employees in AMHS, including himself. The second is his
direct report, the general manager of the system, John Falvey.
His three direct reports, the Operations Manager, the
Engineering Manager, and the Business Manager are all exempt
employees.
2:22:02 PM
REPRESENTATIVE ORTIZ noted that the highest UGF allocation to
AMHS was $123 million in FY 13, and he requested clarification
that AMHS was requesting a $92 million allocation in FY 16.
MR. NEUSSL confirmed that AMHS's UGF request was 123.7 in FY 13,
and that the request for FY 17 was $92.1 million.
REPRESENTATIVE ORTIZ requested clarification that if AMHS
receives the requested $92.1 million in UGF funds, it would be
funded lower than the $97.5 million allocation from FY 10.
MR. NEUSSL responded that Representative Ortiz was correct.
REPRESENTATIVE ORTIZ noted that when comparing the $97.5 million
in FY 10 with the $92.1 million in FY 17, those figures do not
take inflation into account. He posited that accounting for
inflation, the $92.1 million figure would have the spending
power of somewhere around $80 or $85 million.
MR.NEUSSL responded affirmatively, but said he did not know the
exact impact of inflation on those figures, but that level of
funding will have real world impacts on the level of service
that AMHS will be able to provide.
2:23:58 PM
REPRESENTATIVE NAGEAK asked for clarification regarding who
qualifies as an exempt employee.
MR. NEUSSL replied that exempt employees are not represented by
a union. He said that as an exempt employee, he serves at the
pleasure of the commissioner of the DOTPF. He continued his
discussion of AMHS workforce statistics on slide 13 by pointing
out that the "Number of Employees" figure includes full time,
part time, seasonal, and on-call employees. He said that these
numbers are larger than what might be expected, and he explained
that the actual number of masters, mates, and pilots working
right now is less than the 108 figure on the slide. The numbers
on the slide represent the total number of employees in FY 14.
If an individual was employed for several months and then
replaced by another employee, both individuals would be
represented in that count. It is not a full time equivalent
(FTE) count, it is a head count of the total number of employees
for that year. The next column, labeled "Average
Cost/Employee," also has a footnote. Each of these figures
include salary and benefits for full-time employees only and
represents the average cost to the state per employee, in each
of these unions. It is not their take-home salary; it includes
their pay and benefits, health insurance, retirement benefits,
and all other employee costs to the state. He said that the
part-time, seasonal, and on-call pay data was removed from the
calculation of these figures. The annual cost of each union
contract to the state is calculated by multiplying the number of
employees by the cost per employee. He said $54 million of the
state's budget for AMHS funds the IBU labor force, $17 million
funds MEBA, about $17 million funds the MMP, and about $10
million total funds all shoreside employees combined.
2:26:14 PM
REPRESENTATIVE ORTIZ, referencing the $181,000 average cost per
MEBA employee, inquired what the components of that total cost
are.
MR. NEUSSL responded that regular pay, holiday pay, overtime,
hold-over pay, late arrival pay, early call-back pay, leave,
travel pay, minimum guarantees, penalty pay, retirement
contributions, training contributions, health care premiums,
unemployment contributions, workers compensation contributions,
Medicare contributions, and Alaska supplemental benefit
retirement plan contributions contribute to that cost. He said
not all of those apply to every union; those are the range of
pays that are included in pays and benefits, based on labor
contracts. Further, he relayed that the list is not specific to
MEBA, but he said those are the types of pays and benefits that
were included in those computations.
REPRESENTATIVE ORTIZ stated that he assumed some of the costs
are not a result of the bargained agreements, but in some cases
are the result of management's decision to pay overtime versus
paying another employee. He suggested that in some instances it
would be more cost effective to pay overtime than to hire
another employee.
MR. NEUSSL responded that sometimes the only option is to pay
overtime, for example, if a ship is delayed coming into port.
There are a variety of factors that play into how much overtime
gets paid. He said that AMHS does attempt to minimize the
amount of overtime paid; it would prefer a full work force
getting normal pay versus a smaller work force working extra
hours and getting additional overtime pay, but there are many
challenges that make that difficult.
REPRESENTATIVE ORTIZ asked for confirmation that in some
situations, hiring a new employee also involves medical
benefits, retirement benefits, and similar costs. He pointed out
that these costs are already covered for an employee who is
being paid overtime.
2:29:04 PM
MR. NEUSSL replied affirmatively and continued his presentation
of slide 13. He offered that although he has heard the shoreside
staff referred to as bloated, essentially $90 million goes to
vessel employee labor and approximately $10 million - about one
tenth of that - goes to shoreside labor. This is proportional
to the budget ratio of 88 percent for vessel operations and 12
percent for "overhead." He responded to a previous question
about the number of non-resident AMHS employees, and he stated
that it is possible for the vessel employees, due to their work
schedules, to live out of state, whereas an employee who works
shoreside in Ketchikan, for example, is unable to live out of
state. Vessel employees who work two weeks on/two weeks off; 28
days on/28 days off; or week on/week off can live out of state
if they so choose. Mr. Neussl said the column furthest to the
right on slide 13 indicates the percentage of non-resident
employees for each of the three unions. For example, about 25
percent of the MEBA employees, or approximately 25 people, do
not live in the state of Alaska. Those employees who do not
live in Alaska do not collect cost-of-Living differential, which
is payable only to employees who live within the state of Alaska
and is annually verified and certified to ensure that only those
employees who are qualified receive that entitlement.
2:30:48 PM
CO-CHAIR HUGHES inquired whether there is a hiring preference
for Alaska residents. She also asked whether most of the non-
resident employees were hired while they were Alaska residents
and later moved out of state, as allowed by the schedule, or if
they were hired as non-residents.
MR. NEUSSL replied that AMHS does have a hiring preference for
Alaskans, but it's difficult to find enough qualified employees
to fill all necessary positions; therefore, AMHS does recruit
and hire some employees from the Lower 48.
REPRESENTATIVE ORTIZ asked whether it is becoming difficult to
recruit qualified individuals for AMHS, such as pilots, when
competing for them at the global scale. He said that it was his
understanding that there is increased global demand for those
types of positions given the recent growth of the global
shipping industry.
MR. NEUSSL responded that, yes, there is demand and competition
for those skills. In conjunction with the community engagement
meetings, he said that he held meetings with the crews aboard
the ships. One of the messages conveyed in those meetings was
that not only do the uncertainties in funding, number of ships,
and scheduling "upset the apple cart" with regard to economies
and communities, they also "upset the apple cart" with regard to
employees. Employees wonder if they will have a job in the
coming year, whether their ship will be laid up, or the
workforce will be reduced. That causes uncertainty and employee
longevity issues. Mr. Neussl related that AMHS has lost several
employees, who sought maritime work elsewhere. For example,
many former MMP employees now work for the Southeast Pilots
Association, which requires AMHS to train people from the bottom
to fill those positions, which is expensive.
2:33:55 PM
REPRESENTATIVE MILLETT requested an overview of the training
process and associated costs for a master, mate, or pilot, and
she inquired as to the location of the training facilities.
MR. NEUSSL responded that there are a variety of different paths
in the trade. In general Masters, Mates, and Pilots come from
the California Maritime Academy, the Maine Maritime Academy, or
from military service. They might come in as a second or third
mate, work their way up to chief mate, and eventually to master.
The training for that process takes a variety of forms; some is
training conducted at AVTEC - Alaska's Institute of Technology
("AVTEC"), in Seward. As part of AMHS' labor contract with the
MMP union, the state contributes to Maritime Institute for
Training and Graduate Studies (MITAGS) in Baltimore, Maryland.
It is essentially the masters, mates, and pilots training school
for ship drivers. He said AMHS sends people there because via
the labor contract, AMHS employees can take advantage of that
training to get additional qualifications and improve their
license toward the goal of acquiring a master license. Pilotage
requires actually operating and sailing in a given waterway.
For example, an AMHS employee who begins with no pilotage, by
working on vessels sailing up and down Lynn Canal and becoming
familiar with the waterway, can eventually sit for their
pilotage exam with the USCG. This essentially involves drawing
the maritime chart from memory, including navigational aids,
hazards, obstructions, et cetera. Earning Pilotage is a
different process, not formal schooling.
REPRESENTATIVE MILLETT requested clarification regarding the per
person cost of this training to the state. She inquired whether
there is any requirement or responsibility in a union contract
requiring employees who have benefitted from training to stay in
the state and work for the State of Alaska for a period of time
as a form of repayment for the training investment.
MR. NEUSSL responded that the training agreement is detailed in
the MMP collective bargaining agreement. He said he did not
know the figure off the top of his head, but it is a per-
employee, per-day dollar amount contributed by the state to
fund, MITAGS.
REPRESENTATIVE MILLETT asked for the location of the training
decrement within the AMHS budget.
MR. NEUSSL stated he assumed it was included under personnel
services, but he added that he have to give a more definite
answer at a later time.
2:36:38 PM
[Co-chair Foster passed the gavel to Co-Chair Hughes]
CO-CHAIR HUGHES asked whether, since AMHS has to recruit out of
state for certain skill sets, there has been any effort from the
Department of Labor & Workforce Development (DOLWD) or
Department of Education and Early Development (EED) to inform
high school students and young Alaskans that opportunities exist
within AMHS.
MR. NEUSSL replied that there have been some efforts by AMHS to
reach out, but not many. For a period of time, dispatchers were
sent to job fairs and recruitment events in an attempt to foster
and bring talent into AMHS. He stated that AMHS does not do
that as much as they should.
MR. NEUSSL transitioned to slide 14, "Budgetary Constraints,"
and stated that it is essentially a summary of a comparison
between FY 15 and FY 16. He explained that there is $16 million
less in the state operating general fund and $4 million less in
the state capital general fund between the two years. He said
that is a significant reduction, which resulted in the removal
of the M/V Taku from service in June 2015 to present due to
insufficient capital funding. Mr. Neussl reiterated that AMHS
does not have the budget to overhaul or operate the vessel. Mr.
Neussl said that the department, and in particular AMHS, uses a
lot of fuel, approximately 10 million gallons of diesel fuel per
year. He noted that AMHS is budgeted at $2.56 per gallon for
fuel; currently the average price is less than that figure,
which is good because AMHS will meet its fuel budge. If the
price climbs above that, where it has been most of the time,
AMHS will experience a budget shortfall due to fuel. He said
that most of the committee is likely familiar with the mechanism
wherein if the price of North Slope crude is above $70 per
barrel, a fuel trigger kicks in to help offset the additional
cost of fuel. He said there is no fuel trigger this year, nor
is there likely to be one anytime in the future. Assuming
prices stay below $2.56 a gallon, AMHS will meet their fuel
budget. In the absence of a fuel trigger, there is a risk
factor if prices rise above that, which they certainly could due
to any number of world events.
2:39:16 PM
REPRESENTATIVE MILLETT asked how often the fuel trigger has been
used historically. She recognized that the price of oil has been
below $70 per barrel for one year. She also inquired whether
Mr. Neussl had a chart or more information pertaining to fuel
costs. She noted that oil prices are expected to remain low,
which could be a large cost savings for AMHS. She inquired
about the AMHS fuel purchase process, whether it was purchased
in bulk, and how AMHS manages its fuel needs.
MR. NEUSSL responded that AMHS does not purchase fuel in bulk,
there are no fuel storage facilities, and AMHS pays market price
in the same manner as a person would filling their car at a gas
station. He said that AMHS calls Petro Marine Services in a
port where they are fueling, orders a fuel truck, and takes
10,000 gallons of fuel, paying the fuel price for that given
port. He added that fuel prices vary between ports. It is
relatively inexpensive in Bellingham, Washington, and AMHS tries
to fuel there when ships are there. Fuel is more expensive in
places like Homer and Valdez, because it is more expensive to
transport it there. He said that AMHS does not forward fund,
hedge, or lock in long-term fuel contracts, because just as
easily as prices can go up and those strategies can save money,
prices can go down and that can increase costs. Mr. Neussl
stated that AMHS pays market rate for fuel, and has used the
fuel trigger almost every year, up until this past year. He
said $7 million of excess fuel trigger money saved in an account
were appropriated to AMHS to fund the 2015 summer schedule. He
stated that AMHS has made extensive use of the fuel trigger, but
he said he did not currently have, but could provide, exact
numbers for the fuel trigger amounts for each year. There were
two triggers a year most years, and each of them contributed
money to fund AMHS.
REPRESENTATIVE MILLETT asked where the $7 million figure from
those fuel triggers is shown in the budget.
MR. NEUSSL replied that the fuel trigger funds were displayed on
slide 12, in the "Additional Fuel Trigger Appropriation" line
under FY 15.
2:41:46 PM
CO-CHAIR HUGHES inquired whether the fuel trigger was listed at
zero dollars in the governor's proposed budget or there would be
money available for the fuel trigger this year.
MR. NEUSSL replied that it was one-time funding, which was there
because when the price of fuel went down money was saved. He
said it was a good thing it was saved, because it was definitely
needed this past year to run last summer's schedule. It was
one-time money, and there is no remaining portion of that to
assist. There is no longer a fuel trigger to generate the
funds.
MR. NEUSSL transitioned to slide 15, "Non-service cost
Reductions," stating that many people have the impression that
when the legislature cuts the AMHS budget, the first action they
take is to place a vessel in layup to reduce costs. He said
placing a vessel in layup is actually the last action AMHS
takes, because they do not want to impact service levels. The
first action is to identify other efficiencies that have no
impact on essential service. He said AMHS has taken action on
many of these efficiencies in an effort to save money by
eliminating non-essential services that do not support
themselves, such as bars and gift shops on the vessels. There
were approximately 25 people associated with providing those
services, who were reassigned throughout the fleet. Fewer
people were hired from the bottom, so none of those employees
were laid off as a result, and costs were reduced by no longer
providing those amenities on the vessels. Mr. Neussl related
that AMHS eliminated the commercial marketing contract, which
saved $500,000 per year. They eliminated a $200,000 budget line
item for commercial backfill service with private companies like
Allen Marine, which had provided continued service to remote
villages during vessel maintenance periods. He said 30
shoreside positions have been eliminated, half of which were on-
call, part-time positions at the terminal and performed duties
such as vessel mooring and staging. He said this has resulted
in a situation where there are exactly as many employees as are
needed to safely tie up a vessel; however, if one person is
absent AMHS falls below minimum manning levels required for
vessel mooring. They have cut terminal staff "to the bone,"
eliminating 15 shoreside positions, some of which were highly
paid, fulltime, employees such as a port engineer, a port
captain, several positions in the reservations office, marketing
staff, and several administrative positions in the Ketchikan
central office.
2:44:51 PM
CO-CHAIR HUGHES inquired whether those were filled positions
that were eliminated.
MR. NEUSSL replied that approximately half of the positions were
filled positions. Some were intentionally left vacant in
anticipation of cuts associated with the current budget climate.
This occurred several times in the reservation center. He said
AMHS installed new engines in the M/V Columbia, intends to
install new engines on the M/V Matanuska, and installed auto
throttle fuel management systems on vessels statewide. The auto
throttle systems manage speed in order to stay on schedule,
rather than burning extra fuel and arriving early or arriving
late and altering the schedule. This fuel management system is
not as effective as hoped, because generally AMHS operates in
straits and narrows rather than open ocean. Mr. Neussl stated
that the more important message from the ship drivers during the
shipboard meetings was that slowing down is the best way to
reduce fuel costs. Rather than scheduling a run at six hours at
full speed, AMHS needs to schedule it as a 6.5- or 7-hour run,
at reduced throttle for fuel conservation, and give the masters
discretion to adjust their speed accordingly. This will be
taken into account when drafting future schedules.
Mr. Neussl said the printed schedule was also eliminated, which
saved $50,000 in mailing and distribution costs, considering
that the printed schedule was often outdated due to schedule
changes. All schedules are available online now, in real time.
CO-CHAIR HUGHES commented that the ferry from Homer was
transporting many of the legislators' vehicles recently and did
not arrive on schedule. Online it was reported as on time, but
it did not show up when scheduled.
MR. NEUSSL acknowledged the point, and he offered that it seems
like delays and scheduling interruptions happen at the least
convenient times. That specific incident was a weather related
delay on the M/V Tustumena during a transit across the Gulf of
Alaska. Both of the cross-gulf transits were significantly
delayed, by 24-36 hours, due to excessive sea conditions in the
Gulf of Alaska. Acknowledging that the arrival message was
incorrect, he pointed out that customers can use the real-time
vessel tracker in the lower right hand corner of the AMHS
website to watch a vessel move across the ocean. He said AMHS
is trying to provide better information regarding scheduling,
but it is not 100 percent correct yet.
2:48:09 PM
REPRESENTATIVE MILLETT inquired as to how many of the 25
eliminated vessel positions were position control numbers (PCN)
and whether they were filled when they were cut.
MR. NEUSSL explained that the PCN counts on vessels are complex.
Only five of the ships had bars, and therefore five bartender
positions were eliminated. However, those five bartender
positions are filled by twelve PCNs; "A crew" bartender, "B
crew" bartender, and a relief bartender. This holds true for
every position on the vessel. He said each position on the ship
essentially requires 2.3 people to fill when considering the "A
crew," "B crew," and relief crew. 25 is a composite number.
Those positions were all filled; the bars were operating until
AMHS closed them. Those individuals transitioned to other jobs:
cashiers, passenger service workers, and others. Fewer people
were hired into the bottom of the system, because individuals
were distributed from the bartender and cashier positions.
REPRESENTATIVE MILLETT asked, of the 30 shore positions, how
many people actually lost their jobs. She also inquired how
many open PCNs are unfilled.
MR. NEUSSL replied that he does not currently have the open PCN
list. He stated that, of the 30 shoreside positions, half were
filled with on-call, summer employees who were regularly laid
off on October 1, each year. He estimated that of the remaining
15 eliminated positions, 5 full-time positions were laid off and
the rest were intentionally left vacant in anticipation of cuts.
He stated that he could get exact numbers at a later time.
REPRESENTATIVE MILLETT inquired as to the distribution of
layoffs. She asked how many were placed in early retirement, how
many lost their jobs entirely, and how many were transitioned
into other positions, like the bartenders.
MR. NEUSSL responded that most employees whose positions were
eliminated were transitioned into other positions. He said AMHS
tried, as much as possible, to avoid laying people off entirely,
because AMHS tries to take care of their employees. He said
that he would follow up with exact numbers.
2:51:44 PM
REPRESENTATIVE ORTIZ inquired whether the gift shop employees
had additional duties on board the vessels.
MR. NEUSSL replied, yes.
REPRESENTATIVE ORTIZ asked if those employees would normally
fill their day with other duties, as assigned.
MR. NEUSSL responded that they would, to the extent they could
within work/rest requirements.
REPRESENTATIVE ORTIZ asked whether there were some ferry runs
where the bars were either cost neutral or created revenue.
MR. NEUSSL replied that the issue with the bars was not that
they did not generate revenue, but was instead the cost
associated with employing a bartender with full state benefits.
It was not cost effective and the bars were losing money.
REPRESENTATIVE ORTIZ asked if all the bars on all the runs were
losing money.
MR. NEUSSL responded affirmatively, but clarified that it was
possible that the bar on the M/V Columbia coming from Bellingham
with a full ship in the summer might have been able to break
even. In general, the bars have lost $750,000 per year.
2:53:57 PM
CO-CHAIR HUGHES inquired whether the closure of the bars has
impacted ridership.
MR. NEUSSL responded that feedback from community meetings
indicated that passengers enjoyed the bars as an amenity, but
community members were generally understanding when he explained
to them that the bars do not produce revenue and that the
essential mission of AMHS is to provide transportation.
[CO-CHAIR HUGHES returned the gavel to Co-Chair Foster.]
2:54:44 PM
MR. NEUSSL continued presenting slide 15. He stated that the
printed schedule has been eliminated and risk management costs
have been reduced. The State of Alaska is self-insured, but
AMHS vessels are not. The risk associated with operating
vessels in a marine environment is high; therefore, AMHS has
commercial liability policies through the Department of
Administration, and AMHS has managed to reduce the costs of
those slightly. Additionally, AMHS has consolidated spare parts
at the Marine Engineering Building in Ketchikan, thus
eliminating the cost of leasing a warehouse in Bellingham.
MR. NEUSSL discussed slide 16, "Revenue Enhancement," stating
that AMHS has altered its cancellation and change fee policies.
The policy used to be very lenient, allowing passengers to
cancel at the last minute, with very little or no penalty, which
resulted in sailing with empty space because AMHS usually could
not resell the reservation prior to the ship sailing. The
alteration helps ensure that reservations that are made are also
used; if a reservation is cancelled too close to the sailing
date, AMHS will extract revenue in the form of a change fee or
penalty. He said that AMHS has eliminated all travel agent
commissions in two stages, which saved approximately $1.5
million per year. Mr. Neussl said AMHS also implemented some
tariff equalization, because the tariff structure had many
anomalies and inequities. For example, he told of one instance
when it cost a passenger $35 to travel 130 miles on one run, and
$50 to travel 22 miles on a separate run. He said AMHS plans to
level and formalize the tariffs and create a standard process by
which tariffs are set. He further related that AMHS has altered
some discount programs and eliminated both the "Driver Goes
Free" and the "30 percent mirror round trip programs," because
the traffic numbers are stable without them. He explained that
the axed programs essentially served as a rebate to users of the
system and did not result in spikes in ridership or vehicles
being transported; therefore, they were eliminated as a cost-
savings measure. He transitioned to slide 17, "Fiscal Year 2017
and Beyond," stating AMHS intends to promote itself as an
important part of Alaska's transportation system.
2:57:41 PM
REPRESENTATIVE STUTES inquired whether there was any intention
to address commercial rates. She noted that many commercial
fisherman in coastal fishing communities use the ferry system to
ship their fish out, rather than a commercial carrier, because
it is significantly less expensive.
MR. NEUSSL responded that on November 1, 2015, AMHS implemented
a 20 percent increase on commercial vehicle tariffs, which was a
result of the 2015 rate study.
2:58:23 PM
CO-CHAIR FOSTER noted that there were three minutes remaining in
the meeting and suggested that committee members hold their
questions and forward them to the DOTPF after the meeting.
2:58:48 PM
MR. NEUSSL stated that the goals of AMHS for 2017 and beyond are
to reduce costs, increase revenue, and reduce the fleet size.
He noted that the Southeast Alaska Transportation plan needs to
be updated, as it is outdated. He said the final draft for the
2015 AMHS Economic Impact Study was complete and would be
forwarded to the legislature as soon as it is finalized. Moving
to slide 18, "What We Heard," he summarized the take home
messages from the community meetings he attended. He stated
that communities want and need a reliable, dependable schedule.
Turmoil with the schedule in the transportation industry is bad
for business. Even the threat of cancellations has a negative
impact. Sailing the schedule, as published, is critically
important to not only the Marine Highway System's ridership, but
also to the businesses and economies that rely on it. People
are willing to pay more for better ferry service, but they
expect better ferry service as a result. Mr. Neussl reiterated
that communities and economies develop with the promise of AMHS
service. For example, 110 people from Cordova attended their
community meeting at a building that was constructed to be
compatible with a fast ferry, which was intended to be, but is
not, home ported there. Cordova had built a convention and
visitor's center based on expected vessel traffic, but AMHS is
no longer able to provide that vessel on a year-round basis.
The entire report compiled from each of the AMHS community
meetings is available on the AMHS web site.
3:01:34 PM
CO-CHAIR FOSTER thanked MR. NEUSSL for his presentation and
stated that if there are questions, they could be forwarded to
the co-chairs, who would respond accordingly.
3:01:46 PM
ADJOURNMENT
There being no further business before the committee, the House
Transportation Standing Committee meeting was adjourned at 3:00
p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| Final_AMHS presentation Jan 21 2016.pdf |
HTRA 1/21/2016 1:00:00 PM |