Legislature(2021 - 2022)BELTZ 105 (TSBldg)

02/23/2021 01:30 PM Senate TRANSPORTATION

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Audio Topic
01:33:57 PM Start
01:34:34 PM Overview: Alaska Marine Highway System
02:59:31 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
Overview of the Alaska Marine Highway System by:
- Rob Carpenter, Deputy Commissioner DOT & PF
- Matt McLaren, AMHS Business Enterprise &
Development Manager
**Streamed live on AKL.tv**
                    ALASKA STATE LEGISLATURE                                                                                  
            SENATE TRANSPORTATION STANDING COMMITTEE                                                                          
                       February 23, 2021                                                                                        
                           1:33 p.m.                                                                                            
MEMBERS PRESENT                                                                                                               
Senator Robert Myers, Chair                                                                                                     
Senator Mike Shower, Vice Chair                                                                                                 
Senator Peter Micciche                                                                                                          
Senator Jesse Kiehl                                                                                                             
MEMBERS ABSENT                                                                                                                
Senator Click Bishop                                                                                                            
COMMITTEE CALENDAR                                                                                                            
OVERVIEW: ALASKA MARINE HIGHWAY SYSTEM                                                                                          
     - HEARD                                                                                                                    
PREVIOUS COMMITTEE ACTION                                                                                                     
No previous action to record                                                                                                    
WITNESS REGISTER                                                                                                              
ROB CARPENTER, Deputy Commissioner                                                                                              
Department of Transportation and Public Facilities (DOTPF)                                                                      
Juneau, Alaska                                                                                                                  
POSITION STATEMENT: Presented a PowerPoint on the Alaska Marine                                                               
Highway System (AMHS).                                                                                                          
JOHN FALVEY, Captain; General Manager                                                                                           
Marine Highway System (AMHS)                                                                                                    
Department of Transportation and Public Facilities (DOTPF)                                                                      
Ketchikan, Alaska                                                                                                               
POSITION STATEMENT: Provided a PowerPoint assessment of the                                                                   
aging AMHS fleet.                                                                                                               
MATT MCLAREN, Manager                                                                                                           
Business Enterprise & Development                                                                                               
Alaska Marine Highway System (AMHS)                                                                                             
Department of Transportation and Public Facilities (DOTPF)                                                                      
Ketchikan, Alaska                                                                                                               
POSITION  STATEMENT: Presented  a PowerPoint  on AMHS  ridership,                                                             
revenues,  and  expenses  of the  Alaska  Marine  Highway  System                                                               
ACTION NARRATIVE                                                                                                              
1:33:57 PM                                                                                                                    
CHAIR  ROBERT MYERS  called  the  Senate Transportation  Standing                                                             
Committee meeting  to order at 1:33  p.m. Present at the  call to                                                               
order  were  Senators  Shower, Kiehl  and  Chair  Myers.  Senator                                                               
Micciche arrived shortly thereafter.                                                                                            
^OVERVIEW: ALASKA MARINE HIGHWAY SYSTEM                                                                                         
             OVERVIEW: ALASKA MARINE HIGHWAY SYSTEM                                                                         
1:34:34 PM                                                                                                                    
CHAIR  MYERS   announced  only  order  of   business  before  the                                                               
committee would  be consideration  of an Overview:  Alaska Marine                                                               
Highway System.                                                                                                                 
1:35:09 PM                                                                                                                    
ROB CARPENTER, Deputy  Commissioner, Department of Transportation                                                               
and Public  Facilities (DOTPF),  Juneau, Alaska,  reviewed AMHS's                                                               
fleet  and vessel  routes for  Southeast Alaska  on slide  2. The                                                               
Alaska Marine Highway  System (AMHS) has four  vessels running in                                                               
Southeast Alaska,  the Kennicott, Lituya, LeConte  and Matanuska.                                                               
The  Matanuska runs  from Bellingham,  Washington  to Haines  and                                                               
Skagway. The Kennicott  has a similar route but  crosses the Gulf                                                               
of Alaska  to Yakutat, then  on to Southwest Alaska.  The LeConte                                                               
run  includes the  villages of  Kake, Hoonah,  Tenakee, Gustavus,                                                               
and Pelican  in Northern Lynn Canal.  The Lituya is the  only day                                                               
boat   currently  operating,   which  runs   from  Ketchikan   to                                                               
Metlakatla, he said.                                                                                                            
1:37:32 PM                                                                                                                    
MR.  CARPENTER reviewed  the Southwest  Alaska  vessel routes  on                                                               
slide 3.  He directed attention  to the orange  line highlighting                                                               
the Kennicott's run from Yakutat  and Whittier, then south except                                                               
when  the Tustumena  travels to  Dutch  Harbor. On  that run  the                                                               
Kennicott will  travel to Kodiak  and Homer, he said.  The Aurora                                                               
covers  Prince  William  Sound  when  operational,  traveling  to                                                               
Whittier, Valdez, and Cordova.                                                                                                  
1:38:36 PM                                                                                                                    
JOHN  FALVEY, Captain;  General  Manager,  Marine Highway  System                                                               
(AMHS),  Department  of   Transportation  and  Public  Facilities                                                               
(DOTPF),  Ketchikan,  Alaska,  reviewed  AMHS's  aging  12-vessel                                                               
fleet depicted  on slide 4.  In the private sector,  most vessels                                                               
are run for 30 years  and then surplused. Unfortunately, three of                                                               
AMHS's vessels are  over 57 years old:  the Malaspina, Matanuska,                                                               
and Tustumena. Another three of  AMHS's vessels are over 44 years                                                               
old: the LeConte, Columbia and  Aurora. The Kennicott is 27 years                                                               
old,  he  said. Three  vessels  are  17  years old:  the  Lituya,                                                               
Chenega   and  Fairweather.   The   fast   ferries  Chenega   and                                                               
Fairweather  are  not suitable  to  run  in  Alaska due  to  high                                                               
operational costs. Thus, the department  let a sealed bid project                                                               
to sell the  vessels, including the engines,  which are currently                                                               
warehoused. DOTPF has a responsive bidder, he said.                                                                             
CAPTAIN  FALVEY  provided  details  on ship  repairs  and  vessel                                                               
status on slide  5. Four vessels are  currently being overhauled:                                                               
the  LeConte, Aurora,  Kennicott,  and  Tustumena. The  Columbia,                                                               
Hubbard and Tazlina  are currently in layup. The  Malaspina is in                                                               
long-term  layup  in  preparation   for  disposal  or  sale.  The                                                               
Malaspina requires $16  million or more in  steel replacement and                                                               
$30  million  in  engine  replacement  costs  so  the  department                                                               
decided to  sell it. The  department invested federal  funding on                                                               
steel replacement to keep the  Tustumena operational and the ship                                                               
is  currently  in  the   Seward  shipyard  undergoing  additional                                                               
upgrades.   AMHS  also   plans   to   provide  additional   steel                                                               
replacement and upgrades  to the service elevators  at the Seward                                                               
shipyard over the next six months.                                                                                              
1:42:01 PM                                                                                                                    
CAPTAIN  FALVEY  described  the   Matanuska  as  a  SOLUS-classed                                                               
vessel, equipped  with safety features  that allows it  to travel                                                               
to  foreign  ports,  including Prince  Rupert,  Canada.  Over  18                                                               
months ago  the Matanuska  underwent engine room  work and  a $40                                                               
million major conversion  required by the USCG  [US Coast Guard].                                                               
He offered his view that the ship is in good shape.                                                                             
CAPTAIN FALVEY  said AMHS  spent $5 million  in state  funding on                                                               
the LeConte on major steel  upgrades. This ship also underwent $5                                                               
million in  federal amenities and  steel replacement so it  is in                                                               
good shape,  he said. The Columbia  will go into overhaul  at the                                                               
Ketchikan shipyard  in March  2021. This  vessel has  new engines                                                               
and a federal project will  fund propeller replacement to address                                                               
long-standing vibration issues. The  Kennicott can also travel to                                                               
Prince Rupert, he  said. The Lituya was  overhauled and currently                                                               
runs  between  Ketchikan  and  Metlakatla.   It  will  undergo  a                                                               
federally-funded interior  and exterior  paint project,  he said.                                                               
The  Tazlina  and  Hubbard, Alaska  Class  ferries,  run  between                                                               
Juneau, Haines,  and Skagway. Side  doors have been  installed to                                                               
allow these vessel  to run to villages once the  12-hour day crew                                                               
issue is resolved.                                                                                                              
1:49:58 PM                                                                                                                    
SENATOR  KIEHL  recalled  that the  Matanuska  required  European                                                               
mechanics to service its engines.  He asked if European mechanics                                                               
would be  needed to service  Columbia's engine  propulsion system                                                               
or if it could be serviced in the US.                                                                                           
CAPTAIN  FALVEY replied  that once  the new  propeller system  is                                                               
installed,  AMHS  will be  able  to  use  the same  company  that                                                               
supplied  the  Kennicott's  engines  to  service  the  Columbia's                                                               
1:50:56 PM                                                                                                                    
SENATOR SHOWER  asked for the  crew status for the  vessels while                                                               
in layup.                                                                                                                       
CAPTAIN  FALVEY  responded that  most  of  AMHS's employees  will                                                               
continue to work  their rotations. Thus, the  baseline staff will                                                               
stay employed.  However, the Columbia's  full crew of 61  will be                                                               
reduced  to 25  during  layup. He  lamented  the difficulties  in                                                               
retaining employees when vessels are in layup.                                                                                  
SENATOR SHOWER  referred to  the aging fleet.  He asked  how many                                                               
ships are needed to provide service.                                                                                            
CAPTAIN  FALVEY offered  his view  that six  ships could  provide                                                               
adequate service  to communities. AMHS  strives to run  its ships                                                               
with better  passenger utilization. However, success  will depend                                                               
on the COVID-19 pandemic, he said.                                                                                              
1:55:06 PM                                                                                                                    
CHAIR  MYERS   asked  why  AMHS   is  selling  the   Chenega  and                                                               
Fairweather fast ferries.                                                                                                       
CAPTAIN  FALVEY  explained  that  the ships  operated  under  the                                                               
international high-speed  code and  it turned  out they  were too                                                               
costly to operate.  He elaborated that it was  expensive to train                                                               
the  crews,  the  payloads  were small  and  the  ships  consumed                                                               
substantial fuel.                                                                                                               
1:56:07 PM                                                                                                                    
CAPTAIN FALVEY reviewed the Alaska  Marine Highway System's Fleet                                                               
Status on  slide 5.  He reported that  the Lituya  currently runs                                                               
five days a  week. The LeConte will provide  service in Southeast                                                               
while the  Matanuska is being  repaired. The LeConte will  run in                                                               
Lynn Canal  after its  overhaul and the  Kennicott will  run from                                                               
Bellingham to Whittier and Kodiak.  He related that the Tustumena                                                               
is currently  at the  Seward shipyard  being overhauled,  and the                                                               
Aurora  will   also  be  overhauled   there  but  it   should  be                                                               
operational by April 15, 2021                                                                                                   
1:58:57 PM                                                                                                                    
CAPTAIN  FALVEY reported  that the  Matanuska currently  provides                                                               
service  from   Bellingham  to  the  communities   of  Ketchikan,                                                               
Wrangell,  Petersburg, Kake,  Sitka, Haines,  and Skagway.  After                                                               
its  layup, the  Aurora will  provide service  in Prince  William                                                               
Sound.  The  Columbia  is currently  being  overhauled  at  Vigor                                                               
shipyard in  Ketchikan. The Malaspina,  Hubbard, and  Tazlina are                                                               
currently in layup, he said.                                                                                                    
2:00:38 PM                                                                                                                    
SENATOR MICCICHE  directed attention  to the 20-year  gap between                                                               
the purchase  of the Aurora and  the Kennicott. He asked  if AMHS                                                               
should  consider   a  more   evenly  spaced   vessel  replacement                                                               
CAPTAIN  FALVEY  agreed  it  should. He  reported  that  AMHS  is                                                               
currently in  the design phase  for the  Tustumena's replacement.                                                               
AMHS anticipates that  this design will include a  hull form that                                                               
could also  be used for a  mainline ferry, he said.  However, the                                                               
Matanuska and  Columbia should be able  to run for a  while since                                                               
they have new engines.                                                                                                          
2:02:44 PM                                                                                                                    
SENATOR MICCICHE  asked whether the  state went too  long between                                                               
replacing its vessels.                                                                                                          
CAPTAIN  FALVEY replied  that most  commercial operators  replace                                                               
their vessels  every 30  years. He  reported that  federal monies                                                               
fund vessel  replacements but in  a perfect world there  would be                                                               
less of an age gap.                                                                                                             
2:03:53 PM                                                                                                                    
MR. CARPENTER  related that  the Kennicott  was brought  on after                                                               
the Exxon  Valdez Oil  Spill. It was  at least  partially funding                                                               
from settlement funding  since it could also serve  as a response                                                               
vessel in  case of future  oil spills. DOTPF has  tried different                                                               
approaches to  address its aging  fleet, such as bringing  in the                                                               
fast  ferries. The  concept was  to develop  a system  of vessels                                                               
with shorter runs to cut  vessel operational costs and to address                                                               
AMHS's  reliability  and  flexibility.  He  agreed  with  Captain                                                               
Falvey  that  six  vessels  could  provide  a  minimum  level  of                                                               
service, but  AMHS lacks a backup  vessel to use when  one of the                                                               
vessels suffers  mechanical issues. Of course,  mechanical issues                                                               
do happen  since the  ships are  50 years  old, he  said. Without                                                               
backup, AMHS  struggles to provide system  reliability. Customers                                                               
routinely complain about not having  reliable schedules, which is                                                               
important to businesses and communities, he said.                                                                               
2:06:48 PM                                                                                                                    
MR. CARPENTER  related that the department  envisioned creating a                                                               
day boat  operation using  the Alaska  Class ferries.  While that                                                               
potential  still  exists,  unless  certain  characteristics  were                                                               
added, the  Tazlina and Hubbard cannot  be used as backup  to the                                                               
LeConte  and  Aurora.  AMHS  has  faced  and  continues  to  face                                                               
challenges  retaining  adequate  crew,  navigating  a  cumbersome                                                               
collective bargaining process, and  addressing hurdles created by                                                               
COVID-19.  Regarding   COVID-19,  AMHS  developed   an  excellent                                                               
mitigation  plan.  Due  to  AMHS's  diligent  crew  and  adequate                                                               
testing, it  created a bubble.  Just as AMHS's  preclearance plan                                                               
for  passengers traveling  through Canada  to Alaska's  ports was                                                               
nearly  finished, Canada  shut its  borders and  announced Prince                                                               
Rupert will be closed until February 2022.                                                                                      
2:11:21 PM                                                                                                                    
SENATOR  MICCICHE  asked  for  the  employee  count  and  service                                                               
reductions for AMHS's different bargaining units.                                                                               
MR. CARPENTER offered to provide the data to the committee.                                                                     
2:12:32 PM                                                                                                                    
SENATOR  KIEHL  disagreed  with Deputy  Commissioner  Carpenter's                                                               
comment  that  six  ferries were  providing  adequate  levels  of                                                               
service  to  communities.  From   his  discussions  at  Southeast                                                               
Conference and  with business owners, mayors,  and individuals on                                                               
AMHS's  service  to  communities,  the  sentiment  was  that  the                                                               
service  level   provided  by  the   ferry  system   is  crushing                                                               
communities,  businesses,  and  households.  In  some  instances,                                                               
ferry service  in some communities  means one ferry per  week but                                                               
for  other  communities,  service  means  one  ferry  per  month.                                                               
Communities cannot function with that  level of service, he said.                                                               
He related his  understanding that the bargaining  units have not                                                               
asked for  significant changes or  flexibility in  scheduling and                                                               
MR. CARPENTER answered that union  negotiations are ongoing so he                                                               
was  unsure  what   he  could  say.  He  said   some  things  are                                                               
challenging given the current fiscal situation.                                                                                 
2:14:49 PM                                                                                                                    
SENATOR SHOWER  offered his view  that the current AMHS  model is                                                               
not a  sustainable one. The  state needs  a ferry system  but the                                                               
legislature and  administration need  to determine  what services                                                               
to provide and should entertain other options.                                                                                  
2:16:38 PM                                                                                                                    
MR. CARPENTER  reviewed AMHS's operating  budget from FY  2015 to                                                               
FY 2022 on  slide 7. He stated the blue  bar highlights the state                                                               
fund  contributions and  the gray  bar shows  AMHS's revenue.  He                                                               
discussed AMHS's  authorized budget which went  from $175 million                                                               
in  FY  2015 to  $113.1  million  in  FY 2020.  The  unrestricted                                                               
general funds (UGF) were reduced from  $119 million in FY 2015 to                                                               
$49.6  million in  the FY  2020  authorized budget.  In FY  2020,                                                               
revenue projections were  $55 million but actual  revenue was $28                                                               
million  due  to COVID-19  and  a  union strike.  This  shortfall                                                               
caused a considerable  drop-in service and meant  boats were laid                                                               
up. The FY 2021 projected revenues  of $52 million was revised to                                                               
$25  million  due to  COVID-19  pandemic.  During the  time  AMHS                                                               
operated  its ships  at reduced  capacity to  provide for  social                                                               
distancing.  Overall,  AMHS  has  suffered $45  million  in  lost                                                               
revenue   during  the   two-year  pandemic,   which  has   caused                                                               
significant strain on the system's ability to operate.                                                                          
MR. CARPENTER  reported on  AMHS's proposed  FY 2022  budget. The                                                               
total FY  2022 budget is $103  million, with UGF of  $55 million.                                                               
The  projected revenues  of $47  million are  based on  increased                                                               
passenger capacity. The green slices  on the bar charts represent                                                               
CARES   Act  funding.   He  noted   that   the  Federal   Transit                                                               
Administration  (FTA) grants  helped AMHS  bridge staff  salaries                                                               
during the pandemic.                                                                                                            
2:21:04 PM                                                                                                                    
SENATOR SHOWER asked  if the chart showed  total COVID-19 funding                                                               
AMHS has received to date.                                                                                                      
MR.  CARPENTER answered  yes. He  stated that  AMHS received  $10                                                               
million in CARES funding to date.                                                                                               
SENATOR SHOWER asked if the  department has determined the amount                                                               
of supplemental  funding it  will need  for AMHS  operations this                                                               
MR. CARPENTER responded that DOTPF  requested $6 million to cover                                                               
the shortfall.  However, the  department is  currently evaluating                                                               
other options,  including CRRSAA funds [Coronavirus  Response and                                                               
Relief Supplemental  Appropriations Act of 2021],  FTA grants, or                                                               
general fund  monies. He said  the department will work  with the                                                               
finance committees to determine the best way forward.                                                                           
2:22:52 PM                                                                                                                    
CHAIR MYERS asked  if ridership dropped off to the  extent that a                                                               
cap was not really necessary.                                                                                                   
MR. CARPENTER responded that when  the pandemic began to ramp up,                                                               
communities initially  shut down  due to concerns  about COVID-19                                                               
spread and people stopped traveling.  AMHS's mitigation plan took                                                               
ridership down to  about 30 percent capacity for  each vessel but                                                               
DOTPF anticipates capacity will soon increase.                                                                                  
2:25:12 PM                                                                                                                    
MATT MCLAREN,  Business Enterprise & Development  Manager, Alaska                                                               
Marine Highway  System, Department  of Transportation  and Public                                                               
Facilities  (DOTPF), Ketchikan,  Alaska, reviewed  the historical                                                               
traffic and operating weeks from  1989 to 2020 for AMHS ridership                                                               
shown  on slide  8. He  reported  that vehicle  traffic has  been                                                               
consistent  in  the  last  30 years  but  passenger  traffic  has                                                               
steadily  declined,  in  part,  due to  the  convenience  of  air                                                               
travel. AMHS's  costs increased  in 2005 to  2007 because  all 11                                                               
ships were  running unless  the vessels  were in  overhaul. While                                                               
the  operating weeks  increased  by about  40 percent,  passenger                                                               
ridership only increased by 19 percent during that same time.                                                                   
MR. MCLAREN said in FY  2020, the [Inland Boatmen's Union] strike                                                               
lasted nine weeks.  AMHS laid up ships during  the pandemic since                                                               
travelers avoided  travel in  confined spaces.  AMHS's mitigation                                                               
plan also decreased operating weeks.                                                                                            
2:29:00 PM                                                                                                                    
SENATOR KIEHL  asked what impact  mechanical issues  and schedule                                                               
changes had on  ridership and service weeks. He  offered his view                                                               
that ridership has  continued on a downward  trend because people                                                               
found the ferries were not reliable.                                                                                            
MR. MCLAREN  reported on  cancellations, that  historically about                                                               
30 percent were due to mechanical  issues, 30 percent were due to                                                               
weather, and  the rest were  due to schedule changes.  He offered                                                               
to provide specific data for the last five years.                                                                               
2:30:36 PM                                                                                                                    
SENATOR SHOWER commented that from  2013 to 2018 AMHS's ridership                                                               
has decreased but its vehicle  traffic has remained steady except                                                               
during COVID-19.  He asked what  changes should be  made, perhaps                                                               
considering shifting  to smaller ferries. He  emphasized the need                                                               
for a ferry  system, but it must be an  efficient system and meet                                                               
the demand for services.                                                                                                        
2:31:52 PM                                                                                                                    
SENATOR  MICCICHE recalled  that AMHS's  passenger ridership  has                                                               
declined  since  1992. Even  when  AMHS  increased its  operating                                                               
weeks, there was not a  corresponding bump in ridership, he said.                                                               
He suggested that  the department may need to  evaluate how needs                                                               
have  changed and  revamp the  routes  based more  on 2021  needs                                                               
rather than historical ones.                                                                                                    
MR. MCLAREN  agreed. He observed  that the increase  in operating                                                               
weeks tended to spread the passenger traffic out.                                                                               
2:34:03 PM                                                                                                                    
MR. MCLAREN  said slide 9  provides more detail on  ridership and                                                               
operating weeks.  He agreed that  ridership has decreased  in the                                                               
last 10  years, that the  department is evaluating the  trends to                                                               
develop a plan forward.                                                                                                         
MR. MCLAREN  reviewed AMHS's Revenue from  FY 2013 to FY  2021 on                                                               
slide 10. AMHS gradually shifted  to formula-based tariffs over a                                                               
four-year  period  from FY  2015  to  FY 2019,  which  positively                                                               
impacted revenues.  He related that  FY 2019  was a big  year for                                                               
revenue. In fact,  AMHS had nearly the same amount  of revenue in                                                               
FY 2019 as in FY 2014 but the  system ran almost 50 weeks less of                                                               
service, he  said. FY  2020 to  FY 2021  reflects the  effects of                                                               
COVID-19, he  said. However, the  governor's FY 2022  budget will                                                               
allow the AMHS  to provide more service to  communities that have                                                               
been  struggling.  He  said  AMHS hopes  that  some  cruise  ship                                                               
travelers will  choose to use  the ferry system since  the cruise                                                               
industry has cancelled ships for this season.                                                                                   
2:38:43 PM                                                                                                                    
SENATOR KIEHL  said it would  be interesting to see  the Lituya's                                                               
impact on revenues for slides 9  to 11 since this vessel operates                                                               
on a  different business model.  The Lituya operates a  short run                                                               
on a predictable schedule five days a week, he said.                                                                            
MR. MCLAREN  responded that  the Lituya  provides service  for 50                                                               
weeks a year and generates about  $1 million in revenue per year.                                                               
He  offered   to  provide  more   detailed  information   to  the                                                               
2:40:26 PM                                                                                                                    
SENATOR MICCICHE acknowledged that  AMHS has suffered significant                                                               
budget  cuts in  recent  years.  He asked  if  AMHS has  surveyed                                                               
communities  to determine  what  services are  most important  to                                                               
them. He  suggested that there  may be more  economical solutions                                                               
to serve communities. He highlighted  that he was not necessarily                                                               
suggesting reductions  in services  but the overall  effect might                                                               
be  to  increase  some  services   and  decrease  other  ones  by                                                               
prioritizing coastal communities' needs.                                                                                        
MR. CARPENTER  responded that  DOTPF regularly  solicits comments                                                               
from  communities at  the Southeast  Conference or  during tariff                                                               
changes. Most  recently, the Marine Highway  Reshaping Work Group                                                               
reached  out  extensively  to  communities  and  received  public                                                               
input. AMHS's  goal is to provide  the best service it  can based                                                               
on its  fleet makeup  and funding. In  his earlier  statement, he                                                               
did  not  mean to  imply  AMHS  currently provides  the  services                                                               
communities want. The department's goal  to at least meet minimum                                                               
needs  is  dependent  on  the  agency's  resources,  assets,  and                                                               
efficiency.  DOTPF  is  evaluating  how to  best  improve  AMHS's                                                               
services  going  forward, perhaps  by  changing  routes or  using                                                               
private vendors to assist it, he said.                                                                                          
2:44:26 PM                                                                                                                    
SENATOR   MICCICHE   related    his   experience   that   coastal                                                               
constituents typically  want funding restored to  the level prior                                                               
to the  budget cuts.  The public generally  does not  accept that                                                               
the state must  prioritize its services, he said.  He agreed that                                                               
AMHS might  benefit from some  private vendors  complementing its                                                               
MR. CARPENTER  suggested that the way  AMHS historically operated                                                               
may  not be  the  best  option because  it  added  runs based  on                                                               
demand. More  recently, the legislature  has urged AMHS  to match                                                               
its revenues and expenditures. He  reiterated the current goal to                                                               
receive $50 million in funding and  offset it with $50 million in                                                               
revenue  while still  providing  a minimum  level  of service  to                                                               
2:47:04 PM                                                                                                                    
SENATOR SHOWER  urged the department  to make  recommendations to                                                               
the   legislature  for   action  rather   than  to   simply  hold                                                               
discussions on  challenges. He  predicted that  budget reductions                                                               
would  be ongoing  so the  ferry system  will need  to adapt.  He                                                               
related  an  example of  transportation  changes,  such that  the                                                               
state  does  not  subsidize   Alaska  Airlines.  However,  Alaska                                                               
Airlines survived by adapting its  model when aviation fuel costs                                                               
increased by cutting flights. Airline  flights are generally full                                                               
due to the economic necessity, he said.                                                                                         
2:48:50 PM                                                                                                                    
MR. MCLAREN  stated that slide  11 converts the revenue  shown on                                                               
the last slide to revenue  generated per week. He reiterated that                                                               
most of AMHS's revenue is  derived from transporting vehicles and                                                               
freight.  He reported  that the  tariff  increases increased  the                                                               
amount  of  revenue  per  operating  week.  Slide  12  lists  the                                                               
historical tariff rates from May 2015 through May 2019, he said.                                                                
MR. MCLAREN  reviewed dynamic pricing  on slide 13.  He explained                                                               
that dynamic pricing  means that as a ship fills,  AMHS charges a                                                               
higher tariff base  price for the remaining car  deck space. This                                                               
means high demand  routes generate more revenue  and lower demand                                                               
routes stay at  base rate. AMHS has seen a  nine percent increase                                                               
in revenues due  to tariff changes, which  would increase revenue                                                               
by $4.5 million in a normal year.                                                                                               
2:51:34 PM                                                                                                                    
SENATOR KIEHL suggested  that AMHS could market  discounts on the                                                               
nearly empty runs to fill the ships.                                                                                            
2:51:56 PM                                                                                                                    
MR.  CARPENTER turned  to AMHS  System-Wide Capacity  Utilization                                                               
2011  to  2019 on  slide  14.  He  pointed  out that  this  shows                                                               
approximately 60  percent of the  vessel capacity is taken  up by                                                               
vehicles. In recent years, passengers  represent about 25 percent                                                               
of vessel capacity, he said.                                                                                                    
MR.  CARPENTER  reviewed  the historical  revenue  and  operating                                                               
costs from  1991 to 2022  on slide  15. He directed  attention to                                                               
the  bar   graphs,  with  pink  representing   revenue  and  blue                                                               
representing  the   general  fund   components.  The   blue  line                                                               
indicates the  fare box recovery or  the ratio of the  UGF to the                                                               
generated  revenue. He  pointed out  that from  1991 to  2006 the                                                               
ratio was  50:50. Since  2008, AMHS  has needed  additional state                                                               
general funds to offset the  additional expenses of operating its                                                               
vessels.  Due to  increases  in oil  prices  and wage  increases,                                                               
revenue generated  from tariffs  remained the  same, he  said. In                                                               
fact, only 30  percent of AMHS's operating costs  were covered by                                                               
its  revenue. During  COVID-19,  the cost  recovery rate  dropped                                                               
even  lower   to  15  percent,   he  said.  He   highlighted  the                                                               
department's  goal  to increase  the  cost  recovery rate  to  50                                                               
percent in FY 2022.                                                                                                             
2:55:32 PM                                                                                                                    
SENATOR MICCICHE remarked that this  chart shows the necessity to                                                               
have spending discipline and an effective spending limit.                                                                       
2:56:12 PM                                                                                                                    
MR.  CARPENTER directed  attention  to statistics  for the  ferry                                                               
system on slide 16 that members could review.                                                                                   
2:57:20 PM                                                                                                                    
CHAIR  MYERS offered  his view  that  the state  currently has  a                                                               
decent system to move large-scale  cargo and people. He suggested                                                               
that perhaps the  ferry system's niche is to  move smaller cargo,                                                               
such as personal vehicles.                                                                                                      
MR. CARPENTER  agreed that sounded  accurate. He  emphasized that                                                               
Southeast Alaska and Southwest Alaska  coastal areas benefit from                                                               
AMHS. He  related that some  communities in Alaska only  have air                                                               
service, others  have the road system.  He characterized Alaska's                                                               
transportation system as a multi-modal, complicated system.                                                                     
2:59:31 PM                                                                                                                    
There  being  no  further  business to  come  before  the  Senate                                                               
Transportation  Standing  Committee,  Chair Myers  adjourned  the                                                               
meeting at 2:59 p.m.                                                                                                            

Document Name Date/Time Subjects
DOT AMHS Presentation 2.23.pdf STRA 2/23/2021 1:30:00 PM