Legislature(2021 - 2022)BELTZ 105 (TSBldg)
02/23/2021 01:30 PM Senate TRANSPORTATION
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| Audio | Topic |
|---|---|
| Start | |
| Overview: Alaska Marine Highway System | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
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
(AMHS).
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
engines.
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
schedule.
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
staffing.
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
year.
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
committee.
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
services.
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
communities.
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 |