Legislature(2005 - 2006)SENATE FINANCE 532
03/07/2006 01:30 PM House TRANSPORTATION
| Audio | Topic |
|---|---|
| Start | |
| Presentation by Dot&pf: 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
JOINT MEETING
HOUSE TRANSPORTATION STANDING COMMITTEE
SENATE TRANSPORTATION STANDING COMMITTEE
March 7, 2006
1:34 p.m.
MEMBERS PRESENT
HOUSE TRANSPORTATION
Representative Carl Gatto, Co-Chair
Representative Vic Kohring
Representative Mark Neuman
Representative Bill Thomas
Representative Woodie Salmon
SENATE TRANSPORTATION
Senator Charlie Huggins, Chair
Senator John Cowdery, Vice Chair
Senator Albert Kookesh
Senator Hollis French
MEMBERS ABSENT
HOUSE TRANSPORTATION
Representative Jim Elkins, Co-Chair
Representative Mary Kapsner
SENATE TRANSPORTATION
Senator Gene Therriault
COMMITTEE CALENDAR
PRESENTATION BY DOT&PF: ALASKA MARINE HIGHWAY SYSTEM
PREVIOUS COMMITTEE ACTION
No previous action to record
WITNESS REGISTER
MIKE BARTON, Commissioner
Department of Transportation & Public Facilities
Juneau, Alaska
POSITION STATEMENT: Introduced the presenters and answered
questions.
CAPTAIN JOHN FALVEY, General Manger
Alaska Marine Highway System (AMHS)
Department of Transportation & Public Facilities
Ketchikan, Alaska
POSITION STATEMENT: Presented a PowerPoint presentation
regarding AMHS.
RICHARD LEARY, Business Development Manager
Alaska Marine Highway System
Department of Transportation & Public Facilities
Ketchikan, Alaska
POSITION STATEMENT: Presented a PowerPoint presentation
regarding AMHS.
ROBIN TAYLOR, Deputy Director/Director of Marine Operations
Alaska Marine Highway System
Department of Transportation & Public Facilities
Juneau, Alaska
POSITION STATEMENT: Provided comments regarding AMHS.
ACTION NARRATIVE
CO-CHAIR CARL GATTO called the joint meeting of the House and
Senate Transportation Standing Committees to order at 1:34:49
PM. Representatives Gatto, Kohring, Neuman, Thomas, and Salmon
and Senators Huggins and French were present at the call to
order. Senators Cowdery and Kookesh arrived as the meeting was
in progress.
^PRESENTATION BY DOT&PF: ALASKA MARINE HIGHWAY SYSTEM
CO-CHAIR GATTO announced that the only order of business would
be the presentation by Department of Transportation & Public
Facilities (DOT&PF) regarding the Alaska Marine Highway System
(AMHS).
1:35:12 PM
MIKE BARTON, Commissioner, Department of Transportation & Public
Facilities, introduced the presenters.
1:37:14 PM
CAPTAIN JOHN FALVEY, General Manger, Alaska Marine Highway
System, Department of Transportation & Public Facilities,
related that he is responsible for the overall day-to-day
operation of the entire system. Therefore, he reports directly
to the deputy commissioner. Captain Falvey then turned
attention to the PowerPoint presentation entitled, "Alaska
Marine Highway, A System in Transition." He related AMHS's
mission statement, as follows: "To provide safe, reliable and
efficient transportation of people, goods and vehicles through
the Alaska Marine Highway System." He then highlighted that
AMHS moves large freight, which isn't done by Alaska Airlines or
float planes. He related that there are six mainliner vessels,
two short-run vessels, two fast vehicle ferries, and one shuttle
ferry. Captain Falvey noted that the bulk of the fleet operates
a 24/7 circuit and because of union contracts and labor
agreements, on average, it takes 2.4 crews to rotate with
vacations. The maritime industry, he emphasized, is extremely
regulated by the federal government. He then provided a slide
of AMHS's routes, a 3,500 mile system that serves 32
communities. He highlighted that AMHS is the largest such
system in the nation and one of the largest in the world.
1:40:30 PM
CAPTAIN FALVEY then turned to AMHS operations. He informed the
committee that of the marine vessel operations component the
vessel crew costs amount to about 59 percent of the total
expenditure. The remainder of the marine vessel operations
component consists of the following with the following
percentage: fuel costs - 21 percent, services and commodities -
15 percent, and contractual/risk management - 5 percent. Of the
marine engineering component, 60 percent is federal funding. He
mentioned that the Marine Vessels (M/V) Taku, Matanuska, and
Kennicott are required to have additional certifications and
requirements [Safety Of Life At Sea (SOLAS)] as well as the
crews that sail those vessels so that those vessels can enter
the foreign port of Prince Rupert. He mentioned AMHS's
reservations and marketing component. He reviewed the marine
shore operations and vessel operations management as specified
on slide 7. The largest portion of the vessel operations
management is the port captain's office and the port engineer's
office, which run the day-to-day operations of the vessels. A
large portion of the port captain's office is security, which is
becoming a huge and expensive challenge. He then explained that
the dispatch staff schedule the crews, which is a very
complicated process because it must take into account the
certificates, bid positions, union seniority, and various
qualifications of the staff. Therefore, AMHS is about to sign a
contract to utilize a computer system to perform dispatch. At
the moment, AMHS is having a difficult time keeping its ships
crewed, he related.
1:45:20 PM
CAPTAIN FALVEY moved on to slide 8 regarding the various
transportation plans. He noted that the following three
transportation plans have been in place over the last few years:
the Southeast Alaska Transportation Plan, the Prince William
Sound Transportation Plan, and the Southwest Alaska
Transportation Plan. He explained that the aforementioned
transportation plans provide community-to-community transit
service, basic service for tourists and the military,
transportation options that enhance freight service, support in
the movement of fresh fish product to market at critical times
of the year, and the ability to avoid Canadian customs which
present a barrier to citizens traveling with firearms or a
driving under the influence (DUI) charge.
CAPTAIN FALVEY addressed the Southeast Alaska Transportation
Plan as related on slides 9-10. He specified that this plan
needs to shift from a surface transportation network based on
long-distance circuit ferries operating 24/7 to a system of
roads, shuttle ferries, and feeder vehicle ferries. Having the
feeder vehicle ferries would reduce the mainline ferries with
the large crews and thus will reduce the general fund need
because the feeder vehicle ferries are cheaper to operate and
provide more reliable service. He then reviewed the Prince
William Sound Transportation Plan as specified on slide 11,
which AMHS believes needs day boats, year-round service, direct
routes, and regular and repeatable schedules. He opined that
Whittier to Valdez is probably the heaviest volume route and it
can probably reach a ridership of 12,000 annually. He moved on
to the Southwest Alaska Transportation Plan as addressed on
slide 12. Since the M/V Tustumena no longer provides service to
the Prince William Sound it has increased service to Kodiak,
Homer, Seldovia, and the Aleutian Chain. In fact, [the M/V
Tustumena) is moving toward biweekly service to the Aleutian
Chain. Captain Falvey opined that the aforementioned will help
the isolated communities prosper due to the more frequent ferry
service.
1:50:35 PM
CAPTAIN FALVEY opined that AMHS is in transition with its large
crews and aging fleet that's expensive to operate and maintain.
He reiterated the need for AMHS to be proactive with shuttle and
feeder ferries and possible roads to provide better service and
save money. He informed the committees that AMHS is in the
process of putting out a request for proposals (RFP) to begin
the design phase of a Haines-Skagway shuttle, which would dove-
tail with Juneau access out of Katzehin. He opined that AMHS
would eventually like to turn vessels around in Juneau and
utilize shuttle boats to Haines and Skagway, at least until the
road is built. This is an expensive phase.
1:52:01 PM
RICHARD LEARY, Business Development Manager, Alaska Marine
Highway System, Department of Transportation & Public
Facilities, began by reviewing the performance measures as
specified on slide 14, which are to provide safe, reliable,
convenient, and efficient service. The AMHS used the following
metrics to rate its performance. The intention was to meet or
exceed 95 percent customer satisfaction, which was exceeded in
fiscal year (FY) 2005 with a customer satisfaction rate of 96.4
percent. With regard to on-time rate of departures, AMHS is 90
percent on time in FY 06 to date and is scheduled to increase
the number of port calls by 37 percent. On the revenue side, a
metric of increasing on-board sales per passenger by 5 percent
has been accomplished with the initiatives implemented in
November. Mr. Leary highlighted the areas in which AMHS has
increased its service as specified on slide 15, including the
increases in bimonthly winter crossings of the Gulf and daily
service in the winter in Prince William Sound. Furthermore,
AMHS has completed the testing in the Southwest for the fast
vehicle ferries. Service has been provided to Bartlett Cove,
service has been provided all winter from Bellingham, and the
M/V Lituya met seasonal demands. In order to increase revenues
and provide less reliance on the general fund, a wide range
marketing initiative was instituted such that much advertising
in various formats was done as well as the implementation of a
30 percent winter discount and driver goes free offer. Through
the end of February the aforementioned has increased passenger
ridership by 20 percent and vehicle traffic by 25 percent, which
amounts to an 18 percent increase in gross revenues during this
time period. Mr. Leary opined that the aforementioned is very
significant since both ridership and revenue were diminishing in
the previous years. Slide 17 highlights a couple of the
marketing displays that have been utilized.
1:56:56 PM
MR. LEARY then directed attention to slide 18, which relates the
community destinations in 2003. As the graph illustrates, a
significant portion of travelers end up in Anchorage and
Fairbanks, which is largely attributable to the military and the
tourists. During the summer months, about 80 percent of AMHS
passengers reside outside of the state while in the winter about
80 percent of the passengers are Alaskans. He then highlighted
the upcoming marketing specials, including two Glacier Bay
National Park and Preserve sailings, Pelican sailings, a Misty
Fjord sailing, and discounts for the Cordova connections. He
explained that the early bird/snow bird specials attempt to
entice travelers to travel earlier during the shoulder seasons.
To meet the obligations of the Metlakatla vessel, the plan is to
offer that the driver goes free. Mr. Leary related that AMHS,
with its new marketing manager continually hopes to offer
appropriate discounts to increase ridership. He noted that AMHS
has just begun to utilize its boats to host meetings.
1:59:29 PM
CAPTAIN FALVEY continued the presentation and turned to the
topic of fast vehicle ferries. He informed the committee that
he initially came to Alaska due to his background with fast
passenger ferries in the Northeast and a fast vehicle ferry with
an international run. He informed the committees that he
initially came to Alaska as a fast vehicle ferry port captain
and he wrote all the training plans that were approved by the
U.S. Coast Guard and helped with delivery of the fast ferry and
training of the crew. He clarified that currently, the fast
vehicle ferries won't be operated in the winter. These fast
ferries are expensive to operate. In fact, the M/V Fairweather
costs about $227,000 a week to operate. To date, the M/V
Chenega has cost about $278,000 a week to operate, some of which
can be attributed to the dual training in Prince William Sound
and routes between Ketchikan, Wrangell, and Petersburg. He
acknowledged that there is concern with regard to operating the
fast ferries in the dark with high concentrations of logs and
debris. Furthermore, the boats are certified to run in a 13-
foot seaway in which [AMHS's] certificate requires [the vessel]
to seek shelter. The boats are certified to run about half
speed in a 10-foot sea. However, what has been determined is
that when there is 40 knots of wind and an 8-foot sea, the fast
ferries don't run because it's very uncomfortable for the
passengers. Still, Captain Falvey opined that AMHS believes
that the fast ferries will be successful in Lynn Canal, Sitka,
and Prince William Sound in the summer. He highlighted that
AMHS found that more people preferred the Wrangell to Petersburg
route as opposed to the Ketchikan to Juneau route. Furthermore,
there is a much higher concentration of logs and debris along
that route than in North Lynn Canal. Already, there have been
shaft seal failures, which are directly related to log hits.
With regard to speed, the average speed of the fast ferries
traveling between Ketchikan, Wrangell, and Petersburg was 19.5
knots, which was due to Tongass Narrows and Wrangell Narrows as
well as the higher concentration of personal property than on
the North Lynn Canal all of which caused the vessels to slow
down more often.
2:04:38 PM
MR. LEARY continued with slide 22, which reviews the AMHS
operating budget beginning with FY 05 actual when the M/V
Fairweather and Lituya operated for the full year. From FY 05
to FY 07, the M/V Chenega was added. The FY 06 budget of $103.5
million didn't include any operational funding for the M/V
Aurora or Taku and no cross Gulf funding for the M/V Kennicott
during the winter months. The expectation was that the M/V
Chenega would have been in operation by July 1st. Mr. Leary
informed the committees that the labor and the fuel component
composed about 80 percent of the spending metric. Since FY 05,
AMHS entered into a collective bargaining agreement for FY 05
through FY 07, which includes contractual raises for the crew of
7 percent in the first year and 6 percent in the following two
years. Furthermore, fuel prices have escalated tremendously.
He explained that the governor's FY 07 amended budget for AMHS
in the amount of $135 million was reduced to $133 million
because of the decision not to run the fast vehicle ferries
during the winter months.
MR. LEARY then provided the committees with a feel for the
volatility of AMHS's business between the summer and winter
months through how well the vessels self-finance. He drew the
committees' attention to slide 23, which relates the actual
operation results of FY 06 thru September 30. The
aforementioned highlights areas in which AMHS can take a more
business-like approach and areas where AMHS is a service rather
than a business. For instance, Metlakatla operations can
provide a better return by having the vessel be responsive to
the village's seasonal demands and traffic as well as the
ability to turn the vessel on and off. With regard to the M/V
Fairweather's 60 percent return in the summer for the Lynn Canal
runs isn't ideal, but the decrease in the winter [is of
concern]. He then turned to slide 24, which lays out the
supplemental budget proposals embodied in HB 369/SB 232 and HB
422/SB 263. A large component of AMHS's budget is fuel as
related on slide 25. The graph following slide 25 illustrates
the unprecedented volatility with regard to the fuel costs.
MR. LEARY addressed the supplemental appropriation in the amount
of $6.7 million. The budget for the year presumed that the M/V
Chenega would be placed in service at the beginning of the
fiscal year. However, that was not the case and over $2 million
was spent to get the M/V Chenega ready and train for the
Southeast shuttle route.
2:11:09 PM
CAPTAIN FALVEY continued with the challenges that AMHS faces as
specified on slide 28, which includes the price increase in
fuel, security measures, and an aging fleet and workforce. He
explained that at increased levels of security, a tremendous of
amount of labor has to be injected in order to meet the plans in
place. Therefore, if the security level is a MARSEC Level 3,
AHMS would be shut down.
2:12:18 PM
CO-CHAIR GATTO inquired as to what happens to labor costs if
AMHS shuts down during a security level three. He further
inquired as to whether AMHS would, under union contracts, be
obligated to pay as if each boat was manned with 2.4 crews and
was running.
CAPTAIN FALVEY replied yes, adding that there is a large amount
of vacation that would have to be paid. Therefore, the price
would be hefty even if AMHS wasn't obligated to pay for the
crews. In further response to Co-Chair Gatto, Captain Falvey
specified that AMHS has an unfunded liability in the amount of
about $7.2 million.
2:14:07 PM
CAPTAIN FALVEY reviewed AMHS's successes as specified on slides
29-30, including the following: 20 percent more Alaskans are
using the ferries; greater service to Prince William Sound and
Kodiak; funding to design and build a shuttle for Juneau access;
marketing contract and staff person; realizing that Alaskan
clientele are price sensitive; completing the move to Ketchikan;
[hiring a] new business manager; forming the Marine
Transportation Advisory Board (MTAB); and utilizing the M/V
Lituya as a feeder concept. Captain Falvey also highlighted the
fact that AMHS has been named an "All American Road", which is a
tremendous marketing tool and offers the possibility of grant
money for marketing. Captain Falvey concluded by turning to
slide 31 regarding the future of AMHS in 2010, which he opined
should include the following: a Haines-Skagway shuttle, feeder
vehicle ferries, day boat service, mainline fleet reductions
from five vessels to three by 2018, and completion of corridor
studies.
2:17:28 PM
SENATOR KOOKESH inquired as to how much attention is paid to
MTAB. He further inquired as to MTAB's recommendation with
regard to moving the fast ferry out of Lynn Canal and Cordova.
CAPTAIN FALVEY said that [AMHS staff] do meet on a regular basis
with MTAB and work with it as well. He offered to provide an
answer to the latter question at a later time.
2:18:05 PM
SENATOR COWDERY inquired as to the amount of state subsidy
received by AMHS each year.
MR. LEARY answered that the general fund has ranged from about
$35 million in 2000 to the latest amended budget in the amount
of about $82.5 million. However, he opined that AMHS is on a
course to increase ridership, which brings in revenue.
2:18:55 PM
SENATOR FRENCH recalled a family trip from Whittier to Valdez
last summer that cost $400. Of that $400, how much more did it
cost AMHS for that trip or was the $400 the [true] cost of the
trip, he asked.
MR. LEARY turned attention to the information presented
regarding the actual operation costs of the M/V Aurora as
presented in slide 23.
SENATOR FRENCH surmised then that his $400 fare paid about two-
thirds of the total cost of the trip. However, in the winter
that would drop dramatically, he opined.
CAPTAIN FALVEY agreed. He then specified that currently the M/V
Aurora is averaging about 250 passengers a week. That vessel
continues to run a nonstop triangle route with a crew of 24.
SENATOR FRENCH further surmised then that costs of the same trip
in the winter would be close to $3,500.
CAPTAIN FALVEY noted his agreement.
2:21:22 PM
CAPTAIN FALVEY, in response to Chair Huggins, related that there
are tracking requirements for security. He explained that a
separate Global Positioning System (GPS) unit runs every day all
day and is tracked through the U.S. Coast Guard. He noted that
the 511 tracking system, which is more of a marketing tool, has
been discontinued while work continues in order to have computer
screens such as those at airports in the port and at home. In
further response to Chair Huggins, Captain Falvey clarified that
all vessels are equipped with the aforementioned [GPS unit].
2:23:46 PM
REPRESENTATIVE THOMAS inquired as to the source of the funds to
build the shuttles for Lynn Canal.
CAPTAIN FALVEY answered that the shuttle for an RFP is about to
be let and will be funded by Shakwak funds, which are federal
funds.
REPRESENTATIVE THOMAS pointed out that about $180 million or so
of Shakwak funds are also to be utilized for the Juneau access
road. Therefore, he inquired as to whether there will be enough
funds in the budget to accomplish everything.
CAPTAIN FALVEY opined that AMHS would have enough funds to build
the first one, but may have to look closer for [other projects].
REPRESENTATIVE THOMAS surmised then that if the Shakwak project
takes all the funds [from AMHS], then there would be nothing
left to replace the aging fleet. He related his assumption that
if the aforementioned is the case, then AMHS will have to seek
funds from the legislature to replace the vessels.
CAPTAIN FALVEY said he assumed that would be the case in such a
situation.
2:25:17 PM
CO-CHAIR GATTO related his astonishment that almost 80 percent
of the cost of the AMHS operations is attributed to cost of the
crew and the fuel. Co-Chair Gatto inquired as to what happens
with the 1.4 crews that aren't necessary during the 2.4 crew
manning.
CAPTAIN FALVEY provided an example in which a crew works for a
week and is off a week. Because they are state employees, they
receive vacation beyond that, which accounts for the 0.4. He
clarified that only one crew runs a vessel at any given time
with one crew home on vacation and .4 of a crew available to
provide relief for state-sanctioned vacations or sick leave. He
specified, "It takes 2.4 to physically run a 24/7 boat."
CO-CHAIR GATTO inquired as to AMHS's cash return.
MR. LEARY noted that AMHS's last fiscal year of results is FY 05
when AMHS [costs were funded by] 53 percent in general funds, 46
percent in self-collected revenues, and the remainder from
federal funds. In further response to Co-Chair Gatto, Mr. Leary
specified that for every $1 to run the system, $.37 is revenue
from the passengers under the FY 07 governor's amended budget.
CO-CHAIR GATTO recalled the 7 and 6 percent raises for the crew,
which he characterized as a substantial increase in pay. He
assumed that such raises were necessary to get the ferries out
of the dock.
2:30:26 PM
CAPTAIN FALVEY reminded the committees that the raises would be
over a three-year period. He explained that state workers on
shore normally receive a raise every year whereas the union
contracts didn't receive a raise for a few years. With regard
to other systems in the nation, one needs to consider that they
utilize large vessels in an operation in which [all passengers]
get on and off, very unlike Alaska's multiple port 3,500-mile
system with its additional [revenue robbing] complications.
2:31:29 PM
CO-CHAIR GATTO asked if the Dutch Harbor portion of the AMHS
receives a better or worse return than the system's overall
return.
MR. LEARY said that the cross Gulf return is about $.31 on the
dollar, and thus is lower than AMHS's overall return.
2:32:16 PM
CO-CHAIR GATTO asked if there is any thought to composing AMHS
of nothing but shuttles.
CAPTAIN FALVEY answered that shuttles are what AMHS is
reviewing. However, the problem is that there are some places
where bridges and connecting roads just can't be built.
Furthermore, coming from Bellingham through the system will
require the use of some mainliners, for which the extra
amenities are costly. In further response to Co-Chair Gatto,
Captain Falvey pointed out that the Staten Island ferry system
in New York runs very short distances and everyone gets on and
off. However, AMHS is a long system with 32 ports. Until there
are roads to connect the shuttle ferries, "we're kind of stuck
right now." He reiterated the need to reduce the number of
mainline vessels operating.
CO-CHAIR GATTO asked if any thought has been given to the notion
of AMHS competing with the cruise ships.
CAPTAIN FALVEY answered that it's difficult to compete with the
cruise ships because cruise ships operate with extremely high
volumes and have low payrolls. He noted that AMHS does market
and there is a certain clientele that wants to travel via the
AMHS.
2:36:25 PM
SENATOR COWDERY recalled there being discussion of some cherry
picking of routes that are high traffic and high revenue. If
the aforementioned occurred, how would it impact the rest of
AMHS, he asked.
CAPTAIN FALVEY opined that such wouldn't help the system since
it would be the high revenue routes. He highlighted that 40
percent of AMHS's ridership travels out of Bellingham. He
expressed the need to have a tighter connection with the M/V
Kennicott coming across the Gulf in order to address the needs
of the military ridership.
SENATOR COWDERY pointed out that the Alaska State Constitution
guarantees service to smaller communities and thus those routes
can't be dropped as could be the case in the private sector.
CAPTAIN FALVEY agreed and commented that the high volume runs
make up a bit of the loss from the low volume runs.
2:39:02 PM
COMMISSIONER BARTON, in response to Co-Chair Gatto, specified
that AMHS exists under the authority of the legislature in
statute. He said that the statute goes beyond merely stating
that the AMHS shall exist.
2:39:39 PM
REPRESENTATIVE SALMON asked if the original intent of AMHS was
to be subsidized or to make a profit.
CAPTAIN FALVEY opined that the original intent was to provide
service to the citizens of the state and the subsidization of
AMHS followed. In further response to Representative Salmon,
Captain Falvey stated that AMHS's purpose is to provide service
with the least amount of general funds as possible.
CO-CHAIR GATTO asked if there are airports served by a major
airline at most AMHS ports.
CAPTAIN FALVEY answered that most areas with an AMHS port
probably have some general aviation near. He offered to
research that.
2:41:10 PM
CO-CHAIR GATTO commented, "So long as we're subsidizing an
opportunity for people in remote areas to move about the state,
we might be almost as well off as if we simply subsidized their
air travel and allowed them to move anywhere in the state
similarly to the way everyone else moves. And then ran a barge
or some other traffic to move equipment, vehicles, groceries, et
cetera." He inquired as to Captain Falvey's thoughts.
CAPTAIN FALVEY said that's a concept, but pointed out that the
freight and vehicles remain problematic because it may arrive a
few days later than the person.
CO-CHAIR GATTO suggested that much of the heavy freight could be
pre-planned. The movement of the people is what occurs on much
short notice, he said. Co-Chair Gatto said that although there
is agreement that the state can't continue to buy large vessels,
such vessels have, in fact, been purchased as the fast ferries
reveal. He related his understanding that the goal with the
fast ferries was to move between ports faster in order to carry
more people and thus increase the revenue. However, the fuel
costs don't decrease. Moreover, the maintenance hours on a fast
ferry probably cost more than on a traditional ferry.
CAPTAIN FALVEY explained that a crew of 10 operate the fast
ferries and a crew of 6 maintain them at night. He pointed out
that fuel is a higher percentage of the overall operating costs
of the fast ferry. Furthermore, the current high fuel costs
hurt the fast ferries.
CO-CHAIR GATTO said that he was surprised to have a supplemental
budget request for fuel because fuel prices were evident last
year. Therefore, he questioned whether the ferries used
additional fuel.
MR. LEARY clarified that the FY 06 budget included a last-minute
increase in dollars that brought the estimated purchase price of
fuel from $1.17 to $1.43. However, the price of purchased fuel
has ranged from $1.63 to $2.63. He projected that the end-of-
the-year average purchase price will be in the rage of $2.20-
$2.25. Fuel prices are very volatile and the fuel price
projections were way off the mark. Furthermore, there were
other factors contributing to the need for the supplemental,
such as the M/V Chenega not being ready when projected, the
additional fuel required for the training runs of the vessel,
and the cross Gulf winter coverage.
CO-CHAIR GATTO asked if AMHS's budget includes funds to account
for unforeseen events such as vessels running aground.
MR. LEARY replied yes, but related that AMHS's zero-based budget
has a historical look-back. Furthermore, the older the vessels,
the more likely things are going to go wrong.
2:46:26 PM
CO-CHAIR GATTO asked if there has been any thought of AMHS
operating in the river system as proposed by legislation
introduced this year.
CAPTAIN FALVEY said that AMHS is watching that legislation as it
proceeds. In further response to Co-Chair Gatto, Captain Falvey
said he didn't believe there is any historical precedent for
such. With regard to the fast ferry training, he informed the
committees that training was done in two zones with all those
runs being non revenue runs. Now that crews have been trained,
AMHS has it's own in-house type rating instructors and thus it
allows the M/V Chenega to be in revenue service while some
officers train, and thus the [operations] won't be as costly
going forward.
CAPTAIN FALVEY, in further response to Co-Chair Gatto, opined
that the training requirements when the fast ferries were
ordered weren't fully understood. The high-speed code, he
related, has very stringent requirements. In fact, he related
his understanding that Alaska is the only operator in the U.S.
running under the code, although it's utilized in other
countries. He said that many of the operators in other
countries using the fast ferries are running with large
subsidies.
2:49:57 PM
REPRESENTATIVE THOMAS recalled life before AMHS when fresh fruit
was delivered only once a month. He opined that what has
happened is that Alaskans have become spoiled and demanded more
service and access. With regard to the costs of the fast
ferries, Representative Thomas pointed out that in 1994 when the
fast ferries were purchased, the cost of fuel was $.60-$.80 per
gallon.
CAPTAIN FALVEY commented that it was probably never imagined
that fuel would cost what it does and be such a component of
cost.
REPRESENTATIVE THOMAS commented that the fast ferries won't be
able to run in inclement weather.
CAPTAIN FALVEY said that the RFP and design study will review
that. He then opined that the M/V Lituya is built to take a
very rough sea, which may need to be reviewed.
2:53:10 PM
REPRESENTATIVE THOMAS related that the AMHS crew, with which he
has spoken, trained for the fast ferries who have been laid off
say they won't look for another job because they use their
seniority to bump other crew of the mainline ferries, which is
where the stability [of employment] lays. Representative Thomas
then expressed the need for at least one ferry to run out of
Juneau to maintain access. With regard to the lost ridership in
Southeast, he highlighted that when the Tongass National Forest
was closed 5,000 to 15,000 riders were lost, which was a major
part of the market.
2:54:35 PM
ROBIN TAYLOR, Deputy Director/Director of Marine Operations,
Alaska Marine Highway System, Department of Transportation &
Public Facilities, began by relating how proud he is with regard
to the AMHS staff. He highlighted that AMHS is working with
much less staff today than 10 years ago and the transfer of
staff from Juneau to Ketchikan was significant. He noted that
this is the first time the legislature has received actual
allocated costs per vessel. Upon utilizing the budgeting system
of the legislature to determine the budget for AMHS, he came up
with a budget of $74 million. Since AMHS had been budgeted $104
million, he informed the Office of Management & Budget that AMHS
was $30 million in the plus. However, Mr. Taylor said that he
didn't believe the numbers. Upon further review of the budget,
he determined that it was off by $46 million because $10-$12
million in leave was carried, which is essentially an increase
in wages by $7-$8 million. Additionally, risk management cost
over $5 million. Furthermore, the estimated cost of fuel in
last year's budget was $1.14 per gallon while citizens were
paying over $2.00 per gallon at the pump. In fact, every
increase in fuel by $.10 per gallon resulted in $1.35 million in
nonbudgeted costs. Moreover, last year's budget didn't have any
funds allocated to run the M/V Taku or M/V Aurora. He
highlighted that the M/V Aurora has been operating 24/7 in
Prince William Sound and has provided twice the level of service
Cordova has ever received. Had last year's budget been
followed, there would have been no service in Prince William
Sound. Furthermore, there would've been no cross Gulf service
under last year's budget. Although some may consider the
aforementioned extra service, Mr. Taylor opined that it's
essential service. Under the budget passed by the legislature,
AMHS would've had to sell the M/V Taku and M/V Aurora. However,
Mr. Taylor said that he didn't believe that was what was desired
and thus cross Gulf service continued and was heavily marketed
to generate revenue. Mr. Taylor reiterated his pride in AMHS
and Alaskans who ride the ferries.
MR. TAYLOR informed the committees that ridership has increased
over 45 percent, this from a system that has lost ridership
every year over the past 11 years. He attributed the loss in
ridership to the economy as well as the 17 percent increase in
prices two years ago. Therefore, AMHS offered the 30 percent
discount for Alaskans who have responded and returned to ride
the ferries. In fact, as of the last week in February all four
sailings on the M/V Columbia out of Bellingham in March were
sold out. Such ridership hasn't been seen in the winter before.
Mr. Taylor then turned to the service provided by the M/V Aurora
in Prince William Sound, which some would criticize. Even at
the reduced price, the M/V Aurora is only carrying 250 people
per week and costs over $250,000 a week to operate. Although
that's the case, he opined that AMHS service can't stop in the
winter and only provide service to tourists, which was the tack
of the prior administrations. Mr. Taylor emphasized that AMHS
has worked hard to turn the situation around and ridership is
increasing. Furthermore, communities are excited about the
level of service and want more, which he opined can be provided
with shuttles and roads. If no roads are built, Mr. Taylor
agreed with Representative Thomas that the system would return
to the old days. The only thing to augment that level would be
to lay over the M/V Malaspina or the M/V Matanuska, primarily in
the summer, and utilize the fast ferries and some extra shuttle
trips on the more lucrative routes. He said that the high-speed
ferries shouldn't be placed on the village runs because there
aren't enough passengers. With regard to why the fast ferry
wasn't utilized on the Sitka route, he explained that there is
no ridership on that route. Therefore, the fast ferry, the most
expensive vessel to operate, was utilized for the Lynn Canal
route because it's the most lucrative run of AMHS. He expressed
the need to use a shuttle vessel [in Lynn Canal] that will
handle significant water and volumes of traffic during the
summer. When the previous administration implemented the high-
speed vessel in Lynn Canal, it ran directly to Skagway and back
to Auke Bay and then to Haines and back. The aforementioned
eliminated the traditional Golden Triangle run between Haines
and Skagway; that one change, cost businesses in Haines. Those
are the decisions that have major impacts on communities, he
stressed. Mr. Taylor informed the committees that AMHS
implemented all of the recommendations from MTAB that it could
this last year, including major changes to reservations, the
schedule book, advertising, reductions in fares, and
improvements in service and frequency levels. However, he
acknowledged that AMHS didn't follow the MTAB resolution
regarding the location of the vessels.
3:07:07 PM
CO-CHAIR GATTO inquired as to the plan in place today that would
redesign AMHS by 2016 because AMHS seems to be a fairly
inefficient company that's almost in Chapter 11 status.
MR. TAYLOR said that the situation is intolerable, which is why
dramatic changes have been made and are being recommended. He
pointed out the subsidization that occurs for ferry systems in
the State of Washington and British Columbia. Alaska's system
is running 3,500 miles of line. Furthermore, although the small
communities with low populations don't generate revenue, those
areas still need essential service. The aforementioned becomes
a difficult issue because often such runs are established out of
tradition and past experience. The AMHS is then left to meet
those needs as best it can. Therefore, over the next couple of
years there will be some tough decisions. He opined that AMHS
should be at its most expensive point. In the past there have
been discussions of the ever-increasing general fund cost, but
no one ever discussed how to improve revenue, which is what's
being done today. Still, the cost of labor, at 60 percent [of
the total operation], is significant, especially with the
upcoming 22 percent increase. It's also significant when the
legislature budgets fuel at $1.14 per gallon when it's actually
$2.65 per gallon. Mr. Taylor said that "we've" been in denial
with regard to the management of AMHS.
MR. TAYLOR then addressed where AMHS should be in 2016, and said
that AMHS should be connected and running road-to-road. He
specified that the following should be in place: Hoonah should
have its own ferry based in Hoonah; at least two shuttle ferries
in Lynn Canal should operate year-round; the shuttle ferries
should be the same size in order to accommodate docks and
maintenance. He stressed that building roads is critical. For
instance, if 1.2 miles of road on Douglas Island was built and a
shuttle ferry was put in place as well as a [indisc.] in order
to allow passengers to disembark from Douglas and go to
Admiralty Island, Hoonah could have three to four roundtrips a
day every day. Mr. Taylor opined that AMHS has a good plan,
but the strong support of the legislature is necessary to ensure
that some very small road segments are built, including 1.2
miles of road on Douglas Island, a temporary terminal located in
Lynn Canal, 1.2 miles of road at the end of Wrangell Island, and
shuttles. The aforementioned action, he further opined, will
result in [the system itself generating] 60-70 percent of the
revenue and only a 20-30 percent legislative subsidy. Such a
situation is occurring in Washington State and British Columbia,
which provide good models with only one to two ferries visiting
more than one point.
3:18:05 PM
CO-CHAIR GATTO surmised then that AMHS's plan to improve AMHS is
to improve the roads, which needs to come before the legislature
in terms of how much it will cost to construct and maintain the
roads versus the reduction in the operating costs of AMHS. Co-
Chair Gatto said that the AMHS "isn't going to go away," but it
can't continue for long without support from the public.
MR. TAYLOR related that he loves AMHS, but pointed out that AMHS
is still operating off the same wooden ramp that was built in
1963 to accommodate the ferry, which provides an idea as to the
situation in which the system sits. Although the system has
grown a bit, there has been no transition or change and the cost
of operations have [increased]. Until the aforementioned roads
are constructed and new shuttle ferries are purchased to replace
the old ferries, it's going to be expensive. He indicated the
need for the legislature to demand that the roads and shuttles
be built. However, he pointed out that constructing a new road
doesn't end the problem because any new road will require a new
vessel and terminal. The result will be that more vessels will
be operated in the future, although these new vessels may not be
as expensive as they are today and they may operate more
efficiently.
3:22:51 PM
ADJOURNMENT
There being no further business before the committees, the joint
meeting of the House and Senate Transportation Standing
Committees was adjourned at 3:22 p.m.
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