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After the local press hullabaloo over the introduction of nine Hawaii ferry-related bills in the 2016 session, only one remains tenuously under consideration by the State Legislature.

Local media covered with great fuss the introduction of nine ferry-related bills in the Hawaii State Legislature’s 2016 regular session, which opened on January 20, 2016. Forty-seven days later only one bill remained tenuously under consideration.

Much of the widespread interest and high emotion over an interisland ferry service in Hawaii arises from the saga of the Hawaii Superferry whose interisland service ended in bankruptcy in 2009 amidst a flurry of allegations from environmental activists and robust support from many small business owners and the traveling public.

The single remaining bill – Senate Bill 2618 Senate Draft 1 (SB 2618 SD 1) – would direct and fund the Hawaii State Department of Transportation (HSDOT) to conduct a Hawaii interisland ferry service feasibility study and submit their report to Legislature for the 2017 session. The measure survived the key legislative cutoff date – known as “first lateral” – on February 19, 2016, and two Senate committee hearings.

However, at its second and final Senate hearing the committee reported out the amended version SB 2618 SD 1 changing the effective date to 2050, as the committee report stated, “to facilitate further discussion on the measure,” and in reality perhaps giving it the proverbial “kiss of death.”

Review of Nine Ferry Bills

All nine of the ferry-related bills were in reference to the startup of some form of a Hawaii interisland or intra-island commuter ferry service. Eight were introduced in the 2016 regular session and one was carried over from the 2015 session of the Hawaii State Legislature.

The nine bills had various origins and fates. Four were introduced in the House, one in the Senate and four (as two pair of companion bills) in the House and Senate. (Companion bills are a pair of separate bills containing identical wording one introduced in each chamber.)

The outcome at the first lateral cutoff was: six bills were not heard in committee; one was deferred (not reported out of committee after being heard); another, although reported out of its first committee of referral and amended, it did not meet the first lateral cutoff to be heard at the next committee of referral in the same chamber; and, only one bill – SB 2618 SD 1 – remains under consideration.

The intent of the nine bills was varied. Three called for Hawaii State Department of Land and Natural Resources (DLNR) to conduct an Environmental Impact Statement (EIS) for a prospective ferry service; three called for HSDOT to implement an intra-island commuter ferry along the south coast of Oahu Island; two called for HSDOT to conduct an interisland ferry system feasibility study; and, one called for a public Port Authority to operate the State’s small boat harbor and small airports, which included a reference to ferry services.

Hearing Results for the Ferry-Related Bills; Hawaii Shippers’ Council Testimony

The Hawaii Shippers’ Council (HSC) submitted testimony in respect of the three ferry-related bills that were actually heard in committee during the 2016 session of the State Legislature.

HB 2756.  HSC submitted testimony in opposition to House Bill 2756 (HB 2756), “Relating to a port Authority” (no Senate companion) as the proposed new arrangement would likely make management of the State assets involved more difficult than under the current structure.

The original bill proposed to establish a Hawaii port authority as an independent public entity to operate the State’s small boat harbors (currently under DLNR) and small airports (currently under HSDOT). The bill asserted the Authority would facilitate introduction of ferry services.

HB 2756 was heard by the House Committee on Transportation on February 10, 2016. An amended bill (HB 2756 HD 1) was reported out of committee stripping the small boat harbors from the proposed Authority, but it was not taken up by the next committee of referral and therefore did not meet the first lateral cutoff and is no longer under consideration.

SB 3022.  HSC submitted testimony in opposition to Senate Bill 3022 (SB 3022) “Relating to Ferries” (no House companion) stating the proposed arrangements for a prospective ferry service were premature and could not be reasonably made without knowing the particulars of a service.

SB 3022 proposed to offer inducements including a State corporate income tax credit and waiver of certain harbor user fees for a qualified interisland ferry operator, and would have directed and funded DLNR to conduct an interisland and intra-island ferry EIS. At its first hearing on February 9, 2016, before Senate Committee on Transportation and Energy, Chair Lorraine Inouye said the bill would be deferred (not reported out of committee). Chair Inouye also said the Senate would focus on Senate Bill 2618 as the legislative vehicle for the consideration of the interisland ferry issue during the current session.

SB 2618.  HSC submitted testimony recommending extensive amendments to Senate Bill 2618 (SB 2618), “Relating to transportation” (House Companion HB 2225 is not under consideration).

The original and amended bill propose to direct and fund HSDOT to conduct an interisland ferry system feasibility study, names six specific terms of reference for the proposed study, does not include a funding amount (purposefully left blank), and requires the HSDOT to submit their report to the Legislature for the regular session of 2017.

The Senate Committee on Transportation and Energy heard the bill on February 4, 2016 and reported it out without amendment.  The Senate Committee on Ways and Means heard the bill on February 25, 2016 and reported out with a single amendment (SB 2618 SD 1) changing the effective date for the legislation from July 1, 2016 to January 1, 2050, demonstrating a lack of support for the bill as currently drafted.  The Committee report stated in part:

Hawaii Shippers’ Council submitted written comments on the measure.

Your Committee notes that the Department of Transportation is currently reviewing the anticipated cost of preparing an interisland ferry feasibility study.

Your Committee has amended this measure by changing the effective date to January 1, 2050, to facilitate further discussion on the measure.

As affirmed by the record of votes of the members of your Committee on Ways and Means that is attached to this report, your Committee is in accord with the intent and purpose of S.B. No. 2618, as amended herein, and recommends that it pass Third Reading in the form attached hereto as S.B. No. 2618, S.D. 1.

Despite the unpromising amended effective date in the year 2050, SB 2618 SD 1 should pass Third Reading in the Senate, which is more or less a formality, and crossover to the Hawaii State House of Representatives.  As the companion bill, HB 2225, was originally referred to the House committees on Transportation and Finance – is it reasonable to assume that when SB 2618 SD 1 arrives in the House it will be referred to just those two committees.

As the Committee on Ways and Means is the Senate’s finance committee, it was not the right committee to consider substantive amendments to a transportation bill such as SB 2618 and by reporting it out, that responsibility was properly passed to the House Committee on Transportation.

It would appear at this time, unless the House Committee on Transportation chooses to substantively address the issues related to SB 2618 SD 1, the measure would be unlikely to be enacted by the Hawaii State Legislature.  In particular, if the bill is further amended in the House, it would have to be reconciled in a conference committee including both House and Senate members.

Legislative Background: Senate Resolution 116 Senate Draft 1 (SR 116 SD 1) of 2015

By the way of background, the current measure, SB 2618 SD 1, follows from Senate Resolution 116 Senate Draft 1 (SR 116 SD 1) adopted a year ago during the 2015 regular session. SR 116 SD 1 requested that HSDOT accomplish a feasibility study for an interisland ferry service, but as a resolution could not provide any funding.  HSC submitted testimony to SR 116.

In response to SR 116 SD 1, HSDOT informed the Hawaii State Senate that they would need funding to be appropriated from the State’s General Fund to conduct the requested feasibility study. Hence the State Senate responded with introduction of SB 2618 to positively direct and fund a feasibility study to be facilitated by HSDOT.

Key Issues for a Hawaii Interisland Ferry Service Feasibility Study

The Hawaii Shippers’ Council submitted testimony in respect of SB 2618 attempting to identify the key issues that should be addressed by a feasibility study in respect of determining whether or not it is possible to operate a successful interisland ferry system.  Many of these issues are not addressed by terms of reference named in the bill. The testimony highlights are:

1. Government (or, Publically) versus Commercially Owned and Operated Service.

As it stands now, SB 2618 SD 1 anticipates a Hawaii State government -owned and -operated service. The Hawaii Shippers’ Council opposes a government service – in the form of a Hawaii State Ferry – and supports a privately operated interisland ferry service.

Creating a state –owned and –operated Hawaii interisland ferry system would involve a very large ongoing general fund financial commitment that may not be sustainable. This is an issue with which both the Alaska and Washington state ferry systems are struggling especially in respect to the replacement of elderly ferry vessels.

Extrapolating from the state administrative structures for the Alaska and Washington state ferry systems, it would appear another division would have to be added to HSDOT for a state -owned and -operated Hawaii interisland ferry system, which would be in addition to the existing Hawaii State Highway, Airports and Harbors Divisions.

An alternative to a state –owned and -operated Hawaii State ferry system, would be for the State of Hawaii to identify through the proposed feasibility study the most promising interisland ferry operating model and subsequently seek a private operator through a tender process. This is becoming the preferred approach in Europe where many successful private ferry services operate and what the Hawaii Shippers’ Council believes the State of Hawaii should seriously consider.

If the State wishes to consider a government owned and operated service, the proposed feasibility study should identified the costs of that in comparison to a privately operated service so that the differences would be known.

2. Modeling Comparisons: Domestic versus International Ferry Services.

The current bill SB 2618 SD 1 calls for modeling the prospective Hawaii interisland ferry service based on currently operating domestic ferry services in the U.S. particularly the Alaska and Washington state systems.

The bill refers to these two state ferry systems as “successful,” which is highly subjective and certainly not a commercial assessment.  In addition, these Alaska and Washington State comparisons may not be very helpful in terms of routes, vessels, conditions and traffic levels.

Alaska State Ferry System.  The Alaska ferry system would not appear to be a good model for a Hawaii interisland ferry system. The Alaska State Ferry system for most part operates in the protected waters of the inside passage with vessels that are unlikely to be suitable for the Hawaii interisland environment. The ferry vessels are very old, and the state owned and operated ferry system can’t afford to replace them due to declining revenues from the North Slope oil field among other problems.

Washington State Ferry System.  The Washington ferry system is not a good model for a Hawaii interisland ferry service.  The Washington state ferry system operates in the inland waters of Puget Sound and the Strait of Georgia with ferry vessels that could not operate interisland Hawaii.  The Washington state ferry is also dealing with old vessels and budget shortfalls.

In comparison, there are many successful privately operated oceangoing ferry services operating elsewhere in the world.  We identified a service operating between mainland Australia and the island state of Tasmania as being a close model to an interisland service operating between Honolulu and Kawaihae Harbors and possibly stopping at a port on Maui Island.

3. Vessel Type: Fast Ferry versus Conventional Ferry.

Determine whether a fast ferry – such as the Hawaii Superferry – or a conventional ferry service operation – such as those that operate throughout Europe – would be best suited to the interisland meteorological conditions, trade characteristics and cargo and passenger volumes. Although many assume the appropriate model would be a fast ferry, that assumption may not be valid.

Based upon the publically available information, it would appear that the Hawaii Superferry experienced operational and financial issues and would likely have failed without the adverse legal decision that nominally ended their service in bankruptcy.  A conventional Roll-on / Roll-off Passenger ferry (known as “Ro/Pax Ferry”) may be a much better solution, if in fact there is a viable solution for a commercially sustainable interisland ferry service.

4. Jones Act Cabotage: Exemption versus Compliance.

The Hawaiian Islands are subject to the full requirements of Jones Act cabotage including U.S. construction, U.S. ownership, U.S. crew, U.S. flag and U.S. technical management for vessels transporting cargo and passengers by water between domestic points within the U.S.  These requirements – particularly the U.S. construction and ownership requirements – may prevent establishment of a successful interisland ferry service particularly a commercially operated service.

U.S. Ownership.  There is likely to be a problem with the private operator approach in terms of Jones Act cabotage as there are really no private operators of oceangoing ferry systems in the U.S., though there are lots of ferry operators on inland waters of the U.S.  It would appear that opening the Hawaii interisland market to the world of international ferry service operators would make the likelihood of a commercially successful service far greater.

U.S. Construction.  There is little current U.S. shipbuilding yard experience in the construction of modern oceangoing ferries especially conventional Ro/Pax ones.  Austal USA Inc constructed the Hawaii Superferry vessels in their Alabama yard.  The cost of constructing oceangoing ships at the major U.S. shipbuilding yards is now four to five times that of internationally competitive construction abroad.  If a prospective private operator must comply with the domestic ship build requirement of Jones Act cabotage and is obliged to build its ferry vessels in the U.S., the capital costs for the service may prove too great for a successful commercial service.

The Hawaii Shippers’ Council would recommend that the State seek an exemption to allow foreign operators to import foreign built ferry vessels to operate U.S. flag as does the cruiseship PRIDE OF AMERICA.  This would be modeled after the exemption sponsored by the late U.S. Senator Daniel K Inouye (D-HI).  Currently Norwegian Cruise Line (NCL), a foreign company, is operating the German-built U.S.-flag PRIDE OF AMERICA in the domestic inter-Hawaiian Island cruise trade.

5. Route Structure: Service All Islands versus Selected Harbors.

The identification of a route structure will be important and was a major source of conflict for the Hawaii Superferry. The base port of any proposed route structure for an interisland ferry system would be Honolulu Harbor, Oahu Island.  The issue will be the selection of range ports.

An important issue would be whether the service would be required to provide service to all of the Neighbor Islands?  Many residents of Kauai Island protested the Hawaii Superferry and did not want the service there. There are major issues servicing Maui Island due to the location of the commercial harbor – Kahului Harbor – on the north shore impacted by heavy winter weather.  The smaller islands of Molokai and Lanai are not likely to support a high frequency ferry service on an economic basis.

The Hawaii Shippers’ Council believes Oahu and Hawaii Islands are the most likely to be able to support a daily commercial ferry service, which may also be able to call on a Maui port.

6. Hawaii Water Carriers Act of 1972 As Amended.

The Hawaii Water Carriers Act of 1974 (HWCA) as amended (15 HRS 271G-8 through 271G-25) places many restrictions on a commercial entity applying for a Certificate of Public Convenience and Necessity (CPCN) to carry passengers and / or cargo between ports in Hawaii as a common carrier.  CPCN’s are issued by the Hawaii State Public Utilities Commission (HPUC).

The sole interisland ocean common carrier of cargo, Young Bros. Ltd., operates with a CPCN issued by the HPUC as did the Hawaii Superferry.

Act 213 of 2011 (15 HRS 271G-10) was enacted to amend the HWCA in response to the HPUC issuing a temporary CPCN to Pasha Hawaii Transport LLC to carry cargo between several ports in Hawaii with the ships they were employing in the interstate trade between Hawaii and California. Act 213 imposed significant new constraints on a new entrant interisland water carrier seeking a CPCN and effectively ended Pasha’s interisland trade participation in January 2014.  Essentially, Act 213 was to protect the Young Bros. monopoly from competition.

These changes were characterized by the HPUC order of January 2, 2014, “Act 213 is a major revision of the statute to include a number of substantive requirements that were not previously part of the statute.”

An important aspect of the feasibility of a prospective ferry service would be whether it would have to comply with the Hawaii Water Carriers Act of 1974 especially the amendments of Act 213 made in 2011. It is very likely an exemption would be required.

7. Hawai`i Environmental Policy Act (HEPA)

The Hawai`i Environmental Policy Act (HEPA) requires an Environmental Impact Statement (EIS) for major governmental actions that may have a significant impact on the environment. (See 6 HRS Chapter 343, Environmental Impact Statements.)

With respect to the Hawaii Superferry, the HSDOT determined that its relatively minor harbor improvements at Kahului Harbor, Maui, to accommodate the Hawaii Superferry were so insignificant that an EIS was not required. The Hawai`i Supreme Court’s August 31, 2007 decision extended the EIS requirements to a consideration of “secondary” or remote impacts. Because the minor pier work on Maui enabled the private Hawaii Superferry to transit between the islands, the court required the state to prepare an EIS regarding its indirect impacts on the environment.

The Superferry was unable to continue in business pending the court cases and delays from environmental reviews.

An EIS covering the operations of an ocean carrier triggered by State Harbor improvements to accommodate the carrier had not been required prior to this decision.

In any event, an EIS cannot really be accomplished until an operating model is selected.

In the meantime, it would be import to identify the actual EIS requirements for a Hawaii interisland ferry service.

8. Harbor Facilities.

A major issue would be to identify and estimate the cost of the harbor facilities that a prospective service might require.  This was a major issue with the Hawaii Superferry, particularly whether the operator would pay for the improvements outright, or over time through the payment of regular port fees.  HSDOT Harbors Division has their own internal engineering staff, who are very familiar with contracting for outside architectural and engineering services for harbor facilities and can best estimate these requirements and cost.

9. Feasibility Study Cost

The Hawaii Shippers’ Council believes that it would be necessary for the State of Hawaii to contract with consultants expert in the operation of internationally competitive ferry services to conduct the proposed feasibility study.  The HSDOT does not have this expertise.

We contacted a number of such consultants through the international ferry operators trade association – Interferry – and other colleagues to obtain rough indications of what the costs might be.

The result was a range of estimated costs from $350,000 to 5555,000 not including the cost of estimating facilities costs.


References:

HSC-224 (HI leg 2016 ferry bill list 02-29-2016): List of 2016 Session Bills relating to Ferry Services in the Hawaiian Islands

HSC-225 (MNH test HB2756 port auth 02-10-2016):  Testimony of Michael N Hansen, President, Hawaii Shippers’ Council, HB 2756, Relating to a Port Authority, February 10, 2016.

HSC-210 (HSC test SB 3022 HI ferry 02-09-2016): Testimony of Michael N Hansen, President, Hawaii Shippers’ Council, SB 3022, Relating to Ferries, February 9, 2016.

HSC-215a (MNH test SB2618 HI ferry 02-24-2016): Testimony of Michael N Hansen, President, Hawaii Shippers’ Council, SB 2618, Relating to Transportation, February 24, 2016.

HSC-216 (MNH test SCR 181 HI ferry 03-31-2015): Testimony of Michael N Hansen, President, Hawaii Shippers’ Council, SCR 181 / SR 116, Requesting the Department of Transportation to Study the Feasibility of Establishing an Interisland Ferry System similar to the Ferry System Operated by Washington State, March 31, 2015

Senate Resolution 116 Senate Draft 1 (SR 116 SD 1)
Requesting the Department of Transportation to study the feasibility of establishing an interisland ferry system similar to the ferry systems operated by Washington State and other jurisdictions
The Senate
Twenty-eighth legislature, Regular Session of 2015
State of Hawaii
SR116 SD 1:  http://www.capitol.hawaii.gov/session2015/Bills/SR116_SD1_.PDF