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78 Guidelines for Ferry Transportation Services Table 5-25. Per passenger fuel consumption comparison. Vehicle Fuel Passenger Half Travel Fuel Fuel Consumption Capacity Capacity Time Consumption Consumption (gal/hr) (hr) per Passenger per Passenger Full half (gal/passenger) (gal/passenger) Austral 107 1,750 866 433 3.5 7.1 14.2 Austral 72 1,150 620 310 3.5 6.5 13.0 Boeing 737 1,500 150 75 1 10 20 (200-800) process for introducing environmental issues into the public dialogue--environmental documentation--was sidestepped. As a result, fuel use per passenger, which can lead to large carbon savings over conventional air travel, did not enter the public discussion. Table 5-25 com- pares the per-passenger fuel consumption of the Austral 107 (the vessel used in the Hawaii Superferry service) to that of a Boeing 737 (the predominant interisland vehicle) and a some- what smaller Austral 72 ferry. Both ferries used about 30 percent less fuel per passenger than the Boeing 737, assuming similar occupancy factors. The decision of Hawaii Superferry, Inc., to start construction of vessels before full financing was in place created pressure to truncate the system planning and environmental review process in order to get the Superferry into service quickly so that it could generate income to meet sched- uled vessel payments. The financial situation of Hawaii Superferry, Inc., set the stage for later confrontation over environmental and transparency issues. The construction order removed the flexibility to accommodate planning delays resulting from public questions or reservations about the system. Very few transportation projects avoid some form of schedule delay. A clear lesson learned from this case study is that early commitment to private debt or equity financing for vessels (or facilities) before environmental documentation and permits are in place should be avoided. NEPA regulations specifically require an environmental review be concluded before "irreversible and irretrievable commitment of resources" to avoid this exact situation. Ide- ally, the environmental process can be used to bolster the business case--to develop realistic rid- ership estimates as well as operating and capital costs--leading to the project sponsors not just identifying impacts, but also providing financial backers with a unified, complete analysis of risks and rewards. Financial commitments place constraints on a project's schedule and make delay an obvious tactic if there are opponents, independent of the merit of opposing concerns. British Columbia Ferry System Quickfacts Operator Service # of # of Annual Annual Fleet Age Category Routes Vessels Passengers Vehicles (years) British Highway­ 25 37 21.8 million 8.5 million 2­50 Columbia Ferry Ferry Essential Services, Inc History British Columbia ferry services have operated for more than 150 years. Ferry service between Vancouver Island and the Vancouver area started in the mid 1800s and was initially operated by the Hudson's Bay Company. By 1901, Canadian Pacific Railway had taken over ferry service

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Ferry Case Studies 79 across the Strait of Georgia and continued transporting passengers and vehicles on the 5-hour journey between downtown Vancouver and downtown Victoria until the 1960s. In the 1950s, Black Ball Line, which also operated ferries in Puget Sound, began service between West Van- couver and Nanaimo, as well as routes to the Sunshine Coast and Jervis Inlet south of Powell River ("Before BC Ferries," accessed July 1, 2010). In the late 1950s, the provincial government assumed management and operation of the ferry system, and, in June 1960, the new British Columbia Toll Authority Ferry System (BC Ferries) began operations with two vessels operating on the route between Swartz Bay (Victoria) and Tsawwassen (Vancouver). At Tsawwassen, a 2-mile-long causeway, artificial island, and ferry terminal were built. In the first year of operation, service was profitable and reliable. As a result, the ferry system expanded and started service to other small coastal communities. To keep up with demand, BC Ferries built more vessels, many of them in its first 5 years of operation. Initially, private competition continued in parallel to BC Ferries service, with Black Ball pro- viding service from Horseshoe Bay to Nanaimo and Horseshoe Bay to Langdale. The province bought out Black Ball in 1961, acquiring five of its vessels, and also acquired five small vessels of the Gulf Islands Ferry Company. Canadian Pacific continued to operate ferry service, but in 1962 reduced its services on the Vancouver­Nanaimo route, eventually downsizing to freight-only services. As passenger numbers continued to increase, BC Ferries increased capacity through the "stretch and lift" program. In 1970, four vessels were cut down the middle so that an 84-foot midsection could be "spliced" in. Five years later, vessels were hauled back into dry dock and sliced horizontally. The two halves were separated from each other, and a new upper car deck was slid into place. In 1985, BC Ferries assumed operations of the saltwater branch of British Columbia's Min- istry of Transportation and Highways, which ran ferry services to very small coastal communi- ties. BC Ferries' fleet and its geographical service area increased. In the mid 1990s, the provincial government decided to use BC Ferries to advance its goal of supporting British Columbia's shipbuilding industry by building a "PacifiCat class" fleet of custom-designed, high-speed catamaran ferries for BC Ferries, with the eventual goal of exporting additional vessels on the international market. The three vessels were built by local shipyards from 1995 to 2000 under the supervision of a new provincial Crown corporation. They had a service speed of 37 knots (68 km/h). The PacifiCats were commissioned between 1998 and 2000. They were intended to improve BC Ferries service between Horseshoe Bay (on the mainland) and the Departure Bay (in Nanaimo). However, the program was afflicted with construction cost overruns, late deliv- ery, and operational and capacity shortcomings. The ships were operated briefly and then sold in 2003 to a private buyer, the Washington Marine Group (BC Ferries website, accessed July 1, 2010). The PacifiCat experience resulted in a write-down of a $400 million (CAD) investment in the PacifiCat ferries, and is often referred to as the "Fast Ferry Scandal." The PacifiCat experience led to institutional changes at BC Ferries. Organizational Structure In April 2003, BC Ferries was transformed from a Crown (government) corporation into an independent, commercial organization subject to the British Columbia Business Corporations

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80 Guidelines for Ferry Transportation Services Act and is now officially British Columbia Ferry Services, Inc. (BC Ferries). The sole shareholder of BC Ferries is the B.C. Ferry Authority, which in turn is a no-share capital corporation created under the British Columbia Coastal Ferry Act. BC Ferries' routes and service levels are defined in the Coastal Ferry Services Contract between the Province of British Columbia and BC Ferries. The contract, originally signed in 2003, is a binding 60-year agreement that is reviewed and updated at regular intervals (perfor- mance terms). The first renewal of the Coastal Ferry Services Contract was completed on June 30, 2007, for performance term two (April 1, 2008 to March 31, 2012). The intent of the change for Crown corporation to independent commercial organization was summarized by the Chair of the outgoing Crown corporation in its final annual report: As a Crown corporation, BC Ferries was very much dependent upon government for everything from rate-setting to vessel construction and spending priorities. Capital investments were approved within the short-term rotation of government fiscal priorities rather than adhering to a long-term business model that is required for a service of this magnitude. In addition, each decision was directly influenced by the politics of the day. This problem . . . seriously inhibited the Corporation's ability to operate in a businesslike manner. With a major capital replacement program needed to upgrade or replace older vessels in the fleet and improve terminal infrastructure, a new model was required to access outside financing to make these necessary investments. . . . Every option was seriously considered: from retaining status quo for the taxpayer-supported Crown corporation model to outright privatization of the service. The option that was selected is the optimal solution. It is best described as a commercial model governed by an independent authority that meets the objective of creating a modern, safe and reliable ferry system that will provide improved service and greater customer choice while protecting British Columbia taxpayers from further financial risk and debt burden (Interview with Len Rouche, formerly of BC Ferries, April 2010). The BC Ferry Commission, an independent agency established under the Coastal Ferry Act, regulates BC Ferries fares and service levels. The Coastal Ferry Act directs the Commission to follow six principles in protecting the public interest. These principles serve to define what is meant by the public interest in the provision of coastal ferry services: · Priority is to be placed on the financial sustainability of the ferry operators; · Ferry operators are to be encouraged to adopt a commercial approach to ferry service delivery; · Ferry operators are to be encouraged to seek additional or alternative service providers on des- ignated ferry routes through fair and open competitive processes; · Ferry operators are to be encouraged to minimize expenses without adversely affecting their safe compliance with core ferry services; · Cross subsidization from major routes to other designated ferry routes is (i) to be eliminated within the first performance term of the first Coastal Ferry Services Contract to be entered into under this Act, and (ii) before its elimination, to be minimized; · Designated ferry routes are to move towards a greater reliance on a user pay system so as to reduce, over time, the service fee contributions by the government. Operational Structure System/Service Routes BC Ferries has the largest ferry fleet in North America (37 vessels) and carries slightly fewer passengers than Washington State Ferries (BC Ferries carries about 21.8 million passengers annually). Service operates daily, with more than 500 departures each day (see Figure 5-15 for a map of BC Ferries routes).

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Ferry Case Studies 81 Figure 5-15. BC Ferries route network. The three most heavily patronized routes are Tsawwassen­Swartz Bay, Tsawwassen­Duke Point, and Horseshoe Bay­Departure Bay. These routes operate with no subsidy, including the cost of their capital. Service is daily. BC Ferries also operates three northern routes: Port Hardy­Prince Rupert, Port Hardy­ Bella Bella/Shearwater/Bella Coola/Klemtu/Ocean Falls, and Prince Rupert­Skidegate (Queen Charlotte Islands). Service on the Inland Passage operates every other day. Service to the Queen Charlotte Islands operates 6 days per week, and service from Port Hardy to Bella Bella and Shearwater operates 3 days per week in the summer. These services are subsidized by the Province. The balance of BC Ferries' routes is categorized as "other" with three subcategories: Northern Gulf Islands, Mainland/Vancouver Island/Sunshine Coast, and Southern Gulf Islands. The Northern Gulf Routes are · Buckley Bay­Denman Island · Denman Island­Hornby Island · Campbell River­Quadra Island · Quadra Island­Cortes Island

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82 Guidelines for Ferry Transportation Services · Port McNeill­Alert Bay­Sointula · Powell River­Comox · Powell River­Texada Island The Mainland/Vancouver Island/Sunshine Coast routes are · West Vancouver­Sunshine Coast (Horseshoe Bay­Langdale) · Sechelt Peninsula­Powell River (Earls Cove­Saltery Bay) · Bowen Island­Vancouver (Snug Cove­Horsehoe Bay) · Langdale­Gambier Island­Keats Island · Saanich Inlet Route · Brentwood Bay­Mill Bay The Southern Gulf Islands routes are · Bowen Island­Horseshoe Bay · Nanaimo Harbour­Gabriola Island · Chemainus­Thetis Island­Kuper Island · Salt Spring/Vesuvius­Crofton · Salt Spring/Fulford­Victoria · Mayne­Galiano Island (Sturdies Bay) · Mayne­Pender Island (Otter Bay) · Mayne­Saturna Island (Lyall Harbour) · Mayne­Tsawwassen · Mayne­Swartz Bay Note that some routes are double-counted as the vessels make several stops. Service on the other routes category generally operates daily throughout the year. Facility and Vessel Maintenance BC Ferries operates 37 vessels on 25 routes serving 47 terminals. All of the vessels are owned by BC Ferries, and the terminals are operated by the company under a long-term lease with the British Columbia Transportation Financing Authority. Nine of the smaller routes are operated under contract with alternative service providers. All ferries are RO-RO vessels. The vessels are a mix of large ferries (including three "Coastal" class, 160-meter vessels that carry 1,650 passengers and 370 vehicles and are the world's largest double-end ferries) and small, 16-vehicle ferries operating on coastal inlets. The fleet ranges in age from small vessels that are more than 50 years old to the 2-year-old Coastal class vessels. In addition, the BC Ferries capital program includes regular upgrades and midlife rebuilds for the existing fleet. Over the last 5 years, BC Ferries has added seven new vessels and plans to purchase two, new, smaller vessels over the next 3 years. All vessels are designed for a 45-year life with major upgrades and overhauls at quarter, half, and three-quarter life periods. (See Figures 5-16 and 5-17 for photos of BC Ferries vessels.) The recently completed Coastal class project can be considered a best practice and stands in contrast to the PacifiCat experience of the mid 1990s. BC Ferries commissioned the PacifiCat project, which involved building three large fast catamarans to operate between Vancouver and Vancouver Island. BC Ferries intended for the new vessels to operate at higher speeds and thus provide the same number of trips with fewer vessels. The program was also intended to provide new jobs within British Columbia's maritime industry. The PacifiCat project ran over budget and behind schedule, and the actual vessel speed increase was not great enough to reduce fleet requirements. The province eventually terminated the project and sold the three vessels at a large loss (Interview with BC Ferries, June 2010).

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Ferry Case Studies 83 Figure 5-16. BC Ferries with open automobile deck. Despite cancelling the PacifiCat project, BC Ferries still needed new vessels for the Vancouver­ Vancouver Island service. The new management of BC Ferries opted for an inclusive stake- holder consultation process combined with a private-sector, design-build model, with impres- sive results. The vessels built as a result of this process are part of the Coastal class boats now in operation. In the stakeholder process, management was able to include a large number of industry user and operator ideas on ship design. BC operators were also consulted, and the project managers learned what worked well for the people who work on the ship. One commenter noted that "the cooks designed the galleys," and as a result the new vessels have a high employee acceptance (Interview with BC Ferries, June 2010). Early in the process, management at BC Ferries decided to use the design-build approach, where broad specifications were given to bidders, but the designer and builder had the final Figure 5-17. BC Ferry operating in the Strait of Georgia.

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84 Guidelines for Ferry Transportation Services responsibility to deliver the product as agreed. This approach resulted in a high degree of cer- tainty on product, price, and schedule. As a result, BC Ferries was solicited by world-class ship designers and builders and was able to access the global market for the best product and most efficient shipbuilder. Even with a 25-percent Canadian duty on foreign ships, the German- built Coastal class vessels still cost less than a comparable home-built vessel, and BC Ferries was able to use the savings to purchase an additional vessel (BC Ferries Fare Index, accessed June 2010). BC Ferries staff believes that accessing the most commercially viable options allows the com- pany to save money and pass on the savings to its passengers. Staffing Levels The ferry system has more than 2,800 full-time maritime workers, plus 1,700 casual (on-call) employees. All unionized employees are members of the BC Ferry & Marine Workers' Union (BC Ferries website, accessed July 1, 2010). The company also has another 350 administrative employees. Many of BC Ferries' ships are licensed by Transport Canada to operate at different crewing levels, depending on the number of passengers on board. Transport Canada sets the number of crew members required for a certain number of passengers mainly according to their estimate of how many crew members would be required for a prompt and efficient evacuation of the ship in case of an emergency. As an example, the vessel on the Comox­Powell River route can carry a maximum of 659 passengers, provided there are 25 crew members ("A" License). The maxi- mum load is reduced to 324 if there are only 18 crew members ("B" License) (BC Ferries web- site, accessed July 1, 2010). BC Ferries provides career and management development programs. Safety and security are major initiatives, and the company works to train crews for emergency situations from passen- ger security training to evacuation drills. Financial Structure Fares BC Ferries' 25 routes have multiple fare tariffs (all dollar amounts given in the "Financial Structure" section are CAD). The three routes from Vancouver to Vancouver Island have the following tariff structure (BC Ferries Fare Index, accessed June 2010): · Pedestrian--$14 ($7 for children and passengers with disabilities) · Vehicle Tariffs (always in addition to the pedestrian fare) ­ Bicycle--$2 ­ Motorcycle--$23.40 ­ Vehicle and/or other combination less than 20 feet--$46.75 ­ Vehicle and/or other combination longer than 20 feet--$5.25 per foot additional ­ Buses--$3.75 per foot Other routes have similar tariff structures. Note the following range of fares: · Pedestrian--from $5.20 for Gulf Island service to $170 for service to Port Hardy · Vehicle Tariffs (always in addition to the pedestrian fare) ­ Bicycle--from $2 to $5 ­ Motorcycle--from $5.70 to $23.40 ­ Vehicle and/or other combination less than 20 feet--from $11 to $400 ­ Vehicle and/or other combination longer than 20 feet--from $33 per foot additional ­ Buses--from $1.55 to $23 per foot

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Ferry Case Studies 85 Discount rates are available to groups of 16 or more fare-paying passengers travelling together on foot or in a vehicle licensed to carry 16 or more passengers (e.g., a bus) on the following routes: · Tsawwassen­Swartz Bay · Tsawwassen­Duke Point · Horseshoe Bay­Departure Bay · Tsawwassen­Gulf Islands · Prince Rupert­Port Hardy · Port Hardy­Mid Coast · Prince Rupert­Skidegate Fare Discounts. BC Ferries provides several fare discount programs. These include prepaid fares via the BC Ferries Experience Card, available on several routes for loading a minimum amount of money to the card (the Vancouver to Vancouver Island service does not receive a dis- count). In addition, four routes use prepaid paper ticket books. BC Ferries also uses peak/off-peak tariffs, and these rate changes cover mid-week discounts as well as less expensive off-season rates. British Columbia senior residents can travel free (pedestrian only) Monday through Thurs- day, excluding five peak or holiday days. Operating Expenses. BC Ferries has expenses of about $570 million annually. These expenses include about $335 million in operations, about $89 million in maintenance, about $50 million in administration, about $30 million for the cost of goods sold on ships, and about $66 million in amortization. Interest expenses result in expense of another $34 million. In 2008, BC Ferries had total revenues including government payments and subsidies, of about $640 million. Retained earnings (the company is not-for-profit) were about $37 million (British Columbia Ferry Services, Inc./BC Ferries Authority, 2008). Funding Sources BC Ferries' unique operating structure contributes to an equally unique financing arrangement. Every route charges a fare and in total, about two-thirds of the operating and capital cost of the service is derived from fares. Ancillary services (such as food and beverage) contribute 9 percent to service operations, with the balance obtained from provincial and federal subsidies. Under the Coastal Ferry Act, the province enters into contracts for the operation of ferries on specified ferry routes. So far, BC Ferries is the only ferry operator that has such a contract with the province. The primary feature of the contract is a commitment by BC Ferries to provide a defined number of "core" sailings on each of 25 "designated" routes. The province's key com- mitment is to pay BC Ferries a "service fee" (currently on 22 of the 25 routes) for each sailing. During the contract term, BC Ferries must meet or exceed specified core service levels in rela- tion to designated ferry routes. The Coastal Ferry Services Contract specifies routes and core service levels per route (hours of operation, minimum capacity, and frequency and number of trips), subject to an allowance for short-term, temporary service disruptions. In return, the province pays BC Ferries for the provision of services. About one-third of BC Ferries' annual budget comes from government payments. The pay- ments will approach about $125 million in Fiscal Year 2011/12. There are three categories of government payments: · Ferry Transportation Fees. These fees subsidize 22 unprofitable routes in smaller markets and to avoid cross subsidization from the three major (profitable) routes (which receive no ferry transportation fee).

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86 Guidelines for Ferry Transportation Services · Social Program Reimbursement. This approximately $12-million payment provides a reim- bursement to BC Ferries for toll discounts established by the province and given to students, seniors, people with disabilities and those who qualify for the medical travel assistance program. · Unregulated Route Fee. This fee provides about $2 million in annual funding for unregulated routes through a flow-through for private operators. Each route's expenses include both operating and capital costs. The BC Ferry Commission reviews BC Ferries' rates to ensure that BC Ferries is reimbursed for operating expenses, admin- istrative expenses, and the amortized cost of capital facilities and vessels. The Vancouver­Vancouver Island services represent about 60 percent of BC Ferries' total rev- enue and operate with no government subsidy. In 2007­2008, more than 11 million passengers used these services, and the services carried almost 4 million vehicles. Users generated about $104 mil- lion in passenger fares, $182 million in vehicle tariffs, and $64 million in onboard services (food, beverage, etc.). Parking, reservation, and other fees generated another $20 million in revenues. The northern routes have a farebox recovery of about 34 percent (and represent about 8 per- cent of total cost). In 2007­2008, these routes carried about 100,000 passengers and almost 34,000 vehicles. The northern routes generated about $17 million (CAD) in passenger/vehicle revenues and received a subsidy of about $33 million. The other routes represent about one-third of BC Ferries' service and cover about half of their costs through the fares and tariffs. In 2007­2008, this route group carried about 10.4 million pas- sengers and 4.6 million vehicles and generated about $31 million in passenger fares and more than $51 million in vehicle tariffs. These routes also generated about $12 million in other ancil- lary revenues (British Columbia Ferry Services, Inc./BC Ferries Authority, 2008). Planning Issues Environmental and Regulatory Issues At BC Ferries, environmental and cost containment issues intersect at fuel efficiency. The company has a commitment to reducing greenhouse gas emissions and saving money. For the last 7 years, BC Ferries has reduced its annual fuel consumption with two-thirds of the fleet being repowered. As a result, BC Ferries has seen a 35- to 40-percent reduction in fuel consumption. The organization is also cleaning hulls and has added new propellers and rudders to reduce drag and the power required to maintain scheduled speed. The largest vessels have not been repowered, but the engines have been rebuilt. As a result, lube oil consumption was reduced by two-thirds and emissions were also reduced. BC Ferries is also using operational procedures to reduce fuel consumption. On-time departures mean less engine idling and lower fuel consumption in addition to contributing to better safety and on-time arrivals. There is now a 5-minute "cut-off" for passengers to board and a 10-minute "cut- off" for vehicles. BC Ferries is also using technology to reduce fuel and other operational costs. GPS-enabled piloting identifies the routes with the best environmental conditions and results in optimized power for sailing. These advanced piloting techniques and technologies result in a 5- to 6-percent fuel savings. Currently, 5 percent of BC Ferries' fuel supply is biodiesel. This percentage will likely increase to 10 percent as the biodiesel portion of the fuel supply increases. Only ultra-low sulfur fuel is used. BC Ferries is also considering natural gas vessels for its smaller routes and could even convert one of its routes to a cable ferry. These additional measures could result in a further 20- to 30-percent reduction in fuel consumption (Interview with BC Ferries, June 2010).

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Ferry Case Studies 87 Other environmental initiatives include replacing ground transportation vehicles with fuel- efficient and lower emission vehicles as well as using propane and electrically powered baggage vans and service vehicles. The company has also replaced chemical cleaning and maintenance with "greener" products, including a de-icing product that is less corrosive than road salt. Recycling is also an important priority. Each week BC Ferries composts almost one ton of compostable material and recycles everything from cardboard to used cooking oil. Land Use Issues As with other highway-oriented and rural ferry systems, BC Ferries provides critical access for isolated communities and is the "highway" for many communities. The main land use impact of the BC Ferries system is to provide access to communities in much the same way a highway provides access. On the most intensely travelled routes between Vancouver and Vancouver Island, terminals tend to be large, with staging areas and adjacent parking. Reflecting the historical growth of the ferry service, terminals are located in areas where water crossings made the most sense. The Tsawwassen, Horseshoe Bay, Swartz Bay, Duke Point, and Departure Bay terminals all are located some distance from primary land uses (Swartz Bay is about 25 miles from Victoria, and Duke Point and Departure Bay flank Nanamio). Some of the smaller ferry services do terminate in the traditional town centers. The operating and funding scenario for BC Ferries limits access to smaller communities. Since the provincial ferry transportation fee is fixed, any additional increase in service or change in vessel capacity needs to be reflected in higher fares. While the financing system was designed to bring accountability and transparency to BC Ferries' financing and service allocation, some of the smaller, ferry-dependent communities consider themselves "abandoned" (Interview with BC Ferries, June 2010). The service levels don't increase, vessels tend not to be replaced, and vessel sizes aren't increased because that would end up reflected in higher fares. As a result, one of the traditional aspects of transportation--creating land value by being a loss leader--is limited to the existing provincial financial support levels. Emergency Response Safety and response is a high priority at BC Ferries. The company developed a security plan in 2007, and, as a result of the 2010 Olympics, new measures concerning physical security as well as new procedures and baggage handling were implemented. The company is fully compliant with the International Ship and Port Facility Security (ISPS) Code. Crew training is conducted regularly. Training includes about 14,000 annual training days and about 1,300 training days for marine evacuation systems. In addition, all ships have Voyage Data Recorders (black boxes).