Ferry fuel surcharge issues

The following report was just released by WSF discussing options for reducing the impact of fuel cost volatility on ferry operations:

Updated Fuel Cost Mitigation Plan Report

The notes below are from last Saturday’s FCP meeting discussing the report above as well as pending legislation calling for a fuel surcharge:

Draft Fuel Surcharge Issues:
1. With the uncertainty in the middle east and its’ [sic] impact on fuel prices, a surcharge with the stated purpose of recovering fuel budget deficits, would transfer a major state cost liability to ferry riders. An analogy would to cancel an individual’s insurance policy when it is discovered they have cancer.

2. The surcharge proposal predicts that with hedging a surcharge would seldom if ever be needed. So why have the surcharge? The administrative cost and complexity would be unwarranted for something that is rarely if ever used.

3. The surcharge would be added at the same time as a 10% fare hike and a 25¢ construction surcharge. This is overloading riders with three fare increases at a time that the Legislature has taken the position that there will be no state tax increases

4. The development of the surcharge has questionable legality:

· In their 2010 surcharge proposal to the legislature WSF and WSDOT did not follow the RCW requirements for public participation in developing the proposal.

· The 2010 legislature responded by directing WSF and WSTC to comply with these RCW requirements and submit another proposal.

· WSF and WSTC resubmitted a surcharge proposal to the 2011 legislature. without following RCW requirements Despite FAC Council appeals to WSF and letters to Secretary Hammond and the Governor reminding them of RCW requirements, and legislative direction this second proposal was developed without public transparency or participation.

* The Attorney General determined that ferry fares after I 1053 was passed are subject to a vote of the legislature. It is questionable that a vote on the appropriations bill will meet this requirement as the statement for a fuel surcharge to recover budget deficits does not describe what that fee would be. There is insufficient time to conduct the public processes to develop surcharge rules that could be included in a legislative bill.

5. The imposition of a surcharge to routes with over 100% recovery rates is questionable given the legislative language is to recover fuel budget deficits, as if there were a deficit in the fuel budget or these routes the route operating revenue surplus would eliminate it.

6. Assuming that the automatic fare increases are legal, as they would have no public review process, the surcharge rules have to address all the concerns over how it’s could be mis-applied. These include:

a) The intent is to address periodic price variances. If there’s a large sustained fuel price increase e.g. one that lasts for the biennium then riders would be stuck with a surcharge for the duration. The legislative language is only that the surcharge recover the budget deficit with no limits on how large that may be.

b) There is no process for review to ensure that the surcharge meets the intent of not being either: a net revenue gain nor a means to lower appropriations needs by shifting fuel costs to riders.

c) There’s still no safety net for riders if WSF decide to use a low fuel price estimate for their budget proposal. WSF will be using a process to estimate fuel costs recommended by an ad hoc Fuel Budgeting Practices Group’s recommendation called a “consensus average”. Rides however will have neither have a voice nor visibility into this process. While what’s provided to the Gov’s budget may not impact us directly, the price that WSF uses to trigger the fuel surcharge has a big impact. WSDOT’s “Transportation Revenue Forecast Council” prepares a publicly available fuel price quarterly fuel price forecast that can’t be tinkered with. This forecast includes ferry fuel costs there’s no reason why that forecast can’t be our safety net against an artificially low “threshold price of fuel” being used by WSF.

d) The formula proposed divides the fuel cost increase by the recovery rate therefore shifting 100% of fuel cost increases to riders. All WSDOT users are affected by the impact of WSDOT’s fuel cost increases however none other than ferry rides are being asked pay for it. So to achieve some equity riders should only pay a share of the fuel cost increase that’s proportional to the farebox recovery. I

e) There’s no mechanism that guarantees that fuel appropriations and surcharge revenue can only used for fuel expenses.

f) This allows for up to a 20% fuel surcharge. This is too high at this would be a 100% fuel cost increase. If fuel costs double above the forecast this is a major budget event statewide and should be addressed by the legislature.

g) The surcharge imposition is to be limited by fuel price hedging. The amount of fuel hedged however could vary from 0% to 90% as there is legislative requirement that specifies the hedged amount

h) The legislative proposal is to implement the surcharge as soon as possible. There is no mention or allowance or public process in this.

Current legislative language:

(5) Pursuant to RCW 43.135.055, the transportation commission shall work with the department of transportation to develop a rule to impose a fuel surcharge mechanism to recover cumulative deficits in the fuel budget. Consideration must be given to the average price paid for diesel fuel for the previous quarter and include the effects of hedging. A surcharge should be applied only if the cumulative fuel budget has been exceeded. This rule should go into effect as soon as possible

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