THE HAWAI`I SUPER FERRY

THE INTERISLAND FERRY FOR THE STATE OF HAWAI`I

A ohe nana nui ka aluia

No task is too big when done together

Pupu kahi i holomua By working together we make progress

Duke Aiona and Elwin Ahu, Mufi Hannemann and Les Chang, David Ige and Shan Tsutsui have agreed to support an Interisland Ferry for the People of the State of Hawai`i. Reportedly, 87% of the individuals surveyed are in favor of an Interisland Ferry. The actual number is closer to 92%. The Interisland Ferry is achievable, is capable of being a successful enterprise and is strategically a step forward for Hawaii’s future.

ACT 213 IS NOT MATERIAL OR RELEVANT

Under Act 213 (2011), the Hawai`i Public Utilities Commission is not allowed to issue a Certificate of Public Convenience and Necessity that will permit a carrier to serve only high-margin or high-profit ports, or lines of service served by an existing carrier. The law prohibits the PUC from granting a license if there is evidence that a new shipper would “diminish” rates of return of existing carriers.

The “carrier” that SB 99, Act 213 addresses is defined by Hawai`i Revised Statutes § 269-1 (2013).

Hawai`i Revised Statutes § 269-1 (2013) Title 15. Transportation and Utilities, Part 269, Public Utilities Commission, Section 269-1, Definitions provides,

(E) A carrier by water to the extent that the carrier enters into private contracts for towage, salvage, hauling or carriage [of containerized and/or bulk cargo and vehicles] between points within the State; provided that the towage, salvage, hauling, or carriage [of containerized and/or bulk cargo and vehicles] is not pursuant to either an established schedule or an undertaking to perform carriage services on behalf of the public generally.

[Clarification Supplied]

The “existing carriers” regulated by the Hawai`i Public Utilities Commission are Pasha Hawaii and Young Brothers, Ltd.

Pasha Hawaii’s vessels are roll-on roll-off for shipments of vehicles, trucks and containerized cargo. Pasha Hawaii’s vessels are not passenger carrying vessels.

Young Brothers, Ltd operates a barge service for cargo and does not carry passengers for hire.

THE HAWAII SUPER FERRY

Governor Linda Lingle, waiver of the Environmental Review Process, the legal challenges by the Sierra Club, the financial stability of HSF (Hawaii Super Ferry) Holding, Inc., individually and collectively, are blamed for the failure of the Hawaii Super Ferry.

The principle and primary reason for the failure of the Hawaii Super Ferry is the Hawai`i Supreme Court’s decision of March 16, 2009 in Sierra Club v Dep't of Transportation of State of Hawai'i, 120 Hawai'i 181, 231, 202 P.3d 1226 (2009).

The Hawai`i Supreme Court held that Act 2 was a special purpose law that contravened the Hawai`i Constitution requiring that any law affecting State Lands (Kahului Harbor), specifically and particularly the Hawaii Super Ferry dock moored to Pier 2 in Kahului Harbor to be general in application and not favor a specific person or class. Act 2 was designed to benefit only Hawaii Super Ferry, an “illusory” class of one … and enacted with the specific purpose of allowing Super Ferry, and Super Ferry alone, to operate without satisfying the requirements…of Hawaii’s statutes.”

This ultra-conservative, micro versioned, tunneled interpretation was erroneous and ill begotten.

The State of Hawai`i and People of Hawai`i were the intended principal beneficiaries. Obviously, the Supreme Court and interpreter of the Hawaii Constitution and Hawaii Revised Statutes overlooked,

“The Hawaii Constitution was framed by a Constitutional Convention under Act 334, Session Laws of Hawaii 1949. It was adopted by the people at the election held on November 7, 1950, and was deemed amended when three propositions submitted to the people in accordance with the Act of Congress approved March 18, 1959, 73 Stat 4, Public Law 86-3, were adopted by the people at the election held on June 27, 1959. As so amended, it was accepted, ratified, and confirmed by Congress by the Act of March 18, 1959. It went into effect on August 21, 1959, upon the issuance of a presidential proclamation admitting the state of Hawaii into the Union.”

An appeal to the United States Supreme Court by Petition for Writ of Certiorari was not pursued and justly so.

The grant of a Writ of Certiorari by the United States Supreme Court is discretionary and generally reserved for cases of national significance.

The class of person the Hawai`i Supreme Court refers to upon introspective examination is insecure, nebulous and obscure, its decision liberally obtuse and primordial.

THE CONSTITUTION OF THE STATE OF HAWAII

LIMITATIONS OF SPECIAL PRIVILEGES

Section 21. The power of the State to act in the general welfare shall never be impaired by the making of any irrevocable grant of special privileges or immunities. [Ren and am Const Con 1978 and election Nov 7, 1978]

CONSTRUCTION

Section 22. The enumeration of rights and privileges shall not be construed to impair or deny others retained by the people. [Ren Const Con 1978 and election Nov 7, 1978]

ARTICLE I

BILL OF RIGHTS

POLITICAL POWER

Section 1. All political power of this State is inherent in the people and the responsibility for the exercise thereof rests with the people. All government is founded on this authority. [Am Const Con 1978 and election Nov 7, 1978]

A STATE RUN INTERISLAND FERRY

“Maui Representative Joe Souki, Transportation Committee chairman, [currently Speaker of the House] who had been a strong supporter of the privately run Superferry, wanted to set up the system, but objections from Reps. Roy Takumi and Faye Hanohano caused Souki to amend the bill and call for a study.

"I don't think we can conclude that the state should be in a ferry system or run a ferry system," said Takumi (D, Pearl City-Pacific Palisades).

Souki agreed to a study, proposed by Hanohano (D, Pahoa-Kalapana), adding that he was a "believer in a ferry system for the entire state."”

[Clarification Supplied]

Mike Formby, then Deputy Director of Transportation, State of Hawai`i, currently, Director, Department of Transportation

Services at City and County of Honolulu,

"It is a complex and finally challenging undertaking that will require the support of many parties, including the Legislature, the private sector and the communities that this system will serve."

Reference: Borreca, R. (2009, February 9). Bill cleared to study state-backed ferry. Star Bulletin. Retrieved from http://www.starbulletin.com/news/20100209_Bill_cleared_to_study_state-

backed_ferry.html

HSF FINANCING WAS COMPLEX AND SECURE

FINANCING FOR THE INTERISLAND FERRY IS ACHIEVABLE

“Financing for the Hawaii Superferry venture was sophisticated. Hawaii Superferry, Inc., the operating company and ship owner, borrowed some $135 million for vessel construction under bonds guarantied by an agency of the US Government; with additional junior financing of $21 million provided by Austal. Those loans are secured, in that order, by ship mortgages on the vessels. Hawaii Superferry’s parent company, HSF Holding, borrowed $51 million from an investor called Guggenheim Funding. Guggenheim’s loan was secured by HSF’s shares in its wholly owned subsidiary, Hawaii Superferry. Behind the secured vessel loans was $92 million in equity, the majority of which came from the investment firm of J. F. Lehman & Co (“JFL”).”

Reference: Craig Miller, Esq., Davis Wright Tremaine LLP – DWT Pacific, Seattle, Washington. Hawaii Superferry, September 2009.

KEY AND PIVOTAL - ENVIRONMENTAL IMPACT STATEMENT

Wed, Jan 6, 2010

Attention: Mr. Alan T. Yamamoto

Senior Legislative Assistant

Offices of Senator Daniel K. Inouye

Aloha Mr. Yamamoto-

I wanted to clarify the points in Mr. Hasegawa’s email for you. Mr. Hasegawa was kind enough to call us today to discuss the possibility of working on an alternate interisland ferry service that would be privately run as I understand it. We were the lead consultant for the State DOT Harbors Super Ferry EIS that ultimately stalled.

That work was done for the State of Hawaii DOT Harbors Division. The studies cannot be used for other purposes without a release from DOT. The preparation and processing of such a high profile EIS would require months, perhaps years, and would be costly due to the large volume of comments and the need for coordination with many, many agencies, consultants and community groups. It’s difficult to determine the schedule and cost of such an EIS through the Hawaii Chapter 343 process without more information. The program for the alternate ferry service could possibly require extensive changes to the studies undertaken for the Super Ferry if environmental impacts vary from our initial assumptions. The program would also dictate the consultants used to prepare the new studies or amend the existing work. If a long period of time elapses the work may have to be redone to reflect existing conditions.

You can see that there are many questions to be answered and issues to look into.

Please do not hesitate to call or email me if you have further questions or comments.

Best wishes-

Michael B. Terry, ASLA, CLARB | President/CEO Belt Collins Hawaii Ltd. 2153 North King Street, Suite 200 | Honolulu, HI 96819-4554 USA T: 808.521.5361 | F: 808.538.7819 | www.beltcollins.com

TITLE XI FEDERAL SHIP FINANCING PROGRAM

“[E]stablished pursuant to 46 USC Chapter 537, provides for a full faith and credit guarantee by the U.S. Government of debt obligations issued by U.S. or foreign shipowners for the purpose of financing or refinancing either U.S. flag vessels or eligible export vessels constructed, reconstructed or reconditioned in U.S. shipyards.”

Program Requirements

Financial Requirements

Minimum of 12.5% equity funded or committed prior to Maritime Administration approval

Positive working capital Long-term debt to equity ratio of 2:1 or less

Maintain net worth - Economic Soundness

Technical Acceptance - Legal and Regulatory compliance

Insurance Requirements

Vessels or technology financed by Title XI must maintain adequate insurance during the entire term of the financing.

Insurance must be provided by an approved underwriter.

List of approved domestic and foreign underwriters.

Source: MARAD.

http://www.marad.dot.gov/ships_shipping_landing_page/title_xi_home/

title_xi_home.htm

http://www.marad.dot.gov/ships_shipping_landing_page/title_xi_home/tit le_xi_prog_description/title_xi_prog_description.htm

CAPITAL CONSTRUCTION FUND

“The Capital Construction Fund (CCF) program was created to assist owners and operators of United States-flag vessels in accumulating the large amounts of capital necessary for the modernization and expansion of the U.S. merchant marine. The program encourages construction, reconstruction, or acquisition of vessels through the deferment of Federal income taxes on certain deposits of money or other property placed into a CCF.

CCF vessels must be built in the United States and documented under the laws of the United States for operation in the Nation's foreign, Great Lakes, Short-Sea Shipping or noncontiguous domestic trade or its fisheries. Participants must meet U.S. citizenship requirements.

Operators of American-flag vessels are faced with a competitive disadvantage in the construction and replacement of their vessels relative to foreign-flag operators whose vessels are registered in countries that do not tax shipping income. The CCF program helps counterbalance this situation through its tax-deferral privileges.

Another goal of the program is to assist in the modernization and expansion of vessels used in the noncontiguous domestic trade and the Great Lakes trade.”

“[V]essels constructed, reconstructed, or acquired under this program span a wide spectrum, including large containerships, Roll-On/Roll-Off vanships, barge-carrying vessels, and other general cargo vessels; crude oil and petroleum product tankers, sophisticated liquefied natural gas (LNG) carriers; self-unloading Great Lakes bulk carriers; tugs, barges, supply vessels, and ferry and passenger vessels.” [Emphasis Supplied]

Source: MARAD. http://www.marad.dot.gov/ships_shipping_landing_page/capital_construction_fund/capital_construction_fund.htm

HISTORICAL PERSPECTIVE

“Past ferry prospects in Hawaii have come and gone. A steamship Hualalai set off in January 1966 and went out of business before the year's end. In 1975, Seaflite launched a hydrofoil system connecting Honolulu, Maui, Kauai and the Big Island, but its parent company went broke three years later and the Hawaii operation ended.”

Source: Ruel, T. (2004, January 13). Ferry venture accelerates - Hawaii Superferry has secured a pact to buy two ships, as well as investment advice and commitments. Star Bulletin.

Island History for Friday, June 17, 2011

Nawiliwili Harbor opens

Hank Soboleski – Special to The Garden Island | Posted Jun 16, 2011

When the inter-island steamship “Hualalai” steamed past the Nawiliwili breakwater shortly after 6 a.m. on July 22, 1930, Nawiliwili Harbor was officially opened to seagoing traffic.

“Hualalai” was escorted by a score of sampans and welcomed by sirens from two Navy tenders and a submarine in the harbor, and as she rounded the seawall, fireworks were shot aloft.

About 4,000 people watched while “Hualalai” tied up alongside Pier 1 near the port’s terminal, and it was estimated that 1,300 cars were parked beside the pier.

First off the gangway was Grove Farm founder George Norton Wilcox (1839-1933), who was practically covered with lei while he walked to his car. Thereafter, every passenger was presented with a lei by flower girls standing at the foot of the gangway.

Although the first plans for a harbor at Nawiliwili were made by the Hawaiian government in 1881, it was Wilcox who was primarily responsible for establishing a well-protected, deep water port at Nawiliwili.

The breakwater, which was largely financed by Wilcox, was finished in 1921, and in 1927, when he was 88, Wilcox directed building of the seawall that was completed in 1928. Dredging of the harbor and construction of the pier and port terminal followed.

At 8:40 a.m., a flight of eleven Navy seaplanes flying out of Pearl Harbor began landing in Nawiliwili Harbor. Aboard were Territorial Gov. Lawrence M. Judd and 75 other persons arriving for the harbor’s opening. Soon after 10:00 a.m. all the planes had landed and their pilots, crews and passengers had been taken ashore in small boats.

Featured on the pier that morning was a concert presented by the Salvation Army Band and a specially composed song sung by a group of Hawaiian girls directed by Henry Waiau.

Source: The Garden Island http://thegardenisland.com/news/local/island-

history-for-friday-june/article_4f86e908-98a4-11e0-94fc-001cc4c03286.html?mode=jqm

SeaFlite

Two other boats were added to the original and the service ran for 2 1/2 years, ending in January 1978. The owners abandoned the service due to financial problems and the boats were sold into service in Hong Kong.

SeaFlite operated 12 runs daily in its hay day at a cost of $20 one-way.

Seasickness presented a severe problem on the boats, which were touted as being smooth sailing since they theoretically skimmed above the waves. Other problems included a fire aboard one of the vessels, and a crash into a Coast Guard vessel. The boats also suffered lack of reliability and sailings often got cancelled. There was a persistent concern about harming Hawaiian humpback whales, although no problems actually occurred as far as I’m aware.

Two other attempts were later made to restart the service using upgraded Boeing 929-115 in 1978 and 1979, but neither effort got off the ground.

Source: Beat of HAWAII

http://beatofhawaii.com/hawaii-ferry-history-seaflite-and-hawaii-superferry/

HSF VESSEL CONSTRUCTION – LESSONS LEARNED

The Alakai was the first vessel delivered. The major construction difference between the Huakai and the Alakai was a ramp to load and offload cargo and vehicles built on the Huakai but not the Alakai. The Alakai required a moored dock in Kahului Harbor. This dock was not pillared to bed rock and subject to breakaway during high seas – a major safety hazard.

The Huakai and Alakai featured environmentally friendly technologies - non-toxic bottom paint, zero wastewater discharge and clean diesel engines.

The Alakai was purchased by the United States Navy and was named the USNS Puerto Rico (HST-2).

The Huakai, the second vessel in the Super Ferry fleet, was purchased by the United States Navy and was named the USNS Guam (HST-1).

The USNS Guam (HST-1) is home ported in Okinawa, Japan and provides a flexible, high speed vessel response for that area of the Pacific.

THE INTERISLAND FERRY – A PROFIT CENTER

“Hawaii Superferry has estimated that a family of five traveling by car to the neighbor islands from Oahu could use the ferry service for about half the cost of flying and renting a car, Garibaldi said.” [John Garibaldi, Partner, Hawaii Super Ferry, former CFO, Hawaiian Airlines]

“GOVERNOR LINDA LINGLE AND SENATOR DAN INOUYE

HAILED THE PROJECT AS A SOCIAL AND ECONOMIC

BENEFIT TO THE ISLANDS.”

Source: Ferry venture accelerates - Hawaii Superferry has secured a pact to buy two ships, as well as investment advice and commitments. Star Bulletin.

Cited Infra. [Clarification and Emphasis Supplied]