H - 1 

### Appendix H

Estimated Ticket Price Increase for Ferry/Excursion Businesses

Air Resources Board (ARB) staff estimated the ticket price increase for typic al ferry and excursion vessel businesses assuming that the new equipment costs associated with compliance with the Commercial Harb or Craft Regulation are passed on to the passengers. The estimated new equ ipment costs associated with implementation of the regulation for these typ ical ferry and excursion boats are presented in this appendix along with the expec ted increase in ticket price.

New equipment costs are the estimated out-of-pocket costs for purchasing and installing a new engine (engine replacement cost), new ferry costs associated with adding after-treatment technology, recordkeepi ng, and reporting. The compliance costs for a ferry or excursion business will vary depending on the number and type of commercial harbor craft in their fleet and the compliance options chosen. Options include replacing the exis ting engine with a new engine, demonstrating that the existing engine meets the ap plicable emission limits, equipping the commercial harbor craft with a diesel emission control system, or implementing an alternative compliance plan that co uld include a combination of the above options. If engine replacement is chosen , a large portion of these costs are an existing cost of doing business that w ould occur with or without the regulation when an engine reaches the end of its se rvice life. Engine replacement was assumed to be the chosen compliance option for this estimated ticket price increase analysis. This is the most e xpensive option and so
represents a worst case.

The ticket price increase was estimated in two diff erent ways. The first estimate

was based on data obtained from the 2004 Statewide Commercial Harbor Craft Survey, documented in Appendix D. The other estima te was based on a hypothetical excursion company owning a single vess el and having to replace the propulsion and auxiliary engines at the same ti me. Based on these two estimates, the ticket price increase is expected to be between 5 to 10% of the

annual sales.

Estimate Based on 2004 Survey Data

ARB staff conducted a survey in 2004 of California harbor craft owners and operators to gather data on vessel use and engine i nformation. Staff was able to obtain Dun & Bradstreet credit and business report information on only three of the ferry/excursion companies which responded to th e survey. These three businesses represent the range of business sizes, i ncluding a large, medium, and small ferry/excursion company. Estimated new e quipment costs were based on the fleet description provided in the survey res ponses for these companies. An average annual new equipment cost was estimated for the years over which compliance would be required. The average new equi pment cost ranged fromH - 2

between three to five percent of the average annual sales for these three companies. These costs are presented in Table H-1 below.

Table H-1: Potential Increase in Ferry/Excursion Ve ssel Ticket Prices

Company Sales

(3 Yr. Avg.) ($) Average Annual

New Equipment Cost

($) Ticket Price

Increase (%) A: Large $ 30,226,850 $1,024,563 3.4% B: Medium $ 6,300,000 $ 289,009 4.6% C: Small $ 2,700,000 $ 108,000 4.0%

Estimate Based on Hypothetical Ferry or Excursion B usiness

A worst case hypothetical example was generated to confirm this estimated range of ticket price increase. ARB staff estimate d the costs to a small excursion company with a single older vessel. This vessel wa s assumed to have two 400 horsepower propulsion engines and a single 50 h orsepower auxiliary engine. It was assumed that all the engines would need to b e replaced at the same time. Also, staff assumed that this replacement would be a more difficult installation with a cost at the high end of the expected range. The cost for replacement for the propulsion engines was assumed to be $300 per h orsepower and the auxiliary engine replacement cost was assumed to be $240 per horsepower. This resulted in a total new equipment (engine repl acement) cost of $252,000. The resulting new equipment cost was assumed to be amortized over 10 years at

an interest rate of 5%. This results in an annuali zed cost of $32,635, as shown in

Table H-2 below.

Table H-2: Hypothetical Excursion Business Costs

Engine Type #

Engines Hp/

Engine Total

Hp New Equipment

Cost ($) Annualized New

Equipment Cost 10 yr. Amortization ($)

Main 2 400 800 $240,000 $31,081 Auxiliary 1 50 50 $12,000 $1,554

Total 3 850 $252,000 $32,635

A hypothetical annual sales estimate was calculated . The following assumptions were made to determine this estimate;

o $40 per ticket,

o maximum capacity of 40 passengers,

o average passenger fill rate of 50%,

o 3 trips per day,

o 5 days per week for 26 weeks per year. Using these assumptions, the annual ticket sales wo uld be $312,000. If the annualized cost of $32,635 was passed on to the pas sengers through a ticketH - 3

price increase, the resulting increase in ticket pr ice would be 10.5%, or an increased ticket price of $44, as shown in Table H- 3.

Table H-3: Hypothetical Excursion Business Ticket S ales

$40 Ticket price

40 Max passenger per trip

50% Average passenger fill

3 trips per day

5 days per week Assumptions:

26 weeks per year $312,000 Sales per year

10.5% Increase in ticket price Sales and Ticket Price Increase:

$44 New ticket price