Recommendations point to lack of accountability, need for affordability

A report released today by B.C. Ferry Commissioner Gord Macatee provides more evidence of the Liberal government’s failure to ensure the corporation is accountable to ferry users and exposes major flaws with the B.C. Liberals’ Coastal Ferry Act, says New Democrat ferry critic Gary Coons.

“The Liberals promised families and communities stability when they brought in the Coastal Ferry Act in 2003– yet since then, fares have increased by 80 per cent on minor routes and 47 per cent on major routes while ridership has plummeted, leaving our ferry system on the brink,” said Coons. “It’s no wonder that ferry users told the commissioner that they don’t feel the Coastal Ferries Act is working for them.”

According to the Commissioner, “current ferry fares and the proposed increases have reached the tipping point of affordability and are imposing significant hardship on ferry dependent communities and the ability of people to visit family members and friends as frequently as they would like.”

The report made 24 recommendations on how to decrease the cost of the ferry system and increase its revenues, and proposed sweeping changes aimed at making the corporation more accountable. It recommended: the elimination of user pay principle; the scrapping of the no subsidization from the major routes; fares at the rate of inflation and to finally sit down with BCFS and develop a long term vision for our ferry system


“It’s clear that the Liberals’ failed to ensure that ferry dependent communities’ interests would be protected when they restructured our ferry system,” said Coons. “Their failure to ensure the corporation would be accountable to British Columbians has taken money out of the pockets of families and put our ferries system in disarray.”

Coons noted this is the third investigation which has uncovered a need for greater oversight and accountability at B.C. Ferries.

“After years of unrealistic executive salaries, and out of control spending on advertising and corporate perks, it seems like everyone except the Liberals know that there is a disturbing accountability gap at B.C. Ferries,” said Coons. “This is the third report outlining the need for improved oversight of B.C. Ferries – it’s time for the Liberals to get to work."

The 24 recs from the Commissioners review…and some comments in brackets…..

1. The primary responsibility of the Commissioner should be to protect the interests of ferry users and the taxpayer. The term “ferry user” should be interpreted broadly, to include ferry customers, their families, ferry-dependent communities and businesses which depend on ferry services to be affordable and reliable.

(Looking at an integrated ferry system that takes into account the ferry community instead of just the Company or the user.)

2. The secondary responsibility of the Commissioner is to protect the ongoing financial sustainability of the ferry operator by encouraging the ferry operator to:
a) operate efficiently;
b) take a commercial approach;
c) be innovative; and
d) minimize its operating expenses.

(This puts BC Ferries under the spot light, and the efficiencies should be found first before any increase in the Subsidy, which I noticed they referred to instead of Service Fee)

3. The Commissioner should also have the authority to determine the respective interests of the ferry users, the taxpayers and the ferry operator and how best to balance those interests.

(Again more oversight, and decision capabilities, and he has to balance the needs.)

4. The principle of elimination of cross subsidization from the major routes to other routes should be removed from the Act. Future price caps should be set at one level for all routes or all route groups as may be established by the Commissioner.

(This brings balance to the fare structure, and identifies that BC Ferries is an integrated ferry system, this allows the government to adjust the Service Fee/subsidy.)

5. The principle of a greater reliance on a user pay system should be removed from the Act.

(This part is supported by the elimination of cross subsidization, which allows to balance the cost)

Affordability

6. The Province should work collaboratively with BC Ferries to develop a long-term vision of coastal ferry services in BC. A draft discussion paper should go out for public consultation. The resulting vision should be formally adopted by the Province and provide the basis for the long-term capital plan of the ferry operator. Ideally the vision would be in place before major capital decisions are made regardingPT4.

(This brings certainty to the Coastal Community and one of the areas that we at SOF have championed for a long time, since BC Ferries has never been good at developing a long term plan. This would allow for investment into Coastal Communities.)

7. The Act should explicitly require that the Commissioner must approve the long-term capital plan and any modifications thereto and that the Commissioner’s approval be based on a determination that the capital plans are compliant with the long-term vision and its guiding principles.

(Capital expenditures that make sense and that are based on sound business practices, with a long term strategy to support the planning. This is long overdue, when you consider the Powell River to Little River strategy has been sitting on MOT’s desk since 2006.)

8. The Act should require that all major capital investments (i.e. new vessels and mid-life upgrades, and terminal upgrades above a threshold determined by the Commission) should be approved by the
Commissioner based on a determination that such investments are reasonable, prudent and consistent with the long-term capital plan.

(Building vessels as a group, that are interchangeable and standardized, avoiding one off purchases and using the market of scale, is required, but again it requires a long term strategic plan.)

9. The Province should make provision for some improvements to capacity utilization within defined parameters. Subject to those parameters, the Commissioner should be given authority to approve specific changes to service levels, based on a consideration of the interests of ferry users, the taxpayer and the financial sustainability of the ferry operator.

(This is a major undertaking, and would require more resources to look at what is required to meet the needs of the Coastal Community, and the new FAC structure under the Ferry Commissioner would support this imitative. Historically when you cut service you do not get it back, see below)


10. The Province should empower the Commissioner to approve additional services which have been approved by the BC Ferries Board, if the Commissioner is satisfied that adding a new route is in the interests of ferry users, the taxpayers and the ferry operator and can be accomplished without creating an expectation for additional subsidies.

(Again oversight increased, and long term planning)

11. The Province should consider an increase in subsidies together with other initiatives to hold price cap increases to the rate of inflation for the balance of PT3.

(In principle, this is a very good move, but BC Ferries needs to find efficiencies internally, prior to any increase of taxpayer’s money, the cost exclusions is a great example, there used to be approximately 9 Terminal Managers now there is;
24 Terminal Managers
4 Terminal Regional Managers (new under BCFS Inc. Structure)
2 Terminal Superintendents (new under BCFS Inc. Structure)
2 Terminal Directors (new under BCFS Inc. Structure)

12. The Act should explicitly authorize the Commissioner to establish fuel deferral accounts and to have discretion to set terms and conditions for their use.

(This is a little bit of a push back towards the MOU pre Christmas Fuel Surcharge issue)

13. The Province should consider extending its policy of absorbing at least a portion of both fuel surcharges and rebates on northern routes to all routes for the balance of PT3.

(This allows control of fares, until all the changes are in place)

14. The Act should empower the Commissioner to authorize a municipal or regional government to “buy down” ferry fares on routes to and/or from their communities, to set whatever conditions are considered appropriate, to provide oversight on the arrangement, and to make orders as necessary to ensure that all funds contributed by a local government are used for the exclusive benefit of the intended routes.

(This could be unfair for small communities, but the Province could assist those communities)

15. A high priority should be placed on upgrading BC Ferries’ traffic forecasting capabilities, including upgrades to the reservation and point of sale systems.

(The POS is over 12 years old, no argument here)

16. In determining the final price cap decision, the Commissioner should have the option to consider:
a) adjusting the price cap;
b) ordering a change to service levels on specified routes with whatever terms and conditions the Commissioner considers appropriate;
c) ordering a reconsideration of upcoming capital projects; or
d) any combination of a) through c).

17. The Commissioner should be provided with additional options for dealing with an extraordinary situation, including the ability to order a temporary reduction to service levels, or a temporary delay to capital projects, without compromising safety or operational reliability. As well, extraordinary decisions by the Commissioner should be able to be reversed or modified if the extraordinary circumstances change, or no longer exist.

(Gives ability to adjust with events)

Financial Sustainability

18. The section of the Act which prescribes a pre-tax return on equity as the basis for determining price caps should be amended to direct the Commissioner to set targets for equity levels and cash flows sufficient to meet debt requirements to allow the company to maintain its current rating for long-term bonds.

(There goes unnecessary expenditures, and keeps them inline)

19. Municipal and regional governments should be empowered to pass resolutions requesting the Commissioner to establish a marketing surcharge on ferry routes which lie within their boundaries, for purposes of promoting destination marketing which is reasonably likely to increase ferry ridership. The surcharge would be collected by BC Ferries and remitted to a designated regional tourism entity.
Surcharges would only apply to specified routes, and the proceeds would need to be used entirely for the benefit of the community which pays for them. The Commissioner should be authorized to set conditions on use of the surcharge, and to limit the time periods that a surcharge will remain in effect.

(Interesting concept, but will have to review other carriers on use. I can see a summer time fee added, just like airport improvement fees)

20. The Act should be explicit that the Commissioner be expected to encourage the ferry operator to generate new ancillary revenue, if doing so is considered to be in the interests of ferry users and taxpayers.

Accountability

21. The Act should be more explicit that the Commissioner may issue an order which requires the ferry operator to:
a) prepare a plan,
b) review a policy,
c) undertake a public consultation, or
d) cause information to be made public.

(This has been sorely missing under this business model, and gives the Commissioner the ability to hold BC Ferries to task.)

22. The Commissioner should be authorized to approve or reject a plan or a policy which has been submitted, but should not be authorized to impose an alternative plan or policy created by the Commissioner.

(Again more over sight into the business and ensuring that BC Ferries is keeping costs down.)

23. The Act should explicitly authorize the Commissioner to conduct routine performance audits on an on-going basis as deemed necessary and in the interests of ferry users and taxpayers.

(This auditing function again puts BC Ferries under the spot light, on how they are spending money, which is required)

24. Ferry Advisory Committees should be appointed by the Commissioner and remain advisory. The terms of reference, structure of and appointments to the Committees should be at the discretion of the Commissioner, with the intention of ensuring that each committee includes people with a range of perspectives on the various users of the system, including a resident, a commuter, a tourism operator, a commercial operator and a local government official.

(I wonder if the Coastal Council will be reinstated, BC Ferries does not control the process and only has a seat at the table.)