Testimony wraps up on Interstate draft agreementPUC expected to issue verbal decision Monday after 2 p.m. meeting
Testimony before the R.I. Public Utilities Commission (PUC) on proposed Interstate Navigation Co. rate increases wrapped up in Warwick on Tuesday and the board is expected to issue its verbal decision on Monday, April 29. If approved, the new rates would go into effect on May 24.
The PUC must decide if a Settlement Agreement entered between Interstate Navigation and the R.I. Division of Public Utilities and Carriers should allow the ferry company to generate $579,388 in additional traditional ferry revenues. The draft agreement includes an increase in freight charges, an increase in truck charges, a slight increase in passenger ticket costs and a decrease in car charges.
“We are [decreasing car charges] because we are thinking that will attract cars back,” said Walter Edge, an accountant hired as a consultant by Interstate Navigation.
Edge told the board that car ridership decreased by about 5,000 trips during last year’s peak season mostly because the price was just too high for many travelers.
Katherine Merolla, an attorney for the town of New Shoreham, questioned whether varying events on the island, such as fewer weddings or bad weather, had an effect on a decrease in car trips. Edge said that there was no study that looked at such issues, only a cost allocation analysis based on ferry ridership reports.
“So there is no data that a decrease in car rates will result in an increase in the number of cars on the ferry?” Merolla asked.
“It was agreed that the cost of a car had reached a tipping point that affected ridership,” Edge replied and explained that the company is hoping to attract those customers back.
Interstate Navigation attorney Michael R. McElroy told the PUC that the ferry company relies on tourism dollars to keep the ferries operating all year. “I think we need to recognize that Interstate is an overwhelmingly tourism-driven business,” he said. “If we don’t work hard to maintain that it will affect year-round service.”
McElroy told the PUC, which is a regulatory agency that oversees the state’s energy and transportation costs, that these are the first rate increases proposed for the ferry service in five years. Freight rates haven’t increased on the ferries since 2004, he added.
If approved, the adult round-trip fare from Point Judith to Block Island will increase by $4.30 from $18.30 to $22.60; the child round-trip fare will increase by $2.20, from $9.10 to $11.30; and the commuter-round trip fare will increase by $5.50, from $10.50 to $16. Travel costs for non-commuter vehicles will decrease about 20 percent, the agreement states.
The agreement also includes a provision that will give Interstate Navigation pricing flexibility so that some tickets could be increased by up to 10 percent or decreased by not more than 20 percent during the following three-year period. This provision would affect round-trip tickets and non-commuter car trips and will not apply to commuters, commuter vehicles and freight trips, the agreement states.
Such flexibility would allow Interstate to increase some ticket prices by up to $5 without requiring a full hearing before the PUC.
PUC’s senior legal counsel, Cynthia Wilson-Frias, questioned how such increases or decreases on ticket prices would be decided.
Edge explained that ridership numbers for this season would help determine where increases or decreases could be made. Such flexibility will be useful on Interstate’s new high speed ferry, the Islander, which will begin operating between Newport and Block Island daily this summer, McElroy said.
The draft agreement also includes a provision that will increase the fuel price recovered through base rates from the current level of $2 per gallon to $3.25 per gallon, which is subject only to statutory fuel surcharges if the price of fuel oil exceeds $3.25 per gallon.
Block Island resident Paul Filippi testified on Tuesday that the rate increase will have a “substantial impact on the many residents, businesses and visitors” to Block Island. He said that more information should be gathered about Interstate’s complex operations and finances, such as revenue received when the company charters its ferries and how rate payers are affected by maintenance and other company costs.
“Interstate’s rate filing reflects a lack of disclosure and critical analysis of Interstate’s and the [owners’] complex and often-times intertwined business dealings,” Filippi wrote in a seven-page letter to the PUC. “The PUC, and the public, deserve to have a full and complete picture of the Interstate operations before any rate increase is even considered. Moreover, the PUC should categorically reject Interstate’s proposed commuter regime, and replace it with one that is fair to all Block Island residents.”
Attorney McElroy took issue with Filippi’s testimony and questions that Filippi raised about the operation and maintenance costs of M/V Manitou and M/V Anna C.
“I’m shocked that Paul Filippi would suggest we don’t need the Anna C,” McElroy said. “The town has requested that we maintain our level of service and we need all the vessels. The Anna C is essential to that and the Manitou serves as backup.”
Comments made by residents during a public hearing held on Block Island on April 4, which centered on Interstate’s proposal to increase freight rates by 34 percent, were also discussed Tuesday. The proposed freight tariffs alone would increase the company’s revenue by an estimated $272,961. During the April 4 hearing, island residents told the board that raising ferry freight rates would hurt the Block Island economy because business owners would need to increase the cost of goods and services.
Interstate Navigation’s Vice President Joshua Linda testified that freight operations come with increased costs in equipment, labor and time. “Freight is a very labor-intensive part of the operation,” he said. “There is no magic solution to freight tariffs ... everyone on the island feels it should be billed a different way. I believe [the increase] is fair.”
Edge agreed and said that the company recently undertook a complete review of all the tariffs and made increases or decreases where appropriate.
“It’s important that we run the business so that we get as much money as possible to maintain the lifeline,” Edge said. “But I don’t believe we should keep rates low just because [people] choose to live on an island.”
“Freight has a lifeline to it, too,” said PUC member Paul J. Roberti. “If the settlement is approved all of these things will play out.”
Questions were also raised about recent testimony submitted by town consultant Richard LaCapra which stated that Interstate Navigation should keep the existing freight rate and also reduce off-season car prices. That position reversed a previous town stance that “reluctantly supported” an across-the-board freight rate increase of 34 percent.
LaCapra’s proposal said that a peak and off-peak rate structure would increase the ferry company’s total revenue by $335,993. Under LaCapra’s proposal, freight charges would not change, and the truck transport charges would increase by 3.1 percent.
Edge told the commission that the truck rate is actually increasing by only 9 percent and that the rate is based on the truck’s linear footage. “The [costs for] food in those trucks is going to go up probably no more than 1 percent,” Edge said.
PUC’s attorney Wilson-Frias asked about testimony from residents that encouraged setting higher rates for passengers during summer months.
Edge said that such an approach amounts to “gouging” tourists. “Businesses who gouge summer visitors can do that because they are not regulated like Interstate is,” Edge said.
PUC members also questioned how the figure for the company’s revenue increase was reached in the proposed agreement.
“We settled on a number that we felt in context of the settlement as a whole was reasonable,” said Attorney David J. Effron, who negotiated with Interstate Navigation on behalf of the Division of Public Utilities and Carriers. “From the Division’s perspective we believe it’s a reasonable settlement.”
Filing of briefs on legal issues must be completed by May 7. The PUC has the option of adopting rates that are higher or lower than those proposed in the settlement. The full applications can be found at www.ripuc.org, under Commission Docket Menu, Docket No. 4373.