May 5, 2011
Preliminary Price Cap Review: BC Ferries Responds; Public Feedback Welcomed by June 30, 2011
In its preliminary decision of March 31st, the commission set price caps to increase each April 1 from 2012 to 2015 inclusive, by 4.15% on the major route group (including Horseshoe Bay-Langdale) and 8.23% on the northern and minor route groups. Factored into these caps was a productivity challenge of $15 million annually and cuts of $3.5 million per year for a total of $18.5 million annually. A final decision is due September 30 2011.
In BC Ferries’ response published today, the company submits that some aspects of that decision do not comply with the Act and must be revised, asserting that:
- the preliminary caps pose a significant risk to BC Ferries’ financial sustainability;
- the assignment of a lower overall cost of capital to the northern and minor groups amounts to cross subsidization (by the major route group), not permitted by the Act;
- it is unreasonable for BC Ferries to meet the productivity challenge of $15 million per year but it accepts one of $10 million per year (rounded up to the nearest $1 million); and
- the reductions in marketing costs and amortization of capital expenditures are unreasonable.
What would be the impact on fares of revising the above productivity challenge and cost cuts? The commission estimates that for each $1 million per year restored to BCFS, the price caps would increase by:
- 1/20 of 1% per year faster for the major route group (including Horseshoe Bay-Langdale); and also
- 1/10 of 1% per year faster for the northern and minor route groups.
For instance, if the commission adopted BC Ferries’ figure of about $10 million per year productivity challenge instead of the $15 million per year challenge, the resulting $5 milllion per year restoration to BCFS would mean:
- 4.15% + (5 x 1/20)% = 4.40% per year (approximate) increase on the major route group (including Horseshoe Bay-Langdale); AND
- 8.23% + (5 x 1/10)% = 8.73% per year (approximate) increase on the northern and minor groups.
Today the commission invites ferry users and the public to give feedback on BCFS response by e-mail to email@example.com, or by visiting the contact us page. The deadline for comments is June 30, 2011.