BC Ferries Becomes Self Financing Company

Thursday, March 13, 2003
As a Crown corporation, BC Ferries has been subjected to years of political interference in everything from rate setting to vessel construction and spending priorities. This problem, which has been well chronicled in independent reports by Hugh Gordon, George Morfitt and Fred Wright, has seriously inhibited the corporation’s ability to operate in a businesslike manner. Over the next 15 years, $2 billion will be required to replace aging ships and upgrade terminals; however, the ferry corporation’s current structure inhibits access to the outside capital needed to make these investments. The new Coastal Ferry Act is designed to address these problems.

The New Model: Commercial Flexibility and Protection of Consumer Interests The new operating company will be governed and owned by the British Columbia Ferry Authority. A new, nine-member board with professional and business expertise will be established with representation from B.C.’s coastal regions in order to support the mandate of the new company.

The ferry corporation, which currently operates as a taxpayer-supported Crown corporation, will be transformed into an independent, regulated company under the BC Company Act and renamed BC Ferry Services. This independent, commercial operating company will be a service integrator, encouraging partnerships and ingenuity wherever it makes business sense to do so. To further protect consumers and the public interest, an independent regulator will enforce the provisions of the coastal ferry services contract. The regulator will ensure services outlined in the contract are provided and rate changes are reasonable. This structure will greatly strengthen public protection for routes and service levels. The regulatory framework will also ensure that regulation of BC Ferry Services does not undermine its financial viability, provide incentives for the company to be efficient and innovative, and encourage services that compete with it.

The authority model makes sense for taxpayers, customers and government. It ensures that no new debt burden is placed on taxpayers. The capital structure of BC Ferry Services will allow it to compete for funds in the capital markets. Accessing outside capital to finance the $2 billion needed for improvements is the only way to reduce the risk to taxpayers of higher government debt. Improved Service and Customer Choice A major focus of the new company will be to improve customer service and provide more customer choice. BC Ferry Services will commission new ferries and upgrade terminals, leading to more reliable on-time service. Partnerships with the private sector will provide customers with a greater choice of amenities, such as restaurants and retail shops, and will generate funds BC Ferry Services can reinvest in vessel and terminal improvements. Guaranteed Routes and Service Levels For the first time ever, core services including routes, service levels and rates are protected and cannot be unilaterally changed by BC Ferries as they can today. Routes and service levels will be established under a 60-year coastal ferry services contract between the province and BC Ferry Services. The new model will provide greater protection for existing routes and service levels. In addition to establishing required routes and service levels, the contract will outline the terms under which the province will pay BC Ferry Services an annual service fee. The service fee will be negotiated between the government and the company for a five-year term. The contract will state which routes must be operated, the core level of service on each route and the fee for service paid by the province. Routes and core service levels will be assured for the first five years and detailed schedules will be published two years in advance. Guaranteed Fair Rates Under the new model for ferry services in British Columbia, annual rate increase will be modest and predictable. Greater flexibility in pricing will allow BC Ferry Services to manage traffic during peak times, make the overall ferry system more efficient and improve customer service. BC Ferry Services will be required to keep the average of all prices at a price cap. Individual prices may rise above the cap, provided others fall below it. The price cap will be set to require BC Ferry Services to achieve productivity gains. Public Ownership of Terminal Lands The province will retain ownership of terminal lands, which will be leased to BC Ferry Services for a 60-year term. This arrangement will ensure that BC Ferries can make the much-needed capital improvements while protecting the public interest.

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