The V.I. Legislature is considering granting a new, 20-year lease, with option for a five-year extension, for Varlack Ventures and Transportation Services to run ferries from Cruz Bay to Red Hook and Charlotte Amalie.
The measure sponsored by Sens. Almando "Rocky" Liburd, Clifford Graham and Jean Forde also increases the cap on the allowed rate of return from its current 8 percent to a proposed 10 percent. And it allows the exclusive franchisees to subcontract the route. [Bill 31-0332]
The companies and their representatives testified in favor of the new franchise. Public Works and Public Services Commission officials urged the Legislature to shorten the lease and put in stronger requirements on the franchisees to meet the terms of the franchise, to run the routes reliably and to provide audited financial statements.
Malcolm Kirwan, a technical consultant for the ferry companies, testified in support of the new legislatively mandated exclusive franchise, saying PSC consultants Georgetown Consulting suggested a rate of return of 12 to 14 percent in a study in the 1980s.
Kirwan also urged the Legislature to change V.I. law to change the way ferry companies can calculate earnings for rate purposes because, he said, the current law might not allow the companies to charge for use of two new ferries purchased with federal funds. The ferry companies lease those two ferries at a very low cost.
"Under the broadest possible interpretation of the existing legislation, the ferry companies are only entitled to earnings computed on net investment in capital assets that are acquired either by purchase or under the terms of a capital lease," Kirwan said. “As such, the ferry companies would not be entitled to any earnings on vessels that are leased from the government of the Virgin Islands because such a lease will not meet the established accounting standards for a capital lease.”
Public Works Commissioner Gustav James urged the Legislature not to give a 20-year lease but instead grant a shorter, 10-year lease.
James said two new vessels being used on the route were purchased with federal funds and therefore any commitments made involving those boats are subject to federal scrutiny. He said they were happy with the ferry companies. But he said the franchise was too long.
"In this case, the proposed bill does not require any specified capital investment by the franchisees. Plus some of the capital equipment currently in use were paid for with government funds," James said.
"For those reasons, it is my opinion that the proposed 20-year exclusive agreement with two five-year options is excessive. I recommend a 10-year period with one five-year option, with the understanding that if the franchisees are required to make very substantial capital outlays in the future, this bill can be revisited to extend the exclusivity and to obtain a commitment on the capital investment," James said.
Public Services Commission Executive Director Donald Cole outlined a series of problems the PSC and riders had with the ferry service, from mandated routes not being run to unannounced cancellations and difficulty getting financial and other information from the ferry companies.
Cole urged senators to "review this legislation very carefully and consider an amendment … to secured better, more reliable and cost effective services."
No votes were taken at the information-gathering hearing of the Committee of the Whole.
Present were Forde, Graham, Liburd, Sens. Marvin Blyden, Novelle Francis, Kenneth Gittens, Justin Harrigan Sr., Myron Jackson, Neville James, Nereida Rivera-O’Reilly, Tregenza Roach, Kurt Vialet and Janette Millin Young. Absent were Sens. Positive Nelson and Sammuel Sanes.