2011-04-09 / News

Mackinac Island Spells Out Regulations in Ferry Ordinance

By Karen Gould

Mackinac Island has a new Ferryboat Ordinance, franchise application, and a franchise form. The documents were approved unanimously during a special council meeting Wednesday, March 16, with a few changes made to the draft Ferryboat Ordinance. Ferry companies have until Tuesday, April 5, to submit an application for a two-year franchise, which requires a ferry schedule, a U.S. Coast Guard certificate of inspection on each vessel, and a $25 filing fee.

The city council will approve or deny the franchises.

A bitter battle is brewing between the city and Shepler’s Mackinac Island Ferry, which is charging the city and Arnold Transit are violating federal and state antitrust laws and forcing the company out of business. Shepler’s has also asked the Michigan Public Service Commission (MPSC) to exercise its regulatory role over boat service and also to extend last year’s city franchise for one more year while the court sorts out the other issues. The city is contesting the complaints, and, during Wednesday night’s meeting, the city council consulted in executive session with its attorneys on both matters.

During the regular meeting, city attorney Michael Cavanaugh noted changes from the 2010 ferry ordinance that have been made to the new version by the city council.

Among them, the city is capping round-trip ticket prices at $24 for adults and $11 for children. Ferry companies also must now submit income and expense records, the city contending that it needs this information to determine “reasonable” fares. Mr. Cavanaugh noted that if a company asks the city council to increase ticket prices, the city can ask for financial proof that a rate hike is justified.

Alderman Mike Hart asked if a provision for confidentiality of ferryboat financial records, a consideration boat lines have asked for, was needed by the city. The issue also had been raised during an earlier workshop meeting.

Tom Pfeiffelmann, CEO of Star Line, said he had a concern for confidentiality.

“When we submit all of our laundry in the form of our books, if we give it to the city, it becomes public knowledge,” he said. “Unlike Detroit Edison that just services one area, we’re three companies servicing the same area, so it’s important to us that our competitor, let alone the public, not see what we’re doing.”

Mr. Cavanaugh said his recommendation was for council to adopt the ordinance and then work with the ferry companies on their suggestions on handling the information. The city could grant confidentiality and arrange it by having the city’s auditor go to the office of the ferry company to review the records, said Mr. Cavanaugh.

“The argument could be made that essentially these are public utilities and it all should be out in the light of day,” he added. “You could decide how you want to handle that going forward into the future.”

Alderman Jason St. Onge said he wants any request for price changes to be accompanied by financial statements.

“I think it’s important, however, to maintain that the burden of proof on any sort of change does rely on the boat company’s ability to provide,” he said. “I’m thinking back two years ago when the boat companies came and said, ‘Fuel’s up and we need $3 per person added on [to the price of a passenger ticket].’ We didn’t really ask, we just got told. Now, we were never shown one fuel bill. We don’t know if they made a profit on that $3 per head thing. I’d like to think that they didn’t, but they very well may have… I don’t have a problem setting up some sort of system where the books aren’t opened up to the world, however, that doesn’t limit your burden to prove to us that the reason you’re seeking relief or a change rates or fares still needs to be proved and or provided. You just can’t come in just because gas at the pump is up a dollar. One doesn’t necessarily coincide with the other. The proof needs to be presented to the city.”

Also set in February and included in the ordinance is a franchise fee of 7% of gross passenger ticket receipts. Last year, Shepler’s and Star Line paid 2.5% and operated during the peak tourist season. Arnold paid 2% and operated until the winter ice stopped it. This year, the city is requiring all franchised companies to operated from March 15 to January 15, weather permitting. Shepler’s proposed the boats pay a 2% franchise fee and Northern Ferry, a joint venture between Star Line and Arnold, proposed a 9% franchise fee.

Alderman Armin Porter asked if city council is allowed under the ordinance to reduce the 7% franchise fee before the start of the season.

Council could reduce the fee at any time and that would be done through an amendment to the ordinance, replied Mr. Cavanaugh. The city, however, could not raise the fee to a franchisee.

“The city can amend the ordinance to change the 7%, but if there is a franchise agreement in effect, that is, if a franchise is issued, the city cannot increase that 7% during the term of the franchise,” he said. “Now if the city wanted to reduce it, say to 6%, you can do that and then you just reach an agreement with the ferryboat companies to change the franchise term to reduce the rate from 7% to 6%.”

Mr. Porter asked if the penalties in the ordinance “are adequate to prevent somebody, who through a series of court proceedings, delayed paying a franchise fee the entire summer?”

Mr. Cavanaugh said the ordinance protects the city from such action, allowing it to prosecute a misdemeanor, terminate a franchise, and/or file a civil lawsuit and seek an injunction from the court.

“If someone did do that, first of all, they would be guilty of a misdemeanor,” he said. “They would be charged with a misdemeanor every day. In addition to that, injunctive relief could be sought from the court to terminate the service.”

A maximum fine for a misdemeanor is $500 a day.

Mr. Porter asked if the ordinance prevents a “sweetheart deal” of a ferry company providing free freight to a hotel in exchange for all of their convention passenger business.

Under the existing ordinance and the proposed ordinance, such an arrangement is prohibited and would be considered unreasonable discrimination, said Mr. Cavanaugh.

Ferry companies must meet a minimum schedule of service set by the city but may seek permission from city council to change their schedule.

Under the new ordinance, boat lines must file no later than February 1 (Tuesday, April 5 this year) its schedule of rates, fares, and charges for all classes of passengers. The companies can ask council to approve changes and council has 30 days to act on a request.

Free service for passengers is not allowed, except for employees and owners of a company and people affiliated with nonprofit, tax-exempt organizations like schools. Local resident “free days” must receive prior council approval.

Resident Joan Slater noted that the section numbering had skipped a number and council agreed that the document would be renumbered as part of its motion to adopt the ordinance. Other changes included with the motion were the addition of clarifications and of the definition for “person,” meaning “a natural person, corporation, trust, partnership, incorporated or unincorporated association, or other legal entity.”

Shepler attorney Ellen Crane, who did not attend the meeting, issued a statement through the ferry’s communications firm, Truscott Rossman of Lansing, that stated, “The new ordinance essentially eliminates the most effective tools of competition and promotion now available to ferry operators serving the island.”

The ferryboat ordinance, application, and franchise form, and a link to all the Public Service Commission filings, can be found on the Mackinac Island Town Crier Web site, mackinac islandnews.com, under the free tab, Ferry Franchise Documents. Other Mackinac Island stories are published weekly throughout the year in The St. Ignace News, available online at stignacenews.com.

Wednesday’s meeting drew about 30 people.

Mayor Doud noted that there is a local misperception that the Public Service Commission has been sending representatives to the council meetings when, in fact, the people referred to are court reporters hired by the city to record the meetings.

Janeen Radtke, a court reporter with Network Reporting, has been recording the meetings for the city.

“I just want to make that clear,” she said. “We’ve had three of them [court reporters] here and none have been from the Michigan Public Service Commission.”

Mayor Doud also commented on a statement in The St. Ignace News article, “Ferry Ordinance Examined,” published March 10, that suggested city negotiations to purchase ferry docks from Arnold Transit owner Jim Wynn could resume after the franchise matters were settled.

“At this time, that issue will not come up,” said Mayor Doud. “I will say not at this time. There is not going to be any further discussion of purchasing any docks at this time. I just want to make that very clear.”

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