Interstate may appeal DPUC’s decision

Company denied financing for 500-passenger fast ferry
Thu, 01/10/2019 - 6:30pm

Interstate Navigation is considering an appeal of a decision by the state’s Division of Public Utilities and Carriers that denied the company’s request to incur $8.5 million in debt to finance construction of a new 500-passenger fast ferry. During a public hearing held at the Division’s Warwick office on Dec. 27, Interstate testified that the new vessel would replace the Athena for seasonal operation from Pt. Judith to Block Island’s Old Harbor in the summer of 2020. The company filed its debt request application with the Division on Dec. 10.

On Friday, Jan. 2, the Division denied Interstate’s request to incur the loan and stated that it would open an investigation as to whether the timing of Interstate’s request to have the new fast ferry up and running by 2020 was designed to “thwart” a proposal by Rhode Island Fast Ferry to bring a new, seasonal fast ferry to Block Island from Quonset. Interstate has said the new high speed ferry had nothing to do with RIFF, but was designed to meet the needs of customers and to improve service.

“Interstate is evaluating its options regarding the DPUC decision, including the possibility of an appeal to Superior Court,” said Michael McElroy, Interstate’s attorney, in an email to The Times.

In its decision, hearing officer John Spirito wrote that the Division will investigate Interstate’s plans and whether it had designs to prevent Rhode Island Fast Ferry from operating a seasonal fast ferry from Quonset to Block Island. RIFF has been seeking dockage for its service at Old Harbor since the Division granted its license in Sept. of 2016. The Town of New Shoreham and Interstate have been litigating RIFF’s proposed service the past few years, stating a lack of demand for the service and congestion issues at Old Harbor.

McElroy said Interstate’s “proposal was designed exclusively to meet our customers' needs, not to attempt to thwart the proposed summer ferry from Quonset. Interstate has continually worked to improve its services and facilities for its customers for over 85 years and will continue to do so.”

“Interstate's proposal to build a new, larger high-speed ferry for summer use in Galilee was solely designed to meet the recently expressed needs of Interstate's high-speed ferry customers, who were often disappointed in recent years when they encountered sold-out high-speed ferries to Block Island, especially on summer weekends and holidays,” said McElroy. “Any and all profits generated by Interstate's high-speed ferries are 100 percent devoted to subsidizing the traditional year-round lifeline ferry services to Block Island and to keeping lifeline rates as low as possible.”  

During the Dec. 27 public hearing at the Division, McElroy testified that, “The high speed operation from Pt. Judith has been steadily becoming more and more popular, especially with Interstate's summer customers. And we don’t like to disappoint our customers.”

McElroy said the ferry company is “losing $14 per adult round-trip ticket for every passenger that wants to go on the high-speed ferry, willing to pay that price, but end up instead on the traditional ferry.” 

Interstate’s new vessel would have been built for $10.5 million, with the company providing $2 million of its own funds. The company filed a request with the Division to incur $8.5 million in debt through a two phase floating loan with the Washington Trust Company at a subprime floating interest rate of 3.31 percent, versus 5.50 percent for the current prime rate.

“It starts as a construction loan at floating interest rates and at the end of the construction period, estimated to be about 18 months, it will flip into a permanent loan,” said McElroy. “The loan will amortize over 25 years, but it will have a 10-year balloon. As we did with our other loans that had 10 year balloons, such as the loan with the Athena that we recently refinanced with approval of this Division, we expect we'll be able to roll the loan over with Washington Trust Company at the end of that ten years.”

McElroy said, “The primary security for the loan will be a ship's mortgage on the new vessel. None of the banks insisted on taking mortgages on Interstate's other vessels. The loan will not require a rate increase during 2019. There will also be no reduction in any scheduled runs in 2019, as compared to 2018.”

Interstate says once the boat is in operation, the Athena will service its seasonal Newport to Block Island route, replacing the Islander, which will be utilized for charter business and/or possibly bidding on the Providence to Newport high speed ferry run that's operated by the Rhode Island Public Transit Authority.

As for the town’s position, Town Solicitor Katherine Merolla spoke briefly, noting that the Town Council did not have enough time to review Interstate’s application “to vote on a position.” She said the representations made to the town were: that all profits get passed onto the lifeline service; no rate increase; and “no reduction in scheduled ferry runs.”

RIFF owner Charlie Donadio, Jr. sent the following letter to The Times: “RIFF is pleased to see that the Division is finally investigating Interstate Navigation. They have lied on the record numerous times to protect their monopoly all the while dragging the Town of New Shoreham through this fruitless litigation (DPUC hearings, Superior Court appeals, DPUC remands) for the past five and-a-half years. Interstate’s legal tactics telling the Town Council that there was no need for additional fast ferry service and that competition will drive up rates was a straight-out lie and was aimed to protect their monopoly. This strategy has cost the Block Island residents hundreds of thousands of taxpayer dollars. They have also expensed their own personal legal fees with ratepayer dollars.”

“Our Quonset fast ferry service will bring an economic benefit to the Town of New Shoreham and help boost the shoulder seasons for the local businesses while our subsidiary business, Atlantic Wind Transfers, will bring offshore wind opportunities to the island with employment potential and more business for hotels, rentals and restaurants. Interstate Navigation's monopolistic mindset has abused the legal process to their benefit while causing detrimental harm to the island and the public's interest by thwarting competition.” 

The Town Council will be holding a special meeting with Interstate at noon on Monday, Jan. 14, at Town Hall to discuss scheduling and rate structure for the year-round lifeline service, as well as why the council was kept out of the loop regarding the proposal for the new vessel.