DECISION 2016 NSUARB 113 M07428 and M05042 NOVA SCOTIA UTILITY AND REVIEW BOARD IN THE MATTER OF THE MOTOR CARRIER ACT.

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1 DECISION 2016 NSUARB 113 M07428 and M05042 NOVA SCOTIA UTILITY AND REVIEW BOARD IN THE MATTER OF THE MOTOR CARRIER ACT - and - IN THE MATTER OF THE APPLICATIONS of MURPHY SAILING TOURS LIMITED to amend Motor Carrier License No. P and- IN THE MATTER OF THE IMPLEMENTATION OF THE BOARD ORDER regarding Discounting methods and their impact on the Motor Carrier Industry BEFORE: Dawna J. Ring, Q.C., Member APPLICANT: MURPHY SAILING TOURS LIMITED Dennis Campbell, CEO HEARING DATE: May 19, 2016 DATE OF LAST EVIDENCE: May 27, 2016 ORDER ISSUED: May 30, 2016 DECISION DATE: June 29, 2016 DECISION: Granted in part with modifications as per the attached Appendices A and B.

2 -2- I INTRODUCTION [1] This Decision addresses the Amendment Applications of Murphy Sailing Tours Limited ( Murphy or Company ) to change its Rates for services under Motor Carrier License No. P02758 ( License ) and the implementation of the Discount Review Order (M04994), for which the Board had retained jurisdiction. These matters are considered pursuant to the Motor Carrier Act, R.S.N.S. 1989, c. 292 as amended ( MC Act ). II BACKGROUND AND EVIDENCE [2] Murphy applied to amend its adult and senior rates in 2012 (M04866) and increase all rates in 2013 (M05553). By Orders dated May 25,2012 (amended November 20, 2012) and April 17, 2013, respectively, the Board granted the proposed rates in part with modifications. The Board determined in the latter Decision (2013 NSUARB 86) that approximately 95% of the company s revenue was obtained from the individual fares for its pre-packaged Harbour Hopper Tours. At Murphy s request, the Board set a fixed rate which Murphy generally charged its customers. Murphy also requested, and was granted, minimum and maximum rates below and above the fixed rate. The Board ensured the former were not more than 20% below the fixed rates in accordance with the Board s Interim Discount Review Order and all discounts did not exceed 2% of the gross sales for the service. The Board retained jurisdiction to reassess the discounts and coupons after the Discount Review proceedings had concluded. These conditions were included in the License.

3 -3- [3] Although the Board was prepared to leave the maximum rates to the company s discretion, Murphy requested the Board set these. Murphy advised they would be only used for special occasions such as fireworks or events like the Tall Ships, when the market would bear a higher price. [4] During the Discount Review proceedings, Mary Dempster, COO for Ambassatours Limited, advised on November 13, 2014, that Murphy was now owned by Ambassatours and, therefore, its President, Dennis Campbell, would be speaking on behalf of Murphy at the continuation of the proceedings. Those proceedings concluded by Order dated March 20,2015, which was applicable to all licenses that offered discounts or commissions, subject to any case specific evidence the Board found justified a variation. [5] The Board conducted its reassessment of Murphy s licensed discounts and coupons and found these did not require any change. However, the reassessment provisions needed to be deleted from the License. Furthermore, during the implementation process of the Discount Review Order, the Board was standardizing the formats and definitions of Rate Schedules and licenses. For clarity, the Board separated the rates for charter and pre-packaged tours. As the contract services had expired, pursuant to the Board s Regulations under the MC Act, these would be deleted from the License. [6] The Board incorporated the above changes into new Schedules D (Rates) and F (Services) of the License. These were forwarded to Murphy for its review by letter of April 8, 2016, in which the Board outlined in detail the various changes and the results of its reassessment in implementing the Discount Review Order. Consistent with the

4 -4- implementation process of the Discount Review Order, the Board would hold a hearing by conference call on April 14, 2016, to provide Murphy an opportunity to speak to the revised Schedules and address any non-material changes Murphy thought would further clarify the License. Any material changes would, however, require a new Amendment Application. [7] Murphy requested an adjournment of the April hearing which the Board granted. [8] Pursuant to the Governor In Council Regulations under the MC Act, a company is to provide their annual financial statements each year. This assists the Board in monitoring the sustainability and health of both the individual carrier and the Industry as a whole. The financial statements had not been filed by Murphy since its acquisition by Ambassatours, and, therefore, Murphy was directed to file them. Furthermore, Murphy was also required by its License to annually file information showing its discounts and coupons percentage of gross sales. These were also directed to be filed. They were received by the Board on April 20 and 26, 2016, respectively. [9] Prior to rescheduling the hearing, Murphy asked if it could file an Amendment Application to increase its rates. The Board agreed and determined that it would hear the matters together. [10] The Amendment Application ( 2016 Application ) was filed with the Board on April 21,2016, and finalized on May 6, Under the Board s direction, the Notice of Amendment Application was published in the Royal Gazette on May 11, 2016, posted on the Board s website, and forwarded to licensed carriers by , fax or letter. The stated date for objections was May 18, 2016, and none were received.

5 -5- [11] On May 19, 2016, the Board held a hearing by conference call with Dennis Campbell, Chief Executive Officer of Murphy, attending on its behalf. [12] Mr. Campbell was able to speak to a number of issues, but wanted an opportunity to confirm some of his evidence and also undertook to provide further information. The Undertakings were filed on Friday, May 27, After reviewing all of the materials, the Board issued its Order on Monday, May 30, 2016, granting the Application in part with modifications pursuant to Appendices A and B attached to this Decision, with written reasons to follow. These are those reasons. [13] Mr. Campbell confirmed in his testimony that Murphy s service is seasonal and ends in November of each year. Their rate increase in early April, 2013, would have reflected its costs at the end of In support of its 2016 Application, Murphy filed financial information on a number of its major costs and included the percentage variation between 2012 and [14] Within these categories there are a number of fluctuations, some of which Mr. Campbell stated were due in part to a change in the accounting method after Ambassatours obtained the company. Mr. Campbell explained the previous accounting method had been on a cash account type basis. In updating the accounting, it also reallocated a number of expenses. For example, parts for repairs were removed from Supplies and included in Repairs and Maintenance. [15] The costs for the repairs and maintenance of the amphibious vehicles in 2015 was % of the costs of Mr. Campbell explained that one of the significant increases in these costs was the hiring of a very experienced fleet manager. Murphy did an overhaul of all of the amphibious vehicles including propeller replacement,

6 -6- retractable canopy system, and new main hydraulic pumps. Mr. Campbell also testified the amphibious vehicles are expensive to maintain. He spoke to some of the challenges in repairing them stating the required parts are often not available off the shelf. Rather, Murphy must search the internet and ship them from around the globe. [16] The Dockage and Rental costs more than doubled in the three years since its last rate increase. Mr. Campbell explained the garage rent has more than doubled. Murphy had previously been paying below market rates which changed when his partner, Brian Gillis, sold the facility. Mr. Campbell explained its new facility will eventually assist the Company in decreasing its maintenance costs. However, the increased market rental cost will be an ongoing expense in the future. Another major expense included extensive ramp improvements last year of $35,400. [17] Wages have also been reallocated to the specific areas of the operations which assists the Company in understanding where it is making money and where it needs improvement. For example, the cost of the new fleet manager is included as an expense in Repairs and Maintenance. There have also been wage increases over these three years totalling 8% for guides and almost 20% for the captains. [18] The Company filed documents with the Revenues and Operational Expenses for each vehicle and service. Mr. Campbell confirmed these do not include all of the costs of operating the services such as vehicle amortization or shared administrative costs. Murphy also provided a statement of Revenue and Expenses for For sightseeing operations there were budgeted expenses for both a [highway] motor coach and mini-coach with actual expenses for the former. When asked about this, Mr. Campbell stated he believed these related to contracts Murphy had with cruise ships

7 -7- for bus tours it operates such as the Top 10 [Spots] in Halifax. He stated these vehicles are obtained from Absolute, therefore, the services are provided under Absolute s licenses. Mr. Campbell wished to check his information. In its filed Undertaking, Murphy described this service as follows: 5. Will confirm the information provided at the hearing including: a. Statement of revenue provided to the Board on April 20, 2016, the last page that the operation of the motor coach was a vehicle chartered from Absolute to operate a cruise ship tour service of Murphv's; ACI: This is Murphy's sightseeing Operations sheet. The >s the bus expense for the sightseeingoperationatmurpi^ (City Tour; Peggy's Cove and Lunenburg) while the represents the budget of this bus expense. The delta of^^^hwas the result of poor utilization, le instead of using one bus and turning it around for the 2nd tour of the day MSTL used another bus. This was MSTL's first year at managing this part (bus trips) of the sightseeing department, [redacted version] [19] As noted above, other than school and youth groups, discounts and coupons for the Harbour Hopper Services cannot exceed 2% of its annual gross sales. For school and youth groups the discount information is maintained, but is not included in the 2% of gross sales. Murphy filed their information which showed that in 2014 the discounts represented 0.88% of gross sales, while in 2015 it represented 1.31%. At the hearing Mr. Campbell believed that the filing of this information could be provided to the Board at the same time as the filing of its year-end financial statements, which it confirmed in its Undertaking. This was included in the rate structure. [20] Mr. Campbell testified that Murphy s rates are the lowest in North America when he had conducted research of other similar amphibious land and water tours. In its Undertaking, the Company filed the following: Location Halifax, Nova Scotia Charlottetown, PEI Montreal, PQ Price (Adult) per person plus tax $29.99 Cdn $35.00 Cdn $35.00 Cdn

8 -8- Ottawa, ON Boston, Mass Seattle, WA Ketchikan, Alaska North American Average $32.00 Cdn $39.79 Cdn $29.00 Cdn $49.00 Cdn $40.39 Cdn [U-1, p. 45] [21] Other evidence will be noted as the specific issue is addressed in the Findings sections. Ill ISSUE [22] The issue in this case is: After taking into consideration the MC Act and Regulations, what rates should the Board set for the service and what amendments should it grant to Schedules D and F of the License? IV LAW [23] The MC Act regulates motor carrier operators in Nova Scotia to ensure there is a quality, safe, sustainable Motor Carrier Industry in the Province. To accomplish this, the Board regulates virtually all aspects of the Industry. In Nova Scotia, the Industry is regulated under the MC Act which operates in addition to other applicable statutes such as the Motor Vehicle Act, R.S.N.S. 1989, c [24] In determining an amendment application, the Board may consider any matter relevant or material to the application, including any public interest, quality and permanence of service, the general effect on other transportation services such as the

9 -9- impact on regular route public passenger service. These are outlined in s. 13 of the MC Act which reads: Factors Considered 13 Upon an application for a license for the operation of a public passenger vehicle or for approval of the sale, assignment, lease or transfer of such a license, the Board may take into consideration (a) any objection to the application made by any person already providing transport facilities whether by highway, water, air or rail, on the routes or between the places which the applicant intends to serve, on the ground that suitable facilities are, or, if the license were issued, would be in excess of requirements, or on the ground that any of the conditions of any other license held by the applicant have not been complied with; (b) the general effect on other transport service, and any public interest that may be affected by the issue of the license or the granting of the approval; (c) the quality and permanence of the service to be offered by the applicant and the fitness, willingness and ability of the applicant to provide proper service; (ca) the impact the issue of the license or the granting of the approval would have on regular route public passenger service; (d) any other matter that, in the opinion of the Board, is relevant or material to the application. [25] The Board has the power and authority to fix the rates charged by the motor carrier pursuant to s. 27(1 )(c), which states: 27 (1) The Board has power and authority to (c) fix the rates, fares or charges or the maximum and minimum or maximum or minimum rates, fares or charges that a motor carrier is authorized to charge for the transportation of passengers, baggage and parcel express and the schedules and service that a motor carrier must observe and provide; [26] Pursuant to s. 30 of the MC Act, the Board also has the same powers, procedures, constitution and practices that it has under the Public Utilities Act, R.S.N.S. 1989, c. 380, as amended ( PUA ), provided they are not inconsistent with the MC Act and Regulations. The Court of Appeal determined the applicable PUA sections are ss and (current numbers), New Glasgow Express Ltd. v. Board of Commissioners of Public Utilities (1980), 44 N.S.R. (2d) 253. These include most of the sections for setting rates. In being consistent with the MC Act and Regulations, the Board has not

10 - 10- used all of these provisions, for example, those for setting rates in accordance with a rate base or return on rate base. It has used other PUA provisions such as those dealing with just and non-discriminatory rates. This is discussed in detail in Kings Transit Authority, 2008 NSUARB 125, paras. 24 to 32. [27] The Board has traditionally determined rates for motor carriers using current generally accepted accounting principles, examining the company s efficiency and costs of providing the services, and allowing an amount for profit. Costs for providing the services include amounts to recover the expenses for purchasing the buses and other capital over time, as well as the yearly costs of operating the services. [28] Murphy has the burden of proof to show, on a balance of probabilities, that the Board should grant the Applications. V FINDINGS 1. General [29] In general, the Board finds, having reviewed the financial statements of Murphy, that rate increases are required to sustain its services for the public. Furthermore, the Board finds that the increases in expenses justify the increases in rates requested subject to one modification. 2. Maximum Children s Rate [30] In the 2016 Application, Murphy requested to have an approval of a maximum rate for children that was above the fixed rate. In the Board s Decision of 2013 it rejected such a request and set the maximum fare for children at the fixed rate. Prior

11 -11 - to the hearing, the Board had requested Murphy s representative have an opportunity to reread the Board s 2013 Decision. On questions from the Board as to whether Murphy had intended to request this higher rate, Mr. Campbell stated he did not believe the Company had specifically turned its mind to that portion of the Board s decision in setting its proposed rates. Rather, he stated Ms. Dempster s background is as a hotelier and in that business they seek to maximum rates when the market opportunity arises. With respect to all of the maximum rates, Mr. Campbell informed the Board that they, as in 2013, are very rarely used by the Company. As they are very rarely used, he requested the Board permit a maximum rate for children above the fixed rate. The Board advised the evidence before it in this case did not persuade the Board that it should vary from its previous Decision. 3. Schedule F Contract Services [31] As noted above, all of the contract services on Murphy s licenses had expired. Under the Board Regulations, a contract service is only approved for the length of the contract. Consequently, all of the contract services would be removed. [32] In its Undertakings filed with the Board, Murphy provided a new Schedule F to be included in its License which added into the license its current contracts, or proposed contract services which were expected to be completed imminently, with cruise ship operators ( contract services ). [33] As noted in numerous Decisions of the Board, including its Interim Discount Review Decision [2013 NSUARB 21], contract services must go through the Board s public hearing process permitting others in the Industry to object to rates below a carrier s

12 -12- licensed rates. If approved, the services are added to the license and remain until they expire. [34] As services cannot merely be added to the license without the public hearing process, on the same date as issuing its Order, the Board wrote to Murphy and, once again, reviewed the process. The Board noted a separate application would be required if these contracts were not consistent with Murphy s licensed rates. If Murphy s position was that the services were within its licensed rates, then Murphy was to provide information to the Board showing how the various components of the contracts met the licensed rates. Specifically, the letter referenced, an explanation of protected commission to a cruise line from the operator, and a further 20% discount rate for staff. The letter also offered alternatives to address, for example, the children s cruise ship rates which were substantially above the licensed maximum rates requested in its Application. Murphy subsequently applied to the Board for approval of the contract services (M07516). These will not be further dealt with in this Decision. [35] However, for the purposes of the matters before the Board in this Decision, the contract services on Murphy s License had expired. Consequently, the Board s Order issued a new Schedule F which removed all of the expired contract services. VI CONCLUSION [36] This case included the implementation of the Discount Review Order on discounts sought in Murphy s 2012 and 2013 rate Applications and its 2016 Application to increase its rates. Murphy s rates had not increased in three years. The matters were heard together.

13 -13- [37] In the Board s review to implement the Discount Review Order, it found that the previously approved discounts and coupons did not need to be changed. [38] After the Board heard and reviewed all information, including the Year End Financial Statements, the Board found that Murphy required a rate increase to sustain the services. Considering its increased costs and rate comparisons with other services across Canada, the Board approved the rates with modifications and clarifications as outlined in Appendix A. As the License contained expired contract services, the Board ordered a new Schedule F attached as Appendix B. DATED at Halifax, Nova Scotia, this 29th day of June, Dawna J. Ring 7 /

14 - 14- APPENDIX A D(1) Charter Rates: Type 30 Minute Fixed Hourly Maximum Hourly Amphibious $ $1, $1, All prices are subject to HST. 2. Definitions: 30 Minute Rate: Applies to a single charter under 30 minutes. Hour: Any portion of an hour rounded up to the next hour. Hourly Rate: Applies to any hour after 31 minutes of the first hour. 3. Discounts: At its discretion, the carrier may provide a discount up to 20%. D(2) Prepackaged Tour Rates: Minimum Maximum Fixed Adult $28.00 $39.00 $35.00 Senior $25.20 $35.00 $31.50 Children (6-15) $15.99 $19.99 $19.99 Children (1-5) $9.20 $11.50 $11.50 Family Rate $74.40 $95.00 $90.00 All prices subject to HST 1. Discounts/Coupons: (1) At its discretion, the carrier may provide: (a) (b) A discount not to exceed the minimum rates; or Promotions for fixed rate tickets of buy one/get one free coupons; (2) The total of all coupons and discounts, may not exceed 2% of the annual gross sales for the Harbour Hopper services ( gross sales ); and (3) The Company must annually report to the Board, when filing its Financial Statements, the percentage of gross sales for all discounts and coupons. 2. School Group Rates: Min Max Elementary $11.50 $19.99 Junior High $11.50 $19.99 High School $15.00 $19.99 Chaperones & Teachers receive a complimentary ticket

15 - 15- Terms: d) All prices are subject to HST. (2) Valid only in May & June. (3) One hour tour. 3. Youth Group Rates Min Max Youth ages (0-18) $11.50 $19.99 Chaperones and teachers receive a complementary ticket Terms: (1) All prices are subject to HST. (2) Valid only for early morning or evening tours. (3) One hour tour. 4. Conditions: School and Youth Groups minimum rates are not included in the other discounts limit of 2% of the annual gross sales of the Harbour Hopper service, subject to the following conditions or until otherwise ordered by the Board: (1) The Company must keep a record of the rate and number of children for each school and youth group (for example, a confirming ); and (2) The Company must annually report to the Board, when filing its Financial Statements, the total discounts for these School and Youth groups as a percentage of the Harbour Hopper gross sales.

16 - 16- APPENDIX B Schedule F F(1) SPECIALTY IRREGULAR RESTRICTED AREA PUBLIC PASSENGER SERVICE The transportation of any person or group of persons by an amphibious vehicle on a combined land and water tour of the Halifax area, as approved by the Traffic Authority of the Halifax Regional Municipality.