PUC reviewing Young Bros. rate increase

LIHU‘E — One of the main inter-island ocean cargo carriers in the state is trying to stay afloat by raising its tariffs.

Roy Catalani, Young Brothers vice president of Strategic Planning and Government Affairs, said the economy has put the company in the position to either raise rates or reduce the frequency or the number of lines of service. With the variety of cargo and the dependency of its clientele on regular service they opted to raise the rates.

“This loss of volume is corresponding to a decrease in revenue but not the frequency of service,” said Catalani, noting that the company operated at a loss this year for the first time in its 110-year history.

Young Brothers is seeking Hawai‘i Public Utilities Commission approval of an approximately 28.68 percent increase over present revenues or a projected overall rate of return of 14.12 percent.

Following concerns of the Consumer Advocate, the original 2010 Young Brothers application was held over for review and re-filed on May 6.

On Monday, the PUC held its Kaua‘i public hearing to take public testimony on Young Brothers’ rate-increase application.

Catalani’s presentation illustrated Young Brothers’ annual economic performance and total cargo volume as it mirrors leading economic indicators including non-farm jobs, construction jobs island visits. He said the decline of world economies started to impact the company as early as 1996, and following a couple of strong years, the economic downturn in 2008 devastated revenues and has the company operating at 70 percent of overall volume while they still maintain lines and services.

Ocean cargo

Young Brothers, a state authorized intrastate water service carrier that transports property by barge between the islands of O‘ahu, Hawai‘i, Kaua‘i, Maui, Molokai and Lanai, operates under regulated Local Freight Tariff to maintain consistent frequency of scheduling to transport mixed, palletized, containerized, automobiles, roll-on/roll-off and other types of cargo.

Matson has large container ship service from the Mainland and Asia, with Hawaiian ports at Nawiliwili, Honolulu, Kahului, Kawaihae and Hilo.

Pasha Hawai‘i has two container ships — 579-foot “Jeanne Ann,” and 692-foot “Marjorie C,” scheduled to launch in the fall of 2013 — with Mainland ports in San Diego, Los Angeles and San Francisco. They ship exclusively to Kaua‘i, O‘ahu, Maui and the Big Island.

‘Cherry picking’

Young Brothers’ application formula includes a “Pasha” version to emphasize the impact of competition from Pasha Hawai‘i and other carriers.

Catalani said the competition has the advantage of “cherry picking” more lucrative cargoes and routes, and is able to adjust scheduling and pricing accordingly. Young Brothers maintains its intrastate agreement to maintain routes and service under the regulations of its charter.

He noted spike periods of Young Brothers performance whenever a competitor reduced service or had a ship in dry dock.

While projecting a slow growth rate, Catalani said the economy is still weak and expects the recovery to return company performance to 2007 levels, possibly by 2013. In the meantime, the loss of revenue presents “substantial risk of investment,” he said.

Young Brothers Vice President and General Manager Matthew Humphrey attended the meeting, with Nawiliwili staff including Port Manager Wendell Kam and Account Manager Keith Kiyotaki.

PUC Chairwoman Hermina Morita officiated with Commissioner John Cole. Morita, a former Kaua‘i state representative, said the PUC investigates a regulated company’s proposed rates request to ensure they are just and reasonable.

Jeff Ono, executive director of the state Division of Consumer Advocacy, said there is a concern to establish reliable conditions that allow Young Brothers to serve at reliable costs. It was his office that called for the PUC to reject the initial incomplete application.

Temporary relief

The PUC allowed the company to re-file its request in May 2010, but suspended the application for six months from the May 6 filing to investigate and go through the public hearing process. The Consumer Advocate said the re-filed application satisfied regulations but that it still merits further review.

The Consumer Advocate did not present a rate recommendation, noting that its budget does not allow for a consultant to make that assessment. The office did, however, submit expert testimony to the PUC on July 25 from Ono and Dean Nishina, Public Utilities and Transportation Officer for the Division of Consumer Advocacy, Department of Commerce and Consumer Affairs.

The testimony states concerns with permanent relief, adding that if the Pasha impact were overstated, Young Brothers would still be allowed to increase its rates by approximately 24 percent.

With economic indicators starting to point upward, and the likelihood of continued hardship reduced, the testimony did recommend the requested relief on a temporary basis — and with reporting to show the need for extension of such relief.

The testimony noted that some financial records were not available for public view and recommended that future applications require measures to facilitate rate hikes, including four years of historical operating expenses and to compare actual operating results with estimated budgeted test year levels.

PUC will be accepting written comments on Young Brothers’ application at Hawaii.PUC@hawaii.gov or via regular mail to Hawai‘i Public Utilities Commission, 465 South King Street, Room 103, Honolulu, HI 96813.

Contact Ono, from the Consumer Advocate at Jeffrey.T.Ono@dcca.hawaii.gov or at 808-586-2800.

• Tom LaVenture, staff writer, can be reached at 245-3681 (ext. 224) or by emailing tlaventure@ thegardenisland.com.


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