Young Bros. seeks rate hike

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KAILUA-KONA — The Hawaii Public Utilities Commission has announced two public meetings to discuss an application filed by Young Brothers, Ltd., an interisland shipping company, for approval of a general rate increase.

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KAILUA-KONA — The Hawaii Public Utilities Commission has announced two public meetings to discuss an application filed by Young Brothers, Ltd., an interisland shipping company, for approval of a general rate increase.

Meetings will be held across all islands, with two scheduled for Hawaii Island. The first meeting will take place today in Hilo at 3 p.m. at the State Office Building, Conference Room C at 75 Aupuni Street. The second meeting is set for 5 p.m. Wednesday at the West Hawaii Civic Center, Community Meeting Hale at 74-5044 Ane Keohokalole Highway in Kailua-Kona.

Young Brothers, Ltd. is an intrastate shipping company that utilizes a tug and barge system. The majority of its business is regulated by the PUC in the same way as other utility companies are, such as HELCO on the Big Island.

“Young Brothers is the only regulated interisland shipper,” said Jeff Ono, Executive Director of the Division of Consumer Advocacy (DCA), which is contesting the proposed rate increase. “They have been essentially given a monopoly on interisland shipping, and that is why they are regulated. Regulation is a substitution for competition.”

The company is also engaged in unregulated business involving charters, government contract, including with the U.S. military, and handling island-to-island shipping for interstate carriers hauling cargo into Honolulu.

Roy Catalani, Vice President of Strategic Initiatives and External Affairs at Young Brothers Ltd., said the proposed 4.36 percent rate hike is necessary to increase revenue on regulated business by a total of a little more than $3 million, based on 2016 projections.

That increase will satisfy the company’s revenue requirement of just more than $75 million annually, which will allow for a 10.25 percent intrastate rate of return — or a return on the company’s investment in hard assets currently in service.

“We aim to have a healthy utility, not only to make sure we keep the assets maintained, employ the right number of people and update the equipment as needed, but also so that we stand in a good position for reinvestment,” Catalani said. “(Meaning) we are a good target for new capital to come in to replace vessels, buy new heavy lift equipment and invest in the sorts of assets that we need to keep a healthy and active operation.”

All recent rate increases have gone through the same process the PUC is initiating today and Wednesday on Hawaii Island. A rate hike of 5.5 percent was approved in 2013, while the rate jumped 2.21 percent in 2014. There was no rate increase in 2015.

Catalani explained that volume of cargo shipped is the largest driver of rate hikes, as substantial fixed costs accompany a regular schedule of 12 round-trip, neighbor island sailings every week. The higher the volume of shipped cargo, the smaller the rate increase. Factors like dry docking costs, new technology or IT costs and inflation can also drive rate spikes.

Ono stated several reasons why the DCA is contesting the proposed rate increase, one of which is neighbor islands tend to be more heavily affected than Oahu by such hikes due to higher import needs.

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“It’s not just about protecting local business, but also the consumers,” Ono said. “Individual consumers use Young Brothers for shipping, but business rates affect individual consumers as well. A rate increase by Young Brothers, which might increase the cost of doing business, will then get passed on to the consumer, so it is a concern for the individual as well as businesses.”

The meetings in Hilo and Kailua-Kona are reserved for public testimony only. Representatives of Young Brothers, Ltd. and the DCA will be present, but they will not be permitted to testify.

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