PUC OKs shipper’s 46 percent emergency rate hike
Regulator also orders audit, restoration of pre-COVID-19 port calls
A time-pressed state Public Utilities Commission granted Young Brothers emergency 46 percent rate increase for the next year while ordering the interisland shipper to return to pre-COVID-19 shipping schedules by Sept. 1 and to submit to an independent audit by an auditor of the PUC’s choosing.
“The commission must note here that it is compelled to make this decision in an unusually condensed time frame (i.e., 41 days), under the weight of YB’s statements that if YB does not obtain emergency rate relief from the commission by Aug. 17, it may discontinue regulated intrastate water carrier service,” the PUC order said.
In making its ruling, the commission pointed out that “Young Brothers’ financial issues, including rising operating expenses and declining cargo volumes and revenues, began well before the current economic downturn.”
Citing declining cargo volumes and rising operating expenses made worse by the pandemic, Young Brothers sought and was granted by the PUC in May a reduction in port calls, including one less to Kahului and Kaunakakai harbors.
Other measures proposed to save costs down the line included ending less-than-full-container loads and trimming port calls even more.
With the shipper’s parent company, Saltchuk, not willing to cover further losses, Young Brothers officials raised the specter that it would go out of business, threatening a critical cargo lifeline among the Neighbor Islands.
On July 7, Young Brothers filed a motion requesting “an emergency or temporary rate increase to mitigate Young Brothers’ current liquidity crisis and assist the company to continue its intrastate water carrier of property operations and services,” the PUC said in a news release.
Young Brothers had requested $25 million in federal CARES Act funding from the state Legislature, which was turned down. The shipper also sought third-party financing in an attempt to alleviate its liquidity crisis but was unsuccessful.
The commission conducted an expedited review of the emergency request, including an evidentiary
hearing Friday.
In its ruling Monday, the PUC granted Young Brothers request to increase revenues by about $27 million through rate hikes — about 46 percent. To allay its concerns, the PUC also set conditions, which included the pre-COVID-19 schedule restoration. The other conditions included:
≤ Instituting a 12-month “stay-out” period for additional general rate increases.
≤ Requiring Young Brothers to provide a six-month advance notice to the PUC and state if the company decides to discontinue regulated interisland service.
≤ Requiring Young Brothers to develop and implement a comprehensive customer service plan.
≤ Requiring Young Brothers to undergo a financial and management audit by an independent party selected by the commission.
The PUC called for the audit after its expedited review “highlighted financial and management practices that have contributed significantly to YB’s current financial condition and remain a concern to the commission.”
“Moreover, Young Brothers does not appear to be addressing these issues with the urgency required by its current liquidity crisis during this unprecedented event — a global pandemic that is dramatically impacting the state’s economy and Young Brothers’ business that will continue for an unknown period,” the PUC said. “Instead, Young Brothers appears to be on a trajectory to request further rate increases and public assistance, particularly if the state’s economic recovery is slower than YB has assumed.”
The PUC also cast “uncertainty” over continued Young Brothers operations beyond April because the shipper lacked formal operational or financial plans past that point. As a result, the commission, sought the six-month advance notice before the shipper could discontinue service.
The shipper was in the process of seeking a rate increase when the pandemic hit. The emergency order halts that process for a year.
“The expectation during this 12-month stay out period is that YB will have to fund its business with cost reductions, incremental revenues and/or parent company support, to the extent the temporary relief provided in this order falls short of YB’s expectations based on its representations.”
Jay Ana, president of Young Brothers, said Monday night that the shipper “understands that our communities and customers are struggling right now as we all cope with the impacts of COVID-19.”
“That’s why we cut costs and pursued every avenue of assistance before asking the Public Utilities Commission to approve a temporary, emergency rate increase totaling $27 million, which does not include profit of any kind,” he continued. “We appreciate the PUC’s assistance in helping us chart a new and more sustainable future for Young Brothers.
“While we are still reviewing the details of the order, we are confident that Young Brothers will be able to continue its legacy of service to our island communities.”
The full decision and order can be found on the commission’s website at puc.hawaii .gov/transportation/young brothers.