Young Bros. seeks 4.36 percent rate hike

KAILUA-KONA — Young Brothers Ltd., an interisland shipping company, filed an application with the state Public Utilities Commission for a general rate increase.

Roy Catalani, vice president of strategic initiatives and external affairs at Young Brothers, said the proposed 4.36 percent rate hike is necessary to increase revenue on regulated business by a little more than $3 million total, 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.”

This is the third rate increase sought by the shipping company in the past several years. 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, the smaller the rate increase. Factors such as dry docking costs, new technology or information technology costs and inflation can also drive rate spikes.

“Young Brothers is the only regulated interisland shipper,” said Jeff Ono, executive director of the Division of Consumer Advocacy, 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 also is 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.

Ono stated several reasons why the DCA contests the proposed rate increase, one of which is Neighbor Islands tend to be more heavily affected than Oahu by such hikes because of higher import needs.

“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.”

Email Max Dible at mdible@westhawaiitoday.com.