INTRODUCTION

On Tuesday, Pasha Hawaii Transport Lines’ cargo ship M/V Jeanne Anne pulled out of Honolulu Harbor and sailed into the uncharted waters of interisland shipping competition.

Late last year, Pasha was allowed to enter the market — previously the monopoly domain of Young Brothers — under conditional approval of the state Public Utilities Commission.

In granting Pasha’s request to provide bi-monthly dedicated roll on/roll off service between Oahu, Maui and the Big Island over Young Brothers’ claims of unfair practices, the PUC said a second carrier would foster competition by providing consumers with a choice.

The approval lets the Jeanne Anne ply island waters through December 2013, although the PUC says it reserves the right to revoke the license at any time if it determines that Pasha’s presence is causing harm.

That assurance was little comfort to Young Brothers, which is seeking relief in court.

Young Brothers argued that it would be at a disadvantage since Pasha is not required, as Young Brothers is, to service the less profitable ports of Lanai and Molokai.

At a hearing before the Senate Committee on Commerce and Consumer Protection, farmers rallied behind Young Brothers, saying the shipper would be forced to raise rates if it lost revenue to Pasha. Dean Okimoto of Nalo Farms went so far as to say, "This has the potential of killing agriculture."

The PUC said such fears were unfounded since Young Brothers could not raise rates without PUC approval.

An infuriated state Sen. Rosalyn Baker of Maui suggested the PUC’s decision resulted from "fifth-floor considerations" driven by then-Gov. Linda Lingle, who had tangled with Young Brothers over the state’s treatment of the Hawaii Superferry.

This year, Baker has sponsored Senate Bill 99, an act that would change the structure, composition and operational procedures of the PUC, a three-member agency which sets the rules and rates for hundreds of public entities, including energy, shipping, telecommunications and trucking companies. All of that trickles down to what consumers and ratepayers ultimately pay out of pocket.

The move might end up complicating an already knotty, often combative and controversial, process. But with state legislators now also urging the PUC to navigate a rapidly-evolving technological landscape to meet clean-energy goals, some say change is long overdue for the nearly 100-year-old agency.
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Most simply put, the three-member Hawaii Public Utilities Commission sets the standards, rules and rates for public utilities in the absence of competition.

There is, however, nothing simple about that task.

"We regulate electric companies, telecommunications companies, gas companies, private water and sewer companies, transportation companies — which are passenger carriers and property carriers, like shipping lines, tour buses, limousines, dump trucks — pretty much everybody like that," PUC commissioner Carlito Caliboso says.

Once, it was a fairly straightforward process.

When it came to electricity, there was Hawaiian Electric Co. on one side and the public on the other. The PUC’s job was to find the fulcrum’s point between the consumers’ need for reliable service at a fair price and the utility’s need for a reasonable return on investment so it could pay its bills and make a profit.

The PUC was part judge and part umpire. It listened to testimony, examined the books and made its best call.

But that was then.

In its annual report for 2009-2010, the PUC says it now regulates 219 utility companies or entities — including four electric companies, one gas company, 176 telecommunications companies, and 38 water and sewer companies — as well as four water carriers, 679 passenger carriers and 593 property carriers in Hawaii.

The workload? In the last fiscal year, the PUC opened 330 new dockets while completing and closing 448 dockets from its total caseload and issuing 690 decisions. Among them were the approval of Pasha Transport Lines’ request to enter the interisland shipping market in direct competition with Young Brothers, finalization of a 126 percent water rate increase for Molokai Public Utilities and landmark approvals of a feed-in tariff and a decoupling mechanism for HECO intended to advance the ambitious Hawaii Clean Energy Initiative.

As for resources, the agency’s operating expenses come from the PUC Special Fund, which regulated companies pay into. In fiscal year 2010, the fund took in $21 million, of which the Legislature appropriated $9.5 million to the PUC. Under state statutes, anything over $1 million that is left in the fund after the PUC gets its cut goes to the state general fund. You do the math.

Besides the three commissioners, who confer and then render majority decisions, the PUC currently has a budgeted staff of 42 that includes seven lawyers, five researchers, four engineers, four auditors, two investigators and 20 others in enforcement, administrative, information technology and clerical positions.

"Oh, yeah, it’s hard work, that’s for sure," Caliboso says. "A lot of reading. A lot of materials. A lot of studying. There’s always a lot of things to learn. That’s what makes this job so interesting.

"But the other thing is that whenever you have two sides, one side is not going to be happy with your decision. So it can be contentious. But that’s the job. Almost by definition, the way it’s set up, you’re going to get criticized by somebody — whether it’s the consumer advocate, or the utilities and their financial analysts, or the Legislature, or the people who end up having to pay a high rate. You learn that early on.

"So the way I look at it is that you just have to make the best decision you can based on the information you’ve been given and do what you think is right. Because you have a lot of interests to look after. You’re taking care of both sides. You’re not an advocate. You have to look at the law. You have to look at the regulatory framework and do what you have to do under that framework."

The PUC gets its marching orders from the Legislature in the form of laws and directives, and in the three years since the state adopted the Clean Energy Initiative, the emphasis has been on creating a roadmap to a future in which Hawaii is 70 percent clean energy by 2030. The initiative calls for 30 percent to come from efficiency measures and 40 percent from locally generated renewable sources.

Short term, that could result in higher costs to ratepayers, Caliboso says.

"Oil or fossil fuels are about 90 percent of our fuel source … and if that oil is ever cut off, we’re in deep trouble," he says. "Some people think we’re already in deep trouble and so we have to change now. Some people think we have a lot of time. Nobody knows exactly.

"But to move away from traditional sources you have to invest in new technologies, which will increase rates. Right now, renewables (such as solar and wind) aren’t as reliable, and that can hurt a utility’s viability, so you have to consider that or do things to mitigate."

Caliboso says the PUC has tried to be more proactive.

"With energy-efficiency programs, (the Legislature) gave us authority but didn’t require us to have a third-party administrator, but we decided to have one," Caliboso says. "Before, HECO used to do all the demand-side management programs, where they used to collect money from ratepayers and develop stuff like solar water-heating rebates. But we thought it might be better to have someone else do that, because every time you reduce sales you’re hurting revenue, so maybe they weren’t as fully motivated as a third-party administrator would be."

The decision to allow Pasha to enter the interisland shipping market could be historic if it points the way to true competition.

If state Sen. Rosalyn Baker of Maui has her way, it also will result in dramatic changes in the structure, composition and operational procedures of the nearly 100-year-old PUC.

In granting Pasha a temporary operating certificate to compete with Young Brothers, the PUC said the arrangement provided consumers with a choice and the state with a buffer in the event of a disruption of existing services.

Young Brothers cried foul, pointing out that part of its obligation as the regulated monopoly was to service the low-profit ports of Lanai and Molokai while Pasha was free to "cherry-pick" the most profitable routes and sap the earnings Young Brothers needed to subsidize its small-port losses.

At a recent hearing before Baker’s Commerce and Consumer Protection Committee, groups of island farmers rallied behind Young Brothers. Dean Okimoto of Nalo Farms went as far as to say that if Young Brothers was forced to raise rates to offset losses, the PUC’s decision had "the potential of killing agriculture."

Caliboso told the farmers their fears were unfounded because Young Brothers couldn’t raise rates without PUC approval. And if Young Brothers could show it was being harmed, the PUC would revisit its ruling, he said.

Baker was unconvinced.

"They had not availed themselves of any real listening to the concerns that were brought by neighbor island growers and shippers," she says of the PUC. "And the thing that galled me most was to read their decision and it said the reason they were doing this is that they wanted to make sure there was redundancy in shipping, particularly in agriculture.

"And the reason that galled me was that Pasha does not do ag. They don’t do refrigerated. They can’t go into ports where you have a lot of agriculture happening. So it was like a poke in the eye or a slap in the face. I was really annoyed because I felt like they just weren’t listening."

Under Baker’s Senate Bill 99, the PUC would grow from three to five members, with a stipulation that at least two commissioners represent either the Big Island, Maui or Kauai. The commissioners would be split into panels of two, with the chairperson serving as the third vote on both.

One panel would concentrate on energy and private water and sewage. The other would oversee motor and water carrier transportation services, telecommunications and warehousing of goods.

Initially, there were concerns that increasing the size of the PUC would also make it tougher to achieve consensus on issues. But the bill has since been rewritten to say that "an action by a panel shall constitute an action by the commission."

"You’re creating within the current regulatory framework two panels that would be more dedicated," Baker says. "They would be able to develop some expertise."

Baker says Gov. Neil Abercrombie, who earlier had proposed an energy agency, is a supporter of the bill.

PUC commissioners would continue to be appointed to six-year terms by the governor, with approval of the state Senate.

Caliboso, who was appointed by Gov. Linda Lingle, is on his second term, which expires in 2015. He was named chairman in 2003.

The second commissioner is John Cole, also a Lingle appointee, whose term expires in June 2012.

Earlier this month, Gov. Neil Abercrombie nominated state Rep. Hermina Morita of Kauai to replace commissioner Leslie Kondo, now head of the state Office of Information Practices. Upon confirmation by the Senate, Morita will replace Caliboso as chairperson.

"I have a great deal of respect for Chair Caliboso," Baker says. "I think he’s been very steady at the helm. I think they’ve done the best they can with the resources they have. I don’t want to disparage their work, but I just think it’s time to update the commission. We haven’t changed much of their processes since they were created (by the Territorial Legislature in 1913)."