Interisland cargo customers of Young Brothers LLC will pay 46% more to ship goods under a regulatory ruling Monday.
The state Public Utilities Commission granted the regulated company an emergency rate increase following a Friday hearing that included the state Consumer Advocate opposing what it considered an excessive increase.
The rate hike is expected to boost Young Brothers’ interisland shipping revenue by $27 million, which was modestly less than a $30.4 million increase that the company sought based on what it forecast would be enough to break even financially.
Young Brothers, which sought the emergency rate increase July 7 after coronavirus-related impacts on its business deepened a projected financial loss this year despite recent cost-cutting, told the PUC that it “will have no choice but to immediately begin the process of discontinuing regulated intrastate water carrier services” if it didn’t receive approval for an increase by Monday.
In May, Young Brothers requested that the state Legislature give the company $25 million from Hawaii’s share of federal COVID-19 emergency funds to sustain operations through this year. Lawmakers did not provide such assistance.
Young Brothers said that its Seattle-based parent, Saltchuk Resources Inc., decided to quit putting cash into the interisland cargo carrier to cover financial losses after doing so for the past two years. The company also said that it could not find other viable sources of capital.
“It is from this extremely difficult position that the commission makes the decision,” the PUC said in its order.
The PUC attached several conditions to the approved rate hike. They include a requirement that Young Brothers resume its full “pre-COVID” sailing schedule by Sept. 1, which would restore an additional sailing from the ports of Hilo and Kahului to Honolulu.
Another condition requires Young Brothers to submit to a financial and management audit by an independent examiner selected by the PUC. In its order, the commission said financial and management practices at Young Brothers appear to “contribute significantly” to the company’s current financial condition and remain a concern.
PUC conditions also prohibit Young Brothers from receiving any further general rate increases for 12 months, and require the company to develop and implement a comprehensive customer service plan.
Dean Nishina, Hawaii’s consumer advocate with the state Department of Commerce and Consumer Affairs, supported a 9.6% rate increase, and said the amount Young Brothers sought should be rejected in part because many of its problems are the result of company management and because customers are struggling.
“The Consumer Advocate encourages the commission to fully consider the reality that ratepayers and the community are not in a position to absorb and pay for the emergency/temporary rate increase sought by Young Brothers at this time,” Nishina said in a written submission.
Tina Yamaki, Retail Merchants of Hawaii president, told the commission in written testimony that retailers are aware that Young Brothers provides a critical service, but she also expressed concern over the rate increase sought by the cargo firm.
“The … rate increase would be detrimental to many of our small businesses who may have to close as they cannot afford to stay in business,” Yamaki said.
Roger Alconcel, an executive with Pulama Lanai, a company managing the island of Lanai and its principal grocery store, Richards Market, expressed support for the relief requested by Young Brothers.
“For small businesses on Lanai, Young Brothers is our lifeline, connecting us with other islands in the state,” he said in written testimony. “While this temporary rate increase will have a trickle-down effect and increase operating costs for our businesses in the short term, not having Young Brothers bringing in vital supplies will be even more costly to our community in the long term.”
Jay Ana, Young Brothers president, said in a statement after the PUC’s decision that the company understands customers are struggling to cope with 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 said. “We appreciate the PUC’s assistance in helping us chart a new and more sustainable future for Young Brothers.”