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Shipper asks for ruling on rates by Aug. 17

Consumer Advocate calls 47% increase ‘unreasonable,’ ‘ill-timed’

A Young Brothers barge sits in Kahului Harbor on July 14. The Maui News / MATTHEW THAYER photo

Young Brothers says it may be forced to discontinue interisland services and furlough employees if the state Public Utilities Commission does not approve its emergency request for a 47 percent rate hike by Aug. 17.

Company President Jay Ana said in a letter to the PUC, state lawmakers and county mayors Friday that such cuts were “emphatically not the outcome Young Brothers desires.”

“Unfortunately, the economic conditions and financial realities that the company currently faces leave Young Brothers, and many other businesses, in a position where such unwelcome steps may be necessary,” Ana said.

But the state agency that represents customers sharply criticized Young Brothers’ request to raise rates, calling it “unreasonable,” “highly objectionable and outrageous” and “ill-timed.”

“While YB points to the ongoing pandemic as a contributing factor to its situation, it appears somewhat oblivious to the fact that its customers are also feeling the effects of the pandemic and resulting economic fallout,” Dean Nishina, executive director of the Division of Consumer Advocacy, said Thursday.

Citing declining cargo volumes and rising operating expenses made worse by the pandemic, Young Brothers asked the state Legislature back in May to allocate $25 million of the federal CARES Act funding to help cover the cost of shipping.

Lawmakers, however, said they weren’t sure if Young Brothers had a long-term survival plan and worried about giving funding to the company if they were going to go bankrupt.

Since May, Young Brothers has reduced trips between ports, and the PUC has allowed the company to extend that schedule through Aug. 17.

Still, the company is expecting to lose $25 million this year.

On July 7, Young Brothers asked the PUC for an emergency rate increase of about $30 million, or a 47 percent general rate hike.

In his letter Friday, Ana said that Young Brothers has been trying “to explore every available avenue of potential financial relief and funding.”

“Unfortunately, they have not yet yielded the lifeline we need to avert Young Brothers’ solvency crisis,” he said.

Besides cutting back its sailing schedule, Young Brothers has also reduced gate hours for nonbarge days in all major ports, instituted a hiring freeze and salary cuts for senior leadership, suspended nonessential travel, eliminated discretionary expenses and deferred nonessential maintenance and related activities, according to PUC documents.

“Young Brothers’ options for financial relief are quickly narrowing as its remaining cash reserves — including the additional revenue we have generated through cost-saving and payment-deferral measures — continue to be depleted,” Ana said.

However, Nishina was dissatisfied with Young Brothers’ explanation.

“Young Brothers fails to address or even acknowledge how their highly objectionable revenue increase request affects consumers who are struggling to make ends meet under an indescribable situation now presented to the broader community,” Nishina said in a PUC filing Thursday.

While “sympathetic to Young Brothers’ situation,” Nishina said the request was “so ill-timed and lacking in awareness of the circumstances faced by people and businesses in the community that the Consumer Advocate believes that the commission has no choice but to deny YB’s motion.”

Nishina added that it is still going through Young Brothers’ finances but was doubtful of the company’s description of its financial situation. He said Young Brothers had not explored all options, such as “its access to capital from commercial markets and, even though the state has attempted to explore the possibility of loans or loan guarantees, Young Brothers has declined such offers.”

Young Brothers’ problems “should be attributed to the company’s management rather than to its customers or the COVID-19 pandemic,” Nishina said, pointing out that the company’s costs were already rising long before the pandemic, even though revenues weren’t.

In 2015, Young Brothers had revenues of $120 million and expenses of $105 million. In 2019, the revenues had grown slightly to $121 million while expenses had shot up to $128 million.

Increasing rates would likely just send customers to seek other shippers, leading to even less cargo volume and “a continuous downward spiral where YB will seek additional rate increases,” Nishina said.

Kris Nakagawa, vice president of external and legal affairs for the shipper, said Monday that Young Brothers is seeking the rate increase “on a temporary and expedited basis” to help the company break even and become financially viable.

“We recognize the difficult financial challenges facing everyone, including our customers and businesses like ours across Hawaii,” Nakagawa said. “That’s why, Young Brothers is not seeking a rate of return or profit of any kind as part of this emergency rate relief request.”

Nakagawa added that Young Brothers “welcomed the conversations with the state about a loan or loan guarantee, and while they did not progress to the point of an offer from the state, we would actively consider such assistance as long as there is a clear path for the company to meet the terms of repayment — meaning that rates must be compensatory in order to be able to meet debt service obligations.”

Young Brothers also said Monday that labor and labor-related costs have increased operating expenses, and that the rate increases the company has gotten from the PUC — at nearly 5 percent since 2014 — have not kept up with the cost of providing service, or even the consumer price index.

“Steadily increasing operational costs, declining intrastate cargo volume, increased competition and nearly eight years with no significant boost in revenues makes it necessary for us to reset our rates,” Nakagawa said. “We are asking the Public Utilities Commission to approve ‘just and reasonable’ rates that matches our true cost of doing business.”

* Colleen Uechi can be reached at cuechi@mauinews.com.

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