Young Bros. pleads case
for rate hike

By Russ Lynch
Star-Bulletin

Young Brothers Ltd. says its share of the interisland cargo business is declining and the total amount of freight between the islands has not grown for several years after a period of fast growth.

The interisland barge line told the state Public Utilities Commission yesterday those and other factors have reduced its profits to about half of what the PUC allows and it needs a rate increase.

Young Brothers is seeking an 8.2 percent rate increase, which it says it needs to achieve the 14.9 percent return on the equity that would justify continued investment in the company.

PUC administrator Milton Higa said the current allowed return on equity, from earlier rate cases, is 15.2 percent.

The state consumer advocate's office, which represents the public in utility rate cases, says today's high stock prices and low interest rates have lowered the cost of attracting capital and a lower return would be fair.

A 5.74 percent rate increase would produce a fair 10.1 percent return on equity, the consumer advocate said in calculations submitted yesterday.

Furthermore, the consumer advocate's office argued, if Young Brothers is allowed to reduce its schedule to Kawaihae on the Big Island as it wants, it would cut costs by more than $700,000. At that level, rates would only have to rise 3.61 percent to produce a 10.1 percent return on equity, the consumer advocate's office said.

But Glenn K.Y. Hong, Young Brothers president, told the PUC at the start of the hearing that for the last five years business has been stagnant and competition has increased.

The company, a unit of Hawaiian Electric Industries Inc., has been showing a return on equity of 5 to 6 percent, Hong said.

A Boston economist who advises shipowners nationally testified yesterday that Young Brothers' rate of return is so low compared to other available investments that it would be unable to attract capital in today's market.

"It is simply not competitive," said Arlie Sterling, president of Marsoft Inc., which advises the maritime industry on investments.

Sterling said Young Brothers provides a slightly higher return than an investor would get on three-month Treasury bills and slightly less than a 10-year government bond. "Significant change is necessary to justify investment," Sterling said.

Hong said HEI has invested about $56 million in new barges, tugs and other equipment since buying the company in 1986. That has improved efficiency, as have other steps the company has been taking, such as moving to consolidate its Honolulu base in one place, at Piers 39 and 40. Those steps have not been enough to bring about a satisfactory profit in Hawaii's flat economy, he said.

The commission has until Oct. 10 to reach a decision in the case.