Testimony - Young Brothers - 11.0 percent Rate Increase - June 28 2018
1. YOUNG BROTHERS, LTD. — MATSON
RATES and RATEMAKING
HAWAII PUBLIC UTILITIES COMMISSION (PUC)
SURFACE TRANSPORTATION BOARD (STB)
GENERAL RATE INCREASE (PUC)
ANNUAL FREIGHT RATE ADJUSTMENT (PUC)
ZONE OF REASONABLENESS (STB)
A Comparison
Young Brothers, Ltd. and Matson provide regularly scheduled inter-island barge
service from Honolulu, Hawaii to other major ports on the Hawaiian islands of Kauai,
Maui and Hawaii.
Young Brothers President Joseph Boivin, in a letter to the PUC in April 2018
stated that the company's financial condition “has accelerated its need for rate relief”
and that “YB has been unable to garner significant cost recovery since 2014, when a
2.21 percent rate increase went into effect”. Since May 2017 to 2018, the PUC last
approved a 0.10 percent increase to add $88,000 to Young Brothers' interisland
revenue.
Matson is subject to the jurisdiction of the STB. Matson's rates, monitored by
the STB, take effect within 30 days after Matson files its tariff with the STB. There are
no ratemaking proceedings. “A rate in the non-contiguous domestic trade is
presumed reasonable and will not be subject to investigation if the aggregate of
increases and decreases is not more than 7.5 percent above, or more than 10 percent
below, the rate in effect one year before the effective date of the proposed rate,
subject to increase or decrease by the percentage change in the U.S. Producer Price
Index”. This provision is referred to as the Zone of Reasonableness.
YB can submit an application for a GRI to the PUC. Additionally, YB's Local
Freight Tariff No. 5-A contains provision for an Annual Freight Rate Adjustment
(AFRA). The AFRA is capped at 5.5% annually. The PUC in Decision and Order No.
31493, stated that AFRA was established to streamlined ratemaking process
AFRA is performance based and is not an automatic entitlement to rate
increases in comparison to the Zone of Reasonableness' presumption of a rate being
reasonable if it falls within the range of aggregate increases and decreases of not
more than7.5 percent above or 10 percent below of the rate in effect one year before
the effective date of the new tariff, subject to increases or decreases in the U.S.
Consumer Price Index.
2. AFRA contains performance metrics/indices to measure YB's performance in
the competitive marketplace and maintenance of service quality to provide YB with a
reasonable opportunity to recover its prudently incurred costs, including a fair rate of
return, and “to allow YB's customers to share in the benefits of a streamlined
ratemaking process”.
The Zone of Reasonableness is not performance based.
The Zone of Reasonableness is based on a sliding scale of reason.
The Zone of Reasonableness is an automatic entitlement without justification.
The Zone of Reasonableness is an automatic entitlement has no oversight.
The STB's ratemaking authority for waterborne commerce in the noncontiguous
domestic trade was eliminated by Interstate Commerce Commission Termination Act
of 1995, Public Law 104–88, December 29,1995. 109 Stat. 804.
YOUNG BROTHERS - ANNUAL FREIGHT RATE ADJUSTMENT (“AFRA”)
STATE OF HAWAII PUBLIC UTILITIES COMMISSION
FISCAL YEAR 2017 (July 1, 2016 – June 30, 2017) DECEMBER 2017
Young Brothers Application for Approval of a General Rate Increase and Certain Tariff
Changes Docket No. 2016-0014, Status: Closed
On January 27, 2016, Young Brothers filed a notice of intent to file a rate case, and stated
that it intends to file an application for approval of a general rate increase (“GRI”) and certain
revisions to its Local Freight Tariff No. 5-A. On April 12, 2016, YB filed the application,
seeking an across-the-board general rate increase of 4.36%, for an increase in revenues of
$3,135,000. YB states that the increase is based on an intrastate rate of return of 10.25% and
an intrastate revenue requirement of $75,019,721. On May 26, 2016, the Commission
suspended the application and instituted an investigation to examine the merits of the
application. On September 22, 2016, and again on November 30, 2016, the Commission
approved the Parties’ voluntary and intentional waiver of the six-month deadline for the
issuance of the Commission’s final order in this docket.
Based on the Parties' representations that additional time is needed to work on the settlement
of any or all of the issues between the Parties, and further discovery of Young Brothers'
Rebuttal Testimonies and Exhibits is necessary to assist the Consumer Advocate in its review
of this Application, evidentiary hearings originally scheduled for September 2016 were
postponed to March 2017.
3. On May 4, 2017, the Commission issued Decision and Order No. 34535, which approved an
increase of Young Brothers’ intrastate revenue requirement to $72,130,526 for the 2016
adjusted Test Year.
This reflected an $88,000, or 0.12 percent, increase over present rates of $72,042,526.
[Emphasis Supplied]
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FISCAL YEAR 2016 (July 1, 2015 – June 30, 2016) DECEMBER 2016
https://puc.hawaii.gov/wp-content/uploads/2013/04/PUC-Annual-Report-Fiscal-Year-2016.pdf
Young Brothers Application For Approval To Institute An Annual Freight Rate Adjustment Pilot
Program Docket No. 2013-0032, Status: Open
On February 11, 2013, Young Brothers, Ltd. (“YB”) proposed a new rule in its Local Freight
Tariff No. 5-A to institute an Annual Freight Rate Adjustment (“AFRA”), capped at 5.5%
annually, as a three-year pilot program. In approving the AFRA, in Decision and Order No.
31493, the Commission stated that a “streamlined ratemaking process”, in conjunction with
the establishment of performance metrics/indices, can serve as a tool to potentially create the
same efficiency incentives as those experienced in competitive markets while maintaining
service quality, provide Young Brothers with a reasonable opportunity to recover its prudently
incurred costs, including a fair rate of return, and allow YB's customers to share in the
benefits of a streamlined ratemaking process. On June 16, 2015, the Commission, in a 2-1
decision, extended the pilot for an additional year.
On April 13, 2016, the Commission issued Order No. 33460 adopting performance metrics
and standards in twelve areas to govern YB's AFRA Program.
Young Brothers Application for Approval of a General Rate Increase and Certain Tariff
Changes Docket No. 2016-0014, Status: Open.
On January 27, 2016, Young Brothers filed a notice of intent to file a rate case, and stated
that it intends to file an application for approval of a general rate increase (“GRI”) and certain
revisions to its Local Freight Tariff No. 5-A. On April 12, 2016, YB filed the application,
seeking an across-the-board general rate increase of 4.36%, for an increase in revenues of
$3,135,000. YB states that the increase is based on an intrastate rate of return of 10.25% and
an intrastate revenue requirement of $75,019,721. On May 26, 2016, the Commission
suspended the application in its entirety and instituted an investigation to examine the merits
of the application. On September 22, 2016, and again on November 30, 2016, the
Commission approved the Parties' voluntary and intentional waiver of the six-month deadline
for the issuance of the Commission's final order in this docket. Based on the Parties'
representations that additional time is needed to work on the settlement of any or all of the
issues between the Parties, and further discovery on Young Brothers' Rebuttal Testimonies
and Exhibits is necessary to assist the Consumer Advocate in its review of this Application,
evidentiary hearings originally scheduled for September 2016 were postponed to March 2017.
4. FISCAL YEAR 2015 (July 1, 2014 – June 30, 2015) DECEMBER 2015
http://puc.hawaii.gov/wp-content/uploads/2013/04/FY-2015-ANNUAL-REPORT.pdf
Young Brothers Application For Approval To Institute An Annual Freight Rate Adjustment Pilot
Program Docket No. 2013-0032, Status: Open
On February 11, 2013, Young Brothers, Ltd. (“YB”) proposed a new rule in its Local Freight
Tariff No. 5-A to institute an Annual Freight Rate Adjustment (“AFRA”), capped at 5.5%
annually, as a three-year pilot program. In Order No. 31493 issued on October 11, 2013, the
Commission found that with appropriate conditions and safeguards, AFRA's streamlined,
formulaic ratemaking process can serve as a tool to potentially (1) create the same efficiency
incentives as those experienced in competitive markets while maintaining service quality; (2)
provide Young Brothers with a reasonable opportunity to recover its prudently incurred costs,
including a fair rate of return; (3) facilitate, administer and reduce regulatory burden over time;
(4) recognize the unique circumstances of Young Brothers; and (5) allow YB's customers to
share in the benefits of a streamlined ratemaking process; and approved the AFRA, subject to
certain conditions, including the establishment of performance metrics/indices. On June 16,
2015, the Commission approved a one-year extension of the AFRA in a 2-1 decision. The
Commission has not yet ruled on the proposed performance metrics.
Notice of Intent of Young Brothers, Limited to File an Application For Approval of a
GeneralRate Increase and Certain Tariff Changes Docket No. 2015-0016, Status: Closed.
On January 22, 2015, YB filed a notice of intent to file an application a general rate increase.
YB subsequently withdrew its application on June 26, 2015.
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MATSON – ZONE OF REASONABLENESS
SURFACE TRANSPORTATION BOARD
FORM 10-K ANNUAL REPORT
FILED FEB 24, 2017
http://investor.matson.com/secfiling.cfm?filingID=1558370-17-947&CIK=3453
Rate Regulations and Fuel Related Surcharge:
Matson is subject to the jurisdiction of the Surface Transportation Board with respect to its
domestic ocean rates. A rate in the non-contiguous domestic trade is presumed reasonable
and will not be subject to investigation if the aggregate of increases and decreases is not
more than 7.5 percent above, or more than 10 percent below, the rate in effect one year
before the effective date of the proposed rate, subject to increase or decrease by the
percentage change in the U.S. Producer Price Index. Matson generally provides a 30-day
notice to customers of any increases in general rates and terminal handling charges, and
passes along decreases as soon as possible.
5. Matson’s Ocean Transportation services engaged in U.S. foreign commerce are subject to
the jurisdiction of the Federal Maritime Commission (“FMC”). The FMC is an independent
regulatory agency that is responsible for the regulation of ocean-borne international
transportation of the U.S. Conducting business in foreign shipping markets subjects the
Company to certain risks (see Item 1A of Part I below for additional information about such
risks).
Matson applies a fuel surcharge rate to its ocean transportation customers. Changes in the
fuel surcharge levels are correlated to prevailing market rates for bunker fuel prices along with
other fuel related cost factors.
___________
FORM 10-K ANNUAL REPORT
FILED FEB 26, 2016
http://investor.matson.com/secfiling.cfm?filingID=1104659-16-100342&CIK=3453
Rate Regulations
Matson is subject to the jurisdiction of the Surface Transportation Board with respect to its
domestic ocean rates. A rate in the non-contiguous domestic trade is presumed reasonable
and will not be subject to investigation if the aggregate of increases and decreases is not
more than 7.5 percent above, or more than 10 percent below, the rate in effect one year
before the effective date of the proposed rate, subject to increase or decrease by the
percentage change in the U.S. Producer Price Index. Matson generally provides a 30 day
notice to customers of any increases in general rates and terminal handling charges, and
passes along decreases as soon as possible.
Fuel Costs
Matson purchases fuel oil, lubricants and gasoline for its operations; and also pays fuel
surcharges to drayage providers and rail carriers.
The cost of fuel oil is by far Matson’s largest energy-related expense.
Matson applies a fuel surcharge rate to its Hawaii, Alaska, Guam, China, Micronesia and
South Pacific customers. Changes in the fuel surcharge levels are correlated to prevailing
market rates for bunker fuel prices along with other fuel related cost factors. In markets
excluding China, Matson generally provides a 30-day notice to customers of increases in fuel
surcharge rates. In the China market, Matson adjusts the fuel surcharge quarterly.
___________
FORM 10-K ANNUAL REPORT
FILED FEB 27, 2015
http://investor.matson.com/secfiling.cfm?filingID=1104659-15-14988&CIK=3453
Rate Regulations and Fuel Costs
6. Matson is subject to the jurisdiction of the Surface Transportation Board with respect to its
domestic ocean rates. A rate in the noncontiguous domestic trade is presumed reasonable
and will not be subject to investigation if the aggregate of increases and decreases is not
more than 7.5 percent above, or more than 10 percent below, the rate in effect one year
before the effective date of the proposed rate, subject to increase or decrease by the
percentage change in the U.S. Producer Price Index. During 2014, Matson applied the
following general rate increases per container, and terminal handling charge increases per
container, in its Hawaii services:
Effective date General Rate Terminal Handling Charge
Increase Increase
Westbound Eastbound Westbound Eastbound
January 5, 2014 $175 $85 $50 $25
During 2014, Matson’s fuel-related surcharges for its Hawaii services were as follows:
Effective date Fuel-related Surcharge Hawaii
December 31, 2013 34.5%
March 23,2014 39.5%
June 8, 2014 42.5%
November 2, 2014 37.5%
December 21, 2014 35.5%
FORM 10-K ANNUAL REPORT
FILED FEB 28, 2014
http://investor.matson.com/secfiling.cfm?filingID=1104659-14-14819&CIK=3453
Rate Regulations and Fuel Costs
Matson is subject to the jurisdiction of the Surface Transportation Board with respect to its
domestic rates.
A rate in the noncontiguous domestic trade is presumed reasonable and will not be subject to
investigation if the aggregate of increases and decreases is not more than 7.5 percent above,
or more than 10 percent below, the rate in effect one year before the effective date of the
proposed rate, subject to increase or decrease by the percentage change in the U.S.
Producer Price Index.
Matson raised rates in its Hawaii service, effective January 1, 2013 and again on January 5,
2014, by $175 per westbound container and $85 per eastbound container, and its terminal
handling charges by $50 per westbound container and $25 per eastbound container. With
declining fuel-related costs, Matson lowered its fuel-related surcharge from 43.5 percent to
40.0 percent effective March 17, 2013, to 36.5 percent effective April 28, 2013 and to 34.5
percent on July 7, 2013, in its Hawaii service.
7. ATTACHED ADDITIONAL REFERENCES
Matson - Zone of Reasonableness - 1996 to 2013
Matson - Zone of Reasonableness - 2014 to 2017
Maritime Shipping – Hawaii Illusory Practices And Processes
Regulatory | Tariff Authority | Jurisdiction
Hawaii – Public Utilities Commission – Young Brothers Rate Increases – Rate Making
CONCLUDING REMARKS
The Hawaii Public Utilities Commission has established a performance
based standard for maritime shipping between the Ports of Hawaii.
Fundamentally is the fair and equal application and enforcement of the
performance based standard for maritime shipping between the Ports of Hawaii.
The performance based standard ensures waterborne carriers continually
strive and maximize operating efficiency.
The performance based standard ensures waterborne carriers shall have
a fair and equal opportunity to recover its prudently incurred costs.
The performance based standard ensures waterborne carriers shall have
a fair and equal opportunity to realize a fair rate of return on prudently incurred
costs.
The performance based standard ensures transparency in the competitive
marketplace.
The performance based standard promotes healthy competition.
Application and enforcement of the performance based standard will
transform and improve the business climate throughout the State of Hawaii,
enhance and promote investment throughout the State of Hawaii.
The State of Hawaii, the people and businesses of the State of Hawaii are
the beneficiaries of the performance based standard.
MAKE IT SO!