PUC hearing hears YB explain allocation model and elasticity‑adjusted rate design; LCL and Kaholo auto sailings discussed

Young Brothers’ operations and cost‑allocation witness Michael Starkey told the Public Utilities Commission that the company’s jurisdictional allocation model (YB Business Intelligence Platform, YB BIP) allocates most vessel costs by minute of use and fuel burn so regulated services are charged only their proportionate share of shared tug, barge and shoreside costs.

Starkey described the mechanics: the company’s HELM vessel‑tracking system logs each vessel minute by route and by task; YB BIP consumes that data and classifies sailings as either charter (allocated entirely to unregulated/charter customers) or non‑charter regulated sailings. “All charter voyage minutes are allocated directly to the unregulated side,” he said. For vessel costs, the model uses time (minutes underway) to allocate most costs and uses measured fuel consumption to allocate fuel expense.

Starkey and company counsel then described how YB used the allocation outputs in rate design. Starkey said outputs from YB BIP feed a revenue‑requirement model (Schedule G revisions in the application) that produces jurisdictional allocations used to set rates for the 2025 test year. He said that allocation outputs were included in the exhibit files provided to the commission.

On rate design, Starkey explained an elasticity‑aware method the company used to estimate the revenue that would result from proposed percentage price increases. He said the company applied price‑elasticity‑of‑demand (PED) factors computed by an economist (Dr. Ancombe) to the incremental revenue increase for each affected rate element to estimate likely volume responses and thus the adjusted revenue the company would actually collect. Starkey described the logic: if a 30% increase on a rate would theoretically yield $3.3 million in additional revenue before behavioral responses, applying the PED reduces that expectation by the modeled drop in volume so the company can set a percentage increase that is more likely to achieve the targeted revenue.

Starkey’s testimony and accompanying exhibits also addressed less‑than‑container‑load (LCL) service and the Kaholo cargo auto sailings. The company’s business intelligence outputs show that LCL sailings have been unprofitable for several years, Kishimoto testified earlier; Starkey’s route‑by‑route gross‑margin output (PUC IR materials) shows the Kaholo and other “other sailings” produced gross margin contribution in 2024. When counsel asked whether Kaholo auto sailings were positive in table outputs, Starkey said the Kaholo appears in an “other” column in the summary table (the YB BIP outputs predated some Kaholo sailings) but that the majority of the column’s gross margin was from cargo Kaholo activity and that the Kaholo‑related column was positive in the 2024 data.

Commissioners and counsel pressed the company on how PED assumptions were derived and how robust the data are for LCL; Starkey said the PED regressions included macro controls (the transcript cites incorporation of Dr. Brubaker’s visitor and housing variables in the regressions) to isolate price impacts. Commissioners probed whether the company’s proposed staged increases (company offers smaller initial increases and second‑step increases later) would still meet revenue targets; Starkey said the PED adjustments are intended to produce a more accurate forecast of revenue given an increase and that the company’s design targeted both revenue and policy considerations (e.g., limiting price shock for small shippers).

Ending: The company asked that the commission rely on the granular YB BIP allocations and the elasticity‑adjusted designs in evaluating the rate request; commissioners requested the underlying data and the Excel workbooks that implement the PED calculations and the route‑by‑route gross‑margin outputs so the record can be verified.

Clarifying details: Starkey summarized the vessel‑allocation approach (minutes for most vessel costs; gallons burned for fuel). He pointed the commission to exhibits (YB BIP summary and Schedule G updates) as the data source for allocations and said the files contain the route‑by‑route gross‑margin outputs and the PED‑adjusted revenue modeling.