Hawaii PUC opens evidentiary hearing on Young Brothers rate request as parties spar over cost of capital, business plan and service changes

The Hawaii Public Utilities Commission on Oct. 15 opened an evidentiary hearing on Young Brothers LLC’s application for a general rate increase and related tariff changes, hearing arguments and witness testimony on the company’s business plan, revenue forecasts, cost-of-capital estimates and a proposed annual interim inflation adjustment mechanism.

Commission Chair Leo Sanchin presided over the hearing in Honolulu. The proceeding addresses Young Brothers’ request for a general rate increase and other tariff changes in docket number 20250255 and follows earlier temporary rate relief ordered in June 2025. During opening statements, counsel for the company and the Consumer Advocate framed the central disputes: the magnitude of Young Brothers’ requested revenue increase, the appropriate rate of return (cost of capital), and whether elements of the company’s business plan and proposed automatic adjustment mechanism should be approved as filed.

Why it matters: Young Brothers provides inter-island water-carrier services that the parties described as a “lifeline between the islands.” The commission’s decision will affect shipping costs for island businesses, agricultural shippers and residents, and could shape Young Brothers’ access to capital for equipment and systems investments that the company says are needed to maintain service reliability.

Opening positions and key issues

David Nakashima, appearing for Young Brothers, asked the commission to view the case in the broader context of maintaining inter-island lifelines. “This rate case is about saving the lifeline between the islands,” Nakashima said in his opening statement, and he told the commission that the record supports a requested overall revenue increase of at least 25.75% plus approval of an annual interim rate adjustment mechanism the company and stakeholders have referred to as “WICCI” (also discussed in testimony as “wiki” or “WICI”). Nakashima said the company has filed a business plan and is relying on that plan and the interim mechanism to stabilize operations and unlock capital markets.

Mickey Knox, attorney for the Consumer Advocate, agreed that Young Brothers is an essential service but sharply criticized the company’s recent business decisions and some elements of its rate request. Knox said the Consumer Advocate views some of the company’s proposed operating expense levels and its chosen proxy group for a high return on equity as unsupported, and warned that the company’s approach risks “locking in abnormally high operating expenses” that customers will bear. Knox also urged the commission to consider opening a non-rate investigatory docket to examine root causes of Young Brothers’ financial and operational problems after the rate case.

Cost of capital, proxy groups and risk

A central technical dispute at the hearing was the appropriate methodology and proxy group for estimating Young Brothers’ cost of equity. Young Brothers’ cost‑of‑capital witness testified that standard models (discounted cash flow and capital asset pricing model) and a maritime/intermodal proxy set support a higher return on equity. The Consumer Advocate’s consultant criticized parts of that approach and advocated a lower recommended return, contending Young Brothers’ regulatory status should reduce its risk posture.

Dr. Benteev Villatsen (Young Brothers’ cost-of-capital witness) told the commission that risk characteristics of shipping and intermodal businesses justify the proxy selection and that certain operating liabilities should not be treated as debt when computing capital structure. He cautioned that including operating accruals as debt would incorrectly raise Young Brothers’ measured financial leverage.

The Consumer Advocate’s expert, summarized in testimony and cross-examination, argued the commission should not simply assume regulated companies are uniformly lower-risk and challenged aspects of the company’s selection of comparators and capital structure assumptions.

Business plan, confidentiality and the $6 million initiative

Young Brothers filed a business plan the company says lays out three prongs—internal process improvements, transformative initiatives, and the pending rate case including the proposed interim mechanism. Robin Chu of Portage Point Partners, the consulting firm that led preparation of the plan, and other company witnesses described the plan as a high‑level road map intended to stabilize finances and enable future investments (for example, terminal operating systems, chassis replacement and improved booking systems).

A contested procedural point was the confidentiality of parts of the business plan. The plan lists initiatives the company estimates could yield approximately $6,000,000 annually; the company told the commission that about 50% of that total would be revenue initiatives and about 50% would be expense initiatives, but witnesses said detailed descriptions of many initiatives were filed under confidential seal and redacted from the publicly available version. When asked, Robin Chu and company witnesses said the redactions are the reason staff and the Consumer Advocate do not have public visibility into the specific initiatives.

Service changes and stakeholder outreach

Company witnesses repeatedly told the commission that the business plan, as filed, does not seek immediate commission approval to change regular sailing routes or schedules. Frank Amaraz, introduced as Young Brothers’ president, and Robin Chu said any future change to sailings would require additional analysis and stakeholder engagement and would be filed in a separate docket if regulatory approval is needed. When asked about outreach conducted while developing the plan, the company said it did not conduct formal, systematic, externally focused customer surveys for the plan but relied on routine customer interactions and internal management input; Chu and Amaraz said more detailed outreach would be required before implementing service changes.

Operational examples discussed during testimony included the company’s Cargo Kaholo (also referred to as the Kaholo auto barge or “milk run”), which Young Brothers said provides weekly covered capacity for automobile (RoRo) shipments on certain island routes and delivers capacity and handling efficiency benefits. Witnesses declined to provide specifics about the operational efficiency calculations on the public record, pointing to either separate operations witnesses or confidential portions of the business plan.

Volume trends, nonregulated business and capacity

Commissioners and Consumer Advocate counsel questioned company witnesses about falling regulated cargo volumes, whether barges sail at full capacity and the growth of nonregulated business lines (services outside the regulated tariff). Sales manager Keith Kiyotoki said Young Brothers continues to pursue nonregulated revenue opportunities and that some customers have shifted how they move cargo; witnesses acknowledged they do not have a simple public figure for how often barges sail at full capacity and said operational staff would have that detail. Company witnesses also acknowledged that the company has lost volume in recent years and that tracking specific customer departures is not currently part of a formal, highly resourced program.

Price elasticity and volumetric forecasting

The company’s econometric witnesses used a volumetric forecast model (VFM) that breaks cargo into categories used by Young Brothers for pricing and forecasting. Dr. August Ancombe and other company witnesses testified that price elasticity of demand (PED) estimates were developed for six cargo types and applied in the revenue forecast. The Consumer Advocate questioned aspects of the PED inputs and asked whether macroeconomic events and recent disruptions were fully accounted for in the elasticity modeling; the company’s witnesses said they used established econometric methods and that anomalous pandemic-era data were excluded.

Procedural rulings recorded in the hearing

Chair Sanchin announced on the record several immediate rulings related to procedural filings:

- The commission granted Waiakea’s motion to withdraw from the docket. Chair Sanchin stated on the record, “based on the record, the commission hereby grants Waiakea’s motion to withdraw.” The chair added the company’s previously filed direct testimony will remain in the file as public comment and that the commission will avoid referring to it in the evidentiary proceeding.

- The commission granted a stipulation on admissibility filed by the parties that narrows the exhibits to be admitted for use at the hearing (Young Brothers hearing exhibits YB HEARING‑01 through YB HEARING‑13 and Consumer Advocate hearing exhibits CA‑1 and CA‑2, and related filings). The chair said the commission will issue a written order on these matters.

What the commission will decide next

The evidentiary hearing continues with witness testimony and cross‑examination on the items the commission listed in its prehearing order, including the reasonableness of proposed tariffs and charges, revenue forecasts, projected operating expenses and rate base, and the reasonableness of the requested rate of return. The parties are presenting financial, operational and econometric evidence the commission will use to resolve contested inputs to the revenue requirement and rate design.

Ending note

The commission recessed the hearing to continue on the following day. Several witnesses who were not available the first day were scheduled to appear later in the hearing. The record that the commission compiles in docket 20250255 will form the basis of its written decision and any subsequent orders the commission issues concerning Young Brothers’ proposed rate adjustments and tariff changes.