HB2386 SD2

SECTION 1. Chapter 271G, Hawaii Revised Statutes, is amended by adding a new section to be appropriately designated and to read as follows:

"§271G- Automatic adjustment mechanisms; rules. (a) The commission may establish automatic adjustment mechanisms for water carriers subject to this chapter to address inflation, regulatory lag, and other economic factors. The commission shall initiate a proceeding for the adoption of rules pursuant to chapter 91 to establish the framework, guidelines, and conditions for any automatic adjustment mechanism prior to the approval of any application by a water carrier.

(b) The rules adopted pursuant to subsection (a) shall include:

(1) Strict financial and operational due diligence requirements that a water carrier must meet prior to the approval of any automatic adjustment mechanism;

(2) A maximum allowable percentage for any annual rate increase implemented through the automatic adjustment mechanism;

(3) A maximum duration or time period for which the automatic adjustment mechanism may be applied before the water carrier is required to submit a general rate case application;

(4) A requirement that the water carrier demonstrate the complete and transparent accounting separation of regulated intrastate shipping functions from all unregulated functions and parent company operations;

(5) A requirement that the commission evaluate the water carrier's long-term commitment to the State, which shall include an assessment of workforce stability, retention of Hawaii-based personnel, and sustained investment in local operations;

(6) A prohibition on the issuance of dividend payments or other financial distributions to a parent company or shareholders during the years in which the automatic adjustment mechanism is applied;

(7) A mandatory two-year cooling-off period immediately following the effective date of any rate increase approved by the commission through a general rate case, during which the water carrier shall be prohibited from using the automatic adjustment mechanism;

(8) Specific performance metrics regarding service reliability, on-time delivery, and cargo handling efficiency that the water carrier must maintain;

(9) Mandatory community outreach and public engagement requirements, ensuring that the water carrier provides regular updates to consumers and stakeholders on the neighbor islands regarding operational performance, financial health, and any anticipated rate adjustments;

(10) A prohibition on the issuance of bonuses or increases in compensation packages to executive officers of the water carrier during the years in which the automatic adjustment mechanism is applied;

(11) Strict biosecurity compliance requirements, stipulating that any water carrier found to be non‑compliant with the department of agriculture and biosecurity rules or other applicable state biosecurity laws shall be prohibited from docking or discharging cargo at any state harbor until full compliance is verified;

(12) Annual reporting requirements for compliance with any conditions established; and

(13) Procedures for corrective actions if the water carrier is not in compliance.

(c) Notwithstanding any other law to the contrary, the rules adopted under this section shall be presented to, and subject to the approval of, the governor. If the governor approves the rules, the governor shall sign the rules, and the rules shall be adopted as provided in section 91-3. If the governor does not approve the rules, the governor may return the rules to the commission with the governor's reasons for disapproval. The governor shall have twenty-one days to consider the rules after the rules are presented to the governor, and if the rules are neither signed nor returned by the governor within that time, the rules shall be adopted as if the governor had signed them. If the rules are returned to the commission, the commission may start anew the rule-making process set forth in subsection (a).

(d) Any request by a water carrier to establish an automatic adjustment mechanism shall be submitted as a forty‑five-day tariff transmittal filing or as part of a general rate case application, subject to the rules adopted pursuant to subsection (a).

(e) Customers eligible for preferential agricultural rates under section 269-26.5 shall be exempt from any automatic adjustment mechanism authorized by this section."

SECTION 2. Section 271G-5, Hawaii Revised Statutes, is amended by adding a new definition to be appropriately inserted and to read as follows:

""Automatic adjustment mechanism" means any rate adjustment mechanism that allows a water carrier to change rates between rate cases."

SECTION 3. Section 271G-17, Hawaii Revised Statutes, is amended to read as follows:

"§271G-17 Tariffs of water carriers. (a) Every water carrier shall file with the [~~public utilities~~] commission, and print, and keep open to public inspection, tariffs showing all the rates, fares, and charges for transportation, and all services in connection therewith, of passengers or property. The rates, fares, and charges shall be stated in terms of lawful money of the United States. The tariffs required by this section shall be published, filed, and posted in [~~such~~] the form and manner, and shall contain [~~such~~] information [~~as the~~] prescribed by the commission by [~~regulations shall prescribe; and the~~] rules. The commission may reject any tariff filed with it [~~which~~] that is not in consonance with this section and with the [~~regulations.~~] rules. Any tariff so rejected by the commission shall be void and its use shall be unlawful.

(b) No change shall be made in any rate, fare, charge, or classification, or any rule, regulation, or practice affecting the rate, fare, charge, or classification, or the value of the service thereunder, specified in any effective tariff of a water carrier, except after forty-five days' notice of the proposed change filed and posted in accordance with subsection (a); provided that changes to [~~a fuel~~] an automatic adjustment mechanism surcharge approved by the commission may be made after thirty days' notice of the proposed change filed and posted in accordance with subsection (a). The notice shall plainly state the change proposed to be made and the time when it will take effect. The commission may in its discretion and for good cause shown allow the change upon notice less than that [~~herein~~] specified in this section or modify the requirements of this section with respect to posting and filing of tariffs either in particular instances or by general order applicable to special or peculiar circumstances or conditions.

(c) No water carrier shall engage in the transportation of passengers or property unless the rates, fares, and charges upon which the same are transported by the water carrier have been filed and published in accordance with this chapter.

(d) Whenever there is filed with the commission any schedule stating a new rate, fare, or charge[,] for the transportation of passengers or property by a water carrier or any rule, regulation, or practice affecting [~~such~~] the rate, fare, or charge, or the value of the service thereunder, the water carrier may on its own initiative, or shall by order of the commission served [~~prior to~~] before the effective date of the schedule, concurrently file a pro forma statement of account [~~which~~] that shall be prepared under the same form and in the same manner as prescribed by the commission's uniform system of accounts.

The commission may, upon complaint of any interested person or upon its own initiative at once and, if it so orders, without answer or other formal pleading by the interested water carrier or water carriers, but upon reasonable notice, enter upon a hearing concerning the lawfulness of the rate, fare, or charge[,] or the rule, regulation, or practice, and pending the hearing and the decision [~~thereon~~] by the commission, by delivering to the affected water carrier or water carriers [~~affected thereby~~] a statement in writing of its reasons therefor, may suspend the operation of the schedule and defer the use of the rate, fare, or charge[,] or the rule, regulation, or practice. From the date of ordering a hearing to investigate the lawfulness of the rate, fare, or charge, the commission shall have up to six months to complete its investigation. If the commission fails to issue a final order within the six-month period then the changes proposed by the water carrier shall go into effect. At any hearing involving a change in a rate, fare, charge, or classification[,] or in a rule, regulation, or practice, the burden of proof shall be upon the water carrier to show that the proposed changed rate, fare, charge, classification, rule, regulation, or practice[,] is just and reasonable.

(e) When a rate increase application is filed, the commission may in its discretion and after public notice, and upon showing by a water carrier of probable entitlement and financial need, authorize temporary increases in rates, fares, and charges; provided that the commission shall by order require the water carrier to keep accurate account in detail of all amounts received by reason of [~~such~~] the increase, specifying by whom and in whose behalf [~~such~~] the amounts are paid, and upon completion of the hearing and decision by further order require the interested carrier to refund, with interest, to the persons in whose behalf [~~such~~] the amounts were paid, [~~such~~] the portion of [~~such~~] the increased rates or charges by its decision shall be found not justified. The interest to be paid shall be the rate of return authorized in the last general rate case proceedings.

(f) Notwithstanding subsections (a) through (e), any request to establish an automatic adjustment mechanism made by a water carrier shall be submitted as a forty-five-day tariff transmittal filing or as part of a general rate case application.

(g) Notwithstanding any provision of this chapter or any law, decision, order, or rule to the contrary, the commission, upon the application of a water carrier, may waive or exempt a water carrier from any or all requirements of this chapter or any applicable decision, order, rule, or other law upon a determination or demonstration that any requirement or requirements should not be applied to water carriers or are otherwise unjust, unreasonable, or not in the public interest."

SECTION 4. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.

SECTION 5. This Act shall take effect on July 1, 2026, and shall be repealed on July 1, 2032; provided that section 271G‑17, Hawaii Revised Statutes, shall be reenacted in the form in which it read on the day before the effective date of this Act.

HOUSE OF REPRESENTATIVES	H.B. NO.	2386
THIRTY-THIRD LEGISLATURE, 2026		H.D. 2
STATE OF HAWAII		S.D. 2