<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1995
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION REGISTRANT; STATE OF INCORPORATION; I.R.S. EMPLOYER
FILE NUMBER ADDRESS; AND TELEPHONE NUMBER IDENTIFICATION NO.
- ----------- ----------------------------------- ------------------
1-8503 HAWAIIAN ELECTRIC INDUSTRIES, INC. 99-0208097
(A Hawaii Corporation)
900 Richards Street
Honolulu, Hawaii 96813
Telephone (808) 543-5662
1-4955 HAWAIIAN ELECTRIC COMPANY, INC. 99-0040500
(A Hawaii Corporation)
900 Richards Street
Honolulu, Hawaii 96813
Telephone (808) 543-7771
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NAME OF EACH EXCHANGE
REGISTRANT TITLE OF EACH CLASS ON WHICH REGISTERED
---------- ------------------- ----------------------
Hawaiian Electric Common Stock, Without New York Stock Exchange
Industries, Inc. Par Value Pacific Stock Exchange
Hawaiian Electric First Mortgage Bonds, New York Stock Exchange
Company, Inc. Series S, 7 5/8%
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
REGISTRANT TITLE OF EACH CLASS
---------- -------------------
Hawaiian Electric Industries, Inc. .......... None
Hawaiian Electric Company, Inc. ............. Cumulative Preferred Stock
================================================================================
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [X]
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<PAGE>
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AGGREGATE MARKET
VALUE OF THE VOTING NUMBER OF SHARES
STOCK HELD BY OF COMMON STOCK
NONAFFILIATES OF THE OUTSTANDING OF THE
REGISTRANTS ON REGISTRANTS ON
MARCH 15, 1996 MARCH 15, 1996
-------------------- ------------------
Hawaiian Electric Industries, Inc. $1,059,264,000 30,050,033
(Without par value)
Hawaiian Electric Company, Inc. N/A 12,302,657
($6 2/3 par value)
===============================================================================
DOCUMENTS INCORPORATED BY REFERENCE
PART OF
FORM 10-K
INTO WHICH THE
DOCUMENT IS
DOCUMENT INCORPORATED
- ---------------------------------------------------- ------------------------
Portions of Annual Reports to Stockholder(s)
of the following registrants for the fiscal
year ended December 31, 1995:
Hawaiian Electric Industries, Inc. .............. Parts I, II, III and IV
Hawaiian Electric Company, Inc. ................. Parts I, II, III and IV
Portions of Proxy Statement of Hawaiian
Electric Industries, Inc., dated March 8, 1996,
for the Annual Meeting of Stockholders............. Part III
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THIS COMBINED FORM 10-K REPRESENTS SEPARATE FILINGS BY HAWAIIAN ELECTRIC
INDUSTRIES, INC. AND HAWAIIAN ELECTRIC COMPANY, INC. INFORMATION CONTAINED
HEREIN RELATING TO ANY INDIVIDUAL REGISTRANT IS FILED BY EACH REGISTRANT ON ITS
OWN BEHALF. NEITHER REGISTRANT MAKES ANY REPRESENTATIONS AS TO THE INFORMATION
RELATING TO THE OTHER REGISTRANT.
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<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Glossary of Terms.......................................................... ii
PART I
Item 1. Business........................................................ 1
Item 2. Properties...................................................... 39
Item 3. Legal Proceedings............................................... 41
Item 4. Submission of Matters to a Vote of Security Holders............. 41
PART II
Item 5. Market for Registrants' Common Equity and
Related Stockholder Matters.................................. 43
Item 6. Selected Financial Data......................................... 43
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................... 43
Item 8. Financial Statements and Supplementary Data..................... 44
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure..................................... 44
PART III
Item 10. Directors and Executive Officers of the Registrants............. 44
Item 11. Executive Compensation.......................................... 46
Item 12. Security Ownership of Certain Beneficial Owners and Management.. 50
Item 13. Certain Relationships and Related Transactions.................. 52
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K..................................................... 52
Independent Auditors' Report - HEI......................................... 54
Independent Auditors' Report - HECO........................................ 55
Index to Exhibits.......................................................... 60
Signatures................................................................. 75
</TABLE>
i
<PAGE>
GLOSSARY OF TERMS
Defined below are certain terms used in this report:
<TABLE>
<CAPTION>
TERMS DEFINITIONS
- ----- -----------
<C> <S>
1935 ACT Public Utility Holding Company Act of 1935
AES Applied Energy Services, Inc.
AES-BP AES Barbers Point, Inc.
ARM Adjustable rate mortgage
ASB American Savings Bank, F.S.B., a wholly owned subsidiary of
HEI Diversified, Inc. and parent company of American
Savings Investment Services Corp., ASB Service Corporation,
AdCommunications, Inc. and Associated Mortgage, Inc.
BHP BHP Petroleum Americas Refining Inc., a fuel oil supplier
BIF Bank Insurance Fund
BPPI Baldwin Pacific Properties, Inc., a limited partner of
Baldwin*Malama (a limited partnership in which Malama
Development Corp. is a general partner)
BTU British thermal unit
CDUP Conservation District Use Permit amendment
CERCLA Comprehensive Environmental Response,
Compensation and Liability Act
COMPANY Hawaiian Electric Industries, Inc. and its direct and
indirect subsidiaries, including, without limitation,
Hawaiian Electric Company, Inc., Maui Electric Company,
Limited, Hawaii Electric Light Company, Inc., HEI Investment
Corp., Malama Pacific Corp. and its subsidiaries, Hawaiian
Tug & Barge Corp., Young Brothers, Limited, HEI
Diversified, Inc., American Savings Bank, F.S.B. and its
subsidiaries, Lalamilo Ventures, Inc., Pacific Energy
Conservation Services, Inc. and HEI Power Corp.
CONSUMER Division of Consumer Advocacy, Department of Commerce and
ADVOCATE Consumer Affairs of the State of Hawaii
CT Combustion turbine
CUSA Chevron U.S.A., Inc., a fuel oil supplier
DOH Department of Health of the State of Hawaii
DOT Department of Transportation of the State of Hawaii
DSM Demand-side management
EPA Environmental Protection Agency - federal
EPCRA Emergency Planning and Community Right-to-Know Act
ERL State of Hawaii Environmental Response Law
FASB Financial Accounting Standards Board
FDIC Federal Deposit Insurance Corporation
FDICIA Federal Deposit Insurance Corporation Improvement Act of 1991
FEDERAL U.S. Government
FERC Federal Energy Regulatory Commission
FHLB Federal Home Loan Bank
FIRREA Financial Institutions Reform, Recovery, and Enforcement Act
of 1989
HAWAII State of Hawaii
HCPC Hilo Coast Processing Company
HECO Hawaiian Electric Company, Inc., a wholly owned electric
utility subsidiary of Hawaiian Electric Industries, Inc.
and parent company of Maui Electric Company, Limited and
Hawaii Electric Light Company, Inc.
</TABLE>
ii
<PAGE>
GLOSSARY OF TERMS (continued)
<TABLE>
<CAPTION>
TERMS DEFINITIONS
- ----- -----------
<C> <S>
HEI Hawaiian Electric Industries, Inc., parent company of
Hawaiian Electric Company, Inc., HEI Investment Corp.,
Malama Pacific Corp., Hawaiian Tug & Barge Corp., Lalamilo
Ventures, Inc., HEI Diversified, Inc., Pacific Energy
Conservation Services, Inc. and HEI Power Corp.
HEIDI HEI Diversified, Inc., a wholly owned subsidiary of
Hawaiian Electric Industries, Inc. and the parent company of
American Savings Bank, F.S.B.
HEIIC HEI Investment Corp., a wholly owned subsidiary of Hawaiian
Electric Industries, Inc.
HEIPC HEI Power Corp., a wholly owned subsidiary of Hawaiian
Electric Industries, Inc.
HELCO Hawaii Electric Light Company, Inc., a wholly owned
electric utility subsidiary of Hawaiian Electric Company,
Inc.
HERS Hawaiian Electric Renewable Systems, Inc., formerly a
wholly owned subsidiary of Hawaiian Electric Industries,
Inc. and formerly parent company of Lalamilo Ventures, Inc.
HIG The Hawaiian Insurance & Guaranty Company, Limited, an
insurance company which was placed in state rehabilitation
proceedings. HEI Diversified, Inc. was the holder of record
of HIG's common stock prior to August 16, 1994
HIRI Hawaiian Independent Refinery, Inc., a fuel oil refinery
HITI Hawaiian Interisland Towing, Inc.
HP Horsepower
HTB Hawaiian Tug & Barge Corp., a wholly owned subsidiary of
Hawaiian Electric Industries, Inc. and parent company of
Young Brothers, Limited
IBEW International Brotherhood of Electrical Workers
IBU Inlandboatmen's Union of the Pacific, Marine Division, an
affiliate of the International Longshoremen's and
Warehousemen's Union, Hawaii Division
ILWU International Longshoremen's and Warehousemen's Union
IPP Independent power producer
IRP Integrated resource plan
IRR Interest rate risk
KALAELOA Kalaeloa Partners, L. P.
KCP Kawaihae Cogeneration Partners
KWH Kilowatthour
LSFO Low sulfur fuel oil
LVI Lalamilo Ventures, Inc., formerly a wholly owned subsidiary
of Hawaiian Electric Renewable Systems, Inc. and now a
wholly owned subsidiary of Hawaiian Electric Industries,
Inc.
MBTU Million British thermal unit
MD&A Management's Discussion and Analysis of Financial Condition
and Results of Operations
MDC Malama Development Corp., a wholly owned subsidiary of
Malama Pacific Corp.
MECO Maui Electric Company, Limited, a wholly owned electric
utility subsidiary of Hawaiian Electric Company, Inc.
</TABLE>
iii
<PAGE>
GLOSSARY OF TERMS (continued)
<TABLE>
<CAPTION>
TERMS DEFINITIONS
- ----- -----------
<C> <S>
MMO Malama Mohala Corp., a wholly owned subsidiary of Malama
Pacific Corp.
MPC Malama Pacific Corp., a wholly owned subsidiary of Hawaiian
Electric Industries, Inc. and parent company of several real
estate subsidiaries
MSFO Medium sulfur fuel oil
MW Megawatt
NA Not applicable
NAE North American Environmental, Inc.
NOI Notice of intent
NPDES National Pollutant Discharge Elimination System
OPA Federal Oil Pollution Act of 1990
OTS Office of Thrift Supervision, Department of Treasury
PCB Polychlorinated biphenyl
PECS Pacific Energy Conservation Services, Inc., a wholly owned
subsidiary of Hawaiian Electric Industries, Inc.
PGV Puna Geothermal Venture
PSD Prevention of significant deterioration
PUC Public Utilities Commission of the State of Hawaii
PURPA Public Utility Regulatory Policies Act of 1978
QTL Qualified Thrift Lender
RCRA Resource Conservation and Recovery Act of 1976
REGISTRANT Hawaiian Electric Industries, Inc. or Hawaiian Electric
Company, Inc.
SAIF Savings Association Insurance Fund
SARA Superfund Amendments and Reauthorization Act
SEC Securities and Exchange Commission
SFAS Statement of Financial Accounting Standards
ST Steam turbine
STATE State of Hawaii
TSCA Toxic Substance Control Act of 1976
UIC Underground Injection Control
UST Underground storage tank
YB Young Brothers, Limited, a wholly owned subsidiary of
Hawaiian Tug & Barge Corp.
</TABLE>
iv
<PAGE>
PART I
------
ITEM 1. BUSINESS
HEI
- ---
HEI was incorporated in 1981 under the laws of the State of Hawaii and is a
holding company with subsidiaries engaged in the electric utility, savings bank,
freight transportation, real estate development and other businesses, primarily
in the State of Hawaii. HEI's predecessor, HECO, was incorporated under the laws
of the Kingdom of Hawaii (now the State of Hawaii) on October 13, 1891.
As a result of a 1983 corporate reorganization, HECO became an HEI subsidiary
and common shareholders of HECO became common shareholders of HEI. HECO and its
subsidiaries, MECO and HELCO, are regulated operating public utilities providing
the only public utility electric service on the islands of Oahu, Maui, Lanai,
Molokai and Hawaii. HEI also owns directly or indirectly the following
subsidiaries which comprise its diversified companies: HEIDI and its subsidiary,
ASB and its subsidiaries; HTB and its subsidiary; MPC and its subsidiaries;
HEIIC; LVI; PECS (an inactive company) and HEIPC.
ASB, acquired in 1988, is the fourth largest financial institution in the state
based on total assets and the third largest financial institution based on
deposits, in each case as of September 30, 1995, and has 47 retail branches as
of December 31, 1995. HTB was acquired in 1986 and provides ship assist and
charter towing services and owns YB, a regulated intrastate public carrier of
waterborne freight among the Hawaiian Islands. MPC was formed in 1985 and
develops and invests in real estate. HEIIC was formed in 1984 and is a passive
investment company which primarily holds investments in leveraged leases and
currently plans no new investments. HEIPC was formed in March 1995 to pursue
independent power projects and energy conservation projects in Asia and the
Pacific.
Prior to August 16, 1994, HEIDI was the holder of record of the common stock of
HIG, which was acquired in 1987 and provided property and casualty insurance
primarily in Hawaii. In March of 1993, pursuant to the decision made in 1992,
the stock of HERS, formerly an HEI wind energy subsidiary, was sold to The New
World Power Corporation and LVI became a direct subsidiary of HEI. HEI is
attempting to transfer LVI's windfarm to HELCO, at no cost to electric
customers. For information about the discontinued operations of HIG and HERS,
see Note 2 to HEI's Consolidated Financial Statements which is incorporated
herein by reference to page 45 of HEI's 1995 Annual Report to Stockholders,
portions of which are filed herein as HEI Exhibit 13.
The financial information about the Company's industry segments is incorporated
herein by reference to page 26 of HEI's 1995 Annual Report to Stockholders,
portions of which are filed herein as HEI Exhibit 13.
For additional information about the Company, reference is made to "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
(MD&A), incorporated herein by reference to pages 27 to 36 of HEI's 1995 Annual
Report to Stockholders, portions of which are filed herein as HEI Exhibit 13.
ELECTRIC UTILITY
- ----------------
HECO AND SUBSIDIARIES AND SERVICE AREAS
HECO, MECO and HELCO are regulated operating electric public utilities engaged
in the production, purchase, transmission, distribution and sale of electricity
on the islands of Oahu; Maui, Lanai and Molokai; and Hawaii, respectively. HECO
was incorporated under the laws of the Kingdom of Hawaii (now State of Hawaii)
on October 13, 1891. HECO acquired MECO in 1968 and HELCO in 1970.
In 1995, the electric utilities contributed approximately 76% of HEI's
consolidated revenues from continuing operations and approximately 85% of HEI's
consolidated operating income from continuing operations. At December 31, 1995,
the assets of the electric utilities represented approximately 36% of the total
assets of the Company. For additional information about the electric utilities,
see MD&A and Note 4, incorporated herein by reference to pages 27 to 36 and 46
to 48 of HEI's 1995 Annual Report to Stockholders, portions of which are filed
herein as HEI Exhibit 13, and the MD&A for the electric utilities (HECO MD&A)
and HECO consolidated financial statements incorporated by reference to pages 3
to 30 of HECO's 1995 Annual Report to Stockholder, portions of which are filed
herein as HECO Exhibit 13.
1
<PAGE>
The islands of Oahu, Maui, Lanai, Molokai and Hawaii have a combined population
estimated at 1,130,000, or approximately 95% of the population of the State of
Hawaii, and cover a service area of 5,766 square miles. The principal
communities served include Honolulu (on Oahu), Wailuku and Kahului (on Maui) and
Hilo and Kona (on Hawaii). The service areas also include numerous suburban
communities, resorts, U.S. Armed Forces installations and agricultural
operations.
HECO, MECO and HELCO have nonexclusive franchises from the state covering
certain areas and authorizing them to construct, operate and maintain facilities
over and under public streets and sidewalks. HECO's franchise covers the City &
County of Honolulu, MECO's franchises cover the County of Maui and the County of
Kalawao on the islands of Maui, Lanai and Molokai and HELCO's franchise covers
the County of Hawaii. Each of these franchises will continue in effect for an
indefinite period of time until forfeited, altered, amended or repealed.
SALES OF ELECTRICITY
HECO, MECO and HELCO provide the only electric public utility service on the
islands they serve. The following table sets forth the number of their electric
customer accounts as of December 31, 1995, 1994 and 1993 and their electric
sales revenues for each of the years then ended:
<TABLE>
<CAPTION>
1995 1994 1993
---------------------------------------------------------------------------------------
Customer Electric sales Customer Electric sales Customer Electric sales
(dollars in thousands) accounts revenues accounts revenues accounts revenues
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
HECO ................................. 269,307 $712,380 264,992 $652,442 263,478 $644,029
MECO ................................. 53,339 127,284 52,483 119,805 51,064 113,018
HELCO................................. 58,515 135,110 58,017 128,259 56,556 112,968
---------------------------------------------------------------------------------------
381,161 $974,774 375,492 $900,506 371,098 $870,015
=======================================================================================
</TABLE>
Revenues from the sale of electricity in 1995 were from the following types
of customers in the proportions shown:
<TABLE>
<CAPTION>
HECO MECO HELCO Total
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Residential.................................................... 31% 36% 41% 33%
Commercial..................................................... 31 34 38 32
Large light and power.......................................... 37 29 20 34
Other.......................................................... 1 1 1 1
-----------------------------------------------------------
100% 100% 100% 100%
===========================================================
</TABLE>
Approximately 10% of consolidated operating revenues of HECO and its
subsidiaries was derived from the sale of electricity to various federal
government agencies in 1995, 1994 and 1993. One of HECO's larger customers, the
Naval Base at Barbers Point, Oahu, is expected to be closed within the next few
years. However, HECO anticipates that the base closure will ultimately result in
little, if any, loss in aggregate KWH sales, if, as currently anticipated, the
Navy continues to occupy portions of Barbers Point and if much of the surplus
facilities and land currently not utilized by the Navy is occupied by state
agencies. On March 8, 1994, President Clinton signed an Executive Order which
mandates that each federal agency develop and implement a program with the
intent of reducing energy consumption by 30% by the year 2005 to the extent that
these measures are cost-effective. The 30% reductions will be measured relative
to the agency's 1985 energy use. HECO is working with various federal government
agencies such as the Department of Defense to implement demand-side management
programs which will help them achieve their energy reduction objectives. In
November 1995, HECO and the U.S. General Services Administration entered into a
Basic Ordering Agreement (BOA) under which HECO would provide for financing and
installation of energy conservation projects at federal facilities in Hawaii.
The first project to be undertaken under the umbrella BOA is a $4 million air
conditioning upgrade at the federal office building in downtown Honolulu.
Neither HEI nor HECO management can predict with certainty the impact of
President Clinton's Executive Order on the Company's or consolidated HECO's
future results of operations.
2
<PAGE>
<TABLE>
<CAPTION>
SELECTED CONSOLIDATED ELECTRIC UTILITY OPERATING
STATISTICS
1995 1994 1993 1992 1991 (2)
-------------------------------------------------------
<S> <C> <C> <C> <C> <C>
KWH SALES (MILLIONS)
Residential............................. 2,471.3 2,427.5 2,340.3 2,326.8 2,270.5
Commercial.............................. 2,624.7 2,451.2 2,284.6 2,273.9 2,205.1
Large light and power................... 3,655.1 3,658.6 3,646.2 3,675.8 3,622.6
Other................................... 55.4 55.8 54.1 55.4 55.4
-----------------------------------------------------
8,806.5 8,593.1 8,325.2 8,331.9 8,153.6
=====================================================
NET ENERGY GENERATED AND PURCHASED
(MILLIONS OF KWH)
Net generated........................... 5,850.6 5,727.6 5,789.6 6,555.4 6,991.1
Purchased............................... 3,511.6 3,437.8 3,101.0 2,325.0 1,599.7
-----------------------------------------------------
9,362.2 9,165.4 8,890.6 8,880.4 8,590.8
=====================================================
Losses and system uses (%).............. 5.7 6.0 6.1 6.0 4.9 (3)
ENERGY SUPPLY (YEAREND)
Generating capability--MW............... 1,637 1,637 1,638 1,592 1,552
Firm purchased capability--MW........... 469 465 473 454 228
-----------------------------------------------------
2,106 2,102 2,111 2,046 1,780
=====================================================
Gross peak demand--MW (1)............... 1,537 1,527 1,496 1,493 1,446
Btu per net KWH generated............... 10,762 10,746 10,846 10,870 10,768
Average fuel oil cost per million Btu
(cents)................................ 329.7 304.4 340.5 317.1 367.5
CUSTOMER ACCOUNTS (YEAREND)
Residential............................. 330,508 325,495 320,987 314,185 308,770
Commercial.............................. 48,585 47,916 48,008 46,817 46,189
Large light and power................... 580 601 628 641 637
Other................................... 1,488 1,480 1,475 1,474 1,450
-----------------------------------------------------
381,161 375,492 371,098 363,117 357,046
=====================================================
ELECTRIC REVENUES (THOUSANDS)
Residential............................. $324,923 $297,984 $283,662 $250,808 $235,295
Commercial.............................. 313,909 281,664 262,751 236,350 224,300
Large light and power................... 329,598 314,931 317,816 280,871 271,863
Other................................... 6,344 5,927 5,786 5,164 5,030
-----------------------------------------------------
$974,774 $900,506 $870,015 $773,193 $736,488
=====================================================
AVERAGE REVENUE PER KWH SOLD (CENTS)
Residential............................. 13.15 12.28 12.12 10.78 10.36
Commercial.............................. 11.96 11.49 11.50 10.39 10.17
Large light and power................... 9.02 8.61 8.72 7.64 7.51
Other................................... 11.46 10.62 10.69 9.32 9.08
-----------------------------------------------------
Average revenue per KWH sold............ 11.07 10.48 10.45 9.28 9.03
RESIDENTIAL STATISTICS
Average annual use per customer account
(KWH)............................... 7,514 7,482 7,367 7,460 7,427
Average annual revenue per
customer account.................... $ 988 $ 918 $ 893 $ 804 $ 770
Average number of customer accounts..... 328,912 324,458 317,657 311,915 305,720
- -----------------------------------------------------------------------------------------------------
</TABLE>
(1) Sum of the peak demands on all islands served, noncoincident and
nonintegrated.
(2) Includes the one-time effect of a change in the method of estimating
unbilled KWH sales and revenues.
(3) Excluding the effect of a change in the method of estimating unbilled KWH
sales and revenues, losses and system uses would have been 5.6%.
3
<PAGE>
GENERATION STATISTICS
The following table contains certain generation statistics as of December 31,
1995, and for the year ended December 31, 1995. The capability available for
operation at any given time may be less than the generating capability shown
because of capability restrictions or temporary outages for inspection,
maintenance, repairs or unforeseen circumstances.
<TABLE>
<CAPTION>
Generating
and firm
purchased
capability KWH net
(MW) at Gross peak Annual generated and
December 31, demand Reserve load purchased
Systems 1995 (1) (MW) (2) margin factor (2) (millions)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ISLAND OF OAHU--HECO
Conventional oil-fired steam units.. 1,160.0
Combustion turbines (peaking units). 103.0
Firm contract power (3)............. 406.0
---------------------------------------------------------------------------------------
1,669.0 1,190.0 40.3% 73.3% 7,359.2
---------------------------------------------------------------------------------------
ISLAND OF MAUI--MECO
Conventional oil-fired steam units.. 37.6
Combined-cycle unit................. 58.0
Diesel.............................. 105.7
Firm contract power (4)............. 16.0
---------------------------------------------------------------------------------------
217.3 170.7 27.3% 69.5% 1,005.9
---------------------------------------------------------------------------------------
ISLAND OF LANAI--MECO
Diesel.............................. 9.7 4.8 102.1% 66.6% 27.5
---------------------------------------------------------------------------------------
ISLAND OF MOLOKAI--MECO
Diesel.............................. 6.5
Combustion turbine.................. 2.2
---------------------------------------------------------------------------------------
8.7 7.0 24.3% 61.1% 37.1
---------------------------------------------------------------------------------------
ISLAND OF HAWAII--HELCO
Conventional oil-fired steam units.. 71.2
Combustion turbines................. 45.7
Diesel.............................. 37.7
Firm contract power (4)............. 47.0
---------------------------------------------------------------------------------------
201.6 164.4 22.6% 67.2% 932.5
---------------------------------------------------------------------------------------
Total............................... 2,106.3 1,536.9 37.0% 72.1% 9,362.2
=======================================================================================
</TABLE>
(1) HECO units at normal ratings, and MECO and HELCO units at reserve ratings.
(2) Noncoincident and nonintegrated.
(3) Independent power producers--180 MW (Kalaeloa), 180 MW (AES-BP) and 46 MW
(H-Power).
(4) Nonutility generation--MECO: 16 MW (Hawaiian Commercial & Sugar Company) and
HELCO: 25 MW (PGV) and 22 MW (HCPC).
INTEGRATED RESOURCE PLANNING AND REQUIREMENTS FOR ADDITIONAL GENERATING CAPACITY
As a result of a proceeding initiated in January 1990, the PUC issued an order
in March 1992 (as revised in May 1992) requiring that the energy utilities in
Hawaii develop integrated resource plans (IRPs). The goal of integrated resource
planning is the identification of the demand-side and supply-side resources and
the integration of these resources for meeting near- and long-term consumer
energy needs in an efficient and reliable manner at the lowest reasonable cost.
In the first phase of the IRP proceeding, the PUC adopted a "framework", which
establishes both the process for developing IRPs and guidelines for the
development of such plans. The PUC's framework directs that each plan cover a
20-year planning
4
<PAGE>
horizon with a five-year program implementation schedule and states that the
planning cycle will be repeated every three years. Under the framework, the PUC
may approve, reject or require modifications of the utilities' IRPs.
The framework also states that utilities are entitled to recover all appropriate
and reasonable integrated resource planning and implementation costs, including
the costs of planning and implementing demand-side management (DSM) programs.
Under appropriate circumstances, the utilities may recover net lost revenues
resulting from DSM programs and earn shareholder incentives.
The PUC will determine the appropriate cost recovery mechanism when a specific
DSM program application is filed. The PUC has approved IRP cost recovery
provisions (IRP Clauses) for HECO, MECO and HELCO. Pursuant to the IRP Clauses,
the electric utilities may recover through a surcharge the costs for approved
DSM programs, and other IRP costs incurred and approved by the PUC, to the
extent the costs are not included in their base rates.
Each electric utility has been assigned an individual IRP docket in which the
specific issues relative to each company's IRP can be addressed. The PUC
provides for public participation in the planning process by requiring each
utility to form an advisory group and by holding hearings to review each plan.
Any IRP developed will require PUC approval prior to implementation. Management
cannot predict, until the completion and approval of the IRPs, what effect, if
any, integrated resource planning may eventually have on HECO, MECO and HELCO.
In July 1993, HECO filed with the PUC its 20-year (1994-2013) IRP for the island
of Oahu, together with a five-year (1994-1998) implementation schedule. HELCO
filed its plan in October 1993. MECO filed its plan in December 1993. These
plans identified and evaluated a mix of resources to meet near- and long-term
consumer energy needs in an efficient and reliable manner at the lowest
reasonable cost. The IRPs include DSM programs to reduce load and fuel
consumption and consider the impact on the environment, culture, community
lifestyles and economy of the state. The PUC must review and approve major
elements of the resource plans before the utilities may implement them. The
utilities proposed modifications to their plans during the course of PUC
proceedings to review the plans.
The utilities have characterized their proposed IRPs as planning strategies,
rather than fixed courses of action, and the resources ultimately added to their
systems may differ from those included in the 20-year plan. Under the IRP
framework, the utilities are required to submit annual evaluations of their
plans (including a revised five-year program implementation schedule) and to
submit new plans on a three-year cycle.
Prior to proceeding with the DSM programs, separate PUC approval proceedings
must be completed, in which the PUC will further review the details of the
proposed programs and the utilities' proposals for the recovery of DSM program
expenditures, net lost revenues and shareholder incentives. HECO has filed
separate applications for approval of its five proposed DSM programs, and
evidentiary hearings on these applications were held in January, February and
May 1995. In June and July 1995, MECO and HELCO, respectively, filed four
separate DSM applications for PUC approval.
HECO's IRP. The PUC issued its final decision and order in HECO's IRP
proceeding on March 31, 1995. The PUC found that HECO's proposed 20-year IRP "is
in the public interest, is consistent with the goals and objectives of
integrated resource planning, and represents a reasonable course for meeting the
energy needs of its customers." In addition, the PUC found that HECO's IRP
"identifies the resources or the mix of resources for meeting near and long term
consumer energy needs in an efficient and reliable manner at the lowest
reasonable cost." HECO's plan includes proposals for five energy efficiency DSM
programs beginning in 1995, which are designed to reduce the rate of increase in
Oahu's energy use (allowing HECO to delay construction of power plants), to
reduce the state's dependence on oil and to achieve savings for its utility
customers who take advantage of the programs, and two load management DSM
programs beginning in the year 2000. The DSM programs include several proposed
incentives to customers to install efficient lighting, refrigeration, water-
heating and air-conditioning equipment and industrial motors. The supply-side
programs proposed in the HECO plan include the addition of a "clean coal"
technology unit in 2005, following the retirement of HECO's Honolulu power plant
(which is assumed, for planning purposes, to be retired at the end of 2004), the
repowering of two existing units at its Waiau power plant, and the addition of
two oil-fired combustion turbines at the end of the first decade in the new
century. HECO is still awaiting PUC approval for its five DSM programs.
Depending on the timing of the PUC decisions, HECO expects to begin program
5
<PAGE>
implementation in 1996, one year later than what HECO was projecting in its
five-year implementation schedule.
HECO proposes to file with the PUC by July 1996 its first annual evaluation of
its approved 20-year IRP. The annual evaluation will include a revised five-year
implementation schedule, and will assess the continuing validity of the
forecasts and assumptions upon which its IRP and program implementation schedule
were fashioned. HECO's latest sales, peak load and fuel price forecasts may have
an impact on the supply-side and demand-side resources currently proposed for
implementation over the 1994-2013 IRP planning horizon. Management cannot
predict at this time what effect, if any, these forecasts may eventually have on
HECO's approved IRP.
MECO's IRP. MECO's 20-year IRP includes proposals for four energy efficiency
DSM programs beginning in 1995 similar to those developed for HECO. The supply-
side programs proposed by MECO include installing approximately 199 MW of
additional generation through the year 2013 on the island of Maui, approximately
11 MW through the year 2001 on the island of Lanai and approximately 13 MW
through the year 2013 on the island of Molokai. Approximately 20 MW of
additional generation are currently scheduled to be placed in service on Maui in
1997, 4.4 MW on Lanai in 1996 and 6.6 MW on Molokai in 1996. Hearings on MECO's
20-year IRP have been completed and MECO is awaiting the PUC's decision. MECO is
also awaiting PUC approval for its four DSM programs. Depending on the timing of
the PUC decisions, MECO expects to begin program implementation in 1996, one
year later than what MECO was projecting in its five-year implementation
schedule.
HELCO's IRP. HELCO's 20-year IRP includes proposals for four energy efficiency
DSM programs beginning in 1995 similar to those developed for HECO. In addition
to the full-scale DSM programs, HELCO is planning an interruptible load pilot
program. The supply-side programs proposed in HELCO's five-year plan include
installing a 58-MW dual-train combined-cycle unit at HELCO's Keahole plant site,
undertaking transmission and distribution efficiency improvement projects and
conducting alternate energy generation resource studies. HELCO's 20-year plan
includes adding another diesel-fired dual-train combined-cycle unit and a
combustion turbine (first phase of a dual-train combined-cycle unit) at a new
West Hawaii site by the year 2009. Hearings on HELCO's 20-year IRP have been
completed and HELCO is awaiting the PUC's decision. HELCO filed applications to
approve its four DSM programs with the PUC on July 6, 1995. Although hearings
have not yet been held on these applications, on October 26, 1995, HELCO
received from the PUC interim approval to implement the DSM programs as part of
HELCO's contingency plan to address HELCO's capacity situation. See "HELCO power
situation" below. HELCO projects that the DSM programs will reduce HELCO's peak
load by 1.5 megawatts one year after implementation of the DSM programs.
HELCO POWER SITUATION
In 1991, HELCO identified the need for additional generation beginning in 1994
to provide for forecasted load growth while maintaining a satisfactory
generation reserve margin, to address uncertainties about future deliveries of
power from existing firm power producers (see "Nonutility generation") and to
permit the retirement of older generating units. HELCO added firm capacity to
its system in August 1992 (a 20-MW HELCO-owned unit) and in June 1993 (pursuant
to a power purchase agreement for 25 MW of firm capacity). Also, HELCO proceeded
with plans to install two 20-MW combustion turbines, followed by an 18-MW heat
steam recovery generator, at which time these units would be converted to a 56-
MW (net) combined-cycle unit. In January 1994, the PUC approved expenditures for
the first combustion turbine, which HELCO had planned to install in late 1994,
and in September 1995, the PUC conditionally approved expenditures for the
second combustion turbine and the steam recovery generator.
Despite HELCO's best efforts to install the necessary additional generation in
time to meet the forecasted load, the schedule for the installation of HELCO's
phased combined-cycle unit (CT-4, CT-5 and ST-7) at HELCO's Keahole power plant
site was revised due to delays in obtaining approval of the Prevention of
Significant Deterioration/Covered Source Permit (PSD) and the Conservation
District Use Permit amendment (CDUP) for the Keahole power plant site. The
proposed service date for CT-4 has most recently been revised to February 1997
followed by CT-5 in April 1997, if approvals of the CDUP and PSD are received by
the end of March 1996. The conversion to a combined-cycle unit with the
installation of ST-7 remains scheduled for October 1997.
In late 1995, a contested case hearing with respect to the CDUP was conducted
and the hearing officer recommended denial of the CDUP application. The Hawaii
Board of Land and Natural Resources
6
<PAGE>
(BLNR) may decide to adopt, modify, or reject the hearing officer's
recommendation. The BLNR was scheduled to make a decision on HELCO's CDUP
application by February 26, 1996. On February 23, 1996, however, the BLNR
informed HELCO that it was continuing deliberations on the application and
extended the application expiration period from February 26, 1996 to March 27,
1996. If the BLNR denies HELCO's CDUP application, this would delay, if not
prevent, installation of HELCO's project at the 15-acre Keahole site.
The Hawaii Department of Health (DOH) forwarded HELCO's air permit to the
Environmental Protection Agency (EPA) for its approval. In a November 1995
letter to the DOH, the EPA declined to sign HELCO's air permit. HELCO requested
that the EPA reconsider this decision and the EPA agreed to reconsider based on
additional information supplied by HELCO. In a second letter dated February 6,
1996, the EPA set forth information to be considered by HELCO which it feels may
address HELCO's concerns regarding the emission control technology to be used,
and stated that it would continue discussions with HELCO at a later date. HELCO
responded specifically to the EPA's positions by letter dated March 8, 1996, and
discussions are ongoing. If the EPA does not sign the permit forwarded by the
DOH, this would delay, if not prevent, HELCO's project.
Two independent power producers (IPPs) filed separate complaints against HELCO
with the PUC, alleging that they are entitled to power purchase contracts to
provide HELCO with additional capacity which, under HELCO's current estimates of
generating capacity requirements, would be in place of the planned 56-MW
addition by HELCO. In July 1995, the PUC issued a decision and order in a docket
involving one of the IPPs, Kawaihae Cogeneration Partners (KCP). In the order,
the PUC stated its position on various issues affecting HELCO's avoided cost
calculations (several of which were contrary to HELCO's recommendations). In
September 1995, HELCO provided proposals to the two IPPs, and further
negotiations have been undertaken. Status reports on the negotiations with the
two IPPs were filed with the PUC at the end of September and October 1995.
In September 1995, the PUC allowed HELCO to continue to pursue construction of
and commit expenditures for the second combustion turbine and the steam recovery
generator for its planned combined-cycle unit, stating in its order that "no
part of the project may be included in HELCO's rate base unless and until the
project is in fact installed, and is used and useful for utility purposes." In
view of permitting delays and the need for power, the PUC also ordered HELCO to
continue negotiating with the IPPs and directed that the facility to be built
should be the one that can be most expeditiously put into service at "allowable
cost."
On January 26, 1996, the PUC ordered that the KCP docket be reopened and that
HELCO and KCP continue in good faith to negotiate a power purchase agreement,
file a list of unresolved issues requiring PUC guidance and meet with the PUC
on March 27, 1996. The other IPP has requested similar assistance from the PUC.
HELCO has opposed reopening of that docket for this purpose.
If HELCO's negotiations with the IPPs result in a power purchase agreement
and/or if HELCO's combined-cycle unit is not installed, HELCO may be required to
write off a portion of the costs incurred in its efforts to put into service its
combined-cycle unit ($43 million as of December 31, 1995) if such costs
ultimately are not recoverable from customers or others. Such a write-off could
have a material adverse effect on consolidated HECO's and the Company's
financial condition and results of operations.
In June 1995, HELCO filed with the PUC its generation resource contingency plan
detailing alternatives and mitigation measures to address possible further
delays in obtaining the permits necessary to construct its combined-cycle unit.
HELCO has arranged for additional firm capacity to be provided by its existing
firm power producers (see "Nonutility generation"), obtained contracts shifting
loads to off-peak hours, begun in January 1996 implementing its energy-
efficiency DSM programs based on interim PUC approval (see "Integrated resource
planning and requirements for additional generating capacity") and deferred
generation unit retirements. These measures have helped HELCO maintain its
reserve margin and reduce the risk of capacity shortages. HELCO is also
proposing installation of up to 6 MW of dispersed generation diesel units that
could provide power by late 1996. In January 1996, the PUC opened a generic
docket relating to HELCO's contingency plan, which had been submitted to the PUC
in June 1995. Pursuant to the PUC order, HELCO submitted updated information to
the PUC on March 18, 1996 and addressed comments by the Consumer Advocate on the
June 1995 contingency plan.
7
<PAGE>
NONUTILITY GENERATION
The Company has supported state and federal energy policies which encourage the
development of alternate energy sources that reduce dependence on fuel oil.
Alternate energy sources range from wind, geothermal and hydroelectric power, to
energy produced by the burning of bagasse. Other non-oil projects include a
generating unit burning municipal waste and a fluidized bed unit burning coal.
The "Power purchase agreements" section in Note 4 to HEI's Consolidated
Financial Statements is incorporated herein by reference to page 47 of HEI's
1995 Annual Report to Stockholders, portions of which are filed herein as HEI
Exhibit 13.
HECO power purchase agreements. HECO currently has three major power purchase
agreements. In March 1988, HECO entered into a power purchase agreement with AES
Barbers Point, Inc. (AES-BP), a Hawaii-based cogeneration subsidiary of Applied
Energy Services, Inc. (AES) of Arlington, Virginia. The agreement with AES-BP,
as amended in August 1989, provides that, for a period of 30 years, HECO will
purchase 180 MW of firm capacity, under the control of HECO's system dispatcher.
The AES-BP 180-MW coal-fired cogeneration plant, which became operational in
September 1992, utilizes a "clean coal" technology. The facility is designed to
sell sufficient steam to be a "Qualifying Facility" under the Public Utility
Regulatory Policies Act of 1978 (PURPA).
In October 1988, HECO entered into an agreement with Kalaeloa Partners, L.P.
(Kalaeloa), a limited partnership whose sole general partner is an indirect,
wholly owned subsidiary of ASEA Brown Boveri, Inc., which has guaranteed certain
of Kalaeloa's obligations and, through affiliates, has contracted to design,
build, operate and maintain the facility. The agreement with Kalaeloa, as
amended, provides that HECO will purchase 180 MW of firm capacity for a period
of 25 years. The Kalaeloa facility, which was completed in the second quarter of
1991, is a combined-cycle operation, consisting of two oil-fired combustion
turbines and a steam turbine which utilizes waste heat from the combustion
turbines. The facility is designed to sell sufficient steam to be a "Qualifying
Facility" under PURPA.
HECO also entered into a power purchase contract and a firm capacity amendment
with the City and County of Honolulu, which has built a 60-MW refuse-fired plant
(H-Power). The H-Power facility began to provide firm energy in the second
quarter of 1990 and currently supplies HECO with 46 MW of firm capacity.
The PUC has approved and allowed rate recovery for the costs related to HECO's
three major power purchase agreements, which provide a total of 406 MW of firm
capacity, representing 24% of HECO's total generating and firm purchased
capability on the island of Oahu as of December 31, 1995.
HERS owned and operated a windfarm on the island of Oahu and sold the
electricity it generated to HECO. In March 1993, HEI sold the stock of HERS to
The New World Power Corporation with the power purchase agreements between HERS
and HECO continuing in effect.
HELCO and MECO power purchase agreements. As of December 31, 1995, HELCO and
MECO had power purchase agreements for 47 MW and 16 MW of firm capacity,
respectively, representing 23% and 7% of their respective total generating and
firm purchased capabilities.
HELCO has a power purchase agreement with PGV for 25 MW of firm capacity. PGV,
an independent geothermal power producer which experienced substantial delays in
commencing commercial operations, passed an acceptance test in June 1993.
Although a problem with one of its wells reduced production during 1994, it is
now considered to be a firm capacity source for 25 MW. HELCO filed suit against
PGV in 1993 for penalties and other relief related to PGV's failure to provide
power to HELCO by October 3, 1991. HELCO recognized energy and capacity
purchased from PGV as expenses, but withheld certain firm capacity and energy
payments to PGV. On March 7, 1995, HELCO and PGV executed a Settlement
Agreement. As to the part of the settlement agreement dealing with penalties, it
was agreed that HELCO would keep $3.2 million of the amount previously withheld
by HELCO. In 1995, HELCO refunded to customers approximately $0.8 million of the
$3.2 million withheld and is awaiting the PUC's decision on whether any
additional amounts are required to be refunded. In addition, PGV agreed to
provide additional energy in the amount of $2.3 million to HELCO above PGV's
current firm capacity obligation. In 1995, PGV provided HELCO with $1.0 million
of the $2.3 million additional energy, and HELCO reduced its energy cost
adjustment charges to customers by $1.0 million. On February 12, 1996, HELCO and
PGV executed an amendment to the existing power purchase agreement, under which
PGV would be obligated to provide an additional 5 MW of firm capacity to
8
<PAGE>
HELCO commencing in late 1996. The amendment has been submitted to the PUC for
approval. Such additional capacity will assist HELCO in addressing its capacity
situation.
In December 1994, at a time when the Hilo Coast Processing Company (HCPC)
contract was for delivery of 18 MW, HCPC filed a Chapter 11 bankruptcy petition.
In July 1995, the bankruptcy court approved an amended and restated HELCO and
HCPC power purchase agreement for 22 MW of firm capacity and the dismissal of
HCPC from bankruptcy, subject to a condition that was satisfied.
The stock of LVI was transferred to HEI prior to the sale of HERS to The New
World Power Corporation. As of December 31, 1995, LVI's windfarm on the island
of Hawaii consisted of wind turbines with a total operating capacity of 1.6 MW.
LVI sells its electricity to HELCO and the Hawaii County Department of Water
Supply.
Hamakua Sugar Company terminated power delivery to HELCO on October 5, 1994,
upon completion of the bankruptcy court-approved final harvest plan. As a
result, HELCO's system capability was reduced by 8 MW.
MECO has a power purchase agreement with Hawaiian Commercial & Sugar Company for
16 MW of firm capacity through December 31, 1999.
FUEL OIL USAGE AND SUPPLY
All rate schedules of the Company's electric utility subsidiaries contain energy
cost adjustment clauses whereby the charges for electric energy (and
consequently the revenues of the electric utility subsidiaries generally)
automatically vary with the weighted average price paid for fuel oil and certain
components of purchased energy costs, and the relative amounts of company-
generated power and purchased power. Accordingly, changes in fuel oil and
certain purchased energy costs are passed on to customers. See discussion below
under "Rates."
HECO's steam power plants burn low sulfur fuel oil (LSFO). HECO's combustion
turbine peaking units on Oahu burn Number 2 diesel fuel (diesel). MECO and HELCO
consume medium sulfur fuel oil (MSFO) in their steam generating plants and
consume diesel in the operation of their combustion turbine and diesel engine
generating units. The LSFO consumed by HECO in its Oahu generating units is
primarily derived from Indonesian and other Far East crude oils processed in
island refineries. The MSFO supplied to MECO and HELCO is derived from the local
refining of U.S. domestic crude oil.
In the second half of 1995, HECO executed new contracts for the purchase of LSFO
and use of certain fuel distribution facilities with Chevron, U.S.A., Inc.
(CUSA) and BHP Petroleum Americas Refining Inc. (BHP). These fuel supply and
facilities operations contracts have a term of two years commencing January 1,
1996. The PUC approved the contracts and issued final orders in December 1995
and January 1996 that permit the inclusion of costs incurred under these
contracts in HECO's energy cost adjustment clause. HECO pays market-related
prices for fuel supplies purchased under these agreements.
HECO, MECO, HELCO and affiliates, HTB and YB, executed new joint fuel supply
contracts with CUSA and BHP to provide for the purchase of diesel and MSFO
supplies and for the use of certain petroleum distribution facilities for a
period of two years commencing January 1, 1996. The PUC subsequently approved
these contracts and issued final orders in December 1995 and January 1996 that
permitted the electric utilities to include fuel costs incurred under these
contracts in their respective energy cost adjustment clauses. The electric
utilities pay market-related prices for diesel and MSFO supplied under these
agreements.
The diesel supplies obtained by the Lanai Division of MECO are purchased under
an arrangement with a CUSA-branded jobber (wholesale merchant) on Lanai. The
Molokai Division of MECO purchases diesel under the joint fuel supply contract
with CUSA referred to above.
The fuel oil commitments information set forth in the "Fuel contracts and other
purchase commitments" section in Note 11 to HECO's Consolidated Financial
Statements is incorporated herein by reference to page 25 of HECO's 1995 Annual
Report to Stockholder, portions of which are filed herein as HECO Exhibit 13.
9
<PAGE>
The following table sets forth the average cost of fuel oil used to generate
electricity in the years 1995, 1994 and 1993:
<TABLE>
<CAPTION>
HECO MECO HELCO Consolidated
-------------------------------------------------------------------------------
$/Barrel c/MBtu $/Barrel c/MBtu $/Barrel c/MBtu $/Barrel c/MBtu
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1995....... 19.19 306.1 24.78 414.4 21.94 355.1 20.47 329.7
1994....... 17.55 279.1 23.36 391.6 20.98 340.9 18.92 304.4
1993....... 20.27 323.7 24.85 416.3 21.02 344.4 21.09 340.5
</TABLE>
The average per-unit cost of fuel oil consumed to generate electricity for HECO,
MECO and HELCO reflects a different volume mix of fuel types and grades. In
1995, 99.8% of HECO's generation fuel consumption consisted of LSFO. The balance
of HECO's fuel consumption was diesel. Diesel also made up approximately two
thirds of MECO's and one third of HELCO's fuel consumption. The remainder of the
fuel consumption of MECO and HELCO consisted of MSFO. In general, MSFO is the
least costly fuel, diesel is the most expensive fuel and the price of LSFO falls
between the two on a per barrel basis. The average prices of LSFO, MSFO and
diesel in 1995 were higher than the respective average prices in 1994. However,
the average prices of LSFO and diesel remained below the respective price levels
prevailing in 1993.
HTB was contractually obligated to ship heavy fuel oil for HELCO and MECO
through December 1993. Effective December 31, 1993, HTB exited the heavy fuel
oil shipping business. See "Regulation and other matters--Environmental
regulation--Water quality controls." HELCO and MECO carried out a bidding
process to determine who would ship heavy fuel oil beyond 1993. Several bids
were received and evaluated and two contracts were signed with Hawaiian
Interisland Towing, Inc., subject to PUC approval. The PUC approved these
contracts and issued a final order in June 1994 that permitted HELCO and MECO to
include the costs of fuel transportation and related costs incurred under the
contracts in their respective energy cost adjustment clause. Freight rates
charged under the contracts are related to published indices for industrial
commodities prices and labor costs. In December 1995, HELCO and MECO exercised
an option to extend for two years their existing contracts with Hawaiian
Interisland Towing, Inc. for the shipment of MSFO and diesel supplies from their
fuel supplier's facilities on Oahu to storage locations on the islands of Hawaii
and Maui, respectively. These contracts include options for two additional two-
year extensions.
In 1996, the Company estimates that 76% of the net energy generated and
purchased by HECO and its subsidiaries will come from oil. This percentage is
down from 87% in 1992, due largely to the purchases from independent power
producers whose fuel sources are primarily coal, and to a lesser extent,
geothermal, solid waste and bagasse (sugarcane waste). Failure by the Company's
oil suppliers to provide fuel pursuant to the supply contracts and/or
substantial increases in fuel prices could adversely affect consolidated HECO's
and the Company's financial condition and results of operations. HECO and its
subsidiaries, however, maintain an inventory of fuel oil approximating a month's
supply, which may be used in the event fuel suppliers are not able to provide
fuel pursuant to the contracts for this period of time, and increases in fuel
oil prices would be passed on to customers through the electric utility
subsidiaries' energy cost adjustment clauses.
RATES
HECO, MECO and HELCO are subject to the regulatory jurisdiction of the PUC with
respect to rates, standards of service, issuance of securities, accounting and
certain other matters. See "Regulation and other matters--Electric utility
regulation."
All rate schedules of HECO and its subsidiaries contain an energy cost
adjustment clause to reflect changes in the weighted average price paid for fuel
oil and certain components of purchased energy costs, and the relative amounts
of company-generated power and purchased power. Under current law and practices,
specific and separate PUC approval is not required for each rate change pursuant
to automatic rate adjustment clauses previously approved by the PUC. Rate
increases, other than pursuant to such automatic adjustment clauses, require the
prior approval of the PUC after public and contested case hearings. PURPA
requires the PUC to periodically review the energy cost adjustment clauses of
electric and gas utilities in the state, and such clauses, as well as the rates
charged by the utilities generally, are subject to change.
10
<PAGE>
The "Regulation of electric utility rates" and "Recent rate requests" sections
in MD&A are incorporated herein by reference to pages 29 and 30 of HEI's 1995
Annual Report to Stockholders, portions of which are filed herein as HEI Exhibit
13.
In March 1996, HELCO received an interim decision and order authorizing a 4.8%,
or $6.8 million, increase in annual revenues, based on a 11.65% return on
average common equity. Interim increases are subject to refund with interest,
pending the final outcome of the case.
HECO and its subsidiaries participated in the PUC's generic docket to determine
whether Statement of Financial Accounting Standards (SFAS) No. 106 should be
adopted for rate-making purposes. The information on postretirement benefits
other than pensions in MD&A and in the "Postretirement benefits other than
pensions" section in Note 17 to HEI's Consolidated Financial Statements is
incorporated herein by reference to pages 29, 58 and 59 of HEI's 1995 Annual
Report to Stockholders, portions of which are filed herein as HEI Exhibit 13.
WAIAU-CAMPBELL INDUSTRIAL PARK TRANSMISSION LINES
In 1993, the PUC held hearings concerning Part 2 of the Waiau-Campbell
Industrial Park (CIP) 138-kilovolt transmission lines. These lines are part of a
second transmission corridor in West Oahu, running approximately 15 miles
between CIP and HECO's Waiau power plant. The new lines were needed (1) to
increase system reliability, (2) to provide additional transmission capacity to
meet expected load growth and (3) to provide transmission capacity for existing
and new power generation projects planned for West Oahu. HECO experienced
community opposition over the proposed placement of portions of these lines
based in part on the potential effects of the lines on aesthetics and the
concern of some that the electric and magnetic fields (EMF) from the power lines
may have adverse health effects. HECO witnesses addressed EMF, the route
selection process (which involved extensive public input), as well as
engineering and related subjects.
One proposal by those who oppose the route of the overhead lines was to place
Part 2 of the Waiau-CIP lines underground. HECO estimated that this proposal
would cost approximately $100 million more than the cost of overhead lines. In
April 1994, the PUC issued a decision which permitted HECO to construct the
lines above ground. While the PUC recognized the concerns of aesthetics and EMF,
it felt that neither concern was sufficient to justify the added cost of
undergrounding the lines. In May 1994, appeals to the state Supreme Court were
filed by intervenors in the PUC proceeding requesting that the Court overturn
the PUC's ruling that allowed HECO to construct the lines above ground.
Management cannot predict with certainty the final outcome of the appeals. No
stay of the PUC order has been entered. HECO completed construction of the
overhead lines which were placed in service in August 1995.
SAVINGS BANK--AMERICAN SAVINGS BANK, F.S.B.
- -------------------------------------------
GENERAL
ASB was granted a charter as a federal savings bank in January 1987. Prior to
that time, ASB operated as the Hawaii division of American Savings & Loan
Association of Salt Lake City, Utah since 1925. As of September 30, 1995, ASB
was the fourth largest financial institution in the state based on total assets
of $3.3 billion and the third largest financial institution based on deposits of
$2.2 billion.
HEI agreed with the Office of Thrift Supervision's (OTS) predecessor regulatory
agency that ASB's regulatory capital would be maintained at a level of at least
6% of ASB's total liabilities, or at such greater amount as may be required from
time to time by regulation. Under the agreement, HEI's obligation to contribute
additional capital was limited to a maximum aggregate amount of approximately
$65.1 million. HEI elected to contribute additional capital of $12.0 million,
$1.0 million and $0.8 million to ASB during 1995, 1994 and 1993, respectively.
Most of the additional capital contribution to ASB in 1995 was contributed in
anticipation of legislative proposals in Congress to make a one-time assessment
of thrifts to fully capitalize the Savings Association Insurance Fund (SAIF).
See "Savings bank regulation, Deposit Insurance, Deposit Insurance Assessment"
for a further description of the legislative proposals and their potential
impact. ASB is subject to the OTS regulations for dividends and other
distributions applicable to financial institutions regulated by the OTS.
ASB's earnings depend primarily on its net interest income--the difference
between the interest income earned on interest-earning assets (loans receivable,
mortgage-backed securities and investments) and the interest expense incurred on
interest-bearing liabilities (deposit liabilities and borrowings). Deposits
11
<PAGE>
traditionally have been the principal source of ASB's funds for use in lending,
meeting liquidity requirements and making investments. ASB also derives funds
from receipt of interest and principal on outstanding loans receivable,
borrowings from the Federal Home Loan Bank (FHLB) of Seattle, securities sold
under agreements to repurchase and other sources, including collateralized
medium-term notes. In recent years, securities sold under agreements to
repurchase and advances from the FHLB of Seattle have become more significant
sources of funds.
For additional information about ASB, reference is made to "Savings Bank" under
MD&A and to Note 5 to HEI's Consolidated Financial Statements, incorporated
herein by reference to pages 31 to 32, 35 to 36 and 49 to 52 of HEI's 1995
Annual Report to Stockholders, portions of which are filed herein as HEI Exhibit
13.
The following table sets forth selected data for ASB for the periods indicated:
<TABLE>
<CAPTION>
Years ended December 31,
---------------------------
1995 1994 1993
- ---------------------------------------------------------------------
<S> <C> <C> <C>
Equity to assets ratio
Average equity divided by average
total assets....................... 6.23% 6.64% 7.03%
Return on assets
Net income divided by average total
assets (1)......................... 0.71% 0.86% 1.00%
Return on equity
Net income divided by average
equity (1)......................... 11.5% 13.0% 14.2%
</TABLE>
(1) Net income includes amortization of goodwill and core deposit intangibles.
Average balances for each period have been calculated using the average
month-end balances during the period.
CONSOLIDATED AVERAGE BALANCE SHEET
The following table sets forth average balances of major balance sheet
categories for the periods indicated. Average balances for each period have been
calculated using the average month-end or daily average balances during the
period.
<TABLE>
<CAPTION>
Years ended December 31,
---------------------------------------
(in thousands) 1995 1994 1993
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Investment securities............... $ 80,633 $ 88,728 $ 136,987
Mortgage-backed securities.......... 1,251,192 732,623 647,973
Loans receivable, net............... 1,751,729 1,878,581 1,570,751
Other............................... 173,895 178,088 183,151
---------------------------------------
$3,257,449 $2,878,020 $2,538,862
=======================================
LIABILITIES AND STOCKHOLDER'S EQUITY
Deposit liabilities................. $2,149,229 $2,134,029 $2,076,192
Other borrowings.................... 835,310 477,331 230,101
Other............................... 69,903 75,573 54,212
Stockholder's equity................ 203,007 191,087 178,357
---------------------------------------
$3,257,449 $2,878,020 $2,538,862
=======================================
</TABLE>
ASSET/LIABILITY MANAGEMENT
Interest rate sensitivity refers to the relationship between market interest
rates and net interest income resulting from the repricing of interest-earning
assets and interest-bearing liabilities. Interest rate risk arises when an
interest-earning asset matures or when its interest rate changes in a time frame
different from that of the supporting interest-bearing liability. Maintaining an
equilibrium between rate sensitive interest-earning assets and interest-bearing
liabilities will reduce some interest rate risk but it will not guarantee a
stable net interest spread because yields and rates may change simultaneously or
at different times and such changes may occur in differing increments. Market
rate fluctuations could materially affect the overall net interest spread even
if interest-earning assets and interest-bearing liabilities were perfectly
matched. The difference between the amounts of interest-earning assets and
interest-bearing liabilities that reprice during a given period is called "gap."
An asset-sensitive position or "positive gap" exists when more assets than
liabilities reprice within a given period; a liability-sensitive position or
12
<PAGE>
"negative gap" exists when more liabilities than assets reprice within a given
period. A positive gap generally produces more net interest income in periods of
rising interest rates and a negative gap generally produces more net interest
income in periods of falling interest rates.
As rates increased during 1994 and part of 1995, the gap in the near term (0-6
months) was a negative 7.6% of total assets as compared to a cumulative one-year
negative gap position of 2.6% of total assets as of December 31, 1995. The
negative near-term gap position reflects increases in short-term certificate of
deposits and other borrowings to support investment activities. The lower
cumulative one-year 1995 negative gap was primarily due to investments in
adjustable rate loans and mortgage-backed securities. The following table shows
ASB's interest rate sensitivity at December 31, 1995:
<TABLE>
<CAPTION>
Cumulative volumes at December 31, 1995
subject to repricing within
-------------------------------------------------------
6 months 6 months 1-5 Over 5
(dollars in millions) or less to 1 year years years Total (1)
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest-earning assets
- -----------------------
Real estate loans and mortgage-
backed securities
Balloon and adjustable rate......... $ 554 $ 644 $ 84 $ -- $1,282
Fixed rate 1-4 unit residential..... 181 131 655 496 1,463
Other.............................. 46 24 71 34 175
Consumer and other loans............... 133 6 23 23 185
Commercial loans....................... 7 3 11 7 28
Other interest-earning assets.......... 97 -- -- -- 97
-------------------------------------------------------
Total interest-earning assets.......... 1,018 808 844 560 3,230
-------------------------------------------------------
Interest-bearing liabilities
- ----------------------------
Certificate accounts................... 314 457 139 54 964
Money market accounts.................. 65 -- -- -- 65
"Negotiable Order of Withdrawal"
accounts............................. 276 -- -- -- 276
Passbook accounts...................... 157 52 342 368 919
FHLB advances.......................... 121 85 167 128 501
Other borrowings....................... 343 45 25 -- 413
-------------------------------------------------------
Total interest-bearing liabilities..... 1,276 639 673 550 3,138
-------------------------------------------------------
Interest rate sensitivity gap (2)...... $ (258) $ 169 $ 171 $ 10 $ 92
=======================================================
Cumulative interest rate
sensitivity gap...................... $ (258) $ (89) $ 82 $ 92
===========================================
Cumulative interest rate sensitivity
gap over total assets................ (7.56)% (2.61)% 2.40% 2.70%
===========================================
</TABLE>
(1) The table does not include $183 million of noninterest-earning assets and
$57 million of noninterest-bearing liabilities.
(2) The difference between the total interest-earning assets and the total
interest-bearing liabilities.
13
<PAGE>
INTEREST INCOME AND INTEREST EXPENSE
The following table sets forth average balances, interest and dividend income,
interest expense and weighted average yields earned and rates paid, for certain
categories of interest-earning assets and interest-bearing liabilities for the
periods indicated. Average balances for each period have been calculated using
the average month-end or daily average balances during the period.
<TABLE>
<CAPTION>
Years ended December 31,
--------------------------------------
(dollars in thousands) 1995 1994 1993
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Loans
Average balances .................... $1,751,729 $1,878,581 $1,570,751
Interest income ..................... $ 146,046 $ 154,026 $ 135,778
Weighted average yield .............. 8.34% 8.20% 8.64%
Mortgage-backed securities
Average balances .................... $1,251,192 $ 732,623 $ 647,973
Interest income ..................... $ 85,727 $ 44,043 $ 43,397
Weighted average yield............... 6.85% 6.01% 6.70%
Investments (1) (2)
Average balances .................... $ 80,633 $ 88,728 $ 136,987
Interest and dividend income......... $ 4,921 $ 5,304 $ 9,444
Weighted average yield............... 6.10% 5.98% 6.89%
Total interest-earning assets
Average balances .................... $3,083,554 $2,699,932 $2,355,711
Interest and dividend income......... $ 236,694 $ 203,373 $ 188,619
Weighted average yield............... 7.68% 7.53% 8.01%
Deposits
Average balances .................... $2,149,229 $2,134,029 $2,076,192
Interest expense .................... $ 89,296 $ 76,509 $ 77,651
Weighted average rate................ 4.15% 3.59% 3.74%
Borrowings
Average balances .................... $ 835,310 $ 477,331 $ 230,101
Interest expense .................... $ 53,409 $ 27,397 $ 15,050
Weighted average rate................ 6.39% 5.74% 6.54%
Total interest-bearing liabilities
Average balances .................... $2,984,539 $2,611,360 $2,306,293
Interest expense .................... $ 142,705 $ 103,906 $ 92,701
Weighted average rate................ 4.78% 3.98% 4.02%
Net balance, net interest income
and interest rate spread
Net balance ......................... $ 99,015 $ 88,572 $ 49,418
Net interest income.................. $ 93,989 $ 99,467 $ 95,918
Interest rate spread................. 2.90% 3.55% 3.99%
</TABLE>
(1) ASB has no material amount of tax-exempt investments for periods shown.
Investments include interest-bearing deposits, marketable securities and
investments in regulatory agencies.
(2) Includes interest-bearing deposits in the Federal Home Loan Bank of
Seattle.
14
<PAGE>
The following table shows the effect on net interest income of (1) changes in
interest rates (change in weighted average interest rate multiplied by prior
period average portfolio balance) and (2) changes in volume (change in average
portfolio balance multiplied by prior period rate). Any remaining change is
allocated to the above two categories on a pro rata basis.
<TABLE>
<CAPTION>
Increase (decrease) due to
----------------------------------
(in thousands) Rate Volume Total
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Year ended December 31, 1995 vs. 1994
- -------------------------------------
Income from interest-earning assets
Loan portfolio........................... $ 2,588 $(10,568) $(7,980)
Mortgage-backed securities............... 6,874 34,810 41,684
Investments.............................. 105 (488) (383)
-------------------------------
9,567 23,754 33,321
-------------------------------
Expense from interest-bearing
liabilities
Deposits................................. 12,228 559 12,787
FHLB advances and other borrowings....... 3,413 22,599 26,012
-------------------------------
15,641 23,158 38,799
-------------------------------
Net interest income....................... $ (6,074) $ 596 $(5,478)
===============================
Year ended December 31, 1994 vs. 1993
- -------------------------------------
Income from interest-earning assets
Loan portfolio........................... $ (7,209) $ 25,457 $18,248
Mortgage-backed securities............... (4,715) 5,361 646
Investments.............................. (1,129) (3,011) (4,140)
-------------------------------
(13,053) 27,807 14,754
-------------------------------
Expense from interest-bearing
liabilities
Deposits................................. (3,228) 2,086 (1,142)
FHLB advances and other borrowings....... (2,044) 14,391 12,347
-------------------------------
(5,272) 16,477 11,205
-------------------------------
Net interest income....................... $ (7,781) $ 11,330 $ 3,549
===============================
</TABLE>
OTHER INCOME
In addition to net interest income, ASB has various sources of other income,
including fee income from servicing loans, fees on deposit accounts, rental
income from premises and other income. Other income totaled approximately $17.9
million in 1995, compared to $12.2 million in 1994 and $11.1 million in 1993.
The increase in other income during 1995 was primarily due to a $3.9 million
one-time gain on sale of trading account securities. In November 1995, the
Financial Accounting Standards Board (FASB) issued a special report, "A Guide to
Implementation of Statement 115 on Accounting for Certain Investments in Debt
and Equity Securities." In connection with the guidance provided in the special
report, the FASB indicated that an enterprise may reassess the appropriateness
of the classifications of all securities held at that time and account for any
resulting reclassifications at fair value in accordance with the requirements of
SFAS No. 115. Such reclassifications were required to occur no later than
December 31, 1995. The guidance indicated that reclassifications from the held-
to-maturity category that resulted from this one-time reassessment would not
call into question the intent of an enterprise to hold other debt securities to
maturity in the future. In accordance with the implementation guidance provided
in the special report, ASB transferred approximately $49.5 million of mortgage-
backed securities previously classified as held-to-maturity securities to
trading account securities on November 28, 1995. All such securities were then
sold prior to the end of 1995.
15
<PAGE>
LENDING ACTIVITIES
General. ASB's net loan and mortgage-backed securities portfolio totaled
approximately $3.1 billion at December 31, 1995, representing 91.8% of its total
assets, compared to $2.9 billion, or 92.8%, and $2.4 billion, or 90.3%, at
December 31, 1994 and 1993, respectively. ASB's loan portfolio consists
primarily of conventional residential mortgage loans which are not insured by
the Federal Housing Administration nor guaranteed by the Veterans
Administration.
The following tables set forth the composition of ASB's loan and mortgage-backed
securities portfolio:
<TABLE>
<CAPTION>
December 31,
-----------------------------------------------------------------------------------
1995 1994 1993
-----------------------------------------------------------------------------------
(dollars in thousands) Balance % of total Balance % of total Balance % of total
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Real estate loans (1)
Conventional............................. $1,474,232 47.06% $1,636,282 56.59% $1,584,218 66.98%
Construction and development............. 21,285 0.68 32,074 1.11 26,526 1.12
Troubled debt restructurings............. 15,982 0.51 16,151 0.56 3,397 0.14
-----------------------------------------------------------------------------------
1,511,499 48.25 1,684,507 58.26 1,614,141 68.24
Less
Unearned fees and discounts............ (15,244) (0.49) (21,159) (0.73) (26,728) (1.13)
Undisbursed loan funds................. (10,422) (0.33) (13,844) (0.48) (13,142) (0.55)
Allowance for losses................... (10,837) (0.34) (7,259) (0.25) (3,962) (0.17)
-----------------------------------------------------------------------------------
Total real estate loans, net............. 1,474,996 47.09 1,642,245 56.80 1,570,309 66.39
-----------------------------------------------------------------------------------
Other loans
Loans on deposits........................ 15,688 0.50 15,378 0.53 15,015 0.63
Consumer and other loans................. 170,743 5.45 144,505 5.00 129,961 5.49
Commercial loans......................... 34,666 1.11 27,981 0.97 24,494 1.04
-----------------------------------------------------------------------------------
221,097 7.06 187,864 6.50 169,470 7.16
Less
Unearned fees and discounts............ (38) (0.00) (52) (0.00) (156) (0.01)
Undisbursed loan funds................. (6,175) (0.20) (4,468) (0.16) (3,173) (0.13)
Allowance for losses................... (2,079) (0.07) (1,534) (0.05) (1,352) (0.06)
-----------------------------------------------------------------------------------
Total other loans, net................... 212,805 6.79 181,810 6.29 164,789 6.96
-----------------------------------------------------------------------------------
Mortgage-backed securities, net of
discounts............................... 1,444,832 46.12 1,067,287 36.91 630,156 26.65
-----------------------------------------------------------------------------------
Total loans and mortgage-backed
securities, net........................ $3,132,633 100.00% $2,891,342 100.00% $2,365,254 100.00%
===================================================================================
</TABLE>
(1) Includes renegotiated loans.
16
<PAGE>
<TABLE>
<CAPTION>
December 31,
--------------------------------------------------------------
1992 1991
--------------------------------------------------------------
(dollars in thousands) Balance % of total Balance % of total
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Real estate loans (1)
Conventional............................................... $1,294,769 59.59% $ 976,004 50.02%
Construction and development............................... 33,123 1.53 24,978 1.28
Troubled debt restructurings............................... 8,945 0.41 180 0.01
--------------------------------------------------------------
1,336,837 61.53 1,001,162 51.31
Less
Unearned fees and discounts.............................. (20,422) (0.94) (16,106) (0.82)
Undisbursed loan funds................................... (16,203) (0.74) (11,854) (0.61)
Allowance for losses..................................... (3,626) (0.17) (2,678) (0.14)
--------------------------------------------------------------
Total real estate loans, net............................... 1,296,586 59.68 970,524 49.74
--------------------------------------------------------------
Other loans
Loans on deposits.......................................... 15,013 0.69 15,528 0.80
Consumer and other loans................................... 134,943 6.21 144,356 7.40
Commercial loans........................................... 21,830 1.01 22,998 1.18
--------------------------------------------------------------
171,786 7.91 182,882 9.38
Less
Unearned fees and discounts.............................. (148) (0.01) (204) (0.01)
Undisbursed loan funds................................... (3,805) (0.18) (3,436) (0.18)
Allowance for losses..................................... (1,531) (0.07) (1,140) (0.06)
--------------------------------------------------------------
Total other loans, net..................................... 166,302 7.65 178,102 9.13
--------------------------------------------------------------
Mortgage-backed securities, net of discounts............... 709,891 32.67 802,430 41.13
--------------------------------------------------------------
Total loans and mortgage-backed
securities, net......................................... $2,172,779 100.00% $1,951,056 100.00%
==============================================================
</TABLE>
(1) Includes renegotiated loans.
Origination, purchase and sale of loans. Generally, loans originated and
purchased by ASB are secured by real estate located in Hawaii. As of December
31, 1995, approximately $55.5 million of loans purchased from other lenders were
secured by properties located in the continental United States. For additional
information, including information concerning the geographic distribution of
ASB's mortgage-backed securities portfolio and the geographic concentration of
credit risk, reference is made to Note 19 to HEI's Consolidated Financial
Statements, incorporated herein by reference to page 59 of HEI's 1995 Annual
Report to Stockholders, portions of which are filed herein as HEI Exhibit 13.
The amount of loans originated during 1995, 1994, 1993, 1992 and 1991 were $382
million, $523 million, $564 million, $601 million and $387 million,
respectively. The decrease in loans originated in 1995 from 1994 was due in part
to lower refinancings and the weak economy.
Residential mortgage lending. During the last half of 1995, interest rates
along with the demand for adjustable rate mortgage (ARM) loans over fixed rate
loans decreased compared with 1994. ARM loans carry adjustable interest rates
which are typically set according to a short-term index. Payment amounts may be
adjusted periodically based on changes in interest rates. ARM loans represented
approximately 27.7% of the total originations of first mortgage loans in 1995,
compared to 46.3% and 24.7% in 1994 and 1993, respectively. ASB intends to
continue to emphasize the origination and purchase of ARM loans to further
improve its asset/liability structure.
ASB is permitted to lend up to 100% of the appraised value of the real property
securing a loan. Its general policy is to require private mortgage insurance
when the loan-to-value ratio of owner-occupied property exceeds 80% of the lower
of the appraised value or purchase price. On nonowner-occupied residential
properties, the loan-to-value ratio may not exceed 80% of the lower of the
appraised value or purchase price.
17
<PAGE>
Construction and development lending. ASB provides both fixed and adjustable
rate loans for the construction of one-to-four residential unit and commercial
properties. Construction and development financing generally involves a higher
degree of credit risk than long-term financing on improved, occupied real
estate. Accordingly, all construction and development loans are priced higher
than loans secured by completed structures. ASB's underwriting, monitoring and
disbursement practices with respect to construction and development financing
are designed to ensure sufficient funds are available to complete construction
projects. As of December 31, 1995, 1994 and 1993, construction and development
loans represented 1.2%, 1.7% and 1.5%, respectively, of ASB's gross loan
portfolio. See "Loan portfolio risk elements."
Multi-family residential and commercial real estate lending. Permanent loans
secured by multi-family properties (generally apartment buildings), as well as
commercial and industrial properties (including office buildings, shopping
centers and warehouses), are originated by ASB for its own portfolio as well as
for participation with other lenders. In 1995, 1994 and 1993, loans on these
types of properties accounted for approximately 5.9%, 6.6% and 6.0%,
respectively, of ASB's total mortgage loan originations. The objective of
commercial real estate lending is to diversify ASB's loan portfolio to include
sound, income-producing properties.
Consumer lending. ASB offers a variety of secured and unsecured consumer loans.
Loans secured by deposits are limited to 90% of the available account balance.
ASB also offers VISA cards, automobile loans, general purpose consumer loans,
second mortgage loans, home equity lines of credit, checking account overdraft
protection and unsecured lines of credit. In 1995, 1994 and 1993, loans of these
types accounted for approximately 11.5%, 6.2% and 4.3%, respectively, of ASB's
total loan originations.
Corporate banking/commercial lending. ASB is authorized to make both secured
and unsecured corporate banking loans to business entities. This lending
activity is designed to diversify ASB's asset structure, shorten maturities,
provide rate sensitivity to the loan portfolio and attract business checking
deposits. As of December 31, 1995, 1994 and 1993, corporate banking loans
represented 1.7%, 1.3% and 1.2%, respectively, of ASB's total net loan
portfolio.
Loan origination fee and servicing income. In addition to interest earned on
loans, ASB receives income from servicing of loans, for late payments and from
other related services. Servicing fees are received on loans originated and
subsequently sold by ASB through a securitization process and also on loans for
which ASB acts as collection agent on behalf of third-party purchasers.
ASB generally charges the borrower at loan settlement a loan origination fee
ranging from 2% to 3% of the amount borrowed. Loan origination fees (net of
direct loan origination costs) are deferred and recognized as an adjustment of
yield over the life of the loan. Nonrefundable commitment fees (net of direct
loan origination costs, if applicable) to originate or purchase loans are
deferred. The nonrefundable commitment fees are recognized as an adjustment of
yield over the life of the loan if the commitment is exercised. If the
commitment expires unexercised, nonrefundable commitment fees are recognized in
income upon expiration of the commitment.
Loan portfolio risk elements. When a borrower fails to make a required payment
on a loan and does not cure the delinquency promptly, the loan is classified as
delinquent. If delinquencies are not cured promptly, ASB normally commences a
collection action, including foreclosure proceedings in the case of secured
loans. In a foreclosure action, the property securing the delinquent debt is
sold at a public auction in which ASB may participate as a bidder to protect its
interest. If ASB is the successful bidder, the property is classified in a real
estate owned account until it is sold. At December 31, 1995, there were nine
residential properties acquired in settlement of loans totaling $2.7 million or
0.08% of total assets. At December 31, 1994, there were three residential
properties acquired in settlement of loans totaling $0.8 million or 0.03% of
total assets. At December 31, 1993, there was one residential property acquired
in settlement of a loan totaling $0.2 million, or 0.01% of total assets.
In addition to delinquent loans, other significant lending risk elements
include: (1) accruing loans which are over 90 days past due as to principal or
interest, (2) loans accounted for on a nonaccrual basis (nonaccrual loans), and
(3) loans on which various concessions are made with respect to interest rate,
maturity, or other terms due to the inability of the borrower to service the
obligation under the original terms of the agreement (renegotiated loans). ASB
has no loans which are over 90 days past due on which interest is being accrued
for the years presented in the table below. The level of nonaccrual and
renegotiated loans represented 1.7%, 1.4%, 0.5%, 1.0% and 0.1%, of ASB's total
net loans outstanding
18
<PAGE>
at December 31, 1995, 1994, 1993, 1992 and 1991, respectively. The following
table sets forth certain information with respect to nonaccrual and renegotiated
loans for the dates indicated:
<TABLE>
<CAPTION>
December 31,
-----------------------------------------------
(in thousands) 1995 1994 1993 1992 1991
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Nonaccrual loans--
Real estate
1-4 unit residential................. $11,533 $ 8,773 $5,006 $12,526 $ 556
Income property...................... 13,820 14,224 220 395 --
-----------------------------------------------
Total real estate...................... 25,353 22,997 5,226 12,921 556
Commercial............................. 11 25 38 1,059 --
Consumer............................... 1,702 793 460 181 439
-----------------------------------------------
Total nonaccrual loans................. $27,066 $23,815 $5,724 $14,161 $ 995
===============================================
Renegotiated loans not included
above--
Real estate
1-4 unit residential................. $ 1,053 $ 1,004 $ 381 $ -- $ --
Income property...................... -- -- 1,486 -- 180
Commercial........................... -- -- 324 -- --
-----------------------------------------------
Total renegotiated loans............... $ 1,053 $ 1,004 $2,191 $ -- $ 180
===============================================
</TABLE>
ASB's policy generally is to place mortgage loans on a nonaccrual status
(interest accrual is suspended) when the loan becomes more than 90 days past due
or on an earlier basis when there is a reasonable doubt as to its
collectability. Loans on nonaccrual status amounted to $27.1 million (1.6% of
total loans) at December 31, 1995, $23.8 million (1.3% of total loans) at
December 31, 1994, $5.7 million (0.3% of total loans) at December 31, 1993,
$14.2 million (0.9% of total loans) at December 31, 1992 and $1.0 million (0.1%
of total loans) at December 31, 1991.
The significant increase in loans on nonaccrual status from yearend 1991 to 1992
was primarily due to the effects of Hurricane Iniki on the island of Kauai, such
as higher unemployment. As of December 31, 1992, real estate loans with
remaining principal balances of $8.9 million were restructured to defer monthly
contractual principal and interest payments for three months with repayments of
the entire deferred amounts due at the end of the three-month period. These
loans had been classified as nonaccrual loans as of December 31, 1992.
Substantially all of these loans have resumed their normal repayment schedule
and are classified as performing loans.
In 1994, the $18 million increase in nonaccrual real estate loans was a result
of Hawaii's weak economy. A rising trend of delinquencies resulted in a $3.8
million increase in nonaccrual residential loans. The $14 million increase in
nonaccrual income property loans was primarily due to three commercial real
estate loans with principal balances totaling $11.8 million that were
restructured/renegotiated to defer monthly principal and interest payments for
three to six months. Based on evaluations of collection prospects, a specific
loss reserve of $1.6 million was established in 1994 for one of the loans
secured by a commercial retail/office building located on the island of Oahu. In
1995, the $3.3 million increase in nonaccrual loans was a result of Hawaii's
continued weak economy.
Allowance for loan losses. The provision for loan losses is dependent upon
management's evaluation as to the amount needed to maintain the allowance for
loan losses at a level considered appropriate in relation to the risk of future
losses inherent in the loan portfolio. While management attempts to use the best
information available to make evaluations, future adjustments may be necessary
as circumstances change and additional information becomes available.
19
<PAGE>
The following table presents the changes in the allowance for loan losses for
the periods indicated.
<TABLE>
<CAPTION>
Years ended December 31,
--------------------------------------------------
(dollars in thousands) 1995 1994 1993 1992 1991
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Allowance for loan losses, beginning of year.................. $ 8,793 $5,314 $5,157 $3,818 $3,387
--------------------------------------------------
ADDITIONS TO PROVISIONS FOR LOSSES
Real estate loans............................................. 4,107 3,406 336 945 296
Other loans................................................... 780 577 443 549 345
--------------------------------------------------
Total additions............................................... 4,887 3,983 779 1,494 641
--------------------------------------------------
NET (RECOVERY) CHARGE-OFFS
Real estate loans............................................. 69 109 -- (3) (12)
Other loans................................................... 695 395 622 158 222
--------------------------------------------------
Total net charge-offs......................................... 764 504 622 155 210
--------------------------------------------------
Allowance for loan losses, end of year........................ $12,916 $8,793 $5,314 $5,157 $3,818
==================================================
Ratio of net charge-offs during the period to
average loans outstanding.................................... 0.04% 0.03% 0.04% 0.01% 0.02%
==================================================
</TABLE>
ASB's ratio of provisions for loan losses during the period to average loans
outstanding was 0.28%, 0.21%, 0.05%, 0.11% and 0.06% for the years ended
December 31, 1995, 1994, 1993, 1992 and 1991, respectively. The increase in
provisions for loan losses during 1992 was primarily due to the 27% increase in
average loans outstanding and a $0.6 million additional provision for Kauai
loans anticipated to be affected by Hurricane Iniki. In 1994 and 1995, to
establish additional specific loss reserves and in response to a rising trend of
delinquencies caused by Hawaii's weak economy, ASB increased its loss reserve by
$3.5 million and $4.1 million, respectively.
INVESTMENT ACTIVITIES
In recent years, ASB's investment portfolio has consisted primarily of stock of
the FHLB of Seattle, federal agency obligations and mortgage-backed securities.
In response to the then increasing interest rate environment, management decided
to liquidate ASB's portfolio of securities held for trading and the liquidation
was completed in October 1994. Also, see the prior discussion under "Other
income" of the one-time gain on sale of trading account securities in 1995.
The following table sets forth the composition of ASB's investment portfolio,
excluding mortgage-backed securities to be held-to-maturity, at the dates
indicated:
<TABLE>
<CAPTION>
December 31,
--------------------------------
(dollars in thousands) 1995 1994 1993
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Investment in FHLB stock................. $34,720 $32,523 $23,203
Marketable securities.................... -- -- 45,396
--------------------------------
Total investments........................ $34,720 $32,523 $68,599
================================
Weighted average rate on investments (1). 6.03% 6.86% 9.75%
================================
</TABLE>
(1) On investments during the year ended December 31.
DEPOSITS AND OTHER SOURCES OF FUNDS
General. Deposits traditionally have been the principal source of ASB's funds
for use in lending, meeting liquidity requirements and making investments. ASB
also derives funds from receipt of interest and principal on outstanding loans
receivable and mortgage-backed securities, borrowings from the FHLB of Seattle,
securities sold under agreements to repurchase and other sources. ASB borrows on
a short-term basis to compensate for seasonal or other reductions in deposit
flows. ASB also may borrow on a longer-term basis to support expanded lending or
investment activities. In the last few years, securities sold under agreements
to repurchase and advances from the FHLB have become a more
20
<PAGE>
significant source of funds as the demand for deposits has decreased. Using
higher cost sources of funds puts downward pressure on ASB's net interest
income.
Deposits. ASB's deposits are obtained primarily from residents of Hawaii. In
1995, ASB had average deposits aggregating $2.1 billion, with a net savings
inflow of $15.0 million, excluding interest credited to deposit accounts. Net
savings outflows for 1994 and 1993 were approximately $32 million and $9
million, respectively, excluding interest credited to deposit accounts. The net
savings outflow for 1994 was due primarily to the effects of rising interest
rates and increased competition. The net savings outflow for 1993 was due
primarily to the withdrawal of a trust company deposit account of $92 million.
The trust company had been acquired by another financial institution. The
weighted average rate paid on deposits during 1995 was 4.15%, compared to 3.59%
and 3.74% in 1994 and 1993, respectively. In the three years ended December 31,
1995, ASB had no deposits placed by or through a broker.
The following table shows the distribution of ASB's average deposits and average
daily rates by type of deposit for the years indicated. Average balances for a
period have been calculated using the average of month-end balances during the
period.
<TABLE>
<CAPTION>
Years ended December 31,
-----------------------------------------------------------------------------------------------------
1995 1994 1993
-----------------------------------------------------------------------------------------------------
% of % of % of
Average total Average Average total Average Average total Average
(dollars in thousands) balance deposits rate % balance deposits rate % balance deposits rate %
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Passbook accounts........... $ 978,858 45.5% 3.48% $1,215,919 57.0% 3.51% $1,126,880 54.3% 3.73%
Negotiable Order of
Withdrawal (NOW)
accounts.................. 264,996 12.4 2.09 266,335 12.5 2.25 268,227 12.9 2.49
Money market accounts....... 66,634 3.1 3.43 88,320 4.1 3.02 119,238 5.7 3.15
Certificate accounts........ 838,741 39.0 5.66 563,455 26.4 4.48 561,847 27.1 4.48
----------------------------------------------------------------------------------------------------
Total deposits.............. $2,149,229 100.0% 4.15% $2,134,029 100.0% 3.59% $2,076,192 100.0% 3.74%
====================================================================================================
</TABLE>
At December 31, 1995, ASB had $267.9 million in certificate accounts of $100,000
or more, maturing as follows:
<TABLE>
<CAPTION>
(in thousands) Amount
- --------------------------------------------------------------------
<S> <C>
Three months or less................................ $ 92,355
Greater than three months through six months........ 47,257
Greater than six months through twelve months....... 102,447
Greater than twelve months.......................... 25,876
----------------
$ 267,935
================
</TABLE>
Borrowings. ASB obtains advances from the FHLB of Seattle, provided certain
standards related to credit-worthiness have been met. Advances are secured under
a blanket pledge of the common stock ASB owns in the FHLB of Seattle and each
note or other instrument held by ASB and the mortgage securing it. FHLB advances
generally are available to meet seasonal and other withdrawals of deposit
accounts, to expand lending and to assist in the effort to improve asset and
liability management. FHLB advances are made pursuant to several different
credit programs offered from time to time by the FHLB of Seattle.
At December 31, 1995, 1994 and 1993, advances from the FHLB amounted to $501
million, $616 million and $290 million, respectively. The weighted average rates
on the advances from the FHLB outstanding at December 31, 1995, 1994 and 1993
were 6.52%, 6.17% and 6.24%, respectively. The maximum amount outstanding at any
month-end during 1995, 1994 and 1993 was $618 million, $616 million and $290
million, respectively. Advances from the FHLB averaged $559 million, $453
million and $210 million during 1995, 1994 and 1993, respectively, and the
approximate weighted average rate thereon was 6.55%, 5.77% and 6.84%,
respectively. During 1994, increased advances from the FHLB were needed to
support investment activities as the effects of rising interest rates and
increased competition slowed deposit growth. During 1995, advances decreased as
securities sold under agreements to repurchase provided a lower cost funding
source.
21
<PAGE>
At December 31, 1995 and 1994, securities sold under agreements to repurchase
consisted of mortgage-backed securities sold to brokers/dealers under fixed-
coupon agreements. The agreements are treated as financings and the obligations
to repurchase securities sold are reflected as a liability in the consolidated
balance sheets. The dollar amount of securities underlying the agreements
remains in the asset accounts. At December 31, 1995 and 1994, $412.5 million
(including accrued interest of $2.5 million) and $123.3 million (including
accrued interest of $1.0 million) of the agreements were to repurchase identical
securities, respectively. There were no outstanding securities sold under
agreements to repurchase as of December 31, 1993. The weighted average rates on
securities sold under agreements to repurchase outstanding at December 31, 1995
and 1994 were 5.84% and 6.22%, respectively. The maximum amount outstanding at
any month-end during 1995, 1994 and 1993 was $413 million, $123 million and $27
million, respectively. Securities sold under agreements to repurchase averaged
$277 million, $21 million and $20 million during 1995, 1994 and 1993,
respectively, and the approximate weighted average interest rate thereon was
6.08%, 5.14% and 3.39%, respectively. During 1995, increased securities sold
under agreements to repurchase were needed to support investment activities as
the effects of rising interest rates and increased competition slowed deposit
growth.
Subject to obtaining certain approvals from the FHLB of Seattle, ASB may offer
collateralized medium-term notes due from nine months to 30 years from the date
of issue and bearing interest at a fixed or floating rate established at the
time of issue. At December 31, 1995, 1994 and 1993, ASB had no outstanding
collateralized medium-term notes.
The following table sets forth information concerning ASB's advances from FHLB
and other borrowings at the dates indicated:
<TABLE>
<CAPTION>
December 31,
-------------------------------------------
(dollars in thousands) 1995 1994 1993
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Advances from FHLB........................ $501,274 $616,374 $289,674
Securities sold under agreements to
repurchase.............................. 412,521 123,301 --
-------------------------------------------
Total borrowings.......................... $913,795 $739,675 $289,674
===========================================
Weighted average rate (1)................. 6.21% 6.18% 6.24%
</TABLE>
(1) On borrowings at December 31.
COMPETITION
The primary factors in competing for deposits are interest rates, the quality
and range of services offered, marketing, convenience of office locations,
office hours and perceptions of the institution's financial soundness and
safety. Competition for deposits comes primarily from other savings
institutions, commercial banks, credit unions, money market and mutual funds and
other investment alternatives. Additional competition for deposits comes from
various types of corporate and government borrowers, including insurance
companies. To meet the competition, ASB offers a variety of savings and checking
accounts at competitive rates, convenient business hours, convenient branch
locations with interbranch deposit and withdrawal privileges at each office and
conducts advertising and promotional campaigns.
The primary factors in competing for first mortgage and other loans are interest
rates, loan origination fees and the quality and range of lending services
offered. Competition for origination of first mortgage loans comes primarily
from other savings institutions, mortgage banking firms, commercial banks,
insurance companies and real estate investment trusts. ASB believes that it is
able to compete for such loans primarily through the interest rates and loan
fees it charges, the type of mortgage loan programs it offers and the efficiency
and quality of the services it provides its borrowers and the real estate
business community.
OTHER
- -----
FREIGHT TRANSPORTATION -- HAWAIIAN TUG & BARGE CORP. AND YOUNG BROTHERS, LIMITED
- --------------------------------------------------------------------------------
GENERAL
HTB and its wholly owned subsidiary, YB, were acquired in 1986. HTB provides
marine transportation services in Hawaii and the Pacific area, including charter
tug and barge and harbor tug operations. YB,
22
<PAGE>
which is a regulated interisland cargo carrier, transports general freight and
containerized cargo by barge on a regular schedule between all major ports in
Hawaii. YB moved 3.2 million revenue tons of cargo between the islands in 1995,
compared to 3.0 million revenue tons in 1994.
A substantial portion of the state's commodities are imported, and almost all of
Hawaii's overseas inbound and outbound cargo moves through Honolulu. Cargo
destined for the neighbor islands is trans-shipped through the Honolulu gateway.
YB has a nonexclusive Certificate of Public Convenience and Necessity from the
PUC to operate as an intrastate common carrier by water. The Certificate will
remain in effect for an indefinite period unless suspended or terminated by the
PUC. YB encounters competition from, among others, interstate carriers and
unregulated contract carriers.
YB RATES
YB generally must accept for transport all cargo offered. YB rates and charges
must be approved by the PUC and the PUC has broad discretion in its regulation
of the rates charged by YB.
YB filed an application on May 16, 1994 requesting PUC approval to increase its
general freight rates by 5.9% and its Minimum Bill of Lading charge from $18.00
to $20.93 to be effective July 1, 1994. On June 17, 1994, the PUC suspended YB's
application for a period of six months to and including December 31, 1994. On
September 26, 1994, YB filed with the PUC a Stipulation indicating YB and the
Consumer Advocate had agreed to stipulate to a 6% general rate increase to be
effective upon PUC approval. On December 12, 1994, the PUC granted YB approval
to increase its rates 6% across-the-board (including the Minimum Bill of
Lading), which became effective on December 15, 1994.
On November 29, 1994, the PUC allowed the utility companies to record
postretirement benefits other than pension costs on the accrual basis and to
increase rates to recover such costs on January 1, 1995. After submission of
certain information required by the PUC, the PUC issued a letter to YB
authorizing a 2.66% increase in rates across-the-board effective January 1,
1995.
On February 3, 1995, YB filed an application with the PUC to revise its tariff
and rate schedules to: 1) streamline the existing tariff in order to minimize
rate subsidization and encourage efficient cargo flow; 2) simplify the existing
rules and regulations which were cumbersome to administer; and 3) rebalance the
rates to reflect the differences in costs to handle and transport the various
cargo offerings and to price competitively within YB's market while remaining
revenue neutral. On March 24, 1995, the PUC suspended YB's application for a
period of six months to and including September 30, 1995 and placed YB's
proposed tariff changes under investigation. An evidentiary hearing was held on
August 2, 1995. On September 29, 1995, the PUC authorized YB to implement Hawaii
and Kauai county rates and to separate and revise the Maui county rates for the
ports of Maui, Lanai, and Molokai. The new tariff became effective on October
10, 1995.
REAL ESTATE--MALAMA PACIFIC CORP.
- ---------------------------------
GENERAL
MPC was incorporated in 1985 and engages in real estate development activities,
both directly and through joint ventures.
MPC's real estate development investments and residential projects are targeted
for Hawaii's owner-occupant market. MPC is currently involved in the development
of five residential projects (Kipona Hills, Kua' Aina Ridge, Westpark and
Westhills at Makakilo Heights, Piilani Village Phase 1 and Sunrise Estates) on
approximately 316 acres of land on the islands of Oahu, Maui and Hawaii
encompassing approximately 580 homes or lots, of which approximately 400 have
been completed and sold. MPC and its joint ventures own approximately 424 acres
of land for future residential development.
Residential development generally requires a long lead time to obtain necessary
zoning changes, building permits and other required approvals. MPC's projects
are subject to the usual risks of real estate development, including
fluctuations in interest rates, the receipt of timely and appropriate state and
local zoning and other necessary approvals, possible cost overruns and
construction delays, adverse changes in general commerce and local market
conditions, compliance with applicable environmental and other regulations, and
potential competition from other new projects and resales of existing
residences.
23
<PAGE>
In 1995, MPC and its subsidiaries continued to experience slow sales in their
real estate projects. Although interest rates declined, sales were dampened by
declining consumer confidence caused in large part by perceived lack of job
security.
JOINT VENTURE DEVELOPMENTS
Makakilo Cliffs. In 1990, Malama Development Corp. (MDC) and JGL Enterprises
Inc. formed Makakilo Cliffs Joint Venture for the development of a 280-unit
multi-family residential project on approximately 26 acres in Makakilo, Hawaii
(island of Oahu). MDC's partnership interest was assigned to Malama Makakilo
Corp., another wholly owned subsidiary of MPC, in August 1990. Sales of the
first 81 units closed in 1991 and all remaining units closed in 1992. The joint
venture was dissolved in December 1993.
Sunrise Estates. In 1990, MDC and HSC, Inc. formed Sunrise Estates Joint
Venture to develop and sell 165 one-acre house lots in Hilo, Hawaii (island of
Hawaii). In 1993 and 1992, sales of three lots and 153 lots closed,
respectively. There were no sales in 1994 and 1995. Subdivision approval for the
remaining nine lots was received in 1995.
In 1991, HSC, Inc. and Malama Elua Corp., a wholly owned subsidiary of MPC,
formed Sunrise Estates II Joint Venture to develop and sell approximately 140
one-acre house lots in Hilo, Hawaii, adjacent to the Sunrise Estates Joint
Venture project. Rezoning was completed in 1993 and subdivision approval is
expected to be obtained in 1996.
Ainalani Associates. Malama Mohala Corp. (MMO) and MDT-BF Limited Partnership
(MDT) were partners in a joint venture known as Ainalani Associates. In 1992,
MMO acquired MDT's 50% interest in Ainalani Associates, and the partnership was
dissolved. MMO is completing the development and sale of three projects on the
islands of Maui and Hawaii, described below under "MMO projects" and is a 50%
partner in Palailai Associates, a partnership with Palailai Holdings, Inc.
Baldwin*Malama. In 1990, MDC acquired a 50% general partnership interest in
Baldwin*Malama, a partnership with Baldwin Pacific Properties, Inc. (BPPI),
established to acquire approximately 172 acres of land for potential development
of about 780 single and multi-family residential units in Kihei on the island of
Maui. In 1994, the project received approval to increase density to
approximately 1,000 units. The project has completed site work for the first
phase of single family units. At December 31, 1995, 51 homes were completed and
sold and two completed units were available for sale.
In May 1993, Baldwin*Malama was reorganized as a limited partnership in which
MDC is the sole general partner and BPPI is the sole limited partner. In
conjunction with the dissolution of the Baldwin*Malama general partnership and
formation of the limited partnership, MPC agreed to loan $1.6 million to BPPI
and up to $15 million to the limited partnership. Through 1995, MPC agreed to
increase the maximum loan amount to Baldwin*Malama up to $22.5 million. As of
December 31, 1995, the outstanding balances on MPC's loans to BPPI and
Baldwin*Malama were $1.0 million and $20.6 million, respectively. Beginning in
May 1993, MDC consolidated the accounts of Baldwin*Malama. Previously, MDC
accounted for its investment in Baldwin*Malama under the equity method.
Palailai Associates. MMO assumed Ainalani Associates' 50% interest in Palailai
Associates in 1992 upon acquiring MDT's 50% interest in Ainalani Associates. In
1993, Palailai Associates completed the development and sale of the first
increment of 107 homes and lots and completed the bulk sale of its 38.8 acres of
multi-family zoned land in Makakilo, Oahu. The second increment of 69 single
family homes is completed, with 66 homes sold as of December 31, 1995. The third
increment of 100 single family homes is in progress with 44 homes completed and
sold as of December 31, 1995. Palailai Associates owns approximately 42 acres of
adjacent land zoned for residential development.
MMO PROJECTS
In 1992, MMO acquired the Kipona Hills, Kua' Aina Ridge and Kehaulani Place
projects of Ainalani Associates as a result of MMO's acquisition of MDT's 50%
interest in Ainalani Associates and Ainalani Associates' subsequent dissolution.
Kipona Hills is a 66-unit subdivision located in Waikoloa on the island of
Hawaii. Through December 31, 1995, 65 homes or lots were completed and sold, and
one lot was available for sale.
24
<PAGE>
Kua' Aina Ridge is a 92-lot subdivision in Pukalani, Maui. Subdivision
improvements have been completed and sales closings commenced in 1993. As of
December 31, 1995, 62 lots were available for sale, three homes were under
construction and one completed unit was available for sale.
Kehaulani Place, consisting of approximately 50 acres of land in Pukalani, Maui,
is currently zoned for agriculture. Rezoning and land-use reclassification will
be required before development can commence. Land planning and presentations to
local community groups commenced in 1993 and are ongoing.
PROJECT FINANCING
At December 31, 1995, MPC or its subsidiaries were directly liable for $12.6
million of outstanding loans and had additional loan facilities of $1.1 million.
In addition, at December 31, 1995, MPC or its subsidiaries had issued (i)
guaranties under which they were jointly and severally contingently liable with
their joint venture partners for $2.0 million of outstanding loans and $0.3
million of additional undrawn loan facilities and (ii) payment guaranties under
which MPC or its subsidiaries were severally contingently liable for $5.6
million of outstanding loans and $4.6 million of additional undrawn loan
facilities. In total, at December 31, 1995, MPC or its subsidiaries were liable
or contingently liable for $20.2 million of outstanding loans and $6.0 million
in undrawn loan facilities. All such loans are collateralized by real property.
At December 31, 1995, HEI had agreed with the lenders of construction loans and
loan facilities, of which approximately $10.3 million was outstanding and $5.7
million was undrawn, that it will maintain ownership of 100% of the stock of MPC
and that it intends, subject to good and prudent business practices, to keep MPC
financially sound and responsible to meet its obligations. MPC or its
subsidiaries may enter into additional commitments in connection with the
financing of future phases of development of MPC's projects and HEI may enter
into similar agreements regarding the ownership and financial condition of MPC.
HEI INVESTMENT CORP.
- --------------------
HEIIC was incorporated in May 1984 primarily to make passive, tax-advantaged
investments in corporate securities and other long-term investments. HEIIC is
not an "investment company" under the Investment Company Act of 1940 and has no
direct employees.
HEIIC's long-term investments consist primarily of investments in leveraged
leases. HEIIC has a 15% ownership interest in an 818-MW coal-fired generating
unit in Georgia, which is subject to a leveraged lease agreement entered into in
1985 and expiring in 2013. The lessee has options to renew the lease at fixed
rentals for at least 8.5 additional years, and thereafter at fair market
rentals. In the fall of 1987, HEIIC purchased commercial buildings on leasehold
properties located in the continental United States, along with the related
lease rights and obligations. These leveraged, purchase-leaseback investments
included two major buildings housing operations of Hershey Foods in Pennsylvania
and six supermarkets leased to The Kroger Co. in various states. In 1995, HEIIC
sold one supermarket to the lessee pursuant to the provisions of the leveraged
lease agreement and recorded a net loss of $1.3 million on the sale. HEIIC's
investments in leveraged leases amounted to $53.4 million and $54.4 million at
December 31, 1995 and 1994, respectively. For further information concerning
HEIIC's investments in leveraged leases, see Note 8 to HEI's Consolidated
Financial Statements, incorporated herein by reference to page 53 of HEI's 1995
Annual Report to Stockholders, portions of which are filed herein as HEI Exhibit
13. No new investments are currently planned by HEIIC.
HEI POWER CORP.
- ---------------
HEIPC was formed in March 1995 to pursue independent power projects and energy
conservation projects in Asia and the Pacific. For a further description of
HEIPC, including its $1.7 million operating loss in the first year of operation,
see the discussion under "Other" in MD&A, incorporated herein by reference to
page 32 of HEI's 1995 Annual Report to Stockholders, portions of which are filed
herein as HEI Exhibit 13.
In February 1996, HEIPC signed a "Memorandum of Understanding" with
Massachusetts-based Beacon Hill Associates, Inc. for the development of a 60 MW
naphtha-fueled combined-cycle power plant in Phnom Penh, Cambodia.
DISCONTINUED OPERATIONS
- -----------------------
For information concerning the Company's discontinued operations formerly
conducted by HIG and HERS, see Note 2 to HEI's Consolidated Financial
Statements, incorporated herein by reference to page 45 of HEI's 1995 Annual
Report to Stockholders, portions of which are filed herein as HEI Exhibit 13.
25
<PAGE>
REGULATION AND OTHER MATTERS
- ----------------------------
HOLDING COMPANY REGULATION
HEI and HECO are holding companies within the meaning of the Public Utility
Holding Company Act of 1935 (1935 Act). However, under current rules and
regulations, they are exempt from the comprehensive regulation of the Securities
and Exchange Commission (SEC) under the 1935 Act except for Section 9(a)(2)
(relating to the acquisition of securities of other public utility companies)
through compliance with certain annual filing requirements under the 1935 Act
for holding companies which own utility businesses that are primarily intrastate
in character. The exemption afforded HEI and HECO may be revoked if the SEC
finds that such exemption "may be detrimental to the public interest or the
interest of investors or consumers." HEI and HECO may own or have interests in
foreign utility operations without adversely affecting this exemption so long as
the requirements of other exemptions under the 1935 Act are satisfied. HEI has
obtained the PUC certification which is a prerequisite to obtaining an exemption
for foreign utility operations and to the Company's maintenance of its exemption
under the 1935 Act if it acquires such ownership interests.
Legislation has been introduced in Congress that would repeal the 1935 Act
leaving the regulation of utility holding companies to be governed by other
federal and state laws. Management cannot predict if this legislation will be
enacted or the final form it might take.
HEI is subject to an agreement entered into with the PUC (the PUC Agreement)
when HECO became a wholly owned subsidiary of HEI. The PUC Agreement, among
other things, requires HEI to provide the PUC with periodic financial
information and other reports concerning intercompany transactions and other
matters. It prohibits the electric utilities from loaning funds to HEI or its
nonutility subsidiaries and from redeeming common stock of the electric utility
subsidiaries without PUC approval. Further, the PUC could limit the ability of
the electric utility subsidiaries to pay dividends on their common stock. See
"Restrictions on dividends and other distributions" and "Electric utility
regulation" (regarding the PUC review of the relationship between HEI and HECO).
As a result of the acquisition of ASB, HEI and HEIDI are subject to OTS
registration, supervision and reporting requirements as savings and loan holding
companies.
In the event the OTS has reasonable cause to believe that the continuation by
HEI or HEIDI of any activity constitutes a serious risk to the financial safety,
soundness, or stability of ASB, the OTS is authorized under the Home Owners'
Loan Act of 1933, as amended, to impose certain restrictions in the form of a
directive to HEI and any of its subsidiaries, or HEIDI and any of its
subsidiaries. Such possible restrictions include limiting (i) the payment of
dividends by ASB; (ii) transactions between ASB, HEI or HEIDI, and the
subsidiaries or affiliates of ASB, HEI or HEIDI; and (iii) the activities of ASB
that might create a serious risk that the liabilities of HEI and its other
affiliates, or HEIDI and its other affiliates, may be imposed on ASB.
Theoretically, this authority would allow the OTS to prohibit dividends, limit
affiliate transactions or otherwise restrict activities as a result of losses
suffered by HEI, HEIDI or their other subsidiaries, and thus conceivably may be
an indirect means of limiting affiliations between ASB and affiliates engaged in
nonfinancial activities. See "Restrictions on dividends and other
distributions."
OTS regulations also generally prohibit savings and loan holding companies and
their nonthrift subsidiaries from engaging in activities other than those which
are specifically enumerated in the regulations. Such restrictions, if applicable
to HEI and HEIDI, would significantly limit the kinds of activities in which HEI
and HEIDI and their subsidiaries may engage. However, the OTS regulations
provide for an exemption which is available to HEI and HEIDI if ASB satisfies
the "qualified thrift lender" test discussed below. See "Savings bank
regulation--FDIC Improvement Act of 1991 and implementing regulations--Qualified
thrift lender test." ASB currently meets the qualified thrift lender test and
must continue to meet the test in order to avoid restrictions on the activities
of HEI and HEIDI and their subsidiaries which could result in a need to divest
ASB.
HEI and HEIDI are prohibited, directly or indirectly, or through one or more
subsidiaries, from (i) acquiring control of, or acquiring by merger or purchase
of assets, another insured institution or holding company thereof, without prior
written OTS approval; (ii) acquiring more than 5% of the voting shares of
another savings association or savings and loan holding company which is not a
subsidiary; or (iii) acquiring or retaining control of a savings association not
insured by the FDIC. No director or officer of HEI or HEIDI, or person
beneficially owning more than 25% of such holding company's
26
<PAGE>
voting shares, may, except with the prior approval of the OTS, (a) also serve as
director, officer, or employee of any insured institution or (b) acquire control
of any savings association not a subsidiary of such holding company.
RESTRICTIONS ON DIVIDENDS AND OTHER DISTRIBUTIONS
HEI is a legal entity separate and distinct from its various subsidiaries. As a
holding company with no significant operations of its own, the principal sources
of its funds are dividends or other distributions from its operating
subsidiaries, borrowings and sales of equity. The rights of HEI and,
consequently, its shareholders, to participate in any distribution of the assets
of any of its subsidiaries is subject to the prior claims of the creditors and
preferred stockholders of such subsidiary, except to the extent that claims of
HEI in its capacity as a creditor are recognized.
The ability of certain of HEI's subsidiaries to pay dividends or make other
distributions to HEI is subject to contractual and regulatory restrictions. By
agreement with the PUC, in the event that the consolidated common stock equity
of the electric utility subsidiaries falls below 35% of total electric utility
capitalization, these companies would be restricted, unless they obtained PUC
approval, in their payment of cash dividends to 80% of the earnings available
for the payment of dividends in the current fiscal year and preceding five
years, less the amount of dividends paid during that period. The PUC Agreement
also provides that the foregoing dividend restriction shall not be construed to
relinquish any right the PUC may have to review the dividend policies of the
electric utility subsidiaries. The consolidated common stock equity of HEI's
electric utility subsidiaries was 53% of their total capitalization (including
the current maturities of long-term debt and preferred stock sinking fund
requirements due within one year but excluding short-term borrowings) as of
December 31, 1995. At December 31, 1995, HECO and its subsidiaries had net
assets of $697 million, of which approximately $327 million were not available
for transfer to HEI without regulatory approval.
The ability of ASB to make capital distributions to HEI and other affiliates is
restricted under federal law. Subject to a limited exception for stock
redemptions that do not result in any decrease in ASB's capital and would
improve ASB's financial condition, ASB is prohibited from declaring any
dividends, making any other capital distribution, or paying a management fee to
a controlling person if, following the distribution or payment, ASB would be
deemed to be under-capitalized, significantly under-capitalized or critically
under-capitalized. See "Savings bank regulation--FDIC Improvement Act of 1991
and Implementing Regulations--Prompt corrective action."
As a Tier-1 institution (one that meets its fully phased-in capital requirements
and has not been notified by the OTS that it is in need of more than normal
supervision), ASB may make capital distributions without OTS approval in amounts
up to one-half of ASB's surplus capital ratio (the amount of its capital in
excess of its fully phased-in capital requirement) at the beginning of a
calendar year, plus its net income for that calendar year to date. The term
"fully phased-in capital requirements" means the institution's capital
requirements under the statutory and regulatory standards applicable as of
December 31, 1994, as modified by any individual minimum capital requirements
applicable to the institution. ASB, as a Tier-1 institution, may exceed the
foregoing limits if ASB provides a thirty-day advance notice to the OTS and
receives no objection within thirty days. Even in the case of distributions
within the permissible limits, however, a thirty day advance notice to the OTS
is required.
HEI and its subsidiaries are also subject to debt covenants, preferred stock
resolutions and guaranties that could limit their respective abilities to pay
dividends. The Company does not expect that the regulatory and contractual
restrictions applicable to HEI or its direct and indirect subsidiaries will
significantly affect the operations of HEI or its ability to pay dividends on
its common stock.
ELECTRIC UTILITY REGULATION
The PUC regulates the rates, standards of service, issuance of securities,
accounting and certain other aspects of the operations of HEI's electric utility
subsidiaries. See "Electric Utility--Rates."
In addition, the PUC has ordered the electric utility subsidiaries to develop
plans for the integration of demand-side and supply-side resources available to
meet consumer energy needs efficiently, reliably and at the lowest reasonable
cost. The PUC may approve, reject or require modifications of these plans. See
"Electric Utility--Integrated Resource Planning and requirements for additional
generating capacity."
27
<PAGE>
In March 1995, the PUC opened a generic docket to investigate whether Hawaii
public utilities should be allowed to establish property damage reserves to
recover the cost of damage to their facilities and equipment caused by
catastrophic disasters. See "Property damage reserve" in MD&A, incorporated
herein by reference to page 30 of HEI's 1995 Annual Report to Stockholders,
portions of which are filed herein as HEI Exhibit 13.
Any adverse decision or policy made or adopted by the PUC, or any prolonged
delay in rendering a decision, could have a material adverse effect on
consolidated HECO's and the Company's financial condition or results of
operations.
Certain transactions between HEI's public utility subsidiaries (HECO, MECO and
HELCO) and HEI and affiliated interests, are subject to regulation by the PUC.
Under the law, all contracts (including summaries of unwritten agreements), made
on or after July 1, 1988 of $300,000 or more in a calendar year for management,
supervisory, construction, engineering, accounting, legal, financial and similar
services and for the sale, lease or transfer of property between a public
utility and affiliated interests must be filed with the PUC to be effective, and
the PUC may issue cease and desist orders if such contracts are not filed. All
such affiliated contracts for capital expenditures (except for real property)
must be accompanied by comparative price quotations from two nonaffiliates,
unless the quotations cannot be obtained without substantial expense. Moreover,
all transfers of $300,000 or more of real property between a public utility and
affiliated interests require the prior approval of the PUC and proof that the
transfer is in the best interest of the public utility and its customers. If the
PUC, in its discretion, determines that an affiliated contract was unreasonable
or otherwise contrary to the public interest, the utility must either revise the
contract or risk disallowance of the payments for rate-making purposes. In rate-
making proceedings, a utility must also prove the reasonableness of payments
made to affiliated interests under any affiliated contracts of $300,000 or more
by clear and convincing evidence. An "affiliated interest" is defined by statute
and includes officers and directors of a public utility, every person owning or
holding, directly or indirectly, 10% or more of the voting securities of a
public utility, and corporations which have in common with a public utility more
than one-third of the directors of that public utility.
To address community concerns, HECO proposed by letter dated January 25, 1993,
that the PUC initiate a review of the relationship between HEI and HECO and the
effects of that relationship on the operations of HECO. By an order dated
January 26, 1993, the PUC opened a docket and initiated such a review to
determine whether the HEI-HECO relationship, HEI's diversified activities, and
HEI's policies, operations and practices have resulted in or are having any
negative effects on HECO, its electric utility subsidiaries and ratepayers. In
May 1994, a consultant, Dennis Thomas and Associates, was selected by the PUC to
perform the review. In early 1995, Dennis Thomas and Associates issued its
report to the PUC. The report concluded that "on balance, diversification has
not hurt electric ratepayers." Other major findings of the study were that no
utility assets have been used to fund HEI's nonutility investments or
operations, HEI has not denied needed capital to the electric utilities and
management processes within the electric utilities operate without interference
from HEI. The report also included a number of recommendations, most of which
the Company has implemented. The PUC has not issued a final order in the docket.
See also "Holding company regulation."
HECO and its subsidiaries are not subject to regulation by the Federal Energy
Regulatory Commission (FERC) under the Federal Power Act, except under Sections
210 through 212 (added by Title II of PURPA), which permit the FERC to order
electric utilities to interconnect with qualifying cogenerators and small power
producers, and to wheel power to other electric utilities. Title I of PURPA,
which relates to retail regulatory policies for electric utilities, also applies
to HECO and its subsidiaries. Title VII of the Energy Policy Act of 1992, which
creates "exempt wholesale generators" (EWGs) as a category that is exempt from
the 1935 Act and which addresses transmission access, also applies to HECO and
its subsidiaries. The Company cannot predict the extent to which cogeneration,
EWGs, or transmission access, will reduce its electrical loads, reduce its
current and future generating and transmission capability requirements, or
affect its financial condition or results of operations.
Because they are located in the State of Hawaii, HECO and its subsidiaries are
exempt by statute from limitations set forth in the Powerplant and Industrial
Fuel Act of 1978 on the use of petroleum as a primary energy source.
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SAVINGS BANK REGULATION
ASB, a federally-chartered savings bank, and its holding companies are subject
to the regulatory supervision of the OTS and, in certain respects, the Federal
Deposit Insurance Corporation (FDIC). In addition, ASB must comply with Federal
Reserve Board reserve requirements and OTS liquidity requirements. See
"Liquidity and capital resources-savings bank" in MD&A and "Proposed legislation
affecting financial institutions" in Note 5 to HEI's Consolidated Financial
Statements, incorporated herein by reference to pages 36 and 52 of HEI's 1995
Annual Report to Stockholders, portions of which are filed herein as HEI
Exhibit 13.
Deposit insurance
- -----------------
Deposit insurance assessments. FIRREA provides for separately funded and
maintained deposit insurance funds administered by the FDIC for savings
associations and banks. SAIF generally insures the deposits of savings
associations. The Bank Insurance Fund (BIF) generally insures the deposits of
commercial banks. In 1991, the FDIC adopted a risk-based deposit insurance
assessment system. Under this system, the actual assessment rate for a
particular institution depends in part upon the supervisory risk rating the FDIC
assigns to the institution.
Savings associations and banks have in the past paid assessments ranging from 23
to 31 cents per $100 of deposits to capitalize the SAIF and BIF. However, under
existing law, the FDIC may reduce these assessment rates when the SAIF and BIF
individually reach a designated 1.25% reserve ratio. In 1995, the BIF reached
the designated reserve ratio and the FDIC, therefore, reduced the assessment
rates for banks. Effective in January 1996, well-capitalized banks pay only the
legally required annual minimum of $2,000 for BIF insurance. For all other BIF
members, the assessment rates range from 3 to 27 cents per $100 of deposits,
depending on their risk classification.
There is no reasonable likelihood that, under current conditions, the SAIF will
achieve the designated 1.25% reserve ratio before the next century. Although the
FDIC reduced the assessments paid by banks, it maintained the assessment rates
of 23 to 31 cents per $100 of deposits for SAIF members. The disparity between
the BIF and SAIF assessment rates places ASB (which paid an assessment rate of
23 cents per $100 of deposits in 1995) and other SAIF members at a disadvantage
in competing against commercial banks.
There have been a number of legislative proposals in Congress to address this
situation, including making a one-time or phased-in assessment of thrifts to
fully capitalize the SAIF, followed by a merger of the SAIF and the BIF;
eliminating or reducing the disparity in the assessment rates paid by banks or
thrifts if the SAIF is recapitalized through the assessment; and merging bank
and thrift charters. Certain of these proposals, if adopted, could have a
material adverse effect on the Company and ASB. For example, if a one-time
assessment of 85 cents for every $100 of deposits is imposed, it is estimated
that ASB would be assessed approximately $18 million on a pretax basis ($11
million after-tax), based on ASB's deposit liabilities as of March 31, 1995. If
bank and thrift charters are merged, HEI and its other subsidiaries might become
subject to the restrictions on the permissible activities of a bank holding
company. While certain of the proposals under consideration would grandfather
the activities of existing savings and loan holding companies, management cannot
predict whether or in what form any of these proposals might ultimately be
adopted or the extent to which the business of the Company or ASB might be
affected.
Deposit insurance coverage. FDIC Improvement Act of 1991 (FDICIA) amended
various provisions of the Federal Deposit Insurance Act governing deposit
insurance coverage. FDICIA, as further implemented by amendments to the FDIC's
deposit insurance regulations, made certain significant changes relating to pro
rata or "pass through" insurance coverage for employee benefit plan participants
and beneficiaries, and insurance coverage for certain retirement accounts and
trust funds. (The term "pass-through" insurance means that the insurance
coverage passes through to each owner/beneficiary of the applicable deposit.)
Although the vast majority of the FDIC's deposit insurance regulations, such as
the basic rules providing that individual accounts are insured to $100,000
separately from qualifying joint accounts, remain unchanged, several important
changes were made.
Effective December 19, 1993, an individual's interest in deposits at the same
institution in any combination of certain retirement accounts will be added
together and insured up to $100,000 in the aggregate. This is a reduction from
the maximum of $400,000 in insurance coverage formerly provided if deposits were
made in four different types of retirement plan accounts.
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"Pass-through" insurance coverage for the deposits of most employee benefit
plans (i.e., $100,000 per individual participating, not $100,000 per plan)
generally continues only for institutions that are well-capitalized under the
FDIC's prompt corrective action regulations. The FDIC has amended its deposit
insurance regulations to require financial institutions to provide employee
benefit plan depositors information, not otherwise available, on the
institution's capital category and whether "pass-through" deposit insurance is
available. As of December 31, 1995, ASB was well-capitalized.
Financial Institutions Reform, Recovery, and Enforcement Act of 1989 and
- ------------------------------------------------------------------------
implementing regulations
- ------------------------
Capital requirements. Under Financial Institutions Reform, Recovery, and
Enforcement Act of 1989 (FIRREA), the OTS set three capital standards for
thrifts, each of which must be no less stringent than those applicable to
national banks. The three standards provide: (1) a leverage limit which requires
a savings association to maintain core capital in an amount of not less than 3%
of the association's adjusted total assets; (2) a tangible capital requirement
of not less than 1.5% of an association's adjusted total assets; and (3) an 8%
risk-based capital requirement, which may deviate from national bank standards
to reflect interest rate risk or other risks, but such deviations may not result
in materially lower levels of capital than would be required under risk-based
capital standards applicable to national banks. Generally, the OTS must restrict
the asset growth of an association that fails to meet the capital requirements.
As of December 31, 1995, ASB was in compliance with all of the minimum standards
with a core capital ratio of 5.4%, a tangible capital ratio of 5.2% and risk-
based capital ratio of 12.9% (based on risk-based capital of $193.4 million,
$73.9 million in excess of the requirement).
The OTS has adopted a rule that adds an interest rate risk (IRR) component to
the existing risk-based capital requirement. Institutions with an "above normal"
level of IRR exposure will be required to hold additional capital. "Above
normal" IRR is defined as any decline in market value of an institution's
portfolio equity in excess of 2% of the market value of its assets, which would
result from an immediate 200 basis point change in interest rates. The OTS rule
requires a savings association with an "above normal" level of IRR exposure to
hold one-half of the "above normal" IRR times the market value of its assets as
capital, in addition to its existing 8% risk-based capital requirement. Although
the rule generally became effective January 1, 1994, the OTS intends to delay
implementation of the IRR capital deduction (which was to become effective with
the September 1994 Thrift Financial Report) pending the testing of an OTS
appeals process for certain institutions subject to such deductions. This means
that in calculating the risk-based capital requirement, ASB was not required to
deduct capital for IRR, and did not report such a deduction for the December
1995 Thrift Financial Report. However, if the rule adding the IRR component had
been implemented, ASB would not have been required to deduct an amount from
total capital or to hold additional capital as of December 31, 1995.
In August 1995, the Board of Governors of the Federal Reserve System, the FDIC
and the Office of the Comptroller of the Currency adopted a regulation that
stipulates IRR will be taken into account when determining a bank's capital
adequacy. These banking agencies have also solicited comments on a proposed
supervisory policy statement that describes the process they will use to assess
the exposure of a bank's economic value to changes in interest rates. After
these banking agencies gain experience with this process, they contemplate
issuing standards establishing an explicit capital charge for IRR. FIRREA
requires that the capital standards for thrifts be no less stringent than those
applicable to national banks. Although the OTS has indicated that it will review
any differences between its approach and that of the other federal banking
agencies for the purpose of achieving greater consistency and uniformity among
all four agencies, the impact of the proposed supervisory policy statement on
ASB cannot be predicted at this time.
Affiliate transactions. Significant restrictions apply to certain transactions
between ASB and its affiliates, including HEI and its direct and indirect
subsidiaries. FIRREA significantly altered both the scope and substance of such
limitations on transactions with affiliates and provides for thrift affiliate
rules similar to, but more restrictive than, those applicable to banks. For
example, ASB is prohibited from making any loan or other extension of credit to
an entity affiliated with ASB unless the affiliate is engaged exclusively in
activities which the Federal Reserve Board has determined to be permissible for
bank holding companies. There are also various other restrictions which apply to
loans and other transactions between ASB and certain executive officers,
directors and insiders of ASB. ASB is also barred from making a purchase of or
any investment in securities issued by an affiliate, other than with respect to
shares of a subsidiary of ASB.
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FDIC Improvement Act of 1991 and implementing regulations
- ---------------------------------------------------------
FDICIA subjects the banking and thrift industries to heightened regulation and
supervision. FDICIA makes a number of reforms addressing the safety and
soundness of the deposit insurance system, supervision of domestic and foreign
depository institutions and improvement of accounting standards. FDICIA also
limits deposit insurance coverage, implements changes in consumer protection
laws and calls for least-cost resolution and prompt corrective action with
regard to troubled institutions.
Pursuant to FDICIA, the federal banking agencies have promulgated regulations
which may affect the operations of ASB and its holding companies. Such
regulations address, for example, standards for safety and soundness, real
estate lending, accounting and reporting, transactions with affiliates, and
loans to insiders. See also "Deposit Insurance."
Prompt corrective action. FDICIA establishes a statutory framework that is
triggered by the capital level of a savings association and subjects it to
progressively more stringent restrictions and supervision as capital levels
decline. The OTS rules implement the system of prompt corrective action. In
particular, the rules define the relevant capital measures for the categories of
well-capitalized, adequately capitalized, under-capitalized, significantly
under-capitalized and critically under-capitalized.
A savings association that is under-capitalized or significantly under-
capitalized is subject to additional mandatory supervisory actions and a number
of discretionary actions if the OTS determines that any of the actions is
necessary to resolve the problems of the association at the least possible long-
term cost to the SAIF. A savings association that is critically under-
capitalized must be placed in conservatorship or receivership within 90 days,
unless the OTS and the FDIC concur that other action would be more appropriate.
Interest rates. FDIC regulations restrict the ability of financial institutions
that are not well-capitalized to offer interest rates on deposits that are
significantly higher than the rates offered by competing institutions. To be a
well-capitalized institution not subject to these interest rate restrictions, an
institution must have a leverage ratio of 5.0%, a Tier-1 risk-based ratio of
6.0%, a total risk-based ratio of 10% and not be in a "troubled condition." As
of December 31, 1995, ASB was well-capitalized with a leverage ratio of 5.4%, a
Tier-1 risk-based ratio of 12.2% and a total risk-based ratio of 12.9%.
Qualified thrift lender test. The FDICIA amends the qualified thrift lender
(QTL) test provisions of FIRREA by reducing the percentage of assets thrifts
must maintain in housing-related loans and investments from 70% to 65%, and
changing the computation period to require that the percentage be reached on a
monthly average basis in nine out of the previous 12 months. Savings
associations that fail to satisfy the QTL test by not holding the required
percentage of housing-related investments are subject to various penalties,
including limitations on their activities and restrictions on their FHLB
advances. Failure to satisfy the QTL test would also bring into operation
restrictions on the activities that may be engaged in by HEI, HEIDI and their
other subsidiaries and could effectively result in the required divestiture of
ASB. At all times during 1995, ASB was in compliance with the QTL test. See
"Holding company regulation."
Federal Home Loan Bank System
- -----------------------------
ASB is a member of the FHLB System which consists of 12 regional FHLBs. The FHLB
System provides a central credit facility for member institutions. ASB, as a
member of the FHLB of Seattle, is required to own shares of capital stock in the
FHLB of Seattle in an amount equal to the greater of 1% of ASB's aggregate
unpaid residential loan principal at the beginning of each year, 0.3% of total
assets or 5% of FHLB advances outstanding. The FHLBs serve as the central
liquidity facilities for savings associations and resources of long-term funds
for financing housing. Long-term advances may only be made for the purpose of
providing funds for financing residential housing. Additionally, at such time as
an advance is made or renewed, it must be secured by collateral from one of the
following categories: (1) fully disbursed, whole first mortgages on improved
residential property, or securities representing a whole interest in such
mortgages; (2) securities issued, insured or guaranteed by the U.S. Government
or any agency thereof; (3) FHLB deposits; and (4) other real estate-related
collateral that has a readily ascertainable value and with respect to which a
security interest can be perfected. The aggregate amount of outstanding advances
secured by such other real estate-related collateral may not exceed 30% of the
member's capital.
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Other laws, regulations and proposed legislation
- ------------------------------------------------
Other laws. ASB is subject to federal and state consumer protection laws which
affect lending activities, such as the Truth-in-Lending Law, the Truth in
Savings Act, the Equal Credit Opportunity Act, the Real Estate Settlement
Procedures Act and several federal and state financial privacy acts. These laws
may provide for substantial penalties in the event of noncompliance. Management
of ASB believes that its lending activities are in compliance with these laws
and regulations.
The Community Reinvestment Act (CRA) was enacted by Congress in 1977 to ensure
that banks and thrifts help meet the credit needs of their communities,
including low- and moderate-income areas, consistent with safe and sound lending
practices. The OTS will consider ASB's CRA record in evaluating an application
for a new deposit facility, including the establishment of a branch, the
relocation of a branch or office, or the acquisition of an interest in another
bank or thrift. ASB received a CRA rating of "outstanding" in its OTS
examination report dated October 2, 1995.
The Reigle-Neal Interstate Banking and Branching Act of 1994 (Interstate Banking
Act) was signed into law on September 29, 1994. Beginning September 29, 1995,
and subject to certain limits, adequately capitalized and adequately managed
bank holding companies will be permitted to acquire control of banks in any
state, including Hawaii. Beginning on June 1, 1997 or earlier if expressly
permitted by Hawaii law, and subject to certain limits, an adequately
capitalized and adequately managed bank may apply for permission to merge with
an out-of-state bank and convert all branches of both banks into branches of a
single bank. The State of Hawaii retains the authority to prohibit such mergers
if, between September 29, 1994 and June 1, 1997, it enacts a law expressly
prohibiting such mergers. Out-of-state banks may also be permitted to open new
branches in Hawaii if Hawaii law so authorizes. Management cannot predict
whether or in what form the Hawaii Legislature might adopt interstate branching
legislation during the 1996 legislative session or the extent to which the
business of the Company or ASB might be affected. Although the Interstate
Banking Act applies only to banks, it could result in greater competitive
pressures on savings associations such as ASB.
Pending legislation. Bills are now pending or expected to be introduced in the
United States Congress that contain proposals for altering the structure,
regulation and competitive relationships of the nation's financial institutions.
If enacted into law, these pending bills could have the effect of increasing or
decreasing the cost of doing business, limiting or expanding permissible
activities, or affecting the competitive balance among banks, thrifts and other
financial institutions. Some of these bills would realign the structure and
jurisdiction of various financial institution regulatory agencies and the FHLB
system. Whether or in what form any such legislation may be adopted or the
extent to which the business of the Company or ASB might be affected thereby
cannot be predicted. See also "Deposit insurance--Deposit insurance
assessments."
FREIGHT TRANSPORTATION REGULATION
The PUC has broad authority in its regulation of the intrastate business and
operations of YB. See "Other--Freight transportation--Hawaiian Tug & Barge Corp.
and Young Brothers, Limited." In particular, the PUC has the authority to review
and modify YB's intrastate rates and charges under the Hawaii Water Carrier Act.
In all rate proceedings under such act, YB has the burden of proving the
reasonableness of expenditures, contracts, leases or other transactions. An
adverse decision or policy adopted by the PUC, or a delay in granting requested
rate or other relief, could have a material effect on the financial condition or
results of operations of YB.
ENVIRONMENTAL REGULATION
HEI and its subsidiaries are subject to federal and state statutes and
governmental regulations pertaining to water quality, air quality and other
environmental factors.
Water quality controls. As part of the process of generating electricity, water
used for condenser cooling of the electric utility subsidiaries' steam electric
generating stations is discharged into ocean waters or into underground
injection wells. The subsidiaries are required periodically to obtain permits
from the DOH in order to be allowed to discharge the water. The electric utility
subsidiaries must obtain National Pollutant Discharge Elimination System (NPDES)
permits from the DOH to allow wastewater discharges into ocean waters for each
of five generating stations (three at HECO and one each at MECO and HELCO) and
Underground Injection Control (UIC) permits for wastewater discharge to
underground injection wells for several HELCO facilities and one MECO facility.
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During 1995, the DOH issued NPDES permit renewals for MECO's Kahului generating
station and for HECO's Kahe, Waiau and Honolulu generating stations. Only
HELCO's Shipman generating station has yet to receive its NPDES permit renewal
and is continuing to operate on an administrative extension of the previously
expired permit. The DOH is preparing a draft permit, but is awaiting additional
requested storm water information from HECO/HELCO.
In September 1994, the DOH determined that MECO's Maalaea facility requires a
NPDES permit for industrial-related storm water runoff. A storm water permit
application was submitted to the DOH on April 18, 1995. Application processing
by the DOH is on hold until baseline storm water data are submitted. The DOH
also promulgated regulations that require storm water runoff and dewatering
permits for construction-related projects. These construction-related permits
require discharge monitoring and implementation of best management practices
during construction activities to comply with state water quality standards. To
date, HECO has submitted several Notices of Intent (NOI) for both construction
storm water discharge permits and dewatering permits. A NOI was also submitted
in June 1995 for construction-related activities at MECO's Maalaea generation
expansion project. HECO is also working cooperatively with the City & County of
Honolulu Department of Public Works to obtain a blanket NPDES permit to
discharge water removed from utility manholes into municipal storm drain
systems.
On August 15, 1995, the DOH issued a notice of apparent violation of NPDES
permit requirements to HELCO's Shipman generating station. The violation was for
the failure to periodically calibrate temperature recording equipment. By letter
dated September 5, 1995, HECO's Environmental Department informed the DOH that
immediate corrective actions were taken by HELCO. The DOH was satisfied with the
response and will not take further action. All HECO and MECO facilities were in
compliance with NPDES permit conditions during 1995.
Due to the proposed addition of generating units at MECO's Maalaea Generating
Station, a UIC permit application was submitted to the DOH in September 1994 to
install another injection well system to handle wastestreams that might be
generated from the new generating units. The DOH approved MECO's construction of
the new wells in December 1994, and injection well construction commenced at
Maalaea in December 1995. The DOH also issued new UIC permits for HELCO's Puna
(February 1995) and Keahole (March 1995) generating stations. As a result, HELCO
has now received operating permits for all its facilities. HELCO and MECO are in
compliance with new UIC monitoring requirements, including effluent monitoring
and well status investigations. The DOH issued a notice of apparent violation to
HELCO in August 1994 for failing to provide advanced notice of modification of
the Hill No. 6 drainage well. The DOH requested additional information related
to the drainage well modification in October 1994 and HECO responded on behalf
of HELCO via letter in January 1995. In August 1995, the DOH issued a final
notice and finding of violation, and assessed HELCO a $15,500 penalty, which
HELCO paid to close the investigation. No further action is anticipated by the
DOH.
In August 1993, MECO and HELCO were informed by the EPA that federal UIC permits
would be required for all existing and proposed injection wells. Under the most
recent agreement between the EPA and DOH, the EPA will allow the DOH to continue
operation of its state UIC permit program. Hence, all affected injection wells
(including dry wells) will be regulated by both federal and state UIC permits.
MECO and HELCO facilities submitted completed UIC applications to the EPA in
July 1994. A UIC application was also submitted for the proposed injection well
system at Maalaea in November 1994. The EPA issued draft UIC permits and related
public notices for the Keahole and Hill injection wells on May 22, 1995. HECO
submitted comments on the draft permits in late June 1995. Final permits have
not been issued. The EPA issued a letter to HECO in October 1995 confirming that
the DOH-permitted wells may continue to operate without new EPA UIC permits.
Currently, the EPA and DOH are discussing the possibility of consolidating
federal requirements into the DOH UIC permits. Negotiations have been ongoing
for several months.
The Federal Oil Pollution Act of 1990 (OPA) governs actual or threatened oil
releases in navigable U.S. waters (inland waters and up to three miles offshore)
and waters of the U.S.' exclusive economic zone (up to 200 miles to sea from the
shoreline). Responsible parties under OPA are jointly, severally and strictly
liable for oil removal costs incurred by the federal government or the state and
damages to natural resources and real or personal property. Responsible parties
include vessel owners and operators. OPA imposes fines and jail terms ranging in
severity depending on how the release was caused. OPA also requires that
responsible parties submit certificates of financial responsibility sufficient
to meet the responsible party's maximum limited liability. Protection and
Indemnity Insurance Clubs (mutual
33
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insurance pools) have refused to issue these certificates because OPA provides
for direct liability against guarantors. The Coast Guard issued interim
guidelines in September 1992, which included the requirement that a spill
response plan be submitted by February 18, 1993, and be finalized by August 18,
1993. The EPA and Hawaii Department of Transportation (DOT) also have similar
requirements for submission of spill response plans. The EPA issued its proposed
rules and guidelines on this matter in February 1993. With HTB exiting the fuel
transportation business at the end of 1993, the Company's freight transportation
operations subject the Company to significantly lessened environmental risks.
HTB's fuel and lubricating oil and the other cargo carried in its barges may be
accidentally discharged into ocean waters causing a pollution hazard, but the
quantities carried do not pose a major environmental hazard. HTB and YB
employees are trained to respond to oil or other spills that occur. The
utilities filed preliminary plans on February 18, 1993 with regard to the
following facilities: to the Coast Guard for the Kahului Harbor terminaling
facility and pipeline; to the EPA for the Honolulu, Waiau, Kahe, Shipman and
Kahului power plants, the Iwilei fuel storage facility, and the Ward Avenue
facility; and to the DOT for the pipelines between Honolulu power plant and the
Iwilei fuel storage facility and between the Chevron fuel storage facility in
Hilo and the Shipman and Hill power plants, respectively. The EPA, DOT and Coast
Guard promulgated regulations implementing OPA in July 1994, January 1993 and
February 1993, respectively.
Revised Facility Spill Response Plans (FSRPs) for the HECO Generating Stations
(Kahe, Waiau, and Honolulu) and the Iwilei fuel storage facility were submitted
to the EPA on January 12, 1995. HECO is awaiting the EPA's review and approval
of these FSRPs. The HECO FSRP for the Kahe Generating Station was modified to
include the Kahe pipeline, and was submitted to the DOT on February 15, 1995.
The HECO pipeline connecting the Iwilei fuel storage facility and the Honolulu
Generating Station was determined not to meet the DOT's definition of
"significant and substantial harm". Thus, the DOT approval of the Honolulu-
Iwilei pipeline FSRP is not required at this time in order to continue pipeline
operations. The HECO Ward Avenue facility does not store more than one million
gallons of oil, and is therefore not required to have an EPA approved response
plan in order to continue storing/handling oil. Instead, HECO completed a
Certification of the Applicability of the Substantial Harm Criteria for the Ward
Avenue Complex in June 1995. A revised Kahului response plan was submitted to
the EPA and Coast Guard in January 1995. The Coast Guard and EPA approved the
Kahului FSRP. In September 1994, it was determined that MECO's Maalaea power
plant was also required to develop an oil spill response plan. The Maalaea FSRP
was submitted to the EPA on August 31, 1994. HECO submitted the revised HELCO
Hilo Area Pipeline FSRP to the DOT on February 12, 1995. The DOT approved the
HELCO Hilo Area Pipeline FSRP on February 15, 1995, with the condition that
additional clarification be provided on some areas of the plan (which has been
done). HELCO's Shipman facility does not store more than one million gallons of
oil, and is therefore not required to have an EPA approved response plan in
order to continue storing/handling oil. HELCO also completed a Certification of
the Applicability of the Substantial Harm Criteria for the Shipman power plant,
which was submitted in December 1995.
Air quality controls. The generation stations of the utility subsidiaries
operate under air pollution control permits issued by the DOH and, in a limited
number of cases, by the EPA. The entire electric utility industry is being
affected by the 1990 Amendments to the Clean Air Act. Hawaii utilities may be
affected by the air toxics provisions (Title III) when the Maximum Allowable
Control Technology (MACT) emission standards are proposed for generation units.
Hawaii utilities are affected by the operating permit provisions (Title V). The
DOH adopted implementing regulations on November 26, 1993 which required
submission of permit applications for existing sources during 1994. All
applications were filed in 1994 as required and supplementary information was
filed in 1995. Results of further air quality analyses could trigger
requirements to mitigate emission impacts. Reports on emissions of air toxics
could trigger requirements to conduct risk assessments. Hawaii utilities are
also affected by the enforcement provisions (Title VII) which require the EPA to
promulgate new regulations which mandate "enhanced monitoring" of emissions from
many generation units. In response, the EPA proposed rules on October 1, 1993
which allow for cost effective alternatives to costly continuous emission
monitoring systems. The EPA withdrew that proposal in April 1995 for revision. A
new draft rule is expected in early 1996 and, as ordered by federal court, a
final rule is expected by July 1996.
On November 1, 1989, the DOH issued a Notice and Finding of Violation and Order
indicating that Maalaea units X-1 and X-2 had exceeded operating limitations of
12 hours per day at various times in 1988. These incidents resulted from
unscheduled unit outages and resulted in no net increase in emissions by MECO.
Subsequently, MECO took steps to preclude future violations. An application for
a
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permit modification was submitted to the EPA, revising the operating hour
limitation to annual rather than daily. Approval was received from the EPA in
July 1992. Settlement discussions as to the Notice of Violation have been
unsuccessful to date. The DOH has not yet set a hearing on the Notice of
Violation. Units X-1 and X-2 continue to operate in compliance with the revised
permit.
Initial source tests for HELCO's CT-2 generating unit in December 1989 indicated
particulate emissions above permitted levels. Subsequent retesting confirmed
earlier results. Following analysis, HECO (on behalf of HELCO) proposed in
November 1990 that the permitted particulate limit be increased. By letter dated
April 13, 1992, the EPA concurred that revision is warranted. HECO and HELCO
worked with the DOH, the manufacturer and a consultant to determine an
appropriate new emission limit for particulates as well as oxides of nitrogen. A
comprehensive emission test program has been completed and on April 14, 1994, a
final report was submitted to the DOH for its review. On May 5, 1994, a petition
was submitted to the DOH to revise NOx limits, and an application to revise the
particulate limit was submitted to the DOH on August 30, 1994. Follow-up
questions from the DOH were received in October 1994 and were responded to in
November 1994 and in February 1995. The DOH had issued a Notice of Violation on
August 17, 1992 for the non-complying emissions. In accordance with discussions
with the DOH, CT-2 continues to operate pending issuance of the revised permit.
Emission tests conducted by MECO in January 1992 on the six diesel units at Miki
Basin, Lanai were consistent with earlier indications that emissions were above
permit limits. Those tests results were submitted to the DOH. After unit
adjustments and improvements in measurements of hourly fuel usage, additional
tests were conducted in July and September 1993 which indicated that all six
units are in compliance with permit limits. A report on these tests was
submitted to the DOH. After reviewing the report, the DOH concluded in a letter
dated December 13, 1993 that all six units are operating in compliance with
permit limits. The DOH will determine what action, if any, would be appropriate
for the previous indications of violation.
A Notice and Finding of Violation and Order was issued by the DOH to HELCO on
July 8, 1993 for excessive visible emissions from Shipman Unit 1 on September
23, 1991 and on January 31, 1992. The DOH ordered HELCO to come into compliance.
HELCO's written response to the DOH dated July 29, 1993 stated that HELCO had
come into compliance and identified the cause of the problem as corroded air
heater tubes that were replaced in February 1993. The repairs were necessarily
delayed for approximately one year until there was sufficient island-wide
generation to allow Unit 1 to be shutdown. No further action has been required
by the DOH.
Hazardous waste and toxic substances controls. The operations of the electric
utility and freight transportation subsidiaries are subject to regulations
promulgated by the EPA to implement the provisions of the Resource Conservation
and Recovery Act (RCRA), the Superfund Amendments and Reauthorization Act (SARA)
and the Toxic Substances Control Act (TSCA). The DOH has been working towards
obtaining primacy to operate state-authorized RCRA (hazardous waste) programs.
The DOH finalized RCRA administrative rules in mid-June 1994, with the rules
becoming effective on June 18, 1994. The DOH's state contingency plan and the
state Environmental Response Law (ERL) rules were adopted in August 1995.
Whether on a federal or state level, RCRA provisions identify certain wastes as
hazardous and set forth measures that must be taken in the transportation,
storage, treatment and disposal of these wastes. Some of the wastes generated at
steam electric generating stations possess characteristics which make them
subject to these EPA regulations. Since October 1986, all HECO generating
stations have operated RCRA-exempt wastewater treatment units to treat
potentially regulated wastes from occasional boiler waterside and fireside
cleaning operations. Steam generating stations at MECO and HELCO also operate
similar RCRA-exempt wastewater management systems. In March 1990, the EPA
changed RCRA testing requirements used to characterize a waste as hazardous
which potentially affected the hazardous waste generating status of all
facilities. A new and more stringent Toxicity Characteristic Leaching Procedure
replaced the former Extraction Procedure toxicity test and included additional
testing requirements for 25 organic compounds. HECO's continuing program to
recharacterize all HECO, MECO and HELCO wastestreams using the Toxicity
Characteristic Leaching Procedure has demonstrated the adequacy of the existing
treatment systems and identified other potential compliance requirements. Waste
recharacterization studies indicate that treatment facility wastestreams are
nonhazardous and no change in RCRA generator status is required.
35
<PAGE>
The RCRA still regulates most generating stations as RCRA small quantity
generators (SQGs). All Company facilities listed with the DOH and EPA as SQGs
are believed to be in compliance with RCRA requirements. In July 1994, the DOH
conducted hazardous waste compliance evaluation inspections at MECO's Kahului
and Maalaea power plants to review facility status as SQGs. On October 20, 1994,
the DOH issued warning letters and inspection reports to the Kahului and Maalaea
facilities. Potential RCRA violations and areas of concern were listed for both
facilities. HECO submitted responses to the DOH on December 5, 1994, contesting
most of the potential violations cited by the DOH. With the exception of some
solvent handling concerns, which have been corrected, all other areas of DOH
concern were not RCRA hazardous waste violations. On February 20, 1995, the DOH
favorably acknowledged HECO's response and issued MECO a "Return to Compliance
Letter" for both facilities.
RCRA underground storage tank (UST) regulations require all facilities with USTs
used to store petroleum products to comply with costly leak detection, spill
prevention and new tank standard retrofit requirements within a specified
compliance period based on tank age. All HECO, MECO and HELCO USTs were in
compliance with the DOH and EPA standards during 1995.
The Emergency Planning and Community Right-to-Know Act (EPCRA) under SARA Title
III requires HECO, MECO and HELCO to report hazardous chemicals present in their
facilities in order to provide the public with information on these chemicals so
that emergency procedures can be established to protect the public in the event
of hazardous chemical releases. HECO has six facilities, MECO five facilities
and HELCO seven facilities that qualify as "reporting facilities" under EPCRA.
All HECO, MECO and HELCO facilities are in compliance with applicable reporting
requirements, which are made annually to the State Emergency Planning
Commission, the Local Emergency Planning Committee and local fire departments.
In September 1995, the EPA published a notice of proposed rule making to expand
the types of industries required to file annual Toxic Release Inventory reports
(i.e., to report facility releases of toxic chemicals). The proposed rule
includes the steam electric category, which is currently exempt from Toxic
Release Inventory reporting requirements. The EPA tentatively has scheduled the
issuance of the proposed rule in April 1996.
The TSCA regulations specify procedures for the handling and disposal of
polychlorinated biphenyl (PCB), a compound found in transformer and capacitor
dielectric fluids. HECO and its subsidiaries have instituted procedures to
monitor compliance with these regulations. In addition, HECO has implemented a
program to identify and replace PCB transformers and capacitors in the HECO
system. All HECO, MECO and HELCO facilities are currently believed to be in
compliance with PCB regulations. In December 1994, the EPA published in the
Federal Register a Proposed Rule to amend PCB disposal regulations. The proposed
rule calls for changes in determining PCB concentrations, and in marking,
storage and disposal requirements. The final rule is anticipated to be issued in
June 1996.
By letter dated August 21, 1992 the EPA provided MECO with a notice of potential
liability and request for information relating to a federal Superfund closure
investigation at the North American Environmental, Inc. (NAE) storage facility
in Clearfield, Utah. MECO was identified by the EPA as a potentially responsible
party for three PCB capacitors originally contracted for disposal by
Westinghouse. Although Westinghouse has already disposed of the capacitors, MECO
was obligated to comply with the information requests attached to the EPA
notice. A preliminary response to the EPA's information request was submitted to
the EPA on October 5, 1992. MECO has since received confirmation from
Westinghouse that the three capacitors were removed from the NAE facility and
incinerated at Aptus (an EPA-approved facility in Kansas) on September 16, 1992.
By letter dated December 2, 1992, the EPA notified MECO that a draft
Administrative Order on Consent for the cleanup of the NAE facility had been
sent to potentially responsible parties that have waste remaining at the NAE
site and to parties that have expressed a desire to participate in the cleanup.
MECO did not receive a draft Administrative Order on Consent because the three
PCB capacitors were removed from the NAE facility and incinerated. By letter
dated February 8, 1993, Westinghouse confirmed that it would indemnify MECO
pursuant to its contract for this matter. In early 1995, the EPA issued an
Administrative Order on Consent to the Freeport Center and the Defense Logistics
Agency. Both agencies are responding to the AOC and are initiating corrective
actions. Recovery of cleanup costs may fall back on other potentially
responsible parties once cleanup is completed and costs have been determined.
The state ERL, as amended, governs releases of hazardous substances, including
oil, in areas within the state's jurisdiction. Responsible parties under the
state ERL are jointly, severally and strictly liable for a release of a
hazardous substance into the environment. Responsible parties include owners or
operators
36
<PAGE>
of a facility where a hazardous substance comes to be located and any person who
at the time of disposal of the hazardous substance owned or operated any
facility at which such hazardous substance was disposed. The DOH issued final
rules (or State Contingency Plan) implementing the state ERL on August 17, 1995.
Potential exposure to liability under the state ERL/State Contingency Plan is
associated with the release of regulated substances, including oil, to the
environment.
By letters in January and February 1995, the DOH advised HECO, HTB, YB and
others that the DOH was conducting an investigation to determine the nature and
extent of actual or potential releases of hazardous substances, oil, pollutants
or contaminants at or near Honolulu Harbor. The DOH letter to HECO requested
information regarding past hazardous substances and oil spills that may have
occurred at HECO's Honolulu power plant and nearby fuel storage and pipeline
facilities, which are located near Honolulu Harbor. HECO submitted a response to
the DOH on April 28, 1995. The DOH letters to HTB and YB requested information
regarding past hazardous substances and oil spills that may have occurred at
Pier 21 and Piers 24-29 in Honolulu Harbor. HTB and YB provided responses to the
DOH letters. Based on a limited review of the responses received from HECO, HTB,
YB and others, the DOH issued letters on December 18, 1995, indicating that the
DOH has identified a number of parties, including HECO, HTB and YB, who appear
to be either potentially responsible for the contamination and/or operate their
facilities upon contaminated land. The DOH met with these identified parties on
January 24, 1996 to inform them of its findings and to establish the framework
to determine remedial and cleanup requirements. The DOH's goal is the formation
of a voluntary response group comprised of these identified parties. The
Honolulu Harbor area of investigation was divided into four units, with the
highest priority area (Iwilei Area) to be addressed first. The DOH met a second
time with the identified parties on March 14, 1996, and additional meetings are
being scheduled. Because the process for determining appropriate remedial and
cleanup action, if any, is at an early stage, management cannot predict at this
time the costs of future site analysis, remediation and cleanup requirements, if
any, nor can it estimate when such costs, if any, would be incurred.
By letter dated December 15, 1994, the DOH advised MECO that the DOH was
conducting an investigation to determine the nature and extent of actual or
potential releases of hazardous substances, oil, pollutants or contaminants at
Kaunakakai, Molokai, Hawaii. The DOH letter requested information regarding past
hazardous substances and oil spills that may have occurred in the area of a
former Molokai Electric Company, Limited's (MOECO) power plant site which had
been located at Kaunakakai. Operations at this MOECO power plant were terminated
in 1985, prior to MECO acquiring MOECO in 1989. In February 1995, HECO filed its
initial response to the DOH's request for information, and filed additional
information in March 1995. The DOH was contacted in December 1995 for an update
of its investigation. According to the DOH, investigations in the near future
will primarily focus on past pipeline releases that occurred near the Kaunakakai
Harbor and will not involve the old power plant area. However, investigations
around the old power plant may be renewed should future soil sampling indicate a
problem.
Both HTB and YB generate small quantities of hazardous wastes as a result of
operations and equipment maintenance activities and have contracted with a firm
to dispose of these wastes in compliance with the EPA regulations and the RCRA
provisions. YB, as a public carrier, also moves hazardous wastes and explosives
for customers. Employees are trained in the applicable handling methods to
assist in the safe movement of these cargoes. Both HTB and YB are subject to the
jurisdiction of the Coast Guard which monitors ocean activities to ensure
compliance with federal regulations.
Finally, ASB may be subject to the provisions of the Comprehensive Environmental
Response, Compensation and Liability Act (CERCLA) and regulations promulgated
thereunder. CERCLA imposes liability for environmental cleanup costs on certain
categories of responsible parties, including the current owner and operator of a
facility and prior owners or operators who owned or operated the facility at the
time the hazardous substances were released or disposed. CERCLA exempts persons
whose ownership in a facility is held primarily to protect a security interest,
provided that they do not participate in the management of the facility.
Although there may be some risk of liability for ASB for environmental cleanup
costs, the Company believes the risk is not as great for ASB, which specializes
in residential lending, as it may be for other depository institutions which
have a larger portfolio of commercial loans.
37
<PAGE>
RATING AGENCIES' ACTIONS
As of March 19, 1996, the Standard & Poor's (S&P), Moody's Investors Service
(Moody's) and Duff & Phelps Credit Rating Co.'s (Duff & Phelps) ratings of HEI's
and HECO's securities were as follows:
<TABLE>
<CAPTION>
S&P Moody's Duff & Phelps
- --------------------------------------------------------------------
<S> <C> <C> <C>
HEI
- ---
Medium-term notes................... BBB Baa2 BBB+
Commercial paper.................... A-2 P-2 Duff 2
HECO
- ----
First mortgage bonds................ BBB+ A3 A
Unsecured notes..................... BBB+ Baa1 A-
Cumulative preferred stock.......... BBB baa1 BBB+
Commercial paper.................... A-2 P-2 Duff 1-
</TABLE>
The Company has been informed by such rating agencies that each of the ratings
referenced above is within a category that signifies "investment grade."
However, each such rating reflects only the view of the applicable rating agency
at the time the rating is issued, from whom an explanation of the significance
of such ratings may be obtained. Each rating should be evaluated independently
of any other rating. There is no assurance that any such credit rating will
remain in effect for any given period of time or that such rating will not be
lowered, suspended or withdrawn entirely by the applicable rating agency if, in
such rating agency's judgment, circumstances so warrant. Any such lowering,
suspension or withdrawal of any rating may have an adverse effect on the market
price or marketability of HEI's and/or HECO's securities and serve to increase
the cost of capital of HEI and HECO.
Neither HEI nor HECO management can predict with certainty future rating agency
actions or their effects on the future cost of capital of HEI or HECO.
RESEARCH AND DEVELOPMENT
- ------------------------
HECO and its subsidiaries expensed approximately $2.2 million, $2.4 million and
$2.3 million in 1995, 1994 and 1993, respectively, for research and development.
Contributions to the Electric Power Research Institute accounted for most of the
expenses. There were also expenses in the areas of energy conservation,
environmental control, emissions control and for other similar studies relative
to technologies with the potential of being specifically applicable to HECO, its
subsidiaries and its customers.
EMPLOYEE RELATIONS
- ------------------
At December 31, 1995, the Company's continuing operations had 3,384 full-time
and part-time employees, compared with 3,386 at December 31, 1994.
HECO
At December 31, 1995, HECO and its subsidiaries had 2,208 employees, compared
with 2,219 employees at December 31, 1994.
The current collective bargaining agreement between the International
Brotherhood of Electrical Workers (IBEW), Local 1260, and HECO, MECO and HELCO,
covering approximately 63% of the total employees of these companies, was
extended in November 1995 for a two-year period from November 1, 1996 through
October 31, 1998. The extension provides for noncompounded wage increases of 3%
on November 1 of each year during the term of the agreement.
The current benefits agreement between IBEW Local 1260 and HECO, MECO and HELCO
was also extended for a two-year period and will be in effect until October 31,
1998.
38
<PAGE>
HTB
HTB and YB have a collective bargaining agreement with the Inlandboatmen's Union
of the Pacific (IBU) effective from July 26, 1995 through July 25, 1998. A 2.5%
across-the-board wage increase was effective for the first year, with 3% in the
second and third years. Journeyman craftsmen were not included in this new
contact but were covered in YB's contract with the International Longshoremen's
and Warehousemen's Union (ILWU), Hawaii Division, Local 142. The agreement
covers all employees of HTB and YB employed on ocean, inter-island and harbor
tug operations and dispatchers. It excludes office clerical employees,
confidential employees, professional and management employees, guards and
watchmen.
YB has a collective bargaining agreement covering the period of July 1, 1993
through June 30, 1996 with the, ILWU, Hawaii Division, Local 142. The agreement
was ratified on December 23, 1994 after ten months of negotiation. The agreement
covers all full-time and part-time receiving and delivery clerks working on the
docks loading and discharging vessels, all maintenance personnel, documentation
clerks and customer service representatives employed by YB in the state. The
agreement excludes confidential employees, professional employees, supervisory
employees, guards and other clerical personnel.
OTHER
The employees of HEI and its direct and indirect subsidiaries are not covered by
any collective bargaining agreement, except as identified above.
ITEM 2. PROPERTIES
HEI leases office space in downtown Honolulu. The leases expire at various dates
- ---
from March 31, 1996 to April 30, 1999 (with an option for HEI to extend one of
the leases on most of the office space to March 31, 2001). HEI also leases
office space from HECO in downtown Honolulu. The properties of HEI's
subsidiaries are as follows:
ELECTRIC UTILITY
- ----------------
See page 4 for the "Generation statistics" of HECO and its subsidiaries, such as
generating and firm purchased capability, reserve margin and annual load factor.
HECO owns and operates three generating plants on the island of Oahu at
- ----
Honolulu, Waiau and Kahe, with an aggregate generating capability of 1,263 MW at
December 31, 1995. The three plants are situated on HECO-owned land having a
combined area of 535 acres. In addition, HECO owns a total of 124 acres of land
on which are located substations, transformer vaults, distribution baseyards and
the Kalaeloa cogeneration facility.
Electric lines are located over or under public and nonpublic properties. Most
of HECO's leases, easements and licenses have been recorded.
HECO owns overhead transmission lines, overhead distribution lines, underground
cables, fully-owned or jointly-owned poles and steel or aluminum high voltage
transmission towers. The transmission system operates at 46,000 and 138,000
volts. The total capacity of HECO's transmission and distribution substations
was 5,736,000 kilovoltamperes at December 31, 1995.
HECO owns a building and approximately 11.5 acres of land located in Honolulu
which houses its operating, engineering and information services departments and
a warehousing center. It also leases an office building and certain office
spaces in Honolulu. The lease for the office building expires in November 2002,
with an option to further extend the lease to November 2012. The leases for
certain office spaces expire on various dates through November 30, 2004 with
options to extend to various dates through November 30, 2014.
HECO owns 19.2 acres of land at Barbers Point used to situate fuel oil storage
facilities with a combined capacity of 970,700 barrels. HECO also owns fuel oil
tanks at each plant site with a total maximum usable capacity of 844,600
barrels.
The properties of HECO are subject to a first mortgage securing HECO's
outstanding first mortgage bonds.
A brief description of the properties of HECO's two electric utility
subsidiaries follows:
39
<PAGE>
MECO owns and operates two generating plants on the island of Maui, at Kahului
- ----
and Maalaea, with an aggregate capability of 201.3 MW. The plants are situated
on MECO-owned land having a combined area of 28.6 acres. MECO also owns fuel oil
storage facilities at these sites with a total maximum usable capacity of
145,300 barrels.
MECO's administrative offices and engineering and distribution departments are
located on 9.1 acres of MECO-owned land in Kahului.
MECO also owns and operates smaller distribution and generation systems on the
islands of Lanai and Molokai.
The properties of MECO are subject to a first mortgage securing MECO's
outstanding first mortgage bonds.
HELCO owns and operates five generating plants on the island of Hawaii. These
- -----
plants at Hilo (2), Waimea, Kona and Puna have an aggregate generating
capability of 154.6 MW (excluding two small run-of-river hydro units). The
plants are situated on HELCO-owned land having a combined area of approximately
43 acres. HELCO owns 6.0 acres of land in Kona, which are used for a baseyard,
and it leases 4.0 acres of land for its baseyard in Hilo. The lease expires in
2030. The deeds to the sites located in Hilo contain certain restrictions which
do not materially interfere with the use of the sites for public utility
purposes.
The properties of HELCO are subject to a first mortgage securing HELCO's
outstanding first mortgage bonds.
SAVINGS BANK
- ------------
ASB owns its executive office building located in downtown Honolulu and land and
- ---
an office building in the Mililani Technology Park on Oahu.
The following table sets forth certain information with respect to branches
owned and leased by ASB and its subsidiaries at December 31, 1995.
<TABLE>
<CAPTION>
Number of branches
-------------------------
Owned Leased Total
- -----------------------------------------------------
<S> <C> <C> <C>
Oahu...................... 5 25 30
Maui...................... 3 3 6
Kauai..................... 3 1 4
Hawaii.................... 2 4 6
Molokai................... -- 1 1
-------------------------
13 34 47
=========================
</TABLE>
The net book value of branches and office facilities is approximately $40
million. Of this amount, $33 million represents the net book value of the land
and improvements for the branches and office facilities owned by ASB and $7
million represents the net book value of ASB's leasehold improvements.
OTHER
- -----
FREIGHT TRANSPORTATION
- ----------------------
HTB owned seven tugboats ranging from 1,430 to 2,668 HP, two tenders (auxiliary
boats) of 500 HP and two flatdecked barges as of December 31, 1995.
HTB owns no real property, but rents on a month-to-month basis its pier property
used in its operations from the State of Hawaii under a revocable permit.
YB, HTB's subsidiary, owned four tugboats, two doubledecked and six flatdecked
barges and most of its shoreside equipment, including 20-foot containers,
chassis, 20-foot and 40-foot refrigerated containers, container vans, hi-lifts,
flatracks, automobile racks and other related equipment as of December 31, 1995.
YB owns no real property, but rents on a month-to-month basis or leases various
pier properties and warehouse facilities from the State of Hawaii under a
revocable permit, or under a five-year lease. All lease terms began on January
1, 1992. It is expected that expiring leases will be renewed as necessary.
40
<PAGE>
REAL ESTATE DEVELOPMENT
- -----------------------
MPC. See Item 1, "Business--Other--Real estate--Malama Pacific Corp." MDC,
MPC's subsidiary owns 1.27 acres of land adjacent to HECO's Ward Avenue facility
on Oahu. As of December 31, 1995, there is an agreement to sell 0.23 acres of
the property. The remaining property is leased to HECO and other commercial
tenants.
OTHER
- -----
HEIIC. See Item 1, "Business--Other--HEI Investment Corp."
LVI operates a windfarm on the island of Hawaii with a generating capability of
1.6 MW. LVI leases 78 acres of land for its windfarm.
As of March 19, 1996, HEIPC leases office space in downtown Honolulu.
ITEM 3. LEGAL PROCEEDINGS
Except as provided for below and in "Item 1. Business," there are no known
material pending legal proceedings, other than ordinary routine litigation
incidental to their respective businesses, to which HEI or any of its
subsidiaries is a party or of which any of their property is the subject.
DISCONTINUED OPERATIONS
- -----------------------
See "The Hawaiian Insurance & Guaranty Company, Limited" in Note 2 to HEI's
Consolidated Financial Statements, incorporated herein by reference to page 45
of HEI's 1995 Annual Report to Stockholders, portions of which are filed herein
as HEI Exhibit 13.
In December 1994, five insurance agencies, which had served as insurance agents
for HIG and its subsidiaries, filed a complaint against HEI, HEIDI and others.
The complaint set forth several causes of action, including breach of contract
and piercing the corporate veil. The plaintiffs asked for relief from the
defendants, including compensatory damages for lost commissions, lost business
and lost profits in an amount to be proven at trial and punitive damages. In
August 1995, the court granted defendants' motions for summary judgment and in
February 1996, the court directed that final judgment be entered.
HECO POWER OUTAGE
- -----------------
See "HECO power outage" in Note 4 to HEI's Consolidated Financial Statements,
incorporated herein by reference to page 48 of HEI's 1995 Annual Report to
Stockholders, portions of which are filed herein as HEI Exhibit 13.
HELCO POWER SITUATION
- ---------------------
See "HELCO power situation" on pages 6 and 7 of this report.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
HEI AND HECO:
During the fourth quarter of 1995, no matters were submitted to a vote of
security holders of the Registrants.
EXECUTIVE OFFICERS OF HEI
The following persons are, or may be deemed, executive officers of HEI. Their
ages are given as of February 28, 1996 and their years of company service are
given as of December 31, 1995. Officers are appointed to serve until the meeting
of the HEI Board of Directors following the next Annual Meeting of Stockholders
(which will occur on April 23, 1996) and/or until their successors have been
appointed and qualified (or until their earlier resignation or removal). Company
service includes service with an HEI subsidiary.
41
<PAGE>
Business experience
HEI Executive Officers for past five years
- --------------------------------------------------------------------------------
Robert F. Clarke, age 53
President and Chief Executive Officer................... 1/91 to date
Director................................................ 4/89 to date
(Company service: 8 years)
T. Michael May, age 49
Senior Vice President................................... 9/95 to date
Director................................................ 9/95 to date
(Company service: 3 years)
T. Michael May is also President of HECO and
served as HECO Senior Vice President from
2/92 to 8/95. Prior to joining HECO, he was
a principal partner in Management Assets
Group (a general management consulting
practice) from 9/89 to 1/92.
Robert F. Mougeot, age 53
Financial Vice President and Chief Financial Officer.... 4/89 to date
(Company service: 7 years)
Peter C. Lewis, age 61
Vice President - Administration......................... 10/89 to date
(Company service: 27 years)
Charles F. Wall, age 56
Vice President and Corporate Information Officer........ 7/90 to date
(Company service: 5 years)
Andrew I. T. Chang, age 56
Vice President - Government Relations................... 4/91 to date
Manager, Government Relations........................... 8/90 to 3/91
(Company service: 11 years)
Constance H. Lau, age 43
Treasurer............................................... 4/89 to date
(Company service: 11 years)
Curtis Y. Harada, age 40
Controller.............................................. 1/91 to date
Auditor, HECO........................................... 7/89 to 1/91
(Company service: 6 years)
Betty Ann M. Splinter, age 50
Secretary............................................... 10/89 to date
(Company service: 21 years)
Wayne K. Minami, age 53
President and Chief Executive
Officer, American Savings Bank, F.S.B. ................. 1/87 to date
(Company service: 9 years)
HEI's executive officers, with the exception of Charles F. Wall and Andrew I. T.
Chang, are officers and/or directors of one or more of HEI's subsidiaries. Mr.
Minami is deemed an executive officer of HEI under the definition of Rule 3b-7
of the SEC's General Rules and Regulations under the Securities Exchange Act of
1934.
There are no family relationships between any executive officer of HEI and any
other executive officer or director of HEI, or any arrangement or understanding
between any executive officer and any person pursuant to which the officer was
selected.
42
<PAGE>
PART II
-------
ITEM 5. MARKET FOR REGISTRANTS' COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
HEI:
The information required by this item is incorporated herein by reference to
pages 59 and 61 (Note 18, "Regulatory restrictions on net assets" and Note 21,
"Quarterly information (unaudited)" to HEI's Consolidated Financial Statements)
and page 25 of HEI's 1995 Annual Report to Stockholders, portions of which are
filed herein as HEI Exhibit 13. Certain restrictions on dividends and other
distributions of HEI are described in this report under "Item 1. Business--
Regulation and other matters--Restrictions on dividends and other
distributions." The total number of holders of record of HEI common stock as of
March 15, 1996, was 22,672.
HECO:
The information required with respect to "Market information" and "holders" is
not applicable. Since the corporate restructuring on July 1, 1983, all the
common stock of HECO has been held solely by its parent, HEI, and is not
publicly traded.
The dividends declared and paid on HECO's common stock for the four quarters of
1995 and 1994 were as follows:
<TABLE>
<CAPTION>
Quarter ended 1995 1994
- -----------------------------------------------------------------
<S> <C> <C>
March 31............................ $ 8,927,000 $9,923,000
June 30............................. 7,900,000 1,330,000
September 30........................ 8,770,000 7,594,000
December 31......................... 12,410,000 9,664,000
</TABLE>
The regulatory restrictions on net assets are incorporated herein by reference
to page 27 (Note 12 to HECO's Consolidated Financial Statements, "Regulatory
restrictions on distributions to parent") of HECO's 1995 Annual Report to
Stockholder, portions of which are filed herein as HECO Exhibit 13.
ITEM 6. SELECTED FINANCIAL DATA
HEI:
The information required by this item is incorporated herein by reference to
page 25 of HEI's 1995 Annual Report to Stockholders, portions of which are filed
herein as HEI Exhibit 13.
HECO:
The information required by this item is incorporated herein by reference to
page 2 of HECO's 1995 Annual Report to Stockholder, portions of which are filed
herein as HECO Exhibit 13.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
HEI:
The information required by this item is set forth in MD&A, incorporated herein
by reference to pages 27 to 36 of HEI's 1995 Annual Report to Stockholders,
portions of which are filed herein as HEI Exhibit 13.
HECO:
The information required by this item is set forth in HECO MD&A, incorporated
herein by reference to pages 3 to 10 of HECO's 1995 Annual Report to
Stockholder, portions of which are filed herein as HECO Exhibit 13.
43
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
HEI:
The information required by this item is incorporated herein by reference to the
section entitled "Segment financial information" on page 26 and to pages 38 to
61 of HEI's 1995 Annual Report to Stockholders, portions of which are filed
herein as HEI Exhibit 13.
HECO:
The information required by this item is incorporated herein by reference to
pages 11 to 30 of HECO's 1995 Annual Report to Stockholder, portions of which
are filed herein as HECO Exhibit 13.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
HEI AND HECO:
None
PART III
--------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANTS
HEI:
Information for this item concerning the executive officers of HEI is set forth
on pages 41 and 42 of this report. The list of current directors of HEI is
incorporated herein by reference to page 62 of HEI's 1995 Annual Report to
Stockholders, portions of which are filed herein as HEI Exhibit 13. Information
on the current directors' business experience and directorships is incorporated
herein by reference to pages 3 to 6 of the registrant's Definitive Proxy
Statement, prepared for the Annual Meeting of Stockholders to be held on April
23, 1996.
There are no family relationships between any director of HEI and any other
executive officer or director of HEI, or any arrangement or understanding
between any director and any person pursuant to which the director was selected.
The information required under this item by Item 405 of Regulation S-K is
incorporated by reference to page 11 of HEI's Definitive Proxy Statement,
prepared for the Annual Meeting of Stockholders to be held on April 23, 1996.
HECO:
The following persons are, or may be deemed, executive officers of HECO. Their
ages are given as of February 28, 1996 and their years of company service are
given as of December 31, 1995. Officers are appointed to serve until the meeting
of the HECO Board of Directors following the next HECO Annual Meeting and/or
until their respective successors have been appointed and qualified (or until
their earlier resignation or removal). Company service includes service with
HECO affiliates.
<TABLE>
<CAPTION>
Business experience
HECO Executive Officers for past five years
- -----------------------------------------------------------------------------------------------
<S> <C>
Robert F. Clarke, age 53
Chairman of the Board.............................................. 1/91 to date
(Company service: 8 years)
T. Michael May, age 49
President.......................................................... 9/95 to date
Senior Vice President.............................................. 2/92 to 8/95
Director........................................................... 9/95 to date
(Company service: 3 years)
T. Michael May, prior to joining HECO, was a principal partner in
Management Assets Group (a general management consulting practice)
from 9/89 to 1/92.
</TABLE>
44
<PAGE>
<TABLE>
<CAPTION>
Business experience
HECO Executive Officers for past five years
- ------------------------------------------------------------------------------------------------------
<S> <C>
Jackie Mahi Erickson, age 55
Vice President - General Counsel & Government Relations.......... 7/95 to date
Vice President - General Counsel................................. 2/91 to 6/95
Corporate Counsel................................................ 1/81 to 1/91
(Company service: 15 years)
Charles M. Freedman, age 49
Vice President - Corporate Excellence............................ 7/95 to date
Vice President - Corporate Relations............................. 5/92 to 6/95
(Company service: 5 years)
Charles Freedman, prior to rejoining HECO on 5/92,
served as Director of Communications in the Office of
the Governor of Hawaii, from 1986 to 4/92.
Edward Y. Hirata, age 62
Vice President - Regulatory Affairs.............................. 7/95 to date
Vice President - Planning........................................ 12/91 to 6/95
Vice President, HELCO and MECO................................... 12/91 to date
(Company service: 9 years)
Edward Y. Hirata, prior to rejoining HECO on 12/91,
served as Director of Department of Transportation
for the State of Hawaii, from 4/87 to 11/91.
George T. Iwahiro, age 58
Vice President - Energy Delivery................................. 7/95 to date
Vice President - Engineering..................................... 2/91 to 6/95
Vice President - Consumer, Regulatory and Public Affairs......... 2/85 to 1/91
Vice President, HELCO and MECO................................... 3/85 to 12/91
(Company service: 36 years)
Thomas L. Joaquin, age 52
Vice President - Power Supply.................................... 7/95 to date
Vice President - Operations...................................... 5/94 to 6/95
General Manager, Production...................................... 11/93 to 4/94
Manager, Production.............................................. 10/92 to 10/93
Manager, Production (MECO)....................................... 7/87 to 9/92
(Company service: 22 years)
Richard L. O'Connell, age 66
Vice President - Customer Operations............................. 7/95 to date
Vice President - Customer Relations.............................. 2/91 to 6/95
Vice President - Facilities...................................... 6/88 to 1/91
(Company service: 15 years)
Paul A. Oyer, age 55
Financial Vice President and Treasurer........................... 5/89 to date
Director......................................................... 4/85 to date
Financial Vice President and Treasurer, HELCO and MECO........... 3/85 to date
(Company service: 29 years)
Ernest T. Shiraki, age 48
Controller....................................................... 5/89 to date
(Company service: 26 years)
</TABLE>
45
<PAGE>
<TABLE>
<CAPTION>
Business experience
HECO Executive Officers for past five years
- --------------------------------------------------------------------------------
<S> <C>
Molly M. Egged, age 45
Secretary......................................... 10/89 to date
Secretary, HELCO and MECO......................... 10/89 to date
Executive Secretary............................... 12/80 to 12/92
(Company service: 15 years)
</TABLE>
HECO's executive officers, Robert F. Clarke, T. Michael May, Edward Y. Hirata,
Paul A. Oyer and Molly M. Egged, are officers of one or more of the affiliated
HEI companies.
There are no family relationships between any executive officer or director of
HECO and any other executive officer or director of HECO, or any arrangement or
understanding between any director and any person pursuant to which the director
was selected.
The list of current directors of HECO is incorporated herein by reference to
page 33 of HECO's 1995 Annual Report to Stockholder, portions of which are filed
herein as HECO Exhibit 13. Information on the business experience and
directorships of directors of HECO who are also directors of HEI is incorporated
herein by reference to pages 3 through 6 of HEI's Definitive Proxy Statement,
prepared for the Annual Meeting of Stockholders to be held on April 23, 1996.
Mildred D. Kosaki, age 71, and Paul C. Yuen, age 67, as of February 28, 1996 are
the only outside directors of HECO who are not directors of HEI. Mrs. Kosaki has
been a director of HECO since 1973. She resigned from the HEI Board in 1987. She
was also a director of the International Pacific University from 1989 to 1991.
She is a specialist in education research. Dr. Yuen, who was elected a director
of HECO in April 1993, is Dean of the College of Engineering at the University
of Hawaii-Manoa. In the past five years, he has held various administrative
positions at the University of Hawaii-Manoa. He also serves on the boards of
Cyanotech Corporation and the Pacific International Center for High Technology
Research. Information on Mr. Oyer's business experience and directorship is
indicated above.
ITEM 11. EXECUTIVE COMPENSATION
HEI:
The information required under this item for HEI is incorporated by reference to
pages 8 and 9, 12 to 18 and 23 and 24 of HEI's Definitive Proxy Statement,
prepared for the Annual Meeting of Stockholders to be held on April 23, 1996.
HECO:
The following tables set forth the information required for the chief executive
officers of HECO and the four other most highly compensated HECO executive
officers serving at the end of 1995. All executive compensation amounts
presented for Harwood D. Williamson and T. Michael May are the same amounts
presented in HEI's Definitive Proxy Statement, prepared for the Annual Meeting
of Stockholders to be held on April 23, 1996.
SUMMARY COMPENSATION TABLE
- --------------------------
The following is the summary compensation table which sets forth the annual and
long-term compensation of the chief executive officers of HECO and the four
other most highly compensated executive officers of HECO serving at the end of
1995.
46
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
---------------------------------------------- ---------------------------
Awards Payouts
Other ------------ ---------- All
Annual Securities Other
Compen- Underlying LTIP Compen-
Name and Principal Salary Bonus sation Options Payouts sation
Position (1) Year ($)(2) ($)(3) ($)(4) (#)(5) ($)(6) ($)(7)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Harwood D. Williamson......... 1995 $230,000 $ 57,920 $ 86,184 15,000 -- $22,956
President 1994 387,367 100,174 76,465 15,000 $ 0 20,663
1993 341,333 0 68,544 8,000 66,150 18,843
T. Michael May................ 1995 226,000 41,987 0 4,000 na 8,177
President 1994 199,667 32,995 0 0 na 8,151
1993 191,000 0 105,138 4,000 na 4,796
Paul A. Oyer.................. 1995 188,000 17,959 13,167 3,000 na 7,907
Financial Vice President 1994 188,067 22,283 11,928 0 na 7,106
and Treasurer 1993 175,100 0 10,806 3,000 na 6,339
George T. Iwahiro............. 1995 148,000 14,966 0 2,000 na 7,730
Vice President- 1994 139,867 18,476 0 0 na 7,042
Energy Delivery 1993 133,833 0 0 2,000 na 6,548
Edward Y. Hirata.............. 1995 140,000 16,519 270 3,000 na 10,002
Vice President- 1994 134,467 20,451 405 0 na 9,169
Regulatory Affairs 1993 129,000 0 540 3,000 na 9,310
Thomas L. Joaquin............. 1995 137,000 17,959 0 3,000 na 4,404
Vice President- 1994 112,700 22,283 0 0 na 4,219
Power Supply 1993 101,567 0 0 0 na 3,943
</TABLE>
(1) Mr. Williamson retired as President and CEO effective September 1, 1995 and
Mr. May succeeded Mr. Williamson effective the same date.
(2) Includes a one-time lump sum transitional payment of $49,000 for Mr.
Williamson and $9,800 for Mr. Oyer in 1994, representing two years of
"normalized" insider directors' fees following a decision by the
Compensation Committee of the HEI Board of Directors (the Committee) to
discontinue all insider directors' fees, effective May 1, 1994. Also
includes directors' fees of $7,700 for the period January 1 through April
30, 1994 and $28,000 for 1993 for Mr. Williamson and directors' fees of
$1,400 for the period January 1 through April 30, 1994 and $5,600 for 1993
for Mr. Oyer.
(3) The named executive officers are eligible for an incentive award under the
Company's annual Executive Incentive Compensation Plan (EICP). EICP bonus
payouts are reflected for the year earned.
(4) Covers perquisites of $105,138 for Mr. May for 1993 which he recognized as
imputed income under the Internal Revenue Code, including $40,026 for moving
expenses grossed up for taxes and $63,282 for closing costs on the sale of
his San Diego home grossed up for taxes. Covers interest earned on deferred
compensation by Mr. Williamson at above-market interest rates on deferred
annual and Long-Term Incentive Plan (LTIP) payouts as well as interest
earned at market rates on deferred LTIP payouts in the amount of $86,184 for
1995, $76,465 for 1994 and $68,544 for 1993. Amounts for Mr. Oyer and Mr.
Hirata represent above-market earnings on deferred annual payouts.
(5) Except for Mr. Williamson, options granted did not include dividend
equivalents.
(6) LTIP payouts are determined in April each year for the three-year cycle
ending on December 31 of the previous calendar year; if there is a payout,
the amount is reflected as LTIP compensation in
47
<PAGE>
the table for the previous year for the named executive officers. In April
1994, LTIP payouts were made for the 1991-1993 performance cycle and are
reflected as LTIP compensation in the table for 1993. In April 1995, no LTIP
payouts were made for the 1992-1994 performance cycle for the named
executive officers. The determination of whether there will be a payout
under the 1993-1995 LTIP will not be made until later this year.
(7) Represents amounts accrued by the Company for certain death benefits
provided to the named executive officers. Additional information is
incorporated by reference to "Other Compensation Plans" on page 21 of HEI's
Definitive Proxy Statement, prepared for the Annual Meeting of Stockholders
to be held on April 23, 1996.
OPTION GRANTS IN LAST FISCAL YEAR
- ---------------------------------
The following table shows the HEI stock options which were granted in 1995 to
the executives named in the HECO Summary Compensation Table, all of which are
nonqualified stock options. The practice of granting stock options, which may
include dividend equivalent shares, has been followed each year since 1987.
<TABLE>
<CAPTION>
Number of Percent of
Securities Total Options
Underlying Granted to Exercise Grant Date
Options Employees in Price Expiration Present
Granted (#)(1) Fiscal Year ($/share) Date Value ($)(2)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Harwood D. Williamson........... 15,000 11% 32.83 April 18, 2005 $102,300
T. Michael May.................. 4,000 3 32.83 April 18, 2005 11,280
Paul A. Oyer.................... 3,000 2 32.83 April 18, 2005 8,460
George T. Iwahiro............... 2,000 1 32.83 April 18, 2005 5,640
Edward Y. Hirata................ 3,000 2 32.83 April 18, 2005 8,460
Thomas L. Joaquin............... 3,000 2 32.83 April 18, 2005 8,460
</TABLE>
(1) For the 15,000 option shares granted with an exercise price of $32.83 per
share to Mr. Williamson, additional dividend equivalent shares were granted
at no additional cost throughout the four-year vesting period (vesting in
equal installments) which began on the date of grant. Dividend equivalents
are computed, as of each dividend record date, both with respect to the
number of shares under the option and with respect to the number of dividend
equivalent shares previously credited to the participant and not issued
during the period prior to the dividend record date. No dividend equivalents
were granted to the other named executive officers besides Mr. Williamson.
Accelerated vesting is provided in the event a Change-in-Control occurs. No
stock appreciation rights have been granted under the Company's current
benefit plans.
(2) Based on a Binomial Option Pricing Model which is a variation of the
Black-Scholes Option Pricing Model. For the stock options granted on April
18, 1995, with a 10-year option period, an exercise price of $32.83, and
with additional dividend equivalent shares granted for the first four years
of the option (for Mr. Williamson only), the Binomial Value adjusted for
forfeiture risk is $6.82 per share. The following assumptions were used in
the model: Stock Price: $32.83; Exercise Price: $32.83; Term: 10 years;
Volatility: 0.333; Interest Rate: 6.25%; and Dividend Rate: 6.57%. The
following were the valuation results: Binomial Option Value: $2.82; Dividend
Credit Value: $4.00; and Total Value $6.82.
AGGREGATED OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUES
- -------------------------------------------------------------
The following table shows the stock options, including dividend equivalents,
exercised by the named executive officers in 1995. Also shown is the number of
unexercised options and the value of unexercised in the money options, including
dividend equivalents, at the end of 1995. Under the Stock Option and Incentive
Plan, dividend equivalents have been granted to Mr. Williamson as part of the
stock option grant, except for the one-time, premium-priced grant to Mr.
Williamson in May 1992.
Dividend equivalents permit a participant who exercises a stock option to obtain
at no additional cost, in addition to the option shares, the amount of dividends
declared on the number of shares of common stock with respect to which the
option is exercised during the period between the grant and the exercise
48
<PAGE>
of the option. Dividend equivalents are computed, as of each dividend record
date throughout the four-year vesting period (vesting in equal installments),
which begins on the date of grant, both with respect to the number of shares
underlying the option and with respect to the number of dividend equivalent
shares previously credited to the executive officer and not issued during the
period prior to the dividend record date.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Value of
Number of Unexercised
Unexercised In the Money
Options Options
(Including (Including
Dividend Dividend
Dividend Equivalents) Equivalents)
Shares Equivalents Value Value at Fiscal at Fiscal
Acquired Acquired Realized Realized On Year-end Year-end (1)
On On On Dividend ------------------------------------------
Exercise Exercise Options Equivalents Exercisable/ Exercisable/
(#) (#) ($) ($) Unexercisable(#) Unexercisable ($)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Harwood D. Williamson............. 64,000 10,916 $262,473 $410,245 40,000 / 0 $ 0 / 0
T. Michael May.................... -- -- -- -- 2,000 / 6,000 960 / 24,640
Paul A. Oyer...................... -- -- -- -- 7,678 / 4,500 61,151 / 18,480
George T. Iwahiro................. -- -- -- -- 2,000 / 3,000 6,510 / 12,320
Edward Y. Hirata.................. -- -- -- -- 1,500 / 4,500 720 / 18,480
Thomas L. Joaquin................. -- -- -- -- 0 / 3,000 0 / 17,760
</TABLE>
(1) Includes exercisable dividend equivalents of $27,900 for Mr. Oyer. All
options were in the money (where the option price is less than the closing
price on December 29, 1995) except the 1992 premium-priced stock option
grant to Mr. Williamson without dividend equivalents with an exercise price
of $41.00 per share. Value based on closing price of $38.75 per share on
the New York Stock Exchange on December 29, 1995.
LONG-TERM INCENTIVE PLAN AWARDS TABLE
- -------------------------------------
A Long-Term Incentive Plan award was made to one of the named executive officers
in the HECO Summary Compensation Table, Mr. May. Additional information required
under this item is incorporated by reference to page 15 of HEI's Definitive
Proxy Statement, prepared for the Annual Meeting of Stockholders to be held on
April 23, 1996.
PENSION PLAN
- ------------
The Retirement Plan for Employees of Hawaiian Electric Industries, Inc. and
Participating Subsidiaries (the Retirement Plan) provides a monthly retirement
pension for life. Additional information required under this item is
incorporated by reference to "Pension Plans" on pages 16 and 17 of HEI's
Definitive Proxy Statement, prepared for the Annual Meeting of Stockholders to
be held on April 23, 1996. As of December 31, 1995, the named executive officers
in the HECO Summary Compensation Table had the following number of years of
credited service under the Retirement Plan: Mr. Williamson, 39 years (as of
September 1, 1995); Mr. May, 3 years; Mr. Oyer, 29 years; Mr. Iwahiro, 36 years;
Mr. Hirata, 9 years; and Mr. Joaquin, 22 years.
CHANGE-IN-CONTROL AGREEMENTS
- ----------------------------
Mr. May is the only named executive officer in the HECO Summary Compensation
Table with whom HEI has a currently applicable Change-in-Control Agreement.
Additional information required under this item is incorporated by reference to
"Change-in-Control Agreements" on pages 17 and 18 of HEI's Definitive Proxy
Statement, prepared for the Annual Meeting of Stockholders to be held on April
23, 1996.
49
<PAGE>
HEI COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
- ---------------------------------------------------------------
Decisions on executive compensation for the named HECO executive officers are
made by the Committee which is composed of five independent nonemployee
directors. All decisions by the Committee concerning HECO officers are reviewed
by the full HEI Board of Directors except for decisions about HEI's stock-based
plans, which are made solely by the Committee in order to satisfy Securities
Exchange Act Rule 16b-3, and are reviewed and approved by the HECO Board of
Directors. Information required under this item is incorporated by reference to
pages 23 and 24 of HEI's Definitive Proxy Statement, prepared for the Annual
Meeting of Stockholders to be held on April 23, 1996.
HECO BOARD OF DIRECTORS
- -----------------------
Committees of the HECO Board
- ----------------------------
During 1995, the Board of Directors of HECO had only one standing committee, the
Audit Committee, which was comprised of four nonemployee directors: Ben F.
Kaito, Chairman, and Mildred D. Kosaki, Diane J. Plotts and Paul C. Yuen. In
1995, the Audit Committee held five meetings to review with management, the
internal auditor and HECO's independent auditors the activities of the internal
auditor, the results of the annual audit by the independent auditor and the
financial statements which are included in HECO's 1995 Annual Report to
Stockholder. On December 31, 1995, Ben F. Kaito retired, and on January 16,
1996, Edwin L. Carter was elected a HECO director and was appointed Chairman of
the HECO Audit Committee. The Audit Committee holds such meetings as it deems
advisable to review the financial operations of HECO.
Remuneration of HECO Directors and attendance at meetings
- ---------------------------------------------------------
In 1995, Mildred D. Kosaki and Paul C. Yuen were the only nonemployee directors
of HECO who were not also directors of HEI. They were paid a retainer of
$12,000, one-half of which was distributed in the common stock of HEI pursuant
to the HEI Nonemployee Director Stock Plan and one-half of which was distributed
in cash. The number of shares of stock distributed was based on a price of
$34.375 per share, which is equal to the closing sales price of HEI common stock
on the New York Stock Exchange on April 18, 1995, as quoted in "Composite
Transactions" in The Wall Street Journal, divided into $6,000, with a cash
payment made in lieu of any fractional share. The nonemployee directors of HECO
who were also nonemployee directors of HEI did not receive a separate retainer
from HECO. In addition, a fee of $700 was paid in cash to each nonemployee
director (including nonemployee directors of HECO who are also nonemployee
directors of HEI) for each Board and Committee meeting attended by the director.
The Chairman of the Audit Committee was paid an additional $100 for each
Committee meeting attended. Effective May 1, 1994, employee members of the Board
of Directors were no longer compensated for attendance at any meeting of the
Board or committees of the Board.
In 1995, there were six regular bi-monthly meetings and one special meeting of
the Board of Directors. All incumbent directors, attended at least 75% of the
combined total number of meetings of the Board and Committee on which they
served.
HECO participates in the Nonemployee Director Retirement Plan, a description of
which is incorporated by reference to page 8 of HEI's Definitive Proxy
Statement, prepared for the Annual Meeting of Stockholders to be held on April
23, 1996.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
HEI:
The information required under this item is incorporated by reference to pages
10 and 11 of HEI's Definitive Proxy Statement, prepared for the Annual Meeting
of Stockholders to be held on April 23, 1996.
HECO:
HEI owns all of the common stock of HECO, which is HECO's only class of voting
securities. HECO has also issued and has outstanding various series of preferred
stock, the holders of which, upon certain defaults in dividend payments, have
the right to elect a majority of the directors of HECO.
The following table shows the shares of HEI common stock beneficially owned by
each HECO director (other than those who are also directors of HEI), named HECO
executive officers as listed in the
50
<PAGE>
Summary Compensation Table on pages 47 and 48 and by HECO directors and officers
as a group, as of February 14, 1996, based on information furnished by the
respective individuals.
<TABLE>
<CAPTION>
Amount of Common Stock and
Name of Individual or Group Nature of Beneficial Ownership
- ----------------------------------------------------------------------------------
Total
----------------------
Directors
- ---------
<S> <C> <C>
Mildred D. Kosaki........... 1,887 (b) 1,887
---------------
Paul A. Oyer*............... 3,057 (a)
7,678 (d) 10,735
---------------
Paul C. Yuen................ 810 (b) 810
---------------
Other named executive officers
- -----------------------------
George T. Iwahiro........... 6,558 (a)
823 (b)
2,000 (d) 9,381
---------------
Edward Y. Hirata............ 2,989 (a)
1,281 (b)
1,500 (d) 5,770
---------------
Thomas L. Joaquin........... 2,638 (a)
23 (b)
10 (c) 2,671
---------------
All directors and executive 35,093 (a)
officers as a group 17,006 (b)
(17 persons)............... 117 (c)
109,661 (d) 161,877**
---------------
</TABLE>
* Also a named executive officer listed in the Summary Compensation Table
on pages 47 and 48.
** HECO directors Messrs. Carter, Clarke, Henderson and May and Ms. Plotts,
who also serve on the HEI Board of Directors are not shown separately,
but are included in the total amount. The information required as to
these directors is incorporated by reference to pages 10 and 11 of HEI's
Definitive Proxy Statement, prepared for the Annual Meeting of
Stockholders to be held on April 23, 1996. Messrs. Clarke and May are
also named executive officers listed in the Summary Compensation Table
incorporated by reference to pages 12 and 13 of the above-referenced
Definitive Proxy Statement of HEI. The number of shares of common stock
beneficially owned by any HECO director or by all HECO directors and
officers as a group does not exceed 1% of the outstanding common stock of
HEI.
(a) Sole voting and investment power.
(b) Shared voting and investment power (shares registered in name of
respective individual and spouse).
(c) Shares owned by spouse, children or other relatives sharing the home of
the director or an officer in the group and in which personal interest of
the director or officer is disclaimed.
(d) Stock options, including accompanying dividend equivalents shares,
exercisable within 60 days after February 14, 1996, under the 1987 Stock
Option and Incentive Plan, as amended in 1992.
51
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
HEI:
The information required under this item is incorporated by reference to pages
23 to 25 of HEI's Definitive Proxy Statement, prepared for the Annual Meeting of
Stockholders to be held on April 23, 1996.
HECO:
The information required under this item is incorporated by reference to pages
23 to 25 of HEI's Definitive Proxy Statement, prepared for the Annual Meeting of
Stockholders to be held on April 23, 1996.
PART IV
-------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) FINANCIAL STATEMENTS
The following financial statements contained in HEI's 1995 Annual Report to
Stockholders and HECO's 1995 Annual Report to Stockholder, portions of which are
filed by HEI as Exhibit 13 and, portions of which are filed by HECO as Exhibit
13, respectively, are incorporated by reference in Part II, Item 8, of this Form
10-K:
<TABLE>
<CAPTION>
1995 Annual Report to
Stockholder(s) (Page/s)
----------------------------
HEI HECO
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Independent Auditors' Report.................................. 37 31
Consolidated Statements of Income, Years ended
December 31, 1995, 1994 and 1993............................ 38 11
Consolidated Statements of Retained Earnings, Years ended
December 31, 1995, 1994 and 1993............................ 38 11
Consolidated Balance Sheets, December 31, 1995 and 1994....... 39 12
Consolidated Statements of Capitalization,
December 31, 1995 and 1994.................................. na 13-14
Consolidated Statements of Cash Flows, Years ended
December 31, 1995, 1994 and 1993............................ 40 15
Notes to Consolidated Financial Statements.................... 41-61 16-30
- ------------------------------------------------------------------------------------------------
</TABLE>
(a)(2) FINANCIAL STATEMENT SCHEDULES
The following financial statement schedules for HEI and HECO are included in
this Report on the pages indicated below:
<TABLE>
<CAPTION>
Page/s in Form 10-K
----------------------------
HEI HECO
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Independent Auditors' Report................................... 54 55
Schedule I Condensed Financial Information of Registrant,
Hawaiian Electric Industries, Inc. (Parent
Company) as of December 31, 1995 and 1994
and Years ended December 31, 1995, 1994 and
1993........................................... 56-58 na
Schedule II Valuation and Qualifying Accounts, Years
ended December 31, 1995, 1994 and 1993......... 59 59
</TABLE>
Certain Schedules, other than those listed, are omitted because they are not
required, or are not applicable, or the required information is shown in the
consolidated financial statements or notes included in HEI's 1995 Annual Report
to Stockholders and HECO's 1995 Annual Report to Stockholder, which financial
statements are incorporated herein by reference.
52
<PAGE>
(A)(3) EXHIBITS
Exhibits for HEI and HECO and their subsidiaries are listed in the "Index to
Exhibits" found on pages 60 through 66 of this Form 10-K. The exhibits listed
for HEI and HECO are listed in the index under the headings "HEI" and "HECO,"
respectively, except that the exhibits listed under "HECO" are also considered
exhibits for HEI.
(B) REPORTS ON FORM 8-K
HEI AND HECO:
During the fourth quarter of 1995, HEI and HECO filed Current Reports,
Forms 8-K, with the SEC dated December 11, 1995 and December 13, 1995. These
reports contained information under Item 5, Other events, regarding HECO's
receipt of a 1995 final rate order (Form 8-K dated December 11, 1995) and
regarding an update of the HELCO power situation and discontinued operations
(Form 8-K dated December 13, 1995).
53
<PAGE>
[KPMG Peat Marwick letterhead]
Independent Auditors' Report
----------------------------
The Board of Directors
and Stockholders
Hawaiian Electric Industries, Inc.:
Under date of January 25, 1996, we reported on the consolidated balance sheets
of Hawaiian Electric Industries, Inc. and subsidiaries as of December 31, 1995
and 1994, and the related consolidated statements of income, retained earnings
and cash flows for each of the years in the three-year period ended December 31,
1995, as contained in the 1995 annual report to stockholders. These consolidated
financial statements and our report thereon are incorporated by reference in the
annual report on Form 10-K for the year 1995. In connection with our audits of
the aforementioned consolidated financial statements, we also have audited the
related financial statement schedules as listed in the accompanying index. These
financial statement schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statement schedules based on our audits.
In our opinion, such financial statement schedules, when considered in relation
to the basic consolidated financial statements taken as a whole, present fairly,
in all material respects, the information set forth therein.
/s/ KPMG Peat Marwick LLP
Honolulu, Hawaii
January 25, 1996
54
<PAGE>
[KPMG Peat Marwick letterhead]
Independent Auditors' Report
----------------------------
The Board of Directors
and Stockholder
Hawaiian Electric Company, Inc.:
Under date of January 25, 1996, we reported on the consolidated balance sheets
and consolidated statements of capitalization of Hawaiian Electric Company, Inc.
(a wholly owned subsidiary of Hawaiian Electric Industries, Inc.) and
subsidiaries as of December 31, 1995 and 1994, and the related consolidated
statements of income, retained earnings and cash flows for each of the years in
the three-year period ended December 31, 1995, as contained in the 1995 annual
report to stockholder. These consolidated financial statements and our report
thereon are incorporated by reference in the annual report on Form 10-K for the
year 1995. In connection with our audits of the aforementioned consolidated
financial statements, we also have audited the related financial statement
schedule as listed in the accompanying index. The financial statement schedule
is the responsibility of the Company's management. Our responsibility is to
express an opinion on the financial statement schedule based on our audits.
In our opinion, such financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, presents
fairly, in all material respects, the information set forth therein.
/s/ KPMG Peat Marwick LLP
Honolulu, Hawaii
January 25, 1996
55
<PAGE>
Hawaiian Electric Industries, Inc.
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT
HAWAIIAN ELECTRIC INDUSTRIES, INC. (PARENT COMPANY)
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
------------------------
(in thousands) 1995 1994
- ------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and equivalents................................. $ 673 $ 223
Advances to and notes receivable from subsidiaries... 40,576 27,696
Accounts receivable.................................. 2,404 2,565
Other investments.................................... 810 809
Property, plant and equipment, net................... 2,455 2,460
Other assets......................................... 2,537 5,857
Investment in wholly owned subsidiaries, at equity... 967,437 888,651
------------------------
$1,016,892 $928,261
========================
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable..................................... $ 7,152 $ 9,246
Advances from subsidiaries........................... -- 2,293
Commercial paper..................................... 45,393 12,750
Long-term debt....................................... 223,500 209,500
Deferred income taxes................................ 3,053 4,301
Unamortized tax credits.............................. 41 29
Other................................................ 8,150 8,053
------------------------
287,289 246,172
------------------------
Stockholders' equity
Common stock......................................... 585,387 546,254
Retained earnings.................................... 144,216 135,835
------------------------
729,603 682,089
------------------------
$1,016,892 $928,261
========================
Note to Balance Sheets
- ----------------------
Long-term debt, consisted of the following:
Promissory notes, 6.3% - 7.6%, due in
various years through 2005.......................... $ 143,000 $113,000
Promissory notes, 8.2% - 9.9%, due in
various years through 2011.......................... 45,500 61,500
Promissory note, variable rate
(6.32% at December 31, 1995) due 1999............... 35,000 35,000
------------------------
$ 223,500 $209,500
========================
</TABLE>
As of December 31, 1995, HEI guaranteed debt of its subsidiaries and affiliates
amounting to $10 million.
The aggregate payments of principal required on long-term debt subsequent to
December 31, 1995 are $42 million in 1996, $51 million in 1997, $1 million in
1998, $41 million in 1999, $10 million in 2000 and $79 million thereafter.
56
<PAGE>
Hawaiian Electric Industries, Inc.
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT (CONTINUED)
HAWAIIAN ELECTRIC INDUSTRIES, INC. (PARENT COMPANY)
CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Years ended December 31,
-------------------------------
(in thousands) 1995 1994 1993
- --------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES.................................. $ 2,923 $ 3,318 $ 3,353
Equity in income from continuing
operations of subsidiaries............... 89,198 84,819 74,764
-------------------------------
92,121 88,137 78,117
-------------------------------
EXPENSES:
Operating, administrative and general..... 7,543 7,786 6,897
Taxes, other than income taxes............ 282 292 226
Depreciation and amortization of
property, plant and equipment............ 491 587 569
-------------------------------
8,316 8,665 7,692
-------------------------------
83,805 79,472 70,425
Interest expense.......................... 17,922 15,195 18,355
-------------------------------
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAX BENEFIT................ 65,883 64,277 52,070
Income tax benefit........................ (11,610) (8,753) (9,614)
-------------------------------
Income from continuing operations......... 77,493 73,030 61,684
Loss from discontinued operations,
net of income tax benefit................ -- -- (13,025)
-------------------------------
NET INCOME................................ $ 77,493 $73,030 $ 48,659
===============================
</TABLE>
57
<PAGE>
Hawaiian Electric Industries, Inc.
SCHEDULE I-- CONDENSED FINANCIAL INFORMATION OF REGISTRANT (CONTINUED)
HAWAIIAN ELECTRIC INDUSTRIES, INC. (PARENT COMPANY)
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years ended December 31,
-----------------------------------
(in thousands) 1995 1994 1993
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Income from continuing operations.................................. $ 77,493 $ 73,030 $ 61,684
Adjustments to reconcile income from
continuing operations to net cash
provided by operating activities
Equity in income from continuing
operations of subsidiaries...................................... (89,198) (84,819) (74,764)
Common stock dividends received
from subsidiaries............................................... 51,435 43,909 53,305
Depreciation and amortization of
property, plant and equipment................................... 491 587 569
Other amortization............................................... 239 209 294
Deferred income taxes and tax credits, net....................... (1,236) 367 232
Changes in assets and liabilities
Decrease (increase) in accounts receivable...................... 161 4,114 (6,211)
Increase (decrease) in accounts payable......................... (2,094) 385 (16,506)
Changes in other assets and liabilities......................... 1,880 (15,485) 34,733
-----------------------------------
39,171 22,297 53,336
Cash flows from discontinued operations............................ -- 36 2,525
-----------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES.......................... 39,171 22,333 55,861
-----------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Net decrease (increase) in advances to and
notes receivable from subsidiaries................................ (12,880) (16,141) 8,756
Capital expenditures............................................... (486) (177) (193)
Additional investments in subsidiaries............................. (39,610) (25,510) (65,000)
Other.............................................................. (2) -- 50
-----------------------------------
NET CASH USED IN INVESTING ACTIVITIES.............................. (52,978) (41,828) (56,387)
-----------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in advances from
subsidiaries with original maturities
of three months or less........................................... (2,293) 2,293 (185)
Repayment of other short-term borrowings........................... -- -- (36,000)
Net increase in commercial paper................................... 32,643 12,750 --
Proceeds from issuance of long-term debt........................... 30,000 35,000 37,000
Repayment of long-term debt........................................ (16,000) (26,000) (22,500)
Net proceeds from issuance of common stock......................... 19,322 13,602 88,658
Common stock dividends............................................. (49,415) (47,676) (42,012)
Other.............................................................. -- (2,634) 1,949
-----------------------------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES................ 14,257 (12,665) 26,910
-----------------------------------
Net increase (decrease) in cash and equivalents................... 450 (32,160) 26,384
Cash and equivalents, beginning of year............................ 223 32,383 5,999
-----------------------------------
CASH AND EQUIVALENTS, END OF YEAR.................................. $ 673 $ 223 $ 32,383
===================================
</TABLE>
Supplemental disclosures of noncash activities:
In 1995 and 1994, $1.3 million and $16.9 million, respectively, of HEI
advances to HEIDI were converted to equity in a noncash transaction.
Common stock dividends reinvested by stockholders in HEI common stock in
noncash transactions amounted to $20 million in 1995, $18 million in 1994 and
$17 million in 1993.
58
<PAGE>
Hawaiian Electric Industries, Inc.
and Hawaiian Electric Company, Inc.
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
Years ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
===================================================================================================================================
Col. A Col. B Col. C Col. D Col. E
- -----------------------------------------------------------------------------------------------------------------------------------
Additions
--------------------------------
Charged to
Balance at costs and Balance at
beginning of other Charged to end of
(in thousands) period expenses accounts Deductions period
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1995
----
Allowance for uncollectible
accounts
Hawaiian Electric Company,
Inc. and subsidiaries....... $ 1,136 $ 2,492 $ 1,266 $ 3,793 $ 1,101
Other companies............... 280 400 -- 38 642
--------- --------- --------- --------- ---------
$ 1,416 $ 2,892 $ 1,266(a) $ 3,831(b) $ 1,743
========= ========= ========= ========= =========
Allowance for uncollectible
interest (ASB)................ $ 1,101 $ 172 $ -- $ -- $ 1,273
========= ========= ========= ========= =========
Allowance for losses
for loans receivable (ASB).... $ 8,793 $ 4,887 $ 392(a) $ 1,156(b) $ 12,916
========= ========= ========= ========= =========
1994
----
Allowance for uncollectible
accounts
Hawaiian Electric Company,
Inc. and subsidiaries....... $ 1,357 $ 2,177 $ 674 $ 3,072 $ 1,136
Other companies............... 220 130 2 72 280
--------- --------- --------- --------- ---------
$ 1,577 $ 2,307 $ 676(a) $ 3,144(b) $ 1,416
========= ========= ========= ========= =========
Allowance for uncollectible
interest (ASB)................ $ 341 $ 760 $ -- $ -- $ 1,101
========= ========= ========= ========= =========
Allowance for losses for
loans receivable (ASB)........ $ 5,314 $ 3,983 $ 67(a) $ 571(b) $ 8,793
========= ========= ========= ========= =========
1993
----
Allowance for uncollectible
accounts
Hawaiian Electric Company,
Inc. and subsidiaries...... $ 1,120 $ 1,521 $ 815 $ 2,099 $ 1,357
Other companies............... 172 155 1 108 220
--------- --------- --------- --------- ---------
$ 1,292 $ 1,676 $ 816(a) $ 2,207(b) $ 1,577
========= ========= ========= ========= =========
Allowance for uncollectible
interest (ASB)................ $ 482 $ -- $ -- $ 141 $ 341
========= ========= ========= ========= =========
Allowance for losses for
loans receivable (ASB)........ $ 5,157 $ 779 $ 36(a) $ 658(b) $ 5,314
========= ========= ========= ========= =========
</TABLE>
(a) Primarily bad debts recovered.
(b) Bad debts charged off.
59
<PAGE>
INDEX TO EXHIBITS
The exhibits designated by an asterisk (*) are filed herein. The exhibits not so
designated are incorporated by reference to the indicated filing. A copy of any
exhibit may be obtained upon written request for a $0.20 per page charge from
the HEI Stock Transfer Division, P.O. Box 730, Honolulu, Hawaii 96808-0730.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<C> <S>
HEI:
- ----
3(i).1 HEI's Restated Articles of Incorporation (Exhibit 4(b) to
Registration No. 33-7895).
3(i).2 Articles of Amendment of HEI filed June 30, 1990 (Exhibit 4(b)
to Registration No. 33-40813).
3(ii) HEI's By-Laws (Exhibit 4(c) to Registration No. 33-21761).
4.1 Agreement to provide the SEC with instruments which define the
rights of holders of certain long-term debt of HEI and its
subsidiaries (Exhibit 4.1 to HEI's Annual Report on Form 10-K for
the fiscal year ended December 31, 1992, File No. 1-8503).
4.2 Indenture, dated as of October 15, 1988, between HEI and
Citibank, N.A., as Trustee (Exhibit 4 to Registration No. 33-
25216).
4.3 First Supplemental Indenture dated as of June 1, 1993 between HEI
and Citibank, N.A., as Trustee, to Indenture dated as of October
15, 1988 between HEI and Citibank, N.A., as Trustee (Exhibit 4(a)
to HEI's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1993, File No. 1-8503).
4.4 Officers' Certificate dated as of November 9, 1988, pursuant to
Sections 102 and 301 of the Indenture, dated as of October 15,
1988, between HEI and Citibank, N.A., as Trustee, establishing
Medium-Term Notes, Series A (Exhibit 4.2 to HEI's Annual Report
on Form 10-K for the fiscal year ended December 31, 1988, File
No. 1-8503).
4.5 Pricing Supplements Nos. 1 through 11 to the Registration
Statement on Form S-3 of HEI (Registration No. 33-25216) filed in
connection with the sale of Medium-Term Notes, Series A (filed
under Rule 424(b) in connection with Registration No. 33-25216).
4.6 Pricing Supplements Nos. 1 through 9 to the Registration
Statement on Form S-3 of HEI (Registration No. 33-58820) filed in
connection with the sale of Medium-Term Notes, Series B (Exhibit
4(b) to HEI's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1993, File No. 1-8503).
4.7 Pricing Supplement No. 10 to Registration Statement on Form S-3
of HEI (Registration No. 33-58820) filed in connection with the
sale of Medium-Term Notes, Series B (Exhibit 4.7 to HEI's Annual
Report on Form 10-K for the fiscal year ended December 31, 1994,
File No. 1-8503).
*4.8 Pricing Supplement No. 11 to Registration Statement on Form S-3
of HEI (Registration No. 33-58820) filed on December 1, 1995 in
connection with the sale of Medium-Term Notes, Series B.
*4.9 Pricing Supplement No. 12 to Registration Statement on Form S-3
of HEI (Registration No. 33-58820) filed on February 12, 1996 in
connection with the sale of Medium-Term Notes, Series B.
</TABLE>
60
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<C> <S>
4.10 Purchase Agreement dated March 7, 1991 among HEI and the
Purchasers named therein, together with the Notes issued to such
Purchasers, each dated March 7, 1991, pursuant to the Purchase
Agreement (Exhibit 4.5 to HEI's Annual Report on Form 10-K for
the fiscal year ended December 31, 1990, File No. 1-8503).
4.11 Composite conformed copy of the Note Purchase Agreement dated as
of December 16, 1991 among HEI and the Purchasers named therein
(Exhibit 4.6 to HEI's Annual Report on Form 10-K for the fiscal
year ended December 31, 1991, File No. 1-8503).
10.1 PUC Order Nos. 7070, 7153, 7203 and 7256 in Docket No. 4337,
including copy of "Conditions for the Merger and Corporate
Restructuring of Hawaiian Electric Company, Inc." dated September
23, 1982 (Exhibit 10 to Amendment No. 1 to Form U-1).
10.2 Regulatory Capital Maintenance/Dividend Agreement dated May 26,
1988, between HEI, HEIDI and the Federal Savings and Loan
Insurance Corporation (by the Federal Home Loan Bank of Seattle)
(Exhibit (28)-2 to HEI's Current Report on Form 8-K dated May 26,
1988, File No. 1-8503).
10.2(a) OTS letter regarding release from Part II.B. of the Regulatory
Capital Maintenance/Dividend Agreement dated May 26, 1988
(Exhibit 10.3(a) to HEI's Annual Report on Form 10-K for the
fiscal year ended December 31, 1992, File No. 1-8503).
10.3 Executive Incentive Compensation Plan (Exhibit 10(a) to HEI's
Annual Report on Form 10-K for the fiscal year ended December 31,
1987, File No. 1-8503).
10.4 HEI Executive's Deferred Compensation Plan (Exhibit 10.5 to HEI's
Annual Report on Form 10-K for the fiscal year ended December 31,
1990, File No. 1-8503).
10.5 Retirement Benefit Agreement--Andrew T. F. Ing and HEI (Exhibit
10(b) to HEI's Annual Report on Form 10-K for the fiscal year
ended December 31, 1987, File No. 1-8503).
10.6 1987 Stock Option and Incentive Plan of HEI as amended and
restated effective April 21, 1992 (Exhibit A to Proxy Statement
of HEI, dated March 6, 1992, for the Annual Meeting of
Stockholders, File No. 1-8503).
10.7 HEI Long-Term Incentive Plan (Exhibit 10.11 to HEI's Annual
Report on Form 10-K for the fiscal year ended December 31, 1988,
File No. 1-8503).
10.8 HEI Supplemental Executive Retirement Plan effective January 1,
1990 (Exhibit 10.9 to HEI's Annual Report on Form 10-K for the
fiscal year ended December 31, 1990, File No. 1-8503).
10.9 HEI Excess Benefit Plan (Exhibit 10.13 (Exhibit A) to HEI's
Annual Report on Form 10-K for the fiscal year ended December 31,
1989, File No. 1-8503).
10.10 Change-in-Control Agreement (Exhibit 10.14 to HEI's Annual Report
on Form 10-K for the fiscal year ended December 31, 1989, File
No. 1-8503).
10.11 Nonemployee Director Retirement Plan, effective as of October 1,
1989 (Exhibit 10.15 to HEI's Annual Report on Form 10-K for the
fiscal year ended December 31, 1989, File No. 1-8503).
</TABLE>
61
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<C> <S>
10.12 HEI 1990 Nonemployee Director Stock Plan (Exhibit 10(a) to HEI's
Quarterly Report on Form 10-Q for the quarter ended September 30,
1990, File No. 1-8503).
10.13 HEI Nonemployee Directors' Deferred Compensation Plan (Exhibit
10.14 to HEI's Annual Report on Form 10-K for the fiscal year
ended December 31, 1990, File No. 1-8503).
10.14 HEI and HECO Executives' Deferred Compensation Agreement. The
agreement pertains to and is substantially identical for all the
HEI and HECO executive officers (Exhibit 10.15 to HEI's Annual
Report on Form 10-K for the fiscal year ended December 31, 1991,
File No. 1-8503).
10.15 Settlement Agreement and General Release made and entered into on
February 10, 1994, by and between the Insurance Commissioner as
Rehabilitator/Liquidator, HIG and its subsidiaries, the Hawaii
Insurance Guaranty Association, HEI, HEIDI and others. (Exhibit
10.20 to HEI's Annual Report on Form 10-K for the fiscal year
ended December 31, 1993, File No. 1-8503).
*11 Computation of Earnings per Share of Common Stock. Filed herein
as page 67.
*12 Computation of Ratio of Earnings to Fixed Charges. Filed herein
as pages 68 and 69.
13 Pages 25 to 62 of HEI's 1995 Annual Report to Stockholders (with
the exception of the data incorporated by reference in Part I,
Part II, Part III and Part IV, no other data appearing in the
1995 Annual Report to Stockholders is to be deemed filed as part
of this Form 10-K Annual Report) (Exhibit 13 to HEI's Current
Report on Form 8-K dated February 21, 1996, File No. 1-8503).
*21 Subsidiaries of HEI. Filed herein as page 71.
*23 Consent of Independent Auditors. Filed herein as page 73.
*27.1 HEI and subsidiaries financial data schedule, December 31, 1995
and year ended December 31, 1995.
HECO:
- -----
3(i).1 HECO's Certificate of Amendment of Articles of Incorporation
(filed June 30, 1987) (Exhibit 3.1 to HECO's Annual Report on
Form 10-K for the fiscal year ended December 31, 1988, File No.
1-4955).
3(i).2 Statement of Issuance of Shares of Preferred or Special Classes
in Series for HECO Series R Preferred Stock filed December 15,
1989 (Exhibit 3.1(a) to HECO's Annual Report on Form 10-K for the
fiscal year ended December 31, 1989, File No. 1-4955).
3(i).3 Articles of Amendment to HECO's Amended Articles of Incorporation
filed December 21, 1989 (Exhibit 3.1(b) to HECO's Annual Report
on Form 10-K for the fiscal year ended December 31, 1989, File No
1-4955).
3(ii) HECO's By-Laws (Exhibit 3.2 to HECO's Annual Report on Form 10-K
for the fiscal year ended December 31, 1988, File No. 1-4955).
4.1 Agreement to provide the SEC with instruments which define the
rights of holders of certain long-term debt of HECO, HELCO and
MECO (Exhibit 4 to HECO's Annual Report on Form 10-K for the
fiscal year ended December 31, 1988, File No. 1-4955).
4.2 Indenture dated as of December 1, 1993 between HECO and The Bank
of New York, as Trustee (Exhibit 4(a) to Registration No. 33-
51025).
</TABLE>
62
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<C> <S>
4.3 Indenture dated as of December 1, 1993 among MECO, HECO, as
guarantor, and The Bank of New York, as Trustee (Exhibit 4(b) to
Registration No. 33-51025).
4.4 Indenture dated as of December 1, 1993 among HELCO, HECO, as
guarantor, and The Bank of New York, as Trustee (Exhibit 4(c) to
Registration No. 33-51025).
4.5 Officers' Certificate dated as of December 22, 1993, pursuant to
Sections 102 and 301 of the Indenture dated as of December 1,
1993 between HECO and The Bank of New York, as Trustee,
establishing the $20,000,000 Notes, 5.15% Series Due 1996
(Exhibit 4.5 to HECO's Annual Report on Form 10-K for the fiscal
year ended December 31, 1993, File No. 1-4955)
4.6 Officers' Certificate dated as of December 22, 1993, pursuant to
Sections 102 and 301 of the Indenture dated as of December 1,
1993 between HECO and The Bank of New York, as Trustee,
establishing the $30,000,000 Notes, 5.83% Series Due 1998
(Exhibit 4.6 to HECO's Annual Report on Form 10-K for the fiscal
year ended December 31, 1993, File No. 1-4955).
4.7 Officers' Certificate dated as of December 22, 1993, pursuant to
Sections 102 and 301 of the Indenture dated as of December 1,
1993 among MECO, HECO, as guarantor, and The Bank of New York, as
Trustee, establishing the $10,000,000 Notes, 5.15% Series Due
1996 (Exhibit 4.7 to HECO's Annual Report on Form 10-K for the
fiscal year ended December 31, 1993, File No. 1-4955).
4.8 Officers' Certificate dated as of December 22, 1993, pursuant to
Sections 102 and 301 of the Indenture dated as of December 1,
1993 among HELCO, HECO, as guarantor, and The Bank of New York,
as Trustee, establishing the $10,000,000 Notes, 4.85% Series Due
1995 (Exhibit 4.8 to HECO's Annual Report on Form 10-K for the
fiscal year ended December 31, 1993, File No. 1-4955).
10.1 Power Purchase Agreement between Kalaeloa Partners, L.P., and
HECO dated October 14, 1988 (Exhibit 10(a) to HECO's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1988,
File No. 1-4955).
10.1(a) Amendment No. 1 to Power Purchase Agreement between HECO and
Kalaeloa Partners, L.P., dated June 15, 1989 (Exhibit 10(c) to
HECO's Quarterly Report on Form 10-Q for the quarter ended June
30, 1989, File No. 1-4955).
10.1(b) Lease Agreement between Kalaeloa Partners, L.P., as Lessor, and
HECO, as Lessee, dated February 27, 1989 (Exhibit 10(d) to HECO's
Quarterly Report on Form 10-Q for the quarter ended June 30,
1989, File No. 1-4955).
10.1(c) Restated and Amended Amendment No. 2 to Power Purchase Agreement
between HECO and Kalaeloa Partners, L.P., dated February 9, 1990
(Exhibit 10.2(c) to HECO's Annual Report on Form 10-K for the
fiscal year ended December 31, 1989, File No. 1-4955).
10.1(d) Agreement to Extend the "Cancellation Window" in the Kalaeloa
Power Purchase Agreement dated June 21, 1990 (Exhibit 10(e) to
HECO's Quarterly Report on Form 10-Q for the quarter ended June
30, 1990, File No. 1-4955).
10.1(e) Amendment No. 3 to Power Purchase Agreement between HECO and
Kalaeloa Partners, L.P., dated December 10, 1991 (Exhibit 10.2(e)
to HECO's Annual Report on Form 10-K for the fiscal year ended
December 31, 1991, File No. 1-4955).
</TABLE>
63
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<C> <S>
10.2 Purchase Power Agreement between AES Barbers Point, Inc. and
HECO, entered into on March 25, 1988 (Exhibit 10(a) to HECO's
Quarterly Report on Form 10-Q for the quarter ended March 31,
1988, File No. 1-4955).
10.2(a) Agreement between HECO and AES Barbers Point, Inc., pursuant to
letters dated May 10, 1988 and April 20, 1988 (Exhibit 10.4 to
HECO's Annual Report on Form 10-K for fiscal year ended December
31, 1988, File No. 1-4955).
10.2(b) Amendment No. 1 to the Purchase Power Agreement between AES
Barbers Point, Inc. and HECO (Exhibit 10 to HECO's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1989,
File No. 1-4955).
10.2(c) HECO's Conditional Notice of Acceptance to AES Barbers Point,
Inc. dated January 15, 1990 (Exhibit 10.3(c) to HECO's Annual
Report on Form 10-K for the fiscal year ended December 31, 1989,
File No. 1-4955).
10.3 Amended and Restated Power Purchase Agreement between Hilo Coast
Processing Company and HELCO dated March 24, 1995 (Exhibit 10 to
HECO's Quarterly Report on Form 10-Q for the quarter ended March
31, 1995, File No. 1-4955).
10.4 Agreement between MECO and Hawaiian Commercial & Sugar Company
pursuant to letters dated November 29, 1988 and November 1, 1988
(Exhibit 10.8 to HECO's Annual Report on Form 10-K for the fiscal
year ended December 31, 1988, File No. 1-4955).
10.4(a) Amended and Restated Power Purchase Agreement by and between A&B-
Hawaii, Inc., through its division, Hawaiian Commercial & Sugar
Company, and MECO, dated November 30, 1989 (Exhibit 10(e) to
HECO's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1990, File No. 1-4955).
10.4(b) First Amendment to Amended and Restated Power Purchase Agreement
by and between A&B-Hawaii, Inc., through its division, Hawaiian
Commercial & Sugar Company, and MECO, dated November 1, 1990,
amending the Amended and Restated Power Purchase Agreement dated
November 30, 1989 (Exhibit 10(f) to HECO's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1990, File No. 1-
4955).
10.5 Purchase Power Contract between HELCO and Thermal Power Company,
dated March 24, 1986 (Exhibit 10(a) to HECO's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1989, File No. 1-4955).
10.5(a) Firm Capacity Amendment between HELCO and Puna Geothermal Venture
(assignee of AMOR VIII, who is the assignee of Thermal Power
Company), dated July 28, 1989, amending Purchase Power Contract
between HELCO and Thermal Power Company, dated March 24, 1986
(Exhibit 10(b) to HECO's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1989, File No. 1-4955).
*10.5(b) Performance Agreement and Fourth Amendment, dated February 12,
1996, to the Purchase Power Contract dated March 24, 1986 as
Amended between HELCO and Puna Geothermal Venture.
10.6 Purchase Power Contract between HECO and the City and County of
Honolulu dated March 10, 1986 (Exhibit 10.9 to HECO's Annual
Report on Form 10-K for the fiscal year ended December 31, 1989,
File No. 1-4955).
</TABLE>
64
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<C> <S>
10.6(a) Firm Capacity Amendment, dated April 8, 1991, to Purchase Power
Contract, dated March 10, 1986, by and between HECO and the City
& County of Honolulu (Exhibit 10 to HECO's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1991, File No. 1-4955).
10.7 Purchase Power Contract between MECO and Zond Pacific, Inc.,
dated May 24, 1991 (Exhibit 10 to HECO's Quarterly Report on Form
10-Q for the quarter ended June 30, 1991, File No. 1-4955).
*10.8 Low Sulfur Fuel Oil Supply Contract by and between CUSA and HECO
dated as of November 20, 1995.
*10.9 Inter-Island Industrial Fuel Oil and Diesel Fuel Contract by and
between CUSA and HECO, MECO, HELCO, HTB and YB dated as of
November 20, 1995.
*10.10 Facilities and Operating Contract by and between CUSA and HECO
dated as of November 20, 1995.
*10.11 Low Sulfur Fuel Oil Supply Contract between BHP and HECO dated
December 5, 1995.
*10.12 Inter-Island Industrial Fuel Oil and Diesel Fuel Oil Contract by
and between BHP and HECO, MECO and HELCO dated December 5, 1995.
10.13 Low Sulfur Fuel Oil Sale/Purchase Contract between HECO and C.
Itoh & Co. (America), Inc. dated June 7, 1990 (Exhibit 10(c) to
HECO's Quarterly Report on Form 10-Q for the quarter ended June
30, 1990, File No. 1-4955).
10.14 Contract of private carriage by and between HITI and HELCO dated
November 10, 1993 (Exhibit 10.13 to HECO's Annual Report on Form
10-K for the fiscal year ended December 31, 1993, File No. 1-
4955).
*10.14(a) Extension, dated December 18, 1995, of the contract of private
carriage by and between HITI and HELCO dated November 10, 1993.
10.15 Contract of private carriage by and between HITI and MECO dated
November 12, 1993 (Exhibit 10.14 to HECO's Annual Report on Form
10-K for the fiscal year ended December 1, 1993, File No. 1-
4955).
*10.15(a) Extension, dated December 18, 1995, of the contract of private
carriage by and between HITI and MECO dated November 12, 1993.
10.16 HECO Nonemployee Directors' Deferred Compensation Plan (Exhibit
10.16 to HECO's Annual Report on Form 10-K for the fiscal year
ended December 31, 1990, File No. 1-4955).
10.17 HEI and HECO Executives' Deferred Compensation Agreement. The
agreement pertains to and is substantially identical for all the
HEI and HECO executive officers (Exhibit 10.15 to HEI's Annual
Report on Form 10-K for the fiscal year ended December 31, 1991,
File No. 1-8503).
*11 Computation of Earnings Per Share of Common Stock. See note on
page 2 of HECO's 1995 Annual Report to Stockholder attached as
HECO Exhibit 13 hereto.
*12 Computation of Ratio of Earnings to Fixed Charges. Filed herein
as page 70.
</TABLE>
65
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<C> <S>
*13 Pages 2 to 31 and 33 of HECO's 1995 Annual Report to Stockholder
(with the exception of the data incorporated by reference in Part
I, Part II, Part III and Part IV, no other data appearing in the
1995 Annual Report to Stockholder is to be deemed filed as part
of this Form 10-K Annual Report).
*21 Subsidiaries of HECO. Filed herein as page 72.
*27.2 HECO and subsidiaries financial data schedule, December 31, 1995
and year ended December 31, 1995.
*99 Reconciliation of electric utility operating income per HEI and
HECO Consolidated Statements of Income. Filed herein as page 74.
</TABLE>
66
<PAGE>
HEI Exhibit 11
Hawaiian Electric Industries, Inc.
COMPUTATION OF EARNINGS PER SHARE
OF COMMON STOCK
Years ended December 31, 1995, 1994, 1993, 1992 and 1991
<TABLE>
<CAPTION>
(in thousands,
except per share amounts) 1995 1994 1993 1992 1991
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET INCOME (LOSS)
Continuing operations.................. $77,493 $73,030 $ 61,684 $ 61,715 $55,620
Discontinued operations................ -- -- (13,025) (73,297) (794)
------- ------- -------- -------- -------
$77,493 $73,030 $ 48,659 $(11,582) $54,826
======= ======= ======== ======== =======
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING.................... 29,187 28,137 25,938 24,275 22,882
======= ======= ======== ======== =======
EARNINGS (LOSS) PER COMMON SHARE
Continuing operations.................. $ 2.66 $ 2.60 $ 2.38 $ 2.54 $ 2.43
Discontinued operations................ -- -- (0.50) (3.02) (0.03)
------- ------- -------- -------- -------
$ 2.66 $ 2.60 $ 1.88 $ (0.48) $ 2.40
======= ======= ======== ======== =======
</TABLE>
Note: The dilutive effect of stock options is not material.
67
<PAGE>
HEI Exhibit 12 (page 1 of 2)
Hawaiian Electric Industries, Inc.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
Years ended December 31, 1995, 1994, 1993, 1992 and 1991
<TABLE>
<CAPTION>
1995 1994 1993
------------------------ -------------------- -------------------
(dollars in thousands) (1) (2) (1) (2) (1) (2)
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FIXED CHARGES
Total interest charges
The Company (3)................. $117,494 $206,790 $ 82,306 $158,815 $ 68,254 $145,905
Proportionate share of
fifty-percent-owned persons... 867 867 539 539 564 564
Interest component of rentals.... 3,857 3,857 3,819 3,819 3,944 3,944
Pretax preferred stock dividend
requirements of subsidiaries.... 11,433 11,433 11,899 11,899 11,018 11,018
-------- -------- -------- -------- -------- --------
TOTAL FIXED CHARGES.............. $133,651 $222,947 $ 98,563 $175,072 $ 83,780 $161,431
======== ======== ======== ======== ======== ========
EARNINGS
Pretax income from continuing
operations...................... $133,233 $133,233 $126,049 $126,049 $108,770 $108,770
Fixed charges, as shown.......... 133,651 222,947 98,563 175,072 83,780 161,431
Interest capitalized
The Company..................... (6,337) (6,337) (4,924) (4,924) (3,881) (3,881)
Proportionate share of
fifty-percent-owned persons.... (867) (867) (539) (539) (408) (408)
-------- -------- -------- -------- -------- --------
EARNINGS AVAILABLE FOR FIXED
CHARGES......................... $259,680 $348,976 $219,149 $295,658 $188,261 $265,912
======== ======== ======== ======== ======== ========
RATIO OF EARNINGS TO FIXED CHARGES 1.94 1.57 2.22 1.69 2.25 1.65
======== ======== ======== ======== ======== ========
</TABLE>
(1) Excluding interest on ASB deposits.
(2) Including interest on ASB deposits.
(3) Total interest charges exclude interest on nonrecourse debt from leveraged
leases which is not included in interest expense in HEI's consolidated
statements of income.
68
<PAGE>
HEI Exhibit 12 (page 2 of 2)
Hawaiian Electric Industries, Inc.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
Years ended December 31, 1995, 1994, 1993, 1992 and 1991--Continued
<TABLE>
<CAPTION>
1992 1991
-------------------- ------------------------
(dollars in thousands) (1) (2) (1) (2)
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FIXED CHARGES
Total interest charges
The Company (3)................... $ 67,559 $161,756 $ 69,957 $168,691
Proportionate share of
fifty-percent-owned persons..... 1,051 1,051 1,875 1,875
Interest component of rentals...... 3,254 3,254 2,231 2,231
Pretax preferred stock dividend
requirements of subsidiaries...... 9,606 9,606 10,449 10,449
-------- -------- -------- --------
TOTAL FIXED CHARGES................ $ 81,470 $175,667 $ 84,512 $183,246
======== ======== ======== ========
EARNINGS
Pretax income from continuing
operations........................ $ 91,244 $ 91,244 $ 87,953 $ 87,953
Undistributed earnings from less
than fifty-percent-owned persons.. (244) (244) (278) (278)
Fixed charges, as shown............ 81,470 175,667 84,512 183,246
Interest capitalized
The Company....................... (2,104) (2,104) (1,945) (1,945)
Proportionate share of
fifty-percent-owned persons...... (803) (803) (1,875) (1,875)
-------- -------- -------- --------
EARNINGS AVAILABLE FOR FIXED
CHARGES........................... $169,563 $263,760 $168,367 $267,101
======== ======== ======== ========
RATIO OF EARNINGS TO FIXED CHARGES. 2.08 1.50 1.99 1.46
======== ======== ======== ========
</TABLE>
(1) Excluding interest on ASB deposits.
(2) Including interest on ASB deposits.
(3) Total interest charges exclude interest on nonrecourse debt from leveraged
leases which is not included in interest expense in HEI's consolidated
statements of income.
69
<PAGE>
HECO Exhibit 12
Hawaiian Electric Company, Inc.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
Years ended December 31, 1995, 1994, 1993, 1992 and 1991
<TABLE>
<CAPTION>
(dollars in thousands) 1995 1994 1993 1992 1991
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FIXED CHARGES
Total interest charges................. $ 44,377 $ 37,340 $ 35,287 $ 33,011 $ 33,248
Interest component of rentals.......... 672 808 970 1,070 1,130
Pretax preferred stock dividend
requirements of subsidiaries......... 4,494 4,651 3,425 3,117 3,409
-----------------------------------------------------------
TOTAL FIXED CHARGES.................... $ 49,543 $ 42,799 $ 39,682 $ 37,198 $ 37,787
===========================================================
EARNINGS
Income before preferred stock
dividends of HECO.................... $ 77,023 $ 65,961 $ 56,126 $ 53,678 $ 46,210
Fixed charges, as shown................ 49,543 42,799 39,682 37,198 37,787
Income taxes (see note below).......... 50,198 43,588 36,897 23,843 23,816
Allowance for borrowed funds used
during construction.................. (5,112) (4,043) (3,869) (2,095) (1,307)
-----------------------------------------------------------
EARNINGS AVAILABLE FOR FIXED CHARGES... $171,652 $148,305 $128,836 $112,624 $106,506
===========================================================
RATIO OF EARNINGS TO FIXED CHARGES..... 3.46 3.47 3.25 3.03 2.82
===========================================================
NOTE:
Income taxes is comprised of the
following
Income tax expense relating to
operating income for regulatory
purposes.......................... $ 50,719 $ 43,820 $ 37,007 $ 26,254 $ 24,137
Income tax benefit relating to
nonoperating loss................. (521) (232) (110) (2,411) (321)
-----------------------------------------------------------
$ 50,198 $ 43,588 $ 36,897 $ 23,843 $ 23,816
===========================================================
</TABLE>
70
<PAGE>
HEI Exhibit 21
Hawaiian Electric Industries, Inc.
SUBSIDIARIES OF THE REGISTRANT
The following is a list of all subsidiary corporations of the registrant as of
March 19, 1996:
<TABLE>
<CAPTION>
Name Place of incorporation
- --------------------------------------------------------------------------------
<S> <C>
Hawaiian Electric Company,
Inc., including subsidiaries Maui Electric
Company, Limited and Hawaii Electric
Light Company, Inc. ......................... State of Hawaii
HEI Investment Corp. ......................... State of Hawaii
Lalamilo Ventures, Inc. ...................... State of Hawaii
Malama Pacific Corp., including subsidiaries
Malama Waterfront Corp., Malama Property
Investment Corp., Malama Development
Corp., Malama Realty Corp., Malama Elua
Corp., TMG Service Corp., Malama Hoaloha
Corp., Malama Mohala Corp. and Baldwin*Malama
(a limited partnership in which Malama
Development Corp. is the sole general
partner)..................................... State of Hawaii
Hawaiian Tug & Barge
Corp., including subsidiary Young Brothers,
Limited...................................... State of Hawaii
HEI Diversified, Inc.,
including subsidiary American Savings Bank,
F.S.B. and its subsidiaries, American State of Hawaii (except
Savings Investment Services Corp., ASB American Savings Bank,
Service Corporation, AdCommunications, Inc. F.S.B., which is federally
and Associated Mortgage, Inc. ............... chartered)
Pacific Energy Conservation Services, Inc. ... State of Hawaii
HEI Power Corp. .............................. State of Hawaii
</TABLE>
71
<PAGE>
HECO Exhibit 21
Hawaiian Electric Company, Inc.
SUBSIDIARIES OF THE REGISTRANT
The following is a list of all subsidiary corporations of the registrant as of
March 19, 1996:
<TABLE>
<CAPTION>
Name Place of incorporation
- --------------------------------------------------------------------------------
<S> <C>
Maui Electric Company, Limited................ State of Hawaii
Hawaii Electric Light Company, Inc. .......... State of Hawaii
</TABLE>
72
<PAGE>
[KPMG Peat Marwick letterhead]
HEI Exhibit 23
The Board of Directors
Hawaiian Electric Industries, Inc.:
We consent to incorporation by reference in Registration Statement Nos. 33-56561
and 33-58820 on Form S-3 and in Registration Statement Nos. 33-65234 and 33-
52911 on Form S-8 of Hawaiian Electric Industries, Inc. of our report dated
January 25, 1996, relating to the consolidated balance sheets of Hawaiian
Electric Industries, Inc. and subsidiaries as of December 31, 1995 and 1994, and
the related consolidated statements of income, retained earnings and cash flows
for each of the years in the three-year period ended December 31, 1995, which
report is incorporated by reference in the 1995 annual report on Form 10-K of
Hawaiian Electric Industries, Inc. We also consent to incorporation by reference
of our report dated January 25, 1996 relating to the financial statement
schedules of Hawaiian Electric Industries, Inc. in the aforementioned 1995
annual report on Form 10-K, which report is included in said Form 10-K.
/s/ KPMG Peat Marwick LLP
Honolulu, Hawaii
March 19, 1996
73
<PAGE>
HECO Exhibit 99
Hawaiian Electric Company, Inc.
RECONCILIATION OF ELECTRIC UTILITY OPERATING
INCOME PER HEI AND HECO CONSOLIDATED
STATEMENTS OF INCOME
Years ended December 31,
-----------------------------------
(in thousands) 1995 1994 1993
- ---------------------------------------------------------------------------
[S] [C] [C] [C]
Operating income from regulated
and nonregulated activities
before income taxes (per HEI
Consolidated Statements of Income).... $159,043 $136,628 $119,565
Deduct:
Income taxes on regulated activities.. (50,719) (43,820) (37,007)
Revenues from nonregulated activities. (6,732) (6,411) (5,100)
Add:
Expenses from nonregulated activities. 1,130 915 627
-----------------------------------
Operating income from regulated
activities after income taxes
(per HECO Consolidated Statements
of Income)............................ $102,722 $ 87,312 $ 78,085
===================================
74
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrants have duly caused this report to be signed on their
behalf by the undersigned, thereunto duly authorized. The signatures of the
undersigned companies shall be deemed to relate only to matters having reference
to such companies and any subsidiaries thereof.
HAWAIIAN ELECTRIC INDUSTRIES, INC. HAWAIIAN ELECTRIC COMPANY, INC.
(Registrant) (Registrant)
By /s/ Robert F. Mougeot By /s/ Paul Oyer
---------------------- ---------------------
Robert F. Mougeot Paul A. Oyer
Financial Vice President and Financial Vice President,
Chief Financial Officer of HEI Treasurer and Director
(Principal Financial Officer of HEI) of HECO (Principal
Financial Officer of HECO)
Date: March 19, 1996 Date: March 19, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrants and in the capacities indicated on March 19, 1996. The signature of
each of the undersigned shall be deemed to relate only to matters having
reference to the above-named companies and any subsidiaries thereof.
SIGNATURE TITLE
- ------------------------ --------------------------------------------
/s/ Robert F. Clarke President and Director of HEI
- ------------------------ Chairman of the Board of Directors of HECO
Robert F. Clarke (Chief Executive Officer of HEI)
/s/ T. Michael May Director of HEI
- ------------------------ President and Director of HECO
T. Michael May (Chief Executive Officer of HECO)
/s/ Robert F. Mougeot Financial Vice President and
- ------------------------ Chief Financial Officer of HEI
Robert F. Mougeot (Principal Financial Officer of HEI)
/s/ Curtis Y. Harada Controller of HEI
- ------------------------ (Principal Accounting Officer of HEI)
Curtis Y. Harada
/s/ Paul Oyer Financial Vice President, Treasurer and
- ------------------------ Director of HECO
Paul A. Oyer (Principal Financial Officer of HECO)
75
<PAGE>
SIGNATURES (CONTINUED)
SIGNATURE TITLE
- ------------------------ -----------------------------------------
/s/ Ernest T. Shiraki Controller of HECO
- ------------------------ (Principal Accounting Officer of HECO)
Ernest T. Shiraki
/s/ Don E. Carroll Director of HEI
- ------------------------
Don E. Carroll
/s/ Edwin L. Carter Director of HEI and HECO
- ------------------------
Edwin L. Carter
/s/ John D. Field Director of HEI
- ------------------------
John D. Field
/s/ Richard Henderson Director of HEI and HECO
- ------------------------
Richard Henderson
/s/ Mildred D. Kosaki Director of HECO
- ------------------------
Mildred D. Kosaki
Director of HEI
- ------------------------
Victor Hao Li
/s/ Bill D. Mills Director of HEI
- ------------------------
Bill D. Mills
Director of HEI
- ------------------------
A. Maurice Myers
/s/ Ruth M. Ono Director of HEI
- ------------------------
Ruth M. Ono
76
<PAGE>
SIGNATURES (CONTINUED)
----------------------
SIGNATURE TITLE
- -------------------------- -----------------------------
/s/ Diane J. Plotts Director of HEI and HECO
- --------------------------
Diane J. Plotts
/s/ James K. Scott Director of HEI
- --------------------------
James K. Scott
Director of HEI
- --------------------------
Oswald K. Stender
/s/ Kelvin H. Taketa Director of HEI
- --------------------------
Kelvin H. Taketa
/s/ Jeffrey N. Watanabe Director of HEI
- --------------------------
Jeffrey N. Watanabe
/s/ Paul C. Yuen Director of HECO
- --------------------------
Paul C. Yuen
77
<PAGE>
HEI Exhibit 4.8
Pricing Supplement No. 11 Filing under Rule 424(b)(3)
Dated November 30, 1995 Registration File No. 33-58820
(To Prospectus dated June 11, 1993)
$250,000,000
HAWAIIAN ELECTRIC INDUSTRIES, INC.
MEDIUM-TERM NOTES, SERIES B
Principal amount: $30,000,000 Floating Rate Notes: N/A
Interest Rate (if fixed rate): 6.66% Base Rate: N/A
Stated Maturity Date: December 5, 2005 Commercial Paper Rate
Issue price (as a percentage of Prime Rate
principal amount): 100% LIBOR
Selling Agent's commission (%): 0.625% Treasury Rate
Purchasing Agent's discount CD Rate
or commission (%): N/A Federal Funds Rate
Net proceeds to the Company (%): 99.375% Other:
Settlement date and time (original Index Maturity: N/A
issue date): December 5, 1995 Spread: N/A
Initial Redemption Date (if any): N/A Spread Multiplier: N/A
Initial Redemption Percentage: N/A Maximum Interest Rate: N/A
Annual Redemption Minimum Interest Rate: N/A
Percentage Reduction: N/A Initial Interest Rate: N/A
Optional Repayment Dates: N/A Interest Reset Period: N/A
Currency of Denomination: U.S. Interest Determination Date(s): N/A
Currency of Payment: U.S. Calculation Date(s): N/A
Minimum Authorized Interest Payment Period: N/A
Denominations: $1,000 Regular Record Date(s): N/A
Additional Terms: N/A Calculation Agent: N/A
Redemption prices (if any): The Redemption Price shall initially be N/A %
of the principal amount of such Notes to be redeemed and shall decline (but not
below par) on each anniversary of the Initial Redemption Date by N/A % of
the principal amount to be redeemed until the Redemption Price is 100% of such
principal amount.
Use of Proceeds and Additional Terms:
All or substantially all of the net proceeds to Hawaiian Electric Industries,
Inc. ("HEI") from the sale of its Medium-Term Notes, Series B, covered by this
Pricing Supplement will be used by HEI to redeem its Medium-Term Notes, Series
A (the "Series A Notes"), to retire commercial paper, to make temporary
investments pending such redemptions and retirements and for other general
corporate purposes. The aggregate principal amount of the Series A Notes is
$20 million and they bear interest at rates per annum ranging from 9.70% to
9.90% and have maturity dates ranging from December 7, 1998 to December 30,
1998. As of November 30, 1995, HEI's commercial paper outstanding totaled
approximately $51.2 million. Such commercial paper bore interest at
prevailing market rates and had original maturities varying between 1 and 45
days.
As of the date of this Pricing Supplement, the aggregate initial public
offering price of the Notes which have been sold (including the Notes to which
this Pricing Supplement relates) is $102,000,000.
"N/A" as used herein means "Not applicable". "A/S" as used herein means "As
stated in the Prospectus referred to above".
MERRILL LYNCH & CO. GOLDMAN, SACHS & CO.
<PAGE>
HEI Exhibit 4.9
Pricing Supplement No. 12 Filing under Rule 424(b)(3)
Dated February 9, 1996 Registration File No. 33-58820
(To Prospectus dated June 11, 1993)
$250,000,000
HAWAIIAN ELECTRIC INDUSTRIES, INC.
MEDIUM-TERM NOTES, SERIES B
Principal amount: $10,000,000 Floating Rate Notes: N/A
Interest Rate (if fixed rate): 6.545% Base Rate: N/A
Stated Maturity Date: February 14, 2006 Commercial Paper Rate
Issue price (as a percentage of Prime Rate
principal amount): 100% LIBOR
Selling Agent's commission (%): 0.625% Treasury Rate
Purchasing Agent's discount CD Rate
or commission (%): N/A Federal Funds Rate
Net proceeds to the Company (%): 99.375% Other:
Settlement date and time (original Index Maturity: N/A
issue date): February 14, 1996 Spread: N/A
Initial Redemption Date (if any): N/A Spread Multiplier: N/A
Initial Redemption Percentage: N/A Maximum Interest Rate: N/A
Annual Redemption Minimum Interest Rate: N/A
Percentage Reduction: N/A Initial Interest Rate: N/A
Optional Repayment Dates: N/A Interest Reset Period: N/A
Currency of Denomination: U.S. Interest Determination Date(s):
N/A
Currency of Payment: U.S. Calculation Date(s): N/A
Minimum Authorized Interest Payment Period: N/A
Denominations: $1,000 Regular Record Date(s): N/A
Additional Terms: N/A Calculation Agent: N/A
Redemption prices (if any): The Redemption Price shall initially be N/A %
of the principal amount of such Notes to be redeemed and shall decline (but not
below par) on each anniversary of the Initial Redemption Date by N/A % of
the principal amount to be redeemed until the Redemption Price is 100% of such
principal amount.
Use of Proceeds and Additional Terms:
All or substantially all of the net proceeds to Hawaiian Electric Industries,
Inc. ("HEI") from the sale of its Medium-Term Notes, Series B, covered by this
Pricing Supplement will be used by HEI to repay maturing notes, to retire
commercial paper, to make temporary investments pending such repayments and
retirements and for other general corporate purposes. The aggregate principal
amount of the notes that will be repaid is $10 million, bears interest at
8.92% and matures on February 15, 1996. As of February 9, 1996, HEI's
commercial paper outstanding totaled approximately $50 million. Such
commercial paper bore interest at prevailing market rates and had original
maturities varying between 1 and 45 days.
As of the date of this Pricing Supplement, the aggregate initial public
offering price of the Series B Notes which have been sold (including the Series
B Notes to which this Pricing Supplement relates) is $112,000,000.
"N/A" as used herein means "Not applicable". "A/S" as used herein means "As
stated in the Prospectus referred to above".
MERRILL LYNCH & CO. GOLDMAN, SACHS & CO.
<PAGE>
HECO Exhibit 10.5(b)
PERFORMANCE AGREEMENT AND FOURTH AMENDMENT TO THE
PURCHASE POWER CONTRACT DATED MARCH 24, 1986 AS AMENDED
THIS PERFORMANCE AGREEMENT AND FOURTH AMENDMENT ("Performance Agreement" or
"Fourth Amendment") is made as of this 12th day of February 1996 ("Execution
Date"), by and between HAWAII ELECTRIC LIGHT COMPANY, INC. (the "Company" or
"HELCO"), and PUNA GEOTHERMAL VENTURE (the "Seller" or "PGV").
WHEREAS, the Company is an operating electric public utility on the Island
of Hawaii subject to the Hawaii Public Utilities Law (Hawaii Revised Statutes,
Chapter 269) and the rules and regulations of the Hawaii Public Utilities
Commission (the "PUC" or "Commission");
WHEREAS, the Company has entered into a Purchase Power Contract for
Unscheduled Energy Made Available From a Qualifying Facility (the "Unscheduled
Energy Contract"), dated March 24, 1986, with Thermal Power Company ("Thermal
Power") which was approved by the PUC by Decision and Order No. 8692, dated
March 25, 1986, in Docket No. 5525;
WHEREAS, Thermal Power assigned the Unscheduled Energy Contract to AMOR
VIII and AMOR VIII assigned the Unscheduled Energy Contract to PGV;
WHEREAS, HELCO and PGV have entered into that certain Firm Capacity
Amendment to Purchase Power Contract, dated July 28, 1989 ("Firm Capacity
Amendment"), which amended the Unscheduled Energy Contract, and was approved by
the PUC by Decision and Order No. 10519, dated February 14, 1990, in Docket No.
6498;
WHEREAS, by Amendment to Purchase Power Contract, As Amended ("Second
Amendment"), HELCO and PGV amended the Unscheduled Energy Contract and Firm
Capacity Amendment;
WHEREAS, a number of issues arose between the Company and Seller which they
settled in a Settlement Agreement dated March 7, 1995 ("Settlement Agreement");
WHEREAS, as part of the Settlement Agreement, the Company and Seller agreed
to a third amendment ("Third Amendment") to the Unscheduled Energy Contract,
Firm Capacity Amendment, and the Second Amendment (the Unscheduled Energy
Contract as amended by the Firm Capacity Amendment, the Second Amendment, and
the Third Amendment and as may be amended from time to time, is referred to as
the "Amended PPC") (The Third Amendment was approved on an interim basis by the
PUC by Interim Decision and Order No. 13876, dated May 5, 1995, in Docket No.
95-0074);
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WHEREAS, Seller presently provides to the Company, and the Company
presently purchases from Seller, twenty-five (25) megawatts ("MW") of firm
capacity from Seller's Facility pursuant to the Amended PPC;
WHEREAS, the Seller desires to sell to the Company an additional five (5)
MW of firm capacity generated by the Facility above the twenty-five (25) MW of
firm capacity presently supplied, and the Company wishes to purchase such Energy
from the Seller, upon the terms and conditions set forth herein;
WHEREAS, the Seller's Facility will continue to be throughout the term of
this Performance Agreement either (1) a qualifying, small power production
facility under Subchapter 2 of the PUC's Standards for Small Power Production
and Cogeneration in the State of Hawaii, Chapter 74 of Title 6 of the State's
Administrative Rules, or (2) a "non-fossil fuel producer" within the meaning of
Section 269-27.2, Hawaii Revised Statutes;
NOW, THEREFORE, in consideration of the premises and the respective
promises herein, the Company and the Seller hereby agree as follows:
I. THE PROJECT
A. Enhancement and Operation of Seller's Facility
1. Seller agrees to provide the Company with five (5) megawatts of
firm capacity in addition to the twenty-five (25) megawatts of firm capacity
currently being provided pursuant to the Amended PPC (for a total of thirty
megawatts of firm capacity) and 18,600 kvar of reactive under this Agreement.
The reactive shall be in proportion to power in the range of 0.85 lagging to 1.0
unity power factor and shall be dispatched by the Company to keep the Seller's
generator within the limits of plus or minus 5% of the generator voltage.
2. Attached as Exhibit A, is a description of the proposed
enhancements (the "Project") to Seller's Facility to enable Seller to provide an
additional five (5) MW of firm capacity (a total of thirty megawatts of firm
capacity) and 18,600 kvar of reactive. Seller's Facility as modified by the
Project is referred to hereinafter as "Seller's Facility".
3. Seller shall be responsible for all costs associated in any way
with Seller's Facility and/or the Project.
4. Seller shall be responsible for obtaining all permits, licenses,
approvals and any other requirements
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reasonably required for Seller to provide the additional five (5) megawatts of
firm capacity pursuant to this Performance Agreement.
5. Within sixty (60) days of the Execution Date, a final (1) a
single-line diagram of Seller's Facility, (2) relay list, and (3) trip scheme,
all as may be modified by the Project, shall be prepared and, subject to the
review and acceptance thereof by both parties, signed and attached to Attachment
B To The Fourth Amendment as Exhibit 1 to Appendix B and made a part thereof.
Such single line diagram shall expressly identify the final location on the
Point of Interconnection.
6. Within sixty (60) days of the Execution Date, the design and
specifications for protective equipment to protect HELCO's system, as may be
modified by the Project, shall be prepared and, subject to the review and
acceptance thereof by both parties, signed and attached to Amended PPC and made
a part thereof.
7. Attached hereto as Exhibit B is a project schedule relating to the
Project.
8. Prior to the Commercial Operation Date (as defined below) of the
Seller's Facility to produce the additional five (5) megawatts of firm capacity
(for a total of thirty (30) megawatts of firm capacity), Seller shall inform
HELCO on the third business day of every month of the status of the Seller's
Project as of the last day of the prior month, including but not limited to, any
revisions to the date of installation, the date of operation in parallel with
the Company's System, and the anticipated Commercial Operation Date (as defined
below) of the Seller's Facility for the additional five (5) megawatts of Firm
Capacity.
B. Acceptance Tests. The Company shall conduct acceptance tests as part
of the determination of when Firm Capacity payments related to the additional
five (5) megawatts of firm capacity should begin.
1. Upon completion and testing of Seller's Facility as modified by
the Project by Seller for the additional five (5) megawatts of firm capacity,
Seller shall give HELCO seven (7) days prior notice of the time and date when
Seller will be ready to begin the 100 continuous hours acceptance test for the
additional five (5) megawatts of firm capacity.
2. Upon the agreed upon time and date, the Company shall conduct the
100 continuous hours acceptance test for the additional five (5) megawatts of
firm capacity ("Acceptance Test"). At a minimum, Seller must be able to deliver
to the
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Company l00% of the Seller's Firm Capacity Obligation (30,000 kw of capacity and
18,600 kvar of reactive) for 100 consecutive hours under Company's Dispatch (as
defined in Attachment E to the Fourth Amendment). The Acceptance Test may be
started and/or completed prior to the Effective Date (as defined below) of this
Performance Agreement.
3. As the last step of the Acceptance Test, Seller shall ramp
Seller's Facility down to simulate a sudden loss of system load. Seller shall
decrease power output from thirty (30) megawatts to ten (10) megawatts at an
average ramp rate of one (1) megawatt per minute. Seller shall ramp Seller's
Facility up in power output to simulate an increase in demand on the Facility.
Seller shall increase power output from eighteen and one-half (18.5) megawatts
to thirty (30) megawatts at an average ramp rate of one (1) MW/minute. In
addition, during the Acceptance Test, the Seller shall demonstrate the ability
to adjust kvars from 1,500 to 18,600.
4. The Seller's performance throughout the Acceptance Test shall be
monitored remotely through the SCADA system and recorded. In addition, the
Seller shall also allow HELCO representatives to be stationed at Seller's
Facility to verify all data and ensure that all operational changes made at the
request of HELCO were done within the bounds of good engineering and operating
practices.
5. Upon successful completion of the Acceptance Test, HELCO will
notify Seller in writing of the acceptance of the additional 5 MW of firm
capacity and Seller will immediately acknowledge in writing such acceptance by
HELCO. The date on which Seller's Facility is deemed to be capable of reliable
delivery of the additional five (5) megawatts of firm capacity pursuant to this
Performance Agreement after the successful completion of the Acceptance Test is
referred to herein as the "Commercial Operation Date".
II. PROJECT COMPLETION
A. Commercial Operation Date. The Commercial Operation Date shall occur
prior to or within six (6) months after the later of PUC Approval (as defined
below in Section IV.A) or Bank's Consent (as defined in Section IV.B. below).
B. Penalties For Not Meeting Commercial Operation Date Deadline. If the
Commercial Operation Date for the additional five (5) megawatts does not occur
within nine (9) months of the later of the date of PUC Approval or Bank's
Consent (the "Commercial Operation Date Deadline"), then:
1. Seller shall pay HELCO one cent ($0.01) per on-peak hour for each
kilowatt deficiency until Seller
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satisfies the Acceptance Test. Kilowatt deficiency is the difference in
kilowatts at any given time between the 5,000 kilowatts PGV is required to
produce hereunder and the actual amount produced by PGV pursuant to this
Performance Agreement.
2. Seller shall pay to HELCO late charges in the amount of $1,380.00
per day for each day commencing on the Commercial Operation Date Deadline until
the Commercial Operation Date.
3. Any penalties incurred under this Section II.B. shall cease to
accrue one year after the Commercial Operation Date Deadline.
III. INTERCONNECTION FACILITIES
A. The parties believe that there are no additional interconnection
facilities required for HELCO's system to accept the additional five (5)
megawatts of Energy to be provided by Seller pursuant to this Performance
Agreement.
B. If it is later determined that additional interconnection facilities
are needed, then Seller shall be responsible for cost and construction of all
interconnection facilities required to deliver the additional 5 MW of firm
capacity from Seller's Facility to the Company's System.
C. Seller shall be responsible for one hundred percent (100%) of the
maintenance costs associated with any upgrade of existing interconnection
facilities.
IV. APPROVALS REQUIRED PRIOR TO EFFECTIVE DATE
A. Public Utilities Commission Approval.
1. The parties will use their best efforts, including without
limitation, participation in any PUC proceeding at the request of the other
party, to obtain an appropriate decision and order satisfactory to the Company
("PUC Approval") that approves this Agreement and authorizes the Company to
include payments made to the Seller hereunder in the Company's Energy Cost
Adjustment Clause pursuant to Rule 6-60-6, Standards For Electric and Gas
Utility Service, Title 6, Chapter 60, of the Hawaii Administrative Rules, and in
the Company's Firm Capacity Surcharge pursuant to Section 269-27.2(d), Hawaii
Revised Statutes, or in the Company's base rates pursuant to Section 269-16(b),
Hawaii Revised Statutes, whichever occurs first.
2. The Company shall be responsible for submitting the application
for PUC Approval and for all of the Company's costs associated thereto. Seller
shall cooperate with the
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Company in any reasonable manner to assist the Company in the application for
PUC Approval and Seller shall be responsible for its costs in providing such
cooperation and assistance.
3. Notwithstanding anything in this Performance Agreement to the
contrary, in the event that the Commission denies the Company's application to
include all payments to Seller hereunder in the Company's Energy Cost Adjustment
Clause pursuant to Rule 6-60-6, Standards For Electric and Gas Utility Service,
Title 6, Chapter 60, of the Hawaii Administrative Rules, and the Company's Firm
Capacity Surcharge pursuant to Section 269-27.2(d), Hawaii Revised Statutes, or
in the Company's base rates pursuant to Section 269-16(b), Hawaii Revised
Statutes, then this Fourth Amendment, at HELCO's option and in HELCO's sole
discretion, shall be null and void and of no further force and effect. HELCO
shall have thirty (30) days from the date the PUC decision and order denying the
Company's application becomes final and non-appealable to terminate this
Agreement pursuant to this Section IV.A.
B. Consent of Bank
1. Seller, at its own expense, shall use its best efforts to obtain
from Credit Suisse, a bank organized and existing under the laws of Switzerland,
as Agent and Collateral Agent for the benefit of its own account and such other
financial institutions as may participate in the funding and other risks
associated with the Facility (the "Bank"), a Consent of the Bank to this Fourth
Amendment, related documents, and the transactions and obligations of Seller
herein, substantially in the form attached hereto as Exhibit C ("Bank's
Consent").
2. Notwithstanding anything in this Performance Agreement to the
contrary, in the event that the Bank does not execute the Bank's Consent, then
this Fourth Amendment shall be null and void and of no further force and effect.
V. EFFECTIVE DATE/CONDITIONS PRECEDENT
A. Effective Date. The obligations of the parties under Section IV and
Section VI of this Performance Agreement shall become effective on the Execution
Date. The remaining provisions of this Performance Agreement (excluding Section
IV and Section VI) shall not become effective until the later of (1) the date of
obtaining PUC Approval, or (2) the date of obtaining the Bank's Consent (the
"Effective Date").
B. Conditions Precedent. In addition to Section V.A., except for the
obligations of the parties under Section IV and Section VI of this Performance
Agreement, in no event shall the
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Company be obligated under this Performance Agreement until the fulfillment of
the following conditions:
1. The Company obtains PUC Approval as specified in Section IV.A.
above;
2. Seller shall obtain and deliver to HELCO Bank's Consent,
substantially in the form attached hereto as Exhibit C;
3. Seller successfully completes to HELCO's satisfaction the
Acceptance Test described in Section I.B.;
4. Seller fulfills all of its In-Kind Obligations (as defined in the
Settlement Agreement) under the Settlement Agreement; and
5. Each party shall have delivered or cause to be delivered to the
other party, such documents which may be reasonably required pursuant to this
Performance Agreement.
C. Term. This Performance Agreement shall remain in effect for the same
period of time as the Amended PPC, unless otherwise provided in this Performance
Agreement.
VI. TERMINATION/DEFAULT
A. This Performance Agreement will terminate:
1. if the Bank's Consent is not received prior to June 1, 1996;
2. at HELCO's option, to be exercised by written notice to Seller by
June 15, 1997, if PUC Approval satisfactory to HELCO is not received prior to
May 1, 1997;
3. at HELCO's option, to be exercised by written notice to Seller,
pursuant to Section IV.A.3.;
4. at the option of a non-defaulting party to be exercised by written
notice to the other party if the other party commits any Event of Default and
fails to cure such default in accordance with Sections VI.D. or VI.E. below; or
5. upon the termination of the Amended PPC.
B. The occurrence of any of the following events at anytime during this
Agreement shall constitute an "Event of Default" under this Performance
Agreement by the Company:
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1. in the event of nonperformance by the Company of any material
obligation under this Performance Agreement;
2. failure of the Company to pay any amounts due and payable under
this Performance Agreement within sixty (60) days after receipt of invoice;
3. the Company shall (1) be dissolved, be adjudicated as bankrupt, or
become subject to an order for relief under any bankruptcy law; (2) fail to pay,
or admit in writing its inability to pay, its debts generally as they become
due; (3) make an assignment for the benefit of creditors; (4) apply for, seek,
consent to, or acquiesce in the appointment of a receiver, custodian, trustee,
examiner, liquidator or similar official for itself or any substantial part of
its property; (5) institute any proceedings seeking an order for relief or to
adjudicate it as bankrupt or insolvent, or seeking dissolution, winding up,
liquidation, reorganization, arrangement, adjustment or composition of it or its
debts under any law relating to bankruptcy, insolvency, reorganization, or
relief of debtors; or (6) take any action to authorize or effect any of the
foregoing actions;
4. without the application, approval, or consent of the Company, a
receiver, trustee, examiner, liquidator or similar official shall be appointed
for the Company or any part of its property, or a proceeding described in
Section VI.B.3. above shall be instituted against the Company and such
appointment shall continue undischarged or such proceeding shall continue
undismissed or unstayed for a period of 60 consecutive days or the Company shall
fail to file timely and answer or other pleading denying the material
allegations filed against it in any such proceeding;
5. as provided for in Appendix E of the Amended PPC.
C. The occurrence of any one of the following events at anytime during
this Performance Agreement shall constitute an "Event of Default" under this
Performance Agreement by Seller:
1. if Seller has failed to (a) have the injection pumps (as defined
in Exhibit A attached hereto) on-site within twenty-three (23) weeks after the
later of PUC Approval or the Bank's Consent or (b) have the injection pumps
installed within twenty-six (26) weeks after the later of PUC Approval or the
Bank's Consent.
2. if Seller cannot satisfactorily complete the Acceptance Test
described in Section I.B within twenty-one (21) months after the later of PUC
Approval or the Bank's Consent;
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3. if Seller cannot satisfactorily fulfill its In-Kind Obligations
under the Settlement Agreement and related documents within twenty-one (21)
months after the later of PUC Approval or the Bank's Consent, provided that, in
the event that HELCO declines to take Energy from PGV pursuant to Section
II.B.2.c. of the Settlement Agreement from the Effective Date of this
Performance Agreement, then the twenty-one (21) month period shall be extended
by adding one day to the twenty-one (21) month period for each one hundred (100)
megawatthours ("mwh") (rounded to the nearest increment of 100 mwh) of Energy
HELCO declines to accept under Section II.B.2.c. of the Settlement Agreement,
provided further that, notwithstanding anything to the contrary, any Energy
offered to HELCO by PGV above 30 MW per hour during on-peak periods and/or above
25 MW per hour during off-peak periods, and declined by HELCO, shall not be
included in calculating any extension of the twenty-one (21) month period;
4. in the event of nonperformance by Seller of any material
obligation in this Performance Agreement;
5. failure of Seller to pay any amounts due and payable under this
Performance Agreement within sixty (60) days after receipt of invoice;
6. abandonment of the Project or the discontinuance by the Seller of
services covered under this Performance Agreement for a period of twelve (12)
consecutive months unless such discontinuance is caused by Force Majeure under
Section VIII below or an Event of Default by the Company;
7. if Seller shall (1) be dissolved, be adjudicated as bankrupt, or
become subject to an order for relief under any bankruptcy law; (2) fail to pay,
or admit in writing its inability to pay, its debts generally as they become
due; (3) make an assignment for the benefit of creditors other than the Bank;
(4) apply for, seek, consent to, or acquiesce in the appointment of a receiver,
custodian, trustee, examiner, liquidator or similar official for itself or any
substantial part of its property; (5) institute any proceedings seeking an order
for relief or to adjudicate it as bankrupt or insolvent, or seeking dissolution,
winding up, liquidation, reorganization, arrangement, adjustment or composition
of it or its debts under any law relating to bankruptcy, insolvency,
reorganization, or relief of debtors; or (6) take any action to authorize or
effect any of the foregoing actions;
8. without the application, approval, or consent of Seller, a
receiver, trustee, examiner, liquidator or similar official shall be appointed
for Seller or any part of its property, or a proceeding described in Section
VI.C.7. above shall be instituted against Seller and such appointment shall
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continue undischarged or such proceeding shall continue undismissed or unstayed
for a period of 60 consecutive days or Seller shall fail to file timely and
answer or other pleading denying the material allegations filed against it in
any such proceeding;
9. the failure to keep in force and effect all permits, approvals,
licenses, permits and the like, reasonably required for Seller to provide the
additional five (5) megawatts of firm capacity under this Performance Agreement;
10. the failure to maintain qualification of Seller's Facility
pursuant to Section IX.E; or
11. as provided for in Appendix E of the Amended PPC.
D. If an Event of Default, other than failure to make any payment due and
payable within sixty (60) days after receipt of invoice, by either party shall
extend for a period of sixty days after receipt of written notice of such Event
of Default from the non-defaulting party, then the non-defaulting party may, at
its option, terminate this Performance Agreement by delivering written notice of
such termination to the party in default and/or may institute such legal action
or proceedings or resort to such other remedies as it deems necessary; provided,
however, that the party not in default shall not terminate this Performance
Agreement at the end of such sixty day period if the party in default has
corrected or commenced appropriate steps to correct such default and is
diligently prosecuting same to completion. Such termination shall be effective
on the date of written notice of termination to the party in default and shall
not prejudice any rights of the non-defaulting party.
E. If the Event of Default is based on a party's failure to make any
payment that is due and payable under this Performance Agreement, the party
claiming such Event of Default shall give written notice to the non-paying party
stating that such payment is deemed payable. The non-paying party shall have
ten (10) days from the receipt of such notice to make the required payment and
if payment is not made within such ten (10 day period, the non-defaulting party
may terminate this Performance Agreement pursuant to written notice provided in
accordance with Section VI.D. above.
F. Rights And Obligations Of The Parties Upon Default. If this
Performance Agreement is terminated pursuant to this Section VI, the parties
shall have no further obligations to each other hereunder except for such
obligations as have been incurred hereunder prior to such termination.
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Notwithstanding the foregoing, in the event of default, the non-defaulting
party may exercise whatever legal or equitable remedies may be available to it
against the defaulting party. However, the parties further agree that in no
event shall either party be liable to the other for lost profits.
G. Interpretation of Amended PPC. In the event this Performance Agreement
is terminated, but the Amended PPC is still in effect, then the Amended PPC
shall be interpreted as if the amendments to the Amended PPC described in
Section VII below were never effective.
H. No Cross Default. A breach of or default under this Performance
Agreement shall not constitute a breach of or default under the Amended PPC. No
Event of Default under this Performance Agreement shall constitute an Event of
Default under the Amended PPC unless such event is specifically enumerated as an
Event of Default under the Amended PPC.
VII. AMENDMENT OF THE AMENDED PPC
A. Upon the fulfillment of the conditions precedent set forth in Sections
V.A. and V.B. above, the Amended PPC shall be amended as follows:
1. Appendix A, Description Of Seller's Generation And Conversion
Facilities, of the Amended PPC is deleted in its entirety and replaced by
Attachment A, which is attached hereto and made a part hereof.
2. Appendix B, Facilities Owned By The Seller, of the Amended PPC is
deleted in its entirety and replaced by Attachment B, which is attached hereto
and made a part hereof.
3. Appendix C, Interconnection Facilities Owned By The Company, of the
Amended PPC is deleted in its entirety and replaced by Attachment C, which is
attached hereto and made a part hereof.
4. Appendix D, Power Purchases By Company, of the Amended PPC is deleted
in its entirety and replaced by Attachment D, which is attached hereto and made
a part hereof.
5. Appendix F, Definitions, of the Amended PPC is deleted in its entirety
and replaced by Attachment E, which is attached hereto and made a part hereof.
6. Section 15, Force Majeure, of the Amended PPC is deleted in its
entirety and replaced by Attachment F, which is attached hereto and made a part
hereof.
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B. Upon the fulfillment of the conditions precedent set forth in Section
V.B. above and the amendment of the Amended PPC as specified in Section VII.A.
above, HELCO shall begin to make Firm Capacity payments pursuant to Paragraph
3(d) of Appendix B and Paragraph B.2. of Appendix D of the Amended PPC as
amended by this Performance Agreement.
VIII. FORCE MAJEURE
A. If either party shall be wholly or partially prevented from performing
any of its obligations under this Performance Agreement by reason of an event of
force majeure reasonably beyond its control and not attributable to its neglect,
then and in any such event, such party shall be excused from whatever
performance is prevented by such event to the extent so prevented, and such
party shall not be liable for any damage or loss resulting therefrom. Events of
force majeure shall include accidents, lightning, rain, earthquake, wind, wind-
blown water, riots, fire, flood, invasion, insurrection, lava flow or volcanic
activity, tidal wave, civil commotion, the order of any court, judge or civil
authority, war, and any act of God or the public enemy or any other cause beyond
the reasonable control of the party relying on such cause to excuse its
performance hereunder to the extent to which the party cannot remedy the problem
by exercise of due diligence, including, but not limited to, the expenditure of
all reasonable sums of money; provided that inadequate or extreme reservoir
pressures, temperature, or the presence of foreign substances therein shall not
be considered to be an event of force majeure except as provided in Section
VIII.C. below.
Notwithstanding the foregoing, however, force majeure does not include
any labor dispute, any failure of Seller to obtain and/or maintain any permit or
any full or partial curtailment of the electric output of the Facility that is
caused by or arises from a mechanical or equipment breakdown, even if the
breakdown occurs without the fault or negligence of Seller, unless such
breakdown is caused by any of the specific force majeure events listed above and
could not have been reasonably prevented.
B. The party claiming an event of force majeure shall give prompt written
notice of such event to the other party within 30 days of the date such party
claiming force majeure knew or should have known of the event of force majeure.
In addition, such party shall use reasonable diligence, to the extent
practicable, to limit the impact of such event on the performance of its
obligations under this Performance Agreement. Notwithstanding the foregoing,
this Section VIII.B. shall not excuse any payment obligation that has
theretofore accrued under this Performance Agreement.
C. Inadequate or extreme reservoir pressures, temperatures, or the
presence of foreign substances therein,
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shall not be an event of force majeure unless the Seller has taken reasonable
actions to avoid or mitigate any adverse impact on the Seller's ability to meet
its obligations under this Performance Agreement including the expenditure of
all reasonable sums of money.
D. Any obligation of either party under this Performance Agreement shall
be excused only to the extent and for the period that the party's inability to
perform is caused by a force majeure event. The party so excused shall make all
reasonable efforts including all reasonable expenditures of necessary funds to
cure, mitigate or remedy a force majeure event. Any payments due as
compensation for the obligation so excused shall also be excused for so long as
the obligation is not performed due to force majeure.
E. In the event that the Commercial Operation Date of the additional five
(5) megawatts is delayed because of an event or events of force majeure, the
time periods specified in Sections II.A and II.B shall be extended on a day-for-
day basis to match the duration of the event of force majeure.
F. Notwithstanding any other provision of this Performance Agreement, if a
party is prevented from substantially performing its obligations under this
Performance Agreement by an event of force majeure that continues for a period
of twelve (12) consecutive months, the other party may terminate the Performance
Agreement without further liability of either party to the other hereunder.
Such termination shall be effective upon 90 days written notice given any time
after the twelve month period has expired but prior to the resumption of
substantial performance; provided, however, that if substantial performance is
resumed during that 90 day period, such termination shall not be effective.
IX. MISCELLANEOUS PROVISIONS
A. Transmission Line Agreement. If, upon fulfillment of the conditions
precedent of Section V.B. of this Performance Agreement, Seller is or thereafter
becomes obligated to supply HELCO an amount of Energy equal to the remaining
Transmission Line Obligation (as defined in the Settlement Agreement) pursuant
to Section II.C.5 of the Settlement Agreement, then HELCO and PGV agree that the
remaining Transmission Line Obligation shall be paid by offsetting any amounts
owed by HELCO to PGV for energy payments for Energy provided to HELCO above 25
MW during on-peak periods and above 22 MW during off-peak periods. Presently,
the remaining Transmission Line Obligation is Two Million Nine Hundred Eighteen
Thousand Seven Hundred And No/100 Dollars ($2,918,700.00).
B. Entire Agreement. Subject to Section VI.G. herein, this Performance
Agreement, the Amended PPC and the Settlement
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Agreement, including any and all attachments, exhibits and related documents
(including, without limitation, the Transmission Line Agreement) constitute the
entire understanding between the parties, supersedes any and all previous
understandings between the parties, and binds and inures to the benefit of the
parties, their successors and assigns. The parties have entered into this
Performance Agreement in reliance upon the representations and mutual
undertakings contained herein and not in reliance upon any oral or written
representation or information provided to one party by any representative of the
other party. No modification, amendment or waiver of all or any part of this
Performance Agreement shall be valid unless it is in writing and signed by both
parties.
C. Continuing Effect. To the extent not amended by this Performance
Agreement, the Amended PPC shall remain in full force and effect.
D. Authority. All action on the part of the parties to authorize the
execution, delivery and performance of this Performance Agreement and the
consummation of the transactions contemplated herein, shall have been duly and
validly taken by each party and that this Performance Agreement constitutes a
valid and binding obligation of each party.
E. Further Performance. Each party hereto shall and does hereby agree to
make, execute, deliver and cooperate with each other, as the case may be, any
and all agreements, instruments, documents, records and/or funds, as the case
may be, whatsoever required, necessary and/or convenient to effect and
consummate this Performance Agreement and to permit performance of all acts
required hereunder.
F. Defined Terms. Capitalized terms not otherwise defined in this
Performance Agreement shall have the meaning ascribed to them in the Amended
PPC.
G. Electric Service Supplied By HELCO. This Performance Agreement and the
Amended PPC do not provide for any electric services by HELCO to Seller. If
Seller requires any electric services from HELCO, Seller shall receive such
service in accordance with HELCO's tariff.
H. Affiliated Interest. The Seller shall not sell or transfer more than a
10% equity interest to any person or entity, or enter into any other transaction
that would make the Seller an Affiliated Interest with the Company as defined by
Section 269-19.5, Hawaii Revised Statutes, without first notifying the Company
and receiving appropriate PUC approval, if any is required. If the PUC (or any
other entity which has the authority to do so) finds that the Seller is an
Affiliated Interest with the Company, the Seller shall have 60 days to take
whatever action may be appropriate to render the
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relationship not to be an Affiliated Interest. The Company shall have the right
to terminate the Amended PPC, including this Fourth Amendment and any future
amendments, if the PUC prohibits the Company from recovering any payments made
to the Seller under this Amended PPC, as amended herein and from time to time,
due to the effect of Section 269-19.5, Hawaii Revised Statutes, relating to
affiliated interests.
I. Qualification Of Seller's Facility. Seller's Facility will continue to
be throughout the term of this Performance Agreement either (1) a qualifying,
small power production facility under Subchapter 2 of the PUC's Standards for
Small Power Production and Cogeneration in the State of Hawaii, Chapter 74 of
Title 6 of the State's Administrative Rules, or (2) a "non-fossil fuel producer"
within the meaning of Section 269-27.2, Hawaii Revised Statutes.
J. Governing Law. This Performance Agreement shall be subject to,
governed by, construed and enforced in accordance with the laws of the State of
Hawaii, without regard to choice of law principles, and each of the parties
hereto shall and does hereby agree to submit to the personal jurisdiction and
venue of the Circuit Court of the Third Circuit of the State of Hawaii or the
United States District Court for the District of Hawaii, as the case may be.
K. Headings. The headings herein are inserted only for convenience and
reference, and shall in no way define, limit or describe the scope or intent of
any provision of this Performance Agreement.
L. No Party Deemed Drafter. This Performance Agreement reflects the
results of negotiations between the parties hereto and, therefore, no party
shall be deemed to be the drafter of this Performance Agreement. This
Performance Agreement or any provision hereof shall not be construed or
interpreted by any Circuit or Federal Court or other authority of competent
jurisdiction before which this Performance Agreement is properly presented
against any party as drafter.
M. Severability. If any term or provision of this Performance Agreement
or the application thereof to any person, entity or circumstance shall to any
extent be invalid or unenforceable, the remainder of this Performance Agreement,
or the application of such term or provision to persons, entities or
circumstances other than those as to which it is invalid or unenforceable, shall
not be affected thereby, and each term and provision of this Performance
Agreement shall be valid and enforceable to the fullest extent permitted by law.
N. Waiver. The failure of either party to enforce at any time any of the
provisions of this Performance Agreement, or to require at any time performance
by the other party of any of the provisions hereof, shall in no way be construed
to be a
15
<PAGE>
waiver of such provisions, nor in any way to affect the validity of this
Performance Agreement or any part hereof, or the right of such party thereafter
to enforce every such provision.
O. Notice. Unless otherwise provided, all notices, requests, demands and
other communications hereunder shall be in writing and shall be deemed given if
(1) delivered personally, or (2) by facsimile transmission (followed with a hard
copy by first class mail, postage prepaid), or (3) three (3) Business Days after
being mailed by certified or registered mail, postage prepaid, return receipt
requested, to the parties at the following addresses or at such other addresses
as the parties shall have specified by notice hereunder:
If to HELCO:
HAWAII ELECTRIC LIGHT COMPANY, INC.
1200 Kilauea Avenue
Hilo, Hawaii 96720-4295
ATTN: President
FAX No.: (808) 969-0100
If to PGV:
PUNA GEOTHERMAL VENTURE
14-3860 Kapoho Pahoa Road
Pahoa, Hawaii 96778
or
P. O. Box 30
Pahoa, Hawaii 96778
ATTN: General Manager
FAX No.: (808) 965-7254
P. Counterparts/Facsimile Signatures. This Performance Agreement may be
executed and delivered by the parties hereto in any number of counterparts, each
of which shall be delivered an original or duplicate original, and all of which
together shall constitute one and the same instrument or agreement.
Counterparts may be exchanged by facsimile, which facsimile signatures shall be
effective for all purposes and treated in the same manner as physical
signatures. Notwithstanding the foregoing, the party using facsimile signatures
agrees that it will promptly forward physically signed copies of this
Performance Agreement to the other party.
16
<PAGE>
IN WITNESS WHEREOF, the Company and the Seller have executed this
Performance Agreement as of the day and year first above written.
HAWAII ELECTRIC LIGHT COMPANY, INC.
By: /s/ Warren H.W. Lee
Name: Warren H.W. Lee
Title: President
By: /s/ Edward Y. Hirata
Name: Edward Y. Hirata
Title: Vice President
PUNA GEOTHERMAL VENTURE
By AMOR VIII CORPORATION,
a Delaware corporation,
Its General Partner
By: /s/ J. B. Fahrendorf
Name: J. B. Fahrendorf
Title: President
By CE PUNA L.P.,
a Maryland limited partnership,
Its General Partner
By CE PUNA I, INC.,
a Maryland corporation,
Its General Partner
By: /s/ John R. Farrell
Name: John R. Farrell
Title: Vice President
17
<PAGE>
STATE OF HAWAII )
) SS.
CITY AND COUNTY OF HONOLUL )
On this 8th day of February, 1996, before me personally appeared WARREN
H.W. LEE to me personally known, who, being by me duly sworn, did say that
he/she is the PRESIDENT, of HAWAII ELECTRIC LIGHT COMPANY, INC., a Hawaii
corporation, and that foregoing Performance Agreement was signed on behalf of
HAWAII ELECTRIC LIGHT COMPANY, INC. by authority of its Board of Directors, and
said officers acknowledged said Performance Agreement to be the free act and
deed of HAWAII ELECTRIC LIGHT COMPANY, INC.
/s/ Ann A. Okuno
Notary Public, State of Hawaii
My Commission expires: 3/22/98
<PAGE>
STATE OF HAWAII )
) SS.
CITY AND COUNTY OF HONOLULU )
On this 5th day of February, 1996, before me personally appeared Edward Y.
Hirata to me personally known, who, being by me duly sworn, did say that he/she
is the Vice President, of HAWAII ELECTRIC LIGHT COMPANY, INC., a Hawaii
corporation, and that foregoing Performance Agreement was signed on behalf of
HAWAII ELECTRIC LIGHT COMPANY, INC. by authority of its Board of Directors, and
said officers acknowledged said Performance Agreement to be the free act and
deed of HAWAII ELECTRIC LIGHT COMPANY, INC.
/s/ Anita J. Rocker
Notary Public State of Hawaii
My Commission expires: 6-7-97
<PAGE>
STATE OF MARYLAND )
) SS.
COUNTY OF HARTFORD )
On this 9th day of February, 1996, before me appeared John R. Farrell, to
me personally known, who, being by me duly sworn, did say that he/she is the
Vice President of CE PUNA I, INC., a Maryland corporation; that said corporation
is a general partner of CE Puna Limited Partnership, a Maryland limited
partnership; that said CE Puna Limited Partnership is a general partner of Puna
Geothermal Venture, a Hawaii general partnership named in the foregoing
Performance Agreement; that said Performance Agreement was executed by said
corporation as the duly authorized general partner of and on behalf of CE Puna
Limited Partnership, as the duly authorized general partner of and on behalf of
Puna Geothermal Venture, and acknowledged that the seal affixed to the foregoing
Performance Agreement is the corporate seal of said corporation, and that said
Performance Agreement was signed and sealed on behalf of said corporation by
authority of its Board of Directors and in the name of and on behalf of CE Puna
Limited Partnership and in the name of and on behalf of Puna Geothermal Venture,
and said officer acknowledged said Performance Agreement to be the free act and
deed of said corporation and as said general partner of CE Puna Limited
Partnership as the general partner of Puna Geothermal Venture.
/s/ Janet R. Cunningham
Notary Public State of Maryland
My Commission expires: 5/1/96
<PAGE>
STATE OF OREGON )
) SS.
COUNTY OF CLACKAMAS )
On this 12th day of FEBRUARY, 1996, before me personally appeared JOSEPH B.
FAHRENDORF to me personally known, who, being by me duly sworn, did say that
he/she is the PRESIDENT of AMOR VIII CORPORATION, a Delaware corporation; that
said corporation is a general partner of Puna Geothermal Venture, a Hawaii
general partnership, named in the foregoing Performance Agreement; that said
Performance Agreement was executed by said corporation as the duly authorized
general partner of and on behalf of Puna Geothermal Venture, and acknowledged
that the seal affixed to the foregoing Performance Agreement is the corporate
seal of said corporation, and that said Performance Agreement was signed and
sealed on behalf of said corporation by authority of its Board of Directors and
in the name of and on behalf of Puna Geothermal Venture, and said officer and
acknowledged said Performance Agreement to be the free act and deed of AMOR VIII
Corporation as general partner of PUNA GEOTHERMAL VENTURE.
/s/ Penny J. Brower
Notary Public State of OREGON
My Commission expires: 10/16/99
<PAGE>
ATTACHMENT A
TO THE
FOURTH AMENDMENT
APPENDIX A
DESCRIPTION OF SELLER'S GENERATION AND CONVERSION FACILITIES
1. Name of facility: Puna Geothermal Venture
(a) Location: Honuaula, Puna, County of Hawaii, State of Hawaii
(b) Telephone number (for system emergencies) System
Emergencies:
(808) 965-7485
Switch Board
(808) 965-6233
(c) Company billing account number: 06 686 520 01
2. Owner: Puna Geothermal Venture
3. Operator/1/: Puna Geothermal Venture
4. Name of person to whom payments are to be made:
(a) Mailing address: Puna Geothermal Venture
P. O. Box 30
Pahoa, Hawaii 96778
(b) Hawaii Gross Excise Tax License Number: 30067799
5. Equipment:
(a) Type of facility and conversion equipment: Back pressure steam
turbines integrated with air-cooled organic rankine cycle Ormat
Energy Converters.
(b) Design capacity:/2/ Total 30 MW
- -------------
/1/ Attach a letter signed by an officer of the Seller warranting that the
Seller is in good standing with the Hawaii Department of Commerce and
Consumer Affairs.
/2/ The "Design Capacity" may exceed 30 MW to the extent necessary for Seller
to furnish up to 30 MW of "Allowed Capacity" as defined in Appendix F,
provided that the "Allowed Capacity" of this Contract shall be 30 MW.
<PAGE>
ATTACHMENT A
TO THE
FOURTH AMENDMENT
(c) Single or 3 phase: 3 phase
(d) Name of manufacturer: Ormat or equivalent
(e) Date of interconnection: December 31, 1989
6. Projected date of operation in parallel to company's System ("Operational
Date"): First 25 MW - July 1, 1990
Next 5 MW - Nine (9) months
after the later of PUC
Approval or Bank's Consent
7. Date Firm Capacity Begins: First 25 MW - June 26, 1993
Next 5 MW - Upon the fulfillment of the
conditions precedent set forth in
Sections V.A. and V.B. of the Performance
Agreement
8. Insurance carrier: Attached hereto as Exhibit 1 to Appendix A
9. If the owner is not the operator, a copy of the agreement between the owner
and the operator which allows the operator to use the facility and which
establishes the scope of operations by the operator and the respective
rights of the owner and the operator with respect to the sale of electric
energy from the Seller's facility shall be provided to HELCO.
10. If the land on which the facilities are located is not owned by the
facility's owner, a copy of the agreement with the owner of the land which
establishes the right of the facility's owner to put the facility on the
land and the existence of required rights of way and easements shall be
provided to HELCO.
2
<PAGE>
ATTACHMENT A
TO THE
FOURTH AMENDMENT
Exhibit 1 To Appendix A
-----------------------
COSI PUNA, INC.
&
PUNA GEOTHERMAL VENTURE
Addendum to Executive Summary
LIABILITY
- ---------
1. Commercial General Liability - Provides protection for those sums you
become legally obligated to pay as damages because of Bodily Injury or
Property Damage to a third party, caused by an occurrence, and arising out
of the insured premises and/or those operations necessary or incidental to
your business. Coverage also includes products and completed operations,
contractual liability, independent contractors coverage, personal and
advertising injury, fire legal liability and medical payments.
Named
Insured: Puna Geothermal Venture;
COSI Puna, Inc.
Insurance
Company: Lexington Insurance Company
Policy
Number: CGL 553 55 81
Limits of
Liability: $1,000,000 Each Occurrence
$1,000,000 Personal and Advertising Injury
$ 10,000 Medical Payments per Person
$ 100,000 Fire Legal Liability
$1,000,000 Products/Completed
Operations Aggregate
$2,000,000 General Aggregate
Deductible: $ 25,000 each occurrence BI & PD Liability
Policy Term: March 31, 1995 to March 31, 1996
<PAGE>
ATTACHMENT A
TO THE
FOURTH AMENDMENT
Exhibit 1 To Appendix A
-----------------------
LIABILITY
- ---------
2. Business Automobile Liability and Physical Damage - Provides protection for
those sums you become legally obligated to pay as damages because of Bodily
Injury or Property Damage to a third party, arising from the ownership,
maintenance, or use of any owned, hired, or non-owned automobile, as
outlined in the policy. Other coverages include uninsured motorists,
medical payments and physical damage (Comprehensive and Collision for owned
and hired vehicles).
Insurance
Company: Gulf Insurance Company
Policy
Number: BA 543 69 52
Limits of
Liability: $1,000,000 Bodily injury
$1,000,000 Property Damage
$1,000,000 Uninsured Motorists
$ 20,000 Personal Injury Protection
$1,000,000 Hired and Non-Owned Automobile
Deductible: $ 1,000 Comprehensive
$ 1,000 Collision
Policy Term: 8/1/95 - 8/1/96
Note: Schedule of vehicles on file with Company.
2
<PAGE>
ATTACHMENT A
TO THE
FOURTH AMENDMENT
Exhibit 1 To Appendix A
-----------------------
3. Workers Compensation and Employers Liability - Provides protection to your
employees for any injury, death, or disease arising out of and in the
course of employment, as outlined in the policy. Benefits are paid
according to the Workers Compensation Law and Occupational Disease Law of
each State or Territory.
Insurance
Company: The Travelers Insurance Company
Policy
Number: BUB599K4B4294
Limits of
Liability:
Coverage A: Workers Compensation - Statutory
Coverage B: Employers Liability -
$1,000,000 B|by Accident
$1,000,000 B|by Disease Policy Limit
$1,000,000 B|by Disease Each Employee
Policy Term: 11/22/94 - 11/22/95
3
<PAGE>
ATTACHMENT A
TO THE
FOURTH AMENDMENT
Exhibit 1 To Appendix A
-----------------------
4. Umbrella Liability - Protects against catastrophic third party liability
losses by providing excess limits of liability over and above the following
General Liability, Automobile Liability, and the Employers Liability
portion of the Worker's Compensation policy. Coverage is subject to terms,
conditions and exclusions of the following policy:
Named
Insured: Puna Geothermal Venture;
COSI Puna, Inc.
Insurance
Company: Lexington Insurance Company
Policy
Number: 8667359
Limit of
Liability: $25,000,000 Each Occurrence
$25,000,000 General Aggregate
Self
Insured
Retention: $25,000
Policy Term: March 31, 1995 to March 31, 1996
4
<PAGE>
ATTACHMENT A
TO THE
FOURTH AMENDMENT
Exhibit 1 To Appendix A
-----------------------
Control of Well - Provides protection for cost to gain control of well; the
expense to redrill and/or restore the well to the condition prior to the
blowout and cleanup and pollution expenses resulting from a blowout. A
separate endorsement extends the policy to cover contractor's equipment
(not rigs) in the insured's care, custody or control.
Named
Insured: Puna Geothermal Venture;
COSI Puna, Inc.
Insurance
Company: Underwriter's at Lloyd's London and Certain
Insurance Companies (through GSR)
Policy
Number: 62741
Limits: $20,000,000 Ea. Occurrence, OEE (100%)
$ 1,000,000 Care, Custody & Control (100%)
Deductible: $ 25,000 Each Occurrence, per Section
OEE (100%)
$ 25,000 Care, Custody & Control (100%)
Policy Term: March 31, 1995 to March 31, 1996
Note: Premium Subject to Audit
5
<PAGE>
ATTACHMENT A
TO THE
FOURTH AMENDMENT
Exhibit 1 To Appendix A
-----------------------
PROPERTY
- --------
Property Damage - Provides repair or replacement cost coverage for damage
to all real and personal property, including Business Interruption
resulting from a covered peril. Provides coverage for fire and extended
coverages, flood, earthquake, and transit, all subject to policy terms,
conditions and exclusions.
Boiler & Machinery - Provides repair or replacement cost coverage,
including Business Interruption, resulting from sudden and accidental
damage to objects, or parts thereof, subject to policy exclusions. Objects
include, but are not limited to, pressure, mechanical, and electrical
apparatus, including turbine generators.
Insurance Company: Insurance Company of North
America (INA)
Policy Number: EUTFD835821-7
Policy Term: 8/1/95 - 8/1/96
Highlights of Limits:
Combined Property Damage and Boiler & Machinery including: Business
Interruption, Flood, Pollution Cleanup & Removal, Errors & Omissions, and
Debris Removal
Combined Unit $102,916,000 per occurrence
Sub-Limits applicable to Property Damage:
-----------------------------------------
Earthquake $40,000,000
Accounts Receivable $ 5,000,000
Valuable Papers $ 5,000,000
Demolition/Increased
Cost of Construction $ 5,000,000
Extra Expense $ 5,000,000
6
<PAGE>
ATTACHMENT A
TO THE
FOURTH AMENDMENT
Exhibit 1 To Appendix A
-----------------------
Property in Transit $ 5,000,000
Newly Acquired Property $ 5,000,000
(90 days)
Transmission/
Distribution Lines $ 1,500,000
Sub-Limits applicable to Boiler & Machinery:
--------------------------------------------
Business Interruption $13,514,000
Service Interruption $ 5,000,000
Extra Expense $ 5,000,000
Expediting Expense $ 1,000,000
Hazardous Substance $ 1,000,000
Ammonia Contamination $ 1,000,000
Water Damage $ 1,000,000
Deductibles:
Property Damage $ 50,000 except
Transmission/
Distribution Lines $ 250,000
Named Windstorms $ 250,000
Earthquake $ 100,000 or 2%
whichever is greater
Business Interruption 30 day waiting period
except;
Service Interruption 48 hour waiting period
7
<PAGE>
ATTACHMENT B
TO THE
FOURTH AMENDMENT
APPENDIX B
FACILITIES OWNED BY THE SELLER
1. Seller's Facility
(a) A final (1) a single-line diagram of Seller's Facility, (2) relay
list, and (3) trip scheme shall be prepared and, subject to the review
and acceptance thereof by both parties, signed and attached hereto as
Exhibit 1 to Appendix B and made a part hereof. Such single-line
diagram expressly identifies the final location of the Point of
Interconnection.
Material changes or additions to the Seller's Facility reflected in
the single-line diagram, relay list, and trip scheme shall not be made
without the prior written consent of the Company pursuant to Section 3
of the Contract. If any changes in or additions to such Facility,
records, and operating procedures are required by the Company, the
Company shall specify such changes to the Seller in writing, and
except in the case of an emergency, Seller shall have the opportunity
to review any such change or addition in advance.
(b) The Seller shall furnish, install, operate and maintain facilities
such as breakers, relay, switches, synchronizing equipment, monitoring
equipment and control and protective devices acceptable to the Company
as suitable for parallel operation with the Company's System. Such
facilities shall be accessible at all times to authorized Company
personnel.
(c) The Seller shall furnish, install and maintain in accordance with the
Company's requirements all conductors, service switches, fuses, meter
sockets, meter and instrument transformer housing and mounting,
switchboard meter test buses, meter panels and similar devices
required for service connections and meter installations on the
Seller's premises.
(d) Seller shall install transducers, metering, AC and DC sources,
telephone lines, and provide interconnecting wiring for supervisory
and communications equipment.
(e) The Company has reviewed and accepted the design drawings and Bill of
Material for the Seller's electrical equipment required to
interconnect with
<PAGE>
ATTACHMENT B
TO THE
FOURTH AMENDMENT
the Company's System. The type of electrical equipment, the type of
protective relaying equipment (which equipment shall be mutually
agreeable to the parties) and the settings that affect the reliability
and safety of operation of the Company's and Seller's interconnected
system shall be acceptable to the Company. The Company, at its
option, may request to witness operation of control, synchronizing,
and protection schemes.
(f) The Seller shall provide a manual disconnect device which provides a
visible break to separate the Seller's Facility from the Company's
System. Such disconnect device shall be lockable in the OPEN position
and be readily accessible to Company personnel at all times.
(g) In order to allow Seller's Facility to remain on-line and to assist in
restart of parallel operation thereof with the Company's System,
Seller may provide automatic equipment to isolate Seller's Facility
from the Company's System during large system disturbances; provided
that such automatic equipment has been approved by the Company prior
to installation for compatibility with Company's System.
2. Operating Procedures
(a) The Company may require periodic reviews of the Seller's Facility,
maintenance records, available operating procedures and policies, and
relay settings, and may request changes it deems necessary to protect
the Company's System from damages resulting from the Seller's parallel
operation.
(b) Logs shall be kept by the Seller for information on unit availability,
including reasons for planned and forced outages; circuit breaker trip
operations; relay operations, including target initiation; and other
unusual events. The Company shall have the right to review these
logs, especially in analyzing system disturbances. The Seller will
provide the Company with subsequent written confirmation any time the
Seller experiences a unit trip. Such confirmation will include the
date and time of the occurrence as well as the cause of the unit trip.
(c) Seller shall limit its Facility's ramp rate to less than 2 MW/min.
(d) The Company's Load Dispatcher shall specify the power factor at which
energy is delivered by the Seller to
2
<PAGE>
ATTACHMENT B
TO THE
FOURTH AMENDMENT
the Company. Typical power factor requirements will normally
operate in a range of O.85 lagging to 1.0.
(e) If Seller is separated from the Company's System for any reason, the
Seller, under no circumstances, shall reclose into the Company's
system without first obtaining specific approval to do so from the
Company's Load Dispatcher. Such approval shall be withheld only when
such reclosing is not in accordance with Section 17(a) of this
Contract and the Company's standard practices, policies and
procedures.
(f) The Company's Load Dispatcher will notify the Seller whenever the
Seller must be separated from the Company's System pursuant to
Sections 6 and 7 of this Contract. When possible, reasonable advance
notice will be given to the Seller by the Company's Load Dispatcher,
provided this provision does not limit the Company's obligation to
give notice under Section 6(b) of this Contract.
(g) The Seller shall submit the next five-year maintenance requirement in
writing to the Company each year no later than June 30 of the previous
year. The Company shall specify the maintenance schedule for the
five-year period and inform the Seller in writing no later than
September 30 of the same year. The Company shall not unreasonably
delay maintenance of the Seller's Facility and will cooperate with
Seller in establishing a reasonable schedule for the Seller's
maintenance requirements.
(h) The Seller shall notify the Company's Load Dispatcher prior to
synchronizing a generator onto or taking a generator off the system.
Such notification should be as far in advance as reasonably possible
under the circumstances causing the action.
(i) Company Dispatch - The Company shall have the sole and absolute right,
through supervisory equipment or otherwise, to control, from moment to
moment, within the limits of sound engineering practices, the rate of
delivery of energy and capacity subject to a Legally Enforceable
Obligation to a maximum of the Seller's Firm Capacity Obligation.
3. Seller's Firm Capacity Obligation
(a) Firm Capacity Obligation. The Seller shall furnish the Company 30,000
kw of capacity and 18,600 kvar of reactive from the Effective Date of
the Fourth
3
<PAGE>
ATTACHMENT B
TO THE
FOURTH AMENDMENT
Amendment until the end of the contract term pursuant to a Legally
Enforceable Obligation, under the Company's Dispatch during the entire
term hereof except for the "annual overhaul period" set forth in
Paragraph 3(b) of this Appendix B. The reactive shall be in
proportion to power in the range of 0.85 lagging to 1.0 unity power
factor and shall be dispatched by the Company to keep the Seller's
generator within the limits of plus or minus 5% of the generator
voltage.
(b) Plant Shutdown Period. The Seller may shut its facility down and
shall have no obligation to furnish the Company the capacity described
in Paragraph 3(a) of this Appendix B during the "Annual Overhaul
Period." During each contract year the Annual Overhaul Period shall
not be longer than 28 days and shall be taken during the period
beginning May 15 and ending September 30, the specific days to be
determined each contract year with the Company's approval, which
approval shall not be unreasonably withheld, and shall not be in
conflict with the schedule established for the Company's other firm
capacity contracts.
(c) Minimum Delivery Guarantee By The Company. The Company shall accept
as much of the power made available from the Seller as possible, given
the limitations resulting from the Company's obligations to purchase
minimum amounts of firm capacity from other firm capacity sellers, the
Company's existing obligations to purchase As-Available Energy, the
Company's need to keep a minimum number of its own generating units
on-line at least at a reasonable minimum loading, the Company's load
during certain times of the day and other operating reasons, provided
that the Company shall accept 25,000 kw during the on-peak hours (7:00
a.m. to 9:00 p.m.), and 20,000 kw in 1990 and 22,000 kw after 1990
during the off-peak hours. The Company shall purchase a minimum of
178,000,000 kwh each year from the Seller under the Company's Dispatch
subject to the provisions of Section 6 and 7 of the Contract. The
178,000,000 kwh amount shall be reduced by the Energy (kwh) that the
Seller should have delivered to the Company but could not due to
reasons other than the Annual Overhaul Period and force majeure.
(d) Capacity Payments. The Company shall pay the Seller for the Firm
Capacity under Company Dispatch subject to a Legally Enforceable
Obligation that the Seller is obligated to deliver to the Company
pursuant to
4
<PAGE>
ATTACHMENT B
TO THE
FOURTH AMENDMENT
Paragraph 3 of this Appendix B as provided for by Paragraph B of
Appendix D of this Contract.
(e) Sanctions for Non-Performance. The Seller shall pay the sanctions
provided for by Paragraph D of Appendix D of this Contract if it fails
to satisfy its firm capacity obligations under this Contract.
4. Access to Facility
(a) Seller hereby grants HELCO the right, but not the obligation, for the
term of this Contract to enter upon the Facility with such prior
notice as is reasonable under the circumstances to take such action as
may be necessary in the reasonable opinion of HELCO (i) to maintain,
inspect, read and test meters and other HELCO equipment, and (ii) to
interconnect, interrupt, monitor or measure electrical generation
produced at Seller's Facility.
(b) PGV shall provide in the first month of every year on an annual basis
throughout the term of this Contract, information and geothermal data
in substantially the form attached hereto as Exhibit 2 to Appendix B.
In addition, at HELCO's request, PGV shall meet with HELCO and provide
such data, information and access to PGV's Facility reasonably
required to update the December 12, 1995 "Geothermal Resource
Assessment, Puna Geothermal Venture Expansion, Kilauea East Rift,
Hawaii" by Gerald Niimi of Therma Source, Inc. and the January 15,
1996 "Analysis of Fluid Compositions at the Puna Geothermal Venture 30
mWe Geothermal Facility" by Donald Thomas of G-Tech Services, and/or
provide a similar analysis to these reports.
5
<PAGE>
ATTACHMENT B
TO THE
FOURTH AMENDMENT
Exhibit 1 To Appendix B
[To Be Attached -- Attach hereto a copy of a single-line diagram of the
Seller's Facility, relay list, and trip scheme within sixty (60) days of the
Execution Date (as defined in the Performance Agreement) pursuant to the
Performance Agreement.]
<PAGE>
ATTACHMENT B
TO THE
FOURTH AMENDMENT
Exhibit 2 To Appendix B
PUNA GEOTHERMAL VENTURE
KS10 PRODUCTION WELL DATA
<TABLE>
<CAPTION>
AVERAGE AVERAGE
WELLHEAD WELLHEAD
HOURS PRESSURE TEMP
Mo. Total ON PROD STEAM BRINE TOTAL (PSIG) (DEG F)
<S> <C> <C> <C> <C> <C> <C>
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
<CAPTION>
KS09 PRODUCTION WELL DATA
AVERAGE AVERAGE
WELLHEAD WELLHEAD
HOURS PRESSURE TEMP
Mo. Total ON PROD STEAM BRINE TOTAL (PSIG) (DEG F)
<S> <C> <C> <C> <C> <C> <C>
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
</TABLE>
<PAGE>
ATTACHMENT B
TO THE
FOURTH AMENDMENT
Exhibit 2 to Appendix B
PUNA GEOTHERMAL VENTURE
COMBINED INJECTION DATA
QUANTITIES OF FLUID INJECTED (K POUNDS)
<TABLE>
<CAPTION>
Mo. Total GEOFLUID
<S> <C>
JAN
FEB
MAR
APR
MAY
JUN
JUL
AUG
SEP
OCT
NOV
DEC
</TABLE>
2
<PAGE>
ATTACHMENT C
TO THE
FOURTH AMENDMENT
APPENDIX C
Interconnection Facilities Owned By The Company
1. The Company will design, construct, own, operate and maintain all
facilities on the Company's side of the Point of Interconnection required
to interconnect the Company's System with the Seller's Facility at 69 kv,
including, without limitation, the following equipment at the Seller's
Facility:
(a) Necessary instrument transformers, test facilities (except switchboard
meter test buses), meters, and protective line relays.
(b) Supervisory and communication equipment for remote control and
metering (a Remote Terminal Unit) at the Seller's Facility.
(c) Provided, however, that PGV will construct the permanent switching
station at the Point of Interconnection.
(d) The Seller shall be responsible for the costs to design, permit,
construct, and install the interconnection facilities owned by the
Company.
2. The terms relating to the design, permitting, construction and operation of
certain Interconnection Facilities, including power transmission lines,
required to be installed in order to accept Energy from Seller's Facility
have been determined by separate agreements between the parties. This
Contract is subject in all respects to the parties' conclusion of
satisfactory terms regarding the construction, installation and operation
of such Interconnection Facilities and the payment therefor. To the extent
a portion of such costs is to be paid by Seller, an allocation shall be
agreed to by the parties that reflects benefits to Buyer's System of
constructing or upgrading such Interconnection Facilities or portions
thereof that are not required solely to interconnect Seller's Facility.
Such cost allocation shall be subject to review and approval by the PUC.
Presently, the Company and Seller's have entered into a Transmission Line
Agreement, dated March 7, 1995, which is pending before the PUC for
approval. The Transmission Line Agreement is incorporated herein by
reference.
<PAGE>
ATTACHMENT C
TO THE
FOURTH AMENDMENT
3. The Seller shall reimburse the Company for any costs incurred in operating,
maintaining, replacing, or relocating Company-owned Interconnection
Facilities to the extent that such costs exceed Company's cost if the
Seller were not interconnected to the Company's System.
4. The Company shall maintain full and complete information logs and records
of (i) all meter readings; (ii) the calculation of amounts due to Seller;
(iii) the operation and maintenance of the Interconnection Facilities; and
(iv) information to verify events described in Section 6(a), 6(b), and 7 of
this Contract, including but not limited to, unit availability (including
reasons for planned and forced outages), circuit breaker trip operations,
and relay operations (including target initiation).
5. The Seller shall be allowed to review the information logs and records
maintained by the Company pursuant to Section 4 of this Appendix C, above,
during the Company's normal business hours in accordance with the Company's
rules for service to its customers.
2
<PAGE>
ATTACHMENT D
TO THE
FOURTH AMENDMENT
APPENDIX D
POWER PURCHASES BY COMPANY
(For 30 MW)
A. ENERGY PURCHASES BY THE COMPANY
1. Subject to the other provisions of this Contract, including but not
limited to Sections 6 and 7 of this Contract:
a. The Company shall accept and pay for the first twenty-five (25)
megawatts of on-peak Energy and the first twenty-two (22)
megawatts of off-peak Energy generated by the Seller's Facility
and delivered by the Seller to the Company at the higher of: (a)
the respective on-peak and off-peak energy rates set forth in
Paragraph A.3.a. of this APPENDIX D, or (b) $0.0656/kilowatthour
("kwh") on-peak or $0.0543/kwh off-peak; provided, however, that
the rate of delivery of such Energy under this Paragraph A.1.a
shall not exceed twenty-five (25) megawatts on-peak and twenty-
two (22) megawatts off-peak at any given time.
b. The Company shall accept and pay for an additional five (5)
megawatts of on-peak Energy (above the twenty-five (25) megawatts
delivered pursuant to Paragraph A.1.a above) generated by the
Seller's Facility and delivered by the Seller to the Company at
the higher of: (a) the on-peak energy rate set forth in
Paragraph A.3.b. of this APPENDIX D, or (b) the Minimum Purchase
Rate set forth in Paragraph A.4. of this APPENDIX D; provided,
however, that the rate of delivery of such Energy under this
Paragraph A.1.b shall not exceed five (5) megawatts at any given
time.
c. At the Company's sole discretion, the Company may accept and pay
for any additional on-peak Energy provided above the thirty (30)
megawatts of on-peak Energy (delivered pursuant to Paragraphs
A.1.a. and A.1.b. above) at the higher of: (a) the on-peak
energy rate set forth in Paragraph A.3.b. of this APPENDIX D, or
(b) the Minimum Purchase Rate set forth in Paragraph A.4. of this
APPENDIX D.
<PAGE>
ATTACHMENT D
TO THE
FOURTH AMENDMENT
d. At the Company's sole discretion, the Company may accept and pay
for any additional off-peak Energy above the twenty-two (22)
megawatts of off-peak Energy (delivered pursuant to Paragraph
A.1.a. above) generated by the Seller's Facility and delivered by
the Seller to the Company at the higher of: (a) the Energy
Rate/kwh calculated for on-peak energy set forth in Paragraph
A.3.b. of this APPENDIX D less $0.01/kwh, or (b) $0.02/kwh.
e. The Company agrees that it will not enter into any new contracts
with independent power producers or amend any existing contracts
with independent power producers that would obligate the Company
to take any more off-peak As-Available Energy than the Company is
presently obligated to take under an existing agreement without
first agreeing to take an additional 5 megawatts of off-peak
Energy from Seller. This provision shall not apply to the
purchase, either in a new or existing contract with an
independent power producer, of any additional amount of off-peak
energy required in such contract because of the reasonable
minimum operating requirements of an independent power producer.
2. Energy furnished by Seller to the Company shall be metered by a time-
of-day meter that measures Energy delivery on at least one hour
intervals. The Company shall not pay for any Energy that may be
delivered by the Seller prior to installation and operation of the
Company's meters. The on-peak hours shall be those between 7:00 a.m.
and 9:00 p.m. daily, and the off-peak hours shall be those between
9:00 p.m. on one day and 7:00 a.m. on the following day.
3. Energy Rates
a. The on-peak energy rate for the first 25 MW of on-peak Energy and
the off-peak energy rate for the first 22 MW of off-peak Energy
delivered pursuant to Paragraph A.1.a. above shall be one hundred
percent (100%) of the Company's respective on-peak and off-peak
Avoided Energy Costs (including avoided costs of fuel and
operation and maintenance) in cents per kilowatthour, calculated
in accordance with the provisions of the PUC's Standards, on file
with the PUC and in effect for the month in which such Energy is
delivered.
2
<PAGE>
ATTACHMENT D
TO THE
FOURTH AMENDMENT
b. The on-peak energy rate for the next 5 MW of on-peak Energy
(above 25 MW) delivered pursuant to Paragraph A.1.b. above shall
be:
On-Peak Energy
Rate/kwh = [Fuel Rate (Base Charge) x A] + [Variable O & M
Rate (Base Charge) x (GDPIPD (current)/GDPIPD
(base))]
The terms in the above formula shall have the following meanings as stated:
Fuel Rate (Base Charge): $0.038/kwh
A = Fuel Actual (Diesel)/Fuel Base (Diesel) where:
Fuel Actual (Diesel) is the average of each of the Thursday high and low Pacific
Northwest Spot 0.5% No. 2 prices for Diesel Fuel ("PNW No.
2 prices"), as reported by Oil Price Information Service
("OPIS") from the 21st day of the second preceding month to
the 20th day of the month preceding the month Energy is
delivered to HELCO (Computation Month), expressed in
dollars per gallon, rounded to the fourth decimal place;
and
Fuel Base (Diesel) is the average of each of the Thursday high and low PNW No. 2
prices as reported by OPIS from the 21st day of November
1995 to the 20th day of December 1995, expressed in dollars
per gallon, rounded to the fourth decimal place and which
the parties agreed is $0.5444/gallon.
If OPIS is not published or does not publish a high and low price for a
particular Thursday during the relevant one month period,
the high and low prices for the closest preceding day for
which OPIS publishes a price report will be used.
In the event that PNW No. 2 prices are not published by OPIS then the parties
agree to use another publication that publishes PNW No. 2
prices. In the event that PNW No. 2 prices are not
published or otherwise available, the parties agree to
adjust the
3
<PAGE>
ATTACHMENT D
TO THE
FOURTH AMENDMENT
Fuel Rate (Base Charge) by a new index, which, to the extent practicable, shall
be applied in the same fashion as the index represented by
the term "A" in the above formula.
Variable O & M Rate (Base Charge) = $0.0029/kwh
GDPIPD (current) = the final Gross Domestic Product
Implicit Price Deflator ("GDPIPD")
(there are four categories of GDPIPD --
advance, preliminary, final and revised
final) as published by the United
States Department of Commerce,
Economics and Statistics
Administration, Bureau of Economic
Analysis ("Department of Commerce") for
the third quarter of the calendar year
preceding the calendar year in which
the Energy is delivered.
GDPIPD (base) = the final GDPIPD as published by the
Department of Commerce for the third
quarter of 1995.
In the event that GDPIPD is not published by Department of Commerce, the parties
agree to adjust the Variable O & M Rate (Base Charge) by another
index mutually agreed upon by the parties.
When adjusting the Variable O&M Rate (Base Charge), the adjustment shall apply
to the energy delivered by Seller to HELCO in the month of the
adjustment date (January 1) and then invoiced for payment in the
following month. In other words, the annual adjustment factor
will be first applied to the energy delivered in January to be
invoiced in February.
An example of the On-Peak Energy calculation is attached hereto as Exhibit 1 to
Appendix D.
4. The Minimum Purchase Rate, as defined in APPENDIX F of this Contract, shall
apply to the five (5) megawatts of Energy delivered by Seller under
4
<PAGE>
ATTACHMENT D
TO THE
FOURTH AMENDMENT
Paragraph A.1.b. above to the Company during the term of this
Contract.
5. During each payment period Seller shall be credited at the rate of
$0.002 per kilovarhour for each kilovarhour furnished by the Seller to
the Company in excess of .62 x kwh. The kvarh meters shall be
adjusted to prevent reversal in the event the power factor is leading.
6. This paragraph intentionally left blank.
7. The Seller shall deliver Energy under Company Dispatch pursuant to a
Legally Enforceable Obligation as follows:
a. On-Peak Period. During the 14 hour period from 7:00 a.m. to 9:00
p.m. each day, the Seller shall be obligated to deliver Energy
under the Company's Dispatch at a rate equal to the Seller's Firm
Capacity Obligation described in Paragraph 3.(a) of APPENDIX B of
this Contract.
b. Off-Peak Period. During the 10 hour period from midnight to 7:00
a.m. and 9:00 p.m. to midnight each day, the Seller shall be
obligated to deliver energy under the Company's Dispatch at a
rate not greater than the Seller's Firm Capacity Obligation
described in Paragraph 3.(a) of APPENDIX B of this Contract and
not less than the Minimum Delivery Guarantee.
B. CAPACITY PURCHASES BY THE COMPANY
1. As compensation for providing the Firm Capacity under Company Dispatch
as described in Paragraph 3(a) of APPENDIX B, the Company will pay the
Seller a capacity payment, payable monthly within 20 days after the
last day of the calendar month in which the firm capacity was
provided, of 1/12 of the Annual Capacity Payment Rate.
2. The Capacity Payment Rate shall be:
a. $4,000,000 per year for the first twenty-five (25) megawatts of
firm capacity under Company Dispatch as described in Paragraph 3
of APPENDIX B beginning on June 26, 1993; and subject to the
sanction provision of Paragraph D.1. of APPENDIX D; and
5
<PAGE>
ATTACHMENT D
TO THE
FOURTH AMENDMENT
b. $504,750 per year for the next five (5) megawatts of firm
capacity under Company Dispatch above the first twenty-five (25)
megawatts of firm capacity in Subsection B.2.a. as described in
Paragraph 3 of APPENDIX B beginning on the date of the
fulfillment of the conditions precedent set forth in Sections
V.A. and V.B. of the Fourth Amendment; provided that the Seller
has satisfied the Acceptance Test requirement of Section I.B. of
the Fourth Amendment; and subject to the sanction provision of
Paragraph D.1. of APPENDIX D. If the first year of operation for
the additional 5 MW of firm capacity is a partial calendar year
then the amount of the Capacity Payment ($504,750) shall be
prorated on a daily basis ($1,380 per day) from the date of the
fulfillment of the conditions precedent set forth in Sections
V.A. and V.B. of the Fourth Amendment through December 31 of that
year.
3. The Company shall not be required to pay any additional capacity
payment for any additional power supplied by the Seller, either at the
Company's or the Seller's request.
4. A failure by the Seller to provide the required Firm Capacity to the
Company shall result in the reduction in the capacity payment due to
the Seller from the Company in accordance with Paragraph D of APPENDIX
D of this Contract. The Company shall not have any obligation to pay
capacity payments to the Seller for periods in excess of twenty-four
hours in which the Seller is unable to fulfill its obligations under
the Contract, including but not limited to (i) circumstances which are
subject to Paragraph 15 of this Contract relating to Force Majeure
without fault, or (ii) for periods in which the Seller does not
fulfill its obligations under Paragraph 3 of APPENDIX B of this
Contract due to the Seller's "default," as such term is defined in
APPENDIX E of this Contract.
5. If the Seller does not satisfy its firm capacity obligations as
described in Paragraph 3 of APPENDIX B and Paragraph C of this
APPENDIX D of this Contract, it shall pay sanctions as described in
Paragraph D of this APPENDIX D.
6
<PAGE>
ATTACHMENT D
TO THE
FOURTH AMENDMENT
C. PERFORMANCE STANDARDS
1. The Seller acknowledges and agrees that the Seller's generating
facility is expected to meet the following minimum standards for
satisfactory day-to-day performance during each contract year: (i) an
On-peak Availability (excluding the four-week annual maintenance
period and downtime due to a catastrophic equipment failure) of 95
percent or better; (ii) not more than 6 Plant Trips per year; and
(iii) a forced outage rate of 5 percent or less.
2. The "On-peak Availability" of the Seller's Facility (in percent) is to
be computed by adding the total on-peak Energy under Company's
Dispatch subject to a Legally Enforceable Obligation available from
the Seller's Facility during the contract year, and dividing by the
product of 4,718 on-peak hours per 48 week year (4,732 for leap years)
times the Firm Capacity Obligation (prorated on a daily basis, if
necessary) and multiplying the total by 100 percent.
3. "Catastrophic Equipment Failure" means a sudden, unexpected failure of
a major piece of equipment which (i) substantially reduces or
eliminates the capability of the Seller's Facility to produce power,
(ii) is beyond the reasonable control of the Seller and could not have
been prevented by the exercise of due diligence by the Seller, and
(iii) despite the exercise of all reasonable efforts, requires more
than sixty (60) days to repair.
4. "Plant Trip" means the sudden and immediate removal of the Seller's
Facility from service as a result of an immediate
mechanical/electrical/hydraulic control system trip or operator
initiated trip/shutdown which requires the Company to take immediate
steps to place an unscheduled generator on line to make up for the
loss of output of the Seller's Facility; provided, however, that a
Plant Trip shall not include: (i) any such removal which occurs
within forty-eight (48) hours of the time at which the Seller's
Facility is restarted following an outage; (ii) trips caused or
initiated by the Company; or (iii) trips occurring during periods when
the Seller has continued to furnish capacity to the Company at the
request of the Company's Production Manager after the Seller has
notified the Company's Production Manager that the Seller's Facility
is likely to trip.
7
<PAGE>
ATTACHMENT D
TO THE
FOURTH AMENDMENT
5. The "Forced Outage Rate" of the Seller's Facility during a contract
year is to be computed by totaling the average megawatts unavailable
for service due to forced outages or deratings on an hourly basis,
multiplying the total by 100, and dividing by the product of 8,760
hours per year times the weighted average of the Seller's firm
capacity obligation (prorated on a daily basis, if necessary).
D. SANCTIONS
1. The capacity payment is to be made on the basis of the full
availability of the Seller's Firm Capacity Obligation. When the
Seller's full Firm Capacity Obligation is not available, the Seller
shall pay the Company $0.0214 per on-peak hour for each kilowatt of
deficiency based on annual capacity payments of $504,750 and 4,718 on-
peak hours in a year for the first five (5) megawatts of deficiency
and the Seller shall pay the Company $0.0339 per on-peak hour for each
kilowatt of deficiency in excess of five (5) megawatts of deficiency
based on annual capacity payments of $4 million and 4,718 on-peak
hours in a year.
2. For each contract year in which the On-peak Availability of the
Seller's Facility is less than 95 percent, unless the shortfall is due
to a catastrophic equipment failure, the Seller shall pay $7,992 to
the Company for each full percentage point of the shortfall less than
95 percent to and including 80 percent, and the Seller will pay
$11,875 to the Company for each full percentage point of the shortfall
less than 80 percent.
3. For each Plant Trip in excess of 6 per contract year, the Seller shall
pay $10,000 to the Company.
4. The Company shall have the right to offset any payment due from the
Seller under this Paragraph against any payments due to the Seller.
5. This paragraph intentionally left blank.
6. Each party may exercise whatever legal or equitable remedies may be
available to enforce the obligations of this Contract in the event of
a default by the other party.
8
<PAGE>
ATTACHMENT D
TO THE
FOURTH AMENDMENT
Exhibit 1 To Appendix D
Illustration of
On-Peak Energy Payment Rate
On-Peak Energy Payment Rate = Fuel Component + Variable O&M Component
Where:
Fuel Component = Fuel Rate (Base Charge) x Fuel Index
Variable O&M Component = Variable O&M Rate (Base Charge) x Variable O&M
Index
Fuel Rate (Base Charge) = $0.038/kwh
Fuel Index = PNW (current)/PNW (base)
Variable O&M Rate
(Base Charge) = $0.0029/kwh
Variable O&M Index = GDP IPD (current)/GDP IPD (base)
On-Peak Energy Payment Rate = [$0.038/kwh x PNW (current)/PNW (base)] +
[$0.0029 x GDP IPD (current)/GDP IPD (base)]
Where:
PNW (current) = the average of each of the Thursday high and
low Pacific Northwest Spot 0.5% No. 2 prices
for Diesel Fuel ("PNW"), as reported by Oil
Price Information Service ("OPIS") from the
21st day of the second preceding month to the
20th day of the month energy is delivered by
PGV to HELCO, expressed in $/gallon
PNW (base) = $0.5444/gallon, the average of the Thursday
high and low Pacific Northwest Spot 0.5% No. 2
prices for Diesel Fuel, as reported by OPIS
from the 21st day of November 1995 to the 20th
day of December 1995, expressed in $/gallon
GDP IPD (current) = final GDP IPD for the 3rd Quarter of the year
preceding the year that the Variable O&M Index
will be used
GDP IPD (base) = the final GDP IPD for the third quarter of
1995 (Note: 107.9 is the "preliminary"
estimate used only for this illustration - the
"final" shall be used in the actual
calculation)
On-Peak Energy Payment Rate = [$0.038/kwh x PNW (current)/$0.5444/gal] +
[$0.0029 x GDP IPD (current)/107.9]
<PAGE>
ATTACHMENT D
TO THE
FOURTH AMENDMENT
Exhibit 1 To Appendix D
<TABLE>
<CAPTION>
OPIS
PRICE PACIFIC NORTHWEST CUSA/HECO CUSA/HECO
FOR DIESEL PRICE WEEKLY MONTHLY
MONTH OF DATE LOW HIGH AVG PRICE AVERAGE
<S> <C> <C> <C> <C> <C> <C>
DEC 1995 10/26/95 0.5800 0.5850 0.5825 0.5825
11/02/95 0.5775 0.5850 0.5813 0.5813
11/09/95 0.5900 0.5950 0.5925 0.5925
11/16/95 0.5625 0.5700 0.5663 0.5663 0.5806
JAN 1996 11/22/95 0.5550 0.5650 0.5600 0.5600
11/30/95 0.5400 0.5500 0.5450 0.5450
12/07/95 0.5350 0.5450 0.5400 0.5400
12/14/95 0.5300 0.5350 0.5325 0.5235 0.5444
</TABLE>
2
<PAGE>
ATTACHMENT E
TO THE
FOURTH AMENDMENT
APPENDIX F
DEFINITIONS
1. Allowed Capacity: The maximum Capacity agreed upon between Company and
Seller that may be delivered to Company at any one time by the Seller, unless
Company requests otherwise, which shall be thirty megawatts (30 MW).
2. As-Available Energy: Energy provided to Company on an unscheduled basis as
it becomes available, rather than at prearranged times and in prearranged
amounts, and which is not subject to a Legally Enforceable Obligation.
3. Avoided Energy Costs: The energy costs that the Company avoids by
purchasing Energy from Seller, as defined in and calculated in accordance with
the PUC's Standards.
4. Capacity: Electric power expressed in kilowatts or megawatts.
5. Company's Dispatch: Company's sole and absolute right to control, from
moment to moment, through supervisory equipment, or otherwise, and in accordance
with good engineering practice in the electric utility industry, the rate of
delivery of Energy offered by Seller to Company.
6. Company's Fuel Adjustment Clause: The provision in the Company's rate
schedules that allows Company to pass through to its customers the Company's
costs of fuel and purchased power.
7. Company's System: The electric system owned and operated by the Company on
the Island of Hawaii consisting of power plants, transmission and distribution
lines, and related equipment for the production and delivery of electric power
to the public.
8. Company's System Load Dispatcher: The authorized representative of Company
who is responsible for carrying out Company's Dispatch.
9. Commercial Operation: For the first twenty-five (25) megawatts of
Capacity, Commercial Operation is the date (June 26, 1993) on which Seller's
Facility was deemed by Seller to be capable of reliable delivery of firm
capacity. For the additional five (5) megawatts of capacity delivered under the
Fourth Amendment, Commercial Operation is the date on which Seller's Facility is
deemed by Seller to be capable of reliable delivery of an additional five (5)
megawatts of firm capacity after the successful completion of the 100 hour
Acceptance Test as stated in the Fourth Amendment.
10. Energy: Electric power expressed in kilowatthours.
<PAGE>
ATTACHMENT E
TO THE
FOURTH AMENDMENT
11. Energy Cost Adjustment Clause: Same as Company's Fuel Adjustment Clause.
12. Firm Capacity: Thirty megawatts (30 MW) of reliable electrical Capacity
and 18,600 kvar of reactive which the Seller has agreed to make available to
HELCO from Seller's Facility at the Point of Interconnection under the Company's
Dispatch.
13. Firm Capacity Obligation: Seller's Legally Enforceable Obligation to
provide Firm Capacity as described in Section 3(a) of APPENDIX B of this
Contract.
14. Fourth Amendment: That certain PERFORMANCE AGREEMENT AND FOURTH AMENDMENT
TO THE PURCHASE POWER CONTRACT DATED MARCH 24, 1986 AS AMENDED dated February
__, 1996, by and between Hawaii Electric Light Company, Inc. and Puna Geothermal
Venture.
15. Interconnection Facilities: The equipment and devices required to permit
Seller's power plant to operate in parallel with and deliver electric power to
Company's System, such as, but not limited to, transmission lines, transformers,
switches, and circuit breakers.
16. Legally Enforceable Obligation: A binding commitment to supply Energy or
Capacity at prearranged times and in prearranged amounts under Company's
Dispatch, with sanctions for noncompliance.
17. Minimum Purchase Rate: The minimum rate payable by Company to Seller for
on-peak Energy delivered by Seller to Company under this Contract shall be equal
to the on-peak Energy Rate calculated pursuant to Paragraph A.3.b. of APPENDIX D
on the date of PUC Approval (as defined in the Fourth Amendment).
18. Operational Date: The date(s) on which the respective generating units of
Seller's Facility are projected for planning purposes to begin parallel
operation with Company's System.
19. Point of Interconnection: The point of delivery of Energy and/or Capacity
supplied by Seller to Company where Seller's Facility interconnects with
Company's System.
20. PUC's Standards: Standards for Small Power Production and Cogeneration in
the State of Hawaii, issued by the Hawaii Public Utilities Commission, Chapter
74 of Title 6, Hawaii Administrative Rules, currently in effect and as may be
amended from time to time.
2
<PAGE>
ATTACHMENT E
TO THE
FOURTH AMENDMENT
21. "Seller's Facility" or the "Facility": All real estate, fixtures and
property owned, controlled, operated or managed by Seller in connection with, or
to facilitate, the production, generation, transmission, delivery or furnishing
of electricity by Seller to Company and required to interconnect with Company's
System, except Seller's geothermal wellfield, pipelines, and other equipment
located upstream from Seller's power plant.
3
<PAGE>
ATTACHMENT F
TO THE
FOURTH AMENDMENT
15. Force Majeure
(a) If either party shall be wholly or partially prevented from performing
any of its obligations under this Contract by reason of an event of
force majeure reasonably beyond its exclusive control and not
attributable to its neglect, then and in any such event, such party
shall be excused from whatever performance is prevented by such event
to the extent so prevented, and such party shall not be liable for any
damage or loss resulting therefrom. Events of force majeure shall
include but not be limited to the following: accidents, action or
inaction of any governmental agency (including the inability to obtain
permits or authorization), lightning, rain, earthquake, wind, wind-
blown water, riots, fire, flood, invasion, insurrection, lava flow or
volcanic activity, tidal wave, civil commotion, the order of any
court, judge or civil authority, war, and any act of God or the public
enemy; provided that inadequate or extreme reservoir pressures,
temperature, or the presence of foreign substances therein shall not
be considered to be an event of force majeure except as provided in
Subsection (c) of this paragraph.
(b) The party claiming an event of force majeure shall give prompt written
notice of such event to the other party within 30 days of the date
such party claiming force majeure knew or should have known of the
event of force majeure. In addition, such party shall use reasonable
diligence, to the extent practicable, to limit the impact of such
event on the performance of its obligations under this Contract.
Notwithstanding the foregoing, this Subsection 15(b) shall not excuse
any payment obligation that has theretofore accrued under this
Contract.
(c) Inadequate or extreme reservoir pressures, temperatures, or the
presence of foreign substances therein, shall not be an event of force
majeure unless the Seller has taken reasonable actions to avoid or
mitigate any adverse impact on the Seller's ability to meet its
obligations under this Contract.
<PAGE>
EXHIBIT A
TO THE
PERFORMANCE AGREEMENT
DESCRIPTION OF ENHANCEMENTS
The enhancements will increase the site electrical generating output by
increasing the flow to the three existing injection wells. This will be
accomplished mainly by the installation of three injection pumps ("injection
pumps"). These injection pumps will increase injection pressure, thus
increasing system flow and electric generation output. In addition, it is
contemplated that condensate flows will be redirected from 4" and 6" lines
currently in use to an existing 14" line. This change is intended to enhance
process efficiency.
<PAGE>
EXHIBIT B
TO THE
PERFORMANCE AGREEMENT
PROJECT SCHEDULE
The timetable for completion of the project activities are expressed in weeks
from the date of the later of PUC Approval or Bank's Consent of the Performance
Agreement. The first number is the week in which the activity is expected to
begin and the second number is the week in which the activity is expected to be
completed.
Description of Activity Timetable
Engineering Week 0 to Week 12
Procurement Week 0 to Week 21
Installation Week 10 to Week 26
Power Output Week 26
Major Milestone
PGV expects to have its injection pumps on site no later than 23 weeks
after the later of PUC Approval or Bank's Consent of the Performance Agreement.
<PAGE>
EXHIBIT C
TO THE
PERFORMANCE AGREEMENT
_____________, 1996
Hawaii Electric Light
Company, Inc.
1200 Kilauea Avenue
Hilo, Hawaii 96720-4295
RE: Consent To Performance Agreement
Gentlemen:
We refer to that certain Performance Agreement And Fourth Amendment To
The Purchase Power Contract Dated March 24, 1986 as Amended ("Performance
Agreement"), dated as of __________________, 1996, by and between Hawaii
Electric Light Company, Inc. ("HELCO"), incorporated under the laws of the
Republic of Hawaii, and Puna Geothermal Venture ("PGV"), a Hawaii general
partnership. Capitalized terms used herein and not otherwise defined shall have
the meaning set forth in the Performance Agreement and, if none, then as set
forth in the Confirmation Agreement (as defined below).
CREDIT SUISSE, a bank organized and existing under the laws of
Switzerland, as Agent and Collateral Agent for the benefit of its own account
and such other financial institutions as may participate in the funding and
other risks associated with the Loan as defined below (hereinafter collectively
referred to as "Credit Suisse"), the Lenders (as defined in the Confirmation
Agreement) and PGV have entered into (i) a Credit Agreement-Construction Loan
and Term Loan Facility, and (ii) an Assignment and Security Agreement
("Assignment"), pursuant to which Credit Suisse has agreed to make a loan
("Loan") to PGV for the purpose of constructing the PGV facility.
Pursuant to the Assignment, PGV has granted to Credit Suisse a
security interest in the HELCO-PGV Agreements, for the benefit of the Lenders,
as security for the payment of all sums to become due and payable to Credit
Suisse and the Lenders.
<PAGE>
EXHIBIT C
TO THE
PERFORMANCE AGREEMENT
Hawaii Electric Light
Company, Inc.
Page 2
The Assignment requires PGV to obtain Credit Suisse's written consent
prior to amending, canceling or terminating the HELCO-PGV Agreements. Pursuant
to the Confirmation of Purchase Power Contract and Agreement ("Confirmation
Agreement"), dated June 29, 1990, by and between HELCO, PGV and Credit Suisse,
HELCO is also required to obtain the written consent of Credit Suisse prior to
amending, canceling or terminating the HELCO-PGV Agreements.
Under the Performance Agreement, PGV has agreed to provide, and HELCO
has agreed to accept and pay for, an additional five (5) megawatts of firm
capacity. In order to provide the additional firm capacity, the Performance
Agreement requires amending certain of the HELCO-PGV Agreements, which in turn,
requires the consent of Credit Suisse and Banque Nationale de Paris, a bank
organized and existing under the laws of the Republic of France ("BNP").
Consent
Credit Suisse and BNP have each reviewed the Performance Agreement and
each hereby consent to PGV's and HELCO's execution of the Performance Agreement
and the performance of the terms, conditions and obligations of the parties
thereunder.
This Consent shall be subject to, governed by, construed and enforced
in accordance with the laws of the State of Hawaii, without regard to principles
of choice of law.
The individuals executing this Consent represent and warrant that they
are duly authorized to do so on behalf of Credit Suisse and BNP, as the case
maybe, and that this Consent, once executed, shall be fully binding upon Credit
Suisse and BNP, as the case maybe, and their respective
<PAGE>
EXHIBIT C
TO THE
PERFORMANCE AGREEMENT
Hawaii Electric Light
Company, Inc.
Page 3
successors, agents, representatives, administrators, trustees and assigns.
Consented to and agreed
to as the date first
above written:
CREDIT SUISSE
By: ___________________________
Name: ___________________________
Title: ___________________________
By ___________________________
Name: ___________________________
Title: ___________________________
BANQUE NATIONALE de PARIS
By: ___________________________
Name: ___________________________
Title: ___________________________
By: ___________________________
Name: ___________________________
Title: ___________________________
<PAGE>
EXHIBIT C
TO THE
PERFORMANCE AGREEMENT
STATE OF ____________ )
) SS.
COUNTY OF ___________ )
On this ______ day of _______________, 199___, before me appeared
______________________________ and ______________________________, to me
personally known, who, being by me duly sworn, did say that they are
______________________________ and ______________________________,
respectively, of CREDIT SUISSE, a bank organized and existing under the
laws of Switzerland, as Agent and Collateral Agent; that the seal affixed
to the foregoing instrument is the corporate seal of said bank; that said
instrument was signed and sealed in behalf of said corporation by authority
of its Board of Directors; and said ______________________________ and
______________________________ acknowledged said instrument to be the free
act and deed of said bank.
___________________________________
Notary Public, State of ___________
My Commission expires: ____________
<PAGE>
EXHIBIT C
TO THE
PERFORMANCE AGREEMENT
STATE OF ____________ )
) SS.
COUNTY OF ___________ )
On this ______ day of _______________, 199___, before me appeared
______________________________ and ______________________________, to me
personally known, who, being by me duly sworn, did say that they are
______________________________ and ______________________________, respectively,
of BANQUE NATIONALE de PARIS, a bank organized and existing under the laws of
the Republic of France; that the seal affixed to the foregoing instrument is the
corporate seal of said bank; that said instrument was signed and sealed in
behalf of said corporation by authority of its Board of Directors; and said
______________________________ and ______________________________ acknowledged
said instrument to be the free act and deed of said bank.
___________________________________
Notary Public, State of ___________
My Commission expires: ____________
<PAGE>
HECO Exhibit 10.8
LOW SULFUR FUEL OIL SUPPLY CONTRACT
by and between
CHEVRON U.S.A. INC.
and
HAWAIIAN ELECTRIC COMPANY, INC.
* * * * * * * * *
<PAGE>
LOW SULFUR FUEL OIL SUPPLY CONTRACT
BY AND BETWEEN CHEVRON U.S.A. INC. AND
HAWAIIAN ELECTRIC COMPANY, INC.
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
ARTICLE 1: Definitions.................................... 1
ARTICLE 2: Term of Contract............................... 1
ARTICLE 3: Purchase Volumes and Delivery Rates............ 1
Section 3.1: Purchase Volumes..................................... 1
Section 3.2: Delivery Rates....................................... 1
ARTICLE 4: Quality........................................ 2
ARTICLE 5: Price.......................................... 3
Section 5.1: Price Per Physical Barrel............................ 3
Section 5.2: Flexibility in Supply Source......................... 4
Section 5.3: Fees, Taxes, Assessments, Levies, etc................ 4
Section 5.4: Rounding of Index Averages........................... 4
ARTICLE 6: [INTENTIONALLY OMITTED]........................ 4
ARTICLE 7: Pipeline Delivery.............................. 5
Section 7.1: LSFO Delivery........................................ 5
Section 7.2: Determination of Quality............................. 5
Section 7.3: Measurement of Quantity.............................. 5
Section 7.4: Disputes of Quality and Quantity..................... 5
ARTICLE 8: Marine Delivery................................ 6
Section 8.1: Notification of Use of HECO's Barbers Point Tankage.. 6
Section 8.2: Delivery of Marine Cargo............................. 6
Section 8.3: Determination of Quantity and Quality................ 6
Section 8.4: Delayed Invoicing.................................... 6
ARTICLE 9: Line Displacement Stock and Blend Stock........ 6
Section 9.1: Line Displacement Stock.............................. 6
Section 9.2: Blend Stock.......................................... 6
ARTICLE 10: Invoicing and Payment.......................... 7
Section 10.1: Invoices............................................ 7
Section 10.2: Payments............................................ 7
Section 10.3: Method of Payment................................... 7
ARTICLE 11: Contingencies.................................. 7
Section 11.1: Definition of Contingency........................... 7
Section 11.2: Obligations to Sell................................. 8
Section 11.3: Obligations to Purchase............................. 8
Section 11.4: Price Effectiveness................................. 8
Section 11.5: Combustion Specifications........................... 8
Section 11.6: Effective Date...................................... 9
Section 11.7: Refining and/or Delivery Operations Ownership....... 9
ARTICLE 12: Effect of Suspension or Reduction.............. 9
Section 12.1: Notice of Suspension or Reduction................... 9
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
Section 12.2: Option to Terminate................................. 9
Section 12.3: Prompt Notices...................................... 9
Section 12.4: U.S. Currency....................................... 9
Section 12.5: Substitute Suppliers................................ 9
ARTICLE 13: Waiver and Non-Assignability........................... 10
Section 13.1: Waiver.............................................. 10
Section 13.2: Non-Assignability................................... 10
Section 13.3: Definitions......................................... 10
ARTICLE 14: Default................................................ 10
ARTICLE 15: Conflict of Interest................................... 10
ARTICLE 16: Applicable Law......................................... 11
ARTICLE 17: Public Utility Commission Approval..................... 11
ARTICLE 18: Miscellaneous.......................................... 11
Section 18.1: Headings............................................ 11
Section 18.2: Entire Agreement.................................... 11
Section 18.3: Contract is Not an Asset............................ 11
Section 18.4: Notices............................................. 11
Section 18.5: Unenforceable Terms................................. 11
Section 18.6: Successors and Assigns.............................. 11
Section 18.7: Termination of Prior Agreement...................... 12
</TABLE>
ADDENDUM No. 1: Sample Price Calculation
ADDENDUM No. 2: Quality Adjustments
ADDENDUM No. 3: Recovery of Worldscale Fixed Differential For Oil Pollution
Liability Insurance
<PAGE>
LOW SULFUR FUEL OIL SUPPLY CONTRACT
THIS CONTRACT dated as of November 20, 1995, by and between CHEVRON U.S.A. INC.,
a Pennsylvania corporation, ("Chevron") and HAWAIIAN ELECTRIC COMPANY, INC., a
Hawaii corporation, ("HECO"), with the purpose for the sale and purchase of Low
Sulfur Fuel Oil ("LSFO") and other petroleum products.
WHEREAS, Chevron is a supplier of petroleum fuels with terminal and refinery
facilities in Hawaii.
WHEREAS, HECO is a utility engaged in the generation and sale of electricity,
with terminal facilities, in Hawaii.
NOW THEREFORE, the parties agree as follows:
ARTICLE 1: Definitions
Except where otherwise indicated, the following definitions shall apply
throughout this contract:
1. "LSFO" means Chevron Low Sulfur Fuel Oil No. 6 per Section
4.1.
2. "physical barrel" means 42 American bulk gallons at 60 degrees
F.
3. "year" means a calendar year.
ARTICLE 2: Term of Contract
The term of this Contract shall be from January 1, 1996 (the "Effective Date"),
through December 31, 1997, and shall continue thereafter for additional 12-month
periods (each 12-month period being an "Extension") beginning each successive
January 1, unless HECO or Chevron gives written notice of termination at least
120 days before the beginning of an Extension.
ARTICLE 3: Purchase Volumes and Delivery Rates
Section 3.1: Purchase Volumes
-----------------------------------------------------------------
This portion is confidential; therefore, it has been omitted and
filed separately with the Commission.
-----------------------------------------------------------------
Section 3.2: Delivery Rates
(a) HECO shall advise Chevron of its nominated rate of delivery for each
month seventy-five days prior to the beginning of that month.
(b) Except to the extent that marine deliveries which are required by
Chevron to meet the delivery requirement are prevented by the
unavailability of HECO's Barbers Point tankage, beginning the 5th day
of each month, at all times
Page 1
<PAGE>
during that month, Chevron's actual LSFO delivery rate, expressed in
barrels per day, shall not fall below 85% of HECO's nominated volume
to be delivered in the month of nomination as computed on a month-to-
date ratable basis, found by multiplying the month of nomination's
date by the nominated rate of delivery for that month, without the
express prior agreement of HECO.
(c) Chevron and HECO shall make best efforts to coordinate their separate
LSFO marine and pipeline deliveries into and out of HECO's storage
tanks at Barbers Point to minimize operational difficulties and
costs, including but not limited to tankage availability and vessel
demurrage.
(d) Unless waived by HECO, Chevron's marine deliveries of LSFO shall be
limited to 250,000 barrels, during:
(i) any ten day period, and
(ii) any calendar month, except during months when Chevron's LSFO
production facilities at Barbers Point are not operating.
(e) Unless waived by HECO, Chevron's actual LSFO deliveries during any
month shall be limited to 200,000 barrels above HECO's nomination for
that month.
(f) Unless waived by HECO, Chevron shall not deliver LSFO from its
Barbers Point Refinery into HECO's storage tanks at Barbers Point
during the fifteen (l5) days immediately preceding the scheduled
delivery of a marine cargo from a vessel chartered by HECO or HECO's
representative pursuant to the Facilities and Operating Contract
between Chevron and HECO, as long as Chevron's LSFO can be delivered
directly to HECO's storage tanks at Kahe, Waiau or Iwilei.
ARTICLE 4: Quality
The LSFO delivered hereunder shall comply with the following specifications:
<TABLE>
<CAPTION>
LSFO ASTM Test Specification
Specification Method Units Limits
- ------------- --------- ----- -------------
<S> <C> <C> <C>
API Gravity D4052 Deg 12 min
24 max
Sulfur D4292 Wt % 0.50 max
Flash Point (1) D93 Deg F 150 min
Pour Point D97 Deg F 125 max
Viscosity D445 SSU at l00 min
210 Deg F 450 max
Ash D482 Wt % 0.05 max
Gross Heating D240 MM BTU/Bbl 6.000 min
Value
Nitrogen D4629 Wt % 0.50
Water & Sediment D1796 Wt % 0.50
</TABLE>
Note: (1) Flash point shall be at least 50 degress F above the pour point or 150
degrees F, whichever is greater.
Page 2
<PAGE>
CHEVRON MAKES NO WARRANTY, EXPRESSED OR IMPLIED IN FACT OR BY LAW, AS TO THE
MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE CONCERNING THE LSFO OTHER
THAN IT SHALL COMPLY WITH THE QUALITY HEREIN SPECIFIED, AND THAT IT SHALL BE
SUITABLE FOR USE AS A BOILER FUEL.
ARTICLE 5: Price
Section 5.1: Price Per Physical Barrel
-----------------------------------------------------------------
This portion is confidential; therefore, it has been omitted and
filed separately with the Commission.
-----------------------------------------------------------------
Page 3
<PAGE>
-----------------------------------------------------------------
This portion is confidential; therefore, it has been omitted and
filed separately with the Commission.
-----------------------------------------------------------------
Section 5.2: Flexibility in Supply Source
To provide the flexibility needed by Chevron to meet its obligations to HECO,
the source and type of crude oil and other raw material, the place of
manufacture, and the manufacturer of LSFO for delivery to HECO hereunder shall
be determined solely by Chevron. The price of all LSFO delivered by Chevron to
HECO hereunder shall be determined in accordance with the terms of this Contract
regardless of where, how and by whom such LSFO is manufactured and regardless of
the type or source of crude oil or other raw materials used in its manufacture.
Section 5.3: Fees, Taxes, Assessments, Levies, etc.
In addition to all other amounts payable by HECO under this Contract, HECO shall
reimburse Chevron for all taxes, assessments, levies and imposts of whatsoever
kind or nature imposed on Chevron by any governmental or quasi-governmental
body, including without limitation the Hawaii General Excise Tax, the Hawaii
Environmental Response Tax, the Customs User Fee, the Federal Superfund Act and
oil spill liability fees, with respect to the sale of product under this
Contract or the receipt by Chevron of payments hereunder. Notwithstanding the
foregoing, HECO shall not be required to reimburse Chevron for any tax measured
by or based on the net income of Chevron or for real property taxes. To avoid
duplication of recovery, HECO shall not be required to reimburse Chevron under
this Section 5.3 for any item expressly mentioned by Platt's Oilgram Price
Report or Bunkerwire, or confirmed by Platt's in writing upon inquiry by either
Chevron or HECO, as being included in a price used to compute the billing price
under Section 5.1.
As of the effective date of this Contract, the governmental fees, etc. which are
currently in effect are the Hawaii General Excise Tax (4.167%), the Superfund
Petroleum fee ($0.097 per barrel), the Customs User Fee ($0.002 per barrel), and
the Hawaii Environmental Response Tax ($0.05 per barrel). The Hawaii General
Excise Tax and the Hawaii Environmental Response Tax will be added to the
invoiced price. The Superfund Petroleum fee and the Customs User fee will be
added to the LSWR Index of Section 5.1, since Platt's is not currently including
them in their published prices; these fees will not be added to the LA Bunker
index since Platt's is currently including them in their published prices.
Section 5.4: Rounding of Index Averages
All prices, index averages, adjustments thereto and other sums payable hereunder
shall be stated in the nearest thousandth of a dollar.
ARTICLE 6
[INTENTIONALLY OMITTED]
Page 4
<PAGE>
ARTICLE 7: Pipeline Delivery
Section 7:1: LSFO Delivery
Delivery of LSFO by pipeline shall be by one of the following methods.
(a) Chevron may deliver LSFO by pipeline from Chevron's Refinery into
HECO's storage tanks at Barbers Point. Title and risk of loss of
LSFO so delivered shall pass to HECO at the discharge flanges of
Chevron's main pipeline feeder/blender pumps, P2027 and P2027A,
where Chevron's piping systems a connect to HECO's LSFO delivery
line leading to its storage tanks.
(b) Pursuant to the Facilities and Operating Contract between Chevron
and HECO, Chevron may deliver LSFO by pipeline from Barbers Point
(either Chevron's refinery or HECO's storage tanks) into HECO's
storage tanks at Kahe, Waiau and Iwilei. Title and risk of loss
of LSFO delivered from Chevron's refinery shall pass to HECO at
the discharge flanges of the main pipeline booster pumps at
Chevron's refinery. Title and risk of loss of the LSFO delivered
from HECO's storage tanks shall remain with HECO at all times.
HECO agrees to pay a per barrel pipeline pumping fee for the LSFO delivered
under Section 7.1 (b). The pipeline pumping fees and the measurement of the
pumped quantities are described in the Facilities and Operating Contract between
Chevron and HECO.
Section 7.2: Determination of Quality
The quality of LSFO delivered to HECO shall be determined on the basis of
samples drawn by Chevron in such a manner as to be representative of each
individual delivery. Samples shall be drawn from Chevron's tanks prior to
delivery to HECO and shall be divided into four parts. Separate parts shall be
provided to both HECO and Chevron to determine quality. The remaining parts
shall be sealed and retained separately by Chevron and HECO.
The official heat content determination shall be based upon an average of
Chevron's and HECO's test results, provided that such results fall within the
ASTM reproducibility standard (currently 50,000 BTU per barrel) for Test D-240.
Chevron and HECO will make best efforts to evaluate heat content and exchange
results within 3 working days. In the event of an unresolvable difference
between HECO and Chevron, HECO's sealed part shall be provided to an independent
laboratory for an official determination, which shall be final. In cases of
disagreement or excessive delays in HECO's determination of heat content,
Chevron shall have the right to invoice the sale using a provisional heat
content of 6.2 MM BTU per barrel, with any required adjustments made after final
agreement is reached. Chevron and HECO shall share equally the cost of
independent tests and determinations.
Section 7.3: Measurement of Quantity
Quantities of LSFO and line displacement stock delivered hereunder shall be
determined at the time of delivery by gauging Chevron's tanks before and after
pumping. Measurements shall be taken by Chevron or Chevron's agent and
witnessed by HECO or HECO's agent. However, at HECO's option, measurements may
be taken by a mutually agreed upon independent inspector at both Chevron's
refinery and HECO's receiving facilities. If a mutually agreed upon independent
inspector is used, Chevron and HECO shall share equally the cost of such
independent inspections. Volumes delivered hereunder shall be converted to 60
degrees F, using the latest revision of ASTM Table 6.
Section 7.4: Disputes of Quality and Quantity
If Chevron or HECO has reason to believe that the quality or quantity of product
stated for a particular delivery per Sections 7.2 or 7.3 is incorrect, that
party shall within sixty days of the delivery date, present the other party with
documentation supporting such determination and the parties will confer, in good
faith, on the causes for the discrepancy and shall proceed to correct such
causes and adjust the quality and quantity, if justified, for the deliveries in
question.
Page 5
<PAGE>
ARTICLE 8: Marine Delivery
Section 8.1: Notification of Use of HECO's Barbers Point Tankage
Chevron shall provide HECO at least sixty days advanced notice of its planned
use of a specified volume of no more than 300,000 barrels of HECO's storage
capacity at Barbers Point and HECO shall set aside the requested storage
capacity for the purpose of accepting Chevron's marine delivery. Chevron shall
then provide HECO with weekly updates on the anticipated arrival date of the
marine cargo. If Chevron is unable to provide sixty days advance notice, HECO
will make all commercially reasonable efforts to provide Chevron with up to
300,000 barrels of storage capacity at Barbers Point.
Section 8.2: Delivery of Marine Cargo
Chevron may deliver the volume of LSFO specified in Section 8.1 from Chevron's
vessel directly into HECO's storage tanks at Barbers Point. Chevron shall not
deliver more than the specified volume without prior written approval from HECO.
Chevron may not deliver LSFO from Chevron's vessels directly into HECO's
storage tanks at Kahe, at Waiau or at Iwilei, without HECO's prior written
approval. Such approval may be given during unusual circumstances, such as
pipeline maintenance. Title and risk of loss of LSFO shall pass to HECO at the
flanges where Chevron's piping systems connect to HECO's piping systems for
HECO's tankage at Barbers Point, Kahe, Waiau or Iwilei.
Section 8.3: Determination of Quantity and Quality
The quantity and quality of LSFO delivered by marine vessel shall be determined
in the manner specified in Sections 7.2, 7.3 and 7.4 of this Contract, except as
follows:
(a) all measurements and samples shall be made and drawn by or under the
supervision of an independent inspector, and the costs thereof shall be
shared equally by Chevron and HECO.
(b) volume shall be determined by gauging HECO's receiving tank(s) before
and after pumping; and
(c) samples to determine quality shall be drawn after the LSFO is
discharged on Oahu.
Section 8.4: Delayed Invoicing
Invoicing of marine deliveries of LSFO, in any ten day period, shall be limited
to ten times the average daily rate of HECO's nomination for the month against
which the marine delivery applies.
ARTICLE 9: Line Displacement Stock and Blend Stock
Section 9.l: Line Displacement Stock.
HECO shall purchase from Chevron whatever line displacement stock that is
required for Chevron to complete the deliveries of LSFO and that is received
into HECO's tankage at Kahe, Waiau and Iwilei. The price of No. 2 diesel fuel
or No. 6 fuel oil used as line displacement stock shall be the then-current
pricing for the fuel comprising the line displacement stock in Chevron's supply
contract with HECO and HECO's affiliates, if such a supply contract is in
effect; otherwise its price shall be the then-current Honolulu posted price for
such fuel, less normally available discounts, if any, at the time of purchase.
The price of No. 5 fuel oil used as line displacement stock shall be the sum of
40% of the then-current No. 2 diesel fuel pricing and 60% of the then-current
No. 6 fuel oil pricing in Chevron's supply contract with HECO and HECO's
affiliates, if such a supply contract is in effect; otherwise its price shall be
the then-current Honolulu posted price for No. 5 fuel oil, less normally
available discounts, if any, at the time of purchase. HECO's minimum purchase
obligation and Chevron's maximum purchase obligation set forth in Article 3
shall be reduced by each physical barrel of line displacement stock sold.
Section 9.2: Blend Stock
In the event HECO desires to adjust the quality of its LSWR in its Barbers Point
tanks to meet the specifications of Article 4, Chevron shall supply the
necessary blend stock pursuant to Addendum 2.
Page 6
<PAGE>
ARTICLE 10: Invoicing and Payment
Section 10.1: Invoices
Invoices, which will show the price per physical barrel of LSFO, blend stock and
line displacement stock sold will be prepared and dated following delivery and
shall be rendered from time to time each calendar month. The invoices shall
also show as a separate item the estimated amounts of any reimbursements to
which Chevron is entitled pursuant to Section 5.3.
Section 10.2: Payments
Payments of such invoices shall be made in U.S. dollars. Timing of payments for
sales and deliveries received shall be based upon the invoice issue date which
shall be the invoice date or postmarked mailing date of the invoice, whichever
is later, as follows:
(a) Payment for a received invoice dated from the 1st through the 10th of a
month is due on the 20th of the same month.
(b) Payment for a received invoice dated from the 11th through the 20th of
a month is due by the last day of the same month.
(c) Payment for a received invoice dated from the 21st through the last day
of the month is due on the 10th day of the following month.
Due dates are the dates payments are to reach Chevron. If the due date falls on
a Saturday, the payment shall be made on the preceding business day. If such
date falls on a Sunday or a holiday, payment shall be made the following
business day.
Section 10.3: Method of Payment
Payments shall be by bank wire transfer of immediately available funds to:
Chevron U.S.A. Inc.
Account Number 59-51755
First National Bank of Chicago, Chicago, IL
ABA Ref. No. 071000013
For identification purposes, all wires must clearly indicate that payment
is being made by order of HECO and provide the invoice reference number. In
addition, written documentation evidencing specific invoices being paid
shall be immediately forwarded to:
Utility Fuel Receivables/Room 3338
Chevron U.S.A. Inc.
P.O. Box 7006
San Francisco, California 94120-7006
Fax (415) 894-1195
ARTICLE 11: Contingencies
Section 11.1: Definition of Contingency
As used in this Article 11, the term "contingency" means:
(a) any event reasonably beyond the control of the party
affected;
(b) compliance, voluntary or involuntary, with a direction or
request of any government or person purporting to act with
governmental authority; excluding, however, any such
direction or request restricting or otherwise regulating
combustion of the LSFO to be purchased by HECO hereunder,
the effect of which restrictions or regulation upon the
parties' performance shall be governed by Section 11.5 of
this Contract;
(c) total or partial expropriation, nationalization,
confiscation, requisitioning or abrogation or breach of
government contract or concession;
Page 7
<PAGE>
(d) closing of, or restriction on the use of, a port or
pipeline;
(e) maritime peril (including but not limited to, negligence in
navigation or management of vessel, collision, stranding,
destruction, or loss of vessel), storm, earthquake, flood;
(f) accident, fire, explosion;
(g) hostilities or war (declared or undeclared), embargo,
blockage, riot, civil unrest, sabotage, revolution,
insurrection;
(h) strike or other labor difficulty (whomever's employees are
involved), even though the strike or other labor difficulty
could be settled by acceding to the demands of a labor
group; or
(i) loss or shortage of supply, production, manufacturing,
distribution, refining, transportation, delivery facilities,
receiving facilities, equipment, labor, material, power
generation or power distribution caused by circumstances
which the affected party is not able to overcome by the
exercise of reasonable diligence or which the affected party
is able to overcome only at substantial additional expense
in relation to the expected revenue, benefits or rights
related directly to this Contract.
Section 11.2: Obligations to Sell
Chevron shall not be obligated to sell or deliver LSFO to the extent that
performance of this Contract is prevented, restricted or delayed by a
contingency which significantly affects Chevron's ability to supply, manufacture
or transport LSFO to HECO under this Contract from Chevron's U.S. West Coast and
Hawaiian refineries. In such circumstances, deliveries of LSFO to HECO may be
reduced on a basis as equitable to HECO as to Chevron's and its affiliates'
other customers of crude and petroleum products, and Chevron shall not be
obligated to acquire additional crude or LSFO but to the extent that it does
acquire additional crude or LSFO, HECO shall be entitled to an equitable share
of the LSFO acquired or derived from the crude acquired, at a price to be agreed
from time-to-time.
Section 11.3: Obligations to Purchase
HECO shall not be obligated to purchase, receive or use LSFO to the extent that
performance of this Contract in the customary manner is prevented, restricted or
delayed by a contingency. In such circumstances, purchases from Chevron may be
reduced on any basis as equitable to Chevron as to HECO's other suppliers of
LSFO.
Section 11.4: Price Effectiveness
If at any time any price determined under this Contract cannot be given effect
because to do so would violate a direction or request of any government or
person purporting to act with governmental authority, HECO and Chevron shall
attempt to agree on an alternate course of action, but failing agreement within
10 days the party adversely affected may suspend performance with respect to the
quantity of LSFO affected by the direction or request.
Section 11.5: Combustion Specifications
To the extent that any governmental regulation requires combustion of LSFO
meeting more stringent specifications or permits combustion of LSFO meeting less
stringent specifications than those in Article 4, HECO and Chevron shall
negotiate in good faith to agree on an alternative course of action that will
allow HECO to comply with such regulation while purchasing the equivalent of
the full quantity of LSFO it would be required to purchase under Article 3, at a
price and on other terms and conditions that are fair to both parties. Chevron
shall have no obligation to deliver LSFO meeting new specifications if it is not
available for purchase from third parties and Chevron cannot manufacture such
LSFO in existing facilities without new capital investment. If HECO and Chevron
do not agree on such an alternate course of action, then HECO may comply with
such regulation in any reasonable manner it chooses, including the option to
purchase from other sources for its plants located within the area in which such
regulation specifically applies, fuels which will enable HECO to comply with
such regulation. In such case, HECO's minimum purchase obligations and Chevron's
maximum supply obligations under Article 3 shall be reduced accordingly.
Page 8
<PAGE>
To the extent HECO is unable to utilize fuel to be supplied by Chevron under
this Contract, but HECO does not purchase fuel which meets such requirements
from other sources in an amount equal to the amount by which deliveries under
this Contract are reduced, then purchases from Chevron may be reduced on any
basis as equitable to Chevron as to HECO'S other suppliers of similar fuel oil.
Any adjustments in price pursuant to this Section 11.5 shall be governed by
Section 11.6, except that the adjustments shall apply to all LSFO delivered
which meets the new specifications.
Section 11.6: Effective Date
In the event of retroactive adjustments hereunder, the charge or credit to HECO
shall be computed and billed to HECO as soon as practical after the adjustment
is known. In the event of retroactive changes which cause adjustments hereunder
after termination of this Contract, payment shall be made within 15 days after
receipt of written demand therefor by the other party.
Section 11.7: Refining and/or Delivery Operations Ownership
Chevron's obligations under this Contract shall be contingent on Chevron's
continued ownership or operation of its refining or delivery facilities in
Hawaii or the U.S. West Coast. Chevron shall have the right to terminate this
Contract in the event the ownership and operation of its refining and delivery
facilities in Hawaii and the U.S. West Coast are transferred to an entity other
than an affiliate. Chevron shall give HECO 180 days' written notice.
ARTICLE 12: Effect of Suspension or Reduction
Section 12.1: Notice of Suspension or Reduction
In the event of any suspension or reduction of sales and deliveries under
Article 11, Chevron shall not be obligated to sell and HECO shall not be
obligated to buy, after the period of suspension or reduction, the undelivered
quantity of LSFO which normally would have been sold and delivered hereunder
during the period of suspension or reduction.
Section 12.2: Option to Terminate
If sales and deliveries are suspended under Article 11 for more than 180 days,
Chevron or HECO shall have the option while such suspension continues to
terminate its obligations to the other party under this Contract on 30-days'
written notice to the other party.
Section 12.3: Prompt Notices
Any party which relies upon Article 11 shall give the other party prompt notice
thereof specifying the anticipated amount and duration of any suspension or
reduction of deliveries. It shall also give prompt notice when it no longer
expects to rely on Article 11 and deliveries shall be reinstated subject to all
conditions of this Contract, unless this Contract has been terminated previously
under Section 12.2.
Section 12.4: United States Currency
Nothing in Article 11 shall relieve HECO of the obligation to pay in full in
United States currency for the LSFO sold and delivered hereunder and for other
amounts due by HECO to Chevron under this Contract.
Section 12.5: Substitute Suppliers
While deliveries are suspended or reduced by Chevron pursuant to Article 11, it
shall not be a breach of this Contract for HECO to buy from a supplier other
than Chevron the quantities of LSFO which Chevron does not deliver. During this
period of time there will be no minimum volume requirements. After any
suspension or reduction has ended, minimum and maximum volume requirements of
Article 3 for the annual period in which the suspension or reduction occurred
will be reduced in proportion to the ratio of the number of days within the
annual period during which no suspension or reduction was in effect, to the
number of days within the annual period.
Page 9
<PAGE>
ARTICLE 13: Waiver and Non-Assignability
Section 13.1: Waiver
Waiver by one party of the other's breach of any provision of this Contract
shall not be deemed a waiver of any subsequent or continuing breach of such
provisions or of the breach of any other provision or provisions hereof.
Section 13.2: Non-Assignability
This Contract shall not be assignable by either party without the written
consent of the other, which shall not be unreasonably withheld, except that
either party may assign this Contract to any affiliate, provided that any such
assignment shall not release that party from any of its obligations hereunder,
and except that HECO may assign this Contract to the Trustee under its First
Mortgage Bond Indentures. Chevron does not, by agreement to such an assignment,
waive any right it may have to terminate this Contract for any breach hereof
occurring at any time before or after any such assignment or release HECO of any
obligations arising under this Contract after any such assignment. Following
any such assignment, no further assignment may be made without the consent of
Chevron.
Section 13.3: Definitions
In this Article 13 and Sections 11.2 and 11.7, "affiliate" shall mean any
corporation controlling, controlled by or under common control, with either
Chevron or HECO. "Control" of a corporation shall mean ownership, directly or
indirectly, or at least 50% of the voting shares of such corporation.
ARTICLE 14: Default
If HECO or Chevron considers the other party to be in default of any obligation
under this Contract, such party shall give the other party notice thereof. Such
other party shall then have 30 days in which to remedy such default. If the
default is not cured, the other party may, without prejudice to any other right
or remedy of such party in respect of such breach, terminate its obligations
under this Contract, except for HECO's obligation to pay in full in United
States currency for the LSFO sold and delivered hereunder and for other amounts
due by HECO to Chevron under this Contract by 45 days notice to the party in
breach. Any termination shall be without prejudice to accrued rights. All
rights and remedies hereunder are independent of each other and election of one
remedy shall not exclude another.
In no event shall either party be liable for any indirect, consequential,
special or incidental damages of any kind whether based in contract, tort
(including without limitation negligence or strict liability), warranty or
otherwise.
ARTICLE 15: Conflicts of Interest
Conflicts of interest related to this Contract are strictly prohibited. Except
as otherwise expressly provided herein, neither party nor any director, employee
or agent of a party shall give to or receive from any director, employee or
agent of the other party any gift, entertainment or other favor of significant
value, or any commission, fee or rebate. Likewise, neither party nor any
director, employee or agent of a party shall enter into any business arrangement
with any director, employee or agent of the other party (or any affiliate),
unless such person is acting for and on behalf of the other party, without
prior written notification thereof to the other party.
In the event of any violation of this Article 15, including any violation
occurring prior to the date of this Contract which resulted directly or
indirectly in one party's consent to enter into this Contract with the other
party, such party may, at its sole option, terminate this Contract at any time
and, except for obligations to pay in full in United States currency for the
outstanding payment obligations hereunder, shall be relieved of any further
obligation under this Contract.
Both parties agree to immediately notify the other of any known violation of
this Article.
Page 10
<PAGE>
ARTICLE 16: Applicable Law
This Contract shall be construed in accordance with, and all disputes arising
hereunder shall be determined in accordance with, the local law of the State of
Hawaii, U.S.A.
ARTICLE 17: Public Utility Commission Approval
This Contract is required to be filed with the Hawaii Public Utilities
Commission ("PUC") for approval. If in the proceedings initiated as a result of
the filing of this Contract, the PUC disapproves or fails to authorize the
recovery of the fuel costs incurred under this Contract through HECO's "Energy
Cost Adjustment Clause", HECO may terminate this Contract by 30 days written
notice to Chevron.
ARTICLE 18: Miscellaneous
Section 18.1: Headings
Headings of the Articles and Sections are for convenient reference only and are
not to be considered part of this Contract.
Section 18.2: Entire Agreement
This document contains the entire agreement between the parties covering the
subject matter and cancels, as of the effective date hereof, all prior
agreements of any kind between the parties covering such subject matter and any
amendments thereto. There are no other agreements which constitute any part of
the consideration for, or any condition to, either party's compliance with its
obligations under this Contract.
Section 18.3: Contract is Not an Asset
This Contract shall not be deemed to be an asset in, and, at the option of a
party, shall terminate in the event of any voluntary or involuntary
receivership, bankruptcy or insolvency proceedings affecting the other party.
Section 18.4: Notices
Except as otherwise expressly provided herein, all notices shall be given in
writing, by letter, facsimile, telegraph or telex to the following addresses, or
such other address as the parties may designate by notice, and shall be deemed
given upon receipt.
Seller: Manager, Petroleum Coke, Heavy Fuels & Sulfur
Chevron U.S.A. Inc.
P.O. Box 7006
San Francisco, CA 94120-7006
Facsimile: (415) 894-1195
Buyer: Manager, Power Supply Services Department
Hawaiian Electric Company, Inc.
Box 2750
Honolulu, HI 96840-0001
Facsimile: (808) 543-7788
Section 18.5: Unenforceable Terms
If any term or provision, or any part of any term or provision, of this Contract
is held by any court or other competent authority to be illegal or
unenforceable, the remaining terms, provisions, rights and obligations shall not
be affected.
Section 18.6: Successors and Assigns
This Contract shall inure to the benefit of and be binding upon the parties
hereto, their successors and permitted assigns.
Page 11
<PAGE>
Section 18.7: Termination of Prior Agreement
Effective as of the Effective Date of the Term hereunder, this Contract hereby
supersedes that certain Low Sulfur Fuel Oil Supply Contract between the parties
dated May 29, 1990, and all amendments thereto.
IN WITNESS WHEREOF, the parties hereto have executed this Low Sulfur
Fuel Oil Supply Contract as of the day and year first hereinabove written.
CHEVRON U.S.A. INC. HAWAIIAN ELECTRIC
COMPANY, INC.
By /s/ Phillip H. Fisher By /s/ Edward Y. Hirata
Phillip H. Fisher Edward Y. Hirata
(Printed or Typed Name)
Its Manager, Petroleum Coke Its Vice President
Heavy Fuels & Sulfur Regulatory Affairs
By /s/ M. M. Egged
Molly M. Egged
(Printed or Typed Name)
Its Secretary
Page 12
<PAGE>
ADDENDUM No. 1
Sample Price Calculation
July 1995
* ~ * ~ * ~ * ~ * ~ * ~ * ~ * ~ * ~ * ~ * ~ * ~ * ~ * ~ * ~ * ~ *
This portion is confidential; therefore, it has been omitted and
filed separately with the Commission.
* ~ * ~ * ~ * ~ * ~ * ~ * ~ * ~ * ~ * ~ * ~ * ~ * ~ * ~ * ~ * ~ *
<PAGE>
Addendum No. 1
LONDON TANKER BROKERS' PANEL LIMITED
Directors: Prince Rupert House
E. F. Shawyer (Chairman) 64 Queen Street
M. G. Johnson LONDON EC4R 1AD
A. G. Burgess
R. W. Park Telephone: 0171-248 4747
P. C. Delaney Telex: 885118 G
C. Waaler Fax: 0171-489 0536
R. W. Porter (Managing)
1st June 1995
Hawaiian Electric Company Inc
P. O. Box 2750
Honolulu HI 96840-0001
Hawaii
Attn: Mr. J. C. Aicken Dir. Fuel Resource
Dear Sirs
AFRA
The results of the monthly average freight rate assessments made over the period
16th April 1995/15th May 1995 are as follows:
MEDIUM RANGE (25,000/ 44,999 (LONG) TONS) WORLDSCALE 161.6
LARGE RANGE 1 (45,000/ 79,999 (LONG) TONS) WORLDSCALE 120.3
LARGE RANGE 2 (80,000/159,999 (LONG) TONS) WORLDSCALE 87.8
VLCC (160,000/319,999 (LONG) TONS) WORLDSCALE 54.9
ULCC (320,000/549,999 (LONG) TONS) WORLDSCALE 43.1
We would remind you that, in accordance with the agreement between us, these
assessments are provided to you on the condition they will not be reproduced,
supplied or disclosed to any other person.
Yours faithfully
LONDON TANKER BROKERS' PANEL LIMITED
/s/ R.W. Porter
R. W. Porter
Managing Director
<PAGE>
ADDENDUM NO. 2
Quality Adjustments
* ~ * ~ * ~ * ~ * ~ * ~ * ~ * ~ * ~ * ~ * ~ * ~ * ~ * ~ * ~ * ~ *
This portion is confidential; therefore, it has been omitted and
filed separately with the Commission.
* ~ * ~ * ~ * ~ * ~ * ~ * ~ * ~ * ~ * ~ * ~ * ~ * ~ * ~ * ~ * ~ *
<PAGE>
* ~ * ~ * ~ * ~ * ~ * ~ * ~ * ~ * ~ * ~ * ~ * ~ * ~ * ~ * ~ * ~ *
This portion is confidential; therefore, it has been omitted and
filed separately with the Commission.
* ~ * ~ * ~ * ~ * ~ * ~ * ~ * ~ * ~ * ~ * ~ * ~ * ~ * ~ * ~ * ~ *
<PAGE>
ADDENDUM NO. 3
Recovery of Worldscale Fixed Differential For Oil Pollution Liability Insurance
The price formula for LSFO in Section 5.1 of the Contract includes the component
"FREIGHT" that refers to a Worldscale 100 rate published in the current edition
of Worldscale which incorporates a Fixed Rate Differential to reflect the cost
of additional premiums for Oil Spill Liability Insurance on vessels carrying
Persistent Oils applicable to voyages having a destination in the U.S.A..
Chevron acknowledges that any vessel used to transport LSFO that is sold and
purchased under the Contract, including its components and the crude oil from
which the LSFO is derived, shall be required to possess oil spill liability
insurance coverage in the amount of $700 million.
The price formula component "FREIGHT" refers to an AFRA rate applicable to a
vessel size classification of LR-1, or Large Range 1. This vessel
classification references tanker vessels ranging in size from 45,000 Long Tons
Deadweight to 79,999 Long tons Deadweight. In order to derive an approximation
of the relationship between Deadweight and Gross Registered Tons for a nominal
vessel consistent with the mathematical average of this vessel size
classification, the average of two vessels that have transported LSFO or its
components to Hawaii in the recent past that are approximately equal to the
midpoint of the LR-1 range were referenced. These vessels are described as
follows:
<TABLE>
<CAPTION>
Name Deadweight Tons (DWT) Gross Registered Tons (GRT)
<S> <C> <C>
M/T London Spirit 62,097 36,865
M/T London Victory 62,156 36,865
Average 62,127 36,865
</TABLE>
The Worldscale 100 rate that is to be included in the computation of FREIGHT is
to be derived in the same manner as the following illustrative example
calculations:
1. The Worldscale 100 rate in effect from February 19, 1995, shall include a
Fixed Rate Differential which shall be the sum of a. and b. and shall be
computed as follows:
a. Fixed Rate Differential with respect to the additional insurance
premiums For Basic $500 million coverage of Oil Pollution Liability
Insurance on vessels carrying Persistent Oils to and from the U.S.A.
Fixed Rate Differential = $0.27/GRT X 36,865 GRT
62,127
= $0.160 per Metric Tonne
For illustrative purposes, this rate may be expressed in U.S. dollars
per barrel as follows:
= $0.160/Metric Tonne
6.75 barrels/Metric Tonne
= $0.024/barrel
b. Fixed Rate Differential with respect to the additional insurance
premiums for Excess $200 million coverage of Oil Pollution Liability
Insurance on vessels carrying Persistent Oils to and from the U.S.A.
Fixed Rate Differential = $0.2225/GRT X 36,865 GRT
62,127
= $0.132 per Metric Tonne
For illustrative purposes, this rate may be expressed in U.S. dollars
per barrel as follows:
= $0.132/Metric Tonne
6.75 barrels/Metric Tonne
<PAGE>
= $0.020/barrel
The sum of which shall equal $0.2920 per Metric Tonne, or $0.044 expressed in
U.S. dollars per barrel.
2. The AFRA Worldscale Points and their related Worldscale 100 rate applicable
for each calendar quarter are based upon an average of the three monthly AFRA
publications in the calendar quarter immediately preceding the calendar quarter
of the nominated month of delivery. Therefore the relevant Fixed Rate
Differentials computed above should be applied as follows:
A. With respect to volumes of LSFO nominated during the three (3) months
of the quarter following a change in the published rate (typically February of
each year), the relevant Fixed Rate Differential to be included in the
computation of the price component "FREIGHT" shall be the sum of:
50/90 multiplied by the Fixed Rate Differential computed prior to the
rate change:
and 40/90 multiplied by the Fixed Rate Differential computed using the
revised rate:
B. With respect to volumes of LSFO nominated for subsequent months,
and continuing for so long as the Fixed Rate Differentials as set forth in
Worldscale Circular shall be applicable, the relevant Fixed Rate Differential to
be included in the computation of the price component "FREIGHT" shall be as
derived in part 1 above.
<PAGE>
HECO Exhibit 10.9
INTER-ISLAND INDUSTRIAL FUEL OIL AND DIESEL FUEL CONTRACT
By and Between
CHEVRON U.S.A. INC.
and
HAWAIIAN ELECTRIC COMPANY, INC.; MAUI ELECTRIC COMPANY, LTD.;
HAWAII ELECTRIC LIGHT CO., INC.; HAWAIIAN TUG & BARGE CORP.;
and YOUNG BROTHERS, LIMITED.
<TABLE>
<CAPTION>
TABLE OF CONTENTS
ARTICLE PAGE
<S> <C> <C>
I. DEFINITIONS............................... 1
II. TERM...................................... 4
III. QUANTITY.................................. 4
IV. QUALITY................................... 8
V. PRICE, BTU DETERMINATION.................. 10
VI. DELIVERIES................................ 14
VII. DETERMINATION OF QUALITY.................. 17
VIII. MEASUREMENT OF QUANTITY................... 18
IX. INVOICING AND PAYMENT.................... 19
X. SELLER'S FACILITIES ON OAHU............... 21
XI. SELLER'S FACILITIES ON MAUI AND HAWAII.... 22
XII. CONTINGENCIES............................. 31
XIII. EFFECT OF SUSPENSION OR REDUCTION......... 33
XIV. WAIVER AND NONASSIGNABILITY............... 35
XV. CONFLICT OF INTEREST...................... 35
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
XVI. DEFAULT................................... 36
XVII. APPLICABLE LAW............................ 37
XVIII. INDEMNITY................................. 37
XIX. PUBLIC UTILITIES COMMISSION............... 39
XX. INSURANCE................................. 40
XXI. SAFETY AND TERMINAL PROTECTION............ 42
XXII. POLLUTION MITIGATION...................... 43
XXIII. MISCELLANEOUS............................. 44
<CAPTION>
ADDENDUMS
<S> <C>
NO. 1 SAMPLE PRICE CALCULATIONS---NOVEMBER, 1995
NO. 2 QUALITY CONTROL SAMPLES 3/4 SUMMARY
AND SCHEMATIC OF SAMPLE LOCATIONS
</TABLE>
<PAGE>
INTER-ISLAND INDUSTRIAL FUEL OIL AND DIESEL FUEL CONTRACT
THIS CONTRACT, dated as of November 20, 1995, by and between CHEVRON
U.S.A. INC., a Pennsylvania corporation ("Seller"), and HAWAIIAN ELECTRIC
COMPANY, INC.; MAUI ELECTRIC COMPANY, LTD.; HAWAII ELECTRIC LIGHT CO., INC.;
HAWAIIAN TUG & BARGE CORP.; and YOUNG BROTHERS, LIMITED, each a Hawaii
corporation (collectively referred to as "Buyers" and individually referred to
as "Buyer" herein unless otherwise indicated).
WHEREAS, Seller is a supplier of petroleum fuels with terminal and
refinery facilities in Hawaii.
WHEREAS, Buyers are engaged in various business activities: HECO,
HELCO, and MECO are utilities engaged in the generation, purchase and sale of
electricity in Hawaii; HT&B is a tug and barge company; YB is a barge company
engaged in general marine transportation.
NOW, therefore, the parties agree as follows:
ARTICLE I
DEFINITIONS
Except where otherwise indicated, the following definitions shall
apply throughout this Contract:
1. "CIFO" means Chevron Industrial Fuel Oil No. 6 per Section 4.1.
2. "Fuel Oil" means either Chevron Industrial Fuel Oil No. 6 or
third party industrial fuel oil similar to Chevron Industrial Fuel Oil No. 6.
3. "Diesel" means Chevron Diesel Fuel No. 2 per Section 4.2.
Page 1
<PAGE>
4. "diesel" means either Chevron Diesel Fuel No. 2 or a third party
diesel fuel similar to Chevron Diesel Fuel No. 2.
5. "Jet" means Chevron Jet Fuel per Section 4.3.
6. "jet" means either Chevron Jet Fuel or a third party jet fuel
similar to Chevron Jet Fuel.
7. "Oil" means either Chevron Industrial Fuel Oil No. 6 or Chevron
Diesel Fuel No. 2.
8. "oil" means Chevron Industrial Fuel Oil No. 6, Chevron Diesel
Fuel No. 2, a third party industrial fuel oil similar to Chevron Industrial Fuel
Oil No. 6, or a third party diesel fuel similar to Chevron Diesel Fuel Oil No.
2.
9. "HECO" means Hawaiian Electric Company, Inc., which has
electrical generating facilities on the island of Oahu.
10. "MECO" means Maui Electric Company, Ltd., which has electrical
generating facilities on the islands of Maui, Lanai and Molokai. For the
purposes of this Contract "MECO" refers to the operations on the island of Maui
only.
11. "MECO-Molokai" means the Molokai Division of Maui Electric
Company, Ltd., which has electrical generation facilities on the island of
Molokai.
12. "HELCO" means Hawaii Electric Light Co., Inc., which has
electrical generating facilities on the island of Hawaii.
13. "HT&B" means Hawaiian Tug & Barge Corp., which operates a tug and
barge fleet.
14. "YB" means Young Brothers, Limited, which operates a general
marine transportation business.
Page 2
<PAGE>
15. "HMT" means Seller's Honolulu Marine Terminal at Honolulu Harbor
Piers 30 and 31.
16. "HDT" means Seller's Honolulu Distribution Terminal at Honolulu
Harbor Pier 35.
17. "Kaunakakai Terminal" means a third party Marine Terminal at
Kaunakakai Harbor, Molokai.
18. "Oahu P/L" means Seller's Light product distribution pipeline
between Seller's Barbers Point oil refinery and HECO's Waiau electric generating
station.
19. "affiliate", except where otherwise expressly provided, means a
corporation controlling, controlled by or under common control with Seller or
Buyer, as the case may be.
20. "Carrier" means Buyer's nominated barge or designated trucking
company.
21. "gallon" means a United States gallon of 231 cubic inches at 60
degrees F.
22. "physical barrel" means 42 American bulk gallons at 60 degrees F.
23. "year" means a calendar year.
24. "Deliver, Delivery, Deliveries or Delivered" refers to the Oil or
Jet sold by Seller and purchased by Buyer.
25. "Loaded", when used in conjunction with Oil or Jet, refers to
Buyer's Delivered Oil or Jet mixed with any cargo retains within Buyer's
nominated barge.
26. "loaded", when used in conjunction with Oil or Jet, refers to
Buyer's Delivered Oil or Jet or a third party's delivered oil or jet mixed with
any cargo retains within Buyer's nominated barge.
Page 3
<PAGE>
27. "Received", when used in conjunction with Oil or Jet, refers to
Buyer's Oil or Jet to be received by Seller into its terminals on Maui and
Hawaii. "Received", when used in conjunction with oil, means a third party
industrial fuel oil similar to Chevron Industrial Fuel Oil No. 6 or a third
party diesel fuel similar to Chevron Diesel Fuel Oil No. 2 received by Seller
into its terminals on Maui and Hawaii from Buyer's nominated barge.
28. "Returned", when used in conjunction with Oil, oil or Jet, refers
to the Oil, oil or Jet returned by Seller from its terminals on Maui and Hawaii
to Buyer for Buyer's use in Buyer's electrical generating facilities.
ARTICLE II
TERM
The term of this Contract shall be from January 1, 1996 (the "Effective Date"),
through December 31, 1997, and shall continue thereafter for additional 12-month
periods (each 12-month period being an "Extension") beginning each successive
January 1, unless Buyer or Seller gives written notice of termination at least
120 days before the beginning of an Extension.
ARTICLE III
QUANTITY
Section 3.1
------------------------------------------------------------------
This portion is confidential; therefore, it has been omitted and
filed separately with the Commission.
------------------------------------------------------------------
Page 4
<PAGE>
------------------------------------------------------------------
This portion is confidential; therefore, it has been omitted and
filed separately with the Commission.
------------------------------------------------------------------
Page 5
<PAGE>
------------------------------------------------------------------
This portion is confidential; therefore, it has been omitted and
filed separately with the Commission.
------------------------------------------------------------------
Section 3.2 Prior to the 15th day of each month, HECO shall give Seller a
forecast of each Buyer's monthly lifting of Diesel, CIFO and Jet from each
supply point for each of the coming three months. Each Buyer recognizes the
importance to Seller of reasonably accurate lifting forecasts because of
Seller's need to plan production and shipments.
Section 3.3 Buyers' purchases and Seller's Deliveries of CIFO and Diesel
will occur in a ratable fashion throughout the year. At the end of each
calendar year, Buyers' CIFO and Diesel purchase performance will each be
reviewed by Seller for ratability.
i. If upon review Buyers' volumes in any calendar quarter were less than
15% of the total minimum annual liftings for either CIFO or Diesel, a premium of
$0.42/barrel will be charged to Buyer for the difference between 15% of total
minimum annual liftings of that product and Buyers' actual liftings of that
product.
ii. If upon review Buyers' volumes in any calendar quarter were greater
than 35% of the total maximum annual liftings for either CIFO or Diesel, a
premium of $0.42/barrel will be
Page 6
<PAGE>
charged to Buyer for the difference between Buyers' actual liftings of that
product and 35% of total maximum annual liftings of that product.
iii. Seller understands Buyers' jet fuel purchases will occur in a non-
ratable fashion and no ratability premiums will be applied to jet fuel
purchases.
Section 3.4
------------------------------------------------------------------
This portion is confidential; therefore, it has been omitted and
filed separately with the Commission.
------------------------------------------------------------------
Page 7
<PAGE>
------------------------------------------------------------------
This portion is confidential; therefore, it has been omitted and
filed separately with the Commission.
------------------------------------------------------------------
ARTICLE IV
QUALITY
Section 4.1 The CIFO to be supplied hereunder shall be Seller's regular
commercial grade of Chevron Industrial Fuel Oil No. 6, having the following
specifications:
<TABLE>
<CAPTION>
ASTM
Item Specifications Test Method
<S> <C> <C>
Gravity, API 6.5 min. D1298 or D4052-86
Flash, degrees F 150 min. D93
Viscosity, SSF @ 122 degrees F 179 min., 226 max. D445/D2161
Pour Point, degrees F 55 max. D97
Sulfur, % Wt. 2.0 max. D1552, D2622 or D4294
Sediment & Water, % Vol. 0.5 max. D1796
Heat Value, Gross** 6.0 D240
</TABLE>
MM BTU/BBL
** Typical Value is 6.3.
Section 4.2 The Diesel to be supplied hereunder shall be similar to
Seller's regular commercial grade of Chevron Diesel Fuel No. 2 and have the
following specifications:
<TABLE>
<CAPTION>
Specification Test
Item Units Limits Method
<S> <C> <C> <C>
Gravity @ 60 degrees F degrees API 30.0 min. D1298 or D4052-86
Specific 0.88 max.
Viscosity @ 100 degrees F SSU 32.3 - 40.0
</TABLE>
Page 8
<PAGE>
<TABLE>
<CAPTION>
Specification Test
Item Units Limits Method
<S> <C> <C> <C>
Heat Value, Gross** MM BTU/BBL 5.84 Calculated or D240
Flash Point, PM degrees F 150 min. D93
Pout Point** degrees F 35 D97
Ash PPM, wt. 100 max. D482
Cetane Index 40 min. D4737
Carbon Residue,
10% Residuum %, wt. 0.35 max. D524
Sediment & Water %, vol. 0.05 max. D1796
Sulfur %, wt. 0.40 max. D1552, D2622 or D4294
Distillation
90% Recovered degrees F 540 - 650 D86
Sodium + Potassium PPM, wt. 0.5 max. D3605
</TABLE>
** Chevron does not provide specifications on these items. Values are
typical; they are not guaranteed.
Section 4.3 The Jet to be supplied hereunder shall be similar to Seller's
regular commercial grade of Chevron Jet Fuel; provided, however, Buyer agrees
that the Jet shall be used exclusively as stationary combustion turbine start-up
fuel. Any other use, including without limitation its use for aviation
purposes, shall constitute unforeseeable misuse.
Section 4.4 SELLER MAKES NO WARRANTY, EXPRESSED OR IMPLIED IN FACT OR BY
LAW, AS TO MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE concerning the
Oil other than it shall comply with the quality herein specified, that the
Diesel shall be suitable for use as a fuel, the CIFO shall be suitable for use
as a boiler fuel, and the Jet shall be suitable for use as stationary combustion
turbine start-up fuel.
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ARTICLE V
PRICE, BTU DETERMINATION
Section 5.1
i. NO. 2 DIESEL FUEL
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This portion is confidential; therefore, it has been omitted and
filed separately with the Commission.
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ii. CIFO
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This portion is confidential; therefore, it has been omitted and
filed separately with the Commission.
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iii. Jet.
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This portion is confidential; therefore, it has been omitted and
filed separately with the Commission.
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This portion is confidential; therefore, it has been omitted and
filed separately with the Commission.
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Section 5.2 To provide the flexibility needed by Seller to meet its
obligations to Buyer, the source and type of crude oil and other raw material,
the place of manufacture, and the manufacturer of Oil for delivery to Buyer
hereunder shall be determined solely by Seller. The price of all Oil Delivered
by Seller to Buyer hereunder shall be determined in accordance with the terms of
this Contract regardless of where, how and by whom such Oil is manufactured and
regardless of the type or source of crude oil or other raw materials used in its
manufacture.
Section 5.3 In addition to all other amounts payable by Buyer under this
Contract, Buyer shall reimburse Seller for all taxes, assessments, levies and
imposts of whatsoever kind or nature imposed on Seller by any governmental or
quasi-governmental body, including without limitation the Hawaii General Excise
(Gross Income) Tax, the Hawaii Environmental Response Tax and Hawaii Liquid Fuel
Tax, where applicable, with respect to the execution or performance of this
Contract or the receipt by Seller of payments hereunder. Notwithstanding the
foregoing, Buyer shall not be required to reimburse Seller for any tax measured
by or based on the net income of Seller or for real property taxes. To avoid
duplication of recovery, Buyer shall not be required to reimburse Seller under
this Section 5.3
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for any item expressly mentioned by Platt's or Bunkerwire, or confirmed by
Platt's or Bunkerwire in writing upon inquiry by either Buyer or Seller, as
being included in a price used to compute PD1, PD2, PF or PJ under Section 5.1.
As of the Contract execution date, the Superfund Petroleum fee of the Superfund
Revenue Act of 1986 is the only tax, assessment, levy or impost implicitly
reimbursed to Seller through inclusion in the Platt's listings within DI, FI and
JI of Section 5.1.
Section 5.4
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This portion is confidential; therefore, it has been omitted and
filed separately with the Commission.
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Section 5.5 Seller will draw representative samples of each CIFO Delivery,
which will be used to determine the CIFO BTU content per Section 7.1. If the
weighted average BTU content of the CIFO Delivered to Buyer during any half of
any annual period is less than 6.2 MM BTU per physical barrel, the price of such
CIFO delivered to Buyer during each month of that semiannual period shall be
adjusted by multiplying the CIFO price as determined by Section 5.1.ii. for each
month by a ratio of actual average heat content to 6.2 MM BTU and Seller shall
issue Buyer a credit for the difference between such aggregate and the adjusted
price.
Section 5.6 All prices, adjustments thereto and other sums payable
hereunder shall be stated in the nearest thousandth of a dollar.
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ARTICLE VI
DELIVERIES
Section 6.1
i. Seller agrees to Deliver and MECO and HELCO agree to receive their Oil
into their nominated barge, F.O.B. the HMT. The delivery rate on
Diesel shall be 3,000 BPH minimum. The delivery rate on CIFO shall be
1,600 BPH minimum. Seller agrees to make its best, reasonable efforts
in operating its current CIFO delivery systems to Deliver CIFO into
the nominated barge at a temperature above 120(degrees)F. Buyer
acknowledges that the CIFO delivery temperature is determined by
Seller's and HECO's scheduling of other fuels in Seller's pipeline,
and hence cannot be guaranteed.
ii. When mutually agreed to, Seller may Deliver and MECO and HELCO may
receive their Diesel into their nominated barge, F.O.B. Honolulu
Harbor Piers 31 or 32. The delivery rate shall be 2,000 BPH minimum.
iii. When mutually agreed to, Seller may Deliver and MECO and HELCO may
receive their Oil into their nominated barge, F.O.B. Barbers Point
Piers 5 or 6. The delivery rate shall be 4,000 BHP minimum.
iv Seller and Buyer's agent or a mutually agreed upon independent
inspector shall inspect the receiving barge cargo tanks to ensure that
they contain only minimal remains of the previous cargo, before Seller
will Deliver Oil to be terminaled per Article XI. Remains exceeding
common commercial practice shall be removed by Buyer to protect the
quality of the Delivered Oil. Buyer or Buyer's agent may remove the
remains by any legal method at their disposal, including pumping the
remains into Seller's slop tank at the HMT, if convenient to Seller.
Seller shall have the right to charge Buyer for accepting remains if
the quantity to be removed from any barge or the number of barges
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requiring remains to be removed becomes excessive. Seller shall have
the right to flush the receiving barge cargo tanks with a small
quantity of Seller's Oil before loading the Delivered Oil.
v. Seller and Buyer's agent or a mutually agreed upon independent
inspector shall take a representative sample of the oil in the barge
cargo tanks, after Seller has delivered Oil into MECO's and HELCO's
nominated barges. See Addendum 2 hereto for an overview on all
sampling. This sample will be divided into two parts and dated. One
part shall be labeled "Seller's Loaded Sample." One part shall be
sealed and labeled "Buyer's Loaded Retain." These samples shall
indicate the quality of the mixture of Delivered Oil and the previous
cargo remains and will provide an early warning of any quality
problems with the Received Oil as described in Section 11.3.
Section 6.2 Seller agrees to Deliver and HT&B and YB agree to receive their
Diesel into their nominated vessel F.O.B. the HMT, Pier 31 or 32. The delivery
rate shall be 175 BPH minimum.
Section 6.3 Seller agrees to Deliver and HECO agrees to receive its Diesel
under either of the options below.
i. Seller will Deliver Diesel from the HDT into HECO's nominated tank
truck at a delivery rate of 190 BPH minimum.
ii. Seller will Deliver Diesel from the Oahu P/L into HECO's storage at
HECO's Waiau Power Plant, at a delivery rate of 1,000 BPH minimum.
Section 6.4 Seller agrees to deliver and MECO and HELCO agree to receive
Jet at MECO's or HELCO's respective power plant truck unloading rack.
Section 6.5 Seller agrees to Deliver and MECO-Molokai agrees to receive its
Oil into its nominated marine terminal at Kaunakakai Harbor, Molokai. The
delivery rate shall be 1,000 BPH minimum. Buyer will provide discharge
facilities through an independent third party; Seller has no responsibility to
procure discharge facilities on the island of Molokai.
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Section 6.6
i. For the Delivered Oil under Sections 6.1 and 6.2, care, custody,
control, title and risk of loss shall pass to Buyer as the Oil passes
the flange connecting the cargo hose of the Buyer's nominated barge or
vessel and Seller's pipeline.
ii. For the Delivered Diesel under Section 6.3.i., care, custody, control,
title and risk of loss shall pass to Buyer as the Oil passes the
flange connecting the cargo hose of the Buyer's nominated tank truck
or vessel and Sellers' truck loading rack.
iii. For the Delivered Diesel under Section 6.3.ii., care, custody,
control, title and risk of loss shall pass to Buyer as the Oil passes
the flange connecting Buyer's pipeline at the Waiau Power Plant to the
Oahu P/L.
iv. For the Delivered Diesel under Section 6.5, care, custody, control,
title and risk of loss shall pass to Buyer as the Oil passes the
flange connecting the cargo hose of the Seller's nominated barge or
vessel and the Buyer's designated pipeline.
v. For the delivered Jet under section 6.4, care, custody, control, title
and risk of loss shall pass to Buyer as the jet passes the flange
connecting the cargo hose of the Seller's tank truck and Buyer's truck
unloading rack at HELCO's and MECO's respective power plant.
Section 6.7 Buyer agrees to provide Seller with five (5) days advance
written notice of Oil to be Delivered under Section 6.1, 6.3.ii. or 6.4, and
telephone notification for Diesel to be Delivered under Section 6.2 or 6.3.i.
Seller shall make all reasonable effort to comply with this notice and advise
Buyer promptly if the delivery time cannot be met.
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ARTICLE VII
DETERMINATION OF QUALITY
Section 7.1 The quality of the Oil purchased by HECO and the quality of Jet
purchased by HELCO and MECO shall be determined on the basis of composite
samples drawn by Seller in such a manner as to be representative of each
Delivery. The quality of the Oil purchased by MECO or HELCO, i.e., barge
cargos, shall be determined on the basis of composite samples drawn by Seller,
collected at a point prior to entry into each barge, in such a manner as to be
representative of each barge cargo. The quality of the Oil purchased by MECO-
Molokai shall be determined on the basis of composite samples drawn by Seller
from receiving tanks at the Kaunakakai Terminal after each delivery. The heat
content of the Oil shall be determined on a monthly weighted average basis for
each Buyer from the same composite samples drawn by Seller at the time and place
described above. See Addendum 2 hereto for an overview on all sampling. Such
samples shall be divided into three (3) parts and dated.
1. One part shall be used by Seller to determine the heat content (gross
BTU) per physical gallon and, if needed, the other qualities of Article
IV ("Seller's Delivered Sample").
2. One part shall be provided to Buyer for the purpose of verifying Seller's
determinations ("Buyer's Delivered Sample").
3. One sealed part shall be provided to Buyer ("Buyer's Delivered Retain").
Section 7.2 Within sixty (60) days after the end of each month, Buyer shall
give Seller notice of any disagreement with Seller's quality or heat content
determination for Delivered Oil and Delivered Jet during such month. In the
event that such disagreement is not resolved within thirty (30) days, Buyer's
Delivered Retain shall be submitted to a mutually agreed upon independent
laboratory for inspection, whose determination shall be final and binding on
both parties. Seller and Buyer shall share equally the cost of such independent
inspections.
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Section 7.3 If Buyer and Seller agree or the independent inspector
determines that the quality of Delivered Oil and Delivered Jet did not equal the
qualities described in Article IV (regardless if such Oil and Jet passed tests
of conditional acceptance), the Buyer and Seller shall attempt to minimize the
impact. This may include specification waiver especially if use of Oil and Jet
will not harm Buyer or Seller, or delivering higher quality Oil and Jet in a
timely manner to produce a specification quality blend in Seller's terminal. If
all such, or similar efforts fail to resolve the quality problem, then Seller at
Seller's expense, shall exchange the non-specification Oil and Jet and other oil
downgraded by commingling with Seller's Oil and Jet, with Oil and Jet meeting
the qualities of Article IV. However, in no event shall Seller be liable for
any indirect, consequential, special or incidental damages of any kind whether
based in contract, tort (including without limitation negligence or strict
liability), warranty or otherwise allegedly caused by or based upon the
qualities of the Oil and Jet.
ARTICLE VIII
MEASUREMENT OF QUANTITY
Section 8.1 Quantities of the Oil sold and purchased under this Contract at
the HMT shall be determined at the time of each Delivery by gauging the HMT
tanks before and after pumping. Diesel sold and purchased under this Contract
from the Oahu P/L shall be determined at the time of each Delivery by gauging
Seller's tanks at its Barbers Point Refinery before and after pumping. Diesel
sold and purchased under this Contract at the Kaunakakai Terminal shall be
determined at the time of each Delivery by gauging Buyers' tanks at Kaunakakai
before and after pumping. Volumes Delivered hereunder shall be converted to
60(degrees)F, using the latest revision of Table 6 of ASTM IP Petroleum
Measurement Tables, American Edition, ASTM Designation D-1250. Measurements
shall be taken by Seller and witnessed by Buyer or Buyer's agent. However, at
Buyer's option, such measurements shall be taken by a mutually agreed upon
independent inspector. Seller and Buyer shall share equally the
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cost of independent inspections. Seller reserves the right to install meters
on the Oahu P/L and to determine quantity as in Section 8.2.
Section 8.2 Diesel sold and purchased under this Contract at the HDT and
Jet sold and purchased by HELCO and MECO shall be determined at the time of each
Delivery by reading calibrated meters, corrected in each instance to volume at
60(degrees)F in accordance with the latest issue of Table 6 of ASTM IP Petroleum
Measurement Tables, American Edition, ASTM Designation D-1250. The meters used
at the HDT and Seller's terminals on Hawaii and Maui shall be Seller's meters.
Both Buyer and Seller shall have the right to review each other's routine
certification documents.
Section 8.3 If Buyer or Seller has reason to believe that the quantity of
Oil and Jet stated for a particular Delivery per Sections 8.1 or 8.2 is
incorrect, the party shall within sixty (60) days of the Delivery date, present
the other party with documentation supporting such determination and the parties
will confer, in good faith, on the causes for the discrepancy and shall proceed
to correct such causes and adjust the quantity, if justified, for the deliveries
in question.
ARTICLE IX
INVOICING AND PAYMENT
Section 9.1 Invoices for the sale of CIFO, Diesel, and Jet and for the
services provided by Seller as outlined in Article XI shall be rendered promptly
to Buyer, upon receipt of all required information.
Section 9.2 Payments shall be made in U.S. dollars. Timing of payments of
invoices shall be as follows:
i. Invoices to HECO, MECO, MECO-Molokai and HELCO:
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a. Payment for Deliveries and services from the first through the
tenth calendar day of a month for which invoices have been received
is due on the twentieth day of the month.
b. Payment for Deliveries and services from the eleventh through the
twentieth calendar day of a month for which invoices have been
received is due on the last day of the month.
c. Payment for Deliveries and services from the twenty-first through
the last calendar day of a month for which invoices have been
received is due on the tenth day of the following month.
Due dates are dates payments are to reach Seller. If the due date falls
on a Saturday, the payment shall be due on the preceding business day.
If such date falls on a Sunday or a holiday, payment shall be due the
following business day.
ii. Payment for Deliveries to HT&B and YB for which invoices have been
received shall be paid within thirty (30) days of the Delivery date.
Section 9.3 Method of payment shall be as follows:
i. Payments of HECO, MECO, MECO-Molokai, and HELCO shall be by bank wire
transfer of immediately available funds to:
First National Bank of Chicago, Chicago, Illinois 60607
Attention: GFTS
for credit to the following accounts, depending on which Buyer is
making a payment:
a. HECO Chevron U.S.A. Inc. - Section #632
Account No. 1184762
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b. HELCO Chevron U.S.A. Inc. - Section #632
Account No. 1237632
c. MECO Chevron U.S.A. Inc. - Section #632
Account No. 1237636
d. MECO-Molokai Chevron U.S.A. Inc. - Section #632
Account No. 6049549
For identification purposes, all wires must clearly indicate that
payment is being made by order of Buyer and indicate the invoice reference
number. In addition, written documentation evidencing specific invoices being
paid shall be immediately forwarded to:
Chevron U.S.A. Inc
P.O. Box R
Concord, California 94524
ii. Payment by HT&B and YB shall be mailed to:
Chevron U.S.A.
c/o First Interstate Bank
Dept. 7351
Los Angeles, CA 90088
Payment shall include written documentation evidencing specific invoices being
paid.
ARTICLE X
SELLER'S FACILITIES ON OAHU
Seller agrees to provide the use of its Oahu P/L for the Diesel Delivered to
HECO's Waiau Power Plant per Section 6.3.ii.
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ARTICLE XI
SELLER'S FACILITIES ON MAUI AND HAWAII
As used in this Article XI, "Buyer" will refer only to MECO or HELCO.
Section 11.1
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This portion is confidential; therefore, it has been omitted and
filed separately with the Commission.
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ii. Whenever Buyer purchases third party oil which is to be terminaled in
Seller's facilities, Buyer shall obtain a sample representative of the
oil in the barge cargo tanks, after the third party supplier has
completed the loading of such oil into Buyer's nominated barge. See
Addendum 2 hereto for an overview on all sampling. This sample shall be
divided into three parts and dated. One part shall be labeled
"Supplier's loaded sample" and delivered to Seller's representative as
soon as possible. One part shall be labeled "Buyer's loaded sample."
One part shall be sealed and labeled "Buyer's loaded retain." These
samples shall indicate the quality of this mixture of purchased oil and
the previous
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cargo remains. To provide an early warning of any quality problems
with the Received oil, Buyer agrees to perform a preliminary analysis on the
Buyer's loaded sample consisting of API gravity, appearance and, in the case of
diesel fuel, flash point, at the time such third party oil is loaded for
transport. Buyer also agrees to deliver one copy of such preliminary analysis
promptly to Seller's representative at the Honolulu Marine Terminal and to carry
a second copy on board Buyer's nominated barge for delivery to Seller's
representative upon arrival at the appropriate outer island terminal. Buyer
further agrees that the cost of any additives which may be required to eliminate
compatibility problems between third party oil and Seller's Oil at the outer
island terminal shall be solely for Buyer's account.
Section 11.2 Buyer shall provide Seller with estimated arrival times of
the barge transporting the oil for which Buyer desires to use Seller's
facilities on Maui or Hawaii. Buyer or Buyer's agent shall provide radio or
phone notification to Seller's representative at each unloading location at
least seven days prior to a third-party supplied oil delivery and at least 24
hours prior to a Seller supplied oil delivery. Buyer or Buyer's agent shall
also provide the Captain of the Port with radio or phone notification at least
24 hours prior to any delivery. Should the estimated time of arrival change by
two or more hours following the 24 hour arrival report, Buyer or Buyer's agent
shall promptly report the change to Seller's representative and the Captain of
the Port at the place of planned arrival.
Section 11.3
i. Seller shall analyze Seller's Loaded sample of Section 6.1.iv and
Buyer's supplied results from any Buyer's loaded sample of Section
11.1.ii for conditional acceptance for receiving the oil, and if
warranted, analyze Seller's Loaded sample of Section 6.1.iv and
Supplier's loaded sample of Section 11.1.ii for all the qualities
described in Article IV, while Buyer's nominated barge is enroute to
Maui or Hawaii, to reduce the risk of contaminating Seller's terminal
inventories. See Addendum 2 hereto for an overview of
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all sampling. If the loaded sample fails conditional acceptance, Seller
shall promptly notify Buyer of any quality problems with the loaded oil.
Both Buyer and Seller shall attempt to minimize the impact of any
quality problem by specifications waiver especially if use of the loaded
oil will not harm either Buyer or Seller, or by Buyer or Seller
delivering higher quality oil in a timely manner to produce a
specification quality blend at Seller's terminal. If all such, and
similar, efforts fail to resolve the quality problem, then Buyer's
loaded oil shall not be unloaded into Seller's terminal tanks.
Buyer may return nonspecification Loaded Oil to Seller's Barbers Point
refinery, in which case Seller shall replace the non-specification
Loaded Oil by delivering an equal volume of Oil into Buyer's nominated
barge at the HMT, in a timely manner.
ii. All costs and expenses, including transportation, re-refining and
handling costs incurred in returning and replacing non-specification
loaded oil and Loaded Oil shall be paid by the party responsible for the
contamination. Responsibility shall be determined by analyzing the
Delivered Oil samples of Section 7.1 and the loaded oil samples of
Section 6.1.iii and Section 11.1.ii. If Buyer and Seller cannot agree
whether the Delivered Oil or the loaded oil meet the qualities specified
in Article IV, then the sealed retain of the oil in question, Buyer's
Delivered retain, Buyer's Loaded retain or Buyer's loaded retain shall
be submitted to a mutually agreed upon independent laboratory, whose
determination shall be final and binding on both parties. Seller shall
have the responsibility for Buyer's transportation and handling costs
for its own re-refining cost if it is determined that the qualities
described in Article IV are not met by the Delivered Oil. Otherwise,
Buyer shall be responsible for Seller's handling and re-refining cost
and its own transportation and handling costs. The responsible party
shall reimburse the other party for such costs and expenses within sixty
(60) days of the delivery date of the non-specification loaded oil.
However, in no event shall such party be responsible for any indirect,
consequential, special or incidental damages of any kind whether based
in contract, tort (including without limitation negligence or strict
liability), warranty or otherwise
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allegedly caused by or based upon the quality of the non-specification
loaded oil. Seller and Buyer shall share equally the cost of any
independent inspections.
Section 11.4 Buyer shall be responsible for meeting all Coast Guard dock
watch requirements at Hilo, Hawaii and Kahului, Maui. Charges levied by any
governmental agency for the use of their facilities at Hilo, Hawaii or Kahului,
Maui, including but not limited to the State of Hawaii's wharf and pipeline
fees, shall be for Buyer's account.
Section 11.5 Seller will take care, custody and control of Received oil
having conditionally acceptable quality per Section 11.6 at the flange
connecting Seller's independently owned pipeline at each location to the
multiparty diesel pipeline at Kahului Harbor, Maui and the multiparty diesel and
fuel oil pipelines at Hilo Harbor, Hawaii. Title and risk of loss shall remain
with Buyer. Seller shall not be responsible for any type of loss of the oil
while it is in Seller's custody except when loss or damage is caused by Seller's
failure to use reasonable care in receiving, handling, storing, or delivering
such oil. Received oil will be commingled with Seller's Oil in Seller's tankage
at Seller's Kahului, Maui or Hilo, Hawaii terminals.
Section 11.6
i. Quality of Received oil at the unloading location shall be determined
by testing representative samples taken from Carrier's barge tanks.
See Addendum 2 hereto for an overview of all sampling. Seller, or a
mutually agreed third party, shall perform the sampling and testing as
prescribed in the latest API-ASTM laboratory testing standards.
Samples will be divided into four parts and dated. One part shall be
tested promptly per Section 11.6.ii. One part shall be labeled
"Seller's Received Sample," one part shall be sealed and labeled
"Seller's Received Retain" and one part shall be labeled "Buyer's
Received Sample" and provided to Buyer.
ii. To facilitate Buyer's barge turnaround, one part of the sample taken
in Section 11.6.i will be promptly tested for its API gravity,
appearance and in the case of Diesel also for its
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flash point. Received Oil will be considered conditionally acceptable
if its API gravity is within 0.3 degrees of its gravity delivered to
Buyer under Article VI. Received oil will be considered acceptable if
its API gravity is within 0.3 degrees of the Supplier's loaded sample
gravity as determined in Section 11.1.ii, and for diesel cargos, if
its Flash point is above its 150 (degrees)F specification of Section
4.2.
iii. Notwithstanding the above conditional acceptance, Seller may use
Seller's Received Sample to determine all the qualities described in
Article IV for Received oil. Within thirty (30) days after each oil
cargo unloading, Seller shall give Buyer notice of any claim of
contamination of Seller's Oil from commingling with Received oil. In
the event that such claim is not resolved within thirty (30) days of
the original claim, Seller's Received Retain shall be submitted to a
mutually agreed upon independent laboratory for inspection, whose
determination shall be final and binding on both parties. Seller and
Buyer shall share equally the cost of such independent inspections.
iv. If Buyer and Seller agree or the independent inspector determines that
the quality of the Received oil did not meet the qualities described
in Article IV, and the most recent Delivered Oil did meet the quality
described in Article IV, both Buyer and Seller shall attempt to
minimize the impact of any quality problem on Buyer by waiver of
Buyer's requirement to meet specifications especially if Seller's use
of the oil will not significantly harm Seller, or by Buyer or Seller
delivering higher quality oil in a timely manner to produce a
specification quality blend at Seller's terminal. If all such, and
similar, efforts fail to resolve the quality problem, then Buyer will
reimburse Seller the transportation, handling and re-refining costs of
exchanging Buyer's and Seller's oil, with oil meeting the qualities
described in Article IV. Such reimbursement shall occur within 60 days
of Seller's original claim. However, in no event shall Buyer be liable
for any indirect, consequential, special or incidental damages of any
kind whether based in contract, tort (including without limitation
negligence or strict liability), warranty or otherwise allegedly
caused by or based upon the quality of the Received oil.
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Section 11.7 The quantity of Received oil and Received Oil over which
Seller takes custody shall be determined at the time of each barge cargo
unloading by gauging Seller's terminal tank before and after pumping. Free water
shall be drawn off prior to each level measurement. Volumes delivered hereunder
shall be converted to 60(degrees)F, using the latest revision of Table 6 of ASTM
IP Petroleum Measurement Tables, American Edition, ASTM Designation D-1250.
Measurements shall be taken by Seller and witnessed by Buyer or Buyer's agent.
However, at Buyer's option, such measurement shall be taken by a mutually agreed
upon independent inspector. Buyer and Seller shall share equally the cost of
independent inspections.
Section 11.8 In the event that Buyer and Seller have agreed to commingle
their oil in a barge or vessel compartment to reduce freight costs, and there
are discrepancies between either the quantities of oil loaded per Section 6.1
and unloaded per Section 11.7 or the qualities of oil loaded per Section 7.1 and
unloaded per Section 11.6, then Buyer and Seller shall share the benefits or
losses of the discrepancy proportionally to the loaded volumes.
Section 11.9 Buyer will provide Seller's terminal representative, during
normal working hours, at least 24-hour notice of any transfers required from
Seller's facilities in Kahului or Hilo.
Section 11.10 Buyer shall regain care, custody and control of Returned Fuel
Oil at the flange connecting Seller's Hilo terminal pipeline to Buyer's
pipeline.
i. The quantity of Fuel Oil over which Seller returns custody shall be
determined at the time of each transfer by gauging Seller's terminal
tanks before and after pumping. Volumes Returned hereunder shall be
converted to 60(degrees)F, using the latest revision of Table 6 of
ASTM IP Petroleum Measurement Tables, American Edition, ASTM
Designation D-1250. Measurements shall be taken by Seller and
witnessed by Buyer or Buyer's agent. However, at Buyer option, such
measurements shall be taken by a mutually agreed upon
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independent inspector. Buyer and Seller shall share equally the cost
of independent inspections.
ii. Buyer and Seller agree that Buyer shall maintain a positive inventory
of Fuel Oil at Seller's Hilo terminal for Buyer's use, but
acknowledge that a small negative inventory may occasionally result
after Fuel Oil custody transfers from Seller to Buyer. Seller shall
maintain a record of Buyer's net Fuel Oil inventory stored in its
Hilo terminal based on receipts as determined in Section 11.7 and
returns as determined in Section 11.10.i. Seller will provide book
inventory records once each week, convenient to Seller's normal
weekly inventory period. If at the end of any annual period, the net
Fuel Oil inventory is negative, Seller will invoice Buyer and Buyer
will pay Seller an amount equal to the net negative inventory in
barrels multiplied by the sum of the December CIFO sales price at the
end of the annual period per Section 5.1 and the December commercial
freight rate charged by HELCO's carrier for a minimum cargo size of
38,000 barrels to Seller at the end of the annual period for CIFO
transport between Honolulu Harbor, Oahu and Hilo Harbor, Hawaii.
Section 11.11 Buyer shall regain care, custody and control of Returned
diesel at the end of the fill pipe connecting Seller's terminal pipelines to
Carrier's tank trucks. Transfers will be made in minimum 5,000 gallons per
delivery load.
i. The quantity of diesel over which Seller returns custody shall be
determined at the time of each transfer by reading Seller's calibrated
meters corrected in each instance to volume at 60(degrees)F using the
latest revision of Table 6 of ASTM IP Petroleum Measurement Tables,
American Edition, ASTM Designation D-1250. If Buyer or Seller have
reason to believe that the quantity of Returned diesel stated for a
particular transfer is incorrect, that party shall within fifteen days
of the transfer date, present the other party with documentation
supporting such determination and the parties will confer, in good
faith, on the causes for the discrepancy and shall proceed to correct
such causes and adjust the quantity, if justified, for the transfers
in question.
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ii. Seller shall maintain records of Buyer's net diesel inventories stored
at each of its Kahului, Maui and Hilo, Hawaii terminals, based on
receipts as determined in Section 11.7 and returns as determined in
Section 11.11.i. Seller will provide book inventory records once each
week, convenient to Seller's normal weekly inventory period.
iii. Seller will periodically reconcile meter measurements with tank
gaugings. Buyer may review Seller's reconciliation calculations.
However, there will be no retroactive adjustments to the volumes
delivered or received as a result of this procedure.
Section 11.12 Seller shall be under no obligation to provide Buyer
quantities of Returned oil greater than Buyer's current net oil inventory.
However, Seller will attempt to meet Buyer's unanticipated needs, after
considering the needs of its other customers and its own available inventory.
Section 11.13
i. Returned oil transferred by Seller shall meet the qualities described
in Article IV. Seller shall verify the quality of the Returned oil by
taking a representative sample of the oil in Seller's tanks on Maui
and Hawaii after each receipt of Buyer's or Seller's oil. See Addendum
2 hereto for an overview of all sampling. This sample shall be
promptly tested by Seller for its API gravity, appearance and in the
case of diesel also for its flash point. Buyer and Seller agree that
successful passage of the prompt test on this sample is sufficient
evidence for Seller to return oil to Buyer, without limiting Buyer's
rights within Section 11.13.ii. Seller shall also take samples
representative of the Returned oil after each receipt of Buyer's or
Seller's oil into Seller's terminal. These samples will be divided
into three parts and dated. One part shall be labeled "Seller's
Returned Sample." One part shall be sealed and labeled "Buyer's
Returned Retain" and one part shall be labeled "Buyer's Returned
Sample." Both shall be provided to Buyer.
ii. Notwithstanding the above conditional acceptance, Buyer may use
Buyer's Returned Sample to determine all the qualities described in
Article IV for the Returned oil. Within
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thirty (30) days after each oil delivery, Buyer shall give Seller
notice of any claim of contamination and of resulting losses. In the
event that such claim is not resolved within thirty (30) days of the
original claim, Buyer's Returned Retain shall be submitted to a
mutually agreed upon independent laboratory for inspection, whose
determination shall be final and binding on both parties. Seller and
Buyer share equally the cost of such independent inspections.
iii. If Buyer and Seller agree or the independent inspector determines that
the quality of the Returned oil did not meet the qualities described
in Article IV and that the most recent Received Oil and Received oil
did meet the qualities described in Article IV, both Buyer and Seller
shall attempt to minimize the impact of any quality problem on Seller
by waiver of Seller's requirement to meet specifications, especially
if Buyer's use of the oil will not significantly harm Buyer, or by
Seller returning higher quality oil to produce a specification quality
blend at Buyer's plants. If all such, and similar, efforts fail to
resolve the quality problem, then Seller will, at Seller's expense,
exchange Buyer's Returned oil and, if appropriate, any of Buyer's
other similar oil which has been downgraded by commingling with the
Returned oil, with oil meeting the qualities described in Article IV.
Seller shall make its best, reasonable effort to replace Buyer's oil
in a timely manner. However, in no event shall Seller be liable for
any indirect, consequential, special or incidental damages of any kind
whether based in contract, tort (including without limitation
negligence or strict liability), warranty or otherwise allegedly
caused by or based upon the quality of the Returned oil.
Section 11.14
----------------------------------------------------------------
This portion is confidential; therefore, it has been omitted and
filed separately with the Commission.
----------------------------------------------------------------
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<PAGE>
ii.
----------------------------------------------------------------
This portion is confidential; therefore, it has been omitted and
filed separately with the Commission.
----------------------------------------------------------------
ARTICLE XII
CONTINGENCIES
Section 12.1 As used in this Article XII, the term "contingency" means:
(a) any event reasonably beyond the control of the party affected;
(b) compliance, voluntary or involuntary, with a direction or request of any
government or person purporting to act with governmental authority; excluding,
however, any such direction or request restricting or otherwise regulating
combustion of the oil to be purchased by Buyer hereunder, the effect of which
restrictions or regulation upon the parties' performance shall be governed by
Section 12.5 of this Contract;
(c) total or partial expropriation, nationalization, confiscation,
requisitioning or abrogation or breach of a government contract or concession;
(d) closing of, or restriction on the use of, a port or pipeline;
(e) maritime peril (including but not limited to, negligence in navigation
or management of vessel, collision, stranding, destruction, or loss of vessel),
storm, earthquake, flood;
(f) accident, fire, explosion;
(g) hostilities or war (declared or undeclared), embargo, blockage, riot,
civil unrest, sabotage, revolution, insurrection;
(h) strike or other labor difficulty (whomever's employees are involved),
even though the strike or other labor difficulty could be settled by acceding to
the demands of a labor group; or,
(i) loss or shortage of supply, production, manufacturing, distribution,
refining, transportation, delivery facilities, receiving facilities, equipment,
labor, material, power
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generation or power distribution caused by circumstances which the affected
party is not able to overcome by the exercise of reasonable diligence or which
the affected party is able to overcome only at substantial additional expense in
relation to the expected revenue, benefits or rights related directly to this
Contract.
Section 12.2 Seller shall not be obligated to sell or deliver Oil or Jet
to the extent that performance of this Contract is prevented, restricted or
delayed by a contingency which significantly affects Seller's ability to supply,
manufacture or transport Oil or Jet to Buyer under this Contract from Seller's
U.S. West Coast and Hawaiian refineries. In such circumstances, Deliveries of
Oil or Jet to Buyer may be reduced on a basis as equitable to Buyer as to
Seller's and its affiliates' other customers of crude and petroleum products,
and Seller shall not be obligated to acquire additional crude, oil or jet but to
the extent that it does acquire additional crude, oil or jet, Buyer shall be
entitled to an equitable share of the oil or jet acquired or derived from the
crude acquired, at a price to be agreed from time to time.
Section 12.3 Buyer shall not be obligated to purchase, receive or use Oil
or Jet to the extent that performance of this Contract in the customary manner
is prevented, restricted or delayed by a contingency. In such circumstances,
purchases from Seller may be reduced on any basis as equitable to Seller as to
Buyer's other suppliers of oil or jet.
Section 12.4 If at any time any price determined under this Contract
cannot be given effect because to do so would violate a direction or request of
any government or person purporting to act with governmental authority, Buyer
and Seller shall attempt to agree on an alternate course of action but failing
agreement within 10 days the party adversely affected may suspend performance
with respect to the quantity of Oil or Jet affected by the direction or request.
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Section 12.5 To the extent that any governmental regulation requires
combustion of oil or jet meeting specifications other than those in Article IV,
Buyer and Seller shall negotiate in good faith to agree on an alternative course
of action that will allow Buyer to comply with such regulation while purchasing
the equivalent of the full quantity of oil or jet it would be required to
purchase under Article III, at a price and on other terms and conditions that
are fair to both parties. Seller shall have no obligation to deliver oil or jet
meeting new specifications if it is not available for purchase from third
parties and Seller cannot manufacture such oil or jet in existing facilities
without new capital investment.
If Buyer and Seller do not agree on such an alternative course of action, then
Buyer may comply with such regulation in any reasonable manner it chooses,
including the option to purchase from other sources for its plant located within
the area in which such regulation specifically applies, fuels which will enable
Buyer to comply with such regulation. In such case, Buyer's minimum purchase
requirement under Article III shall be reduced accordingly.
Section 12.6 Seller's obligations under this Contract shall be contingent
on Seller's continued ownership or operation of its refining or delivery
facilities in Hawaii or the U.S. West Coast. Seller shall have the right to
terminate this Contract in the event the ownership and operation of its refining
and delivery facilities in Hawaii and the U.S. West Coast are transferred to an
entity other than an affiliate. Seller shall give Buyer 180 days' written
notice.
ARTICLE XIII
EFFECT OF SUSPENSION OR REDUCTION
Section 13.1 In the event of any suspension of sales and Deliveries under
Article XII, Seller shall not be obligated to sell and Buyer shall not be
obligated to buy, after the period of suspension or reduction, the undelivered
quantity of Oil or Jet which normally would have been sold and delivered
hereunder during the period of suspension or reduction.
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Section 13.2 If sales and Deliveries are suspended under Article XII for
more than 180 days, Seller or Buyer shall then have the option while such
suspension continues to terminate its obligations to the other party under this
Contract on 30 days' written notice to the other party.
Section 13.3 Any party which relies upon Article XII shall give the other
party prompt notice thereof specifying the anticipated amount and duration of
any suspension or reduction of Deliveries. It shall also give prompt notice when
it no longer expects to rely on Article XII and Deliveries shall be reinstated
subject to all conditions of this Contract, unless this Contract has been
terminated previously under Section 13.2.
Section 13.4 Nothing in Article XII shall relieve Buyer of the obligations
to pay in full in United States currency for the Oil or Jet sold and Delivered
hereunder and for other amounts due to Buyer to Seller under this Contract, nor
relieve Seller of the obligation to return to Buyer the net positive inventory
of Buyer's oil stored in Seller's Hilo, Hawaii and Kahului, Maui terminals.
Section 13.5 While Deliveries are suspended or reduced by Seller pursuant
to Article XII, it shall not be a breach of this Contract for Buyer to buy from
a supplier other than Seller the quantities of Oil or Jet which Seller does not
Deliver. During this period of time, there will be no minimum volume
requirements. After any suspension or reduction has ended, minimum and maximum
volume requirements for the semiannual period in which the suspension or
reduction occurred will be reduced in proportion to the ratio of the number of
days within the semiannual period during which no suspension or reduction was in
effect, to the number of days within the semiannual period.
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ARTICLE XIV
WAIVER AND NONASSIGNABILITY
Section 14.1 Waiver by one party of the other's breach of any provision of
this Contract shall not be deemed a waiver of any subsequent or continuing
breach of such provisions or of the breach of any other provision or provisions
hereof.
Section 14.2 This Contract shall not be assignable by either party without
the written consent of the other, which shall not be unreasonably withheld,
except that Seller may assign this Contract to any affiliate, provided that any
such assignment shall not release Seller from any of its obligations hereunder,
and except that HECO, MECO, MECO-Molokai, and HELCO may assign their interests
in the Contract to the Trustee under their respective First Mortgage Bond
Indentures. Seller does not, by agreement to such an assignment, waive any right
it may have to terminate this Contract for any breach hereof occurring at any
time before or after any such assignment or release Buyer of any obligations
arising under this Contract after any such assignment. Following any such
assignment, no further assignment may be made without the consent of Seller.
ARTICLE XV
CONFLICT OF INTEREST
Conflicts of interest related to this Contract are strictly prohibited.
Except as otherwise expressly provided herein, neither party nor any director,
employee or agent of a party shall give to or receive from any director,
employee or agent of the other party any gift, entertainment or other favor of
significant value, or any commission, fee or rebate. Likewise, neither party nor
any director, employee or agent of a party shall enter into any business
arrangement with any director, employee or agent of the other party (or any
affiliate), unless such person is acting for and on behalf of the other party,
without prior written notification thereof to the other party. In the event of
any violation of this paragraph, including any violation occurring prior to the
date of this Contract which resulted directly or indirectly in one party's
consent to enter into this
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Contract with the other party, such party may, at its sole option, terminate
this Contract at any time and, except for Buyer's obligation to pay in full in
United States currency for the Oil sold and Delivered hereunder and for other
amounts due by Buyer to Seller under this Contract, and for Seller's obligation
to return to Buyer the net positive inventory of Buyer's oil stored in Seller's
Hilo, Hawaii and Kahului, Maui terminals, shall be relieved of any further
obligation under this Contract.
Both parties agree to immediately notify the other of any known violation of
this Article.
ARTICLE XVI
DEFAULT
If Buyer or Seller considers the other party to be in default of any
obligation under this Contract, such party shall give the other party notice
thereof. Such other party shall then have 30 days in which to remedy such
default. If the default is not cured, the other party may, without prejudice to
any other right or remedy of such party in respect of such breach, terminate its
obligations under this Contract, except for Buyer's obligation to pay in full in
United States currency for the Oil or Jet sold and delivered hereunder and for
other amounts due by Buyer to Seller under this Contract, and for Seller's
obligation to return to Buyer the net positive inventory of Buyer's oil stored
in Seller's Hilo, Hawaii and Kahului, Maui terminals, by 45 days' written notice
to the party in breach. Any termination shall be without prejudice to accrued
rights. All rights and remedies hereunder are independent of each other and
election of one remedy shall not exclude another.
Except as provided under Sections 18.2 and 18.4, in no event shall either party
be liable for any indirect, consequential, special or incidental damages of any
kind whether based in contract, tort (including without limitation negligence or
strict liability), warranty or otherwise.
Seller's termination of its obligations to a Buyer in this Contract due to
default by that Buyer shall not terminate Seller's obligations to the remaining
Buyers not in default of this Contract.
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ARTICLE XVII
APPLICABLE LAW
This Contract shall be construed in accordance with, and all disputes
arising hereunder shall be determined in accordance with, the local law of the
State of Hawaii, U.S.A.
ARTICLE XVIII
INDEMNITY
Section 18.1 Seller shall indemnify, defend and hold harmless Buyer, its
directors, officers, employees and agents (including but not limited to
affiliates and contractors and their employees) from and against all
liabilities, damages, losses, penalties, claims, demands, suits, costs, expenses
(including reasonable attorneys' fees), and proceedings of any nature whatsoever
for personal injury (including death), or property damage, including but not
limited to Buyer's facilities (collectively "Injury or Damage"), that results
from non-specification or contaminated Delivered Oil or Jet, or that arises out
of or is in any manner connected with the Delivery or Receipt of Oil or Jet
related to this Contract at Seller's facilities when in the custody of Seller or
the transportation of Oil or Jet related to this Contract when in the custody of
Seller, except to the extent that such Injury or Damage may be attributable to
the negligence or willful action of Buyer. This Section 18.1 shall not include
any indirect, consequential, special or incidental damages of any kind whether
based in contract, tort (including without limitation negligence or strict
liability), warranty or otherwise.
Section 18.2 Without limiting the generality of Section 18.1, Seller shall
indemnify, defend and hold harmless Buyer, its directors, officers, employees
and agents (including but not limited to affiliates and contractors and their
employees) from and against all liabilities, damages, losses, penalties, claims,
demands, suits, costs, expenses, and proceedings of any nature whatsoever
directly or indirectly arising out of or attributable to the release, threatened
release, discharge, disposal or presence of Oil, Jet or hazardous material
related to this Contract when in the custody of Seller, or of MECO-Molokai
Diesel related to this Contract when in the custody
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of any carrier, except to the extent that such release, threatened release,
discharge, disposal or presence of Oil, Jet or hazardous material may be
attributable to the negligence or willful action of Buyer, including without
limitation: (1) all foreseeable and unforeseeable consequential damages; (2)
the reasonable costs of any required or necessary repair, cleanup or
detoxification of an area of oil, jet or hazardous material and the preparation
and implementation of any closure, remedial or other required plans; (3) the
reasonable costs of the investigation of any environmental claims by Buyer; (4)
the reasonable costs of Buyer's enforcement of this Contract; and (5) all
reasonable costs and expenses incurred by Buyer in connection with clauses (1),
(2), (3), and (4), including without limitation reasonable attorneys' fees and
court costs.
Section 18.3 Buyer shall indemnify, defend and hold harmless Seller, its
directors, officers, employees and agents (including but not limited to
affiliates and contractors and their employees) from and against all
liabilities, damages, losses, penalties, claims, demands, suits, costs, expenses
(including reasonable attorneys' fees), and proceedings of any nature whatsoever
for personal injury (including death), or property damage, including but not
limited to Seller's facilities (collectively "Injury or Damage"), that results
from non-specification or contaminated Received oil or jet, or that arises out
of or is in any manner connected with the delivery or receipt of oil or jet at
Seller's facilities when in the custody of Buyer, any carrier or subsequent
buyer of oil or jet related to this Contract or the transportation of oil or jet
when in the custody of Buyer, any carrier or subsequent buyer of oil or jet
related to this Contract, except to the extent that such Injury or Damage may be
attributable to the negligence or willful action of Seller. This Section 18.3
shall not include any indirect, consequential, special or incidental damages of
any kind whether based in contract, tort (including without limitation
negligence or strict liability), warranty or otherwise.
Section 18.4 Without limiting the generality of Section 18.3, Buyer shall
indemnify, defend and hold harmless Seller, its directors, officers, employees
and agents (including but not limited to affiliates and contractors and their
employees) from and against all liabilities, damages,
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losses, penalties, claims, demands, suits, costs, expenses, and proceedings of
any nature whatsoever directly or indirectly arising out of or attributable to
the release, threatened release, discharge, disposal or presence of oil, jet or
hazardous material related to this Contract when in the custody of Buyer, any
carrier (except any carrier of MECO-Molokai diesel related to this Contract) or
subsequent buyer of oil or jet related to this Contract, except to the extent
that such release, threatened release, discharge, disposal or presence of oil,
jet or hazardous material may be attributable to the negligence or willful
action of Seller, including without limitation: (1) all foreseeable and
unforeseeable consequential damages; (2) the reasonable costs of any required or
necessary repair, cleanup or detoxification of an area of oil, jet or hazardous
material and the preparation and implementation of any closure, remedial or
other required plans; (3) the reasonable costs of the investigation of any
environmental claims by Seller; (4) the reasonable costs of Seller's enforcement
of this Contract; and (5) all reasonable costs and expenses incurred by Seller
in connection with clauses (1), (2), (3), and (4), including without limitation
reasonable attorneys' fees and court costs.
ARTICLE XIX
PUBLIC UTILITIES COMMISSION
Section 19.1 This Contract is required to be filed with the Hawaii Public
Utilities Commission ("PUC") for approval. If in the proceedings initiated as a
result of the filing of this Contract the PUC disapproves or fails to authorize
the recovery of the fuel costs incurred under this Contract through Buyer's
Energy Cost Adjustment Clause, Buyer may terminate this Contract by 30 days'
written notice to Seller.
Section 19.2 In the event that a Decision and Order or other action by a
governmental regulatory body impairs Seller's ability to enforce any terminal
and safety protection or operation provisions under this Contract, Buyer and
Seller shall attempt to agree on an alternate course of action, but failing
agreement within 10 days, the Seller may suspend performance with respect to
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the quantity of oil or jet affected by said Decision and Order after giving
Buyer 90 days' written notice.
ARTICLE XX
INSURANCE
Section 20.1 Without in any way limiting Buyer's liability pursuant to
this Contract, Buyer shall maintain and require any carrier or subsequent buyer
of oil or jet related to this Contract to maintain the following insurance and
all insurance that may be required under the applicable laws, ordinances, and
regulations of any governmental authority:
i. Workers' Compensation and Employers' Liability Insurance as prescribed
by applicable law, including insurance covering liability under the
Longshoremen's and Harbor Workers' Act, the Jones Act and the Outer
Continental Shelf Land Act, if applicable.
ii. Commercial General Liability Insurance including Bodily Injury and
Property Damage Insurance with a limit not less than $1,000,000
combined single limit per occurrence.
iii. Automobile Bodily Injury and Property Damage Liability Insurance on
all owned, non-owned and hired vehicles used in receiving oil or jet
from Seller's facilities with a limit not less than $1,000,000
combined single limit per occurrence for bodily injury and property
damage.
iv. Hull and Machinery Insurance including collision liability and tower's
liability on vessels engaged in towage with a limit at least equal to
the actual value of each vessel and barge.
v. Marine Insurance under one of the two following options:
Option One: Protection and Indemnity Insurance including coverage for
injuries to or death of masters, mates and crew and excess collision
liabilities. The limits of such insurance shall not be less than $25
million per occurrence. Vessel pollution liability insurance including
coverage for TOVALOP liabilities and
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pollution liabilities imposed by federal and state laws now or
hereafter in effect in an amount not less than $500 million; or,
Option Two: Protection and Indemnity Insurance on a full entry basis
with an International Group P&I Club. Such insurance shall include,
but not be limited to, coverage for injuries to or death of masters,
mates and crew; excess collision liabilities and pollution liabilities
imposed by federal and state laws now or hereafter in effect as well
as TOVALOP liabilities (if applicable). Such insurance shall be
unlimited as per International Group, P&I Club rules except for
pollution liabilities which shall be limited to $500 million or the
maximum pollution limit offered by the P&I Clubs of the International
Group.
Section 20.2 The above insurance shall include a requirement that the
insurer provide Seller with 30 days' written notice prior to the effective date
of any cancellation or material change of the insurance. The insurance
specified in Sections 20.1 (i) and 20.1 (iv) shall contain a waiver of
subrogation against Seller and an assignment of statutory lien, if applicable.
The insurance specified in Sections 20.1 (ii), 20.1 (iii), and 20.1 (v) Option
One Protection and Indemnity Insurance shall name Seller as additional insured.
Section 20.3 Before performance of this Contract, Buyer shall provide Seller
with certificates or other documentary evidence satisfactory to Seller of the
insurance coverages and endorsements.
Section 20.4 Without in any way limiting Seller's liability, Seller shall
obtain from any Seller carrier or subsequent buyer from Seller of oil or jet
related to this Contract the insurance coverages and endorsements set forth in
this Article excepting that both Seller and Buyer be named as additional
insureds.
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Section 20.5 The terminaling and handling fees listed in Section 11.14 do
not include any insurance covering loss of Buyer's oil or jet while it is in the
custody of Seller. It is expressly understood and agreed that insurance, if any
is desired by Buyer, shall be carried by Buyer at its own expense.
ARTICLE XXI
SAFETY AND TERMINAL PROTECTION
Section 21.1 Any buyer or carrier of oil or jet related to this Contract
or their agents shall comply with all of the operating and safety regulations of
Seller, as amended from time-to-time, when alongside, upon, or when approaching
the premises of Seller for the purpose of loading oil or jet related to this
Contract or when departing Seller's premises after loading oil or jet related to
this Contract. In particular, all smoking shall be limited to such locations
and occasions as are specifically authorized in writing by Seller. If Seller
determines that an unsafe condition exists, Seller may, at its absolute
discretion, cease the loading or unloading operations and order any buyer or
carrier of oil or jet related to this Contract or their agents to leave its
place of mooring. Any loss or damage incurred by Seller, any buyer or carrier
of oil or jet related to this Contract or their agents due to any violation by
any buyer or carrier of oil or jet related to this Contract or their agents of
Seller's operating and safety regulations shall be for Buyer's or Carrier's
account. Copies of Seller's operating and safety regulations are available upon
request.
Section 21.2 In addition to its rights under Section 21.1, Seller shall
have the right to refuse acceptance of any barge or vessel nominated by Buyer to
load or discharge if in Seller's Terminal's sole opinion such barge or vessel
for any reason is unacceptable. Seller's Terminal's acceptance or rejection of
Buyer's nominated barge or vessel shall be communicated to Buyer within forty-
eight (48) hours after the Terminal's receipt of nomination, and in the event
Buyer's barge nomination is rejected, Seller shall provide Buyer satisfactory
documentation of the basis for the rejection of such nomination. Seller's
Terminal's acceptance or rejection of any barge or
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vessel shall not constitute a continuing acceptance or rejection of such barge
or vessel for subsequent loading or discharge. Seller shall not be liable for
any loss, damage or delay caused by its rejection of a vessel nomination
hereunder, nor any loss, damage or delay caused by its rejection of a vessel for
failure to comply pursuant to Section 21.1. In no event shall the acceptance of
a vessel by Seller be construed in any manner as a representation as to the
vessel's operational, environmental or safety status. Neither Buyer nor any
other party shall be entitled to rely on any such acceptance of a vessel by
Seller hereunder.
ARTICLE XXII
POLLUTION MITIGATION
Section 22.1 In the event an escape or discharge of oil or jet occurs from
any barge or vessel carrying oil or jet related to this Contract and causes or
threatens to cause pollution damage, Buyer or carrier will promptly take
whatever measures are necessary to prevent or mitigate such damage. Buyer
hereby authorizes Seller, or its agent, at Seller's option, upon notice to Buyer
or master on the tug, to undertake such measures as are reasonably necessary to
prevent or mitigate the pollution damage. Seller or its agent shall keep Buyer
advised of the nature and results of any such measures taken and, if time
permits, intended to be taken. Any of the aforementioned measures shall be at
Buyer's sole expense (except to the extent that such escape or discharge was
caused by the negligence or willful action of Seller or its agent), provided
that if Buyer considers said measures should be discontinued, Buyer shall so
notify Seller or its agent and thereafter Seller or its agent shall have no
right to continue said measures at Buyer's authority or expense except as
provided in Section 18.4. This provision shall be applicable only between Buyer
and Seller and shall not affect, as between Buyer and Seller, any liability of
Buyer to any third parties, including but not limited to governments.
Section 22.2 In addition to its duties under Section 22.1, Buyer agrees to
cooperate with all efforts and to pay all reasonable costs associated with
preventive booming or other preventive measures that Seller reasonably
determines is advisable on an isolated or routine basis.
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ARTICLE XXIII
MISCELLANEOUS
Section 23.1 Headings of the Articles and Sections are for convenient
reference only and are not to be considered part of this Contract.
Section 23.2 This document contains the entire agreement between the
parties covering the subject matter and cancels, as of the effective date
hereof, all prior agreements of any kind between the parties covering such
subject matter and any amendments thereto. There are no other agreements which
constitute any part of the consideration for, or any condition to, either
party's compliance with its obligations under this Contract.
Section 23.3 Except as otherwise expressly provided herein, all notices
shall be given in writing, by letter, facsimile, telegraph or telex to the
following addresses, or such other address as the parties may designate by
notice, and shall be deemed given upon receipt.
Seller: Manager, Petroleum Coke, Heavy Fuels & Sulfur
Chevron U.S.A. Inc.
P.O. Box 7006
San Francisco, CA 94120-7006
FAX: (415) 894-1195
Buyer: Manager, Power Supply Services Department
Hawaiian Electric Company, Inc.
Box 2750
Honolulu, HI 96840-0001
FAX: (808) 543-7788
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The Manager, Power Supply Services Department, for Hawaiian Electric
Company, Inc., shall be responsible for forwarding notices to the other parties
to this Contract.
Section 23.4 If any term or provision, or any part of any term or
provision, of this Contract is held by any court or other competent authority to
be illegal or unenforceable, the remaining terms, provisions, rights and
obligations shall not be affected.
Section 23.5 This Contract shall inure to the benefit of and be binding
upon the parties hereto, their successors and permitted assigns.
Section 23.6 Effective as of the Effective Date of the Term hereunder,
this Contract hereby supersedes that certain Inter-Island Industrial Fuel Oil
and Diesel Fuel Contract between the parties dated September 23, 1991, and all
amendments thereto.
IN WITNESS WHEREOF, the parties have caused these presents to become
effective as of the day and year first hereinabove written.
ACCEPTED AND AGREED:
"Seller"
CHEVRON U.S.A. INC.
BY: /s/ Phillip H. Fisher
Phillip H. Fisher
TITLE: Manager, Petroleum Coke, Heavy Fuels & Sulfur
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"Buyers"
HAWAIIAN ELECTRIC COMPANY, INC. MAUI ELECTRIC COMPANY, LTD.
BY: /s/ Edward Y. Hirata BY: /s/ Edward Y. Hirata
Edward Y. Hirata Edward Y. Hirata
(Printed or Typed Name) (Printed or Typed Name)
Vice President
TITLE: Regulatory Affairs TITLE: Vice President
BY: /s/ Molly M. Egged BY: /s/ Molly M. Egged
Molly M. Egged Molly M. Egged
(Printed or Typed Name) (Printed or Typed Name)
TITLE: Secretary TITLE: Secretary
HAWAII ELECTRIC LIGHT COMPANY, INC. HAWAIIAN TUG & BARGE CORP.
BY: /s/ Edward Y. Hirata BY: /s/ Glenn K. Y. Hong
Edward Y. Hirata President Glenn K. Y. Hong
(Printed or Typed Name) (Printed or Typed Name)
TITLE: Vice President TITLE: President
BY: /s/ Molly M. Egged BY: /s/ Molly M. Egged
Molly M. Egged Molly M. Egged
(Printed or Typed Name) (Printed or Typed Name)
TITLE: Secretary TITLE: Secretary
Page 46
<PAGE>
YOUNG BROTHERS, LIMITED
BY: /s/ Glenn K. Y. Hong
Glenn K. Y. Hong
(Printed or Typed Name)
TITLE: President
BY: /s/ Molly M. Egged
Molly M. Egged
(Printed or Typed Name)
TITLE: Secretary
Page 47
<PAGE>
ADDENDUM NO. 1
SAMPLE PRICE CALCULATIONS-NOVEMBER, 1995
I. FUEL OIL
----------------------------------------------------------------
This portion is confidential; therefore, it has been omitted and
filed separately with the Commission.
----------------------------------------------------------------
<PAGE>
II. DIESEL FUEL NO. 2
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This portion is confidential; therefore, it has been omitted and
filed separately with the Commission.
----------------------------------------------------------------
<PAGE>
----------------------------------------------------------------
This portion is confidential; therefore, it has been omitted and
filed separately with the Commission.
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III. JET FUEL
----------------------------------------------------------------
This portion is confidential; therefore, it has been omitted and
filed separately with the Commission.
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<PAGE>
ADDENDUM NO. 2
QUALITY CONTROL SAMPLES
SUMMARY
<TABLE>
<CAPTION>
Frequency
Sample Sample Method &
Type Label Tanking Analysis Location
<S> <C> <C> <C> <C>
1. Refinery Production --- After Each Tank Receipt After Each Receipt Composite from Refinery
Tank
2. HMT Inventory --- After Each Tank Receipt After Each Receipt Composite from HMT Tank
3. Delivered A. Buyer's During Each Barge Loading Only if Necessary Drip From Loading Line at
Sample or Monthly HMT or Composite from
B. Seller's Seller's Tanks at Barbers
Sample Point
C. Buyer's Retain
4. Loaded A. Seller's After Each Barge Loading A. After Each Loading Composite from Barge Tank
Sample B. Only if Necessary at HMT
B. Buyer's Retain
5. Loaded (Third- A. Buyer's After Each Barge Loading of A. After Each Loading Composite from Barge
Party) Sample Third-Party Oil B. (Only if Necessary Tanks at Third-Party
B. Supplier's C. ( Supplier's Dock
Sample
C. Buyer's Retain
6. Received A. Prompt Before Each Barge A. Before Each Unloading Composite from Barge
B. Buyer's Unloading Whether Buyer's B. (Only if Necessary Tanks at Hilo or Kahului
Sample or Seller's C. ( Harbor
C. Seller's D. (
Sample
D. Seller's Retain
7. Returned A. Prompt After Each Barge Unloading A. After Each Barge Composite from Seller's
B. Buyer's Whether Buyer's or Seller's Unloading Tanks at Hilo or Kahului
Sample B. (Only if Necessary Terminals
C. Seller's C. (
Sample
D. Buyer's Retain
Applicable Contract Selection
Sample Sample Action on
Type Taking Analysis Failure
<S>
1. Refinery Production N/A N/A N/A
2. HMT Inventory N/A N/A N/A
3. Delivered 7.1 7.2 7.3
4. Loaded 6.1iii 11.3i 11.3i & 11.3ii
5. Loaded (Third- 11.1ii 11.3i 11.3i & 11.3ii
Party)
6. Received A. (11.6i 11.6ii 11.6iv
B. (11.6i 11.6iii 11.6iv
C. (
D. (
7. Returned A. 11.13i 11.13i 11.13iii
B. (11.13i 11.13ii 11.13iii
C. (
D. (
</TABLE>
<PAGE>
Description of Addendum No. 2 to the Inter-Island Industrial Fuel and Diesel
Fuel Contract by and between Chevron U.S.A. Inc. and Hawaiian Electric Company,
Inc., Maui Electric Company, Ltd., Hawaii Electric Light Company, Inc., Hawaiian
Tug & Barge Corp. and Young Brothers, Ltd. dated November 20, 1995 (the
"Interisland Contract"):
Page 2:
Page two of Addendum No. 2 consists of one page entitled "ADDENDUM NO. 2 -
QUALITY CONTROL SAMPLES SCHEMATIC" which in addition to the printed text,
includes a diagram of the flow of 'DIESEL FUEL" and "INDUSTRIAL FUEL OIL" from
refinery or third-party source to purchasers' locations, then to supplier's
marine terminal where fuel is to be loaded into a vessel, then to the harbor
where the vessel is to be discharged, through a multi-party pipeline, to the
supplier's, purchaser's or a third-party terminal at the purchaser's destination
island, and then to the purchaser. At numerous points in the flow of fuel sold,
shipped and stored under the Interisland Contract, there are letters referencing
11 notes which are located at the bottom of the form and which provide a sample
name, description, point of custody transfer, type of analysis to be performed
or description of an inspection step.
<PAGE>
HECO Exhibit 10.10
FACILITIES AND OPERATING CONTRACT
by and between
CHEVRON U.S.A. INC.
and
HAWAIIAN ELECTRIC COMPANY, INC.
* * * * * * * * * * *
<PAGE>
<TABLE>
FACILITIES AND OPERATING CONTRACT
BY AND BETWEEN CHEVRON U.S.A. INC. AND
HAWAIIAN ELECTRIC COMPANY, INC.
TABLE OF CONTENTS
<S> <C> <C>
ARTICLE 1: Definitions................................................................................... 1
ARTICLE 2: Term of Contract.............................................................................. 1
ARTICLE 3: Transportation of LSFO to Kahe, Waiau and Iwilei.............................................. 1
Section 3.1: Pipeline Facilities....................................................................... 1
Section 3.2: Transport of LSFO......................................................................... 1
Section 3.2.A: Kahe Pipeline................................................................. 1
Section 3.2.B: Maximum Viscosity............................................................. 2
Section 3.3: Compensation.............................................................................. 2
Section 3.3.A: Facility Charge............................................................... 2
Section 3.3.B: Throughput Charge............................................................. 2
Section 3.3.C: Maintenance Charge............................................................ 2
Section 3.3.D: Invoices and Payment.......................................................... 3
Section 3.3.E: Clean Up of Spills............................................................ 3
Section 3.3.F: Discontinued Operation of Honolulu Generating Plant........................... 3
Section 3.4: Modification, Relocation and Replacement of Facilities.................................... 3
Section 3.4.A: Modification, Relocation and Replacement...................................... 3
Section 3.4.B: Effective Date of Adjustments in Fees......................................... 4
Section 3.5: LSFO Movement Coordination and Reporting.................................................. 4
Section 3.5.A: Coordination.................................................................. 4
Section 3.5.B: Reporting..................................................................... 4
Section 3.6: Title and Risk of Loss.................................................................... 5
ARTICLE 4: HECO'S Use of Chevron's Tanker Mooring Facilities
and Submarine Line........................................................................... 5
Section 4.1: Use of Chevron's Facilities............................................................... 5
Section 4.2: Compensation.............................................................................. 6
Section 4.2.A: Compensation for LSFO Received................................................ 6
Section 4.2.B: Compensation for Line Displacement............................................ 6
Section 4.2.C: Credit for Cargo Used as Line Displacement.................................... 6
Section 4.2.D: Clean Island Council.......................................................... 6
Section 4.3: LSFO Movement Coordination and Reporting.................................................. 7
Section 4.3.A: Notification of Estimated Vessel Arrival...................................... 7
Section 4.3.B: Notice of Readiness........................................................... 7
Section 4.3.C: Berth Time.................................................................... 8
Section 4.3.D: Demurrage..................................................................... 8
Section 4.3.E: Vessel Berth.................................................................. 8
Section 4.3.F: Other Marine Provisions....................................................... 9
Section 4.3.G: Pollution Mitigation.......................................................... 9
Section 4.3.H: Reporting..................................................................... 9
Section 4.4: Title and Risk of Loss.................................................................... 9
Section 4.5: Oil Pollution Insurance................................................................... 9
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
ARTICLE 5: Operation and Maintenance of HECO's Barbers Point Tank Field.................................. 10
Section 5.1: Tank Field Facilities and Service......................................................... 10
Section 5.1.A: Tank Field Facilities......................................................... 10
Section 5.1.B: Services ..................................................................... 10
Section 5.1.C: Tank Field Facility Additions and Modifications............................... 11
Section 5.1.D: Additional Services........................................................... 11
Section 5.2: Compensation.............................................................................. 11
Section 5.2.A: Base Compensation............................................................. 11
Section 5.2.B: Determination of Fees for Additional Operation
and Maintenance.............................................................. 12
Section 5.2.C: Other's Facilities Within HECO's Tank Field................................... 12
Section 5.2.D: Invoices and Payment.......................................................... 12
Section 5.3: Reports.................................................................................. 12
Section 5.4: Title and Risk of Loss................................................................... 13
Section 5.5: Insurance................................................................................ 13
ARTICLE 6: Waiau - Barbers Point Steam Exchange.......................................................... 13
Section 6.1: Facilities................................................................................ 13
Section 6.2: Services.................................................................................. 14
Section 6.3: Measurement of Chevron's Steam Consumption................................................ 14
Section 6.3.A: Steam Flow Meter Operable..................................................... 14
Section 6.3.B: Steam Flow Meter Inoperable................................................... 14
Section 6.4: Compensation.............................................................................. 14
ARTICLE 7: Measurement of Quantity and Quality........................................................... 15
Section 7.1: Measurement of Quantity................................................................... 15
Section 7.2: Determination of Quality.................................................................. 15
Section 7.3: Disputes of Quality and Quantity.......................................................... 15
ARTICLE 8: Line Displacement Stock....................................................................... 15
ARTICLE 9: Invoicing and Payment......................................................................... 16
Section 9.1: Invoices.................................................................................. 16
Section 9.2: Payments.................................................................................. 16
Section 9.3: Method of Payment......................................................................... 16
ARTICLE 10: Audits........................................................................................ 17
Section 10.1: Audits Requiring Non-Confidential Information............................................ 17
Section 10.2: Audits Requiring Confidential Information................................................ 17
Section 10.3: Independent Audits Using Non-Confidential Information.................................... 17
Section 10.4: Adjustments From Audit Findings.......................................................... 17
ARTICLE 11: Contingencies................................................................................. 17
Section 11.1: Definition of Contingency................................................................ 17
Section 11.2: Relief of Obligations.................................................................... 18
Section 11.3: Pricing Affected by Government Direction................................................. 18
ARTICLE 12: Effect of Suspension or Reduction............................................................. 18
Section 12.1: Notice of Suspension or Reduction........................................................ 18
Section 12.2: Chevron's and HECO's Rights during Suspension or Reduction............................... 18
Section 12.3: Termination Rights....................................................................... 18
Section 12.4: Payment for Services and Facility Usage Provided......................................... 19
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
ARTICLE 13: Waiver and Non-Assignability.................................................................. 19
Section 13.1: Waiver................................................................................... 19
Section 13.2: Non-Assignability........................................................................ 19
Section 13.3: Definitions.............................................................................. 19
ARTICLE 14: Default....................................................................................... 19
Section 14.1: Default.................................................................................. 19
Section 14.2: Termination Rights....................................................................... 19
ARTICLE 15: Conflict of Interest.......................................................................... 20
ARTICLE 16: Applicable Law................................................................................ 20
ARTICLE 17: Indemnity..................................................................................... 20
ARTICLE 18: Public Utility Commission Approval............................................................ 20
ARTICLE 19: Miscellaneous................................................................................. 21
Section 19.1: Headings................................................................................. 21
Section 19.2: Entire Agreement......................................................................... 21
Section 19.3: Contract is Not an Asset................................................................. 21
Section 19.4: Notices.................................................................................. 21
Section 19.5: Severability............................................................................. 21
Section 19.6: Successors and Assignes.................................................................. 21
Section 19.7: Consequential Damages.................................................................... 21
Section 19.8: Termination of Prior Agreement........................................................... 22
</TABLE>
ADDENDUM 1: Adjustment Factors for Adjustable Charges and Fees
ADDENDUM 2: Quality
ADDENDUM 3: Chevron's Mooring and Submarine Lines
ADDENDUM 4: Vessel Data Sheet
ADDENDUM 5: List of Facilities in HECO's Tank Field System and
Chevron's Tank Field Support System
ADDENDUM 6: List of Facilities in HECO's Waiau Steam System
APPENDIX 1: Chevron's and HECO's Fuel Oil Distribution Systems
APPENDIX 2: Summary of Vessel Requirements at Barbers Point
APPENDIX 3: Refinery Operating Standards and Instructions
<PAGE>
FACILITIES AND OPERATING CONTRACT
THIS CONTRACT dated as of November 20, 1995, by and between CHEVRON U.S.A.
INC., a Pennsylvania corporation, ("Chevron") and HAWAIIAN ELECTRIC COMPANY,
INC., a Hawaii corporation, ("HECO"), with the purposes for the distribution of
Low Sulfur Fuel Oil ("LSFO") and other petroleum products and for the management
of LSFO terminal facilities.
WHEREAS, each party owns and operates certain distribution and storage
facilities, including pipelines and terminals, suitable for use in the delivery
of LSFO.
WHEREAS, the parties desire to enter into this contract for the use of such
facilities.
NOW THEREFORE, the parties agree as follows:
ARTICLE 1: DEFINITIONS
Except where otherwise indicated, the following definitions shall apply
throughout this contract:
1. "LSFO" means Chevron Low Sulfur Fuel Oil No. 6 per Addendum 2.
2. "physical barrel" means 42 American bulk gallons at 60 degrees F.
3. "year" means a calendar year.
ARTICLE 2: TERM OF CONTRACT
The term of this Contract shall be from January 1, 1996 (the "Effective Date"),
through December 31, 1997, and shall continue thereafter for additional 12-month
periods (each 12-month period being an "Extension") beginning each successive
January 1, unless HECO or Chevron gives written notice of termination at least
120 days before the beginning of an Extension.
ARTICLE 3: TRANSPORTATION OF LSFO TO KAHE, WAIAU AND IWILEI
Section 3.1: Pipeline Facilities
Chevron owns a fuel oil distribution pipeline system which connects its Barbers
Point refinery to its marine terminal at Honolulu and to HECO's tank fields at
Waiau and Iwilei. HECO owns fuel oil pipelines systems which connect its tank
fields at Barbers Point and Kahe to Chevron's fuel oil distribution pipeline
system described above. Together these fuel oil pipeline systems shall be
referred to as "Pipelines" and are shown in Appendix 1.
Section 3.2: Transport of LSFO
Chevron and HECO agree that the LSFO delivered by pipeline from Barbers Point
(either Chevron's Refinery or HECO's storage tanks) into HECO's storage tanks at
Kahe, Waiau and Iwilei may be transported using the Pipelines.
Section 3.2.A: Kahe Pipeline
Chevron shall operate and maintain HECO's Kahe pipeline in a safe, effective and
efficient manner, in compliance with all applicable laws and regulations, in a
reasonable and prudent manner and with generally accepted industry practices.
In carrying out its duties Chevron shall exercise the same degree of skill, care
and maintenance that Chevron utilizes in the operation and maintenance of its
pipelines.
<PAGE>
Chevron's operating standards and instructions are available for HECO's
inspection at Chevron's refinery. Applicable operating standards and
instructions are listed in Appendix 3.
Section 3.2.B: Maximum Viscosity
The maximum LSFO viscosity for delivery to HECO's Waiau and Iwilei tank farms
shall be 200 SUS at 210 degrees Fahrenheit.
Section 3.3: Compensation
As compensation for the utilization, operation and maintenance of the Pipelines
to deliver HECO's or Chevron's LSFO to HECO's storage tanks at Kahe, Waiau and
Iwilei, HECO shall pay to Chevron monthly delivery fees which are comprised of a
Facility Charge, a Throughput Charge and a Maintenance Charge described herein.
Section 3.3.A: Facility Charge
A Monthly Facility Charge for each of the pipelines consists of two components
as shown in the following table:
<TABLE>
<CAPTION>
Adjustable Overhead
and Operating Non-Adjusting
Labor Charges Capital Charge
<S> <C> <C>
January 1, 1990 January 1, 1996
Kahe $18,700 $ 810
Waiau 63,600 15,300
Iwilei 12,500 3,000
</TABLE>
The Overhead and Operating Labor Charges shall be adjusted quarterly beginning
January 1, 1996, in accordance with a factor ("An") based on the hourly earnings
for the petroleum and coal products industry, described in Addendum 1 attached.
Section 3.3.B: Throughput Charge
A Throughput Charge is calculated by multiplying the number of physical barrels
of fuel transported to each of the generating plant tank fields and the
respective transport charge per physical barrel of fuel transported to that tank
field. The base transport charges per physical barrel of fuel are $0.05 for
Kahe, $0.094 for Waiau and $0.279 for Iwilei. These per barrel base transport
charges shall be adjusted quarterly beginning January 1, 1996, in accordance
with a factor ("Cn") based on a Producer Price Index for Fuels and Power,
described in Addendum 1 attached. The number of physical barrels transported
shall be determined pursuant to Section 7.1.
Section 3.3.C: Maintenance Charge
A Maintenance Charge reflecting costs as incurred will be the sum of (i), (ii),
(iii) and (iv) and prorated according to (v) below. The maintenance performed
on all pipelines shall be guided by then-current United States Department of
Transportation regulations and periodic internal inspections utilizing then-
current pipeline technology.
(i) 110% of all maintenance materials costs, except as provided for in
(iv) below. Material costs include all taxes paid on material
purchased.
(ii) 115% of all labor cost whether contract labor charges or Chevron's
labor at equivalent Contractor's labor rate except as provided for
in (iv) below. The term "Contractor" shall mean a mechanical
Page 2
<PAGE>
contractor properly licensed in the State of Hawaii, which
Contractor shall be experienced in the type of work to be done and
shall be chosen at the sole discretion of Chevron.
(iii) 100% of all other direct costs, including but not limited to such
items as equipment usage charges (whether Contractor's or Chevron's
at equivalent Contractor rates), permits and consulting fees except
as provided for in (iv) below.
(iv) Base monthly fees of $11,000 on the section of Chevron's Pipelines
between Barbers Point and HECO's Waiau tank field, $7,300 on the
section of Chevron's Pipelines between HECO's Waiau and Iwilei tank
fields and $7,300 on the section of Chevron's and HECO's Pipelines
between Barbers Point and HECO's Kahe tank field; which reflect
Chevron's total costs for maintenance of pumping and heating
stations. The fees shall be adjusted quarterly beginning January 1,
l996, using the composite factor (0.7 An + 0.3 Bn), where "An" and
"Bn" are described in Addendum 1 attached.
(v) HECO's share of the maintenance charges on each of the three
sections of the Pipelines, pursuant to this Section 3.3.C will be
calculated by dividing the total physical barrels of LSFO and line
displacement stock delivered to HECO through that particular
Pipeline section during the immediately preceding twelve months by
the total physical barrels delivered through that particular
Pipeline section into both HECO's storage tanks and to Chevron's
terminal facilities at Honolulu.
Chevron shall maintain adequate records to allow an audit of such records to
verify to HECO that Chevron's maintenance costs are prudent.
Section 3.3.D: Invoices and Payment
Chevron will issue invoices for each month's Facility Charge on the fifteenth of
the month. Chevron will issue invoices for the Throughput and Maintenance
Charges in the month following the month in which the services and expenses are
incurred. HECO will pay on these invoices in accordance with Article 9.
Section 3.3.E: Clean Up of Spills
Chevron shall expeditiously clean up any spills occurring from a leak, rupture
or other incident to the Pipelines. To the extent such spills derive from
delivering LSFO or line displacement stock on behalf of HECO, any costs incurred
by Chevron for such cleanup shall be for the account of HECO and invoices for
such services will be rendered by Chevron in accordance with Article 9 of this
Contract; provided that HECO shall have no obligation to pay for spills caused
by the gross negligence or willful acts of Chevron, its employees and its
contractors and that Chevron will indemnify and hold HECO harmless for any such
caused spills.
Section 3.3.F: Discontinued Operation of Honolulu Generating Plant
HECO shall not be charged any fees or charges associated with the section of the
Pipelines between HECO's Waiau and Iwilei tank fields, after HECO has
discontinued operation at its Honolulu generating plant.
Section 3.4: Modification, Relocation and Replacement of Facilities
Section 3.4.A: Modification, Relocation and Replacement
If subsequent to January 1, 1996, modifications to any part of Chevron's
Pipelines are reasonably required or any relocation or replacement is reasonably
required, including:
(i) replacement of any section of the Pipelines 1000 feet or more in
length,
Page 3
<PAGE>
(ii) relocation of any length of the Pipelines,
(iii) complete replacement of any equipment,
(iv) any partial replacement of equipment costing more than $5,000;
an additional non-adjusting Capital Charge component of the Facility Charge
shall be established to assure a 15% return after tax on the additional capital
employed by Chevron using a twenty year economic life, except to the extent that
such modification, relocation or replacement is reimbursed by another party,
including but not limited to a governmental agency. HECO's share of any such
additional non-adjusting Capital Charge component will be calculated by dividing
the total physical barrels of LSFO and line displacement stock delivered to HECO
through that particular Pipeline section during the immediately preceding twelve
months by the total physical barrels delivered through that particular Pipeline
section into both HECO's storage tanks and to Chevron's terminal facilities at
Honolulu during the same twelve month period.
Coincident with the additional non-adjusting Capital Charge component, the
adjustable and non-adjusting components of the Facility Charge shall be adjusted
to reflect only the proportion of the Pipelines and equipment that is still
utilized after the replacement or relocation. Throughput Charges shall also be
adjusted to reflect any change in the amount of power used for pumping and steam
used for the reheat station at Waiau.
Any charges for a relocation or replacement will not begin until the complete
commissioning of such changes.
Section 3.4.B: Effective Date of Adjustments in Fees
Any adjustments in the monthly delivery fee shall be deemed to apply to all LSFO
delivered on or after the effective date of the event causing the adjustment in
such fee, whether or not retroactive. In the event of retroactive adjustments
hereunder, the charge or credit to HECO shall be computed and billed to HECO as
soon as practical after the adjustment is known. In the event of retroactive
changes which cause adjustments hereunder after termination of this Contract,
payment shall be made within 15 days after receipt of written demand therefor by
the other party.
Section 3.5: LSFO Movement Coordination and Reporting
Section 3.5.A: Coordination
Chevron and HECO will mutually coordinate the transport of LSFO from HECO's
Barbers Point tank field and the delivery of Chevron's LSFO (purchased under the
LSFO supply contract between Chevron and HECO) to HECO's storage tanks at Kahe,
Waiau and Iwilei. Transport scheduling shall be flexible to assure that HECO's
generating plants' tankage is kept reasonably full and the LSFO which HECO is
purchasing from Chevron is delivered from Chevron's refinery at a reasonably
uniform rate in accordance with the LSFO supply contract. To assist in the
coordination of transport:
(i) HECO shall provide Chevron consumption forecasts ten days prior to
the beginning of any month for the four subsequent months. The
forecast for the first subsequent month shall define on a weekly
basis the LSFO demands by each plant. The forecast for the second,
third and fourth subsequent months shall define the LSFO
requirements on a monthly basis for each plant, and
(ii) Each week, Chevron shall provide HECO a schedule of daily transports
of LSFO for each of the fourteen subsequent days.
Section 3.5.B: Reporting
Chevron shall provide HECO with transport summaries as transports occur,
describing the following:
Page 4
<PAGE>
(i) Volumes, dates and sources of stock movements to HECO's storage
tanks at Kahe, Waiau and Iwilei through the Pipelines, and
(ii) Analysis of samples of HECO's stocks transported through the
Pipelines, per Addendum 2.
Before October of each year, Chevron shall inform HECO of and discuss with HECO
Chevron's forecasted pipeline maintenance budget for the following year.
Chevron shall promptly notify HECO if forecasted pipeline maintenance costs
increase by more than 25% and discuss the reason for the forecasted increases.
It is expressly recognized that these forecasts are only estimates and are not
binding on Chevron.
Section 3.6: Title and Risk of Loss
Title to the LSFO transported in the Pipelines for HECO's account shall at all
times remain with HECO. HECO shall bear the risk of loss of the LSFO
transported in the Pipelines, unless due to the sole negligence of Chevron.
ARTICLE 4: HECO'S USE OF CHEVRON'S TANKER MOORING FACILITIES AND SUBMARINE LINE
Section 4.1: Use of Chevron's Facilities
Chevron agrees to make available to HECO Chevron's Barbers Point tanker mooring
facilities and one of Chevron's submarine lines ("Marine Facilities") as
described in Addendum 3 hereto on a non-exclusive basis for HECO to receive
HECO's third party LSFO into HECO's tank field adjacent to Chevron's Barbers
Point refinery provided:
(A) Chevron shall have the right to review each vessel nominated by HECO or by
a representative designated in writing by HECO ("HECO's vessel") prior to
the use of the Marine Facilities. HECO may submit the names of vessels it
will consider nominating to obtain early acceptance of such vessels from
Chevron up to three months in advance of the actual nomination. At the
time each specific vessel is submitted for early acceptance or nominated
for actual use Chevron shall have the right to refuse acceptance of such
vessel nomination if in Chevron's opinion Chevron determines that such
vessel is unacceptable; however, once given, Chevron's acceptance of a
vessel shall remain in effect for six months or until the vessel next
discharges at the terminal, whichever occurs first; unless there is a
significant change in the vessel's operational, environmental or safety
status, in which case Chevron may cancel its acceptance. In such
determination, Chevron shall use the same standards in accepting vessels
for HECO's use as Chevron uses in accepting vessels for its own use.
Chevron's acceptance of a vessel shall not imply a continuing or future
acceptance of the vessel, except as described herein. Chevron's
acceptance, cancellation or rejection of HECO's vessel nomination shall be
communicated to the nominator of such vessel after Chevron's receipt of the
nomination and all the information necessary in Chevron's opinion to
determine the vessel's suitability, as follows:
(i) Early acceptance or rejection of a vessel shall be given within
seven days.
(ii) Acceptance or rejection of a specific nomination shall be given
within one business day on the West Coast.
All such communications may be made by telex or facsimile. The typical
information necessary to determine a vessel's suitability is shown in
Addendum 4. Chevron shall not liable for any loss, damage or delay caused
by its rejection of a vessel nomination as provided herein. In no event
shall the acceptance or rejection of a vessel by Chevron be construed in
any manner as a representation as to the vessel's operational,
environmental or safety status.
Page 5
<PAGE>
(B) The minimum cargo size shall be 200,000 barrels, except that HECO shall be
permitted to deliver one l00,000 barrel cargo each calendar quarter.
(C) HECO shall be responsible for any damage caused to the Marine Facilities
which arises from the use of the Marine Facilities under this Section 4.1,
except to the extent such damage is due to negligence of Chevron.
(D) HECO's vessel shall arrange to have while at or near the Marine Facilities
the services of one of Chevron's Mooring Masters who shall be the servant
of HECO's vessel. When HECO's vessel employs mooring launches and tugs for
berthing and unberthing the vessel, they shall also be servants of HECO's
vessel. The master of HECO's vessel shall remain in control of his vessel
at all times.
(E) HECO's vessel shall arrive with an empty compartment of at least 15,000
barrels capacity for the purpose of receiving a suitable displacement stock
from Chevron's Barber's Point refinery ("Refinery") or, at Chevron's option
expressed before the vessel loads its LSFO cargo, the vessel shall provide
Bunker C quality flush oil, for the purpose of displacing LSFO from the
submarine line after discharging its LSFO cargo.
Section 4.2: Compensation
Section 4.2.A: Compensation for LSFO Received
As compensation for the utilization of the Marine Facilities to receive LSFO for
HECO, HECO shall pay to Chevron the sum of the following:
(i) A fee for the use of the Marine Facilities of $0.37 per physical
barrel of LSFO received for HECO. Thirty percent of the fee is
deemed to be the capital component and shall not be adjusted, and
seventy percent shall be adjusted quarterly beginning January 1,
l996, in accordance with the composite factor (0.60 An + 0.20 Bn +
0.20 Cn), with "An", "Bn" and "Cn" defined in Addendum 1 hereto. The
quantity of LSFO received for HECO shall be determined in the manner
specified in Article 7.
(ii) The actual costs Chevron is obligated to pay others for such items
as, but not limited to, the use of tugs, launches, Chevron's Mooring
Masters, or government fees.
Section 4.2.B: Compensation for Line Displacement
To the extent it is necessary to deliver line displacement stock to HECO, HECO
shall purchase such stock according to Article 8. The quantity of line
displacement stock delivered to HECO shall be determined according to Article 7.
Section 4.2.C: Credit for Cargo Used as Line Displacement
To the extent that small portions of HECO's LSFO cargo must be transferred into
Chevron's refinery tankage to protect the quality of the remaining LSFO cargo
from being downgraded by commingling with low flash point line displacement
within the submarine line, Chevron shall credit HECO for such LSFO at HECO's
per-barrel delivered cost of the cargo on an F.O.B. Barbers Point basis. To the
extent that HECO's flush oil is transferred into Chevron's refinery tankage or
remains within the submarine line as line displacement, Chevron shall credit
HECO for such flush oil according to Article 8. The quantity of such LSFO or
flush oils shall be determined according to Article 7.
Section 4.2.D: Clean Island Council
HECO shall pay a pro-rated share of Chevron's fees to the Clean Island Council
associated with the use of Chevron's tanker mooring and the transport of oil
through Chevron's submarine lines, which is calculated by first multiplying
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such fee by the total physical barrels of HECO's or HECO's third-party LSFO
transported through the submarine lines during the immediately preceding twelve
months and then dividing by the total physical barrels of oil transported over
Chevron's tanker mooring during such twelve months.
Section 4.3: LSFO Movement Coordination and Reporting
Section 4.3.A: Notification of Estimated Vessel Arrival
(i) HECO shall propose for Chevron's approval a four day arrival window
for HECO's vessel at least 30 days in advance. After Chevron's
approval, changes in the arrival window may only be made with mutual
consent.
(ii) HECO shall update Chevron weekly regarding the anticipated vessel
arrival date.
(iii) After HECO has proposed an arrival window and until HECO's vessel
departs, Chevron shall provide HECO weekly updates on Chevron's
marine terminal schedule.
(iv) HECO shall give Chevron 7, 5, 4, 3, 2, and 1 day notice by telex,
facsimile, radio or telephone of the vessel's estimated time of
arrival ("ETA") at the Marine Facilities. HECO will further notify
Chevron of any ETA changes exceeding twelve hours and after the one-
day notice, whenever a vessel's ETA changes by more than six hours.
Section 4.3.B: Notice of Readiness
(i) When HECO's vessel arrives at the customary anchorage or other place
of waiting at the Marine Facilities and is in all respects ready to
proceed to berth and commence discharging LSFO, the Master or his
agent shall tender to Chevron or its agent at the Marine Facilities,
a Notice of Readiness ("NOR") of the vessel to discharge LSFO, by
letter, facsimile, radio, telephone or telex.
(ii) If HECO's vessel tenders NOR during its four day arrival window, the
NOR shall be effective upon receipt by the Marine Facilities. If
HECO's vessel tenders NOR before the first day of the arrival window
the NOR shall be effective 00:01 hours local time on the first day
of the arrival window. However, Chevron shall give consideration on
a reasonable efforts basis to allowing such vessel to berth and
discharge prior to the first day of the vessel's arrival window,
provided that in Chevron's sole judgment operating circumstances at
the receiving facility so permit. If HECO's vessel tenders NOR after
the end of the arrival window, the NOR shall be effective when the
vessel is all fast in berth.
(iii) HECO's vessel shall be provided a berth in its turn based upon the
effective date and time of its NOR, provided that if HECO's vessel
tenders NOR after the end of its arrival window, it shall be
provided a berth as soon as is convenient for the Marine Facilities.
Chevron shall exercise all reasonable efforts to accept the vessel
for unloading at the earliest possible time.
(iv) If HECO's vessel arrives within the previously agreed four day
arrival window, Chevron shall have the right to delay berthing
HECO's vessel, if necessary, for Chevron's operational reasons,
provided that Chevron maintains a reasonable pumping schedule to
HECO's Kahe, Waiau and Iwilei storage tanks. If Chevron delays
HECO's vessel under the circumstances defined in this Section 4.3.B
(iv), then Chevron shall pay demurrage to HECO, against HECO's
invoice, for delays to HECO's vessels so incurred, pursuant to
Section 4.3.D.
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Section 4.3.C: Berth Time
HECO shall be allowed berth time (defined as first line fast to all lines free)
within which to complete discharging of each full or part cargo of LSFO. This
berth time is the sum of six hours for berthing and unberthing and the number of
hours to unload its LSFO at an unloading rate of 5,000 barrels per hour. If
HECO's vessel exceeds berth time for any reason or if HECO's vessel fails to
vacate berth after completing discharging, and failure to vacate is attributable
to vessel's condition or breakdown and/or to owner, operator, Master, officers
or crew of the vessel, vessel's agent or HECO, such excess berth time shall be
subject to demurrage claims of Section 4.3.D.
Section 4.3.D: Demurrage
(i) Chevron will pay demurrage to HECO against HECO's invoice, supported
by such data as may reasonably be requested, for all delays caused
by Chevron subsequent to six hours after NOR is effective and prior
to the time HECO's vessel is advised by Chevron that a berth is
available for the vessel, provided that Chevron shall not be liable
for any delay caused by fire, explosion, strike, lockout, stoppage
or restraint of labor or by breakdown of machinery or equipment on
or about the Refinery or Marine Facilities or, strike, lockout,
stoppage or restraint of labor of Master, officers or crew of HECO's
vessel, or of tugboat or pilots, or for any other cause which is
beyond Chevron's reasonable control, including weather delays.
(ii) HECO shall pay Chevron, against Chevron's invoice supported by such
data as may reasonably be requested, for any demurrage, loss or
damage caused by HECO which Chevron may incur, including such as may
be incurred due to resulting delay in the berthing of other vessels
awaiting their turn at berth.
(iii) For vessels not documented in the U.S., demurrage shall be paid for
all delay time, on an hourly basis or pro rata thereof, at a rate in
accordance with the U.S. dollar equivalent as stated in the
Worldwide Tanker Nominal Freight Scale ("Worldscale"), or such
generally accepted scale as may replace Worldscale, for the size
vessel in question adjusted to the level of the Average Freight Rate
assessment ("AFRA") or such generally accepted scale as may replace
AFRA, in force on the day of commencement of loading for vessels of
similar size, or the actual charter party demurrage rate at which
HECO or Chevron has chartered the vessel, whichever is less.
(iv) For vessels documented in the U.S., demurrage shall be paid for all
delay time, on an hourly basis or pro rata thereof, at a rate in
accordance with the U.S. dollar equivalent as stated in the American
Tanker Rate Schedule Revised ("AR"), or such generally accepted
scale as may replace AR, for the size vessel in question adjusted to
the level of the U.S. Freight Rate Average ("USFRA") or such
generally accepted scale as may replace USFRA, in force on the day
of commencement of loading for vessels of similar size, or the
actual charter party demurrage rate at which HECO or Chevron has
chartered the vessel, whichever is less.
Section 4.3.E: Vessel Berth
Chevron shall provide a berth as described in Addendum 3, and meeting the
requirements of Appendix 2, so that HECO's vessels meeting the requirements of
Appendix 2 may proceed to, lie at and depart from such berth, and Chevron shall
not be deemed to warrant the safety of public channels, fairways, approaches
thereto, anchorages, or other publicly maintained areas either inside or outside
the port area where Chevron's berth is located. If HECO's vessel fails to abide
by the conditions of use, Chevron shall be entitled to order the vessel to
vacate the berth, provided that the vessel shall be entitled to tender a new NOR
as set forth in Section 4.3.A upon correction of the failure. Chevron shall not
be liable for any loss, damage, injury or delay resulting from conditions at any
ports, berths, docks, anchorages or other places not caused by Chevron's fault
or neglect, or which could have been avoided by the exercise of reasonable care
on the part of HECO's vessel's Master.
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Section 4.3.F: Other Marine Provisions
(i) Hoses for discharging shall be furnished by Chevron in accordance
with Chevron's normal practice and shall be connected to and
disconnected from vessel's receiving flanges by HECO's vessel's
crew.
(ii) Vessels arranged for by HECO will fully comply (or will hold
necessary waivers if not in compliance) with all applicable U.S.
Coast Guard regulations. Any costs, including delays resulting from
vessel's non-compliance with U.S. Coast Guard regulations, shall be
at the expense of HECO.
(iii) HECO's vessels when berthed at the Marine Facilities will maintain
their engines in readiness and will be discharged in such a manner
that they, at any stage of discharging operations, are able, if
necessary for any reason, to immediately shut down cargo operations,
and promptly disconnect hoses and mooring lines and vacate the
berth.
(iv) HECO's vessels will comply with all applicable Federal, state,
regional and local government laws, regulations and ordinances,
including but not limited, to air and water pollution.
Section 4.3.G: Pollution Mitigation
In the event an escape or discharge of oil occurs from HECO's vessels and causes
or threatens to cause pollution damage, HECO or HECO's vessel's Master will
promptly take whatever measures are necessary to prevent or mitigate such
damage. HECO hereby authorizes Chevron, or its agent, at Chevron's option, upon
notice to HECO or HECO's vessel's Master, to undertake such measures as are
reasonably necessary to prevent or mitigate the pollution damage. Chevron or
its agent shall keep HECO advised of the nature and results of any such measures
intended to be taken. Any of the aforementioned measures shall be at HECO's
expense (except to the extent that such escape or discharge was caused by
Chevron or its agent), provided that if HECO considers said measures should be
discontinued, HECO shall so notify Chevron or its agent and thereafter Chevron
or its agent shall have no right to continue said measures at HECO's expense;
however such notification shall not affect any liability of HECO to any third
parties, including, but not limited to, governments.
Section 4.3.H: Reporting
Chevron will provide HECO with monthly summaries within ten days following the
end of each month with the following information.
(i) Vessel turnaround data, including pumping rates, for each cargo
unloaded from HECO's vessels through Chevron's Marine Facilities.
(ii) Analysis of samples of each cargo transferred through the submarine
lines, per Addendum 2.
Section 4.4: Title and Risk of Loss
Title to the LSFO transported for HECO in Chevron's submarine pipeline system
under this Article 4 shall at all times be with HECO. HECO shall bear the risk
of loss of the LSFO transported by HECO in Chevron's submarine pipeline system
under this Article 4 unless the loss is due to the negligence of Chevron.
Section 4.5: Oil Pollution Insurance
HECO warrants that HECO's vessel's owner will have in place the standard oil
pollution coverage available from their Protection & Indemnity Insurance Club
(U.S. $500 million available as of February 20, 1995), together with all
additional oil pollution coverage which is available as of the date of the use
of the Marine Facilities through their P&I Club or through underwriters
providing first class security (U.S. $200 million available as of February 20,
1995). HECO further warrants that such coverage will remain in effect during
HECO's use of HECO's vessel. Such
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insurance shall include, but not be limited to, coverage for injuries to or
death of masters, mates and crew; excess collision liabilities and pollution
liabilities imposed by federal and state laws as well as TOVALOP liabilities (if
applicable).
ARTICLE 5: OPERATION AND MAINTENANCE OF HECO'S BARBERS POINT TANK FIELD
Section 5.1: Tank Field Facilities and Service
Section 5.1.A: Tank Field Facilities
HECO has a tank field facility located adjacent to Chevron's Barbers Point
refinery, which is for the receipt and storage of fuel. Chevron has tank field
support systems which interconnect with its refinery systems to provide services
to HECO's tank field facility. HECO and Chevron agree that Chevron shall operate
and maintain HECO's tank field as if it were an extension of Chevron's refinery
tank field. In that regard, HECO and Chevron agree that HECO's tank field and
Chevron's tank field support systems shall include only the facilities outlined
in Addendum 5. Together these tank field and tank field support facilities
shall be referred to as "Tank Field Facilities." HECO shall provide electrical
power to its tank field. Chevron shall provide low pressure steam and firewater
to HECO's tank field.
Section 5.1.B: Services
Chevron agrees to operate and maintain HECO's tank field in a safe, effective
and efficient manner, in compliance with all applicable laws and regulations, in
a reasonable and prudent manner and with generally accepted industry practice.
In carrying out its duties, Chevron will exercise the same degree of skill, care
and maintenance that Chevron utilizes in the operation and maintenance of
Chevron's refinery tank field. Chevron's duties include:
(i) Overall supervision of the tank field,
(ii) Handling receipt of fuel into the tank field,
(iii) Gauging and sampling tanks,
(iv) Handling movement of LSFO from tankage to pipeline booster pumps for
transfer to HECO's storage tanks at Kahe, Waiau and Iwilei and
occasionally to the Kalaeloa Combined Cycle Power Plant storage
tanks at Barbers Point.
(v) Handling movement of fuel within the tank field, including tank-to-
tank transfers and tank mixing.
(vi) Accounting and reporting,
(vii) Maintenance of all tank field equipment,
(viii) Housekeeping,
(ix) Security,
(x) Laboratory services.
Chevron's operating standards and instructions are available for HECO's
inspection at Chevron's refinery. Applicable operating standards and
instructions are listed in Appendix 3.
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Section 5.1.C: Tank Field Facility Additions and Modifications
Any time during the term of this Contract that HECO and Chevron agree that
additions or modifications to HECO's tank field facilities or to Chevron's
refinery support systems, as listed in Addendum 5, are desired or required for
the purpose of operating and maintaining HECO's tank field facilities in
accordance with this Article 5, or if said additions or modifications are
required by government regulations, HECO and Chevron further agree that:
(i) Additional facilities or modifications to Chevron's refinery systems
shall be designed and constructed by Chevron.
(ii) Additional facilities or modifications to HECO's tank field shall be
designed and constructed using standards that are acceptable to both
HECO and Chevron. In that regard, Chevron shall have the right and
opportunity to review and accept the design and construction
specifications for the tank field on all facility replacements or
modifications. Chevron agrees to conduct such review in an
expeditious manner. Chevron shall have the right to inspect HECO's
tank field facilities during the construction thereof in order to
assure conformance with the specifications reviewed and accepted by
Chevron. It is expressly understood and agreed by the parties hereto
that Chevron's acceptance of the design and construction
specifications of HECO's tank field modifications or additions shall
in no way imply any responsibility therefor by Chevron and it is
expressly agreed by HECO that Chevron shall, as a result of its
review and acceptance of said specifications, assume no liability
whatsoever for the accuracy, correctness or proper modification or
replacement thereof.
(iii) Chevron shall maintain and operate HECO's additional or modified
tank field facilities in accordance with Section 5.1.B.
(iv) HECO shall pay Chevron a fee that is in addition to the fee
described in Section 5.2.A, as determined in accordance with Section
5.2.B.
(v) The cost for such additional facilities or modifications shall be
for the account of HECO. If such facilities are installed by
Chevron, costs shall be determined in accordance with Section
5.2.A.(iii).
Section 5.1.D: Additional Services
If at any time HECO desires Chevron to provide services in addition to those
described in Section 5.1.B, said additional service must be acceptable to
Chevron. HECO shall pay Chevron an additional fee for the additional services,
as determined in accordance with Section 5.2.B.
Section 5.2: Compensation
Section 5.2.A: Base Compensation
As compensation for the operation and maintenance of HECO's tank field
facilities in accordance with the terms and conditions hereof, HECO shall pay to
Chevron the following fees:
(i) A Base Fee of $52,833 per month; $44,500 of which is to cover normal
operation, maintenance and services which shall be subject to
adjustment quarterly beginning January 1, 1996, in accordance with
factor "An" defined in Addendum 1 attached; and $8,333 of which is a
monthly management fee which shall not be subject to adjustment
during the term of this Contract.
(ii) Monthly steam costs for heating fuel in tankage and piping and
through heat exchangers for pumping. A portion of the low pressure
steam shall be exchanged with the steam used by HECO for Chevron
pursuant to Section 6.4.A. The remaining portion, if any, shall be
charged at $3.00
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per 1000 pounds, and shall be adjusted each month in accordance with
the ratio of the then-current LSFO price within the Chevron-HECO
LSFO Supply Contract, divided by $15.50.
(iii) The cost of any complete replacement of HECO's equipment, or any
partial replacement of HECO's equipment, costing more than $5,000;
and any costs incurred by Chevron for additions or modifications to
HECO's or Chevron's facilities, as described in Section 5.1.C. These
costs shall be determined as follows:
(a) 110% of all maintenance materials costs. Material costs include
all taxes paid on material purchased.
(b) 115% of all labor cost whether contract labor charges or
Chevron's labor at equivalent Contractor's labor rate. The term
"Contractor" shall mean a mechanical contractor properly
licensed in the State of Hawaii, which Contractor shall be
experienced in the type of work to be done and shall be chosen
at the sole discretion of Chevron.
(c) 100% of all other direct costs, including but not limited to,
such items as equipment usage charges (whether Contractor's or
Chevron's at equivalent Contractor rates), permits and
consulting fees.
Section 5.2.B: Determination of Fees for Additional Operation and Maintenance
The amount of the additional fee paid by HECO to Chevron for the operation and
maintenance of such additional facilities or modifications described in Section
5.1.C and such additional services described in Section 5.1.D shall be
negotiated by HECO and Chevron. If the parties fail to agree upon a new fee
within 90 days from date of notice, such new fee shall be determined by
arbitration to be conducted in accordance with the rules of the American
Arbitration Association then obtaining. The dispute shall be heard by three
arbitrators, and the cost of arbitration shall be shared equally between HECO
and Chevron. The arbitration shall be held in San Francisco, California.
The sole purpose of the arbitration shall be to determine an additional fee for
the expense to Chevron in the performance of its services under Sections 5.1.C
and 5.1.D hereto.
Section 5.2.C: Other's Facilities Within HECO's Tank Field
In addition to all other sums payable under this Section 5.2, HECO shall
reimburse Chevron for all costs incurred by Chevron to maintain and repair the
pipeline section described in Addendum 5, Section 1, Item 14, and for all clean-
up and other costs incurred by Chevron in connection with any spills caused by
the failure of such pipeline section.
Section 5.2.D: Invoices and Payment
Chevron will issue invoices for each month's Base Fee on the fifteenth of the
month. Chevron will issue invoices for the monthly steam costs and the costs
for the replacements, additions and modifications under Section 5.2.A.(iii) in
the month following the month in which these costs are incurred. HECO will pay
on these invoices in accordance with Article 9.
Section 5.3: Reports
Chevron shall provide HECO with monthly summaries within 10 days following the
end of each month during the term hereof describing the following:
(1) Opening and closing inventory of each of HECO's tanks,
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(2) Volumes and dates of stock movements to and from each of HECO's tanks
with an indication as to sources or destinations of stock,
(3) Analysis of samples of each stock transferred in or out of HECO's tank
field in accordance with Addendum 2 attached,
(4) Volumes drained, spilled or lost from HECO's tank field facilities,
(5) Summary of maintenance performed during the month.
Section 5.4: Title and Risk of Loss
Title to the facilities and to the fuel in HECO's tank field shall at all times
remain with HECO. HECO shall bear the risk of loss or damage to HECO's fuel or
to HECO's facilities unless such loss or damage is due to the sole negligence of
Chevron. HECO shall hold Chevron harmless against any liability for loss or
damage to Third Party fuel stored in HECO's facilities unless such loss is due
to the sole negligence of Chevron.
Section 5.5: Insurance
HECO shall maintain at its own expense during the term hereof insurance, in
respect of business, and all activities on or about or in connection with HECO's
tank field facilities, of the types and in the minimum amounts described
generally as follows:
(A) Commercial Liability Insurance including Bodily Injury and Property
Damage Insurance (also including explosion hazard) affording
premises, products, completed operations, contractual and contingent
liability (with respect to subcontractors) coverage of not less one
million dollars ($1,000,000) combined single limit per occurrence for
bodily injury and property damage.
(B) A first excess policy over the above Commercial Liability Insurance
policy with limits of not less than five million dollars ($5,000,000)
combined single limit.
(C) Fire insurance of not less than the value of HECO's tanks plus HECO's
inventory of fuel therein from time to time to insure property owned
by HECO which is in the care, custody and control of Chevron. Such
insurance shall contain a clause waiving subrogation to any rights of
HECO against Chevron in the event of loss.
The insurance provided above shall include Chevron and its affiliated companies
named as additional insureds, it being the intention of the parties that the
insurance so affected shall protect both HECO and Chevron and be the primary
insurance for any and all losses in respect of business and all activities on or
about or in connection with, during the term of this Contract and any extensions
thereof unless such losses or activities are a result of the sole or gross
negligence of Chevron as provided herein with respect to the activity that is
the subject of the respective insurance claim. HECO shall furnish certificates
satisfactory to Chevron as evidence of such insurance. The insurance shall
contain provisions that no cancellation or material changes in any policy shall
become effective except upon thirty days' written notice to Chevron.
ARTICLE 6: WAIAU - BARBERS POINT STEAM EXCHANGE
Section 6.1: Facilities
Chevron has facilities at Waiau ("Waiau Reheat Station") to reheat Chevron's and
HECO's fuel oil being transported, respectively, to Chevron's marine terminal at
Honolulu and to HECO's tank field at Iwilei. HECO has facilities at
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Waiau ("Waiau Steam System") to provide 6,000 pounds per hour of 115 psig
saturated steam to the plot limit of the Waiau Reheat Station. HECO and Chevron
agree that the Waiau Steam System includes only the facilities listed in
Addendum 6 attached.
Section 6.2: Services
HECO and Chevron agree that HECO shall operate and maintain the Waiau Steam
System and provide steam to Chevron at the steam and condensate flanges at the
plot limit of the Waiau Reheat Station. HECO shall operate and maintain the
Waiau Steam System in accordance with generally accepted industry practice and
shall provide for the accurate measurement of steam delivered to Chevron. HECO
will deliver to Chevron at the Waiau Reheat Station 6,000 pounds per hour of 115
psig saturated steam at any time upon two hours prior request to HECO. If at
any time HECO is unable or anticipates it may be unable to deliver the requested
steam, it shall promptly notify Chevron. HECO shall also provide Chevron at
least 72 hours prior notice of planned outages. In addition, HECO shall notify
Chevron of any unplanned outages or failure within two hours of such occurrence.
HECO shall not be held liable for any damages to the Waiau Reheat Station due to
any outage, scheduled or unscheduled, where the steam supplied to the reheat
station is terminated.
Section 6.3: Measurement of Chevron's Steam Consumption
Section 6.3.A: Steam Flow Meter Operable
Chevron's steam consumption shall be measured as determined by the Waiau Steam
System steam flow meter. HECO shall take and record meter readings at the
beginning and the end of each month. HECO shall transmit monthly readings to
Chevron's Barbers Point Refinery Financial Accounting Department within five
working days of the month's end. HECO will keep the steam flow charts at Waiau
for 12 months and if requested will send copies to Chevron. Chevron has the
right to witness HECO's calibration of the Waiau Steam System steam meter and to
receive supporting documentation.
Section 6.3.B: Steam Flow Meter Inoperable
In the event steam is delivered to Chevron at a time when the Waiau Steam System
steam flow meter is malfunctioning, Chevron's steam usage during that period
shall be determined by multiplying the sum of the total barrels of LSFO
transported to Iwilei during the period of meter malfunction and the total
barrels of Chevron Industrial Fuel Oil No. 6 ("CIFO") transported to Chevron's
marine terminal at Honolulu during the period of meter malfunction by 7.2 pounds
of steam used per barrel of fuel oil delivered. Quantities of such LSFO and
CIFO shall be submitted to HECO within five working days from the billing
month's end.
Section 6.4: Compensation
Chevron shall compensate HECO for the operation and maintenance of the Waiau
Steam System in the following manner:
(A) Low pressure steam shall be exchanged with steam used by Chevron for
HECO pursuant to Section 5.2.A.(ii). If HECO provides more steam
herein than Chevron provides under Section 5.2.A.(ii), HECO may charge
such excess at the rates set forth in Section 5.2.A (ii).
(B) Any costs incurred by HECO for additions or modifications to the Waiau
Steam System that may be required by Chevron.
(C) The cost of any complete or partial replacement of the Waiau Steam
System equipment costing more than $1,000. Said replacements to be
approved by Chevron.
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ARTICLE 7: MEASUREMENT OF QUANTITY AND QUALITY
Section 7.1: Measurement of Quantity
Quantities of fuel and line displacement stock delivered under this Contract
shall be determined at the time of transport by gauging the following shore
tanks before and after such delivery:
(A) Quantities delivered from Chevron tanks shall be determined by gauging
such tanks.
(B) Quantities delivered from HECO's tanks or marine vessels shall be
determined by gauging HECO's tanks.
(C) Quantities delivered from HECO's marine vessels into Chevron's tanks
shall be determined by gauging Chevron's tanks.
For transfers from shore tanks, measurements shall be taken by Chevron or
Chevron's agent and witnessed by HECO or HECO's agent. However, at HECO's
option, measurements may be taken by a mutually agreed upon independent
inspector at both delivery and receiving facilities. If a mutually agreed upon
independent inspector is used, Chevron and HECO shall share equally the cost of
such independent inspections. For transfers from HECO's vessels, measurements
shall be taken under the supervision of an independent inspector, whose costs
shall be for HECO. Volumes delivered hereunder shall be converted to 60 degrees
F, using the latest revision of ASTM Table 6.
Section 7.2: Determination of Quality
The quality of fuel transported to HECO shall be determined on the basis of
samples drawn in such a manner as to be representative of each individual
transport. For transfers from shore tanks, samples shall be drawn by Chevron
from the shore tanks prior to transport. For transfers from HECO's vessels,
samples shall be drawn by or under the supervision of an independent inspector,
whose costs shall be for HECO. Samples shall be divided into two parts. One
part shall be used by Chevron to determine qualities according to Addendum 2
attached. The other part shall be sealed and retained separately by HECO.
Section 7.3: Disputes of Quality and Quantity
If Chevron or HECO has reason to believe that the quality or quantity of product
stated for a particular transport per Sections 7.1 or 7.2 is incorrect, that
party shall within sixty days of the transport date, present the other party
with documentation supporting such determination and the parties will confer, in
good faith, on the causes for the discrepancy and shall proceed to correct such
causes and adjust the quality and quantity, if justified, for the transports in
question.
ARTICLE 8: LINE DISPLACEMENT STOCK
HECO shall purchase from Chevron whatever line displacement stock that is
required for Chevron to complete the deliveries of LSFO and received into HECO's
tankage at Kahe, Waiau and Iwilei. The price of No. 2 diesel fuel or No. 6 fuel
oil used as line displacement stock shall be the then-current pricing for the
fuel comprising the line displacement stock in Chevron's supply contract with
HECO and HECO's affiliates, if such a supply contract is in effect; otherwise
its price shall be the then-current Honolulu posted price for such fuel, less
normally available discounts, if any, at the time of purchase. The price of No.
5 fuel oil used as line displacement stock shall be the sum of 40% of the then-
current No. 2 diesel fuel pricing and 60% of the then-current No. 6 fuel oil
pricing in Chevron's supply contract with HECO and HECO's affiliates, if such a
supply contract is in effect; otherwise its price shall be the then-current
Honolulu posted price for No. 5 fuel oil, less normally available discounts, if
any, at the time of purchase.
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<PAGE>
ARTICLE 9: INVOICING AND PAYMENT
Section 9.1: Invoices
Invoices for the services performed pursuant to Articles 3, 4, 5, and 6 and for
line displacement stock sold will be prepared and dated following delivery and
shall be rendered from time to time each calendar month. The invoices shall be
supported by such documentation to allow easy verification of the charges
therein.
Section 9.2: Payments
Payments of such invoices shall be made in U.S. dollars. Timing of payments of
sales and deliveries received shall be based upon the invoice issue date, which
shall be the invoice date or postmarked mailing date of the invoice, whichever
is later, as follows:
(A) Payment for a received invoice dated from the 1st through the 10th of
a month is due on the 20th of the same month.
(B) Payment for a received invoice dated from the 11th through the 20th of
a month is due by the last day of the same month.
(C) Payment for a received invoice dated from the 21st through the last
day of the month is due on the 10th day of the following month.
Due dates are the dates payments are to reach Chevron. If the due date falls on
a Saturday, the payment shall be made on the preceding business day. If such
date falls on a Sunday or a holiday, payment shall be made the following
business day.
Section 9.3: Method of Payment
Payments shall be by bank wire transfer of immediately available funds to:
Chevron U.S.A. Inc.
Account Number 59-51755
First National Bank of Chicago, Chicago, IL
ABA Ref. No. 071000013
For identification purposes, all wires must clearly indicate that payment
is being made by order of HECO and provide the invoice reference number.
In addition, written documentation evidencing specific invoices being paid
shall be immediately forwarded to:
Utility Fuel Receivables
Chevron U.S.A. Inc.
P.O. Box 7006, Room 3338
San Francisco, California 94120-7006
Fax: (415) 894-1195
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<PAGE>
ARTICLE 10: AUDITS
Section 10.1: Audits Requiring Non-Confidential Information
On request of HECO, Chevron shall furnish to HECO such full and complete
documentation as HECO reasonably shall require in order to satisfy itself that
data used by Chevron to establish all amounts charged hereunder are accurate.
Section 10.2: Audits Requiring Confidential Information
Notwithstanding the foregoing, in order to preserve the confidentiality of
certain information not generally available, Chevron may elect to furnish some
or all of such documentation to an independent auditor chosen by Chevron and
HECO. In such an event, Chevron and HECO shall meet promptly to provide
mutually satisfactory instructions to such auditor as to the facts to be
verified in order to establish the accuracy of data used by Chevron to establish
such charges. Chevron and HECO shall share equally the cost of such independent
verification of the accuracy of data used by Chevron.
Section 10.3: Independent Audits Using Non-Confidential Information
In addition to the foregoing, HECO shall have the right to utilize such auditor
at HECO's sole cost and expense to further certify the accuracy of any generally
available information, and the accuracy of any and all amounts charged hereunder
providing such auditor shall continue to be under the duty to Chevron to
preserve the confidentiality of information furnished to it by Chevron.
Section 10.4: Adjustments From Audit Findings
Any findings of inaccuracies from the audits under Sections 10.1 and 10.3,
including but not limited to billings, shall be resolved between the parties by
negotiation, and failing resolution by arbitration, and appropriate adjustments
to the charges shall be made. Any findings of inaccuracies from the audits
under Section 10.2 shall be accepted by the parties and appropriate adjustments
to the charges shall be made.
ARTICLE 11: CONTINGENCIES
Section 11.1: Definition of Contingency
As used in this Article 11, the term "contingency" means:
(A) any event reasonably beyond the control of the party affected;
(B) compliance, voluntary or involuntary, with a direction or request of
any government or person purporting to act with governmental
authority; including that limiting HECO's recovery of all fuel costs
incurred under this Contract;
(C) total or partial expropriation, nationalization, confiscation,
requisitioning or abrogation or breach of a government contract or
concession;
(D) closing, or restriction on the use of, a port or pipeline;
(E) maritime peril (including but not limited to, negligence in navigation
or management of vessel, collision, stranding, destruction, or loss of
vessel), storm, earthquake, flood;
(F) accident, fire, explosion;
Page 17
<PAGE>
(G) hostilities or war (declared or undeclared), embargo, blockage, riot,
civil unrest, sabotage, revolution, insurrection;
(H) strike or other labor difficulty (whomsoever's employees are
involved), even though the strike or other labor difficulty could be
settled by acceding to the demands of a labor group;
(I) loss or shortage of production, manufacturing, power generation or
distribution, transportation, delivery or receiving facilities,
equipment, labor or material caused by circumstances not due to the
affected party's lack of diligence.
Section 11.2: Relief of Obligations
Neither party shall be obligated to provide the services and the use of the
facilities described under this Contract to the extent that performance of this
Contract is prevented, restricted or delayed by a contingency which
significantly affects that party's ability to do so. In such circumstances, the
services and the use of the facilities provided to the other party may be
reduced on a basis as equitable to that party as to the first party's other
similar obligations, and the other party's payment obligations under Sections
3.3.A. and 5.2.A. (i) shall be reduced in direct proportion to the first party's
reduction in services.
Section 11.3: Pricing Affected By Government Direction
If at any time any price determined under this Contract cannot be given effect
because to do so would violate a direction or request of any government or
person purporting to act with government authority, HECO and Chevron shall
attempt to agree on an alternate course of action but failing agreement within
10 days the party adversely affected may suspend performance with respect to the
services or use of facilities affected by the direction or request.
ARTICLE 12: EFFECT OF SUSPENSION OR REDUCTION
Section 12.1: Notice of Suspension or Reduction
Any party which relies upon Sections 11.1 through 11.3 shall give the other
party prompt notice thereof specifying the anticipated amount and duration of
any suspension or reduction of services provided or received, or the use of
facilities. It shall also give prompt notice when it no longer expects to rely
on Sections 11.1 through 11.3, and services provided or received and use of
facilities shall be reinstated subject to all conditions of this Contract,
unless this Contract has been terminated previously under Section 12.3.
Section 12.2: Chevron's and HECO's Rights During Suspension or Reduction
While services or the use of facilities are suspended or reduced by one party
pursuant to Sections 11.1 through 11.3, it shall not be a breach of this
Contract for the other party to use the services or facilities of a third party.
After any suspension or reduction has ended, there shall be no obligation on
either party to make up for the services or facility usage not provided or used
during the suspension or reduction.
Section 12.3: Termination Rights
If services and the use of facilities are suspended under Article 11 for more
than 180 days, HECO or Chevron shall then have the option while such suspension
continues to terminate its obligations to the other party under this Contract on
30 days notice to the other party.
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<PAGE>
Section 12.4: Payment for Services and Facility Usage Provided
Nothing in Sections 11.1 through 11.3 nor Section 12.3 shall relieve HECO or
Chevron of the obligation to pay in full in United States currency for the
services and the use of facilities actually provided hereunder and for other
amounts due by one party to the other under this Contract.
ARTICLE 13: WAIVER AND NON-ASSIGNABILITY
Section 13.1: Waiver
Waiver by one party of the other's breach of any provision of this Contract
shall not be deemed a waiver of any subsequent or continuing breach of such
provisions or of the breach of any other provision or provisions hereof.
Section 13.2: Non-Assignability
This Contract shall not be assignable by either party without the written
consent of the other, which shall not be unreasonably withheld, except that
either party may assign this Contract to any affiliate, provided that any such
assignment shall not release that party from any of its obligations hereunder,
and except that HECO may assign this Contract to the Trustee under its First
Mortgage Bond Indentures. Neither party, by agreement to such an assignment,
waives any right it may have to terminate this Contract for any breach hereof
occurring at any time before or after any such assignment or release the other
party of any obligations arising under this Contract after any such assignment.
Following any such assignment, no further assignment may be made without the
consent of Chevron.
Section 13.3: Definitions
In Articles 13, l5 and 17, "affiliate" shall mean any corporation controlling,
controlled by or under common control, with either Chevron or HECO. "Control"
of a corporation shall mean ownership, directly or indirectly, of at least 50%
of the voting shares of such corporation.
ARTICLE 14: DEFAULT
Section 14.1: Default
If HECO or Chevron considers the other party to be in default in any obligation
under this Contract, such party shall give the other party notice thereof. Such
other party shall then have 30 days in which to remedy such default. If the
default is not cured, the other party may, without prejudice to any other right
or remedy of such party in respect of such breach, terminate its obligations
under this Contract by 45 days notice to the party in breach. Any termination
shall be without prejudice to accrued rights. All rights and remedies hereunder
are independent of each other and election of one remedy shall not exclude
another. In no event shall either party be liable for prospective profits or
special, indirect or consequential damages.
Section 14.2: Termination Rights
If one party fails to perform any obligation under Articles 3, 4, 5 and 6 of
this Contract, and such failure is not cured within 30 days after written notice
thereof is given by the other party, the other party may give notice to the
first party terminating the parties' rights and obligations under those Articles
immediately.
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<PAGE>
ARTICLE 15: CONFLICT OF INTEREST
Conflicts of interest related to this Contract are strictly prohibited. Except
as otherwise expressly provided herein, neither party nor any director, employee
or agent of a party shall give to or receive from any director, employee or
agent of the other party any gift, entertainment or other favor of significant
value, or any commission, fee or rebate. Likewise, neither party nor any
director, employee or agent of a party shall enter into any business arrangement
with any director, employee or agent of the other party or any affiliate, unless
such person is acting for and on behalf of the other party, without prior
written notification thereof to the other party.
In the event of any violation of this Article 15, including any violation
occurring prior to the date of this Contract which resulted directly or
indirectly in one party's consent to enter into this Contract with the other
party, such other party may at its sole option terminate this Contract at any
time and, except for obligations to pay in full in United States currency for
the outstanding payment obligations hereunder, shall be relieved of any further
obligation under this Contract.
Both parties agree to immediately notify the other of any known violation of
this Article.
ARTICLE 16: APPLICABLE LAW
This Contract shall be construed in accordance with, and all disputes arising
hereunder shall be determined in accordance with, the local law of the State of
Hawaii, U.S.A.
ARTICLE 17: INDEMNITY
Chevron shall indemnify, defend and hold harmless HECO, its directors, officers,
employees and agents (including but not limited to affiliates and contractors
and their employees) from and against all liabilities, damages, losses,
penalties, claims, demands, suits, costs, expenses, (including attorneys' fees)
and proceedings of any nature whatsoever for personal injury, (including death)
or property damage, including but not limited to HECO's facilities, that results
from fuel which does not meet specifications or contaminated fuel or that arises
out of or is in any manner connected with the storage or transportation of fuel
in Chevron's custody, except to the extent that such injury or damage may be
attributable to the negligence or willful action of HECO.
HECO shall indemnify, defend and hold harmless Chevron, its directors, officers,
employees and agents (including but not limited to affiliates and contractors
and their employees) from and against all liabilities, damages, losses,
penalties, claims, demands, suits, costs, expenses, (including attorneys' fees)
and proceedings of any nature whatsoever for personal injury, (including death)
or property damage, including but not limited to Chevron's facilities, that
results from fuel which does not meet specifications or contaminated fuel or
that arises out of or is in any manner connected with the storage or
transportation of fuel in HECO's custody, except to the extent that such injury
or damage may be attributable to the negligence or willful action of Chevron.
The provisions of this Article 17 shall survive the termination of the Contract.
ARTICLE 18: PUBLIC UTILITY COMMISSION APPROVAL
This Contract is required to be filed with the Hawaii Public Utilities
Commission ("PUC") for approval. If in the proceedings initiated as a result of
the filing of this Contract the PUC disapproves or fails to authorize the
recovery of the fuel costs incurred under this Contract through HECO's "Energy
Cost Adjustment Clause", HECO may terminate this Contract by 30-days' written
notice to Chevron.
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<PAGE>
ARTICLE 19: MISCELLANEOUS
-------------------------
Section 19.1: Headings
Headings of the Articles and Sections are for convenient reference only and are
not to be considered part of this Contract.
Section 19.2: Entire Agreement
This document contains the entire agreement between the parties covering the
subject matter and cancels, as of the effective date hereof, all prior
agreements of any kind between the parties covering such subject matter and any
amendments thereto. There are no other agreements which constitute any part of
the consideration for, or any condition to, either party's compliance with its
obligations under this Contract.
Section 19.3: Contract is Not an Asset
This Contract shall not be deemed to be an asset in, and, at the option of a
party, shall terminate in the event of any voluntary or involuntary
receivership, bankruptcy or insolvency proceedings affecting the other party.
Section 19.4: Notices
Except as otherwise expressly provided herein, all notices shall be given in
writing, by letter, facsimile, telegraph or telex to the following addresses, or
such other address as the parties may designate by notice, and shall be deemed
given upon receipt.
Chevron: Manager, Petroleum Coke, Heavy Fuels & Sulfur
Chevron U.S.A. Inc.
P.O. box 7006
San Francisco, CA 94120-7006
Facsimile: (415) 894-1195
HECO: Manager, Power Supply Services Department
Hawaiian Electric Company, Inc.
Box 2750
Honolulu, HI 96840-0001
Facsimile: (808) 543-7788
Section 19.5: Severability
If any term or provision, or any part of any term or provision, of this Contract
is held by any court or other competent authority to be illegal or
unenforceable, the remaining terms, provisions, rights and obligations shall not
be affected.
Section 19.6: Successors and Assigns
This Contract shall inure to the benefit of and be binding upon the parties
hereto, their successors and permitted assigns.
Section 19.7: Consequential Damages
In no event shall either party be liable for any indirect, consequential,
special or incidental damages of any kind whether based in contract, tort
(including without limitation negligence or strict liability), warranty or
otherwise.
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<PAGE>
Section 19.8: Termination of Prior Agreement
Effective as of the Effective Date of the Term hereunder, this Contract hereby
supersedes that certain Facilities and Operating Contract between the parties
dated May 29, 1990, and all amendments thereto.
IN WITNESS WHEREOF, the parties hereto have executed this Facilities
and Operating Contract dated as of 11/20/95.
CHEVRON U.S.A. INC. HAWAIIAN ELECTRIC
COMPANY, INC.
By: /s/ Phillip H. Fisher By: /s/ Edward Y. Hirata
Phillip H. Fisher Edward Y. Hirata
(Printed or Typed Name)
Its Manager, Petroleum Coke, Its: Vice President
Heavy Fuels & Sulfur Regulatory Affairs
By: /s/ Molly M. Egged
Molly M. Egged
(Printed or Typed Name)
Its: Secretary
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<PAGE>
ADDENDUM 1
ADJUSTMENT FACTORS FOR ADJUSTABLE CHARGES AND FEES
The various adjustable charges and fees of Articles 3, 4, 5, and 6 of this
Contract shall be adjusted as described therein based on the following factors.
Section l: Labor Adjustment,"An"
The labor adjustment factor, An, shall be defined as:
The arithmetic average of the hourly earnings in dollars per hour for the
petroleum and coal products industry as shown in the "Employment and Earning"
publication of the U.S. Department of Labor, Bureau of Labor Statistics, for the
three months of the second calendar quarter immediately preceding the calendar
quarter of the month in which services are rendered, divided by the arithmetic
average of the hourly earnings in dollars per hour for the petroleum and coal
products industry as shown in the "Employment and Earning" publication of the
U.S. Department of Labor, Bureau of Labor statistics, for the months July
through September, 1989 (15.33).
Section 2: Industrial Commodities Adjustment, "Bn"
The industrial commodities adjustment factor, Bn, shall be defined as:
The arithmetic average of the Producer Price Index (PPI) for Industrial
Commodities as published by the U.S. Department of Labor, Bureau of Labor
Statistics, for the three months of the second calendar quarter immediately
preceding the calendar quarter of the month in which services are rendered,
divided by the arithmetic average of the Producer Price Index (PPI) for
Industrial Commodities as published by the U.S. Department of Labor, Bureau of
Labor Statistics, for the months July through September, 1989 (111.8).
Section 3: Fuels and Power Adjustment, "Cn"
The fuels and power adjustment factor, Cn, shall be defined as:
The arithmetic average of the Producer Price Index (PPI) for Fuels and Power
(Code 5), as published by the U.S. Department of Labor Bureau of Labor
Statistics, for the three months of the second calendar quarter immediately
preceding the calendar quarter of the month in which services are rendered,
divided by the arithmetic average of the Producer Price Index (PPI) for Fuels
and Power (Code 5), as published by the U.S. Department of Labor, Bureau of
Labor Statistics, for the months July through September, 1989 (73.8).
<PAGE>
ADDENDUM 2
QUALITY
The LSFO transported hereunder shall be analyzed for the following qualities.
HECO's LSFO specifications are shown for reference.
<TABLE>
<CAPTION>
HECO Reference
ASTM Test Specification
LSFO specification method Units Limits
- ----------------------------------------------------------------
<S> <C> <C> <C>
API Gravity D4052 Deg 12 min
24 max
Sulfur D4292 Wt % 0.50 max
Flash Point (1) D93 Deg F 150 min
Pour Point D97 Deg F 125 max
Viscosity D445 SSU at l00 min
210 Deg F 450 max
Ash D482 Wt % 0.05 max
Gross Heating D240 MM BTU/Bbl 6.000 min
Value
Nitrogen D4629 Wt % 0.50
Water & Sediment D1796 Wt % 0.50
</TABLE>
Note: (1) Flash point shall be at least 50 degrees F above the pour point or 150
degrees F, whichever is greater.
<PAGE>
ADDENDUM 3
CHEVRON'S MOORING AND SUBMARINE LINES
1. Geographical Description of Mooring Area
Chevron U.S.A. Inc., Hawaiian Refinery has been granted the use of the
following anchorage for its Barbers Point Offshore Tanker Terminal:
The waters of the Pacific Ocean within an area beginning at a point in
latitude 21 degrees 16' 58" N and longitude 158 degrees 04' 39" W,
thence on a bearing of 090 degrees true, 850 yards, thence on a
bearing of 180 degrees true, 450 yards, thence on a bearing of 270
degrees true, 850 yards, thence on a bearing of 000 degrees true, 450
yards to the point of beginning.
The center of the above described area is on an "approximate" bearing of
119 degrees true, 2.3 miles from the Barbers Point light. Three corners of
the area are marked by buoys. The two southerly corners of the area are
marked by lighted buoys which are painted orange and white and are in 84
feet of water. The northeasterly corner of the area is marked by a white
spar buoy and is in 66 feet of water. The northwesterly corner of the area
is unmarked. The area is designated as area "C" on the chart attached
hereto this Addendum 3.
Within the mooring area, there are seven mooring buoys. Vessels moor by
using the ship's bow anchors and by running lines to the mooring buoys.
<PAGE>
ADDENDUM 4
[SEE ATTACHED]
<PAGE>
Description of Addendum No. 4 to the Facilities and Operating Contract by and
between Chevron U.S.A. Inc. ("Chevron") and Hawaiian Electric Company, Inc.
("HECO"), dated November 20, 1995 (the "Facilities Contract"):
Pages 1, 2:
Pages one and two of Addendum No. 4 consist of a printed form with Chevron logo
entitled "VESSEL DATA SHEET." The form is the product of Chevron Shipping
Company with a reference C-728 (8-93) and generally consists of boxes and blanks
which are to be filled in with respect to the physical description and operating
characteristics of a particular petroleum tank vessel. The data sought
concerning the particular vessel's physical characteristics includes but is not
limited to the following: name; deadweight; length; breadth; distance from
center manifold forward, and aft, basis parallel mid-body light ship draft;
SCNRT; PCNRT; if double hull and SBT configured; percentage SDWT vessel can
maintain in SBT and double-valve segregation mode; number and SWL of chain
stoppers and boom/cranes; number, size and distance between bow chock openings;
number and location of mooring bitts and closed chocks; number of shackles of
port and starboard anchor chains; deck location, length, diameter, breaking
strength of the vessel's mooring wires and ropes and whether they are on winches
or drums; number, length, material, breaking strength of synthetic tails for
mooring wires; if vessel equipped with IGS, vapor recovery system and COW;
distances from manifold to ship's rail, flange center from deck, between
manifold connections, BCM, and KTM. Data sought concerning operating
characteristics of a particular vessel include but are not limited to: flag;
number, nationality and English-language knowledge of officers and crew; if
vessel has U.S. Coast Guard TVEL; date of last drydock and last Special Survey;
if vessel is a member of TOVALOP; and name and particulars of OPA 90 Qualified
Person and vessel contact parties.
Pages 3, 4:
Pages three and four of Addendum No. 4 consist of one page entitled "Mooring
Information and Requirements" which in addition to the printed text, includes a
diagram of a vessel which describes the required on-deck location and
arrangement for mooring ropes and wires for a petroleum tank vessel with respect
to mooring at a Chevron SPM or CMB facility, or if performing ship-to-ship
lightering operations. This requirements data is to serve as a guide to
assisting the completion of page four of Addendum No. 4.
Page four is entitled "Mooring Arrangement Data Sheet for Lightering
Operations," and in addition to the printed text, includes a hexagonal outline
which is to represent a deck of a tank vessel. Upon this outline is to be
marked the location of each of a given vessel's single drum winches, open
fairleads, double drum winches, warping drums, closed fairleads and single and
double mooring bitts. There are also three questions concerning the number,
sufficiency and location of the given vessel's enclosed fairleads and tie-off
bitts with respect to receiving headlines, sternlines and backsprings from the
other vessel participating in the lighterage operation.
<PAGE>
ADDENDUM 5
LIST OF FACILITIES IN HECO'S TANK FIELD SYSTEM
AND CHEVRON'S TANK FIELD SUPPORT SYSTEM
Section 1: HECO's Facilities
1) Three LSFO storage tanks.
2) Two LSFO feeder pumps (main and spare) with electric drivers.
3) Jet mixing facilities for all LSFO tanks using feeder pumps as motive
force.
4) Internal tank heaters -- pancake coil tank heaters using low pressure
steam.
5) Tank Gauging System -- compatible with and connected to Chevron's
refinery tank gauging system.
6) Storm Water Drainage System -- gravity drainage system to drain storm
water to Chevron's refinery tank field impounding basin.
7) Single dike for area and gravity drainage system to drain a major oil
spill to Chevron's refinery tank field impounding basin.
8) Lighting System
9) Fire Fighting System -- consisting of a looped waterline extending from
Chevron's refinery tank field fire water system.
10) Electrical Substation and Electrical Distribution System
11) Steam Systems -- nominal 40 psig system to supply tank heating coils,
steam tracing system and exchangers.
12) Condensate System -- collection and pumping system to recover and
return 100 percent of condensate to Chevron's refinery condensate system.
13) Related Piping Systems --
a) LSFO -- steam traced and insulated lines needed to receive LSFO into
tank field, transfer LSFO from tank to tank, and transfer LSFO to
Chevron's Pipeline booster pumps.
b) Steam and Condensate -- insulated steam and condensate pipelines.
14) Related Pipeline Systems -- that section of pipeline which is connected
to Hawaiian Independent Refinery, Inc. or other facilities and falls
within the legal boundaries of HECO's Barbers Point tank field.
<PAGE>
Section 2: Chevron's Tank Field Support System
1) Low Pressure Steam System -- insulated supply line with valves and meter
routed from Chevron's refinery low pressure steam system to HECO's tank
field plot limit.
2) Condensate System -- insulated condensate line with valves routed from
HECO's tank field plot limit to Chevron's refinery condensate system.
3) Fire Water System -- two supply lines with valves routed from Chevron's
refinery tank field fire water system to HECO's tank field plot limit for
HECO's looped fire water system.
4) Storm Water Drainage System -- system is routed via gravity to Chevron's
refinery tank field impounding basin.
5) Tank Gauging System -- signals from HECO's tank gauging system are routed
to and connected into Chevron's refinery tank field control house tank
gauging system.
6) LSFO Receiving Line -- steam traced and insulated line with valves routed
from Chevron's marine unloading line to HECO's tank field plot limit.
7) LSFO Delivery Line -- steam traced and insulated line with valves routed
from HECO's plot limit to Chevron's pipeline booster pumps' suction
manifold.
<PAGE>
ADDENDUM 6
LIST OF FACILITIES IN HECO'S WAIAU STEAM SYSTEM
1) Steam Piping -- insulated piping from HECO's Waiau Unit No. 7 and No.
8 reboiler steam system to the plot limit of Chevron's Waiau Reheat
Station
2) Condensate Inspection Tank
3) Two Condensate Drip Pumps
4) Steam Flow Meter
5) Miscellaneous -- pipeline valves, instrumentation and fittings
<PAGE>
APPENDIX 1
CHEVRON'S AND HECO'S FUEL OIL DISTRIBUTION SYSTEMS
[See attached]
<PAGE>
Description of Appendix 1 to the Facilities and Operating Contract by and
between Chevron U.S.A. Inc. ("Chevron") and Hawaiian Electric Company, Inc.
("HECO"), dated November 20, 1995 (the "Facilities Contract"):
Appendix 1 consists of a reduced copy of a map or geographic diagram with
Chevron identification entitled "Chevron's and HECO's fuel oil Pipelines to
Honolulu and Kahe Point. Plant 28." The form is the product of "Chevron
U.S.A., Inc. MFG. DEPT. HAWAIIAN REFINERY," dated 4-19-90, and has a document
reference "28-HD-593-A." The diagram generally displays the location, size and
route of Chevron and HECO pipelines from the Chevron off-shore tank mooring,
HECO pipeline from Chevron refinery to Kahe Point Plant, Chevron Pipeline to
Honolulu connecting the Chevron refinery with the HECO Waiau Plant, Chevron
Kapalama Terminal, HECO Iwilei, Chevron Honolulu Marine Terminal Pier 30 and
HECO Honolulu Plant.
<PAGE>
APPENDIX 2
SUMMARY OF VESSEL REQUIREMENTS AT BARBERS POINT
A. Maximum Deadweight Tons - 150,000
B. Maximum Length Overall - 1,000'
C. Maximum Draft - 50' (a maximum draft of 52' may be allowed during the summer
months upon request)
D. Maximum Distance Stern to Center of Cargo Manifold - MAX BCM 500'
GENERAL REQUIREMENTS
E. No cast iron is permitted in vessel's riser valves, pipes and fittings
outboard of the last fixed rigid support to the deck.
F. Vessel's port side manifold piping, valves and ancillary equipment necessary
to retrieve, secure and release the submarine cargo transfer hose(s), shall
be in accordance with the latest edition of the Oil Companies International
Marine Forum, OCIMF, Standards for Oil Tanker Manifolds and Associated
Equipment, which shall be an integral part of this agreement.
G. All ground tackle must be in good working condition. Anchor chain wear shall
not exceed 12.5% of the original diameter as measured by the vessel prior to
its nomination. Vessels up to 50,000 DWT shall have at least l0 shots of
chain on each anchor. Vessels over 50,000 DWT shall have at least 12 shots
of chain on each anchor.
H. Vessels should be equipped with a searchlight on each bridge wing to assist
in illuminating buoys during mooring and unmooring at night.
I. Handling of the submarine cargo transfer hose(s) shall be performed by the
vessel's crew under the supervision of a ship's officer as designated by the
vessel's master, as directed by the Chevron's Mooring Master in attendance.
J. All vessels shall comply with regulations and procedures set forth in the
Marine Terminal Manual for Barbers Point Offshore Tanker Terminal in its
latest revision, in addition to U.S. Coast Guard and other government
regulations. Vessels shall comply with all additions and revisions to the
regulations and procedures in the Marine Terminal Manual upon sixty days'
written notice or whatever shorter notice is required to comply with a
mandate by government authority.
K. All vessels are subject to inspection by Chevron upon arrival to determine
their suitability for the berth. Vessels not meeting the standard
requirements in the Marine Terminal Manual for Barbers Point Offshore Tanker
Terminal may be refused for berthing.
L. Vessels may be required to unberth and/or otherwise incur delay during
adverse weather conditions. All costs, expenses, etc., or unberthing and
reberthing shall be to the vessel's or HECO's account as the case may be.
M. All vessels must have the capability of maintaining at least 30% of vessels
DWT at all times while in the berth.
N. Only uncontaminated SBT Ballast may be discharged to sea after a visual
inspection of its surface has verifes\d its integrity.
<PAGE>
O. Vessels shall be equipped with seven (7) mooring wires, l000 feet in length
and mounted on winches. For vessels up to 70,000 DWT, the wire breaking
strength shall be at least 65 metric tons; for vessels over 70,000 DWT, the
breaking strength shall be least 75 metric tons. If vessel's wires are used
in combination with synthetic tails (pendants), these shall be in good
condition and have a breaking strength at least equal to l.25 times that of
the wire they serve. In addition, vessels shall be equipped with at least
seven (7) synthetic mooring ropes, 720 feet in length, in good condition and
with a nominal breaking strength of 75 metric tons. Synthetic mooring ropes
should be made of polyester fiber or equivalent Polypropylene and nylon
ropes are not acceptable.
P. Winches and fittings must be so placed that mooring wires and synthetic lines
can be run as follows:
<TABLE>
<CAPTION>
Port Center Stbd
<S> <C> <C> <C>
Main deck fwd. l each - l each
Main deck aft l each - l each
Poop deck l each l each l each
</TABLE>
Each synthetic rope shall be secured to a separate bitt using both horns of
the bitt.
Winch arrangements shall be such that port and starboard mooring wires/ropes
may be handled simultaneously.
Q. Portside hose boom and related equipment shall have a minimum safe working
load capacity of ten long tons The vessel's hose boom and cargo manifold
must be able to connect to one 12" over-the-rail hose. Hose boom topping
life and runner must be of wire line and not synthetic line.
<PAGE>
APPENDIX 3
Refinery Operating Standards and Instructions
- - - - - - - - - -
A. Operating Standards
H-4210 - Operation of the Main Pumphouse - Included by reference in H-4210
are:
AR-9000 - General Operating Instructions
AR-9060 - Sampling Oil
AR-9209 - Breaking Lines
AR-9220 - Operation of Tanks
AR-9230 - Gauging Tanks
AR-9240 - Cleaning Tanks
AR-9410 - General Pumping Instructions
AR-9422 - Operation of Centrifugal Pumps and Drivers
AR-9920 - Safe Practices for Entering and Working in Enclosed Equipment
AR-9510 - Care and Operation of Refinery Sewers and Draining Systems
AR-9249 - Precautions in Repairing Tanks
AR-9900 - Release of Operating Equipment for Mechanical Work
AR-942l - Care and Operation of Reciprocating Pumps
H-4050 - Operation of Electrical Distribution System
AR-9070 - Static Electrical and Lightning Protection
AR-9710 - Operation of Metering and Control Equipment
H-9510 - Operation of Drainage and Effluent Treating Systems
B. Refinery Instructions
Ref. Inst. No. 3 - Refinery Security
Refinery Inst. No. 80 - Good Housekeeping
C. Emergency Plans and Procedures - Emergency Fire Organization
D. Engineering (Maintenance) Instructions
All instructions directly applicable to tank field and pipeline maintenance
work.
<PAGE>
HECO EXHIBIT 10.11
LOW SULFUR FUEL OIL SUPPLY CONTRACT
BETWEEN
BHP PETROLEUM AMERICAS REFINING INC.
AND
HAWAIIAN ELECTRIC COMPANY, INC.
This Contract is made by and between BHP PETROLEUM AMERICAS REFINING INC.,
a corporation duly incorporated under the laws of the State of Hawaii, having
its principal place of business at 733 Bishop Street, Honolulu, Hawaii 96813,
(hereinafter called "SELLER"), and HAWAIIAN ELECTRIC COMPANY, INC., a
corporation duly incorporated and authorized to do business under the laws of
the State of Hawaii, having its principal place of business at 900 Richards
Street, Honolulu, Hawaii, (hereinafter called "BUYER").
NOW, THEREFORE, the parties agree as follows:
ARTICLE I
AGREEMENT
SELLER shall sell and deliver or cause to be delivered, and BUYER shall
buy, receive and pay for Low Sulfur Fuel Oil suitable for use as a boiler fuel
of the specifications provided herein (the "Product") and in the quantity
described herein.
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ARTICLE II
TERM
The term of this Contract shall be for a two (2) year period commencing
January 1, 1996, at 12:01 a.m. through December 31, 1997, at 12:00 midnight,
Hawaiian time, subject to the provisions and conditions contained herein.
ARTICLE III
PRODUCT & QUALITY
SELLER shall sell and deliver and BUYER shall receive and pay for Product
that shall comply with the specifications as shown in Exhibit A attached hereto
and incorporated herein by reference.
ARTICLE IV
QUANTITY
4.1 Quantity.
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4.2 Optional Purchases.
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4.3 Reallocation of Deliveries. If during any 15 calendar day period,
deliveries of LSFO by SELLER to Kalaeloa Partners, L.P. ("Kalaeloa") are less
than 20,000 barrels due to an unanticipated equipment outage at the oil-fired
combined cycle facility owned by Kalaeloa at Campbell Industrial Park, SELLER
and BUYER shall agree to reallocate deliveries of LSFO by SELLER, to the extent
required by BUYER and not required by Kalaeloa, to BUYER. The reallocated LSFO
shall be priced on the same basis as optional purchases as provided for in
Section 4.2.
ARTICLE V
PRICE
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filed separately with the Commission.
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filed separately with the Commission.
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ARTICLE VI
DELIVERY
6.1 Notification and Product Delivery. Subject to the minimum and maximum
amounts specified in Section 4.1, BUYER will provide SELLER notice
("Nomination") of the amount to be sold and delivered by SELLER and bought and
received by BUYER for each calendar month no later than seventy-five (75) days
prior to the first day of said month ("Nomination Month"). The Nomination shall
specify both the quantities of Product and the delivery timing for the amount to
be sold for the first and second half of the Nomination Month, respectively. No
later than 10 days prior to the beginning of each calendar month, SELLER will
provide BUYER a schedule of deliveries to be made for the following two months.
The delivery
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<PAGE>
schedule shall specify the approximate quantity, the approximate date and a
characterization of the approximate viscosity, either low, 100 - 200 SSU at 210
DF, medium, 201 - 350 SSU at 210 DF or high, over 350 SSU at 210 DF of each
separate delivery. SELLER shall notify BUYER of a change to said delivery
schedule because of one of the following causes with respect to each individual
delivery when it shall become known to SELLER:
a) A change in volume, if such change is in excess of 10% of the
previously advised delivery volume; or
b) A change in date, if such change is greater than 2 days from the
previously advised date; or
c) A change in the previously advised viscosity characterization.
BUYER shall not be required to take Delivery, and SELLER shall not be
required to make Delivery of more than fifty percent of a monthly nomination in
any ten consecutive day period. The minimum and maximum amounts specified in
Section 4.1 to be delivered in any given month may be further modified upon
mutual agreement of the parties.
If for reasons other than Force Majeure, BUYER's anticipated demand for
LSFO on an annual basis during any calendar year during the term of this
Contract declines below the BUYER's minimum annual quantity set forth in Section
4.1 (the difference between BUYER's anticipated demand and BUYER's minimum
annual quantity being a "Purchase Deficit Position"), then BUYER shall give
prompt written notice to SELLER.
9
<PAGE>
If for reasons other than Force Majeure, SELLER shall have delivered
Product for the Nomination Month such that the delivery rate, expressed in
barrels per day, is below 85% of the nominated volume as computed on a month-to-
date ratable basis, found by multiplying the day of the Nomination Month by the
nominated rate of delivery for that month ("Failure to Supply Position"), then
SELLER shall give prompt written notice to BUYER.
6.2 Title and Risk of Loss. Title to Product and the risk of loss of
Product shall pass to BUYER at the connection between the flange of SELLER's
pipeline and BUYER's tank farm pipeline at Barber's Point.
6.3 Determination of Quality. The quality and heat content of the Product
shall be determined on the basis of a composite sample(s) drawn by a mutually
agreed upon independent inspector from SELLER's issuing tank(s) in such a manner
as to be representative of each individual Delivery. SELLER and BUYER shall
share equally the cost of independent inspections. If the Delivery of Product
is from more than one issuing tank, the specifications of the total Delivery of
Product shall be determined on a volumetric weighted average from the
representative samples drawn by the independent inspector. The representative
samples drawn from SELLER's tank(s) shall be divided into a minimum of three (3)
parts:
1. One part shall be used by for an analysis by SELLER's laboratory to
determine quality and heat content (gross Btu) per barrel.
2. One part shall be provided to BUYER for the purpose of verifying
SELLER's determinations.
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<PAGE>
3. At least one part shall be sealed and provided to BUYER, or to the
independent inspector, to be retained.
SELLER agrees to provide BUYER a copy of SELLER's laboratory analyses of
the tank final samples, or a preliminary laboratory analyses if the analyses of
the tank final samples is not available, showing sulfur content, flash point and
sediment and water content prior to commencing delivery of the Product,
provided, however, that SELLER shall provide BUYER the complete Certificate of
Quality no later than two working days after the completion of the Delivery.
BUYER shall have the right to perform laboratory analyses in order to verify the
results of SELLER's laboratory analyses. The official determination of gross
heat content shall be based upon SELLER's laboratory results provided that the
arithmetic difference between SELLER's and BUYER's laboratory results is equal
or less than the then existing reproducibility standard (currently 0.40 MJ/kg)
for ASTM test D-240. If the difference between SELLER's and BUYER's laboratory
results is greater than this ASTM reproducibility standard, the parties will
confer, in good faith, to resolve the difference. In the event of an
unresolvable difference between BUYER and SELLER, BUYER's sealed sample will be
provided to an independent laboratory for an official determination, which shall
be binding upon the parties. SELLER and BUYER shall share equally the costs of
independent tests and determinations.
The Product received by BUYER in a Delivery may include some amount of
pipeline displacement stock ("Pipeline Fill"). The specification of the Pipeline
Fill shall be determined by the SELLER on the basis of SELLER's representative
sample of the storage tank from the which
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<PAGE>
the Pipeline Fill was issued. SELLER agrees to provide BUYER a copy of a
laboratory analysis of the Pipeline Fill's specifications prior to shipment.
To provide an early warning of any quality problems with the Product,
SELLER agrees to perform a pre-shipment computer simulation blend ("Blend") of
LSFO from each issuing tank and Pipeline Fill on a volumetric weighted average
basis. The computer simulation shall provide confirmation of the Blend's API
gravity, viscosity and percent by weight sulfur content. SELLER agrees to inform
BUYER or BUYER's representative of the Blend results prior to shipment.
SELLER agrees that under no circumstances shall it deliver Product to BUYER
should the percent by weight of sulfur content of the Blend, determined by
computing the weighted average by volume of LSFO issued from the SELLER's
tank(s) and the Pipeline Fill volume, be greater than 0.50%, without BUYER's
express written permission.
If SELLER or BUYER has reason to believe that the quality or quantity of
Product stated for a specific Delivery per Section 6.3 or Section 6.4 is
incorrect, that party shall within thirty (30) days after the later of the date
of the complete Certificate of Quality or the date of the final determination of
gross heat content, present the other party with documents supporting such
determination and the parties will confer, in good faith, on the causes for the
discrepancy and shall proceed to correct such causes and adjust the quality and
quantity, if justified, for the Delivery in question. In the event of an
unresolvable difference between SELLER and BUYER, the sealed part of the
representative sample in the possession of BUYER or the independent
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<PAGE>
inspector shall be provided to an independent laboratory for an official
determination, which shall be final. SELLER and BUYER shall share equally the
cost for such independent laboratory determination.
If the quality of the Product received by BUYER fails to conform to the
requirements of Article III of this Contract, both BUYER and SELLER shall
attempt to minimize the impact of any quality problem by specification waiver if
the use of the Product will not unreasonably cause harm to BUYER, or by SELLER
delivering higher quality oil in a timely manner to produce a specification
quality blend in BUYER's storage tank(s). If all such, and similar, efforts
fail to resolve the quality problem, then BUYER may return non-specification
Product to SELLER, in which case SELLER shall replace the non-specification
Product to BUYER in a timely manner. All reasonable costs and expenses,
including BUYER's handling costs incurred in returning and replacing non-
specification Product, shall be paid by SELLER.
6.4 Determination of Quantity. Quantities of the Product delivered
hereunder shall be determined at the time of each Delivery by gauging SELLER's
tank(s) immediately before and after pumping. Volumes delivered hereunder shall
be converted to 60 [degrees] F, using the latest revision of ASTM Table 6B.
Measurements shall be taken jointly by representatives of SELLER and BUYER or by
a mutually agreed upon independent inspector. SELLER and BUYER shall share
equally the cost of independent inspections.
6.5 Purchase Deficit.
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filed separately with the Commission.
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6.6 Failure to Supply. In the event that the SELLER is in a Failure To
Supply Position, both BUYER and SELLER shall attempt to minimize the impact of
any Failure To Supply Position such that it not impose an unreasonable risk to
BUYER. If the amount of deficient Product is such that SELLER's Delivery of
Product to BUYER in the Nomination Month at the nominated volume, as computed on
a month-to-date ratable basis, is deficient in aggregate by 50,000 barrels,
BUYER may, at its option, purchase the undelivered Product elsewhere at the then
prevailing market rates. The BUYER will invoice, and the SELLER shall pay, the
cost difference between purchased Product and cost of Product if it had been
delivered by SELLER. If the BUYER elects to purchase Product from other sources
under this Section 6.6, the annual purchase requirement referenced in Section
4.1 and Section 6.1 shall be reduced correspondingly.
14
<PAGE>
ARTICLE VII
PAYMENT
7.1 Method of Payment. Invoices shall be prepared by SELLER after a
Delivery has been completed. Invoices shall be accompanied by full
documentation, acceptable to the BUYER, including quality certificates, quantity
documentation, and price calculation. Payment shall be made without discount in
USD within 7 business days from the receipt of invoice by wire transfer of
immediately available funds to:
Citibank, New York
ABA # 021000089
BHP Petroleum Americas Refining Inc.
Account #4064332
7.2 Payments. If SELLER's final laboratory result for gross heat content
is unavailable or if said laboratory result is disputed by BUYER pursuant to
Section 6.3, SELLER may issue a provisional invoice calculated on the basis of
the heat-content standard of 6.2 million BTU per barrel. BUYER shall make
payment for such provisional invoice in accordance with Section 7.1. If an
invoice incorporating an item other than a heat rate adjustment which is
disputed has been sent to BUYER, then BUYER shall make payment in accordance
with Section 7.1 for such invoice items or that portion of the invoiced delivery
which is not disputed by BUYER and in which case BUYER shall make such
adjustment to taxes and other value-dependent items as are reasonable under the
circumstances. The provisional invoice or invoice incorporating items in
dispute shall be adjusted in accordance with the terms of Article V by
subsequent invoicing or by issuing a credit or debit with respect to the
original invoice within 7
15
<PAGE>
business days of receipt of the independent laboratory determination pursuant to
Section 6.3 or other resolution of the issue in dispute. BUYER shall make
payment for such subsequent invoices or debits in accordance with Section 7.1.
BUYER shall have the option to apply such credit against payments to be made
subsequent to the receipt of the credit, or if such payments are not expected to
be made within 7 business days, BUYER shall be able to receive said credit in
immediately available funds within 3 business days of SELLER's receipt of
BUYER's written instructions.
7.3 Interest. Interest will accrue on all amounts not paid within 7
business days of receipt of provisional or final invoice at the then existing
London Inter-Bank Offered Rate (LIBOR).
ARTICLE VIII
NOTICES
Any notice to be given hereunder shall be in writing unless specified
otherwise and shall be deemed to have been duly given when sent or personally
delivered to the other party at the address noted below:
BUYER: HAWAIIAN ELECTRIC COMPANY, INC.
P. O. Box 2750
Honolulu, Hawaii 96840
Attn: Vice President, Power Supply
Facsimile: (808) 543-7707
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<PAGE>
SELLER: BHP PETROLEUM AMERICAS REFINING INC.
P.O. Box 3379
Honolulu, Hawaii 96842
Attn: Vice President-Marketing
Facsimile: (808) 547-3796
Notices may be by first class mail, postage prepaid, by elctronic
transmission (facsimile or telex) or by personal delivery. The parites may
substitute other addresses upon the giving of proper notice from time to time in
the manner provided above.
ARTICLE IX
RENEGOTIATION
It is understood and agreed that both parties entered into this Contract in
reliance on governmental laws, rules, decrees, orders, regulations, and
interpretations or implementation thereof in effect on the date of execution of
this Contract or any subsequent amendments hereto, to the extent that they
directly or indirectly affect the Product sold hereunder. If at any time any of
the said laws, rules, regulations, implementations or interpretations thereof
are changed or if new laws, rules, regulations or new interpretations and
implementations thereof become effective, and such change or new laws, rules,
regulations, interpretations or implementations thereof have a significant
adverse economic effect upon either party, such that performance of this
Contract would be inequitable or cause financial hardship to the affected party,
then the affected party shall have the option to call for renegotiation of the
Product Price or any other provision of this Contract the performance of which
by the affected party would be inequitable or cause financial
17
<PAGE>
hardship. Such option shall be exercised by the affected party at any time
after such a change or new law, rule, regulation, interpretation or
implementation thereof is effective, by giving notice to the other party of the
call to renegotiate. Within ten (10) calendar days after the date of such
notice, the parties shall enter into negotiations and in the event that the
parties do not agree upon a new Product Price or other provision satisfactory to
both parties within forty (40) calendar days after the date of such notice, the
affected party shall have the right to terminate this Contract effective thirty
(30) days after giving notice of termination to the other party within thirty
(30) days immediately following the forty (40) day negotiation period. Until a
mutually satisfactory new Product Price or other provision has been agreed upon,
or until this Contract is terminated as provided herein, the Product Price or
other provision that was in effect when the request for renegotiation was made
shall continue in full force and effect.
ARTICLE X
TAXES, ASSESSMENTS, LEVIES AND IMPOSTS
BUYER shall reimburse SELLER for all taxes, assessments, levies and imposts
of whatsoever kind or nature imposed on SELLER by any governmental or quasi-
governmental body (including without limitation the Hawaii Gross Excise Tax)
with respect to the sale of Product under this Contract. Notwithstanding the
foregoing, BUYER shall not be required to reimburse SELLER for any tax measured
by or based on the net income of SELLER or for real
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<PAGE>
property taxes or to duplicate any item of expense of SELLER which is included
in the Product Price as provided for in Section 4.2 and Article V of this
Contract.
ARTICLE XI
FORCE MAJEURE
11.1 Force Majeure. As used in this contract, an event or act of "force
majeure" is defined as follows: acts of God, wars, riots, strikes, labor
disputes, lockouts, blockades, insurrections, inability to secure materials or
labor by reason of allocations promulgated by governmental agencies,
unavailability of shipping of crude oil supplies, epidemics, landslides,
lightning, earthquakes, fires, floods, tidal waves, volcanic eruptions,
explosions, failure of machinery or pipelines, or any other causes not within
the control of the affected party.
11.2 Obligations Suspended. BUYER's obligation to purchase or receive
Product, or SELLER's obligation to sell or delivery Product, shall be suspended
to the extent performance is prevented by an event or act of force majeure for
any period in which such event or act exists as to the party claiming force
majeure; and so long as such party is exercising its good faith efforts to
overcome such force majeure event. However, nothing in this Article excuses
BUYER from its obligation to make payments of money due SELLER for Product
already delivered to BUYER.
11.3 Notice of Force Majeure. The party claiming force majeure agrees to
give the other party prompt written notice of an act or event of force majeure.
The party claiming force majeure shall use due diligence to cure any act or
event of force majeure, and shall give the other
19
<PAGE>
party prompt notice after the act or event of force majeure has terminated.
This Article shall not require any party to settle or compromise any strike or
labor dispute.
11.4 No Make-Up Requirement. After the act or event of force majeure has
terminated, SELLER shall not be obligated to sell and deliver and BUYER shall
not be obligated to purchase and receive the undelivered quantity of Product
that normally would have been sold and delivered during the period of force
majeure.
ARTICLE XII
PRICE AND ALLOCATION CONTROLS
12.1 Regulatory Price Suspension. If SELLER is precluded by statute, or
by regulation, rule, interpretation or order implementing such statute from
obtaining any increase in Product Price, as determined pursuant to this
Contract, the increase shall be suspended until said law, regulation, rule,
interpretation or order permits the increase in whole or in part. In the event
the law, regulation, rule, interpretation or order is terminated or is later
modified to permit the increase, in whole or in part, the Product Price shall be
increased for deliveries of the Product made thereafter to the level permitted
under this Contract without further action by the parties.
12.2 Government Regulations. If the delivery or supply of Product
pursuant to this Contract conflicts with or is limited or prohibited by any
federal, state or local regulations, then to the extent of such conflict,
limitation or prohibition, SELLER shall have no obligation to deliver or supply
BUYER with the Product under this Contract and BUYER shall have no
20
<PAGE>
obligation to purchase or receive the Product under this Contract. BUYER, in
BUYER's discretion, may elect to complete and file any and all required Federal
or state regulatory forms to permit, facilitate, or enable the supply of Product
to BUYER under this Contract. SELLER shall fully cooperate with BUYER in the
completion and filing of the foregoing forms.
ARTICLE XIII
ASSIGNMENT
This Contract shall not be assigned by either party without prior written
consent of the other party, and any assignment without such written consent,
shall be void; provided, however, BUYER may assign this Contract to the Trustee
under BUYER's First Mortgage Indenture dated December 1, 1938.
ARTICLE XIV
APPLICABLE LAW
This Contract shall be deemed to be a Contract made under and shall be
governed by and construed in accordance with the laws of the State of Hawaii.
The parties hereby consent to the personal jurisdiction of the federal and state
courts in the State of Hawaii.
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<PAGE>
ARTICLE XV
PUBLIC UTILITIES COMMISSION
This Contract is required to be filed with the Hawaii Public Utility
Commission (PUC) for approval. If in the proceedings initiated as a result of
the filing of this Contract, the PUC disapproves or fails to authorize the
recovery of the fuel cost incurred under this Contract through the BUYER's
Energy Cost Adjustment Clause, BUYER may terminate this Contract at any time
within 90 days of disapproval by giving 60 days written notice to the SELLER.
ARTICLE XVI
ENTIRE AGREEMENT, WAIVER AND ILLEGALITY
This Contract incorporates the entire agreement between the parties with
reference to the subject matter and cancels and supersedes as of the date of
execution hereof all prior oral or written understandings, or agreements,
between the parties with respect to the subject matter and may only be modified
by written instrument executed by duly authorized representatives of the
parties. There are no other agreements which constitute any part of the
consideration for, or any condition to, either party's compliance with its
obligations under this Contract. Failure to insist upon strict performance of
any provision shall not constitute a waiver of the right to require such
performance, nor shall a waiver in one case constitute a waiver with respect to
a later breach, whether of a similar nature or otherwise. If any term or
provision of this Contract is held by any Court to be illegal or unenforceable,
the remaining terms, provisions, rights and obligations shall
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<PAGE>
not be affected. The headings or captions are for convenience only and have
no force or effect on legal meaning in the construction or enforcement of the
Contract. Time shall be of the essence in this Contract.
IN WITNESS WHEREOF, the parties hereto, intending to be legally bound
thereby, have caused this Contract to be executed in duplicate originals by
their duly authorized officers.
HAWAIIAN ELECTRIC COMPANY, INC.
By /s/ Edward Y. Hirata
Its Vice President, Regulatory Affairs
By /s/ Molly M. Egged
Its Secretary
BUYER
Date: December 5, 1995
BHP PETROLEUM AMERICAS REFINING INC.
By /s/ Faye W. Kurren
Its Vice President
SELLER
Date: December 5, 1995
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<PAGE>
EXHIBIT A
PRODUCT SPECIFICATIONS
LSFO Specification - Test Item Measurement Unit Limits ASTM Method
GRAVITY @ 60 DEGREES F. Degrees API 12.0 Min. D-4052
24.0 Max.
VISCOSITY SSU At 210 DF 100 Min. D-445
450 Max. or D-2161
HEAT VALUE, GROSS MM BTU/BBL 6.0 million D-240
Min. or D-4868
* FLASH POINT Degrees F. 150 Min. D-93
POUR POINT Degrees F. 125 Max. D-97
ASH Percent, Weight 0.05 Max. D-482
SEDIMENT & WATER Percent, Weight 0.50 Max. D-1796
SULFUR Percent, Weight 0.50 Max. D-4292
NITROGEN Percent, Weight 0.50 Max. D-3431,
D-4629
* Flash point shall be at least 50 DF above the pour point or 150 DF, whichever
is greater.
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EXHIBIT B
EXAMPLE PRICE CALCULATION
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filed separately with the Commission.
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filed separately with the Commission.
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filed separately with the Commission.
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EXPLANATION OF TAXES:
Taxes in the Product Price currently in effect include Superfund Tax of $0.097
per barrel and the Hawaii Environmental Response Tax of $0.050 per barrel. Also,
Hawaii State General Excise Tax of 4.167% will be paid on all components of the
Product Price, except the Hawaii Environmental Response Tax.
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II. Determination Of Price Of Optional Purchases Under Article IV
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filed separately with the Commission.
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filed separately with the Commission.
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filed separately with the Commission.
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filed separately with the Commission.
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filed separately with the Commission.
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EXPLANATION OF TAXES:
Taxes in the price of optional purchases currently in effect include Superfund
Tax of $0.097 per barrel and the Hawaii Environmental Response Tax of $0.050 per
barrel. Also, Hawaii State General Excise Tax of 4.167% will be paid on all
components of the Product Price, except the Hawaii Environmental Response Tax.
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EXHIBIT C
EXAMPLE DETERMINATION OF FREIGHT COMPONENTS
PURSUANT TO ARTICLE IV AND ARTICLE V
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filed separately with the Commission.
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HECO Exhibit 10.12
INTER-ISLAND INDUSTRIAL FUEL OIL
AND DIESEL FUEL OIL CONTRACT
This Contract is made and entered into this 5th day of December, 1995, by
and between BHP PETROLEUM AMERICAS REFINING INC., a Hawaii corporation,
(hereinafter called "SELLER"), and HAWAIIAN ELECTRIC COMPANY, INC., and its
wholly-owned subsidiaries Maui Electric Company, Ltd. and Hawaii Electric Light
Company, Inc., Hawaii corporations, (hereinafter collectively called "BUYER").
NOW, THEREFORE, the parties agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1
Except where otherwise indicated, the following definitions shall apply
throughout this Contract:
1. "Fuel Oil" means Industrial Fuel Oil No. 6 in accordance with Article
IV and Exhibit A.
2. "Diesel" means Diesel Fuel Oil No. 2 in accordance with Article IV and
Exhibit B.
3. "Product" means both Fuel Oil and Diesel.
4. "HECO" means Hawaiian Electric Company, Inc.
5. "HELCO" means Hawaii Electric Light Company, Inc.
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6. "MECO" means Maui Electric Company, Ltd.
7. "gallon" means a United States gallon of 231 cubic inches at 60
degrees Fahrenheit.
8. "barrel" or "Bbl" means 42 United States gallons at 60 degrees
Fahrenheit.
9. "SELLER's Loading Pier" means Piers 5 or 6 located at the Barbers
Point Harbor, Oahu, Hawaii, and connected by pipeline to SELLER's
Refinery at Barber's Point, Oahu, Hawaii.
10. "SELLER's SPM" means SELLER's offshore Single Point Mooring at Barbers
Point, Oahu, Hawaii.
11. "LIBOR" means the simple average of London Inter-Bank Offered Rates
for one month as published in the Wall Street Journal during past due
period.
SECTION 1.2
As to any purchase of Product by MECO, the term "BUYER" shall exclude
HELCO, and as to any purchase of product by HELCO, the term "BUYER" shall
exclude MECO. Furthermore, for purposes of this Contract (excluding any
payments due from, and liabilities and indemnities attributable to, a BUYER) the
term "BUYER" shall be deemed to mean MECO or HELCO, as applicable, and its
authorized agent(s) for this purpose, unless otherwise specified or clearly
inappropriate in the context.
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ARTICLE II
TERM
The term of this Contract shall be from January 1, 1996 through December
31, 1997 (the "Original Term") and shall continue thereafter for additional
successive 12-month periods (the "Additional Terms") beginning January 1, 1998,
unless BUYER or SELLER gives written notice of termination at least seventy-five
(75) days prior to the expiration of any previous term, including the Original
Term.
ARTICLE III
QUANTITY
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filed separately with the Commission.
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ARTICLE IV
QUALITY
The quality of the Fuel Oil and Diesel shall be as set forth in the
attached Exhibits A and B, respectively.
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ARTICLE V
PRICE
SECTION 5.1
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filed separately with the Commission.
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SECTION 5.2
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filed separately with the Commission.
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SECTION 5.3
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filed separately with the Commission.
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SECTION 5.4
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SECTION 5.5
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ARTICLE VI
PAYMENT
SECTION 6.1
Invoices shall be prepared by SELLER and dated after a Delivery has been
completed. A copy of the invoice will be sent to BUYER by facsimile. SELLER
will transmit an original of the invoice to the BUYER on the same date by mail
to the addresses set forth in Section 6.2. Original invoices shall be
accompanied by full documentation, acceptable to the BUYER, including quality
certificates, quantity documentation, and price calculation.
Payment shall be made by BUYER within fifteen (15) calendar days from date
of SELLER's invoice by bank wire transfer of immediately available funds to:
Citibank, New York
ABA # 021000089
BHP Petroleum Americas Refining Inc.
Account #4064332
If SELLER's final laboratory result for gross heat content is unavailable
or if said laboratory result is disputed by BUYER pursuant to Article VIII,
SELLER may issue a provisional invoice calculated on the basis of the Diesel and
Fuel Oil heat-content standards pursuant to Article V. BUYER shall make payment
for such provisional invoice in accordance with the instructions of this Section
6.1. If an invoice incorporating an item other than a heat rate adjustment
which is disputed has been sent to BUYER, then BUYER shall make payment in
accordance with the instructions in this Section 6.1 for such invoice items or
that portion of the invoiced Delivery which is not disputed by BUYER and in
which case BUYER shall make such adjustment to taxes and other value-dependent
items as are reasonable under the circumstances.
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The provisional invoice or invoice incorporating items in dispute shall be
adjusted in accordance with the terms of Article V by subsequent invoicing or by
issuing a credit or debit with respect to the original invoice within 7 business
days of receipt of the independent laboratory determination pursuant to Article
VIII or other resolution of the issue in dispute. BUYER shall make payment for
such subsequent invoices or debits in accordance with the instructions in this
Section 6.1. BUYER shall have the option to apply such credit against payments
to be made subsequent to the receipt of the credit, or if such payments are not
expected to be made within 15 calendar days, BUYER shall be able to receive said
credit in immediately available funds within 3 business days of SELLER's receipt
of BUYER's written instructions.
At SELLER's option and election, interest will accrue on all amounts not
paid within 15 days of the date of the invoice at the then existing LIBOR.
SECTION 6.2
Invoices which have been prepared in accordance with Section 6.1 shall be
sent to the respective BUYER at the following address:
MECO - Maui Electric Company, Ltd.
P. O. Box 398
Kahului, Hawaii 96732
Attention: Production Department
HELCO - Hawaii Electric Light Co., Inc.
P. O. Box 1027
Hilo, Hawaii 96720
Attention: Purchasing Division
Certificates of quality and quantity, reports of the independent petroleum
inspector and other documents having to do with the quantity, quality, loading
of Product onto BUYER's nominated
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vessel or otherwise with the Product sold and purchased hereunder if directed to
BUYER's agent, are to be sent in accordance with the provisions of Section 15.2
of this Contract.
ARTICLE VII
DELIVERIES, TITLE AND RISK OF LOSS
SECTION 7.1
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filed separately with the Commission.
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SECTION 7.2
Prior to the 20th day of each month, BUYER shall give SELLER a forecast of
liftings of Diesel and Fuel Oil for each of the next two months. BUYER shall be
responsible for scheduling dock space at SELLER's Loading Pier for the barge
with the State Harbors Division, and provide SELLER 48 hour notice of the
proposed loading time. BUYER shall also provide 24 hours notice to SELLER
during SELLER's regular business hours Monday through Friday (excluding
holidays) of the final quantity to be loaded, subject to a +10% loading
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tolerance; provided, however, that in the event of a loading on Monday, or on
Tuesday, if Monday is a holiday, BUYER shall provide SELLER notice of the final
quantity to be loaded, subject to a +10% loading tolerance, by 12 noon the
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previous Friday, or by 12 noon the previous Thursday if Friday is a holiday.
The final quantity notice must also be within 5,000 barrels of the 20th day
forecast volumes.
SECTION 7.3
BUYER's nominated barge shall comply with all applicable federal, state and
local laws, rules and regulations, and SELLER's vessel acceptance standards,
such as that portion of the "BHP Transport Petroleum Tanker Inspection
Checklist" as may be applicable to unmanned petroleum tank barges, and shall be
fit in every way to receive and carry Product. SELLER shall
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provide BUYER its Operations Manual, other safety and operations procedures and
vessel acceptance standards, and any amendments thereto, during the term of this
Contract. While at SELLER's Loading Pier, BUYER's nominated barge shall operate
in compliance with SELLER's Operations Manual as approved by the U.S. Coast
Guard. In addition, a minimum of two qualified tankermen shall be provided by
BUYER's barge during all loading operations at SELLER's Loading Pier or Third-
Party Pier.
BUYER's nominated barge shall vacate SELLER's Loading Pier or Third-Party
Pier as soon as loading is completed, except if such delay is caused by any
event or acts beyond the reasonable control of BUYER, including but not limited
to acts of God, fire, governmental acts or labor disturbances.
Dues and other charges on the barge (whether or not such dues or charges
are based on the quantity of Product loaded or on the freight and without regard
from whom such dues or charges are withheld) shall be paid by BUYER. Any taxes
on freight shall be borne by BUYER. BUYER shall be responsible for any State
fee imposed for use of SELLER's Loading Pier or Third-Party Pier in the nature
of wharfage or pipeline toll. BUYER shall employ and also be responsible for
costs of any support vessels, pilots, mooring masters, or line handlers supplied
by SELLER or otherwise required at SELLER's Loading Pier, SPM, or Third-Party
Pier, all of which shall become borrowed servants of BUYER.
Neither SELLER, nor any of its associated or affiliated companies, nor any
of the employees, servants, representatives and agents of any of the foregoing,
shall be responsible for any losses, damages, delays or liabilities resulting
from any negligence, incompetence or
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incapacity of any pilot, line handler, mooring master required at SELLER's
Loading Pier, SPM or Third-Party Pier or employed by BUYER or otherwise
assisting BUYER at the express authorization of BUYER or BUYER's agent or the
personnel of any tug(s) or other support vessels or arising from any
unseaworthiness or any insufficiency of any tug or other support vessel employed
by BUYER or otherwise assisting BUYER at the express authorization of BUYER or
BUYER's agent and BUYER agrees to indemnify and hold SELLER harmless from and
against any and all such losses, damages, delays or liabilities.
At SELLER's Loading Pier or Third-Party Pier, laytime shall commence six
hours after Notice of Readiness is tendered or three hours after BUYER's
nominated barge is all secure at pier, whichever shall first occur. Allowable
laytime shall be 14 hours; provided, however, that in the event that a part
cargo or part cargoes belonging to a third party or third parties is/are loaded
onto BUYER's nominated barge, allowable laytime shall be prorated and BUYER's
allowable laytime shall be calculated on the basis of the ratio of the bill of
lading volume of BUYER's cargo to the total bill of lading volume of the entire
cargo loaded onto BUYER's nominated barge or vessel. Laytime shall cease when
the hoses are disconnected; however, in the event part cargoes are loaded for
BUYER and a third party or parties, BUYER's laytime shall commence as provided
above if BUYER's cargo is loaded first, or shall commence upon commencement of
loading of BUYER's cargo if BUYER's cargo is not the first to be loaded, and
shall cease upon completion of loading of BUYER's cargo. Laytime is allotted
and calculated using the barge currently named NOHO HELE (having approximately a
56,000 Bbl capacity). In the event that BUYER's nominated tank vessel is other
than the NOHO HELE, laytime shall be the capacity of
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the substitute tank vessel divided by 4,000 Bbl per hour; e.g., a 40,000 Bbl
barge shall have an allocable laytime of 10 hours.
Demurrage shall be payable at a rate equal to BUYER'S actual cost of tug
and tow per hour for each hour used and prorated for each portion of an hour
used in excess of allowable laytime. In the event the condition of Buyer's
nominated barge renders it incapable of receiving cargo at the minimum delivery
rate, such that the time spent loading BUYER's nominated barge (all cargoes) is
in excess of nineteen (19) hours, SELLER shall have the right to suspend loading
operations and order BUYER's nominated barge to vacate SELLER's Loading Pier or
Third-Party Pier. SELLER shall not be liable for demurrage to the extent that
allowed laytime is exceeded due to the condition of BUYER's nominated barge or
tug, or is due to events or acts beyond SELLER's reasonable control.
SECTION 7.4
While it is the intention of the parties to make deliveries of Product at
SELLER's Loading Pier or Third-Party Pier, subject to mutual agreement,
deliveries may be made at SELLER's SPM. In addition to those provisions of this
Article VII not specific to SELLER's Loading Pier or Third-Party Pier, the
following additional provisions will also apply to these SPM deliveries.
SELLER agrees to make best, reasonable effort to deliver Fuel Oil into the
BUYER's nominated barge at a temperature above 110 deg. F. BUYER's nominated
barge shall operate in compliance with SELLER's Operations Manual approved by
the U.S. Coast Guard and shall also comply with SELLER's current requirements
for loading at its SPM as amended from time to time. SELLER may refuse to berth
or load BUYER's nominated barge at SELLER's SPM for
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failure to comply with SELLER's Operations Manual or requirements as aforesaid
and shall not be liable for any resulting delays or expenses of BUYER.
An accepted delivery day shall be determined in respect of each SPM loading
pursuant to the provisions of this section. BUYER shall provide SELLER a
proposed 3-day delivery window upon no less than seven (7) days' notice from the
first proposed delivery day. The notice shall also specify the amount of the
Product to be delivered, subject to a variation of plus or minus ten (10)
percent at BUYER's option. The delivery window shall be narrowed to two (2)
days upon no less than three (3) days' notice from the first proposed delivery
day and one (1) day upon no less than two (2) days' notice from the first
proposed delivery day. A final 24 hour accepted delivery day will be set by
mutual agreement upon receipt of the two (2) day notice. SELLER may reject the
final proposed delivery day upon providing BUYER 24 hours notice, with an
alternate delivery day being set within one (1) day of BUYER's proposed delivery
day. Notices may be given by telex, facsimile, radio or telephone.
When BUYER's nominated barge is ready to load, the master of the barge's
tug shall provide SELLER notice of readiness (NOR), and laytime shall commence
six (6) running hours after receipt of the NOR, or upon the barge's arrival in
berth (all fast), whichever first occurs. SELLER shall be allowed 24 hours
laytime for loading the entire cargo requested in the seven (7) days' notice.
BUYER's nominated barge shall vacate the SPM as soon as loading is
completed. BUYER shall be responsible for any actual loss or damage incurred by
SELLER as a direct result of the failure of BUYER's nominated barge to promptly
vacate the SPM except if such delay is
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caused by any event or acts beyond the reasonable control of BUYER, including
but not limited to acts of God, fire, governmental acts or labor disturbances.
In no event shall either party be responsible for prospective profits, or
consequential damages allegedly caused by or based upon failure of BUYER's
nominated barge to promptly vacate the SPM.
SECTION 7.5
When an escape or discharge of oil or any polluting substance occurs in
connection with or is caused by BUYER's nominated barge or its tow, or occurs
from or is caused by loading operations, BUYER or its agents shall promptly take
whatever measures are necessary or reasonable to prevent or mitigate
environmental damage, without regard to whether or not said escape or discharge
was caused by a negligent act or omission of BUYER's nominated barge or SELLER
or BUYER or others. Failing such action by BUYER or its agents, SELLER, upon
notice to BUYER and on BUYER's behalf, may promptly take whatever measures are
reasonably necessary to prevent or mitigate pollution damage. Each party shall
keep the other advised of the nature and results of the measures taken, and if
time permits, the nature of the measures intended to be taken. Each party shall
provide notice to the other pursuant to Section 15.2 or as otherwise provided
in writing from time to time during the term of this Contract. The cost of all
such measures taken shall be borne by BUYER except to the extent such escape or
discharge was caused or contributed to by SELLER, and prompt reimbursement shall
be made as appropriate; provided, however, that should BUYER or its agents give
notice to SELLER to discontinue said measures (and to the extent government
authorities allow SELLER to discontinue said measures) the continuance of
SELLER's actions will no longer be deemed to
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have been taken pursuant to the provisions of this clause. Notwithstanding any
other provision in this Contract, the foregoing provisions shall be applicable
only between BUYER and SELLER and shall not affect, as between BUYER and SELLER,
any liability of BUYER to any third parties, including the State of Hawaii and
the U.S. Government, if BUYER shall have such liability.
Should SELLER incur any liability under Chapter 128D of the Hawaii Revised
Statutes as a result of a spill from BUYER's nominated barge during transport,
BUYER shall indemnify and hold SELLER harmless to the extent not caused by
SELLER's negligence.
BUYER warrants that any vessel used to load Product purchased from SELLER
shall have in place Primary and Excess full Form Protection and Indemnity
insurance including cover for Oil Pollution Clean-Up Liability and Liability for
Oil Pollution Damage with a policy limit of $700,000,000, or the maximum
available, as reflected by the coverage carried by other vessels calling at
SELLER's SPM.
ARTICLE VIII
MEASUREMENT, SAMPLING AND TESTING
SECTION 8.1
A mutually agreed upon independent petroleum inspector (Independent
Inspector) shall attend every Product Delivery. A Delivery is defined as
beginning with the initiation of pumping of each of Diesel or Fuel Oil from
SELLER's refinery tank or nominated issuing tank to BUYER's nominated vessel and
ending with the subsequent cessation of continuous pumping of Diesel or
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Fuel Oil in such amount as is determined by the Independent Inspector's
Certificate of Quantity. Reasonable charges rendered by the Independent
Inspector shall be borne equally by BUYER and SELLER.
SECTION 8.2
Quantity determination will be made by the Independent Inspector gauging
SELLER's Product shore tanks before and after delivery. BUYER may verify
SELLER's tank strapping tables at BUYER's election and sole expense.
All measurements shall be made on the basis of net standard volumes in
barrels corrected to 60 degrees Fahrenheit using the applicable ASTM-IP volume
correction factor tables and should state whether such volumes are measured in
air or in vacuum, with conversion in accordance with the most recent ASTM-IP
Petroleum Measurement Tables (IP200) issued at the date of loading and otherwise
by manual measurements such as ASTM-IP, Chapter 17 Procedures.
The Independent Inspector shall (1) prepare and sign a certificate stating
the quantity of the load, such certificate to utilize ASTM-IP standards,
including measurement of sediment and water and API specific gravity, (2)
furnish BUYER and SELLER each with a copy of such certificate; and (3) cable or
advise by facsimile the quantity loaded to BUYER and SELLER. The data in the
inspector's certificate of quantity prepared as provided herein shall, absent
fraud or errors and omissions, be binding and conclusive upon both parties, and
shall be used for verification of the invoice and Bill of Lading.
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SECTION 8.3
Unless otherwise specifically provided herein, quality and heat content
determination shall be based upon composite samples drawn from SELLER's issuing
tanks and pipeline in accordance with ASTM sampling procedures in such a manner
as to be representative of each individual Delivery of Fuel Oil and Diesel,
respectively. If a Delivery of Diesel or Fuel Oil is from more than one issuing
tank, the specifications of the total Delivery of Diesel or Fuel Oil shall be
determined on a volumetric weighted average basis.
The Independent Inspector shall draw (a) composite samples of diesel and
fuel oil retain ("Retain Samples") prior to the loading of BUYER's nominated
barge, if such diesel and fuel oil retain is accessible to standard sampling
equipment, and (b) barge tank composite samples ("Barge Tank Samples") at the
completion of loading the Diesel and at the completion of loading the Fuel Oil
onto BUYER's nominated barge, in such a manner as to be representative of the
total volume of diesel and fuel oil retain and of each individual Delivery,
respectively. The samples described in subsections (a) and (b) herein shall be
divided into a minimum of three (3) parts:
1. One part shall be retained by SELLER's laboratory for a period of three
(3) months.
2. One part shall be provided to BUYER for the purpose of verifying
SELLER's determinations.
3. At least one part shall be sealed and provided to BUYER, or to the
Independent Inspector, to be retained.
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SELLER agrees to provide BUYER a copy of SELLER's laboratory analyses of
the issuing tank and pipeline samples showing API gravity, sulfur content, flash
point and sediment and water content prior to commencing Delivery. SELLER shall
provide BUYER the complete Certificate of Quality of the Diesel and the Fuel Oil
no later than two working days after the completion of the Delivery. BUYER
shall have the right to perform laboratory analyses in order to verify the
results of SELLER's laboratory analyses.
If SELLER or BUYER has reason to believe that the quality or quantity of
Product stated for a specific Delivery is incorrect, including a dispute as to
the test results of BUYER's samples and SELLER's shore tank and pipeline
samples, then that party shall within thirty (30) days after the later of the
date of the complete Certificate of Quality or the date of the final
determination of gross heat content, present the other party with documents
supporting such determination and the parties will confer, in good faith, on the
causes for the discrepancy and shall proceed to correct such causes and adjust
the quality and quantity, if justified, for the Delivery in question. In the
event of an unresolvable difference between SELLER and BUYER, BUYER's sealed
Barge Tank Samples, and also BUYER's sealed Retain Samples if relevant in the
opinion of the Independent Inspector, shall be provided to an independent
laboratory for a final determination, which shall be binding on the parties.
SELLER and BUYER shall share equally the cost for such independent laboratory
determination.
In the event of any quality problems occurring, both SELLER and BUYER shall
attempt to minimize the impact of any such quality problems. If efforts to
resolve the quality problem fail, BUYER may return off-specification loaded
Product to the SELLER's Barbers Point
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refinery, in which case SELLER shall replace the off-specification Product by
delivering an equal volume of Product into BUYER's nominated barge in a timely
manner.
All reasonable costs and expenses, including testing, transportation,
re-refining, and handling costs incurred in returning and replacing off-
specification Product shall be paid by the responsible party, as determined by
the independent laboratory test results and any other applicable evidence. In
no event shall either party be responsible for prospective profits, or
consequential damages allegedly caused by or based upon any quality problem with
the Product.
ARTICLE IX
RENEGOTIATION
It is understood and agreed that both parties entered into this Contract in
reliance on governmental laws, rules, decrees, orders, regulations, and
interpretations or implementation thereof in effect on the date of execution of
this Contract or any subsequent amendments hereto, to the extent that they
directly or indirectly affect the Product sold or purchased hereunder. If at
any time any of the said laws, rules, regulations, implementations or
interpretations thereof are changed or if new laws, rules, regulations or new
interpretations and implementations thereof become effective, and such change or
new laws, rules, regulations, interpretations or implementations thereof have a
significant adverse economic effect upon either party such that performance of
this Contract would be inequitable or cause substantial financial hardship to
the affected party, then the affected party shall have the option to call for
renegotiation of the price of the Product or any other provision of this
Contract the performance of which by the affected
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party would be inequitable or cause substantial financial hardship. Such option
shall be exercised by the affected party at any time after such a change or new
law, rule, regulation, interpretation or implementation thereof is effective, by
giving written notice to the other party of the call to renegotiate. Within ten
(10) calendar days after the date of such notice, the parties shall enter into
negotiations and in the event that the parties do not agree upon a new price for
the Product or other provision satisfactory to both parties within forty (40)
calendar days after the date of such notice, the affected party shall have the
right to terminate this Contract effective thirty (30) days after giving notice
of termination to the other party. Said notice of termination shall be given
within thirty (30) days immediately following the forty (40) day negotiation
period. Until a mutually satisfactory new price for the Product or other
provision has been agreed upon, or until this Contract is terminated as provided
herein, the price for the Product or other provision which was in effect when
the request for renegotiation was made shall continue in full force and effect.
ARTICLE X
FORCE MAJEURE
SECTION 10.1
Force Majeure. As used in this contract, an event or act of "force
majeure" is defined as follows: acts of God, wars, riots, strikes, labor
disputes, lockouts, blockades, insurrections, inability to secure materials or
labor by reason of allocations promulgated by governmental
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agencies, epidemics, landslides, lightning, earthquakes, fires, floods, tidal
waves, volcanic eruptions, explosions, or any other causes not within the
control of the affected party.
SECTION 10.2
Obligations Suspended. BUYER's obligation to purchase or receive Product,
or SELLER's obligation to sell or deliver Product, shall be suspended to the
extent performance is prevented by an event or act of force majeure for any
period in which such event or act exists as to the party claiming force majeure;
and so long as such party is exercising its good faith efforts to overcome such
force majeure event. However, nothing in this Article excuses BUYER from its
obligation to make payments of money due SELLER for Product already delivered to
BUYER.
SECTION 10.3
Notice of Force Majeure. The party claiming force majeure agrees to give
the other party prompt written notice of an act or event of force majeure. The
party claiming force majeure shall use due diligence to cure any act or event of
force majeure, and shall give the other party prompt notice after the act or
event of force majeure has terminated. This Article shall not require any party
to settle or compromise any strike or labor dispute.
SECTION 10.4
No Make-Up Requirement. After the act or event of force majeure has
terminated, SELLER shall not be obligated to sell and deliver and BUYER shall
not be obligated to purchase and receive the undelivered quantity of Product
which normally would have been sold and delivered during the period of force
majeure.
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ARTICLE XI
PRICE AND ALLOCATION CONTROLS
SECTION 11.1
Regulatory Price Suspension. If SELLER is precluded by statute, or by
regulation, rule, interpretation or order implementing such statute from
obtaining any increase in Product Price, as determined pursuant to this
Contract, the increase shall be suspended until said law, regulation, rule,
interpretation or order permits the increase in whole or in part. In the event
the law, regulation, rule, interpretation or order is terminated or is later
modified to permit the increase, in whole or in part, the Product Price shall be
increased for deliveries of the Product made thereafter to the level permitted
under this Contract without further action by the parties.
SECTION 11.2
Government Regulations. If the delivery or supply of Product pursuant to
this Contract conflicts with or is limited or prohibited by any federal, state
or local regulations, then to the extent of such conflict, limitation or
prohibition, SELLER shall have no obligation to deliver or supply BUYER with the
Product under this Contract and BUYER shall have no obligation to purchase or
receive the Product under this Contract. BUYER, in BUYER's discretion, may
elect to complete and file any and all required Federal or state regulatory
forms to permit, facilitate, or enable the supply of Product to BUYER under this
Contract. SELLER shall fully cooperate with BUYER in the completion and filing
of the foregoing forms. If purchase and receipt of Product pursuant to this
contract conflicts with or is limited or prohibited by any
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Federal, State, or local regulations, then to the extent of such conflict,
limitation, or prohibition, BUYER shall have no obligation to purchase and
receive the Product under this Contract.
ARTICLE XII
ASSIGNMENT
This Contract shall not be assigned by either party without prior written
consent of the other party, and any assignment without such written consent
shall be void; provided, however, HECO, HELCO, and MECO may assign their
interests in this Contract to the Trustee under their respective First Mortgage
Indentures.
ARTICLE XIII
APPLICABLE LAW
This Contract shall be deemed to be a Contract made under and shall be
governed by and construed in accordance with the laws of the State of Hawaii.
The parties hereby consent to the personal jurisdiction of the federal and state
courts in the State of Hawaii.
ARTICLE XIV
PUBLIC UTILITIES COMMISSION APPROVAL
This Contract is required to be filed with the Hawaii Public Utilities
Commission for approval. If in proceedings initiated as a result of the filing
of this Contract, the Public Utilities Commission disapproves or fails to
authorize the recovery of fuel costs incurred under this
25
<PAGE>
Contract through the BUYER's Energy Cost Adjustment Clause, BUYER may terminate
this Contract at any time within ninety (90) days of disapproval by giving sixty
(60) days written notice to the SELLER.
ARTICLE XV
ENTIRE AGREEMENT, WAIVER AND ILLEGALITY
SECTION 15.1
This Contract incorporates the entire agreement between the parties with
reference to the subject matter and cancels and supersedes as of the date of
execution hereof all prior oral or written understandings, or agreements,
between the parties with respect to the subject matter and may only be modified
by written instrument executed by duly authorized representatives of the
parties. There are no other agreements which constitute any part of the
consideration for, or any condition to, either party's compliance with its
obligations under this Contract. Failure to insist upon strict performance of
any provision shall not constitute a waiver of the right to require such
performance, nor shall a waiver in one case constitute a waiver with respect to
a later breach, whether of a similar nature or otherwise. If any term or
provision of this Contract is held by any Court to be illegal or unenforceable,
the remaining terms, provisions, rights and obligations shall not be affected.
The headings or captions are for convenience only and have no force or
effect on legal meaning in the construction or enforcement of the Contract.
Time shall be of the essence in this Contract.
26
<PAGE>
SECTION 15.2
Except as otherwise expressly provided herein, all notices shall be given
in writing, by letter, telegram, or telex to the following addresses, or such
other addresses as the parties may designate by notice, and shall be deemed
given upon receipt.
SELLER: Vice President - Marketing
BHP Petroleum Americas Refining Inc.
733 Bishop Street
Honolulu, Hawaii 96813
Facsimile: (808) 547-3796
BUYER: Hawaiian Electric Company, Inc.
P.O. Box 2750
Honolulu, Hawaii 96840
Attn: Manager, Power Supply Services Department
Facsimile: (808) 543-7788
The Manager, Power Supply Services Department, for Hawaiian Electric Company,
Inc. shall be responsible for forwarding notices to the other parties to this
Contract.
27
<PAGE>
IN WITNESS WHEREOF, the parties hereto, intending to be legally bound
thereby, have caused this Contract to be executed in duplicate originals by
their duly authorized officers.
HAWAIIAN ELECTRIC BHP PETROLEUM AMERICAS
COMPANY, INC. REFINING INC.
By /s/ Edward Y. Hirata By /s/ Faye W. Kurren
Its Vice President Its Vice President
Regulatory Affairs SELLER
By /s/ Molly M. Egged
Its Secretary
HAWAII ELECTRIC LIGHT
COMPANY, INC.
By /s/ Edward Y. Hirata
Its Vice President
By /s/ Molly M. Egged
Its Secretary
BUYER
MAUI ELECTRIC COMPANY, LTD.
By /s/ Edward Y. Hirata
Its Vice President
By /s/ Molly M. Egged
Its Secretary
BUYER
28
<PAGE>
EXHIBIT A
NO. 6 INDUSTRIAL FUEL OIL SPECIFICATIONS
<TABLE>
<CAPTION>
Specification - Test Item Measurement Unit Limits ASTM Method
<S> <C> <C> <C>
GRAVITY @ 60 DEGREES F. Degrees API 6.5 Min. D-1298,
D-4052-86
FLASH POINT Degrees F. 150 Min. D-93
VISCOSITY SSF At 77 DF - - - D-445,
D-2161
VISCOSITY SSF At 122 DF 179 Min. D-445,
226 Max. D-2161
POUR POINT Degrees F. 55 Max. D-97
SULFUR Percent, Weight 2.00 Max. D-1552,
D-2622,
D-4294
SEDIMENT & WATER Percent, Volume 0.5 Max. D-1796
HEAT VALUE, GROSS MM BTU/BBL 6.2 million D-240
Min.
LOADING TEMPERATURE Degrees F. 110 Min. n/a
150 Max.
</TABLE>
29
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT B
DIESEL SPECIFICATIONS
Specification - Test Item Measurement Unit Limits ASTM Method
<S> <C> <C> <C>
GRAVITY @ 60 DEGREES F. Degrees API 30.0 Min. D-1298,
D-4052-86
SPECIFIC GRAVITY 60/60 DEGREES F. n/a .8762 Min. D-1298,
D-4052-86
VISCOSITY SSU At 100 DF 32.6 Min. D-445,
40.1 Max. D-2161
FLASH POINT, PM Degrees F. 150 Min. D-93
POUR POINT Degrees F. 35 Max. D-97
ASH PPM, Wt. 100 Max. D-482
CETANE INDEX n/a 40 Min. D-4737
CARBON RESIDUE,
10% RESIDUUM %, Wt. .35 Max. D-524
SEDIMENT & WATER Percent, Volume 0.05 Max. D-1796
SULFUR Percent, Weight 0.40 Max. D-1552,
D-2622,
D-4294
DISTILLATION,
90% RECOVERED Degrees F. 540 - 650 D-86
SODIUM+POTASSIUM PPM, Wt. 0.5 Max. D-3605
NITROGEN PPM, Wt. Report D-4629
* HEAT VALUE, GROSS MM BTU/BBL 5.86 D-240,
D-4868
</TABLE>
* Typical Value
30
<PAGE>
EXHIBIT C
No. 6 FUEL OIL EXAMPLE PRICE CALCULATION
* - * - * - * - * - * - * - * - * - * - * - * - * - * - * - * - *
This portion is confidential; therefore, it has been omitted and
filed separately with the Commission.
* - * - * - * - * - * - * - * - * - * - * - * - * - * - * - * - *
31
<PAGE>
* - * - * - * - * - * - * - * - * - * - * - * - * - * - * - * - *
This portion is confidential; therefore, it has been omitted and
filed separately with the Commission.
* - * - * - * - * - * - * - * - * - * - * - * - * - * - * - * - *
EXPLANATION OF TAXES:
Taxes in the Fuel Oil price currently in effect include Superfund Tax of $0.097
per barrel and the Hawaii Environmental Response Tax of $0.050 per barrel. Also,
Hawaii State General Excise Tax of 4.167% will be paid on all components of the
Fuel Oil price, except the Hawaii Environmental Response Tax.
32
<PAGE>
EXHIBIT D
DIESEL EXAMPLE PRICE CALCULATION
Illustrative Price Calculation for August, 1995
* - * - * - * - * - * - * - * - * - * - * - * - * - * - * - * - *
This portion is confidential; therefore, it has been omitted and
filed separately with the Commission.
* - * - * - * - * - * - * - * - * - * - * - * - * - * - * - * - *
33
<PAGE>
* - * - * - * - * - * - * - * - * - * - * - * - * - * - * - * - *
This portion is confidential; therefore, it has been omitted and
filed separately with the Commission.
* - * - * - * - * - * - * - * - * - * - * - * - * - * - * - * - *
34
<PAGE>
EXPLANATION OF TAXES:
Taxes in the Diesel price currently in effect include Superfund Tax of $0.097
per barrel ($0.0023 per gallon), the Hawaii Environmental Response Tax of $0.050
per barrel ($0.0012 per gallon) and the Hawaii Liquid Fuel Tax of $0.01 per
gallon. Also, the Hawaii State General Excise Tax of 4.167% will be paid on all
components of the Diesel price, except the Hawaii Environmental Response Tax and
the Hawaii Liquid Fuel Tax.
35
<PAGE>
Exhibit 10.14(a)
December 18, 1995
Hawaiian Interisland Towing Incorporated, Inc.
735 Bishop Street, Suite 312
Honolulu, HI 96813
Attn: Mr. Gordon Smith, President
Subject: Option to Extend Term under Contract of Private Carriage by and
between Hawaiian Interisland Towing, Inc., and Hawaii Electric Light
Company, Inc.
Dear Mr. Smith:
This letter will confirm the understanding between Hawaiian Interisland Towing,
Inc. ("HITI"), and Hawaii Electric Light Company, Inc., ("HELCO") relating to
the extension of the Contract of Private Carriage between HITI and HELCO, dated
November 10, 1993.
It has been mutually agreed to between HITI and HELCO that the Contract of
Private Carriage is hereby extended pursuant to section 1.2 (Option to Extend
Term) for an additional two year period beginning January 1, 1996. All
previously agreed to terms and conditions, amendments, and addendums apply to
this extension.
Please indicate your acknowledgment and agreement to the foregoing by signing in
the space provided below.
Best Regards,
/s/ Floyd Shiroma for J. C. Aicken
Jeffrey C. Aicken
Director, Fuel Resources
ACKNOWLEDGED AND AGREED TO:
THIS 26th DAY OF December, 1995
HAWAIIAN INTERISLAND TOWING, INC.
BY: /s/ Gordon L. Smith
ITS: President
<PAGE>
HECO Exhibit 10.15(a)
December 18, 1995
Hawaiian Interisland Towing Incorporated, Inc.
735 Bishop Street, Suite 312
Honolulu, HI 96813
Attn: Mr. Gordon Smith, President
Subject: Option to Extend Term under Contract of Private Carriage by and
between Hawaiian Interisland Towing, Inc., and Maui Electric Company,
Ltd.
Dear Mr. Smith:
This letter will confirm the understanding between Hawaiian Interisland Towing,
Inc. ("HITI"), and Maui Electric Company, Ltd., ("MECO") relating to the
extension of the Contract of Private Carriage between HITI and MECO, dated
November 12, 1993.
It has been mutually agreed to between HITI and MECO that the Contract of
Private Carriage is hereby extended pursuant to section 1.2 (Option to Extend
Term) for an additional two year period beginning January 1, 1996. All
previously agreed to terms and conditions, amendments, and addendums apply to
this extension.
Please indicate your acknowledgment and agreement to the foregoing by signing in
the space provided below.
Best Regards,
/s/ Floyd Shiroma for J. C. Aicken
Jeffrey C. Aicken
Director, Fuel Resources
ACKNOWLEDGED AND AGREED TO:
THIS 26th DAY OF December, 1995
HAWAIIAN INTERISLAND TOWING, INC.
BY: /s/ Gordon L. Smith
ITS: President
<PAGE>
HECO EXHIBIT 13
SELECTED FINANCIAL DATA
================================================================================
HAWAIIAN ELECTRIC COMPANY, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
- -------------------------------------------------------------------------------------------------------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Years ended December 31
Operating revenues................ $ 981,990 $ 907,308 $ 874,010 $ 776,929 $ 739,636
Operating expenses................ 879,268 819,996 795,925 699,890 663,709
---------- ---------- ---------- ---------- ----------
Operating income.................. 102,722 87,312 78,085 77,039 75,927
Other income...................... 16,325 14,793 11,556 9,740 4,511
---------- ---------- ---------- ---------- ----------
Income before
interest and other
charges......................... 119,047 102,105 89,641 86,779 80,438
Interest and other
charges......................... 42,024 36,144 33,515 33,101 34,228
---------- ---------- ---------- ---------- ----------
Income before
preferred stock dividends
of HECO......................... 77,023 65,961 56,126 53,678 46,210
Preferred stock
dividends of HECO............... 4,126 4,316 4,421 4,525 4,600
---------- ---------- ---------- ---------- ----------
Net income for common
stock........................... $ 72,897 $ 61,645 $ 51,705 $ 49,153 $ 41,610
========== ========== ========== ========== ==========
============================================================================================================
BALANCE SHEET DATA
At December 31
Utility plant..................... $2,483,005 $2,293,521 $2,102,534 $1,877,404 $1,701,218
Accumulated
depreciation.................... (762,770) (702,945) (641,230) (583,031) (536,552)
---------- ---------- ---------- ---------- ----------
Net utility plant................. $1,720,235 $1,590,576 $1,461,304 $1,294,373 $1,164,666
========== ========== ========== ========== ==========
Total assets...................... $2,016,283 $1,889,120 $1,703,276 $1,501,330 $1,318,023
========== ========== ========== ========== ==========
Capitalization:/1/
Long-term debt.................... $ 517,209 $ 489,586 $ 484,736 $ 374,835 $ 365,098
Preferred stock
subject to mandatory
redemption...................... 41,750 44,844 46,730 48,920 50,665
Preferred stock not
subject to mandatory
redemption...................... 48,293 48,293 48,293 36,293 36,293
Common stock equity............... 696,905 633,901 570,663 499,894 440,831
---------- ---------- ---------- ---------- ----------
Total capitalization.............. $1,304,157 $1,216,624 $1,150,422 $ 959,942 $ 892,887
========== ========== ========== ========== ==========
============================================================================================================
CAPITAL STRUCTURE RATIOS (%)/2/
At December 31
Debt.............................. 45.5 45.5 44.1 45.9 43.1
Preferred stock................... 6.2 7.0 8.0 7.9 9.4
Common stock equity............... 48.3 47.5 47.9 46.2 47.5
</TABLE>
/1/ Includes amounts due within one year and sinking fund requirements.
/2/ Includes amounts due within one year, short-term borrowings from
nonaffiliates and affiliate, and sinking fund requirements.
NOTE: HEI owns all of HECO's common stock. Therefore, per share data is not
meaningful.
2
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
===============================================================================
The following discussion should be read in conjunction with the consolidated
financial statements and accompanying notes.
RESULTS OF OPERATIONS
- -------------------------------------------------------------------------------
EARNINGS
- --------
Net income for common stock for 1995 was $72.9 million compared to $61.6
million for 1994 and $51.7 million for 1993. The 1995 net income represents an
11.0% return on the average amount of common stock equity invested in HECO and
its subsidiaries (collectively, the "Company"), compared to returns of 10.2% in
1994 and 9.7% in 1993.
SALES
- -----
Consolidated sales of electricity were 8,806 million kilowatthours (KWH) for
1995, 8,593 million KWH for 1994, and 8,325 million KWH for 1993. The increases
in KWH sales in 1995 and 1994 reflect the effects of a partial recovery of
Hawaii's economy and warmer weather.
OPERATING REVENUES
- ------------------
Operating revenues were $982.0 million in 1995, compared to $907.3 million in
1994 and $874.0 million in 1993. The 1995 increase in operating revenues of
$74.7 million, or 8.2%, was due primarily to rate relief granted by the PUC,
higher KWH sales and higher fuel oil prices, which were passed through to
customers. The rate schedules of the Company include energy cost adjustment
clauses under which electric rates are adjusted for changes in the weighted
average price paid for fuel oil and certain components of purchased power costs,
and the relative amounts of company-generated power and purchased power.
Operating revenues for 1994 increased by $33.3 million, or 3.8%, over 1993
revenues due primarily to interim rate increases granted by the PUC to HECO and
HELCO and higher KWH sales of electricity. The revenue increase was tempered by
lower fuel oil prices, which cost savings were passed through to customers.
OPERATING EXPENSES
- ------------------
Total operating expenses were $879.3 million in 1995 compared to $820.0
million in 1994 and $795.9 million in 1993. The increase in 1995 was due
primarily to increases in fuel oil, purchased power, other operation,
depreciation and amortization, taxes other than income taxes and income tax
expenses. The increase in 1994 was due to increases in purchased power, other
operation, maintenance, depreciation and amortization, taxes other than income
taxes and income tax expenses, partially offset by lower fuel oil expense.
Fuel oil expense was $207.0 million in 1995 compared to $186.7 million in
1994 and $213.3 million in 1993. The increase in fuel oil expense in 1995 was
due primarily to higher fuel oil prices and higher KWH generated. The decrease
in fuel oil expense in 1994 was due primarily to lower fuel oil prices and fewer
KWH generated. In 1995, the Company paid an average of $20.47 per barrel of
fuel oil, compared to $18.92 in 1994 and $21.09 in 1993.
Purchased power expense was $276.4 million in 1995 compared to $271.6 million
in 1994 and $258.7 million in 1993. The increase in purchased power expense in
both 1995 and 1994 was due primarily to capacity and nonfuel purchased power
costs paid to independent power producers (IPPs), and an increase in the number
of KWH purchased, mostly by HECO. Purchased KWH provided approximately 37.5%
of the total energy net generated and purchased in 1995 and 1994 compared to
34.9% in 1993.
3
<PAGE>
================================================================================
Other operation expense totaled $137.3 million in 1995, an increase of $15.6
million over the 1994 amount. The increase was due primarily to higher
administrative and general employee benefit costs, which included the first full
year's expense for postretirement benefits other than pensions (PBOP) required
under Statement of Financial Accounting Standards (SFAS) No. 106, and the write-
off of a regulatory asset (i.e. deferred cost) for the 1994 and 1993 costs of
postretirement executive life insurance. In 1994, other operation expense
totaled $121.7 million, an increase of $15.8 million over the 1993 amount. The
increase was due primarily to higher production, transmission and distribution,
and administrative and general expenses, including higher employee benefit costs
and the absence in 1994 of the one-time reduction to 1993 expenses due to the
establishment of a regulatory asset for vacation earned but not yet taken by
employees. HEI charges for general management, administrative and support
services totaled $2.5 million in 1995, $2.4 million in 1994 and $2.3 million in
1993.
Maintenance expense in 1995 of $47.2 million increased slightly from 1994
primarily due to higher production maintenance expense, partially offset by
lower weather related maintenance on the transmission and distribution systems.
In 1994, maintenance expense totaled $46.4 million, a 4.8% increase from 1993
primarily due to the absence in 1994 of the one-time reduction to 1993 expenses
due to the establishment of a regulatory asset for vacation earned but not yet
taken by employees, and increased maintenance on the transmission and
distribution systems, partially offset by lower production maintenance expenses.
Depreciation and amortization expense was up 6.1% in 1995 to $67.6 million
and up 14.0% in 1994 to $63.8 million. In both years, the increase reflects
depreciation of the Company's additions to plant in service in the previous
year. Additions to plant in service in 1994 consisted primarily of transmission
and distribution projects. Major additions to plant in service in 1993 included
HECO's Waiau-Makalapa 138-kilovolt line and MECO's 18-megawatt heat recovery
unit and 20-megawatt combustion turbine unit at Maalaea.
Taxes, other than income taxes, increased by 8.2% in 1995 to $93.0 million,
and by 6.4% in 1994 to $85.9 million. These items consist primarily of taxes
based on revenues, and the increases in these taxes reflect the corresponding
increases in each year's operating revenues. In 1994, the increase also
reflects an increase in the PUC fee rate from 0.25% to 0.5%, as a result of
legislation by the Hawaii State Legislature.
OTHER INCOME
- ------------
Other income for 1995 totaled $16.3 million, compared to $14.8 million for
1994 and $11.6 million for 1993. The increases in 1995 and 1994 were due
primarily to higher Allowance for Equity Funds Used During Construction
(AFUDC-Equity), reflecting higher average levels of construction in progress
during both years.
INTEREST AND OTHER CHARGES
- --------------------------
Interest and other charges for 1995 totaled $42.0 million, compared to $36.1
million for 1994 and $33.5 million for 1993. Interest on long-term debt
increased by $2.7 million in 1995 and increased by $4.3 million in 1994. The
increase in 1995 was due to interest on drawdowns of tax-exempt special purpose
revenue bond proceeds during 1995, and the full year's interest on the drawdowns
of revenue bond proceeds in 1994. The 1995 increase in interest on long-term
debt was partially offset by lower interest for first mortgage bonds resulting
from the redemption of HECO's 4.55% Series N mortgage bonds of $11 million in
February 1995 and lower medium-term note interest resulting from the retirement
of HELCO's 4.85% medium-term note of $10 million in December 1995. The increase
in interest on long-term debt in 1994 was due to interest on drawdowns of tax-
exempt special purpose revenue bond proceeds during 1994 and the full year's
interest on the drawdowns of revenue bond proceeds and the sale of medium-term
notes in 1993. The 1994 increase in interest on long-term debt was partially
offset by lower interest for first mortgage bonds resulting from the early
redemptions in March 1994 of HECO's 9.125%
4
<PAGE>
================================================================================
Series X mortgage bonds of $20 million, HELCO's 8.5% to 10.75% Series I, L, M
and N mortgage bonds totaling $12.5 million and MECO's 8.75% to 10.75% Series I,
J, K, L and M mortgage bonds totaling $15.5 million.
Other interest charges of $9.0 million for 1995 were $4.3 million higher than
for 1994 due to higher interest on short-term borrowings as a result of higher
borrowing levels during the year and higher interest rates.
Other interest charges of $4.8 million for 1994 were $2.7 million lower than
for 1993 due to lower interest on short-term borrowings as a result of lower
borrowing levels during the year, partially offset by higher interest rates.
COMPETITION
- -----------
The electric utility industry is becoming increasingly competitive as a
result of various factors including product price, service reliability, new
technologies and government actions. Competition in Hawaii is also affected by
the scarcity of generation sites, various permitting processes and lack of
interconnections to other electric utilities.
The Energy Policy Act of 1992 encourages competition by allowing utilities to
form generation subsidiaries without becoming subject to regulation under the
Public Utility Holding Company Act of 1935. To date, these provisions have not
had a significant impact on HECO and its subsidiaries.
IPPs are well established in Hawaii and continue to actively pursue new
projects. Customer self-generation, with or without co-generation, has made
inroads in Hawaii and is a continuing competitive threat. In response to this
threat, HECO has been able to successfully offer economic alternatives to its
customers that, among other things, employ energy efficient electrotechnologies
such as the heat pump water heater.
REGULATION OF ELECTRIC UTILITY RATES
- ------------------------------------
The PUC has broad discretion in its regulation of the rates charged by the
Company and in other matters. Any adverse decision and order (D&O) by the PUC
concerning the level or method of determining electric utility rates, the
authorized returns on equity or other matters, or any prolonged delay in
rendering a D&O in a rate or other proceeding, could have a material adverse
effect on the Company's financial condition and results of operations. Upon a
showing of probable entitlement, the PUC is required to issue an interim D&O in
a rate case within 10 months from the date of filing a completed application if
the evidentiary hearing is completed (subject to extension for 30 days if the
evidentiary hearing is not completed). There is no time limit for rendering a
final D&O. Interim rate increases are subject to refund with interest, pending
the final outcome of the case.
Management cannot predict with certainty when D&Os in pending or future rate
cases will be rendered or the amount of any interim or final rate increase that
may be granted.
RECENT RATE REQUESTS
- --------------------
HECO and its subsidiaries have requested electric rate increases to cover
rising operating costs, the cost of purchased power and the cost of plant and
equipment, including the cost of new capital projects to maintain and improve
service reliability.
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
-------------------------------------------
In November 1994, the PUC issued a D&O that authorized full recovery of PBOP
costs, determined pursuant to SFAS No. 106, effective January 1, 1995. The D&O
also allowed the recovery, over the next 18 years beginning January 1, 1995, of
the
5
<PAGE>
================================================================================
regulatory asset related to PBOP costs. The costs of postretirement executive
life insurance, however, were subsequently disallowed for HECO and MECO. See
Note 10 in the "Notes to Consolidated Financial Statements."
HECO
----
In July 1993, HECO filed a request to increase rates based on a 1994 test
year. HECO requested an 8.6% increase (as revised) over rates in effect at the
time of the revision, or $53.8 million in annual revenues, based on a 12.75%
return on average common equity (ROACE).
In December 1994, HECO received a final D&O authorizing an increase of 6.5%,
or $40.5 million in annual revenues, effective January 1, 1995 and based on a
12.15% ROACE. The final D&O, together with the PBOP D&O, resulted in an
increase of $50.5 million in annual revenues.
In December 1993, HECO filed a request to increase rates based on a 1995 test
year. HECO requested an increase of 4.1% (as revised), or $28.2 million in
annual revenues, based on a 13.25% ROACE.
In December 1995, HECO received a final D&O authorizing an increase of 1.3%,
or $9.1 million in annual revenues, based on an 11.4% ROACE. The D&O required a
refund to customers because HECO had previously received four interim increases
totaling $18.9 million on an annualized basis, or $9.8 million more than the
amount that was finally approved. The reduced rate relief resulted primarily
from the lower ROACE used by the PUC in the final D&O because interest rates
dropped considerably subsequent to the first interim increase, which was
effective January 1, 1995 and was based on a 12.6% ROACE. The refund amount of
$10.0 million (representing amounts recovered under interim rates in excess of
final approved rates, with interest) was accrued in December 1995 and will be
returned to customers in the first half of 1996. The D&O also did not provide
revenue to cover costs relating to postretirement executive life insurance. The
Company wrote-off a regulatory asset relating to such costs, resulting in a 1995
after-tax charge of $1.1 million.
HELCO
-----
In November 1993, HELCO filed a request to increase rates by 13.4%, or $15.8
million in annual revenues, based on a 1994 test year and a 12.4% ROACE (which
was later increased to 13.1%).
In February 1995, HELCO received a final D&O authorizing an increase of
11.8%, or $13.7 million in annual revenues, based on a 12.6% ROACE. The final
D&O, together with the PBOP D&O, resulted in $15.5 million of annual rate
relief.
In March 1995, HELCO filed a request to increase rates based on a 1996 test
year. In January 1996, HELCO revised its requested increase to 7.2%, or $10.3
million in annual revenues, based on a 12.5% ROACE. In March 1996, HELCO
received an interim D&O authorizing an increase of 4.8%, or $6.8 million in
annual revenues, based on a 11.65% ROACE.
HELCO plans to file a request to increase rates, based on a 1997 test
year.
MECO
----
In November 1991, MECO filed a request to increase rates. In January 1993,
MECO revised its requested increase to 10%, or $11.4 million in annual revenues,
based on a 13.0% ROACE and a 1993 test year.
In August 1994, MECO received a final D&O authorizing an increase of 7.0%, or
$8.1 million in annual revenues, based on a 12.75% ROACE. The final D&O,
together with the PBOP D&O, resulted in $10.0 million of annual rate relief.
6
<PAGE>
================================================================================
In February 1995, MECO filed a request to increase rates based on a 1996 test
year. MECO's final requested increase was 3.8%, or $5.0 million in annual
revenues, based on a 11.5% ROACE. In January 1996, MECO received an interim D&O
authorizing an increase of 2.8%, or $3.7 million in annual revenues, based on an
11.5% ROACE, effective February 1, 1996. MECO had proposed an interim increase
of $4.0 million.
In February 1996, MECO filed a notice of intent with the PUC to increase
rates, based on a 1997 test year.
PROPERTY DAMAGE RESERVE
-----------------------
In March 1995, the PUC opened a generic docket to investigate whether the
public utilities in the State of Hawaii should be allowed to establish property
damage reserves to cover the cost of damage to their facilities and equipment
caused by catastrophic disasters. HECO's overhead transmission and distribution
system is susceptible to wind and earthquake damage, and its underground system
is susceptible to earthquake and flood damage. The overhead and underground
transmission and distribution systems (with the exception of substation
buildings and contents) have a replacement value roughly estimated at
approximately $2 billion and are uninsured because the amount of transmission
and distribution system insurance available is limited and the premiums are
extremely high. Hearings on this docket are scheduled for September 1996.
HELCO POWER SITUATION
- ---------------------
In the past few years, HELCO's reserve margin has been relatively low. HELCO
needs additional generating capacity and has been proceeding with plans to
install two 20-megawatt (MW) combustion turbines, followed by an 18-MW heat
steam recovery generator, at which time these units would be converted to a
56-MW (net) combined-cycle unit. However, installation has been delayed because
HELCO has encountered procedural and other difficulties in obtaining the
necessary Conservation District Use Permit amendment (CDUP) and air permit that
would allow the 56-MW unit to be constructed.
In late 1995, a contested case hearing with respect to the CDUP was conducted
and the hearing officer recommended denial of the CDUP application. The Hawaii
Board of Land and Natural Resources (BLNR) may decide to adopt, modify, or
reject the hearing officer's recommendation. The BLNR is scheduled to make a
decision on HELCO's CDUP application by March 27, 1996. If the BLNR denies
HELCO's CDUP application, this would delay, if not prevent, installation of
HELCO's project at the 15-acre site.
The Hawaii Department of Health (DOH) forwarded HELCO's air permit to the
Environmental Protection Agency (EPA) for its approval. In a November 1995
letter to the DOH, the EPA declined to sign HELCO's air permit. HELCO requested
that the EPA reconsider this decision and the EPA agreed to reconsider based on
additional information supplied by HELCO. In a second letter dated February 6,
1996, the EPA set forth information to be considered by HELCO which it feels may
address HELCO's concerns regarding the emission control technology to be used,
and stated that it would continue discussions with HELCO at a later date. If the
EPA does not sign the permit issued by the DOH, this would delay, if not
prevent, HELCO's project.
Two IPPs have filed separate complaints against HELCO with the PUC, alleging
that they are entitled to power purchase contracts to provide HELCO with
additional capacity which, under HELCO's current estimates of generating
capacity requirements, would be in place of the planned 56-MW addition by HELCO.
In September 1995, HELCO provided proposals to the two IPPs, and further
negotiations have been undertaken. On January 26, 1996, the PUC ordered that
the complaint docket filed by one of the IPPs be reopened. HELCO and the IPP
are to seek PUC guidance on negotiation issues if a contract has not been
finalized by March 11, 1996.
7
<PAGE>
================================================================================
If HELCO's negotiations with the IPPs result in a power purchase agreement
and/or if HELCO's combined-cycle unit is not installed, HELCO may be required to
write-off a portion of the costs incurred in its efforts to put into service its
combined-cycle unit ($43 million as of December 31, 1995) if such costs
ultimately are not recoverable from customers or others.
In January 1996, the PUC opened a generic docket relating to HELCO's
contingency plan, which had been submitted to the PUC in June 1995. It was
ordered that HELCO submit updated information to the PUC by March 18, 1996 and
address comments by the Consumer Advocate on the June 1995 contingency
plan. See Note 11 in the "Notes to Consolidated Financial Statements."
EFFECTS OF INFLATION
- --------------------
Inflation, as measured by the U.S. Consumer Price Index, averaged 2.8% in
1995, 2.6% in 1994 and 3.0% in 1993. Although the rate of inflation over the
past three years has been relatively low compared with the late 1970's and early
1980's, inflation continues to have an impact on the Company's operations.
Inflation increases operating costs and the replacement cost of assets. The
Company has significant physical assets and replaces assets at costs which are
much higher than those historically incurred, and requests rate relief as
necessary to maintain adequate earnings. In the past, the PUC has generally
approved rate relief to cover the effects of inflation. In 1993, 1994 and 1995,
the Company received rate relief, in part to cover increases in operating
expenses and construction costs due to inflation.
ACCOUNTING FOR THE EFFECTS OF CERTAIN TYPES OF REGULATION
- ---------------------------------------------------------
In accordance with SFAS No. 71, "Accounting for the Effects of Certain Types
of Regulation," the Company's financial statements reflect assets and costs
based on current cost-based rate-making regulations. Management believes HECO
and its subsidiaries' operations currently satisfy the SFAS No. 71 criteria.
However, if events or circumstances should change so that those criteria are no
longer satisfied, management believes that a material adverse effect on the
Company's results of operations and financial position may result. See Note 6
in the "Notes to Consolidated Financial Statements" for further discussion.
ENVIRONMENTAL MATTERS
- ---------------------
HECO and its subsidiaries are subject to environmental laws and regulations
which could potentially impact the Company in terms of operating existing
facilities, constructing and operating new facilities and ensuring the proper
cleanup and disposal of hazardous waste and toxic substances. Management
believes that the recovery through rates of most, if not all, of any costs
incurred by HECO and its subsidiaries in complying with these environmental
requirements would be allowed by the PUC. However, as with other costs reviewed
by the PUC in the rate-making process, these costs may not be fully allowed by
the PUC for rate-making purposes. Based on information available to the
Company, management is not aware of any contingent liabilities relating to
environmental matters that would have a material adverse effect on the Company.
ELECTRIC AND MAGNETIC FIELDS
- ----------------------------
Research is ongoing about the potential adverse health effects from exposure
to electric and magnetic fields (EMF). However, the scientific community has
not yet reached a consensus on the nature of any health effects. HECO and its
subsidiaries are participating in utility industry funded studies on the subject
and are taking steps to reduce EMF, where feasible, in the design of new
transmission and distribution facilities. The Company cannot predict the
impact, if any, the EMF issue may have on the Company in the future.
8
<PAGE>
================================================================================
ACCOUNTING CHANGE
- -----------------
See Note 1 in the "Notes to Consolidated Financial Statements."
LIQUIDITY AND CAPITAL RESOURCES
- --------------------------------------------------------------------------------
The Company believes that its ability to generate cash, both internally from
operations and externally from debt and equity issues, is adequate to maintain
sufficient liquidity to fund its construction programs and to cover debt and
other cash requirements in the foreseeable future.
Capital expenditures requiring the use of cash, as shown on the "Consolidated
Statements of Cash Flows," totaled approximately $184.7 million in 1995, of
which $104.0 million was attributable to HECO, $35.4 million to HELCO and
$45.3 million to MECO. Approximately 68% of the total 1995 capital expenditures
was for transmission and distribution projects, including HECO's Waiau-CIP 138
kilovolt line, and approximately 32% was for generation and general plant
projects, including HELCO's Keahole combustion turbines and MECO's Maalaea
combustion turbine and Molokai generation expansion. Cash contributions in aid
of construction received in 1995 totaled $10.4 million.
The Company's investment in plant and equipment for 1995 was financed with
cash from operating activities and cash from financing activities. Cash
provided by operating activities totaled $138.2 million in 1995. Cash provided
by financing activities totaled a net $32.2 million and included $27.5 million
in drawdowns of proceeds from the sale of tax-exempt special purpose revenue
bonds, net of long-term debt repayments. The Company used $38.0 million for
common stock dividends. Short-term borrowings provided $20.9 million in cash
and HEI provided $28.0 million through its purchase of HECO common stock.
The Company's consolidated financing requirements for the years 1996 through
2000, including net capital expenditures, debt retirements and sinking fund
requirements, are currently estimated to total $829 million. The Company's
consolidated internal sources, after the payment of common stock and preferred
stock dividends, are currently expected to provide approximately 66% of the
consolidated financing requirements, with debt and equity financing providing
the remaining requirements. As of December 31, 1995, an additional $170 million
of revenue bonds had been authorized by the Hawaii legislature for issuance
prior to the end of 1997. The Company currently estimates that it will require
approximately $54 million in common equity, other than retained earnings, over
the five-year period 1996 through 2000. The PUC must approve issuances of
long-term debt and equity for HECO, HELCO and MECO.
Capital expenditures include the costs of projects which are required to
meet expected load growth, to improve reliability and to replace and upgrade
existing equipment. Net capital expenditures, for the five-year period 1996
through 2000, are currently estimated to total $747 million. Approximately 62%
of gross capital expenditures, including AFUDC and capital expenditures funded
by third-party cash contributions in aid of construction, is for transmission
and distribution projects, with the remaining 38% primarily for generation
projects. At December 31, 1995, purchase commitments other than fuel and power
purchase contracts amounted to approximately $75 million, including amounts for
construction projects. Also see Note 11 in the "Notes to Consolidated Financial
Statements" for a discussion of fuel and power purchase commitments.
Capital expenditures for 1996, net of cash contributions in aid of
construction and excluding AFUDC, are estimated to be $154 million, and gross
capital expendi-tures are estimated to be $189 million, of which approximately
58% is for trans-mission and distribution projects. An estimated $55 million is
planned for new generation projects. Drawdowns of proceeds from the sale of
tax-exempt special purpose revenue bonds, sale of common stock to HEI, sales of
preferred stock and the generation of funds from internal sources are expected
to provide the cash needed for the net capital expenditures.
9
<PAGE>
================================================================================
Capital expenditure estimates and the timing of construction projects are
reviewed periodically by management and may change significantly as a result of
many considerations, including changes in economic conditions, changes in
forecasts of KWH sales and peak load, the availability of purchased power, the
availability of generating sites and transmission and distribution corridors,
the ability to obtain adequate and timely rate relief, escalation in
construction costs, demand-side management programs and requirements of
environmental and other regulatory and permitting authorities.
As of February 16, 1996, Standard & Poor's (S&P), Moody's Investors Service
(Moody's) and Duff & Phelps Credit Rating Co. (D&P) rated HECO's securities as
follows:
<TABLE>
<CAPTION>
S&P Moody's D&P
---- ------- -------
<S> <C> <C> <C>
First mortgage bonds........................ BBB+ A3 A
Revenue bonds............................... BBB+ Baa1 A-
Cumulative preferred stock.................. BBB baa1 BBB+
Other unsecured debt........................ BBB+ Baa1 A-
Commercial paper............................ A-2 P-2 Duff 1-
</TABLE>
==============================================================================
The above ratings are not recommendations to buy, sell or hold any securities,
and such ratings may be subject to revision or withdrawal at any time by the
rating agencies.
The Company's management cannot predict with certainty future rating agency
actions or their effects on the future cost of capital to the Company.
10
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
================================================================================
HAWAIIAN ELECTRIC COMPANY, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Years ended December 31 1995 1994 1993
- ----------------------- --------- --------- ---------
(in thousands)
<S> <C> <C> <C>
OPERATING REVENUES.......................... $981,990 $907,308 $874,010
-------- -------- --------
OPERATING EXPENSES:
Fuel oil.................................... 207,001 186,717 213,285
Purchased power............................. 276,364 271,636 258,723
Other operation............................. 137,349 121,740 105,957
Maintenance................................. 47,225 46,427 44,281
Depreciation and amortization............... 67,649 63,779 55,960
Taxes, other than income taxes.............. 92,961 85,877 80,712
Income taxes................................ 50,719 43,820 37,007
-------- -------- --------
879,268 819,996 795,925
-------- -------- --------
OPERATING INCOME............................ 102,722 87,312 78,085
-------- -------- --------
OTHER INCOME:
Allowance for equity funds used during
construction............................... 10,202 9,064 6,973
Other, net.................................. 6,123 5,729 4,583
-------- -------- --------
16,325 14,793 11,556
-------- -------- --------
INCOME BEFORE INTEREST AND OTHER CHARGES.... 119,047 102,105 89,641
-------- -------- --------
INTEREST AND OTHER CHARGES:
Interest on long-term debt.................. 34,088 31,369 27,046
Amortization of net bond premium and
expense.................................... 1,273 1,208 774
Other interest charges...................... 9,016 4,763 7,467
Allowance for borrowed funds used during
construction............................... (5,112) (4,043) (3,869)
Preferred stock dividends of subsidiaries... 2,759 2,847 2,097
-------- -------- --------
42,024 36,144 33,515
-------- -------- --------
INCOME BEFORE PREFERRED STOCK DIVIDENDS
OF HECO.................................... 77,023 65,961 56,126
Preferred stock dividends of HECO........... 4,126 4,316 4,421
-------- -------- --------
NET INCOME FOR COMMON STOCK................. $ 72,897 $ 61,645 $ 51,705
======== ======== ========
</TABLE>
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
================================================================================
HAWAIIAN ELECTRIC COMPANY, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Years ended December 31 1995 1994 1993
- ----------------------- --------- --------- ---------
(in thousands)
<S> <C> <C> <C>
RETAINED EARNINGS, BEGINNING OF YEAR... $308,535 $275,401 $249,583
Net income for common stock............ 72,897 61,645 51,705
Common stock dividends................. (38,007) (28,511) (25,887)
-------- -------- --------
RETAINED EARNINGS, END OF YEAR......... $343,425 $308,535 $275,401
======== ======== ========
</TABLE>
See accompanying "Notes to Consolidated Financial Statements."
11
<PAGE>
CONSOLIDATED BALANCE SHEETS
===============================================================================
HAWAIIAN ELECTRIC COMPANY, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
December 31 1995 1994
- ----------- ----------- -----------
(in thousands)
<S> <C> <C>
ASSETS
UTILITY PLANT, AT COST:
Land............................................... $ 27,578 $ 27,108
Plant and equipment................................ 2,263,300 2,101,447
Less accumulated depreciation...................... (762,770) (702,945)
Plant acquisition adjustment, net.................. 667 719
Construction in progress........................... 191,460 164,247
---------- ----------
NET UTILITY PLANT.............................. 1,720,235 1,590,576
---------- ----------
CURRENT ASSETS:
Cash and equivalents............................... 20 10,694
Customer accounts receivable, net.................. 67,698 60,406
Accrued unbilled revenues, net..................... 43,695 38,435
Other accounts receivable, net..................... 5,355 10,302
Fuel oil stock, at average cost.................... 13,469 21,966
Materials and supplies, at average cost............ 20,538 20,108
Prepayments and other.............................. 2,297 2,028
---------- ----------
TOTAL CURRENT ASSETS........................... 153,072 163,939
---------- ----------
OTHER ASSETS:
Regulatory assets.................................. 97,114 92,524
Unamortized debt expense........................... 10,022 9,662
Long-term receivables and other.................... 35,840 32,419
---------- ----------
TOTAL OTHER ASSETS............................. 142,976 134,605
---------- ----------
$2,016,283 $1,889,120
========== ==========
CAPITALIZATION AND LIABILITIES
CAPITALIZATION (see Consolidated
Statements of Capitalization):
Common stock equity................................ $ 696,905 $ 633,901
Cumulative preferred stock:
Not subject to mandatory redemption............... 48,293 48,293
Subject to mandatory redemption................... 39,955 42,470
Long-term debt, net................................ 487,306 468,653
---------- ----------
TOTAL CAPITALIZATION........................... 1,272,459 1,193,317
---------- ----------
CURRENT LIABILITIES:
Long-term debt due within one year................. 29,903 20,933
Preferred stock sinking fund requirements.......... 1,795 2,374
Short-term borrowings--nonaffiliates............... 131,753 117,866
Short-term borrowings--affiliate................... 7,000 --
Accounts payable................................... 48,691 54,662
Interest and preferred dividends payable........... 9,954 8,575
Taxes accrued...................................... 42,968 42,966
Other.............................................. 37,573 30,111
---------- ----------
TOTAL CURRENT LIABILITIES...................... 309,637 277,487
---------- ----------
DEFERRED CREDITS AND OTHER LIABILITIES:
Deferred income taxes.............................. 116,963 108,362
Unamortized tax credits............................ 45,935 44,939
Other.............................................. 79,435 86,380
---------- ----------
TOTAL DEFERRED CREDITS AND OTHER LIABILITIES... 242,333 239,681
---------- ----------
CONTRIBUTIONS IN AID OF CONSTRUCTION............... 191,854 178,635
---------- ----------
$2,016,283 $1,889,120
========== ==========
</TABLE>
See accompanying "Notes to Consolidated Financial Statements."
12
<PAGE>
CONSOLIDATED STATEMENTS OF CAPITALIZATION
================================================================================
HAWAIIAN ELECTRIC COMPANY, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
December 31 1995 1994
- ----------- ------------ --------
(dollars in thousands, except per share amounts)
<S> <C> <C>
COMMON STOCK EQUITY:
Common stock of $6 2/3 par value.
Authorized: 50,000,000 shares. Outstanding: 1995,
12,302,657 shares and 1994, 11,813,147 shares....... $ 82,031 $ 78,766
Premium on capital stock............................. 271,449 246,600
Retained earnings.................................... 343,425 308,535
-------- --------
COMMON STOCK EQUITY................................ 696,905 633,901
-------- --------
CUMULATIVE PREFERRED STOCK:
Authorized: 5,000,000 shares of $20 par value and
7,000,000 shares of $100 par value. Outstanding:
1995, 1,792,157 shares and 1994, 1,823,097
shares.
</TABLE>
<TABLE>
<CAPTION>
SHARES
OUTSTANDING
PAR DECEMBER 31,
SERIES VALUE 1995
- ------ ------- ------------
SERIES NOT SUBJECT TO MANDATORY REDEMPTION:
<S> <C> <C> <C> <C>
C-4 1/4% $ 20 (HECO)....... 150,000........ 3,000 3,000
D-5% 20 (HECO)....... 50,000........ 1,000 1,000
E-5% 20 (HECO)....... 150,000........ 3,000 3,000
H-5 1/4% 20 (HECO)....... 250,000........ 5,000 5,000
I-5% 20 (HECO)....... 89,657........ 1,793 1,793
J-4 3/4% 20 (HECO)....... 250,000........ 5,000 5,000
K-4.65% 20 (HECO)....... 175,000........ 3,500 3,500
M-8.05% 100 (HECO)....... 80,000........ 8,000 8,000
A-8 7/8% 100 (HELCO)...... 30,000........ 3,000 3,000
G-7 5/8% 100 (HELCO)...... 70,000........ 7,000 7,000
A-8% 100 (MECO)....... 20,000........ 2,000 2,000
B-8 7/8% 100 (MECO)....... 10,000........ 1,000 1,000
H-7 5/8% 100 (MECO)....... 50,000........ 5,000 5,000
--------- ------ ------
1,374,657........ 48,293 48,293
========= ------ ------
<CAPTION>
SERIES SUBJECT TO MANDATORY REDEMPTION:
<S> <C> <C> <C> <C>
O-11 1/2% $100 (HECO)....... --........ -- 800
Q-7.68% 100 (HECO)....... 88,000........ 8,800 9,204
R-8.75% 100 (HECO)....... 190,000........ 19,000 20,000
C-9 1/4% 100 (HELCO)...... 4,000........ 400 600
D-12 3/4% 100 (HELCO)...... 6,000........ 600 650
E-12.25% 100 (HELCO)...... 7,000........ 700 750
F-8.5% 100 (HELCO)...... 60,000........ 6,000 6,000
D-8 3/4% 100 (MECO)....... 10,500........ 1,050 1,240
E-12 1/4% 100 (MECO)....... --........ -- 200
F-13 3/4% 100 (MECO)....... 2,000........ 200 400
G-8.5% 100 (MECO)....... 50,000........ 5,000 5,000
------- ------ ------
417,500........ 41,750 44,844
=======
<S> <C> <C>
Less sinking fund requirements due within one year... 1,795 2,374
------ ------
39,955 42,470
------ ------
CUMULATIVE PREFERRED STOCK......................... 88,248 90,763
------ ------
</TABLE>
(continued)
See accompanying "Notes to Consolidated Financial Statements."
13
<PAGE>
CONSOLIDATED STATEMENTS OF CAPITALIZATION, continued
================================================================================
HAWAIIAN ELECTRIC COMPANY, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
December 31 1995 1994
- ----------- ---------- ----------
(in thousands)
<S> <C> <C>
LONG-TERM DEBT:
First mortgage bonds:
HECO:
4.55-5.75%, due 1995 through 1997................... $ 13,000 $ 24,000
7 5/8%, due 2002.................................... 10,000 10,000
---------- ----------
23,000 34,000
---------- ----------
HELCO:
7 3/4-7 7/8%, due 2002 through 2003................. 5,000 5,000
---------- ----------
MECO:
7 3/4-7 7/8%, due 2002 through 2003................. 7,000 7,000
---------- ----------
Total first mortgage bonds....................... 35,000 46,000
---------- ----------
Obligations to the State of Hawaii for the repayment
of Special Purpose Revenue Bonds:
HECO, 6.60%, series 1995A, due 2025................... 40,000 --
HELCO, 6.60%, series 1995A, due 2025.................. 5,000 --
MECO, 6.60%, series 1995A, due 2025................... 2,000 --
HECO, 5.45%, series 1993, due 2023.................... 50,000 50,000
HELCO, 5.45%, series 1993, due 2023................... 20,000 20,000
MECO, 5.45%, series 1993, due 2023.................... 30,000 30,000
HECO, 6.55%, series 1992, due 2022.................... 40,000 40,000
HELCO, 6.55%, series 1992, due 2022................... 12,000 12,000
MECO, 6.55%, series 1992, due 2022.................... 8,000 8,000
HECO, 7 3/8%, series 1990C, due 2020.................. 25,000 25,000
HELCO, 7 3/8%, series 1990C, due 2020................. 10,000 10,000
MECO, 7 3/8%, series 1990C, due 2020.................. 20,000 20,000
HECO, 7.60%, series 1990B, due 2020................... 21,000 21,000
HELCO, 7.60%, series 1990B, due 2020.................. 4,000 4,000
HECO, 7.35%, series 1990A, due 2020................... 16,000 16,000
HELCO, 7.35%, series 1990A, due 2020.................. 3,000 3,000
MECO, 7.35%, series 1990A, due 2020................... 1,000 1,000
HECO, 7 5/8%, series 1988, due 2018................... 30,000 30,000
HELCO, 7 5/8%, series 1988, due 2018.................. 11,000 11,000
MECO, 7 5/8%, series 1988, due 2018.................. 9,000 9,000
HECO, 6 7/8%, refunding series 1987, due 2012......... 42,580 42,580
HELCO, 6 7/8%, refunding series 1987, due 2012........ 7,200 7,200
MECO, 6 7/8%, refunding series 1987, due 2012......... 7,720 7,720
HELCO, 7.20%, series 1984, due 2014................... 11,400 11,400
---------- ----------
425,900 378,900
Less funds on deposit with trustees................... 943 3,391
---------- ----------
Total obligations to the State of Hawaii......... 424,957 375,509
---------- ----------
Other long-term debt - unsecured:
HECO, 5.15% note, due 1996............................ 20,000 20,000
HECO, 5.83% note, due 1998............................ 30,000 30,000
HELCO, 4.85% note, paid in 1995....................... -- 10,000
MECO, 5.15% note, due 1996............................ 10,000 10,000
---------- ----------
Total other long-term debt - unsecured........... 60,000 70,000
---------- ----------
Total long-term debt............................. 519,957 491,509
Less unamortized discount.............................. 2,748 1,923
Less amounts due within one year, net of discount...... 29,903 20,933
---------- ----------
LONG-TERM DEBT, NET................................. 487,306 468,653
---------- ----------
TOTAL CAPITALIZATION............................. $1,272,459 $1,193,317
========== ==========
</TABLE>
See accompanying "Notes to Consolidated Financial Statements."
14
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
================================================================================
HAWAIIAN ELECTRIC COMPANY, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Years ended December 31 1995 1994 1993
- ----------------------- ---------- ---------- ----------
(in thousands)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Income before preferred stock dividends of HECO... $ 77,023 $ 65,961 $ 56,126
Adjustments to reconcile income before
preferred stock dividends of HECO to net
cash provided by operating activities:
Depreciation and amortization of property,
plant and equipment.......................... 67,649 63,779 55,960
Other amortization............................. 9,389 4,521 3,338
Deferred income taxes.......................... 9,767 855 (1,952)
Tax credits, net............................... 2,698 3,271 4,086
Allowance for equity funds used during
construction................................. (10,202) (9,064) (6,973)
Changes in assets and liabilities:
Increase in accounts receivable.............. (2,345) (6,696) (1,924)
Decrease (increase) in accrued unbilled
revenues.................................... (5,260) (3,700) 912
Decrease (increase) in fuel oil stock........ 8,497 (3,778) 1,914
Decrease (increase) in materials and
supplies.................................... (430) 131 (2,398)
Increase in regulatory assets................ (4,247) (9,885) (9,606)
Increase (decrease) in accounts payable...... (5,971) 12,854 (2,273)
Increase (decrease) in interest and
preferred dividends payable................. 1,379 (1,757) 1,287
Other........................................ (9,711) (14,170) (92)
--------- --------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES......... 138,236 102,322 98,405
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures.............................. (184,689) (186,461) (205,943)
Contributions in aid of construction.............. 10,417 15,112 20,158
Issuance of notes receivable...................... (6,825) -- --
--------- --------- ---------
NET CASH USED IN INVESTING ACTIVITIES............. (181,097) (171,349) (185,785)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in short-term
borrowings from nonaffiliates and
affiliate with original maturities
of three months or less.......................... 20,887 76,938 (81,248)
Proceeds from other short-term borrowings......... -- -- 25,259
Repayment of other short-term borrowings.......... -- -- (25,259)
Proceeds from issuance of long-term debt.......... 48,544 52,814 156,788
Repayment of long-term debt....................... (21,000) (48,027) (46,901)
Proceeds from issuance of preferred stock......... -- -- 12,000
Redemption of preferred stock..................... (3,094) (1,886) (2,190)
Preferred stock dividends......................... (4,126) (4,316) (4,421)
Proceeds from issuance of common stock............ 28,000 30,000 45,000
Capital stock expense............................. (7) (59) (84)
Common stock dividends............................ (38,007) (28,511) (25,887)
Other............................................. 990 846 5,362
--------- --------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES......... 32,187 77,799 58,419
--------- --------- ---------
Net increase (decrease) in cash and equivalents... (10,674) 8,772 (28,961)
CASH AND EQUIVALENTS, BEGINNING OF YEAR........... 10,694 1,922 30,883
--------- --------- ---------
CASH AND EQUIVALENTS, END OF YEAR................. $ 20 $ 10,694 $ 1,922
========= ========= =========
</TABLE>
See accompanying "Notes to Consolidated Financial Statements."
15
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
HAWAIIAN ELECTRIC COMPANY, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- --------------------------------------------------------------------------------
BASIS OF FINANCIAL STATEMENT PRESENTATION
- -----------------------------------------
The financial statements have been prepared in conformity with generally
accepted accounting principles (GAAP). In preparing the financial statements,
management is required to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the balance sheet and the reported amounts of
revenues and expenses for the period. Actual results could differ significantly
from those estimates.
Examples of such estimates involving material amounts reflected in the
financial statements include the amounts reported for regulatory assets and for
pension and other postretirement benefit obligations. Management believes that
such estimates have been appropriately established in accordance with GAAP.
CONSOLIDATION
- -------------
The consolidated financial statements include the accounts of Hawaiian
Electric Company, Inc. (HECO) and its wholly owned subsidiaries (collectively,
the "Company"), Maui Electric Company, Limited (MECO) and Hawaii Electric Light
Company, Inc. (HELCO). HECO is a wholly owned subsidiary of Hawaiian Electric
Industries, Inc. (HEI).
All significant intercompany accounts and transactions have been eliminated
in consolidation.
PUBLIC UTILITY COMMISSION REGULATION
- ------------------------------------
The Company is regulated by the Public Utilities Commission of the State of
Hawaii (PUC) and accounts for the effects of regulation under Statement of
Financial Accounting Standards (SFAS) No. 71, "Accounting for the Effects of
Certain Types of Regulation." As a result, the actions of regulators can affect
the timing of recognition of revenues, expenses, assets and liabilities.
PROPERTY, PLANT AND EQUIPMENT
- -----------------------------
Property, plant and equipment are stated at cost. The cost of plant
constructed by the Company includes applicable engineering, supervision,
administrative and general expenses, and an allowance for the cost of funds used
during the construction period. Upon the ordinary retirement or sale of plant,
no gain or loss is recognized. The cost of the plant retired or sold and the
cost of removal (net of salvage obtained) are charged to accumulated
depreciation.
CONTRIBUTIONS IN AID OF CONSTRUCTION
- ------------------------------------
The Company receives contributions from customers for special construction
requirements. As directed by the PUC, the contributions are amortized on a
straight-line basis over 30 years, which approximates the estimated useful lives
of the facilities for which the contributions were received. This amortization
is an offset against depreciation expense.
REVENUES
- --------
Revenues are based on rates authorized by the PUC and include revenues appli-
cable to electric energy consumed in the accounting period but not yet billed to
the customers. Revenue amounts recorded under PUC approved interim rate adjust-
ments are subject to refund, with interest, pending final authorization by the
PUC.
The rate schedules of the Company include energy cost adjustment clauses
under which electric rates are adjusted for changes in the weighted average
price paid for fuel oil and certain components of purchased power, and the
relative amounts of
16
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
================================================================================
HAWAIIAN ELECTRIC COMPANY, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
company-generated power and purchased power.
POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS
- ------------------------------------------
Pension costs are charged primarily to expense and plant accounts. The
Company's policy is to fund pension costs in amounts consistent with the
requirements of the Employee Retirement Income Security Act of 1974. Certain
postretirement health care and/or life insurance benefits are provided to
eligible retired employees and the employees' beneficiaries and covered
dependents. In 1995, these postretirement benefits were charged primarily to
expense and plant. In 1994 and 1993, these postretirement benefits were charged
primarily to regulatory assets and expense. See Note 10.
In November 1992, the Financial Accounting Standards Board (FASB) issued SFAS
No. 112, "Employers' Accounting for Postemployment Benefits." This statement
requires employers to recognize the obligation to provide postemployment
benefits in accordance with SFAS No. 43, "Accounting for Compensated Absences,"
if the obligation is attributable to employees' services already rendered,
employees' rights to those benefits accumulate or vest, payment of the benefits
is probable, and the amount of the benefits can be reasonably estimated. The
Company adopted the provisions of SFAS No. 112 on January 1, 1994. The
implementation of SFAS No. 112 did not have a material effect on the Company's
financial condition or results of operations.
DEPRECIATION
- ------------
Depreciation of plant and equipment is computed primarily using the straight-
line method over the estimated useful lives of the assets. The composite annual
depreciation rate was 3.8% in 1995 and 3.9% in 1994 and 1993.
PREMIUM, DISCOUNT AND EXPENSE
- -----------------------------
The expenses of issuing long-term debt securities and the premiums or
discounts at which they were sold are amortized against income over the terms of
the respective securities.
ALLOWANCE FOR FUNDS USED DURING CONSTRUCTION
- --------------------------------------------
Allowance for funds used during construction (AFUDC) is an accounting
practice whereby the costs of debt and equity funds used to finance plant
construction are transferred from the income statement to construction in
progress on the balance sheet. This procedure removes the effect of the costs
of financing construction activity from the income statement and treats such
costs in the same manner as construction labor and material costs.
The weighted average gross-of-tax AFUDC rate was 9.4% in 1995 and 1994 and
9.3% in 1993 and reflected quarterly compounding.
INCOME TAXES
- ------------
HECO and its subsidiaries are included in the consolidated income tax returns
of HECO's parent, HEI. Income tax expense has been computed for financial
statement purposes as if HECO and its subsidiaries filed separate consolidated
HECO income tax returns.
Deferred income tax assets and liabilities are established for the temporary
differences between the financial reporting basis and the tax basis of the
Company's assets and liabilities at enacted tax rates expected to be in effect
when such deferred tax assets or liabilities are realized or settled.
Federal and state tax credits are deferred and amortized over the estimated
useful lives of the properties which qualified for the credits.
17
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
================================================================================
HAWAIIAN ELECTRIC COMPANY, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
CASH FLOWS
- ----------
The Company considers cash on hand, deposits in banks, money market accounts,
certificates of deposit, short-term commercial paper and reverse repurchase
agreements with original maturities of three months or less to be cash and
equivalents.
ENVIRONMENTAL EXPENDITURES
- --------------------------
The Company is subject to numerous federal and state statutes and
governmental regulations pertaining to water quality, air quality and other
environmental factors. In general, environmental contamination treatment costs
are charged to expense, unless it is probable such costs will be recovered
through rates authorized by the PUC. Also, environmental costs are capitalized
if: the costs extend the life, increase the capacity, or improve the safety or
efficiency of property owned; the costs mitigate or prevent environmental
contamination that has yet to occur and that otherwise may result from future
operations; or the costs are incurred in preparing property for sale.
Liabilities are recorded when environmental assessments and/or remedial efforts
are probable, and the cost can be reasonably estimated. Corresponding
regulatory assets are recorded when it is probable that such costs would be
allowed by the PUC as reasonable and necessary costs of service to be recovered
in future rates.
ACCOUNTING CHANGE - 1996 IMPLEMENTATION
- ---------------------------------------
In March 1995, the FASB issued SFAS No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." SFAS No. 121
requires that long-lived assets and certain identifiable intangibles held and
used by an entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. If the sum of the expected future cash flows derived from an asset
is less than the carrying amount of the asset, an impairment loss is recognized.
Measurement of that loss is based on the fair value of the asset. Generally,
SFAS No. 121 requires that long-lived assets and certain identifiable
intangibles to be disposed of be reported at the lower of carrying amount or
fair value less cost to sell. SFAS No. 121 also requires that a rate-regulated
enterprise recognize an impairment loss for the amount of costs excluded by a
regulator from the enterprise's rate base. The Company adopted the provisions
of SFAS No. 121 on January 1, 1996. The adoption of SFAS No. 121 did not have a
material effect on the Company's financial condition or results of operations.
2. CUMULATIVE PREFERRED STOCK
- --------------------------------------------------------------------------------
The following series of cumulative preferred stock are redeemable at the
option of the respective company and are subject to voluntary liquidation
provisions as follows:
<TABLE>
<CAPTION>
Voluntary
liquidation Redemption
price price
December 31, December 31,
Series 1995 1995
- ------ ------------ ------------
<S> <C> <C>
C, D, E, H, J and K (HECO)................. $ 20.00 $ 21.00
I (HECO)................................... 20.00 20.00
M (HECO)................................... 100.00 101.00
A (HELCO).................................. 101.00 101.00
A and B (MECO)............................. 101.00 101.00
</TABLE>
18
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
================================================================================
HAWAIIAN ELECTRIC COMPANY, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
The following series of cumulative preferred stock are subject to mandatory
sinking fund, voluntary liquidation and optional redemption provisions as
indicated below:
<TABLE>
<CAPTION>
Annual sinking fund provision Voluntary Optional
-------------------------------- liquidation redemption
Number of shares price price
----------------- Commencement December 31, December 31,
Series Minimum Maximum date 1995 1995
- ------------ ------- ------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Q (HECO).... 4,000 4,000 1/15/93 $100.00 $111.12
R (HECO).... 10,000 20,000 1/15/95 100.00 105.83
C (HELCO)... 1,000 2,000 10/15/85 101.00 101.00
D (HELCO)... 500 500 10/15/88 105.85 105.85
E (HELCO)... 500 500 10/15/90 106.39 106.39
F (HELCO)... 10,000 20,000 1/15/00 100.00 105.46
D (MECO).... 950 1,900 7/15/89 101.00 101.00
F (MECO).... 1,000 2,000 10/15/92 103.62 103.62
G (MECO).... 8,333 16,667 1/15/00 100.00 105.46
</TABLE>
- --------------------------------------------------------------------------------
Shares redeemed under the annual sinking fund provisions are redeemable at
par value of $100.
Under optional redemption provisions, shares are redeemable at the option of
the respective company at redemption prices shown above (except that prior to
specific dates, no shares of certain series of preferred stock may be redeemed).
In the event of voluntary liquidation, preferred shareholders would be
entitled, insofar as the assets of the Company would permit, to the liquidation
prices shown above.
The total minimum sinking fund requirements on preferred stock subject to
mandatory redemption are $1,795,000 in 1996 and 1997, $1,695,000 in 1998 and
1999, $3,428,300 in 2000 and a total of $31,341,700 thereafter.
HECO is obligated to make dividend, redemption and liquidation payments on
the preferred stock of either of its subsidiaries if the respective subsidiary
is unable to make such payments, provided that such obligation is subordinated
to any obligation to make payments on HECO's own preferred stock.
3. COMMON STOCK
- --------------------------------------------------------------------------------
In 1995, 1994 and 1993 HECO issued 489,510, 554,857 and 897,111 shares of
common stock to its parent, HEI, for $28 million, $30 million and $45 million,
respectively.
4. LONG-TERM DEBT
- --------------------------------------------------------------------------------
The first mortgage bonds are secured by separate indentures which purport to
be liens on substantially all of the real and personal property now owned or
hereafter acquired by the respective companies.
The funds on deposit with trustees represent the undrawn proceeds from the
issuance of the special purpose revenue bonds and earn interest at market rates.
These funds are available only to pay for certain authorized construction
projects and certain expenses related to the bonds.
At December 31, 1995, the aggregate payments of principal required on long-
term debt during the next five years are $30,000,000 in 1996, $13,000,000 in
1997, $30,000,000 in 1998, and nil in 1999 and 2000.
19
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
================================================================================
HAWAIIAN ELECTRIC COMPANY, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
5. SHORT-TERM BORROWINGS
- --------------------------------------------------------------------------------
Short-term borrowings from nonaffiliates at December 31, 1995 and 1994 had a
weighted average interest rate of 6.1% and 6.3%, respectively, and consisted
entirely of commercial paper.
The Company maintained bank lines of credit which totaled approximately $145
million and $125 million at December 31, 1995 and 1994, respectively. The lines
of credit support the issuance of commercial paper. There were no borrowings
against any line of credit during 1995 and 1994.
6. REGULATORY ASSETS
- -------------------------------------------------------------------------------
In accordance with SFAS No. 71, "Accounting for the Effects of Certain Types
of Regulation," the Company's financial statements reflect assets and costs
based on current cost-based rate-making regulations. Continued accounting under
SFAS No. 71 requires that certain criteria be met. A utility's operations or
portion of operations can cease to meet the criteria for various reasons,
including a change in the method of regulation or a change in the competitive
environment for regulated services. A utility whose operations or portion of
operations cease to meet these criteria should discontinue application of SFAS
No. 71 and write-off any regulatory assets and liabilities for those operations
that no longer meet the requirements of SFAS No. 71. Management believes the
Company's operations currently satisfy the SFAS No. 71 criteria. However, if
events or circumstances should change so that the criteria are no longer
satisfied, management believes that a material adverse effect on the Company's
results of operations and financial position may result.
Regulatory assets at December 31, 1995 and 1994 included the following
deferred costs:
<TABLE>
<CAPTION>
December 31 1995 1994
- ----------- ------- -------
(in thousands)
<S> <C> <C>
Income taxes.......................................... $31,684 $23,427
Postretirement benefits other than pensions........... 30,426 34,032
Integrated resource planning costs.................... 9,425 7,189
Unamortized debt expense on retired issuances......... 6,860 7,513
Vacation earned, but not yet taken.................... 6,236 5,972
Preliminary plant costs on suspended project.......... 5,759 5,768
Computer system development costs..................... 4,602 6,090
Other................................................. 2,122 2,533
------- -------
$97,114 $92,524
======= =======
</TABLE>
In 1995, the Company applied to the PUC for recovery of the preliminary plant
costs on a suspended project.
7. INCOME TAXES
- --------------------------------------------------------------------------------
The Company adopted the provisions of SFAS No. 109, "Accounting for Income
Taxes," on January 1, 1993. The resulting change in the method of accounting
for income taxes had no material effect on net income for 1993 primarily due to
the regulated nature of the Company. Deferred income taxes payable arising from
the
20
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
================================================================================
HAWAIIAN ELECTRIC COMPANY, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
adoption of SFAS No. 109 are recoverable through future rates and have been
recorded as a regulatory asset. In 1993, additional income tax expense of
$828,000 was recognized under SFAS No. 109 as a result of the 1% increase in the
maximum corporate income tax rate enacted by the Omnibus Budget Reconciliation
Act of 1993.
The components of income taxes charged to operating expenses were as follows:
<TABLE>
<CAPTION>
Years ended December 31 1995 1994 1993
- ----------------------- -------- -------- --------
(in thousands)
<S> <C> <C> <C>
FEDERAL:
Current................................... $35,553 $37,422 $33,556
Deferred.................................. 9,761 2,133 432
Deferred tax credits, net................. (1,702) (1,922) (2,260)
------- ------- -------
43,612 37,633 31,728
------- ------- -------
STATE:
Current................................... 2,751 2,359 1,402
Deferred.................................. 1,658 315 (123)
Deferred tax credits, net................. 2,698 3,513 4,000
------- ------- -------
7,107 6,187 5,279
------- ------- -------
Total...................................... $50,719 $43,820 $37,007
======= ======= =======
</TABLE>
Income tax benefits related to nonoperating activities, included in "Other,
net" on the consolidated statements of income, amounted to $521,000, $232,000
and $109,000 for 1995, 1994 and 1993, respectively.
A reconciliation between income taxes charged to operating expenses and the
amount of income taxes computed at the federal statutory rate of 35% on income
before income taxes and preferred stock dividends follows:
<TABLE>
<CAPTION>
Years ended December 31 1995 1994 1993
- ----------------------- -------- -------- --------
(dollars in thousands)
<S> <C> <C> <C>
Amount at the federal statutory
income tax rate.......................... $45,675 $39,420 $33,331
State income taxes on operating
income, net of effect on federal
income taxes............................. 4,620 4,022 3,431
Other..................................... 424 378 245
------- -------- -------
Income taxes charged to operating
expenses................................. $50,719 $43,820 $37,007
======= ======= ======
</TABLE>
The tax effects of temporary differences which give rise to deferred tax
assets and liabilities were as follows:
<TABLE>
<CAPTION>
December 31 1995 1994
- ----------- -------- --------
(in thousands)
<S> <C> <C>
Deferred tax assets:
Property, plant and equipment....................... $ 8,019 $ 7,075
Contributions in aid of construction and
customer advances................................. 53,709 52,892
Other............................................... 12,690 13,858
-------- --------
74,418 73,825
-------- --------
Deferred tax liabilities:
Property, plant and equipment....................... 160,531 157,067
Regulatory assets................................... 12,322 8,897
Other............................................... 18,528 16,223
-------- --------
191,381 182,187
-------- --------
Deferred income taxes................................ $116,963 $108,362
======== ========
</TABLE>
21
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
================================================================================
HAWAIIAN ELECTRIC COMPANY, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
There was no valuation allowance provided for deferred tax assets as of
December 31, 1995 and 1994.
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. Management considers the
scheduled reversal of deferred tax liabilities, projected future taxable income,
and tax planning strategies in making this assessment.
Based upon the level of historical taxable income and projections for future
taxable income over the periods which the deferred tax assets are deductible,
management believes it is more likely than not the Company will realize the
benefits of these deductible differences.
8. CASH FLOWS
- -------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
- -------------------------------------------------
Cash paid during 1995, 1994 and 1993 for interest (net of capitalized amounts
which were not material) and income taxes was as follows:
<TABLE>
<CAPTION>
Years ended December 31 1995 1994 1993
- -------------------------- ------- ------- -------
(in thousands)
<S> <C> <C> <C>
Interest................................... $36,161 $35,001 $31,875
======= ======= =======
Income taxes............................... $43,148 $40,849 $34,796
======= ======= =======
</TABLE>
SUPPLEMENTAL DISCLOSURES OF NONCASH ACTIVITIES
- ----------------------------------------------
The allowance for equity funds used during construction, which was charged
primarily to construction in progress, amounted to $10,202,000, $9,064,000 and
$6,973,000 in 1995, 1994 and 1993, respectively.
Effective in 1993, the Company recognized the estimated fair value of noncash
contributions in aid of construction received in 1988 through 1993, which
increased both plant and contributions in aid of construction by $26,105,000.
The estimated fair value of noncash contributions amounted to $10,552,000 and
$5,556,000 in 1995 and 1994, respectively.
9. MAJOR CUSTOMERS
- ------------------------------------------------------------------------------
HECO and its subsidiaries derived 10% of their operating revenues from the
sale of electricity to various federal government agencies in 1995, 1994 and
1993. These revenues amounted to $97,175,000 in 1995, $89,479,000 in 1994 and
$90,614,000 in 1993.
10. RETIREMENT BENEFITS
- -------------------------------------------------------------------------------
PENSIONS
- --------
HECO and its subsidiaries participate in several of HEI's defined benefit
pension plans which cover substantially all employees of HECO and its
subsidiaries. Benefits are based on the employees' years of service and base
compensation.
22
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
================================================================================
HAWAIIAN ELECTRIC COMPANY, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
The funded status of HECO and its subsidiaries' portion of the HEI pension
plans and the amounts recognized in the consolidated financial statements were
as follows:
<TABLE>
<CAPTION>
December 31 1995 1994
- ----------- --------- --------
(in thousands)
<S> <C> <C>
Accumulated benefit obligation:
Vested.................................................. $343,452 $285,605
Nonvested............................................... 36,838 30,279
-------- --------
$380,290 $315,884
======== ========
Projected benefit obligation............................. $473,398 $388,150
Plan assets at fair value, primarily equity securities
and fixed income investments............................ 471,840 376,968
-------- --------
Projected benefit obligation in excess of plan assets.... 1,558 11,182
Unrecognized prior service cost.......................... (177) (240)
Unrecognized net gain.................................... 14,235 9,316
Unrecognized net transition obligation................... (16,878) (19,153)
Adjustment required to recognize minimum liability....... 405 282
-------- --------
Accrued (prepaid) pension liability...................... $ (857) $ 1,387
======== ========
</TABLE>
Plans with an accumulated benefit obligation exceeding plan assets at fair
value were not material. For all pension plans, at December 31, 1995 and 1994,
the assumed discount rate used to measure the projected benefit obligation was
7% and 8%, respectively.
Net periodic pension cost included the following components:
<TABLE>
<CAPTION>
Years ended December 31 1995 1994 1993
- ----------------------- --------- --------- ---------
(in thousands)
<S> <C> <C> <C>
Service cost-benefits earned during the period... $ 12,701 $ 14,469 $ 9,861
Interest cost on projected benefit obligation.... 30,369 27,803 25,437
Actual loss (return) on plan assets.............. (99,313) 10,775 (53,703)
Amortization and deferral, net................... 66,253 (37,154) 33,564
-------- -------- --------
Net periodic pension cost........................ $ 10,010 $ 15,893 $ 15,159
======== ======== ========
</TABLE>
Of these net periodic pension costs, $6,686,000, $10,801,000 and $9,663,000
were expensed in 1995, 1994 and 1993, respectively, and the remaining amounts
were charged primarily to electric utility plant.
The expected long-term rate of return on assets was 9% for 1995 and 8% for
l994 and 1993. The assumed rate of increase in future compensation levels was
5% for 1995, 1994 and 1993.
The transition obligation (the projected benefit obligation in excess of plan
assets at January 1, 1987) is being amortized ratably over 16 years beginning in
1987.
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
- -------------------------------------------
The Company provides various postretirement benefits other than pensions to
eligible employees upon retirement. Health and life insurance benefits are
provided to eligible employees upon their retirement. Health benefits are
provided with contributions by retirees toward costs based on their years of
service and retirement date. Employees are eligible for these benefits if, upon
retirement, they participate in one of the Company's defined benefit pension
plans. The Company began funding some of these benefits in December 1994.
23
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
================================================================================
HAWAIIAN ELECTRIC COMPANY, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
In February 1992, the PUC opened a generic docket to determine whether SFAS
No. 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions," should be adopted for rate-making purposes. Effective January 1,
1993, the Company adopted the provisions of SFAS No. 106. In November 1994, the
PUC issued a decision and order (D&O) authorizing recovery of the full cost of
postretirement benefits other than pensions effective January 1, 1995. The
companies were required to fund the recovered SFAS No. 106 costs. The
regulatory asset established from January 1, 1993 through December 31, 1994 for
postretirement benefits other than pensions is being amortized ratably over 18
years beginning in 1995 for rate-making and financial reporting purposes. In
December 1995, however, the PUC issued a D&O in a rate case proceeding which did
not provide revenue to cover the Company's costs relating to postretirement
executive life insurance and the Company wrote-off the regulatory asset relating
to such costs, resulting in a 1995 after-tax charge of $1.l million.
The funded status of the postretirement benefit plans and the amounts
recognized in the consolidated financial statements were as follows:
<TABLE>
<CAPTION>
December 31 1995 1994
- ----------- ---------- ----------
(in thousands)
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees........................................ $ 61,243 $ 59,047
Fully eligible active plan participants......... 43,895 34,261
Other active plan participants.................. 54,692 45,664
--------- ---------
159,830 138,972
Plan assets at fair value, primarily fixed
income investments.............................. 23,357 2,732
--------- ---------
Accumulated postretirement benefit obligation
in excess of plan assets........................ 136,473 136,240
Unrecognized net gain............................ 3,013 7,816
Unrecognized net transition obligation........... (106,492) (112,756)
--------- ---------
Accrued postretirement benefits liability........ $ 32,994 $ 31,300
========= =========
</TABLE>
At December 31, 1995 and 1994, the assumed discount rate used to measure the
accumulated postretirement benefit obligation was 7% and 8%, respectively. For
1995, 1994 and 1993, the assumed rate of increase in future compensation levels
was 5%.
Net periodic postretirement benefit cost included the following components:
<TABLE>
<CAPTION>
Years ended December 31 1995 1994 1993
- ----------------------- -------- ------- -------
(in thousands)
<S> <C> <C> <C>
Service cost............................... $ 4,878 $ 4,642 $ 5,115
Interest cost.............................. 10,836 9,284 10,426
Actual return on plan assets ..,........... (937) -- --
Amortization and deferral, net............. 6,605 6,264 6,264
------- ------- -------
Net periodic postretirement benefit cost... $21,382 $20,190 $21,805
======= ======= =======
</TABLE>
Of the net periodic postretirement benefit costs, $2,573,000 and $2,362,000
were expensed in 1994 and 1993, respectively, and the remaining amounts were
charged primarily to regulatory assets, and also to electric utility plant and
other accounts. In 1995, $15,351,000 was expensed, and the remaining amount was
charged primarily to electric utility plant.
For 1995, the expected long-term rate of return on assets for trusts which
were not subject to federal income taxes was 9%. At December 31, 1995, trusts
holding plan assets with a fair value of $5.9 million were subject to income
taxes at a
24
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
================================================================================
HAWAIIAN ELECTRIC COMPANY, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
rate of 45%. The after-tax expected long-term rate of return on these plan
assets was 6% for 1995.
At December 31, 1995, the assumed health care trend rates for 1996 and future
years were as follows: medical, 6.5%; dental, 5.0% and vision, 4.0%. The health
care cost trend rate assumption can have a significant effect on the amounts
reported. For example, a 1% increase in the trend rate for health care costs
would have increased the accumulated postretirement benefit obligation at
December 31, 1995 by approximately $22 million and the service and interest
costs for 1995 by approximately $3 million.
The transition obligation (the accumulated postretirement benefit obligation
at January 1, 1993) is being amortized ratably over 20 years beginning in 1993.
11. COMMITMENTS AND CONTINGENCIES
- -------------------------------------------------------------------------------
INTERIM RATE INCREASES
- ----------------------
Amounts recovered under interim rates in excess of final approved rates are
subject to refund with interest. In December 1995, HECO received final PUC
authorization approving an increase in annual revenues of $9 million ($10
million less than the interim increases), effective January 1, 1995, and HECO
recorded a refund of $10 million including interest, which will be returned to
customers in the first half of 1996. At December 31, 1995, other previously
recorded revenue amounts recognized under interim rate increases and subject to
refund were not significant.
FUEL CONTRACTS AND OTHER PURCHASE COMMITMENTS
- ---------------------------------------------
HECO and its subsidiaries have contractual agreements to purchase minimum
amounts of 0.5% sulfur and 2.0% sulfur residual fuel oils and 0.4% sulfur diesel
fuel through 1997 at prices which are tied to the market prices of petroleum
products as reported in Singapore, Los Angeles and the U.S. Pacific Northwest,
respectively. Based on the average price per barrel prevailing on January 1,
1996, the estimated amount of required purchases for 1996 is $203 million. The
actual cost in 1996 could vary substantially from this estimate as a result of
changes in market prices and other factors. HECO and its subsidiaries purchased
$194 million, $186 million and $205 million of fuel under these or prior
contractual agreements in 1995, 1994 and 1993, respectively. New contracts to
replace expiring ones are expected to be entered into in the normal course of
business.
At December 31, 1995, the Company had purchase commitments, other than fuel
and power purchase contracts, amounting to approximately $75 million.
POWER PURCHASE AGREEMENTS
- -------------------------
As of December 31, 1995, the Company had power purchase agreements for 469
megawatts (MW) of firm capacity, representing approximately 22% of their total
generating capabilities and purchased power firm capacities. Rate recovery is
allowed for energy and firm capacity payments under these agreements. Assuming
that each of the agreements remains in place and the minimum availability
criteria in the power purchase agreements are met, aggregate minimum fixed
capacity charges are expected to be approximately $109 million in each of 1996
and 1997, $106 million in 1998, $109 million in 1999, $102 million in 2000 and
$2.0 billion thereafter.
In general, payments under the power purchase agreements for 469 MW of firm
capacity are based upon available capacity and energy. Payments for capacity
generally are not required if the contracted capacity is not available, and
payments are reduced, under certain conditions, if available capacity drops
below
25
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
================================================================================
HAWAIIAN ELECTRIC COMPANY, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
contracted levels. In general, the payment rates for capacity have been pre-
determined for the terms of the agreements. The energy payment will vary over
the terms of the agreements and the Company may pass on changes in the fuel
component of the energy charges to customers through energy cost adjustment
clauses in its rate schedules. The Company does not operate nor participate in
the operation of any of the facilities that provide power under the agreements.
Title to the facilities does not pass to the Company upon expiration of the
agreements, and the agreements do not contain bargain purchase options with
respect to the facilities.
HECO POWER OUTAGE
- -----------------
On April 9, 1991, HECO experienced a power outage that affected all customers
on the island of Oahu. Approximately 1,500 pending claims involving personal
injury or economic loss, such as lost profits, because of the outage will be
disposed of on a case by case basis and are not expected to have a material
adverse effect on the Company's financial condition or results of operations.
Seven direct or indirect business customers filed a lawsuit against HECO on
behalf of themselves and an alleged class, claiming $75 million in compensatory
damages and additional unspecified amounts for punitive damages because of the
outage. The judge in the case ruled that the case would not be certified as a
class action. In January 1996, the case was dismissed pursuant to an immaterial
cash settlement.
In April 1991, the PUC initiated an investigation of the April 9, 1991
outage, which was consolidated with a pending investigation of an outage that
occurred in 1988. Management cannot predict the timing and outcome of any PUC
D&O that may be issued, if any, with respect to the outages.
HELCO POWER SITUATION
- ---------------------
In the past few years, HELCO's reserve margin has been relatively low. HELCO
needs additional generating capacity and has been proceeding with plans to
install two 20-MW combustion turbines, followed by an 18-MW heat steam recovery
generator, at which time these units would be converted to a 56-MW (net)
combined-cycle unit. However, installation has been delayed because HELCO has
encountered procedural and other difficulties in obtaining the necessary
Conservation District Use Permit amendment (CDUP) and air permit that would
allow the 56-MW unit to be constructed.
In late 1995, a contested case hearing with respect to the CDUP was conducted
and the hearing officer recommended denial of the CDUP application. The Hawaii
Board of Land and Natural Resources (BLNR) may decide to adopt, modify, or
reject the hearing officer's recommendation. The BLNR is scheduled to make a
decision on HELCO's CDUP application by March 27, 1996. If the BLNR denies
HELCO's application, this would delay, if not prevent, installation of HELCO's
project at the 15-acre site.
The Hawaii Department of Health (DOH) forwarded HELCO's air permit to the
Environmental Protection Agency (EPA) for its approval. In a November 1995
letter to the DOH, the EPA declined to sign HELCO's air permit. HELCO requested
that the EPA reconsider this decision and the EPA agreed to reconsider based on
additional information supplied by HELCO. In a second letter dated February 6,
1996, the EPA set forth information to be considered by HELCO which it feels may
address HELCO's concerns regarding the emission control technology to be used,
and stated that it would continue discussions with HELCO at a later date. If the
EPA does not sign the permit issued by the DOH, this would delay, if not
prevent, HELCO's project.
26
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
================================================================================
HAWAIIAN ELECTRIC COMPANY, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
Two independent power producers (IPPs) have filed separate complaints against
HELCO with the PUC, alleging that they are entitled to power purchase contracts
to provide HELCO with additional capacity which, under HELCO's current estimates
of generating capacity requirements, would be in place of the planned 56-MW
addition by HELCO. In September 1995, HELCO provided proposals to the two IPPs,
and further negotiations have been undertaken. On January 26, 1996, the PUC
ordered that the complaint docket filed by one of the IPPs be reopened. HELCO
and the IPP are to seek PUC guidance on negotiation issues if a contract has not
been finalized by March 11, 1996.
If HELCO's negotiations with the IPPs result in a power purchase agreement
and/or if HELCO's combined-cycle unit is not installed, HELCO may be required to
write-off a portion of the costs incurred in its efforts to put into service its
combined-cycle unit ($43 million as of December 31, 1995) if such costs
ultimately are not recoverable from customers or others. The $43 million
includes equipment purchases, planning and engineering costs and an allowance
for funds used during construction. Management cannot determine at this time
whether the negotiations with the IPPs will result in a power purchase agreement
or the amount of incurred costs, if any, that may not be recoverable from
customers or others.
12. REGULATORY RESTRICTIONS ON DISTRIBUTIONS TO PARENT
- -------------------------------------------------------------------------------
At December 31, 1995, net assets (assets less liabilities) of approximately
$327 million were not available for transfer to HEI in the form of dividends,
loans or advances without regulatory approval.
13. RELATED-PARTY TRANSACTIONS
- -------------------------------------------------------------------------------
HEI charged HECO and its subsidiaries for general management and
administrative services totaling $2,469,000, $2,417,000 and $2,258,000 in 1995,
1994 and 1993, respectively. The amounts charged by HEI to its subsidiaries are
allocated primarily on the basis of actual labor hours.
HEI also charged HECO for data processing services totaling $3,461,000,
$3,554,000 and $3,563,000 in 1995, 1994 and 1993, respectively.
HECO's borrowings from HEI totaled $7,000,000 and nil at December 31, 1995
and 1994, respectively. The interest charged on short-term borrowings from HEI
is computed based on HECO's short-term borrowing interest rate. Interest
charged by HEI to HECO totaled $621,000, $77,000 and $1,795,000 in 1995, 1994
and 1993, respectively.
14. SIGNIFICANT GROUP CONCENTRATIONS OF CREDIT RISK
- --------------------------------------------------------------------------------
HECO and its subsidiaries are operating electric public utilities engaged in
business on the islands of Oahu, Hawaii, Maui, Lanai and Molokai in the State of
Hawaii. HECO and its subsidiaries grant credit to customers, all of whom reside
or conduct business in the State of Hawaii.
15. FAIR VALUE OF FINANCIAL INSTRUMENTS
- --------------------------------------------------------------------------------
The following methods and assumptions were used to estimate the fair value of
each applicable class of financial instruments for which it is practicable to
estimate that value:
CASH AND EQUIVALENTS
- --------------------
The carrying amount approximates fair value because of the short maturity of
these instruments.
27
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
================================================================================
HAWAIIAN ELECTRIC COMPANY, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
NOTES RECEIVABLE
- ----------------
Fair value is estimated by discounting future cash flows using rates offered
by local lending institutions for loans of similar terms to companies with
comparable credit risk.
SHORT-TERM BORROWINGS
- ---------------------
The carrying amount approximates fair value because of the short maturity of
these instruments.
LONG-TERM DEBT
- --------------
Fair value is estimated based on the quoted market prices for the same or
similar issues of debt.
CUMULATIVE PREFERRED STOCK SUBJECT TO MANDATORY REDEMPTION
- ----------------------------------------------------------
There are no quoted market prices for the Company's preferred stocks. Fair
value is estimated based on quoted market prices for similar issues of preferred
stock.
The estimated fair values of the Company's financial instruments were as
follows:
<TABLE>
<CAPTION>
December 31 1995 1994
- ----------- -------------------- --------------------
Estimated Estimated
Carrying fair Carrying fair
amount value amount value
-------- --------- -------- ---------
(in thousands)
<S> <C> <C> <C> <C>
FINANCIAL ASSETS:
Cash and equivalents................. $ 20 $ 20 $ 10,694 $ 10,694
Notes receivable..................... 6,825 6,760 -- --
FINANCIAL LIABILITIES:
Short-term borrowings from
nonaffiliates and affiliate........ 138,753 138,753 117,866 117,866
Long-term debt, net, including
amounts due within one year........ 517,209 529,132 489,586 461,082
Cumulative preferred stock subject
to mandatory redemption, including
sinking fund requirements............ 41,750 43,737 44,844 46,478
</TABLE>
LIMITATIONS
- -----------
Fair value estimates are made at a specific point in time, based on relevant
market information and information about the financial instrument. These
estimates do not reflect any premium or discount that could result from offering
for sale at one time the Company's entire holdings of a particular financial
instrument. Because no market exists for a significant portion of the Company's
financial instruments, fair value estimates cannot be determined with precision.
Changes in assumptions could significantly affect the estimates.
Fair value estimates are based on existing financial instruments without
attempting to estimate the value of anticipated future business and the value of
assets and liabilities that are not considered financial instruments. In
addition, the tax ramifications related to the realization of the unrealized
gains and losses can have a significant effect on fair value estimates and have
not been considered.
28
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
================================================================================
HAWAIIAN ELECTRIC COMPANY, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
16. SUMMARIZED FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
Summarized financial information for HECO's consolidated subsidiaries, HELCO
and MECO, was as follows:
HAWAII ELECTRIC LIGHT COMPANY, INC.
<TABLE>
<CAPTION>
December 31 1995 1994
- ----------- -------- --------
(in thousands)
<S> <C> <C>
BALANCE SHEET DATA
Current assets.................................... $ 23,485 $ 25,151
Noncurrent assets................................. 368,785 335,725
-------- --------
$392,270 $360,876
======== ========
Common stock equity............................... $136,930 $120,908
Cumulative preferred stock:
Not subject to mandatory redemption............. 10,000 10,000
Subject to mandatory redemption................. 7,500 7,800
Current liabilities............................... 64,233 59,787
Noncurrent liabilities............................ 173,607 162,381
-------- --------
$392,270 $360,876
======== ========
</TABLE>
<TABLE>
<CAPTION>
Years ended December 31 1995 1994 1993
- ----------------------- -------- -------- --------
(in thousands)
<S> <C> <C> <C>
INCOME STATEMENT DATA
Operating revenues....................... $135,730 $128,706 $113,579
Operating income......................... 15,959 11,821 11,902
Net income for common stock.............. 13,109 8,420 5,807
</TABLE>
==============================================================================
MAUI ELECTRIC COMPANY, LIMITED
<TABLE>
<CAPTION>
December 31 1995 1994
- ----------- -------- --------
(in thousands)
<S> <C> <C>
BALANCE SHEET DATA
Current assets.................................... $ 27,161 $ 29,204
Noncurrent assets................................. 306,191 272,019
-------- --------
$333,352 $301,223
======== ========
Common stock equity............................... $126,458 $108,313
Cumulative preferred stock:
Not subject to mandatory redemption............. 8,000 8,000
Subject to mandatory redemption................. 6,055 6,545
Current liabilities............................... 57,551 34,197
Noncurrent liabilities............................ 135,288 144,168
-------- --------
$333,352 $301,223
======== ========
</TABLE>
<TABLE>
<CAPTION>
Years ended December 31 1995 1994 1993
- ----------------------- -------- -------- --------
(in thousands)
<S> <C> <C> <C>
INCOME STATEMENT DATA
Operating revenues...................... $128,707 $120,966 $114,256
Operating income........................ 16,575 16,251 13,518
Net income for common stock............. 11,798 10,196 9,274
</TABLE>
29
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
================================================================================
HAWAIIAN ELECTRIC COMPANY, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
17. CONSOLIDATED QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
- --------------------------------------------------------------------------------
Selected quarterly consolidated financial information for 1995 and 1994 was
as follows:
<TABLE>
<CAPTION>
Quarter ended
- ------------------------------------------------------------------------------------- Year ended
1995 March 31 June 30 Sept. 30 Dec. 31 Dec. 31
- ------------------------------------------------------------------------------------- ----------
(in thousands)
<S> <C> <C> <C> <C> <C>
Operating revenues...... $231,176 $242,646 $260,123 $248,045/1/ $981,990
Operating income........ 23,206 24,505 32,264 22,747/1/ 102,722
Net income for common
stock................. 15,800 17,540 24,819 14,738/1/ 72,897
===================================================================================================
<CAPTION>
1994
- ---------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C> <C>
Operating revenues...... $200,098 $217,884/2/ $247,844/2,3/ $241,482/2,3/ $907,308
Operating income........ 16,132 21,635/2/ 25,708/2,3/ 23,837/2,3/ 87,312
Net income for common
stock................. 9,276 15,188/2/ 19,328/2,3/ 17,853/2,3/ 61,645
====================================================================================================
</TABLE>
/1/ Includes accrual for amounts refundable to customers for the amounts
recovered under interim rates in 1995 in excess of final approved rates,
with interest.
/2/ Includes interim rate increases granted to HECO, primarily to cover the
costs of new facilities and equipment.
/3/ Includes interim rate increases granted to HELCO, primarily to cover the
costs of plant and equipment and operating costs necessary to maintain
and improve service.
30
<PAGE>
INDEPENDENT AUDITORS' REPORT
================================================================================
To the Board of Directors
and Stockholder
Hawaiian Electric Company, Inc.:
We have audited the accompanying consolidated balance sheets and consolidated
statements of capitalization of Hawaiian Electric Company, Inc. (a wholly owned
subsidiary of Hawaiian Electric Industries, Inc.) and subsidiaries as of
December 31, 1995 and 1994, and the related consolidated statements of income,
retained earnings and cash flows for each of the years in the three-year period
ended December 31, 1995. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Hawaiian
Electric Company, Inc. and subsidiaries as of December 31, 1995 and 1994, and
the results of their operations and their cash flows for each of the years in
the three-year period ended December 31, 1995 in conformity with generally
accepted accounting principles.
/s/ KPMG Peat Marwick LLP
Honolulu, Hawaii
January 25, 1996
31
<PAGE>
<TABLE>
<CAPTION>
DIRECTORS AND OFFICERS
======================================================================================
HAWAIIAN ELECTRIC HAWAII ELECTRIC LIGHT MAUI ELECTRIC COMPANY,
COMPANY, INC. COMPANY, INC. LIMITED
=====================================================================================
<S> <C> <C>
DIRECTORS
(_) Indicates age and year indicates
first elected or appointed./1/
Edwin L. Carter/2/ (70), 1996 T. Michael May T. Michael May
Robert F. Clarke (53), 1990 Richard Henderson Gladys C. Baisa
Richard Henderson (67), 1970 Warren H. W. Lee Thomas J. Jezierny
Mildred D. Kosaki/2/ (71), 1973 Denzil W. Rose Sanford J. Langa
T. Michael May (48), 1995 Donald K. Yamada B. Martin Luna
Paul A. Oyer (55), 1985 Anne M. Takabuki
Diane J. Plotts/2/ (60), 1991
Paul C. Yuen/2/ (67), 1993
- ---------------------------
/1/ All directors serve one year terms.
/2/ Audit Committee member.
OFFICERS
HAWAIIAN ELECTRIC HAWAII ELECTRIC LIGHT MAUI ELECTRIC COMPANY,
COMPANY, INC. COMPANY, INC. LIMITED
ROBERT F. CLARKE T. MICHAEL MAY T. MICHAEL MAY
Chairman of the Board Chairman of the Board Chairman of the Board
T. MICHAEL MAY WARREN H. W. LEE THOMAS J. JEZIERNY
President and Chief President President
Executive Officer
PAUL A. OYER PAUL A. OYER
JACKIE MAHI ERICKSON Financial Vice President Financial Vice President
Vice President-General and Treasurer and Treasurer
Counsel and Government
Relations EDWARD Y. HIRATA EDWARD Y. HIRATA
Vice President Vice President
CHARLES M. FREEDMAN
Vice President-Corporate MOLLY M. EGGED MOLLY M. EGGED
Excellence Secretary Secretary
EDWARD Y. HIRATA MICHAEL F. H. CHANG MARVIN A. HAWTHORNE
Vice President-Regulatory Assistant Treasurer Assistant Treasurer
Affairs
PAUL N. FUJIOKA DUANE T. HAYASHI
GEORGE T. IWAHIRO Assistant Treasurer Assistant Treasurer
Vice President-Energy
Delivery MARVIN A. HAWTHORNE STANLEY T. NAKAMOTO
Assistant Treasurer Assistant Treasurer
THOMAS L. JOAQUIN
Vice President-Power Supply DEORNA L. IKEDA MICHAEL E. KAM
Assistant Treasurer Assistant Treasurer
RICHARD L. O'CONNELL
Vice President-Customer WILLIAM J. STORMONT EILEEN S. WACHI
Operations Assistant Secretary Assistant Secretary
PAUL A. OYER
Financial Vice President
and Treasurer
ERNEST T. SHIRAKI
Controller
MOLLY M. EGGED
Secretary
MARVIN A. HAWTHORNE
Assistant Treasurer
</TABLE>
33
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Hawaiian
Electric Industries, Inc. and subsidiaries' consolidated balance sheet as of
December 31, 1995 and consolidated statement of income for the year ended
December 31, 1995 and is qualified in its entirety by referencce to such
financial statements.
</LEGEND>
<CIK> 0000354707
<NAME> HAWAIIAN ELECTRIC INDUSTRIES, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 130,833
<SECURITIES> 1,479,552
<RECEIVABLES> 145,521
<ALLOWANCES> 3,016
<INVENTORY> 35,258
<CURRENT-ASSETS> 0
<PP&E> 2,623,742
<DEPRECIATION> 815,547
<TOTAL-ASSETS> 5,603,745
<CURRENT-LIABILITIES> 0
<BONDS> 758,463
41,750
48,293
<COMMON> 585,387
<OTHER-SE> 144,216
<TOTAL-LIABILITY-AND-EQUITY> 5,603,745
<SALES> 0
<TOTAL-REVENUES> 1,295,924
<CGS> 0
<TOTAL-COSTS> 1,105,196
<OTHER-EXPENSES> (8,429)
<LOSS-PROVISION> 3,064
<INTEREST-EXPENSE> 62,860
<INCOME-PRETAX> 133,233
<INCOME-TAX> 55,740
<INCOME-CONTINUING> 77,493
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 77,493
<EPS-PRIMARY> 2.66
<EPS-DILUTED> 2.66
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> UT
<LEGEND>
This schedule contains summary fiancial information extracted from Hawaiian
Electric Company, Inc. and subsidiaries' consolidated balance sheet as of
December 31, 1995 and consolidated statement of income and consolidated
statement of cash flows for the year ended December 31, 1995 and is qualified in
its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000046207
<NAME> HAWAIIAN ELECTRIC CO., INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 1,720,235
<OTHER-PROPERTY-AND-INVEST> 0
<TOTAL-CURRENT-ASSETS> 153,072
<TOTAL-DEFERRED-CHARGES> 10,022
<OTHER-ASSETS> 132,954
<TOTAL-ASSETS> 2,016,283
<COMMON> 82,031
<CAPITAL-SURPLUS-PAID-IN> 271,449
<RETAINED-EARNINGS> 343,425
<TOTAL-COMMON-STOCKHOLDERS-EQ> 696,905
39,955
48,293
<LONG-TERM-DEBT-NET> 487,306
<SHORT-TERM-NOTES> 7,000
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 131,753
<LONG-TERM-DEBT-CURRENT-PORT> 29,903
1,795
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 573,373
<TOT-CAPITALIZATION-AND-LIAB> 2,016,283
<GROSS-OPERATING-REVENUE> 981,990
<INCOME-TAX-EXPENSE> 50,719
<OTHER-OPERATING-EXPENSES> 828,549
<TOTAL-OPERATING-EXPENSES> 879,268
<OPERATING-INCOME-LOSS> 102,722
<OTHER-INCOME-NET> 16,325
<INCOME-BEFORE-INTEREST-EXPEN> 119,047
<TOTAL-INTEREST-EXPENSE> 42,024
<NET-INCOME> 77,023
4,126
<EARNINGS-AVAILABLE-FOR-COMM> 72,897
<COMMON-STOCK-DIVIDENDS> 38,007
<TOTAL-INTEREST-ON-BONDS> 35,497
<CASH-FLOW-OPERATIONS> 138,236
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
