HAWAIIAN ELECTRIC CO INC (Form: 10-Q, Received: 11/07/2013 16:49:15)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-Q

ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2013

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



Exact Name of Registrant as	Commission	I.R.S. Employer
Specified in Its Charter	File Number	Identification No.
HAWAIIAN ELECTRIC INDUSTRIES, INC.	1-8503	99-0208097
and Principal Subsidiary
HAWAIIAN ELECTRIC COMPANY, INC.	1-4955	99-0040500

State of Hawaii

(State or other jurisdiction of incorporation or organization)

Hawaiian Electric Industries, Inc. – 1001 Bishop Street, Suite 2900, Honolulu, Hawaii 96813

Hawaiian Electric Company, Inc. – 900 Richards Street, Honolulu, Hawaii 96813

(Address of principal executive offices and zip code)

Hawaiian Electric Industries, Inc. – (808) 543-5662

Hawaiian Electric Company, Inc. – (808) 543-7771

(Registrant’s telephone number, including area code)

Not applicable

(Former name, former address and former fiscal year, if changed since last report)

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.



Hawaiian Electric Industries, Inc. Yes x No o		Hawaiian Electric Company, Inc. Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).



Hawaiian Electric Industries, Inc. Yes x No o		Hawaiian Electric Company, Inc. Yes x No o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).



Hawaiian Electric Industries, Inc. Yes o No x		Hawaiian Electric Company, Inc. Yes o No x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.



Hawaiian Electric Industries, Inc.	Large accelerated filer x	Hawaiian Electric Company, Inc.	Large accelerated filer o
	Accelerated filer o		Accelerated filer o
	Non-accelerated filer o		Non-accelerated filer x
	(Do not check if a smaller reporting company)		(Do not check if a smaller reporting company)
	Smaller reporting company o		Smaller reporting company o

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuers’ classes of common stock, as of the latest practicable date.



Class of Common Stock		Outstanding October 31, 2013
Hawaiian Electric Industries, Inc. (Without Par Value)		99,605,735 Shares
Hawaiian Electric Company, Inc. ($6-2/3 Par Value)		14,665,264 Shares (not publicly traded)

Hawaiian Electric Industries, Inc. and Subsidiaries

Hawaiian Electric Company, Inc. and Subsidiaries

Form 10-Q—Quarter ended September 30, 2013

TABLE OF CONTENTS



Page No.
ii	Glossary of Terms
iv	Forward-Looking Statements

	PART I. FINANCIAL INFORMATION
1	Item 1.	Financial Statements

		Hawaiian Electric Industries, Inc. and Subsidiaries
1		Consolidated Statements of Income - three and nine months ended September 30, 2013 and 2012
2		Consolidated Statements of Comprehensive Income - three and nine months ended September 30, 2013 and 2012
3		Consolidated Balance Sheets - September 30, 2013 and December 31, 2012
4		Consolidated Statements of Changes in Shareholders’ Equity - nine months ended September 30, 2013 and 2012
5		Consolidated Statements of Cash Flows - nine months ended September 30, 2013 and 2012
6		Notes to Consolidated Financial Statements

		Hawaiian Electric Company, Inc. and Subsidiaries
33		Consolidated Statements of Income - three and nine months ended September 30, 2013 and 2012
34		Consolidated Statements of Comprehensive Income - three and nine months ended September 30, 2013 and 2012
35		Consolidated Balance Sheets - September 30, 2013 and December 31, 2012
36		Consolidated Statements of Changes in Common Stock Equity - nine months ended September 30, 2013 and 2012
37		Consolidated Statements of Cash Flows - nine months ended September 30, 2013 and 2012
38		Notes to Consolidated Financial Statements
59	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations
59		HEI Consolidated
64		Electric Utilities
73		Bank
83	Item 3.	Quantitative and Qualitative Disclosures About Market Risk
84	Item 4.	Controls and Procedures

	PART II.	OTHER INFORMATION
85	Item 1.	Legal Proceedings
85	Item 1A.	Risk Factors
85	Item 5.	Other Information
86	Item 6.	Exhibits
87	Signatures

Hawaiian Electric Industries, Inc. and Subsidiaries

Hawaiian Electric Company, Inc. and Subsidiaries

Form 10-Q—Quarter ended September 30, 2013

GLOSSARY OF TERMS



Terms		Definitions
AFTAP		Adjusted Funding Target Attainment Percentage
AFUDC		Allowance for funds used during construction
AOCI		Accumulated other comprehensive income/(loss)
ARO		Asset retirement obligation
ASB		American Savings Bank, F.S.B., a wholly-owned subsidiary of American Savings Holdings, Inc.
ASHI		American Savings Holdings, Inc., a wholly owned subsidiary of Hawaiian Electric Industries, Inc. and the parent company of American Savings Bank, F.S.B.
ASU		Accounting Standards Update
CIP CT-1		Campbell Industrial Park 110 MW combustion turbine No. 1
CIS		Customer Information System
Company		Hawaiian Electric Industries, Inc. and its direct and indirect subsidiaries, including, without limitation, Hawaiian Electric Company, Inc. and its subsidiaries (listed under Hawaiian Electric); American Savings Holdings, Inc. and its subsidiary, American Savings Bank, F.S.B.; HEI Properties, Inc.; Hawaiian Electric Industries Capital Trust II and Hawaiian Electric Industries Capital Trust III (inactive financing entities); and The Old Oahu Tug Service, Inc. (formerly Hawaiian Tug & Barge Corp.).
Consumer Advocate		Division of Consumer Advocacy, Department of Commerce and Consumer Affairs of the State of Hawaii
DBEDT		State of Hawaii Department of Business, Economic Development and Tourism
D&O		Decision and order
Dodd-Frank Act		Dodd-Frank Wall Street Reform and Consumer Protection Act
DOH		Department of Health of the State of Hawaii
DRIP		HEI Dividend Reinvestment and Stock Purchase Plan
DSM		Demand-side management
ECAC		Energy cost adjustment clauses
EIP		2010 Equity and Incentive Plan
EGU		Electrical generating unit
Energy Agreement		Agreement dated October 20, 2008 and signed by the Governor of the State of Hawaii, the State of Hawaii Department of Business, Economic Development and Tourism, the Division of Consumer Advocacy of the Department of Commerce and Consumer Affairs, and Hawaiian Electric, for itself and on behalf of its electric utility subsidiaries committing to actions to develop renewable energy and reduce dependence on fossil fuels in support of the HCEI
EPA		Environmental Protection Agency — federal
EPS		Earnings per share
ERISA		Employee Retirement Income Security Act of 1974, as amended
EVE		Economic value of equity
Exchange Act		Securities Exchange Act of 1934
FASB		Financial Accounting Standards Board
FDIC		Federal Deposit Insurance Corporation
federal		U.S. Government
FHLB		Federal Home Loan Bank
FHLMC		Federal Home Loan Mortgage Corporation
FNMA		Federal National Mortgage Association
FRB		Federal Reserve Board

GLOSSARY OF TERMS, continued



Terms		Definitions
GAAP		U.S. generally accepted accounting principles
GHG		Greenhouse gas
GNMA		Government National Mortgage Association
HCEI		Hawaii Clean Energy Initiative
Hawaiian Electric		Hawaiian Electric Company, Inc., an electric utility subsidiary of Hawaiian Electric Industries, Inc. and parent company of Hawaii Electric Light Company, Inc., Maui Electric Company, Limited, HECO Capital Trust III (unconsolidated financing subsidiary), Renewable Hawaii, Inc. and Uluwehiokama Biofuels Corp.
HEI		Hawaiian Electric Industries, Inc., direct parent company of Hawaiian Electric Company, Inc., American Savings Holdings, Inc., HEI Properties, Inc., Hawaiian Electric Industries Capital Trust II, Hawaiian Electric Industries Capital Trust III and The Old Oahu Tug Service, Inc. (formerly Hawaiian Tug & Barge Corp.)
HEIRSP		Hawaiian Electric Industries Retirement Savings Plan
Hawaii Electric Light		Hawaii Electric Light Company, Inc., an electric utility subsidiary of Hawaiian Electric Company, Inc.
HPOWER		City and County of Honolulu with respect to a power purchase agreement for a refuse-fired plant
IPP		Independent power producer
IRP		Integrated resource planning
Kalaeloa		Kalaeloa Partners, L.P.
KW		Kilowatt
KWH		Kilowatthour
LTIP		Long-term incentive plan
MAP-21		Moving Ahead for Progress in the 21 st Century Act
Maui Electric		Maui Electric Company, Limited, an electric utility subsidiary of Hawaiian Electric Company, Inc.
MW		Megawatt/s (as applicable)
NII		Net interest income
NQSO		Nonqualified stock option
O&M		Other operation and maintenance
OCC		Office of the Comptroller of the Currency
OPEB		Postretirement benefits other than pensions
PPA		Power purchase agreement
PPAC		Purchased power adjustment clause
PUC		Public Utilities Commission of the State of Hawaii
RAM		Revenue adjustment mechanism
RBA		Revenue balancing account
RFP		Request for proposal
REIP		Renewable Energy Infrastructure Program
RHI		Renewable Hawaii, Inc., a wholly owned subsidiary of Hawaiian Electric Company, Inc.
ROACE		Return on average common equity
RORB		Return on average rate base
RPS		Renewable portfolio standard
SAR		Stock appreciation right
SEC		Securities and Exchange Commission
See		Means the referenced material is incorporated by reference
SOIP		1987 Stock Option and Incentive Plan, as amended
TDR		Troubled debt restructuring
UBC		Uluwehiokama Biofuels Corp., a non-regulated subsidiary of Hawaiian Electric Company, Inc.
Utilities		Hawaiian Electric Company, Inc., Hawaii Electric Light Company, Inc. and Maui Electric Company, Limited
VIE		Variable interest entity

iii

FORWARD-LOOKING STATEMENTS

This report and other presentations made by Hawaiian Electric Industries, Inc. (HEI) and Hawaiian Electric Company, Inc. (Hawaiian Electric) and their subsidiaries contain “forward-looking statements,” which include statements that are predictive in nature, depend upon or refer to future events or conditions, and usually include words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “predicts,” “estimates” or similar expressions. In addition, any statements concerning future financial performance, ongoing business strategies or prospects or possible future actions are also forward-looking statements. Forward-looking statements are based on current expectations and projections about future events and are subject to risks, uncertainties and the accuracy of assumptions concerning HEI and its subsidiaries (collectively, the Company), the performance of the industries in which they do business and economic and market factors, among other things. These forward-looking statements are not guarantees of future performance.

Risks, uncertainties and other important factors that could cause actual results to differ materially from those described in forward-looking statements and from historical results include, but are not limited to, the following:

•

international, national and local economic conditions, including the state of the Hawaii tourism, defense and construction industries, the strength or weakness of the Hawaii and continental U.S. real estate markets (including the fair value and/or the actual performance of collateral underlying loans held by American Savings Bank, F.S.B. (ASB), which could result in higher loan loss provisions and write-offs), decisions concerning the extent of the presence of the federal government and military in Hawaii (including the effects of sequestration), the implications and potential impacts of U.S. and foreign capital and credit market conditions and federal, state and international responses to those conditions, and the potential impacts of global developments (including global economic conditions and uncertainties, unrest, conflict and the overthrow of governmental regimes in North Africa and the Middle East, terrorist acts, the war on terrorism, continuing U.S. presence in Afghanistan and potential conflict or crisis with North Korea or Iran);


•	the effects of future actions or inaction of the U.S. government or related agencies, including those related to the U.S. debt ceiling, a shutdown of the federal government, or monetary policy;


•	weather and natural disasters (e.g., hurricanes, earthquakes, tsunamis, lightning strikes and the potential effects of climate change, such as more severe storms and rising sea levels), including their impact on Company operations and the economy;


•	the timing and extent of changes in interest rates and the shape of the yield curve;


•	the ability of the Company to access credit markets to obtain commercial paper and other short-term and long-term debt financing (including lines of credit) and to access capital markets to issue HEI common stock under volatile and challenging market conditions, and the cost of such financings, if available;


•	the risks inherent in changes in the value of the Company’s pension and other retirement plan assets and ASB’s securities available for sale;


•	changes in laws, regulations, market conditions and other factors that result in changes in assumptions used to calculate retirement benefits costs and funding requirements;


•	the impact of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act) and of the rules and regulations that the Dodd-Frank Act requires to be promulgated;


•	increasing competition in the banking industry (e.g., increased price competition for deposits, or an outflow of deposits to alternative investments, which may have an adverse impact on ASB’s cost of funds);

•

the implementation of the Energy Agreement with the State of Hawaii and Consumer Advocate (Energy Agreement), setting forth the goals and objectives of a Hawaii Clean Energy Initiative (HCEI), and the fulfillment by the electric utilities of their commitments under the Energy Agreement (given the Public Utilities Commission of the State of Hawaii (PUC) approvals needed; the PUC’s potential delay in considering (and potential disapproval of actual or proposed) HCEI-related costs; reliance by the Company on outside parties such as the state, independent power producers (IPPs) and developers; potential changes in political support for the HCEI; and uncertainties surrounding wind power, proposed undersea cables, biofuels, environmental assessments and the impacts of implementation of the HCEI on future costs of electricity);


•	capacity and supply constraints or difficulties, especially if generating units (utility-owned or IPP-owned) fail or measures such as demand-side management (DSM), distributed generation, combined heat and power or other firm capacity supply-side resources fall short of achieving their forecasted benefits or are otherwise insufficient to reduce or meet peak demand;


•	fuel oil price changes, performance by suppliers of their fuel oil delivery obligations and the continued availability to the electric utilities of their energy cost adjustment clauses (ECACs);


•	the continued availability to the electric utilities of other cost recovery mechanisms, including the purchased power adjustment clauses (PPACs), revenue adjustment mechanisms (RAMs) and pension and postretirement benefits other than pensions (OPEB) tracking mechanisms, and the continued decoupling of revenues from sales;


•	the impact of fuel price volatility on customer satisfaction and political and regulatory support for the Utilities;


•	the risks associated with increasing reliance on renewable energy, as contemplated under the Energy Agreement, including the availability and cost of non-fossil fuel supplies for renewable energy generation and the operational impacts of adding intermittent sources of renewable energy to the electric grid;


•	the ability of IPPs to deliver the firm capacity anticipated in their power purchase agreements (PPAs);


•	the ability of the electric utilities to negotiate, periodically, favorable agreements for significant resources such as fuel supply contracts and collective bargaining agreements;


•	new technological developments that could affect the operations and prospects of HEI and its subsidiaries (including Hawaiian Electric and its subsidiaries and ASB) or their competitors;

•

cyber security risks and the potential for cyber incidents, including potential incidents at HEI, ASB and Hawaiian Electric and their subsidiaries (including at ASB branches and at the electric utility plants) and incidents at data processing centers they use, to the extent not prevented by intrusion detection and prevention systems, anti-virus software, firewalls and other general information technology controls;

•

federal, state, county and international governmental and regulatory actions, such as existing, new and changes in laws, rules and regulations applicable to HEI, Hawaiian Electric, ASB and their subsidiaries (including changes in taxation, increases in capital requirements, regulatory changes resulting from the HCEI, environmental laws and regulations (including resulting compliance costs and risks of fines and penalties and/or liabilities), the regulation of greenhouse gas (GHG) emissions, governmental fees and assessments (such as Federal Deposit Insurance Corporation assessments), and potential carbon “cap and trade” legislation that may fundamentally alter costs to produce electricity and accelerate the move to renewable generation);


•	decisions by the PUC in rate cases and other proceedings (including the risks of delays in the timing of decisions, adverse changes in final decisions from interim decisions and the disallowance of project costs as a result of adverse regulatory audit reports or otherwise);


•	decisions by the PUC and by other agencies and courts on land use, environmental and other permitting issues (such as required corrective actions, restrictions and penalties that may arise, such as with respect to environmental conditions or renewable portfolio standards (RPS));

•

potential enforcement actions by the Office of the Comptroller of the Currency, the Federal Reserve Board (FRB), the Federal Deposit Insurance Corporation (FDIC) and/or other governmental authorities (such as consent orders, required corrective actions, restrictions and penalties that may arise, for example, with respect to compliance deficiencies under existing or new banking and consumer protection laws and regulations or with respect to capital adequacy);


•	the ability of the electric utilities to recover increasing costs and earn a reasonable return on capital investments not covered by revenue adjustment mechanisms;


•	the risks associated with the geographic concentration of HEI’s businesses and ASB’s loans, ASB’s concentration in a single product type (i.e., first mortgages) and ASB’s significant credit relationships (i.e., concentrations of large loans and/or credit lines with certain customers);

•

changes in accounting principles applicable to HEI, Hawaiian Electric, ASB and their subsidiaries, including the possible adoption of International Financial Reporting Standards or new U.S. accounting standards, the potential discontinuance of regulatory accounting and the effects of potentially required consolidation of variable interest entities (VIEs) or required capital lease accounting for PPAs with IPPs;


•	changes by securities rating agencies in their ratings of the securities of HEI and Hawaiian Electric and the results of financing efforts;


•	faster than expected loan prepayments that can cause an acceleration of the amortization of premiums on loans and investments and the impairment of mortgage-servicing assets of ASB;


•	changes in ASB’s loan portfolio credit profile and asset quality which may increase or decrease the required level of allowance for loan losses and charge-offs;


•	changes in ASB’s deposit cost or mix which may have an adverse impact on ASB’s cost of funds;


•	the final outcome of tax positions taken by HEI, Hawaiian Electric, ASB and their subsidiaries;


•	the risks of suffering losses and incurring liabilities that are uninsured (e.g., damages to the Utilities’ transmission and distribution system and losses from business interruption) or underinsured (e.g., losses not covered as a result of insurance deductibles or other exclusions or exceeding policy limits); and


•	other risks or uncertainties described elsewhere in this report and in other reports (e.g., “Item 1A. Risk Factors” in the Company’s Annual Report on Form 10-K) previously and subsequently filed by HEI and/or Hawaiian Electric with the Securities and Exchange Commission (SEC).

Forward-looking statements speak only as of the date of the report, presentation or filing in which they are made. Except to the extent required by the federal securities laws, HEI, Hawaiian Electric, ASB and their subsidiaries undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

Hawaiian Electric Industries, Inc. and Subsidiaries

Consolidated Statements of Income (unaudited)



	Three months ended September 30						Nine months ended September 30
(in thousands, except per share amounts)	2013			2012			2013			2012
Revenues
Electric utility	$	766,115		$	801,095		$	2,216,076		$	2,340,257
Bank	65,058			66,596			195,841			196,569
Other	56			29			106			22
Total revenues	831,229			867,720			2,412,023			2,536,848
Expenses
Electric utility	694,201			726,276			2,030,071			2,146,688
Bank	42,223			44,974			126,550			130,161
Other	4,706			4,768			12,276			13,075
Total expenses	741,130			776,018			2,168,897			2,289,924
Operating income (loss)
Electric utility	71,914			74,819			186,005			193,569
Bank	22,835			21,622			69,291			66,408
Other	(4,650		)	(4,739		)	(12,170		)	(13,053		)
Total operating income	90,099			91,702			243,126			246,924
Interest expense—other than on deposit liabilities and other bank borrowings	(20,304		)	(20,020		)	(59,705		)	(58,758		)
Allowance for borrowed funds used during construction	498			688			1,626			2,451
Allowance for equity funds used during construction	1,255			1,611			4,030			5,548
Income before income taxes	71,548			73,981			189,077			196,165
Income taxes	22,841			25,804			65,157			69,926
Net income	48,707			48,177			123,920			126,239
Preferred stock dividends of subsidiaries	471			471			1,417			1,417
Net income for common stock	$	48,236		$	47,706		$	122,503		$	124,822
Basic earnings per common share	$	0.49		$	0.49		$	1.24		$	1.29
Diluted earnings per common share	$	0.48		$	0.49		$	1.23		$	1.29
Dividends per common share	$	0.31		$	0.31		$	0.93		$	0.93
Weighted-average number of common shares outstanding	99,204			97,157			98,670			96,674
Net effect of potentially dilutive shares	614			361			620			423
Adjusted weighted-average shares	99,818			97,518			99,290			97,097

The accompanying notes are an integral part of these consolidated financial statements.

Hawaiian Electric Industries, Inc. and Subsidiaries

Consolidated Statements of Comprehensive Income (unaudited)



	Three months ended September 30						Nine months ended September 30
(in thousands)	2013			2012			2013			2012
Net income for common stock	$	48,236		$	47,706		$	122,503		$	124,822
Other comprehensive income (loss), net of taxes:
Net unrealized gains (losses) on securities:
Net unrealized gains (losses) on securities arising during the period, net of (taxes) benefits of $1,049 and ($689) for the three months ended September 30, 2013 and 2012 and $7,081 and ($1,261) for the nine months ended September 30, 2013 and 2012, respectively	(1,589		)	1,043			(10,724		)	1,910
Less: reclassification adjustment for net realized gains included in net income, net of taxes of nil for the three months ended September 30, 2013 and 2012 and $488 and $53 for the nine months ended September 30, 2013 and 2012, respectively	—			—			(738		)	(81		)
Derivatives qualified as cash flow hedges:
Less: reclassification adjustment to net income, net of tax benefits of $37 for the three months ended September 30, 2013 and 2012 and $112 for the nine months ended September 30, 2013 and 2012	59			59			177			177
Retirement benefit plans:
Less: amortization of transition obligation, prior service credit and net losses recognized during the period in net periodic benefit cost, net of tax benefits of $3,697 and $2,443 for the three months ended September 30, 2013 and 2012 and $11,173 and $7,321 for the nine months ended September 30, 2013 and 2012, respectively	5,789			3,826			17,490			11,467
Less: reclassification adjustment for impact of D&Os of the PUC included in regulatory assets, net of taxes of $3,284 and $2,129 for the three months ended September 30, 2013 and 2012 and $9,852 and $6,386 for the nine months ended September 30, 2013 and 2012, respectively	(5,156		)	(3,342		)	(15,468		)	(10,026		)
Other comprehensive income (loss), net of taxes	(897		)	1,586			(9,263		)	3,447
Comprehensive income attributable to Hawaiian Electric Industries, Inc.	$	47,339		$	49,292		$	113,240		$	128,269

The accompanying notes are an integral part of these consolidated financial statements.

Hawaiian Electric Industries, Inc. and Subsidiaries

Consolidated Balance Sheets (unaudited)



(dollars in thousands)	September 30, 2013						December 31, 2012
Assets
Cash and cash equivalents				$	215,042					$	219,662
Accounts receivable and unbilled revenues, net				350,083						362,823
Available-for-sale investment and mortgage-related securities				535,264						671,358
Investment in stock of Federal Home Loan Bank of Seattle				93,413						96,022
Loans receivable held for investment, net				4,005,132						3,737,233
Loans held for sale, at lower of cost or fair value				5,829						26,005
Property, plant and equipment, net of accumulated depreciation of $2,173,583 in 2013 and $2,125,286 in 2012				3,776,305						3,594,829
Regulatory assets				890,419						864,596
Other				475,335						494,414
Goodwill				82,190						82,190
Total assets				$	10,429,012					$	10,149,132
Liabilities and shareholders’ equity
Liabilities
Accounts payable				$	206,803					$	212,379
Interest and dividends payable				27,232						26,258
Deposit liabilities				4,310,842						4,229,916
Short-term borrowings—other than bank				131,341						83,693
Other bank borrowings				239,612						195,926
Long-term debt, net—other than bank				1,422,880						1,422,872
Deferred income taxes				493,662						439,329
Regulatory liabilities				337,720						322,074
Contributions in aid of construction				425,916						405,520
Defined benefit pension and other postretirement benefit plans liability				630,904						656,394
Other				512,342						526,613
Total liabilities				8,739,254						8,520,974
Preferred stock of subsidiaries - not subject to mandatory redemption				34,293						34,293
Commitments and contingencies (Note 8)
Shareholders’ equity
Preferred stock, no par value, authorized 10,000,000 shares; issued: none				—						—
Common stock, no par value, authorized 200,000,000 shares; issued and outstanding: 99,541,518 shares in 2013 and 97,928,403 shares in 2012				1,443,583						1,403,484
Retained earnings				247,568						216,804
Accumulated other comprehensive income (loss), net of taxes
Net unrealized gains (losses) on securities	$	(701	)				$	10,761
Unrealized losses on derivatives	(583		)				(760		)
Retirement benefit plans	(34,402		)	(35,686		)	(36,424		)	(26,423		)
Total shareholders’ equity				1,655,465						1,593,865
Total liabilities and shareholders’ equity				$	10,429,012					$	10,149,132

The accompanying notes are an integral part of these consolidated financial statements.

Hawaiian Electric Industries, Inc. and Subsidiaries

Consolidated Statements of Changes in Shareholders’ Equity (unaudited)



	Common stock			Retained			Accumulated other comprehensive
(in thousands, except per share amounts)	Shares	Amount		Earnings			loss			Total
Balance, December 31, 2012	97,928	$	1,403,484	$	216,804		$	(26,423	)	$	1,593,865
Net income for common stock	—	—		122,503			—			122,503
Other comprehensive loss, net of tax benefits	—	—		—			(9,263		)	(9,263		)
Issuance of common stock, net	1,614	40,099		—			—			40,099
Common stock dividends ($0.93 per share)	—	—		(91,739		)	—			(91,739		)
Balance, September 30, 2013	99,542	$	1,443,583	$	247,568		$	(35,686	)	$	1,655,465

Balance, December 31, 2011	96,038	$	1,349,446	$	198,397		$	(19,137	)	$	1,528,706
Net income for common stock	—	—		124,822			—			124,822
Other comprehensive income, net of taxes	—	—		—			3,447			3,447
Issuance of common stock, net	1,387	40,161		—			—			40,161
Dividend equivalents paid on equity-classified awards	—	—		(99		)	—			(99		)
Common stock dividends ($0.93 per share)	—	—		(89,902		)	—			(89,902		)
Balance, September 30, 2012	97,425	$	1,389,607	$	233,218		$	(15,690	)	$	1,607,135

The accompanying notes are an integral part of these consolidated financial statements.

Hawaiian Electric Industries, Inc. and Subsidiaries

Consolidated Statements of Cash Flows (unaudited)



Nine months ended September 30	2013			2012
(in thousands)
Cash flows from operating activities
Net income	$	123,920		$	126,239
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation of property, plant and equipment	120,355			112,946
Other amortization	2,352			4,811
Provision for loan losses	953			9,504
Loans receivable originated and purchased, held for sale	(199,772		)	(304,289		)
Proceeds from sale of loans receivable, held for sale	223,221			302,844
Gain on sale of credit card portfolio	(2,251		)	—
Change in deferred income taxes	60,580			82,582
Excess tax benefits from share-based payment arrangements	(469		)	(65		)
Allowance for equity funds used during construction	(4,030		)	(5,548		)
Changes in assets and liabilities
Decrease (increase) in accounts receivable and unbilled revenues, net	12,740			(30,610		)
Decrease (increase) in fuel oil stock	24,332			(31,372		)
Increase in regulatory assets	(53,314		)	(57,793		)
Decrease in accounts, interest and dividends payable	(21,708		)	(5,905		)
Decrease in prepaid and accrued income taxes and utility revenue taxes	(19,212		)	(5,121		)
Contributions to defined benefit pension and other postretirement benefit plans	(62,279		)	(64,006		)
Other increase in defined benefit pension and other postretirement benefit plans liability	61,770			49,950
Change in other assets and liabilities	(20,462		)	(62,563		)
Net cash provided by operating activities	246,726			121,604
Cash flows from investing activities
Available-for-sale investment and mortgage-related securities purchased	(39,721		)	(146,794		)
Principal repayments on available-for-sale investment and mortgage-related securities	84,487			104,310
Proceeds from sale of available-for-sale investment and mortgage-related securities	71,367			3,548
Net increase in loans held for investment	(293,996		)	(75,982		)
Proceeds from sale of real estate acquired in settlement of loans	8,777			9,659
Capital expenditures	(247,392		)	(225,961		)
Contributions in aid of construction	23,633			33,106
Proceeds from sale of credit card portfolio	26,386			—
Other	3,035			865
Net cash used in investing activities	(363,424		)	(297,249		)
Cash flows from financing activities
Net increase in deposit liabilities	80,926			56,756
Net increase in short-term borrowings with original maturities of three months or less	47,648			13,398
Net decrease in retail repurchase agreements	(6,314		)	(22,011		)
Proceeds from other bank borrowings	120,000			—
Repayments of other bank borrowings	(70,000		)	—
Proceeds from issuance of long-term debt	50,000			457,000
Repayment of long-term debt	(50,000		)	(368,500		)
Excess tax benefits from share-based payment arrangements	469			65
Net proceeds from issuance of common stock	18,383			16,881
Common stock dividends	(73,584		)	(71,966		)
Preferred stock dividends of subsidiaries	(1,417		)	(1,417		)
Other	(4,033		)	(6,314		)
Net cash provided by financing activities	112,078			73,892
Net decrease in cash and cash equivalents	(4,620		)	(101,753		)
Cash and cash equivalents, beginning of period	219,662			270,265
Cash and cash equivalents, end of period	$	215,042		$	168,512

The accompanying notes are an integral part of these consolidated financial statements.

Hawaiian Electric Industries, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1 · Basis of presentation

The accompanying unaudited consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles (GAAP) for interim financial information, the instructions to SEC Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. 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. The accompanying unaudited consolidated financial statements and the following notes should be read in conjunction with the audited consolidated financial statements and the notes thereto in HEI’s Form 10-K for the year ended December 31, 2012 and the unaudited consolidated financial statements and the notes thereto in HEI’s Quarterly Reports on SEC Form 10-Q for the quarters ended March 31, 2013 and June 30, 2013.

In the opinion of HEI’s management, the accompanying unaudited consolidated financial statements contain all material adjustments required by GAAP to fairly state the Company’s financial position as of September 30, 2013 and December 31, 2012 , the results of its operations for the three and nine months ended September 30, 2013 and 2012 and its cash flows for the nine months ended September 30, 2013 and 2012 . All such adjustments are of a normal recurring nature, unless otherwise disclosed in this Form 10-Q or other referenced material. Results of operations for interim periods are not necessarily indicative of results for the full year. When required, certain reclassifications are made to the prior period’s consolidated financial statements to conform to the current presentation.

2 · Segment financial information



(in thousands)	Electric utility		Bank		Other			Total
Three months ended September 30, 2013
Revenues from external customers	$	766,109	$	65,058	$	62		$	831,229
Intersegment revenues (eliminations)	6		—		(6		)	—
Revenues	766,115		65,058		56			831,229
Income (loss) before income taxes	57,373		22,808		(8,633		)	71,548
Income taxes (benefit)	19,058		7,532		(3,749		)	22,841
Net income (loss)	38,315		15,276		(4,884		)	48,707
Preferred stock dividends of subsidiaries	498		—		(27		)	471
Net income (loss) for common stock	37,817		15,276		(4,857		)	48,236

Nine months ended September 30, 2013
Revenues from external customers	$	2,216,058	$	195,841	$	124		$	2,412,023
Intersegment revenues (eliminations)	18		—		(18		)	—
Revenues	2,216,076		195,841		106			2,412,023
Income (loss) before income taxes	144,212		69,265		(24,400		)	189,077
Income taxes (benefit)	51,777		23,915		(10,535		)	65,157
Net income (loss)	92,435		45,350		(13,865		)	123,920
Preferred stock dividends of subsidiaries	1,496		—		(79		)	1,417
Net income (loss) for common stock	90,939		45,350		(13,786		)	122,503
Assets (at September 30, 2013)	5,269,758		5,159,372		(118		)	10,429,012

Three months ended September 30, 2012
Revenues from external customers	$	801,089	$	66,596	$	35		$	867,720
Intersegment revenues (eliminations)	6		—		(6		)	—
Revenues	801,095		66,596		29			867,720
Income (loss) before income taxes	61,268		21,627		(8,914		)	73,981
Income taxes (benefit)	22,395		7,419		(4,010		)	25,804
Net income (loss)	38,873		14,208		(4,904		)	48,177
Preferred stock dividends of subsidiaries	498		—		(27		)	471
Net income (loss) for common stock	38,375		14,208		(4,877		)	47,706

Nine months ended September 30, 2012
Revenues from external customers	$	2,340,202	$	196,569	$	77		$	2,536,848
Intersegment revenues (eliminations)	55		—		(55		)	—
Revenues	2,340,257		196,569		22			2,536,848
Income (loss) before income taxes	154,976		66,964		(25,775		)	196,165
Income taxes (benefit)	58,429		22,690		(11,193		)	69,926
Net income (loss)	96,547		44,274		(14,582		)	126,239
Preferred stock dividends of subsidiaries	1,496		—		(79		)	1,417
Net income (loss) for common stock	95,051		44,274		(14,503		)	124,822
Assets (at December 31, 2012)	5,108,793		5,041,673		(1,334		)	10,149,132

Intercompany electricity sales of the electric utilities to the bank and “other” segments are not eliminated because those segments would need to purchase electricity from another source if it were not provided by consolidated Hawaiian Electric, the profit on such sales is nominal and the elimination of electric sales revenues and expenses could distort segment operating income and net income for common stock.

Bank fees that ASB charges the electric utility and “other” segments are not eliminated because those segments would pay fees to another financial institution if they were to bank with another institution, the profit on such fees is nominal and the elimination of bank fee income and expenses could distort segment operating incom e and net income for common stock.

3 · Electric utility subsidiary

For consolidated Hawaiian Electric financial information, including its commitments and contingencies, see Hawaiian Electric’s consolidated financial statements beginning on page 33 through Note 10 on page 49 .

4 · Bank subsidiary

Selected financial information

American Savings Bank, F.S.B.

Statements of Income Data



	Three months ended September 30				Nine months ended September 30
(in thousands)	2013		2012		2013		2012
Interest and dividend income
Interest and fees on loans	$	43,337	$	43,880	$	129,564	$	133,241
Interest and dividend on investment and mortgage-related securities	3,025		3,432		9,723		10,534
Total interest and dividend income	46,362		47,312		139,287		143,775
Interest expense
Interest on deposit liabilities	1,262		1,540		3,870		5,015
Interest on other borrowings	1,206		1,201		3,548		3,676
Total interest expense	2,468		2,741		7,418		8,691
Net interest income	43,894		44,571		131,869		135,084
Provision for loan losses	54		3,580		953		9,504
Net interest income after provision for loan losses	43,840		40,991		130,916		125,580
Noninterest income
Fees from other financial services	5,728		7,674		21,367		22,474
Fee income on deposit liabilities	4,819		4,527		13,566		13,127
Fee income on other financial products	2,714		1,660		6,288		4,741
Mortgage banking income	1,547		4,077		6,896		8,297
Gain on sale of securities	—		—		1,226		134
Other income	3,888		1,346		7,211		4,021
Total noninterest income	18,696		19,284		56,554		52,794
Noninterest expense
Compensation and employee benefits	20,564		18,684		60,715		56,026
Occupancy	4,208		4,400		12,550		12,866
Data processing	2,168		2,644		7,982		7,244
Services	2,424		3,062		6,855		7,066
Equipment	1,825		1,762		5,469		5,299
Other expense	8,539		8,096		24,634		22,909
Total noninterest expense	39,728		38,648		118,205		111,410
Income before income taxes	22,808		21,627		69,265		66,964
Income taxes	7,532		7,419		23,915		22,690
Net income	$	15,276	$	14,208	$	45,350	$	44,274

American Savings Bank, F.S.B.

Statements of Comprehensive Income Data



	Three months ended September 30					Nine months ended September 30
(in thousands)	2013			2012		2013			2012
Net income	$	15,276		$	14,208	$	45,350		$	44,274
Other comprehensive income (loss), net of taxes:
Net unrealized gains (losses) on securities:
Net unrealized gains (losses) on securities arising during the period, net of (taxes) benefits, of $1,049 and ($689) for the three months ended September 30, 2013 and 2012 and $7,081 and ($1,261) for the nine months ended September 30, 2013 and 2012, respectively	(1,589		)	1,043		(10,724		)	1,910
Less: reclassification adjustment for net realized gains, included in net income, net of taxes, of nil for the three months ended September 30, 2013 and 2012 and $488 and $53 for the nine months ended September 30, 2013 and 2012, respectively	—			—		(738		)	(81		)
Retirement benefit plans:
Less: amortization of prior service credit and net losses recognized during the period in net periodic benefit cost, net of tax benefits of $278 and $176 for the three months ended September 30, 2013 and 2012 and $2,010 and $508 for the nine months ended September 30, 2013 and 2012, respectively	420			266		3,043			769
Other comprehensive income (loss), net of taxes	(1,169		)	1,309		(8,419		)	2,598
Comprehensive income	$	14,107		$	15,517	$	36,931		$	46,872

American Savings Bank, F.S.B.

Balance Sheets Data



(in thousands)	September 30, 2013						December 31, 2012
Assets
Cash and cash equivalents				$	189,524					$	184,430
Available-for-sale investment and mortgage-related securities				535,264						671,358
Investment in stock of Federal Home Loan Bank of Seattle				93,413						96,022
Loans receivable held for investment				4,046,184						3,779,218
Allowance for loan losses				(41,052		)				(41,985		)
Loans receivable held for investment, net				4,005,132						3,737,233
Loans held for sale, at lower of cost or fair value				5,829						26,005
Other				248,020						244,435
Goodwill				82,190						82,190
Total assets				$	5,159,372					$	5,041,673

Liabilities and shareholder’s equity
Deposit liabilities—noninterest-bearing				$	1,205,526					$	1,164,308
Deposit liabilities—interest-bearing				3,105,316						3,065,608
Other borrowings				239,612						195,926
Other				102,172						117,752
Total liabilities				4,652,626						4,543,594
Commitments and contingencies (see “Litigation” below)
Common stock				335,448						333,712
Retained earnings				195,113						179,763
Accumulated other comprehensive income (loss), net of taxes
Net unrealized gains (losses) on securities	$	(701	)				$	10,761
Retirement benefit plans	(23,114		)	(23,815		)	(26,157		)	(15,396		)
Total shareholder’s equity				506,746						498,079
Total liabilities and shareholder’s equity				$	5,159,372					$	5,041,673

Other assets
Bank-owned life insurance				$	128,833					$	125,726
Premises and equipment, net				67,634						62,458
Prepaid expenses				4,394						13,199
Accrued interest receivable				13,372						13,228
Mortgage-servicing rights				11,806						10,818
Real estate acquired in settlement of loans, net				1,488						6,050
Other				20,493						12,956
				$	248,020					$	244,435
Other liabilities
Accrued expenses				$	20,463					$	17,103
Federal and state income taxes payable				30,249						35,408
Cashier’s checks				24,183						23,478
Advance payments by borrowers				5,694						9,685
Other				21,583						32,078
				$	102,172					$	117,752

Bank-owned life insurance is life insurance purchased by ASB on the lives of certain key employees, with ASB as the beneficiary. The insurance is used to fund employee benefits through tax-free income from increases in the cash value of the policies and insurance proceeds paid to ASB upon an insured’s death.

Other borrowings consisted of securities sold under agreements to repurchase and advances from the Federal Home Loan Bank (FHLB) of Seattle of $140 million and $100 million , respectively, as of September 30, 2013 and $146 million and $50 million , respectively, as of December 31, 2012 .

Securities sold under agreements to repurchase are accounted for as financing transactions and the obligations to repurchase these securities are recorded as liabilities in the balance sheet. All such agreements are subject to master netting arrangements, which provide for conditional right of set-off in case of default by either party; however, ASB presents securities sold under agreements to repurchase on a gross basis in the balance sheet. The following tables present information about the securities sold under agreements to repurchase, including the related collateral received from or pledged to counterparties:



(in millions)	Gross amount of recognized liabilities		Gross amount offset in the Balance Sheet		Net amount of liabilities presented in the Balance Sheet
Repurchase agreements
September 30, 2013	$	140	$	—	$	140
December 31, 2012	146		—		146



	Gross amount not offset in the Balance Sheet
(in millions)	Net amount of liabilities presented in the Balance Sheet		Financial instruments		Cash collateral pledged		Net amount
September 30, 2013
Financial institution	$	50	$	50	$	—	$	—
Commercial account holders	90		90		—		—
Total	$	140	$	140	$	—	$	—

December 31, 2012
Financial institution	$	50	$	50	$	—	$	—
Commercial account holders	96		96		—		—
Total	$	146	$	146	$	—	$	—

Investment and mortgage-related securities portfolio.

Available-for-sale securities . The book value (amortized cost), gross unrealized gains and losses, estimated fair value and gross unrealized losses (fair value and amount by duration of time in which positions have been held in a continuous loss position) for securities held in ASB’s “available-for-sale” portfolio by major security type were as follows:



	Amortized cost		Gross unrealized gains		Gross unrealized losses			Estimated fair value		Gross unrealized losses
										Less than 12 months					12 months or longer
(in thousands)										Fair value		Amount			Fair value		Amount
September 30, 2013
Federal agency obligations	$	99,812	$	389	$	(1,936	)	$	98,265	$	29,755	$	(1,936	)	$	—	$	—
Mortgage-related securities- FNMA, FHLMC and GNMA	359,437		6,308		(7,768		)	357,977		164,998		(7,620		)	3,910		(148		)
Municipal bonds	77,181		2,034		(193		)	79,022		26,526		(193		)	—		—
	$	536,430	$	8,731	$	(9,897	)	$	535,264	$	221,279	$	(9,749	)	$	3,910	$	(148	)

December 31, 2012
Federal agency obligations	$	168,324	$	3,167	$	—		$	171,491	$	—	$	—		$	—	$	—
Mortgage-related securities- FNMA, FHLMC and GNMA	407,175		10,412		(204		)	417,383		32,269		(204		)	—		—
Municipal bonds	77,993		4,491		—			82,484		—		—			—		—
	$	653,492	$	18,070	$	(204	)	$	671,358	$	32,269	$	(204	)	$	—	$	—

The unrealized losses on ASB’s investments in mortgage-related securities and obligations issued by federal agencies were caused by interest rate movements. The contractual terms of these investments do not permit the issuer to settle the securities at a price less than the amortized cost basis of the investments. Because ASB does not intend to sell the securities and has determined it is more likely than not that it will not be required to sell the investments before recovery of their amortized costs basis, which may be at maturity, ASB did not consider these investments to be other-than-temporarily impaired at September 30, 2013 .

The fair values of ASB’s investment securities could decline if interest rates rise or spreads widen.

The following table details the contractual maturities of available-for-sale securities. All positions with variable maturities (e.g. callable debentures and mortgage-related securities) are disclosed based upon the bond’s contractual maturity. Actual maturities will likely differ from these contractual maturities because borrowers have the right to prepay obligations with or without prepayment penalties.



September 30, 2013	Amortized cost		Fair value
(in thousands)
Due in one year or less	$	28,120	$	28,143
Due after one year through five years	37,922		38,324
Due after five years through ten years	85,760		87,192
Due after ten years	25,191		23,628
	176,993		177,287
Mortgage-related securities-FNMA,FHLMC and GNMA	359,437		357,977
Total available-for-sale securities	$	536,430	$	535,264

Allowance for loan losses. ASB must maintain an allowance for loan losses that is adequate to absorb estimated probable credit losses associated with its loan portfolio. The allowance for loan losses consists of an allocated portion, which estimates credit losses for specifically identified loans and pools of loans, and an unallocated portion.

The allowance for loan losses (balances and changes) and financing receivables were as follows:



(in thousands)	Residential 1-4 family			Commercial real estate		Home equity line of credit			Residential land			Commercial construction			Residential construction		Commercial loans			Consumer loans			Unallocated		Total
Three months ended September 30, 2013
Allowance for loan losses:
Beginning balance	$	6,357		$	4,117	$	5,009		$	2,187		$	2,305		$	14	$	16,307		$	2,399		$	2,309	$	41,004
Charge-offs	(106		)	—		(44		)	(3		)	—			—		(305		)	(407		)	—		(865		)
Recoveries	157			—		78			282			—			—		166			176			—		859
Provision	(604		)	204		12			(361		)	44			2		(361		)	42			1,076		54
Ending balance	$	5,804		$	4,321	$	5,055		$	2,105		$	2,349		$	16	$	15,807		$	2,210		$	3,385	$	41,052
Three months ended September 30, 2012
Allowance for loan losses:
Beginning balance	$	7,212		$	2,078	$	4,843		$	3,340		$	2,255		$	3	$	13,961		$	3,797		$	1,974	$	39,463
Charge-offs	(964		)	—		(363		)	(1,093		)	—			—		(1,130		)	(601		)	—		(4,151		)
Recoveries	379			—		7			226			—			—		155			151			—		918
Provision	100			4		378			1,324			(324		)	5		1,344			462			287		3,580
Ending balance	$	6,727		$	2,082	$	4,865		$	3,797		$	1,931		$	8	$	14,330		$	3,809		$	2,261	$	39,810
Nine months ended September 30, 2013
Allowance for loan losses:
Beginning balance	$	6,068		$	2,965	$	4,493		$	4,275		$	2,023		$	9	$	15,931		$	4,019		$	2,202	$	41,985
Charge-offs	(1,162		)	—		(782		)	(238		)	—			—		(1,655		)	(1,811		)	—		(5,648		)
Recoveries	1,382			—		334			782			—			—		778			486			—		3,762
Provision	(484		)	1,356		1,010			(2,714		)	326			7		753			(484		)	1,183		953
Ending balance	$	5,804		$	4,321	$	5,055		$	2,105		$	2,349		$	16	$	15,807		$	2,210		$	3,385	$	41,052
Ending balance: individually evaluated for impairment	$	944		$	888	$	—		$	1,585		$	—		$	—	$	2,679		$	—		$	—	$	6,096
Ending balance: collectively evaluated for impairment	$	4,860		$	3,433	$	5,055		$	520		$	2,349		$	16	$	13,128		$	2,210		$	3,385	$	34,956
Financing Receivables:
Ending balance	$	2,015,082		$	405,037	$	703,210		$	18,400		$	51,067		$	10,460	$	749,733		$	102,400		$	—	$	4,055,389
Ending balance: individually evaluated for impairment	$	22,123		$	4,484	$	960		$	12,747		$	—		$	—	$	22,777		$	19		$	—	$	63,110
Ending balance: collectively evaluated for impairment	$	1,992,959		$	400,553	$	702,250		$	5,653		$	51,067		$	10,460	$	726,956		$	102,381		$	—	$	3,992,279
Nine months ended September 30, 2012
Allowance for loan losses:
Beginning balance	$	6,500		$	1,688	$	4,354		$	3,795		$	1,888		$	4	$	14,867		$	3,806		$	1,004	$	37,906
Charge-offs	(2,476		)	—		(402		)	(2,340		)	—			—		(2,964		)	(1,853		)	—		(10,035		)
Recoveries	974			—		95			471			—			—		511			384			—		2,435
Provision	1,729			394		818			1,871			43			4		1,916			1,472			1,257		9,504
Ending balance	$	6,727		$	2,082	$	4,865		$	3,797		$	1,931		$	8	$	14,330		$	3,809		$	2,261	$	39,810
Ending balance: individually evaluated for impairment	$	324		$	7	$	313		$	2,321		$	—		$	—	$	1,656		$	—		$	—	$	4,621
Ending balance: collectively evaluated for impairment	$	6,403		$	2,075	$	4,552		$	1,476		$	1,931		$	8	$	12,674		$	3,809		$	2,261	$	35,189
Financing Receivables:																									0
Ending balance	$	1,899,580		$	367,765	$	604,279		$	29,280		$	42,913		$	5,648	$	704,100		$	104,338		$	—	$	3,757,903
Ending balance: individually evaluated for impairment	$	26,912		$	2,929	$	1,913		$	25,146		$	—		$	—	$	17,956		$	22		$	—	$	74,878
Ending balance: collectively evaluated for impairment	$	1,872,668		$	364,836	$	602,366		$	4,134		$	42,913		$	5,648	$	686,144		$	104,316		$	—	$	3,683,025

The reversal of provision for loan losses for the 1-4 family, residential land and commercial loan portfolios in the third quarter of 2013 was due to lower loss rates as a result of improving charge-off and credit trends, as well as declining balances in the higher risk purchased mortgage and land loan portfolios. The increase in the unallocated allowance for loan losses in the third quarter of 2013 was primarily due to uncertainty over the impact of the possible U.S. debt default and the federal government shutdown in the first half of October 2013 that could affect the credit quality of the loan portfolios as individuals and businesses struggling with loan payments are pushed into delinquency or default.

Credit quality . ASB performs an internal loan review and grading on an ongoing basis. The review provides management with periodic information as to the quality of the loan portfolio and effectiveness of its lending policies and procedures. The objectives of the loan review and grading procedures are to identify, in a timely manner, existing or emerging credit trends so that appropriate steps can be initiated to manage risk and avoid or minimize future losses. Loans subject to grading include commercial and industrial, commercial real estate and commercial construction loans.

A dual ten-point risk rating system is used to reflect the probability of default (borrower risk rating) and loss given default (transaction risk rating). The borrower risk rating addresses risk presented by the individual borrower and is based on the overall assessment of the borrower’s financial and operating strength including earnings, operating cash flow, debt service capacity, asset and liability structure, competitive issues, experience and quality of management, financial reporting quality and industry/economic factors. Separately, the transaction risk rating addresses risk in the transaction and is a function of the type of collateral control exercised over the collateral, loan structure, guarantees, and other structural support or enhancements to the loan.

The numerical representation of the risk categories are:



	1- Substantially risk free	6- Acceptable risk
	2- Minimal risk	7- Special mention
	3- Modest risk	8- Substandard
	4- Better than average risk	9- Doubtful
	5- Average risk	10- Loss

Grades 1 through 6 are considered pass grades. Pass exposures generally are well protected by the current net worth and paying capacity of the obligor or by the value of the asset or underlying collateral.

The credit risk profile by internally assigned grade for loans was as follows:



	September 30, 2013						December 31, 2012
(in thousands)	Commercial real estate		Commercial construction		Commercial		Commercial real estate		Commercial construction		Commercial
Grade:
Pass	$	332,407	$	51,067	$	661,720	$	314,182	$	39,063	$	638,854
Special mention	40,437		—		18,948		25,437		4,925		24,511
Substandard	28,403		—		65,571		29,308		—		53,538
Doubtful	3,790		—		3,494		6,750		—		4,446
Loss	—		—		—		—		—		—
Total	$	405,037	$	51,067	$	749,733	$	375,677	$	43,988	$	721,349

The credit risk profile based on payment activity for loans was as follows:



(in thousands)	30-59 days past due		60-89 days past due		Greater than 90 days		Total past due		Current		Total financing receivables		Recorded investment> 90 days and accruing
September 30, 2013
Real estate loans:
Residential 1-4 family	$	3,026	$	1,599	$	15,060	$	19,685	$	1,995,397	$	2,015,082	$	—
Commercial real estate	—		—		3,790		3,790		401,247		405,037		—
Home equity line of credit	658		373		880		1,911		701,299		703,210		—
Residential land	684		80		5,352		6,116		12,284		18,400		1,746
Commercial construction	—		—		—		—		51,067		51,067		—
Residential construction	—		—		—		—		10,460		10,460		—
Commercial loans	1,026		166		4,105		5,297		744,436		749,733		—
Consumer loans	420		212		182		814		101,586		102,400		—
Total loans	$	5,814	$	2,430	$	29,369	$	37,613	$	4,017,776	$	4,055,389	$	1,746
December 31, 2012
Real estate loans:
Residential 1-4 family	$	6,353	$	1,741	$	24,054	$	32,148	$	1,834,302	$	1,866,450	$	—
Commercial real estate	85		—		6,750		6,835		368,842		375,677		—
Home equity line of credit	1,077		142		1,319		2,538		627,637		630,175		—
Residential land	2,851		75		7,788		10,714		15,101		25,815		—
Commercial construction	—		—		—		—		43,988		43,988		—
Residential construction	—		—		—		—		6,171		6,171		—
Commercial loans	3,052		2,814		1,098		6,964		714,385		721,349		131
Consumer loans	598		348		424		1,370		119,861		121,231		242
Total loans	$	14,016	$	5,120	$	41,433	$	60,569	$	3,730,287	$	3,790,856	$	373

The credit risk profile based on nonaccrual loans and accruing loans 90 days or more past due was as follows:



	September 30, 2013				December 31, 2012
(in thousands)	Nonaccrual loans		Accruing loans 90 days or more past due		Nonaccrual loans		Accruing loans 90 days or more past due
Real estate loans:
Residential 1-4 family	$	18,908	$	—	$	26,721	$	—
Commercial real estate	4,483		—		6,750		—
Home equity line of credit	1,948		—		2,349		—
Residential land	3,606		1,746		8,561		—
Commercial construction	—		—		—		—
Residential construction	—		—		—		—
Commercial loans	21,308		—		20,222		131
Consumer loans	519		—		284		242
Total	$	50,772	$	1,746	$	64,887	$	373

The total carrying amount and the total unpaid principal balance of impaired loans, with and without recorded allowance for loan losses and combined, were as follows:



	September 30, 2013						Three months ended September 30, 2013				Nine months ended September 30, 2013
(in thousands)	Recorded investment		Unpaid principal balance		Related Allowance		Average recorded investment		Interest income recognized*		Average recorded investment		Interest income recognized*
With no related allowance recorded
Real estate loans:
Residential 1-4 family	$	10,121	$	13,122	$	—	$	9,777	$	62	$	12,304	$	294
Commercial real estate	—		—		—		—		—		1,069		—
Home equity line of credit	523		1,068		—		526		—		606		—
Residential land	5,734		6,712		—		6,095		216		7,477		435
Commercial construction	—		—		—		—		—		—		—
Residential construction	—		—		—		—		—		—		—
Commercial loans	6,311		8,624		—		4,941		7		4,518		8
Consumer loans	19		19		—		20		—		20		—
	22,708		29,545		—		21,359		285		25,994		737
With an allowance recorded
Real estate loans:
Residential 1-4 family	7,147		7,167		943		7,155		83		6,411		259
Commercial real estate	4,484		4,536		888		4,028		—		6,157		151
Home equity line of credit	—		—		—		—		—		—		—
Residential land	6,101		6,228		1,585		6,105		102		7,123		304
Commercial construction	—		—		—		—		—		—		—
Residential construction	—		—		—		—		—		—		—
Commercial loans	16,466		17,978		2,679		16,524		67		15,606		72
Consumer loans	—		—		—		—		—		—		—
	34,198		35,909		6,095		33,812		252		35,297		786
Total
Real estate loans:
Residential 1-4 family	17,268		20,289		943		16,932		145		18,715		553
Commercial real estate	4,484		4,536		888		4,028		—		7,226		151
Home equity line of credit	523		1,068		—		526		—		606		—
Residential land	11,835		12,940		1,585		12,200		318		14,600		739
Commercial construction	—		—		—		—		—		—		—
Residential construction	—		—		—		—		—		—		—
Commercial loans	22,777		26,602		2,679		21,465		74		20,124		80
Consumer loans	19		19		—		20		—		20		—
	$	56,906	$	65,454	$	6,095	$	55,171	$	537	$	61,291	$	1,523



	December 31, 2012						Year ended December 31, 2012
(in thousands)	Recorded investment		Unpaid principal balance		Related allowance		Average recorded investment		Interest income recognized*
With no related allowance recorded
Real estate loans:
Residential 1-4 family	$	14,633	$	20,247	$	—	$	16,688	$	294
Commercial real estate	2,929		2,929		—		7,771		237
Home equity line of credit	581		1,374		—		632		1
Residential land	7,691		10,624		—		21,589		1,185
Commercial construction	—		—		—		—		—
Residential construction	—		—		—		—		—
Commercial loans	4,265		6,994		—		24,605		986
Consumer loans	21		21		—		23		—
	30,120		42,189		—		71,308		2,703
With an allowance recorded
Real estate loans:
Residential 1-4 family	4,803		4,803		384		4,204		250
Commercial real estate	3,821		3,840		535		1,295		—
Home equity line of credit	—		—		—		26		—
Residential land	9,984		10,364		3,221		7,428		575
Commercial construction	—		—		—		—		—
Residential construction	—		—		—		—		—
Commercial loans	16,033		16,912		2,659		8,429		23
Consumer loans	—		—		—		—		—
	34,641		35,919		6,799		21,382		848
Total
Real estate loans:
Residential 1-4 family	19,436		25,050		384		20,892		544
Commercial real estate	6,750		6,769		535		9,066		237
Home equity line of credit	581		1,374		—		658		1
Residential land	17,675		20,988		3,221		29,017		1,760
Commercial construction	—		—		—		—		—
Residential construction	—		—		—		—		—
Commercial loans	20,298		23,906		2,659		33,034		1,009
Consumer loans	21		21		—		23		—
	$	64,761	$	78,108	$	6,799	$	92,690	$	3,551

___________________________________________

* Since loan was classified as impaired.

Troubled debt restructurings. A loan modification is deemed to be a troubled debt restructuring (TDR) when ASB grants a concession it would not otherwise consider were it not for the borrower’s financial difficulty. When a borrower experiencing financial difficulty fails to make a required payment on a loan or is in imminent default, ASB takes a number of steps to improve the collectability of the loan and maximize the likelihood of full repayment. At times, ASB may modify or restructure a loan to help a distressed borrower improve its financial position to eventually be able to fully repay the loan, provided the borrower has demonstrated both the willingness and the ability to fulfill the modified terms. TDR loans are considered an alternative to foreclosure or liquidation with the goal of minimizing losses to ASB and maximizing recovery.

ASB may consider various types of concessions in granting a TDR including maturity date extensions, extended amortization of principal, temporary deferral of principal payments, and temporary interest rate reductions. ASB rarely grants

principal forgiveness in its TDR modifications. Residential loan modifications generally involve interest rate reduction, extending the amortization period, or capitalizing certain delinquent amounts owed not to exceed the original loan balance. Land loans at origination are typically structured as a three -year term, interest-only monthly payment with a balloon payment due at maturity. Land loan TDR modifications typically involve extending the maturity date up to five years and converting the payments from interest-only to principal and interest monthly, at the same or higher interest rate. Commercial loan modifications generally involve extensions of maturity dates, extending the amortization period, and temporary deferral of principal payments. ASB does not reduce the interest rate on commercial loan TDR modifications. Occasionally, additional collateral and/or guaranties are obtained.

All TDR loans are classified as impaired and are segregated and reviewed separately when assessing the adequacy of the allowance for loan losses based on the appropriate method of measuring impairment: (1) present value of expected future cash flows discounted at the loan’s effective original contractual rate, (2) fair value of collateral less cost to sell, or (3) observable market price. The financial impact of the calculated impairment amount is an increase to the allowance associated with the modified loan. When available information confirms that specific loans or portions thereof are uncollectible (confirmed losses), these amounts are charged off against the allowance for loan losses.

Loan modifications that occurred were as follows for the indicated periods:



	Three months ended September 30, 2013					Nine months ended September 30, 2013
	Number of	Outstanding recorded investment				Number of	Outstanding recorded investment
(dollars in thousands)	contracts	Pre-modification		Post-modification		contracts	Pre-modification		Post-modification
Troubled debt restructurings
Real estate loans:
Residential 1-4 family	14	$	2,864	$	2,874	32	$	8,631	$	8,712
Commercial real estate	—	—		—		—	—		—
Home equity line of credit	—	—		—		4	462		215
Residential land	9	2,943		2,943		16	4,983		4,974
Commercial loans	3	2,076		2,076		6	2,790		2,790
Consumer loans	—	—		—		—	—		—
	26	$	7,883	$	7,893	58	$	16,866	$	16,691



	Three months ended September 30, 2012					Nine months ended September 30, 2012
	Number of	Outstanding recorded investment				Number of	Outstanding recorded investment
(dollars in thousands)	contracts	Pre-modification		Post-modification		contracts	Pre-modification		Post-modification
Troubled debt restructurings
Real estate loans:
Residential 1-4 family	4	$	1,415	$	1,332	26	$	5,884	$	5,614
Commercial real estate	—	—		—		—	—		—
Home equity line of credit	—	—		—		—	—		—
Residential land	6	1,168		1,001		21	4,676		4,022
Commercial loans	4	517		517		18	2,546		2,546
Consumer loans	—	—		—		—	—		—
	14	$	3,100	$	2,850	65	$	13,106	$	12,182

Loans modified in TDRs that experienced a payment default of 90 days or more in 2013 and 2012, and for which the payment default occurred within one year of the modification, were as follows:



	Three months ended September 30, 2013			Nine months ended September 30, 2013
(dollars in thousands)	Number of contracts	Recorded investment		Number of contracts	Recorded investment
Troubled debt restructurings that subsequently defaulted
Real estate loans:
Residential 1-4 family	—	$	—	—	$	—
Commercial real estate	—	—		—	—
Home equity line of credit	1	67		1	67
Residential land	—	—		—	—
Commercial loans	3	669		3	669
Consumer loans	—	—		—	—
	4	$	736	4	$	736



	Three months ended September 30, 2012			Nine months ended September 30, 2012
(dollars in thousands)	Number of contracts	Recorded investment		Number of contracts	Recorded investment
Troubled debt restructurings that subsequently defaulted
Real estate loans:
Residential 1-4 family	—	$	—	—	$	—
Commercial real estate	—	—		—	—
Home equity line of credit	—	—		—	—
Residential land	—	—		—	—
Commercial loans	—	—		1	488
Consumer loans	—	—		—	—
	—	$	—	1	$	488

If loans modified in a TDR subsequently default, ASB evaluates the loan for further impairment. Based on its evaluation, adjustments may be made in the allocation of the allowance or partial charge-offs may be taken to further write-down the carrying value of the loan. Commitments to lend additional funds to borrowers whose loan terms have been impaired or modified in TDRs totaled $0.3 million as of September 30, 2013 .

Litigation. In March 2011, a purported class action lawsuit was filed in the First Circuit Court of the State of Hawaii by a customer who claimed that ASB had improperly charged overdraft fees on debit card transactions. The lawsuit is still in its preliminary stage, thus, the probable outcome and range of reasonably possible loss are not determinable at this time.

ASB is subject in the normal course of business to pending and threatened legal proceedings. Management does not anticipate that the aggregate ultimate liability arising out of these pending or threatened legal proceedings will be material to its financial position. However, ASB cannot rule out the possibility that such outcomes could have a material adverse effect on the results of operations or liquidity for a particular reporting period in the future.

5 · Retirement benefits

Defined benefit pension and other postretirement benefit plans information. For the first nine months of 2013 , the Company contributed $62 million (primarily by the Utilities) to its pension and other postretirement benefit plans, compared to $64 million (primarily by the Utilities) in the first nine months of 2012 . The Company’s current estimate of contributions to its pension and other postretirement benefit plans in 2013 is $83 million ( $81 million by the Utilities, $2 million by HEI and nil by ASB), compared to $78 million ( $63 million by the Utilities, $2 million by HEI and $13 million by ASB) in 2012 . In addition, the Company expects to pay directly $2 million ( $1 million each by the Utilities and HEI) of benefits in 2013 , compared to $1 million paid in 2012 .

On July 6, 2012, President Obama signed the Moving Ahead for Progress in the 21 st Century Act (MAP-21), which included provisions related to the funding and administration of pension plans. This law does not affect the Company’s accounting for pension benefits; therefore, the net periodic benefit costs disclosed for the plans were not affected. The Company elected to apply MAP-21 for 2012, which improved the plans’ Adjusted Funding Target Attainment Percentage (AFTAP) for funding and benefit distribution purposes and thereby reduced the 2012 minimum funding requirement and lifted the restrictions on accelerated distribution options (which restrictions were in effect from April 1, 2011 to September 30, 2012) for HEI and Hawaiian Electric and its subsidiaries. The effects of MAP-21 are expected to cause the minimum required funding under the Employee Retirement Income Security Act of 1974, as amended (ERISA) to be less than the net periodic cost for 2013 and 2014; therefore, to satisfy the requirements of the Utilities pension and other postretirement benefits (OPEB) tracking mechanisms, the Utilities expect to contribute the net periodic cost for these years.

The Pension Protection Act provides that if a pension plan’s funded status falls below certain levels, more conservative assumptions must be used to value obligations under the pension plan. The HEI Retirement Plan fell below these thresholds in 2011 and the minimum required contribution for 2012 incorporated the more conservative assumptions required. However, the HEI Retirement Plan met the threshold requirements in each of 2012 and 2013 so that the more conservative assumptions do not apply for either the 2013 or 2014 valuation of plan liabilities for purposes of calculating the minimum required contribution. Other factors could cause changes to the required contribution levels.

The components of net periodic benefit cost for consolidated HEI were as follows:



	Three months ended September 30												Nine months ended September 30
	Pension benefits						Other benefits						Pension benefits						Other benefits
(in thousands)	2013			2012			2013			2012			2013			2012			2013			2012
Service cost	$	14,097		$	10,816		$	1,077		$	1,054		$	42,307		$	32,404		$	3,229		$	3,158
Interest cost	16,187			16,868			1,891			2,252			48,600			50,612			5,677			6,756
Expected return on plan assets	(18,134		)	(17,796		)	(2,531		)	(2,579		)	(54,401		)	(53,388		)	(7,614		)	(7,757		)
Amortization of net transition obligation	—			1			—			—			—			1			—			—
Amortization of net prior service gain	(24		)	(81		)	(448		)	(448		)	(73		)	(244		)	(1,345		)	(1,345		)
Amortization of net actuarial loss	9,560			6,425			398			373			28,878			19,251			1,203			1,125
Net periodic benefit cost	21,686			16,233			387			652			65,311			48,636			1,150			1,937
Impact of PUC D&Os	(9,257		)	(3,460		)	(332		)	(552		)	(28,847		)	(12,294		)	(1,018		)	(1,648		)
Net periodic benefit cost (adjusted for impact of PUC D&Os)	$	12,429		$	12,773		$	55		$	100		$	36,464		$	36,342		$	132		$	289

Consolidated HEI recorded retirement benefits expense of $24 million and $27 million in the first nine months of 2013 and 2012 , respectively, and charged the remaining amounts primarily to electric utility plant.

The Utilities have implemented pension and OPEB tracking mechanisms under which all of their retirement benefit expenses (except for executive life and nonqualified pension plan expenses) determined in accordance with GAAP are recovered over time. Under the tracking mechanisms, these retirement benefit costs that are over/under amounts allowed in rates are charged/credited to a regulatory asset/liability. The regulatory asset/liability for each utility will be amortized over 5 years beginning with the respective utility’s next rate case.

Defined contribution plans information. For the first nine months of 2013 and 2012 , the Company’s expense for its defined contribution pension plans under the Hawaiian Electric Industries Retirement Savings Plan (HEIRSP) and the ASB 401(k) Plan was $3.1 million and $2.7 million , respectively, and cash contributions were $3.7 million and $3.2 million , respectively.

6 · Share-based compensation

Under the 2010 Equity and Incentive Plan (EIP), HEI can issue shares of common stock as incentive compensation to selected employees in the form of stock options, stock appreciation rights, restricted shares, restricted stock units, performance shares and other share-based and cash-based awards.

As of September 30, 2013 , there were 3.6 million shares remaining available for future issuance under the EIP of which an estimated 2.6 million shares could be issued upon the vesting of outstanding restricted stock units and the achievement of performance goals under long-term incentive plans (based on the assumption that long-term incentive plan (LTIP) awards are achieved at maximum levels).

Under the 1987 Stock Option and Incentive Plan, as amended (SOIP), there are possible future issuances upon the exercise of outstanding stock appreciation rights (SARs) and dividend equivalents; however, based on the market price of shares on September 30, 2013 , the SARS had no intrinsic value. As of May 11, 2010 (when the EIP became effective), no new awards may be granted under the SOIP. After the shares of common stock for the outstanding SOIP grants and awards are issued or such grants and awards expire, the remaining shares registered under the SOIP will be deregistered and delisted.

Under the 2011 Nonemployee Director Stock Plan (2011 Director Plan), HEI can issue shares of common stock as compensation to nonemployee directors. As of September 30, 2013 , there were 202,460 shares remaining available for future issuance.

The Company’s share-based compensation expense and related income tax benefit were as follows:



	Three months ended September 30				Nine months ended September 30
(in millions)	2013		2012		2013		2012
Share-based compensation expense (1)	$	2.5	$	1.4	$	6.0	$	5.4
Income tax benefit	0.9		0.5		2.2		1.9

___________________________________________


(1)	The Company has not capitalized any share-based compensation cost.

Stock awards. On June 28, 2013 and June 29, 2012, HEI granted 33,184 shares and 29,448 shares, respectively, with a fair value of $0.8 million and $0.8 million and related tax benefits of $0.3 million and $0.3 million , respectively, to HEI nonemployee directors under the 2011 Director Plan. The number of shares issued to each HEI nonemployee director is determined based on the closing price of HEI Common Stock on grant date.

Nonqualified stock options. As of December 31, 2012 , nonqualified stock options (NQSOs) outstanding totaled 14,000 (representing the same number of underlying shares), with a weighted-average exercise price of $20.49 . As of September 30, 2013 , there were no NQSOs outstanding.

NQSO activity and statistics were as follows:



	Three months ended September 30				Nine months ended September 30
(dollars in thousands, except prices)	2013		2012		2013		2012
Shares exercised	—		8,000		14,000		41,500
Weighted-average exercise price	$	—	$	20.49	$	20.49	$	21.06
Cash received from exercise	$	—	$	164	$	287	$	874
Intrinsic value of shares exercised (1)	$	—	$	89	$	128	$	354
Tax benefit realized for the deduction of exercises	$	—	$	35	$	50	$	138

___________________________________________

(1) Intrinsic value is the amount by which the fair market value of the underlying stock and the related dividend equivalents exceeds the exercise price of the option.

Stock appreciation rights. Information about HEI’s SARs was as follows:



September 30, 2013		Outstanding & Exercisable (Vested)
Year of grant	Range of exercise prices	Number of shares underlying SARs	Weighted-average remaining contractual life	Weighted-average exercise price
2004	$26.02	62,000	0.6	$	26.02
2005	26.18	102,000	1.5	26.18
	$26.02-26.18	164,000	1.2	$	26.12

As of December 31, 2012 , the shares underlying SARs outstanding totaled 164,000 , with a weighted-average exercise price of $26.12 . As of September 30, 2013 , all SARs outstanding were exercisable and had no aggregate intrinsic value.

SARs activity and statistics were as follows:



	Three months ended September 30			Nine months ended September 30
(dollars in thousands, except prices)	2013	2012		2013	2012
Shares underlying SARS exercised	—	2,000		—	114,000
Weighted-average price of shares exercised	—	$	26.18	—	$	26.17
Intrinsic value of shares exercised (1)	—	$	3	—	$	197
Tax benefit realized for the deduction of exercises	—	$	1	—	$	77

___________________________________________


(1)	Intrinsic value is the amount by which the fair market value of the underlying stock and the related dividend equivalent rights exceeds the exercise price of the right.

Restricted shares and restricted stock awards. Information about HEI’s grants of restricted shares and restricted stock awards was as follows:



	Three months ended September 30							Nine months ended September 30
	2013			2012				2013			2012
	Shares	(1)		Shares		(1)		Shares	(1)		Shares		(1)
Outstanding, beginning of period	9,005	$	22.21	14,807		$	22.45	9,005	$	22.21	46,807		$	24.45
Granted	—	—		—		—		—	—		—		—
Vested	—	—		(1,000	)	24.68		—	—		(33,000	)	25.35
Forfeited	—	—		—		—		—	—		—		—
Outstanding, end of period	9,005	$	22.21	13,807		$	22.29	9,005	$	22.21	13,807		$	22.29

___________________________________________


(1)	Weighted-average grant-date fair value per share based on the closing or average price of HEI common stock on the date of grant.

As of September 30, 2013 , there was $0.1 million of total unrecognized compensation cost related to nonvested restricted shares and restricted stock awards. The cost is expected to be recognized over a weighted-average period of 1.2 years .

For the first nine months of 2012 , total restricted stock vested had a grant-date fair value of $0.8 million and the tax benefits realized for tax deductions related to restricted stock awards were $0.2 million .

Restricted stock units. Information about HEI’s grants of restricted stock units was as follows:



	Three months ended September 30										Nine months ended September 30
	2013					2012					2013					2012
	Shares			(1)		Shares			(1)		Shares			(1)		Shares			(1)
Outstanding, beginning of period	300,313			$	25.15	319,071			$	22.81	315,094			$	22.82	247,286			$	21.80
Granted	4,000			26.48		—			—		111,231			26.88		94,846			26.00
Vested	(2,500		)	22.31		(2,500		)	22.31		(116,544		)	20.39		(23,997		)	24.69
Forfeited	(11,321		)	25.88		(3,346		)	24.63		(19,289		)	25.62		(4,910		)	24.92
Outstanding, end of period	290,492			$	25.16	313,225			$	22.80	290,492			$	25.16	313,225			$	22.80
	$ millions					$ millions					$ millions					$ millions
Total weighted-average grant-date fair value of shares granted	$	0.1				$	—				$	3.0				$	2.5

___________________________________________


(1)	Weighted-average grant-date fair value per share based on the average price of HEI common stock on the date of grant.

As of September 30, 2013 , there was $4.2 million of total unrecognized compensation cost related to the nonvested restricted stock units. The cost is expected to be recognized over a weighted-average period of 2.5 years .

For the first nine months of 2013 and 2012 , total restricted stock units that vested and related dividends had a grant-date fair value of $3.6 million and $0.7 million , respectively, and the related tax benefits were $1.0 million and $0.2 million , respectively.

LTIP payable in stock. The 2011-2013 LTIP, 2012-2014 LTIP and the 2013-2015 LTIP provide for performance awards under the EIP of shares of HEI common stock based on the satisfaction of performance goals and service conditions. The number of shares of HEI common stock that may be awarded is fixed on the date the grants are made subject to the achievement of specified performance levels. The potential payout varies from 0% to 200% of the number of target shares depending on achievement of the goals. The LTIP performance goals for the LTIP periods include awards with a market goal based on total return to shareholders (TRS) of HEI stock as a percentile to the Edison Electric Institute Index over the applicable three -year period. In addition, the 2011-2013 LTIP, the 2012-2014 LTIP and the 2013-2015 LTIP have performance goals related to levels of HEI consolidated net income, HEI consolidated return on common equity (ROACE), Hawaiian Electric consolidated net income, Hawaiian Electric consolidated ROACE, ASB net income and ASB return on assets — all based on the applicable three -year averages.

LTIP linked to TRS . Information about HEI’s LTIP grants linked to TRS was as follows:



	Three months ended September 30										Nine months ended September 30
	2013					2012					2013					2012
	Shares			(1)		Shares			(1)		Shares			(1)		Shares			(1)
Outstanding, beginning of period	235,064			$	32.87	239,407			$	29.12	239,256			$	29.12	197,385			$	25.94
Granted	1,505			32.69		1,723			30.71		91,038			32.69		80,647			30.71
Vested (settled or lapsed)	—			—		—			—		(87,753		)	22.45		(35,397		)	14.85
Forfeited	(4,442		)	32.40		(2,450		)	31.09		(10,414		)	32.72		(3,955		)	30.82
Outstanding, end of period	232,127			$	32.88	238,680			$	29.11	232,127			$	32.88	238,680			$	29.11
	$ millions					$ millions					$ millions					$ millions
Total weighted-average grant-date fair value of shares granted	$	—				$	0.1				$	3.0				$	2.5

___________________________________________


(1)	Weighted-average grant-date fair value per share determined using a Monte Carlo simulation model.

The following table summarizes the assumptions used to determine the fair value of the LTIP awards linked to TRS and the resulting fair value of LTIP awards granted:



	2013			2012
Risk-free interest rate	0.38		%	0.33		%
Expected life in years	3			3
Expected volatility	19.4		%	25.3		%
Range of expected volatility for Peer Group	12.4% to 25.3%			15.5% to 34.5%
Grant date fair value (per share)	$	32.69		$	30.71

For the nine months ended September 30, 2013 and 2012 , total vested LTIP awards linked to TRS and related dividends had a fair value of $2.2 million and $0.6 million , respectively, and the related tax benefits were $0.9 million and $0.2 million , respectively. Of the 87,753 shares vested and granted (at target level based on the satisfaction of TRS performance) for the 2010-2012 LTIP, the HEI Compensation Committee approved settlement of 70,205 shares of HEI common stock in February 2013 ( 17,548 of the vested shares lapsed).

As of September 30, 2013 , there was $2.9 million of total unrecognized compensation cost related to the nonvested performance awards payable in shares linked to TRS. The cost is expected to be recognized over a weighted-average period of 1.3 years .

LTIP awards linked to other performance conditions . Information about HEI’s LTIP awards payable in shares linked to other performance conditions was as follows:



	Three months ended September 30										Nine months ended September 30
	2013					2012					2013					2012
	Shares			(1)		Shares			(1)		Shares			(1)		Shares			(1)
Outstanding, beginning of period	304,473			$	26.12	295,184			$	23.95	247,175			$	25.04	182,498			$	22.63
Granted	1,504			27.11		4,148			27.30		120,399			26.89		122,852			26.05
Vested and settled	—			—		—			—		(18,280		)	18.95		—			—
Cancelled	—			—		(17,911		)	18.95		(37,346		)	24.96		(17,911		)	18.95
Forfeited	(4,881		)	26.53		(3,676		)	24.78		(10,852		)	26.20		(9,694		)	24.44
Outstanding, end of period	301,096			$	26.12	277,745			$	24.31	301,096			$	26.12	277,745			$	24.31
	$ millions					$ millions					$ millions					$ millions
Total weighted-average grant-date fair value of shares granted (at target performance levels)	$	—				$	0.1				$	3.2				$	3.2

___________________________________________


(1)	Weighted-average grant-date fair value per share based on the average price of HEI common stock on the date of grant.

For the nine months ended September 30, 2013 , total vested LTIP awards linked to other performance conditions and related dividends had a fair value of $0.6 million and the related tax benefits were $0.2 million .

As of September 30, 2013 , there was $3.7 million of total unrecognized compensation cost related to the nonvested shares linked to performance conditions other than TRS. The cost is expected to be recognized over a weighted-average period of 1.4 years .

7 · Earnings per share and shareholders’ equity

Earnings per share. Under the two-class method of computing earnings per share (EPS), EPS was comprised as follows for both participating securities and unrestricted common stock:



	Three months ended September 30					Nine months ended September 30
	2013			2012		2013				2012
	Basic		Diluted	Basic and diluted		Basic		Diluted		Basic and diluted
Distributed earnings	$	0.31	0.31	$	0.31	$	0.93	$	0.93	$	0.93
Undistributed earnings	0.18		0.17	0.18		0.31		0.30		0.36
	$	0.49	0.48	$	0.49	$	1.24	$	1.23	$	1.29

As of September 30, 2013 , the antidilutive effects of SARs of 164,000 shares of HEI common stock for which the exercise prices were greater than the closing market price of HEI’s common stock were not included in the computation of dilutive EPS. As of September 30, 2012 , there were no shares that were antidilutive.

Shareholders’ equity.

Equity forward transaction . On March 19, 2013, HEI entered into an equity forward transaction in connection with a public offering on that date of 6.1 million shares of HEI common stock at $26.75 per share. On March 19, 2013, HEI common stock closed at $27.01 per share. On March 20, 2013, the underwriters exercised their over-allotment option in full and HEI entered into an equity forward transaction in connection with the resulting additional 0.9 million shares of HEI common stock.

The use of an equity forward transaction substantially eliminates future equity market price risk by fixing a common equity offering sales price under the then existing market conditions, while mitigating immediate share dilution resulting from the offering by postponing the actual issuance of common stock until funds are needed in accordance with the Company’s capital investment plans. Pursuant to the terms of these transactions, a forward counterparty borrowed 7 million shares of HEI’s common stock from third parties and sold them to a group of underwriters for $26.75 per share, less an underwriting discount equal to $1.00312 per share. Under the terms of the equity forward transactions, to the extent that the transactions are physically settled, HEI would be required to issue and deliver shares of HEI common stock to the forward counterparty at the then applicable forward sale price. The forward sale price was initially determined to be $25.74688 per share at the time the equity forward transactions were entered into, and the amount of cash to be received by HEI upon physical settlement of the equity forward is subject to certain adjustments in accordance with the terms of the equity forward transactions. The equity forward transactions must be settled fully by March 25, 2015. Except in specified circumstances or events that would require physical settlement, HEI is able to elect to settle the equity forward transactions by means of physical, cash or net share settlement, in whole or in part, at any time on or prior to March 25, 2015.

The equity forward transactions had no initial fair value since they were entered into at the then market price of the common stock. HEI will not receive any proceeds from the sale of common stock until the equity forward transactions are settled, and at that time HEI will record the proceeds, if any, in equity. HEI concluded that the equity forward transactions were equity instruments based on the accounting guidance in ASC 480 and ASC 815 and that they qualified for an exception from derivative accounting under ASC 815 because the forward sale transactions were indexed to its own stock. HEI anticipates settling the equity forward transactions through physical settlement.

At September 30, 2013 , the equity forward transactions could have been settled with physical delivery of the shares to the forward counterparty in exchange for cash of $175 million . At September 30, 2013 , the equity forward transactions could also have been cash settled, with delivery of cash of approximately $6 million (which amount includes $7 million of underwriting discount) to the forward counterparty, or net share settled with delivery of approximately 212,000 shares of common stock to the forward counterparty.

Prior to their settlement, the equity forward transactions will be reflected in HEI’s diluted earnings per share calculations using the treasury stock method. Under this method, the number of shares of HEI’s common stock used in calculating diluted earnings per share for a reporting period would be increased by the number of shares, if any, that would be issued upon physical settlement of the equity forward transactions less the number of shares that could be purchased by HEI in the market (based on the average market price during that reporting period) using the proceeds receivable upon settlement of the equity forward

transactions (based on the adjusted forward sale price at the end of that reporting period). The excess number of shares is weighted for the portion of the reporting period in which the equity forward transactions are outstanding.

Accordingly, before physical or net share settlement of the equity forward transactions, and subject to the occurrence of certain events, HEI anticipates that the forward sale agreement and additional forward sale agreement will have a dilutive effect on HEI’s earnings per share only during periods when the applicable average market price per share of HEI’s common stock is above the per share adjusted forward sale price, as described above. However, if HEI decides to physically or net share settle the forward sale agreement and additional forward sale agreement, any delivery by HEI of shares upon settlement could result in dilution to HEI’s earnings per share.

For the nine months ended September 30, 2013 , the equity forward transactions did not have a material dilutive effect on HEI’s earnings per share.

Accumulated other comprehensive income . Reclassifications out of accumulated other comprehensive income/(loss) (AOCI) were as follows:



	Amount reclassified from AOCI
	Three months ended September 30						Nine months ended September 30
(in thousands)	2013			2012			2013			2012			Affected line item in the Statement of Income
Net realized gains on securities	$	—		$	—		$	(738	)	$	(81	)	Revenues-bank (net gains on sales of securities)
Derivatives qualified as cash flow hedges
Interest rate contracts (settled in 2011)	59			59			177			177			Interest expense
Retirement benefit plan items
Amortization of transition obligation, prior service credit and net losses recognized during the period in net periodic benefit cost	5,789			3,826			17,490			11,467			See Note 5 for additional details
Less: reclassification adjustment for impact of D&Os of the PUC included in regulatory assets	(5,156		)	(3,342		)	(15,468		)	(10,026		)	See Note 5 for additional details
Total reclassifications	$	692		$	543		$	1,461		$	1,537

8 · Commitments and contingencies

See Note 4, “Bank subsidiary,” above and Note 5, “Commitments and contingencies,” of Hawaiian Electric’s “Notes to Consolidated Financial Statements,” below.

9 · Fair value measurements

Fair value estimates are based on the price that would be received to sell an asset, or paid upon the transfer of a liability, in an orderly transaction between market participants at the measurement date. The fair value estimates are generally determined based on assumptions that market participants would use in pricing the asset or liability and are based on market data obtained from independent sources. However, in certain cases, the Company uses its own assumptions about market participant assumptions based on the best information available in the circumstances. These valuations are estimates at a specific point in time, based on relevant market information, information about the financial instrument and judgments regarding future expected loss experience, economic conditions, risk characteristics of various financial instruments and other factors. These estimates do not reflect any premium or discount that could result if the Company were to sell its entire holdings of a particular financial instrument at one time. Because no active trading market exists for a portion of the Company’s financial instruments, fair value estimates cannot be determined with precision. Changes in the underlying assumptions used, including discount rates and estimates of future cash flows, could significantly affect the estimates. In addition, the tax ramifications related to the realization of the unrealized gains and losses could have a significant effect on fair value estimates, but have not been considered in making such estimates.

The Company groups its financial assets measured at fair value in three levels outlined as follows:

Level 1: Inputs to the valuation methodology are quoted prices, unadjusted, for identical assets or liabilities in active markets. A quoted price in an active market provides the most reliable evidence of fair value and is used to measure fair value whenever available.

Level 2: Inputs to the valuation methodology include quoted prices for similar assets or liabilities in active markets; inputs to the valuation methodology include quoted prices for identical or similar assets or liabilities in markets that are not active; or inputs to the valuation methodology that are derived principally from or can be corroborated by observable market data by correlation or other means.

Level 3: Inputs to the valuation methodology are unobservable and significant to the fair value measurement. Level 3 assets and liabilities include financial instruments whose value is determined using discounted cash flow methodologies, as well as instruments for which the determination of fair value requires significant management judgment or estimation.

The Company used the following methods and assumptions to estimate the fair value of each applicable class of financial instruments for which it is practicable to estimate that value:

Short term borrowings—other than bank. The carrying amount approximated fair value because of the short maturity of these instruments.

Investment and mortgage-related securities. To determine the fair value of investment securities held in ASB’s available-for-sale portfolio, independent third-party vendor or broker pricing is used on an unadjusted basis. Prices for investments and mortgage-related securities are based on observable inputs, including historical trading levels or sector yields, using market-based valuation techniques. The third party pricing service uses applications, models and pricing matrices that correlate security prices to benchmark securities which are adjusted for various inputs. Inputs include: benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark security bids and offers, TBA (to be announced) prices, monthly payment information, and reference data including market research. The pricing service may prioritize inputs differently on any given day for any security, and not all inputs are available for use in the evaluation process on any given day or for each security. The pricing vendor corroborates its finding on an on-going basis by monitoring market activity and events.

Third party pricing services provide security prices in good faith using rigorous methodologies; however, they do not warrant or guarantee the adequacy or accuracy of their information. Therefore, ASB utilizes a separate third party pricing vendor to corroborate security pricing of the first pricing vendor. If the pricing differential between the two pricing sources exceeds an established threshold, a pricing inquiry will be sent to both vendors or to an independent broker to determine a price that can be supported based on observable inputs found in the market. Such challenges to pricing are required infrequently and are generally resolved using additional security-specific information that was not available to a specific vendor.

Loans receivable. The estimated fair value of loans receivable is determined based on characteristics such as loan category, repricing features and remaining maturity, and includes prepayment estimates.

For residential real estate loans, fair values were estimated by discounting estimated cash flows using discount rates based on current industry pricing for loans with similar contractual characteristics and remaining maturity.

For other types of loans, fair values were estimated by discounting contractual cash flows using discount rates that reflect current industry pricing for loans with similar characteristics and remaining maturity. Where industry pricing is not available, discount rates are based on ASB’s current pricing for loans with similar characteristics and remaining maturity.

The fair value of all loans was adjusted to reflect current assessments of loan collectability. Also see “Fair value measurements on a nonrecurring basis” below.

Deposit liabilities. The fair value of savings, negotiable orders of withdrawal, demand and money market deposits was the amount payable on demand at the reporting date. The fair value of fixed-maturity certificates of deposit was estimated by discounting the future cash flows using the rates currently offered for deposits of similar remaining maturities.

Other bank borrowings. Fair value was estimated by discounting the future cash flows using the current rates available for borrowings with similar credit terms and remaining maturities.

Long-term debt. Fair value was obtained from third-party financial services providers based on the current rates offered for debt of the same or similar remaining maturities and from discounting the future cash flows using the current rates offered for debt of the same or similar remaining maturities.

Derivative financial instruments. See “Fair value measurements on a recurring basis” below.

Off-balance sheet financial instruments. The fair value of loans serviced for others was calculated by discounting expected net income streams using discount rates that reflect industry pricing for similar assets. Expected net income streams were estimated based on industry assumptions regarding prepayment speeds and income and expenses associated with servicing residential mortgage loans for others. The fair value of commitments to originate loans was estimated based on the change in current primary market prices of new commitments. Since lines of credit can expire without being drawn and customers are under no obligation to utilize the lines, no fair value was assigned to unused lines of credit. The fair value of letters of credit was estimated based on the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements.

The estimated fair values of certain of the Company’s financial instruments were as follows:



	Carrying or notional		Estimated fair value
(in thousands)	amount		Level 1		Level 2		Level 3		Total
September 30, 2013
Financial assets
Money market funds	$	10	$	—	$	10	$	—	$	10
Available-for-sale investment and mortgage-related securities	535,264		—		535,264		—		535,264
Investment in stock of Federal Home Loan Bank of Seattle	93,413		—		93,413		—		93,413
Loans receivable, net	4,010,961		—		—		4,149,137		4,149,137
Derivative assets	24,196		—		558		—		558
Financial liabilities									0
Deposit liabilities	4,310,842		—		4,313,560		—		4,313,560
Short-term borrowings—other than bank	131,341		—		131,341		—		131,341
Other bank borrowings	239,612		—		252,230		—		252,230
Long-term debt, net—other than bank	1,422,880		—		1,431,434		—		1,431,434
Derivative liabilities	22,185		202		73		—		275
December 31, 2012
Financial assets
Money market funds	$	10	$	—	$	10	$	—	$	10
Available-for-sale investment and mortgage-related securities	671,358		—		671,358		—		671,358
Investment in stock of Federal Home Loan Bank of Seattle	96,022		—		96,022		—		96,022
Loans receivable, net	3,763,238		—		—		3,957,752		3,957,752
Financial liabilities									0
Deposit liabilities	4,229,916		—		4,235,527		—		4,235,527
Short-term borrowings—other than bank	83,693		—		83,693		—		83,693
Other bank borrowings	195,926		—		212,163		—		212,163
Long-term debt, net—other than bank	1,422,872		—		1,481,004		—		1,481,004

As of September 30, 2013 and December 31, 2012 , loan commitments and unused lines and letters of credit issued by ASB had notional amounts of $1.6 billion and $1.5 billion , respectively, and their estimated fair value on such dates were $0.6 million and $1.2 million , respectively. As of September 30, 2013 and December 31, 2012 , loans serviced by ASB for others had

notional amounts of $1.4 billion and $1.3 billion , respectively, and the estimated fair value of the servicing rights for such loans was $16.6 million and $11.9 million , respectively.

Fair value measurements on a recurring basis.

Securities . While securities held in ASB’s investment portfolio trade in active markets, they do not trade on listed exchanges nor do the specific holdings trade in quoted markets by dealers or brokers. All holdings are valued using market-based approaches that are based on exit prices that are taken from identical or similar market transactions, even in situations where trading volume may be low when compared with prior periods. Inputs to these valuation techniques reflect the assumptions that consider credit and nonperformance risk that market participants would use in pricing the asset based on market data obtained from independent sources. Available-for-sale securities were comprised of federal agency obligations and mortgage-backed securities and municipal bonds.

Derivative financial instruments . ASB enters into interest rate lock commitments (IRLC) for residential mortgage loans, which commit ASB to lend funds to a potential borrower at a specific interest rate and within a specified period of time. The estimated fair value of commitments to originate residential mortgage loans for sale is based on quoted prices for similar loans in active markets. IRLCs are classified as Level 2 measurements.

ASB utilizes forward commitments as economic hedges against potential changes in the values of the IRLCs and loans held for sale. To reduce the impact of price fluctuations of IRLC and mortgage loans held for sale, ASB will purchase to be announced (TBA) mortgage-backed securities forward commitments, mandatory and best effort commitments. These commitments help protect our loan sale profit margin from fluctuations in interest rates. The changes in the fair value of these commitments are recognized as part of mortgage banking income on the consolidated statements of income. TBA forward commitments are classified as Level 1, and consist of publicly-traded debt securities for which identical fair values can be obtained through quoted market prices in active exchange markets. The fair values of ASB’s best efforts and mandatory delivery loan sale commitments are determined similarly to the IRLCs using quoted prices in the market place that are observable and are classified as Level 2 measurements.

Assets measured at fair value on a recurring basis were as follows:



	Fair value measurements using
	Quoted prices in active markets for identical assets		Significant otherobservable inputs		Significant unobservable inputs
(in thousands)	(Level 1)		(Level 2)		(Level 3)
September 30, 2013
Money market funds (“other” segment)	$	—	$	10	$	—
Available-for-sale securities (bank segment)
Mortgage-related securities-FNMA, FHLMC and GNMA	$	—	$	357,977	$	—
Federal agency obligations	—		98,265		—
Municipal bonds	—		79,022		—
	$	—	$	535,264	$	—
Derivative assets (1)
Interest rate lock commitments	$	—	$	556	$	—
Forward commitments	—		2		—
	$	—	$	558	$	—
Derivative liabilities (1) - Forward commitments	$	202	$	73	$	—
December 31, 2012
Money market funds (“other” segment)	$	—	$	10	$	—
Available-for-sale securities (bank segment)
Mortgage-related securities-FNMA, FHLMC and GNMA	$	—	$	417,383	$	—
Federal agency obligations	—		171,491		—
Municipal bonds	—		82,484		—
	$	—	$	671,358	$	—

___________________________________________

(1) Derivatives are carried at fair value with changes in value reflected in the balance sheet in other assets or other liabilities and included in mortgage banking income.

Fair value measurements on a nonrecurring basis. From time to time, the Company may be required to measure certain assets at fair value on a nonrecurring basis in accordance with GAAP. These adjustments to fair value usually result from the writedowns of individual assets. ASB does not record loans at fair value on a recurring basis. However, from time to time, ASB records nonrecurring fair value adjustments based on the current appraised value of the collateral securing the loans or unobservable market assumptions. Unobservable assumptions reflect ASB’s own estimate of the fair value of collateral used in valuing the loan. ASB may also be required to measure goodwill at fair value on a nonrecurring basis. During the first nine months of 2013 , it was not required that a measurement of the fair value of goodwill be calculated and goodwill was not measured at fair value.

Assets measured at fair value on a nonrecurring basis were as follows:



			Fair value measurements
(in millions)	Balance		Level 1		Level 2		Level 3
Loans
September 30, 2013	$	5	$	—	$	—	$	5
December 31, 2012	21		—		—		21
Real estate acquired in settlement of loans
September 30, 2013	$	—	—		—		$	—
December 31, 2012	3		—		—		3

At September 30, 2013 and 2012 , there were no adjustments to fair value for ASB’s loans held for sale.

Residential loans . The fair value of ASB’s residential loans that were written down due to impairment was determined based on third party appraisals, which include the appraisers’ assumptions and judgment, and therefore, is classified as a Level 3 measurement.

Home equity lines of credit . The fair value of ASB’s home equity lines of credit that were written down due to impairment was determined based on third party appraisals, which include the appraisers’ assumptions and judgment, and therefore, is classified as a Level 3 measurement.

Commercial loans . The fair value of ASB’s commercial loans that were written down due to impairment was determined based on the value placed on the assets of the business, and therefore, is classified as a Level 3 measurement.

Real estate acquired in settlement of loans . The fair value of ASB’s real estate acquired in settlement of loans that were written down due to impairment was determined based on third party appraisals, which include the appraisers’ assumptions and judgment, and therefore, is classified as a Level 3 measurement.

For loans and real estate acquired in settlement of loans classified as Level 3 as of September 30, 2013 , the significant unobservable inputs used in the fair value measurement were as follows:



	Fair value at				Significant unobservable input value ⁽¹⁾
($ in thousands)	September 30, 2013		Valuation technique	Significant unobservable input	Range	Weighted Average
Residential loans	$	4,028	Fair value of property or collateral	Appraised value less 7% selling cost	44-96%	81%
Home equity lines of credit	172		Fair value of property or collateral	Appraised value less 7% selling cost	46-50%	50%
Commercial loans	759		Fair value of property or collateral	Fair value of business assets	31-91%	60%
Total loans	4,959
Real estate acquired in settlement of loans	192		Fair value of property or collateral	Appraised value less 7% selling cost	81-95%	90%

(1) Represent percent of outstanding principal balance.

Significant increases (decreases) in any of those inputs in isolation would result in significantly higher (lower) fair value measurement.

10 · Cash flows



Nine months ended September 30	2013		2012
(in millions)
Supplemental disclosures of cash flow information
Interest paid to non-affiliates	$	62	$	61
Income taxes paid	2		—
Supplemental disclosures of noncash activities
Common stock dividends reinvested in HEI common stock (1)	18		18
Increases in common stock related to director and officer compensatory plans	3		5
Additions to electric utility property, plant and equipment - Unpaid invoices and other	17		27
Real estate acquired in settlement of loans	4		7
Loans transferred from held-for-investment to held-for-sale	25		—

___________________________________________

(1) The amounts shown represent common stock dividends reinvested in HEI common stock under the HEI Dividend Reinvestment and Stock Purchase Plan (DRIP) in noncash transactions.

11 · Recent accounting pronouncements

Obligations resulting from joint and several liability . In February 2013, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2013-04, “Liabilities (Topic 405): Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation Is Fixed at the Reporting Date,” which provides guidance for the recognition, measurement and disclosure of obligations resulting from joint and several liability arrangements for which the total amount of the obligation is fixed at the reporting date. The guidance requires entities to measure these obligations as the sum of the amount the entity has agreed with co-obligors to pay and any additional amount it expects to pay on behalf of its co-obligors. The guidance also requires an entity to disclose the nature and amount of the obligation as well as other information. This guidance is effective for all fiscal years, and interim periods within those years, beginning after December 31, 2013.

The Company will retrospectively adopt ASU No. 2013-04 in the first quarter of 2014 and does not expect it to have a material impact on the Company’s results of operations, financial condition or liquidity.

Unrecognized tax benefit . In July 2013, the FASB issued ASU No. 2013-11, “Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists,” which clarifies that a liability for an unrecognized tax benefit should be presented as a reduction of a deferred tax asset for a net operating loss tax benefit carryforward (or other tax benefit carrying forward) , if the uncertain tax position could result in the reduction of such net operating loss (or other tax benefit) carryforward giving rise to the deferred tax asset . ASU No. 2013-11 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2013.

The Company will prospectively adopt ASU No. 2013-11 in the first quarter of 2014 and does not expect it to have a material impact on the Company’s results of operations, financial condition or liquidity.

12 · Credit agreement and long-term debt

Credit agreement. HEI maintains an amended revolving non-collateralized credit agreement, which established a line of credit facility of $125 million , with a letter of credit sub-facility, expiring on December 5, 2016, with a syndicate of eight financial institutions. The credit facility will be maintained to support the issuance of commercial paper, but also may be drawn to repay HEI’s short-term and long-term indebtedness, to make investments in or loans to subsidiaries and for HEI’s working capital and general corporate purposes.

Changes in long-term debt.

March 6, 2013 notes . On March 6, 2013, HEI entered into a First Supplement (the First Supplement) to the Master Note Purchase Agreement dated March 24, 2011 (the Note Agreement). Under the First Supplement, HEI issued $50 million of its unsecured, 3.99% Series 2013A Senior Notes, due March 6, 2023, via a private placement with The Prudential Insurance Company of America, Prudential Arizona Reinsurance Captive Company and The Lincoln National Life Insurance Company.

The Note Agreement, as modified by the First Supplement (which includes representations that supersede and supplement the representations in the Note Agreement), contains customary representations and warranties, affirmative and negative covenants, and events of default (the occurrence of which may result in some or all of the Notes then outstanding becoming immediately due and payable) and provisions requiring the maintenance by HEI of certain financial ratios generally consistent with those in HEI’s existing amended revolving non-collateralized credit agreement described above and in HEI’s Form 10-K for the year ended December 31, 2012 . For example, under the Note Agreement, it is an event of default if HEI fails to maintain an unconsolidated “Capitalization Ratio” (funded debt) of 50% or less (actual ratio of 17% as of September 30, 2013 , as calculated under the agreement) or “Consolidated Net Worth” of at least $975 million (actual Net Worth of $1.7 billion as of September 30, 2013 , as calculated under the agreement).

The net proceeds from the issuance of the Notes were used by HEI to refinance $50 million of its unsecured, 5.25% Medium-Term Notes, Series D, which matured on March 7, 2013.

13 · Taxes

Out-of period income tax benefit. In the third quarter of 2013, the Company recorded a $3.1 million (including $2.7 million related to the Utilities) out-of-period income tax benefit, resulting primarily from the reversal of deferred tax liabilities due to errors in the amount of book over tax basis differences in plant and equipment. Management concluded that this out-of-period adjustment was not material to either the current or any prior period financial statements.

Hawaiian Electric Company, Inc. and Subsidiaries

Consolidated Statements of Income (unaudited)



	Three months ended September 30						Nine months ended September 30
(in thousands)	2013			2012			2013			2012
Operating revenues	$	763,933		$	799,203		$	2,208,923		$	2,334,826
Operating expenses
Fuel oil	283,360			327,173			877,738			986,076
Purchased power	194,861			186,699			526,669			539,840
Other operation	72,008			70,441			209,615			196,806
Maintenance	31,513			30,368			88,555			91,641
Depreciation	38,995			35,941			115,865			108,556
Taxes, other than income taxes	72,382			74,850			208,828			222,149
Income taxes	18,928			22,352			51,356			58,291
Total operating expenses	712,047			747,824			2,078,626			2,203,359
Operating income	51,886			51,379			130,297			131,467
Other income
Allowance for equity funds used during construction	1,255			1,611			4,030			5,548
Other, net	1,099			1,087			4,351			3,810
Income tax expense	(129		)	(42		)	(420		)	(137		)
Total other income	2,225			2,656			7,961			9,221
Interest and other charges
Interest on long-term debt	14,615			14,694			43,843			44,400
Amortization of net bond premium and expense	646			870			1,940			2,276
Other interest charges (credits)	1,033			286			1,666			(84		)
Allowance for borrowed funds used during construction	(498		)	(688		)	(1,626		)	(2,451		)
Total interest and other charges	15,796			15,162			45,823			44,141
Net income	38,315			38,873			92,435			96,547
Preferred stock dividends of subsidiaries	228			228			686			686
Net income attributable to Hawaiian Electric	38,087			38,645			91,749			95,861
Preferred stock dividends of Hawaiian Electric	270			270			810			810
Net income for common stock	$	37,817		$	38,375		$	90,939		$	95,051

HEI owns all of the common stock of Hawaiian Electric. Therefore, per share data with respect to shares of common stock of Hawaiian Electric are not meaningful.

The accompanying notes for Hawaiian Electric are an integral part of these consolidated financial statements.

Hawaiian Electric Company, Inc. and Subsidiaries

Consolidated Statements of Comprehensive Income (unaudited)



	Three months ended September 30						Nine months ended September 30
(in thousands)	2013			2012			2013			2012
Net income for common stock	$	37,817		$	38,375		$	90,939		$	95,051
Other comprehensive income, net of taxes:
Retirement benefit plans:
Less: amortization of transition obligation, prior service credit and net losses recognized during the period in net periodic benefit cost, net of tax benefits of $3,295 and $2,178 for the three months ended September 30, 2013 and 2012 and $9,885 and $6,532 for the nine months ended September 30, 2013 and 2012, respectively	5,173			3,419			15,520			10,255
Less: reclassification adjustment for impact of D&Os of the PUC included in regulatory assets, net of taxes of $3,284 and $2,129 for the three months ended September 30, 2013 and 2012 and $9,852 and $6,386 for the nine months ended September 30, 2013 and 2012, respectively	(5,156		)	(3,342		)	(15,468		)	(10,026		)
Other comprehensive income, net of taxes	17			77			52			229
Comprehensive income attributable to Hawaiian Electric Company, Inc.	$	37,834		$	38,452		$	90,991		$	95,280

The accompanying notes are an integral part of these consolidated financial statements.

Hawaiian Electric Company, Inc. and Subsidiaries

Consolidated Balance Sheets (unaudited)



(dollars in thousands, except par value)	September 30, 2013			December 31, 2012
Assets
Utility plant, at cost
Land	$	51,834		$	51,568
Plant and equipment	5,593,801			5,364,400
Less accumulated depreciation	(2,093,575		)	(2,040,789		)
Construction in progress	151,077			151,378
Net utility plant	3,703,137			3,526,557
Current assets
Cash and cash equivalents	25,185			17,159
Customer accounts receivable, net	187,704			210,779
Accrued unbilled revenues, net	139,901			134,298
Other accounts receivable, net	9,174			28,176
Fuel oil stock, at average cost	137,087			161,419
Materials and supplies, at average cost	59,434			51,085
Prepayments and other	45,376			32,865
Regulatory assets	45,723			51,267
Total current assets	649,584			687,048
Other long-term assets
Regulatory assets	844,696			813,329
Unamortized debt expense	9,674			10,554
Other	62,667			71,305
Total other long-term assets	917,037			895,188
Total assets	$	5,269,758		$	5,108,793
Capitalization and liabilities
Capitalization
Common stock ($6 2/3 par value, authorized 50,000,000 shares; outstanding 14,665,264 shares)	$	97,788		$	97,788
Premium on capital stock	468,045			468,045
Retained earnings	937,029			907,273
Accumulated other comprehensive loss, net of income tax benefits-retirement benefit plans	(918		)	(970		)
Common stock equity	1,501,944			1,472,136
Cumulative preferred stock — not subject to mandatory redemption	34,293			34,293
Long-term debt, net	1,147,880			1,147,872
Total capitalization	2,684,117			2,654,301
Commitments and contingencies (Note 5)
Current liabilities
Short-term borrowings from non-affiliates	73,246			—
Accounts payable	180,957			186,824
Interest and preferred dividends payable	22,397			21,092
Taxes accrued	233,453			251,066
Other	78,534			62,879
Total current liabilities	588,587			521,861
Deferred credits and other liabilities
Deferred income taxes	478,601			417,611
Regulatory liabilities	329,131			322,074
Unamortized tax credits	71,038			66,584
Defined benefit pension and other postretirement benefit plans liability	596,240			620,205
Other	96,128			100,637
Total deferred credits and other liabilities	1,571,138			1,527,111
Contributions in aid of construction	425,916			405,520
Total capitalization and liabilities	$	5,269,758		$	5,108,793

The accompanying notes for Hawaiian Electric are an integral part of these consolidated financial statements.

Hawaiian Electric Company, Inc. and Subsidiaries

Consolidated Statements of Changes in Common Stock Equity (unaudited)



	Common stock			Premium on capital		Retained			Accumulated other comprehensive
(in thousands)	Shares	Amount		stock		earnings			income (loss)			Total
Balance, December 31, 2012	14,665	$	97,788	$	468,045	$	907,273		$	(970	)	$	1,472,136
Net income for common stock	—	—		—		90,939			—			90,939
Other comprehensive income, net of taxes	—	—		—		—			52			52
Common stock dividends	—	—		—		(61,183		)	—			(61,183		)
Balance, September 30, 2013	14,665	$	97,788	$	468,045	$	937,029		$	(918	)	$	1,501,944
Balance, December 31, 2011	14,234	$	94,911	$	426,921	$	881,041		$	(32	)	$	1,402,841
Net income for common stock	—	—		—		95,051			—			95,051
Other comprehensive income, net of taxes	—	—		—		—			229			229
Common stock dividends	—	—		—		(54,783		)	—			(54,783		)
Balance, September 30, 2012	14,234	$	94,911	$	426,921	$	921,309		$	197		$	1,443,338

The accompanying notes for Hawaiian Electric are an integral part of these consolidated financial statements.

Hawaiian Electric Company, Inc. and Subsidiaries

Consolidated Statements of Cash Flows (unaudited)



Nine months ended September 30,	2013			2012
(in thousands)
Cash flows from operating activities
Net income	$	92,435		$	96,547
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation of property, plant and equipment	115,865			108,556
Other amortization	2,470			4,074
Change in deferred income taxes	48,014			82,717
Change in tax credits, net	4,510			3,642
Allowance for equity funds used during construction	(4,030		)	(5,548		)
Changes in assets and liabilities
Decrease (increase) in accounts receivable	42,077			(36,907		)
Decrease (increase) in accrued unbilled revenues	(5,603		)	5,736
Decrease (increase) in fuel oil stock	24,332			(31,372		)
Increase in materials and supplies	(8,349		)	(7,305		)
Increase in regulatory assets	(53,314		)	(57,793		)
Decrease in accounts payable	(22,974		)	(3,481		)
Decrease in prepaid and accrued income taxes and utility revenue taxes	(15,416		)	(20,665		)
Contributions to defined benefit pension and other postretirement benefit plans	(60,876		)	(62,417		)
Other increase in defined benefit pension and other postretirement benefit plans liability	62,364			49,861
Change in other assets and liabilities	(10,195		)	(45,633		)
Net cash provided by operating activities	211,310			80,012
Cash flows from investing activities
Capital expenditures	(237,869		)	(220,970		)
Contributions in aid of construction	23,633			33,106
Other	427			—
Net cash used in investing activities	(213,809		)	(187,864		)
Cash flows from financing activities
Common stock dividends	(61,183		)	(54,783		)
Preferred stock dividends of Hawaiian Electric and subsidiaries	(1,496		)	(1,496		)
Proceeds from issuance of long-term debt	—			457,000
Repayment of long-term debt	—			(368,500		)
Net increase in short-term borrowings from non-affiliates and affiliate with original maturities of three months or less	73,246			44,719
Other	(42		)	(2,172		)
Net cash provided by financing activities	10,525			74,768
Net increase (decrease) in cash and cash equivalents	8,026			(33,084		)
Cash and cash equivalents, beginning of period	17,159			48,806
Cash and cash equivalents, end of period	$	25,185		$	15,722

The accompanying notes for Hawaiian Electric are an integral part of these consolidated financial statements.

Hawaiian Electric Company, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1 · Basis of presentation

The accompanying unaudited consolidated financial statements have been prepared in conformity with GAAP for interim financial information, the instructions to SEC Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. 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. The accompanying unaudited consolidated financial statements and the following notes should be read in conjunction with the audited consolidated financial statements and the notes thereto incorporated by reference in Hawaiian Electric’s Form 10-K for the year ended December 31, 2012 and the unaudited consolidated financial statements and the notes thereto in Hawaiian Electric’s Quarterly Reports on SEC Form 10-Q for the quarters ended March 31, 2013 and June 30, 2013.

In the opinion of Hawaiian Electric’s management, the accompanying unaudited consolidated financial statements contain all material adjustments required by GAAP to fairly state the financial position of Hawaiian Electric and its subsidiaries as of September 30, 2013 and December 31, 2012 , the results of their operations for the three and nine months ended September 30, 2013 and 2012 and their cash flows for the nine months ended September 30, 2013 and 2012 . All such adjustments are of a normal recurring nature unless otherwise disclosed in this Form 10-Q or other referenced material. Results of operations for interim periods are not necessarily indicative of results for the full year. When required, certain reclassifications are made to the prior period’s consolidated financial statements to conform to the current presentation.

2 · Unconsolidated variable interest entities

HECO Capital Trust III. HECO Capital Trust III (Trust III) was created and exists for the exclusive purposes of (i) issuing in March 2004 2,000,000 6.50% Cumulative Quarterly Income Preferred Securities, Series 2004 (2004 Trust Preferred Securities) ( $50 million aggregate liquidation preference) to the public and trust common securities ( $1.5 million aggregate liquidation preference) to Hawaiian Electric, (ii) investing the proceeds of these trust securities in 2004 Debentures issued by Hawaiian Electric in the principal amount of $31.5 million and issued by Hawaii Electric Light Company, Inc. (Hawaii Electric Light) and Maui Electric Company, Limited (Maui Electric) each in the principal amount of $10 million , (iii) making distributions on these trust securities and (iv) engaging in only those other activities necessary or incidental thereto. The 2004 Trust Preferred Securities are mandatorily redeemable at the maturity of the underlying debt on March 18, 2034, which maturity may be extended to no later than March 18, 2053; and are currently redeemable at the issuer’s option without premium. The 2004 Debentures, together with the obligations of Hawaiian Electric, Hawaii Electric Light and Maui Electric under an expense agreement and Hawaiian Electric’s obligations under its trust guarantee and its guarantee of the obligations of Hawaii Electric Light and Maui Electric under their respective debentures, are the sole assets of Trust III. Taken together, Hawaiian Electric’s obligations under the Hawaiian Electric debentures, the Hawaiian Electric indenture, the subsidiary guarantees, the trust agreement, the expense agreement and trust guarantee provide, in the aggregate, a full, irrevocable and unconditional guarantee of payments of amounts due on the Trust Preferred Securities. Trust III has at all times been an unconsolidated subsidiary of Hawaiian Electric. Since Hawaiian Electric, as the common security holder, does not absorb the majority of the variability of Trust III, Hawaiian Electric is not the primary beneficiary and does not consolidate Trust III in accordance with accounting rules on the consolidation of variable interest entities (VIEs). Trust III’s balance sheets as of September 30, 2013 and December 31, 2012 each consisted of $51.5 million of 2004 Debentures; $50.0 million of 2004 Trust Preferred Securities; and $1.5 million of trust common securities. Trust III’s income statements for the nine months ended September 30, 2013 and 2012 each consisted of $2.5 million of interest income received from the 2004 Debentures, $2.4 million of distributions to holders of the Trust Preferred Securities, and $0.1 million of common dividends on the trust common securities to Hawaiian Electric. As long as the 2004 Trust Preferred Securities are outstanding, Hawaiian Electric is not entitled to receive any funds from Trust III other than pro-rata distributions, subject to certain subordination provisions, on the trust common securities. In the event of a default by Hawaiian Electric in the performance of its obligations under the 2004 Debentures or under its Guarantees, or in the event Hawaiian Electric, Hawaii Electric Light or Maui Electric elect to defer payment of interest on any of their respective 2004 Debentures, then Hawaiian Electric will be subject to a number of restrictions, including a prohibition on the payment of dividends on its common stock.

Power purchase agreements. As of September 30, 2013 , Hawaiian Electric and its subsidiaries had six PPAs for firm capacity and other PPAs with smaller independent power producers (IPPs) and Schedule Q providers (i.e., customers with cogeneration and/or small power production facilities with a capacity of 100 kW or less who buy power from or sell power to the Utilities),

none of which are currently required to be consolidated as VIEs. Approximately 91% of the firm capacity is purchased from AES Hawaii, Inc. (AES Hawaii), Kalaeloa Partners, L.P. (Kalaeloa), Hamakua Energy Partners, L.P. (HEP) and HPOWER. Purchases from all IPPs were as follows:



	Three months ended September 30				Nine months ended September 30
(in millions)	2013		2012		2013		2012
AES Hawaii	$	38	$	38	$	98	$	109
Kalaeloa	80		78		223		230
HEP	15		19		36		48
HPOWER	17		18		44		48
Other IPPs	45		34		126		105
Total IPPs	$	195	$	187	$	527	$	540

Some of the IPPs provided sufficient information for Hawaiian Electric to determine that the IPP was not a VIE, or was either a “business” or “governmental organization,” and thus excluded from the scope of accounting standards for VIEs. A windfarm and Kalaeloa provided sufficient information, as required under their PPAs or amendments, such that Hawaiian Electric could determine that consolidation was not required. Management has concluded that the consolidation of some IPPs is not required as Hawaiian Electric and its subsidiaries do not have variable interests in the IPPs because the PPAs do not require them to absorb any variability of the IPPs.

An enterprise with an interest in a VIE or potential VIE created before December 31, 2003, and not thereafter materially modified, is not required to apply accounting standards for VIEs to that entity if the enterprise is unable to obtain the necessary information after making an exhaustive effort. Hawaiian Electric and its subsidiaries have made and continue to make exhaustive efforts to get the necessary information from two firm capacity producers and other small IPPs who entered into their PPAs prior to December 31, 2003 and have not provided such information, but have been unsuccessful to date as it was not a contractual requirement to provide such information prior to 2004. If the requested information is ultimately received from the remaining IPPs, a possible outcome of future analyses of such information is the consolidation of one or more of such IPPs. The consolidation of any significant IPP could have a material effect on the Company’s and Hawaiian Electric’s consolidated financial statements, including the recognition of a significant amount of assets and liabilities and the potential recognition of losses. If Hawaiian Electric and its subsidiaries determine they are required to consolidate the financial statements of such an IPP and the consolidation has a material effect, Hawaiian Electric and its subsidiaries would retrospectively apply accounting standards for VIEs.

Kalaeloa Partners, L.P. In October 1988, Hawaiian Electric entered into a PPA with Kalaeloa, subsequently approved by the PUC, which provided that Hawaiian Electric would purchase 180MW of firm capacity for a period of 25 years beginning in May 1991. In October 2004, Hawaiian Electric and Kalaeloa entered into amendments to the PPA, subsequently approved by the PUC, which together effectively increased the firm capacity from 180MW to 208MW. The energy payments that Hawaiian Electric makes to Kalaeloa include: (1) a fuel component, with a fuel price adjustment based on the cost of low sulfur fuel oil, (2) a fuel additives cost component, and (3) a non-fuel component, with an adjustment based on changes in the Gross National Product Implicit Price Deflator. The capacity payments that Hawaiian Electric makes to Kalaeloa are fixed in accordance with the PPA. Kalaeloa also has a steam delivery cogeneration contract with another customer, the term of which coincides with the PPA. The facility has been certified by the Federal Energy Regulatory Commission as a Qualifying Facility under the Public Utility Regulatory Policies Act of 1978.

Pursuant to the current accounting standards for VIEs, Hawaiian Electric is deemed to have a variable interest in Kalaeloa by reason of the provisions of Hawaiian Electric’s PPA with Kalaeloa. However, management has concluded that Hawaiian Electric is not the primary beneficiary of Kalaeloa because Hawaiian Electric does not have the power to direct the activities that most significantly impact Kalaeloa’s economic performance nor the obligation to absorb Kalaeloa’s expected losses, if any, that could potentially be significant to Kalaeloa. Thus, Hawaiian Electric has not consolidated Kalaeloa in its consolidated financial statements. A significant factor affecting the level of expected losses Hawaiian Electric could potentially absorb is the fact that Hawaiian Electric’s exposure to fuel price variability is limited to the remaining term of the PPA as compared to the facility’s remaining useful life. Although Hawaiian Electric absorbs fuel price variability for the remaining term of the PPA, the PPA does not currently expose Hawaiian Electric to losses as the fuel and fuel related energy payments under the PPA have been approved by the PUC for recovery from customers through base electric rates and through Hawaiian Electric’s ECAC to the extent the fuel and fuel related energy payments are not included in base energy rates. As of September 30, 2013 , Hawaiian Electric’s accounts payable to Kalaeloa amounted to $24 million .

3 · Taxes

Revenue taxes. Hawaiian Electric and its subsidiaries’ operating revenues include amounts for various Hawaii state revenue taxes. Revenue taxes are generally recorded as an expense in the period the related revenues are recognized. However, Hawaiian Electric and its subsidiaries’ revenue tax payments to the taxing authorities in the period are based on the prior year’s billed revenues (in the case of public service company taxes and PUC fees) or on the current year’s cash collections from electric sales (in the case of franchise taxes). For the nine months ended September 30, 2013 and 2012 , Hawaiian Electric and its subsidiaries included approximately $198 million and $212 million , respectively, of revenue taxes in “operating revenues” and in “taxes, other than income taxes” expense.

Out-of-period income tax benefit. In the third quarter of 2013, the Utilities recorded a $2.7 million out-of-period income tax benefit, resulting from the reversal of deferred tax liabilities due to errors in the amount of book over tax basis differences in plant and equipment. Management concluded that this out-of-period adjustment was not material to either the current or any prior period financial statements.

Recent tax developments. In September 2013, the Internal Revenue Service (IRS) issued final regulations addressing the acquisition, production and improvement of tangible property, which are effective January 1, 2014. Management is currently evaluating the impact of these new regulations, but does not expect a material impact on the Utilities since specific guidance on network (i.e., transmission and distribution) assets and generation property has already been received. The IRS also proposed regulations addressing the disposition of property.

The Utilities adopted the safe harbor guidelines with respect to network assets in 2011 and the IRS recently released a revenue procedure relating to deductions for repairs of generation property, which provides some guidance (that is elective) for taxpayers that own steam or electric generation property. This guidance defines the relevant components of generation property to be used in determining whether such component expenditures should be deducted as repairs or capitalized and depreciated by taxpayers. The revenue procedure also provides an extrapolation methodology that could be used by taxpayers in determining deductions for prior years’ repairs without going back to the specific documentation of those years. The guidance does not provide specific methods for determining the repairs amount. Management is evaluating the costs and benefits of adopting this guidance, in order to determine whether and when an election should be made.

4 · Retirement benefits

Defined benefit pension and other postretirement benefit plans information. For the first nine months of 2013 , Hawaiian Electric and its subsidiaries contributed $61 million to their pension and other postretirement benefit plans, compared to $62 million in the first nine months of 2012 . Hawaiian Electric and its subsidiaries’ current estimate of contributions to their pension and other postretirement benefit plans in 2013 is $81 million , compared to $63 million in 2012 . In addition, Hawaiian Electric and its subsidiaries expect to pay directly $1.0 million of benefits in 2013 , compared to $0.5 million paid in 2012 .

On July 6, 2012, President Obama signed the MAP-21, which included provisions related to the funding and administration of pension plans. This law does not affect the Utilities’ accounting for pension benefits; therefore, the net periodic benefit costs disclosed for the plans were not affected. The Utilities elected to apply MAP-21 for 2012, which improved the plan’s AFTAP for funding and benefit distribution purposes and thereby reduced the 2012 minimum funding requirement and lifted the restrictions on accelerated distribution options (which restrictions were in effect from April 1, 2011 to September 30, 2012) for Hawaiian Electric and its subsidiaries. The effects of MAP-21 are expected to cause the minimum required funding under ERISA to be less than the net periodic cost for 2013 and 2014; therefore, to satisfy the requirements of the pension and OPEB tracking mechanisms, the Utilities expect to contribute the net periodic cost for these years.

The components of net periodic benefit cost for the Utilities were as follows:



	Three months ended September 30												Nine months ended September 30
	Pension benefits						Other benefits						Pension benefits						Other benefits
(in thousands)	2013			2012			2013			2012			2013			2012			2013			2012
Service cost	$	13,620		$	10,400		$	1,041		$	1,003		$	40,861		$	31,202		$	3,122		$	3,010
Interest cost	14,780			15,364			1,822			2,175			44,339			46,090			5,466			6,527
Expected return on plan assets	(16,138		)	(16,001		)	(2,502		)	(2,548		)	(48,413		)	(48,003		)	(7,502		)	(7,646		)
Amortization of net transition obligation	—			—			—			(2		)	—			—			—			(6		)
Amortization of net prior service gain	(116		)	(173		)	(451		)	(450		)	(348		)	(517		)	(1,353		)	(1,352		)
Amortization of net actuarial loss	8,649			5,857			387			363			25,948			17,571			1,159			1,091
Net periodic benefit cost	20,795			15,447			297			541			62,387			46,343			892			1,624
Impact of PUC D&Os	(9,257		)	(3,460		)	(332		)	(552		)	(28,847		)	(12,294		)	(1,018		)	(1,648		)
Net periodic benefit cost (adjusted for impact of PUC D&Os)	$	11,538		$	11,987		$	(35	)	$	(11	)	$	33,540		$	34,049		$	(126	)	$	(24	)

Hawaiian Electric and its subsidiaries recorded retirement benefits expense of $21 million and $24 million in the first nine months of 2013 and 2012 , respectively. The electric utilities charged a portion of the net periodic benefit cost to electric utility plant.

Accumulated other comprehensive income . Reclassifications out of AOCI were as follows:



	Amount reclassified from AOCI
	Three months ended September 30						Nine months ended September 30
(in thousands)	2013			2012			2013			2012
Retirement benefit plan items
Amortization of transition obligation, prior service credit and net losses recognized during the period in net periodic benefit cost	$	5,173		$	3,419		$	15,520		$	10,255		See above
Less: reclassification adjustment for impact of D&Os of the PUC included in regulatory assets	(5,156		)	(3,342		)	(15,468		)	(10,026		)	See above
Total reclassifications	$	17		$	77		$	52		$	229

Defined contribution plan information. For the first nine months of 2013 and 2012 , the Utilities’ expense for its defined contribution pension plan was $0.4 million and 0.2 million , respectively.

5 · Commitments and contingencies

Utility projects. Many public utility projects require PUC approval and various permits from other governmental agencies. Difficulties in obtaining, or the inability to obtain, the necessary approvals or permits can result in significantly increased project costs or even cancellation of projects. Further, completion of projects is subject to various risks, such as problems or disputes with vendors. In the event a project does not proceed, or if it becomes probable the PUC will disallow cost recovery for all or part of a project, project costs may need to be written off in amounts that could result in significant reductions in Hawaiian Electric’s consolidated net income.

In May 2011, the PUC ordered independently conducted regulatory audits on the reasonableness of costs incurred for Hawaiian Electric’s East Oahu Transmission Project (EOTP), Campbell Industrial Park (CIP) combustion turbine No. 1 (CT-1) project, and Customer Information System (CIS) project. However, in March 2012, the PUC eliminated the requirement for a regulatory audit for the EOTP Phase I in connection with an approved settlement of the EOTP Phase I project cost issues and, in March 2013, the PUC eliminated the requirement for an audit of the CIP CT-1 and CIS project costs as described below.

On January 28, 2013, Hawaiian Electric and its subsidiaries and the Consumer Advocate, signed a settlement agreement (2013 Agreement), subject to PUC approval, to write-off $40 million of costs in lieu of conducting the regulatory audits of the CIP CT-1 project and the CIS project. Based on the 2013 Agreement, as of December 31, 2012 , the Utilities recorded an after-tax charge to net income of approximately $24 million — $17.1 million for Hawaiian Electric, $3.4 million for Hawaii Electric Light, and $3.2 million for Maui Electric. The remaining recoverable costs of $52 million were included in rate base as of December 31, 2012 .

As part of the 2013 Agreement, Hawaii Electric Light would withdraw its 2013 test year rate case, and delay filing a new rate case until a 2016 test year. Additionally, Hawaiian Electric would delay the filing of its scheduled 2014 test year rate case to no earlier than January 2, 2014. For both utilities, the existing terms of the last rate case decisions would continue. Hawaiian Electric would also be allowed to record Revenue Adjustment Mechanism (RAM) revenues starting on January 1 of 2014, 2015 and 2016. The cash collection of RAM revenues would remain unchanged, starting June 1 of each year through May 31 of the following year.

On March 19, 2013, the PUC issued a decision and order (2013 D&O) approving the 2013 Agreement, with the following clarifications, none of which changed the financial impact recorded as of December 31, 2012 : (1) the PUC reiterated its authority to examine and ascertain what post go-live CIS costs would be subject to regulatory review in future rate cases; (2) the PUC discouraged requesting single issue cost deferral accounting and/or cost recovery mechanisms during the period of rate case deferral by Hawaiian Electric and Hawaii Electric Light; (3) the PUC approved the agreed-upon recovery of CIP CT-1 and CIS project costs through the RAM, as set forth in the 2013 Agreement, however not setting a precedent for future projects; and (4) the PUC reaffirmed its right to rule on the substance of the Maui Electric 2012 test year rate case in its ongoing rate case proceeding. On May 31, 2013, the PUC issued a final D&O in the Maui Electric 2012 test year rate case. See “Maui Electric 2012 test year rate case” below.

Renewable energy projects . Hawaiian Electric and its subsidiaries are committed to achieving or exceeding the State’s Renewable Portfolio Standard (RPS) goal of 40% renewable energy by 2030 and to meeting their commitments relating to decreasing the State’s dependence on imported fossil fuels under their 2008 Energy Agreement with the Governor, the State Department of Business, Economic Development and Tourism and the Consumer Advocate (Energy Agreement). The Utilities continue to evaluate and pursue opportunities with developers of proposed projects to integrate power into its grid from a variety of renewable energy sources, including solar, biomass, wind, ocean thermal energy conversion, wave, geothermal and others. In December 2009, the PUC allowed Hawaiian Electric to defer the costs of studies for the large wind project for later review of prudence and reasonableness. In April 2013, the PUC approved the recovery of $3.9 million in costs for stage 1 studies for the large wind project over a three -year period, with carrying costs to be accrued over the recovery period at the rate of 1.75% per annum, through the Renewable Energy Infrastructure Program (REIP) Surcharge.

In November 2011, Hawaiian Electric and Maui Electric filed their application to seek PUC approval to defer for later recovery approximately $555,000 (split evenly between Hawaiian Electric and Maui Electric) also through the REIP surcharge for additional studies to determine the value proposition of interconnecting the islands of Oahu and of Maui County (Maui, Lanai, and Molokai) and if doing so would be operationally beneficial and cost-effective. In August 2012, the PUC allowed Hawaiian Electric and Maui Electric to defer the outside service costs for the additional studies for later review of prudence and reasonableness. The specific amount to be recovered, as well as the recovery mechanism and the terms of the recovery mechanism, were to be determined at a later date.

A revised draft Request for Proposals (RFP) for 200 MW or more of renewable energy to be delivered to Oahu from any of the Hawaiian Islands was posted on Hawaiian Electric’s website prior to the issuance of a proposed final RFP. In February 2012, the PUC granted Hawaiian Electric’s request for deferred accounting treatment for the inter-island project support costs. The amount of the deferred costs was limited to $5.89 million . On July 11, 2013, the PUC issued orders related to the 200 MW RFP. First, it issued an order that Hawaiian Electric shall amend its current draft of the Oahu 200 MW RFP to remove references to the Lanai Wind Project, eliminate solicitations for an undersea transmission cable, and amend the draft RFP to reflect other guidance provided in the order. Second, it initiated an investigative proceeding to review the progress of the Lanai Wind Project stating that there was an uncertainty whether the project developer retained an equivalent ability to develop the project as when it submitted its bid in 2008 and its term sheet in 2011. The PUC also stated that it will review the PPA (if one is completed) and, as part of that process, determine whether the Lanai Wind Project should be developed taking into account potential as-available renewable energy projects and grid infrastructure options. The PUC stated it intends to evaluate the project as a combined resources proposal (i.e., wind project and generation tie transmission cable between the islands of Oahu and Lanai). Third, it initiated a proceeding to solicit information and evaluate whether an interisland grid interconnection transmission system between the islands of Oahu and Maui is in the public interest, given the potential for large-scale wind and solar projects on Maui.

In May 2012, the PUC instituted a proceeding for a competitive bidding process for up to 50 MW of firm renewable geothermal dispatchable energy (Geothermal RFP) on the island of Hawaii, and in July 2012, Hawaii Electric Light filed an application to defer 2012 costs related to the Geothermal RFP. In February 2013, Hawaii Electric Light issued the Final Geothermal RFP. Six bids were received in April 2013 and are being evaluated.

In June 2013, Hawaiian Electric filed an application to seek PUC approval of Waivers from the Framework for Competitive Bidding for five projects ( 4 photovoltaic and 1 wind) selected as part of Hawaiian Electric’s “Invitation for Low Cost Renewable Energy Projects on Oahu through Request for Waiver from Competitive Bidding. ” In November 2013, Hawaiian Electric filed a second waiver application requesting the PUC approval for six additional projects ( 6 photovoltaic) selected as part of Hawaiian Electric pricing refresh opportunity provided to developers that originally submitted proposals in response to the “Invitation for Low Cost Renewable Energy Projects on Oahu through Request for Waiver from Competitive Bidding.” In November 2013, Hawaiian Electric notified the PUC that two of the projects in the first application asked that their proposals be withdrawn.

Environmental regulation. Hawaiian Electric and its subsidiaries are subject to environmental laws and regulations that regulate the operation of existing facilities, the construction and operation of new facilities and the proper cleanup and disposal of hazardous waste and toxic substances. In recent years, legislative, regulatory and governmental activities related to the environment, including proposals and rulemaking under the Clean Air Act (CAA) and Clean Water Act (CWA), have increased significantly and management anticipates that such activity will continue.

On April 20, 2011, the Federal Register published the federal Environmental Protection Agency’s (EPA’s) proposed regulations required by section 316(b) of the CWA designed to protect aquatic organisms from adverse impacts associated with existing power plant cooling water intake structures. The proposed regulations would apply to the cooling water systems for the steam generating units at Hawaiian Electric’s power plants on the island of Oahu. If adopted as proposed, management believes the proposed regulations would require significant capital and annual other operation and maintenance (O&M) expenditures. On June 11, 2012, the EPA published additional information on the section 316(b) rule making that indicates that the EPA is considering establishing lower cost compliance alternatives in the final rule. The EPA has delayed issuance of the final section 316(b) rule until November 2013.

On February 16, 2012, the Federal Register published the EPA’s final rule establishing the EPA’s National Emission Standards for Hazardous Air Pollutants for fossil fuel-fired steam electrical generating units (EGUs). The final rule, known as the Mercury and Air Toxics Standards (MATS), applies to the 14 EGUs at Hawaiian Electric’s power plants. MATS establishes the Maximum Achievable Control Technology standards for the control of hazardous air pollutants emissions from new and existing EGUs. Based on a review of the final rule and the benefits and costs of alternative compliance strategies, Hawaiian Electric has selected a MATS compliance strategy based on switching to lower emission fuels. The use of lower emission fuels will provide for MATS compliance at lower overall costs and avoid the reduction in operational flexibility imposed by emissions control equipment. As provided in the MATS regulations, Hawaiian Electric will be requesting a one -year extension resulting in a MATS compliance date of April 16, 2016. Hawaiian Electric also has pending with the EPA a Petition for Reconsideration and Stay dated April 16, 2012, and a Request for Expedited Consideration dated August 14, 2013. The submittals ask the EPA to revise an emissions standard for non-continental oil-fired EGUs on the grounds that the promulgated standard was incorrectly derived. The Petition and Request submittals to the EPA included additional data to demonstrate that the existing standard is erroneous. Hawaiian Electric has been in contact with the EPA regarding the status of its Petition and does not expect a decision before mid-2014. On February 6, 2013, the EPA issued a guidance document titled “Next Steps for

Area Designations and Implementation of the Sulfur Dioxide National Ambient Air Quality Standard,” which outlines a process that will provide the states additional flexibility and time for their development of one-hour sulfur dioxide NAAQS implementation plans. Hawaiian Electric will work with the DOH and the EPA in the rulemaking process for these implementation plans to ensure development of cost-effective strategies for NAAQS compliance. Based on the February 6, 2013 EPA guidance document, current estimates of the compliance date for the one-hour sulfur dioxide NAAQS is in the 2022 or later timeframe.

Depending upon the final outcome of the CWA 316(b) regulations, the specific measures required for MATS compliance, and the rules and guidance developed for implementation of more stringent National Ambient Air Quality Standards, Hawaiian Electric and its subsidiaries may be required to incur material capital expenditures and other compliance costs, but such amounts are not determinable at this time. Additionally, the combined effects of these regulatory initiatives may result in a decision to retire or deactivate certain generating units earlier than anticipated.

Hawaiian Electric, Hawaii Electric Light and Maui Electric, like other utilities, periodically experience petroleum or other chemical releases into the environment associated with current operations and report and take action on these releases when and as required by applicable law and regulations. Hawaiian Electric and its subsidiaries believe the costs of responding to such releases identified to date will not have a material adverse effect, individually or in the aggregate, on Hawaiian Electric’s consolidated results of operations, financial condition or liquidity.

Potential Clean Air Act Enforcement . On July 1, 2013, Hawaii Electric Light and Maui Electric received a letter from the U.S. Department of Justice (DOJ) asserting potential violations of the Prevention of Significant Deterioration (PSD) and Title V requirements of the Clean Air Act involving the Hill and Kahului Power Plants. The EPA referred the matter to the DOJ for enforcement based on Hawaii Electric Light’s and Maui Electric’s responses to information requests in 2010 and 2012. The letter expresses an interest in resolving the matter without the issuance of a notice of violation, and invites Hawaii Electric Light and Maui Electric to engage in settlement negotiations. Hawaii Electric Light and Maui Electric are in contact with the DOJ to seek additional information and to make arrangements for settlement discussions. Hawaii Electric Light and Maui Electric cannot currently estimate the amount or effect of a settlement, if any. Hawaii Electric Light and Maui Electric continue to investigate the potential bases for the DOJ’s claims, and have not yet identified at this time any projects or work relating to the information requests that may have been noncompliant with PSD or Title V requirements.

Former Molokai Electric Company generation site . In 1989, Maui Electric acquired by merger Molokai Electric Company. Molokai Electric Company had sold its former generation site (Site) in 1983, but continued to operate at the Site under a lease until 1985. The EPA has since performed Brownfield assessments of the Site that identified environmental impacts in the subsurface. Although Maui Electric never operated at the Site and operations there had stopped four years before the merger, in discussions with the EPA and the DOH, Maui Electric agreed to undertake additional investigations at the Site and an adjacent parcel that Molokai Electric Company had used for equipment storage (the Adjacent Parcel) to determine the extent of impacts of subsurface contaminants. A 2011 assessment by a Maui Electric contractor of the Adjacent Parcel identified environmental impacts, including elevated polychlorinated biphenyls (PCBs) in the subsurface soils. In cooperation with the DOH and EPA, Maui Electric is further investigating the Site and the Adjacent Parcel to determine the extent of impacts of PCBs, fuel oils, and other subsurface contaminants. In March 2012, Maui Electric accrued an additional $3.1 million (reserve balance of $3.6 million as of September 30, 2013 ) for the additional investigation and estimated cleanup costs at the Site and the Adjacent Parcel; however, final costs of remediation will depend on the results of continued investigation. Maui Electric received DOH comments on a revised draft site investigation plan for site characterization in October 2013 and will revise the plan accordingly.

Global climate change and greenhouse gas emissions reduction . National and international concern about climate change and the contribution of GHG emissions (including carbon dioxide emissions from the combustion of fossil fuels) to global warming have led to action by the State and to federal legislative and regulatory proposals to reduce GHG emissions.

In July 2007, Act 234, which requires a statewide reduction of GHG emissions by January 1, 2020 to levels at or below the statewide GHG emission levels in 1990, became law in Hawaii. The electric utilities participated in a Task Force established under Act 234, which was charged with developing a work plan and regulatory approach to reduce GHG emissions, as well as in initiatives aimed at reducing their GHG emissions, such as those being implemented under the Energy Agreement. On October 19, 2012, the DOH posted the proposed regulations required by Act 234 for public hearing and comment. In general, the proposed regulations would require affected sources that have the potential to emit GHGs in excess of established thresholds to reduce GHG emissions by 25% below 2010 emission levels by 2020. The proposed regulations also assess affected sources an annual fee based on tons per year of GHG emissions, beginning with emissions in calendar year 2012. The proposed DOH GHG rule also tracks the federal “Prevention of Significant Deterioration and Title V Greenhouse Gas Tailoring Rule” (GHG Tailoring Rule, see below) and would create new thresholds for GHG emissions from new and existing stationary

source facilities. Hawaiian Electric submitted comments on the proposed regulations in January 2013. In October 2013, the DOH announced that it intends to issue a final rule that would change the required emission reduction from 25% to 16% and delay the accrual of GHG emissions fees until after the rule is promulgated, among other changes, but the final rule has not yet been formally approved or released. Hawaiian Electric continues to monitor this rulemaking proceeding and will participate in the further development of the regulations.

Several approaches (e.g., “cap and trade”) to GHG emission reduction have been either introduced or discussed in the U.S. Congress; however, no federal legislation has yet been enacted.

On September 22, 2009, the EPA issued its Final Mandatory Reporting of Greenhouse Gases Rule, which requires that sources emitting GHGs above certain threshold levels monitor and report GHG emissions. The Utilities have submitted the required reports for 2010, 2011 and 2012 to the EPA. In December 2009, the EPA made the finding that motor vehicle GHG emissions endanger public health or welfare. Since then, the EPA has also issued rules that begin to address GHG emissions from stationary sources, like the Utilities’ EGUs.

In June 2010, the EPA issued its GHG Tailoring Rule. Effective January 2, 2011, under the Prevention of Significant Deterioration program, permitting of new or modified stationary sources that have the potential to emit GHGs in greater quantities than the thresholds in the GHG Tailoring Rule will entail GHG emissions evaluation, analysis and, potentially, control requirements. On March 27, 2012, the Federal Register published the EPA’s proposed New Source Performance Standard regulating carbon dioxide emissions from affected new fossil fuel-fired generating units. On June 25, 2013, President Obama directed the EPA Administrator to issue a new proposal no later than September 20, 2013. In addition, the President directed the Administrator to issue proposed standards, regulations, or guidelines for GHG emissions from existing power plants by no later than June 1, 2014, and final standards no later than June 1, 2015. On September 20, 2013, the EPA issued a pre-publication version of its new proposal for New Source Performance Standards for GHG from new generating units. This proposed rule on GHG from new EGUs does not apply to oil-fired combustion turbines or diesel engine generators, and is not otherwise expected to have significant impacts on the Utilities. Hawaiian Electric will participate in the federal GHG rulemaking process and support these exclusions for both new and existing sources. The Utilities will continue to evaluate the impact of proposed GHG rules and regulations as they develop. Final regulations may impose significant compliance costs, and may require reductions in fossil fuel use and the addition of renewable energy resources in excess of the RPS law.

While the timing, extent and ultimate effects of climate change cannot be determined with any certainty, climate change is predicted to result in sea level rise, which could potentially impact coastal and other low-lying areas (where much of the Utilities’ electric infrastructure is sited), and could cause erosion of beaches, saltwater intrusion into aquifers and surface ecosystems, higher water tables and increased flooding and storm damage due to heavy rainfall. The effects of climate change on the weather (for example, floods or hurricanes), sea levels, and water availability and quality have the potential to materially adversely affect the results of operations, financial condition and liquidity of the electric utilities. For example, severe weather could cause significant harm to the electric utilities’ physical facilities.

Hawaiian Electric and its subsidiaries have taken, and continue to identify opportunities to take, direct action to reduce GHG emissions from their operations, including, but not limited to, supporting DSM programs that foster energy efficiency, using renewable resources for energy production and purchasing power from IPPs generated by renewable resources, burning renewable biodiesel in Hawaiian Electric’s CIP CT-1, using biodiesel for startup and shutdown of selected Maui Electric generating units, and testing biofuel blends in other Hawaiian Electric and Maui Electric generating units. The Utilities are also working with the State of Hawaii and other entities to pursue the use of liquefied natural gas as a cleaner and lower cost fuel to replace, at least in part, the petroleum oil that would otherwise be used. Management is unable to evaluate the ultimate impact on the Utilities’ operations of eventual comprehensive GHG regulation. However, management believes that the various initiatives it is undertaking will provide a sound basis for managing the electric utilities’ carbon footprint and meeting GHG reduction goals that will ultimately emerge.

Maui Electric 2012 test year rate case. On May 31, 2013, the PUC issued a final D&O in the Maui Electric 2012 test year rate case. Final rates became effective August 1, 2013. The final D&O approved an increase in annual revenues of $5.3 million , which is $7.8 million less than the interim increase that had been in effect since June 1, 2012. Reductions from the interim D&O relate primarily to:



(in millions)
Lower ROACE	$	4.0
Customer Information System expenses	0.3
Pension and OPEB expense based on 3-year average	1.5
Integrated resource planning expenses	0.9
Operational and Renewable Energy Integration study costs	1.1
Total adjustment	$	7.8

According to the PUC, the reduction in the allowed ROACE from the stipulated 10% to the final approved 9% is composed of 0.5% allocation due to updated economic and financial market conditions manifested in lower interest rates in the 2012 test year and 0.5% for system inefficiencies reflected in over curtailment of renewable energy produced by independent power producers.

The PUC found that the record did not sufficiently support the normalization of 2013 and 2014 Customer Information System costs into the 2012 test year and ordered a downward adjustment to remove these costs from the test year.

The reduction in the pension and OPEB expense is due to applying a 3 -year average in the calculation of pension costs for the purpose of the 2012 test year. This is not a PUC decision to change the pension and OPEB tracking mechanisms, although the PUC emphasizes the need to evaluate alternatives to decrease or limit the growth in employee benefits costs.

The PUC removed integrated resource planning (IRP) expenses from the test year as it could not determine whether these expenses have been reasonably incurred for the 2012 test year as required by the PUC’s IRP Framework and stated that it will determine the appropriate level and method of cost recovery for Maui Electric’s IRP expenses in the pending IRP proceeding.

The PUC reduced operational and renewable energy integration study costs because of the uncertainty regarding the scope of work and actual costs of these studies.

The PUC also continued Maui Electric’s existing energy cost adjustment clause (ECAC) and power purchase adjustment clause (PPAC) design. The PUC stated that it will consider Hawaiian Electric, Hawaii Electric Light and Maui Electric’s future actions to reduce fuel costs and increase use of renewable energy as it continues to review the design of the ECAC in the future.

On June 12, 2013, Maui Electric filed a motion for partial reconsideration and partial clarification of the final D&O in the Maui Electric 2012 test year rate case. The motion primarily requested reconsideration of the findings and conclusions concerning Maui Electric’s 9% ROACE for the test year and also addressed other matters identified in the D&O, including treatment of IRP costs pending PUC determinations on such costs in a separate IRP proceeding. Maui Electric requested a panel evidentiary hearing on ROACE, curtailment and technical studies, and pension expense. Maui Electric also requested to partially stay the implementation of the final D&O, pending the presentation at the evidentiary hearing on its motion for partial reconsideration of the final D&O related to the ROACE reduction from 10.0% to 9.0% and the PUC’s final decision following the hearing. On July 2, 2013, the PUC issued an order denying Maui Electric’s requests for an evidentiary hearing and for partial reconsideration, and dismissed Maui Electric’s motion for partial stay. The order granted Maui Electric’s motion for partial clarification to allow Maui Electric to defer IRP costs incurred since June 2012, which through September 30, 2013 totaled approximately $0.8 million , until the level of costs are determined and a method of recovery is decided in the IRP proceeding.

Since the final rate increase was lower than the interim increase previously in effect, Maui Electric recorded a charge, net of revenue taxes, of $7.6 million in the second quarter and refunded to customers approximately $9.7 million (which includes interest accrued since June 1, 2012) between September 2013 and early November 2013. As a result of the D&O, in the second quarter of 2013 Maui Electric also recorded adjustments to reduce expenses by reducing employee benefits expenses by $1.8 million for adjustments to pension and OPEB costs, and to reclassify $0.7 million of IRP costs to deferred accounts.

As directed by the PUC, in June 2013 Maui Electric made its curtailment information available to the public on its website and in July 2013 filed documentation regarding the re-setting of its target heat rates to take into account the operation of the Auwahi wind farm.

In addition, as required by the final D&O, Maui Electric filed in September 2013 a System Improvement and Curtailment Reduction Plan, which identified actions that Maui Electric had already implemented to increase the use of wind energy and further actions that it is committed to implement to benefit customers. In separate filings in October 2013, Maui Electric submitted additional information on the re-setting of its target heat rates and metrics to measure the success of its efforts to

reduce or limit curtailment and execute on key actions. Maui Electric also proposed to make a new target heat rate reset filing in December 2013 based on the System Improvement and Curtailment Plan to be effective in May 2014. Management cannot predict any actions by the PUC as a result of these filings.

Asset retirement obligations. Asset retirement obligations (AROs) represent legal obligations associated with the retirement of certain tangible long-lived assets, are measured as the present value of the projected costs for the future retirement of specific assets and are recognized in the period in which the liability is incurred if a reasonable estimate of fair value can be made. Hawaiian Electric and its subsidiaries’ recognition of AROs have no impact on their earnings. The cost of the AROs is recovered over the life of the asset through depreciation. AROs recognized by Hawaiian Electric and its subsidiaries relate to obligations to retire plant and equipment, including removal of asbestos and other hazardous materials.

Changes to the ARO liability included in “Other liabilities” on Hawaiian Electric’s balance sheet were as follows:



	Nine months ended September 30
(in thousands)	2013			2012
Balance, beginning of period	$	48,431		$	50,871
Accretion expense	833			1,233
Liabilities incurred	—			—
Liabilities settled	(1,165		)	(2,788		)
Revisions in estimated cash flows	(916		)	—
Balance, end of period	$	47,183		$	49,316

6 · Cash flows



Nine months ended September 30	2013			2012
(in millions)
Supplemental disclosures of cash flow information
Interest paid	$	43		$	40
Income taxes paid/(refunded)	(26		)	2
Supplemental disclosures of noncash activities
Additions to electric utility property, plant and equipment - Unpaid invoices and other	17			27

7 · Fair value measurements

See Note 9 “Fair value measurements,” of HEI’s “Notes to Consolidated Financial Statements” for discussions of fair value estimates, grouping of financial instruments and methods and assumptions used to estimate the fair value of short-term borrowings and long-term debt.

The estimated fair values of certain of the electric utilities’ financial instruments were as follows:



	September 30, 2013				December 31, 2012
(in thousands)	Carrying amount		Estimated fair value (Level 2)		Carrying amount		Estimated fair value (Level 2)
Financial liabilities
Short-term borrowings - non-affiliates	$	73,246	$	73,246	$	—	$	—
Long-term debt, net, including amounts due within one year	1,147,880		1,149,213		1,147,872		1,181,631

Fair value measurements on a nonrecurring basis. From time to time, the Utilities may be required to measure certain liabilities at fair value on a nonrecurring basis in accordance with GAAP. The fair value of the Utilities ARO (Level 3) was determined by discounting the expected future cash flows using market-observable risk-free rates as adjusted by Hawaiian Electric’s credit spread. Also, see “Asset retirement obligations” in Note 5.

8 · Recent accounting pronouncements

Obligations resulting from joint and several liability . In February 2013, the FASB issued ASU No. 2013-04, “Liabilities (Topic 405): Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the

Obligation Is Fixed at the Reporting Date,” which provides guidance for the recognition, measurement and disclosure of obligations resulting from joint and several liability arrangements for which the total amount of the obligation is fixed at the reporting date. The guidance requires entities to measure these obligations as the sum of the amount the entity has agreed with co-obligors to pay and any additional amount it expects to pay on behalf of its co-obligors. The guidance also requires an entity to disclose the nature and amount of the obligation as well as other information. This guidance is effective for all fiscal years, and interim periods within those years, beginning after December 31, 2013.

Hawaiian Electric and its subsidiaries will retrospectively adopt ASU No. 2013-04 in the first quarter of 2014 and does not expect it to have a material impact on Hawaiian Electric and its subsidiaries’ results of operations, financial condition or liquidity.

Hawaiian Electric and its subsidiaries will prospectively adopt ASU No. 2013-11 in the first quarter of 2014 and do not expect it to have a material impact on the Utilities’ results of operations, financial condition or liquidity.

9 · Credit agreement and long-term debt

Credit agreement. Hawaiian Electric maintains an amended revolving non-collateralized credit agreement, which established a line of credit facility of $175 million , with a letter of credit sub-facility, expiring on December 5, 2016, with a syndicate of eight financial institutions. The credit facility will be maintained to support the issuance of commercial paper, but also may be drawn to repay Hawaiian Electric’s short-term indebtedness, to make loans to subsidiaries and for Hawaiian Electric’s capital expenditures, working capital and general corporate purposes.

Subsequent event-changes in long-term debt. On October 3, 2013, Hawaiian Electric, Maui Electric and Hawaii Electric Light each entered into its separate note purchase agreement with various purchasers of their taxable unsecured senior notes (Notes) with an aggregate principal amount of $236 million . The Utilities issued through a private placement the following series of Notes:



Amount	Series	Maturity
Hawaiian Electric Notes
$40 million ¹	4.45% Senior Notes, Series 2013A	December 1, 2022
$50 million ¹	4.84% Senior Notes, Series 2013B	October 1, 2027
$50 million ²	5.65% Senior Notes, Series 2013C	October 1, 2043
$140 million	Total
Maui Electric Notes
$20 million ¹	4.84% Senior Notes, Series 2013A	October 1, 2027
$20 million ²	5.65% Senior Notes, Series 2013B	October 1, 2043
$40 million	Total
Hawaii Electric Light Notes
$14 million ¹	3.83% Senior Notes, Series 2013A	July 1, 2020
$12 million ¹	4.45% Senior Notes, Series 2013B	December 1, 2022
$30 million ¹	4.84% Senior Notes, Series 2013C	October 1, 2027
$56 million	Total

¹ Proceeds were used in October 2013 to redeem the following special purpose revenue bonds (SPRBs) and refunding SPRBs issued by the Department of Budget and Finance of the State of Hawaii for the benefit of the Utilities with an aggregate principle amount of $166 million :



Series	Year of maturity
4.75% Refunding Series 2003A Bonds	2020
5.00% Refunding Series 2003B Bonds	2022
5.65% Series 1997A Bonds	2027

² Proceeds were and/or will be used by the respective utility to finance their capital expenditures and/or for the reimbursement of funds used for the payment of capital expenditures.

Hawaiian Electric has guaranteed the obligations of Maui Electric and Hawaii Electric Light under their respective Notes.

The three note purchase agreements contain customary representations and warranties, affirmative and negative covenants, and events of default (the occurrence of which may result in some or all of the Notes of each and all of the Utilities then outstanding becoming immediately due and payable). The note purchase agreements also include provisions requiring the maintenance by Hawaiian Electric and each of Maui Electric and Hawaii Electric Light of certain financial ratios consistent with those in each of the Utilities’ existing note purchase agreements dated April 19, 2012 and September 13, 2012 (Hawaiian Electric only) and generally consistent with those in Hawaiian Electric’s existing amended revolving non-collateralized credit agreement described above.

All of the Notes may be prepaid in whole or in part at any time at the prepayment price of the principal amount of the Notes plus payment of a “Make-Whole Amount.” Each of the Note Purchase Agreements also (a) requires the Utilities to offer to prepay the Notes (without a Make-Whole Amount) in the event that HEI ceases to own 100% of the common stock or other securities of Hawaiian Electric that is ordinarily entitled, in the absence of contingencies, to vote in the election of Hawaiian Electric directors unless, at the time of such cessation of ownership and at all times during the period of 90 consecutive days thereafter, the long-term unsecured, unenhanced debt of Hawaiian Electric maintains an investment grade rating by at least one rating agency or, if more than one rating agency rates such indebtedness, then by each such rating agency, and (b) permits the Utilities to offer to prepay the Notes (without a Make-Whole amount) in the event of a sale of assets that would otherwise constitute a covenant default.

10 · Reconciliation of electric utility operating income per HEI and Hawaiian Electric consolidated statements of income



	Three months ended September 30						Nine months ended September 30
(in thousands)	2013			2012			2013			2012
Operating income from regulated and nonregulated activities before income taxes (per HEI consolidated statements of income)	$	71,914		$	74,819		$	186,005		$	193,569
Deduct:
Income taxes on regulated activities	(18,928		)	(22,352		)	(51,356		)	(58,291		)
Revenues from nonregulated activities	(2,182		)	(1,892		)	(7,153		)	(5,431		)
Add: Expenses from nonregulated activities	1,082			804			2,801			1,620
Operating income from regulated activities after income taxes (per Hawaiian Electric consolidated statements of income)	$	51,886		$	51,379		$	130,297		$	131,467

11 · Consolidating financial information

Hawaiian Electric is not required to provide separate financial statements or other disclosures concerning Hawaii Electric Light and Maui Electric to holders of the 2004 Debentures issued by Hawaii Electric Light and Maui Electric to Trust III since all of their voting capital stock is owned, and their obligations with respect to these securities have been fully and unconditionally guaranteed, on a subordinated basis, by Hawaiian Electric. Consolidating information is provided below for these and other Hawaiian Electric subsidiaries for the periods ended and as of the dates indicated.

Hawaiian Electric also unconditionally guarantees Hawaii Electric Light’s and Maui Electric’s obligations (a) to the State of Hawaii for the repayment of principal and interest on Special Purpose Revenue Bonds issued for the benefit of Hawaii Electric Light and Maui Electric, (b) under their respective private placement note agreements and the Hawaii Electric Light notes and Maui Electric notes issued thereunder and (c) relating to the trust preferred securities of Trust III (see Note 2 above). Hawaiian Electric is also obligated, after the satisfaction of its obligations on its own preferred stock, to make dividend, redemption and liquidation payments on Hawaii Electric Light’s and Maui Electric’s preferred stock if the respective subsidiary is unable to make such payments.

Hawaiian Electric Company, Inc. and Subsidiaries

Consolidating Statement of Income (Loss) (unaudited)

Three months ended September 30, 2013



(in thousands)	Hawaiian Electric			Hawaii Electric Light		Maui Electric		Other subsidiaries		Consolidating adjustments		Hawaiian Electric Consolidated
Operating revenues	$	547,310		107,924		108,699		—		—		$	763,933
Operating expenses
Fuel oil	206,478			27,615		49,267		—		—		283,360
Purchased power	143,280			34,480		17,101		—		—		194,861
Other operation	51,023			11,057		9,928		—		—		72,008
Maintenance	19,619			5,680		6,214		—		—		31,513
Depreciation	25,442			8,547		5,006		—		—		38,995
Taxes, other than income taxes	51,712			10,448		10,222		—		—		72,382
Income taxes	13,556			1,991		3,381		—		—		18,928
Total operating expenses	511,110			99,818		101,119		—		—		712,047
Operating income	36,200			8,106		7,580		—		—		51,886
Other income (loss)
Allowance for equity funds used during construction	914			222		119		—		—		1,255
Equity in earnings of subsidiaries	10,794			—		—		—		(10,794	)	—
Other, net	795			217		124		(1	)	(36	)	1,099
Income tax expense	(77		)	(32	)	(20	)	—		—		(129		)
Total other income (loss)	12,426			407		223		(1	)	(10,830	)	2,225
Interest and other charges
Interest on long-term debt	9,902			2,751		1,962		—		—		14,615
Amortization of net bond premium and expense	410			116		120		—		—		646
Other interest charges	585			160		324		—		(36	)	1,033
Allowance for borrowed funds used during construction	(358		)	(91	)	(49	)	—		—		(498		)
Total interest and other charges	10,539			2,936		2,357		—		(36	)	15,796
Net income (loss)	38,087			5,577		5,446		(1	)	(10,794	)	38,315
Preferred stock dividend of subsidiaries	—			133		95		—		—		228
Net income (loss) attributable to Hawaiian Electric	38,087			5,444		5,351		(1	)	(10,794	)	38,087
Preferred stock dividends of Hawaiian Electric	270			—		—		—		—		270
Net income (loss) for common stock	$	37,817		5,444		5,351		(1	)	(10,794	)	$	37,817

Hawaiian Electric Company, Inc. and Subsidiaries

Consolidating Statement of Comprehensive Income (Loss) (unaudited)

Three months ended September 30, 2013



(in thousands)	Hawaiian Electric			Hawaii Electric Light		Maui Electric		Other subsidiaries		Consolidating adjustments		Hawaiian Electric Consolidated
Net income (loss) for common stock	$	37,817		5,444		5,351		(1	)	(10,794	)	$	37,817
Other comprehensive income (loss), net of taxes:
Retirement benefit plans:
Less: amortization of transition obligation, prior service credit and net losses recognized during the period in net periodic benefit cost, net of tax benefits	5,173			720		639		—		(1,359	)	5,173
Less: reclassification adjustment for impact of D&Os of the PUC included in regulatory assets, net of taxes	(5,156		)	(721	)	(639	)	—		1,360		(5,156		)
Other comprehensive income (loss), net of taxes	17			(1	)	—		—		1		17
Comprehensive income (loss) attributable to common shareholder	$	37,834		5,443		5,351		(1	)	(10,793	)	$	37,834

Hawaiian Electric Company, Inc. and Subsidiaries

Consolidating Statement of Income (Loss) (unaudited)

Three months ended September 30, 2012



(in thousands)	Hawaiian Electric			Hawaii Electric Light		Maui Electric		Other subsidiaries		Consolidating adjustments		Hawaiian Electric Consolidated
Operating revenues	$	579,464		108,490		111,249		—		—		$	799,203
Operating expenses
Fuel oil	248,443			25,752		52,978		—		—		327,173
Purchased power	135,507			37,693		13,499		—		—		186,699
Other operation	48,201			10,888		11,352		—		—		70,441
Maintenance	19,615			5,146		5,607		—		—		30,368
Depreciation	22,738			8,299		4,904		—		—		35,941
Taxes, other than income taxes	53,935			10,444		10,471		—		—		74,850
Income taxes	15,725			2,782		3,845		—		—		22,352
Total operating expenses	544,164			101,004		102,656		—		—		747,824
Operating income	35,300			7,486		8,593		—		—		51,379
Other income (loss)
Allowance for equity funds used during construction	1,323			148		140		—		—		1,611
Equity in earnings of subsidiaries	11,285			—		—		—		(11,285	)	—
Other, net	950			128		38		(1	)	(28	)	1,087
Income tax benefits (expense)	(37		)	(14	)	9		—		—		(42		)
Total other income (loss)	13,521			262		187		(1	)	(11,313	)	2,656
Interest and other charges
Interest on long-term debt	9,981			2,751		1,962		—		—		14,694
Amortization of net bond premium and expense	629			117		124		—		—		870
Other interest charges	142			78		94		—		(28	)	286
Allowance for borrowed funds used during construction	(576		)	(59	)	(53	)	—		—		(688		)
Total interest and other charges	10,176			2,887		2,127		—		(28	)	15,162
Net income (loss)	38,645			4,861		6,653		(1	)	(11,285	)	38,873
Preferred stock dividend of subsidiaries	—			133		95		—		—		228
Net income (loss) attributable to Hawaiian Electric	38,645			4,728		6,558		(1	)	(11,285	)	38,645
Preferred stock dividends of Hawaiian Electric	270			—		—		—		—		270
Net income (loss) for common stock	$	38,375		4,728		6,558		(1	)	(11,285	)	$	38,375

Hawaiian Electric Company, Inc. and Subsidiaries

Consolidating Statement of Comprehensive Income (Loss) (unaudited)

Three months ended September 30, 2012



(in thousands)	Hawaiian Electric			Hawaii Electric Light		Maui Electric		Other subsidiaries		Consolidating adjustments		Hawaiian Electric Consolidated
Net income (loss) for common stock	$	38,375		4,728		6,558		(1	)	(11,285	)	$	38,375
Other comprehensive income, net of taxes:
Retirement benefit plans:
Less: amortization of transition obligation, prior service credit and net losses recognized during the period in net periodic benefit cost, net of tax benefits	3,419			526		443		—		(969	)	3,419
Less: reclassification adjustment for impact of D&Os of the PUC included in regulatory assets, net of taxes	(3,342		)	(521	)	(436	)	—		957		(3,342		)
Other comprehensive income, net of taxes	77			5		7		—		(12	)	77
Comprehensive income (loss) attributable to common shareholder	$	38,452		4,733		6,565		(1	)	(11,297	)	$	38,452

Hawaiian Electric Company, Inc. and Subsidiaries

Consolidating Statement of Income (Loss) (unaudited)

Nine months ended September 30, 2013



(in thousands)	Hawaiian Electric			Hawaii Electric Light		Maui Electric		Other subsidiaries		Consolidating adjustments		Hawaiian Electric Consolidated
Operating revenues	$	1,574,869		320,314		313,740		—		—		$	2,208,923
Operating expenses
Fuel oil	631,824			94,120		151,794		—		—		877,738
Purchased power	389,706			93,880		43,083		—		—		526,669
Other operation	149,218			32,267		28,130		—		—		209,615
Maintenance	60,922			13,787		13,846		—		—		88,555
Depreciation	75,150			25,641		15,074		—		—		115,865
Taxes, other than income taxes	149,084			30,094		29,650		—		—		208,828
Income taxes	33,753			7,765		9,838		—		—		51,356
Total operating expenses	1,489,657			297,554		291,415		—		—		2,078,626
Operating income	85,212			22,760		22,325		—		—		130,297
Other income (loss)
Allowance for equity funds used during construction	3,144			552		334		—		—		4,030
Equity in earnings of subsidiaries	30,446			—		—		—		(30,446	)	—
Other, net	3,518			526		412		(2	)	(103	)	4,351
Income tax expense	(266		)	(73	)	(81	)	—		—		(420		)
Total other income (loss)	36,842			1,005		665		(2	)	(30,549	)	7,961
Interest and other charges
Interest on long-term debt	29,705			8,252		5,886		—		—		43,843
Amortization of net bond premium and expense	1,231			350		359		—		—		1,940
Other interest charges	637			245		887		—		(103	)	1,666
Allowance for borrowed funds used during construction	(1,268		)	(226	)	(132	)	—		—		(1,626		)
Total interest and other charges	30,305			8,621		7,000		—		(103	)	45,823
Net income (loss)	91,749			15,144		15,990		(2	)	(30,446	)	92,435
Preferred stock dividend of subsidiaries	—			400		286		—		—		686
Net income (loss) attributable to Hawaiian Electric	91,749			14,744		15,704		(2	)	(30,446	)	91,749
Preferred stock dividends of Hawaiian Electric	810			—		—		—		—		810
Net income (loss) for common stock	$	90,939		14,744		15,704		(2	)	(30,446	)	$	90,939

Hawaiian Electric Company, Inc. and Subsidiaries

Consolidating Statement of Comprehensive Income (Loss) (unaudited)

Nine months ended September 30, 2013



(in thousands)	Hawaiian Electric			Hawaii Electric Light		Maui Electric		Other subsidiaries		Consolidating adjustments		Hawaiian Electric Consolidated
Net income (loss) for common stock	$	90,939		14,744		15,704		(2	)	(30,446	)	$	90,939
Other comprehensive income (loss), net of taxes:
Retirement benefit plans:
Less: amortization of transition obligation, prior service credit and net losses recognized during the period in net periodic benefit cost, net of tax benefits	15,520			2,160		1,918		—		(4,078	)	15,520
Less: reclassification adjustment for impact of D&Os of the PUC included in regulatory assets, net of taxes	(15,468		)	(2,162	)	(1,918	)	—		4,080		(15,468		)
Other comprehensive income (loss), net of taxes	52			(2	)	—		—		2		52
Comprehensive income (loss) attributable to common shareholder	$	90,991		14,742		15,704		(2	)	(30,444	)	$	90,991

Hawaiian Electric Company, Inc. and Subsidiaries

Consolidating Statement of Income (Loss) (unaudited)

Nine months ended September 30, 2012



(in thousands)	Hawaiian Electric			Hawaii Electric Light		Maui Electric		Other subsidiaries		Consolidating adjustments		Hawaiian Electric Consolidated
Operating revenues	$	1,677,604		332,558		324,664		—		—		$	2,334,826
Operating expenses
Fuel oil	724,862			88,778		172,436		—		—		986,076
Purchased power	401,423			108,996		29,421		—		—		539,840
Other operation	132,770			29,851		34,185		—		—		196,806
Maintenance	60,993			14,280		16,368		—		—		91,641
Depreciation	68,046			25,036		15,474		—		—		108,556
Taxes, other than income taxes	159,928			31,330		30,891		—		—		222,149
Income taxes	41,049			9,836		7,406		—		—		58,291
Total operating expenses	1,589,071			308,107		306,181		—		—		2,203,359
Operating income	88,533			24,451		18,483		—		—		131,467
Other income (loss)
Allowance for equity funds used during construction	4,558			433		557		—		—		5,548
Equity in earnings of subsidiaries	28,025			—		—		—		(28,025	)	—
Other, net	3,215			361		293		(3	)	(56	)	3,810
Income tax benefits (expense)	(101		)	(47	)	11		—		—		(137		)
Total other income (loss)	35,697			747		861		(3	)	(28,081	)	9,221
Interest and other charges
Interest on long-term debt	29,301			8,649		6,450		—		—		44,400
Amortization of net bond premium and expense	1,541			362		373		—		—		2,276
Other interest charges	(412		)	131		253		—		(56	)	(84		)
Allowance for borrowed funds used during construction	(2,061		)	(174	)	(216	)	—		—		(2,451		)
Total interest and other charges	28,369			8,968		6,860		—		(56	)	44,141
Net income (loss)	95,861			16,230		12,484		(3	)	(28,025	)	96,547
Preferred stock dividend of subsidiaries	—			400		286		—		—		686
Net income (loss) attributable to Hawaiian Electric	95,861			15,830		12,198		(3	)	(28,025	)	95,861
Preferred stock dividends of Hawaiian Electric	810			—		—		—		—		810
Net income (loss) for common stock	$	95,051		15,830		12,198		(3	)	(28,025	)	$	95,051

Hawaiian Electric Company, Inc. and Subsidiaries

Consolidating Statement of Comprehensive Income (Loss) (unaudited)

Nine months ended September 30, 2012



(in thousands)	Hawaiian Electric			Hawaii Electric Light		Maui Electric		Other subsidiaries		Consolidating adjustments		Hawaiian Electric Consolidated
Net income (loss) for common stock	$	95,051		15,830		12,198		(3	)	(28,025	)	$	95,051
Other comprehensive income, net of taxes:
Retirement benefit plans:
Less: amortization of transition obligation, prior service credit and net losses recognized during the period in net periodic benefit cost, net of tax benefits	10,255			1,576		1,328		—		(2,904	)	10,255
Less: reclassification adjustment for impact of D&Os of the PUC included in regulatory assets, net of taxes	(10,026		)	(1,558	)	(1,309	)	—		2,867		(10,026		)
Other comprehensive income, net of taxes	229			18		19		—		(37	)	229
Comprehensive income (loss) attributable to common shareholder	$	95,280		15,848		12,217		(3	)	(28,062	)	$	95,280

Hawaiian Electric Company, Inc. and Subsidiaries

Consolidating Balance Sheet (unaudited)

September 30, 2013



(in thousands)	Hawaiian Electric			Hawaii Electric Light		Maui Electric		Other subsidiaries	Consolidating adjustments		Hawaiian Electric Consolidated
Assets
Utility plant, at cost
Land	$	43,392		5,426		3,016		—	—		$	51,834
Plant and equipment	3,488,617			1,116,702		988,482		—	—		5,593,801
Less accumulated depreciation	(1,211,045		)	(449,547	)	(432,983	)	—	—		(2,093,575		)
Construction in progress	122,399			14,120		14,558		—	—		151,077
Net utility plant	2,443,363			686,701		573,073		—	—		3,703,137
Investment in wholly owned subsidiaries, at equity	507,080			—		—		—	(507,080	)	—
Current assets
Cash and cash equivalents	18,906			2,754		3,423		102	—		25,185
Advances to affiliates	23,000			7,000		—		—	(30,000	)	—
Customer accounts receivable, net	134,641			29,569		23,494		—	—		187,704
Accrued unbilled revenues, net	104,981			16,120		18,800		—	—		139,901
Other accounts receivable, net	15,094			3,877		2,214		—	(12,011	)	9,174
Fuel oil stock, at average cost	105,231			14,615		17,241		—	—		137,087
Materials and supplies, at average cost	37,171			7,042		15,221		—	—		59,434
Prepayments and other	26,024			4,413		14,939		—	—		45,376
Regulatory assets	36,006			4,636		5,081		—	—		45,723
Total current assets	501,054			90,026		100,413		102	(42,011	)	649,584
Other long-term assets
Regulatory assets	626,209			112,244		106,243		—	—		844,696
Unamortized debt expense	6,491			1,882		1,301		—	—		9,674
Other	40,343			8,405		13,919		—	—		62,667
Total other long-term assets	673,043			122,531		121,463		—	—		917,037
Total assets	$	4,124,540		899,258		794,949		102	(549,091	)	$	5,269,758
Capitalization and liabilities
Capitalization
Common stock equity	$	1,501,944		272,860		234,118		102	(507,080	)	$	1,501,944
Cumulative preferred stock—not subject to mandatory redemption	22,293			7,000		5,000		—	—		34,293
Long-term debt, net	780,546			201,334		166,000		—	—		1,147,880
Total capitalization	2,304,783			481,194		405,118		102	(507,080	)	2,684,117
Commitments and contingencies (Note 5)
Current liabilities
Short-term borrowings from non-affiliates	73,246			—		—		—	—		73,246
Short-term borrowings from affiliate	7,000			—		23,000		—	(30,000	)	—
Accounts payable	136,087			25,352		19,518		—	—		180,957
Interest and preferred dividends payable	15,097			3,949		3,363		—	(12	)	22,397
Taxes accrued	163,204			35,403		34,846		—	—		233,453
Other	54,571			11,298		24,664		—	(11,999	)	78,534
Total current liabilities	449,205			76,002		105,391		—	(42,011	)	588,587
Deferred credits and other liabilities
Deferred income taxes	340,014			75,866		62,721		—	—		478,601
Regulatory liabilities	224,568			71,230		33,333		—	—		329,131
Unamortized tax credits	43,564			13,552		13,922		—	—		71,038
Defined benefit pension and other postretirement benefit plans liability	442,613			77,004		76,623			—		596,240
Other	67,157			15,386		13,585		—	—		96,128
Total deferred credits and other liabilities	1,117,916			253,038		200,184		—	—		1,571,138
Contributions in aid of construction	252,636			89,024		84,256		—	—		425,916
Total capitalization and liabilities	$	4,124,540		899,258		794,949		102	(549,091	)	$	5,269,758

Hawaiian Electric Company, Inc. and Subsidiaries

Consolidating Balance Sheet (unaudited)

December 31, 2012



(in thousands)	Hawaiian Electric			Hawaii Electric Light		Maui Electric		Other subsidiaries	Consolidating adjustments		Hawaiian Electric Consolidated
Assets
Utility plant, at cost
Land	$	43,370		5,182		3,016		—	—		$	51,568
Plant and equipment	3,325,862			1,086,048		952,490		—	—		5,364,400
Less accumulated depreciation	(1,185,899		)	(433,531	)	(421,359	)	—	—		(2,040,789		)
Construction in progress	130,143			12,126		9,109		—	—		151,378
Net utility plant	2,313,476			669,825		543,256		—	—		3,526,557
Investment in wholly owned subsidiaries, at equity	497,939			—		—		—	(497,939	)	—
Current assets
Cash and cash equivalents	8,265			5,441		3,349		104	—		17,159
Advances to affiliates	9,400			18,050		—		—	(27,450	)	—
Customer accounts receivable, net	154,316			29,772		26,691		—	—		210,779
Accrued unbilled revenues, net	100,600			14,393		19,305		—	—		134,298
Other accounts receivable, net	33,313			1,122		3,016		—	(9,275	)	28,176
Fuel oil stock, at average cost	123,176			15,485		22,758		—	—		161,419
Materials and supplies, at average cost	31,779			5,336		13,970		—	—		51,085
Prepayments and other	21,708			5,146		6,011		—	—		32,865
Regulatory assets	42,675			4,056		4,536		—	—		51,267
Total current assets	525,232			98,801		99,636		104	(36,725	)	687,048
Other long-term assets
Regulatory assets	601,451			109,815		102,063		—	—		813,329
Unamortized debt expense	7,042			2,066		1,446		—	—		10,554
Other	46,586			9,871		14,848		—	—		71,305
Total other long-term assets	655,079			121,752		118,357		—	—		895,188
Total assets	$	3,991,726		890,378		761,249		104	(534,664	)	$	5,108,793
Capitalization and liabilities
Capitalization
Common stock equity	$	1,472,136		268,908		228,927		104	(497,939	)	$	1,472,136
Cumulative preferred stock—not subject to mandatory redemption	22,293			7,000		5,000		—	—		34,293
Long-term debt, net	780,546			201,326		166,000		—	—		1,147,872
Total capitalization	2,274,975			477,234		399,927		104	(497,939	)	2,654,301
Commitments and contingencies (Note 5)
Current liabilities
Current portion of long-term debt	—			—		—		—	—		—
Short-term borrowings from affiliate	18,050			—		9,400		—	(27,450	)	—
Accounts payable	134,651			27,457		24,716		—	—		186,824
Interest and preferred dividends payable	14,479			4,027		2,593		—	(7	)	21,092
Taxes accrued	174,477			38,778		37,811		—	—		251,066
Other	47,203			10,310		14,634		—	(9,268	)	62,879
Total current liabilities	388,860			80,572		89,154		—	(36,725	)	521,861
Deferred credits and other liabilities
Deferred income taxes	302,569			68,479		46,563		—	—		417,611
Regulatory liabilities	218,437			67,359		36,278		—	—		322,074
Unamortized tax credits	39,827			13,450		13,307		—	—		66,584
Defined benefit pension and other postretirement benefit plans liability	459,765			80,686		79,754		—	—		620,205
Other	68,783			17,799		14,055		—	—		100,637
Total deferred credits and other liabilities	1,089,381			247,773		189,957		—	—		1,527,111
Contributions in aid of construction	238,510			84,799		82,211		—	—		405,520
Total capitalization and liabilities	$	3,991,726		890,378		761,249		104	(534,664	)	$	5,108,793

Hawaiian Electric Company, Inc. and Subsidiaries

Consolidating Statement of Changes in Common Stock Equity (unaudited)

Nine months ended September 30, 2013



(in thousands)	Hawaiian Electric			Hawaii Electric Light		Maui Electric		Other subsidiaries		Consolidating adjustments		Hawaiian Electric Consolidated
Balance, December 31, 2012	$	1,472,136		268,908		228,927		104		(497,939	)	$	1,472,136
Net income (loss) for common stock	90,939			14,744		15,704		(2	)	(30,446	)	90,939
Other comprehensive income (loss), net of taxes	52			(2	)	—		—		2		52
Common stock dividends	(61,183		)	(10,790	)	(10,513	)	—		21,303		(61,183		)
Balance, September 30, 2013	$	1,501,944		272,860		234,118		102		(507,080	)	$	1,501,944

Hawaiian Electric Company, Inc. and Subsidiaries

Consolidating Statement of Changes in Common Stock Equity (unaudited)

Nine months ended September 30, 2012



(in thousands)	Hawaiian Electric			Hawaii Electric Light		Maui Electric		Other subsidiaries		Consolidating adjustments		Hawaiian Electric Consolidated
Balance, December 31, 2011	$	1,402,841		280,468		235,568		107		(516,143	)	$	1,402,841
Net income (loss) for common stock	95,051			15,830		12,198		(3	)	(28,025	)	95,051
Other comprehensive income, net of taxes	229			18		19		—		(37	)	229
Common stock dividends	(54,783		)	(9,854	)	(6,560	)	—		16,414		(54,783		)
Balance, September 30, 2012	$	1,443,338		286,462		241,225		104		(527,791	)	$	1,443,338

Hawaiian Electric Company, Inc. and Subsidiaries

Consolidating Statement of Cash Flows (unaudited)

Nine months ended September 30, 2013



(in thousands)	Hawaiian Electric			Hawaii Electric Light		Maui Electric		Other subsidiaries		Consolidating adjustments		Hawaiian Electric Consolidated
Cash flows from operating activities:
Net income (loss)	$	91,749		15,144		15,990		(2	)	(30,446	)	$	92,435
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Equity in earnings of subsidiaries	(30,522		)	—		—		—		30,446		(76		)
Common stock dividends received from subsidiaries	21,379			—		—		—		(21,303	)	76
Depreciation of property, plant and equipment	75,150			25,641		15,074		—		—		115,865
Other amortization	(228		)	1,075		1,623		—		—		2,470
Change in deferred income taxes	31,361			7,165		9,488		—		—		48,014
Change in tax credits, net	3,773			119		618		—		—		4,510
Allowance for equity funds used during construction	(3,144		)	(552	)	(334	)	—		—		(4,030		)
Changes in assets and liabilities:
Decrease (increase) in accounts receivable	37,894			(2,552	)	3,999		—		2,736		42,077
Decrease (increase) in accrued unbilled revenues	(4,381		)	(1,727	)	505		—		—		(5,603		)
Decrease in fuel oil stock	17,945			870		5,517		—		—		24,332
Increase in materials and supplies	(5,392		)	(1,706	)	(1,251	)	—		—		(8,349		)
Increase in regulatory assets	(37,032		)	(7,165	)	(9,117	)	—		—		(53,314		)
Decrease in accounts payable	(10,435		)	(3,343	)	(9,196	)	—		—		(22,974		)
Decrease in prepaid and accrued income and utility revenue taxes	(7,122		)	(3,566	)	(4,728	)	—		—		(15,416		)
Contributions to defined benefit pension and other postretirement benefit plans	(44,650		)	(8,083	)	(8,143	)	—		—		(60,876		)
Other increase in defined benefit pension and other postretirement benefit plans liability	46,394			7,892		8,078		—		—		62,364
Change in other assets and liabilities	(10,562		)	(1,821	)	4,924		—		(2,736	)	(10,195		)
Net cash provided by (used in) operating activities	172,177			27,391		33,047		(2	)	(21,303	)	211,310
Cash flows from investing activities:
Capital expenditures	(164,423		)	(35,900	)	(37,546	)	—		—		(237,869		)
Contributions in aid of construction	15,699			6,160		1,774		—		—		23,633
Other	623			(196	)	—		—		—		427
Advances from (to) affiliates	(13,600		)	11,050		—		—		2,550		—
Net cash used in investing activities	(161,701		)	(18,886	)	(35,772	)	—		2,550		(213,809		)
Cash flows from financing activities:
Common stock dividends	(61,183		)	(10,790	)	(10,513	)	—		21,303		(61,183		)
Preferred stock dividends of Hawaiian Electric and subsidiaries	(810		)	(400	)	(286	)	—		—		(1,496		)
Net increase in short-term borrowings from non-affiliates and affiliate with original maturities of three months or less	62,196			—		13,600		—		(2,550	)	73,246
Other	(38		)	(2	)	(2	)	—		—		(42		)
Net cash provided by (used in) financing activities	165			(11,192	)	2,799		—		18,753		10,525
Net increase (decrease) in cash and cash equivalents	10,641			(2,687	)	74		(2	)	—		8,026
Cash and cash equivalents, beginning of period	8,265			5,441		3,349		104		—		17,159
Cash and cash equivalents, end of period	$	18,906		2,754		3,423		102		—		$	25,185

Hawaiian Electric Company, Inc. and Subsidiaries

Consolidating Statement of Cash Flows (unaudited)

Nine months ended September 30, 2012



(in thousands)	Hawaiian Electric			Hawaii Electric Light		Maui Electric		Other subsidiaries		Consolidating adjustments		Hawaiian Electric Consolidated
Cash flows from operating activities:
Net income (loss)	$	95,861		16,230		12,484		(3	)	(28,025	)	$	96,547
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Equity in earnings of subsidiaries	(28,100		)	—		—		—		28,025		(75		)
Common stock dividends received from subsidiaries	16,464			—		—		—		(16,414	)	50
Depreciation of property, plant and equipment	68,046			25,036		15,474		—		—		108,556
Other amortization	691			1,776		1,607		—		—		4,074
Change in deferred income taxes	64,790			8,290		9,637		—		—		82,717
Change in tax credits, net	3,256			256		130		—		—		3,642
Allowance for equity funds used during construction	(4,558		)	(433	)	(557	)	—		—		(5,548		)
Changes in assets and liabilities:
Decrease (increase) in accounts receivable	(43,284		)	(7,236	)	1,287		—		12,326		(36,907		)
Decrease (increase) in accrued unbilled revenues	3,427			3,107		(798	)	—		—		5,736
Decrease (increase) in fuel oil stock	(36,365		)	3,163		1,830		—		—		(31,372		)
Increase in materials and supplies	(6,320		)	(719	)	(266	)	—		—		(7,305		)
Increase in regulatory assets	(44,175		)	(6,621	)	(6,997	)	—		—		(57,793		)
Increase (decrease) in accounts payable	7,872			(8,518	)	(2,835	)	—		—		(3,481		)
Decrease in prepaid and accrued income and utility revenue taxes	(14,006		)	(3,562	)	(3,097	)	—		—		(20,665		)
Contributions to defined benefit pension and other postretirement benefit plans	(45,878		)	(8,270	)	(8,269	)	—		—		(62,417		)
Other increase in defined benefit pension and other postretirement benefit plans liability	34,421			6,133		9,307				—		49,861
Change in other assets and liabilities	(28,970		)	(1,120	)	(3,192	)	—		(12,326	)	(45,608		)
Net cash provided by (used in) operating activities	43,172			27,512		25,745		(3	)	(16,414	)	80,012
Cash flows from investing activities:
Capital expenditures	(172,872		)	(26,331	)	(21,767	)	—		—		(220,970		)
Contributions in aid of construction	25,547			4,199		3,360		—		—		33,106
Advances from (to) affiliates	—			16,750		11,500		—		(28,250	)	—
Net cash used in investing activities	(147,325		)	(5,382	)	(6,907	)	—		(28,250	)	(187,864		)
Cash flows from financing activities:
Common stock dividends	(54,783		)	(9,854	)	(6,560	)	—		16,414		(54,783		)
Preferred stock dividends of Hawaiian Electric and subsidiaries	(810		)	(400	)	(286	)	—		—		(1,496		)
Proceeds from issuance of long-term debt	367,000			31,000		59,000		—		—		457,000
Repayment of long-term debt	(259,580		)	(41,200	)	(67,720	)	—		—		(368,500		)
Net increase in short-term borrowings from non-affiliates and affiliate with original maturities of three months or less	16,469			—		—		—		28,250		44,719
Other	(1,980		)	167		(359	)	—		—		(2,172		)
Net cash provided by (used in) financing activities	66,316			(20,287	)	(15,925	)	—		44,664		74,768
Net increase (decrease) in cash and cash equivalents	(37,837		)	1,843		2,913		(3	)	—		(33,084		)
Cash and cash equivalents, beginning of period	44,819			3,383		496		108		—		48,806
Cash and cash equivalents, end of period	$	6,982		5,226		3,409		105		—		$	15,722

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion updates “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in HEI’s and Hawaiian Electric’s Form 10-K for 2012 and should be read in conjunction with such discussion and the 2012 annual consolidated financial statements of HEI and Hawaiian Electric and notes thereto included and incorporated by reference, respectively, in HEI’s and Hawaiian Electric’s 2012 Form 10-K, as well as the quarterly (as of and for the three and nine months ended September 30, 2013) financial statements and notes thereto included in this Form 10-Q.

HEI Consolidated

RESULTS OF OPERATIONS



(in thousands, except per	Three months ended September 30				%
share amounts)	2013		2012		change		Primary reason(s)*
Revenues	$	831,229	$	867,720	(4	)	Decrease for the electric utility and bank segments
Operating income	90,099		91,702		(2	)	Decrease for the electric utility segment, partly offset by increase in bank segment and a reduced operating loss for the “other” segment
Net income for common stock	48,236		47,706		1		Lower operating income and allowance for funds used during construction and higher “interest expense—other than on deposit liabilities and other bank borrowings,” more than offset by lower taxes due to deferred tax reversal at the Utilities
Basic earnings per common share	$	0.49	$	0.49	—		Higher net income, offset by higher weighted average shares outstanding
Weighted-average number of common shares outstanding	99,204		97,157		2		Issuances of shares under the HEI Dividend Reinvestment and Stock Purchase Plan and other plans



(in thousands, except per	Nine months ended September 30				%
share amounts)	2013		2012		change		Primary reason(s)*
Revenues	$	2,412,023	$	2,536,848	(5	)	Decrease for the electric utility and bank segments
Operating income	243,126		246,924		(2	)	Decrease for the electric utility segment, partly offset by increase in bank segment and a reduced operating loss for the “other” segment
Net income for common stock	122,503		124,822		(2	)	Lower operating income and allowance for funds used during construction and higher “interest expense—other than on deposit liabilities and other bank borrowings,” partly offset by lower taxes due to deferred tax reversal at the Utilities
Basic earnings per common share	$	1.24	$	1.29	(4	)	Lower net income and higher weighted average shares outstanding
Weighted-average number of common shares outstanding	98,670		96,674		2		Issuances of shares under the HEI Dividend Reinvestment and Stock Purchase Plan and other plans

___________________________________________

* Also, see segment discussions which follow.

Notes: The Company’s effective tax rates (combined federal and state) for the third quarters of 2013 and 2012 were 32% and 35% , respectively. The Company’s effective tax rates (combined federal and state) for the first nine months of 2013 and 2012 were 34% and 36% , respectively. The effective tax rates were lower for the three and nine months ended September 30, 2013

compared to the same periods in 2012 due primarily to the reversal of deferred taxes (see Note 13 of HEI’s “Notes to Consolidated Financial Statements”).

HEI’s consolidated ROACE was 8.4% for the twelve months ended September 30, 2013 and 10.1% for the twelve months ended September 30, 2012 .

Dividends. The payout ratios for the first nine months of 2013 and full year 2012 were 75% and 87%, respectively. HEI currently expects to maintain the dividend at its present level; however, the HEI Board of Directors evaluates the dividend quarterly and considers many factors in the evaluation, including but not limited to the Company’s results of operations, the long-term prospects for the Company, and current and expected future economic conditions.

Economic conditions.

Note: The statistical data in this section is from public third-party sources (e.g., Department of Business, Economic Development and Tourism (DBEDT); University of Hawaii Economic Research Organization (UHERO); U.S. Bureau of Labor Statistics; Blue Chip Economic Indicators; U.S. Energy Information Administration; Hawaii Tourism Authority (HTA); Honolulu Board of REALTORS®; Bureau of Economic Analysis and national and local newspapers).

Hawaii’s tourism industry, a significant driver of Hawaii’s economy, set new records in 2012 and continues to grow in 2013, although at a slower pace. State visitor arrivals and expenditures increased by 4.5% and 4.1%, respectively, for the nine months ended September 30, 2013 over the same period in 2012. Hotel occupancies and average daily hotel room rates remained strong. The outlook for the visitor industry remains positive, but is expected to expand at a slower pace. The HTA expects scheduled nonstop seats to Hawaii for the fourth quarter of 2013 to increase by 1.4% over the fourth quarter of 2012, based on the expectation that capacity declines in U.S. markets will be offset by international flights.

Hawaii’s unemployment rate continues to decline, falling to 4.3% in August 2013, lower than the state’s 5.7% rate in August 2012 and the September 2013 national unemployment rate of 7.2%.

Hawaii real estate activity, as indicated by the home resale market, remained strong in 2013 as the median sales price for single family residential homes on Oahu increased 3.3% and the number of closed sales increased 7.0% in the first nine months of 2013 as compared to the same period in 2012. Oahu condominiums also maintained strong momentum as the median sales price rose 5.4% and closed sales increased 16.5% in the first nine months of 2013 as compared to the same period in 2012. The announcements of several new planned condominium projects in Honolulu were met with immediate interest, and several projects generated strong pre-sale demand.

Hawaii’s petroleum product prices reflect supply and demand in the Asia-Pacific region and the price of crude oil in international markets. The dramatic reduction in Japan’s nuclear production following the tragic earthquake and tsunami in March 2011 increased regional demand for energy supplies, including petroleum, and the prices of the Utilities’ fuels have accordingly remained at the elevated 2011 level through 2012 and into 2013.

At its meeting on September 17-18, 2013, the Federal Open Market Committee (FOMC) decided to maintain purchases of Treasury and agency mortgage-backed securities at the same pace it had previously. While the FOMC sees the improvement in economic activity and labor market conditions as consistent with a strengthening in the broader economy, the FOMC decided to wait for further evidence of sustained progress before adjusting their monetary policy. The FOMC statement released on October 30, 2013 maintained the same position based on information received since the September FOMC meeting.

On October 1, 2013, the U.S. government began a new fiscal year with no spending legislation enacted and as a result, a partial federal shutdown took effect. On October 16, 2013, the government shutdown ended when Congress passed legislation on a budget through January 15, 2014 and raised the government debt ceiling to provide the U.S. Treasury with borrowing authority through February 7, 2014. The long-term impact on the overall economy of the continuing U.S. fiscal uncertainty is unclear at this time, and could grow if congressional gridlock continues. The federal shutdown’s impact on Hawaii’s economy is also unclear. Federal workers furloughed during the government shutdown received back pay, but local companies that lost business during the federal government shutdown will not recover lost revenues. Hawaii’s large number of federal workers, significant federal government contracts and reliance on federal funds will make the local economy more susceptible to a slowdown if federal spending is restricted. In addition, any future U.S. government shutdowns and/or defaults could further negatively impact the capital markets, the Company’s ability to issue securities and the Hawaii economy in general.

Overall, Hawaii’s economy is expected to see increased growth in 2013 and 2014, provided there are no major cutbacks in federal funding. Local economic growth is expected to be supported by continued expansion of the visitor industry and

recovery in the construction industry. U.S. fiscal problems, continued uncertainty in global economies, heightened tensions in Asia and potential pandemics pose possible risks to local economic growth.

Recent tax developments. The Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 contained major tax provisions that impacted the Company through 2012, including the 50% and 100% bonus depreciation provisions for qualified property that resulted in an estimated net increase in federal tax depreciation of $116 million for 2012 over depreciation to which the Company would otherwise be entitled without the bonus provisions. The additional depreciation is attributable to the Utilities. In January 2013, the American Taxpayer Relief Act of 2012 was signed into law and provided a one year extension of 50% bonus depreciation, which is estimated to increase the Company’s federal tax depreciation for 2013 by $120 million, primarily attributable to the Utilities.

Also, see Note 3 of Hawaiian Electric’s “Notes to Consolidated Financial Statements.”

Health care reform. On June 28, 2012, the US Supreme Court upheld the Patient Protection and Affordable Care Act, the 2010 health care reform law. Currently, Hawaii’s Prepaid Health Care Act generally provides greater benefits to employees and dependents because of cost sharing limitations. The Company will continue to comply with its obligations under these laws and to monitor the interaction of the state and federal laws.

Retirement benefits . For the first nine month of 2013, the Company’s defined benefit pension and other postretirement benefit plans’ assets generated a gain, after investment management fees, of 13.5%. The market value of these assets as of September 30, 2013 was $1.3 billion (including $1.2 billion for the Utilities) compared to $1.1 billion at December 31, 2012 (including $1.0 billion for the Utilities).

The Company estimates that the cash funding for its defined benefit pension and other postretirement benefit plans in 2013 will be $83 million ($81 million by the Utilities, $2 million by HEI and nil by ASB), which is expected to fully satisfy the minimum contribution requirements, including requirements of the Utilities’ pension and other postretirement benefits tracking mechanisms and the plans’ funding policies.

The following table reflects the sensitivity to the qualified defined benefit pension projected benefit obligation (PBO) as of December 31, 2013, associated with a change in the pension benefits discount rate actuarial assumption by the indicated basis points and constitutes “forward-looking statements.”



	Change in 4.13%	Impact on HEI	Impact on the
Actuarial Assumption	assumption in basis points	consolidated PBO	Utilities PBO
Pension benefits discount rate	- 100/+100	$283 million/$(223) million	$263 million/$(207) million

Commitments and contingencies. See Note 4, “Bank subsidiary,” of HEI’s “Notes to Consolidated Financial Statements” and Note 5, “Commitments and contingencies,” of Hawaiian Electric’s “Notes to Consolidated Financial Statements.”

Recent accounting pronouncements. See Note 11, “Recent accounting pronouncements,” of HEI’s “Notes to Consolidated Financial Statements.”

“Other” segment.



	Three months ended September 30						Nine months ended September 30
(in thousands)	2013			2012			2013			2012			Primary reason(s)
Revenues	$	56		$	29		$	106		$	22
Operating loss	(4,650		)	(4,739		)	(12,170		)	(13,053		)	Lower administrative and general expenses
Net loss	(4,857		)	(4,877		)	(13,786		)	(14,503		)	Lower operating loss and interest expense

The “other” business segment includes results of the stand-alone corporate operations of HEI and American Savings Holdings, Inc. (ASHI), both holding companies; HEI Properties, Inc., a company holding passive, venture capital investments; and The Old Oahu Tug Service, Inc., a maritime freight transportation company that ceased operations in 1999; as well as eliminations of intercompany transactions.

FINANCIAL CONDITION

Liquidity and capital resources. The Company believes that its ability to generate cash, both internally from electric utility and banking operations and externally from issuances of equity and debt securities, commercial paper and bank borrowings, is adequate to maintain sufficient liquidity to fund its contractual obligations and commercial commitments, its forecasted capital expenditures and investments, its expected retirement benefit plan contributions and other cash requirements for the foreseeable future.

The consolidated capital structure of HEI (excluding deposit liabilities and other bank borrowings) was as follows:



(dollars in millions)	September 30, 2013				December 31, 2012
Short-term borrowings—other than bank	$	131	4	%	$	84	3	%
Long-term debt, net—other than bank	1,423		44		1,423		45
Preferred stock of subsidiaries	34		1		34		1
Common stock equity	1,655		51		1,594		51
	$	3,243	100	%	$	3,135	100	%

HEI’s short-term borrowings and HEI’s line of credit facility were as follows:



	Nine months ended September 30, 2013		Balance
(in millions)	Average balance		September 30, 2013		December 31, 2012
Short-term borrowings(1)
Commercial paper	$	71	$	58	$	84
Line of credit draws	—		—		—
Undrawn capacity under HEI’s line of credit facility (expiring December 5, 2016)			125		125

___________________________________________

(1) This table does not include Hawaiian Electric’s separate commercial paper issuances and line of credit facilities and draws, which are disclosed below under “Electric utility—Financial Condition—Liquidity and capital resources.” The maximum amount of HEI’s external short-term borrowings during the first nine months of 2013 was $96 million. At October 31, 2013 , HEI had $61 million in outstanding commercial paper and its line of credit facility was undrawn.

HEI has a line of credit facility of $125 million (see Note 12 of HEI’s “Notes to Consolidated Financial Statements”). There are customary conditions which must be met in order to draw on it, including compliance with its covenants (such as covenants preventing HEI’s subsidiaries from entering into agreements that restrict the ability of the subsidiaries to pay dividends to, or to repay borrowings from, HEI). In addition to customary defaults, HEI’s failure to maintain its financial ratios, as defined in the credit agreement, or meet other requirements may result in an event of default. For example, under the agreement, it is an event of default if HEI fails to maintain a nonconsolidated “Capitalization Ratio” (funded debt) of 50% or less (ratio of 17% as of September 30, 2013 , as calculated under the agreement) and “Consolidated Net Worth” of at least $975 million (Net Worth of $1.7 billion as of September 30, 2013 , as calculated under the agreement), or if HEI no longer owns Hawaiian Electric. The commitment fee and interest charges on drawn amounts under the credit agreement are subject to adjustment in the event of a change in HEI’s long-term credit ratings.

The Company raised $37 million through the issuance of approximately 1.4 million shares of common stock under the DRIP, the HEIRSP, ASB 401(k) Plan and other plans during the first nine months of 2013.

In March 2013, HEI entered into equity forward transactions in which a forward counterparty borrowed 7 million shares of HEI’s common stock from third parties and such borrowed shares were sold pursuant to an HEI registered public offering. At September 30, 2013 , the equity forward transactions could have been settled with physical delivery by HEI of 7 million newly-issued shares to the forward counterparty in exchange for cash of $175 million . HEI will not receive any proceeds from the sale of common stock until the equity forward transactions are settled. HEI anticipates physical settlement of the equity forward transactions before March 25, 2015, but the transactions may also be cash settled or net share settled.

On March 6, 2013, HEI issued $50 million of 3.99% Senior Notes due March 6, 2023 via a private placement. HEI used the net proceeds from the issuance of the Senior Notes to refinance $50 million of its 5.25% medium-term notes that matured on March 7, 2013. The Senior Notes contain customary representation and warranties, affirmative and negative covenants, and events of default (the occurrence of which may result in some or all of the notes then outstanding becoming immediately due and payable) and provisions requiring the maintenance by HEI of certain financial ratios generally consistent with those in HEI’s revolving non-collateralized credit agreement. For example, see discussion of “Capitalization Ratio” and “Consolidated Net Worth” above.

For the first nine months of 2013, net cash provided by operating activities of consolidated HEI was $247 million . Net cash used by investing activities for the same period was $363 million, due to Hawaiian Electric’s consolidated capital expenditures, a net increase in ASB’s loans held for investment and purchases of investment and mortgage-related securities, partly offset by repayments of investment and mortgage-related securities, proceeds from sales (investment and mortgage-related securities and credit card portfolio) and Hawaiian Electric’s contributions in aid of construction. Net cash provided by financing activities during this period was $112 million as a result of several factors, including net increases in deposit liabilities, other bank borrowings and short-term borrowings and proceeds from the issuance of common stock under HEI plans, partly offset by the payment of common stock dividends. Other than capital contributions from their parent company, intercompany services (and related intercompany payables and receivables), Hawaiian Electric’s periodic short-term borrowings from HEI (and related interest) and the payment of dividends to HEI, the electric utility and bank segments are largely autonomous in their operating, investing and financing activities. (See the electric utility and bank segments’ discussions of their cash flows in their respective “Financial condition—Liquidity and capital resources” sections below.) During the first nine months of 2013, Hawaiian Electric and ASB (via ASHI) paid cash dividends to HEI of $61 million and $30 million, respectively.

CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS AND FINANCIAL CONDITION

The Company’s results of operations and financial condition can be affected by numerous factors, many of which are beyond the Company’s control and could cause future results of operations to differ materially from historical results. For information about certain of these factors, see pages 48 to 49, 64 to 67, and 78 to 80 of HEI’s MD&A included in Part II, Item 7 of HEI’s 2012 Form 10-K.

Additional factors that may affect future results and financial condition are described on pages iv and v under “Forward-Looking Statements.”

MATERIAL ESTIMATES AND CRITICAL ACCOUNTING POLICIES

In preparing financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses. Actual results could differ significantly from those estimates.

In accordance with SEC Release No. 33-8040, “Cautionary Advice Regarding Disclosure About Critical Accounting Policies,” management has identified the accounting policies it believes to be the most critical to the Company’s financial statements—that is, management believes that these policies are both the most important to the portrayal of the Company’s results of operations and financial condition, and currently require management’s most difficult, subjective or complex judgments.

For information about these material estimates and critical accounting policies, see pages 49 to 50, 67 to 68, and 80 to 81 of HEI’s MD&A included in Part II, Item 7 of HEI’s 2012 Form 10-K.

Following are discussions of the results of operations, liquidity and capital resources of the electric utility and bank segments.

Electric utility

RESULTS OF OPERATIONS

Utility strategic progress. In 2012 and the first nine months of 2013, the Utilities continued to make significant progress in implementing their renewable energy strategies to support Hawaii’s efforts to reduce its dependence on oil. The PUC issued several important regulatory decisions during the period, including a number of interim and final rate case decisions (see table in “Most recent rate proceedings” below).

The Utilities are committed to achieving or exceeding the State’s Renewable Portfolio Standard goal of 40% renewable energy by 2030 (see “Renewable energy strategy” below). In addition, while it will not take precedence over the Utilities’ work to increase their use of renewable energy, the Utilities are also working with the State of Hawaii and other entities to examine the possibility of using liquefied natural gas as a cleaner and lower cost fuel to replace, at least in part, the petroleum oil that would otherwise be used for the remaining generation.

Regulatory . In January 2013, the Utilities and Consumer Advocate signed a settlement agreement (2013 Agreement), which the PUC approved with clarifications in March 2013 (2013 D&O). See “Utility projects” in Note 5 of Hawaiian Electric’s “Notes to Consolidated Financial Statements” and the discussion under “ Most recent rate proceedings ” below.

In 2010, the PUC issued an order approving decoupling, which was implemented by Hawaiian Electric on March 1, 2011, by Hawaii Electric Light on April 9, 2012 and by Maui Electric on May 4, 2012. Decoupling is a regulatory model that is intended to facilitate meeting the State of Hawaii’s goals to transition to a clean energy economy and achieve an aggressive renewable portfolio standard. The decoupling model implemented in Hawaii delinks revenues from sales and includes annual revenue adjustments for certain O&M expenses and rate base changes. The decoupling mechanism has three components: (1) a sales decoupling component via a revenue balancing account (RBA), (2) a revenue escalation component via a RAM and (3) an earnings sharing mechanism, which would provide for a reduction of revenues between rate cases in the event the utility exceeds the ROACE allowed in its most recent rate case. Decoupling provides for more timely cost recovery and earning on investments. The implementation of decoupling has resulted in an improvement in the Utilities’ under-earning situation that has existed over the last several years. Prior to and during the transition to decoupling, however, the Utilities’ returns have been well below PUC-allowed returns.

Under decoupling, the most significant drivers for improving earnings are:

1. completing major capital projects within PUC approved amounts and on schedule;

2. managing O&M expenses relative to authorized O&M adjustments; and

3. regulatory outcomes that cover O&M requirements and rate base items not included in the RAMs.

On May 31, 2013, as provided for in its original order issued in 2010 approving decoupling and citing three years of implementation experience for Hawaiian Electric, the PUC opened an investigative docket to review whether the decoupling mechanisms are functioning as intended, are fair to the Utilities and their ratepayers, and are in the public interest. The PUC affirmed its support for the continuation of the sales decoupling (RBA) mechanism and stated its interest in evaluating the RAM to ensure it provides the appropriate balance of risks, costs, incentives and performance requirements, as well as administrative efficiency and whether the current interest rate applied to the outstanding RBA balance is reasonable. Hawaiian Electric, Hawaii Electric Light, Maui Electric and the Consumer Advocate are named as parties to this proceeding and filed a joint statement of position that any material changes to the current decoupling mechanism should be made prospectively after 2016 unless the Utilities and the Consumer Advocate mutually agree to the change in this proceeding. The PUC granted several parties’ motions to intervene. On October 28, 2013, after receiving comments from the parties to the proceeding, the PUC issued an order identifying two sets of issues (Schedule A and Schedule B issues) for this proceeding and procedural schedules for Schedule A and Schedule B issues. A PUC order for the Schedule A issues is expected in February 2014. The procedural steps for the Schedule B set of issues are intended to be longer term and will begin in May 2014, with panel hearings scheduled for August of 2014.

Schedule A issues include:


•	For the RBA, the reasonableness of the interest rate related to the carrying charge of the outstanding RBA balance and whether there should be a risk sharing mechanism in the RBA adjustment.


•	For the RAM, the reasonableness to true up all actual prior year baseline projects, which are those less than $2.5 million, at year end.


•	Whether performance metrics should be determined and reported.


•	Factors that should be considered if potential changes to existing RBA and RAM provisions are required.

Schedule B issues include:


•	performance metrics and incentives (rewards or penalties) to control costs and to make necessary or appropriate changes to utility strategic plans and action plans,


•	allocation of risk as a result of the decoupling mechanism and whether it is fairly reflected in the cost of capital allowed in rates,


•	changes or alternatives to the existing RAM, and


•	changes to ratemaking procedures to improve efficiency and/or effectiveness.

Management cannot predict the outcome of the proceedings.

The Utilities’ five-year 2013-2017 forecast reflects net capital expenditures of $2.9 billion and a compounded near-term annual rate base growth rate in the range of 5% to 10%. Many of the major initiatives within this forecast are expected to be completed beyond the 5-year period. Major initiatives which comprise approximately 35% of the 5-year plan include projects relating to: (1) environmental compliance; (2) fuel infrastructure investments; (3) new generation; and (4) infrastructure investments to integrate more energy from renewables into the system. Estimates for these initiatives could change over time, based on external factors such as the timing and scope of environmental regulations, unforeseen delays in permitting and the outcome of competitive bidding for new generation.

Actual and PUC-allowed (as of September 30, 2013 ) returns were as follows:



%	Return on rate base (RORB)*						ROACE**						Rate-making ROACE***
Twelve months ended September 30, 2013	Hawaiian Electric		Hawaii Electric Light		Maui Electric		Hawaiian Electric		Hawaii Electric Light		Maui Electric		Hawaiian Electric		Hawaii Electric Light		Maui Electric
Utility returns	7.50		6.58		6.88		6.69		5.41		6.79		9.49		7.08		8.36
PUC-allowed returns	8.11		8.31		7.34		10.00		10.00		9.00		10.00		10.00		9.00
Difference	(0.61	)	(1.73	)	(0.46	)	(3.31	)	(4.59	)	(2.21	)	(0.51	)	(2.92	)	(0.64	)

___________________________________________

* Based on recorded operating income and average rate base, both adjusted for items not included in determining electric rates.

** Recorded net income divided by average common equity.

*** ROACE adjusted to remove items not included by the PUC in establishing rates, such as the write-off of $40 million of CIS project costs, executive bonuses and advertising.

The approval of decoupling by the PUC has helped the Utilities to gradually improve their ROACEs, which in turn will facilitate the Utilities’ ability to effectively raise capital for needed infrastructure investments. However, the Utilities continue to expect an ongoing structural gap between their PUC-allowed ROACEs and the ROACEs they actually achieve due to the following:

1. the timing of general rate case decisions,

2. the effective date of the RAMs,

3. the 5-year historical average for baseline plant additions, and

4. the PUC’s consistent exclusion of certain expenses from rates.

The structural gap in 2014 to 2016 is expected to be 80 to 110 basis points, an improvement of 40 basis points from management’s prior expectations. The improvement is due to the change in the timing of the recognition of the RAM revenues in 2014 to 2016 as defined in the 2013 Agreement. For 2013, the expected structural gap remains unchanged at 120 to 150 basis points. Between rate cases, items not covered by the annual RAMs could also have a negative impact on the actual ROACEs achieved by the Utilities (primarily investments in software projects, changes in fuel inventory and O&M in excess of indexed escalations). The specific magnitude of the impact will depend on various factors, including the size of software projects, changes in fuel prices and management’s ability to manage costs within the current mechanisms.

Management expects the earned ROACE to gradually improve over the course of the period 2014 to 2016.

As part of decoupling, Hawaiian Electric also tracks its rate-making ROACE as calculated under the earnings sharing mechanism and which includes only items considered in establishing rates. Earnings over and above the ROACE allowed by the PUC are shared between Hawaiian Electric and its ratepayers on a tiered basis. For 2012, Hawaiian Electric’s rate-making ROACE was 10.70%, which was above the PUC allowed 10% ROACE and triggered its earnings sharing mechanism. As a

result, Hawaiian Electric will credit its customers $2.6 million for their portion of the earnings sharing. Hawaiian Electric’s 2012 rate-making ROACE of 10.70% included various adjustments to Hawaiian Electric’s actual ROACE of 7.57% such as the exclusion of the $40 million of CIS project costs pursuant to the 2013 Agreement, and of other expenses not considered in establishing electric rates (e.g., executive bonuses and advertising). Hawaii Electric Light’s rate-making ROACE was 7.79% and Maui Electric’s rate-making ROACE was 6.69%, which did not trigger the earnings sharing mechanism.

Annual decoupling filings. On May 31, 2013, the PUC approved the revised annual decoupling filings for tariffed rates for Hawaiian Electric, Hawaii Electric Light and Maui Electric that will be effective from June 1, 2013 through May 31, 2014. The amounts approved as noted below reflect the electric utilities’ agreements with the position of the Consumer Advocate. The revised tariffed rates include:



(in millions)	Hawaiian Electric			Hawaii Electric Light		Maui Electric
Annual incremental RAM adjusted revenues
Operations and maintenance	$	3.9		$	0.9	$	1.0
Invested capital	27.5			1.2		2.4
Total annual incremental RAM adjusted revenues	$	31.4		$	2.1	$	3.4
Accrued earnings sharing credits to be refunded	$	(2.6	)	$	—	$	—
Accrued RBA balance as of December 31, 2012 (and associated revenue taxes) to be collected	$	55.4		$	4.9	$	5.8

Results.



Three months ended September 30				Increase
2013		2012		(decrease)						(in millions)
$	766	$	801	$	(35	)				Revenues. Decrease largely due to lower fuel prices
283		327		(44		)				Fuel oil expense. Decrease largely due to lower fuel costs and less KWHs generated
195		187		8						Purchased power expense. Increase due to higher KWH purchased, partially offset by lower purchased power energy costs
104		101		3						Other operation and maintenance expenses . Increase largely due to:
							$	2		Higher customer service expenses
							4			Increase due to timing of overhauls
							(3		)	Lower substation and generating station maintenance expenses
112		112		—						Other expenses. Higher depreciation due to an increase in plant additions, offset by lower taxes other than income taxes due to lower operating revenues
72		75		(3		)				Operating income. Decrease due to higher other O&M expenses
38		38		—						Net income for common stock.

2,376		2,362		14						Kilowatthour sales (millions)
70.6		70.8		—						Wet-bulb temperature (Oahu average; degrees Fahrenheit)
1,468		1,419		—						Cooling degree days (Oahu)
$	127.42	$	139.68	$	(0.01	)				Average fuel oil cost per barrel



Nine months ended September 30				Increase
2013		2012		(decrease)						(in millions)
$	2,216	$	2,340	$	(124	)				Revenues. Decrease largely due to lower fuel prices and lower KWH sales adjusted for decoupling mechanisms and revenue taxes
878		986		(108		)				Fuel oil expense. Decrease largely due to lower fuel costs and less KWHs generated
527		540		(13		)				Purchased power expense. Decrease due to lower purchased power energy costs, partially offset by higher KWH purchased and lower purchase capacity/non-fuel charges
298		288		10						Other operation and maintenance expenses . Increase largely due to:
							$	11		Higher customer service expenses
							(2		)	Lower substation maintenance expenses
327		332		(5		)				Other expenses. Decrease largely due to lower taxes other than income taxes due to lower operating revenues, partially offset by higher depreciation due to an increase in plant additions
186		194		(8		)				Operating income. Decrease due to higher other O&M
91		95		(4		)				Net income for common stock. Decrease largely due to lower operating income

6,746		6,870		(124		)				Kilowatthour sales (millions)
68.6		68.7		—						Wet-bulb temperature (Oahu average; degrees Fahrenheit)
3,371		3,430		—						Cooling degree days (Oahu)
$	130.15	$	139.65	$	(0.01	)				Average fuel oil cost per barrel
450,939		447,695		3,244						Customer accounts (end of period)

Note: The electric utilities had effective tax rates for the third quarters of 2013 and 2012 of 33% and 37%, respectively, and for the first nine months of 2013 and 2012 of 36% and 38%, respectively. The effective tax rates were lower for the three and nine months ended September 30, 2013 compared to the same periods in 2012 due primarily to the reversal of deferred taxes (see Note 3 of Hawaiian Electric’s “Notes to Consolidated Financial Statements”).

Hawaiian Electric’s consolidated ROACE was 6.5 % for the twelve months ended September 30, 2013 and 8.6% for the twelve months ended September 30, 2012 .

The electric utilities’ consolidated KWH sales have declined each year since 2007 and continued to decline in 2013. Based on expectations of additional customer renewable self-generation and energy-efficiency installations, the electric utilities’ 2013 and 2014 KWH sales are expected to further decline below 2012 levels.

Other operation and maintenance expenses (excluding expenses covered by surcharges or by third parties) for 2013 are projected to be approximately 2% over prior year.

See “Economic conditions” in the “HEI Consolidated” section above.

Most recent rate proceedings . Unless otherwise agreed or ordered, each electric utility shall initiate a rate proceeding every third year (on a staggered basis) to allow the PUC and the Consumer Advocate to regularly evaluate decoupling and the utility to request electric rate increases to cover rising operating costs and the cost of plant and equipment, including the cost of new capital projects to maintain and improve service reliability. The PUC may grant an interim increase within 10 to 11 months following the filing of an application, but there is no guarantee of such an interim increase and interim amounts collected are refundable, with interest, to the extent they exceed the amount approved in the PUC’s final D&O. The timing and amount of any final increase is determined at the discretion of the PUC. The adoption of revenue, expense, rate base and cost of capital amounts (including the ROACE and RORB) for purposes of an interim rate increase does not commit the PUC to accept any such amounts in its final D&O.

The following table summarizes certain details of each utility’s most recent rate cases, including the details of the increases requested, whether the utility and the Consumer Advocate reached a settlement that they proposed to the PUC, the details of any granted interim and final PUC D&O increases, and whether an interim or final PUC D&O remains pending.



Test year (dollars in millions)	Date (applied/ implemented)	Amount		% over rates in effect	ROACE (%)	RORB (%)	Rate base		Common equity %	Stipulated agreement reached with Consumer Advocate
Hawaiian Electric
2011 (1)
Request	7/30/10	$	113.5	6.6	10.75	8.54	$	1,569	56.29	Yes
Interim increase	7/26/11	53.2		3.1	10.00	8.11	1,354		56.29
Interim increase (adjusted)	4/2/12	58.2		3.4	10.00	8.11	1,385		56.29
Interim increase (adjusted)	5/21/12	58.8		3.4	10.00	8.11	1,386		56.29
Final increase	9/1/12	58.1		3.4	10.00	8.11	1,386		56.29
Hawaii Electric Light
2010 (2)
Request	12/9/09	$	20.9	6.0	10.75	8.73	$	487	55.91	Yes
Interim increase	1/14/11	6.0		1.7	10.50	8.59	465		55.91
Interim increase (adjusted)	1/1/12	5.2		1.5	10.50	8.59	465		55.91
Final increase	4/9/12	4.5		1.3	10.00	8.31	465		55.91
2013 (3)
Request	8/16/12	$	19.8	4.2	10.25	8.30	$	455	57.05
Closed	3/27/13
Maui Electric
2012 (4)
Request	7/22/11	$	27.5	6.7	11.00	8.72	$	393	56.85	Yes
Interim increase	6/1/12	13.1		3.2	10.00	7.91	393		56.86
Final increase	8/1/13	5.3		1.3	9.00	7.34	393		56.86

___________________________________________

Note: The “Request Date” reflects the application filing date for the rate proceeding. All other line items reflect the effective dates of the revised schedules and tariffs as a result of PUC-approved increases.

(1) Hawaiian Electric filed a request with the PUC for a general rate increase of $113.5 million, based on depreciation rates and methodology as proposed by Hawaiian Electric in a separate depreciation proceeding. Hawaiian Electric’s request was primarily to pay for major capital projects and higher O&M costs to maintain and improve service reliability and to recover the costs for several proposed programs to help reduce Hawaii’s dependence on imported oil, and to further increase reliability and fuel security.

The $53.2 million, $58.2 million, and $58.8 million interim increases, and the $58.1 million final increase, include the $15 million in annual revenues that were being recovered through the decoupling RAM prior to the first interim increase.

(2) Hawaii Electric Light’s request was primarily to cover investments for system upgrade projects, two major transmission line upgrades and increasing O&M expenses. On February 8, 2012, the PUC issued a final D&O, which reflected the approval of decoupling and cost-recovery mechanisms, and on February 21, 2012, Hawaii Electric Light filed its revised tariffs to reflect the increase in rates. On April 4, 2012, the PUC issued an order approving the revised tariffs, which became effective April 9, 2012. Hawaii Electric Light implemented the decoupling mechanism and began tracking the target revenues and actual recorded revenues via a revenue balancing account. Hawaii Electric Light also reset the heat rates and implemented heat rate deadbands and the PPAC, which provides a surcharge mechanism that more closely aligns cost recovery with costs incurred. The revised tariffs reflect a lower increase in annual revenue requirement compared to the interim increase due to factors that became effective concurrently with the revised tariffs (lower depreciation rates and lower ROACE) and therefore, no refund to customers was required.

(3) Hawaii Electric Light’s request was required to pay for O&M expenses and additional investments in plant and equipment required to maintain and improve system reliability and to cover the increased costs to support the integration of more renewable energy generation. As a result of the 2013 Agreement and 2013 D&O (described below), the rate case was withdrawn and the docket has been closed.

(4) Maui Electric’s request was required to pay for O&M expenses and additional investments in plant and equipment required to maintain and improve system reliability and to cover the increased costs to support the integration of more renewable energy generation. See discussion on final D&O, including the refund to customers in September and October 2013 required as a result of the final D&O, in Note 5 of Hawaiian Electric’s “Notes to Consolidated Financial Statements.”

Hawaiian Electric 2011 test year rate case . In the Hawaiian Electric 2011 test year rate case, the PUC had granted Hawaiian Electric’s request to defer CIS project O&M expenses (limited to $2,258,000 per year in 2011 and 2012) that were to be subject to a regulatory audit of project costs, and allowed Hawaiian Electric to accrue allowance for funds used during construction (AFUDC) on these deferred costs until the completion of the regulatory audit.

On January 28, 2013, Hawaiian Electric, Hawaii Electric Light, Maui Electric and the Consumer Advocate entered into the 2013 Agreement to, among other things, write-off $40 million of CIS Project costs in lieu of conducting the regulatory audits of the CIP CT-1 and the CIS projects, with the remaining recoverable costs for the projects of $52 million to be included in rate base as of December 31, 2012. The parties agreed that Hawaii Electric Light would withdraw its 2013 test year rate case and not file a rate case until its next turn in the rate case cycle, for a 2016 test year, and Hawaiian Electric would delay the filing of its scheduled 2014 test year rate case to no earlier than January 2, 2014. The parties also agreed that, starting in 2014, Hawaiian Electric will be allowed to record RAM revenues starting on January 1 of 2014, 2015 and 2016. On March 19, 2013, the PUC issued its 2013 D&O approving the 2013 Agreement, with clarifications. See “Utility projects” in Note 5 of Hawaiian Electric’s “Notes to Consolidated Financial Statements” for additional information on the 2013 Agreement and the 2013 D&O and their effects.

Hawaiian Electric 2014 test year rate case . On October 30, 2013 Hawaiian Electric filed with the PUC a Notice of Intent to file an application for a general rate case (on or after January 2, 2014, but before June 30, 2014, using a 2014 test year) and a motion for approval of test period waiver. Hawaiian Electric’s filing of a 2014 rate case would be in accordance with a PUC order which calls for a mandatory triennial rate case cycle.

Maui Electric 2012 test year rate case . See “Maui Electric 2012 test year rate case” in Note 5 of Hawaiian Electric’s “Notes to Consolidated Financial Statements” for information on the PUC’s final D&O.

Integrated Resource Planning. In June 2013, Hawaiian Electric, Hawaii Electric Light and Maui Electric filed their 2013 integrated resource planning (IRP) report and five-year action plans detailing plans to meet future electricity needs for the islands of Oahu, Maui, Molokai, Lanai and Hawaii. IRP aims to develop long-range 20-year resource plans for meeting energy needs under various scenarios and then to develop near-term actions for implementation over the next five years. The 2013 IRP process was the first IRP to employ scenario planning, as well as an independent entity that facilitated and provided oversight of the process, since the PUC revised the IRP Framework in March 2012. The IRP process included input from a community advisory group established by the PUC of almost 70 business, community, and government, environmental and other leaders. The Utilities also held two rounds of public meetings on the islands of Oahu, Maui, Molokai, Lanai and Hawaii to seek comments from the general public, in addition to 17 meetings with the advisory group.

The overarching goals of the action plans filed are lowering costs to customers, replacing expensive oil with cleaner sources of energy, modernizing the electric grid, and looking out for the interests of all customers. Significant action plan items include:


•	Lowering costs to customers by accelerating the development of low-cost, fast-track, utility-scale renewable energy projects, including solar and wind facilities.

•

Deactivating (i.e., removing from service with the possibility of reactivating in the future in a major emergency for example) older, less efficient oil-fired power plant units, to help lower costs and increase the use of renewable energy generation. This includes Honolulu Power Plant and two of four generating units at Maui’s Kahului Power Plant by 2014, as well as two generators at Oahu’s Waiau Power Plant by 2016. In addition, all units at Kahului Power Plant would be fully retired by 2019. Hawaii Island’s Shipman Plant is already deactivated and will be retired in 2014.


•	Converting or replacing power plants that are not deactivated to use cost-effective, cleaner fuels, including renewable biomass or biofuel and liquefied natural gas.


•	Supporting the state’s efforts to procure cheaper, cleaner, liquefied natural gas to replace the use of oil in making electricity.


•	Increasing the capability of utility grids to accept additional customer-sited renewable generation, especially roof-top photovoltaic systems, while protecting safety, reliability and fairness of electric service for all customers.


•	Developing “smart” grids for all three companies to improve customer service, integrate more renewable energy, and enable customers to better control their electric bills. Major components of the smart grid include installing smart meters for all customers (with opt-out provisions) in the 2017-2018 timeframe, automating the grid, and developing utility energy storage systems.

In July 2013, the Independent Entity, the person selected by the PUC to provide unbiased oversight of the IRP, filed a report to the PUC documenting his evaluation of the IRP process. The evaluation recognizes that the IRP report and action

plans are compliant with many IRP Framework requirements and provides substantial analysis addressing the Principal Issues, which were issues and questions identified by the PUC to be addressed in the IRP process. However, the Independent Entity did not certify that the IRP process was conducted consistent with all provisions of the IRP Framework or that it fully addressed the Principal Issues. Under the IRP Framework, the PUC should issue a decision (with approval, partial approval, rejection, modifications and/or other directives) on the action plans within six months after the Utilities’ IRP filing, unless the PUC determines that an evidentiary hearing is warranted. The PUC granted several parties' motions to intervene, and ordered that the parties submit simultaneous statements of position to aid the PUC in determining the completeness and compliance of the IRP report and action plans at this point in the review process, and how to move forward most productively in the proceeding. In September and October 2013, the parties submitted their statements of position.

Renewable energy strategy. The Utilities’ policy is to support efforts to increase renewable energy in Hawaii. The Utilities believe their actions will help stabilize customer bills as they become less dependent on costly and price-volatile fossil fuel. The Utilities’ renewable energy strategy will also allow them to meet Hawaii’s RPS law, which requires electric utilities to meet an RPS of 10%, 15%, 25% and 40% by December 31, 2010, 2015, 2020 and 2030, respectively. Hawaiian Electric met the 10% RPS for 2010 with a consolidated RPS of 20.7%, including savings from energy efficiency programs and solar water heating (or 9.5% without DSM energy savings). Energy savings resulting from DSM energy efficiency programs and solar water heating will not count toward the RPS after 2014. For 2012, Hawaiian Electric achieved an RPS without DSM energy savings of 13.9%, primarily through a comprehensive portfolio of renewable energy power purchase agreements, net energy metering programs and biofuels. The Utilities believe they are on track to meet the 2015 RPS.

Recent developments in the Utilities’ renewable energy strategy include the following (also see the projects discussed under “Renewable Energy Projects” in Note 5 of Hawaiian Electric’s “Notes to Consolidated Financial Statements”):


•	In October 2013, Hawaiian Electric requested approval from the PUC for a waiver from the competitive bidding process and to commit $42.4 million for the purchase and installation of a 15 MW utility scale PV generation system at its Kahe Power generation station property. If approved, the project is expected to be completed in 2015.

•

In February 2011, the PUC opened dockets related to Hawaiian Electric’s and Maui Electric’s plans to proceed with competitive bidding processes to acquire up to approximately 300 MW and 50 MW, respectively, of new, renewable firm dispatchable capacity generation resources. In July 2013, the PUC closed the Hawaiian Electric and Maui Electric RFPs, stating that the RFPs and related proceedings appear to be premature. The PUC will consider future requests by Hawaiian Electric or Maui Electric to open another proceeding to conduct an RFP for generation upon demonstration of need and a plan focused on customer needs.

•

In July 2011, the PUC directed Hawaiian Electric to submit a draft RFP for the PUC’s consideration for a competitive bidding process for 200 MW or more of renewable energy to be delivered to, or to be sited on, the island of Oahu. In October 2011, Hawaiian Electric filed a draft RFP with the PUC. In July 2013, the PUC issued orders related to the 200 MW RFP (see Note 5 of Hawaiian Electric’s “Notes to Consolidated Financial Statements” for additional information).


•	In August 2011, Hawaiian Electric signed a 20-year contract with Hawaii BioEnergy to supply 10 million gallons per year of biocrude at Kahe Power Plant to begin within five years of October 11, 2013 (date of PUC approval).

•

In September 2011, the PUC denied the Utilities’ requested approval of Hawaii Electric Light’s contract with Aina Koa Pono-Ka’u LLC (AKP) citing the higher cost of the biofuel over the cost of petroleum diesel. In August 2012, Hawaii Electric Light signed a new 20-year contract with AKP, subject to PUC approval, to supply 16 million gallons of biodiesel per year with initial consumption expected to begin in 2017 or later. Hawaii Electric Light filed an application for approval of this contract in August 2012.


•	In May 2012, the PUC approved Hawaiian Electric’s 3-year biodiesel supply contract with Renewable Energy Group for continued biodiesel supply to CT-1 of 3 million to 7 million gallons per year.


•	In May 2012, Maui Electric began purchasing wind energy from the 21 MW Kaheawa Wind Power II, LLC facility, which went into commercial operation in July 2012.


•	In May 2012, Hawaiian Electric signed a contract, which was approved by the PUC, with the City and County of Honolulu to purchase an additional 27 MW of capacity and energy from an expanded waste-to-energy HPower facility, which was placed in service in April 2013.


•	In May 2012, Hawaii Electric Light signed a power purchase agreement, subject to PUC approval, with Hu Honua Bioenergy for 21.5 MW of renewable, dispatchable firm capacity fueled by locally grown biomass from a facility on the island of Hawaii.


•	In May 2012, the PUC instituted a proceeding for a competitive bidding process for up to 50 MW of firm renewable geothermal dispatchable energy (Geothermal RFP) on the island of Hawaii. In February 2013, Hawaii Electric Light issued the Final Geothermal RFP. Six bids were received in April 2013 and are being evaluated.


•	In August 2012, the battery facility at a 30 MW Kahuku wind farm experienced a fire and Hawaiian Electric has not purchased wind energy from the wind farm since then. The Kahuku Wind farm is expected go back into commercial operation later in 2013.


•	In August 2012, the PUC approved a waiver from the competitive bidding process to allow Hawaiian Electric to negotiate with the U.S. Army for construction of a 50 MW utility-owned and operated firm, renewable and dispatchable generation facility at Schofield Barracks on the island of Oahu and expected to be placed in service in 2017.


•	In September 2012, Hawaiian Electric began purchasing test wind energy from the 69 MW Kawailoa Wind, LLC facility. The wind farm was placed into full commercial operation in November 2012.


•	In December 2012, the PUC approved a 3-year biodiesel supply contract with Pacific Biodiesel to supply 250,000 to 1 million gallons of biodiesel at the Honolulu International Airport Emergency Power Facility beginning in 2013.


•	In December 2012, the 21 MW Auwahi Wind Energy LLC facility was placed into commercial operation, selling power to Maui Electric under a 20-year contract.


•	In December 2012, the 5 MW Kalaeloa Solar Two, LLC photovoltaic facility was placed into commercial operation, selling power to Hawaiian Electric under a 20-year contract.


•	Hawaiian Electric, Hawaii Electric Light and Maui Electric began accepting energy from feed-in tariff projects in 2011. As of September 30, 2013 , there were 9 MW, 1 MW and 2 MW of installed feed-in tariff capacity from renewable energy technologies at Hawaiian Electric, Hawaii Electric Light and Maui Electric, respectively.

•

As of September 30, 2013 , there were approximately 143 MW, 29 MW and 31 MW of installed net energy metering capacity from renewable energy technologies (mainly photovoltaic) at Hawaiian Electric, Hawaii Electric Light and Maui Electric, respectively. Net energy metering continues to proceed at a record pace. The amount of net energy metering capacity installed in the first nine months of 2013 was nearly twice the amount installed during the same period of 2012.

•

In February 2013, Hawaiian Electric issued an “Invitation for Low Cost Renewable Energy Projects on Oahu through Request for Waiver from Competitive Bidding.” The invitation for waiver projects seeks to lower the cost of electricity for customers in the near term with qualified renewable energy projects on Oahu that can be quickly placed into service at a low cost per KWH. Proposals were received and, in June 2013 and November 2013, Hawaiian Electric filed waiver requests from the PUC Competitive Bidding Framework for five projects (two of which have since been withdrawn) and six projects, respectively, which met these goals.

Commitments and contingencies. See Note 5 of Hawaiian Electric’s “Notes to Consolidated Financial Statements.”

Recent accounting pronouncements. See Note 8, “Recent accounting pronouncements,” of Hawaiian Electric’s “Notes to Consolidated Financial Statements.”

FINANCIAL CONDITION

Liquidity and capital resources. Management believes that Hawaiian Electric’s ability, and that of its subsidiaries, to generate cash, both internally from operations and externally from issuances of equity and debt securities, commercial paper and lines of credit, is adequate to maintain sufficient liquidity to fund their respective capital expenditures and investments and to cover debt, retirement benefits and other cash requirements in the foreseeable future.

Hawaiian Electric’s consolidated capital structure was as follows:



(dollars in millions)	September 30, 2013				December 31, 2012
Short-term borrowings	$	73	3	%	$	—	—	%
Long-term debt, net	1,148		42		1,148		43
Preferred stock	34		1		34		1
Common stock equity	1,502		54		1,472		56
	$	2,757	100	%	$	2,654	100	%

Information about Hawaiian Electric’s short-term borrowings (other than from Hawaii Electric Light and Maui Electric) and line of credit facility were as follows:



	Average balance		Balance
(in millions)	Nine months ended September 30, 2013		September 30, 2013		December 31, 2012
Short-term borrowings(1)
Commercial paper	$	38	$	73	$	—
Line of credit draws	—		—		—
Borrowings from HEI	—		—		—
Undrawn capacity under line of credit facility (expiring December 5, 2016)			175		175

___________________________________________

(1) The maximum amount of Hawaiian Electric’s external short-term borrowings during the first nine months of 2013 was $73 million. At September 30, 2013 , Hawaiian Electric had $7 million of short-term borrowings from Hawaii Electric Light, and Maui Electric had $23 million of short-term borrowings from Hawaiian Electric. At October 31, 2013 , Hawaiian Electric had $5 million of outstanding commercial paper, no draws under its line of credit facility, no borrowings from HEI and $8 million of short-term borrowings from Hawaii Electric Light. Also, at October 31, 2013 , Maui Electric had $11 million of short-term borrowings from Hawaiian Electric. Intercompany borrowings are eliminated in consolidation.

Hawaiian Electric has a line of credit facility of $175 million (see Note 9 of Hawaiian Electric’s “Notes to Consolidated Financial Statements”). There are customary conditions that must be met in order to draw on it, including compliance with several covenants (such as covenants preventing its subsidiaries from entering into agreements that restrict the ability of the subsidiaries to pay dividends to, or to repay borrowings from, Hawaiian Electric, and restricting its ability as well as the ability of any of its subsidiaries to guarantee additional indebtedness of the subsidiaries if such additional debt would cause the subsidiary’s “Consolidated Subsidiary Funded Debt to Capitalization Ratio” to exceed 65% (ratio of 42% for Hawaii Electric Light and 44% for Maui Electric as of September 30, 2013 , as calculated under the agreement)). In addition to customary defaults, Hawaiian Electric’s failure to maintain its financial ratios, as defined in its credit agreement, or meet other requirements may result in an event of default. For example, under the credit agreement, it is an event of default if Hawaiian Electric fails to maintain a “Consolidated Capitalization Ratio” (equity) of at least 35% (ratio of 54% as of September 30, 2013 , as calculated under the credit agreement), or if Hawaiian Electric is no longer owned by HEI.

Special purpose revenue bonds (SPRBs) have been issued by the Department of Budget and Finance of the State of Hawaii (DBF) to finance (and refinance) capital improvement projects of Hawaiian Electric and its subsidiaries, but the sources of their repayment are the unsecured obligations of Hawaiian Electric and its subsidiaries under loan agreements and notes issued to the DBF, including Hawaiian Electric’s guarantees of its subsidiaries’ obligations. The payment of principal and interest due on SPRBs currently outstanding and issued prior to 2009 are insured by Ambac Assurance Corporation or Financial Guaranty Insurance Company, which was placed in a rehabilitation proceeding in the State of New York in June 2012 (with a plan of rehabilitation effective August 19, 2013). The Standard & Poor’s and Moody’s Investor Service’s ratings of these insurers, which at the time the insured obligations were issued were higher than the ratings of the Utilities, have been withdrawn.

The PUC has approved the use of an expedited approval procedure for the approval of long-term debt financings or refinancings (including the issuance of taxable debt) by Hawaiian Electric, Hawaii Electric Light and Maui Electric during the period 2013 through 2015, subject to certain conditions. On October 3, 2013, after obtaining such expedited approvals, the Utilities issued through a private placement taxable unsecured senior notes with an aggregate principal amount of $236 million. See Note 9 of Hawaiian Electric’s “Notes to Consolidated Financial Statements.” The remaining long-term debt authorizations of $80 million (Hawaiian Electric $50 million, Hawaii Electric Light $25 million and Maui Electric $5 million) can be requested under the expedited approval procedure through 2015.

Operating activities provided $211 million in net cash during the first nine months of 2013. Investing activities for the same period used net cash of $214 million for capital expenditures, net of contributions in aid of construction. Financing activities for the same period provided net cash of $11 million, primarily due to the increase in short-term borrowings, partly offset by payment of $63 million of common and preferred dividends.

Bank

RESULTS OF OPERATIONS



	Three months ended September 30				Increase
(in millions)	2013		2012		(decrease)			Primary reason(s)
Interest income	$	46	$	47	$	(1	)	The impact of higher average earning asset balances was more than offset by lower yields on earning assets. ASB’s average loan portfolio balance for the third quarter of 2013 was $274 million higher than for the third quarter of 2012 as the average residential, home equity lines of credit, commercial real estate and commercial market loan balances increased by $128 million, $92 million, $35 million and $25 million, respectively. The growth in these loan portfolios was consistent with ASB’s portfolio mix target and loan growth strategy. The loan portfolio yields were impacted by the low interest rate environment as new loan production yields were lower than the average portfolio yield. The average investment and mortgage-related securities portfolio balance decreased by $83 million as ASB sold $70 million of agency obligations in the second quarter of 2013.
Noninterest income	19		20		(1		)	Gain on sale of the credit card portfolio of $2 million and higher fee income from other financial products of $1 million were offset by lower debit card interchange fees of $2 million as a result of being non-exempt from the Durbin Amendment and lower mortgage banking income of $3 million as a result of lower gain on sale of loans.
Revenues	65		67		(2		)
Interest expense	2		3		(1		)	Lower funding costs as a result of the low interest rate environment and a shift in mix of the deposit products. Average deposit balances for the third quarter of 2013 increased by $167 million compared to the third quarter of 2012 due to an increase in core deposits of $231 million, partly offset by a decrease in term certificates of $64 million. The other borrowings average balance decreased by $19 million due to lower retail repurchase agreements.
Provision (credit) for loan losses	—		4		(4		)	In the third quarter of 2013, the provision for loan losses to cover loan growth and current quarter charge-offs were offset by the release of reserves on a commercial loan paydown and recoveries of previously charged off residential loans, reflecting the ongoing improvement in the quality of ASB’s loan portfolio.
Noninterest expense	40		39		1			Increase in noninterest expenses were due to $2 million higher compensation and benefits expenses in 2013 as a result of targeted staffing increases to support increased business volumes, information technology (IT) and risk management capabilities, and credit card IT exit costs of $1 million, partly offset by higher professional fees incurred in 2012 to launch the mobile banking product.
Expenses	42		45		(3		)
Operating income	23		22		1			Lower provision for loan losses, partially offset by lower noninterest income and higher noninterest expenses.
Net income	15		14		1			Higher operating income.



	Nine months ended September 30				Increase
(in millions)	2013		2012		(decrease)			Primary reason(s)
Interest income	$	139	$	144	$	(5	)	The impact of higher average earning asset balances was more than offset by lower yields on earning assets. ASB’s average loan portfolio balance for the nine months ended September 30, 2013 was $188 million higher than for the same period in 2012 as the average home equity lines of credit, residential, commercial real estate and consumer loan balances increased by $90 million, $61 million, $32 million and $20 million, respectively. The growth in these loan portfolios was consistent with ASB’s portfolio mix target and loan growth strategy. Loan portfolio yields were impacted by the low interest rate environment as new loan production yields were lower than the average portfolio yields. The average investment and mortgage-related securities portfolio balance decreased by $12 million as ASB sold $70 million of agency obligations in the second quarter of 2013.
Noninterest income	57		53		4			Gain of $1 million on sale of securities due to the sale of $70 million of agency obligations, the gain of $2 million on sale of the credit card portfolio and $2 million higher fee income on other financial products, partly offset by $1 million lower mortgage banking income due to lower gain on sale of loans and $1 million lower debit card interchange fees as a result of being non-exempt from the Durbin Amendment.
Revenues	196		197		(1		)
Interest expense	8		9		(1		)	Lower funding costs as a result of the low interest rate environment. Average deposit balances for the nine months ended September 30, 2013 increased by $163 million compared to the same period in 2012 due to an increase in core deposits of $231 million, partly offset by a decrease in term certificates of $68 million. The other borrowings average balance decreased by $30 million due to lower retail repurchase agreements.
Provision for loan losses	1		10		(9		)	The 2013 provision for loan losses declined due in part to the improved credit quality associated with the continuing improvement in Hawaii’s economy, lower net charge-offs in the higher risk residential land and purchased mortgage loan portfolios and $1.1 million release of loan loss reserves on the credit card loan portfolio that was sold in August 2013.
Noninterest expense	118		111		7			Increase in noninterest expense was primarily due to $5 million higher compensation and benefits expenses due to targeted staffing increases to support increased business volumes, IT and risk management capabilities and $1 million of credit card IT exit costs.
Expenses	127		130		(3		)
Operating income	69		67		2			Lower provision for loan losses and higher noninterest income, partially offset by lower net interest income and higher noninterest expenses.
Net income	45		44		1

Details of ASB’s other noninterest income and other noninterest expense were as follows:



	Three months ended September 30				Nine months ended September 30
(in thousands)	2013		2012		2013		2012
Bank-owned life insurance	$	998	$	1,004	$	2,950	$	2,976
Credit card sale	2,251		—		2,251		—
Other	639		342		2,010		1,179
Total other income	$	3,888	$	1,346	$	7,211	$	4,155

FDIC insurance premium	$	817	$	790	$	2,505	$	2,497
Marketing	692		776		2,054		1,880
Office supplies, printing and postage	907		927		2,806		2,836
Communication	479		461		1,374		1,327
Credit card IT exit costs	1,377		—		1,377		—
Reversal of interest expense—tax	—		—		—		(552		)
Other	4,267		5,142		14,518		14,921
Total other expense	$	8,539	$	8,096	$	24,634	$	22,909

See Note 4 of HEI’s “Notes to Consolidated Financial Statements” and “Economic conditions” in the “HEI Consolidated” section above.

Despite the revenue pressures across the banking industry, management expects ASB’s low-cost funding base and lower-risk profile to continue to deliver strong performance compared to industry peers.

ASB’s return on average assets, net interest margin and efficiency ratio were as follows:



	Three months ended September 30		Nine months ended September 30
(percent)	2013	2012	2013	2012
Return on average assets	1.20	1.15	1.19	1.19
Net interest margin	3.73	3.92	3.77	3.98
Efficiency ratio	63	60	62	59

Average balance sheet and net interest margin. The following tables set forth average balances, together with interest earned and accrued, and resulting yields and costs:



Three months ended September 30	2013						2012
(dollars in thousands)	Average balance			Interest		Yield/ rate (%)	Average balance			Interest		Yield/ rate (%)
Assets:
Other investments (1)	$	156,337		$	63	0.16	$	188,230		$	57	0.12
Available-for-sale investment and mortgage-related securities	548,747			3,179		2.32	631,255			3,596		2.28
Loans
Residential 1-4 family	2,021,837			23,455		4.64	1,893,527			24,611		5.20
Commercial real estate	442,617			4,794		4.31	407,524			4,639		4.54
Home equity line of credit	691,316			5,352		3.07	599,636			4,130		2.74
Residential land	19,506			425		8.72	31,978			539		6.74
Commercial loans	731,822			7,123		3.85	706,847			7,788		4.38
Consumer loans	109,888			2,188		7.92	103,055			2,173		8.39
Total loans (2), (3)	4,016,986			43,337		4.30	3,742,567			43,880		4.68
Total interest-earning assets (4)	4,722,070			46,579		3.93	4,562,052			47,533		4.16
Allowance for loan losses	(41,697		)				(39,599		)
Non-interest-earning assets	411,345						428,752
Total assets	$	5,091,718					$	4,951,205
Liabilities and shareholder’s equity:
Savings	$	1,811,378		$	265	0.06	$	1,735,561		$	259	0.06
Interest-bearing checking	668,076			27		0.02	611,507			27		0.02
Money market	173,972			55		0.12	183,869			62		0.13
Time certificates	449,364			915		0.81	512,830			1,192		0.92
Total interest-bearing deposits	3,102,790			1,262		0.16	3,043,767			1,540		0.20
Advances from Federal Home Loan Bank	56,685			562		3.88	50,000			547		4.28
Securities sold under agreements to repurchase	147,438			644		1.71	173,243			654		1.48
Total interest-bearing liabilities	3,306,913			2,468		0.29	3,267,010			2,741		0.33
Non-interest bearing liabilities:
Deposits	1,180,024						1,071,592
Other	101,081						106,762
Total liabilities	4,588,018						4,445,364
Shareholder’s equity	503,700						505,841
Total liabilities and shareholder’s equity	$	5,091,718					$	4,951,205
Net interest income				$	44,111					$	44,792
Net interest margin (%) (5)						3.73						3.92



Nine months ended September 30	2013						2012
(dollars in thousands)	Average balance			Interest		Yield/ rate (%)	Average balance			Interest		Yield/ rate (%)
Assets:
Other investments (1)	$	172,818		$	171	0.17	$	213,793		$	220	0.14
Securities purchased under resale agreements	8,718			25		0.38	—			—		—
Available-for-sale investment and mortgage-related securities	604,761			10,184		2.25	617,021			10,910		2.36
Loans
Residential 1-4 family	1,956,566			70,314		4.79	1,895,295			75,023		5.28
Commercial real estate	431,250			14,400		4.45	399,358			13,874		4.63
Home equity line of credit	665,969			14,654		2.94	575,781			11,814		2.74
Residential land	22,354			1,016		6.06	37,081			1,692		6.08
Commercial loans	714,258			21,939		4.10	714,452			23,663		4.42
Consumer loans	118,995			7,241		8.13	99,192			7,175		9.66
Total loans (2), (3)	3,909,392			129,564		4.42	3,721,159			133,241		4.78
Total interest-earning assets (4)	4,695,689			139,944		3.98	4,551,973			144,371		4.23
Allowance for loan losses	(42,556		)				(39,029		)
Non-interest-earning assets	425,046						430,198
Total assets	$	5,078,179					$	4,943,142
Liabilities and shareholder’s equity:
Savings	$	1,799,469		$	782	0.06	$	1,719,872		$	874	0.07
Interest-bearing checking	656,121			76		0.02	610,139			86		0.02
Money market	182,037			174		0.13	206,919			256		0.16
Time certificates	460,566			2,838		0.82	528,295			3,799		0.96
Total interest-bearing deposits	3,098,193			3,870		0.17	3,065,225			5,015		0.22
Advances from Federal Home Loan Bank	52,674			1,639		4.10	50,000			1,629		4.28
Securities sold under agreements to repurchase	146,410			1,909		1.72	178,751			2,047		1.51
Total interest-bearing liabilities	3,297,277			7,418		0.30	3,293,976			8,691		0.35
Non-interest bearing liabilities:
Deposits	1,171,384						1,041,433
Other	105,400						107,929
Total liabilities	4,574,061						4,443,338
Shareholder’s equity	504,118						499,804
Total liabilities and shareholder’s equity	$	5,078,179					$	4,943,142
Net interest income				$	132,526					$	135,680
Net interest margin (%) (5)						3.77						3.98

___________________________________________

(1) Includes federal funds sold, interest bearing deposits and stock in the FHLB of Seattle ($95 million and $98 million as of September 30, 2013 and 2012, respectively)

(2) Includes loans held for sale.

(3) Includes loan fees of $1.3 million and $1.0 million for the three months ended September 30, 2013 and 2012, respectively, and $4.1 million and $3.5 million for the nine months ended September 30, 2013 and 2012, respectively, together with interest accrued prior to suspension of interest accrual on nonaccrual loans, includes nonaccrual loans.

(4) Interest income includes taxable equivalent basis adjustments, based upon a federal statutory tax rate of 35%, of $0.2 million for the three months ended September 30, 2013 and 2012, and $0.7 million and $0.6 million for the nine months ended September 30, 2013 and 2012, respectively.

(5) Defined as net interest income as a percentage of average earning assets.

Earning assets, costing liabilities and other factors. Earnings of ASB depend primarily on net interest income, which is the difference between interest earned on earning assets and interest paid on costing liabilities. The interest rate environment has been impacted by disruptions in the financial markets and these conditions have continued to have a negative impact on ASB’s net interest margin.

Loan originations and mortgage-related securities are ASB’s primary sources of earning assets.

Loan portfolio . ASB’s loan volumes and yields are affected by market interest rates, competition, demand for financing, availability of funds and management’s responses to these factors. The composition of ASB’s loan portfolio was as follows:



	September 30, 2013				December 31, 2012
(dollars in thousands)	Balance			% of total	Balance			% of total
Real estate loans:
Residential 1-4 family	$	2,015,082		49.7	$	1,866,450		49.2
Commercial real estate	405,037			10.0	375,677			9.9
Home equity line of credit	703,210			17.3	630,175			16.6
Residential land	18,400			0.4	25,815			0.7
Commercial construction	51,067			1.3	43,988			1.2
Residential construction	10,460			0.3	6,171			0.2
Total real estate loans, net	3,203,256			79.0	2,948,276			77.8
Commercial loans	749,733			18.5	721,349			19.0
Consumer loans	102,400			2.5	121,231			3.2
	4,055,389			100.0	3,790,856			100.0
Less: Deferred fees and discounts	(9,205		)		(11,638		)
Allowance for loan losses	(41,052		)		(41,985		)
Total loans, net	$	4,005,132			$	3,737,233

The increase in the total loan portfolio during the first nine months of 2013 compared to the same period in 2012 was primarily due to an increase in originated ASB’s residential 1-4 family, home equity lines of credit and commercial real estate loan portfolios and is in line with ASB’s portfolio mix target and loan growth strategy.

On August 1, 2013, ASB completed the sale of its $25 million credit card portfolio to First Bankcard, a division of First National Bank of Omaha. As part of the sale agreement, through First Bankcard, ASB will be able to offer ASB customers a greater variety of business and consumer credit card products, an enhanced rewards program, and regular marketing support. First Bankcard supports more than 500 partners with 5,700 retail branches, owning over 4 million credit card accounts.

Home equity — key credit statistics.



	September 30, 2013			December 31, 2012
Outstanding balance (in thousands)	$	703,210		$	630,175
Percent of portfolio in first lien position	36.5		%	29.9		%
Net charge-off ratio	0.09		%	0.10		%
Delinquency ratio	0.27		%	0.40		%



							End of draw period – interest only									Current
September 30, 2013	Total			Interest only			2013-2014			2015-2017			Thereafter			amortizing
Outstanding balance (in thousands)	$	703,210		$	529,349		$	112		$	11,753		$	517,484		$	173,861
% of total	100		%	75		%	—		%	2		%	73		%	25		%

The home equity line of credit (HELOC) portfolio makes up 17% of the total loan portfolio and is generally an interest-only revolving loan for a 10-year period, after which time the HELOC outstanding balance converts to a fully amortizing variable rate term loan with a 20-year amortization period. This product type comprises 90% of the total HELOC portfolio and is the current product offering. Within this product type, borrowers also have a “Fixed Rate Loan Option” to convert a part of their available line of credit into a 5, 7 or 10-year fully amortizing fixed rate loan with level principal and interest payments. As of September 30, 2013 , approximately 15% of the portfolio balances are amortizing loans under the Fixed Rate Loan Option. Nearly all originations prior to 2008 consisted of amortizing equity lines that have structured principal payments during the draw period. These older vintage equity lines represent 10% of the portfolio and are included in the amortizing balances identified in the table above.

Loan portfolio risk elements . See Note 4 of HEI’s “Notes to Consolidated Financial Statements.”

Investment and mortgage-related securities . ASB’s investment portfolio was comprised as follows:



	September 30, 2013				December 31, 2012
(dollars in thousands)	Balance		% of total		Balance		% of total
Federal agency obligations	$	98,265	18	%	$	171,491	26	%
Mortgage-related securities — FNMA, FHLMC and GNMA	357,977		67		417,383		62
Municipal bonds	79,022		15		82,484		12
	$	535,264	100	%	$	671,358	100	%

Principal and interest on mortgage-related securities issued by Federal National Mortgage Association (FNMA), Federal Home Loan Mortgage Corporation (FHLMC) and Government National Mortgage Association (GNMA) are guaranteed by the issuer and, in the case of GNMA, backed by the full faith and credit of the U.S. The decrease in federal agency obligations was primarily due to the sale of $70 million of agency obligations in the second quarter of 2013. The decrease in mortgage-related securities was due to paydowns in the portfolio.

Deposits and other borrowings . Deposits continue to be the largest source of funds for ASB and are affected by market interest rates, competition and management’s responses to these factors. Deposit retention and growth will remain challenging in the current environment due to competition for deposits and the low level of short-term interest rates. Advances from the FHLB of Seattle and securities sold under agreements to repurchase continue to be additional sources of funds. Advances from the FHLB of Seattle have increased from $50 million at December 31, 2012 to $100 million at September 30, 2013 . As of September 30, 2013 , ASB’s costing liabilities consisted of 95% deposits and 5% other borrowings compared to 96% deposits and 4% borrowings at December 31, 2012. The weighted average cost of deposits for the first nine months of 2013 was 0.12%, compared to 0.16% for the first nine months of 2012.

Other factors . Interest rate risk is a significant risk of ASB’s operations and also represents a market risk factor affecting the fair value of ASB’s investment securities. Increases and decreases in prevailing interest rates generally translate into decreases and increases in the fair value of those instruments, respectively. In addition, changes in credit spreads also impact the fair values of those instruments.

As of September 30, 2013 , ASB had unrealized losses, net of taxes, on available-for-sale investments and mortgage-related securities (including securities pledged for repurchase agreements) in AOCI of $1 million compared to unrealized gains, net of taxes, on available-for-sale investments and mortgage-related securities (including securities pledged for repurchase agreements) in AOCI of $11 million as of December 31, 2012. The decrease in AOCI was due to the impact of rising interest rates on the fair value of ASB’s investment and mortgage-related securities. See “Item 3. Quantitative and qualitative disclosures about market risk.”

During the first nine months of 2013, ASB recorded a provision for loan losses of $1.0 million primarily due to net charge-offs during the year for consumer, commercial and HELOC loans, and growth in the loan portfolio, partly offset by the release of reserves for the credit card and residential land loan portfolios. During the first nine months of 2012, ASB recorded a provision for loan losses of $9.5 million primarily due to net charge-offs during the year for 1-4 family, residential land, commercial and consumer loans. Continued financial stress on ASB’s customers may result in higher levels of delinquencies and losses.



	Nine months ended September 30						Year ended December 31
(in thousands)	2013			2012			2012
Allowance for loan losses, January 1	$	41,985		$	37,906		$	37,906
Provision for loan losses	953			9,504			12,883
Less: net charge-offs	1,886			7,600			8,804
Allowance for loan losses, end of period	$	41,052		$	39,810		$	41,985
Ratio of allowance for loan losses, end of period, to end of period loans outstanding	1.01		%	1.06		%	1.11		%
Ratio of net charge-offs during the period to average loans outstanding (annualized)	0.06		%	0.27		%	0.24		%

Legislation and regulation. ASB is subject to extensive regulation, principally by the Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC). Depending on ASB’s level of regulatory capital and other considerations, these regulations could restrict the ability of ASB to compete with other institutions and to pay dividends to its shareholder. See the discussion below under “Liquidity and capital resources.”

Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) . Regulation of the financial services industry, including regulation of HEI, ASHI and ASB, has changed and will continue to change as a result of the enactment of the Dodd-Frank Act, which became law in July 2010. Importantly for HEI, ASHI and ASB, under the Dodd-Frank Act, on July 21, 2011, all of the functions of the Office of Thrift Supervision transferred to the OCC, the FDIC, the Federal Reserve Board (FRB) and the Consumer Financial Protection Bureau (Bureau). Supervision and regulation of HEI and ASHI, as thrift holding companies, moved to the FRB, and supervision and regulation of ASB, as a federally chartered savings bank, moved to the OCC. While the laws and regulations applicable to HEI and ASB did not generally change, the applicable laws and regulations are being interpreted, and new and amended regulations may be adopted, by the FRB, OCC and the Bureau. In addition, HEI will continue to be required to serve as a source of strength to ASB in the event of its financial distress. The Dodd-Frank Act also imposes new restrictions on the ability of a savings bank to pay dividends should it fail to remain a qualified thrift lender.

More stringent affiliate transaction rules now apply to ASB in the securities lending, repurchase agreement and derivatives areas. Standards were raised with respect to the ability of ASB to merge with or acquire another institution. In reviewing a potential merger or acquisition, the approving federal agency will need to consider the extent to which the proposed transaction will result in “greater or more concentrated risks to the stability of the U.S. banking or financial system.”

The Dodd-Frank Act established the Bureau. It has authority to prohibit practices it finds to be unfair, deceptive or abusive, and it may also issue rules requiring specified disclosures and the use of new model forms. On January 10, 2013, the Bureau issued the Ability-to-Repay rule which closed for comment on February 25, 2013. For mortgages, under the proposed Ability-to-Repay rule, among other things, (i) potential borrowers will have to supply financial information, and lenders must verify it, (ii) to qualify for a particular loan, a consumer will have to have sufficient assets or income to pay back the loan, and (iii) lenders will have to determine the consumer’s ability to repay both the principal and the interest over the long term - not just during an introductory period when the rate may be lower.

On May 22, 2012, the Bureau issued the Final Remittance Rule (an amendment to Regulation E). It is effective on October 28, 2013. For consumer international wires, the rule now provides flexibility regarding the disclosure of foreign taxes, as well as fees imposed by a designated recipient’s institution for receiving a remittance transfer in an account. Second, the rule limits a remittance transfer provider’s obligation to disclose foreign taxes to those imposed by a country’s central government. And third, the rule revises the error resolution provisions that apply when a remittance transfer is not delivered to a designated recipient because the sender provided incorrect or insufficient information, and, in particular, when a sender provides an incorrect account number and that incorrect account number results in the funds being deposited in the wrong account.

ASB may also be subject to new state regulation because of a provision in the Dodd-Frank Act that acknowledges that a federal savings bank may be subject to state regulation and allows federal law to preempt a state consumer financial law on a “case by case” basis only when (1) the state law would have a discriminatory effect on the bank compared to that on a bank chartered in that state; (2) the state law prevents or significantly interferes with a bank’s exercise of its power; or (3) the state law is preempted by another federal law.

The Dodd-Frank Act also adopts a number of provisions that will impact the mortgage industry, including the imposition of new specific duties on the part of mortgage originators (such as ASB) to act in the best interests of consumers and to take steps to ensure that consumers will have the capability to repay loans they may obtain, as well as provisions imposing new disclosure requirements and requiring appraisal reforms.

The “Durbin Amendment” to the Dodd-Frank Act required the FRB to issue rules to ensure that debit card interchange fees are “reasonable and proportional” to the processing costs incurred. In June 2011, the FRB issued a final rule establishing standards for debit card interchange fees and prohibiting network exclusivity arrangements and routing restrictions. Under the final rule, effective October 1, 2011, the maximum permissible interchange fee that an issuer may receive for an electronic debit transaction is 21-24 cents, depending on certain components. Financial institutions and their affiliates that have less than $10 billion in assets are exempt from this Amendment; however, on July 1, 2013, ASB became non-exempt as the consolidated assets of HEI exceeded $10 billion. For the third quarter of 2013, ASB had earned an average of 23 cents per electronic debit transaction. ASB estimates debit card interchange fees to be lower, as a result of the application of this Amendment, by approximately $1.4 million after tax for the remainder of 2013 and approximately $6 million after tax in 2014.

Many of the provisions of the Dodd-Frank Act, as amended, will not become effective until implementing regulations are issued and effective.

Final Capital Rule . On July 2, 2013, the FRB finalized its rule implementing the Basel III regulatory capital framework. The final rule would apply to banking organizations of all sizes and types regulated by the FRB and the OCC, except bank holding companies subject to the FRB’s Small Bank Holding Company Policy Statement and Savings & Loan Holding Companies (SLHCs) substantially engaged in insurance underwriting or commercial activities. HEI currently meets the requirements of the exemption as a top-tier grandfathered unitary SLHC that derived, as of June 30 of the previous calendar year, either 50% or more of its total consolidated assets or 50% or more of its total revenues on an enterprise-wide basis (calculated under GAAP) from activities that are not financial in nature pursuant to Section 4(k) of the Bank Holding Company Act. The FRB is temporarily excluding these SLHCs from the final rule while it considers a proposal relating to capital and other requirements for SLHC intermediate holding companies. The FRB anticipates that it will release a proposal on intermediate holding companies in the near term that would specify the criteria for establishing and transferring activities to intermediate holding companies and propose to apply the FRB’s capital requirements to such intermediate holding companies.

Pursuant to the final rule and consistent with the proposals, all banking organizations, including covered holding companies, would be subject to the following minimum regulatory capital requirements: a common equity tier 1 capital ratio of 4.5%, a tier 1 capital ratio of 6%, a total capital ratio of 8% of risk-weighted assets and a leverage ratio of 4%. In order to avoid restrictions on capital distributions and discretionary bonus payments to executive officers, the final rule requires a banking organization to hold a buffer of common equity tier 1 capital above its minimum risk-based capital requirements in an amount greater than 2.5% of total risk-weighted assets (capital conservation buffer). In addition, a countercyclical capital buffer would expand the capital conservation buffer by up to 2.5% of a banking organization’s total risk-weighted assets for advanced approaches banking organizations. The final rule would establish qualification criteria for common equity, additional tier 1 and tier 2 capital instruments that help to ensure their ability to absorb losses. All banking organizations would be required to calculate risk-weighted assets under the standardized approach, which harmonizes the banking agencies’ calculation of risk-weighted assets and address shortcomings in risk-based capital requirements identified by the agencies.

Minimum Capital Requirements



Effective dates	1/1/2015		1/1/2016		1/1/2017		1/1/2018		1/1/2019
Capital conservation buffer			0.625	%	1.25	%	1.875	%	2.50	%
Common equity ratio + conservation buffer	4.50	%	5.125	%	5.75	%	6.375	%	7.00	%
Tier 1 capital ratio + conservation buffer	6.00	%	6.625	%	7.25	%	7.875	%	8.50	%
Total capital ratio + conservation buffer	8.00	%	8.625	%	9.25	%	9.875	%	10.50	%
Tier 1 leverage ratio	4.00	%	4.00	%	4.00	%	4.00	%	4.00	%
Countercyclical capital buffer — not applicable to ASB			0.625	%	1.25	%	1.875	%	2.50	%

The final rule is effective January 1, 2015 for ASB. Subject to the timing and final outcome of the FRB’s SLHC intermediate holding company proposal, HEI anticipates that the capital requirements in the final rule will be effective for HEI or ASHI on January 1, 2015 as well. HEI and ASB have reviewed the final rule and the impact to capital ratios. If the final

rules were currently applicable to HEI and ASB, management believes HEI and ASB would satisfy the new capital requirements, including the fully phased-in capital conservation buffer.

Commitments and contingencies. See Note 4 of HEI’s “Notes to Consolidated Financial Statements.”

FINANCIAL CONDITION

Liquidity and capital resources.



(dollars in millions)	September 30, 2013		December 31, 2012		% change
Total assets	$	5,159	$	5,042	2
Available-for-sale investment and mortgage-related securities	535		671		(20	)
Loans receivable held for investment, net	4,005		3,737		7
Deposit liabilities	4,311		4,230		2
Other bank borrowings	240		196		22

As of September 30, 2013 , ASB was one of Hawaii’s largest financial institutions based on assets of $5.2 billion and deposits of $4.3 billion .

As of September 30, 2013 , ASB’s unused FHLB borrowing capacity was approximately $1.0 billion. As of September 30, 2013 , ASB had commitments to borrowers for loan commitments and unused lines and letters of credit of $1.6 billion . Management believes ASB’s current sources of funds will enable it to meet these obligations while maintaining liquidity at satisfactory levels.

For the first nine months of 2013, net cash provided by ASB’s operating activities was $64 million. Net cash used during the same period by ASB’s investing activities was $149 million, primarily due to a net increase in loans receivable of $294 million, purchases of investment and mortgage-related securities of $40 million and additions to premises and equipment of $9 million, partly offset by proceeds from the sale of investment securities of $71 million, repayments of investment and mortgage-related securities of $84 million, proceeds from the sale of the credit card portfolio of $26 million, proceeds from the sale of real estate acquired in settlement of loans of $9 million and redemption of stock from FHLB of Seattle of $3 million. Net cash provided in financing activities during this period was $91 million, primarily due to proceeds from FHLB advances of $120 million and net increases in deposit liabilities of $81 million, partly offset by repayments on FHLB advances of $70 million, a net decrease in retail repurchase agreements of $6 million, a net decrease in mortgage escrow deposits of $4 million and the payment of $30 million in common stock dividends to HEI (through ASHI).

FDIC regulations restrict the ability of financial institutions that are not well-capitalized to compete on the same terms as well-capitalized institutions, such as by offering interest rates on deposits that are significantly higher than the rates offered by competing institutions. As of September 30, 2013 , ASB was well-capitalized (minimum ratio requirements noted in parentheses) with a leverage ratio of 9.3% (5.0%), a Tier-1 risk-based capital ratio of 11.5% (6.0%) and a total risk-based capital ratio of 12.5% (10.0%). FRB approval is required before ASB can pay a dividend or otherwise make a capital distribution to HEI (through ASHI).

Item 3. Quantitative and Qualitative Disclosures About Market Risk

The Company considers interest-rate risk (a non-trading market risk) to be a very significant market risk for ASB as it could potentially have a significant effect on the Company’s results of operations, financial condition and liquidity. For additional quantitative and qualitative information about the Company’s market risks, see pages 82 to 84, HEI’s Quantitative and Qualitative Disclosures About Market Risk, in Part II, Item 7A of HEI’s 2012 Form 10-K and Hawaiian Electric’s Quantitative and Qualitative Disclosures About Market Risk, which is incorporated into Part II, Item 7A of Hawaiian Electric’s 2012 Form 10-K by reference to Exhibit 99.2.

ASB’s interest-rate risk sensitivity measures as of September 30, 2013 and December 31, 2012 constitute “forward-looking statements” and were as follows:



	Change in NII (gradual change in interest rates)				Change in EVE (instantaneous change in interest rates)
Change in interest rates (basis points)	September 30, 2013		December 31, 2012		September 30, 2013		December 31, 2012
+300	1.9	%	1.6	%	(9.5	)%	(9.4	)%
+200	0.7		0.5		(5.8	)	(4.9	)
+100	0.1		0.1		(2.6	)	(1.9	)
-100	(0.5	)	(0.2	)	(1.0	)	(1.7	)

Management believes that ASB’s interest rate risk position as of September 30, 2013 represents a reasonable level of risk. Net interest income (NII) sensitivity as of September 30, 2013 was slightly more asset sensitive for larger increases in rates compared to December 31, 2012 due to changes in assumptions about the rate sensitivity of certain non-maturity or core deposits.

ASB’s base economic value of equity (EVE) increased to $891 million as of September 30, 2013 compared to $767 million as of December 31, 2012 due to changes in the assumptions about the behavior of core deposits.

The change in EVE was more sensitive to rising rate scenarios as of September 30, 2013 compared to December 31, 2012 due to the steepening of the yield curve which extended the duration of residential mortgages, and shifts in the mix of residential mortgages, investments and commitment to sell loans. The impact of the steepened curve and change in mix was partially mitigated by changes in assumption about the behavior of certain core deposits.

The computation of the prospective effects of hypothetical interest rate changes on the NII sensitivity and the percentage change in EVE is based on numerous assumptions, including relative levels of market interest rates, loan prepayments, balance changes and pricing strategies, and should not be relied upon as indicative of actual results. To the extent market conditions and other factors vary from the assumptions used in the simulation analysis, actual results may differ materially from the simulation results. Furthermore, NII sensitivity analysis measures the change in ASB’s twelve-month, pre-tax NII in alternate interest rate scenarios, and is intended to help management identify potential exposures in ASB’s current balance sheet and formulate appropriate strategies for managing interest rate risk. The simulation does not contemplate any actions that ASB management might undertake in response to changes in interest rates. Further, the changes in NII vary in the twelve-month simulation period and are not necessarily evenly distributed over the period. These analyses are for analytical purposes only and do not represent management’s views of future market movements, the level of future earnings, or the timing of any changes in earnings within the twelve month analysis horizon. The actual impact of changes in interest rates on NII will depend on the magnitude and speed with which rates change, actual changes in ASB’s balance sheet, and management’s responses to the changes in interest rates.

Item 4. Controls and Procedures

HEI:

Changes in Internal Control over Financial Reporting

During the third quarter of 2013, there were no changes in internal control over financial reporting identified in connection with management’s evaluation of the effectiveness of the Company’s internal control over financial reporting as of September 30, 2013 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures

Constance H. Lau, HEI Chief Executive Officer, and James A. Ajello, HEI Chief Financial Officer, have evaluated the disclosure controls and procedures of HEI as of September 30, 2013 . Based on their evaluations, as of September 30, 2013 , they have concluded that the disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) were effective in ensuring that information required to be disclosed by HEI in reports HEI files or submits under the Securities Exchange Act of 1934:

(1) is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission rules and forms, and

(2) is accumulated and communicated to HEI management, including HEI’s principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

Hawaiian Electric:

Changes in Internal Control over Financial Reporting

During the third quarter of 2013, there were no changes in internal control over financial reporting identified in connection with management’s evaluation of the effectiveness of Hawaiian Electric and its subsidiaries’ internal control over financial reporting as of September 30, 2013 that has materially affected, or is reasonably likely to materially affect, Hawaiian Electric and its subsidiaries’ internal control over financial reporting.

Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures

Richard M. Rosenblum, Hawaiian Electric Chief Executive Officer, and Tayne S. Y. Sekimura, Hawaiian Electric Chief Financial Officer, have evaluated the disclosure controls and procedures of Hawaiian Electric as of September 30, 2013 . Based on their evaluations, as of September 30, 2013 , they have concluded that the disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) were effective in ensuring that information required to be disclosed by Hawaiian Electric in reports Hawaiian Electric files or submits under the Securities Exchange Act of 1934:

(1) is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission rules and forms, and

(2) is accumulated and communicated to Hawaiian Electric management, including Hawaiian Electric’s principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

The descriptions of legal proceedings (including judicial proceedings and proceedings before the PUC and environmental and other administrative agencies) in HEI’s Form 10-K (see “Part I. Item 3. Legal Proceedings” and proceedings referred to therein) and this Form 10-Q (see “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” Note 4 of HEI’s “Notes to Consolidated Financial Statements” and Hawaiian Electric’s “Notes to Consolidated Financial Statements”) are incorporated by reference in this Item 1. With regard to any pending legal proceeding, alternative dispute resolution, such as mediation or settlement, may be pursued where appropriate, with such efforts typically maintained in confidence unless and until a resolution is achieved. Certain HEI subsidiaries (including Hawaiian Electric and its subsidiaries and ASB) may also be involved in ordinary routine PUC proceedings, environmental proceedings and litigation incidental to their respective businesses.

Item 1A. Risk Factors

For information about Risk Factors, see pages 70 to 79 of HEI’s Form 10-Q for the quarter ended March 31, 2013, and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Quantitative and Qualitative Disclosures about Market Risk,” HEI’s Consolidated Financial Statements and Hawaiian Electric’s Consolidated Financial Statements herein. Also, see “Forward-Looking Statements” on pages iv and v herein.

Item 5. Other Information

A. Ratio of earnings to fixed charges .



	Nine months ended September 30		Years ended December 31
	2013	2012	2012	2011	2010	2009	2008
HEI and Subsidiaries
Excluding interest on ASB deposits	3.65	3.75	3.28	3.22	2.89	2.29	2.06
Including interest on ASB deposits	3.51	3.56	3.14	3.03	2.64	1.95	1.71
Hawaiian Electric and Subsidiaries	3.80	4.06	3.37	3.52	2.88	2.99	3.48

See HEI Exhibit 12.1 and Hawaiian Electric Exhibit 12.2.

B. Hawaii Electric Light Note Purchase and Guaranty Agreement .

On October 7, 2013, Hawaiian Electric filed a Form 8-K regarding the entry by Hawaiian Electric and each of its electric utility subsidiaries, Maui Electric and Hawaii Electric Light, into separate note purchase agreements, with Hawaiian Electric being a party to each of the Maui Electric and Hawaii Electric Light Note Purchase and Guaranty Agreements, as guarantor. Copies of the note purchase agreements with Hawaiian Electric, Maui Electric and Hawaii Electric Light were included as Exhibits 4(a), 4(b) and 4(c), respectively, to the Form 8-K filed on October 7, 2013. Hawaii Electric Light’s Note Purchase and Guaranty Agreement incorrectly identified in Schedule A that PHL Variable Insurance Company (Purchaser) had purchased Series A Notes, when in fact the Purchaser had purchased Series B Notes. The error in the original document has been corrected, and Exhibit 4 to this Form 10-Q is being filed solely to correct the corresponding error in Exhibit 4(c) to the Form 8-K filed on October 7, 2013 and replaces that Exhibit 4(c) in its entirety.

Item 6. Exhibits



HEI Exhibit 12.1		Hawaiian Electric Industries, Inc. and Subsidiaries of ratio of earnings to fixed charges, nine months ended September 30, 2013 and 2012 and years ended December 31, 2012, 2011, 2010, 2009 and 2008

HEI Exhibit 31.1		Certification Pursuant to Rule 13a-14 promulgated under the Securities Exchange Act of 1934 of Constance H. Lau (HEI Chief Executive Officer)

HEI Exhibit 31.2		Certification Pursuant to Rule 13a-14 promulgated under the Securities Exchange Act of 1934 of James A. Ajello (HEI Chief Financial Officer)

HEI Exhibit 32.1		HEI Certification Pursuant to 18 U.S.C. Section 1350

HEI Exhibit 101.INS		XBRL Instance Document

HEI Exhibit 101.SCH		XBRL Taxonomy Extension Schema Document

HEI Exhibit 101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document

HEI Exhibit 101.DEF		XBRL Taxonomy Extension Definition Linkbase Document

HEI Exhibit 101.LAB		XBRL Taxonomy Extension Label Linkbase Document

HEI Exhibit 101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document

Hawaiian Electric Exhibit 4		Note Purchase and Guaranty Agreement among Hawaii Electric Light Company, Inc. and the Purchasers that are parties thereto, dated as of October 3, 2013 (refer to Part II, Item 5.B.)

Hawaiian Electric Exhibit 12.2		Hawaiian Electric Company, Inc. and Subsidiaries Computation of ratio of earnings to fixed charges, nine months ended September 30, 2013 and 2012 and years ended December 31, 2012, 2011, 2010, 2009 and 2008

Hawaiian Electric Exhibit 31.3		Certification Pursuant to Rule 13a-14 promulgated under the Securities Exchange Act of 1934 of Richard M. Rosenblum (Hawaiian Electric Chief Executive Officer)

Hawaiian Electric Exhibit 31.4		Certification Pursuant to Rule 13a-14 promulgated under the Securities Exchange Act of 1934 of Tayne S. Y. Sekimura (Hawaiian Electric Chief Financial Officer)

Hawaiian Electric Exhibit 32.2		Hawaiian Electric Certification Pursuant to 18 U.S.C. Section 1350

SIGNATURES

Pursuant to the requirements 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 signature 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/ Constance H. Lau	By	/s/ Richard M. Rosenblum
	Constance H. Lau		Richard M. Rosenblum
	President and Chief Executive Officer		President and Chief Executive Officer
	(Principal Executive Officer of HEI)		(Principal Executive Officer of Hawaiian Electric)


By	/s/ James A. Ajello	By	/s/ Tayne S. Y. Sekimura
	James A. Ajello		Tayne S. Y. Sekimura
	Executive Vice President and		Senior Vice President
	Chief Financial Officer		and Chief Financial Officer
	(Principal Financial and Accounting		(Principal Financial Officer of Hawaiian Electric)
	Officer of HEI)


Date: November 7, 2013		Date: November 7, 2013

Exhibit 4

HAWAIIAN ELECTRIC COMPANY, INC.

HAWAII ELECTRIC LIGHT COMPANY, INC.

$14,000,000 3.83% Senior Notes, Series 2013A, due July 1, 2020

$12,000,000 4.45% Senior Notes, Series 2013B, due December 1, 2022

$30,000,000 4.84% Senior Notes, Series 2013C, due October 1, 2027

______________

NOTE PURCHASE AND GUARANTY AGREEMENT

_____________

Dated as of October 3, 2013



	TABLE OF CONTENTS
SECTION		PAGE
SECTION 1.	AUTHORIZATION OF NOTES	1
SECTION 2.	SALE AND PURCHASE OF NOTES; GUARANTY	1
Section 2.1	Sale and Purchase of Notes	1
Section 2.2	Guaranty	2
SECTION 3.	CLOSING	2
SECTION 4.	CONDITIONS TO CLOSING	2
Section 4.1	Representations and Warranties	2
Section 4.2	Performance; No Default	2
Section 4.3	Compliance Certificates	3
Section 4.4	Opinions of Counsel	3
Section 4.5	Purchase Permitted by Applicable Law, Etc	3
Section 4.6	Sale of Other Notes	3
Section 4.7	Payment of Special Counsel Fees	4
Section 4.8	Private Placement Number	4
Section 4.9	Changes in Corporate Structure	4
Section 4.10	Funding Instructions	4
Section 4.11	Proceedings and Documents	4
SECTION 5.	REPRESENTATIONS AND WARRANTIES OF THE CONSTITUENT COMPANIES	4
Section 5.1	Organization; Power and Authority	4
Section 5.2	Authorization, Etc	5
Section 5.3	Disclosure	5
Section 5.4	Organization and Ownership of Shares of Subsidiaries; Affiliates	6
Section 5.5	Financial Statements; Material Liabilities	6
Section 5.6	Compliance with Laws, Other Instruments, Etc	7
Section 5.7	Governmental Authorizations, Etc	7
Section 5.8	Litigation; Observance of Agreements, Statutes and Orders	7
Section 5.9	Taxes	7
Section 5.10	Title to Property; Leases	8
Section 5.11	Licenses, Permits, Etc	8

- i -



	TABLE OF CONTENTS (continued)
SECTION		PAGE
Section 5.12	Compliance with ERISA	9
Section 5.13	Private Offering	9
Section 5.14	Use of Proceeds; Margin Regulations	10
Section 5.15	Existing Indebtedness; Future Liens	10
Section 5.16	Foreign Assets Control Regulations, Etc	11
Section 5.17	Status under Certain Statutes	12
Section 5.18	Environmental Matters	13
Section 5.19	Pari Passu Ranking	13
SECTION 6.	REPRESENTATIONS OF THE PURCHASERS	13
Section 6.1	Purchase for Investment	14
Section 6.2	Accredited Investor Status	14
Section 6.3	Source of Funds	14
SECTION 7.	INFORMATION AS TO THE CONSTITUENT COMPANIES	15
Section 7.1	Financial and Business Information	15
Section 7.2	Officer’s Certificate	19
Section 7.3	Visitation	20
SECTION 8.	PAYMENT AND PREPAYMENT OF THE NOTES	20
Section 8.1	Maturity	20
Section 8.2	Optional Prepayments with Make-Whole Amount	20
Section 8.3	Allocation of Partial Prepayments	21
Section 8.4	Maturity; Surrender, Etc	21
Section 8.5	Purchase of Notes	21
Section 8.6	Make-Whole Amount	21
Section 8.7	Offer to Prepay Notes in the Event of a Change in Control	23
Section 8.8	Offer to Prepay Upon Sale of Assets	24
SECTION 9.	AFFIRMATIVE COVENANTS	25
Section 9.1	Compliance with Laws	25
Section 9.2	Insurance	25
Section 9.3	Maintenance of Properties	26
Section 9.4	Payment of Taxes and Claims	26
Section 9.5	Corporate Existence, Etc	26

- ii -



	TABLE OF CONTENTS (continued)
SECTION		PAGE
Section 9.6	Books and Records	26
Section 9.7	Pari Passu Ranking	27
SECTION 10.	NEGATIVE COVENANTS	27
Section 10.1	Capitalization Ratio	27
Section 10.2	Consolidated Subsidiary Funded Debt to Capitalization Ratio	27
Section 10.3	Limitation on Liens	27
Section 10.4	Sale of Assets; Consolidation; Merger	30
Section 10.5	Limitation on Restrictive Agreements	32
Section 10.6	Transactions with Affiliates	33
Section 10.7	Line of Business	33
Section 10.8	Terrorism Sanctions Regulations	33
SECTION 11.	EVENTS OF DEFAULT	33
SECTION 12.	REMEDIES ON DEFAULT, ETC	36
Section 12.1	Acceleration	36
Section 12.2	Other Remedies	37
Section 12.3	Rescission	37
Section 12.4	No Waivers or Election of Remedies, Expenses, Etc	37
SECTION 13.	GUARANTY	37
Section 13.1	The Guaranty	37
Section 13.2	Waiver of Defenses	38
Section 13.3	Guaranty of Payment	38
Section 13.4	Guaranty Unconditional	38
Section 13.5	Reinstatement	38
Section 13.6	Payment on Demand	38
Section 13.7	Stay of Acceleration	39
Section 13.8	No Subrogation	39
Section 13.9	Marshalling	39
Section 13.10	Consideration	39
SECTION 14.	REGISTRATION; EXCHANGE; SUBSTITUTION OF NOTES; COMPANY’S AGENT	39
Section 14.1	Registration of Notes	39

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	TABLE OF CONTENTS (continued)
SECTION		PAGE
Section 14.2	Transfer and Exchange of Notes	40
Section 14.3	Replacement of Notes	40
Section 14.4	The Company’s Agent	41
SECTION 15.	PAYMENTS ON NOTES	41
Section 15.1	Place of Payment	41
Section 15.2	Home Office Payment	41
SECTION 16.	EXPENSES, ETC	42
Section 16.1	Transaction Expenses	42
Section 16.2	Survival	42
SECTION 17.	SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE AGREEMENT	42
SECTION 18.	AMENDMENT AND WAIVER	43
Section 18.1	Requirements	43
Section 18.2	Solicitation of Holders of Notes	43
Section 18.3	Binding Effect, Etc	44
Section 18.4	Notes Held by a Constituent Company, Etc	44
SECTION 19.	NOTICES	44
SECTION 20.	REPRODUCTION OF DOCUMENTS	46
SECTION 21.	CONFIDENTIAL INFORMATION	46
SECTION 22.	SUBSTITUTION OF PURCHASER	47
SECTION 23.	MISCELLANEOUS	48
Section 23.1	Successors and Assigns	48
Section 23.2	Payments Due on Non-Business Days	48
Section 23.3	Accounting Terms; Change in GAAP	48
Section 23.4	Severability	49
Section 23.5	Construction, Etc	49
Section 23.6	Counterparts	49
Section 23.7	Governing Law	49
Section 23.8	Jurisdiction and Process; Waiver of Jury Trial	49

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ATTACHMENTS TO NOTE PURCHASE AND GUARANTY AGREEMENT:

SCHEDULE A — Information Relating to Purchasers

SCHEDULE B — Defined Terms

SCHEDULE C — Consolidated Capitalization Illustration

SCHEDULE D — Consolidated Funded Debt Illustration

SCHEDULE E — Consolidated Subsidiary Funded Debt Illustration

SCHEDULE 5.3 — Disclosure Materials

SCHEDULE 5.4 — Subsidiaries of the Parent Guarantor and Ownership of Subsidiary Stock

SCHEDULE 5.5 — Financial Statements

SCHEDULE 5.7 — Governmental Authorizations

SCHEDULE 5.15 — Existing Indebtedness

SCHEDULE 5.17 — Status Under Certain Statutes

SCHEDULE 10.3 — Existing Liens

SCHEDULE 10.5 — Restrictive Agreements

SCHEDULE 10.6 — Affiliate Transactions

EXHIBIT 1(a) — Form of 3.83% Senior Note, Series 2013A, due July 1, 2020

EXHIBIT 1(b) — Form of 4.45% Senior Note, Series 2013B, due December 1, 2022

EXHIBIT 1(c) — Form of 4.84% Senior Note, Series 2013C, due October 1, 2027

EXHIBIT 4.4(a) — Form of Opinion of the Vice President-General Counsel of the Parent

Guarantor

EXHIBIT 4.4(b) — Form of Opinion of Special Counsel for the Constituent Companies

EXHIBIT 4.4(c) — Form of Opinion of Special Counsel to the Purchasers

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HAWAIIAN ELECTRIC COMPANY, INC.

HAWAII ELECTRIC LIGHT COMPANY, INC.

900 Richards Street

Honolulu, Hawaii 96813-2956

$14,000,000 3.83% Senior Notes, Series 2013A, due July 1, 2020

$12,000,000 4.45% Senior Notes, Series 2013B, due December 1, 2022

$30,000,000 4.84% Senior Notes, Series 2013C, due October 1, 2027

Dated as of October 3, 2013

TO EACH OF THE PURCHASERS
LISTED IN THE ATTACHED SCHEDULE A:

Ladies and Gentlemen:

HAWAII ELECTRIC LIGHT COMPANY, INC., a Hawaii corporation (together with any successor thereto that becomes a party hereto pursuant to Section 10.4, the “Company” ), and HAWAIIAN ELECTRIC COMPANY, INC., a Hawaii corporation (together with any successor thereto that becomes a party hereto pursuant to Section 10.4, the “Parent Guarantor,” and together with the Company, the “ Constituent Companies ” and, individually a “ Constituent Company ”), jointly and severally agree with each of the Purchasers as follows:

SECTION 1. AUTHORIZATION OF NOTES.

The Company has authorized the issue and sale of $56,000,000 aggregate principal amount of its Senior Notes consisting of (a) $14,000,000 aggregate principal amount of its 3.83% Senior Notes, Series 2013A, due July 1, 2020, (the “Series A Notes” ), (b) $12,000,000 aggregate principal amount of its 4.45% Senior Notes, Series 2013B, due December 1, 2022 (the “Series B Notes” ) and (c) $30,000,000 aggregate principal amount of its 4.84% Senior Notes, Series 2013C, due October 1, 2027 (the “Series C Notes” ). The Series A Notes, the Series B Notes and the Series C Notes are herein collectively referred to as the “Notes.” As used herein, the term “Notes” shall mean all notes (irrespective of series unless otherwise specified) originally delivered pursuant to this Agreement and any such notes issued in substitution therefor pursuant to Section 14. The Series A Notes, the Series B Notes and the Series C Notes shall be substantially in the forms set out in Exhibit 1(a), Exhibit 1(b) and Exhibit 1(c), respectively. Certain capitalized and other terms used in this Agreement are defined in Schedule B; and references to a “Schedule” or an “Exhibit” are, unless otherwise specified, to a Schedule or an Exhibit attached to this Agreement.

SECTION 2. SALE AND PURCHASE OF NOTES; GUARANTY.

Section 2.1 Sale and Purchase of Notes . Subject to the terms and conditions of this Agreement, the Company will issue and sell to each Purchaser, and each Purchaser will purchase from the Company, at the Closing provided for in Section 3, Notes of the series and in the

principal amount specified opposite such Purchaser’s name in Schedule A at the purchase price of 100% of the principal amount thereof. The Purchasers’ obligations hereunder are several, and not joint obligations, and no Purchaser shall have any liability to any Person for the performance or non-performance of any obligation by any other Purchaser hereunder.

Section 2.2 Guaranty . Pursuant to Section 13, the Parent Guarantor absolutely, unconditionally and irrevocably guarantees the Obligations of the Company.

SECTION 3. CLOSING.

The sale and purchase of the Notes to be purchased by each Purchaser shall occur at the offices of Schiff Hardin LLP, 666 Fifth Avenue, 17 ^th Floor, New York, New York 10103, commencing at 11:00 a.m. New York, New York time, at a closing (the “Closing” ) on October 3, 2013 or on such other Business Day thereafter as may be agreed upon by the Constituent Companies and the Purchasers. At the Closing, the Company will deliver to each Purchaser the Notes of each series to be purchased by such Purchaser in the form of a single Note of such series (or such greater number of Notes of such series in denominations of at least $100,000 as such Purchaser may request) dated the date of the Closing and registered in such Purchaser’s name (or in the name of its nominee), against delivery by such Purchaser to the Company or its order of immediately available funds in the amount of the purchase price therefor by wire transfer of immediately available funds for the account of the Company in accordance with the funding instructions described in Section 4.10. If at the Closing the Company shall fail to tender such Notes to any Purchaser as provided above in this Section 3, or any of the conditions specified in Section 4 shall not have been fulfilled to such Purchaser’s satisfaction, such Purchaser shall, at its election, be relieved of all further obligations under this Agreement, without thereby waiving any rights such Purchaser may have by reason of such failure or such nonfulfillment.

SECTION 4. CONDITIONS TO CLOSING.

Each Purchaser’s obligation to purchase and pay for the Notes to be sold to such Purchaser at the Closing is subject to the fulfillment to such Purchaser’s satisfaction, prior to or at the Closing, of the following conditions:

Section 4.1 Representations and Warranties. The representations and warranties of each Constituent Company in this Agreement shall be correct when made and at the time of the Closing (except to the extent that any of the representations and warranties expressly refer to an earlier time, in which case such representations and warranties shall be correct as of such earlier time).

Section 4.2 Performance; No Default. Each Constituent Company shall have performed and complied with all agreements and conditions contained in this Agreement required to be performed or complied with by it prior to or at the Closing. Before and after giving effect to the issue and sale of the Notes (and the application of the proceeds thereof as contemplated by Section 5.14), no Default or Event of Default shall have occurred and be continuing. Neither Constituent Company nor any Subsidiary shall have entered into any

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transaction since the date of the Memorandum that would have been prohibited by Section 10 had such Section applied since such date.

Section 4.3 Compliance Certificates .

(a) Officer’s Certificate. Each Constituent Company shall have delivered to such Purchaser an Officer’s Certificate, dated the date of the Closing, certifying that the conditions specified in Sections 4.1, 4.2 and 4.9 have been fulfilled.

(b) Secretary’s Certificate. Each Constituent Company shall have delivered to such Purchaser a certificate of its Secretary or Assistant Secretary, dated the date of the Closing, certifying as to (1) the resolutions attached thereto and any other corporate proceedings relating to the authorization, execution and delivery of this Agreement and, in the case of the Company, the Notes and (2) such Constituent Company’s organizational documents as then in effect.

Section 4.4 Opinions of Counsel. Such Purchaser shall have received opinions in form and substance satisfactory to such Purchaser, dated the date of the Closing (a) from Susan A. Li, Esq., Vice President-General Counsel of the Parent Guarantor covering the matters set forth in Exhibit 4.4(a) and covering such other matters incident to the transactions contemplated hereby as such Purchaser or special counsel to the Purchasers may reasonably request (and the Constituent Companies hereby instruct such counsel to deliver such opinion to such Purchaser), (b) from Goodsill Anderson Quinn & Stifel LLP, special counsel for the Constituent Companies, covering the matters set forth in Exhibit 4.4(b) and covering such other matters incident to the transactions contemplated hereby as such Purchaser or special counsel to the Purchasers may reasonably request (and the Constituent Companies hereby instruct such counsel to deliver such opinion to such Purchaser) and (c) from Schiff Hardin LLP, special counsel to the Purchasers in connection with such transactions, substantially in the form set forth in Exhibit 4.4(c) and covering such other matters incident to such transactions as such Purchaser may reasonably request.

Section 4.5 Purchase Permitted by Applicable Law, Etc. On the date of the Closing, such Purchaser’s purchase of Notes shall (a) be permitted by the laws and regulations of each jurisdiction to which such Purchaser is subject, without recourse to provisions (such as Section 1405(a)(8) of the New York Insurance Law) permitting limited investments by insurance companies without restriction as to the character of the particular investment, (b) not violate any applicable law or regulation (including, without limitation, Regulation T, U or X of the Board of Governors of the Federal Reserve System) and (c) not subject such Purchaser to any tax, penalty or liability under or pursuant to any applicable law or regulation, which law or regulation was not in effect on the date of this Agreement. If requested by any Purchaser, such Purchaser shall have received an Officer’s Certificate from the Parent Guarantor certifying as to such matters of fact as such Purchaser may reasonably specify to enable such Purchaser to determine whether such purchase is so permitted.

Section 4.6 Sale of Other Notes. Contemporaneously with the Closing, the Company shall sell to each other Purchaser, and each other Purchaser shall purchase, the Notes to be purchased by such Purchaser at the Closing as specified in Schedule A.

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Section 4.7 Payment of Special Counsel Fees. Without limiting the provisions of Section 16.1, the Company shall have paid on or before the Closing the reasonable fees, charges and disbursements of special counsel to the Purchasers referred to in Section 4.4(c) to the extent reflected in a statement of such counsel rendered to the Company at least two Business Days prior to the Closing.

Section 4.8 Private Placement Number. A Private Placement Number issued by Standard & Poor’s CUSIP Service Bureau (in cooperation with the SVO) shall have been obtained for each series of the Notes.

Section 4.9 Changes in Corporate Structure. Neither Constituent Company shall have changed its jurisdiction of incorporation or been a party to any merger or consolidation or succeeded to all or any substantial part of the liabilities of any other entity, at any time following the date of the most recent financial statements referred to in Schedule 5.5.

Section 4.10 Funding Instructions. At least three Business Days prior to the date of the Closing, each Purchaser shall have received written instructions signed by a Responsible Officer of the Company on letterhead of the Company directing the manner of payment of funds and setting forth (a) the name and address of the transferee bank, (b) such transferee bank’s ABA number, (c) the account name and number into which the purchase price for the Notes is to be deposited and (d) the name and telephone number of the Company representative responsible for verifying receipt of such funds by the transferee bank.

Section 4.11 Proceedings and Documents. All corporate and other proceedings in connection with the transactions contemplated by this Agreement and all documents and instruments incident to such transactions shall be satisfactory to such Purchaser and special counsel to the Purchasers, and such Purchaser and special counsel to the Purchasers shall have received all such counterpart originals or certified or other copies of such documents as such Purchaser or special counsel to the Purchasers may reasonably request.

SECTION 5. REPRESENTATIONS AND WARRANTIES OF THE CONSTITUENT COMPANIES.

Each Constituent Company represents and warrants to each Purchaser that:

Section 5.1 Organization; Power and Authority. Each Constituent Company is a corporation duly organized under the laws of the Republic of Hawaii (in the case of the Company) or the Kingdom of Hawaii (in the case of the Parent Guarantor) and is validly existing and in good standing under the laws of the State of Hawaii, and is duly qualified as a foreign corporation and is in good standing in each jurisdiction in which such qualification is required by law, other than those jurisdictions as to which the failure to be so qualified or in good standing would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. Each Constituent Company has the corporate power and authority to own or hold under lease the properties it purports to own or hold under lease, to transact the business it transacts and proposes to transact, to execute and deliver this Agreement and, in the case of the Company, the Notes and to perform its obligations under the provisions hereof and thereof.

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Section 5.2 Authorization, Etc.

(a) This Agreement and the Notes have been duly authorized by all necessary corporate action on the part of the Company, and this Agreement constitutes, and upon execution and delivery thereof against payment of the purchase price therefor, each Note will constitute, a legal, valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except as such enforceability may be limited by (a) applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforcement of creditors’ rights generally and (b) general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law).

(b) This Agreement has been duly authorized by all necessary corporate action on the part of the Parent Guarantor, and this Agreement constitutes the legal, valid and binding obligation of the Parent Guarantor enforceable against the Parent Guarantor in accordance with its terms, except as such enforceability may be limited by (a) applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforcement of creditors’ rights generally and (b) general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law).

Section 5.3 Disclosure. The Constituent Companies, through their agent, Merrill Lynch, Pierce, Fenner & Smith Incorporated, have delivered to each Purchaser a copy of a Confidential Private Placement Memorandum, dated August 29, 2013 (the “Memorandum” ), relating to the transactions contemplated hereby. The Memorandum fairly describes, in all material respects, the general nature of the business and principal properties of the Parent Guarantor and its Subsidiaries. This Agreement, the Memorandum (excluding information and market and industry data specifically identified as being from a third party source) and the documents, certificates or other writings delivered to the Purchasers by or on behalf of the Constituent Companies in connection with the transactions contemplated hereby and identified on Schedule 5.3 and the financial statements listed in Schedule 5.5 (this Agreement, the Memorandum and such documents, certificates or other writings and such financial statements delivered to each Purchaser prior to September 13, 2013 being referred to, collectively, as the “Disclosure Documents” ), taken as a whole, do not contain any untrue statement of a material fact or omit to state any material fact necessary to make the statements therein not misleading in light of the circumstances under which they were made; provided that, with respect to market and industry data, projected financial information and other forward-looking information, each Constituent Company represents and warrants only that such information was prepared in good faith based upon information and assumptions believed by it to be reasonable at the time. Except as disclosed in the Disclosure Documents (including the documents incorporated by reference therein), since December 31, 2012, there has been no change in the financial condition, operations, business or properties of the Parent Guarantor or any of its Subsidiaries except changes that, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect. There is no fact known to either Constituent Company that would reasonably be expected to have a Material Adverse Effect that has not been set forth herein or in the Disclosure Documents.

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Section 5.4 Organization and Ownership of Shares of Subsidiaries; Affiliates .

(a) Schedule 5.4 contains complete and correct lists (1) of the Parent Guarantor’s Subsidiaries, showing, as to each Subsidiary, the name thereof, the jurisdiction of its organization and the percentage of shares of each class of its capital stock or similar Equity Interests outstanding owned by the Parent Guarantor and each of its other Subsidiaries, (2) of the Parent Guarantor’s Affiliates, other than its Subsidiaries, and (3) of each Constituent Company’s directors and senior officers. On the date of the Closing, the only Significant Subsidiaries are the Company and MECO.

(b) All of the outstanding shares of capital stock or similar Equity Interests of each Subsidiary shown in Schedule 5.4 as being owned by the Parent Guarantor and its Subsidiaries have been validly issued, are fully paid and nonassessable and are owned by the Parent Guarantor or another of its Subsidiaries free and clear of any Lien.

(c) Each Subsidiary is a corporation or other legal entity duly organized, validly existing and, where applicable, in good standing under the laws of its jurisdiction of organization, and is duly qualified as a foreign corporation or other legal entity and, where applicable, is in good standing in each jurisdiction in which such qualification is required by law, other than those jurisdictions as to which the failure to be so qualified or in good standing would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. Each Subsidiary has the corporate or other power and authority to own or hold under lease the properties it purports to own or hold under lease and to transact the business it transacts and proposes to transact.

(d) No Significant Subsidiary is a party to, or otherwise subject to any legal, regulatory, contractual or other restriction (other than the agreements listed on Schedule 10.5, the regulatory authority of the Hawaii Public Utilities Commission and customary limitations imposed by corporate law or similar statutes) restricting the ability of such Significant Subsidiary to pay dividends out of profits or make any other similar distributions of profits to the Parent Guarantor or any of its Significant Subsidiaries that owns outstanding shares of capital stock or similar Equity Interests of such Significant Subsidiary.

Section 5.5 Financial Statements; Material Liabilities. The Constituent Companies have delivered to each Purchaser copies of the consolidated financial statements of the Parent Guarantor and its Subsidiaries listed on Schedule 5.5. All of said financial statements (including, in each case, any related schedules and notes) fairly present in all material respects the consolidated financial position of the Parent Guarantor and its Subsidiaries as of the respective dates specified in such Schedule and the consolidated results of their operations and cash flows for the respective periods so specified and have been prepared in accordance with GAAP consistently applied throughout the periods involved except as set forth in the notes thereto (subject, in the case of any interim financial statements, to the absence of complete notes and to normal year-end adjustments). The Parent Guarantor and its Subsidiaries do not have any Material liabilities that are not disclosed on or expressly reserved for in such financial statements or otherwise disclosed in the Disclosure Documents.

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Section 5.6 Compliance with Laws, Other Instruments, Etc. The execution, delivery and performance (a) by the Company of this Agreement and the Notes and (b) by the Parent Guarantor of this Agreement will not (1) contravene, result in any breach of, or constitute a default under, or result in the creation of any Lien in respect of any property of the Parent Guarantor or any of its Significant Subsidiaries under, any indenture, mortgage, deed of trust, loan, purchase or credit agreement, lease, corporate charter or by-laws, shareholders agreement or any other material agreement or instrument to which the Parent Guarantor or any of its Significant Subsidiaries is bound or by which the Parent Guarantor or any of its Significant Subsidiaries or any of their respective properties may be bound or affected, (2) conflict with or result in a breach of any of the terms, conditions or provisions of any order, judgment, decree, or ruling of any court, arbitrator or Governmental Authority applicable to the Parent Guarantor or any of its Significant Subsidiaries or (3) violate any provision of any statute or other rule or regulation of any Governmental Authority applicable to the Parent Guarantor or any of its Significant Subsidiaries.

Section 5.7 Governmental Authorizations, Etc. Subject to the accuracy of the representations and warranties of the Purchasers in Section 6, no consent, approval or authorization of, or registration, filing or declaration with, any Governmental Authority is required to be obtained or made by (a) the Company in connection with the execution, delivery or performance by the Company of this Agreement or the Notes or (b) the Parent Guarantor in connection with the execution, delivery or performance by the Parent Guarantor of this Agreement except as set forth in Schedule 5.7 and except for the filing of a Form 8-K and a Form D with the SEC and any necessary Blue Sky filings. On the date of the Closing, each item listed on Schedule 5.7 shall have been duly obtained, will be final and in full force and effect and will not be subject to appeal or any condition which has not been satisfied.

Section 5.8 Litigation; Observance of Agreements, Statutes and Orders .

(a) There are no actions, suits, investigations or proceedings pending or, to the Knowledge of either Constituent Company, threatened against the Parent Guarantor or any of its Significant Subsidiaries or any property of the Parent Guarantor or any of its Significant Subsidiaries in any court or before any arbitrator of any kind or before or by any Governmental Authority that, individually or in the aggregate, would reasonably be expected to have a Material Adverse Effect.

(b) Neither the Parent Guarantor nor any of its Significant Subsidiaries is (1) in default under any term of any agreement or instrument to which it is a party or by which it is bound, (2) in violation of any order, judgment, decree or ruling of any court, arbitrator or Governmental Authority or (3) in violation of any applicable law, ordinance, rule or regulation of any Governmental Authority (including, without limitation, Environmental Laws, ERISA, the USA PATRIOT Act or any of the other laws and regulations that are referred to in Section 5.16), which default or violation, individually or in the aggregate, would reasonably be expected to have a Material Adverse Effect.

Section 5.9 Taxes. The Parent Guarantor and its Significant Subsidiaries have filed all income and other material tax returns that are required to have been filed in any jurisdiction, and have paid all taxes shown to be due and payable on such returns and all other taxes and

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assessments levied upon them or their properties, assets, income or franchises, to the extent such taxes and assessments have become due and payable and before they have become delinquent, except for any taxes and assessments (a) the amount of which is not, individually or in the aggregate, Material or (b) the amount, applicability or validity of which is currently being contested in good faith by appropriate actions or proceedings and with respect to which the Parent Guarantor or one of its Significant Subsidiaries, as the case may be, has established adequate reserves in accordance with GAAP. Neither Constituent Company knows of no basis for any other tax or assessment that would, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. The charges, accruals and reserves on the books of the Parent Guarantor and its Significant Subsidiaries in respect of U.S. federal, state or other taxes for all fiscal periods are adequate. The U.S. federal income tax liabilities of the Parent Guarantor and its Significant Subsidiaries have been finally determined (whether by reason of completed audits or the statute of limitations having run) for all fiscal years up to and including the fiscal year ended December 31, 2009.

Section 5.10 Title to Property; Leases. The Parent Guarantor and its Significant Subsidiaries have good and sufficient title or valid leasehold interests to their respective properties owned or leased by them that, individually or in the aggregate, are Material, including all such properties reflected in the most recent audited balance sheet referred to in Section 5.5 or purported to have been acquired by the Parent Guarantor or any of its Significant Subsidiaries after said date (except as sold or otherwise disposed of in the ordinary course of business), in each case free and clear of Liens other than Permitted Liens. All leases to which the Parent Guarantor or any of its Significant Subsidiaries is a party that, individually or in the aggregate, are Material are valid and are in full force and effect in all material respects.

Section 5.11 Licenses, Permits, Etc .

(a) The Parent Guarantor and its Significant Subsidiaries own or possess all licenses, permits, franchises, authorizations, patents, copyrights, proprietary software, service marks, trademarks, trade names and domain names or rights thereto, without known conflict with the rights of others, except where the failure to own or possess the same would not reasonably be expected to result in a Material Adverse Effect.

(b) To the Knowledge of each Constituent Company, no product or service of the Parent Guarantor or any of its Significant Subsidiaries infringes in any material respect any license, permit, franchise, authorization, patent, copyright, proprietary software, service mark, trademark, trade name, domain name or other right owned by any other Person.

(c) To the Knowledge of each Constituent Company, there is no violation by any Person of any right of the Parent Guarantor or any of its Significant Subsidiaries with respect to any license, permit, franchise, authorization, patent, copyright, proprietary software, service mark, trademark, trade name, domain name or other right owned or used by the Parent Guarantor or any of its Significant Subsidiaries, except for such violations that would not reasonably be expected to result in a Material Adverse Effect.

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Section 5.12 Compliance with ERISA .

(a) The Parent Guarantor and each ERISA Affiliate have operated and administered each Plan and Benefit Plan in compliance with ERISA and all other applicable laws, regulations and guidance except for such instances of noncompliance as have not resulted in and would not reasonably be expected, either individually or in the aggregate, to result in a Material Adverse Effect. No ERISA Event has occurred that when taken together with all other such ERISA Events for which liability is reasonably expected to occur would reasonably be expected to result in a Material Adverse Effect.

(b) The adjusted funding target attainment percentage under each of the Plans as of the end of such Plan’s most recently ended plan year, as determined by the Plans’ enrolled actuary pursuant to Section 436 of the Code and applicable regulations, is not less than 70% and the accumulated benefit obligations of the Plans, determined on the basis of the actuarial assumptions utilized for purposes of the Parent Guarantor’s most recent audited financial statements, did not exceed the aggregate current value of the assets of such Plans by more than 45%.

(c) The Parent Guarantor, its Subsidiaries and their ERISA Affiliates have never participated in, contributed to, or had any liability or obligation with respect to a Multiemployer Plan.

(d) The accumulated postretirement benefit obligation (determined as of the last day of the Parent Guarantor’s most recently ended fiscal year in accordance with Accounting Standards Codification Topic 715-60, without regard to liabilities attributable to continuation coverage mandated by Section 4980B of the Code) of the Parent Guarantor and its Subsidiaries did not exceed the aggregate current value of the assets that fund such obligation, as reported on the Parent Guarantor’s most recent audited consolidated financial statements, by more than 40%.

(e) The execution and delivery of this Agreement and the issuance and sale of the Notes hereunder will not involve any transaction that is subject to the prohibitions of Section 406 of ERISA or in connection with which a tax could be imposed pursuant to Section 4975(c)(1)(A)-(D) of the Code. The representations by each Constituent Company to each Purchaser in the first sentence of this Section 5.12(e) is made in reliance upon and subject to the accuracy of such Purchaser’s representation in Section 6.3 as to the sources of the funds used to pay the purchase price of the Notes to be purchased by such Purchaser.

Section 5.13 Private Offering. Neither Constituent Company nor anyone acting on their behalf has offered, during a period of at least six months prior to the date of such offer, the Notes, the Guaranty provided in Section 13 or any similar Securities for sale to, or solicited any offer to buy any of the same from, or otherwise approached or negotiated in respect thereof with, any Person other than the Purchasers and not more than 55 other Institutional Investors of the type described in clause (c) of the definition thereof, each of which has been offered the Notes and the Guaranty provided in Section 13 at a private sale for investment. Neither Constituent Company nor anyone acting on their behalf has taken, or will take, any action that would subject

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the issuance or sale of the Notes and the delivery of the Guaranty provided in Section 13 to the registration requirements of Section 5 of the Securities Act or to the registration requirements of any securities or blue sky laws of any applicable jurisdiction.

Section 5.14 Use of Proceeds; Margin Regulations. The Company will apply the proceeds of the sale of the Notes to redeem, prior to their stated maturity, the loans to the Company of the proceeds of three series of special purpose revenue bonds issued by the Department of Budget and Finance of the State of Hawaii for the benefit of the Company, including the repayment of short-term borrowings incurred for that purpose. No part of the proceeds from the sale of the Notes hereunder will be used, directly or indirectly, for the purpose of buying or carrying any margin stock within the meaning of Regulation U of the Board of Governors of the Federal Reserve System (12 CFR 221), or for the purpose of buying or carrying or trading in any Securities under such circumstances as to involve the Company in a violation of Regulation X of said Board (12 CFR 224) or to involve any broker or dealer in a violation of Regulation T of said Board (12 CFR 220). Margin stock does not constitute more than 25% of the value of the consolidated assets of the Company and its Subsidiaries and the Company does not have any present intention that margin stock will constitute more than 25% of the value of such assets. As used in this Section, the terms “margin stock” and “purpose of buying or carrying” shall have the meanings assigned to them in said Regulation U.

Section 5.15 Existing Indebtedness; Future Liens .

(a) Schedule 5.15 sets forth a complete and correct list of all outstanding Indebtedness of the Parent Guarantor and its Subsidiaries as of June 30, 2013 (including descriptions of the obligors and obligees, principal amount outstanding, any collateral therefor and any Guarantees thereof), since which date there has been no Material change in the amounts, interest rates, sinking funds, installment payments or maturities of the Indebtedness of the Parent Guarantor or its Subsidiaries. Neither the Parent Guarantor nor any of its Significant Subsidiaries is in default and no waiver of default is currently in effect, in the payment of any principal or interest on any Indebtedness of the Parent Guarantor or such Significant Subsidiary and no event or condition exists with respect to any Indebtedness of the Parent Guarantor or any Significant Subsidiary that would permit (or that with notice or the lapse of time, or both, would permit) one or more Persons to cause such Indebtedness to become due and payable before its stated maturity or before its regularly scheduled dates of payment.

(b) Neither the Parent Guarantor nor any of its Significant Subsidiaries has agreed or consented to cause or permit any of its property, whether now owned or hereinafter acquired, to be subject to a Lien that secures Indebtedness or to cause or permit in the future (upon the happening of a contingency or otherwise) any of its property, whether now owned or hereafter acquired, to be subject to a Lien other than a Permitted Lien.

(c) Neither the Parent Guarantor nor any of its Subsidiaries is a party to, or otherwise subject to any provision contained in, any instrument evidencing Indebtedness of the Parent Guarantor or such Subsidiary, any agreement relating thereto or any other agreement (including, but not limited to, its charter or other organizational document)

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which limits the amount of, or otherwise imposes restrictions on the incurring of, Indebtedness of the Company or the Parent Guarantor, except as disclosed in Schedule 5.15.

Section 5.16 Foreign Assets Control Regulations, Etc .

(a) None of the Parent Guarantor, any of its Controlled Entities or, to the Parent Guarantor’s Knowledge, HEI is (1) a Person whose name appears on the list of Specially Designated Nationals and Blocked Persons published by the Office of Foreign Assets Control, United States Department of the Treasury ( “OFAC” ) (an “OFAC Listed Person” ), (2) an agent, department, or instrumentality of, or is otherwise beneficially owned by, controlled by or acting on behalf of, directly or indirectly, (i) any OFAC Listed Person or (ii) any Person, entity, organization, foreign country or regime that is subject to any OFAC Sanctions Program, or (3) otherwise blocked, subject to sanctions under or engaged in any activity in violation of other United States economic sanctions, including but not limited to, the Trading with the Enemy Act, the International Emergency Economic Powers Act, CISADA or any similar law or regulation with respect to Iran or any other country, the Sudan Accountability and Divestment Act, any OFAC Sanctions Program, or any economic sanctions regulations administered and enforced by the United States or any enabling legislation or executive order relating to any of the foregoing (collectively, “U.S. Economic Sanctions” ) (each OFAC Listed Person and each other Person, entity, organization and government of a country described in clause (1), clause (2) or clause (3), a “Blocked Person” ). None of the Parent Guarantor, any Controlled Entity or, to the Parent Guarantor’s Knowledge, HEI has been notified that its name appears or may in the future appear on a state list of Persons that engage in investment or other commercial activities in Iran or any other country that is subject to U.S. Economic Sanctions.

(b) No part of the proceeds from the sale of the Notes hereunder constitutes or will constitute funds obtained on behalf of any Blocked Person or will otherwise be used by the Company, any Controlled Entity of the Parent Guarantor or HEI, directly or indirectly, (1) in connection with any investment in, or any transactions or dealings with, any Blocked Person, or (2) otherwise in violation of U.S. Economic Sanctions.

(c) None of the Parent Guarantor, any Controlled Entity or, to the Parent Guarantor’s Knowledge, HEI (1) has been found in violation of, charged with, or convicted of, money laundering, drug trafficking, terrorist-related activities or other money laundering predicate crimes under the Currency and Foreign Transactions Reporting Act of 1970 (otherwise known as the Bank Secrecy Act), the USA PATRIOT Act or any other United States law or regulation governing such activities (collectively, “Anti-Money Laundering Laws”) or any U.S. Economic Sanctions violations, (2) to the Parent Guarantor’s Knowledge, is under investigation by any Governmental Authority for possible violation of Anti-Money Laundering Laws or any U.S. Economic Sanctions violations, (3) has been assessed civil penalties under any Anti-Money Laundering Laws or any U.S. Economic Sanctions, or (4) has had any of its funds seized or forfeited in an action under any Anti-Money Laundering Laws. The Parent Guarantor has established procedures and controls which it reasonably believes are adequate (and otherwise comply

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with applicable law) to ensure that the Parent Guarantor and each Controlled Entity is and will continue to be in compliance with all applicable current and future Anti-Money Laundering Laws and U.S. Economic Sanctions.

(d) (1) None of the Parent Guarantor, any Controlled Entity or, to the Parent Guarantor’s Knowledge, HEI (i) has been charged with, or convicted of bribery or any other anti-corruption related activity under any applicable law or regulation in a U.S. or any non-U.S. country or jurisdiction, including but not limited to, the U.S. Foreign Corrupt Practices Act and the U.K. Bribery Act 2010 (collectively, “Anti-Corruption Laws” ), (ii) to the Parent Guarantor’s Knowledge, is under investigation by any U.S. or non-U.S. Governmental Authority for possible violation of Anti-Corruption Laws, (3) has been assessed civil or criminal penalties under any Anti-Corruption Laws or (4) has been or is the target of sanctions imposed by the United Nations or the European Union;

(2) To the Parent Guarantor’s Knowledge, none of the Parent Guarantor, any Controlled Entity or HEI has, within the last five years, directly or indirectly offered, promised, given, paid or authorized the offer, promise, giving or payment of anything of value to a Governmental Official or a commercial counterparty for the purposes of: (i) influencing any act, decision or failure to act by such Governmental Official in his or her official capacity or such commercial counterparty, (ii) inducing a Governmental Official to do or omit to do any act in violation of the Governmental Official’s lawful duty, or (iii) inducing a Governmental Official or a commercial counterparty to use his or her influence with a government or instrumentality to affect any act or decision of such government or entity; in each case in order to obtain, retain or direct business or to otherwise secure an improper advantage in violation of any applicable law or regulation or which would cause any holder to be in violation of any law or regulation applicable to such holder; and

(3) No part of the proceeds from the sale of the Notes hereunder will be used, directly or indirectly, for any improper payments, including bribes, to any Governmental Official or commercial counterparty in order to obtain, retain or direct business or obtain any improper advantage. The Parent Guarantor has established procedures and controls which it reasonably believes are adequate (and otherwise comply with applicable law) to ensure that the Parent Guarantor and each Controlled Entity is and will continue to be in compliance with all applicable current and future Anti-Corruption Laws.

Section 5.17 Status under Certain Statutes. Neither the Parent Guarantor nor any of its Subsidiaries is subject to regulation under the Investment Company Act of 1940, as amended, or the ICC Termination Act of 1995, as amended, or, except as set forth in Schedule 5.17, either the Public Utility Holding Company Act of 2005, as amended, or the Federal Power Act, as amended.

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Section 5.18 Environmental Matters .

(a) Neither Constituent Company nor any Significant Subsidiary has Knowledge of any claim or has received any notice of any claim, and no proceeding has been instituted asserting any claim against the Parent Guarantor or any of its Significant Subsidiaries or any of their respective real properties or other assets now or formerly owned, leased or operated by any of them, alleging any damage to the environment or violation of any Environmental Laws, except, in each case, such as would not, individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect.

(b) Neither Constituent Company nor any Significant Subsidiary has Knowledge of any facts which would give rise to any claim, public or private, of violation of Environmental Laws or damage to the environment emanating from, occurring on or in any way related to real properties now or formerly owned, leased or operated by any of them or to other assets or their use, except, in each case, such as would not, individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect.

(c) Neither the Parent Guarantor nor any of its Significant Subsidiaries has stored any Hazardous Materials on real properties now or formerly owned, leased or operated by any of them in a manner which is contrary to any Environmental Law that would, individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect.

(d) Neither the Parent Guarantor nor any of its Significant Subsidiaries has disposed of any Hazardous Materials in a manner which is contrary to any Environmental Law that would, individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect.

(e) All buildings on all real properties now owned, leased or operated by the Parent Guarantor or any of its Significant Subsidiaries are in compliance with applicable Environmental Laws, except where failure to comply would not, individually or in the aggregate reasonably be expected to result in a Material Adverse Effect.

Section 5.19 Pari Passu Ranking.

(a) The obligations of the Company under this Agreement and the Notes rank at least pari passu in right of payment with all other unsecured senior Indebtedness (actual or contingent) of the Company, including, without limitation, all unsecured senior Indebtedness of the Company described in Schedule 5.15.

(b) The obligations of the Parent Guarantor under this Agreement rank at least pari passu in right of payment with all other unsecured senior Indebtedness (actual or contingent) of the Parent Guarantor, including, without limitation, all unsecured senior Indebtedness of the Parent Guarantor described in Schedule 5.15.

SECTION 6. REPRESENTATIONS OF THE PURCHASERS.

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Section 6.1 Purchase for Investment. Each Purchaser severally represents that it is purchasing the Notes for its own account or for one or more separate accounts maintained by such Purchaser or for the account of one or more pension or trust funds and not as an agent or nominee for any other Person and not with a view to the distribution or public offering thereof, provided that the disposition of such Purchaser’s or such pension or trust fund’s property shall at all times be within such Purchaser’s or such pension or trust fund’s control. Each Purchaser understands that the Notes have not been registered under the Securities Act and may be resold only if registered pursuant to the provisions of the Securities Act or if an exemption from registration is available, except under circumstances where neither such registration nor such an exemption is required by law, and that the Company is not required to register the Notes.

Section 6.2 Accredited Investor Status. Each Purchaser severally represents that it is an Accredited Investor and has had an opportunity to ask questions of the Constituent Companies and receive answers concerning the Parent Guarantor and its Subsidiaries and the terms and conditions of the sale of the Notes.

Section 6.3 Source of Funds. Each Purchaser severally represents that at least one of the following statements is an accurate representation as to each source of funds (a “Source” ) to be used by such Purchaser to pay the purchase price of the Notes to be purchased by such Purchaser hereunder:

(a) the Source is an “insurance company general account” (as the term is defined in the United States Department of Labor’s Prohibited Transaction Exemption ( “PTE” ) 95-60) in respect of which the reserves and liabilities (as defined by the annual statement for life insurance companies approved by the NAIC (the “NAIC Annual Statement” )) for the general account contract(s) held by or on behalf of any employee benefit plan together with the amount of the reserves and liabilities for the general account contract(s) held by or on behalf of any other employee benefit plans maintained by the same employer (or affiliate thereof as defined in PTE 95-60) or by the same employee organization in the general account do not exceed 10% of the total reserves and liabilities of the general account (exclusive of separate account liabilities) plus surplus as set forth in the NAIC Annual Statement filed with such Purchaser’s state of domicile; or

(b) the Source is a separate account that is maintained solely in connection with such Purchaser’s fixed contractual obligations under which the amounts payable, or credited, to any employee benefit plan (or its related trust) that has any interest in such separate account (or to any participant or beneficiary of such plan (including any annuitant)) are not affected in any manner by the investment performance of the separate account; or

(c) the Source is either (1) an insurance company pooled separate account, within the meaning of PTE 90-1 or (2) a bank collective investment fund, within the meaning of the PTE 91-38 and, except as disclosed by such Purchaser to the Company in writing pursuant to this clause (c), no employee benefit plan or group of plans maintained by the same employer or employee organization beneficially owns more than 10% of all assets allocated to such pooled separate account or collective investment fund; or

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(d) the Source constitutes assets of an “investment fund” (within the meaning of Part VI of PTE 84-14 (the “QPAM Exemption” )) managed by a “qualified professional asset manager” or “QPAM” (within the meaning of Part VI of the QPAM Exemption), no employee benefit plan’s assets that are managed by the QPAM in such investment fund, when combined with the assets of all other employee benefit plans established or maintained by the same employer or by an affiliate (within the meaning of Part VI(c)(1) of the QPAM Exemption) of such employer or by the same employee organization and managed by such QPAM, represent more than 20% of the total client assets managed by such QPAM, the conditions of Part I(c) and (g) of the QPAM Exemption are satisfied, neither the QPAM nor a Person controlling or controlled by the QPAM maintains an ownership interest in the Company that would cause the QPAM and the Company to be “related” within the meaning of Part VI(h) of the QPAM Exemption and (1) the identity of such QPAM and (2) the names of any employee benefit plans whose assets in the investment fund, when combined with the assets of all other employee benefit plans established or maintained by the same employer or by an affiliate (within the meaning of Part VI(c)(1) of the QPAM Exemption) of such employer or by the same employee organization, represent 10% or more of the assets of such investment fund, have been disclosed to the Company in writing pursuant to this clause (d); or

(e) the Source constitutes assets of a “plan(s)” (within the meaning of Part IV(h) of PTE 96-23 (the “INHAM Exemption” )) managed by an “in-house asset manager” or “INHAM” (within the meaning of Part IV(a) of the INHAM Exemption), the conditions of Part I(a), (g) and (h) of the INHAM Exemption are satisfied, neither the INHAM nor a Person controlling or controlled by the INHAM (applying the definition of “control” in Part IV(d)(3) of the INHAM Exemption) owns a 10% or more interest in the Company and (1) the identity of such INHAM and (2) the name(s) of the employee benefit plan(s) whose assets constitute the Source have been disclosed to the Company in writing pursuant to this clause (e); or

(f) the Source is a governmental plan; or

(g) the Source is one or more employee benefit plans, or a separate account or trust fund comprised of one or more employee benefit plans, each of which has been identified to the Company in writing pursuant to this clause (g); or

(h) the Source does not include assets of any employee benefit plan, other than a plan exempt from the coverage of ERISA.

As used in this Section 6.3, the terms “employee benefit plan,” “governmental plan” and “separate account” shall have the respective meanings assigned to such terms in Section 3 of ERISA.

SECTION 7. INFORMATION AS TO THE CONSTITUENT COMPANIES.

Section 7.1 Financial and Business Information . The Constituent Companies shall deliver to each holder of a Note that is an Institutional Investor:

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(a) Quarterly Statements — within 60 days after the end of each quarterly fiscal period in each fiscal year of the Parent Guarantor (other than the last quarterly fiscal period of each such fiscal year), duplicate copies of,

(1) a consolidated and consolidating balance sheet of the Parent Guarantor and its Subsidiaries as at the end of such quarter, and

(2) consolidated and consolidating statements of income, cash flows and retained earnings of the Parent Guarantor and its Subsidiaries for such quarter and (in the case of the second and third quarters) for the portion of the fiscal year ending with such quarter,

setting forth (in the case of the consolidated financial statements, in comparative form) the figures for the corresponding period or periods of (or, in the case of the balance sheet, as of the end of), the previous fiscal year, all in reasonable detail, prepared in accordance with GAAP applicable to quarterly financial statements generally, and certified by a Senior Financial Officer of the Parent Guarantor as fairly presenting, in all material respects, the financial position of the companies being reported on and their results of operations and cash flows, subject to changes resulting from year-end audit adjustments and the absence of notes; provided , that delivery within the time periods specified above of copies of the Parent Guarantor’s Quarterly Report on Form 10-Q or applicable successor form ( “Form 10-Q” ) for such fiscal quarter, prepared in accordance with the SEC’s requirements therefor, containing the consolidated and consolidating financial statements described above and filed with the SEC, shall be deemed to satisfy the requirements of this Section 7.1(a); provided, further , that the Constituent Companies shall be deemed to have made such delivery of such Form 10-Q if such Form 10-Q shall have been made available for free within the time period specified above on the SEC’s EDGAR system (or any successor system adopted by the SEC) and shall have provided notification of the availability thereof to such holder;

(b) Annual Statements — within 120 days after the end of each fiscal year of the Parent Guarantor, duplicate copies of,

(1) a consolidated and consolidating balance sheet of the Parent Guarantor and its Subsidiaries, as at the end of such year, and

(2) consolidated and consolidating statements of income, cash flows and retained earnings of the Parent Guarantor and its Subsidiaries, for such year,

setting forth (in the case of the consolidated financial statements, in comparative form) the figures for the previous fiscal year, all in reasonable detail, prepared in accordance with GAAP, and accompanied by an opinion thereon (without a “going concern” or similar qualification or exception and without any qualification or exception as to the scope of the audit on which such opinion is based) of independent public accountants of recognized regional or national standing or any other independent public accountants reasonably acceptable to the Required Holders, which opinion shall state that such

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consolidated financial statements present fairly, in all material respects, the financial position of the companies being reported upon and their results of operations and cash flows and have been prepared in conformity with GAAP, and that the examination of such accountants in connection with such financial statements has been made in accordance with generally accepted auditing standards, and that such audit provides a reasonable basis for such opinion in the circumstances; provided , that delivery within the time period specified above of copies of the Parent Guarantor’s Annual Report on Form 10-K or applicable successor form ( “Form 10-K” ) for such fiscal year (together with the Parent Guarantor’s annual report to shareholders, if any, prepared pursuant to Rule 14a-3 under the Exchange Act), prepared in accordance with the SEC’s requirements therefor, containing the consolidated and consolidating financial statements described above and filed with the SEC, shall be deemed to satisfy the requirements of this Section 7.1(b); provided, further , that the Constituent Companies shall be deemed to have made such delivery of such Form 10-K if such Form 10-K shall have been made available for free within the time period specified above on the SEC’s EDGAR system (or any successor system adopted by the SEC) and shall have provided notification of the availability thereof to such holder;

(c) SEC and Other Reports — promptly, and in any event within seven Business Days after they become available, one copy of (1) each financial statement, report, notice or proxy statement sent by the Parent Guarantor or any of its Significant Subsidiaries to its principal lending banks as a whole (excluding information sent to such banks in the ordinary course of administration of a bank facility, such as information relating to pricing and borrowing availability) or to its public Securities holders generally and (2) each current or periodic report, each registration statement (without exhibits except as expressly requested by such Purchaser or holder), and each prospectus and all amendments thereto filed by the Parent Guarantor or any of its Significant Subsidiaries with the SEC; provided , that the Constituent Companies shall be deemed to have made delivery of the foregoing items under both clauses (1) and (2) if such item shall have been made available for free on the SEC’s EDGAR system (or any successor system adopted by the SEC) and shall have provided notification of the availability thereof to such holder;

(d) Notice of Default or Event of Default — promptly, and in any event within seven days after a Responsible Officer of a Constituent Company becomes aware of the existence of any Default or Event of Default or that any Person has given any notice or taken any action with respect to a claimed default hereunder or that any Person has given any notice or taken any action with respect to a claimed default of the type referred to in Section 11(f), a written notice specifying the nature and period of existence thereof and what action the Constituent Companies are taking or propose to take with respect thereto;

(e) ERISA Matters — promptly, and in any event within seven days after a Responsible Officer of a Constituent Company becomes aware of any of the following, a written notice setting forth the nature thereof and the action, if any, that the Parent Guarantor or an ERISA Affiliate proposes to take with respect thereto:

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(1) with respect to any Plan, any reportable event, as defined in Section 4043(c) of ERISA and the regulations thereunder, for which notice thereof has not been waived pursuant to such regulations as in effect on the date thereof; or

(2) the taking by the PBGC of steps to institute, or the threatening by the PBGC of the institution of, proceedings under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Plan, or the receipt by the Parent Guarantor or any ERISA Affiliate of a notice from a Multiemployer Plan that such action has been taken by the PBGC with respect to such Multiemployer Plan; or

(3) any event, transaction or condition that could result in the incurrence of any liability by the Parent Guarantor or any ERISA Affiliate pursuant to Title I or IV of ERISA or the penalty or excise tax provisions of the Code relating to employee benefit plans, or in the imposition of any Lien other than a Permitted Lien on any of the rights, properties or assets of the Parent Guarantor or any ERISA Affiliate pursuant to Title I or IV of ERISA or such penalty or excise tax provisions, if such liability or Lien, taken together with any other such liabilities or Liens then existing, would reasonably be expected to have a Material Adverse Effect;

(f) Notices from Governmental Authority — promptly, and in any event within 30 days of receipt thereof, copies of any notice to the Parent Guarantor or any of its Subsidiaries from any federal or state Governmental Authority relating to any order, ruling, statute or other law or regulation that would reasonably be expected to have a Material Adverse Effect provided , that the Constituent Companies shall be deemed to have made delivery of any notice of any such item if such item shall have been reported in a current or periodic report filed with the SEC and made available for free on the SEC’s EDGAR system (or any successor system adopted by the SEC) and the Company or the Parent Guarantor shall have provided notification of the availability thereof to such holder;

(g) Resignation or Replacement of Independent Auditors — within 10 days following the date on which the Parent Guarantor’s independent auditors resign or the Parent Guarantor elects to change independent auditors, as the case may be, notification thereof, together with such supporting information as the Required Holders may request; provided , that delivery of a copy of a Current Report of the Parent Guarantor on Form 8-K or applicable successor form ( “Form 8-K” ) reporting such resignation or change of independent auditors, prepared in accordance with the SEC’s requirements therefor and filed with the SEC, shall be deemed to satisfy the requirements of this Section 7.1(g); provided , further , that the Constituent Companies shall be deemed to have made such delivery of such Form 8-K if the Parent Guarantor shall have made such Form 8-K available for free within the time period specified above on the SEC’s EDGAR system (or any successor system adopted by the SEC) and shall have provided notification of the availability thereof to such holder; and

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(h) Requested Information — with reasonable promptness, such other data and information relating to the business, operations, affairs, financial condition, assets or properties of the Parent Guarantor or any of its Subsidiaries or relating to the ability of a Constituent Company to perform its obligations hereunder and, in the case of the Company, under the Notes as from time to time may be reasonably requested by any such holder of a Note.

Section 7.2 Officer’s Certificate. Each set of financial statements delivered to a holder of a Note that is an Institutional Investor pursuant to Section 7.1(a) or Section 7.1(b) shall be accompanied by a certificate of a Senior Financial Officer of each Constituent Company (which, in the case of a deemed delivery through a filing with the SEC, as permitted by Section 7.1(a) or Section 7.1(b), shall be by separate concurrent delivery of such certificate to each holder of a Note that is an Institutional Investor):

(a) Covenant Compliance — setting forth the information that is required in order to establish whether the Constituent Companies were in compliance with the requirements of Section 10.1, Section 10.2 and Section 10.4 during the quarterly or annual period covered by the statements then being furnished (including with respect to each such Section that involves mathematical calculations, the information from such financial statements and other records of the Constituent Companies that is required to perform such calculations) and detailed calculations of the maximum or minimum amount, ratio or percentage, as the case may be, permissible under the terms of such Sections, and the calculation of the amount, ratio or percentage then in existence; provided that, if neither the Parent Guarantor nor any of its Significant Subsidiaries has been party to a Disposition pursuant to Section 10.4(c) during the relevant period covered by such certificate, then such certificate shall state such fact and information and calculations with respect to Section 10.4 shall not be included in such certificate. In the event that a Constituent Company or any Subsidiary has made an election to measure any financial liability using fair value (which election is being disregarded for purposes of determining compliance with this Agreement pursuant to Section 23.3) as to the period covered by any such financial statement, such Senior Financial Officer’s certificate as to such period shall include a reconciliation from GAAP with respect to such election; and

(b) Event of Default — certifying that such Senior Financial Officer has reviewed the relevant terms hereof and has made, or caused to be made, under his or her supervision, a review of the transactions and conditions of the Constituent Companies and their Subsidiaries from the beginning of the quarterly or annual period covered by the statements then being furnished to the date of the certificate and that such review shall not have disclosed the existence during such period of any condition or event that constitutes a Default or an Event of Default (other than a Default or Event of Default for which notice has been given to the holders of the Notes during such period pursuant to Section 7.1(d) and which has been subsequently waived or cured) or, if any such condition or event existed or exists (including, without limitation, any such event or condition resulting from the failure of the Parent Guarantor or any Subsidiary to comply with any Environmental Law), specifying the nature and period of existence thereof and what action the Constituent Companies shall have taken or propose to take with respect thereto.

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Section 7.3 Visitation. Each Constituent Company shall permit the representatives of each holder of a Note that is an Institutional Investor:

(a) No Default — if no Default or Event of Default then exists, at the expense of such holder and upon reasonable prior notice to a Constituent Company, to visit the principal executive office of such Constituent Company, to discuss the affairs, finances and accounts of such Constituent Company and its Subsidiaries with such Constituent Company’s officers, and (with the consent of such Constituent Company, which consent will not be unreasonably withheld, and in the presence of representatives of such Company) its independent public accountants, and (with the consent of such Constituent Company, which consent will not be unreasonably withheld) to visit the other offices and properties of such Constituent Company and each of its Subsidiaries, all at such reasonable times (within normal business hours) as may be reasonably requested in writing, but no more than twice in any fiscal year; and

(b) Default — if a Default or Event of Default then exists, at the expense of the Constituent Companies and upon reasonable prior notice, to visit and inspect any of the offices or properties of a Constituent Company or any of its Subsidiaries, to examine all of their respective books of account, records, reports and other papers, to make copies and extracts therefrom, and to discuss their respective affairs, finances and accounts with their respective officers and independent public accountants (and by this provision such Constituent Company authorizes said accountants to discuss the affairs, finances and accounts of such Constituent Company and its Subsidiaries), all at such times and as often as may be reasonably requested.

SECTION 8. PAYMENT AND PREPAYMENT OF THE NOTES.

Section 8.1 Maturity. As provided therein, the entire unpaid principal balance of each Note shall be due and payable on the Maturity Date thereof.

Section 8.2 Optional Prepayments with Make-Whole Amount. The Company may, at its option, upon notice as provided below, prepay at any time all of the Notes, or from time to time any part of the Notes in an amount not less than $5,000,000 of the aggregate principal amount of the Notes then outstanding, at 100% of the principal amount so prepaid, together with interest accrued thereon to the date of prepayment plus the applicable Make‑Whole Amount, if any, determined for the prepayment date with respect to such principal amount. The Company will give each holder of Notes written notice of each optional prepayment under this Section 8.2 not less than 20 days, and not more than 60 days, prior to the date fixed for such prepayment. Each such notice shall specify such prepayment date (which shall be a Business Day), the aggregate principal amount of the Notes to be prepaid on such date, the principal amount of each Note held by such holder to be prepaid (determined in accordance with Section 8.3), and the interest to be paid on the prepayment date with respect to such principal amount being prepaid, and shall be accompanied by a certificate of a Senior Financial Officer of the Company as to the estimated Make‑Whole Amount, if any, due in connection with such prepayment (calculated as if the date of such notice were the date of the prepayment), setting forth the details of such computation. Two Business Days prior to such prepayment, the Company shall deliver to each

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holder of Notes a certificate of a Senior Financial Officer of the Company specifying the calculation of such Make-Whole Amount as of the specified prepayment date.

Section 8.3 Allocation of Partial Prepayments. In the case of each partial prepayment of the Notes pursuant to Section 8.2, the principal amount of the Notes to be prepaid shall be allocated among all of the Notes at the time outstanding in proportion, as nearly as practicable, to the respective unpaid principal amounts thereof not theretofore called for prepayment.

Section 8.4 Maturity; Surrender, Etc. In the case of each prepayment of Notes pursuant to this Section 8, the principal amount of each Note to be prepaid shall mature and become due and payable on the date fixed for such prepayment, together with interest on such principal amount accrued to such date and the applicable Make-Whole Amount, if any. From and after such date, unless the Company shall fail to pay such principal amount when so due and payable, together with the interest and Make-Whole Amount, if any, as aforesaid, interest on such principal amount shall cease to accrue. Any Note paid or prepaid in full shall be surrendered to the Company and cancelled and shall not be reissued, and no Note shall be issued in lieu of any prepaid principal amount of any Note.

Section 8.5 Purchase of Notes. The Constituent Companies will not, and will not permit any of their Affiliates to, purchase, redeem, prepay or otherwise acquire, directly or indirectly, any of the outstanding Notes except (a) upon the payment or prepayment of the Notes in accordance with the terms of this Agreement and the Notes or (b) pursuant to an offer to purchase, made by a Constituent Company or an Affiliate, pro rata to the holders of all Notes at the time outstanding, upon the same terms and conditions but taking into account the different maturity dates and interest rates for each series of Notes. Any such offer shall provide each holder with sufficient information to enable it to make an informed decision with respect to such offer, and shall remain open for at least 10 Business Days. If the holders of more than 25% of the principal amount of the Notes then outstanding accept such offer, the relevant Constituent Company shall, or shall cause its Affiliate to, promptly notify the remaining holders of such fact and the expiration date for the acceptance by holders of Notes of such offer shall be extended by the number of days necessary to give each such remaining holder at least five Business Days from its receipt of such notice to accept such offer. The Company will promptly cancel all Notes acquired by it or any Affiliate pursuant to any payment, prepayment or purchase of Notes pursuant to any provision of this Agreement and no Notes may be issued in substitution or exchange for any such Notes.

Section 8.6 Make-Whole Amount. “Make-Whole Amount” shall mean, with respect to any Note of a series, an amount equal to the excess, if any, of the Discounted Value of the Remaining Scheduled Payments with respect to the Called Principal of such Note, over the amount of such Called Principal, provided, however , that the Make‑Whole Amount may in no event be less than zero. For the purposes of determining the Make‑Whole Amount, the following terms have the following meanings:

“Called Principal” shall mean, with respect to any Note, the principal of such Note that is to be prepaid pursuant to Section 8.2 or has become or is declared to be immediately due and payable pursuant to Section 12.1, as the context requires.

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“Discounted Value” shall mean, with respect to the Called Principal of any Note, the amount obtained by discounting all Remaining Scheduled Payments with respect to such Called Principal from their respective scheduled due dates to the Settlement Date with respect to such Called Principal, in accordance with accepted financial practice and at a discount factor (applied on the same periodic basis as that on which interest on the applicable Note is payable) equal to the Reinvestment Yield with respect to such Called Principal.

“Reinvestment Yield” shall mean, with respect to the Called Principal of any Note, 0.50% over the yield to maturity implied by the yield(s) reported as of 10:00 a.m. (New York City time) on the second Business Day preceding the Settlement Date with respect to such Called Principal, on the display designated as “Page PX1” (or such other display as may replace Page PX1) on Bloomberg Financial Markets for the most recently issued actively traded on-the-run U.S. Treasury Securities ( “Reported” ) having a maturity equal to the Remaining Average Life of such Called Principal as of such Settlement Date. If there are no such U.S. Treasury Securities Reported having a maturity equal to such Remaining Average Life, then such implied yield to maturity will be determined by (a) converting U.S. Treasury bill quotations to bond equivalent yields in accordance with accepted financial practice and (b) interpolating linearly between the yields Reported for the applicable most recently issued actively traded on-the-run U.S. Treasury Securities with the maturities (1) closest to and greater than such Remaining Average Life and (2) closest to and less than such Remaining Average Life. The Reinvestment Yield shall be rounded to the number of decimal places as appears in the interest rate of the applicable Note.

If such yields are not Reported or the yields Reported as of such time are not ascertainable (including by way of interpolation), then “Reinvestment Yield” shall mean, with respect to the Called Principal of any Note, 0.50% over the yield to maturity implied by the U.S. Treasury constant maturity yields reported, for the latest day for which such yields have been so reported as of the second Business Day preceding the Settlement Date with respect to such Called Principal, in Federal Reserve Statistical Release H.15 (or any comparable successor publication) for the U.S. Treasury constant maturity having a term equal to the Remaining Average Life of such Called Principal as of such Settlement Date. If there is no such U.S. Treasury constant maturity having a term equal to such Remaining Average Life, such implied yield to maturity will be determined by interpolating linearly between (1) the U.S. Treasury constant maturity so reported with the term closest to, and greater than, such Remaining Average Life, and (2) the U.S. Treasury constant maturity so reported with the term closest to, and less than, such Remaining Average Life. The Reinvestment Yield shall be rounded to the number of decimal places as appears in the interest rate of the applicable Note.

“Remaining Average Life” shall mean, with respect to any Called Principal, the number of years obtained by dividing (a) such Called Principal into (b) the sum of the products obtained by multiplying (1) the principal component of each Remaining Scheduled Payment with respect to such Called Principal by (2) the number of years, computed on the basis of a 360‑day year composed of twelve 30‑day months calculated

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to two decimal places, that will elapse between the Settlement Date with respect to such Called Principal and the scheduled due date of such Remaining Scheduled Payment.

“Remaining Scheduled Payments” shall mean, with respect to the Called Principal of any Note, all payments of such Called Principal and interest thereon that would be due after the Settlement Date with respect to such Called Principal if no payment of such Called Principal were made prior to its scheduled due date, provided that if such Settlement Date is not a date on which interest payments are due to be made under the terms of such Note, then the amount of the next succeeding scheduled interest payment will be reduced by the amount of interest accrued to such Settlement Date and required to be paid on such Settlement Date pursuant to Section 8.2 or Section 12.1.

“Settlement Date” shall mean, with respect to the Called Principal of any Note, the date on which such Called Principal is to be prepaid pursuant to Section 8.2 or has become or is declared to be immediately due and payable pursuant to Section 12.1, as the context requires.

Section 8.7 Offer to Prepay Notes in the Event of a Change in Control .

(a) Notice of Change in Control . The Company will, within five Business Days after a Constituent Company has Knowledge of the occurrence of a Change in Control, give written notice of such Change in Control to each holder of record of the Notes (determined as of the date of such notice). Such notice shall contain and constitute an offer to prepay Notes as described in Section 8.7(b) and shall be accompanied by the certificate described in Section 8.7(e).

(b) Offer to Prepay Notes . The offer to prepay Notes contemplated by Sections 8.7(a) shall be an offer to each holder to prepay, on a date specified in such offer (the “Change in Control Proposed Prepayment Date” ), in accordance with and subject to this Section 8.7, all, but not less than all, of the Notes held by such holder. Such Change in Control Proposed Prepayment Date shall be a Business Day not less than 30 days and not more than 60 days after the date of such offer (or if the Change in Control Proposed Prepayment Date shall not be specified in such offer, the Change in Control Proposed Prepayment Date shall be the Business Day nearest to the 30th day after the date of such offer).

(c) Acceptance; Rejection . A holder of Notes may accept or reject the offer to prepay all, but not less than all, of the Notes held by such holder made pursuant to this Section 8.7 by causing a notice of such acceptance or rejection to be delivered to the Company at least five Business Days prior to the Change in Control Proposed Prepayment Date. A failure by a holder of Notes to so respond to an offer to prepay made pursuant to this Section 8.7 or an attempt by such holder to accept the offer other than with respect to all Notes held by such holder shall be deemed to constitute a rejection of such offer by such holder.

(d) Prepayment . Prepayment of the Notes to be prepaid pursuant to this Section 8.7 shall be at 100% of the principal amount of such Notes, together with accrued

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and unpaid interest on such Notes accrued to the date of prepayment but without any Make-Whole Amount. The prepayment shall be made on the Change in Control Proposed Prepayment Date.

(e) Officer’s Certificate . Each offer to prepay the Notes pursuant to this Section 8.7 shall be accompanied by a certificate, executed by a Senior Financial Officer of the Company and dated the date of such offer, specifying (1) the Change in Control Proposed Prepayment Date, (2) that such offer is made pursuant to this Section 8.7 and that failure by a holder to respond to such offer by the deadline established in Section 8.7(c) or to accept such offer with respect to all, but not less than all, of the Notes held by it shall result in such offer to such holder being deemed rejected, (3) the principal amount of each Note held by such holder offered to be prepaid, (4) the interest that would be due on each Note held by such holder offered to be prepaid, accrued to the Change in Control Proposed Prepayment Date, (5) that no Make-Whole Amount is payable in connection with such prepayment, (6) that the conditions of this Section 8.7 have been fulfilled and (7) in reasonable detail, the nature and date of the Change in Control.

(f) “Change in Control” shall mean that HEI shall cease to own 100% of the voting capital stock or other equity or voting interests of the Parent Guarantor that is ordinarily entitled, in the absence of contingencies, to vote in the election of the Parent Guarantor’s directors (excluding, for the avoidance of doubt, preferred stock or other Securities of the Parent Guarantor the holders of which may be entitled to vote to elect directors only upon a default or under other limited circumstances specified in such Securities); provided , that the event specified above shall not constitute a “Change in Control” if, on the day of the occurrence of such event and at all times during the period of 90 consecutive days thereafter (the “Ratings Period” ), the long-term unsecured, unenhanced Indebtedness of the Parent Guarantor shall maintain an Investment Grade Rating by at least one Ratings Agency or, if more than one Ratings Agency shall rate such Indebtedness during such Ratings Period, each such Ratings Agency.

Section 8.8 Offer to Prepay Upon Sale of Assets.

(a) Notice and Offer. In the event of a Disposition of assets by a Constituent Company or any Significant Subsidiary where the Constituent Companies are required, or have elected, to apply the Net Cash Proceeds of such Disposition pursuant to clause (B) of the second paragraph of Section 10.4(c), the Company shall, no later than the 335th day following the date of such Disposition, give written notice of such event (a “Sale of Assets Prepayment Event” ) to each holder of Notes. Such notice shall contain, and shall constitute, an irrevocable offer to each holder to prepay, at 100% of the aggregate Ratable Portion of the Notes held by such holder, together with interest on that portion of the Notes then being prepaid accrued to the Sale of Assets Prepayment Date but, in any case, without any Make-Whole Amount, the Ratable Portion of the Notes of all series held by such holder on the date specified in such notice (the “Sale of Assets Prepayment Date” ), which date shall not be less than 30 days and not more than 60 days after the date of such notice. Such notice shall be sent to each holder of record of the Notes (determined as of the date of such notice) and such notice shall also state (1) that such offer is being made pursuant to this Section 8.8 and that the failure by such holder to respond to such offer by

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the deadline established in Section 8.8(b) or to accept such offer with respect to all, but not less than all, of the Notes held by it shall result in such offer to such holder being deemed rejected; (2) the Ratable Portion of each such Note held by such holder offered to be prepaid; (3) the prepayment price of each Note as described in Section 8.8(b); (4) the interest that would be due on the Ratable Portion of each such Note offered to be prepaid, accrued to, but not including, the Sale of Assets Prepayment Date and (5) in reasonable detail, a description of the nature and the date of the Sale of Assets Prepayment Event giving rise to such offer of prepayment.

(b) Acceptance and Payment. A holder of Notes may accept or reject the offer to prepay the Ratable Portion of the Notes held by such holder pursuant to this Section 8.8 by causing a notice of such acceptance or rejection to be delivered to the Company at least five Business Days prior to the Sale of Assets Prepayment Date. A failure by a holder of the Notes to respond to an offer to prepay made pursuant to this Section 8.8 or to accept such offer with respect to all, but not less than all, of the Notes held by it shall be deemed to constitute a rejection of such offer by such holder. If so accepted, such offered prepayment of the Ratable Portion of the Notes of each holder that has accepted such offer shall be due and payable on the Sale of Assets Prepayment Date. Such offered prepayment shall be made at 100% of the aggregate Ratable Portion of the Notes held by each holder that has accepted such offer, together with interest on that portion of the Notes then being prepaid accrued to the Sale of Assets Prepayment Date but, in any case, without any Make-Whole Amount.

SECTION 9. AFFIRMATIVE COVENANTS.

Each Constituent Company covenants that so long as any of the Notes are outstanding:

Section 9.1 Compliance with Laws. Without limiting Section 10.8, each Constituent Company will, and will cause each of its Significant Subsidiaries to, comply with all laws, ordinances or governmental rules or regulations to which each of them is subject, including, without limitation, Environmental Laws, ERISA, the USA PATRIOT Act and the other laws and regulations that are referred to in Section 5.16, and will obtain and maintain in effect all licenses, certificates, permits, franchises and other governmental authorizations necessary to the ownership of their respective properties or to the conduct of their respective businesses, in each case to the extent necessary to ensure that non-compliance with such laws, ordinances or governmental rules or regulations or failures to obtain or maintain in effect such licenses, certificates, permits, franchises and other governmental authorizations would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.

Section 9.2 Insurance. Each Constituent Company will, and will cause each of its Significant Subsidiaries to, maintain, with financially sound and reputable insurers, insurance with respect to their respective properties and businesses against such casualties and contingencies, of such types, on such terms and in such amounts (including deductibles, co-insurance and self-insurance, if adequate reserves are maintained with respect thereto) as is customary in the case of entities of established reputations engaged in the same or a similar business and similarly situated.

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Section 9.3 Maintenance of Properties. Each Constituent Company will, and will cause each of its Significant Subsidiaries to, maintain and keep, or cause to be maintained and kept, their respective properties in good repair, working order and condition (other than ordinary wear and tear and other than damage from casualties provided such damage is repaired within a commercially reasonable period of time), so that the business carried on in connection therewith may be properly conducted at all times; provided , that this Section shall not prevent a Constituent Company or any Significant Subsidiary from discontinuing the operation and the maintenance of any of their properties if such discontinuance is desirable in the conduct of its business and such Constituent Company has concluded that such discontinuance would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.

Section 9.4 Payment of Taxes and Claims. Each Constituent Company will, and will cause each of its Significant Subsidiaries to, file all income and other material tax returns required to be filed in any jurisdiction and to pay and discharge all taxes shown to be due and payable on such returns and all other taxes, assessments, governmental charges or levies imposed on them or any of their properties, assets, income or franchises, to the extent the same have become due and payable and before they have become delinquent and all claims for which sums have become due and payable that have or might become a Lien on properties or assets of a Constituent Company or any Significant Subsidiary other than a Permitted Lien; provided that neither Constituent Company nor any Significant Subsidiary need pay any such tax, assessment, charge, levy or claim if (1) the amount, applicability or validity thereof is contested by such Constituent Company or such Significant Subsidiary on a timely basis in good faith and in appropriate proceedings, and such Constituent Company or a Significant Subsidiary has established adequate reserves therefor in accordance with GAAP on the books of such Constituent Company or such Significant Subsidiary or (2) the nonpayment of all such taxes, assessments, charges, levies and claims in the aggregate would not reasonably be expected to have a Material Adverse Effect.

Section 9.5 Corporate Existence, Etc. Subject to Section 10.4, each Constituent Company will at all times preserve and keep its corporate existence in full force and effect. Subject to Section 10.4, each Constituent Company will at all times preserve and keep, or cause to be preserved and kept, in full force and effect (a) the corporate existence of each of its Significant Subsidiaries (unless merged into a Constituent Company or into another Subsidiary (which is or by reason of such merger becomes a Significant Subsidiary) in which a Constituent Company owns all of the voting capital stock or other equity or voting interests that are ordinarily entitled, in the absence of contingencies, to elect a majority of the directors (or Persons performing similar functions) of such Subsidiary) and (b) all rights and franchises of each Constituent Company and each Significant Subsidiary, unless, in the good faith judgment of such Constituent Company, the termination of, or failure to preserve and keep in full force and effect, such corporate existence, right or franchise would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.

Section 9.6 Books and Records. Each Constituent Company will, and will cause each of its Significant Subsidiaries to, maintain proper books of record and account in conformity with GAAP and all applicable requirements of any Governmental Authority having legal or regulatory jurisdiction over such Constituent Company or such Significant Subsidiary, as the case may be. Each Constituent Company will, and will cause each of its Significant Subsidiaries

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to, keep books, records and accounts which, in reasonable detail, accurately reflect all transactions and dispositions of assets. Each Constituent Company and its Significant Subsidiaries have devised a system of internal accounting controls sufficient to provide reasonable assurances that their respective books, records, and accounts accurately reflect all transactions and dispositions of assets and each Constituent Company will, and will cause each of its Significant Subsidiaries to, continue to maintain such system.

Section 9.7 Pari Passu Ranking.

(a) The Notes and all other obligations of the Company under this Agreement are and at all times shall remain direct obligations of the Company ranking pari passu as against the assets of the Company with all other present and future unsecured senior Indebtedness (actual or contingent) of the Company.

(b) The obligations of the Parent Guarantor under this Agreement are and at all times shall remain direct obligations of the Parent Guarantor ranking pari passu as against the assets of the Parent Guarantor with all other present and future unsecured senior Indebtedness (actual or contingent) of the Parent Guarantor.

SECTION 10. NEGATIVE COVENANTS.

Each Constituent Company covenants that so long as any of the Notes are outstanding:

Section 10.1 Capitalization Ratio. The Constituent Companies will not permit the Consolidated Capitalization Ratio to be less than 0.35 to 1.00 as of the end of any fiscal quarter or fiscal year end of the Parent Guarantor.

Section 10.2 Consolidated Subsidiary Funded Debt to Capitalization Ratio .

(a) The Company will not permit its Consolidated Subsidiary Funded Debt to Capitalization Ratio to exceed 0.65 to 1.00 as of the end of any fiscal quarter or fiscal year end of the Company.

(b) The Constituent Companies will not permit the Consolidated Subsidiary Funded Debt to Capitalization Ratio of any of their Significant Subsidiaries to exceed 0.65 to 1.00 as of the end of any fiscal quarter or fiscal year end of such Constituent Company.

Section 10.3 Limitation on Liens. The Constituent Companies will not, and will not permit any of their Significant Subsidiaries to, incur, create, assume or permit to exist any Lien on the capital stock or similar Equity Interests of or other ownership interests in any Significant Subsidiary or any Lien on any of its other assets, now or hereafter owned, without effectively providing concurrently therewith to equally and ratably secure the obligations of the Constituent Companies under this Agreement and, in the case of the Company, the Notes pursuant to documentation in form and substance reasonably satisfactory to the Required Holders, except the following Liens (“ Permitted Liens” ):

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(a) deposits under workmen’s compensation, unemployment insurance and social security laws, or to secure the performance of bids, tenders, contracts (other than for the repayment of borrowed money), leases, statutory obligations, surety or appeal bonds, or indemnity, performance or other similar bonds, in the ordinary course of business for sums not yet due and payable beyond any applicable grace or cure period or the payment of which is not at the time required by Section 9.4;

(b) Liens (other than any Lien imposed by ERISA) imposed by law, such as carriers’, warehousemen’s or mechanics’ liens, incurred in good faith in the ordinary course of business and securing obligations that are not yet due and payable beyond any applicable grace or cure period or the payment of which is not at the time required by Section 9.4, and Liens arising out of judgments or awards not exceeding $50,000,000 in the aggregate with respect to which appeals are being prosecuted, execution pending such appeals having been effectively stayed;

(c) the right reserved to, or vested in, any municipality or public authority by the terms of any right, power, franchise, grant, license, or permit, or by any provision of law, to purchase or recapture or designate a purchaser of any property;

(d) any Lien securing a tax, assessment or other governmental charge or levy or the claim of a materialman, mechanic, carrier, warehouseman or landlord for labor, materials, supplies or rentals incurred in the ordinary course of business, in each case, for sums not yet due and payable beyond any applicable grace or cure period or the payment of which is not at the time required by Section 9.4;

(e) any Lien existing on any property or asset at the time such property or asset is acquired by a Constituent Company or any Significant Subsidiary (including acquisition by merger or consolidation), but only if and so long as (1) such Lien was not created in contemplation of such property or asset being acquired, (2) such Lien is and will remain confined to the property or asset subject to it at the time such property or asset is acquired and to improvements thereafter erected on or attached to such property or asset or any property or asset acquired in substitution or replacement thereof and (3) such Lien secures only the obligation secured thereby at the time such property or asset is acquired;

(f) any Lien in existence on the date of this Agreement to the extent set forth on Schedule 10.3, but only, in the case of each such Lien, to the extent it secures an obligation outstanding on the date of this Agreement to the extent set forth on such Schedule;

(g) any Lien securing Purchase Money Indebtedness, or to secure payment of all or any part of the cost of construction of improvements as they are incurred or within 270 days thereafter, but only if, in the case of each such Lien, (1) such Lien shall at all times be confined solely to the property or asset the purchase price of which was financed through the incurrence of the Purchase Money Indebtedness secured by such Lien and to improvements thereafter erected on or attached to such property or asset or any property or asset acquired in substitution or replacement thereof and (2) such Lien attached to such

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property or asset within 270 days of the acquisition or improvement of such property or asset;

(h) easements, reservations, rights-of-way, restrictions, survey exceptions and other similar encumbrances as to real property which customarily exist on properties of corporations engaged in similar activities and similarly situated and which do not interfere in any material respect with the conduct of the business of a Constituent Company or any Significant Subsidiary conducted at the property subject thereto;

(i) licenses, leases and subleases of property owned or leased by a Constituent Company or any Significant Subsidiary not interfering with the ordinary conduct of the business of the Constituent Company and the Significant Subsidiaries;

(j) Liens securing obligations, neither assumed by a Constituent Company or any Significant Subsidiary nor on account of which a Constituent Company or any Significant Subsidiary customarily pays interest, upon real estate or under which a Constituent Company or any Significant Subsidiary has a right-of-way, easement, franchise or other servitude or of which a Constituent Company or any Significant Subsidiary is the lessee of the whole thereof or any interest therein for the purpose of locating transmission and distribution lines and related support structures, pipe lines, substations, measuring stations, tanks, pumping or delivery equipment or similar equipment;

(k) Liens arising by virtue of any statutory or common law or contractual provision relating to banker’s liens, rights of setoff or similar rights as to deposit accounts or other funds maintained with a depository institution in the ordinary course of business;

(l) any Lien constituting a renewal, extension or replacement of a Lien permitted under clause (e), (f) or (g) of this Section 10.3, but only if (1) at the time such Lien is granted and immediately after giving effect thereto, no Default or Event of Default would exist and be continuing, (2) such Lien is limited to all or a part of the property or asset that was subject to the Lien so renewed, extended or replaced and to improvements thereafter erected on or attached to such property or asset or any property or asset acquired in substitution or replacement thereof, (3) the principal amount of the obligations secured by such Lien does not exceed the principal amount of the obligations secured by the Lien so renewed, extended or replaced, together with reasonable out-of-pocket expenses and accrued interest with respect to the obligations so renewed, extended or replaced, and (4) the obligations secured by such Lien bear interest at a rate per annum not exceeding the rate borne by the obligations secured by the Lien so renewed, extended or replaced except for any increase that, in the reasonable opinion of the relevant Constituent Company, is commercially reasonable at the time of such increase; and

(m) other Liens securing Indebtedness or other monetary obligations of a Constituent Company or any Significant Subsidiary; provided , that at the time any such Indebtedness or other monetary obligation is incurred (and after giving effect thereto and to the concurrent repayment of any Indebtedness or other monetary obligations with the proceeds thereof), (1) in the case of the Parent Guarantor, the aggregate principal amount

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of all Indebtedness and other monetary obligations then secured pursuant to this clause (m) shall not exceed an amount equal to 15% of Consolidated Capitalization and (2) in the case of the Company, the aggregate principal amount of all Indebtedness and other monetary obligations of the Company and its Significant Subsidiaries then secured pursuant to this clause (m) shall not exceed an amount equal to 15% of the Company’s Consolidated Subsidiary Capitalization; and provided further that, notwithstanding the foregoing, neither Constituent Company will grant any Liens securing Indebtedness outstanding under a Principal Credit Agreement pursuant to this Section 10.3(m) unless and until all obligations of the Constituent Companies under this Agreement and, in the case of the Company, the Notes shall concurrently be secured equally and ratably with such Indebtedness pursuant to documentation in form and substance reasonably satisfactory to the Required Holders.

Section 10.4 Sale of Assets; Consolidation; Merger .

(a) The Constituent Companies will not, and will not permit any of their Significant Subsidiaries to, Dispose of all or substantially all of its properties and assets to any Person; provided that this provision shall not apply to any such Disposition by (1) any Significant Subsidiary (other than the Company) to a Constituent Company or to any other Subsidiary (which is or by reason of such transfer becomes a Significant Subsidiary) in which a Constituent Company owns all of the voting capital stock or other equity or voting interests that are ordinarily entitled, in the absence of contingencies, to elect a majority of the directors (or Persons performing similar functions) of such Subsidiary or (2) the Company to the Parent Guarantor.

(b) The Constituent Companies will not, and will not permit any of their Significant Subsidiaries to, consolidate with or merge into any other Person (other than a merger of a Significant Subsidiary (other than the Company) into, or a consolidation of a Significant Subsidiary (other than the Company) with, a Constituent Company or any other Subsidiary (which is or by reason of such transfer becomes a Significant Subsidiary) in which a Constituent Company owns all of the voting capital stock or other equity or voting interests that are ordinarily entitled, in the absence of contingencies, to elect a majority of the directors (or Persons performing similar functions) of such Subsidiary) or acquire all or substantially all the properties and assets of any Person unless:

(1) in the case of a merger or consolidation involving the Parent Guarantor, the Parent Guarantor is the surviving corporation;

(2) in the case of a merger or consolidation involving the Company and a Person other than the Parent Guarantor, the surviving corporation is either (i) the Company, (ii) MECO or (iii) another Subsidiary (which is or by reason of such transfer becomes a Significant Subsidiary) in which the Parent Guarantor owns all of the voting capital stock or other equity or voting interests that are ordinarily entitled, in the absence of contingencies, to elect a majority of the directors (or Persons performing similar functions) of such Subsidiary and, in the case of

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clauses (ii) and (iii) above, the Parent Guarantor shall have reaffirmed in writing its obligations under Section 13 and the conditions of Section 10.4(d) shall be satisfied;

(3) after giving effect to any merger or consolidation or acquisition, the Constituent Companies are in pro forma compliance with Section 10.1;

(4) no Default or Event of Default exists or results therefrom and is continuing; and

(5) the holders of Notes shall have received prior to the consummation of any such merger, consolidation or acquisition, a certificate executed by a Senior Financial Officer of each Constituent Company as to each of the matters described in clauses (1) through (4) above.

(c) Except as permitted by the provisions of clauses (a) and (b) of this Section 10.4, the Constituent Companies will not, and will not permit any of their Significant Subsidiaries to Dispose of any property, including the capital stock or similar Equity Interests of or other ownership interests in Subsidiaries owned by it, in one or more transactions, to any Person, other than (1) Dispositions in the ordinary course of business, (2) Dispositions by a Constituent Company or a Significant Subsidiary to a Constituent Company or to a Subsidiary (which is or by reason of such transfer becomes a Significant Subsidiary) in which a Constituent Company owns all of the voting capital stock or other equity or voting interests that are ordinarily entitled, in the absence of contingencies, to elect a majority of the directors (or Persons performing similar functions) of such Subsidiary, (3) Dispositions within 365 days of the acquisition or construction by a Constituent Company or a Significant Subsidiary of the assets so Disposed of, if a Constituent Company or a Significant Subsidiary shall concurrently with such Disposition lease back such assets as lessee, or (4) other Dispositions not otherwise permitted by this Section 10.4(c); provided that (i) after giving effect thereto, no Default or Event of Default shall have occurred and be continuing and (ii) the aggregate net book value of all property Disposed of pursuant to this Section 10.4(c)(4) during the period of 12 consecutive months ending on the date of such Disposition would not exceed (A) an amount equal to 15% of Consolidated Total Assets determined as of the end of the then most recently ended fiscal quarter of the Parent Guarantor and (B) in the case of a Disposition by the Company or any of its Significant Subsidiaries, an amount equal to 15% of the Company’s Consolidated Subsidiary Total Assets determined as of the end of the then most recently ended fiscal quarter of the Company.

Notwithstanding the foregoing, the Constituent Companies may, or may permit any Significant Subsidiary to, make a Disposition of assets and such assets shall not be subject to, or included in, the foregoing limitation and computation contained in clause (4) of the preceding paragraph to the extent, and from the date, that the Net Cash Proceeds (if any) from such Disposition are, within 365 days of such Disposition, either (A) reinvested in (or used, directly or indirectly, to purchase or otherwise acquire)

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productive assets by a Constituent Company or a Significant Subsidiary to be used in the business of such Constituent Company or such Significant Subsidiary or (B) applied, or offered to be applied, to the payment or prepayment of any outstanding Indebtedness of a Constituent Company or a Significant Subsidiary other than, in the case of a Constituent Company, outstanding Subordinated Debt (in connection with any offer to prepay, whether or not such offer is accepted by the applicable holder of such Indebtedness); provided that in the course of making such application or offer, the Company shall offer to prepay each outstanding Note of each series in accordance with Section 8.8 in a principal amount which equals the Ratable Portion for such Note.

(d) The Parent Guarantor will not Dispose of any of the voting capital stock or other equity or voting interests that are ordinarily entitled, in the absence of contingencies, to vote in the election of directors of the Company or MECO; provided that this provision shall not prohibit the ability of either the Company or MECO (or both) to be merged into the Parent Guarantor or the Company or MECO to be merged into one another or into another Subsidiary (which is or by reason of such transfer becomes a Significant Subsidiary) in which a Constituent Company owns all of the voting capital stock or other equity or voting interests that are ordinarily entitled, in the absence of contingencies, to elect a majority of the directors (or Persons performing similar functions) of such Subsidiary (a “Surviving Subsidiary” ); provided further that if the Company shall be merged into the Parent Guarantor, MECO or a Surviving Subsidiary, the Parent Guarantor, MECO or such Surviving Subsidiary, as applicable, shall have executed and delivered to each holder of the Notes its assumption of the due and punctual performance and observance of each covenant and condition of the Company under this Agreement and the Notes, the Parent Guarantor shall have confirmed in writing its guarantee of the Obligations so assumed (if the assumption is not by the Parent Guarantor) and the Parent Guarantor shall have caused to be delivered to each holder of the Notes an opinion of nationally recognized independent counsel, or other independent counsel reasonably satisfactory to the Required Holders, to the effect that all agreements or instruments effecting such assumption are enforceable in accordance with their terms and comply with the terms hereof; and provided further , that the limitation on Dispositions provided for in this Section 10.4(d) shall continue with respect to each Surviving Subsidiary.

Section 10.5 Limitation on Restrictive Agreements. The Constituent Companies will not, and will not permit any of their Significant Subsidiaries to, enter into, incur, permit to exist, directly or indirectly, any agreement or arrangement that prohibits, restricts or imposes any condition upon the ability of any Significant Subsidiary to (a) make any Restricted Payments or to repay any Indebtedness owed to its parent Constituent Company, (b) make loans or advances to its parent Constituent Company or (c) transfer any of its property or assets to its parent Constituent Company, provided that the foregoing shall not apply to restrictions and conditions (1) imposed by law or regulation or by order of any regulatory agency, body or authority, including under agreements with regulatory agencies, bodies or authorities, (2) contained in or otherwise expressly permitted by this Agreement, (3) existing on the date of this Agreement and identified on Schedule 10.5, and amendments and modifications thereto, so long as such amendments and modifications do not materially expand the scope of any such restriction or condition, or (4) that are entered into, incurred or permitted to exist following the date hereof that

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are not materially more expansive in scope than the restrictions and conditions referred to in this Section 10.5.

Section 10.6 Transactions with Affiliates. Except as specifically permitted by this Agreement to be entered into with an Affiliate, the Constituent Companies will not, and will not permit any of their Significant Subsidiaries to, sell, transfer, lease or otherwise Dispose of (including pursuant to a merger) any property or assets to, or purchase, lease or otherwise acquire (including pursuant to a merger) any property or assets from, or otherwise engage in any other transactions with, any of its Affiliates, except (a) transactions at prices and on terms and conditions not materially less favorable to such Constituent Company or such Significant Subsidiary than could be obtained on an arm’s length basis from unrelated third parties, (b) transactions requiring the payment of fees, expenses, indemnities or other payments pursuant to the inter-company management or service agreements in existence on the date of this Agreement and set forth on Schedule 10.6 or any amendment thereto or replacement thereof to the extent such an amendment or replacement is not adverse to the Purchasers or any other holder of the Notes in any material respect and/or (c) transactions between a Constituent Company and its Subsidiaries or between Subsidiaries.

Section 10.7 Line of Business . The Constituent Companies will not, and will not permit any of their Significant Subsidiaries to, engage in any business, if, as a result, when taken as a whole, the general nature of the business of the Constituent Companies and the Significant Subsidiaries would be substantially changed from the general nature of the business of the Constituent Companies and the Significant Subsidiaries on the date of this Agreement as described in the Memorandum; provided , that this provision shall not be interpreted to prevent changes in the general nature of the business of a Constituent Company or any Significant Subsidiary that are similar to changes occurring generally or commonly in the industries in which they are currently operating.

Section 10.8 Terrorism Sanctions Regulations . The Constituent Companies will not, and will not permit any Controlled Entity to, (a) become, own or control a Blocked Person or any Person that is the target of sanctions imposed by the United Nations or by the European Union, or (b) directly or indirectly to have any investment in or engage in any dealing or transaction (including, without limitation, any investment, dealing or transaction involving the proceeds of the Notes) with any Person if such investment, dealing or transaction (1) would cause any holder to be in violation of any law or regulation applicable to such holder, or (2) is prohibited by or subject to sanctions under any U.S. Economic Sanctions, or (c) engage, nor shall any Affiliate of either engage, in any activity that could subject such Person or any holder to sanctions under CISADA or any similar law or regulation with respect to Iran or any other country that is subject to U.S. Economic Sanctions.

SECTION 11. EVENTS OF DEFAULT.

An “Event of Default” shall exist if any of the following conditions or events shall occur and be continuing:

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(a) the Company defaults in the payment of any principal or Make-Whole Amount on any Note when the same becomes due and payable, whether at maturity or at a date fixed for prepayment or by declaration or otherwise; or

(b) the Company defaults in the payment of any interest on any Note for more than five Business Days after the same becomes due and payable; or

(c) default shall occur in the performance of or compliance with any term contained in Section 7.1(d), Section 10.1 through Section 10.5, inclusive, Section 10.7 or Section 10.8; or

(d) default shall occur in the performance of or compliance with any term contained herein (other than those referred to in Sections 11(a), (b) and (c)) and such default is not remedied within 30 days after the earlier of (1) a Constituent Company obtaining Knowledge of such default and (2) a Constituent Company receiving written notice of such default from any holder of a Note (any such written notice to be identified as a “notice of default” and to refer specifically to this Section 11(d)); or

(e) any representation or warranty made in writing by or on behalf of a Constituent Company in this Agreement or made in any writing by or on behalf of a Constituent Company or by any officer of a Constituent Company furnished in connection with the transactions contemplated hereby or thereby proves to have been false or incorrect in any material respect on the date as of which made; or

(f) (1) a Constituent Company or any Significant Subsidiary is in default (as principal or as guarantor or other surety) in the payment of any principal of or premium or make-whole amount or interest on any Indebtedness that is outstanding in an aggregate principal amount of at least $50,000,000 beyond any period of grace provided with respect thereto, or (2) a Constituent Company or any Significant Subsidiary is in default in the performance of or compliance with any term of any evidence of any Indebtedness in an aggregate outstanding principal amount of at least $50,000,000 or of any mortgage, indenture or other agreement relating thereto or any other condition exists, and as a consequence of such default or condition such Indebtedness has become, or has been declared (or one or more Persons are entitled to declare such Indebtedness to be), due and payable before its stated maturity or before its regularly scheduled dates of payment or (3) as a consequence of the occurrence or continuation of any event or condition (other than (i) the passage of time, (ii) any notice of voluntary prepayment delivered by a Constituent Company or any Significant Subsidiary, and any voluntary prepayment pursuant thereto, so long as no default or event of default exists with respect to such Indebtedness, (iii) any Change in Control or Disposition of assets which triggers the obligation or right of the Company to offer to prepay Notes pursuant to Section 8.7 or 8.8, and any voluntary prepayment pursuant thereto, (iv) any voluntary sale of assets by a Constituent Company or any Significant Subsidiary as a result of which any Indebtedness secured by such assets is required to be prepaid or (v) the right of the holder of Indebtedness to convert such Indebtedness into Equity Interests) (A) a Constituent Company or any Significant Subsidiary has become obligated to purchase or repay Indebtedness before its regular maturity or before its regularly scheduled dates of

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payment in an aggregate outstanding principal amount of at least $50,000,000 or (B) one or more Persons have the right to require the Constituent Company or any Subsidiary to purchase or repay such Indebtedness; or

(g) a Constituent Company or any Significant Subsidiary (1) is generally not paying, or admits in writing its inability to pay, its debts as they become due, (2) files, or consents by answer or otherwise to the filing against it of, a petition for relief or reorganization or arrangement or any other petition in bankruptcy, for liquidation or to take advantage of any bankruptcy, insolvency, reorganization, moratorium or other similar law of any jurisdiction, (3) makes an assignment for the benefit of its creditors, (4) consents to the appointment of a custodian, receiver, trustee or other officer with similar powers with respect to it or with respect to any substantial part of its property, (5) is adjudicated as insolvent or to be liquidated or (6) takes corporate action for the purpose of any of the foregoing; or

(h) a court or other Governmental Authority of competent jurisdiction enters an order appointing, without consent by a Constituent Company or any Significant Subsidiary, a custodian, receiver, trustee or other officer with similar powers with respect to it or with respect to any substantial part of its property, or constituting an order for relief or approving a petition for relief or reorganization or any other petition in bankruptcy or for liquidation or to take advantage of any bankruptcy or insolvency law of any jurisdiction, or ordering the dissolution, winding-up or liquidation of a Constituent Company or any Significant Subsidiary, or any such petition shall be filed against a Constituent Company or any Significant Subsidiary, and such order shall not have been stayed or vacated and such petition shall not be dismissed, in either case, within 60 days; or

(i) one or more final judgments or orders for the payment of money aggregating in excess of $50,000,000 (excluding any amount that is covered by insurance where the relevant insurance company has been notified of the claim or judgment and has not expressly denied coverage in writing), including, without limitation, any such final order enforcing a binding arbitration decision, are rendered against one or more of the Constituent Companies and the Significant Subsidiaries and which judgments or orders are not, within 60 days after entry thereof, bonded, discharged or stayed pending appeal, or are not discharged within 60 days after the expiration of such stay; or

(j) if (1) any Plan shall fail to satisfy the minimum funding standards of ERISA or the Code for any plan year or part thereof or a waiver of such standards or extension of any amortization period is sought or granted under Section 412 of the Code, (2) a notice of intent to terminate any Plan shall have been or is reasonably expected to be filed with the PBGC or the PBGC shall have instituted proceedings under ERISA Section 4042 to terminate or appoint a trustee to administer any Plan or the PBGC shall have notified a Constituent Company or any ERISA Affiliate that a Plan may become a subject of any such proceedings, (3) the adjusted funding target attainment percentage (as defined in Section 436(j)(2) of the Code) under any of the Plans shall be less than 60%, (4) a Constituent Company or any ERISA Affiliate shall have incurred or is reasonably expected to incur any liability pursuant to Title I or IV of ERISA or the penalty or excise

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tax provisions of the Code relating to employee benefit plans, (5) a Constituent Company or any ERISA Affiliate withdraws from any Multiemployer Plan or (6) a Constituent Company or any Subsidiary establishes or amends any employee welfare benefit plan that provides post-employment welfare benefits in a manner that would increase the liability of a Constituent Company or any Subsidiary thereunder; and any such event or events described in clauses (1) through (6) above, either individually or together with any other such event or events, could reasonably be expected to have a Material Adverse Effect; or

(k) the Parent Guarantor defaults in the performance or compliance with the Guaranty provided in Section 13 or the Guaranty provided in Section 13 shall for any reason cease to be, or be asserted in writing by the Parent Guarantor not to be, in full force and effect, and enforceable in accordance with its terms.

As used in Section 11(j), the terms “employee benefit plan” and “employee welfare benefit plan” shall have the respective meanings assigned to such terms in Section 3 of ERISA.

SECTION 12. REMEDIES ON DEFAULT, ETC.

Section 12.1 Acceleration .

(a) If an Event of Default with respect to a Constituent Company described in Section 11(g) or (h) (other than an Event of Default described in clause (1) of Section 11(g) or described in clause (6) of Section 11(g) by virtue of the fact that such clause encompasses clause (1) of Section 11(g)) has occurred, all the Notes then outstanding shall automatically become immediately due and payable.

(b) If any other Event of Default has occurred and is continuing, the Required Holders may at any time at their option, by notice or notices to the Company, declare all the Notes then outstanding to be immediately due and payable.

(c) If any Event of Default described in Section 11(a) or (b) has occurred and is continuing, any holder or holders of Notes at the time outstanding affected by such Event of Default may at any time, at its or their option, by notice or notices to the Company, declare all the Notes held by it or them to be immediately due and payable.

Upon any Notes becoming due and payable under this Section 12.1, whether automatically or by declaration, such Notes will forthwith mature and the entire unpaid principal amount of such Notes, plus (1) all accrued and unpaid interest thereon (including, but not limited to, interest accrued thereon at the applicable Default Rate to the full extent permitted by applicable law) and (2) the applicable Make-Whole Amount, if any, determined in respect of such principal amount (to the full extent permitted by applicable law), shall all be immediately due and payable, in each and every case without presentment, demand, protest or further notice, all of which are hereby waived. The Company acknowledges, and the parties hereto agree, that each holder of a Note has the right to maintain its investment in the Notes free from repayment by the Company (except as herein specifically provided for), and that the provision for payment of a Make-Whole Amount by the Company in the event that the Notes are prepaid or are accelerated as a result of an Event of Default is intended to provide compensation for the deprivation of such right under such circumstances.

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Section 12.2 Other Remedies. If any Default or Event of Default has occurred and is continuing, and irrespective of whether any Notes have become or have been declared immediately due and payable under Section 12.1, the holder of any Note at the time outstanding may proceed to protect and enforce the rights of such holder by an action at law, suit in equity or other appropriate proceeding, whether for the specific performance of any agreement contained herein or in any Note, or for an injunction against a violation of any of the terms hereof or thereof, or in aid of the exercise of any power granted hereby or thereby or by law or otherwise.

Section 12.3 Rescission. At any time after any Notes have been declared due and payable pursuant to Section 12.1(b) or (c), the Required Holders by written notice to the Company, may rescind and annul any such declaration and its consequences if (a) the Company has paid all overdue interest on the Notes, all principal of and Make-Whole Amount, if any, on any Notes that are due and payable and are unpaid other than by reason of such declaration, and all interest on such overdue principal and Make-Whole Amount, if any, and (to the extent permitted by applicable law) any overdue interest in respect of the Notes, at the applicable Default Rate, (b) neither the Company nor any other Person shall have paid any amounts which have become due solely by reason of such declaration, (c) all Events of Default and Defaults, other than non-payment of amounts that have become due solely by reason of such declaration, have been cured or have been waived pursuant to Section 18 and (d) no judgment or decree has been entered for the payment of any monies due pursuant hereto or to the Notes. No rescission and annulment under this Section 12.3 will extend to or affect any subsequent Event of Default or Default or impair any right consequent thereon.

Section 12.4 No Waivers or Election of Remedies, Expenses, Etc. No course of dealing and no delay on the part of any holder of any Note in exercising any right, power or remedy shall operate as a waiver thereof or otherwise prejudice such holder’s rights, powers or remedies. No right, power or remedy conferred by this Agreement or any Note upon any holder thereof shall be exclusive of any other right, power or remedy referred to herein or therein or now or hereafter available at law, in equity, by statute or otherwise. Without limiting the obligations of the Constituent Companies under Section 16, the Constituent Companies will pay to the holder of each Note on demand such further amount as shall be sufficient to cover all costs and expenses of such holder incurred in any enforcement or collection action under this Section 12, including, without limitation, reasonable attorneys’ fees, expenses and disbursements.

SECTION 13. GUARANTY.

Section 13.1 The Guaranty. The Parent Guarantor hereby absolutely, unconditionally and irrevocably guarantees, as primary obligor and not merely as surety, to each holder of the Notes (a) the full and punctual payment when due, whether at maturity, by acceleration, by redemption or otherwise, of the principal of, Make-Whole Amount, if any, and interest (including any interest accruing after the commencement of any proceeding in bankruptcy and any additional interest that would accrue but for the commencement of such proceeding) on the Notes and all other obligations of the Company under this Agreement and (b) the full and prompt performance and observance by the Company of each and all of the obligations, covenants and agreements required to be performed or owed by the Company under the terms of this Agreement and the Notes (all the foregoing being hereinafter collectively called the “Obligations” ). The Parent Guarantor further agrees (to the extent permitted by applicable law)

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that the Obligations may be extended or renewed, in whole or in part, without notice or further assent from it, and that it shall remain bound under this Section 13 notwithstanding any extension or renewal of any Obligation.

Section 13.2 Waiver of Defenses. The Parent Guarantor waives presentation to, demand of payment from and protest to the Company of any of the Obligations and also waives notice of protest for nonpayment. The Parent Guarantor waives notice of any default under this Agreement, the Notes or the Obligations. The obligation of the Parent Guarantor hereunder shall not be affected by (a) the failure of any holder of the Notes to assert any claim or demand or to enforce any right or remedy against the Company or any other Person under this Agreement, the Notes or any other agreement or otherwise; (b) any extension or renewal of any thereof; (c) any rescission, waiver, amendment or modification of any of the terms or provisions of this Agreement, the Notes or any other agreement; (d) the release of any security held by any holder of the Notes for the Obligations or any of them or (e) any change in the ownership of the Company.

Section 13.3 Guaranty of Payment. The Parent Guarantor further agrees that the guaranty herein constitutes a guaranty of payment when due (and not a guaranty of collection) and waives any right to require that any resort be had by any holder of the Notes to any other Person or to any security held for payment of the Obligations.

Section 13.4 Guaranty Unconditional. The obligations of the Parent Guarantor hereunder shall not be subject to any reduction, limitation, impairment or termination for any reason (other than payment of the Obligations in full), including any claim of waiver, release, surrender, alteration or compromise, and shall not be subject to any defense of setoff, counterclaim, recoupment or termination whatsoever or by reason of the invalidity, illegality or unenforceability of the Obligations or otherwise. Without limiting the generality of the foregoing, the obligations of the Parent Guarantor herein shall not be discharged or impaired or otherwise affected by the failure of any holder of the Notes to assert any claim or demand or to enforce any remedy under this Agreement, the Notes or any other agreement, by any waiver or modification of any thereof, by any default, failure or delay, willful or otherwise, in the performance of the Obligations, or by any other act or thing or omission or delay to do any other act or thing which may or might in any manner or to any extent vary the risk of the Parent Guarantor or would otherwise operate as a discharge of the Parent Guarantor as a matter of law or equity.

Section 13.5 Reinstatement. The Parent Guarantor further agrees that the guaranty herein shall continue to be effective or be reinstated, as the case may be, if at any time payment, or any part thereof, of the principal of, Make-Whole Amount, if any, or interest on any of the Obligations is rescinded or must otherwise be restored by any holder of the Notes upon the bankruptcy or reorganization of the Company or otherwise.

Section 13.6 Payment on Demand. In furtherance of the foregoing and not in limitation of any other right which any holder of the Notes has at law or in equity against the Parent Guarantor by virtue hereof, upon the failure of the Company to pay any of the Obligations when and as the same shall become due, whether at maturity, by acceleration, by redemption or otherwise, the Parent Guarantor hereby promises to and shall, upon demand by any holder of the

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Notes, forthwith pay, or cause to be paid, in cash, to the holders an amount equal to the sum of (a) the unpaid amount of such Obligations then due and owing and (b) accrued and unpaid interest on such Obligations then due and owing (but only to the extent not prohibited by applicable law).

Section 13.7 Stay of Acceleration. The Parent Guarantor further agrees that, as between itself, on the one hand, and the holders of the Notes, on the other hand, (a) the maturity of the Obligations guaranteed hereby may be accelerated as provided in this Agreement for the purposes of the guaranty herein, notwithstanding any stay, injunction or other prohibition preventing such acceleration in respect of the Obligations guaranteed hereby and (b) in the event of any such declaration of acceleration of such Obligations, such Obligations (whether or not due and payable) shall forthwith become due and payable by the Parent Guarantor for the purposes of this guaranty.

Section 13.8 No Subrogation. Notwithstanding any payment or payments made by the Parent Guarantor hereunder, the Parent Guarantor shall not be entitled to be subrogated to any of the rights of any holder of the Notes against the Company or any collateral security or guaranty or right of offset held by any holder for the payment of the Obligations, nor shall the Parent Guarantor seek or be entitled to seek any contribution or reimbursement from the Company in respect of payments made by the Parent Guarantor hereunder, until all amounts owing to the holders of the Notes by the Company on account of the Obligations are paid in full. If any amount shall be paid to the Parent Guarantor on account of such subrogation rights at any time when all of the Obligations shall not have been paid in full, such amount shall be held by the Parent Guarantor in trust for the holders of the Notes, segregated from other funds of the Parent Guarantor, and shall, forthwith upon receipt by the Parent Guarantor, be turned over to the holders of the Notes in the exact form received by the Parent Guarantor (duly indorsed by the Parent Guarantor to the holders of the Notes, if required), to be applied against the Obligations.

Section 13.9 Marshalling. No holder of the Notes shall be under any obligation: (a) to marshal any assets in favor of the Parent Guarantor or in payment of any or all of the liabilities of the Company under or in respect of the Notes and this Agreement or the obligations of the Parent Guarantor hereunder or (b) to pursue any other remedy that the Parent Guarantor may or may not be able to pursue itself and that may lighten the Parent Guarantor’s burden, any right to which the Parent Guarantor hereby expressly waives.

Section 13.10 Consideration. The Parent Guarantor has received, or shall receive, direct or indirect benefits from the making of this guaranty.

SECTION 14. REGISTRATION; EXCHANGE; SUBSTITUTION OF NOTES;

COMPANY’S AGENT.

Section 14.1 Registration of Notes. The Company shall keep at its principal executive office, or cause to be kept at the office of either the Parent Guarantor or the Company’s Agent, a register for the registration of record ownership, and registration of transfers of record ownership, of all Notes. The name and address of each holder of Notes (which holder may be a nominee if so designated in writing by the beneficial owner of such Note or Notes), each transfer of any Note and the name and address of each transferee thereof shall be registered in such

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register. If any holder of one or more Notes is shown to be a nominee with respect to such Notes, then the name and address of the beneficial owner of such Note or Notes shall also be registered in such register as an owner and holder thereof, in which event, for purposes of Sections 7, 8.7, 8.8, 12, 18.2 and 19, and only for purposes of those Sections, “holder” shall mean the beneficial owner of the applicable Note whose name and address appears in such register and not such nominee. Prior to due presentment for registration of transfer, the Person(s) in whose name any Note(s) shall be registered shall be deemed and treated as the owner and holder thereof for all purposes hereof (except as provided in the previous sentence), and the Company (and the Company’s Agent) shall not be affected by any notice or Knowledge to the contrary. The Company (or the Company’s Agent) shall give to any holder of a Note that is an Institutional Investor promptly upon request therefor, a complete and correct copy of the names and addresses of all registered holders of the Notes.

Section 14.2 Transfer and Exchange of Notes. Upon surrender of any Note to the Company at the address and to the attention of the designated officer (all as specified in Section 19(3)) or to the Company’s Agent (if such Agent is at the time designated), for registration of transfer or exchange (and in the case of a surrender for registration of transfer accompanied by a written instrument of transfer duly executed by the registered holder of such Note or such holder’s attorney duly authorized in writing and accompanied by the relevant name, delivery and mailing address, e-mail address, facsimile number and other information for notices of each transferee of such Note or part thereof), within 10 Business Days thereafter, the Company shall execute and deliver or cause the Company’s Agent to deliver, at the Company’s expense (except as provided below), one or more new Notes (as requested by the holder thereof) of the same series as the surrendered Note in exchange therefor, in an aggregate principal amount equal to the unpaid principal amount of the surrendered Note. Each such new Note shall be payable to such Person as such holder may request and shall be substantially in the form of Exhibit 1(a), Exhibit 1(b) or Exhibit 1(c), as applicable. Each such new Note shall be dated and bear interest from the date to which interest shall have been paid on the surrendered Note or dated the date of the surrendered Note if no interest shall have been paid thereon. The Company or the Company’s Agent may require payment of a sum sufficient to cover any stamp tax or governmental charge imposed in respect of any such transfer of Notes. Notes shall not be transferred in denominations of less than $100,000, provided that, if necessary to enable the registration of transfer by a holder of its entire holding of Notes of a series, one Note of such series may be in a denomination of less than $100,000. Any transferee, by its acceptance of a new Note registered in its name (or the name of its nominee), shall be deemed to have made the representation set forth in Section 6.3.

Section 14.3 Replacement of Notes. Upon receipt by the Company at the address and to the attention of the designated officer (all as specified in Section 19(3)), or upon receipt by the Company’s Agent (if such Agent is at the time designated) at the address and to the attention of the Person designated by the Company as set forth in the most recent written designation of such Agent provided to holders, of evidence reasonably satisfactory to it of the ownership of and the loss, theft, destruction or mutilation of any Note (which evidence shall be, in the case of an Institutional Investor, notice from such Institutional Investor of such ownership and such loss, theft, destruction or mutilation), and

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(a) in the case of loss, theft or destruction, of indemnity reasonably satisfactory to the Company ( provided that if the holder of such Note is, or is a nominee for, an original Purchaser or another holder of a Note with a minimum net worth of at least $50,000,000 or that is a Qualified Institutional Buyer, such Person’s own unsecured agreement of indemnity shall be deemed to be satisfactory), or

(b) in the case of mutilation, upon surrender and cancellation thereof,

within 10 Business Days thereafter, the Company at its own expense shall execute and deliver (or cause the Company’s Agent to deliver), in lieu thereof, a new Note of the same series in the remaining unpaid principal amount thereof, dated and bearing interest from the date to which interest shall have been paid on such lost, stolen, destroyed or mutilated Note or dated the date of such lost, stolen, destroyed or mutilated Note if no interest shall have been paid thereon.

Section 14.4 The Company’s Agent. The Company may from time to time appoint, and may at any time cancel the appointment of, either the Parent Guarantor or a bank, trust company or nationally recognized transfer agent to serve as its agent (the “Company’s Agent” ) to perform on behalf of the Company its obligations under this Section 14 as well as certain other administrative obligations of the Company under this Agreement, including serving as paying agent and delivering any notices and documents required to be delivered by the Company. The Company has appointed U.S. Bank National Association as the initial Company’s Agent. In the event such appointment is cancelled or any other appointment shall be made, written notice shall be given of any such cancellation of appointment or appointment, which notice shall set forth the name, delivery and mailing address, e-mail address, facsimile number and other information for notices for the Company, the Parent Guarantor or any replacement of the Company’s Agent. During such time as a Person is appointed to serve as the Company’s Agent, every act, omission, undertaking, notice, document delivery or other communication by the Company’s Agent in such capacity shall be binding for all purposes on the Company as if such act, omission, notice, document delivery or other communication had been performed, omitted, given, delivered or communicated by the Company.

SECTION 15. PAYMENTS ON NOTES.

Section 15.1 Place of Payment. Subject to Section 15.2, payments of principal, Make-Whole Amount, if any, and interest becoming due and payable on the Notes shall be made in New York, New York at U.S. Bank National Association, 100 Wall Street, Suite 1600, New York, New York 10005. The Company may at any time, by notice to each holder of a Note, change the place of payment of the Notes so long as such place of payment shall be either the principal office of the Company in such jurisdiction or the principal office of a bank or trust company in such jurisdiction.

Section 15.2 Home Office Payment. So long as any Purchaser or its nominee shall be the holder of any Note, and notwithstanding anything contained in Section 15.1 or in such Note to the contrary, the Company will pay all sums becoming due on such Note for principal, Make-Whole Amount, if any, interest and all other amounts becoming due hereunder by the method and at the address specified for such purpose below such Purchaser’s name in Schedule A, or by such other method or at such other address as such Purchaser shall have from time to time

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specified to the Company in writing for such purpose, without the presentation or surrender of such Note or the making of any notation thereon, except that upon written request of the Company made concurrently with or reasonably promptly after payment or prepayment in full of such Note, such Purchaser shall surrender such Note for cancellation, reasonably promptly after any such request, to the Company at its principal executive office. Prior to any sale or other disposition of any Note held by any Purchaser or its nominee, such Purchaser will, at its election, either endorse thereon the amount of principal paid thereon and the last date to which interest has been paid thereon or surrender such Note in exchange for a new Note or Notes pursuant to Section 14.2. The Company will afford the benefits of this Section 15.2 to any Institutional Investor that is the direct or indirect transferee of any Note purchased by a Purchaser under this Agreement and that has made the same agreement relating to such Note as the Purchasers have made in this Section 15.2.

SECTION 16. EXPENSES, ETC.

Section 16.1 Transaction Expenses. Whether or not the transactions contemplated hereby are consummated, the Constituent Companies will pay all costs and expenses (including reasonable attorneys’ fees of a special counsel and, if reasonably required by the Required Holders, local or other counsel) incurred by the Purchasers and each other holder of a Note in connection with such transactions and in connection with any amendments, waivers or consents under or in respect of this Agreement or the Notes (whether or not such amendment, waiver or consent becomes effective), including, without limitation: (a) the costs and expenses incurred in enforcing or defending (or determining whether or how to enforce or defend) any rights under this Agreement or the Notes or in responding to any subpoena or other legal process or informal investigative demand issued in connection with this Agreement or the Notes or by reason of being a holder of any Note, (b) the costs and expenses, including financial advisors’ fees, incurred in connection with the insolvency or bankruptcy of a Constituent Company or any Subsidiary or in connection with any work-out or restructuring of the transactions contemplated hereby and by the Notes and (c) the costs and expenses incurred in connection with the initial filing of this Agreement and all related documents and financial information with the SVO; provided , that such reimbursed costs and expenses shall not exceed $3,300 for any series of Notes. The Constituent Companies will pay, and will save each Purchaser and each other holder of a Note harmless from, all claims in respect of any fees, costs or expenses, if any, owing to brokers and finders (other than those, if any, retained by a Purchaser or other holder in connection with its purchase of the Notes).

Section 16.2 Survival. The obligations of the Constituent Companies under this Section 16 will survive the payment or transfer of any Note, the enforcement, amendment or waiver of any provision of this Agreement or the Notes, and the termination of this Agreement.

SECTION 17. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE

AGREEMENT.

All representations and warranties contained herein shall survive the execution and delivery of this Agreement and the Notes, the purchase or transfer by any Purchaser of any Note or portion thereof or interest therein and the payment of any Note, and may be relied upon by any subsequent holder of a Note, regardless of any investigation made at any time by or on behalf of such Purchaser or any other holder of a Note. All statements contained in any

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certificate or other instrument delivered by or on behalf of a Constituent Company pursuant to this Agreement shall be deemed representations and warranties of such Constituent Company under this Agreement. Subject to the preceding sentence, this Agreement and the Notes embody the entire agreement and understanding between each Purchaser and the Constituent Companies and supersede all prior agreements and understandings relating to the subject matter hereof.

SECTION 18. AMENDMENT AND WAIVER.

Section 18.1 Requirements. This Agreement and the Notes may be amended, and the observance of any term hereof or of the Notes may be waived (either retroactively or prospectively), only with the written consent of the Constituent Companies and the Required Holders, except that:

(a) no amendment or waiver of any of the provisions of Section 1, 2, 3, 4, 5, 6 or 22 hereof, or any defined term (as it is used therein), will be effective as to any Purchaser unless consented to by such Purchaser in writing;

(b) no amendment or waiver may, without the written consent of the holder of each Note at the time outstanding, (1) subject to the provisions of Section 12 relating to acceleration or rescission, change the amount or time of any prepayment or payment of principal of, or reduce the rate or change the time of payment or method of computation of (i) interest on the Notes or (ii) the Make-Whole Amount, (2) change the percentage of the principal amount of the Notes the holders of which are required to consent to any such amendment or waiver or (3) amend any of Sections 8, 11(a), 11(b), 12, 13, 18 or 21.

Section 18.2 Solicitation of Holders of Notes .

(a) Solicitation . The Constituent Companies will provide each holder of a Note (irrespective of the amount of Notes then owned by it) with sufficient information, sufficiently far in advance of the date a decision is required, to enable such holder to make an informed and considered decision with respect to any proposed amendment, waiver or consent in respect of any of the provisions hereof or of the Notes. The Constituent Companies will deliver executed or true and correct copies of each amendment, waiver or consent effected pursuant to the provisions of this Section 18 to each holder of a Note promptly following the date on which it is executed and delivered by, or receives the consent or approval of, the requisite holders of Notes.

(b) Payment . The Constituent Companies will not, directly or indirectly, pay or cause to be paid any remuneration, whether by way of supplemental or additional interest, fee or otherwise, or grant any security or provide other credit support, to any holder of a Note as consideration for or as an inducement to the entering into by such holder of any waiver or amendment of any of the terms and provisions hereof or of any Note unless such remuneration is concurrently paid, or security is concurrently granted or other credit support concurrently provided, on the same terms, ratably to each holder of a Note even if such holder did not consent to such waiver or amendment.

(c) Consent in Contemplation of Transfer . Any consent made pursuant to this Section 18 by a holder of Notes that has transferred or has agreed to transfer its Notes to a

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Constituent Company or any other Person and has provided or has agreed to provide such written consent as a condition to such transfer shall be void and of no force or effect except solely as to such holder, and any amendments effected or waivers granted or to be effected or granted that would not have been or would not be so effected or granted but for such consent (and the consents of all other holders of Notes that were acquired under the same or similar conditions) shall be void and of no force or effect except solely as to such holder.

Section 18.3 Binding Effect, Etc. Any amendment or waiver consented to as provided in this Section 18 applies equally to all holders of Notes and is binding upon them and upon each future holder of any Note and upon the Constituent Companies without regard to whether such Note has been marked to indicate such amendment or waiver. No such amendment or waiver will extend to or affect any obligation, covenant, agreement, Default or Event of Default not expressly amended or waived or impair any right consequent thereon. No course of dealing between a Constituent Company and any holder of a Note and no delay in exercising any rights hereunder or under any Note shall operate as a waiver of any rights of any holder of such Note.

Section 18.4 Notes Held by a Constituent Company, Etc. Solely for the purpose of determining whether the holders of the requisite percentage of the aggregate principal amount of Notes then outstanding approved or consented to any amendment, waiver or consent to be given under this Agreement or the Notes, or have directed the taking of any action provided herein or in the Notes to be taken upon the direction of the holders of a specified percentage of the aggregate principal amount of Notes then outstanding, Notes directly or indirectly owned by a Constituent Company or any of its Affiliates shall be deemed not to be outstanding.

SECTION 19. NOTICES.

All notices, document deliveries and communications provided for hereunder shall be in writing and sent (a) by facsimile (so long as such facsimile produces a transmission receipt), (b) by registered or certified mail with return receipt requested (postage prepaid), (c) by an internationally or nationally recognized overnight delivery service (with charges prepaid) or (d) by e-mail. Any such notice must be sent:

(1) if to any Purchaser or its nominee, to such Purchaser or nominee at its facsimile, delivery, mailing or e-mail address specified for such communications in Schedule A,

(2) if to any other holder of any Note, to such holder at its facsimile, delivery, mailing or e-mail address as such other holder shall have specified to the Constituent Companies in writing,

(3) if to the Parent Guarantor,

Hawaiian Electric Company, Inc.

Attention: Ms. Tayne S.Y. Sekimura

Senior Vice President and Chief Financial Officer

900 Richards Street (if by hand delivery or overnight courier)

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Honolulu, Hawaii 96813

Telephone No.: (808) 543-7840

P.O. Box 2750 (if by mail)

Honolulu, Hawaii 96840-001

(808) 203-1176 (if by facsimile)

tayne.sekimura@heco.com and lorie.nagata@heco.com (if by e-mail), or

(4) if to the Company,

Hawaii Electric Light Company, Inc.

Attention: Ms. Tayne S.Y. Sekimura

Financial Vice President

900 Richards Street (if by hand delivery or overnight courier)

Honolulu, Hawaii 96813

Telephone No.: (808) 543-7840

P.O. Box 2750 (if by mail)

Honolulu, Hawaii 96840-001

(808) 203-1176 (if by facsimile)

tayne.sekimura@heco.com and lorie.nagata@heco.com (if by e-mail), or

(5) if to the Company’s Agent,

U.S. Bank National Association

Global Corporate Trust Services

Attention: Katherine Esber

Vice President

214 N. Tryon Street, 27 ^th Floor (if by mail, hand delivery or overnight courier)

Charlotte, NC 28202

Telephone No.: (704) 335-4655

(704) 335-4676 (if by facsimile)

katherine.esber@usbank.com (if by e-mail)

A Constituent Company, the Company’s Agent, any Purchaser and any other holder of a Note may change its facsimile, delivery, mailing or e-mail address for all communications hereunder by (i) notice to the Purchasers and other holders of outstanding Notes, in the case of a change by a Constituent Company or the Company’s Agent, and (ii) by notice to the Constituent Companies, in the case of a change by a Purchaser or other holder of one or more outstanding Notes.

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Notices, document deliveries and other communications given in accordance with this Section 19 will be deemed given on the date of receipt if sent in accordance with the most recent facsimile, hand delivery, mailing or e-mail instructions received from the recipient; provided that notices, document deliveries and other communications sent by facsimile or e-mail will be deemed received when sent unless the sender shall have received a transmission or delivery failure report in relation to such facsimile or e-mail message.

SECTION 20. REPRODUCTION OF DOCUMENTS.

This Agreement and all documents relating hereto, including, without limitation, (a) consents, waivers, amendments and other modifications that may hereafter be executed, (b) documents received by any Purchaser at the Closing (except the Notes themselves), and (c) financial statements, certificates and other information previously or hereafter furnished to any holder of the Notes, may be reproduced by such holder by any photographic, photostatic, electronic, digital or other similar process and such holder may destroy any original document so reproduced. Each Constituent Company agrees and stipulates that, to the extent permitted by applicable law, any such reproduction shall be admissible in evidence as the original itself in any judicial or administrative proceeding (whether or not the original is in existence and whether or not such reproduction was made by such holder of the Notes in the regular course of business) and any enlargement, facsimile or further reproduction of such reproduction shall likewise be admissible in evidence. This Section 20 shall not prohibit a Constituent Company or any other holder of Notes from contesting any such reproduction to the same extent that it could contest the original, or from introducing evidence to demonstrate the inaccuracy of any such reproduction.

SECTION 21. CONFIDENTIAL INFORMATION.

For the purposes of this Section 21, “Confidential Information” shall mean information delivered to any Purchaser by or on behalf of a Constituent Company or any Subsidiary in connection with the transactions contemplated by or otherwise pursuant to this Agreement that was clearly marked or labeled or otherwise adequately identified when received by such Purchaser as being confidential information of such Constituent Company or such Subsidiary; provided, that such term does not include information that (a) was publicly known or otherwise known to such Purchaser prior to the time of such disclosure, (b) subsequently becomes publicly known through no act or omission by such Purchaser or any Person acting on such Purchaser’s behalf, (c) otherwise becomes known to such Purchaser other than through disclosure by a Constituent Company or any Subsidiary unless the direct or indirect source of such information is known by such Purchaser to be obligated to hold such information in confidence or (d) constitutes financial statements delivered to such Purchaser under Section 7.1 that are otherwise publicly available. Each Purchaser will maintain the confidentiality of such Confidential Information in accordance with procedures adopted by such Purchaser in good faith to protect confidential information of third parties delivered to such Purchaser; provided, that such Purchaser may deliver or disclose Confidential Information to (1) its directors, officers, employees, agents, attorneys, trustees and affiliates (to the extent such disclosure reasonably relates to the administration of the investment represented by its Notes), (2) its auditors, financial advisors and other professional advisors who agree to hold confidential the Confidential Information substantially in accordance with the terms of this Section 21, (3) any other holder of any Note, (4) any Institutional Investor to which such Purchaser sells or offers to sell such Note

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or any part thereof or any participation therein (if such Person has agreed in writing prior to its receipt of such Confidential Information to be bound by the provisions of this Section 21), (5) any Person from which such Purchaser offers to purchase any Security of a Constituent Company (if such Person has agreed in writing prior to its receipt of such Confidential Information to be bound by the provisions of this Section 21), (6) any federal or state regulatory authority having jurisdiction over such Purchaser, (7) the NAIC or the SVO or, in each case, any similar organization, or any nationally recognized rating agency that requires access to information about such Purchaser’s investment portfolio or (8) any other Person to which such delivery or disclosure may be necessary or appropriate (i) to effect compliance with any law, rule, regulation or order applicable to such Purchaser, (ii) in response to any subpoena or other legal process (and, subject to clause (iv) below, if not prohibited by applicable law or regulation, such Purchaser shall use commercially reasonable efforts to give notice thereof to the Constituent Companies prior to such disclosure), (iii) in connection with any litigation to which such Purchaser is a party (and, subject to clause (iv) below, if not prohibited by applicable law or regulation, such Purchaser shall use commercially reasonable efforts to give notice thereof to the Constituent Companies prior to such disclosure) or (iv) if an Event of Default has occurred and is continuing, to the extent such Purchaser may reasonably determine such delivery and disclosure to be necessary or appropriate in the enforcement or for the protection of the rights and remedies under such Purchaser’s Notes or this Agreement. Each holder of a Note, by its acceptance of such Note, will be deemed to have agreed to be bound by and to be entitled to the benefits of this Section 21 as though it were a party to this Agreement. On reasonable request by a Constituent Company in connection with the delivery to any holder of a Note of information required to be delivered to such holder under this Agreement or requested by such holder (other than a holder that is a party to this Agreement or its nominee), such holder will enter into an agreement with the Constituent Companies embodying the provisions of this Section 21.

In the event that as a condition to receiving access to information relating to a Constituent Company or its Subsidiaries in connection with the transactions contemplated by or otherwise pursuant to this Agreement, any Purchaser is required to agree to a confidentiality undertaking (whether through IntraLinks, another secure website, a secure virtual workspace or otherwise) which is different from the terms of this Section 21, the terms of this Section 21 shall not be amended thereby and, as between such Purchaser and the Constituent Companies, this Section 21 shall supersede the terms of any such other confidentiality undertaking.

SECTION 22. SUBSTITUTION OF PURCHASER.

Each Purchaser shall have the right to substitute any one of its Affiliates or another Purchaser or any one of such other Purchaser’s Affiliates (a “Substitute Purchaser” ) as the purchaser of the Notes that it has agreed to purchase hereunder, by written notice to the Constituent Companies, which notice shall be signed by both such Purchaser and such Substitute Purchaser, shall contain such Substitute Purchaser’s agreement to be bound by this Agreement and shall contain a confirmation by such Substitute Purchaser of the accuracy with respect to it of the representations set forth in Section 6. Upon receipt of such notice, any reference to such Purchaser in this Agreement (other than in this Section 22), shall be deemed to refer to such Substitute Purchaser in lieu of such original Purchaser. In the event that such Substitute Purchaser is so substituted as a Purchaser hereunder and such Substitute Purchaser thereafter transfers to such original Purchaser all of the Notes then held by such Substitute Purchaser, upon

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receipt by the Constituent Companies of notice of such transfer, any reference to such Substitute Purchaser as a “Purchaser” in this Agreement (other than in this Section 22), shall no longer be deemed to refer to such Substitute Purchaser, but shall refer to such original Purchaser, and such original Purchaser shall again have all the rights of an original holder of the Notes under this Agreement.

SECTION 23. MISCELLANEOUS.

Section 23.1 Successors and Assigns. All covenants and other agreements contained in this Agreement by or on behalf of any of the parties hereto shall bind and inure to the benefit of their respective successors and assigns (including, without limitation, any subsequent holder of a Note) whether so expressed or not.

Section 23.2 Payments Due on Non-Business Days. Anything in this Agreement or the Notes to the contrary notwithstanding, any payment of principal of or Make-Whole Amount, if any, or interest on any Note that is due on a date other than a Business Day shall be made on the next succeeding Business Day without including the additional days elapsed in the computation of the interest payable on such next succeeding Business Day; provided that if the maturity date of any Note is a date other than a Business Day, the payment otherwise due on such maturity date shall be made on the next succeeding Business Day and shall include the additional days elapsed in the computation of interest payable on such next succeeding Business Day.

Section 23.3 Accounting Terms; Change in GAAP.

(a) All accounting terms used herein which are not expressly defined in this Agreement have the meanings respectively given to them in accordance with GAAP. Except as otherwise specifically provided herein, (1) all computations made pursuant to this Agreement shall be made in accordance with GAAP, and (2) all financial statements shall be prepared in accordance with GAAP. For purposes of determining compliance with the covenants set out in this Agreement (including, without limitation, Section 9, Section 10 and the definition of “Indebtedness”), any election by the Parent Guarantor to measure any financial asset or liability using fair value (as permitted by Financial Accounting Standards Board Accounting Standard Codification Topic No. 825-10-25 – Fair Value Option , International Accounting Standard 39 – Financial Instruments; Recognition and Measurement or any similar accounting standard) shall be disregarded and such determination shall be made as if such election had not been made.

(b) If at any time any change in GAAP would affect the computation of any financial ratio or requirement set forth in this Agreement, and the Constituent Companies or the Required Holders shall so request, representatives of the holders of the Notes designated by the Required Holders at such time and the Constituent Companies shall negotiate in good faith to amend such ratio or requirement to preserve the original intent thereof in light of such change in GAAP (subject to the approval of the Required Holders); provided that, until so amended, (1) such ratio or requirement shall continue to be computed in accordance with GAAP prior to such change therein, and (2) the Constituent Companies shall provide to the holders of the Notes that are Institutional Investors financial statements and other documents required under this Agreement or as

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reasonably requested hereunder setting forth a reconciliation between calculations of such ratio or requirement made before and after giving effect to such change in GAAP.

Section 23.4 Severability. Any provision of this Agreement that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall (to the full extent permitted by law) not invalidate or render unenforceable such provision in any other jurisdiction.

Section 23.5 Construction, Etc. Each covenant contained herein shall be construed (absent express provision to the contrary) as being independent of each other covenant contained herein, so that compliance with any one covenant shall not (absent such an express contrary provision) be deemed to excuse compliance with any other covenant. Where any provision herein refers to action to be taken by any Person, or which such Person is prohibited from taking, such provision shall be applicable whether such action is taken directly or indirectly by such Person.

Section 23.6 Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be an original but all of which together shall constitute one instrument. Each counterpart may consist of a number of copies hereof, each signed by less than all, but together signed by all, of the parties hereto. Delivery of an executed signature page of this Agreement by facsimile or other electronic transmission shall be effective as delivery of an original, manually executed counterpart of such signature page.

Section 23.7 Governing Law. This Agreement shall be construed and enforced in accordance with, and the rights of the parties shall be governed by, the law of the State of New York excluding choice-of-law principles of the law of such State that would require or permit the application of the laws of a jurisdiction other than such State.

Section 23.8 Jurisdiction and Process; Waiver of Jury Trial .

(a) Each Constituent Company irrevocably submits to the non-exclusive jurisdiction of any New York State or federal court sitting in the Borough of Manhattan, The City of New York, over any suit, action or proceeding arising out of or relating to this Agreement or the Notes. To the fullest extent permitted by applicable law, each Constituent Company irrevocably waives and agrees not to assert, by way of motion, as a defense or otherwise, any claim that it is not subject to the jurisdiction of any such court, any objection that it may now or hereafter have to the laying of the venue of any such suit, action or proceeding brought in any such court and any claim that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum.

(b) Each Constituent Company consents to process being served by or on behalf of any holder of Notes in any suit, action or proceeding of the nature referred to in Section 23.8(a) by mailing a copy thereof by registered or certified mail (or any substantially similar form of mail), postage prepaid, return receipt requested, to it at its address specified in Section 19 or at such other address of which such holder shall then

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have been notified pursuant to said Section. Each Constituent Company agrees that such service upon receipt (1) shall be deemed in every respect effective service of process upon it in any such suit, action or proceeding and (2) shall, to the fullest extent permitted by applicable law, be taken and held to be valid personal service upon and personal delivery to it. Notices hereunder shall be conclusively presumed received as evidenced by a delivery receipt furnished by the United States Postal Service or any reputable commercial delivery service.

(c) Nothing in this Section 23.8 shall affect the right of any holder of a Note to serve process in any manner permitted by law, or limit any right that the holders of any of the Notes may have to bring proceedings against a Constituent Company in the courts of any appropriate jurisdiction or to enforce in any lawful manner a judgment obtained in one jurisdiction in any other jurisdiction.

(d) THE PARTIES HERETO HEREBY WAIVE TRIAL BY JURY IN ANY ACTION BROUGHT ON OR WITH RESPECT TO THIS AGREEMENT, THE NOTES OR ANY OTHER DOCUMENT EXECUTED IN CONNECTION HEREWITH OR THEREWITH.

* * * * *

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The execution hereof by the Purchasers shall constitute a contract among the Company, the Parent Guarantor and the Purchasers for the uses and purposes and on the terms hereinabove set forth.

Very truly yours,

HAWAII ELECTRIC LIGHT COMPANY, INC.

/s/ Tayne S.Y. Sekimura

Tayne S.Y. Sekimura

Financial Vice President

/s/ Lorie Ann Nagata

Lorie Ann Nagata

Treasurer

HAWAIIAN ELECTRIC COMPANY, INC.

/s/ Tayne S.Y. Sekimura

Tayne S.Y. Sekimura

Senior Vice President and Chief Financial Officer

/s/ Lorie Ann Nagata

Lorie Ann Nagata

Treasurer

Signature Page to Note Purchase and Guaranty Agreement

Hawaii Electric Light Company, Inc.



This Agreement is hereby accepted and agreed to as of the date thereof.
	ING LIFE INSURANCE AND ANNUITY COMPANY ING USA ANNUITY AND LIFE INSURANCE COMPANY RELIASTAR LIFE INSURANCE COMPANY SECURITY LIFE OF DENVER INSURANCE COMPANY RELIASTAR LIFE INSURANCE COMPANY OF NEW YORK
	By: ING Investment Management LLC, as Agent
	By: /s/ Paul Aronson Name: Paul Aronson Title: Senior Vice President

Signature Page to Note Purchase and Guaranty Agreement

Hawaii Electric Light Company, Inc.



This Agreement is hereby accepted and agreed to as of the date thereof.
	THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
	By: Delaware Investment Advisers, a series of Delaware Management Business Trust, Attorney in Fact By /s/ Karl H. Spaeth, Jr. CFA Name: Karl H. Spaeth, Jr. CFA Title: Vice President
	LINCOLN LIFE & ANNUITY COMPANY OF NEW YORK By: Delaware Investment Advisers, a series of Delaware Management Business Trust, Attorney-in-Fact By: /s/ Karl H. Spaeth, Jr. CFA Name: Karl H. Spaeth, Jr. CFA Title: Vice President

Signature Page to Note Purchase and Guaranty Agreement

Hawaii Electric Light Company, Inc.



This Agreement is hereby accepted and agreed to as of the date thereof.
	PACIFIC LIFE INSURANCE COMPANY
	By /s/ Matthew A. Levene Name: Matthew A. Levene Title: Assistant Vice President
	By /s/ Cathy Schwartz Name: Cathy Schwartz Title: Assistant Secretary

Signature Page to Note Purchase and Guaranty Agreement

Hawaii Electric Light Company, Inc.



This Agreement is hereby accepted and agreed to as of the date thereof.
	PRINCIPAL LIFE INSURANCE COMPANY
	By: Principal Global Investors, LLC a Delaware limited liability company, its authorized signatory By /s/ Alan P. Kress Name: Alan P. Kress Title: Counsel
	By /s/ Adrienne L. McFarland Name: Adrienne L. McFarland Title: Counsel

Signature Page to Note Purchase and Guaranty Agreement

Hawaii Electric Light Company, Inc.



This Agreement is hereby accepted and agreed to as of the date thereof.
	CoBank, ACB
	By /s/ John Kemper Name: John Kemper Title: Vice President

Signature Page to Note Purchase and Guaranty Agreement

Hawaii Electric Light Company, Inc.



This Agreement is hereby accepted and agreed to as of the date thereof.
	PHL Variable Insurance Company
	By /s/ Christopher M. Wilkos Name: Christopher M. Wilkos Title: Executive Vice President

Signature Page to Note Purchase and Guaranty Agreement

Hawaii Electric Light Company, Inc.

INFORMATION RELATING TO PURCHASERS



	Name and Address of Purchaser	Principal Amount of Series A Notes to be Purchased	Principal Amount of Series B Notes to be Purchased	Principal Amount of Series C Notes to be Purchased
	ING USA ANNUITY AND LIFE INSURANCE COMPANY c/o ING Investment Management LLC 5780 Powers Ferry Road NW, Suite 300 Atlanta, GA 30327-4347	$0	$0	$4,100,000
(1)	All payments on account of Notes held by such purchaser should be made by wire transfer of immediately available funds for credit to: Provided to Company under separate cover Each such wire transfer should set forth the name of the issuer, the full title (including the coupon rate, issuance date, and final maturity date) of the Notes on account of which such payment is made, and the due date and application (as among principal, premium and interest) of the payment being made.
(2)	Address for all notices related to payments: ING Investment Management LLC 5780 Powers Ferry Road NW, Suite 300 Atlanta, GA 30327-4347 Attn: Operations/Settlements Fax: (770) 690-5316
(3)	Address for all other communications and notices: ING Investment Management LLC 5780 Powers Ferry Road NW, Suite 300 Atlanta, GA 30327-4347



	Attn: Private Placements Fax: (770) 690-5342
(4)	Address for Delivery of Notes: The Bank of New York Mellon One Wall Street Window A - 3rd Floor New York, NY 10286 with a copy to: ING Investment Management LLC 5780 Powers Ferry Road NW, Suite 300 Atlanta, GA 30327-4347 Attn: Joyce Resnick Email: Joyce.Resnick@INGinvestment.com Each cover letter accompanying the Notes should set forth the name of the issuer, a description of the Notes (including the interest rate, maturity date and private placement number), and the name of each purchaser and its account number at The Bank of New York Mellon
(5)	Tax Identification Number: Provided to Company under separate cover Nominee Name: None



	Name and Address of Purchaser	Principal Amount of Series A Notes to be Purchased	Principal Amount of Series B Notes to be Purchased	Principal Amount of Series C Notes to be Purchased
	RELIASTAR LIFE INSURANCE COMPANY c/o ING Investment Management LLC 5780 Powers Ferry Road NW, Suite 300 Atlanta, GA 30327-4347	$0	$0	$1,100,000
(1)	All payments on account of Notes held by such purchaser should be made by wire transfer of immediately available funds for credit to: Provided to Company under separate cover Each such wire transfer should set forth the name of the issuer, the full title (including the coupon rate, issuance date, and final maturity date) of the Notes on account of which such payment is made, and the due date and application (as among principal, premium and interest) of the payment being made.
(2)	Address for all notices related to payments: ING Investment Management LLC 5780 Powers Ferry Road NW, Suite 300 Atlanta, GA 30327-4347 Attn: Operations/Settlements Fax: (770) 690-5316
(3)	Address for all other communications and notices: ING Investment Management LLC 5780 Powers Ferry Road NW, Suite 300 Atlanta, GA 30327-4347



	Attn: Private Placements Fax: (770) 690-5342
(4)	Address for Delivery of Notes: The Bank of New York Mellon One Wall Street Window A - 3rd Floor New York, NY 10286 with a copy to: ING Investment Management LLC 5780 Powers Ferry Road NW, Suite 300 Atlanta, GA 30327-4347 Attn: Joyce Resnick Email: Joyce.Resnick@INGinvestment.com Each cover letter accompanying the Notes should set forth the name of the issuer, a description of the Notes (including the interest rate, maturity date and private placement number), and the name of each purchaser and its account number at The Bank of New York Mellon
(5)	Tax Identification Number: Provided to Company under separate cover Nominee Name: None



	Name and Address of Purchaser	Principal Amount of Series A Notes to be Purchased	Principal Amount of Series B Notes to be Purchased	Principal Amount of Series C Notes to be Purchased
	ING LIFE INSURANCE AND ANNUITY COMPANY c/o ING Investment Management LLC 5780 Powers Ferry Road NW, Suite 300 Atlanta, GA 30327-4347	$0	$0	$4,800,000
(1)	All payments on account of Notes held by such purchaser should be made by wire transfer of immediately available funds for credit to: Provided to Company under separate cover Each such wire transfer should set forth the name of the issuer, the full title (including the coupon rate, issuance date, and final maturity date) of the Notes on account of which such payment is made, and the due date and application (as among principal, premium and interest) of the payment being made.
(2)	Address for all notices related to payments: ING Investment Management LLC 5780 Powers Ferry Road NW, Suite 300 Atlanta, GA 30327-4347 Attn: Operations/Settlements Fax: (770) 690-5316
(3)	Address for all other communications and notices: ING Investment Management LLC 5780 Powers Ferry Road NW, Suite 300



	Atlanta, GA 30327-4347 Attn: Private Placements Fax: (770) 690-5342
(4)	Address for Delivery of Notes: The Bank of New York Mellon One Wall Street Window A - 3rd Floor New York, NY 10286 with a copy to: ING Investment Management LLC 5780 Powers Ferry Road NW, Suite 300 Atlanta, GA 30327-4347 Attn: Joyce Resnick Email: Joyce.Resnick@INGinvestment.com Each cover letter accompanying the Notes should set forth the name of the issuer, a description of the Notes (including the interest rate, maturity date and private placement number), and the name of each purchaser and its account number at The Bank of New York Mellon
(5)	Tax Identification Number: Provided to Company under separate cover Nominee Name: None



	Name and Address of Purchaser	Principal Amount of Series A Notes to be Purchased	Principal Amount of Series B Notes to be Purchased	Principal Amount of Series C Notes to be Purchased
	SECURITY LIFE OF DENVER INSURANCE COMPANY c/o ING Investment Management LLC 5780 Powers Ferry Road NW, Suite 300 Atlanta, GA 30327-4347	$0	$0	$1,700,000
(1)	All payments on account of Notes held by such purchaser should be made by wire transfer of immediately available funds for credit to: Provided to Company under separate cover Each such wire transfer should set forth the name of the issuer, the full title (including the coupon rate, issuance date, and final maturity date) of the Notes on account of which such payment is made, and the due date and application (as among principal, premium and interest) of the payment being made.
(2)	Address for all notices related to payments: ING Investment Management LLC 5780 Powers Ferry Road NW, Suite 300 Atlanta, GA 30327-4347 Attn: Operations/Settlements Fax: (770) 690-5316
(3)	Address for all other communications and notices: ING Investment Management LLC 5780 Powers Ferry Road NW, Suite 300



	Atlanta, GA 30327-4347 Attn: Private Placements Fax: (770) 690-5342
(4)	Address for Delivery of Notes: The Bank of New York Mellon One Wall Street Window A - 3rd Floor New York, NY 10286 with a copy to: ING Investment Management LLC 5780 Powers Ferry Road NW, Suite 300 Atlanta, GA 30327-4347 Attn: Joyce Resnick Email: Joyce.Resnick@INGinvestment.com Each cover letter accompanying the Notes should set forth the name of the issuer, a description of the Notes (including the interest rate, maturity date and private placement number), and the name of each purchaser and its account number at The Bank of New York Mellon
(5)	Tax Identification Number: Provided to Company under separate cover Nominee Name: None



	Name and Address of Purchaser	Principal Amount of Series A Notes to be Purchased	Principal Amount of Series B Notes to be Purchased	Principal Amount of Series C Notes to be Purchased
	RELIASTAR LIFE INSURANCE COMPANY OF NEW YORK c/o ING Investment Management LLC 5780 Powers Ferry Road NW, Suite 300 Atlanta, GA 30327-4347	$0	$0	$300,000
(1)	All payments on account of Notes held by such purchaser should be made by wire transfer of immediately available funds for credit to: Provided to Company under separate cover Each such wire transfer should set forth the name of the issuer, the full title (including the coupon rate, issuance date, and final maturity date) of the Notes on account of which such payment is made, and the due date and application (as among principal, premium and interest) of the payment being made.
(2)	Address for all notices related to payments: ING Investment Management LLC 5780 Powers Ferry Road NW, Suite 300 Atlanta, GA 30327-4347 Attn: Operations/Settlements Fax: (770) 690-5316
(3)	Address for all other communications and notices: ING Investment Management LLC 5780 Powers Ferry Road NW, Suite 300



	Atlanta, GA 30327-4347 Attn: Private Placements Fax: (770) 690-5342
(4)	Address for Delivery of Notes: The Bank of New York Mellon One Wall Street Window A - 3rd Floor New York, NY 10286 with a copy to: ING Investment Management LLC 5780 Powers Ferry Road NW, Suite 300 Atlanta, GA 30327-4347 Attn: Joyce Resnick Email: Joyce.Resnick@INGinvestment.com Each cover letter accompanying the Notes should set forth the name of the issuer, a description of the Notes (including the interest rate, maturity date and private placement number), and the name of each purchaser and its account number at The Bank of New York Mellon
(5)	Tax Identification Number: Provided to Company under separate cover Nominee Name: None



	Name and Address of Purchaser	Principal Amount of Series A Notes to be Purchased	Principal Amount of Series B Notes to be Purchased	Principal Amount of Series C Notes to be Purchased
	THE LINCOLN NATIONAL LIFE INSURANCE COMPANY c/o Delaware Investment Advisers 2005 Market Street, Mail Stop 41-104 Philadelphia, PA 19103	$0	$0	$2,880,000
(1)	All payments to be by wire transfer of immediately available funds, with sufficient information (including PPN #, interest rate, maturity date, interest amount, principal amount and premium amount, if applicable) to identify the source and application of such funds, to: Provided to Company under separate cover
(2)	All notices of payments and written confirmations of such wire transfers: The Bank of New York Mellon P.O. Box 19266 Newark, New Jersey 07195 Attn: Private Placement P & I Dept Reference: Acct Name/PPN/Cusip# With a copy to: Lincoln Financial Group 1300 South Clinton Street, 2H-17 Fort Wayne, IN 46802 Attn: K.Estep – Investment Accounting Investment Accounting Fax: 260-455-2622
(3)	All other Communications: Delaware Investment Advisers 2005 Market Street, Mail Stop 41-104 Philadelphia, PA 19103 Attn: Fixed Income Private Placements



	Private Placement Fax: 215-255-1654
(4)	Address for Delivery of Notes: The Bank of New York Mellon Attn: Free Receive Department Contact Person: Anthony Saviano (Telephone 212-635-6764) One Wall Street, 3 ^rd Floor New York, NY 10286 (in cover letter reference note amt, The Lincoln National Life Insurance Company Seg 11 and A/C #) With a copy faxed to: Karen Costa – The Bank of New York Mellon (Fax#315-414-5017) And a copy to Andrea Fox (andrea.fox@lfg.com)
(5)	Name of Nominee in which Notes are to be issued: None Tax Identification Number: Provided to Company under separate cover



	Name and Address of Purchaser	Principal Amount of Series A Notes to be Purchased	Principal Amount of Series B Notes to be Purchased	Principal Amount of Series C Notes to be Purchased
	THE LINCOLN NATIONAL LIFE INSURANCE COMPANY c/o Delaware Investment Advisers 2005 Market Street, Mail Stop 41-104 Philadelphia, PA 19103	$0	$0	$2,640,000
(1)	All payments to be by wire transfer of immediately available funds, with sufficient information (including PPN #, interest rate, maturity date, interest amount, principal amount and premium amount, if applicable) to identify the source and application of such funds, to: Provided to Company under separate cover
(2)	All notices of payments and written confirmations of such wire transfers: The Bank of New York Mellon P.O. Box 19266 Newark, New Jersey 07195 Attn: Private Placement P & I Dept Reference: Acct Name/PPN/Cusip# With a copy to: Lincoln Financial Group 1300 South Clinton Street, 2H-17 Fort Wayne, IN 46802 Attn: K.Estep – Investment Accounting Investment Accounting Fax: 260-455-2622
(3)	All other Communications: Delaware Investment Advisers 2005 Market Street, Mail Stop 41-104 Philadelphia, PA 19103 Attn: Fixed Income Private Placements



	Private Placement Fax: 215-255-1654
(4)	Address for Delivery of Notes: The Bank of New York Mellon Attn: Free Receive Department Contact Person: Anthony Saviano (Telephone 212-635-6764) One Wall Street, 3 ^rd Floor New York, NY 10286 (in cover letter reference note amt, The Lincoln National Life Insurance Company Seg 16 and A/C #) With a copy faxed to: Karen Costa – The Bank of New York Mellon (Fax#315-414-5017) And a copy to Andrea Fox (andrea.fox@lfg.com)
(5)	Name of Nominee in which Notes are to be issued: None Tax Identification Number: Provided to Company under separate cover



	Name and Address of Purchaser	Principal Amount of Series A Notes to be Purchased	Principal Amount of Series B Notes to be Purchased	Principal Amount of Series C Notes to be Purchased
	THE LINCOLN NATIONAL LIFE INSURANCE COMPANY c/o Delaware Investment Advisers 2005 Market Street, Mail Stop 41-104 Philadelphia, PA 19103	$0	$0	$3,120,000
(1)	All payments to be by wire transfer of immediately available funds, with sufficient information (including PPN #, interest rate, maturity date, interest amount, principal amount and premium amount, if applicable) to identify the source and application of such funds, to: Provided to Company under separate cover
(2)	All notices of payments and written confirmations of such wire transfers: The Bank of New York Mellon P.O. Box 19266 Newark, New Jersey 07195 Attn: Private Placement P & I Dept Reference: Acct Name/PPN/Cusip# With a copy to: Lincoln Financial Group 1300 South Clinton Street, 2H-17 Fort Wayne, IN 46802 Attn: K.Estep – Investment Accounting Investment Accounting Fax: 260-455-2622
(3)	All other Communications: Delaware Investment Advisers 2005 Market Street, Mail Stop 41-104 Philadelphia, PA 19103 Attn: Fixed Income Private Placements



	Private Placement Fax: 215-255-1654
(4)	Address for Delivery of Notes: The Bank of New York Mellon Attn: Free Receive Department Contact Person: Anthony Saviano (Telephone 212-635-6764) One Wall Street, 3 ^rd Floor New York, NY 10286 (in cover letter reference note amt, The Lincoln National Life Insurance Company Seg 65 and A/C #) With a copy faxed to: Karen Costa – The Bank of New York Mellon (Fax#315-414-5017) And a copy to Andrea Fox (andrea.fox@lfg.com)
(5)	Name of Nominee in which Notes are to be issued: None Tax Identification Number: Provided to Company under separate cover



	Name and Address of Purchaser	Principal Amount of Series A Notes to be Purchased	Principal Amount of Series B Notes to be Purchased	Principal Amount of Series C Notes to be Purchased
	THE LINCOLN NATIONAL LIFE INSURANCE COMPANY c/o Delaware Investment Advisers 2005 Market Street, Mail Stop 41-104 Philadelphia, PA 19103	$0	$0	$720,000
(1)	All payments to be by wire transfer of immediately available funds, with sufficient information (including PPN #, interest rate, maturity date, interest amount, principal amount and premium amount, if applicable) to identify the source and application of such funds, to: Provided to Company under separate cover
(2)	All notices of payments and written confirmations of such wire transfers: The Bank of New York Mellon P.O. Box 19266 Newark, New Jersey 07195 Attn: Private Placement P & I Dept Reference: Acct Name/PPN/Cusip# With a copy to: Lincoln Financial Group 1300 South Clinton Street, 2H-17 Fort Wayne, IN 46802 Attn: K.Estep – Investment Accounting Investment Accounting Fax: 260-455-2622
(3)	All other Communications: Delaware Investment Advisers 2005 Market Street, Mail Stop 41-104 Philadelphia, PA 19103 Attn: Fixed Income Private Placements



	Private Placement Fax: 215-255-1654
(4)	Address for Delivery of Notes: The Bank of New York Mellon Attn: Free Receive Department Contact Person: Anthony Saviano (Telephone 212-635-6764) One Wall Street, 3 ^rd Floor New York, NY 10286 (in cover letter reference note amt, The Lincoln National Life Insurance Company Seg J201 and A/C #) With a copy faxed to: Karen Costa – The Bank of New York Mellon (Fax#315-414-5017) And a copy to Andrea Fox (andrea.fox@lfg.com)
(5)	Name of Nominee in which Notes are to be issued: None Tax Identification Number: Provided to Company under separate cover



	Name and Address of Purchaser	Principal Amount of Series A Notes to be Purchased	Principal Amount of Series B Notes to be Purchased	Principal Amount of Series C Notes to be Purchased
	THE LINCOLN NATIONAL LIFE INSURANCE COMPANY c/o Delaware Investment Advisers 2005 Market Street, Mail Stop 41-104 Philadelphia, PA 19103	$0	$0	$960,000
(1)	All payments to be by wire transfer of immediately available funds, with sufficient information (including PPN #, interest rate, maturity date, interest amount, principal amount and premium amount, if applicable) to identify the source and application of such funds, to: Provided to Company under separate cover
(2)	All notices of payments and written confirmations of such wire transfers: The Bank of New York Mellon P.O. Box 19266 Newark, New Jersey 07195 Attn: Private Placement P & I Dept Reference: Acct Name/PPN/Cusip# With a copy to: Lincoln Financial Group 1300 South Clinton Street, 2H-17 Fort Wayne, IN 46802 Attn: K.Estep – Investment Accounting Investment Accounting Fax: 260-455-2622
(3)	All other Communications: Delaware Investment Advisers 2005 Market Street, Mail Stop 41-104 Philadelphia, PA 19103 Attn: Fixed Income Private Placements



	Private Placement Fax: 215-255-1654
(4)	Address for Delivery of Notes: The Bank of New York Mellon Attn: Free Receive Department Contact Person: Anthony Saviano (Telephone 212-635-6764) One Wall Street, 3 ^rd Floor New York, NY 10286 (in cover letter reference note amt, The Lincoln National Life Insurance Company Seg 46 and A/C #) With a copy faxed to: Karen Costa – The Bank of New York Mellon (Fax#315-414-5017) And a copy to Andrea Fox (andrea.fox@lfg.com)
(5)	Name of Nominee in which Notes are to be issued: None Tax Identification Number: Provided to Company under separate cover



	Name and Address of Purchaser	Principal Amount of Series A Notes to be Purchased	Principal Amount of Series B Notes to be Purchased	Principal Amount of Series C Notes to be Purchased
	LINCOLN LIFE & ANNUITY COMPANY OF NEW YORK c/o Delaware Investment Advisers 2005 Market Street, Mail Stop 41-104 Philadelphia, PA 19103	$0	$0	$720,000
(1)	All payments to be by wire transfer of immediately available funds, with sufficient information (including PPN #, interest rate, maturity date, interest amount, principal amount and premium amount, if applicable) to identify the source and application of such funds, to: Provided to Company under separate cover
(2)	All notices of payments and written confirmations of such wire transfers: The Northern Trust Company 801 South Canal Street Income Collections C-4S Attention: Viola Nash / Oscell Owens Chicago, IL 60607 Fax: 312-630-8179 (REFERENCE: ACCT NAME AND PPN/CUSIP#) With a copy to: Lincoln Financial Group 1300 South Clinton Street, 2H-17 Fort Wayne, IN 46802 Attn: K.Estep – Investment Accounting Investment Accounting Fax: 260-455-2622
(3)	All other Communications:



	Delaware Investment Advisers 2005 Market Street, Mail Stop 41-104 Philadelphia, PA 19103 Attn: Fixed Income Private Placements Private Placement Fax: 215-255-1654
(4)	Address for Delivery of Notes: The Northern Trust Company Attn: Wanda Leshone Ross (T: 312-557-9507) Trade Securities Processing, C1N 801 South Canal Street Chicago, IL 60607 (in cover letter reference Lincoln Life & Annuity Company of New York - Seg 10, A/C# ) And a copy to Andrea Fox (andrea.fox@lfg.com)
(5)	Name of Nominee in which Notes are to be issued: None Tax Identification Number: Provided to Company under separate cover



	Name and Address of Purchaser	Principal Amount of Series A Notes to be Purchased	Principal Amount of Series B Notes to be Purchased	Principal Amount of Series C Notes to be Purchased
	LINCOLN LIFE & ANNUITY COMPANY OF NEW YORK c/o Delaware Investment Advisers 2005 Market Street, Mail Stop 41-104 Philadelphia, PA 19103	$0	$0	$960,000
(1)	All payments to be by wire transfer of immediately available funds, with sufficient information (including PPN #, interest rate, maturity date, interest amount, principal amount and premium amount, if applicable) to identify the source and application of such funds, to: Provided to Company under separate cover
(2)	All notices of payments and written confirmations of such wire transfers: The Northern Trust Company 801 South Canal Street Income Collections C-4S Attention: Viola Nash / Oscell Owens Chicago, IL 60607 Fax: 312-630-8179 (REFERENCE: ACCT NAME AND PPN/CUSIP#) With a copy to: Lincoln Financial Group 1300 South Clinton Street, 2H-17 Fort Wayne, IN 46802 Attn: K.Estep – Investment Accounting Investment Accounting Fax: 260-455-2622
	All other Communications:



	Delaware Investment Advisers 2005 Market Street, Mail Stop 41-104 Philadelphia, PA 19103 Attn: Fixed Income Private Placements Private Placement Fax: 215-255-1654
(4)	Address for Delivery of Notes: The Northern Trust Company Attn: Wanda Leshone Ross (T: 312-557-9507) Trade Securities Processing, C1N 801 South Canal Street Chicago, IL 60607 (in cover letter reference Lincoln Life & Annuity Company of New York - Seg 11, A/C#) And a copy to Andrea Fox (andrea.fox@lfg.com)
(5)	Name of Nominee in which Notes are to be issued: None Tax Identification Number: Provided to Company under separate cover



	Name and Address of Purchaser	Principal Amount of Series A Notes to be Purchased	Principal Amount of Series B Notes to be Purchased	Principal Amount of Series C Notes to be Purchased
	PACIFIC LIFE INSURANCE COMPANY 700 Newport Center Drive Newport Beach, CA 92660-6397	$0	$0	$5,000,000 $1,000,000
(1)	All payments to be by wire transfer of immediately available funds, with sufficient information (including PPN #, interest rate, maturity date, interest amount, principal amount and premium amount, if applicable) to identify the source and application of such funds, to: Provided to Company under separate cover
(2)	All notices of payments and written confirmations of such wire transfers: Mellon Trust Attn: Pacific Life Accounting Team One Mellon Bank Center, Room 0930 Pittsburgh, PA 15259 AND Pacific Life Insurance Company Attn: IM – Cash Team 700 Newport Center Drive Newport Beach, CA 92660-6397 FAX: 949-718-5845
(3)	All other Communications: Pacific Life Insurance Company Attn: IM – Credit Analysis 700 Newport Center Drive Newport Beach, CA 92660-6397 FAX: 949-219-5406
(4)	Address for Delivery of Notes:



	Mellon Securities Trust Company One Wall Street 3 ^rd Floor Receive Window C New York, NY 10286 Contact Name & Phone: Robert Ferraro 212-635-1299 A/C Name: General Account A/C#
(5)	Name of Nominee in which Notes are to be issued: Mac & Co., as nominee for Pacific Life Insurance Company Tax Identification Number: Provided to Company under separate cover



	Name and Address of Purchaser	Principal Amount of Series A Notes to be Purchased	Principal Amount of Series B Notes to be Purchased	Principal Amount of Series C Notes to be Purchased
	PRINCIPAL LIFE INSURANCE COMPANY 711 High Street, G-26 Des Moines, IA 50392-0800	$3,000,000 $1,000,000	$7,000,000	$0
(1)	All payments on account of the Notes to be made by 12:00 noon (New York City time) by wire transfer of immediately available funds to: Provided to Company under separate cover With sufficient information (including Cusip number, interest rate, maturity date, interest amount, principal amount and premium amount, if applicable) to identify the source and application of such funds.
(2)	All Notices to: Principal Global Investors, LLC ATTN: Fixed Income Private Placements 711 High Street, G-26 Des Moines, IA 50392-0800 and via Email: Privateplacements2@exchange.principal.com With a copy of any notices related to scheduled payments, prepayments, rate reset notices to: Principal Global Investors, LLC Attn: Investment Accounting Fixed Income Securities 711 High Street Des Moines, Iowa 50392-0960



(3)	Address for Delivery of Notes: Citibank NA 399 Park Avenue Level B Vault New York, NY 10022 Attn: Keith Whyte 212-559-1207 (cusip number [41975* AK1][41975* AL9] ) ** PLEASE MAKE SURE CUSIP NUMBER AND FFC: IS ON THE COVER PACKAGE OR CITIBANK WILL RETURN THE PACKAGE With a pdf copy to: Sally D. Sorensen [sorensen.sally.d@principal.com]
(4)	Name of Nominee in which Notes are to be issued: None Tax Identification Number: Provided to Company under separate cover



	Name and Address of Purchaser	Principal Amount of Series A Notes to be Purchased	Principal Amount of Series B Notes to be Purchased	Principal Amount of Series C Notes to be Purchased
	PRINCIPAL LIFE INSURANCE COMPANY 711 High Street, G-26 Des Moines, IA 50392-0800	$0	$3,000,000	$0
(1)	All payments on account of the Notes to be made by 12:00 noon (New York City time) by wire transfer of immediately available funds to: Provided to Company under separate cover With sufficient information (including Cusip number, interest rate, maturity date, interest amount, principal amount and premium amount, if applicable) to identify the source and application of such funds.
(2)	All Notices to: Principal Global Investors, LLC ATTN: Fixed Income Private Placements 711 High Street, G-26 Des Moines, IA 50392-0800 and via Email: Privateplacements2@exchange.principal.com With a copy of any notices related to scheduled payments, prepayments, rate reset notices to: Principal Global Investors, LLC Attn: Investment Accounting Fixed Income Securities 711 High Street Des Moines, Iowa 50392-0960



(3)	Address for Delivery of Notes: Citibank NA 399 Park Avenue Level B Vault New York, NY 10022 Attn: Keith Whyte 212-559-1207 (cusip number [41975* AK1][41975* AL9] ) ** PLEASE MAKE SURE CUSIP NUMBER AND FFC: IS ON THE COVER PACKAGE OR CITIBANK WILL RETURN THE PACKAGE With a pdf copy to: Sally D. Sorensen [sorensen.sally.d@principal.com]
(4)	Name of Nominee in which Notes are to be issued: None Tax Identification Number: Provided to Company under separate cover



	Name and Address of Purchaser	Principal Amount of Series A Notes to be Purchased	Principal Amount of Series B Notes to be Purchased	Principal Amount of Series C Notes to be Purchased
	COBANK ACB 5500 South Quebec Greenwood Village, CO 80111	$10,000,000	$0	$0
(1)	All payments to be by wire transfer of immediately available funds, with sufficient information (including PPN #, interest rate, maturity date, interest amount, principal amount and premium amount, if applicable) to identify the source and application of such funds, to: Provided to Company under separate cover
(2)	All notices of payments and written confirmations of such wire transfers: Primary Operations and LC Contact Name: Shelby Abeyta Title: Synd/Partcp Svcg Specialist Street Address: 5500 South Quebec St. City, State and Zip: Greenwood Village, Co 80111 Telephone: 303-694-5937 Fax: 303-740-4021 Article I. E-mail: agencybank@cobank.com Article II. Secondary Operations and LC Contact Name: Randall Rosendale Title: Supervisor Street Address: 5500 South Quebec St. City, State and Zip: Greenwood Village, CO 80111 Telephone: 303-740-4062 Fax: 303-740-4021 E-mail: agencybank@cobank.com
(3)	Address for Compliance Matters and Financial Statements Name: Julie Calhoun Title: Sr Credit Analyst



	Street Address: 5500 South Quebec St. City, State and Zip: Greenwood Village, Co 80111 Telephone: 303-793-2178 E-mail: JCalhoun@cobank.com
(4)	Address for all other communications: Primary Contact: Name: John Kemper Title: Relationship Manager Street Address: 5500 South Quebec St. City, State and Zip: Greenwood Village, Co 80111 Telephone: 303-740-6576 Fax: 303-224-2615 E-mail: JKemper@cobank.com Secondary Contact: Name: Julie Calhoun Title: Sr Credit Analyst Street Address: 5500 South Quebec St. City, State and Zip: Greenwood Village, Co 80111 Telephone: 303-793-2178 E-mail: JCalhoun@cobank.com
(5)	Address for Delivery of Notes: CoBank, ACB 5500 South Quebec Greenwood Village, CO 80111 ATTN: Sera Jang
(6)	Name of Nominee in which Notes are to be issued: None Tax Identification Number: Provided to Company under separate cover



	Name and Address of Purchaser	Principal Amount of Series A Notes to be Purchased	Principal Amount of Series B Notes to be Purchased	Principal Amount of Series C Notes to be Purchased
	PHL VARIABLE INSURANCE COMPANY One American Row Hartford, CT 06102	$0	$2,000,000	$0
(1)	All payments to be by wire transfer of immediately available funds, with sufficient information (including PPN #, interest rate, maturity date, interest amount, principal amount and premium amount, if applicable) to identify the source and application of such funds, to: Provided to Company under separate cover
(2)	All notices and communications, including notices with respect to payments should be addressed to: Phoenix Life Insurance Company One American Row Private Placement Department H-2W Hartford, CT 06102 Email Notices: nelson.correa@phoenixwm.com AND pam.moody@phoenixwm.com With a copy to: brad.buck@phoenixwm.com
(3)	All legal notices should be addressed to: Phoenix Life Insurance Company One American Row Hartford, CT 06102 Attention: Brad Buck
(4)	Address for Delivery of Notes: Phoenix Life Insurance Company One American Row Hartford, CT 06102 Attention: Brad Buck
(5)	Name of Nominee in which Notes are to be issued: None Tax Identification Number: Provided to Company under separate cover

DEFINED TERMS

As used herein, the following terms have the respective meanings set forth below or set forth in the Section hereof following such term:

“ Accredited Investor ” shall mean a Person who qualifies as an “accredited investor,” as defined under subsections (1), (2), (3) or (7) of Rule 501(a) of Regulation D promulgated by the SEC under the Securities Act, acting for its own account (and not for the account of others) or acting as a fiduciary or agent for others each of whom is an Accredited Investor.

“Affiliate” shall mean, at any time, and with respect to any Person, any other Person that at such time directly or indirectly through one or more intermediaries Controls, or is Controlled by, or is under common Control with, such first Person, and, with respect to a Constituent Company, shall include any Person beneficially owning or holding, directly or indirectly, 10% or more of any class of voting capital stock or other equity or voting interests of such Constituent Company or any Subsidiary that is ordinarily entitled, in the absence of contingencies, to vote in the election of directors (or Person performing similar functions) of such Constituent Company or such Subsidiary or any Person of which a Constituent Company and its Subsidiaries beneficially own or hold, in the aggregate, directly or indirectly, 10% or more of any class of voting capital stock or other equity or voting interests. As used in this definition, “Control” shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise. Unless the context otherwise clearly requires, any reference to an “Affiliate” is a reference to an Affiliate of a Constituent Company.

“Agreement” shall mean this Agreement, including all Schedules and Exhibits attached to this Agreement as it may be amended, restated, supplemented or otherwise modified from time to time.

“Anti-Corruption Laws” is defined in Section 5.16(d)(1).

“Anti-Money Laundering Laws” is defined in Section 5.16(c).

“Bank Credit Agreement” shall mean that certain Credit Agreement, dated as of May 7, 2010, by and among the Parent Guarantor, the lenders from time to time party thereto, Bank of Hawaii, U.S. Bank National Association and Wells Fargo Bank, National Association, as documentation agents, Bank of America, N.A. and Union Bank, N.A., as co‑documentation agents, JPMorgan Chase Bank, N.A., as issuing bank and administrative agent, and J.P. Morgan Securities Inc., as sole lead arranger and sole book runner, as the same may be amended, supplemented, restated, refinanced, replaced or otherwise modified from time to time.

“Benefit Plan” shall mean any employee benefit plan as defined in Section 3(3) of ERISA (other than a Plan or Multiemployer Plan), and in respect of which the Parent Guarantor, any Subsidiary or any ERISA Affiliate is an “employer” as defined in Section 3(5) of ERISA.

“Blocked Person” is defined in Section 5.16(a).

SCHEDULE B

(to Note Purchase and Guaranty Agreement)

“Business Day” shall mean (a) for the purposes of Section 8.6 only, any day other than a Saturday, a Sunday or a day on which commercial banks in New York, New York are required or authorized to be closed, and (b) for the purposes of any other provision of this Agreement, any day other than a Saturday, a Sunday or a day on which commercial banks in Honolulu, Hawaii or New York, New York are required or authorized to be closed.

“Called Principal” is defined in Section 8.6.

“Capital Lease Obligations” of any Person shall mean the obligations of such Person to pay rent or other amounts under any lease of (or other arrangement conveying the right to use) real or personal property, or a combination thereof, which obligations are required to be classified and accounted for as capital leases on a balance sheet of such Person under GAAP, and the amount of such obligations shall be the capitalized amount thereof determined in accordance with GAAP; provided, however , no power purchase agreement with an independent power producer or a power producer which is not an Affiliate of the Parent Guarantor shall constitute a Capital Lease Obligation.

“Change in Control” is defined in Section 8.7(f).

“Change in Control Proposed Prepayment Date” is defined in Section 8.7(b).

“CISADA” shall mean the Comprehensive Iran Sanctions, Accountability and Divestment Act of 2010, 22 U.S.C. 8501, as amended from time to time.

“Closing” is defined in Section 3.

“Code” shall mean the Internal Revenue Code of 1986, as amended from time to time or as replaced by a successor federal tax statute (and any amendments thereto), and the rules and regulations promulgated thereunder from time to time.

“Company” shall mean Hawaii Electric Light Company, Inc., a Hawaii corporation or any successor of such entity that becomes such in the manner prescribed in Section 10.4.

“Company’s Agent” is defined in Section 14.4.

“Confidential Information” is defined in Section 21.

“Consolidated Capitalization” shall mean, at any date of determination with respect to the Parent Guarantor and its Subsidiaries on a consolidated basis, the sum of (a) Consolidated Funded Debt, (b) preferred stock of the Parent Guarantor and its Subsidiaries and (c) Consolidated Common Stock Equity. The Parent Guarantor’s Consolidated Capitalization as of December 31, 2012 is annexed hereto as Schedule C (Consolidated Capitalization); for the avoidance of doubt, such Schedule is attached hereto for illustrative purposes only and is not intended to be a calculation of Consolidated Capitalization on or for any subsequent date of determination.

B-2

“Consolidated Capitalization Ratio” shall mean, at any date of determination, the ratio of (a) Consolidated Common Stock Equity at such time to (b) Consolidated Capitalization at such time.

“Consolidated Common Stock Equity” shall mean, at any date of determination, with respect to the Parent Guarantor and its Subsidiaries on a consolidated basis, the sum of (a) common stock, (b) premium and/or expenses on common stock and preferred stock, (c) additional paid-in capital, and (d) retained earnings, excluding Accumulated Other Comprehensive Income or Loss (AOCI) as defined by GAAP, as such definitions now exist and as they may hereafter be amended but subject to Section 23.3, except with respect to matters affecting AOCI, and excluding adjustments made directly to stockholders’ equity as a result of any future issued accounting standards, adopted by the Parent Guarantor, that will require adjustments directly to stockholders’ equity.

“Consolidated Funded Debt” shall mean, at any date of determination with respect to the Parent Guarantor and its Subsidiaries on a consolidated basis, the sum of (a) net long-term debt, defined as the portion of outstanding debt for borrowed money (including under the notes the Parent Guarantor or its Subsidiaries have issued in borrowing proceeds of special purpose revenue bonds), bonds, debentures and similar debt obligations (including Capital Lease Obligations, Purchase Money Indebtedness, Indebtedness under credit agreements or note agreements of the Parent Guarantor or its Subsidiaries and any outstanding Notes), net of cash collateral or other funds on deposit with trustees and unamortized discounts in respect of such debt for borrowed money, bonds, debentures and similar debt obligations, that is due one year or more from the date of the relevant balance sheet on which such debt is included, (b) net long-term debt (as so defined) due within one year, defined as the portion of outstanding debt for borrowed money (including under the notes the Parent Guarantor or its Subsidiaries have issued in borrowing proceeds of special purpose revenue bonds), bonds and debentures and similar debt obligations (including Capital Lease Obligations, Purchase Money Indebtedness, Indebtedness under credit agreements or note agreements of the Parent Guarantor or its Subsidiaries and any outstanding Notes) that is due within one year from the date of the relevant balance sheet on which such long-term debt is included and (c) short-term borrowings, including Purchase Money Indebtedness, as included on and defined in the relevant balance sheet; provided , however , no Indebtedness of independent power producers, or other power producers which are not Affiliates of the Parent Guarantor, included on a balance sheet of the Parent Guarantor by reason of the application of Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 810 (formerly referred to as FASB Interpretation No. 46 (revised December 2003)) shall constitute Consolidated Funded Debt. A schedule of Consolidated Funded Debt as of December 31, 2012 is annexed hereto as Schedule D (Consolidated Funded Debt); for the avoidance of doubt, such Schedule is attached hereto for illustrative purposes only and is not intended to be a calculation of Consolidated Funded Debt on or for any subsequent date of determination.

“Consolidated Subsidiary Capitalization” shall mean, at any date of determination with respect to the Company or any other Subsidiary of the Parent Guarantor on a consolidated basis, the sum of (a) Consolidated Subsidiary Funded Debt, (b) preferred stock of such Subsidiary and (c) Consolidated Subsidiary Common Stock Equity.

B-3

“Consolidated Subsidiary Common Stock Equity” shall mean, at any date of determination with respect to the Company or any other Subsidiary of the Parent Guarantor on a consolidated basis, the sum of (a) common stock, (b) premium and/or expenses on common stock and preferred stock, (c) additional paid-in capital, and (d) retained earnings, excluding Accumulated Other Comprehensive Income or Loss (AOCI) as defined by GAAP, as such definitions now exist and as they may hereafter be amended but subject to Section 23.3 except with respect to matters affecting AOCI, and excluding adjustments made directly to stockholders’ equity as a result of any future issued accounting standards, adopted by the Parent Guarantor, that will require adjustments directly to stockholders’ equity.

“Consolidated Subsidiary Funded Debt” shall mean, at any date of determination, with respect to the Company or any other Subsidiary of the Parent Guarantor on a consolidated basis, the sum of (a) net long-term debt, defined as the portion of outstanding bonds, debentures and similar debt obligations (including Capital Lease Obligations and Purchase Money Indebtedness), net of funds on deposit with trustees and unamortized discounts in respect of such bonds, debentures and obligations, that is due one year or more from the date of the relevant balance sheet on which such debt is included, (b) net long-term debt (as so defined) due within one year, defined as the portion of outstanding bonds and debentures and similar debt obligations (including Capital Lease Obligations and Purchase Money Indebtedness) that is due within one year from the date of the relevant balance sheet on which such long-term debt is included and (c) short-term borrowings, including Purchase Money Indebtedness, as included on and defined in the relevant balance sheet; provided , however , no Indebtedness of independent power producers, or other power producers which are not Affiliates, included on a balance sheet of the Parent Guarantor by reason of the application of Financial Accounting Standards Board (FASB) Accounting Standard Codification (ASC) 810 (formerly referred to as FASB Interpretation No. 46 (revised December 2003)), shall constitute Consolidated Subsidiary Funded Debt. A schedule of Consolidated Subsidiary Funded Debt as of December 31, 2012 is annexed hereto as Schedule E (Consolidated Subsidiary Funded Debt); for the avoidance of doubt, such Schedule is attached hereto for illustrative purposes only and is not intended to be a calculation of Consolidated Subsidiary Funded Debt on or for any subsequent date of determination.

“Consolidated Subsidiary Funded Debt to Capitalization Ratio” shall mean, at any date of determination with respect to the Company or any other Significant Subsidiary, the ratio of (a) the Company's or such other Significant Subsidiary’s Consolidated Subsidiary Funded Debt to (b) its Consolidated Subsidiary Capitalization.

“Consolidated Subsidiary Total Assets” shall mean, at any date of determination, with respect to the Company or any other Subsidiary of the Parent Guarantor, the total assets, on a consolidated basis, of the Company and its Subsidiaries or such other Subsidiary and its Subsidiaries, determined in accordance with GAAP.

“Consolidated Total Assets” shall mean, at any date of determination, with respect to the Parent Guarantor and its Subsidiaries, the total assets, on a consolidated basis, of the Parent Guarantor and its Subsidiaries, determined in accordance with GAAP.

“Constituent Company” is defined in the first paragraph of this Agreement.

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“Controlled Entity” shall mean any of the Subsidiaries of a Constituent Company and any of their or such Constituent Company’s respective Controlled Affiliates. As used in this definition, “Control” shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting Securities, by contract or otherwise.

“Default” shall mean an event or condition the occurrence or existence of which would, with the lapse of time or the giving of notice or both, become an Event of Default.

“Default Rate” shall mean, with respect to the Notes of any series, that rate of interest per annum that is the greater of (a) 2.00% above the rate of interest stated in clause (a) of the first paragraph of the Notes of such series or (b) 2.00% over the rate of interest publicly announced by Bank of America, N.A. in New York, New York as its “base” or “prime” rate.

“Disclosure Documents” is defined in Section 5.3.

“Discounted Value” is defined in Section 8.6.

“Disposition” shall mean, with respect to any property, any sale, lease, sale and leaseback, assignment, conveyance, transfer or other disposition thereof. The terms “Dispose” and “Disposed of” shall have correlative meanings.

“Environmental Laws” shall mean any and all federal, state, local, and foreign statutes, laws, regulations, ordinances, rules, judgments, orders, decrees, permits, concessions, grants, franchises, licenses, agreements or governmental restrictions relating to pollution and the protection of the environment or the release of any materials into the environment, including but not limited to those related to Hazardous Materials.

“Equity Interests” shall mean (a) shares of capital stock and any other equity security that confers on a Person the right to receive a share of the profits and losses of, or distribution of assets of, the issuing company and (b) all warrants, options or other rights to acquire any Equity Interest described in clause (a) of this definition.

“ERISA” shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time, and the rules and regulations promulgated thereunder from time to time in effect.

“ERISA Affiliate” shall mean any trade or business (whether or not incorporated) that is treated as a single employer together with the Parent Guarantor under Section 414 of the Code.

“ ERISA Event ” shall mean (a) any “reportable event,” as defined in Section 4043 of ERISA or the regulations issued thereunder with respect to a Plan (other than an event for which the 30-day notice period is waived or was previously waived under applicable law in effect as of December 31, 2012); (b) the failure with respect to any Plan to pay the “minimum required contribution” (as defined in Section 430 of the Code or Section 303 of ERISA) and the continuance of such failure for more than 10 Business Days after a Responsible Officer of a Constituent Company becomes aware of such failure, whether or not waived; (c) the incurrence by the Parent Guarantor or any ERISA Affiliate of any liability under Title IV of ERISA with

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respect to the termination of any Plan; (d) the provision by the administrator of any Plan pursuant to Section 4041(a)(2) of ERISA of a notice of intent to terminate such Plan in a distress termination described in of Section 4041(c) of ERISA; (e) the institution by the PBGC of proceedings to terminate any Plan, or the occurrence of any event or condition which might constitute grounds under ERISA for the termination of, or the appointment of a trustee to administer, any Plan; (f) the imposition of liability on the Parent Guarantor, any of its Subsidiaries or any of their respective ERISA Affiliates pursuant to Section 4062(e) or Section 4069 of ERISA or by reason of the application of Section 4212(c) of ERISA; (g) the withdrawal of the Parent Guarantor, any of its Subsidiaries or any of their respective ERISA Affiliates in a complete or partial withdrawal (within the meaning of Sections 4203 and 4205 of ERISA) from any Multiemployer Plan if there is any potential liability therefor, or the receipt by the Company, any of its Subsidiaries or any of their respective ERISA Affiliates of notice from any Multiemployer Plan that it is in reorganization or insolvency pursuant to Section 4241 or Section 4245 of ERISA, or that it intends to terminate or has terminated under Section 4041A or Section 4042 of ERISA; (h) the assertion of a claim (other than routine claims for benefits) against any Plan (or any other Benefit Plan) or the assets thereof, or against the Parent Guarantor, any of its Subsidiaries or any of their respective ERISA Affiliates in connection with any Benefit Plan that is not covered by ERISA fiduciary insurance (where the relevant insurance company has been notified of the claim and has not expressly denied coverage in writing); (i) receipt from the Internal Revenue Service of notice of the failure of any Plan (or any Benefit Plan intended to be qualified under Section 401(a) of the Code) to qualify under Section 401(a) of the Code, or the failure of any trust forming part of any Plan to qualify for exemption from taxation under Section 501(a) of the Code which is not eligible to be corrected pursuant to Employee Plans Compliance Resolution System or subsequent Internal Revenue Service correction program; or (j) the imposition of a Lien pursuant to the Code or ERISA with respect to any Plan.

“Event of Default” is defined in Section 11.

“Exchange Act” shall mean the Securities Exchange Act of 1934, as amended.

“Fitch” shall mean Fitch Ratings, Ltd.

“Form 8-K” is defined in Section 7.1(g).

“Form 10-K” is defined in Section 7.1(b).

“Form 10-Q” is defined in Section 7.1(a).

“GAAP” shall mean generally accepted accounting principles as in effect from time to time in the United States of America; provided , however , that if the SEC shall require at such future time the replacement of GAAP with another system of accounting principles, GAAP as used herein shall be deemed to refer to such SEC required or approved accounting principles (however named).

“Governmental Authority” shall mean

(a) the government of

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(1) the United States of America or any State or other political subdivision thereof, or

(2) any other jurisdiction in which a Constituent Company or any Subsidiary conducts all or any part of its business, or which asserts jurisdiction over any properties of a Constituent Company or any Subsidiary, or

(b) any entity exercising executive, legislative, judicial, regulatory or administrative functions of, or pertaining to, any such government, including the Hawaii Public Utilities Commission, the SEC and the Federal Energy Regulatory Commission.

“Governmental Official” shall mean any governmental official or employee, employee of any government-owned or government-controlled entity, political party, any official of a political party, candidate for political office, official of any public international organization or anyone else acting in an official capacity.

“Guarantee” or “Guaranty” of or by any Person (the “guarantor” ) shall mean any obligation, contingent or otherwise, of the guarantor guaranteeing or having the economic effect of guaranteeing any Indebtedness or other obligation of any other Person (the “primary obligor” ) in any manner, whether directly or indirectly, and including any obligation of the guarantor, direct or indirect:

(a) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or other obligation or to purchase (or to advance or supply funds for the purchase of) any security for the payment thereof;

(b) to purchase or lease property, securities or services for the purpose of assuring the owner of such Indebtedness or other obligation of the payment thereof;

(c) to maintain working capital, equity capital or any other financial statement condition or liquidity of the primary obligor so as to enable the primary obligor to pay such Indebtedness or other obligation; or

(d) as an account party in respect of any letter of credit or letter of guaranty issued to support such Indebtedness or obligation;

provided that the term “Guarantee” or “Guaranty” shall not include endorsements for collection or deposit in the ordinary course of business. The amount of any Guarantee of any guarantor shall be deemed to be the lower of (a) an amount equal to the stated or determinable amount of the primary obligation in respect of which such Guarantee is made and (b) the maximum amount for which such guarantor may be liable pursuant to the terms of the instrument embodying such Guarantee, unless such primary obligation and the maximum amount for which such guarantor may be liable are not stated or determinable, in which case the amount of such Guarantee shall be such guarantor’s maximum reasonably anticipated liability in respect thereof as determined by the Parent Guarantor in good faith. The term “Guaranteed” has a meaning correlative thereto.

“Hazardous Materials” shall mean any and all pollutants, toxic or hazardous wastes or other substances that might pose a hazard to health and safety, the removal of which may be

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required or the generation, manufacture, refining, production, processing, treatment, storage, handling, transportation, transfer, use, disposal, release, discharge, spillage, seepage, or filtration of which is or shall be restricted, prohibited or penalized by any applicable law including, but not limited to, asbestos, urea formaldehyde foam insulation, polychlorinated biphenyls, petroleum, petroleum products, lead based paint, radon gas or similar restricted, prohibited or penalized substances.

“HEI” shall mean Hawaiian Electric Industries, Inc., a Hawaii corporation.

“holder” shall mean, with respect to any Note, the Person in whose name such Note is registered in the register maintained by the Company, the Parent Guarantor or the Company’s Agent pursuant to Section 14.1, provided , however , that if the Company (or the Parent Guarantor or the Company’s Agent, as applicable) is advised in writing that such Person is only a nominee and the beneficial owner of the Note is another specified Person, then for the limited purposes set forth in Section 14.1, “holder” shall mean the beneficial owner of such Note whose name and address appears in such register.

“Indebtedness” of any Person shall mean, without duplication:

(a) all obligations of such Person for borrowed money and its redemption obligations in respect of mandatorily redeemable preferred stock,

(b) all obligations of such Person evidenced by bonds, debentures, notes or similar instruments;

(d) all obligations of such Person under conditional sale or other title retention agreements relating to property acquired by such Person;

(e) all obligations of such Person in respect of the deferred purchase price of property or services (excluding accounts payable incurred in the ordinary course of business);

(f) all Indebtedness of others secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien on property owned or acquired by such Person, whether or not the Indebtedness secured thereby has been assumed;

(g) all Guarantees by such Person of Indebtedness of others;

(h) all Capital Lease Obligations of such Person;

(i) all obligations, contingent or otherwise, of such Person as an account party in respect of issued and outstanding letters of credit and letters of guaranty; and

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(j) all obligations, contingent or otherwise, of such Person in respect of issued and outstanding bankers’ acceptances.

The Indebtedness of any Person shall include the Indebtedness of any other entity (including any partnership in which such Person is a general partner) to the extent such Person is liable therefor as a result of such Person’s ownership interest in or other relationship with such entity, except to the extent the terms of such Indebtedness provide that such Person is not liable therefor.

“ INHAM Exemption ” is defined in Section 6.3(e).

“Institutional Investor” shall mean (a) any Purchaser of a Note (or, if the Purchaser is a nominee, the beneficial owner of the Note), (b) any holder of a Note holding (together with one or more of its Affiliates) more than $5,000,000 of the aggregate principal amount of the Notes then outstanding, (c) any bank, trust company, savings and loan association or other financial institution, any pension plan, any investment company, any insurance company, any broker or dealer, or any other similar financial institution or entity, regardless of legal form and (d) any Related Fund of any holder of any Note.

“International Emergency Economic Powers Act” shall mean the International Emergency Economic Powers Act, 50 U.S.C. 1701, as amended from time to time.

“Investment Grade Rating” shall mean a rating equal to or higher than “BBB-” by Fitch or S&P and “Baa3” or higher by Moody’s.

“Knowledge” when modifying a representation, warranty or other statement of any Person, shall mean that the fact or situation described therein is known by such Person (or, (a) in the case of a Constituent Company, known by any Responsible Officer of such Constituent Company, or, (b) in the case of any other Person other than a natural Person, known by any officer of such Person) making the representation, warranty or other statement, or with the exercise of reasonable due diligence under the circumstances (in accordance with the standard of what a reasonable Person in similar circumstances would have done) would have been known by such Person (or, (a) in the case of a Constituent Company, would have been known by any Responsible Officer of such Constituent Company, or (b) in the case of any other Person other than a natural Person, would have been known by any officer of such Person).

“Lien” shall mean, with respect to any Person, any mortgage, lien, pledge, charge, security interest or other encumbrance, or any interest or title of any vendor, lessor, lender or other secured party to or of such Person under any conditional sale or other title retention agreement or capital lease, upon or with respect to any property or asset of such Person (including in the case of stock, stockholder agreements, voting trust agreements and all similar arrangements).

“Make-Whole Amount” is defined in Section 8.6.

“Material” shall mean material in relation to the business, operations, affairs, financial condition, assets or properties of the Parent Guarantor and its Subsidiaries, taken as a whole.

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“Material Adverse Effect” shall mean a material adverse effect on (a) the business, operations, affairs, financial condition, assets or properties of the Parent Guarantor and its Subsidiaries, taken as a whole, (b) the ability of a Constituent Company to perform its obligations under this Agreement and, in the case of the Company, the Notes or (c) the validity or enforceability of this Agreement or the Notes.

"Maturity Date" shall mean in respect of each Note as defined in the first paragraph of such Note.

“MECO” shall mean Maui Electric Company, Limited, a Hawaii corporation.

“Memorandum” is defined in Section 5.3.

“Moody’s” shall mean Moody’s Investors Service, Inc.

“Multiemployer Plan” shall mean any Plan that is a “multiemployer plan” (as such term is defined in Section 4001(a)(3) of ERISA).

“NAIC” shall mean the National Association of Insurance Commissioners or any successor thereto.

“NAIC Annual Statement” is defined in Section 6.3(a).

“Net Cash Proceeds” from a Disposition shall mean the aggregate cash proceeds received by a Constituent Company or any Significant Subsidiary, as the case may be, in respect of such Disposition, net of the costs, fees and expenses relating to such Disposition including, without limitation, legal, accounting and investment banking fees, sales commissions, any pension or post-employment benefit liabilities or obligations and taxes paid or payable as a result of such Disposition (after taking into account any available tax credits or deductions).

“Notes” is defined in Section 1.

“Obligations” is defined in Section 13.1.

“OFAC” is defined in Section 5.16(a).

“OFAC Listed Person” is defined in Section 5.16(a).

“OFAC Sanctions Program” shall mean any economic or trade sanction that OFAC is responsible for administering and enforcing. A list of OFAC Sanctions Programs may be found at http://www.ustreas.gov/offices/enforcement/ofac/programs/.

“Officer’s Certificate” shall mean a certificate of a Senior Financial Officer or of any other officer of the Company or the Parent Guarantor, as the context requires, whose responsibilities extend to the subject matter of such certificate.

“Parent Guarantor” shall mean Hawaiian Electric Company, Inc., a Hawaii corporation or any successor of such entity that becomes such in the manner prescribed in Section 10.4.

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“PBGC” shall mean the Pension Benefit Guaranty Corporation referred to and defined in ERISA or any successor thereto.

“Permitted Liens” is defined in Section 10.3.

“Person” shall mean an individual, partnership, corporation, limited liability company, association, trust, unincorporated organization, business entity or Governmental Authority.

“Plan” shall mean any employee pension benefit plan (other than a Multiemployer Plan) subject to the provisions of Title IV of ERISA or Section 412 of the Code or Section 302 of ERISA, and in respect of which the Parent Guarantor, any Subsidiary or any ERISA Affiliate is (or, if such plan were terminated, would under Section 4069 of ERISA be deemed to be) an “employer” as defined in Section 3(5) of ERISA.

“Principal Credit Agreement” shall mean (a) in the case of the Parent Guarantor, (1) the Bank Credit Agreement and each successor loan or credit agreement constituting the Parent Guarantor’s primary bank credit facility, with the same or different group of lenders and agents, so long as any such agreement is in effect and as it may be amended, supplemented, restated, refinanced, replaced or otherwise modified from time to time, (2) the Note Purchase Agreement dated as of April 19, 2012 by and among the Parent Guarantor and the purchasers listed on Schedule A thereto as it may be amended, supplemented, restated, refinanced, replaced or otherwise modified from time to time and (3) the Note Purchase Agreement dated as of September 13, 2012 by and among the Parent Guarantor and the purchasers listed on Schedule A thereto as it may be amended, supplemented, restated, refinanced, replaced or otherwise modified from time to time, and (b) in the case of the Company, (1) the primary bank credit facility or similar agreement pursuant to which debt for borrowed money shall be, or is permitted to be, incurred so long as such agreement is in effect and as it may be amended, supplemented, restated, refinanced, replaced or otherwise modified from time to time and (2) the Note Purchase Agreement dated as of April 19, 2012 by and among the Parent Guarantor, the Company and the purchasers listed on Schedule A thereto as it may be amended, supplemented, restated, refinanced, replaced or otherwise modified from time to time.

“property” or “properties” shall mean, unless otherwise specifically limited, real or personal property of any kind, tangible or intangible, choate or inchoate.

“PTE” is defined in Section 6.3(a).

“Purchase Money Indebtedness” shall mean Indebtedness of a Constituent Company or any Subsidiary that is incurred to finance part or all of (but not more than) the purchase price of a tangible asset; provided that (a) such Constituent Company or such Subsidiary did not at any time prior to such purchase have any interest in such asset other than an option to purchase, a security interest, or an interest as lessee under an operating lease and (b) such Indebtedness is incurred at the time of, or within 90 days after, such purchase.

“Purchaser” or “Purchasers” shall mean each of the purchasers whose signatures appear at the end of this Agreement and such Purchaser’s successors and assigns (so long as any such assignment complies with Section 14.2); provided , however , that any Purchaser of a Note that ceases to be the registered holder or a beneficial owner (through a nominee) of such Note as

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the result of a transfer thereof pursuant to Section 14.2 shall cease to be included within the meaning of “Purchaser” of such Note for the purposes of this Agreement upon such transfer.

“QPAM Exemption” is defined in Section 6.3(d).

“Qualified Institutional Buyer” shall mean any Person who is a “qualified institutional buyer” within the meaning of such term as set forth in Rule 144A(a)(1) under the Securities Act.

“Ratable Portion” for any Note shall mean an amount equal to the product of (a) the Net Cash Proceeds received by a Constituent Company or a Significant Subsidiary from a Disposition being applied, or offered to be applied, to the payment or prepayment of Indebtedness pursuant to clause (4) of the second paragraph of Section 10.4(c) multiplied by (b) a fraction, the numerator of which is the aggregate outstanding principal amount of such Note and the denominator of which is the aggregate outstanding principal amount of all Indebtedness of the Constituent Companies and the Significant Subsidiaries other than Subordinated Debt.

“Ratings Agency” shall mean Fitch, Moody’s and S&P and, in each case, any successors thereto.

“Ratings Period” is defined in Section 8.7(f).

“Reinvestment Yield” is defined in Section 8.6.

“Related Fund” shall mean, with respect to any holder of any Note, any fund or entity that (a) invests in Securities or bank loans and (b) is advised or managed by such holder, the same investment advisor as such holder or by an Affiliate of such holder or such investment advisor.

“Remaining Average Life” is defined in Section 8.6.

“Remaining Scheduled Payments” is defined in Section 8.6.

“Required Holders” shall mean, at any time, the holders of more than 50% in principal amount of the Notes at the time outstanding (exclusive of Notes then owned by a Constituent Company or any of its Affiliates).

“Responsible Officer” shall mean a Senior Financial Officer and any other officer of the Company or the Parent Guarantor, as the context requires, with responsibility for the administration of the relevant portion of this Agreement (which, in the case of Sections 5.8, 5.16 and 5.18, shall include the chief legal officer of the Company).

“Restricted Payment” shall mean, with respect to any Person, (a) any dividend or other distribution (whether in cash, Securities or other property) by such entity with respect to any Equity Interests of such Person, (b) any payment (whether cash, Securities or other property), including any sinking fund or similar deposit, on account of the purchase, redemption, retirement, acquisition, cancellation or termination of any such Equity Interest, and (c) any payment of principal, interest or premium or any purchase, redemption, retirement, acquisition or defeasance with respect to any subordinated debt of such Person.

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“S&P” shall mean Standard & Poor’s Ratings Group, a division of The McGraw-Hill Companies, Inc.

“Sale of Assets Prepayment Date” is defined in Section 8.8(a).

“Sale of Assets Prepayment Event” is defined in Section 8.8(a).

“SEC” shall mean the Securities and Exchange Commission of the United States, or any successor thereto.

“Securities” or “Security” shall have the meaning specified in Section 2(1) of the Securities Act.

“Securities Act” shall mean the Securities Act of 1933, as amended from time to time, and the rules and regulations promulgated thereunder from time to time in effect.

“Senior Financial Officer” shall mean the chief financial officer, principal accounting officer, treasurer or controller of the Company or the Parent Guarantor, as the context requires.

“Series A Notes” is defined in Section 1 and shall include all such Notes as amended, restated or otherwise modified from time to time pursuant to Section 18.

“Series B Notes” is defined in Section 1 and shall include all such Notes as amended, restated or otherwise modified from time to time pursuant to Section 18.

“Series C Notes” is defined in Section 1 and shall include all such Notes as amended, restated or otherwise modified from time to time pursuant to Section 18.

“Settlement Date” is defined in Section 8.6.

“ Significant Subsidiary ” shall mean (a) in the case of a Constituent Company, each Subsidiary of such Constituent Company having 15% or more of the total assets, or 15% or more of the total operating income, of the Parent Guarantor and its Subsidiaries on a consolidated basis, in either case as the consolidated total assets and consolidated total operating income of the Parent Guarantor and its Subsidiaries are reflected in the most recent annual or quarterly consolidated financial statements of the Parent Guarantor delivered pursuant to Section 7.1 and (b) in the case of the Parent Guarantor shall always include the Company and MECO.

“Source” is defined in Section 6.3.

“Subordinated Debt” shall mean all unsecured Indebtedness of a Constituent Company which shall contain or have applicable thereto subordination provisions providing for the subordination thereof to other Indebtedness of such Constituent Company (including, without limitation, the obligations of such Constituent Company under this Agreement and, in the case of the Company, the Notes).

“Subsidiary” shall mean, as to any Person, any other Person in which such first Person or one or more of its Subsidiaries or such first Person and one or more of its Subsidiaries owns

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sufficient equity or voting interests to enable it or them (as a group) ordinarily, in the absence of contingencies, to elect a majority of the directors (or Persons performing similar functions) of such second Person, and any partnership or joint venture if more than a 50% interest in the profits or capital thereof is owned by such first Person or one or more of its Subsidiaries or such first Person and one or more of its Subsidiaries (unless such partnership or joint venture can and does ordinarily take major business actions without the prior approval of such Person or one or more of its Subsidiaries). Unless the context otherwise clearly requires, any reference to a “Subsidiary” is a reference to a Subsidiary of a Constituent Company.

“Substitute Purchaser” is defined in Section 22.

“Sudan Accountability and Divestment Act” shall mean the Sudan Accountability and Divestment Act of 2007, 50 U.S.C. 1701, as amended from time to time.

“SVO” shall mean shall mean the Securities Valuation Office of the NAIC or any successor to such Office.

“Trading with the Enemy Act” shall mean the Trading with the Enemy Act of 1917, 12 U.S.C. 95a, as amended from time to time.

“USA PATRIOT Act” shall mean United States Public Law 107-56, Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism (USA PATRIOT ACT) Act of 2001, as amended from time to time, and the rules and regulations promulgated thereunder from time to time in effect.

“U.S. Economic Sanctions” is defined in Section 5.16(a).

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HAWAIIAN ELECTRIC COMPANY, INC.
CONSOLIDATED CAPITALIZATION, CONSOLIDATED FUNDED DEBT AND

CONSOLIDATED SUBSIDIARY FUNDED DEBT ILLUSTRATIONS (HELCO AND MECO, INDIVIDUALLY)

AS OF DECEMBER 31, 2012



($thousands)			HECO	HELCO		MECO	RHI	UBC	Eliminations	CONSOLIDATED
ST borrowings from non-affiliates			-	-		-	-	-		-
ST borrow between HECO, HELCO, MECO, RHI, UBC			18,050	-		9,400	-	-	(27,450)	-
ST borrowings from HEI			-	-		-	-	-		-
Capital lease obligations, including current portion			-	-		-	-	-		-
Purchase money indebtedness			-	-		-	-	-		-
Borrowings under Syndicated Credit Agreement			-	-		-	-	-		-
Revenue bonds, including current portion			382,000	160,325		97,000	-	-		639,325
	Less funds on deposit with trustees		-	-		-	-	-		-
	Less unamortized discount			(75)			-	-		(75)
Other long-term debt – taxable unsecured senior notes Other long-term debt – unsecured (QUIDS), including current portion			367,000 31,546	31,000 10,000		59,000 10,000	- -	- -	-	457,000 51,546
		Funded debt	798,596	201,250		175,400	-	-	(27,450)	1,147,796	(2)
				(3	)	(3)
Cumulative preferred stock - not subject to mandatory redemption			22,293	7,000		5,000	-	-	-	34,293

Common stock			97,788	24,133		16,025	781	585	(41,524)	97,788
Premium and/or expense on common & preferred stock			468,045	102,857		81,745	-	-	(184,602)	468,045
Retained earnings			907,273	141,998		131,091	(701)	(561)	(271,827)	907,273
		Common stock equity (a)	1,473,106	268,988		228,861	80	24	(497,953)	1,473,106
		Capitalization (a)	2,293,995	477,238		409,261	80	24	(525,403)	2,655,195	(1)




Notes:

(1)		Consolidated Capitalization

(2)		Consolidated Funded Debt

(3)		Consolidated Subsidiary Funded Debt, individually

(a)		Excludes AOCI Income or Loss

SCHEDULE C, D, E

(to Note Purchase and Guaranty Agreement)

DISCLOSURE MATERIALS


•	HECO’s Annual report on Form 10-K for the fiscal year ended December 31, 2012


•	HECO’s Quarterly reports on Form 10-Q for quarters ended March 31, 2013 and June 30, 2013


•	HECO’s Current reports on Form 8-K filed January 29, 2013 (report dated January 28, 2013), February 15, 2013, March 20, 2013, May 8, 2013, May 14, 2013, June 4, 2013, June 14, 2013, July 5, 2013 and August 8, 2013

SCHEDULE 5.3

(to Note Purchase and Guaranty Agreement)

SUBSIDIARIES OF PARENT GUARANTOR AND OWNERSHIP OF SUBSIDIARY STOCK



Subsidiary	Jurisdiction	Owner	Shares Owned (% of outstanding Common Stock)
Maui Electric Company, Limited*	Hawaii	Hawaiian Electric Company, Inc.	100%
Hawaii Electric Light Company, Inc.*	Hawaii	Hawaiian Electric Company, Inc.	100%
Renewable Hawaii, Inc.	Hawaii	Hawaiian Electric Company, Inc.	100%
Uluwehiokama Biofuels Corp.	Hawaii	Hawaiian Electric Company, Inc.	100%
HECO Capital Trust III	Delaware	Hawaiian Electric Company, Inc.	100%**

Note: HELCO and MECO each have issued preferred stock, none of which is owned by HECO or any of its Subsidiaries

* Denotes Significant Subsidiaries

** Trust Common Securities Ownership. Trust Preferred Securities are publicly traded and none are owned by HECO or any of its Subsidiaries.

SCHEDULE 5.4

(to Note Purchase and Guaranty Agreement)

PARENT GUARANTOR’S AFFILIATES

Affiliate

Hawaiian Electric Industries, Inc.

American Savings Holdings, Inc.

American Savings Bank, F.S.B.

HEI Properties, Inc.

Hawaiian Electric Industries Capital Trust II

Hawaiian Electric Industries Capital Trust III

The Old Oahu Tug Service, Inc.

S-5.4-2

THE COMPANY’S AND PARENT GUARANTOR’S DIRECTORS AND SENIOR OFFICERS

COMPANY



Name	Position
Richard M. Rosenblum	Chairman of the Board
Constance H. Lau	Director
Jay M. Ignacio	Director, President
Tayne S. Y. Sekimura	Director, Financial Vice President
Lorie Ann Nagata	Treasurer
Molly M. Egged	Secretary

PARENT GUARANTOR



Name	Position
Constance H. Lau	Chairman of the Board
Don E. Carroll	Director
Thomas B. Fargo	Director
Peggy Y. Fowler	Director
Timothy E. Johns	Director

S-5.4-3



Micah A. Kane	Director
Bert A. Kobayashi, Jr.	Director
Richard M. Rosenblum	Director, President & CEO
Kelvin H. Taketa	Director
Jimmy D. Alberts	Senior VP, Customer Service
Dan V. Giovanni Stephen M. McMenamin	Senior VP, Operations Senior VP & Chief Information Officer
Tayne S. Y. Sekimura	Senior VP & Chief Financial Officer
Patricia U. Wong	Senior VP, Corporate Services
Lorie Ann Nagata	Treasurer
Cathlynn L. Yoshida	Controller
Molly M. Egged	Secretary

S-5.4-4

FINANCIAL STATEMENTS


•	Consolidated Financial Statements for the fiscal year ended December 31, 2012


•	Consolidated Financial Statements for the fiscal year ended December 31, 2011


•	Consolidated Financial Statements for the fiscal year ended December 31, 2010


•	Consolidated Financial Statements for the quarter ended June 30, 2013


•	Consolidated Financial Statements for the quarter ended March 31, 2013

SCHEDULE 5.5

(to Note Purchase and Guaranty Agreement)

GOVERNMENTAL AUTHORIZATIONS

Approvals of the issuance of the notes are required to be obtained from the Public Utilities Commission of the State of Hawaii and have been obtained in the following eight Decisions and Orders:


•	Hawaii Public Utilities Commission Decision and Order dated November 1, 2011 and Order No. 30268 dated March 19, 2012 in Docket No. 2011-0068 for the Issuance of Unsecured Obligations and Guarantees


•	Hawaii Public Utilities Commission Decision and Order No. 30056 dated December 22, 2011 and Order No. 30269 dated March 19, 2012 in Docket No. 2011-0127 to Refinance Outstanding Series of Revenue Bonds through the Issuance of Unsecured Obligations and/or Refunding Special Purpose Revenue Bonds and Related Notes and Guarantees, and Authorization to Enter into Related Agreements


•	Hawaii Public Utilities Commission Decision and Order No. 31336 dated June 28, 2013 and Order No. 31369 dated July 24, 2013 in Docket No. 2013-0030 for Issuance of Unsecured Obligations, Guarantees and Authorization to Enter into Related Agreements


•	Hawaii Public Utilities Commission Decision and Order No. 31337 dated June 28, 2013 and Order No. 31368 dated July 24, 2013 in Docket No. 2013-0018 to Refinance during 2013 three Outstanding Series of Revenue Bonds through the Issuance of Unsecured Obligations and Related Notes and Guarantees, and Authorization to Enter into Related Agreements

SCHEDULE 5.7

(to Note Purchase and Guaranty Agreement)

EXISTING INDEBTEDNESS

HAWAIIAN ELECTRIC COMPANY, INC. AND SUBSIDIARIES

AS OF JUNE 30, 2013



	(in thousands)
	Short-term debt - unsecured
	Commercial Paper (net of discount)	$	53,992
	$175 Million Syndicated Credit Facility under Credit Agreement dated May 7, 2010, amended to expire on December 5, 2016. The Credit Agreement requires maintenance of a capitalization ratio by Company and restricts guarantees of subsidiary debt, and incurrence of debt by subsidiaries, if a specified ratio will be exceeded.	$ 0

	Long-term debt
	Unsecured notes payable to Department of Budget and Finance of the State of Hawaii and assigned by the Department to the indenture trustee for the payment of amounts owing to the holders of special purpose revenue bonds and refunding special purpose revenue bonds (subsidiary obligations unconditionally guaranteed by HECO):
	HECO, 6.50%, series 2009, due 2039	$	90,000
	HELCO, 6.50%, series 2009, due 2039	60,000
	HECO, 4.65%, series 2007A, due 2037	100,000
	HELCO, 4.65%, series 2007A, due 2037	20,000
	MECO, 4.65%, series 2007A, due 2037	20,000
*	HECO, 5.65%, series 1997A, due 2027	50,000
*	HELCO, 5.65%, series 1997A, due 2027	30,000
*	MECO, 5.65%, series 1997A, due 2027	20,000
	HECO, 4.60%, refunding series 2007B, due 2026	62,000
	HELCO, 4.60%, refunding series 2007B, due 2026	8,000
	MECO, 4.60%, refunding series 2007B, due 2026	55,000
	HECO, 4.80%, refunding series 2005A, due 2025	40,000
	HELCO, 4.80%, refunding series 2005A, due 2025	5,000
	MECO, 4.80%, refunding series 2005A, due 2025	2,000
*	HECO, 5.00%, refunding series 2003B, due 2022	40,000
*	HELCO, 5.00%, refunding series 2003B, due 2022	12,000
*	HELCO, 4.75%, refunding series 2003A, due 2020	14,000
	HELCO, 5.50%, refunding series 1999A, due 2014	11,400
	Total obligations to the State of Hawaii	639,400

SCHEDULE 5.15

(to Note Purchase and Guaranty Agreement)




Other long-term debt – unsecured:
HECO, 5.39%, series 2012E, unsecured senior note, due 2042 6.50 %, series 2004, junior subordinated deferrable interest debentures, due 2034 HECO, 4.53%, series 2012F, unsecured senior note, due 2032 HECO, 4.72%, series 2012D, unsecured senior note, due 2029 HECO, 4.55%, series 2012C, unsecured senior note, due 2023 HELCO, 4.55%, series 2012B, unsecured senior note, due 2023 MECO, 4.55%, series 2012C, unsecured senior note, due 2023 HECO, 4.03%, series 2012B, unsecured senior note, due 2020 MECO, 4.03%, series 2012B, unsecured senior note, due 2020 HECO, 3.79%, series 2012A, unsecured senior note, due 2018 HELCO, 3.79%, series 2012A, unsecured senior note, due 2018 MECO, 3.79%, series 2012A, unsecured senior note, due 2018	150,000 51,546 40,000 35,000 50,000 20,000 30,000 62,000 20,000 30,000 11,000 9,000
Total long-term debt	1,147,946

Customer Deposits
Deposits are used to secure customers' accounts
HECO	$	13,614
HELCO	3,853
MECO	4,409
Total customer deposits	21,876

* set to be refinanced/redeemed with the proceeds of the sale of Notes issued under (1) this Note Purchase Agreement, (2) the separate Note Purchase and Guaranty Agreements of HELCO and MECO, and/or (3) from available funds. Conditional notices of redemption have been given with respect to all three series of the bonds to be redeemed.

S-5.15-2

STATUS UNDER CERTAIN STATUTES

Federal Power Act

Hawaiian Electric Company, Inc., Hawaii Electric Light Company, Inc. and Maui Electric Company, Limited are not generally subject to regulation by the Federal Energy Regulatory Commission (FERC) under the Federal Power Act, except that they are subject to the provisions of Section 210 under which FERC may order the utility to interconnect with qualifying cogenerators and small power producers and to wheel power to other electric utilities.

Public Utility Holding Company Act of 2005

Hawaiian Electric Company, Inc. is a holding company within the meaning of the Public Utility Holding Company Act of 2005 and would be subject to the record retention, accounting and reporting requirements of that Act except that it obtained a waiver from those requirements shortly after the Act was adopted.

SCHEDULE 5.17

(to Note Purchase and Guaranty Agreement)

EXISTING LIENS



Debtor	Secured Party	Jurisdiction	UCC File Number	UCC File Date	Collateral Description*
Hawaiian Electric Company, Inc.	Hitachi Credit America Corp (as assignee of Hannon Armstrong Hawaii Funding Corp.)	Hawaii	2001-180919	11/19/2001	All money due and coming due under a 2001 task order with a U.S. Navy agency for an energy efficiency project—remaining balance $1.1 million
Hawaiian Electric Company, Inc.	J.P. Morgan Leasing, Inc. (assignment) PHNSY – ECPs 1 & 3)	Hawaii	2004-085035	04/29/2004	Assignment or partial assignment from Hitachi of foregoing financing arrangement
Hawaiian Electric Company, Inc.	Hitachi Credit America Corp.	Hawaii	2006-185362	10/10/2006	Continuation Statement of 2001-180919 continued for additional period provided by applicable law
Hawaiian Electric Company, Inc.	J.P. Morgan Leasing Inc.	Hawaii	2006-192912	10/23/2006	Continuation Statement of 2001-180919 continued for additional period provided by applicable law
Hawaiian Electric Company, Inc.	J.P. Morgan Leasing Inc.	Hawaii	2011-138648	08/30/2011	Continuation Statement of 2001-180919 continued for additional period provided by applicable law
Hawaiian Electric Company, Inc.	Hitachi Credit America Corp.	Hawaii	2011-194210	11/18/2011	Continuation Statement of 2001-180919 continued for additional period provided by applicable law

SCHEDULE 10.3

(to Note Purchase and Guaranty Agreement)




Hawaiian Electric Company, Inc.	Hannon Armstrong Federal Government Receivables Trust (as assignee of Hannon Armstrong DSM Funding LLC) – HALE KOA)	Hawaii	2005-094089	05/11/2005	All money due and to become due under a 2004 delivery order from a U.S. Navy ordering agency relating to an energy efficiency project—remaining balance, $253,000
Hawaiian Electric Company, Inc.	Hannon Armstrong Federal Government Receivables Trust	Hawaii	2010-047285	04/08/2010	Continuation Statement of 2005-094089 continued for additional period provided by applicable law

S-10.3-2

RESTRICTIVE AGREEMENTS

The following restrictions and conditions exist on October 3, 2013:

Hawaiian Electric Company, Inc. (“HECO”) Credit Agreement dated May, 7 2010, amended to expire on December 5, 2016, by and between HECO, the Lenders party thereto and JPMorgan Chase Bank, N.A., as Administrative Agent restricts the ability of HECO and its “Significant Subsidiaries,” as defined therein, to sell, transfer or otherwise dispose of all or substantially all of its properties and assets to any of its Affiliates, as defined therein, on a non-arms length basis.

Hawaiian Electric Company, Inc., Maui Electric Company, Ltd. (“MECO”) and Hawaii Electric Light Company, Inc. (“HELCO”) are subject to restrictive covenants in connection with the offer and sale in March 2004 of Cumulative Quarterly Income Preferred Securities, as disclosed in the Registration Statements on Form S-3, Regis. Nos. 333-111073, 333-111073-01, 333-111073-02 and 333-111073-03 filed with the Securities and Exchange Commission, which descriptions are incorporated herein by reference.

HECO, MECO and HELCO are subject to restrictive covenants in connection with their cumulative preferred stock financings to the effect that, until dividends have been paid or declared or set apart for payment on all shares of the respective company’s cumulative preferred stock, (a) no distributions on the respective company’s common stock or any future class of stock except cumulative preferred stock shall be made and (b) the respective company shall not purchase or otherwise acquire any of the respective company’s common stock or any future class of stock except cumulative preferred stock. In the event of liquidation, dissolution, receivership, bankruptcy, disincorporation or winding up of the affairs of the respective company, cumulative preferred stockholders are entitled to the par value of their shares and accrued and unpaid dividends, before any distribution is made to holders of the respective company's common stock or any future class of stock except cumulative preferred stock.

HECO is subject to restrictive covenants in connection with its cumulative preferred stock financings to the effect that, as long as any shares of the respective series of cumulative preferred stock are outstanding, HECO shall not affect the merger or consolidation of HECO, or sell, lease or exchange all or substantially all of the property and assets of HECO, without first obtaining the consent in writing of the holders of at least 75% of each of the respective outstanding series of cumulative preferred stock, provided that said consent shall not be required to make a mortgage, pledge, assignment or transfer of all or any part of its assets as security for any obligation or liability of any kind or nature.

SCHEDULE 10.5

(to Note Purchase and Guaranty Agreement)

HECO, MECO and HELCO are subject to restrictive covenants in connection with their special purpose revenue bonds which contain provisions to the effect that HECO, MECO and HELCO shall not dissolve or otherwise dispose of all or substantially all its assets, and will not consolidate with or merge into another entity or permit other entities to consolidate with or merge into it, unless certain specific requirements are met.

HECO, MECO and HELCO are subject to restrictive covenants in connection with their Note Purchase Agreements dated as of April 19, 2012 and HECO’s Note Purchase Agreement dated as of September 13, 2012 (together the “Note Agreements”), pursuant to which several series of unsecured notes were issued in private placements. The Note Agreements contain affirmative and negative restrictions, including a negative covenant that HECO will not permit the ratio of any Significant Subsidiaries’ Consolidated Subsidiary Funded Debt to its Capitalization exceed a specified level, and this restriction could operate indirectly to restrict the ability of Significant Subsidiaries to make Restricted Payments to HECO. HECO also entered into two similar Note Purchase Agreements of the same April 19 date under which it is a “Guarantor” of MECO (in one such Agreement) and a Guarantor of HELCO (in another such Agreement). Each of these agreements contains similar negative covenants relating to MECO and HELCO (as well as HECO) relating to their respective Consolidated Subsidiary Funded Debt to Capitalization ratios and those of their respective Significant Subsidiaries. The affirmative and negative restrictions are disclosed in the Current Reports on Form 8-K filed with the Securities and Exchange Commission on April 23, 2012 and September 14, 2012, which descriptions are incorporated herein by reference.

HECO, MECO and HELCO are subject to restrictive covenants in connection with their Note Purchase Agreements being entered into concurrently on or about October 3, 2013 (together, the “October 2013 Note Agreements”) and to which this Schedule 10.5 relates and pursuant to which unsecured notes are being issued in a private placement. The October 2013 Note Agreements contain affirmative and negative covenants which are similar to those in the HECO, MECO and HELCO Note Purchase Agreements dated as of April 19, 2012 and HECO’s Note Purchase Agreement dated as of September 13, 2012 and which are discussed in item 6 of this Schedule 10.5.

S-10.5-2

AFFILIATE TRANSACTIONS

Administrative Services Agreements



Administrative Service Agreement	Affiliate Providing Services	Affiliate Purchasing Services	Original Agreement Date
Hawaiian Electric Industries, Inc. (HEI) ¹ and Hawaiian Electric Company, Inc. (HECO)	HEI	HECO	February 4, 1993 ²
HEI and Hawaii Electric Light Company, Inc. (HELCO) ³	HEI	HELCO	February 11, 1993 ⁴
HEI and Maui Electric Company, Ltd. (MECO) ⁵	HEI	MECO	February 3, 1993 ⁶
HECO/HELCO/MECO and Renewable Hawaii, Inc. (RHI) ⁷	HECO/HELCO/MECO	RHI	January 1, 2003
HECO and Uluwehiokama Biofuels Corporation (UBC) ⁸	HECO	UBC	May 14, 2008
HECO and HEI	HECO	HEI	August 10, 1994
HECO and HEI Diversified, Inc., now known as American Savings Holdings, Inc. (ASHI) ⁹	HECO	ASHI	August 15, 1994
HECO and American Savings Bank, F.S.B. (ASB) ¹⁰	HECO	ASB	November 8, 1996 ¹¹
HECO and Hawaiian Tug & Barge Corp., now known as The Old Oahu Tug Service, Inc. (TOOTS) ¹²	HECO	TOOTS	August 5, 1994

¹ HEI is the parent company of HECO.

² Agreement includes an Addendum dated April 22, 1994, Addendum No. 2 dated July 1, 1994, Addendum No. 3 dated January 1, 1999, and an Update dated December 29, 2003.

³ HELCO is a subsidiary of HECO.

⁴ Agreement includes an Addendum dated April 22, 1994, Addendum No. 2 dated July 1, 1994, Addendum No. 3 dated January 1, 1999, and an Update dated December 29, 2003.

⁵ MECO is a subsidiary of HECO.

⁶ Agreement includes an Addendum dated April 22, 1994, Addendum No. 2 dated July 1, 1994, Addendum No. 3 dated January 1, 1999, and an Update dated December 29, 2003.

⁷ RHI is a subsidiary of HECO.

⁸ UBC is a subsidiary of HECO.

⁹ ASHI (formerly HEI Diversified, Inc.) is the parent company of American Savings Bank, and is a subsidiary of HEI.

¹⁰ ASB is a subsidiary of ASHI, which is a subsidiary of HEI.

¹¹ Agreement is extended on an annual basis. The current extension is dated March 9, 2011 and expires December 31, 2012.

¹² TOOTS (formerly Hawaiian Tug & Barge Corp.) is a subsidiary of HEI.

SCHEDULE 10.6

(to Note Purchase and Guaranty Agreement)

FORM OF SERIES A NOTE

THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE “ACT” ) OR UNDER THE SECURITIES LAWS OF ANY STATE. NO TRANSFER, SALE OR OTHER DISPOSITION OF THIS NOTE MAY BE MADE UNLESS A REGISTRATION STATEMENT WITH RESPECT TO THIS NOTE HAS BECOME EFFECTIVE UNDER THE ACT AND SUCH REGISTRATION OR QUALIFICATION AS MAY BE REQUIRED UNDER THE SECURITIES LAWS OF ANY STATE HAS BECOME EFFECTIVE, OR AN EXEMPTION FROM SUCH REGISTRATIONS AND/OR QUALIFICATIONS IS AVAILABLE UNDER THE ACT AND SUCH LAWS. EACH TRANSFEREE OF THIS NOTE, BY ACCEPTANCE OF THIS NOTE REGISTERED IN ITS NAME (OR THE NAME OF ITS NOMINEE) WILL BE DEEMED TO HAVE MADE CERTAIN REPRESENTATIONS SET FORTH IN THE NOTE PURCHASE AND GUARANTY AGREEMENT PURSUANT TO WHICH THIS NOTE WAS ISSUED.

HAWAII ELECTRIC LIGHT COMPANY, INC.

3.83% Senior Note, Series 2013A, due July 1, 2020

No. AR-_______ ___________, 20__

$____________ PPN 41975* AK1

FOR VALUE RECEIVED, the undersigned, HAWAII ELECTRIC LIGHT COMPANY, INC. (herein called the “Company” ), a corporation organized and existing under the laws of the State of Hawaii, hereby promises to pay to ________________, or registered assigns, the principal sum of ________________ DOLLARS (or so much thereof as shall not have been prepaid) on July 1, 2020 (the “Maturity Date” ) with interest (computed on the basis of a 360-day year of twelve 30-day months) (a) on the unpaid balance hereof at the rate of 3.83% per annum from the date hereof, payable semiannually, on the first day of January and July in each year, commencing with the first day of [January or] ¹³ July next succeeding the date hereof, and on the Maturity Date, until the principal hereof shall have become due and payable, and (b) to the extent permitted by law, on any overdue payment of interest and, during the continuance of an Event of Default, on such unpaid balance and on any overdue payment of any Make-Whole Amount, at a rate per annum from time to time equal to the greater of (1) 5.83% or (2) 2.00% over the rate of interest publicly announced by Bank of America, N.A. from time to time in New York, New York as its “base” or “prime” rate, payable semiannually as aforesaid (or, at the option of the registered holder hereof, on demand).

Payments of principal of, interest on and any Make-Whole Amount with respect to this Note are to be made in lawful money of the United States of America at U.S. Bank National Association in New York, New York or at such other place as the Company shall have designated by written notice to the holder of this Note as provided in the Note and Guaranty Agreement referred to below.

This Note is one of the Series 2013A Senior Notes (herein called the “Notes” ) issued pursuant to the Note Purchase and Guaranty Agreement dated as of October 3, 2013 (as from

________

¹³ To be included in Notes issued after January 1, 2014.

Exhibit 1(a)

(to Note Purchase and Guaranty Agreement)

time to time amended, the “Note and Guaranty Agreement” ), among the Company, Hawaiian Electric Company, Inc., a Hawaii corporation (the “Parent Guarantor” ), and the respective Purchasers named therein and is entitled to the benefits thereof. Each holder of this Note will be deemed, by its acceptance hereof at original issuance or upon subsequent transfer, to have (i) agreed to the confidentiality provisions set forth in Section 21 of the Note and Guaranty Agreement and (ii) made the representations set forth in Section 6.3 of the Note and Guaranty Agreement. Unless otherwise indicated, capitalized terms used in this Note shall have the respective meanings ascribed to such terms in the Note and Guaranty Agreement.

Payment of the principal of, Make-Whole Amount, if any, and interest on this Note has been absolutely, unconditionally and irrevocably guaranteed by the Parent Guarantor in accordance with the terms of the Note and Guaranty Agreement.

This Note is a registered Note and, as provided in the Note and Guaranty Agreement, upon surrender of this Note for registration of transfer, duly endorsed, or accompanied by a written instrument of transfer duly executed, by the registered holder hereof or such holder’s attorney duly authorized in writing, a new Note for a like principal amount will be issued to, and registered in the name of, the transferee. Prior to due presentment for registration of transfer, the Company may treat the Person in whose name this Note is registered as the owner hereof for the purpose of receiving payment and, except as otherwise provided in Section 14.1 of the Note and Guaranty Agreement, for all other purposes, and the Company will not be affected by any notice to the contrary.

This Note is subject to optional prepayment, in whole or from time to time in part, at the times and on the terms specified in the Note and Guaranty Agreement, but not otherwise.

If an Event of Default occurs and is continuing, the principal of this Note may be declared or otherwise become due and payable in the manner, at the price (including any applicable Make-Whole Amount) and with the effect provided in the Note and Guaranty Agreement.

This Note shall be construed and enforced in accordance with, and the rights of the Company and the holder of this Note shall be governed by, the law of the State of New York excluding choice of law principles of the law of such State that would require or permit the application of the laws of a jurisdiction other than such State.



	HAWAII ELECTRIC LIGHT COMPANY, INC.
Seal	By Its
	By Its

EXHIBIT 1(a)

(to Note Purchase and Guaranty Agreement)

FORM OF SERIES B NOTE

HAWAII ELECTRIC LIGHT COMPANY, INC.

4.45% Senior Note, Series 2013B, due December 1, 2022

No. BR-_______ ___________, 20__

$____________ PPN 41975* AL9

FOR VALUE RECEIVED, the undersigned, HAWAII ELECTRIC LIGHT COMPANY, INC. (herein called the “Company” ), a corporation organized and existing under the laws of the State of Hawaii, hereby promises to pay to ________________, or registered assigns, the principal sum of ________________ DOLLARS (or so much thereof as shall not have been prepaid) on December 1, 2022 (the “Maturity Date” ) with interest (computed on the basis of a 360-day year of twelve 30-day months) (a) on the unpaid balance hereof at the rate of 4.45% per annum from the date hereof, payable semiannually, on the first day of June and December in each year, commencing with the first day of June [or December] ¹⁴ next succeeding the date hereof, and on the Maturity Date, until the principal hereof shall have become due and payable, and (b) to the extent permitted by law, on any overdue payment of interest and, during the continuance of an Event of Default, on such unpaid balance and on any overdue payment of any Make-Whole Amount, at a rate per annum from time to time equal to the greater of (1) 6.45% or (2) 2.00% over the rate of interest publicly announced by Bank of America, N.A. from time to time in New York, New York as its “base” or “prime” rate, payable semiannually as aforesaid (or, at the option of the registered holder hereof, on demand).

This Note is one of the Series 2013B Senior Notes (herein called the “Notes” ) issued pursuant to the Note Purchase and Guaranty Agreement dated as of October 3, 2013 (as from

___________

¹⁴ To be included in Notes issued after December 1, 2013.

EXHIBIT 1(b)

(to Note Purchase and Guaranty Agreement)

This Note is subject to optional prepayment, in whole or from time to time in part, at the times and on the terms specified in the Note and Guaranty Agreement, but not otherwise.



	HAWAII ELECTRIC LIGHT COMPANY, INC.
Seal	By Its
	By Its

E-1(b)-2

FORM OF SERIES C NOTE

HAWAII ELECTRIC LIGHT COMPANY, INC.

4.84% Senior Note, Series 2013C, due October 1, 2027

No. CR-_______ ___________, 20__

$____________ PPN 41975* AM7

FOR VALUE RECEIVED, the undersigned, HAWAII ELECTRIC LIGHT COMPANY, INC. (herein called the “Company” ), a corporation organized and existing under the laws of the State of Hawaii, hereby promises to pay to ________________, or registered assigns, the principal sum of ________________ DOLLARS (or so much thereof as shall not have been prepaid) on October 1, 2027 (the “Maturity Date” ) with interest (computed on the basis of a 360-day year of twelve 30-day months) (a) on the unpaid balance hereof at the rate of 4.84% per annum from the date hereof, payable semiannually, on the first day of April and October in each year, commencing with the first day of April or October next succeeding the date hereof, and on the Maturity Date, until the principal hereof shall have become due and payable, and (b) to the extent permitted by law, on any overdue payment of interest and, during the continuance of an Event of Default, on such unpaid balance and on any overdue payment of any Make-Whole Amount, at a rate per annum from time to time equal to the greater of (1) 6.84% or (2) 2.00% over the rate of interest publicly announced by Bank of America, N.A. from time to time in New York, New York as its “base” or “prime” rate, payable semiannually as aforesaid (or, at the option of the registered holder hereof, on demand).

This Note is one of the Series 2013C Senior Notes (herein called the “Notes” ) issued pursuant to the Note Purchase and Guaranty Agreement dated as of October 3, 2013 (as from time to time amended, the “Note and Guaranty Agreement” ), among the Company, Hawaiian Electric Company, Inc., a Hawaii corporation (the “Parent Guarantor” ), and the respective Purchasers named therein and is entitled to the benefits thereof. Each holder of this Note will be

EXHIBIT 1(c)

(to Note Purchase and Guaranty Agreement)

deemed, by its acceptance hereof at original issuance or upon subsequent transfer, to have (i) agreed to the confidentiality provisions set forth in Section 21 of the Note and Guaranty Agreement and (ii) made the representations set forth in Section 6.3 of the Note and Guaranty Agreement. Unless otherwise indicated, capitalized terms used in this Note shall have the respective meanings ascribed to such terms in the Note and Guaranty Agreement.

This Note is subject to optional prepayment, in whole or from time to time in part, at the times and on the terms specified in the Note and Guaranty Agreement, but not otherwise.



	HAWAII ELECTRIC LIGHT COMPANY, INC.
Seal	By Its
	By Its

E-1(c)-2

FORM OF OPINION OF THE VICE PRESIDENT-GENERAL COUNSEL
OF THE PARENT GUARANTOR

The closing opinion of Susan A. Li, Esq., Vice President-General Counsel to the Parent Guarantor, which is called for by Section 4.4(a) of the Agreement, shall be dated the date of the Closing and addressed to each Purchaser, shall be satisfactory in scope and form to each Purchaser and shall be to the effect that:

1. The Company has the full corporate power and the corporate authority to conduct the activities in which it is now engaged and, to my knowledge, does not itself conduct any business or own or lease any property in any jurisdiction outside the State of Hawaii that would require it to qualify to do business as a foreign corporation and where the failure to be so qualified would reasonably be expected to have a Material Adverse Effect.

2. The Parent Guarantor has the full corporate power and the corporate authority to conduct the activities in which it is now engaged and, to my knowledge, does not itself conduct any business or own or lease any property in any jurisdiction outside the State of Hawaii that would require it to qualify to do business as a foreign corporation and where the failure to be so qualified would reasonably be expected to have a Material Adverse Effect.

3. To my knowledge, MECO, a Hawaii corporation, does not conduct any business or own or lease any property in any jurisdiction outside the State of Hawaii that would require it to qualify to do business as a foreign corporation and where the failure to be so qualified would reasonably be expected to have a Material Adverse Effect.

4. The Parent Guarantor is the record owner of all of the issued and outstanding shares of common stock of each of the Company and MECO and all such shares have been duly issued and are fully paid and non-assessable and are owned by the Parent Guarantor.

5. To my knowledge, the issuance and sale of the Notes and the execution, delivery and performance by the Company of the Agreement do not conflict with or result in any breach of any of the provisions of or constitute a default under or result in the creation or imposition of any Lien upon any of the property of the Company pursuant to the provisions any agreement or other instrument to which the Company is a party or by which the Company may be bound.

6. To my knowledge, the execution, delivery and performance by the Parent Guarantor of the Agreement do not conflict with or result in any breach of any of the provisions of or constitute a default under or result in the creation or imposition of any Lien upon any of the property of the Parent Guarantor pursuant to the provisions any agreement or other instrument to which the Parent Guarantor is a party or by which the Parent Guarantor may be bound.

The opinion of Susan A. Li, Esq., Vice President‑General Counsel, shall cover such other matters relating to the sale of the Notes as any Purchaser may reasonably request and shall

EXHIBIT 4.4(a)

(to Note Purchase and Guaranty Agreement)

provide that (i) subsequent Institutional Investor holders of the Notes may rely upon such opinion and (ii) such opinion may be provided to Governmental Authorities including, without limitation, the NAIC. With respect to matters of fact on which such opinion is based, such counsel shall be entitled to rely on appropriate certificates of public officials and officers of the Constituent Companies.

E.4.4(a)-2

FORM OF OPINION OF SPECIAL COUNSEL
FOR THE CONSTITUENT COMPANIES

The closing opinion of Goodsill Anderson Quinn & Stifel LLP, special counsel for the Constituent Companies, which is called for by Section 4.4(b) of the Agreement, shall be dated the date of the Closing and addressed to each Purchaser, shall be satisfactory in scope and form to each Purchaser and shall be to the effect that:

1. The Company is a corporation duly incorporated under the laws of the Republic of Hawaii and validly existing and in good standing under the laws of the State of Hawaii and has the corporate power and the corporate authority to execute and perform the Agreement and to issue the Notes. The Parent Guarantor is a corporation duly incorporated under the laws of the Kingdom of Hawaii and validly existing and in good standing under the laws of the State of Hawaii and has the corporate power and the corporate authority to execute and perform the Agreement. MECO is a corporation duly incorporated under the laws of the Territory of Hawaii and validly existing and in good standing under the laws of the State of Hawaii.

2. The Agreement has been duly authorized by all necessary corporate action on the part of each Constituent Company, has been duly executed and delivered by each Constituent Company and constitutes the legal, valid and binding contract of each Constituent Company enforceable in accordance with its terms.

3. The Notes have been duly authorized by all necessary corporate action on the part of the Company, have been duly executed and delivered by the Company and constitute the legal, valid and binding obligations of the Company enforceable in accordance with their terms.

4. No approval, consent or withholding of objection on the part of, or filing, registration or qualification with, any Governmental Authority, federal or state, is necessary in connection with the execution and delivery by a Constituent Company of the Agreement or, in the case of the Company, the Notes, except for the approval of the Public Utilities Commission of the State of Hawaii, which approval has been obtained. Nothing has come to our attention to cause us to believe that such approval has been vacated, amended or modified.

5. The issuance and sale of the Notes and the execution, delivery and performance by the Company of the Agreement do not conflict with any law, rule or regulation or order of any state or federal governmental body or result in any breach of any of the provisions of or constitute a default under or result in the creation or imposition of any Lien upon any of the property of the Company pursuant to the provisions of the Articles of Incorporation, as amended, or the Amended and Restated By-laws of the Company.

6. The execution, delivery and performance by the Parent Guarantor of the Agreement do not conflict with any law, rule or regulation or order of any state or federal governmental body or result in any breach of any of the provisions of or constitute a

EXHIBIT 4.4(b)

(to Note Purchase and Guaranty Agreement)

default under or result in the creation or imposition of any Lien upon any of the property of the Parent Guarantor pursuant to the provisions of the Articles of Incorporation, as amended, or the Amended and Restated By-laws of the Parent Guarantor.

7. Neither Constituent Company is an “investment company” as such term is defined in the Investment Company Act of 1940, as amended.

8. The issuance of the Notes and the use of the proceeds of the sale of the Notes in accordance with the provisions of and contemplated by the Agreement do not violate Regulation T, U or X of the Board of Governors of the Federal Reserve System.

9. Assuming that the representations and warranties of the Constituent Companies and the Purchasers in the Agreement are true and correct, and assuming compliance by the Constituent Companies and the Purchasers with their respective covenants and agreements set forth in the Agreement, the issuance, sale and delivery of the Notes and the delivery of the Guaranty provided in Section 13 under the circumstances contemplated by the Agreement do not, under existing law, require the registration of the Notes of such Guaranty under the Securities Act or the qualification of an indenture under the Trust Indenture Act of 1939, as amended.

The opinion of Goodsill Anderson Quinn & Stifel LLP shall cover such other matters relating to the sale of the Notes as any Purchaser may reasonably request and shall provide that (i) subsequent Institutional Investor holders of the Notes may rely upon such opinion and (ii) such opinion may be provided to Governmental Authorities including, without limitation, the NAIC. The opinion letter may contain assumptions, qualifications, exclusions and limitations acceptable to each Purchaser. The opinions may be limited to the laws of the State of Hawaii and the federal laws of the United States and the opinions concerning the enforceability of the Agreement and the Notes may be based on the assumption that the laws of the State of Hawaii and the laws of the State of New York with respect to such matters are identical in all material respects. With respect to matters of fact on which such opinion is based, such counsel shall be entitled to rely on appropriate certificates of public officials and officers of the Constituent Companies.

E.4.4(b)-2

FORM OF OPINION OF SPECIAL COUNSEL
TO THE PURCHASERS

The closing opinion of Schiff Hardin LLP, special counsel to the Purchasers, called for by Section 4.4(c) of the Agreement, shall be dated the date of the Closing and addressed to the Purchasers, shall be satisfactory in form and substance to the Purchasers and shall be to the effect that:

1. Each Constituent Company is a corporation in good standing under the laws of the State of Hawaii.

2. The Agreement and the Notes being delivered on the date hereof constitute the legal, valid and binding contracts of the Company, enforceable against the Company in accordance with their respective terms.

3. The Agreement constitutes the legal, valid and binding contract of the Parent Guarantor, enforceable against the Parent Guarantor in accordance with its terms.

4. The issuance, sale and delivery of the Notes being delivered on the date hereof and the delivery of the Guaranty provided in Section 13 under the circumstances contemplated by this Agreement do not, under existing law, require the registration of such Notes under the Securities Act or the qualification of an indenture under the Trust Indenture Act of 1939, as amended.

The opinion of Schiff Hardin LLP shall also state that the opinions of Susan A. Li, Esq., Vice President-General Counsel and Goodsill Anderson Quinn & Stifel LLP are satisfactory in scope and form to Schiff Hardin LLP and that, in their opinion, the Purchasers are justified in relying thereon.

In rendering the opinion set forth in paragraph 1 above, Schiff Hardin LLP may rely, as to matters referred to in paragraph 1, solely upon an examination of a certificate of good standing of each Constituent Company from the Director of the Department of Commerce and Consumer Affairs of the State of Hawaii. The opinion of Schiff Hardin LLP is limited to the laws of the State of New York and the federal laws of the United States.

With respect to matters of fact upon which such opinion is based, Schiff Hardin LLP may rely on appropriate certificates of public officials and officers of the Constituent Companies and upon representations of the Constituent Companies and the Purchasers delivered in connection with the issuance and sale of the Notes.

44228-0000

CH2\13331030.9

EXHIBIT 4.4(c)

(to Note Purchase and Guaranty Agreement)

HEI Exhibit 12.1 (page 1 of 2)

Hawaiian Electric Industries, Inc. and Subsidiaries

COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES

(unaudited)



Nine months ended September 30	2013 (1)			2013 (2)			2012 (1)			2012 (2)
(dollars in thousands)
Fixed charges
Total interest charges (3)	$	63,253		$	67,123		$	41,213		$	44,688
Interest component of rentals	4,830			4,830			3,464			3,464
Pretax preferred stock dividend requirements of subsidiaries	2,162			2,162			1,481			1,481
Total fixed charges	$	70,245		$	74,115		$	46,158		$	49,633
Earnings
Pretax income from continuing operations	$	187,660		$	187,660		$	121,238		$	121,238
Fixed charges, as shown	70,245			74,115			46,158			49,633
Interest capitalized	(1,626		)	(1,626		)	(1,763		)	(1,763		)
Earnings available for fixed charges	$	256,279		$	260,149		$	165,633		$	169,108
Ratio of earnings to fixed charges	3.65			3.51			3.59			3.41



Years ended December 31	2012 (1)			2012 (2)			2011 (1)			2011 (2)			2010 (1)			2010 (2)
(dollars in thousands)
Fixed charges
Total interest charges (3)	$	83,020		$	89,443		$	87,592		$	96,575		$	87,191		$	101,887
Interest component of rentals	6,493			6,493			4,757			4,757			4,282			4,282
Pretax preferred stock dividend requirements of subsidiaries	2,924			2,924			2,914			2,914			3,001			3,001
Total fixed charges	$	92,437		$	98,860		$	95,263		$	104,246		$	94,474		$	109,170
Earnings
Pretax income from continuing operations	$	215,517		$	215,517		$	214,162		$	214,162		$	181,357		$	181,357
Fixed charges, as shown	92,437			98,860			95,263			104,246			94,474			109,170
Interest capitalized	(4,355		)	(4,355		)	(2,498		)	(2,498		)	(2,558		)	(2,558		)
Earnings available for fixed charges	$	303,599		$	310,022		$	306,927		$	315,910		$	273,273		$	287,969
Ratio of earnings to fixed charges	3.28			3.14			3.22			3.03			2.89			2.64

See notes on page 2 of 2.

HEI Exhibit 12.1 (page 2 of 2)

Hawaiian Electric Industries, Inc. and Subsidiaries

COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES

(unaudited)

(continued)



Years ended December 31	2009 (1)			2009 (2)			2008 (1)			2008 (2)
(dollars in thousands)
Fixed charges
Total interest charges (3)	$	85,827		$	119,873		$	120,083		$	181,566
Interest component of rentals	5,339			5,339			5,354			5,354
Pretax preferred stock dividend requirements of subsidiaries	2,868			2,868			2,894			2,894
Total fixed charges	$	94,034		$	128,080		$	128,331		$	189,814
Earnings
Pretax income from continuing operations	$	126,934		$	126,934		$	139,256		$	139,256
Fixed charges, as shown	94,034			128,080			128,331			189,814
Interest capitalized	(5,268		)	(5,268		)	(3,741		)	(3,741		)
Earnings available for fixed charges	$	215,700		$	249,746		$	263,846		$	325,329
Ratio of earnings to fixed charges	2.29			1.95			2.06			1.71

_______________________________________________


(1)	Excluding interest on ASB deposits.


(2)	Including interest on ASB deposits.


(3)	Interest on nonrecourse debt from leveraged leases is not included in total interest charges nor in interest expense in HEI’s consolidated statements of income.

For purposes of calculating the ratio of earnings to fixed charges, “earnings” represent the sum of (i) pretax income from continuing operations (before adjustment for undistributed income or loss from equity investees) and (ii) fixed charges (as hereinafter defined, but excluding capitalized interest). “Fixed charges” are calculated both excluding and including interest on ASB’s deposits during the applicable periods and represent the sum of (i) interest, whether capitalized or expensed, but excluding interest on nonrecourse debt from leveraged leases which is not included in interest expense in HEI’s consolidated statements of income, (ii) amortization of debt expense and discount or premium related to any indebtedness, whether capitalized or expensed, (iii) the estimate of the interest within rental expense, and (iv) the non-intercompany preferred stock dividend requirements of HEI’s subsidiaries, increased to an amount representing the pretax earnings required to cover such dividend requirements.

Hawaiian Electric Exhibit 12.2

Hawaiian Electric Company, Inc. and Subsidiaries

COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES

(unaudited)



	Nine months ended September 30						Years ended December 31
(dollars in thousands)	2013			2012			2012			2011			2010			2009			2008
Fixed charges
Total interest charges	$	47,449		$	46,592		$	62,056		$	60,031		$	61,510		$	57,944		$	54,757
Interest component of rentals	2,137			1,996			2,690			2,152			1,857			2,499			2,211
Pretax preferred stock dividend requirements of subsidiaries	1,071			1,102			1,467			1,468			1,461			1,452			1,458
Total fixed charges	$	50,657		$	49,690		$	66,213		$	63,651		$	64,828		$	61,895		$	58,426
Earnings
Net income attributable to Hawaiian Electric	$	91,749		$	95,861		$	100,356		$	101,066		$	77,669		$	80,526		$	93,055
Fixed charges, as shown	50,657			49,690			66,213			63,651			64,828			61,895			58,426
Income taxes (see note below)	51,776			58,429			61,048			61,584			46,868			47,776			55,763
Allowance for borrowed funds used during construction	(1,626		)	(2,451		)	(4,355		)	(2,498		)	(2,558		)	(5,268		)	(3,741		)
Earnings available for fixed charges	$	192,556		$	201,529		$	223,262		$	223,803		$	186,807		$	184,929		$	203,503
Ratio of earnings to fixed charges	3.80			4.06			3.37			3.52			2.88			2.99			3.48
Note:
Income taxes are comprised of the following:
Income tax expense relating to operating income from regulated activities	$	51,356		$	58,291		$	76,594		$	65,988		$	48,053		$	48,212		$	56,307
Income tax expense (benefit) relating to results from nonregulated activities	420			138			(15,546		)	(4,404		)	(1,185		)	(436		)	(544		)
	$	51,776		$	58,429		$	61,048		$	61,584		$	46,868		$	47,776		$	55,763

For purposes of calculating the ratio of earnings to fixed charges, “earnings” represent the sum of (i) pretax income before preferred stock dividends of Hawaiian Electric and before adjustment for undistributed income or loss from equity investees and (ii) fixed charges (as hereinafter defined, but excluding the allowance for borrowed funds used during construction). “Fixed charges” represent the sum of (i) interest, whether capitalized or expensed, (ii) amortization of debt expense and discount or premium related to any indebtedness, whether capitalized or expensed, (iii) the estimate of the interest within rental expense and (iv) the preferred stock dividend requirements of Hawaii Electric Light and Maui Electric, increased to an amount representing the pretax earnings required to cover such dividend requirements.

HEI Exhibit 31.1

Certification Pursuant to Rule 13a-14 promulgated under the Securities Exchange Act of 1934 of Constance H. Lau (HEI Chief Executive Officer)

I, Constance H. Lau, certify that:

1. I have reviewed this report on Form 10-Q for the quarter ended September 30, 2013 of Hawaiian Electric Industries, Inc. (“registrant”);

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.



Date: November 7, 2013

	/s/ Constance H. Lau
	Constance H. Lau
	President and Chief Executive Officer

HEI Exhibit 31.2

Certification Pursuant to Rule 13a-14 promulgated under the Securities Exchange Act of 1934 of James A. Ajello (HEI Chief Financial Officer)

I, James A. Ajello, certify that:

1. I have reviewed this report on Form 10-Q for the quarter ended September 30, 2013 of Hawaiian Electric Industries, Inc. (“registrant”);

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.



Date: November 7, 2013

	/s/ James A. Ajello
	James A. Ajello
	Executive Vice President and Chief Financial Officer

Hawaiian Electric Exhibit 31.3

Certification Pursuant to Rule 13a-14 promulgated under the Securities Exchange Act of 1934 of Richard M. Rosenblum (Hawaiian Electric Chief Executive Officer)

I, Richard M. Rosenblum, certify that:

1. I have reviewed this report on Form 10-Q for the quarter ended September 30, 2013 of Hawaiian Electric Company, Inc. (“registrant”);

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.



Date: November 7, 2013

	/s/ Richard M. Rosenblum
	Richard M. Rosenblum
	President and Chief Executive Officer

Hawaiian Electric Exhibit 31.4

Certification Pursuant to Rule 13a-14 promulgated under the Securities Exchange Act of 1934 of Tayne S. Y. Sekimura (Hawaiian Electric Chief Financial Officer)

I, Tayne S. Y. Sekimura, certify that:

1. I have reviewed this report on Form 10-Q for the quarter ended September 30, 2013 of Hawaiian Electric Company, Inc. (“registrant”);

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.



Date: November 7, 2013

	/s/ Tayne S. Y. Sekimura
	Tayne S. Y. Sekimura
	Senior Vice President and Chief Financial Officer

HEI Exhibit 32.1

Hawaiian Electric Industries, Inc.

Certification Pursuant to

18 U.S.C. Section 1350

In connection with the Quarterly Report of Hawaiian Electric Industries, Inc. (HEI) on Form 10-Q for the quarter ended September 30, 2013 , as filed with the Securities and Exchange Commission on the date hereof (the Report), we, Constance H. Lau and James A. Ajello, Chief Executive Officer and Chief Financial Officer, respectively, of HEI, certify, pursuant to 18 U.S.C. Section 1350, that to the best of our knowledge:

(1) The Report fully complies with the requirements of section 13(a) of the Securities Exchange Act of 1934, as amended; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of HEI and its subsidiaries as of, and for, the periods presented in this report.

Date: November 7, 2013

/s/ Constance H. Lau

Constance H. Lau

President and Chief Executive Officer

/s/ James A. Ajello

James A. Ajello

Executive Vice President and Chief Financial Officer

A signed original of this written statement has been provided to HEI and will be retained by HEI and furnished to the Securities and Exchange Commission or its staff upon request.

Hawaiian Electric Exhibit 32.2

Hawaiian Electric Company, Inc.

Certification Pursuant to

18 U.S.C. Section 1350

In connection with the Quarterly Report of Ha waiian Electric Company, Inc. (Hawaiian Electric) on Form 10-Q for the quarter ended September 30, 2013 , as filed with the Securities and Exchange Commission on the date hereof (the Hawaiian Electric Report), we, Richard M. Rosenblum and Tayne S. Y. Sekimura, Chief Executive Officer and Chief Financial Officer, respectively, of Hawaiian Electric, certify, pursuant to 18 U.S.C. Section 1350, that to the best of our knowledge:

(1) The Hawaiian Electric Report fully complies with the requirements of section 13(a) of the Securities Exchange Act of 1934, as amended; and

(2) The Hawaiian Electric information contained in the Hawaiian Electric Report fairly presents, in all material respects, the financial condition and results of operations of Hawaiian Electric and its subsidiaries as of, and for, the periods presented in this report.

Date: November 7, 2013

/s/ Richard M. Rosenblum

Richard M. Rosenblum

President and Chief Executive Officer

/s/ Tayne S. Y. Sekimura

Tayne S. Y. Sekimura

Senior Vice President and Chief Financial Officer

A signed original of this written statement has been provided to Hawaiian Electric and will be retained by Hawaiian Electric and furnished to the Securities and Exchange Commission or its staff upon request.