UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2000
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission Registrant; State of Incorporation; I.R.S. Employer
File Number Address; and Telephone Number Identification No.
--------------- ------------------------------------------------------------ ----------------------
1-8503 HAWAIIAN ELECTRIC INDUSTRIES, INC. (A Hawaii Corporation) 99-0208097
900 Richards Street, Honolulu, Hawaii 96813
Telephone (808) 543-5662
1-4955 HAWAIIAN ELECTRIC COMPANY, INC. (A Hawaii Corporation) 99-0040500
900 Richards Street, Honolulu, Hawaii 96813
Telephone (808) 543-7771
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Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Registrant Title of each class on which registered
------------------------------------ --------------------------------------------------- -------------------------
Hawaiian Electric Industries, Inc. Common Stock, Without Par Value New York Stock Exchange
Hawaiian Electric Industries, Inc. Guarantee with respect to 8.36% Trust Originated New York Stock Exchange
Preferred Securities (SM) (TOPrS (SM))
Hawaiian Electric Industries, Inc. Preferred Stock Purchase Rights New York Stock Exchange
Hawaiian Electric Company, Inc. Guarantee with respect to 8.05% Cumulative New York Stock Exchange
Quarterly Income Preferred Securities
Series 1997 (QUIPSSM)
Hawaiian Electric Company, Inc. Guarantee with respect to 7.30% Cumulative New York Stock Exchange
Quarterly Income Preferred Securities
Series 1998 (QUIPS(SM))
|
Securities registered pursuant to Section 12(g) of the Act:
Registrant Title of each class ---------------------------------------------- --------------------------- Hawaiian Electric Industries, Inc. None Hawaiian Electric Company, Inc. Cumulative Preferred Stock |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes |X| No |_|
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. |X|
Aggregate market value of Number of shares of
the voting stock held by common stock
nonaffiliates of the outstanding of the
registrants on registrants on
March 12, 2001 March 12, 2001
---------------------------------- -----------------------------------
Hawaiian Electric Industries, Inc. $1,213,930,000 33,349,720
(Without par value)
Hawaiian Electric Company, Inc. na 12,805,843
($6 2/3 par value)
====================================================================================================================================
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DOCUMENTS INCORPORATED BY REFERENCE
Part of
Form 10-K
into which the
document is
Document incorporated
-----------------------------------------------------------------------------------------------------------
Annual Reports to Stockholder(s) of the following registrants for the fiscal
year ended December 31, 2000:
Hawaiian Electric Industries, Inc. ..................................... Parts I, II, III and IV
Hawaiian Electric Company, Inc.
(except for pages 1, 43 and 45)...................................... Parts I, II, III and IV
Portions of Proxy Statement of Hawaiian Electric Industries, Inc.,
dated March 14, 2001, for the Annual Meeting of Stockholders ................. Part III
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This combined Form 10-K represents separate filings by Hawaiian Electric Industries, Inc. and Hawaiian Electric Company, Inc. Information contained herein relating to any individual registrant is filed by each registrant on its own behalf. Neither registrant makes any representations as to the information relating to the other registrant.
TABLE OF CONTENTS
Page
----
Glossary of Terms ...................................................................................................ii
Forward-Looking Information..........................................................................................vi
PART I
Item 1. Business.............................................................................................. 1
Item 2. Properties............................................................................................56
Item 3. Legal Proceedings.....................................................................................58
Item 4. Submission of Matters to a Vote of Security Holders...................................................58
Executive Officers of the Registrant (Hawaiian Electric Industries, Inc.)............................................58
PART II
Item 5. Market for Registrants' Common Equity and Related Stockholder Matters.................................59
Item 6. Selected Financial Data...............................................................................60
Item 7. Managements' Discussion and Analysis of Financial Condition
and Results of Operations..........................................................................60
Item 7A. Quantitative and Qualitative Disclosures about Market Risk............................................61
Item 8. Financial Statements and Supplementary Data...........................................................61
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure..................61
PART III
Item 10. Directors and Executive Officers of the Registrants...................................................61
Item 11. Executive Compensation................................................................................64
Item 12. Security Ownership of Certain Beneficial Owners and Management........................................67
Item 13. Certain Relationships and Related Transactions........................................................68
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.......................................69
Independent Auditors' Report - Hawaiian Electric Industries, Inc.....................................................71
Independent Auditors' Report - Hawaiian Electric Company, Inc........................................................72
Index to Exhibits....................................................................................................77
Signatures...........................................................................................................97
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GLOSSARY OF TERMS
Defined below are certain terms used in this report:
Terms Definitions
----- -----------
1935 Act Public Utility Holding Company Act of 1935
AES-Hawaii AES Hawaii, Inc., formerly known as AES Barbers Point, Inc.
AFUDC Allowance for funds used during construction
ASB American Savings Bank, F.S.B., a wholly owned subsidiary of HEI Diversified, Inc. and
parent company of American Savings Investment Services Corp. (and its subsidiary
since March 15, 2001, Bishop Insurance Agency of Hawaii, Inc.) ASB Service
Corporation, AdCommunications, Inc., American Savings Mortgage Co., Inc. and ASB
Realty Corporation
BIF Bank Insurance Fund
BoA Bank of America, FSB
Btu British thermal unit
CDUP Conservation District Use Permit
CERCLA Comprehensive Environmental Response, Compensation and Liability Act
Chevron Chevron Products Company, a fuel oil supplier
Company Hawaiian Electric Industries, Inc. and its direct and indirect subsidiaries,
including, without limitation, Hawaiian Electric Company, Inc., Maui Electric
Company, Limited, Hawaii Electric Light Company, Inc., HECO Capital Trust I, HECO
Capital Trust II, HEI Diversified, Inc., American Savings Bank, F.S.B. and its
subsidiaries, HEI Power Corp. and its subsidiaries, Pacific Energy Conservation
Services, Inc., HEI District Cooling, Inc., ProVision Technologies, Inc., HEI
Properties, Inc., HEI Leasing, Inc., Hycap Management, Inc., Hawaiian Electric
Industries Capital Trust I, Hawaiian Electric Industries Capital Trust II, Hawaiian
Electric Industries Capital Trust III, HEI Preferred Funding, LP, The Old Oahu Tug
Service, Inc. (formerly Hawaiian Tug & Barge Corp.) and Malama Pacific Corp. and
its subsidiaries
Consumer Advocate Division of Consumer Advocacy, Department of Commerce and Consumer Affairs of the
State of Hawaii
CT Combustion turbine
DLNR Department of Land and Natural Resources of the State of Hawaii
D&O Decision and order
DOD Department of Defense - federal
DOH Department of Health of the State of Hawaii
DSM Demand-side management
DTCC Dual-train combined-cycle
EAPRC East Asia Power Resources Corporation
ECA Energy cost adjustment
EPHE EPHE Philippines Energy Company, Inc.
Enserch Enserch Development Corporation
EPA Environmental Protection Agency - federal
ERL Environmental Response Law of the State of Hawaii
FDIC Federal Deposit Insurance Corporation
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GLOSSARY OF TERMS (continued)
Terms Definitions
----- -----------
FDICIA Federal Deposit Insurance Corporation Improvement Act of 1991
federal U.S. Government
FHLB Federal Home Loan Bank
FICO Financing Corporation
FIRREA Financial Institutions Reform, Recovery, and Enforcement Act of 1989
Hamakua Partners Hamakua Energy Partners, L.P., formerly known as Encogen Hawaii, L.P.
HRD Hawi Renewable Development, Inc.
HCPC Hilo Coast Power Company, formerly Hilo Coast Processing Company
HC&S Hawaiian Commercial & Sugar Company, a division of A&B-Hawaii, Inc.
HECO Hawaiian Electric Company, Inc., an electric utility subsidiary of Hawaiian Electric
Industries, Inc. and parent company of Maui Electric Company, Limited, Hawaii
Electric Light Company, Inc., HECO Capital Trust I and HECO Capital Trust II
HECO's Portions of Hawaiian Electric Company, Inc.'s 2000 Annual Report to Stockholder filed
Annual Report as HECO Exhibit 13, which portions are incorporated into this
Form 10-K by reference
HECO's Hawaiian Electric Company, Inc.'s Consolidated Financial Statements,
Consolidated incorporated into Parts I, II and IV of this Form 10-K
Financial by reference to pages 12 to 42 of HECO's Annual Report
Statements
HECO's MD&A Hawaiian Electric Company, Inc.'s Management's Discussion and Analysis of
Financial Condition and Results of Operations, incorporated into
Parts I, II and IV of this Form 10-K by reference to pages 3 to 9
of HECO's Annual Report
HEI Hawaiian Electric Industries, Inc., direct parent company of Hawaiian Electric
Company, Inc., HEI Diversified, Inc., HEI Power Corp., Pacific Energy Conservation
Services, Inc., HEI District Cooling, Inc., ProVision Technologies, Inc., HEI
Properties, Inc., HEI Leasing, Inc., Hycap Management, Inc., Hawaiian Electric
Industries Capital Trust I, Hawaiian Electric Industries Capital Trust II, Hawaiian
Electric Industries Capital Trust III, The Old Oahu Tug Service, Inc. (formerly
Hawaiian Tug & Barge Corp.) and Malama Pacific Corp.
HEI's Hawaiian Electric Industries, Inc.'s 2000 Annual Report to Stockholders,
Annual Report which is filed as HEI Exhibit 13 and incorporated into this Form 10-K by reference
HEI's Hawaiian Electric Industries, Inc.'s Consolidated Financial
Consolidated Statements, incorporated into Parts I, II and IV of this Form 10-K
Financial by reference to pages 20 to 50 of HEI's Annual Report
Statements
HEI's MD&A Hawaiian Electric Industries, Inc.'s Management's Discussion and Analysis of
Financial Condition and Results of Operations incorporated into Parts
I, II and IV of this Form 10-K by reference to pages 3 to 15 of HEI's
Annual Report
HEIDI HEI Diversified, Inc., a wholly owned subsidiary of Hawaiian Electric Industries, Inc.
and the parent company of American Savings Bank, F.S.B.
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GLOSSARY OF TERMS (continued)
Terms Definitions
----- -----------
HEIII HEI Investments, Inc. (formerly HEI Investment Corp.), a subsidiary of HEI Power Corp.
HEIPC HEI Power Corp., a wholly owned subsidiary of Hawaiian Electric Industries, Inc. and
parent company of several subsidiaries
HEIPC Group HEI Power Corp. and its subsidiaries
HEIPI HEI Properties, Inc., a wholly owned subsidiary of Hawaiian Electric Industries, Inc.
HELCO Hawaii Electric Light Company, Inc., an electric utility subsidiary of Hawaiian
Electric Company, Inc.
HIG The Hawaiian Insurance & Guaranty Company, Limited, an insurance company which was
placed in state rehabilitation proceedings. HEI Diversified, Inc. was the holder of
record of HIG's common stock prior to August 16, 1994
HITI Hawaiian Interisland Towing, Inc.
HTB Hawaiian Tug & Barge Corp. On November 10, 1999, HTB sold substantially all of its
operating assets and the stock of Young Brothers, Limited, and changed its name to
The Old Oahu Tug Services, Inc.
IPP Independent power producer
IRP Integrated resource plan
Kalaeloa Kalaeloa Partners, L.P.
KCP Kawaihae Cogeneration Partners
KDC Keahole Defense Coalition
kv kilovolt
KIP Kalaeloa Investment Partners
KPP Kahua Power Partners LLC
KWH Kilowatthour
LSFO Low sulfur fuel oil
MBtu Million British thermal unit
MECO Maui Electric Company, Limited, an electric utility subsidiary of Hawaiian Electric
Company, Inc.
MPC Malama Pacific Corp., a wholly owned subsidiary of Hawaiian Electric Industries, Inc.
and parent company of several real estate subsidiaries. On September 14, 1998, the
HEI Board of Directors adopted a plan to exit the residential real estate
development business engaged in by Malama Pacific Corp. and its subsidiaries.
MSFO Medium sulfur fuel oil
MW Megawatt
na Not applicable
NOV Notice of Violation
OPA Federal Oil Pollution Act of 1990
OTS Office of Thrift Supervision, Department of Treasury
PCB Polychlorinated biphenyls
PECS Pacific Energy Conservation Services, Inc., a wholly owned subsidiary of Hawaiian
Electric Industries, Inc.
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GLOSSARY OF TERMS (continued)
Terms Definitions
----- -----------
PGV Puna Geothermal Venture
PPA Power purchase agreement
PSD permit Prevention of Significant Deterioration/Covered Source permit
PUC Public Utilities Commission of the State of Hawaii
PURPA Public Utility Regulatory Policies Act of 1978
QF Qualifying Facility under the Public Utility Regulatory Policies Act of 1978
QTL Qualified Thrift Lender
RCRA Resource Conservation and Recovery Act of 1976
Registrant Hawaiian Electric Industries, Inc. or Hawaiian Electric Company, Inc.
ROACE Return on average common equity
see When used with reference to pages in the HEI Annual Report, HECO Annual Report,
HEI's Consolidated Financial Statements, HEI's MD&A, HECO's
Consolidated Financial Statements or HECO's MD&A, "see" means incorporated by
reference to those documents as Exhibits to this Form 10-K
SAIF Savings Association Insurance Fund
SEC Securities and Exchange Commission
SOP Statement of Position
ST Steam turbine
STG Steam turbine generator
state State of Hawaii
Tesoro Tesoro Hawaii Corp. dba BHP Petroleum Americas Refining Inc.,
a fuel oil supplier
TOOTS The Old Oahu Tug Service, Inc. (formerly Hawaiian Tug & Barge Corp. (HTB)),
a wholly owned subsidiary of Hawaiian Electric Industries, Inc. On November 10,
1999, HTB sold YB and substantially all of HTB's operating assets and changed
its name
UIC Underground Injection Control
UST Underground storage tank
YB Young Brothers, Limited, which was sold on November 10, 1999, was formerly a
wholly owned subsidiary of Hawaiian Tug & Barge Corp.
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Forward-Looking Statements
This report and other presentations made by HEI and its subsidiaries contain "forward-looking statements," which include statements that are predictive in nature, depend upon or refer to future events or conditions, and/or include words such as "expects", "anticipates", "intends", "plans", "believes", "predicts", "estimates" or similar expressions. In addition, any statements concerning future financial performance (including future revenues, earnings/losses or growth rates), ongoing business strategies or prospects and possible future actions, which may be provided by management, 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 assumptions about HEI and its subsidiaries, the performance of the industries in which they do business and economic and market factors, among other things. These statements are not guaranties of future performance. Such risks, uncertainties and other important factors could cause actual results to differ materially from those in the forward-looking statements and include, but are not limited to, the following: the effect of international, national and local economic conditions, including the condition of the Hawaii tourist and construction industries and the Hawaii housing market; the effects of weather and natural disasters; product demand and market acceptance risks; increasing competition in the electric utility, banking and international power industries; capacity and supply constraints or difficulties; fuel oil price changes and the continued availability of the electric utilities' energy cost adjustment clauses; new technological developments; federal, state and international governmental and regulatory actions, including changes in laws, rules and regulations applicable to HEI and its subsidiaries, decisions in rate cases and other PUC proceedings and on permitting issues, required corrective actions and changes in taxation; the results of financing efforts; the timing and extent of changes in interest rates; the timing and extent of changes in foreign currency exchange rates, and the convertibility and availability of foreign currency, particularly in the Philippines and China; the risks inherent in implementing hedging strategies, including the availability and pricing of forward contracts; political and business risks inherent in doing business in developing countries; the risk that ASB Realty Corporation fails to qualify as a real estate investment trust for federal and state income tax purposes, in which case it would be subject to regular corporate income taxation; and other risks or uncertainties described elsewhere in this report and in other periodic reports previously and subsequently filed by HEI and/or HECO with the Securities and Exchange Commission. Forward-looking statements speak only as of the date of the report, presentation or filing in which they are made.
PART I
ITEM 1. BUSINESS
HEI
HEI was incorporated in 1981 under the laws of the State of Hawaii and is a holding company with subsidiaries engaged in the electric utility, savings bank and other businesses operating primarily in the State of Hawaii, and in independent power and integrated energy services projects in Asia and the Pacific. HEI's predecessor, HECO, was incorporated under the laws of the Kingdom of Hawaii (now the State of Hawaii) on October 13, 1891. As a result of a 1983 corporate reorganization, HECO became an HEI subsidiary and common shareholders of HECO became common shareholders of HEI.
HECO and its operating subsidiaries, MECO and HELCO, are regulated electric public utilities providing the only electric public utility service on the islands of Oahu, Maui, Lanai, Molokai and Hawaii. HECO also owns all the common securities of HECO Capital Trust I and HECO Capital Trust II (Delaware statutory business trusts), which were formed to effect the issuances of $50 million of 8.05% cumulative quarterly income preferred securities in March 1997 and $50 million of 7.30% cumulative quarterly income preferred securities in December 1998, respectively, for the benefit of HECO, MECO and HELCO.
Besides HECO, HEI also owns directly or indirectly the following subsidiaries:
HEIDI (a holding company) and its subsidiary, ASB, and the subsidiaries of ASB;
HEIPC and its subsidiaries (the HEIPC Group); PECS; HEI District Cooling, Inc.;
ProVision Technologies, Inc.; HEI Properties, Inc.; HEI Leasing, Inc.; Hycap
Management, Inc. and its subsidiary; Hawaiian Electric Industries Capital Trust
I; Hawaiian Electric Industries Capital Trust II and III (inactive entities);
TOOTS; and MPC and its subsidiaries (discontinued operations).
ASB, acquired in 1988, was the third largest financial institution in the State of Hawaii and had 68 retail branches as of December 31, 2000. On December 6, 1997, ASB acquired substantially all of the Hawaii deposits of Bank of America, FSB (BoA), most of its Hawaii branches and certain of its Hawaii-based loans. The acquisition increased ASB's assets by $1.8 billion and its deposits by $1.7 billion. In March 1998, ASB formed a subsidiary, ASB Realty Corporation, which elects to be taxed as a real estate investment trust. On March 15, 2001, a subsidiary of ASB acquired Bishop Insurance Agency of Hawaii, Inc., which markets insurance products as an insurance agency with about 40 employees.
HEIDI was also the parent company of HEIDI Real Estate Corp., which was formed in February 1998. In September 1999, HEIDI Real Estate Corp.'s name was changed to HEI Properties, Inc. (HEIPI), and HEIDI transferred ownership of HEIPI to HEI. HEIPI currently holds passive investments and it is expected that HEIPI will also hold real estate and related assets.
HEIPC was formed in 1995 to pursue, directly or through its subsidiaries or affiliates, independent power and integrated energy services projects in Asia and the Pacific. In 1996, an HEIPC subsidiary entered into an energy conversion agreement for approximately 20 years with the Guam Power Authority for the rehabilitation, operation and maintenance of two 25 megawatt (MW) (net) generating units. In 1998 and 1999, the HEIPC Group acquired what is now a 75% interest in a joint venture formed to design, construct, own, operate and manage a 200 MW (net) coal-fired power plant in China over a period of approximately 20 years. In 1998 and 1999, the HEIPC Group acquired convertible cumulative nonparticipating 8% preferred shares and common shares in Cagayan Electric Power & Light Co., Inc., an electric distribution company in the Philippines. In January 2000, HEI Investment Corp., formed in 1984 as a direct subsidiary of HEI, changed its name to HEI Investments, Inc. (HEIII). HEIII has been a passive investment company which primarily holds investments in leveraged leases. In February 2000, HEIII was recapitalized and all its common stock and one series of its preferred stock were contributed to HEIPC. In March 2000, HEIII registered (i.e., continued) in Nova Scotia, Canada and its subsidiary, HEIPC Philippines Holding Co., Inc., acquired an effective 46% interest in East Asia Power Resources Corporation (EAPRC), a Philippines holding
company primarily engaged in the electric generation business in Manila and Cebu through its direct and indirect subsidiaries. HEI wrote off its remaining investment in EAPRC on December 31, 2000. See "International power-HEI Power Corp."
PECS was formed in 1994 and currently is a contract services company providing limited support services in Hawaii. HEI District Cooling, Inc. was formed in August 1998 to develop, build, own, lease, operate and/or maintain, either directly or indirectly, central chilled water cooling system facilities, and other energy related products and services for commercial and residential buildings. ProVision Technologies, Inc. was formed in October 1998 to sell, install, operate and maintain on-site power generation equipment and auxiliary appliances in Hawaii and the Pacific Rim. HEI Leasing, Inc. was formed in February 2000 to own passive investments and real estate subject to leases. Hycap Management, Inc., including its subsidiary HEI Preferred Funding, LP (a limited partnership in which Hycap Management, Inc. is the sole general partner), and Hawaiian Electric Industries Capital Trust I (a Delaware statutory business trust in which HEI owns all the common securities) were formed to effect the issuance of $100 million of 8.36% HEI-obligated trust preferred securities in 1997.
HTB was acquired in 1986 and provided ship assist and charter towing services and owned YB, a regulated intrastate public carrier of waterborne freight among the Hawaiian Islands. In November 1999, HTB sold substantially all of its operating assets and the stock of YB for a nominal gain, changed its name to The Old Oahu Tug Service, Inc. (TOOTS) and ceased operations.
For information about the Company's discontinued operations, see Note 16 to HEI's Consolidated Financial Statements, which is incorporated herein by reference to pages 47 to 48 of HEI's Annual Report.
For financial information about the Company's industry segments, see Note 2 to HEI's Consolidated Financial Statements, which is incorporated herein by reference to pages 27 to 28 of HEI's Annual Report.
For additional information about the Company, see HEI's MD&A, HEI's "Quantitative and Qualitative Disclosures about Market Risk" and HEI's Consolidated Financial Statements, incorporated herein by reference to pages 3 to 15, 16 to 19 and 20 to 50, respectively, of HEI's Annual Report.
Electric utility
HECO and subsidiaries and service areas
HECO, MECO and HELCO are regulated operating electric public utilities engaged in the production, purchase, transmission, distribution and sale of electricity on the islands of Oahu; Maui, Lanai and Molokai; and Hawaii, respectively. HECO was incorporated under the laws of the Kingdom of Hawaii (now State of Hawaii) in 1891. HECO acquired MECO in 1968 and HELCO in 1970. In 2000, the electric utilities' revenues amounted to approximately 74% of HEI's consolidated revenues, but as a result of substantial losses in the international power segment, the electric utilities' operating income amounted to approximately 124% of HEI's consolidated operating income.
The islands of Oahu, Maui, Lanai, Molokai and Hawaii have a combined population currently estimated at 1,152,000, or approximately 95% of the population of the State of Hawaii, and comprise a service area of 5,766 square miles. The principal communities served include Honolulu (on Oahu), Wailuku and Kahului (on Maui) and Hilo and Kona (on Hawaii). The service areas also include numerous suburban communities, resorts, U.S. Armed Forces installations and agricultural operations.
The state has granted HECO, MECO and HELCO nonexclusive franchises which authorize the utilities to construct, operate and maintain facilities over and under public streets and sidewalks. HECO's franchise covers the City & County of Honolulu, MECO's franchises cover the County of Maui and the County of Kalawao, and HELCO's franchise covers the County of Hawaii. Each of these franchises will continue in effect for an indefinite period of time until forfeited, altered, amended or repealed.
For additional information about HECO, see HEI's MD&A, HEI's Quantitative and Qualitative Disclosures about Market Risk and HEI's Consolidated Financial Statements, incorporated herein by reference to pages 3 to 15, 16 to 19 and 20 to 50, respectively, of HEI's Annual Report, and HECO's MD&A, HECO's Quantitative and Qualitative Disclosures about Market Risk and HECO's Consolidated Financial Statements incorporated herein by reference to pages 3 to 9, 10 to 11 and 12 to 42, respectively, of HECO's Annual Report.
Sales of electricity
HECO, MECO and HELCO provide the only electric public utility service on the islands they serve. The following table sets forth the number of electric customer accounts as of December 31, 2000, 1999 and 1998 and electric sales revenues for each of the years then ended:
2000 1999 1998
-------------------------------------------------------------------------------------------
Customer Electric sales Customer Electric sales Customer Electric sales
(dollars in thousands) accounts revenues accounts revenues accounts revenues
--------------------------------------------------------------------------------------------------------------------------
HECO .................... 278,260 $ 880,663 275,467 $ 729,557 272,675 $ 711,561
MECO .................... 57,601 192,823 56,410 156,808 55,286 136,623
HELCO ................... 63,778 192,174 62,478 158,962 61,228 153,249
-------------------------------------------------------------------------------------------
399,639 $1,265,660 394,355 $1,045,327 389,189 $1,001,433
===========================================================================================
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Revenues from the sale of electricity in 2000 were from the following types of customers in the proportions shown:
HECO MECO HELCO Total
-----------------------------------------------------------------------
Residential............... 31% 36% 41% 33%
Commercial................ 32 35 38 33
Large light and power..... 36 29 21 33
Other..................... 1 -- -- 1
-------------------------------------------
100% 100% 100% 100%
===========================================
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HECO and its subsidiaries derived approximately 10%, 9% and 10% of their operating revenues from the sale of electricity to various federal government agencies in 2000, 1999 and 1998, respectively.
Formerly one of HECO's larger customers, the Naval Base at Barbers Point, Oahu, closed in 1999 with redevelopment of the base to occur through 2020. This closure accounted for most of the decrease in sales to federal government agencies in 1999. Considering (1) that the base closure will necessitate relocation of essential flight operations and support personnel to another base on Oahu and (2) the Naval Air Station Barbers Point Community Redevelopment Plan, HECO anticipates that the closure is likely to result in an overall increase in demand for electricity over time.
In 1995, HECO and the U.S. General Services Administration (GSA) entered into a Basic Ordering Agreement (GSA-BOA) under which HECO would arrange for the financing and installation of energy conservation projects at federal facilities in Hawaii. Under the GSA-BOA, HECO undertook an air conditioning upgrade project at the federal office building in downtown Honolulu, which was completed in 1997. In 1997 and 1998, HECO also performed and completed design work for solar water heating in this federal office building, but no further work has been performed.
In 1997, HECO and the U.S. Postal Service (USPS) signed a Shared Energy Savings Contract to perform feasibility studies at 11 USPS sites on Oahu. Upon completion of this study, HECO submitted proposals to design and construct energy efficiency projects at the USPS's primary mail processing facility on Oahu. HECO recently completed construction of the first phase of these energy efficiency projects. HECO is preparing a second proposal to perform additional energy efficiency projects at this same USPS facility.
HECO signed an umbrella Basic Ordering Agreement with the Department of Defense (DOD-BOA) in 1996. As of December 31, 2000, 10 energy audits, 2 feasibility design studies and 5 major construction projects have been completed or are in progress at U.S. Navy facilities on Oahu. HECO has completed the construction of an 1800-ton central chiller plant at the Pearl Harbor Naval Shipyard under the DOD-BOA. HECO also completed the construction of a central chiller plant at Schofield Barracks on Oahu under the DOD-BOA. Further, solar water heating and lighting retrofit projects were completed at three Navy housing facilities on Oahu.
Executive Order 13123 mandates that each federal agency develop and implement a program to reduce energy consumption by 35% by the year 2010 to the extent that these measures are cost effective. The 35% reduction will be measured relative to the agency's 1985 energy use. HECO continues to work with various federal agencies to implement demand-side management programs that will help them achieve their energy reduction objectives. Neither HEI nor HECO management can predict with certainty the impact of Executive Order 13123 on HEI's or HECO's future financial condition, results of operations or liquidity.
Selected consolidated electric utility operating statistics
2000 1999 1998 1997 1996
------------------------------------------------------------------
KWH sales (millions)
Residential...................................... 2,627.2 2,550.5 2,503.9 2,531.0 2,540.4
Commercial....................................... 2,923.5 2,781.5 2,674.9 2,676.8 2,662.4
Large light and power............................ 3,666.9 3,598.3 3,636.4 3,700.7 3,733.0
Other............................................ 54.1 54.7 54.8 54.7 55.4
------------------------------------------------------------------
9,271.7 8,985.0 8,870.0 8,963.2 8,991.2
==================================================================
Net energy generated and purchased
(millions of KWH)
Net generated.................................... 6,247.0 6,115.1 5,958.0 5,885.9 5,994.3
Purchased........................................ 3,572.0 3,391.7 3,434.1 3,622.8 3,565.3
------------------------------------------------------------------
9,819.0 9,506.8 9,392.1 9,508.7 9,559.6
==================================================================
Losses and system uses (%)....................... 5.4 5.3 5.4 5.5 5.7
Energy supply (yearend)
Generating capability--MW........................ 1,673 1,651 1,664 1,634 1,636
Firm purchased capability--MW.................... 533 472 474 474 474
------------------------------------------------------------------
2,206 2,123 2,138 2,108 2,110
==================================================================
Gross peak demand--MW (1)........................ 1,574 1,527 1,532 1,573 1,561
Btu per net KWH generated........................ 10,818 10,789 10,684 10,799 10,781
Average fuel oil cost per Mbtu (cents)........... 538.5 329.7 308.8 405.9 388.8
Customer accounts (yearend)
Residential...................................... 347,316 342,957 338,454 336,094 333,807
Commercial....................................... 50,434 49,549 48,873 48,671 49,069
Large light and power............................ 547 550 573 582 586
Other............................................ 1,342 1,299 1,289 1,279 1,252
------------------------------------------------------------------
399,639 394,355 389,189 386,626 384,714
==================================================================
Electric revenues (thousands)
Residential...................................... $ 421,129 $ 356,631 $ 340,395 $ 367,432 $ 355,669
Commercial....................................... 422,977 345,808 322,772 347,308 338,785
Large light and power............................ 414,067 336,434 331,957 369,878 362,823
Other............................................ 7,487 6,454 6,309 6,764 6,733
------------------------------------------------------------------
$1,265,660 $1,045,327 $1,001,433 $1,091,382 $1,064,010
==================================================================
Average revenue per KWH sold (cents)
Residential...................................... 16.03 13.98 13.60 14.52 14.00
Commercial....................................... 14.47 12.43 12.07 12.97 12.73
Large light and power............................ 11.29 9.35 9.13 9.99 9.72
Other............................................ 13.84 11.80 11.52 12.38 12.16
Average revenue per KWH sold..................... 13.65 11.63 11.29 12.18 11.83
Residential statistics
Average annual use per customer account (KWH).... 7,618 7,490 7,425 7,559 7,649
Average annual revenue per customer account...... $1,221 $1,047 $1,009 $1,097 $1,071
Average number of customer accounts.............. 344,882 340,528 337,218 334,811 332,138
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(1) Sum of the peak demands on all islands served, noncoincident and nonintegrated.
Generation statistics
The following table contains certain generation statistics as of December 31, 2000, and for the year ended December 31, 2000. The capability available for operation at any given time may be less than the generating capability shown because of capability restrictions or temporary outages for inspection, maintenance, repairs or unforeseen circumstances.
Island of Island of Island of Island of Island of
Oahu- Maui- Lanai- Molokai- Hawaii-
HECO MECO MECO MECO HELCO Total
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Generating and firm purchased capability
(MW) at December 31, 2000 (1)
Conventional oil-fired steam units... 1,160.0 37.6 -- -- 69.6 1,267.2
Diesel............................... -- 96.1 10.4 9.9 38.0 154.4
Combustion turbines (peaking units).. 103.0 -- -- -- -- 103.0
Combustion turbines.................. -- 42.4 -- 2.2 45.8 90.4
Combined-cycle unit.................. -- 58.0 -- -- -- 58.0
Firm contract power (3).............. 406.0 16.0 -- -- 109.8 531.8
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1,669.0 250.1 10.4 12.1 263.2 2,204.8
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Gross peak demand (2)...................... 1,203.0 185.1 5.0 6.5 174.1 1,573.7
Reserve margin............................. 38.7% 35.1% 108.0% 86.2% 51.2% 40.1%
Annual load factor (2)..................... 74.6% 71.0% 67.7% 72.9% 70.5% 73.7%
KWH net generated and
purchased (millions).................... 7,589.4 1,113.0 28.8 40.2 1,047.6 9,819.0
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(1) HECO units at normal ratings; MECO and HELCO units at reserve ratings.
(2) Noncoincident and nonintegrated.
(3) Nonutility generators (oil fired except as noted)--HECO: 180 MW
(Kalaeloa), 180 MW (AES-Hawaii, coal fired) and 46 MW (refuse fired);
MECO: 16 MW (HC&S); HELCO: 30 MW (PGV, geothermal), 22 MW (HCPC) and 57.8
MW (Hamakua Partners).
Integrated resource planning and requirements for additional generating capacity
As a result of a proceeding initiated in 1990, the Public Utilities Commission of the State of Hawaii (PUC) issued an order in 1992 requiring the energy utilities in Hawaii to develop integrated resource plans (IRPs). The goal of integrated resource planning is the identification of demand- and supply-side resources and the integration of these resources for meeting near- and long-term consumer energy needs in an efficient and reliable manner at the lowest reasonable cost. In its 1992 order, the PUC adopted a "framework," which established both the process and the guidelines for developing IRPs. The PUC's framework directs that each plan cover a 20-year planning horizon with a five-year program implementation schedule and states that the planning cycle will be repeated every three years. Under the framework, the PUC may approve, reject or require modifications of the utilities' IRPs.
The framework also states that utilities are entitled to recover all appropriate and reasonable integrated resource planning and implementation costs, including the costs of planning and implementing demand-side management (DSM) programs. Under appropriate circumstances, the utilities may recover lost margins resulting from DSM
programs and earn shareholder incentives. The PUC has approved IRP cost recovery provisions for HECO, MECO and HELCO. Pursuant to the cost recovery provisions, the electric utilities may recover through a surcharge the costs for approved DSM programs (including DSM program lost margins and shareholder incentives), and other incremental IRP costs incurred by the utilities and approved by the PUC, to the extent the costs are not included in their base rates.
In August 2000, pursuant to a stipulation filed by the electric utilities and the parties in the IRP cost proceedings, the PUC issued an order allowing the electric utilities to begin recovering the 1995 through 1999 incremental IRP costs (over a 12 month period for HECO and a 24 month period for HELCO and MECO), subject to refund with interest, pending the PUC's final decision and order (D&O) approving recovery of each respective year's incremental IRP costs. The Consumer Advocate has objected to the recovery of certain incremental IRP costs incurred during the 1995-1999 period, and the electric utilities have filed responses. Schedules have been established for the filing of positions with respect to the 1999, 2000 and 2001 IRP costs. On September 1, 2000, the electric utilities began recovering 1995 through 1999 incremental IRP costs through a surcharge on customer bills. As of December 31, 2000, the amount of revenues recorded, subject to refund with interest, amounted to $3.3 million.
The electric utilities expect to begin recovering their 2000 incremental IRP costs, subject to refund with interest pending a final D&O, following the filing of actual 2000 costs (which is expected to occur in late March or early April 2001). A similar procedure has been agreed upon for HECO's and MECO's 2001 IRP costs. In early 2001, however, the PUC issued its final D&O in the HELCO 2000 test year rate case, in which the PUC concluded that it is appropriate for HELCO to recover its IRP cost through base rates (and included an estimated amount for such costs in HELCO's test year revenue requirements) and to discontinue recovery of incremental IRP costs through the separate surcharge. HELCO will continue to recover its DSM program costs, lost margins and shareholder incentives approved by the PUC in a separate surcharge and also expects to be permitted to recover its incremental IRP costs incurred prior to the final D&O in its rate case through its surcharge.
The utilities have characterized their proposed IRPs as planning strategies, rather than fixed courses of action, and the resources ultimately added to their systems may differ from those included in their 20-year plans. Under the IRP framework, the utilities are required to submit annual evaluations of their plans (including a revised five-year program implementation schedule) and to submit new plans on a three-year cycle, subject to changes approved by the PUC. Prior to proceeding with the DSM programs, separate PUC approval proceedings must be completed, in which the PUC further reviews the details of the proposed programs and the utilities' proposals for the recovery of DSM program expenditures, lost margins and shareholder incentives.
HECO's IRP. HECO filed its second IRP with the PUC in January 1998 and updated the status of its DSM and Supply Side Action Plans in July 1999. In January 2001, the parties to the proceeding filed a stipulation for PUC approval to expedite the proceeding and the PUC approved the stipulation, closed the docket and ordered HECO to submit its IRP annual evaluation report and program implementation schedule by October 2002 and its next IRP by October 2005, as stipulated. The PUC also ordered HECO to immediately notify it in writing if HECO's next generation is required prior to the 2009 time frame.
On the supply side, HECO's second IRP focused on the planning for the next generating unit addition in the 2009 time frame--a 107 MW simple-cycle diesel-fired combustion turbine, which would be part of a 318 MW diesel-fired 2-on-1 combined-cycle unit. Phases 2 and 3 of the combined-cycle unit would be installed in 2013 and 2016, respectively. In addition, pursuant to HECO's generation asset management program, all existing generating units are currently planned to be operated (future environmental considerations permitting) beyond the 20-year IRP planning period (1998-2017).
On the demand side, in May and June 2000, HECO filed applications to continue its energy efficiency DSM programs for an additional five-year period. The energy efficiency DSM programs are designed to reduce the rate of increase in Oahu's energy use, defer construction of new generating units, minimize the state's use of oil, and
achieve savings for utility customers who participate in the programs. The energy efficiency DSM programs include incentives for customers to install efficient lighting, refrigeration, water-heating and air-conditioning equipment and industrial motors. Stipulated prehearing orders for the energy efficiency DSM proceedings were approved by the PUC in October 2000 and the parties are in the process of discovery. In November 2000, the PUC approved HECO's request to continue its DSM programs for 2001, pending its decision in the current DSM program applications proceedings. HECO's plan also includes two load management programs, including a Commercial and Industrial Capacity Buy-Back Program, for which a PUC application has been filed, and a Residential Direct Load Control Program, which HECO initially plans to request approval of and implement as a pilot program.
MECO's IRP. MECO filed its second IRP with the PUC in May 2000. A stipulated prehearing order was approved by the PUC in October 2000. The parties are in the process of discovery, and the parties' individual Statements of Position are scheduled to be filed by April 2001.
The second IRP identified changes in key forecasts and assumptions since the development of MECO's initial IRP. MECO's second IRP included IRP strategy options related to the transition to a more competitive environment in the electric utility industry.
On the supply side, MECO's second IRP focused on the planning for the installation of approximately 150 MW of additional generation through the year 2020 on the island of Maui, including 38 MW of generation at its Maalaea power plant site in increments from 2000-2005, the acquisition of a 10 MW wind resource in 2003 and 100 MW at its new Waena site in increments from 2007-2018. Approximately 4 MW of additional generation through the year 2020 is planned for each of the islands of Lanai and Molokai. MECO completed the installation of the second 20 MW increment at Maalaea in September 2000, and the final increment of 18 MW is expected to be installed in 2005. The first 20 MW increment at Waena is expected to be installed in 2007.
On the demand side, MECO's second IRP included the continuation of its four existing energy efficiency DSM programs, and also included plans for a new energy efficiency DSM program and two new load management DSM programs. MECO's existing energy efficiency DSM programs, similar in design to HECO's programs, were approved by the PUC in 1996 and are scheduled to terminate at the end of 2001. MECO plans to file applications in the second quarter 2001 requesting PUC approval to continue its energy efficiency DSM programs for an additional five-year period. MECO also plans to file applications in 2001 for a pilot load management DSM program (prior to developing the full scale load management DSM programs) and the new energy efficiency DSM program.
HELCO's IRP. In September 1998, HELCO filed with the PUC its second IRP, which was updated in March 1999 and revised in June 1999. A schedule for the proceeding was approved by the PUC, and the parties to the proceeding completed two rounds of discovery. The parties to the proceeding met in November 2000 to discuss additional procedural steps. HELCO is in the process of developing a schedule to update its second IRP for changes in key forecasts and assumptions that have occurred since its filing.
The second IRP identified changes in key forecasts and assumptions since the development of HELCO's initial IRP. Similar to MECO's second IRP, HELCO's second IRP included IRP strategy options related to the transition to a more competitive environment in the electric utility industry.
On the supply side, HELCO's second IRP focused on the planning for generating unit additions after near-term additions. The near-term additions proposed in HELCO's second IRP included installing two 20 MW combustion turbines (CTs) at its Keahole power plant site (which have been delayed) and proceeding with a power purchase agreement (PPA) with Hamakua Energy Partners, L.P. (Hamakua Partners, formerly Encogen Hawaii, L.P.) for a 60 MW (net) naphtha-fired diesel-fired dual-train combined-cycle (DTCC). The first CT of the Hamakua Partners facility was installed in August 2000, and the second CT and heat recovery steam turbine generator (STG) was installed in December 2000. (See "HELCO power situation" below.) HELCO's second IRP also included completing a 56 MW (net) DTCC unit at Keahole in 2006 (by adding an 18 MW STG), retiring a number of its older, smaller
units after new generation has been added and adding another diesel-fired DTCC unit at a new West Hawaii site in phases in the 2009-2017 time frame.
On the demand side, HELCO's second IRP included the continuation of four energy efficiency DSM programs, similar in design to HECO's programs. In November 2000, the PUC approved HELCO's request to continue its DSM programs for 2001, pending the resolution of issues in the PUC's decision in HECO's current DSM program applications proceedings. HELCO plans to file applications in the second quarter 2001 requesting PUC approval to continue its energy efficiency DSM programs for an additional five-year period.
New capital projects
The capital projects of the electric utilities may be subject to various approvals and permitting processes, including obtaining PUC approval of the project, air permits from the Department of Health of the State of Hawaii (DOH) and/or the U.S. Environmental Protection Agency (EPA) and land use permits from the Hawaii Board of Land and Natural Resources (BLNR). Difficulties in obtaining the necessary approvals or permits could result in project delays, increased project costs and/or project abandonments. Extensive project delays and significantly increased project costs could result in a portion of the project costs being excluded from rates. If a project is abandoned, the project costs are generally written-off to expense, unless the PUC determines that all or part of the costs may be deferred for later recovery in rates.
HELCO power situation
Background. In 1991, HELCO began planning to meet increased electric generation demand forecasted for 1994. HELCO's plans were to install at its Keahole power plant two 20 MW combustion turbines (CT-4 and CT-5), followed by an 18 MW heat steam recovery generator (ST-7), at which time these units would be converted to a 56 MW (net) DTCC unit. In January 1994, the PUC approved expenditures for CT-4, which HELCO had planned to install in late 1994.
The timing of the installation of HELCO's phased DTCC unit at the Keahole power plant site has been revised on several occasions due to delays, described below, in (a) obtaining approval from the BLNR of a Conservation District Use Permit (CDUP) amendment and (b) obtaining from the DOH and the EPA a Prevention of Significant Deterioration/Covered Source permit (PSD permit) for the Keahole power plant site. The delays are also attributable to lawsuits, claims and petitions filed by independent power producers (IPPs) and other parties challenging these permits and objecting to the expansion, alleging among other things that (1) operation of the expanded Keahole site would not comply with land use regulations (including noise standards) and HELCO's land patent; (2) HELCO cannot operate the plant within current air quality standards; and (3) HELCO could alternatively purchase power from IPPs to meet increased electric generation demand.
CDUP amendment. On July 10, 1997, the Third Circuit Court of the State of Hawaii issued its Amended Findings of Fact, Conclusions of Law, Decision and Order addressing HELCO's appeal of an order of the BLNR, along with other consolidated civil cases relating to HELCO's application for a CDUP amendment. Because the BLNR failed to take valid agency action or render a proper decision within the 180 day statutory deadline (as calculated by the Court), the Court ruled that HELCO was automatically entitled to put its land to the uses requested in its CDUP amendment application pursuant to the default provision of the Hawaii Revised Statutes (HRS) Section 183-41. This decision allowed HELCO to use its Keahole property as requested in its application. An amended order to the same effect was issued on August 18, 1997. Final judgments have been entered in all of the consolidated cases. Appeals with respect to the final judgments for certain of the cases have been filed with the Hawaii Supreme Court. Motions filed with the Third Circuit Court to stay the effectiveness of the judgments pending resolution of the appeals were denied in April and July 1998 (in response to a motion for reconsideration). In August 1998, the Hawaii Supreme Court denied nonhearing motions for stay of final judgment pending resolution of the appeals. Management believes that HELCO will ultimately prevail on appeal and that the final judgments of the Third Circuit Court will be upheld.
The final judgment with respect to HELCO's entitlement to automatically put its land to the uses requested in its CDUP amendment application (which is in part 1 of the final judgment, and is referred to as HELCO's "default entitlement") was entered February 11, 1998. The final judgment states that HELCO must comply with the conditions in its application (part 2 of the final judgment), and that the standard conditions in the Hawaii Administrative Rules (HAR) Section 13-2-21, the rules of the Department of Land and Natural Resources of the State of Hawaii (DLNR), apply to the extent the standard conditions are not incompatible with HRS Section 183-41 (part 3 of the final judgment). On August 17, 1999, certain plaintiffs filed a joint motion to enforce parts 2 and 3 of the final judgment (relating to applicable conditions) and to stay part 1 of the final judgment (the default entitlement) until such time as the applicable conditions were identified and it was determined whether HELCO had or could meet the applicable conditions. At a September 23, 1999 hearing, the Third Circuit Court ruled that the BLNR must issue a written decision by November 30, 1999 on certain issues raised in the administrative petition filed by the Keahole Defense Coalition (KDC) in August 1998, including specific determinations of which conditions are not inconsistent with HELCO's ability to proceed under the default entitlement. At a BLNR meeting on October 22, 1999, the BLNR determined that all 15 standard land use conditions in HAR Section 13-2-21(a) applied to HELCO's default entitlement and that the conditions in HELCO's pre-existing CDUP and amendments continue to apply with respect to those existing permits. The BLNR specifically did not address at that time the question of HELCO's compliance with each of those conditions. The BLNR issued a written decision on November 19, 1999. Certain plaintiffs filed two motions in the Third Circuit Court attempting to implement their interpretation of the BLNR's ruling. On November 2, 1999, those plaintiffs filed a second joint motion to enforce part 2 and part 3 of the final judgment. In that motion, they alleged that the Keahole project cannot meet the conditions relating to compatibility with the surrounding area and improvement of the existing physical and environmental aspects of the subject area. Furthermore, they claimed that the project would be a prohibited use that cannot be placed in the conservation district, relying on zoning rules implemented by the BLNR in 1994 in furtherance of Act 270, which prohibited fossil fuel fired generating units in a conservation district. However, the Third Circuit Court had earlier ruled that Act 270 does not apply to HELCO's application, which was filed prior to the effective date of Act 270. Plaintiffs asked that HELCO be enjoined from placing further structures and improvements on the Keahole site and be ordered to remove all existing structures and improvements.
On November 5, 1999, the same plaintiffs filed a third joint motion asking that the Court void HELCO's default entitlement on the basis that HELCO forfeited its default entitlement by allegedly electing, through HELCO's construction of the pre-PSD portions of the project, to build a project different from that described in its application. They also requested that HELCO be enjoined from continuing construction activity at the site and ordered to restore the Keahole site to its pre-August 1992 condition. These motions were heard on December 13, 1999 and were denied by the Court. The Court also ruled that any complaints received by the BLNR or DLNR regarding the Keahole project were to be addressed in writing within 32 days of mailing of the complaint. An Order to this effect was issued on February 22, 2000. On April 13, 2000, KDC and an individual plaintiff filed a fourth motion to enforce the judgment, which substantially reiterates their second joint motion dated November 2, 1999 (see above) and a motion for sanctions against the BLNR. In light of a BLNR hearing on April 14, 2000, a stipulation to withdraw these motions was filed, and the plaintiffs indicated that they would refile the fourth motion after the written order from the BLNR was issued.
On June 21, 2000, the same plaintiffs filed a fifth joint motion to enforce judgment, generally restating the claims in the second and fourth motions. On July 7, 2000, the Department of Hawaiian Home Lands filed a joinder in that motion and on July 12, 2000 Waimana also filed a joinder. A hearing was held on August 28, 2000. At that hearing, the main issue was how the three-year construction period in the standard land use conditions would be applied to the Keahole project, and there was discussion as to whether the BLNR's August 16, 2000 order (see "BLNR petitions" herein) had addressed that issue and the related issue of whether HELCO was in compliance with that condition. The Court took the matter under advisement. Because discussion at the August 28, 2000 hearing had raised the question of whether KDC and an individual plaintiff had specifically posed certain questions to the BLNR
in their February 7, 2000 Request to Nullify (see "BLNR petitions" herein), on August 31, 2000 HELCO filed a letter with the BLNR requesting specific rulings on these issues. In response, on September 5, 2000, KDC and the individual plaintiff filed an ex-parte motion to file a memorandum in response to HELCO's letter and filed the memorandum itself, which claimed that HELCO's letter was an improper communication with the Court while a matter was pending decision. On September 6, 2000, the Court granted the ex-parte motion and set a hearing for September 18, 2000. At the hearing, the Court ruled to strike HELCO's letter from the Court record and ruled that, as a matter of law, absent any legal or equitable extension authorized by the BLNR pursuant to legal authority, the three-year construction deadline expired on April 26, 1999. The Court also denied KDC and the individual plaintiff's request for an injunction barring further construction.
HELCO filed a request for extension with the BLNR on October 20, 2000. The matter was heard on January 26, 2001, at which time the BLNR ruled that the issue should be decided through a contested case hearing. Procedures and schedules for the hearing have not yet been set. Management believes the extension will be obtained.
On October 27, 2000, KDC and another plaintiff filed a motion requesting the court to impose a stay on any further activities by HELCO pursuant to HELCO's default entitlement until such time as the Hawaii Supreme Court acts on the pending appeals. A hearing was held on December 11, 2000. At that hearing, the Court granted the motion in part, ordering a stay on the project until such time as an extension of the construction deadline is granted by the BLNR, at which time the Court would consider lifting the stay.
On January 12, 2001, HELCO filed a motion for supplemental final judgment, with the intent of reducing the Court's September 18, 2000 ruling to a final judgment that would be appealable. A hearing was held on February 5, 2001, at which time the Court denied the motion because all matters relating to the issue had not been resolved. The Court clarified that it would retain jurisdiction over any appeals from the BLNR's decision regarding HELCO's request for an extension of the construction deadline, and that HELCO would be able to appeal the September 18, 2000 ruling after those appeals were resolved.
Because substantially all of the pre-PSD construction has been completed and because HELCO is awaiting the necessary PSD permit before the generating units can be installed, management does not anticipate that the Court's rulings will have any immediate impact on project construction. For other developments regarding these issues, see "BLNR petitions" herein.
PSD permit. In 1997, the EPA approved a revised draft permit and the DOH issued a final PSD permit for HELCO's DTCC unit. Nine appeals of the issuance of the permit were filed with the EPA's Environmental Appeals Board (EAB) in December 1997.
On November 25, 1998, the EAB issued an Order Denying Review in Part and Remanding in Part. The EAB denied appeals of the permit that were based on challenges to (1) the DOH's use of a netting analysis (with respect to nitrogen oxide (NOx) emissions), (2) the DOH's determination of Best Available Control Technology for control of sulfur dioxide emissions, and (3) certain aspects of the DOH's ambient air and source impact analysis. However, the EAB concluded that the DOH had not adequately responded to comments that had been made during the public comment period that data relating to certain ambient air concentrations were outdated or were measured at unrepresentative locations. The EAB remanded the proceedings and directed the DOH to reopen the permit for the limited purpose of (1) providing an updated air quality impact report incorporating current data on sulfur dioxide and particulate matter ambient concentrations and (2) providing a sufficient explanation of why the carbon monoxide and ozone data used to support the permit are reasonably representative, or performing a new air quality analysis based on data shown to be representative of the air quality in the area to be affected by the project. The EAB directed the DOH to accept and respond to public comments on the DOH's decisions with respect to these issues and ruled that any further appeals of its decision would be limited to the issues addressed on remand. On March 3, 1999, the EAB issued an Order denying motions for reconsideration which had been filed by HELCO, KDC and
Kawaihae Cogeneration Partners (KCP). HELCO, working closely with the DOH and EPA, planned its response to the EAB remand and, in January 1999, commenced collection of several months of additional data at a new site. As part of the remand process, the DOH held a public hearing on the draft permit on October 7, 1999, limited to the issues remanded by the EAB. After considering issues raised at the public hearing, the EPA and DOH decided to require HELCO to complete a full 12 months of data collection at the new site (which collection began in January 1999) and also required that two months of data be collected at another elevation to corroborate the data collected at the new site. This data collection was completed at the end of April 2000 and provided excellent corroboration of the data collected at the new site. The draft permit was prepared by the DOH and the DOH held the public hearing on March 6, 2001.
As a result of these actions, there have been further delays in HELCO's construction of CT-4 and CT-5. Although the actual length of the delays is uncertain, management believes CT-4 and CT-5 will be in service in the second half of 2002. HELCO continues to work with the DOH and EPA with the objective of having the final permit reissued in mid-2001 and of reaching a final resolution of any appeals to the EAB as expeditiously as possible thereafter. HELCO believes that the PSD permit will eventually be obtained and that installation of CT-4 and CT-5 will begin when the PSD permit is obtained and any EAB appeals from its issuance are resolved.
KDC declaratory judgment action. In February 1997, KDC and three individuals filed a lawsuit in the Third Circuit Court of the State of Hawaii against HELCO, the director of the DOH, and the BLNR, seeking declaratory rulings with regard to five counts alleging that, with regard to the Keahole project, one or more of the defendants had violated, or could not allow the plant to operate without violating, the State Clean Air Act, the State Noise Pollution Act, conditions of HELCO's conditional use permit, covenants of HELCO's land patent and Hawaii administrative rules regarding standard conditions applicable to land permits. The Complaint was amended in March 1998 to add a sixth count, claiming that an amendment to a provision of the land patent (relating to the conditions under which the State could repurchase the land) is void and that the original provision should be reinstated.
On April 12, 1999, the Court ruled that, because there were no remaining issues of fact in the case, a May 1999 trial date was vacated, no further discovery was authorized, and proceedings before the Court were suspended pending any further administrative action by the DOH and BLNR. The Court's rulings to date on the six counts in the KDC complaint are as follows:
1. Count I (State Clean Air Act): At a hearing on April 5, 1999, the Court ruled that the DOH was within its discretionary authority in granting HELCO's requests for additional extensions of time to file its Title V air permit applications.
2. Count II (State Noise Pollution Act): At a hearing relating to Count II on February 16, 1999, the DOH notified the Court and the parties of a change in its interpretation of the noise rules promulgated under the State Noise Pollution Act. The change in interpretation would apply to the Keahole plant the noise standard applicable to the emitter property (which the DOH claims to be a 55 dBA daytime and 45 dBA nighttime standard) rather than the previously-applied noise standard of the receptor properties in the surrounding agricultural park (a 70 dBA standard).
In response to the new position announced by the DOH, on February 23, 1999 HELCO filed a declaratory judgment action against the DOH, alleging that the noise rules were invalid on constitutional grounds. At a hearing on March 31, 1999, the Court granted KDC's motion to dismiss HELCO's complaint and Plaintiffs' motion for reconsideration on Count II and ruled that the applicable noise standard was 55 dBA daytime and 45 dBA nighttime. The Court specifically reserved ruling on HELCO's claims or potential claims based on estoppel and on the constitutionality of the noise rules "as applied" to HELCO's Keahole plant. On March 31, 1999, the Third Circuit Court also granted in part and denied in part HELCO's motion for leave to file a cross-claim and a third-party complaint, stating that HELCO may file such motions on
the "as applied" and "estoppel" claims once the DOH actually applies the 55/45 dBA noise standard to the Keahole plant.
On May 12, 1999, the Order dismissing HELCO's declaratory judgment complaint was issued and final judgment was entered. The DOH objected to the entry of final judgment before all issues in the lawsuit were resolved, but an Order denying that motion was issued on July 26, 1999. HELCO filed a notice of appeal on August 25, 1999 and KDC filed a notice of cross-appeal on September 3, 1999. Opening briefs were filed with the Hawaii Supreme Court in January 2000, answering briefs were filed in February and March 2000 and reply briefs were filed in March and April 2000. Briefing is now complete.
The DOH has not issued any formal enforcement action applying the 55/45 dBA standard to the Keahole plant. Meanwhile, HELCO has installed noise mitigation measures on the existing diesel units and CT-2 at Keahole and is exploring possible noise mitigation measures, which can be implemented if necessary, for CT-4 and CT-5.
3. Count III (violation of CDUP): At a hearing on April 12, 1999, the Court granted HELCO's motion for summary judgment and suspended proceedings on this Count pending referral of this matter to the BLNR. (Should the DOH find HELCO in violation of the noise rules (see Count II), the BLNR would be called to act on the impact of such violation, if any, on the CDUP.)
4. Count IV (violations of HELCO's land patent): At a hearing on April 12, 1999, the Court granted HELCO's motion for summary judgment and suspended proceedings on this Count pending referral of this matter to the BLNR. (Should the DOH find HELCO in violation of the noise rules (see Count II), the BLNR would be requested to determine the impact of such violation, if any, on the land patent.)
5. Count V (HELCO's ability to comply with land use regulations): At a hearing on April 12, 1999, the Court granted HELCO's motion for summary judgment and suspended proceedings on this Count pending referral of this matter to the BLNR for resolution of the administrative proceeding which had been pending before it. (See "BLNR petitions" herein.)
6. Count VI (amendment of HELCO's land patent): At the March 31, 1999 hearing, the Court granted Plaintiffs' motion for summary judgment, finding that a 1984 amendment to HELCO's land patent was invalid because the BLNR had failed to comply with the statutory procedure relating to amendments. The amendment was intended to correct an error in the original land patent with regard to the repurchase clause in the patent and to conform the language to the applicable statute, under which the State would have the right to repurchase the site (as opposed to an automatic reversion) if it were no longer used for utility purposes. This matter was heard by the BLNR at its hearing on February 25, 2000 and a corrected land patent has been issued. (See "BLNR petitions" herein.)
If and when the DOH and BLNR/DLNR act on all issues relating to Counts II through VI, and depending upon their rulings, the KDC lawsuit may be moot.
Orders were entered on April 16, 1999 with regard to Count I, May 18, 1999 with regard to Count VI, and June 3, 1999 with regard to Counts II through V. On April 30, 1999, KDC filed a motion to determine prevailing party and to tax attorney fees and costs and a motion for discovery sanctions. After hearing the motion, the Court ruled that Plaintiffs were the prevailing party as to Counts II and V and were entitled to fees and costs with regard to those counts, denied Plaintiffs' motion for fees as the prevailing party with regard to Count VI, denied HELCO's motion for fees as the prevailing party with regard to Count I and granted Plaintiffs' request for discovery sanctions against HELCO for late supplementation of responses to discovery requests. HELCO filed motions to alter or amend the orders regarding attorneys' fees and costs, and orders granting those motions were issued on September 22, 1999. HELCO appealed the amended orders to the Hawaii Supreme Court, which dismissed the appeal on January 20, 2000, on the grounds that the appeal was premature. On September 1, 2000, KDC and
others filed a motion in Third Circuit Court to enter partial (nonfinal) judgment based on the September 22, 1999 order. The motion was denied by an order dated September 21, 2000. At the request of KDC and others, a status conference was held on December 18, 2000. The judge urged all parties to diligently pursue action on any open issues in the appropriate court or agency having jurisdiction.
HELCO intends to continue to vigorously defend against the claims raised in this case and in related administrative actions.
BLNR petitions. On August 5, 1998, KDC filed with the BLNR a Petition for Declaratory Ruling under HRS Section 91-8. The petition alleged that the standard conditions in HAR Section 13-2-21 apply to HELCO's default entitlement to use its Keahole site, that the letter issued to HELCO by the DLNR in January 1998 was erroneous because it failed to incorporate all conditions applicable to the existing permits, and that the DOH issued three separate Notices of Violation (NOVs) to HELCO in 1992 and 1998 for violation of clean air rules, which NOVs are alleged to constitute violations under the existing permits and render such permits null and void. The petition requested that the BLNR commence a contested case on the petition; that the BLNR determine that HELCO has violated the terms of its existing conditional use permits, causing such permits to be null and void; and that the BLNR determine that HELCO has violated the conditions applicable to its default entitlement, such that HELCO should be enjoined from using the Keahole property under such default entitlement. Pursuant to a ruling from the Third Circuit Court that the BLNR decide certain issues raised in this petition by November 30, 1999 (see "CDUP amendment" herein), these issues were discussed at an October 22, 1999 BLNR meeting. The BLNR determined that none of the standard land use conditions were inconsistent with HELCO's ability to proceed under its default entitlement and, therefore, each of the standard land use conditions applied to the expansion. The BLNR did not, at that time, determine whether HELCO has complied with the applicable conditions. The BLNR also determined that specific conditions imposed by the BLNR on HELCO's original CDUP and amendments thereto continue to apply to the existing plant but not to the expansion under the default entitlement. An order to this effect was issued on November 19, 1999.
On February 7, 2000, KDC and an individual plaintiff filed with the BLNR a Request to Nullify "Default Entitlement." In the request, it is alleged that HELCO's default entitlement is void because (1) HELCO cannot satisfy all conditions and laws, (2) HELCO forfeited its default entitlement because it redesigned certain facilities it has already constructed to support existing CT-2 rather than CT-4 and CT-5, and (3) the BLNR should exercise its right-to-repurchase clause in HELCO's land patent. At its hearing on February 25, 2000, the BLNR denied KDC's request. The BLNR stated that it has the power to consider whether conditions have been met and to enforce those conditions if they are not met, but not to enforce conditions in a way which violates either HRS Section 183-41 or the order of the Third Circuit Court which recognized HELCO's ability to proceed with the Keahole project under a default entitlement. As to the third claim, the BLNR authorized the issuance of a land patent with a corrected repurchase provision at its hearing on February 25, 2000, after which time the repurchase issue became moot since HELCO continues to use the land for public utility purposes. (See "KDC declaratory judgment action," relating to Count VI.) A written decision on the February 25, 2000 rulings was issued on August 16, 2000.
Subsequent to the February 25, 2000 hearing, an issue was raised administratively as to whether the BLNR should impose condition 15, which would impose a completion deadline on the project of three years following "approval." The issue was included on the agenda for the April 14, 2000 BLNR hearing. However, during the hearing the BLNR passed a motion to remove the item from the agenda.
At a hearing on September 18, 2000, the Court ruled that, as a matter of law, absent any legal or equitable extension authorized by the BLNR pursuant to legal authority, the three-year construction deadline expired on April 26, 1999. HELCO filed a request for extension with the BLNR on October 20, 2000. In response to communications from KDC and others, the DLNR requested written submissions from the interested parties on the questions of whether HELCO's request for extension required a contested case hearing and whether the BLNR
could grant an extension. By staff report dated January 20, 2001, the DLNR recommended that an extension be granted through January 26, 2004 and that the matter be handled administratively by the BLNR and not through a contested case hearing, subject to a condition that HELCO apply to the Land Use Commission within one year for a reclassification of the land. However, at the January 26, 2001 hearing, the BLNR decided that the extension issue should be decided through a contested case hearing. Procedures and schedules for the hearing have not yet been set. See also "CDUP amendment" above.
IPP complaints filed with the PUC and other IPP information. Three IPPs-KCP, Enserch Development Corporation (Enserch) and Hilo Coast Power Company (HCPC)-filed separate complaints against HELCO with the PUC in 1993, 1994, and 1997, respectively, alleging that they are entitled to PPAs to provide HELCO with additional capacity. KCP and Enserch each claimed that they would be a substitute for HELCO's planned 56 MW (net) DTCC unit at Keahole. The Enserch and HCPC complaints have been resolved.
In September 1995, the PUC allowed HELCO to continue to pursue construction of and commit expenditures for the second combustion turbine (CT-5) and the steam recovery generator (ST-7) for its planned DTCC unit, but stated in its order that "no part of the project may be included in HELCO's rate base unless and until the project is in fact installed, and is used and useful for utility purposes." The PUC also ordered HELCO to continue negotiating with the IPPs and held that the facility to be built (i.e., either HELCO's or one of the IPP's) should be the one that can be most expeditiously put into service at "allowable cost."
The current status of the KCP complaint is as follows:
In January 1996, the PUC ordered HELCO to continue in good faith to negotiate a PPA with KCP. In May 1997, KCP filed a motion asking the PUC to impose unspecified "sanctions" against HELCO for allegedly failing to negotiate in good faith. In June 1997, KCP filed a motion asking the PUC to designate KCP's facility as the next generating unit on the HELCO system and to determine the "allowable cost" which would be payable by HELCO to KCP. HELCO filed memoranda in opposition to KCP's motions. The PUC held an evidentiary hearing in August 1997. KCP filed two other motions, which HELCO opposed, to supplement the record. The PUC issued an Order in June 1998 which denied all of KCP's pending motions; provided rulings and/or guidance on certain avoided cost and contract issues; directed HELCO to prepare an updated avoided cost calculation that includes the Encogen agreement; and directed HELCO and KCP to resume contract negotiations. HELCO filed a motion for partial reconsideration with respect to one avoided cost issue. The PUC granted HELCO's motion and modified its order in July 1998. HELCO resumed negotiations with KCP in 1998 in compliance with the Order, but no agreement has been reached. On November 20, 1998, KCP filed a motion asking the PUC to appoint a hearings officer to make a recommendation to the PUC regarding the terms and conditions of a PPA and the calculation of avoided cost. HELCO filed a memorandum in opposition to KCP's motion on December 2, 1998. On July 9, 1999, KCP filed an additional motion, asking the PUC to reopen its complaint docket and to enforce the Public Utility Regulatory Policies Act of 1978 by calculating the utility's avoided cost. HELCO filed a memorandum in opposition to KCP's motion on July 16, 1999, KCP filed a reply on July 22, 1999 and the Consumer Advocate filed a Statement of Position (SOP) on August 2, 1999. No decision has been issued on KCP's two most recent motions.
On October 29, 1999, the Third Circuit Court ruled that the lease between Waimana and the Department of Hawaiian Home Lands for the site on which KCP's plant was proposed to be built was invalid. In addition, the DOH is scrutinizing KCP's air permit as it may have expired on January 31, 2000. In light of these and other issues, management believes that KCP's proposal is not viable and, therefore, will not impact the installation of CT-4 and CT-5.
On January 16, 1998, HELCO filed with the PUC an application for approval of a PPA for a 60 MW (net) facility and an interconnection agreement with Encogen Hawaii, L.P. (Encogen), an Enserch affiliate, both dated October 22, 1997.
The PUC issued a D&O approving the agreements on July 14, 1999. The decision was amended at HELCO's request on July 21, 1999 and became final and nonappealable on August 23, 1999. Enserch sold its interest in the partnership, now called Hamakua Partners in November 1999. The first phase of the project (a CT) began commercial operation on August 12, 2000 and Phase 2 (the remainder of its DTCC facility) was in service December 31, 2000. This PPA was necessary to ensure reliable service to customers on the island of Hawaii and, in the opinion of management, does not supplant the need for CT-4 and CT-5.
In December 1999, the PUC approved an amended and restated PPA between HELCO and HCPC under which HCPC will continue to provide 22 MW of firm capacity. The term of the agreement is for five years (through December 31, 2004) and may continue beyond that time unless either party provides notice of termination to the other party by May 30 in the year of termination. HELCO has the right to terminate the contract as of the end of 2002, 2003 or 2004 for an early termination amount of $0.5 million for each of the remaining years in the five-year term. Like the PPA with Hamakua Partners, this restated and amended PPA with HCPC was necessary to ensure reliable service to customers. Since the PPA is short-term in nature and is intended to ensure reliability until the Keahole project is constructed, in the opinion of management, the PPA does not supplant the need for CT-4 and CT-5.
Pre-PSD work and notices of violation. The costs for the CT-4 project (and, to a lesser extent, the CT-5 project) included the costs of certain facilities that benefit the existing Keahole power plant, but were originally scheduled to be installed at the same time as the new generating units. HELCO proceeded with the construction of the facilities that could be constructed prior to receipt of the PSD permits for CT-4 and CT-5 (pre-PSD facilities) after receipt of the CDUP amendment (as a result of the Third Circuit Court orders). (See "CDUP amendment" herein.)
Pre-PSD facilities. The pre-PSD facilities include a shop/warehouse/administration building (completed in 1998), fire protection system upgrades (completed in September 1999), and a new water treatment system (completed in December 1999, which supplies the demineralized water needs of the existing CT at Keahole). (See "Management's evaluation; costs incurred" below.)
EPA NOV. In September 1998, the EPA issued an NOV to HELCO stating that HELCO violated the Hawaii State Implementation Plan by commencing construction activities at the Keahole generating station without first obtaining a final air permit. By law, 30 days after the NOV, the EPA may issue an order requiring compliance with applicable laws, assessing penalties and/or commencing a civil action seeking an injunction; however, no order has yet been issued. In 1999, HELCO put the EPA on notice that certain construction activities not affected by the NOV would continue, and received approval to proceed with certain construction activities. However, HELCO has halted work on other construction activities at Keahole until further notice is provided or approval is obtained from the EPA, or until the final air permit is received.
Contingency planning. In June 1995, HELCO filed with the PUC its generation resource contingency plan detailing alternatives and mitigation measures to address the delays that have occurred in adding new generation. Actions under the plan (such as deferring the retirements of older, smaller units) have helped HELCO maintain its reserve margin and reduce the risk of near-term capacity shortages. In January 1996, the PUC opened a proceeding to evaluate HELCO's contingency resource plan and HELCO's efforts to insure system reliability. HELCO has filed reports with the PUC from time to time updating the contingency plan and the status of implementing the plan. HELCO plans to file its next update in April 2001.
The first increments of new generation to be available to HELCO were added on August 12, 2000 and December 31, 2000 (Hamakua Partners' Phase 1 and Phase 2, respectively, of its planned 60 MW DTCC facility). Despite delays in adding new generation, HELCO's mitigation measures (including the extension of power purchases from HCPC) should provide HELCO with sufficient generation reserve margin to cover its projected monthly system peaks with units on scheduled maintenance until additional new generation is added in mid-2002 (CT-4 and CT-5), and should provide HELCO with sufficient reserve margin in the event of further delays in adding new generation. As new generation is added, HELCO will retire its older, smaller generating units.
Management's evaluation; costs incurred. Management believes that the issues surrounding the amendment to the land use permit and applicable land use conditions, the air permit, the IPP complaints and related matters will be satisfactorily resolved and will not prevent HELCO from ultimately constructing CT-4 and CT-5. Management currently expects that the BLNR, after holding a contested case hearing, will extend the construction period for the plant expansion and that installation of CT-4 and CT-5 will begin when the effective air permit is obtained (that is, after resolution of any EAB appeals), with an expedited in-service date in the second half of 2002. There can be no assurances, however, that these results will be achieved or that this time frame will be met.
The recovery of costs relating to CT-4 and CT-5 are subject to the ratemaking process governed by the PUC. Management believes no adjustment to costs incurred to put CT-4 and CT-5 into service is required as of December 31, 2000. If it becomes probable that CT-4 and/or CT-5 will not be installed, however, HELCO may be required to write-off a material portion of the costs incurred in its efforts to put these units into service. As of December 31, 2000, HELCO's costs incurred in its efforts to put CT-4 and CT-5 into service and to support existing units amounted to approximately $81.2 million, including $32.3 million for equipment and material purchases, $27.3 million for planning, engineering, permitting, site development and other costs and $21.6 million for allowance for funds used during construction (AFUDC). As of December 31, 2000, approximately $22.4 million of the $81.2 million were transferred from construction in progress to plant-in-service as such costs represent completed pre-air permit facilities which relate to the existing units in service as well as to CT-4 and CT-5. In early 2001, HELCO received a final D&O from the PUC which included $7.6 million of the $22.4 million of pre-air permit facilities in rate base. The remaining $14.8 million of costs (determined by the PUC to be not yet used or useful for utility purposes) were transferred back to construction in progress.
Although management believes it has acted prudently with respect to the Keahole project, effective December 1, 1998, HELCO decided to discontinue the accrual of AFUDC on CT-4 and CT-5 (which would have been approximately $0.5 million after tax per month) due in part to the delays to date and potential further delays. HELCO has also deferred plans for ST-7 to 2006. No costs for ST-7 are included in construction in progress.
Nonutility generation
The Company has supported state and federal energy policies which encourage the development of alternate energy sources that reduce the use of fuel oil. Alternate energy sources range from wind, geothermal and hydroelectric power, to energy produced by the burning of bagasse (sugarcane waste) and coal. HECO also has purchased power arrangements with two IPPs that do not use oil: one operating a generating unit burning municipal waste and the other a fluidized bed unit burning coal.
HECO PPAs. HECO currently has three major PPAs. In March 1988, HECO entered into a PPA with AES Barbers Point, Inc. (now known as AES Hawaii, Inc. (AES-Hawaii)), a Hawaii-based cogeneration subsidiary of The AES Corporation (formerly known as Applied Energy Services, Inc.) of Arlington, Virginia. The agreement with AES-Hawaii, as amended in August 1989, provides that, for a period of 30 years, HECO will purchase 180 MW of firm capacity. The AES-Hawaii 180 MW coal-fired cogeneration plant, which became operational in September 1992, utilizes a "clean coal" technology. The facility is designed to sell sufficient steam to be a "Qualifying Facility" (QF) under the Public Utility Regulatory Policies Act of 1978 (PURPA).
In October 1988, HECO entered into an agreement with Kalaeloa Partners, L.P. (Kalaeloa), a limited partnership whose sole general partner was an indirect, wholly owned subsidiary of ASEA Brown Boveri, Inc. (ABB), which has guaranteed certain of Kalaeloa's obligations and, through affiliates, contracted to design, build, operate and maintain the facility. The agreement with Kalaeloa, as amended, provides that HECO will purchase 180 MW of firm capacity for a period of 25 years beginning in May 1991. The Kalaeloa facility, which was completed in the second quarter of 1991, is a combined-cycle operation, consisting of two oil-fired combustion turbines burning low sulfur fuel oil (LSFO) and a steam turbine which utilizes waste heat from the combustion turbines. The facility is designed to sell sufficient steam to be a QF. As of February 28, 1997, the ownership of Kalaeloa was restructured so that 1%
was owned by the ABB subsidiary as the general partner and 99% is owned by Kalaeloa Investment Partners (KIP) as the limited partner. KIP is a limited partnership comprised of PSEG Hawaiian Management, Inc. and PSEG Hawaiian Investment, Inc. (nonregulated affiliates of Public Service Enterprise Group Incorporated) and Harbert Power Corporation. On October 1, 1999, HECO entered into Amendment No. 4 to the PPA with Kalaeloa, and consented (subject to PUC approval) to the transfer of the general partner partnership interest from the ABB subsidiary to an entity affiliated with the owners of KIP. On March 30, 2000, the PUC issued a D&O approving of the consent and Amendment No. 4 to the PPA.
HECO also entered into a PPA in March 1986 and a firm capacity amendment in April 1991 with the City and County of Honolulu, which built a 64 MW refuse-fired plant (H-Power). The H-Power facility began to provide firm energy in 1990 and currently supplies HECO with 46 MW of firm capacity. The firm capacity amendment provides that HECO will purchase firm capacity until mid-2015.
HECO purchases energy on an as-available basis from a number of nonutility generators. The largest are diesel-fired qualifying cogeneration facilities at the two oil refineries (10 MW and 18 MW) on Oahu.
The PUC has approved and allowed rate recovery for the firm capacity and purchased energy costs related to HECO's three major PPAs, which provide a total of 406 MW of firm capacity, representing 24% of HECO's total generating and firm purchased capacity on the island of Oahu as of December 31, 2000. The PUC also has approved and allowed rate recovery for the purchased energy costs related to HECO's as-available energy PPAs.
MECO and HELCO power purchase agreements. As of December 31, 2000, MECO and HELCO had PPAs for 16 MW and 111 MW of currently available firm capacity, respectively.
MECO has a PPA with Hawaiian Commercial & Sugar Company (HC&S) for 16 MW of firm capacity. The HC&S generating units primarily burn bagasse (sugar cane waste) and coal. In March 1998, an HC&S unit failed and HC&S lost 10 MW of generating capacity. HC&S replaced the unit and put it into operation in the second quarter of 2000. HC&S, however, has since struggled to meet its contractual obligations to MECO in 2000 and 2001 due to operational constraints that led to several claims of force majeure by HC&S. The constraints have been primarily due to an extended drought condition on Maui, which impacts HC&S' irrigation pumping load for its sugar cane operations. There has also been a higher than normal reduction in output due to the other equipment outages. It is expected that an extended maintenance outage early in 2001 will improve the forward performance by HC&S in meeting its contractual obligations. On January 23, 2001, MECO agreed not to issue to HC&S a notice of termination prior to the end of 2002. Given the two-year notice required for termination, the PPA will remain in effect through December 31, 2004, and from year-to-year thereafter, subject to termination after such date on not less than two years' prior notice. In the intervening time, negotiations for a new PPA are expected.
HELCO has a 35-year PPA with Puna Geothermal Venture (PGV) for 30 MW of firm capacity from its geothermal steam facility expiring on December 31, 2027. On February 12, 1996, HELCO and PGV executed an amendment to the PPA for 5 MW of firm capacity in addition to the 25 MW then being supplied. The amendment was approved by the PUC on August 2, 1996. In mid-1998, PGV's output began to decline from 30 MW to approximately 24 MW. By late 1999, PGV completed the addition of a new geothermal resource well and restoration of two reinjection wells. Work on the wells was completed in December 1999 at which time PGV began delivering 27 MW to 28 MW of firm capacity. In January 2000, PGV began delivering 30 MW of firm capacity using a temporary well connection. PGV made the installation permanent, and returned to providing 30 MW of firm capacity in February 2000. On January 3, 2001, PGV notified HELCO that PGV wishes to enter formal discussions to provide HELCO with an additional 8 MW of firm capacity on or before April 30, 2002.
In December 1994, at a time when HELCO's contract with HCPC was set for delivery of 18 MW, HCPC filed a Chapter 11 bankruptcy petition. In July 1995, the bankruptcy court approved an amended and restated PPA with HCPC for 22 MW of firm capacity and the dismissal of HCPC from bankruptcy. That agreement terminated on December 31, 1999. On October 4, 1999, HELCO entered into a PPA with HCPC effective January 1, 2000 through
December 31, 2004, subject to early termination by HELCO after two years, whereby HELCO continues to purchase 22 MW of firm capacity from HCPC's coal-fired facility. The PPA was amended on November 5, 1999. The PUC approved the PPA, as amended, on December 7, 1999. See the "HELCO Power Situation" section above.
In October 1997, HELCO entered into an agreement with Encogen, a limited partnership whose general partners are wholly owned special-purpose subsidiaries of Enserch and Jones Capital Corporation. Enserch Corporation and J.A. Jones, Inc., the parent companies of Enserch and Jones Capital Corporation, respectively, guaranteed certain of Encogen's obligations. The agreement provides that HELCO will purchase up to 60 MW (net) of firm capacity for a period of 30 years. The DTCC facility, which primarily burns naphtha, consists of two oil-fired combustion turbines and a steam turbine which utilizes waste heat from the combustion turbines. The facility is designed to sell sufficient steam to be a QF. HELCO submitted the agreement to the PUC for approval in January 1998 and the PUC approved it on July 14, 1999. On November 8, 1999, HELCO entered into a PPA Novation with Encogen and Hamakua Partners, which recognizes the transfer of the obligations of Encogen under the PPA to Hamakua Partners. Hamakua Partners was formed as result of the sale of the general partner and limited partner partnership interests of Enserch to entities affiliated with TECO Energy Inc., which is a Florida-based energy company and parent company of Tampa Electric Company, a regulated electric utility. TECO Energy Inc. has replaced the guarantee of Enserch Corporation of certain of Hamakua Partners' obligations. On August 12, 2000, Hamakua Partners began providing HELCO with firm capacity from the first phase of a two-phase construction completion schedule. On December 31, 2000, Hamakua Partners began providing firm capacity from the entire facility, following completion of the second phase of construction. (Currently, HELCO's capacity payments to Hamakua Partners are based on a demonstrated firm capacity level of 58 MW, but Hamakua Partners will have an opportunity to demonstrate a firm capacity level of up to 60 MW.) See the "HELCO Power Situation" section above.
HELCO purchases energy on an as-available basis from a number of nonutility generators. The largest include an 11 MW run-of-the-river hydroelectric facility and a 7 MW wind facility. Apollo Energy Corporation (Apollo), the owner of the wind facility, has an existing contract to provide HELCO with as-available windpower through June 29, 2002. Apollo filed a petition for hearing with the PUC on April 28, 2000, alleging that it had unsuccessfully attempted for over 75 days to negotiate a new power purchase agreement with HELCO. Apollo had offered to repower its existing 7 MW facility by the end of 2000 and to install additional wind turbines, up to a total of 15 MW, by the end of 2001. The parties agreed to limit to four issues the matters being presented to the PUC for guidance: whether Apollo is entitled to capacity payments; whether Apollo is entitled to a minimum purchase rate; whether certain performance standards should apply; and whether HELCO's proposed dispute resolution provision should apply. A hearing on these issues was held on October 3-5, 2000. The PUC has not yet issued a decision in this matter.
On August 17, 1999, HELCO entered into a PPA with Kahua Power Partners LLC (KPP) for the purchase of as-available energy from KPP's proposed 10 MW windfarm. The PPA was amended by Amendment No. 1 dated April 4, 2000. The PPA and Amendment No. 1 were submitted to the PUC for approval on June 2, 2000. HELCO expects to purchase energy from KPP by the end of 2001.
On January 8, 2001, HELCO entered into an agreement with Hawi Renewable Development, Inc. (HRD) for the purchase of approximately 3 MW of as-available energy from HRD's proposed 5 MW windfarm. An amendment to that contract is anticipated to be negotiated later in 2001, after completion of an interconnection requirements study, at which time the contract will be submitted to the PUC for approval. HELCO expects to purchase energy from HRD by the end of 2002.
The PUC has approved and allowed rate recovery for the firm capacity and purchased energy costs for MECO's and HELCO's approved firm capacity and as-available energy PPAs.
Fuel oil usage and supply
All rate schedules of the Company's electric utility subsidiaries contain energy cost adjustment (ECA) clauses whereby the charges for electric energy (and consequently the revenues of the electric utility subsidiaries generally)
automatically vary with changes in the weighted-average price paid for fuel oil and certain components of purchased energy costs, and the relative amounts of company-generated power and purchased power. Accordingly, under these clauses, changes in fuel oil and certain purchased energy costs are passed on to customers. In the December 30, 1997 D&O's approving HECO and its subsidiaries' fuel supply contracts, the PUC noted that, in light of the length of the fuel supply contracts and the relative stability of fuel prices, the need for the continued use of ECA clauses will be the subject of investigation in a generic docket or in a future rate case. The electric utility subsidiaries believe the ECA clauses continue to be necessary. In the final D&Os for MECO's 1999 and HELCO's 2000 test year rate increase applications, ECA clauses were continued. See discussion below under "Rates" and the "Energy cost adjustment (ECA) clauses" section in HECO's MD&A.
HECO's steam power plants burn LSFO. HECO's combustion turbine peaking units burn No. 2 diesel fuel (diesel). MECO's and HELCO's steam power plants burn medium sulfur fuel oil (MSFO) and their combustion turbine and diesel engine generating units burn diesel. The LSFO supplied to HECO is primarily derived from Indonesian and other Far East crude oils processed in Hawaii refineries. The MSFO supplied to MECO and HELCO is derived from U.S. domestic crude oil processed in Hawaii refineries.
In December 1997, HECO executed contracts for the purchase of LSFO and the use of certain fuel distribution facilities with Chevron Products Company (Chevron) and Tesoro Hawaii Corp. dba BHP Petroleum Americas Refining Inc. (Tesoro). These fuel supply and facilities operations contracts have a term of seven years commencing January 1, 1998. The PUC approved the contracts and permits the inclusion of costs incurred under these contracts in HECO's ECA clauses. HECO pays market-related prices for fuel supplies purchased under these agreements.
HECO, MECO and HELCO executed joint fuel supply contracts with Chevron and Tesoro for the purchase of diesel and MSFO supplies and for the use of certain petroleum distribution facilities for a period of seven years commencing January 1, 1998. The PUC approved these contracts and permits the electric utilities to include fuel costs incurred under these contracts in their respective ECA clauses. The electric utilities pay market-related prices for diesel and MSFO supplied under these agreements. Agreements providing for the assignment of HTB's interest in the joint fuel supply contract with Chevron and the early termination of HTB's and YB's interest were executed in October 1999 in connection with the sale by HTB of substantially all of its operating assets and the stock of YB.
The diesel supplies acquired by the Lanai Division of MECO are purchased under a contract with a local petroleum wholesaler, Lanai Oil Co., Inc. On March 1, 2000, the PUC approved the extension of the amended supply agreement with Lanai Oil Co., Inc. through December 31, 2001 and further extensions subject to the mutual consent of the parties.
See the fuel oil commitments information set forth in the "Fuel contracts" section in Note 11 to HECO's Consolidated Financial Statements.
The following table sets forth the average cost of fuel oil used by HECO, MECO and HELCO to generate electricity in the years 2000, 1999 and 1998:
HECO MECO HELCO Consolidated
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$/Barrel (cent)/MBtu $/Barrel (cent)/MBtu $/Barrel (cent)/MBtu $/Barrel (cent)/MBtu
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2000 31.63 503.1 38.91 651.0 35.37 577.1 33.44 538.5
1999 18.68 297.4 25.65 430.2 22.97 373.7 20.46 329.7
1998 17.71 282.8 23.69 396.4 20.83 338.7 19.14 308.8
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The average per-unit cost of fuel oil consumed to generate electricity for HECO, MECO and HELCO reflects a different volume mix of fuel types and grades. In 2000, over 99% of HECO's generation fuel consumption consisted of LSFO. The balance of HECO's fuel consumption was diesel. Diesel made up approximately 73% of MECO's and
39% of HELCO's fuel consumption. MSFO made up the remainder of the fuel consumption of MECO and HELCO. In general, MSFO is the least costly fuel, diesel is the most expensive fuel and the price of LSFO falls between the two on a per-barrel basis. Though volatile, the prices of LSFO, MSFO and diesel trended higher through most of 2000 before declining in December. In aggregate, HECO and its subsidiaries' fuel prices in 2000 averaged approximately 63% above the respective price levels prevailing in 1999. However, prices in early 2001 continued the downward course set in December 2000 and by February 2001 were more than 20% below the November 2000 peak. The prices of LSFO, MSFO and diesel increased during the final three quarters of 1999 and averaged approximately 7% above the respective price levels prevailing in 1998.
In June 1999, HELCO and MECO exercised an option to extend for two years commencing January 1, 2000 their existing contracts with Hawaiian Interisland Towing, Inc. (HITI) for the shipment of MSFO and diesel supplies from their fuel supplier's facilities on Oahu to storage locations on the islands of Hawaii and Maui, respectively. The PUC had approved these contracts and issued a final order in June 1994 that permitted HELCO and MECO to include the fuel transportation and related costs incurred under the original contracts in their respective ECA clauses. Freight rates charged under the contracts are related to published indices for industrial commodities prices and labor costs. As a result of a formal competitive bidding process, successor ocean transportation contracts between MECO and HELCO and HITI, respectively, were executed in December 2000 for service commencing January 1, 2002. These contracts provide for the employment of a new building double-hull bulk petroleum barge at freight rates approximately the same as under the current agreements for an initial term of 5 years with options for three additional five-year extensions. On February 26, 2001, MECO and HELCO filed a joint application for the authority to recover freight costs incurred under the new fuel transportation contracts in base rates.
HITI never takes title for the fuel oil or diesel fuel, but does have custody and control while the fuel is in transit from Oahu. If there were an oil spill in transit, HITI is contractually obligated to indemnify HELCO and/or MECO. HITI has liability insurance coverage for oil spill related damage of $1 billion. State law provides a cap of $700 million on liability for releases of heavy fuel oil transported interisland by tank barge. HELCO and/or MECO may be responsible for any clean-up and/or fines that HITI or its insurance carrier does not cover.
The prices that HECO, MECO and HELCO pay for purchased energy from nonutility generators are generally linked to the price of oil. The AES-Hawaii energy price varies primarily with an inflation indicator. The energy prices for Kalaeloa, which purchases LSFO from Tesoro, vary primarily with world LSFO prices. The H-Power, HC&S, PGV and HCPC energy prices are based on the Companies' respective PUC-filed short-run avoided energy cost rates (which vary with their respective composite fuel costs), subject to minimum floor rates specified in their approved PPAs. The Hamakua Partners energy price varies primarily with HELCO's diesel costs.
The Company estimates that 76% of the net energy generated and purchased by HECO and its subsidiaries in 2001 will be generated from the burning of oil. Increases in fuel oil prices are passed on to customers through the electric utility subsidiaries' ECA clauses. Failure by the Company's oil suppliers to provide fuel pursuant to the supply contracts and/or substantial increases in fuel prices could adversely affect consolidated HECO's and the Company's financial condition, results of operations and/or liquidity. HECO, however, maintains an inventory of fuel oil in excess of one month's supply. HELCO and MECO maintain approximately a one month's supply of fuel oil. The PPAs with AES-Hawaii and Hamakua Partners require that they maintain certain minimum fuel inventory levels.
Transmission systems
HECO has 138 kilovolt (kv) transmission and 46 kv subtransmission lines. HELCO and MECO have 69 kv transmission and 34.5 kv subtransmission lines. The electric utilities' overhead and underground transmission and subtransmission lines, as well as their distribution lines, are uninsured because the amount of insurance available is limited and the premiums are extremely high.
Lines are added when needed to serve increased loads and/or for reliability reasons. In some design districts on Oahu, lines must be placed underground. By state law, the PUC generally must determine whether new 46 kv,
69 kv or 138 kv lines can be constructed overhead or must be placed underground. The process of acquiring permits and regulatory approvals for new lines can be contentious, time consuming (leading to project delays) and costly.
HECO system. HECO serves Oahu's electricity requirements with firm capacity generating units located in West Oahu (1,057 MW); Waiau, adjacent to Pearl Harbor (499 MW); and Honolulu (113 MW). HECO's nonfirm power sources (approximately 32 MW) are located primarily in West Oahu. HECO transmits power to its service areas on Oahu through approximately 212 miles of overhead and underground 138 kv transmission lines (of which approximately 6 miles are underground) and approximately 680 miles of overhead and underground 46 kv subtransmission lines.
The bulk of HECO's system load is in the Honolulu/East Oahu area. HECO transmits bulk power to the Honolulu/East Oahu service area over two major (Northern and Southern) transmission corridors. Over the years, a series of studies addressing the reliability of the transmission system has recommended construction of the Southern corridor. The Southern corridor now extends from West Oahu through the Kewalo Substation in Honolulu, as a result of the completion of two overhead Waiau-CIP 138 kv transmission lines in 1995, and two underground Archer-Kewalo 138 kv transmission lines in December 2000. HECO plans to complete the underground 1.9-mile Kewalo-Kamoku line by late 2002, which will provide electrical service to the Kamoku Substation.
The Northern corridor traverses mountainous terrain and ends at the Pukele Substation, which services 18% of Oahu's electrical load, including one of the most important economic areas in the State (Waikiki). A failure of either of the two 138 kv transmission lines to the Pukele Substation, while the other is out for maintenance, would result in a major system outage. HECO plans to construct a partially underground, partially overhead 138 kv transmission line from the Kamoku Substation to the Pukele Substation. This would link the Southern and Northern corridors, and provide a third 138 kv transmission line to the Pukele substation.
The Kamoku to Pukele transmission line project requires approval from the BLNR of a CDUP. The project, and particularly the overhead portion of it, has encountered opposition from several community and environmental groups. A Revised Final Environmental Impact Statement prepared in support of HECO's application for a CDUP was accepted by the Department of Land and Natural Resources in late 2000. A BLNR public hearing on the CDUP is scheduled for late March 2001. The Kamoku to Pukele transmission line is scheduled to be in service by the first half of 2005, if construction is started by the second half of 2003. The actual start date of construction will depend on the permitting and approval processes. PUC approval will be requested, as is the normal procedure for large transmission projects, when the project scope and projected costs are clearly defined. Management believes that the CDUP and other required permits and approvals will be obtained.
HELCO system. HELCO serves the island of Hawaii's electricity requirements with firm capacity generating units located in West Hawaii (41 MW) and East Hawaii (222 MW). HELCO's nonfirm power sources provide up to an additional 26 MW of nonfirm capacity. HELCO transmits power to its service area on the Big Island through approximately 464 miles of 69 kv overhead lines and approximately 173 miles of 34.5 kv overhead lines.
MECO system. MECO serves its electricity requirements with firm capacity generating units located on the island of Maui (250 MW), Molokai (12 MW) and Lanai (10 MW). MECO has no nonfirm power sources. MECO transmits power to its service area on the islands of Maui, Molokai and Lanai through approximately 128 miles of 69 kv overhead lines and approximately 10 miles of 34.5 kv overhead lines.
Rates
HECO, MECO and HELCO are subject to the regulatory jurisdiction of the PUC with respect to rates, issuance of securities, accounting and certain other matters. See "Regulation and other matters--Electric utility regulation."
All rate schedules of HECO and its subsidiaries contain ECA clauses as described previously. Under current law and practices, specific and separate PUC approval is not required for each rate change pursuant to automatic rate
adjustment clauses previously approved by the PUC. Rate increases, other than pursuant to such automatic adjustment clauses, require the prior approval of the PUC after public and contested case hearings. PURPA requires the PUC to periodically review the ECA clauses of electric and gas utilities in the state, and such clauses, as well as the rates charged by the utilities generally, are subject to change.
See the "Regulation of electric utility rates," "Recent rate requests" and "Energy cost adjustment (ECA) clauses" sections in HECO's MD&A.
Rate requests
Hawaiian Electric Company, Inc.
. In December 1993, HECO filed a request to increase rates based on a 1995 test year. HECO requested a 4.1% increase (as revised), or $28.2 million in annual revenues, based on a 13.25% return on average common equity (ROACE). In December 1995, HECO received a final D&O authorizing a 1.3%, or $9.1 million, increase in annual revenues, based on a 1995 test year and an 11.4% ROACE.
Hawaii Electric Light Company, Inc.
. In March 1995, HELCO filed a request to increase rates based on a 1996 test year. In February 1996, HELCO revised its requested increase to 6.2%, or $8.9 million in annual revenues, based on a 12.5% ROACE. In March 1996, HELCO received an interim D&O authorizing a 4.8%, or $6.8 million, increase in annual revenues, based on an 11.65% ROACE. In April 1997, HELCO received a final D&O which made the interim increase final.
. In March 1998, HELCO filed a request to increase rates 11.5%, or $17.3 million in annual revenues, based on a 1999 test year and a 12.5% ROACE, primarily to recover costs relating to (1) an agreement to buy power from Hamakua Partners and (2) adding two combustion turbines (CT-4 and CT-5) at HELCO's Keahole power plant. Due to the EAB's denial of HELCO's motion for reconsideration of the EAB's November 25, 1998 decision (see "HELCO power situation--PSD permits" above) and a delay in adding the Hamakua Partners plant from 1999 to 2000. HELCO's test year 1999 rate increase application was withdrawn in March 1999.
. See "Recent rate requests--Hawaii Electric Light Company, Inc." in HECO's MD&A for a discussion of the PUC's final D&O on HELCO's rate increase based on a 2000 test year
Maui Electric Company, Limited
. In February 1995, MECO filed a request to increase rates based on a 1996 test year. MECO's final requested increase was 3.8%, or $5.0 million in annual revenues, based on an 11.5% ROACE. In January 1996, MECO received an interim D&O authorizing an increase of 2.8%, or $3.7 million in annual revenues, based on an 11.5% ROACE, effective February 1, 1996. In April 1997, MECO received a final D&O authorizing a 2.9%, or $3.9 million increase in annual revenues, $0.2 million more annually than the interim increase and based on an 11.5% ROACE.
. In May 1996, MECO filed a request to increase rates 13%, or $18.9 million in annual revenues, based on a 1997 test year and a 12.9% ROACE, primarily to recover the costs related to the anticipated 1997 addition of new generating unit M17. In November 1996, MECO filed a motion with the PUC to approve a stipulation between MECO and the Consumer Advocate which would provide MECO with an increase in annual revenues of $1.5 million, based on an 11.65% ROACE. In May 1997, the stipulated increase was revised to $1.3 million after considering the final decision in the 1996 test year case. The primary reason for the stipulation was a delay in the expected in-service date for MECO's generating unit M17 until late 1998, because of delays in obtaining the necessary PSD permit from the DOH/EPA. In December 1997, MECO received a final D&O authorizing no additional increase in annual revenues, based on an 11.12% ROACE.
. See the "Recent rate requests--Maui Electric Company, Limited" section in HECO's MD&A for a discussion of MECO's rate increase based on a 1999 test year.
Regulatory assets related to Barbers Point Tank Farm project costs
In 1989, HECO began planning and engineering for a combined cycle unit addition as a contingency in the event an independent power producer was not able to deliver firm power to HECO as planned. Subsequently, HECO's planning and engineering work expanded from contingency planning to adding new generation. In December 1991, HECO filed an application for the installation of a nominal 200 MW combined cycle power plan located at HECO's Barbers Point Tank Farm. Due to changes in circumstances, the expected timing for HECO's next generating unit was significantly delayed, and HECO withdrew its application in May 1993.
In August 1994, HECO informed the PUC that, consistent with past and current company practices, the $5.8 million in accumulated project costs would be allocated primarily to ongoing active capital projects as part of the engineering clearing. The PUC advised HECO to file an application, which it did in February 1995. The Consumer Advocate objected to the accounting treatment proposed by HECO.
To simplify and expedite the proceeding, in September 2000, HECO and the Consumer Advocate reached an agreement on the accounting treatment, subject to PUC approval. Acceptance of the agreement by the parties was without prejudice to any position either of them may take in this or any subsequent proceeding. Under the agreement, $4.5 million of the $5.8 million total project costs will be amortized to operating expense ratably over a five-year period after receiving PUC approval. In September 2000, HECO adjusted the projected costs to reflect the agreement with the Consumer Advocate, resulting in an after tax write-off of $0.8 million. The PUC's approval of the agreement has been requested.
Competition
In December 1996, the PUC instituted a proceeding to identify and examine the issues surrounding electric competition and to determine the impact of competition on the electric utility infrastructure in Hawaii. See the "Competition" section in HECO's MD&A and Note 11 in HECO's Consolidated Financial Statements. Management cannot predict what changes, if any, may result from these efforts or what impact, if any, they may have on the Company's or consolidated HECO's financial condition, results of operations or liquidity.
In the order initiating the proceeding, the PUC recognized that Hawaii's stand-alone island energy systems are different from the interconnected systems of the contiguous states, but also recognized the need to determine how to respond in Hawaii to changes occurring in the industry. The PUC set forth a preliminary enumeration of the issues, including feasible forms of competition, the regulatory compact, public interest benefits, long-term integrated resource planning, appropriate treatment of potential stranded costs and the identification of the objectives and the establishment of a time frame for the introduction of competition in the electric industry. There are 19 parties in the proceeding including the Consumer Advocate, HECO, HELCO, MECO, the Department of Business, Economic Development & Tourism of the State of Hawaii (DBEDT), the Counties of Maui, Hawaii and Kauai, the Department of Defense (the DOD, HECO's largest customer), various IPPs and others. Following a number of meetings, and the submission and presentation to the collaborative group of preliminary SOPs, the parties individually submitted final SOPs that were compiled and sent to the PUC in October 1998.
The position of HECO and its subsidiaries is that retail competition is not feasible in Hawaii. The conditions making electric industry restructuring feasible elsewhere generally are not present in Hawaii. Among other considerations, none of the island electric systems is interconnected, the island electricity markets are relatively small and there are barriers to entry by new generation suppliers. HECO and its subsidiaries propose to achieve some of the benefits of competition through proposals for (1) competitive bidding for new generation, (2) performance-based ratemaking (PBR), which would include an index-based price cap, an earnings sharing mechanism, and a benchmark incentive plan and (3) innovative pricing provisions (including rate restructuring, expanded time-of-use rates, customer migration rates such as standby charges, flexible pricing to encourage economic development and to compete with customer generation options, new service options and two-part rates incorporating real-time pricing). HECO
suggests in its SOP that these proposals be implemented through applications for PUC approval in a series of separate proceedings to be initiated by HECO.
While the other parties' SOPs generally support competitive bidding for new generation, there is no consensus as to whether or as to the extent Hawaii's electricity markets should be restructured to introduce further competition. For example, the Consumer Advocate agreed that full scale retail generation competition was not now feasible in Hawaii, but proposed immediate rate unbundling and customer education, followed by rulemaking proceedings (1) to open transmission and distribution access on a limited basis (such as when new generation is needed) and determine the degree of any stranded cost recovery through nonbypassable access charges, (2) to permit conservation and energy management services to be provided to retail customers on a competitive basis, and (3) to implement competition for other customer services (metering and billing), as determined to be appropriate. The DOD also recognized that retail generation competition was not now feasible, and proposed rate unbundling, the establishment of cost-based rates, the offering of additional rate options, PBR, and investigation of the unbundling and separate pricing of customer services. DBEDT proposed (1) rate unbundling, (2) competition for customer services and energy efficiency services, and (3) if additional analysis by the PUC confirms the feasibility of retail generation competition on Oahu, open transmission and distribution access for generators, divestiture of generation and customer service functions by utilities, and the formation of independent system operators (all targeted for 2002). It is also possible that parties may seek legislative action on their proposals.
In May 1999, the PUC approved HECO's standard form contract for customer retention that allows HECO to provide a rate option for customers who would otherwise reduce their energy use from HECO's system by using energy from a nonutility generator. Based on HECO's current rates, the standard form contract provides a 2.77% and an 11.27% discount on base energy rates for "Large Power" and "General Service Demand" customers, respectively. In March 2000, the PUC approved a similar standard form contract which, based on HELCO's current rates, provides a 10.00% discount on base energy rates for "Large Power" and "General Service Demand" customers.
In December 1999, HECO, HELCO and MECO filed an application with the PUC seeking permission to implement PBR in future rate cases. The proposed PBR would have allowed adjustments in HECO and its subsidiaries' rates (for up to five years after a rate case) based on an index-based price cap, an earnings sharing mechanism and a service quality mechanism. In early 2001, the PUC dismissed the electric utilities' PBR proposal without prejudice, indicating it declines at this time to change its current cost of service/rate of return methodology for determining electric utility rates.
In late 1999 the PUC submitted a status report on its investigation to the 2000 Legislature, at the Legislature's request. In the report, the PUC stated that competitive bidding for new power supplies (i.e., wholesale generation competition) is a logical first step to encourage competition in the state's electric industry and that it plans to proceed with an examination of the feasibility of competitive bidding. The PUC also indicated its plans to review specific policies to encourage renewable energy resources in the power generation mix. The report states that "further steps" by the PUC "will involve the development of specific policies to encourage wholesale competition and the continuing examination of other areas suitable for the development of competition."
Electric and magnetic fields
Research on potential adverse health effects from exposure to electric and magnetic fields (EMF) continues. To date, no definite relationship between EMF and health risks has been clearly demonstrated. In 1996, the National Academy of Sciences examined more than 500 studies and stated that "the current body of evidence does not show that exposure to EMFs presents a human-health hazard." An extensive study released in 1997 by the National Cancer Institute and the Children's Cancer Group found no evidence of increased risk for childhood leukemia from EMF. In 1999, the National Institute of Environmental Health Sciences Director's Report concluded that while EMF could not be found to be "entirely safe," the evidence of a health risk was "weak" and did not warrant "aggressive" regulatory actions. Consequently, HECO and its subsidiaries are monitoring the research and continue to
participate in utility industry funded studies on EMF and, where technically feasible and economically reasonable, continue to reduce EMF in the design and installation of new transmission and distribution facilities. Management cannot predict the impact, if any, the EMF issue may have on HECO, HELCO and MECO in the future.
Amended notice of property tax assessment for HELCO
In December 1999, the County Council of Hawaii amended its ordinances to rescind the exemption from real property taxes for utility companies. The utilities currently pay a public service company tax that, by state statutory language, is partly in lieu of real property taxes. In March 2000, the Department of Finance, Real Property Division of the County of Hawaii, sent HELCO a notice of property assessment showing total real property taxes owed of approximately $0.2 million for the fiscal year July 2000 to June 2001 and, in April 2000, the Department sent HELCO an amended notice of property assessment showing total real property taxes owed of approximately $3.9 million. HELCO appealed both the March and April 2000 notices of property assessment. HELCO filed a motion for summary judgment to have the April 2000 amended notice of property assessment held unlawful, invalid and unenforceable on numerous grounds. On July 10, 2000, the Hawaii Tax Court of Appeals ruled in HELCO's favor and granted the motion for summary judgment.
On August 19, 2000, HELCO paid its Public Service Company (PSC) tax monthly installment under protest and filed a complaint against the State of Hawaii in Tax Appeal Court. On August 20, 2000, HELCO paid its first semi-annual real property tax installment on the March assessment under protest, consistent with the real property tax appeal filed in Tax Appeal Court.
The Tax Appeal Court facilitated settlement discussions among the utilities, the County of Hawaii and the State. Discussions expanded to include the other counties as well. The parties negotiated a resolution which involves dividing the PSC tax revenues between the State and the counties, and having the utilities remit directly to the counties the portion of the PSC tax revenues in excess of the general excise tax rate. A settlement agreement was signed in January 2001. The settlement is contingent upon the passage of enabling State legislation in the form attached to the settlement agreement.
In September 2000, the Hawaii County Council passed a bill which attempts to validate the methodology used in the April 2000 amended assessment and would allow the County to use the property values in the annual financial reports submitted to the PUC, effective January 1, 2001. However, the ordinance provides that the County will not impose this methodology if enabling legislation is passed that is consistent with the settlement agreement. Subsequent to execution of the settlement agreement, the Hawaii County Council introduced legislation consistent with the settlement agreement.
In December 2000, the Honolulu City Council also amended its ordinances to rescind the exemption from real property taxes for utility companies. In January 2001, the Department of Finance, Real Property Division of the City and County of Honolulu, sent HECO notices of property assessment for the fiscal year July 2001 to June 2002 and, in February 2001, HECO appealed the notices of assessment in the Tax Appeal Court. (The real property tax amount is not ascertainable, as the City and County has not assigned a tax rate to the "public service" classification.) The Honolulu City Council also passed a measure similar to the Hawaii County Council that if enabling legislation is passed that is consistent with the settlement agreement, then the utility companies would be exempt from real property taxes.
Proposed legislation
Congress and the Hawaii legislature periodically consider legislation that could have positive or negative effects on the utilities and their customers. For example, Congress is considering an energy plan designed to increase the supply of oil, as well as legislation that would promote renewable energy sources and conservation. The Hawaii legislature, although not considering deregulation in its 2001 session, is considering legislation relating to renewable energy mandates, net energy metering and extension of the state's energy conservation income tax credit. Management cannot predict whether any such legislation or other proposed legislation affecting the utilities will be passed or, if passed, in what form and with what effects on the utilities or their customers.
Savings bank--American Savings Bank, F.S.B.
General
ASB was granted a federal savings bank charter in January 1987. Prior to that time, ASB had operated since 1925 as the Hawaii division of American Savings & Loan Association of Salt Lake City, Utah. As of December 31, 2000, ASB was the third largest financial institution in the State of Hawaii with total assets of $6.0 billion and deposits of $3.6 billion.
HEI agreed with the Office of Thrift Supervision's (OTS) predecessor regulatory agency that ASB's regulatory capital would be maintained at a level of at least 6% of ASB's total liabilities, or at such greater amount as may be required from time to time by regulation. Under the agreement, HEI's obligation to contribute additional capital was limited to a maximum aggregate amount of approximately $65.1 million. At December 31, 2000, HEI's maximum obligation to contribute additional capital has been reduced to approximately $28.3 million because of additional capital contributions of $36.8 million by HEI to ASB since the acquisition, exclusive of capital contributions made in connection with ASB's acquisition of most of the Hawaii operations of BoA (see below). ASB is subject to OTS regulations on dividends and other distributions applicable to financial institutions regulated by the OTS.
Effective December 6, 1997, ASB acquired certain loans and other assets and assumed certain deposits and other liabilities of the Hawaii operations of BoA pursuant to a Purchase and Assumption Agreement executed on May 26, 1997, as amended. ASB used the purchase method of accounting to account for the transaction. In this transaction, ASB assumed liabilities with an estimated fair value of $1.7 billion and paid a $0.1 billion premium on certain transferred deposit liabilities. The estimated fair value of tangible and intangible assets acquired, including cash of $0.8 billion, amounted to $1.8 billion. ASB recorded the excess of the purchase price over the estimated fair value of the identifiable net assets acquired of $72 million as goodwill and recorded the core deposit premium of approximately $20 million as an intangible asset.
ASB's earnings depend primarily on its net interest income--the difference between the interest income earned on interest-earning assets (loans receivable and investment and mortgage/asset-backed securities) and the interest expense incurred on interest-bearing liabilities (deposit liabilities and borrowings, including advances from the Federal Home Loan Bank (FHLB) of Seattle).
For additional information about ASB, see the sections under "Savings bank" in HEI's MD&A, HEI's Quantitative and Qualitative Disclosures about Market Risk beginning at page 16 of HEI's Annual Report and Note 4 to HEI's Consolidated Financial Statements.
The following table sets forth selected data for ASB for the years indicated:
Years ended December 31,
--------------------------
2000 1999 1998
--------------------------------------------------------------------------------------------------------
Common equity to assets ratio
Average common equity divided by average total assets (1) .......... 6.22% 6.09% 5.88%
Return on assets
Net income for common stock divided by average total assets (1), (2) 0.68 0.62 0.54
Return on common equity
Net income for common stock divided by average
common equity (1), (2) ........................................... 11.0 10.2 9.2
Tangible efficiency ratio
Total general and administrative expenses (not including goodwill
amortization) divided by net interest income and other income ..... 57 58 60
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(1) Average balances for each year have been calculated using the average
monthend balances during the year.
(2) Net income includes amortization of goodwill and core deposit intangibles.
Consolidated average balance sheet
The following table sets forth average balances of ASB's major balance sheet categories for the years indicated. Average balances for each year have been calculated using the average monthend or daily average balances during the year.
Years ended December 31,
----------------------------------------------
(in thousands) 2000 1999 1998
-------------------------------------------------------------------------------------------
Assets
Investment securities..................... $ 287,906 $ 218,628 $ 238,694
Mortgage/asset-backed securities.......... 2,058,706 1,894,953 1,872,304
Loans receivable, net..................... 3,215,879 3,191,847 3,075,870
Other..................................... 380,609 414,153 432,647
----------------------------------------------
$5,943,100 $5,719,581 $5,619,515
==============================================
Liabilities and stockholder's equity
Deposit liabilities....................... $3,537,312 $3,706,750 $3,860,546
Other borrowings.......................... 1,880,952 1,505,109 1,265,686
Other..................................... 80,262 84,540 87,609
Stockholder's equity...................... 444,574 423,182 405,674
----------------------------------------------
$5,943,100 $5,719,581 $5,619,515
==============================================
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Asset/liability management
Interest rate sensitivity refers to the relationship between market interest rates and net interest income resulting from the repricing of interest-earning assets and interest-bearing liabilities. Interest rate risk arises when an interest-earning asset matures or when its interest rate changes in a time frame different from that of the supporting interest-bearing liability. Maintaining an equilibrium between rate sensitive interest-earning assets and interest-bearing liabilities will reduce some interest rate risk but it will not guarantee a stable net interest spread because yields and rates may change simultaneously or at different times and such changes may occur in differing increments. Market rate fluctuations could materially affect the overall net interest spread even if the repricings of interest-earning assets and interest-bearing liabilities were perfectly matched. The difference between the amounts of interest-earning assets and interest-bearing liabilities that reprice during a given period is called "gap." An asset-sensitive position or "positive gap" exists when more assets than liabilities reprice within a given period; a liability-sensitive position or "negative gap" exists when more liabilities than assets reprice within a given period. A positive gap generally produces more net interest income in periods of rising interest rates and a negative gap generally produces more net interest income in periods of falling interest rates.
As of December 31, 2000, the gap in the near term (0-6 months) was a negative 0.94% of total assets as compared to a cumulative one-year positive gap position of 1.81% of total assets. The difference between the near-term and one-year positive gap positions is primarily due to increased amounts of repricing in the near term of interest-bearing liabilities such as in short-term certificates of deposits and other borrowings to support investment activities. The following table shows ASB's interest rate sensitivity at December 31, 2000:
Amounts at December 31, 2000
subject to repricing within
---------------------------------------------------------
1 year >1-5 Over
(dollars in millions) or less years 5 years Total (1)
---------------------------------------------------------------------------------------------------------------------
Interest-earning assets
Real estate loans and mortgage/asset-backed securities
Balloon and adjustable rate............................ $ 2,038 $ 63 $ -- $2,101
Fixed rate 1-4 unit residential........................ 332 980 1,361 2,673
Other.................................................. 11 49 86 146
Consumer and other loans.................................. 179 53 -- 232
Commercial loans.......................................... 130 -- -- 130
Other interest-earning assets............................. 181 -- -- 181
---------------------------------------------------------
Total interest-earning assets............................. 2,871 1,145 1,447 5,463
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Interest-bearing liabilities
Certificate accounts...................................... 1,144 414 35 1,593
Money market accounts..................................... 85 177 26 288
Negotiable Order of Withdrawal accounts................... 142 361 183 686
Passbook accounts......................................... 205 392 421 1,018
FHLB advances............................................. 590 615 44 1,249
Other borrowings.......................................... 597 -- -- 597
--------------------------------------------------------
Total interest-bearing liabilities........................ 2,763 1,959 709 5,431
--------------------------------------------------------
Interest rate sensitivity gap (2)......................... $ 108 $ (814) $ 738 $ 32
========================================================
Cumulative interest rate sensitivity gap.................. $ 108 $ (706) $ 32
=======================================
Cumulative interest rate sensitivity gap
over total assets.................................... 1.81% (11.83)% 0.54%
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(1) The table does not include $506 million of noninterest-earning assets and
$82 million of noninterest-bearing liabilities.
(2) The difference between the total interest-earning assets and the total
interest-bearing liabilities.
Management has developed and is implementing a plan to improve ASB's interest rate risk position. The plan includes making changes to improve the matching of asset and liability durations, such as lengthening the term of costing liabilities and selling a portion of ASB's long-term fixed rate loans.
Interest income and interest expense
The following table sets forth average balances, interest and dividend income, interest expense and weighted-average yields earned and rates paid, for certain categories of interest-earning assets and interest-bearing liabilities for the years indicated. Average balances for each year have been calculated using the average monthend or daily average balances during the year.
Years ended December 31,
------------------------------------
(dollars in thousands) 2000 1999 1998
-------------------------------------------------------------------------------
Loans
Average balances .................. $3,215,879 $3,191,847 $3,075,870
Interest income ................... 254,502 244,566 246,299
Weighted-average yield ............ 7.91% 7.66% 8.01%
Mortgage/asset-backed securities
Average balances .................. $2,058,706 $1,894,953 $1,872,304
Interest income ................... 152,340 122,281 120,608
Weighted-average yield ............ 7.40% 6.45% 6.44%
Investments (1)
Average balances .................. $ 287,906 $ 218,628 $ 238,694
Interest and dividend income ...... 16,733 13,132 13,754
Weighted-average yield ............ 5.81% 6.01% 5.76%
Total interest-earning assets
Average balances .................. $5,562,491 $5,305,428 $5,186,868
Interest and dividend income ...... 423,575 379,979 380,661
Weighted-average yield ............ 7.61% 7.16% 7.34%
Deposits
Average balances .................. $3,537,312 $3,706,750 $3,860,546
Interest expense .................. 119,192 120,338 142,069
Weighted-average rate ............. 3.37% 3.25% 3.68%
Borrowings
Average balances .................. $1,880,952 $1,505,109 $1,265,686
Interest expense .................. 119,683 86,830 74,925
Weighted-average rate ............. 6.36% 5.77% 5.92%
Total interest-bearing liabilities
Average balances .................. $5,418,264 $5,211,859 $5,126,232
Interest expense .................. 238,875 207,168 216,994
Weighted-average rate ............. 4.41% 3.97% 4.23%
Net balance, net interest income
and interest rate spread
Net balance ..................... $ 144,227 $ 93,569 $ 60,636
Net interest income ............. 184,700 172,811 163,667
Interest rate spread ............ 3.20% 3.19% 3.11%
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(1) Includes stock in the FHLB of Seattle.
The following table shows the effect on net interest income of (1) changes in interest rates (change in weighted-average interest rate multiplied by prior year average portfolio balance) and (2) changes in volume (change in average portfolio balance multiplied by prior period rate). Any remaining change is allocated to the above two categories on a pro rata basis.
Increase (decrease) due to
----------------------------------
(in thousands) Rate Volume Total
-------------------------------------------------------------------------------
Year ended December 31, 2000 vs. 1999
Income from interest-earning assets
Loan portfolio .......................... $ 8,073 $ 1,863 $ 9,936
Mortgage/asset-backed securities ........ 18,944 11,115 30,059
Investments ............................. (449) 4,050 3,601
----------------------------------
26,568 17,028 43,596
----------------------------------
Expense from interest-bearing liabilities
Deposits ................................ 4,408 (5,554) (1,146)
FHLB advances and other borrowings ...... 9,544 23,309 32,853
----------------------------------
13,952 17,755 31,707
----------------------------------
Net interest income ........................ $ 12,616 $ (727) $ 11,889
==================================
Year ended December 31, 1999 vs. 1998
Income from interest-earning assets
Loan portfolio .......................... $(10,902) $ 9,169 $ (1,733)
Mortgage/asset-backed securities ........ 190 1,483 1,673
Investments ............................. 576 (1,198) (622)
----------------------------------
(10,136) 9,454 (682)
----------------------------------
Expense from interest-bearing liabilities
Deposits ................................ (16,206) (5,525) (21,731)
FHLB advances and other borrowings ...... (1,943) 13,848 11,905
----------------------------------
(18,149) 8,323 (9,826)
----------------------------------
Net interest income ........................ $ 8,013 $ 1,131 $ 9,144
==================================
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Other income
In addition to net interest income, ASB has various sources of other income, including fee income from servicing loans, fees on deposit accounts, rental income from premises and other income. Other income totaled approximately $27.3 million in 2000, $29.9 million in 1999 and $29.2 million in 1998.
Lending activities
General. Loans and mortgage/asset-backed securities of $5.3 billion represented 88.5% of total assets at December 31, 2000, compared to $5.2 billion, or 88.7%, and $4.9 billion, or 86.7%, at December 31, 1999 and 1998, respectively. ASB's loan portfolio consists primarily of conventional residential mortgage loans which are neither insured by the Federal Housing Administration nor guaranteed by the Veterans Administration.
The following tables set forth the composition of ASB's loan and mortgage/asset-backed securities portfolio:
December 31,
---------------------------------------------------------------------------------------------
2000 1999 1998
---------------------------------------------------------------------------------------------
(dollars in thousands) Balance % of total Balance % of total Balance % of total
----------------------------------------------------------------------------------------------------------------------------------
Real estate loans (1)
Conventional .................... $ 2,875,931 54.44% $ 2,896,058 55.85% $ 2,852,938 57.82%
Construction and development .... 38,913 0.74 43,706 0.84 35,274 0.72
---------------------------------------------------------------------------------------------
2,914,844 55.18 2,939,764 56.69 2,888,212 58.54
Less
Deferred fees and discounts .... (21,588) (0.41) (24,083) (0.46) (21,229) (0.43)
Undisbursed loan funds ......... (17,559) (0.33) (19,368) (0.37) (14,685) (0.30)
Allowance for loan losses ...... (24,800) (0.47) (22,319) (0.43) (27,944) (0.57)
---------------------------------------------------------------------------------------------
Total real estate loans, net .... 2,850,897 53.97 2,873,994 55.43 2,824,354 57.24
---------------------------------------------------------------------------------------------
Other loans
Loans on deposits ............... 8,021 0.15 14,496 0.28 16,836 0.34
Consumer and other loans ........ 230,330 4.36 230,437 4.44 236,396 4.79
Commercial loans ................ 134,784 2.55 106,098 2.05 94,045 1.91
---------------------------------------------------------------------------------------------
373,135 7.06 351,031 6.77 347,277 7.04
Less
Deferred fees and discounts .... -- -- -- -- (7) --
Undisbursed loan funds ......... (58) -- (118) -- (16,592) (0.34)
Allowance for loan losses ...... (12,649) (0.24) (13,029) (0.25) (11,835) (0.24)
---------------------------------------------------------------------------------------------
Total other loans, net .......... 360,428 6.82 337,884 6.52 318,843 6.46
---------------------------------------------------------------------------------------------
Mortgage/asset-backed securities,
net of discounts ............. 2,070,827 39.21 1,973,146 38.05 1,791,353 36.30
---------------------------------------------------------------------------------------------
Total loans and
mortgage/asset-backed
securities, net ............ $ 5,282,152 100.00% $ 5,185,024 100.00% $ 4,934,550 100.00%
=============================================================================================
|
(1) Includes renegotiated loans.
December 31,
-------------------------------------------------------
1997 1996
-------------------------------------------------------
(dollars in thousands) Balance % of total Balance % of total
------------------------------------------------------------------------------------------------------------------
Real estate loans (1)
Conventional ....................................... $2,714,680 55.39% $ 1,825,673 54.63%
Construction and development ....................... 32,569 0.67 29,964 0.89
-------------------------------------------------------
2,747,249 56.06 1,855,637 55.52
Less
Deferred fees and discounts ..................... (16,055) (0.33) (17,759) (0.53)
Undisbursed loan funds .......................... (13,724) (0.28) (14,532) (0.43)
Allowance for loan losses ....................... (20,450) (0.42) (15,792) (0.47)
-------------------------------------------------------
Total real estate loans, net ....................... 2,697,020 55.03 1,807,554 54.09
-------------------------------------------------------
Other loans
Loans on deposits .................................. 17,473 0.36 15,441 0.46
Consumer and other loans ........................... 258,764 5.28 167,007 5.00
Commercial loans ................................... 88,315 1.80 18,548 0.55
-------------------------------------------------------
364,552 7.44 200,996 6.01
Less
Deferred fees and discounts ..................... (14) -- (23) --
Undisbursed loan funds .......................... (16,211) (0.33) (3,086) (0.09)
Allowance for loan losses ....................... (9,500) (0.19) (3,413) (0.10)
-------------------------------------------------------
Total other loans, net ............................. 338,827 6.92 194,474 5.82
-------------------------------------------------------
Mortgage/asset-backed securities, net of discounts . 1,865,027 38.05 1,340,073 40.09
-------------------------------------------------------
Total loans and mortgage/asset-backed
securities, net .............................. $4,900,874 100.00% $ 3,342,101 100.00%
=======================================================
|
(1) Includes renegotiated loans.
ASB's net loan and mortgage/asset-backed securities portfolio increase in 1997 was primarily due to the purchase of $0.9 billion of Hawaii-based BoA loans and the purchase of $0.8 billion in mortgage/asset-backed securities, primarily in anticipation of the BoA acquisition.
Origination, purchase and sale of loans. Generally, loans originated and purchased by ASB are secured by real estate located in Hawaii. As of December 31, 2000, approximately $48.5 million of loans purchased from other lenders were secured by properties located in the continental United States. For additional information, including information concerning the geographic distribution of ASB's mortgage/asset-backed securities portfolio and the geographic concentration of credit risk, see Note 15 to HEI's Consolidated Financial Statements.
The amount of loans originated during 2000, 1999, 1998, 1997 and 1996 were $530 million, $627 million, $631 million, $327 million and $498 million, respectively. The demand for loans is primarily dependent on the Hawaii real estate market and loan refinancing activity. The increase in loans originated in 1998 from 1997 was due primarily to higher refinancings. The decreases in loans originated in 2000, 1999 and 1997 from the prior year were due in part to a rise in interest rates and a slow Hawaii real estate market.
Residential mortgage lending. ASB is permitted to lend up to 100% of the appraised value of the real property securing a loan. Its general policy is to require private mortgage insurance when the loan-to-value ratio of the property exceeds 80% of the lower of the appraised value or purchase price at origination. For nonowner-occupied
residential properties, the loan-to-value ratio may not exceed 90% of the lower of the appraised value or purchase price at origination.
Construction and development lending. ASB provides both fixed and adjustable rate loans for the construction of one-to-four residential unit and commercial properties. Construction and development financing generally involves a higher degree of credit risk than long-term financing on improved, occupied real estate. Accordingly, all construction and development loans are priced higher than loans secured by completed structures. ASB's underwriting, monitoring and disbursement practices with respect to construction and development financing are designed to ensure sufficient funds are available to complete construction projects. As of December 31, 2000, 1999 and 1998, construction and development loans represented 1.2%, 1.3% and 1.1%, respectively, of ASB's gross loan portfolio. Although construction and development loans are a small part of ASB's current loan portfolio, ASB recently enhanced its commercial real estate lending capabilities to diversify its loan portfolio and plans to increase construction and development lending in the future. See "Loan portfolio risk elements."
Multifamily residential and commercial real estate lending. Permanent loans secured by multifamily properties (generally apartment buildings), as well as commercial and industrial properties (including office buildings, shopping centers and warehouses), are originated by ASB for its own portfolio as well as for participation with other lenders. In 2000, 1999 and 1998, loan originations on these types of properties accounted for approximately 4.2%, 1.1% and 2.8%, respectively, of ASB's total mortgage loan originations. The objective of commercial real estate lending is to diversify ASB's loan portfolio.
Consumer lending. ASB offers a variety of secured and unsecured consumer loans. Loans secured by deposits are limited to 90% of the available account balance. ASB also offers VISA cards, automobile loans, general purpose consumer loans, home equity lines of credit, checking account overdraft protection and unsecured lines of credit. In 2000, 1999 and 1998, gross loan originations of these types accounted for approximately 19.1%, 23.4% and 15.3%, respectively, of ASB's total loan originations.
Corporate banking/commercial lending. ASB is authorized to make both secured and unsecured corporate banking loans to business entities. This lending activity is designed to diversify ASB's asset structure, shorten maturities, provide rate sensitivity to the loan portfolio and attract business checking deposits. ASB acquired $56.9 million of corporate banking loans from BoA in 1997 and has developed a larger corporate banking department. As of December 31, 2000, 1999 and 1998, corporate banking loans represented 4.2%, 3.6% and 2.8%, respectively, of ASB's total net loan portfolio.
Loan origination fee and servicing income. In addition to interest earned on loans, ASB receives income from servicing loans, for late payments and from other related services. Servicing fees are received on loans originated and subsequently sold by ASB through a securitization process and also on loans for which ASB acts as collection agent on behalf of third-party purchasers. ASB acquired the servicing rights for approximately $305 million of residential loans from BoA in 1997.
ASB generally charges the borrower at loan settlement a loan origination fee of 1% of the amount borrowed. See the "Loan origination and commitment fees" section in Note 1 to HEI's Consolidated Financial Statements.
Loan portfolio risk elements. When a borrower fails to make a required payment on a loan and does not cure the delinquency promptly, the loan is classified as delinquent. If delinquencies are not cured promptly, ASB normally commences a collection action, including foreclosure proceedings in the case of secured loans. In a foreclosure action, the property securing the delinquent debt is sold at a public auction in which ASB may participate as a bidder to protect its interest. If ASB is the successful bidder, the property is classified in a real estate owned account until it is sold. ASB's real estate acquired in settlement of loans represented 0.15%, 0.08% and 0.10% of total assets at December 31, 2000, 1999 and 1998, respectively.
In addition to delinquent loans, other significant lending risk elements include: (1) loans which accrue interest and are 90 days or more past due as to principal or interest, (2) loans accounted for on a nonaccrual basis (nonaccrual loans), and (3) loans on which various concessions are made with respect to interest rate, maturity, or other terms due to the inability of the borrower to service the obligation under the original terms of the agreement (renegotiated loans). ASB had no loans which were 90 days or more past due on which interest was being accrued as of the dates presented in the table below. The level of nonaccrual and renegotiated loans represented 1.5%, 2.3%, 3.1%, 2.4% and 2.5%, of ASB's total net loans outstanding at December 31, 2000, 1999, 1998, 1997 and 1996, respectively. The following table sets forth certain information with respect to nonaccrual and renegotiated loans as of the dates indicated:
December 31,
----------------------------------------------------------------
(in thousands) 2000 1999 1998 1997 1996
----------------------------------------------------------------------------------------------------------
Nonaccrual loans--
Real estate
1-4 unit residential .............. $26,738 $43,750 $47,565 $36,812 $23,700
Income property ................... 15,132 18,747 29,456 29,955 19,832
----------------------------------------------------------------
Total real estate .................... 41,870 62,497 77,021 66,767 43,532
Commercial ........................... 2,872 2,192 2,030 776 937
Consumer ............................. 2,844 3,777 6,454 4,266 2,586
----------------------------------------------------------------
Total nonaccrual loans ............... $47,586 $68,466 $85,505 $71,809 $47,055
================================================================
Renegotiated loans not included above--
Real estate
1-4 unit residential .............. $ 48 $ 876 $ 1,705 $ 2,264 $ 3,211
Income property ................... -- 5,154 10,559 -- --
----------------------------------------------------------------
Total renegotiated loans ............. $ 48 $ 6,030 $12,264 $ 2,264 $ 3,211
================================================================
|
ASB's policy generally is to place mortgage loans on a nonaccrual status (i.e., interest accrual is suspended) when the loan becomes 90 days or more past due or on an earlier basis when there is a reasonable doubt as to its collectability. Loans on nonaccrual status amounted to $47.6 million (1.4% of total loans), $68.4 million (2.1% of total loans), $85.5 million (2.6% of total loans), $71.8 million (2.3% of total loans) and $47.1 million (2.3% of total loans) at December 31, 2000, 1999, 1998, 1997 and 1996, respectively.
From 1996 through 1998, the increases in nonaccrual loans were a result of Hawaii's weak economy. In 1997, the $24.8 million increase in nonaccrual loans included a $13.1 million increase in nonaccruing, smaller balance residential loans and a $10.1 million increase in nonaccruing, income property real estate loans. In 1998, the $13.7 million increase in nonaccrual loans was primarily due to a $10.3 million increase in nonaccruing, smaller balance residential loans. In 2000 and 1999, the $20.9 million and $17.0 million, respectively, decrease in nonaccrual loans was primarily due to increased charge-offs and lower delinquencies.
In 1998, ASB renegotiated two income property loans which are currently making timely monthly payments of principal and interest.
Allowance for loan losses. The provision for loan losses is dependent upon management's evaluation as to the amount required to maintain the allowance for loan losses at a level considered appropriate in relation to the risk of future losses inherent in the loan portfolio. While management attempts to use the best information available to make evaluations, future adjustments may be necessary as circumstances change and additional information becomes available.
The following table presents the changes in the allowance for loan losses for the years indicated.
Years ended December 31,
-------------------------------------------------------------------
(dollars in thousands) 2000 1999 1998 1997 1996
------------------------------------------------------------------------------------------------------------
Allowance for loan losses,
beginning of year .................. $35,348 $39,779 $29,950 $19,205 $12,916
Additions to provisions for loan losses 13,050 16,500 13,802 6,934 7,631
Allowance for losses on loans acquired
from BoA ........................... -- -- -- 6,445 --
Net charge-offs
Real estate loans ..................... 6,727 15,215 1,549 992 390
Other loans ........................... 4,222 5,716 2,424 1,642 952
-------------------------------------------------------------------
Total net charge-offs ................. 10,949 20,931 3,973 2,634 1,342
-------------------------------------------------------------------
Allowance for loan losses, end of year $37,449 $35,348 $39,779 $29,950 $19,205
===================================================================
Ratio of net charge-offs during the
year to average loans outstanding . 0.34% 0.66% 0.13% 0.12% 0.07%
===================================================================
|
ASB's ratio of provisions for loan losses during the year to average loans outstanding was 0.41%, 0.52%, 0.45%, 0.32% and 0.41%, for 2000, 1999, 1998, 1997 and 1996, respectively. In 2000, ASB's allowance for loan losses increased by $2.1 million primarily due to lower net charge-offs as a result of lower delinquencies. In 1999, ASB's allowance for loan losses decreased by $4.4 million due to higher charge-offs and lower delinquencies. In 1999, management disposed of nonperforming loans at a loss, which resulted in higher charge-offs. ASB increased its allowance for loan losses by $9.8 million in 1998 and $10.7 million in 1997 to establish additional specific loss allowances and in response to a rising trend of delinquencies caused by Hawaii's weak economy. In 1997, a nonspecific allowance for loan losses amounting to approximately $6.4 million was recorded in assigning acquisition cost to the loans receivable acquired from BoA.
Investment activities
In recent years, ASB's investment portfolio consisted primarily of stock of the FHLB of Seattle, federal agency obligations and mortgage/asset-backed securities. As of December 31, 2000, most of ASB's investments were held-to-maturity with a small amount held as available-for-sale. ASB did not maintain a portfolio of securities held for trading during 1998, 1999 or 2000.
As of December 31, 2000, ASB's held-to-maturity investment portfolio, excluding mortgage/asset-backed securities, consisted of a $78.7 million investment in FHLB stock and a $13.1 million investment in collateralized debt obligations. As of December 31, 1999, ASB's investment in FHLB stock amounted to $73.8 million, investment in collateralized debt obligations amounted to $71.5 million and investment in federal agency obligations amounted to $41.5 million. As of December 31, 1998, ASB's investment in FHLB stock amounted to $68.6 million and investment in federal agency obligations amounted to $43.0 million. The weighted-average rate on investments during 2000, 1999 and 1998 was 5.62%, 6.81% and 6.23%, respectively. The amount that ASB is required to invest in FHLB stock is determined by regulatory requirements. See "Regulation and other matters--Savings bank regulation--Federal Home Loan Bank System."
In June 2000, the OTS advised ASB that four debt securities, in the original aggregate principal amount of $114 million, were impermissible investments under regulations applicable to federal savings banks. The securities, purchased through two brokers, are trust certificates which are rated Aaa as to principal repayment but not rated as
to interest. The trust certificates represent (i) the right to receive the principal amount of the trust certificates at maturity from an Aaa-rated swap counterparty (principal swap) and (ii) the right to receive the cash flow received on subordinated notes (income class notes). In 2000, ASB reclassified these trust certificates from "held-to-maturity" status to "available-for-sale" status in its financial statements and recognized a $3.8 million net loss on the writedown of these securities to their estimated fair value. ASB recognizes interest income on these securities on a cash basis. Additional losses could result from the ultimate disposition of these securities, or if there is a further "other-than-temporary" decline in their fair value.
Because of the ongoing regulatory demands that ASB dispose of the securities, ASB plans to dispose of those four trust certificate investments by the end of the second quarter of 2001. ASB has demanded that the brokers who sold these securities agree to rescission of the transactions. One broker, through whom ASB purchased one issue of trust certificates for approximately $30 million, has arranged a transaction satisfactory to ASB. The transaction is anticipated to close on April 10, 2001 and is expected to result in the disposition of that trust certificate for an amount approximating ASB's original purchase price.
ASB has filed a lawsuit against the broker through whom the other three issues of trust certificates were purchased, seeking rescission and other remedies, including recovery of any losses ASB may incur as a result of its purchase and ownership of these trust certificates. ASB may also attempt to offer these trust certificates for private sale through another broker. If these efforts are unsuccessful, ASB currently plans to terminate each principal swap and to cause the related income class notes to be sold (or their value otherwise determined and paid to ASB in accordance with the trust agreement), with the proceeds to be paid to ASB. If this course of action is followed, HEI currently intends to submit a bid to purchase such income class notes.
Subsequent to yearend 2000, ASB reclassified a significant amount of securities from held-to-maturity to available-for-sale (see "Derivative instruments and hedging activities" in Note 1 to HEI's Consolidated Financial Statements at page 25 of HEI's Annual Report).
Deposits and other sources of funds
General. Deposits traditionally have been the principal source of ASB's funds for use in lending, meeting liquidity requirements and making investments. ASB also derives funds from the receipt of interest and principal on outstanding loans receivable and mortgage/asset-backed securities, borrowings from the FHLB of Seattle, securities sold under agreements to repurchase and other sources. ASB borrows on a short-term basis to compensate for seasonal or other reductions in deposit flows. ASB also may borrow on a longer-term basis to support expanded lending or investment activities. Advances from the FHLB continue to be a significant source of funds as the demand for deposits decreases due in part to increased competition from money market and mutual funds. Using sources of funds with a higher cost than deposits, such as advances from the FHLB, puts downward pressure on ASB's net interest income.
Deposits. ASB's deposits are obtained primarily from residents of Hawaii. In 2000, ASB had average deposits of $3.5 billion. Net savings outflow in 2000 was $11.6 million, excluding interest credited to deposit accounts, compared to a net savings outflow in 1999 of $478.5 million and in 1998 of $174.1 million. The higher net savings outflows in 1999 and 1998 were partly due to competition from the equity market and management's decision not to pursue high-priced certificates of deposit. In addition, during 1999, $235.2 million of collateralized deposits were reclassified to securities sold under agreements to repurchase. In the three years ended December 31, 2000, ASB had no deposits placed by or through a broker.
The following table illustrates the distribution of ASB's average deposits and average daily rates by type of deposit for the years indicated. Average balances for a year have been calculated using the average of monthend balances during the year.
Years ended December 31,
-----------------------------------------------------------------------------------
2000 1999
------------------------------------------------------------------------------------
% of Weighted % of Weighted
Average total average Average total average
(dollars in thousands) balance deposits rate % balance deposits rate %
------------------------------------------------------------------------------------------------------------------
Passbook accounts............ $1,058,763 29.9% 2.00% $1,120,545 30.2% 2.31%
Negotiable Order of
Withdrawal accounts....... 642,074 18.2 0.85 621,140 16.8 0.83
Money market accounts........ 306,950 8.7 2.94 333,190 9.0 3.28
Certificate accounts......... 1,529,525 43.2 5.46 1,631,875 44.0 4.80
------------------------------------------------------------------------------------
Total deposits............... $3,537,312 100.0% 3.37% $3,706,750 100.0% 3.25%
====================================================================================
Year ended December 31, 1998
------------------------------------------------
Average % of total Weighted
(dollars in thousands) balance deposits average rate %
---------------------------------------------------------------------------------------------------
Passbook accounts............................... $1,152,048 29.8% 2.87%
Negotiable Order of Withdrawal accounts......... 616,612 16.0 0.93
Money market accounts........................... 329,128 8.5 3.94
Certificate accounts............................ 1,762,758 45.7 5.13
------------------------------------------------
Total deposits.................................. $3,860,546 100.0% 3.68%
================================================
|
At December 31, 2000, ASB had $411 million in certificate accounts of $100,000 or more, maturing as follows:
(in thousands) Amount
----------------------------------------------------------------------------
Three months or less.......................................... $132,049
Greater than three months through six months.................. 73,386
Greater than six months through twelve months................. 125,857
Greater than twelve months.................................... 79,780
-----------
$411,072
===========
|
Deposit-insurance premiums and regulatory developments. The Savings Association Insurance Fund (SAIF) insures the deposit accounts of ASB and other thrifts. The Bank Insurance Fund (BIF) insures the deposit accounts of commercial banks. The Federal Deposit Insurance Corporation (FDIC) administers the SAIF and BIF. In December 1997, ASB acquired BIF-assessable deposits as well as SAIF-assessable deposits from BoA.
The Deposit Insurance Funds Act of 1996 authorized a one-time deposit-insurance premium assessment by the FDIC of 65.7 cents per $100 of deposits insured by the SAIF and held as of March 31, 1995. ASB's assessment was $8.3 million after tax and was accrued in September 1996. The assessment resulted in a reduction of ASB's deposit-insurance premiums from 23 cents to 6.48 cents per $100 of deposits, effective January 1, 1997. With the reduction in deposit-insurance premiums, ASB's annual after-tax savings was approximately $2 million for 1997.
In December 1996, the FDIC adopted a risk-based assessment schedule for SAIF deposits, effective January 1, 1997, that was identical to the existing base rate schedule for BIF deposits: zero to 27 cents per $100 of deposits. Added to this base rate schedule through 1999 was the assessment to fund the Financing Corporation's (FICO's) interest obligations, which assessment was initially set at 6.48 cents per $100 of deposits for SAIF
deposits and 1.3 cents per $100 of deposits for BIF deposits (subject to quarterly adjustment). By law, the FICO's assessment rate on deposits insured by the BIF had to be one-fifth the rate on deposits insured by the SAIF until January 1, 2000. Effective January 1, 2000, the assessment rate for funding FICO interest payments became identical for SAIF and BIF deposits at a rate of 2.12 cents per $100 of deposits. As a "well-capitalized" thrift, ASB's base deposit insurance premium effective for the December 31, 2000 quarterly payment is zero and its assessment for funding FICO interest payments is 1.96 cents per $100 of SAIF and BIF deposits, on an annual basis, based on deposits as of September 30, 2000.
Borrowings. ASB obtains advances from the FHLB of Seattle provided certain standards related to creditworthiness have been met. Advances are secured by a blanket pledge of mortgage/asset-backed securities and certain notes held by ASB and the mortgages securing them. To the extent that advances exceed the amount of mortgage loan collateral pledged to the FHLB of Seattle, the excess must be covered by qualified marketable securities held under the control of and at the FHLB of Seattle or at an approved third party custodian. FHLB advances generally are available to meet seasonal and other withdrawals of deposit accounts, to expand lending and to assist in the effort to improve asset and liability management. FHLB advances are made pursuant to several different credit programs offered from time to time by the FHLB of Seattle.
At December 31, 2000, 1999 and 1998, advances from the FHLB amounted to $1.2 billion, $1.2 billion and $0.8 billion, respectively. The weighted-average rates on the advances from the FHLB outstanding at December 31, 2000, 1999 and 1998 were 6.67%, 6.25% and 6.17%, respectively. The maximum amount outstanding at any monthend during 2000, 1999 and 1998 was $1.3 billion, $1.2 billion and $831 million, respectively. Advances from the FHLB averaged $1.3 billion, $965 million and $779 million during 2000, 1999 and 1998, respectively, and the approximate weighted-average rate thereon was 6.55%, 6.07% and 6.25%, respectively. During 1999 and 1998, increased advances were needed to support loan originations and purchases of mortgage/asset-backed securities.
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 consolidated statements of financial condition. The securities underlying the agreements to repurchase continue to be reflected in the asset accounts. At December 31, 2000, 1999 and 1998, the entire outstanding amounts under these agreements of $597 million (including accrued interest of $5.5 million), $661 million (including accrued interest of $3.0 million) and $524 million (including accrued interest of $1.5 million), respectively, were to purchase identical securities. The weighted-average rates on securities sold under agreements to repurchase outstanding at December 31, 2000, 1999 and 1998 were 6.32%, 5.58% and 5.33%, respectively. The maximum amount outstanding at any monthend during 2000, 1999 and 1998 was $657 million, $661 million and $652 million, respectively. Securities sold under agreements to repurchase averaged $625 million, $540 million and $487 million during 2000, 1999 and 1998, respectively, and the approximate weighted-average interest rate thereon was 5.98%, 5.24% and 5.39%, respectively.
The following table sets forth information concerning ASB's advances from the FHLB and other borrowings at the dates indicated:
December 31,
------------------------------------------------
(dollars in thousands) 2000 1999 1998
-------------------------------------------------------------------------------------------------------
Advances from the FHLB.............................. $1,249,252 $1,189,081 $ 805,581
Securities sold under agreements to repurchase...... 596,504 661,215 523,800
------------------------------------------------
Total borrowings.................................... $1,845,756 $1,850,296 $1,329,381
================================================
Weighted-average rate............................... 6.56% 6.01% 5.84%
================================================
|
Competition
The primary factors in competing for deposits are interest rates, the quality and range of services offered, marketing, convenience of locations, hours and perceptions of the institution's financial soundness and safety. Competition for deposits comes primarily from other savings institutions, commercial banks, credit unions, money market and mutual funds and other investment alternatives. In Hawaii, there were 2 thrifts, 8 FDIC-insured banks and 105 credit unions at September 30, 2000. Additional competition for deposits comes from various types of corporate and government borrowers, including insurance companies. To meet competition, ASB offers a variety of savings and checking accounts at competitive rates, convenient business hours, 68 convenient branch locations with interbranch deposit and withdrawal privileges at each branch and 147 convenient automated teller machines. ASB also conducts advertising and promotional campaigns.
The primary factors in competing for first mortgage and other loans are interest rates, loan origination fees and the quality and range of lending services offered. Competition for origination of first mortgage loans comes primarily from other savings institutions, mortgage banking firms, commercial banks, insurance companies and real estate investment trusts. ASB believes that it is able to compete for such loans primarily through the interest rates and loan fees it charges, the type of mortgage loan programs it offers and the efficiency and quality of the services it provides its borrowers and the real estate business community.
In recent years, there has been significant bank and thrift merger activity in Hawaii. Management cannot predict the impact, if any, of these mergers on the Company's future competitive position, results of operations, financial condition or liquidity.
Credit Union Developments. The 1934 Federal Credit Union Act states that credit union membership "shall be limited to groups having a common bond of occupation or association" or to groups in a well-defined geographical area. In 1982, the National Credit Union Administration expanded its definition of "common bond" to allow "multiple common bonds"--i.e., small businesses that lacked enough workers to form their own credit unions were allowed to join existing credit unions so long as each group of employees had its own "bond." Government officials estimate that this rule allowed credit unions to add approximately 15 million people to their membership rolls. In February 1998, the Supreme Court decided that this expanded definition of "common bond" was impermissible, holding that the 1934 law required all members of a credit union to share a single common bond. In August 1998, the Credit Union Membership Access Act became law, which, among other things, amended the 1934 law to retroactively authorize credit union membership based on multiple common bonds, as long as each of the relevant groups has (with some exceptions) fewer than 3,000 members. The Credit Union Membership Access Act also facilitates the ability of insured credit unions to convert to mutual savings banks or savings associations, and requires that insured credit unions meet capital standards similar to those enacted for banks and thrifts in 1991.
In December 1998, the National Credit Union Administration voted to adopt final rules to implement the Credit Union Membership Access Act. The new rules appear to favor the creation of larger credit unions by facilitating the merger of credit unions with fewer than 3,000 members. Several members of the House Banking Committee criticized the new rules as disregarding Congressional intent and indicated further legislation is possible. The American Bankers Association has filed a suit challenging the new rules. The U.S. District Court for the District of Columbia dismissed the suit and the dismissal is on appeal. It is too early to evaluate whether these developments will result in increased competition for ASB by credit unions.
See "Regulation--Federal Thrift Charter" in HEI's MD&A for a discussion of some of the uncertain effects on competition of the Gramm-Leach-Bliley Act of 1998.
International power--HEI Power Corp.
HEIPC, formed in March 1995, and its subsidiaries, formed from time-to-time, pursued independent power and integrated energy services projects in Asia and the Pacific.
The success of any project undertaken by the HEIPC Group in foreign countries will be dependent on many factors, including the economic, political, technological, regulatory and logistical circumstances surrounding each project, the nature of and parties to PPAs, currency exchange rate fluctuations and the location of the project. Due to political or regulatory actions or other circumstances, projects may be delayed or even prohibited. There is no assurance that any project undertaken by the HEIPC Group will be successfully completed or that the HEIPC Group's investment in any such project will not be lost, in whole or in part.
HEI Investments, Inc.
In January 2000, HEI Investment Corp. (HEIIC), incorporated in May 1984 primarily to make passive investments in corporate securities and other long-term investments, changed its name to HEI Investments, Inc. (HEIII). HEIII is not an "investment company" under the Investment Company Act of 1940 and has no direct employees. In February 2000, HEIII became a subsidiary of HEIPC and part of the HEIPC Group.
HEIII's long-term investments currently consist primarily of investments in leveraged leases. Since 1985, HEIII (then called HEIIC) has had a 15% ownership interest in an 818 MW coal-fired generating unit in Georgia, which is subject to a leveraged lease agreement. In 1987, HEIIC purchased commercial buildings on leasehold properties located in the continental United States, along with the related lease rights and obligations. These leveraged, purchase-leaseback investments include two major buildings housing operations of Hershey Foods in Pennsylvania and five supermarkets leased to The Kroger Co. in various states.
On March 6, 2000, a subsidiary of HEIII, HEIPC Philippines Holding Co., Inc., acquired a 50% interest in EPHE Philippines Energy Company, Inc. (EPHE), which was the owner of approximately 91.7% of the common stock of EAPRC, a Philippines holding company primarily engaged in the electric generation business in Manila and Cebu through its direct and indirect subsidiaries, using land and barge-based generating facilities fired by bunker fuel oil, with total installed capacity of approximately 390 MW. Due primarily to mounting losses resulting from fuel and currency price volatility, the Company wrote off this investment as of December 31, 2000. In February 2001, HEIPC Philippines Holding Co., Inc. filed an Amendment of the Fourth Article of the Corporation, which upon approval by the Philippines Securities and Exchange Commission (SEC), shortens the corporate life of HEIPC Philippines Holding Co., Inc. to a period ending February 28, 2001 or such other date as the Philippine SEC shall approve.
For a further discussion of the HEIPC Group, its operating losses, projects, investments and commitments, see the "International power" section in HEI's MD&A and Note 5 to HEI's Consolidated Financial Statements.
Management is evaluating HEIPC's overall international strategy and strategic alternatives, including continuing to hold, operate and develop its remaining projects, or selling some or all of these investments. Management has not established any formal plan. The Boards of Directors of HEI and HEIPC must approve the sale of any project and the infusion of additional capital into any project. The results of management's evaluation, and the ultimate financial effects of Board decisions to hold, develop or sell some or all of the projects cannot be determined at this time. The Company will not be investing in new international power projects during this period of evaluation.
Other
HEI Properties, Inc.
HEIDI Real Estate Corp., originally a subsidiary of HEIDI, was formed in February 1998. In September 1999, its name was changed to HEI Properties, Inc. (HEIPI) and HEIDI transferred ownership of HEIPI to HEI. HEIPI currently holds an investment in Utech Venture Capital Corporation and an investment in HMS Hawaii, a Hawaii limited partnership. It is expected that HEIPI will also hold real estate and related assets.
HEI Leasing, Inc.
HEI Leasing, Inc. was formed in February 2000 to own passive investments and real estate subject to leases. It currently holds no investments or real estate subject to leases.
The Old Oahu Tug Service, Inc.
On November 10, 1999, Hawaiian Tug & Barge Corp. changed its name to The Old Oahu Tug Service, Inc. (TOOTS). Prior to that date, HTB was the parent of Young Brothers, Limited. In November 1999, HTB sold substantially all of its operating assets and the stock of YB and ceased operations. HTB and its wholly owned subsidiary, YB, had been acquired by HEI in 1986. HTB had provided marine transportation services in Hawaii and the Pacific area, including charter tug and barge and harbor tug operations. YB, which is a regulated interisland cargo carrier, transports general freight and containerized cargo by barge on a regular schedule between all major ports in Hawaii.
Discontinued operations
For information concerning the Company's discontinued residential real estate development business conducted by MPC and its subsidiaries and its discontinued property and casualty insurance operations formerly conducted by HIG, see Note 16 to HEI's Consolidated Financial Statements.
Regulation and other matters
Holding company regulation
HEI and HECO are holding companies within the meaning of the Public Utility Holding Company Act of 1935 (1935 Act). However, under current rules and regulations, they are exempt from the comprehensive regulation of the SEC under the 1935 Act except for Section 9(a)(2) (relating to the acquisition of securities of other public utility companies) through compliance with certain annual filing requirements under the 1935 Act for holding companies which own utility businesses that are intrastate in character. The exemption afforded HEI and HECO may be revoked if the SEC finds that such exemption "may be detrimental to the public interest or the interest of investors or consumers." HEI and HECO may own or have interests in foreign utility operations without adversely affecting this exemption so long as the requirements of other exemptions under the 1935 Act are satisfied. HEI has obtained the PUC certification which is a prerequisite to obtaining an exemption for foreign utility operations and to the Company's maintenance of its exemption under the 1935 Act if it acquires such ownership interests. In 1996, HEI filed with the SEC a Form U-57, "Notification of Foreign Utility Company Status," on behalf of HEI Power Corp. Guam (for the HEIPC Group's Guam project). In 1998, HEI filed two Forms U-57 on behalf of Baotou Tianjiao Power Co., Ltd. (for the HEIPC Group's China project) and on behalf of Cagayan Electric Power & Light Co., Inc. (for the HEIPC Group's investment in that entity). In March 2000, HEI filed a Form U-57 on behalf of EAPRC (for the HEIPC Group's investment in that entity).
Legislation has been introduced in Congress in the past that would repeal the 1935 Act, leaving the regulation of utility holding companies to be governed by other federal and state laws. Management cannot predict if similar legislation will be proposed or enacted in the future or the final form it might take.
HEI is subject to an agreement entered into with the PUC (the PUC Agreement) when HECO became a wholly owned subsidiary of HEI. The PUC Agreement, among other things, requires HEI to provide the PUC with periodic financial information and other reports concerning intercompany transactions and other matters. It prohibits the electric utilities from loaning funds to HEI or its nonutility subsidiaries and from redeeming common stock of the electric utility subsidiaries without PUC approval. Further, the PUC could limit the ability of the electric utility subsidiaries to pay dividends on their common stock. See "Restrictions on dividends and other distributions" and "Electric utility regulation" (regarding the PUC review of the relationship between HEI and HECO).
As a result of the acquisition of ASB, HEI and HEIDI are subject to OTS registration, supervision and reporting requirements as savings and loan holding companies.
In the event the OTS has reasonable cause to believe that the continuation by HEI or HEIDI of any activity constitutes a serious risk to the financial safety, soundness, or stability of ASB, the OTS is authorized under the Home Owners' Loan Act of 1933, as amended, to impose certain restrictions in the form of a directive to HEI and
any of its subsidiaries, or HEIDI and any of its subsidiaries. Such possible restrictions include limiting (i) the payment of dividends by ASB; (ii) transactions between ASB, HEI or HEIDI, and the subsidiaries or affiliates of ASB, HEI or HEIDI; and (iii) the activities of ASB that might create a serious risk that the liabilities of HEI and its other affiliates, or HEIDI and its other affiliates, may be imposed on ASB. Theoretically, this authority would allow the OTS to prohibit dividends, limit affiliate transactions or otherwise restrict activities as a result of losses suffered by HEI, HEIDI or their other subsidiaries, and thus conceivably may be an indirect means of limiting affiliations between ASB and affiliates engaged in nonfinancial activities. See "Restrictions on dividends and other distributions."
OTS regulations also generally prohibit savings and loan holding companies and their nonthrift subsidiaries from engaging in activities other than those which are specifically enumerated in the regulations. Such restrictions, if applicable to HEI and HEIDI, would significantly limit the kinds of activities in which HEI and HEIDI and their subsidiaries may engage. However, the OTS regulations provide for an exemption which is available to HEI and HEIDI if ASB satisfies the qualified thrift lender (QTL) test discussed below. See "Savings bank regulation--Qualified thrift lender test." ASB must continue to meet the qualified thrift lender test in order to avoid restrictions on the activities of HEI and HEIDI and their subsidiaries which could result in a need to divest ASB. ASB met the QTL test at all times during 2000.
HEI and HEIDI are prohibited, directly or indirectly, or through one or more subsidiaries, from (i) acquiring control of, or acquiring by merger or purchase of assets, another insured institution or holding company thereof, without prior written OTS approval; (ii) acquiring more than 5% of the voting shares of another savings association or savings and loan holding company which is not a subsidiary; or (iii) acquiring or retaining control of a savings association not insured by the FDIC. No director or officer of HEI or HEIDI, or person beneficially owning more than 25% of such holding company's voting shares, may, except with the prior approval of the OTS, (a) also serve as director, officer, or employee of any insured institution or (b) acquire control of any savings association not a subsidiary of such holding company.
For a description of an OTS proposal which would require advance notice for certain savings and loan holding companies' activities, see "OTS proposal" section in HEI's MD&A. The OTS is in the process of reviewing the strongly critical comments received on the proposal, and OTS senior staff has indicated that substantial revisions are likely to be made. However, the OTS has also stated that it continues to be concerned "with complex and highly leveraged holding company structures in which the thrift is dependent on the financial or managerial resources of its parent organization."
ASB Realty Corporation, a subsidiary of ASB, is licensed as a nondepository financial services loan company under the Hawaii Code of Financial Institutions. As a result of its direct or indirect voting control of ASB Realty Corporation, each of HEI, HEIDI and ASB has registered as a "Financial Institution Holding Company" and an "Institution-Affiliated Party" under the Hawaii Code. As a Financial Institution Holding Company, HEI, HEIDI and ASB are subject to examination by the Hawaii Commissioner of Financial Institutions to determine whether their respective conditions or activities are jeopardizing the safety and soundness of ASB Realty Corporation's operations. However, the Hawaii Commissioner is authorized to conduct such an examination only if the Hawaii Commissioner has good cause to believe that the holding company is experiencing financial adversity which might have a material negative impact on the safety and soundness of ASB Realty Corporation.
The Hawaii Commissioner has authority to issue a cease and desist order to ASB Realty Corporation, ASB, HEIDI and HEI, if, for example, the Commissioner has reasonable grounds to believe that such entity is violating or about to violate the Hawaii Code or is engaged in or about to engage in illegal, unauthorized, unsafe or unsound practices. In appropriate circumstances, the Commissioner may also have authority to order ASB Realty Corporation to correct any impairment of its capital and surplus and to prohibit ASB, HEIDI and HEI from participating in the affairs of ASB Realty Corporation.
Restrictions on dividends and other distributions
HEI is a legal entity separate and distinct from its various subsidiaries. As a holding company with no significant operations of its own, the principal sources of its funds are dividends or other distributions from its operating subsidiaries, borrowings and sales of equity. The rights of HEI and, consequently, its creditors and shareholders, to participate in any distribution of the assets of any of its subsidiaries is subject to the prior claims of the creditors and preferred stockholders of such subsidiary, except to the extent that claims of HEI in its capacity as a creditor are recognized.
The abilities of certain of HEI's subsidiaries to pay dividends or make other distributions to HEI are subject to contractual and regulatory restrictions. Under the PUC Agreement, in the event that the consolidated common stock equity of the electric utility subsidiaries falls below 35% of total electric utility capitalization, the electric utility subsidiaries would be restricted, unless they obtained PUC approval, in their payment of cash dividends to 80% of the earnings available for the payment of dividends in the current fiscal year and preceding five years, less the amount of dividends paid during that period. The PUC Agreement also provides that the foregoing dividend restriction shall not be construed to relinquish any right the PUC may have to review the dividend policies of the electric utility subsidiaries. The consolidated common stock equity of HEI's electric utility subsidiaries was 51% of their total capitalization (including the current maturities of long-term debt, but excluding short-term borrowings) as of December 31, 2000. As of December 31, 2000, HECO and its subsidiaries had net assets of $825 million, of which approximately $432 million were not available for transfer to HEI without regulatory approval.
The ability of ASB to make capital distributions to HEI and other affiliates is restricted under federal law. Subject to a limited exception for stock redemptions that do not result in any decrease in ASB's capital and would improve ASB's financial condition, ASB is prohibited from declaring any dividends, making any other capital distribution, or paying a management fee to a controlling person if, following the distribution or payment, ASB would be deemed to be undercapitalized, significantly undercapitalized or critically undercapitalized. See "Savings bank regulation--Prompt corrective action."
As a Tier-1 institution (one that meets its capital requirements and has not been notified by the OTS that it is in need of more than normal supervision), ASB may make capital distributions in amounts up to one-half of ASB's surplus capital (the amount of its capital in excess of its capital requirement) at the beginning of a calendar year, plus its year-to-date net income for that calendar year. ASB, as a Tier-1 institution, may exceed the foregoing limits if ASB provides a thirty-day advance notice to the OTS and receives no objection within thirty days. However, even in the case of distributions within the permissible limits, a thirty-day advance notice to the OTS is required.
HEI and its subsidiaries are also subject to debt covenants, preferred stock resolutions and the terms of guarantees that could limit their respective abilities to pay dividends. The Company does not expect that the regulatory and contractual restrictions applicable to HEI or its direct and indirect subsidiaries will significantly affect the operations of HEI or its ability to pay dividends on its common stock.
Electric utility regulation
The PUC regulates the rates, issuance of securities, accounting and certain other aspects of the operations of HECO and its electric utility subsidiaries. See the previous discussions under "Electric utility--Rates" and "Electric utility--Rate requests" and the "Regulation of electric utility rates" and "Recent rate requests" sections in HECO's MD&A.
Any adverse decision or policy made or adopted by the PUC, or any prolonged delay in rendering a decision, could have a material adverse effect on consolidated HECO's and the Company's financial condition, results of operations or liquidity.
The PUC has ordered the electric utility subsidiaries to develop plans for the integration of demand- and supply-side resources available to meet consumer energy needs efficiently, reliably and at the lowest reasonable cost. See the previous discussion under "Electric utility--Integrated resource planning and requirements for additional generating capacity."
On December 30, 1996, the PUC issued an order instituting a proceeding to identify and examine the issues surrounding electric competition and to determine the impact of competition on the electric utility infrastructure in Hawaii. See the previous discussion under "Electric utility--Competition."
Certain transactions between HEI's electric public utility subsidiaries (HECO, MECO and HELCO) and HEI and affiliated interests, are subject to regulation by the PUC. All contracts (including summaries of unwritten agreements), made on or after July 1, 1988 of $300,000 or more in a calendar year for management, supervisory, construction, engineering, accounting, legal, financial and similar services and for the sale, lease or transfer of property between a public utility and affiliated interests must be filed with the PUC to be effective, and the PUC may issue cease and desist orders if such contracts are not filed. All such affiliated contracts for capital expenditures (except for real property) must be accompanied by comparative price quotations from two nonaffiliates, unless the quotations cannot be obtained without substantial expense. Moreover, all transfers of $300,000 or more of real property between a public utility and affiliated interests require the prior approval of the PUC and proof that the transfer is in the best interest of the public utility and its customers. If the PUC, in its discretion, determines that an affiliated contract is unreasonable or otherwise contrary to the public interest, the utility must either revise the contract or risk disallowance of the payments for ratemaking purposes. In ratemaking proceedings, a utility must also prove the reasonableness of payments made to affiliated interests under any affiliated contract of $300,000 or more by clear and convincing evidence. An "affiliated interest" is defined by statute and includes officers and directors of a public utility, every person owning or holding, directly or indirectly, 10% or more of the voting securities of a public utility, and corporations which have in common with a public utility more than one-third of the directors of that public utility.
In January 1993, to address community concerns expressed at the time, HECO proposed that the PUC initiate a review of the relationship between HEI and HECO and the effects of that relationship on the operations of HECO. The PUC opened a docket and initiated such a review to determine whether the HEI-HECO relationship, HEI's diversified activities, and HEI's policies, operations and practices had resulted in or were having any negative effects on HECO, its electric utility subsidiaries and ratepayers. In May 1994, the PUC selected a consultant, Dennis Thomas and Associates, to perform the review. In early 1995, Dennis Thomas and Associates issued its report (the Thomas report) to the PUC. The Thomas report concluded that "on balance, diversification has not hurt electric ratepayers." Other major findings were that (1) no utility assets have been used to fund HEI's nonutility investments or operations, (2) management processes within the electric utilities operate without interference from HEI and (3) HECO's access to capital did not suffer as a result of HEI's involvement in nonutility activities and that diversification did not permanently raise or lower the cost of capital incorporated into the rates paid by HECO's utility customers. The Thomas report also included a number of recommendations, most of which the Company has implemented. In December 1996, the PUC issued an order that adopted the Thomas report in its entirety, ordered HECO to continue to provide the PUC with status reports on its compliance with the PUC agreement (pursuant to which HEI became the holding company of HECO) and closed the investigation and proceeding. The PUC has not required that the Company implement all of the recommendations in the Thomas report. In the order, the PUC also stated that it adopted the recommendation of the DOD that HECO, MECO and HELCO present a comprehensive analysis of the impact that the holding company structure and investments in nonutility subsidiaries have on a case-by-case basis on the cost of capital to each utility in future rate cases and remove such effects from the cost of capital. In its rate increase application filed in the first quarter of 1998, MECO provided an affidavit of a consultant retained by Dennis Thomas and Associates for the review. The consultant stated that "the methodology used to establish the allowed rate of return for electric utility operations inherently avoids any bias which might be
introduced by HEI's diversified activities," and further stated that the findings of the comprehensive review conducted for the Thomas report with respect to the availability and cost of capital to HEI and its utility subsidiaries would not be expected to be materially different from those adopted by the PUC in December 1996. The consultant reached similar conclusions in an affidavit provided with HELCO's rate increase application filed in October 1999, which was updated by an affidavit provided with HELCO's rebuttal testimonies filed in June 2000. See also "Holding company regulation."
HECO and its subsidiaries are not subject to regulation by the Federal Energy Regulatory Commission under the Federal Power Act, except under Sections 210 through 212 (added by Title II of PURPA and amended by the Energy Policy Act of 1992), which permit the Federal Energy Regulatory Commission to order electric utilities to interconnect with qualifying cogenerators and small power producers, and to wheel power to other electric utilities. Title I of PURPA, which relates to retail regulatory policies for electric utilities, and Title VII of the Energy Policy Act of 1992, which creates "exempt wholesale generators" (EWGs) as a category that is exempt from the 1935 Act and addresses transmission access, also apply to HECO and its subsidiaries. The Company cannot predict the extent to which cogeneration, EWGs or transmission access will reduce its electrical loads, reduce its current and future generating and transmission capability requirements or affect its financial condition, results of operations or liquidity.
Because they are located in the State of Hawaii, HECO and its subsidiaries are exempt by statute from limitations set forth in the Powerplant and Industrial Fuel Act of 1978 on the use of petroleum as a primary energy source.
Savings bank regulation
ASB, a federally chartered savings bank, and its holding companies are subject to the regulatory supervision of the OTS and, in certain respects, the FDIC. In addition, ASB must comply with Federal Reserve Board reserve requirements and OTS liquidity requirements. See "Liquidity and capital resources--Savings bank" in HEI's MD&A.
Deposit insurance coverage. The Federal Deposit Insurance Act, as amended by the Federal Deposit Insurance Corporation Insurance Act of 1991 (FDICIA), and regulations promulgated by the FDIC, govern insurance coverage of deposit amounts. Generally, the deposits maintained by a depositor in an insured institution are insured to $100,000, with the amount of all deposits held by a depositor in the same capacity (even if held in separate accounts) aggregated for purposes of applying the $100,000 limit. For example, all deposits held in a depositor's individual capacity are aggregated with each other but not with deposits maintained by such depositor and his or her spouse in a qualifying joint account, these latter joint deposits being separately insured to an aggregate of $100,000. An individual's interest in deposits at the same institution in any combination of certain retirement accounts and employee benefit plans will be added together and insured up to $100,000 in the aggregate.
Institutions that are "well capitalized" under the FDIC's prompt corrective action regulations are generally able to provide "pass-through" insurance coverage (i.e., insurance coverage that passes through to each owner/beneficiary of the applicable deposit) for the deposits of most employee benefit plans (i.e., $100,000 per individual participating, not $100,000 per plan). Consequently, the FDIC deposit insurance regulations require financial institutions to provide employee benefit plan depositors information, not otherwise available, on the institution's capital category and whether "pass-through" deposit insurance is available. As of December 31, 2000, ASB was "well capitalized."
Federal thrift charter. See "Federal Thrift Charter" on page 9 of HEI's MD&A.
Recent legislation. The Gramm-Leach-Bliley Act of 1998 (the Act) might result in increased costs for ASB. For example, the Act imposes on financial institutions an obligation to protect the security and confidentiality of its customers' nonpublic personal information, and on February 1, 2001, the FDIC and OTS issued final guidelines for the establishment of standards for safeguarding such information, which guidelines will be effective from July 1, 2001. ASB currently has in place a policy concerning customer privacy and believes that any additional compliance costs will not be significant. The Act also requires public disclosure of certain agreements entered into by insured depository institutions and their affiliates in fulfillment of the Community Reinvestment Act of 1977, and the filing of
an annual report with the appropriate regulatory agencies. On January 10, 2001, the FDIC and the OTS issued final rules implementing these provisions of the Act, effective from April 1, 2001. Although ASB is currently assessing the regulatory burden imposed by these new rules, ASB believes that any additional compliance costs will not be significant.
Capital requirements. Under the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA), the OTS has set three capital standards for thrifts, each of which must be no less stringent than those applicable to national banks. As of December 31, 2000, ASB was in compliance with all of the minimum standards with a core capital ratio of 6.1% (compared to a 4.0% requirement), a tangible capital ratio of 6.1% (compared to a 1.5% requirement) and risk-based capital ratio of 11.4% (based on risk-based capital of $380.3 million, $112.3 million in excess of the 8.0% requirement).
Effective April 1, 1999, the OTS revised its risk-based capital standards as part of the effort by the OTS, FDIC, the Board of Governors of the Federal Reserve System and the Office of the Comptroller of the Currency to implement the provisions of the Riegle Community Development and Regulatory Improvement Act of 1994, which requires these agencies to work together to make uniform their respective regulations and guidelines implementing common statutory or supervisory policies. These OTS revisions affect the risk-based capital treatment of: (1) construction loans on presold residential properties; (2) junior liens on 1- to 4-family residential properties; (3) investments in mutual funds; and (4) the core capital leverage ratio for institutions which do not have a composite rating of "1" under the Uniform Financial Institution Rating System (i.e., the CAMELS rating system). Under the new rules, an institution with a composite rating of "1" under the CAMELS rating system must maintain core capital in an amount equal to at least 3% of adjusted total assets. All other institutions must maintain a minimum core capital of 4% of adjusted total assets, and higher capital ratios may be required if warranted by particular circumstances. As of December 31, 2000, ASB met the minimum core capital requirement of 4% of adjusted total assets.
On March 14, 2001, the OTS announced proposed rule making that would reduce certain capital burdens on thrifts by, among others, permitting one-to four-family residential mortgage loans to qualify for a 50% risk rate in calculating capital charges for so long as such loans have a loan-to-value ratio of less than 90%, are not more than 90 days delinquent and are prudently underwritten. Under existing regulation, the maximum loan-to-value ratio for such loans to qualify for a 50% risk ratio is 80% at origination. In addition, the OTS proposed to eliminate the requirement that a thrift must deduct from total capital the portion of a land loan or non-residential construction loan that exceeds an 80% loan-to-value ratio.
Affiliate transactions. Significant restrictions apply to certain transactions between ASB and its affiliates, including HEI and its direct and indirect subsidiaries. FIRREA significantly altered both the scope and substance of such limitations on transactions with affiliates and provided for thrift affiliate rules similar to, but more restrictive than, those applicable to banks. For example, ASB is prohibited from making any loan or other extension of credit to an entity affiliated with ASB unless the affiliate is engaged exclusively in activities which the Federal Reserve Board has determined to be permissible for bank holding companies. There are also various other restrictions which apply to certain transactions between ASB and certain executive officers, directors and insiders of ASB. ASB is also barred from making a purchase of or any investment in securities issued by an affiliate, other than with respect to shares of a subsidiary of ASB.
Financial Derivatives and Interest Rate Risk. In 1996, the Board of Governors of the Federal Reserve System, the FDIC and the Office of the Comptroller of the Currency issued a joint agency policy statement to bankers to provide guidance on sound practices for managing interest rate risk. However, the OTS has elected not to pursue a standardized policy towards interest rate risk and investment and derivatives activities with the other federal banking regulators.
On December 1, 1998, the OTS issued final rules on financial derivatives, effective January 1, 1999. The OTS views these final rules as consistent with, although more detailed than, the 1996 joint policy statement. The purpose
of these rules is to update the OTS rules on financial derivatives, which had remained virtually unchanged for over 15 years. Most significantly, the new rules address interest rate swaps, a derivative instrument commonly used by thrifts to manage interest rate risk which was not addressed in the prior OTS rules. Currently ASB does not use interest rate swaps to manage interest rate risk, but may do so in the future. Generally speaking, the new rules permit thrifts to engage in transactions involving financial derivatives to the extent these transactions are otherwise authorized under applicable law and are safe and sound.
The new rules have required ASB to revise its internal procedures for handling financial derivative transactions, including increased involvement of the ASB board of directors in authorizing and monitoring such transactions.
Concurrently with the issuance of the new rules of financial derivative transactions, the OTS also adopted on December 1, 1998 Thrift Bulletin 13a (TB 13a) for purpose of providing guidance on the management of interest rate risks, investment securities and derivatives activities. TB 13a also describes the guidelines OTS examiners will use in assigning the "Sensitivity to Market Risk" component rating under the Uniform Financial Institutions Rating System (i.e., the CAMELS rating system). TB 13a became effective on December 1, 1998, and replaces several previous Thrift Bulletins dealing with interest rate risk and securities activities.
On March 14, 2001, the OTS announced proposed rule making that would eliminate the interest rate risk component of the OTS's risk-based capital regulations. As a result of waivers granted by the Acting OTS Director, these regulations had never gone into effect and the OTS had relied instead on the interest rate risk guidelines of TB 13a, which would continue in effect even if the risk-based capital regulations are eliminated. If its interest ratio risk regulations are eliminated, OTS proposes to apply a 100% risk weight to all stripped, mortgage-related securities regardless of issuer or guarantor.
TB 13a updates the OTS's minimum standards for thrift institutions' interest rate risk management practices with regard to board-approved risk limits and interest rate risk measurement systems, and makes several significant changes. First, under TB 13a, institutions no longer set board-approved limits or provide measurements for the plus and minus 400 basis point interest rate scenarios prescribed by the original TB 13. TB 13a also changes the form in which those limits should be expressed. Second, TB 13a provides guidance on how the OTS will assess the prudence of an institution's risk limits. Third, TB 13a raises the size threshold above which institutions should calculate their own estimates of the interest rate sensitivity of Net Portfolio Value (NPV) from $500 million to $1 billion in assets. Fourth, TB 13a specifies a set of desirable features that an institution's risk measurement methodology should utilize. Fifth, TB 13a provides an extensive discussion of "sound practices" for interest rate risk management.
TB 13a also contains guidance on thrifts' investment and derivatives activities by describing the types of analysis institutions should perform prior to purchasing securities or financial derivatives. TB13a also provides guidelines on the use of certain types of securities and financial derivatives for purposes other than reducing portfolio risk.
Finally, TB 13a provides detailed guidelines for implementing part of the Notice announcing the revision of the CAMELS rating system, published by the Federal Financial Institutions Examination Council. That publication announced revised interagency policies that, among other things, established the Sensitivity to Market Risk component rating (the "S" rating). TB 13a provides quantitative guidelines for an initial assessment of an institution's level of interest rate risk. Examiners have broad discretion in implementing those guidelines. It also provides guidelines concerning the factors examiners consider in assessing the quality of an institution's risk management systems and procedures.
Liquidity. On March 14, 2001, the OTS announced an interim rule eliminating the requirement that thrifts maintain an average daily balance of liquid assets of at least 4% of their liquidity base. On an interim basis, the OTS will rely on the general requirement under existing regulations that thrifts must maintain sufficient liquidity to ensure safe and sound operations. The OTS has invited comments on whether it should provide further guidance on the safety and soundness requirement.
Supervision. The adoption of FDICIA in 1991 subjected the banking and thrift industries to heightened regulation and supervision. FDICIA made a number of reforms addressing the safety and soundness of the deposit insurance system, supervision of domestic and foreign depository institutions and improvement of accounting standards. FDICIA also limited deposit insurance coverage, implemented changes in consumer protection laws and called for least-cost resolution and prompt corrective action with regard to troubled institutions.
Pursuant to FDICIA, the federal banking agencies promulgated regulations which may affect the operations of ASB and its holding companies. Such regulations address, for example, standards for safety and soundness, real estate lending, accounting and reporting, transactions with affiliates, and loans to insiders.
Prompt corrective action. FDICIA establishes a statutory framework that is triggered by the capital level of a savings association and subjects it to progressively more stringent restrictions and supervision as capital levels decline. The OTS rules implement the system of prompt corrective action. In particular, the rules define the relevant capital measures for the categories of "well capitalized", "adequately capitalized", "undercapitalized", "significantly undercapitalized" and "critically undercapitalized."
A savings association that is "undercapitalized" or "significantly undercapitalized" is subject to additional mandatory supervisory actions and a number of discretionary actions if the OTS determines that any of the actions is necessary to resolve the problems of the association at the least possible long-term cost to the SAIF. A savings association that is "critically undercapitalized" must be placed in conservatorship or receivership within 90 days, unless the OTS and the FDIC concur that other action would be more appropriate.
Interest rates. FDIC regulations restrict the ability of financial institutions that are not "well capitalized" to offer interest rates on deposits that are significantly higher than the rates offered by competing institutions. As of December 31, 2000, ASB was "well capitalized" and thus not subject to these interest rate restrictions.
Qualified thrift lender test. FDICIA amended the QTL test provisions of FIRREA by reducing the percentage of assets thrifts must maintain in "qualified thrift investments" from 70% to 65%, and changing the computation period to require that the percentage be reached on a monthly average basis in nine out of the previous 12 months. The 1997 Omnibus Appropriations Act expanded the types of loans that constitute "qualified thrift investments" from the traditional category of housing-related loans to include small business loans, education loans, loans made through credit card accounts, as well as a basket of other consumer loans and certain other types of assets not to exceed 20% of total assets. Savings associations that fail to satisfy the QTL test by not holding the required percentage of "qualified thrift investments" are subject to various penalties, including limitations on their activities. Failure to satisfy the QTL test would also bring into operation restrictions on the activities that may be engaged in by HEI, HEIDI and their other subsidiaries and could effectively result in the required divestiture of ASB. At all times during 2000, ASB was in compliance with the QTL test. See "Holding company regulation."
Federal Home Loan Bank System. ASB is a member of the FHLB System which consists of 12 regional FHLBs. The FHLB System provides a central credit facility for member institutions. Historically, the FHLBs have served as the central liquidity facilities for savings associations and sources of long-term funds for financing housing. As a consequence of the Gramm-Leach-Bliley Act, the requirement that FHLB members have at least 10% of their assets in residential mortgage loans has been eliminated for so-called community financial institutions (i.e., financial institutions with assets of less than $500 million), and federal home loan banks have been authorized to act as sources of long-term funds for such community financial institutions for loans to small businesses, small farms and small agribusinesses. Because ASB is not a community financial institution, long-term advances to ASB may only be made for the purpose of providing funds for financing residential housing. At such time as an advance is made to ASB or renewed, it must be secured by collateral from one of the following categories: (1) fully disbursed, whole first mortgages on improved residential property, or securities representing a whole interest in such mortgages; (2) securities issued, insured or guaranteed by the U.S. Government or any agency thereof; (3) FHLB deposits; and (4) other real estate-related collateral that has a readily ascertainable value and with respect to which a security
interest can be perfected. The aggregate amount of outstanding advances secured by such other real estate-related collateral may not exceed 30% of the member's capital.
ASB, as a member of the FHLB of Seattle, is required to own shares of capital stock in the FHLB of Seattle in an amount equal to the greater of 1% of ASB's aggregate unpaid residential loan principal at the beginning of each year, 0.3% of total assets or 5% of FHLB advances outstanding. However, as a result of the Gramm-Leach-Bliley Act, each regional FHLB is required to formulate and submit for Federal Housing Finance Board (Board) approval a plan to meet new minimum capital standards to be promulgated by the Board. The Board issued the final regulations establishing the new minimum capital standards on January 30, 2001. As mandated by Gramm-Leach-Bliley, these regulations require each FHLB to maintain a minimum total capital leverage ratio of 5% of total assets and include risk-based capital standards requiring each FHLB to maintain permanent capital in an amount sufficient to meet credit risk and market risk. Each FHLB has until October 29, 2001 to submit for Board approval a plan to meet these new minimum capital standards. Until the plan to be submitted by the FHLB of Seattle has been approved, ASB will be required to continue to own shares of capital stock in the FHLB of Seattle in accordance with the percentages specified above. After the plan is approved, ASB's obligation to own shares of capital stock in the FHLB of Seattle will be governed by the plan. Because of the uncertainty resulting from prospective admission to the FHLB System of community financial institutions and the new purposes for which these community financial institutions are permitted to obtain advances from FHLB regional banks, as well as because the FHLB of Seattle has not yet formulated its plan to satisfy the new minimum capital standards, it cannot be known at this time what impact the ultimate plan formulated by the FHLB of Seattle and approved by the Board might have on ASB.
Community Reinvestment. In 1977, Congress enacted the Community Reinvestment Act (CRA) to ensure that banks and thrifts help meet the credit needs of their communities, including low- and moderate-income areas, consistent with safe and sound lending practices. The OTS will consider ASB's CRA record in evaluating an application for a new deposit facility, including the establishment of a branch, the relocation of a branch or office, or the acquisition of an interest in another bank or thrift. ASB received a CRA rating of "outstanding" from the OTS in December 1997 and such rating was reaffirmed in March 2000.
The Gramm-Leach-Bliley Act included a so-called "sunshine amendment" to the CRA which requires, among other things, the disclosure of loans and other payments made after November 12, 1999 to community groups by financial institutions to satisfy the CRA. The Act directs the regulatory agencies, including the FDIC and the OTS, to prescribe procedures designed to ensure and monitor compliance with the "sunshine amendment." The FDIC and OTS issued final rules implementing these provisions of the Act, effective April 1, 2001. ASB is currently assessing the burden imposed by these new rules, but does not believe that the related compliance costs will be significant.
Other laws. ASB is subject to federal and state consumer protection laws which affect lending activities, such as the Truth-in-Lending Law, the Truth in Savings Act, the Equal Credit Opportunity Act, the Real Estate Settlement Procedures Act and several federal and state financial privacy acts. These laws may provide for substantial penalties in the event of noncompliance. Management of ASB believes that its lending activities are in compliance with these laws and regulations.
In August 1996, federal legislation was enacted that repealed the percentage of taxable income method of tax accounting for bad debt reserves used by ASB and other "large" thrift institutions. In place of this bad debt reserve method, ASB is required to use the specific charge-off method used by most other businesses. These rules are generally effective for taxable years beginning after 1995. The related transaction rules eliminate the potential recapture of federal income tax deductions arising from the bad debt reserve created prior to 1988. Only post-1987 reserve net additions are subject to recapture into taxable income ratably over a six-year period, beginning in 1997. As of December 31, 1996, ASB had a deferred tax liability of approximately $4.8 million for its post-1987 reserve.
Environmental regulation
HEI and its subsidiaries are subject to federal and state statutes and governmental regulations pertaining to water quality, air quality and other environmental factors.
Water quality controls. As part of the process of generating electricity, water used for condenser cooling of the electric utility subsidiaries' steam electric generating stations is discharged into ocean waters or into underground injection wells. The subsidiaries are periodically required to obtain permits from the DOH in order to be allowed to discharge the water, including obtaining permit renewals for existing facilities and new permits for new facilities. The electric utility subsidiaries must obtain National Pollutant Discharge Elimination System permits from the DOH to allow wastewater and storm water discharges into state waters for their coastal generating stations and Underground Injection Control (UIC) permits for wastewater discharge to underground injection wells for one MECO facility and several HELCO facilities.
The Federal Oil Pollution Act of 1990 (OPA) governs actual or threatened oil releases in navigable U.S. waters (inland waters and up to three miles offshore) and waters of the U.S. exclusive economic zone (up to 200 miles to sea from the shoreline). Responsible parties under OPA are jointly, severally and strictly liable for oil removal costs incurred by the federal government or the state and damages to natural resources and real or personal property. Responsible parties include vessel owners and operators. OPA imposes fines and jail terms ranging in severity depending on how the release was caused. OPA also requires that responsible parties submit certificates of financial responsibility sufficient to meet the responsible party's maximum limited liability. Under the terms of the agreement for the sale of YB, HEI and TOOTS have certain indemnity obligations, including obligations with respect to the Honolulu Harbor investigation (see Note 3 to HEI's Consolidated Financial Statements) and certain environmental obligations arising from conditions existing prior to the sale of YB.
In April 1997, HECO, on behalf of HELCO, notified the DOH that it became aware that industrial oily wastewater was discharging into HELCO's Waimea facility's dry well system in noncompliance with the facility's UIC permit. The discharge of oily wastewater was stopped and, in May 1997, a written incident report was submitted to the DOH. The DOH issued a Notice of Apparent Violation. The well was cleaned and, in January 1998, the DOH issued an NOV imposing a civil penalty fine on HELCO of $36,000, which HELCO paid. The DOH then closed this case. In January 1999, however, oil was re-discovered in the dry well and the DOH was notified. The reappearance of oil in the well is believed to be related to seepage of residual subsurface oil into the well due to heavy rainfall. The well was cleaned out and is being monitored. HECO, on behalf of HELCO, submitted a status report to the DOH in February 1999 and no further action by the DOH is expected.
In September 1999, the EPA conducted unannounced National Pollutant Discharge Elimination System permit compliance inspections at HECO's Waiau and Honolulu generating stations. The resulting compliance inspection report issued by the EPA on December 22, 1999 cited procedural deficiencies in HECO's self-monitoring program. HECO submitted a response to the EPA's findings on January 27, 2000 and HECO has addressed the cited deficiencies. In September 2000, HECO and the EPA signed consent agreements under which HECO was required to pay $200,000 in penalties. The consent agreements were published in the Federal Register for public comment on October 23, 2000. Having received no significant comments, the EPA signed the Final Order on December 15, 2000. HECO paid the fines in the first quarter of 2001.
By letter dated February 13, 2001, the DOH disapproved HELCO's current UIC permit renewal application for the Keahole power plant. The disapproval was based on purported inaccuracies in the application, including certain operations that the DOH considers to be related to the EPA's NOV regarding pre-PSD construction. Alternative permitting options are being investigated with the DOH to provide interim regulatory coverage for the existing injection wells until such time as other air permit and land use issues can be resolved.
Air quality controls. The generation stations of the utility subsidiaries operate under air pollution control permits issued by the DOH and, in a limited number of cases, by the EPA. The entire electric utility industry is affected by the 1990 Amendments to the Clean Air Act. Hawaii utilities may be affected by the air toxics provisions (Title III) when the Maximum Allowable Control Technology (MACT) emission standards are proposed for generation units. Hawaii utilities are affected by the operating permit provisions (Title V). Title V permits have been issued for Honolulu, Maalaea, Lanai City, Miki Basin, Hill-Kanoelehua, Shipman, Kahului and Palaau Power Plants. Several other Title V permits are still pending.
Initial source tests in December 1989 and subsequent retesting for HELCO's CT-2 generating unit indicated particulate emissions above permitted levels. Following analysis, HECO (on behalf of HELCO) proposed in November 1990 that the permitted particulate limit be increased. By letter dated April 13, 1992, the EPA concurred that revision is warranted. The DOH issued an NOV on August 17, 1992 for the noncomplying emissions. HECO and HELCO worked with the DOH, the manufacturer and a consultant to determine an appropriate new emission limit for particulates as well as oxides of nitrogen. In accordance with discussions with the DOH, CT-2 continues to operate pending issuance of a revised permit. On January 20, 1998, the DOH issued an NOV to HELCO for noncomplying emissions from March 16, 1993 through December 20, 1994 and from March 22, 1996 through November 6, 1997. HELCO paid fines totaling $22,100 in the settlement of both the 1992 and 1998 NOVs. Unit CT-2 is currently operating within all permit limits by virtue of its having passed its November 1997, November 1998, July 1999 and August 2000 source tests. The DOH has prepared a draft permit for CT-2 with revised limits for emissions of particulates and nitrogen oxides and will be scheduling a public hearing.
For other air permit issues relating to HELCO, see the previous discussion under "HELCO power situation--PSD permit."
On July 16, 1997, the EPA adopted national ambient air quality standards for certain particulate matter and ozone. The new standards were challenged by several states and private parties in the U.S. Court of Appeals for the District of Columbia and that court issued rulings adverse to the EPA in May 1999. The EPA's request for a rehearing was denied by the D.C. Circuit Court in October 1999. In January 2000, the EPA filed an appeal to the U.S. Court. In February 2001, the U.S. Supreme Court issued a ruling upholding in part and reversing in part the decision of the D.C. Circuit Court. The case was remanded to the D.C. Circuit Court for further proceedings. The eventual outcome of this suit and the ultimate impact on the Company of whatever standards are ultimately implemented by the EPA, cannot be predicted at this time.
Hazardous waste and toxic substances controls. The operations of the electric utility and former freight transportation subsidiaries are subject to regulations promulgated by the EPA to implement the provisions of the Resource Conservation and Recovery Act (RCRA), the Superfund Amendments and Reauthorization Act and the Toxic Substances Control Act. The DOH has been working towards obtaining primacy to operate state-authorized RCRA (hazardous waste) programs. The DOH finalized RCRA administrative rules in mid-June 1994, with the rules becoming effective on June 18, 1994. The DOH's state contingency plan and the State of Hawaii Environmental Response Law (ERL) rules were adopted in August 1995.
Whether on a federal or state level, RCRA provisions identify certain wastes as hazardous and set forth measures that must be taken in the transportation, storage, treatment and disposal of these wastes. Some of the wastes generated at steam electric generating stations possess characteristics which make them subject to these EPA regulations. Since October 1986, all HECO generating stations have operated RCRA-exempt wastewater treatment units to treat potentially regulated wastes from occasional boiler waterside and fireside cleaning operations. Steam generating stations at MECO and HELCO also operate similar RCRA-exempt wastewater management systems. In March 1990, the EPA changed RCRA testing requirements used to characterize a waste as hazardous which potentially affected the hazardous waste generating status of all facilities. The electric utilities' waste
characterization programs continue to demonstrate the adequacy of the existing treatment systems. Waste recharacterization studies indicate that treatment facility wastestreams are nonhazardous.
The EPA issued a final regulatory determination on May 22, 2000, concluding that fossil fuel combustion wastes do not warrant regulation as hazardous under Subtitle C of RCRA. This determination retains (or maintains) the existing hazardous waste exemption for these types of wastes. It also allows for more flexibility in waste management strategies.
On September 30, 1999, HECO received two NOVs from EPA Region IX for alleged improper storage of lead paint chips, waste paints, thinners, and resins at the Kahe and Waiau power plants. Although the quantity of waste was low, penalties were assessed for multiple days of storage beyond allowable RCRA time limits. Monetary penalties in the amounts of $54,725 for Kahe and $61,325 for Waiau were agreed to in Consent Agreement/Final Orders (CA/FO) and paid by HECO in December 1999.
By letter dated September 30, 1999, HECO received a NOV from the DOH for alleged storage of hazardous waste in the sludge drying bed at Kahe power plant without a permit. Previously, in March 1999, HECO had voluntarily notified the EPA and the DOH upon discovering unusually high levels of selenium in the drying bed. The source of the selenium was unexplained, as all sludge had been tested and documented as nonhazardous prior to being placed into the drying bed. Following notification of the EPA and the DOH, HECO initiated an investigation to characterize the site and to determine the source of the contamination, and submitted a proposed corrective action plan to the DOH in April 1999. The source of the selenium remains unknown. The NOV identified the DOH's desired revisions to the corrective action plan. Revisions were completed and submitted to the DOH in October 1999. In November 1999, HECO received written approval from the DOH to implement the corrective action plan. HECO completed the cleanup of the drying bed on January 14, 2000 and submitted a corrective action report, which was approved by the DOH. By letter dated May 17, 2000, the DOH stated that HECO had completed its corrective action requirements. The DOH imposed no monetary penalty. To minimize any recurrence, HECO also prepared a sludge management plan that was approved by the DOH.
RCRA underground storage tank (UST) regulations require all facilities with USTs used to store petroleum products to comply with costly leak detection, spill prevention and new tank standard retrofit requirements within a specified compliance period based on tank age. UST regulations required that all UST systems comply with new tank standards by December 22, 1998 or be closed. All HECO, HELCO and MECO USTs currently meet these standards and continue in operation.
The DOH conducted UST inspections at HELCO's Kona and Kanoelehua operations centers (May 1998); MECO's Kahului T&D baseyard (June 1998); and HECO's Waiau power plant (August 1998), Koolau Baseyard (August 1998) and Kahe power plant (September 1998). Both HELCO facilities were found to be operating in compliance with UST regulations. The DOH subsequently issued NOVs for alleged deficiencies in compliance with UST requirements for MECO's and HECO's facilities. MECO received an NOV in July 1998 for the Kahului baseyard. MECO completed corrective measures and submitted certifications of compliance status to the DOH in March 1999. The DOH issued NOVs to HECO for the Koolau and Kahe facilities in December 1998, and for the Waiau facility in January 1999. HECO completed corrective measures and submitted certifications of compliance status to the DOH for Koolau and Kahe in January 1999, and Waiau in February 1999. No additional enforcement actions by the DOH are anticipated at this time.
In removing an existing UST system during a tank replacement project in October 1999, HELCO found petroleum contamination beneath the fuel dispenser system at HELCO's Kanoelehua Baseyard. HELCO submitted a release notification letter to the DOH on October 20, 1999. HELCO excavated and disposed of approximately 350 cubic yards of clean soil and 83 cubic yards of impacted soil at the West Hawaii Sanitary Landfill. HELCO submitted a UST closure report to the DOH on January 14, 2000. There remains some subsurface contamination. The DOH subsequently issued a letter in January 2000 requiring the further delineation of contaminated soils and
determination of the need for a ground water monitoring well. HELCO submitted a Short Term Release Report to the DOH in April 2000. HELCO conducted additional soil sampling and installed a groundwater monitoring well per DOH requirements. Sample results indicated that the DOH cleanup levels had been met. HELCO submitted a report and a request for "No Further Action" to the DOH on August 8, 2000.
The Emergency Planning and Community Right-to-Know Act under Superfund Amendments and Reauthorization Act Title III requires HECO, MECO and HELCO to report potentially hazardous chemicals present in their facilities in order to provide the public with information on these chemicals so that emergency procedures can be established to protect the public in the event of hazardous chemical releases. All HECO, MECO and HELCO facilities are in compliance with applicable annual reporting requirements to the State Emergency Planning Commission, the Local Emergency Planning Committee and local fire departments. In September 1995, the EPA published a notice of proposed rule making to expand the types of industries required to file annual Toxics Release Inventory reports (i.e., to report facility releases of toxic chemicals). Effective January 1, 1998, the final rule included the steam electric category that was previously exempt from Toxics Release Inventory reporting requirements. The electric utilities implemented actions to comply with reporting requirements. HECO, MECO and HELCO filed release reports for 1998 and 1999 with the EPA before the required deadlines.
The Toxic Substances Control Act regulations specify procedures for the handling and disposal of polychlorinated biphenyls (PCB), a compound found in transformer and capacitor dielectric fluids. HECO and its subsidiaries instituted procedures to monitor compliance with these regulations. In addition, HECO implemented a program to identify and replace PCB transformers and capacitors in the HECO system. All HECO, MECO and HELCO facilities are currently believed to be in compliance with PCB regulations. In 1998, the EPA published the final rule on the PCB disposal amendments. The rule provides flexibility in selecting disposal technologies for PCB wastes and expands the list of available decontamination procedures; provides less burdensome mechanisms for obtaining EPA approval for a variety of activities; clarifies and/or modifies certain provisions where implementation questions have arisen; modifies the requirements regarding the use and disposal of PCB equipment; and addresses outstanding issues associated with the notification and manifesting of PCB wastes and changes in the operation of commercial storage facilities. This rule streamlines procedures and focuses on self-implementing requirements and the elimination of duplication. Some activities currently requiring PCB disposal approvals will no longer require those approvals. The EPA believes that this rule will result in substantial cost savings to the regulated community while protecting against unreasonable risk of injury to health and the environment from exposure to PCBs.
The Hawaii Environmental Response Law (ERL), as amended, governs releases of hazardous substances, including oil, in areas within the state's jurisdiction. Responsible parties under the ERL are jointly, severally and strictly liable for a release of a hazardous substance into the environment. Responsible parties include owners or operators of a facility where a hazardous substance comes to be located and any person who at the time of disposal of the hazardous substance owned or operated any facility at which such hazardous substance was disposed. The DOH issued final rules (or State Contingency Plan) implementing the ERL on August 17, 1995. Potential exposure to liability under the ERL/State Contingency Plan is associated with the release of regulated substances, including oil, to the environment.
For information regarding the investigation of the Honolulu Harbor area, see Note 3 to HEI's Consolidated Financial Statements and Note 11 to HECO's Consolidated Financial Statements.
ASB may be subject to the provisions of Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) and regulations promulgated thereunder. CERCLA imposes liability for environmental cleanup costs on certain categories of responsible parties, including the current owner and operator of a facility and prior owners or operators who owned or operated the facility at the time the hazardous substances were released or disposed. CERCLA exempts persons whose ownership in a facility is held primarily to protect a security interest, provided that they do not participate in the management of the facility. Although there may be some risk of liability for ASB for
environmental cleanup costs, the Company believes the risk is not as great for ASB, which specializes in residential lending, as it may be for other depository institutions which have a larger portfolio of commercial loans.
For information about environmental conditions at the power plant in Guam operated by HEI Power Corp. Guam, see the "International power" section in HEI's MD&A.
Securities ratings
As of March 12, 2001, the Standard & Poor's (S&P) and Moody's Investors Service's (Moody's) ratings of HEI's and HECO's securities were as follows:
Commercial paper........................................... A-2 P-2 Medium-term notes.......................................... BBB Baa2 HEI-obligated preferred securities of trust subsidiary..... BB+ baa3 HECO Commercial paper........................................... A-2 P-2 Revenue bonds (insured).................................... AAA Aaa Revenue bonds (noninsured)................................. BBB+ Baa1 HECO-obligated preferred securities of trust subsidiaries.. BBB- baa1 Cumulative preferred stock (selected series)............... nr baa2 |
nr Not rated.
The above ratings are not recommendations to buy, sell or hold any securities; such ratings may be subject to revision or withdrawal at any time by the rating agencies; and each rating should be evaluated independently of any other rating. These ratings reflect only the view of the applicable rating agency at the time the ratings are issued, from whom an explanation of the significance of such ratings may be obtained. There is no assurance that any such credit rating will remain in effect for any given period of time or that such rating will not be lowered, suspended or withdrawn entirely by the applicable rating agency if, in such rating agency's judgment, circumstances so warrant. Any such lowering, suspension or withdrawal of any rating may have an adverse effect on the market price or marketability of HEI's and/or HECO's securities, which could increase the cost of capital of HEI and HECO. Neither HEI nor HECO management can predict future rating agency actions or their effects on the future cost of capital of HEI or HECO.
The revenue bonds in the above table are issued by the Department of Budget and Finance of the State of Hawaii for the benefit of HECO and its subsidiaries, but the source of their repayment are the unsecured obligations of HECO and its subsidiaries under loan agreements and notes issued to the Department, including HECO's guarantees of its subsidiaries' obligations. The payment of principal and interest due on several series of these revenue bonds are insured either by MBIA Insurance Corporation or by Ambac Assurance Corporation, and the ratings of those bonds are based on the ratings of the obligations of the bond insurer rather than HECO.
On March 7, 2000, S&P affirmed the ratings for HEI and HECO and, at the same time, revised its credit outlook on HEI and HECO from stable to negative, citing the expanding investment in foreign independent power projects which weakens the company's consolidated business risk profile.
Research and development
HECO and its subsidiaries expensed approximately $3.0 million, $2.4 million and $2.2 million in 2000, 1999 and 1998, respectively, for research and development. Contributions to the Electric Power Research Institute accounted for most of the expenses. There were also expenses in the areas of energy conservation, environmental and emissions controls, and expenses for studies relative to technologies that are applicable to HECO, its subsidiaries and their customers.
Employee relations
At December 31, 2000, the Company had 3,126 full-time employees, compared with 3,262 at December 31, 1999. At December 31, 2000 and 1999, HEI had 49 and 51 full-time employees, respectively.
HECO
At December 31, 2000, HECO and its subsidiaries had 1,941 full-time employees, compared with 1,975 at December 31, 1999. See the "Collective bargaining agreements" section in HECO's MDA.
Other
The employees of HEI and its direct and indirect subsidiaries are not covered by any collective bargaining agreement, except as referred to above.
ITEM 2. PROPERTIES
HEI leases office space from a nonaffiliated lessor in downtown Honolulu and this lease expires on March 31, 2006. HEI also subleases office space from HECO in downtown Honolulu. The properties of HEI's subsidiaries are as follows:
Electric utility
See page 6 for the "Generation statistics" of HECO and its subsidiaries, including generating and firm purchased capability, reserve margin and annual load factor.
The electric utilities' overhead and underground transmission and distribution systems (with the exception of substation buildings and contents) have a replacement value roughly estimated at $2 billion and are uninsured because the amount of transmission and distribution system insurance available is limited and the premiums are extremely high.
HECO owns and operates three generating plants on the island of Oahu at Honolulu, Waiau and Kahe, with an aggregate generating capability of 1,263 MW at December 31, 2000. The three plants are situated on HECO-owned land having a combined area of 535 acres and one 3 acre parcel of land under a lease expiring December 31, 2018. In addition, HECO owns a total of 126 acres of land on which are located substations, transformer vaults, distribution baseyards and the Kalaeloa cogeneration facility.
Electric lines are located over or under public and nonpublic properties. Most of HECO's leases, easements and licenses have been recorded.
HECO owns overhead transmission lines, overhead distribution lines, underground cables, poles (fully owned or jointly owned) and steel or aluminum high voltage transmission towers. The transmission system operates at 46,000 and 138,000 volts. The total capacity of HECO's transmission and distribution substations was 6,520,500 kilovoltamperes at December 31, 2000.
HECO owns buildings and approximately 11.5 acres of land located in Honolulu which houses its operating, engineering and information services departments and a warehousing center. It also leases an office building and certain office spaces in Honolulu. The lease for the office building expires in November 2004, with an option to further extend the lease to November 2014. The leases for certain office spaces expire on various dates through November 30, 2007 with options to extend to various dates through November 30, 2017.
HECO owns 19.2 acres of land at Barbers Point used to situate fuel oil storage facilities with a combined capacity of 970,700 barrels. HECO also owns fuel oil tanks at each of its plant sites with a total maximum usable capacity of 844,600 barrels.
MECO owns and operates two generating plants on the island of Maui, at Kahului and Maalaea, with an aggregate capability of 234.1 MW as of December 31, 2000. The plants are situated on MECO-owned land having a combined area of 28.6 acres. MECO also owns fuel oil storage facilities at these sites with a total maximum usable capacity of 176,355 barrels. MECO also owns 65.7 acres of undeveloped land at Waena.
MECO's administrative offices and engineering and distribution departments are located on 9.1 acres of MECO-owned land in Kahului.
MECO also owns and operates smaller distribution systems, generation systems (with an aggregate capability of 22.5 MW as of December 31, 2000) and fuel storage facilities on the islands of Lanai and Molokai, primarily on land owned by MECO.
HELCO owns and operates five generating plants on the island of Hawaii. These plants at Hilo (2), Waimea, Kona and Puna have an aggregate generating capability of 153.4 MW as of December 31, 2000 (excluding two small run-of-river hydro units, four 1 MW dispersed generators and one small windfarm). The plants are situated on HELCO-owned land having a combined area of approximately 43 acres. HELCO also owns 6 acres of land in Kona, which is used for a baseyard, and it leases 4 acres of land for its baseyard in Hilo. The lease expires in 2030. The deeds to the sites located in Hilo contain certain restrictions which do not materially interfere with the use of the sites for public utility purposes. HELCO occupies 78 acres of land for the windfarm.
The properties of HELCO are subject to a first mortgage securing HELCO's outstanding first mortgage bonds, which amounted to $5 million as of December 31, 2000.
Savings bank
ASB owns its executive office building located in downtown Honolulu and land and an operations center in the Mililani Technology Park on Oahu.
The following table sets forth certain information with respect to branches owned and leased by ASB and its subsidiaries at December 31, 2000.
Number of branches
----------------------------------------------------
Owned Leased Total
--------------------------------------------------------------------------------
Oahu..................... 10 37 47
Maui..................... 3 4 7
Kauai.................... 3 3 6
Hawaii................... 2 5 7
Molokai.................. -- 1 1
----------------------------------------------------
18 50 68
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At December 31, 2000, the net book value of branches and office facilities is approximately $43 million. Of this amount, $36 million represents the net book value of the land and improvements for the branches and office facilities owned by ASB and $7 million represents the net book value of ASB's leasehold improvements. The leases expire on various dates from March 2001 through December 2029 and 25 of the leases have extension provisions.
International power
HEIPC leases office space in downtown Honolulu under a lease that expires on May 31, 2005. The HEIPC Group also operates generating units at a facility in Guam, and has a 75% interest in a joint venture which is constructing and will operate a 200 MW (net) coal-fired power plant in China. The HEIPC Group also leases office space in Beijing under a lease that expires on May 31, 2002. In March 2000, the HEIPC Group acquired an effective 46% interest in EAPRC, a Philippines holding company primarily engaged in the electric generation business in Manila and Cebu through its direct and indirect subsidiaries, using land and barge-based generating facilities, fired by
bunker fuel oil, with total installed capacity of approximately 390 MW. This investment in the Philippines was written off in December 2000. See Item 1, "Business--International power--HEI Power Corp."
ITEM 3. LEGAL PROCEEDINGS
Except as identified in "Item 1. Business," there are no known material pending legal proceedings to which HEI or any of its subsidiaries is a party or to which any of their property is subject. Certain HEI subsidiaries are involved in ordinary routine litigation incidental to their respective businesses.
Discontinued operations
See Note 16 to HEI's Consolidated Financial Statements at pages 47 to 48 of HEI's Annual Report.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
HEI and HECO:
During the fourth quarter of 2000, no matters were submitted to a vote of security holders of the Registrants.
EXECUTIVE OFFICERS OF THE REGISTRANT (HEI)
The following persons are, or may be deemed, executive officers of HEI. Their ages are given as of February 14, 2001 and their years of company service are given as of December 31, 2000. Officers are appointed to serve until the meeting of the HEI Board of Directors after the next Annual Meeting of Stockholders (which will occur on April 24, 2001) and/or until their successors have been appointed and qualified (or until their earlier resignation or removal). Company service includes service with an HEI subsidiary.
Business experience for
HEI Executive Officers past five years
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Robert F. Clarke, age 58
Chairman of the Board, President and Chief Executive Officer..................... 9/98 to date
President and Chief Executive Officer............................................ 1/91 to 8/98
Director ........................................................................ 4/89 to date
(Company service: 13 years)
T. Michael May, age 54
Senior Vice President and Director............................................... 9/95 to date
(Company service: 8 years)
Mr. May is also President and Chief Executive Officer of HECO.
Robert F. Mougeot, age 58
Financial Vice President, Treasurer and Chief Financial Officer.................. 11/00 to date
Financial Vice President and Chief Financial Officer............................. 4/89 to 11/00
(Company service: 12 years)
Peter C. Lewis, age 66
Vice President - Administration and Corporate Secretary.......................... 1/99 to date
Vice President - Administration.................................................. 10/89 to 12/98
(Company service: 32 years)
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Business experience for
HEI Executive Officers past five years
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(continued)
Charles F. Wall, age 61
Vice President and Corporate Information Officer.................................. 7/90 to date
(Company service: 10 years)
Andrew I. T. Chang, age 61
Vice President - Government Relations............................................ 4/91 to date
(Company service: 15 years)
Curtis Y. Harada, age 45
Controller....................................................................... 1/91 to date
(Company service: 11 years)
Wayne K. Minami, age 58
President and Chief Executive Officer, American Savings Bank, F.S.B.............. 1/87 to date
(Company service: 14 years)
|
HEI's executive officers, with the exception of Charles F. Wall and Andrew I. T. Chang, are also officers and/or directors of one or more of HEI's subsidiaries. Mr. Minami is deemed an executive officer of HEI for purposes of this Item under the definition of Rule 3b-7 of the SEC's General Rules and Regulations under the Securities Exchange Act of 1934.
There are no family relationships between any executive officer of HEI and any other executive officer or director of HEI, or any arrangement or understanding between any executive officer and any person pursuant to which the officer was selected.
PART II
ITEM 5. MARKET FOR REGISTRANTS' COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
HEI:
The information required by this item is incorporated herein by reference to pages 2, 47 (Note 14, "Regulatory restrictions on net assets") and 50 (Note 18, "Quarterly information (unaudited)") of HEI's Consolidated Financial Statements. Certain restrictions on dividends and other distributions of HEI are described in this report under "Item 1. Business--Regulation and other matters--Restrictions on dividends and other distributions." HEI's common stock is traded on the New York Stock Exchange and the total number of holders of record of HEI common stock as of March 12, 2001, was 17,214.
HEI has issued unregistered common stock during 2000 and 1999 pursuant to the HEI 1990 Nonemployee Director Stock Plan, amended effective April 27, 1999 (the Subsidiary Director Plan), the HEI 1999 Nonemployee Company Director Stock Grant Plan (the HEI Nonemployee Director Plan), the HECO Utility Group Team Incentive Plan and the HECO Utility Group Team Incentive Plan for Bargaining Unit Employees (collectively, the Team Incentive Plan). HEI also issued unregistered common stock during 1998 pursuant to the HEI 1990 Nonemployee Director Stock Plan and the Team Incentive Plan. Under the Subsidiary Director Plan, 60% of the annual retainer payable to nonemployee directors is paid in HEI common stock. Under the HEI Nonemployee Director Plan as amended in 1999, a stock grant of 300 shares of HEI common stock is granted to HEI nonemployee directors in addition to an annual retainer of $20,000. Under the Team Incentive Plan, eligible employees of HECO, MECO and HELCO receive awards of HEI common stock based on the attainment of performance goals by the respective companies.
In 2000, 1999 and 1998, under the director plans HEI issued 2,268, 2,004 and 4,736 shares of HEI common stock, respectively, in exchange for the retention of cash by HEI that would otherwise have been paid to the directors as retainers in the aggregate amounts of $84,000, $72,000 and $192,000, respectively, and 3,000 shares of HEI common stock in the aggregate amount of $111,000 in 2000 and $108,000 in 1999 to HEI directors in addition to the retainer. In addition, in 2000, 1999 and 1998, under the Team Incentive Plan HEI issued 73,552, 51,974 and 9,006 shares of HEI common stock, respectively, in exchange for cash received by HEI from the electric utility subsidiaries in the aggregate amounts of $2.2 million, $1.9 million and $0.4 million, respectively. HEI did not register the shares issued under the director stock plans since they did not involve a "sale" as defined under Section 2(3) of the Securities Act of 1933, as amended. Participation by nonemployee directors of HEI and subsidiaries in the director stock plans is mandatory and thus does not involve an investment decision. HEI did not register the shares issued under the Team Incentive Plan because their initial sales to HECO, MECO and HELCO were exempt as transactions not involving any public offering under Section 4(2) of the Securities Act of 1933, as amended, and because their subsequent award to eligible employees did not involve a "sale," as defined in Section 2(3) of the Securities Act of 1933, as amended. Awards of HEI common stock under the Team Incentive Plan are made to eligible employees on the basis of their attainment of performance goals established by their respective companies and no cash or other tangible or definable consideration is paid by such employees to their respective companies for the shares.
HECO:
The information required with respect to "Market information" and "holders" is not applicable. Since the corporate restructuring on July 1, 1983, all the common stock of HECO has been held solely by its parent, HEI, and is not publicly traded.
The dividends declared and paid on HECO's common stock for the four quarters of 2000 and 1999 were as follows:
Quarters ended 2000 1999
--------------------------------------------------------------------------------
March 31......................................... $13,952,000 $13,387,000
June 30.......................................... 17,794,000 12,810,000
September 30..................................... 18,011,000 14,419,000
December 31...................................... 18,765,000 15,236,000
|
The discussion of regulatory restrictions on distributions is incorporated herein by reference to page 32 (Note 12 to HECO's Consolidated Financial Statements, "Regulatory restrictions on distributions to parent") of HECO's Annual Report.
ITEM 6. SELECTED FINANCIAL DATA
HEI:
The information required by this item is incorporated herein by reference to page 2 of HEI's Annual Report.
HECO:
The information required by this item is incorporated herein by reference to page 2 of HECO's Annual Report.
ITEM 7. MANAGEMENTS' DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
HEI:
The information required by this item is set forth in HEI's MD&A, incorporated herein by reference to pages 3 to 15 of HEI's Annual Report.
HECO:
The information required by this item is set forth in HECO's MD&A, incorporated herein by reference to pages 3 to 9 of HECO's Annual Report.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
HEI:
The information required by this item is incorporated herein by reference to pages 16 to 19 of HEI's Annual Report.
HECO:
The information required by this item is incorporated herein by reference to pages 10 to 11 of HECO's Annual Report.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
HEI:
The information required by this item is incorporated herein by reference to pages 20 to 50 of HEI's Annual Report.
HECO:
The information required by this item is incorporated herein by reference to pages 12 to 42 of HECO's Annual Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
HEI and HECO:
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANTS
HEI:
Information for this item concerning the executive officers of HEI is set forth on pages 58 and 59 of this report. The list of current directors of HEI is incorporated herein by reference to page 51 of HEI's Annual Report. Information on the current directors' business experience and directorships is incorporated herein by reference to pages 4 to 6 of HEI's Proxy Statement, prepared for the Annual Meeting of Stockholders to be held on April 24, 2001 (HEI's 2001 Proxy Statement). Information on the remuneration of HEI Directors is incorporated herein by reference to page 9 of HEI's 2001 Proxy Statement.
HECO:
The following persons are, or may be deemed, executive officers of HECO. Their ages are given as of February 14, 2001 and their years of company service are given as of December 31, 2000. Officers are appointed to serve until the meeting of the HECO Board of Directors after the next HECO Annual Meeting (which will occur on April 24, 2001) and/or until their respective successors have been appointed and qualified (or until their earlier resignation or removal). Company service includes service with HECO affiliates.
Business experience for
HECO Executive Officers past five years
-----------------------------------------------------------------------------------------------------------------------
Robert F. Clarke, age 58
Chairman of the Board............................................................. 1/91 to date
(Company service: 13 years)
T. Michael May, age 54
President, Chief Executive Officer and Director................................... 9/95 to date
Chairman of the Board, MECO and HELCO............................................. 9/95 to date
(Company service: 8 years)
Jackie Mahi Erickson, age 60
Vice President - Customer Operations & General Counsel............................ 10/98 to date
Vice President - General Counsel & Government Relations........................... 9/95 to 9/98
(Company service: 19 years)
Charles M. Freedman, age 54
Vice President - Corporate Relations.............................................. 3/98 to date
Vice President - Corporate Excellence............................................. 7/95 to 2/98
(Company service: 10 years)
Edward Y. Hirata, age 67
Vice President - Regulatory Affairs & Government Relations........................ 10/98 to date
Vice President - Regulatory Affairs............................................... 7/95 to 9/98
(Company service: 14 years)
Thomas L. Joaquin, age 57
Vice President - Power Supply..................................................... 7/95 to date
(Company service: 26 years)
Chris M. Shirai, age 53
Vice President - Energy Delivery.................................................. 12/99 to date
Manager, Engineering Department................................................... 7/96 to 11/99
Manager, Planning and Analysis Department......................................... 7/95 to 6/96
(Company service: 31 years)
Richard A. von Gnechten, age 37
Financial Vice President......................................................... 12/00 to date
Assistant Treasurer and Manager, Financial Services.............................. 5/00 to 11/00
Manager, Customer Service........................................................ 12/96 to 5/00
Director, Strategic Initiatives.................................................. 3/94 to 11/96
(Company service: 9 years)
|
Business experience for
HECO Executive Officers past five years
----------------------------------------------------------------------------------------------------------------------
(continued)
Patricia U. Wong, age 44
Vice President - Corporate Excellence............................................ 3/98 to date
Manager, Environmental Department................................................ 10/96 to 2/98
Associate General Counsel, Legal Department...................................... 5/90 to 9/96
(Company service: 10 years)
Ernest T. Shiraki, age 53
Controller ...................................................................... 5/89 to date
(Company service: 31 years)
Lorie Ann K.K.K. Nagata, age 42
Treasurer......................................................................... 12/00 to date
Manager, Management Accounting.................................................... 5/98 to date
Assistant Treasurer............................................................... 3/97 to 11/00
Director, Management Accounting................................................... 12/94 to 4/98
(Company service: 18 years)
Molly M. Egged, age 50
Secretary........................................................................ 10/89 to date
(Company service: 20 years)
|
HECO's executive officers, with the exception of Robert F. Clarke, Jackie Mahi Erickson, Charles M. Freedman, Thomas L. Joaquin, Chris M. Shirai and Patricia U. Wong, are also officers and/or directors of MECO or HELCO. HECO executive officers Robert F. Clarke, T. Michael May and Molly M. Egged are also officers of one or more of the affiliated nonutility HEI companies.
There are no family relationships between any executive officer or director of HECO and any other executive officer or director of HECO, or any arrangement or understanding between any director and any person pursuant to which the director was selected.
The list of current directors of HECO is incorporated herein by reference to page 44 of HECO's Annual Report. Information on the business experience and directorships of HECO directors who are also directors of HEI is incorporated herein by reference to pages 4 through 6 of HEI's 2001 Proxy Statement.
Paul C. Yuen and Anne M. Takabuki, ages 72 and 44, as of February 14, 2001, respectively, are the only outside directors of HECO who are not directors of HEI. Dr. Yuen, who was elected a director of HECO in April 1993, is retired Dean of the College of Engineering at the University of Hawaii-Manoa. In the past five years, he has held various administrative positions at the University of Hawaii-Manoa. He also serves on the board of directors of Cyanotech Corporation. Ms. Takabuki was elected a director of HECO in April 1997 and is Vice President/Secretary and General Counsel of Wailea Golf Resort, Inc. She also serves on the boards of MECO, Wailea Golf Resort, Inc. and its affiliated companies, MAGBA, Inc. and Kapiolani Health Foundation.
ITEM 11. EXECUTIVE COMPENSATION
HEI:
The information required under this item for HEI is incorporated by reference to pages 9 to 10, 12 to 18, and 27 to 28 of HEI's 2001 Proxy Statement.
HECO:
Summary compensation table
The following summary compensation table shows the annual and long-term compensation of the chief executive officer of HECO and the five other most highly compensated executive officers of HECO (collectively, the HECO Named Executive Officers) who served at the end of 2000 (other than Mr. Oyer, who retired in November 2000). All compensation amounts presented for T. Michael May are the same amounts presented in HEI's 2001 Proxy Statement.
SUMMARY COMPENSATION TABLE
Long-Term
Annual Compensation Compensation
-------------------------------- ------------------------
Awards Payouts
Other ----------- ---------- All
Annual Securities Other
Compen- Underlying LTIP Compen-
Salary Bonus(2) sation(3) Options(4) Payouts(5) sation(6)
Name and Principal Position(1) Year ($) ($) ($) (#) ($) ($)
----------------------------------------------------------------------------------------------------------------------
T. Michael May ................. 2000 $408,000 $ 62,971 0 20,000 $ -- $17,117
President and Chief 1999 372,000 211,652 0 20,000 41,256 14,400
Executive Officer 1998 325,000 92,425 0 12,000 55,973 11,612
Paul A. Oyer.................... 2000 198,000 40,365 21,575 0 na 13,591
Financial Vice President 1999 209,000 42,614 19,546 3,000 na 13,204
and Treasurer 1998 205,000 33,760 17,707 0 na 11,920
Jackie Mahi Erickson............ 2000 175,000 44,803 0 0 na 12,012
Vice President-Customer 1999 163,000 43,666 0 3,000 na 10,298
Operations/General Counsel 1998 150,000 30,884 0 0 na 8,722
Edward Y. Hirata................ 2000 159,000 32,388 0 0 na 19,643
Vice President-Regulatory 1999 154,000 31,266 0 3,000 na 17,481
Affairs & Gov't Relations 1998 150,000 30,844 0 0 na 15,651
Thomas L. Joaquin............... 2000 189,000 39,880 0 0 na 10,126
Vice President- 1999 179,000 39,481 0 3,000 na 8,837
Power Supply 1998 172,000 35,740 0 0 na 7,825
Chris M. Shirai................. 2000 147,000 40,055 0 0 na 5,690
Vice President-Energy 1999 110,000 5,081 0 0 na 3,930
Delivery 1998 104,000 3,692 0 0 na 3,433
|
na Not applicable (not participants in the plan).
(1) Mr. Oyer, Financial Vice President and Treasurer, retired effective November 30, 2000. Mr. von Gnechten became Financial Vice President effective December 1, 2000 and Ms. Nagata became Treasurer effective December 1, 2000.
(2) The HECO Named Executive Officers are eligible for an incentive award under the Company's annual Executive Incentive Compensation Plan (EICP). EICP bonus payouts are reflected as compensation for the year earned.
(3) Amounts for Mr. Oyer represent above-market earnings on deferred compensation.
(4) Options granted include dividend equivalents.
(5) Long-Term Incentive Plan (LTIP) payouts to participating officers (only Mr. May through 2000) are determined in the second quarter of each year for the three-year cycle ending on December 31 of the previous calendar year. If there is a payout, the amount is reflected as LTIP compensation in the table for the previous year. In April 1999, LTIP payouts were made for the 1996-1998 performance cycle and are reflected as LTIP compensation in the table for 1998. In April 2000, LTIP payouts were made for the 1997-1999 performance cycle and are reflected as LTIP compensation in the table for 1999. The determination of whether there will be a payout under the 1998-2000 LTIP will not be made until the second quarter of 2001.
(6) Represents amounts accrued each year by the Company for certain preretirement death benefits provided to the named executive officers. Additional information is incorporated by reference to "Other Compensation Plans" on page 22 of HEI's 2001 Proxy Statement.
Option grants in last fiscal year
A stock option was granted in 2000 to only one of the HECO Named Executive Officers, Mr. May. Additional information required under this item is incorporated by reference on page 14 of HEI's 2001 Proxy Statement.
Aggregated option exercises and fiscal yearend option values
The following table shows that no stock options, including dividend equivalents, were exercised by the HECO Named Executive Officers in 2000. Also shown is the number of securities underlying unexercised options and the value of unexercised in the money options, including dividend equivalents, at the end of 2000. HEI, under the Stock Option and Incentive Plan, granted dividend equivalents to all HECO Named Executive Officers as part of their 1999 and 1997 grants and to Mr. May as part of his 2000, 1998 and 1996 grants.
Dividend equivalents permit a participant who exercises a stock option to obtain at no additional cost, in addition to the option shares, the amount of dividends declared on the number of shares of common stock with respect to which the option is exercised during the period between the grant and the exercise of the option throughout the four-year vesting period. Dividend equivalents are computed as of each dividend record date throughout the four-year vesting period (vesting in equal installments) which begins on the date of grant, both with respect to the number of shares underlying the option and with respect to the number of dividend equivalent shares previously credited to the HECO Named Executive Officer and not issued during the period prior to the dividend record date.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
Number of Securities
Underlying Value of Unexercised In
Unexercised the Money Options
Options (Including (Including
Dividend Dividend
Value Equivalents) Equivalents) at Fiscal
Shares Dividend Value Realized On at Fiscal Year-End Year-End (1)
Acquired Equivalents Realized Dividend ----------------------- --------------------------
On Exercise Acquired On On Options Equivalents Exercisable/ Exercisable/
Name (#) Exercise (#) ($) ($) Unexercisable (#) Unexercisable ($)
-----------------------------------------------------------------------------------------------------------------------------------
T. Michael May....... -- -- $ -- $ -- 41,441 / 49,365 $344,706 / 368,166
Paul A. Oyer......... -- -- -- -- 16,307 / -- 88,669 / --
Jackie Mahi Erickson. -- -- -- -- 6,773 / 3,534 40,349 / 26,203
Edward Y. Hirata..... -- -- -- -- 9,773 / 3,534 49,064 / 26,203
Thomas L. Joaquin.... -- -- -- -- 6,773 / 3,534 49,064 / 26,203
Chris M. Shirai...... -- -- -- -- -- / -- -- / --
|
(1) Values based on closing price of $37.19 per share on the New York Stock Exchange on December 31, 2000.
Long-Term Incentive Plan awards table
A Long-Term Incentive Plan award made to Mr. May in 2000 was the only such award made to the HECO Named Executive Officers. Additional information required under this item is incorporated by reference on pages 15 to 16 of HEI's 2001 Proxy Statement.
Pension plan
The Retirement Plan for Employees of Hawaiian Electric Industries, Inc. and Participating Subsidiaries (the Retirement Plan) provides a monthly retirement pension for life. Additional information required under this item is incorporated by reference to "Pension Plans" on pages 16 to 18 of HEI's 2001 Proxy Statement. As of December 31, 2000, the HECO Named Executive Officers had the following number of years of credited service under the Retirement Plan: Mr. May, 8 years; Mr. Oyer, 34 years; Ms. Erickson, 19 years; Mr. Hirata, 14 years; Mr. Joaquin, 27 years; and Mr. Shirai, 31 years.
Change-in-Control Agreements
Mr. May is the only HECO Named Executive Officer with whom HEI has a currently applicable Change-in-Control Agreement. Additional information required under this item is incorporated by reference to "Change-in-Control Agreements" on page 18 of HEI's 2001 Proxy Statement.
Executive Management Compensation
The HEI Compensation Committee, composed of five independent nonemployee directors, approves changes to executive compensation for the HECO Named Executive Officers. The information required to be disclosed concerning the Compensation Committee is incorporated herein by reference to page 8 of HEI's 2001 Proxy Statement. The HEI and HECO Boards of Directors review and approve all changes approved by the Committee concerning the HECO Named Executive Officers.
HECO Board of Directors
Committees of the HECO Board
During 2000, the Board of Directors of HECO had only one standing committee, the Audit Committee, which was comprised of three nonemployee directors: Diane J. Plotts, Chairman, Anne M. Takabuki and Paul C. Yuen. The Audit Committee holds such meetings as it deems advisable to review the financial operations of HECO. In 2000, the Audit Committee held five meetings to review with management, the internal auditor and HECO's independent auditors the activities of the internal auditor, the results of the annual audit by the independent auditors and the financial statements which are included in HECO's 1999 Annual Report to Stockholder.
Remuneration of HECO Directors and attendance at meetings
In 2000, Paul C. Yuen and Anne M. Takabuki were the only nonemployee HECO directors who were not also directors of HEI. They were each paid a retainer of $20,000, 60% of which was distributed in the common stock of HEI pursuant to the HEI Nonemployee Director Stock Plan and 40% of which was distributed in cash. The number of shares of stock distributed was based on a share price of $36.94, which is equal to the average high and low sales prices of HEI common stock on April 28, 2000, with a cash payment made in lieu of any fractional share. The nonemployee HECO directors who were also nonemployee HEI directors did not receive a separate retainer from HECO. In addition, a fee of $700 was paid in cash to each nonemployee director (including nonemployee HECO directors who are also nonemployee HEI directors) for each Board and Committee meeting attended by the director. The Chairman of the HECO Audit Committee was paid an additional $100 for each Committee meeting attended. Employee members of the Board of Directors are not compensated for attendance at any meeting of the Board or Committees of the Board.
In 2000, there were six regular bi-monthly meetings of the HECO Board of Directors, including one joint meeting with the HEI Board of Directors. All incumbent directors attended at least 75% of the combined total number of meetings of the Board and the Committee on which they served.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
HEI:
The information required under this item is incorporated by reference to page 11 of HEI's 2001 Proxy Statement.
HECO:
HEI owns all of HECO's common stock, which is HECO's only class of voting securities. HECO has also issued and has outstanding various series of preferred stock, the holders of which, upon certain defaults in dividend payments, have the right to elect a majority of the directors of HECO.
The following table shows the shares of HEI common stock beneficially owned by each HECO director (other than those who are also directors of HEI), by each HECO Named Executive Officer (other than Mr. May, who is an executive officer of HEI) and by all HECO directors and all HECO executive officers as a group, as of February 14, 2001, based on information furnished by the respective individuals.
Amount of Common Stock and Nature of Beneficial Ownership
-------------------------------------------------------------------------------------------------------------------------
Shared Voting Other
Name of Individual Sole Voting or or Investment Beneficial Stock
or Group Investment Power Power (1) Ownership (2) Options (3) Total
-------------------------------------------------------------------------------------------------------------------------
Directors
Anne M. Takabuki 1,612 1,612
Paul C. Yuen 2,326 1,069 3,395
Other HECO Named
Executive Officers
Jackie Mahi Erickson 4,621 1,086 2 7,825 13,534
Edward Y. Hirata 7,523 10,825 18,348
Thomas L. Joaquin 4,705 1,337 29 7,825 13,896
Chris M. Shirai 1,495 57 136 1,688
All directors and
executive officers
as a group (18 persons) 64,106 4,174 887 203,366 272,533*
|
* HECO directors Clarke, Henderson, May, Plotts, Scott and Watanabe, who
also serve on the HEI Board of Directors, are not shown separately, but
are included in the total for all HECO directors and executive officers as
a group. The information required as to these directors is incorporated by
reference to page 11 of HEI's 2001 Proxy Statement. Messrs. Clarke and May
are also named executive officers of HEI and are listed in the Summary
Compensation Table incorporated by reference to pages 12 and 13 of HEI's
2001 Proxy Statement. The number of shares of common stock beneficially
owned by any HECO director or by all HECO directors and officers as a
group does not exceed 1% of the outstanding common stock of HEI.
(1) Shares registered in name of individual and spouse.
(2) Shares owned by spouse, children or other relatives sharing the home of
the director or an officer in which the director or officer disclaims
personal interest.
(3) Stock options, including accompanying dividend equivalents shares,
exercisable within 60 days after February 14, 2001, under the 1987 Stock
Option and Incentive Plan (as amended and restated effective February 20,
1996).
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
HEI:
The information required under this item is incorporated by reference to pages 27 to 28 of HEI's 2001 Proxy Statement.
HECO:
The information required under this item is incorporated by reference to pages 27 to 28 of HEI's 2001 Proxy Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) Financial statements
The following financial statements contained in HEI's Annual Report and HECO's Annual Report are incorporated by reference in Part II, Item 8, of this Form 10-K:
Pages in HEI's and HECO's
Annual Report
------------------------------
HEI HECO
---------------------------------------------------------------------------------------------------------------
Independent Auditors' Report................................................. 20 12
Consolidated Statements of Income, Years ended December 31, 2000, 1999 and 1998 21 13
Consolidated Statements of Retained Earnings, Years ended December 31, 2000,
1999 and 1998............................................................ 21 13
Consolidated Balance Sheets, December 31, 2000 and 1999...................... 22 14
Consolidated Statements of Capitalization,
December 31, 2000 and 1999.............................................. na 15-16
Consolidated Statements of Cash Flows, Years ended December 31, 2000, 1999 and
1998..................................................................... 23 17
Notes to Consolidated Financial Statements................................... 24-50 18-42
|
na Not applicable.
(a)(2) Financial statement schedules
The following financial statement schedules for HEI and HECO are included in this report on the pages indicated below:
Page/s in Form 10-K
------------------------------
HEI HECO
---------------------------------------------------------------------------------------------------------------
Independent Auditors' Report................................................... 71 72
Schedule I Condensed Financial Information of Registrant, Hawaiian
Electric Industries, Inc. (Parent Company) as of
December 31, 2000 and 1999 and Years ended December 31,
2000, 1999 and 1998........................................ 73-75 na
Valuation and Qualifying Accounts, Years ended
Schedule II December 31, 2000, 1999 and 1998........................... 76 76
|
na Not applicable.
Certain schedules, other than those listed, are omitted because they are not required, or are not applicable, or the required information is shown in the consolidated financial statements or notes included in HEI's Annual Report and HECO's Annual Report, which financial statements are incorporated herein by reference.
(a)(3) Exhibits
Exhibits for HEI and HECO and their subsidiaries are listed in the "Index to Exhibits" found on pages 77 through 87 of this Form 10-K. The exhibits listed for HEI and HECO are listed in the index under the headings "HEI" and "HECO," respectively, except that the exhibits listed under "HECO" are also considered exhibits for HEI.
(b) Reports on Form 8-K
HEI and HECO:
On January 18, 2001, HEI and HECO filed a Form 8-K, dated January 18, 2001, under Item 5 (Announcement of HEI's teleconference call to review yearend earnings on January 24, 2001).
On January 24, 2001, HEI and HECO filed a Form 8-K, dated January 23, 2001, under Item 5 (HEI's January 23, 2001 news release reporting 2000 earnings).
On February 27, 2001, HEI and HECO filed a Form 8-K, dated February 23, 2001, under Item 7, which included HEI's Annual Report in its entirety and portions of HECO's Annual Report.
[KPMG LLP letterhead]
Independent Auditors' Report
The Board of Directors and Stockholders
Hawaiian Electric Industries, Inc.:
Under date of January 23, 2001, we reported on the consolidated balance sheets of Hawaiian Electric Industries, Inc. and subsidiaries as of December 31, 2000 and 1999, and the related consolidated statements of income, retained earnings and cash flows for each of the years in the three-year period ended December 31, 2000, as contained in the 2000 annual report to stockholders. These consolidated financial statements and our report thereon are incorporated by reference in the annual report on Form 10-K for the year 2000. In connection with our audits of the aforementioned consolidated financial statements, we also audited the related financial statement schedules as listed in the accompanying index under Item 14.(a)(2). These financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statement schedules based on our audits.
In our opinion, such financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.
/s/ KPMG LLP Honolulu, Hawaii January 23, 2001 |
[KPMG LLP letterhead]
Independent Auditors' Report
The Board of Directors and Stockholder
Hawaiian Electric Company, Inc.:
Under date of January 23, 2001, we reported on the consolidated balance sheets and consolidated statements of capitalization of Hawaiian Electric Company, Inc. (a subsidiary of Hawaiian Electric Industries, Inc.) and subsidiaries as of December 31, 2000 and 1999, and the related consolidated statements of income, retained earnings and cash flows for each of the years in the three-year period ended December 31, 2000, as contained in the 2000 annual report to stockholder. These consolidated financial statements and our report thereon are incorporated by reference in the annual report on Form 10-K for the year 2000. In connection with our audits of the aforementioned consolidated financial statements, we also audited the related financial statement schedule as listed in the accompanying index under Item 14.(a)(2). The financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion on the financial statement schedule based on our audits.
In our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
/s/ KPMG LLP Honolulu, Hawaii January 23, 2001 |
Hawaiian Electric Industries, Inc.
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT
HAWAIIAN ELECTRIC INDUSTRIES, INC. (PARENT COMPANY)
CONDENSED BALANCE SHEETS
December 31,
-----------------------------------
(in thousands) 2000 1999
------------------------------------------------------------------------------------------------------------------
Assets
Cash and equivalents....................................................... $ 677 $ 756
Advances to and notes receivable from subsidiaries......................... 16,058 3,010
Accounts receivable........................................................ 1,194 1,325
Property, plant and equipment, net......................................... 2,748 3,489
Other assets............................................................... 11,491 11,437
Net assets of discontinued operations...................................... 12,394 17,228
Investments in subsidiaries, at equity..................................... 1,360,218 1,332,576
-----------------------------------
$1,404,780 $1,369,821
===================================
Liabilities and stockholders' equity
Liabilities
Accounts payable........................................................... $ 8,423 $ 6,518
Notes payable to subsidiaries.............................................. 23,634 37,336
Commercial paper........................................................... -- 44,820
Long-term debt............................................................. 421,000 331,500
Loan from HEI Preferred Funding, LP (8.36% due in 2017).................... 103,000 103,000
Deferred income taxes...................................................... (39,048) 1,364
Other...................................................................... 48,712 (2,303)
-----------------------------------
565,721 522,235
-----------------------------------
Stockholders' equity
Preferred stock............................................................ -- --
Common stock............................................................... 691,735 665,335
Retained earnings.......................................................... 147,324 182,251
-----------------------------------
839,059 847,586
-----------------------------------
$1,404,780 $1,369,821
===================================
Note to Balance Sheets
Long-term debt consisted of the following:
Promissory notes, 6.1 - 7.1%, due in various years through 2014............ $295,500 $305,500
Promissory notes, 8.5 - 8.7%, due in various years through 2011............ 25,500 26,000
Promissory note, 8.0%, due in 2003 ........................................ 100,000 --
-----------------------------------
$421,000 $331,500
===================================
|
The aggregate payments of principal required subsequent to December 31, 2000 on long-term debt and a loan from HEI Preferred Funding, LP are $61 million in 2001, $60 million in 2002, $136 million in 2003, $1 million in 2004 and $37 million in 2005.
Hawaiian Electric Industries, Inc.
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT (continued)
HAWAIIAN ELECTRIC INDUSTRIES, INC. (PARENT COMPANY)
CONDENSED STATEMENTS OF INCOME
Years ended December 31,
----------------------------------------------
(in thousands) 2000 1999 1998
----------------------------------------------------------------------------------------------------------------
Revenues....................................................... $ 940 $ 2,345 $ 2,067
Equity in income from continuing operations of subsidiaries.... 42,846 116,810 115,567
----------------------------------------------
43,786 119,155 117,634
----------------------------------------------
Expenses:
Operating, administrative and general.......................... 17,322 4,759 6,395
Depreciation of property, plant and equipment.................. 1,347 2,098 1,526
Taxes, other than income taxes................................. 315 299 286
----------------------------------------------
18,984 7,156 8,207
----------------------------------------------
Operating income............................................... 24,802 111,999 109,427
Interest expense............................................... 40,195 34,637 32,994
----------------------------------------------
Income (loss) before income tax benefits....................... (15,393) 77,362 76,433
Income tax benefits............................................ 61,137 15,532 18,195
----------------------------------------------
Income from continuing operations.............................. 45,744 92,894 94,628
Gain (loss) from discontinued subsidiary operations............ -- 3,953 (9,817)
----------------------------------------------
Net income..................................................... $45,744 $ 96,847 $ 84,811
==============================================
|
The Company's financial reporting policy for income tax allocations is based upon a separate entity concept whereby each subsidiary provides income tax expense (or benefits) as if each were a separate taxable entity. The difference between the aggregate separate tax return income tax provisions and the consolidated financial reporting income tax provision is charged or credited to HEI's separate tax provision. In December 2000, the Company wrote off its investment in EAPRC and HEI recognized the tax benefits related to the write-off.
Hawaiian Electric Industries, Inc.
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT (continued)
HAWAIIAN ELECTRIC INDUSTRIES, INC. (PARENT COMPANY)
CONDENSED STATEMENTS OF CASH FLOWS
Years ended December 31,
----------------------------------------
(in thousands) 2000 1999 1998
----------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities
Income from continuing operations.......................................... $ 45,744 $ 92,894 $ 94,628
Adjustments to reconcile income from continuing operations to
net cash provided by continuing operating activities
Equity in net income of continuing subsidiaries....................... (42,846) (116,810) (115,567)
Common stock dividends/distributions received from subsidiaries....... 93,661 78,007 97,155
Depreciation of property, plant and equipment......................... 1,347 2,098 1,526
Other amortization.................................................... 447 364 300
Deferred income taxes................................................. (40,469) 1,381 (5,329)
Losses from Philippines investment.................................... 10,000 -- --
Changes in assets and liabilities
Decrease (increase) in accounts receivable........................ 131 45 (55)
Increase in accounts payable...................................... 1,905 523 2,440
Changes in other assets and liabilities........................... 31,336 (24,703) 9,317
----------------------------------------
Net cash provided by continuing operating activities....................... 101,256 33,799 84,415
----------------------------------------
Cash flows from investing activities
Net decrease (increase) in advances to and notes
receivable from subsidiaries............................................ (13,048) 10,813 (9,700)
Capital expenditures....................................................... (622) (1,123) (2,713)
Additional investments in subsidiaries..................................... (89,485) (12,704) (25,291)
Other...................................................................... 10 -- --
----------------------------------------
Net cash used in investing activities ..................................... (103,145) (3,014) (37,704)
----------------------------------------
Cash flows from financing activities
Net increase (decrease) in notes payable to subsidiaries with original
maturities of three months or less...................................... (2,340) 26,075 8,081
Net decrease in commercial paper........................................... (44,820) (44,164) (100,499)
Proceeds from issuance of long-term debt................................... 100,000 100,000 112,500
Repayment of long-term debt................................................ (10,500) (40,500) (500)
Net proceeds from issuance of common stock................................. 14,080 3,449 8,191
Common stock dividends..................................................... (68,624) (79,848) (79,421)
----------------------------------------
Net cash used in financing activities...................................... (12,204) (34,988) (51,648)
----------------------------------------
Net cash provided by discontinued operations............................... 14,014 4,323 5,157
----------------------------------------
Net increase (decrease) in cash and equivalents............................ (79) 120 220
Cash and equivalents, January 1............................................ 756 636 416
----------------------------------------
Cash and equivalents, December 31.......................................... $ 677 $ 756 $ 636
========================================
|
Supplemental disclosures of noncash activities:
In 2000, 1999 and 1998, $0.7 million, $0.8 million and $1.0 million, respectively, of HEI advances to HEIDI were converted to equity in noncash transactions.
In April 2000, HEI recommenced issuing new common shares under the HEI Dividend Reinvestment and Stock Purchase Plan (DRIP). From March 1998 to March 2000, HEI had acquired for cash its common shares in the open market to satisfy the requirements of the HEI DRIP. Under the HEI DRIP, common stock dividends reinvested by shareholders in HEI common stock in noncash transactions amounted to $12 million in 2000.
Hawaiian Electric Industries, Inc. and Hawaiian Electric Company, Inc.
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
Years ended December 31, 2000, 1999 and 1998
====================================================================================================================
Col. A Col. B Col. C Col. D Col. E
--------------------------------------------------------------------------------------------------------------------
(in thousands) Additions
------------------------
Balance at Charged to Charged to
beginning costs and other Balance at
Description of period expenses accounts Deductions end of period
--------------------------------------------------------------------------------------------------------------------
2000
Allowance for uncollectible accounts
Hawaiian Electric Company, Inc. and
subsidiaries......................... $1,057 $1,403 $948 $2,469 $ 939
Other companies........................ 876 -- -- 61 815
-----------------------------------------------------------------------
$1,933 $1,403 $948(a) $2,530 (b) $1,754
=======================================================================
Allowance for uncollectible interest (ASB) $5,695 -- -- $2,717 $2,978
=======================================================================
Allowance for losses for loans receivable
(ASB).................................. $35,348 $13,050 $2,389 (a) $13,338 (b) $37,449
=======================================================================
1999
Allowance for uncollectible accounts
Hawaiian Electric Company, Inc. and
subsidiaries......................... $1,293 $2,299 $1,117 $3,652(b) $1,057
Other companies........................ 1,216 42 -- 382(c) 876
-----------------------------------------------------------------------
$2,509 $2,341 $1,117(a) $4,034 $1,933
=======================================================================
Allowance for uncollectible interest (ASB) $5,490 $205 -- -- $5,695
=======================================================================
Allowance for losses for loans receivable
(ASB).................................. $39,779 $16,500 $728(a) $21,659(b) $35,348
=======================================================================
1998
Allowance for uncollectible accounts
Hawaiian Electric Company, Inc. and
subsidiaries......................... $1,285 $2,194 $1,250 $3,436 $1,293
Other companies........................ 1,183 47 1 15 1,216
-----------------------------------------------------------------------
$2,468 $2,241 $1,251(a) $3,451(b) $2,509
=======================================================================
Allowance for uncollectible interest (ASB) $4,438 $1,052 -- -- $5,490
=======================================================================
Allowance for losses for loans receivable
(ASB).................................. $29,950 $13,802 $591(a) $4,564(b) $39,779
=======================================================================
|
(a) Primarily bad debts recovered.
(b) Bad debts charged off.
(c) Primarily related to the sale of YB.
INDEX TO EXHIBITS
The exhibits designated by an asterisk (*) are filed herein. The exhibits not so designated are incorporated by reference to the indicated filing. A copy of any exhibit may be obtained upon written request for a $0.20 per page charge from the HEI Shareholder Services Division, P.O. Box 730, Honolulu, Hawaii 96808-0730.
Exhibit no. Description ----------- ----------- |
3(i).1 HEI's Restated Articles of Incorporation (Exhibit 4(b) to Registration No. 33-7895).
3(i).2 Articles of Amendment of HEI filed June 13, 1990 (Exhibit 4(b) to Registration No. 33-40813).
3(i).3 Statement of Issuance of Shares of Preferred or Special Classes in
Series for HEI Series A Junior Participating Preferred Stock filed
October 28, 1997. (Exhibit 3(i).3 to HEI's Annual Report on Form
10-K for the fiscal year ended December 31, 1997, File No. 1-8503).
3(ii) HEI's Restated By-Laws (Exhibit 3(ii) to Form 10-Q for the quarter
ended September 30, 1997).
4.1 Agreement to provide the SEC with instruments which define the
rights of holders of certain long-term debt of HEI and its
subsidiaries (Exhibit 4.1 to HEI's Annual Report on Form 10-K for
the fiscal year ended December 31, 1992, File No. 1-8503).
4.2 Rights Agreement, dated as of October 28, 1997, between HEI and
Continental Stock Transfer & Trust Company, as Rights Agent, which
includes as Exhibit B thereto the Form of Rights Certificates
(Exhibit 1 to HEI's Form 8-A, dated October 28, 1997, File No.
1-8503).
4.3 Indenture, dated as of October 15, 1988, between HEI and Citibank,
N.A., as Trustee (Exhibit 4 to Registration No. 33-25216).
4.4 First Supplemental Indenture dated as of June 1, 1993 between HEI
and Citibank, N.A., as Trustee, to Indenture dated as of October 15,
1988 between HEI and Citibank, N.A., as Trustee (Exhibit 4(a) to
HEI's Quarterly Report on Form 10-Q for the quarter ended September
30, 1993, File No. 1-8503).
|
4.4(a) Second Supplemental Indenture dated as of April 1, 1999 between HEI and Citibank, N.A., as Trustee, to Indenture dated as of October 15, 1988 between HEI and Citibank, N.A., as Trustee (Exhibit 4.1 to HEI's Quarterly Report on Form 10-Q for the quarter ended March 31, 1999, File No. 1-8503).
4.5 Pricing Supplements Nos. 1 through 7 to the Registration Statement on Form S-3 of HEI (Registration No. 33-58820) filed in connection with the sale of Medium-Term Notes, Series B (Exhibit 4(b) to HEI's Quarterly Report on Form 10-Q for the quarter ended September 30, 1993, File No. 1-8503).
4.5(b) Pricing Supplement No. 12 to Registration Statement on Form S-3 of HEI (Registration No. 33-58820) filed on February 12, 1996 in connection with the sale of Medium-Term Notes, Series B (Exhibit 4.9 to HEI's Annual Report on Form 10-K for the fiscal year ended December 31, 1995, File No. 1-8503).
4.5(c) Pricing Supplements Nos. 13 through 14 to Registration Statement on Form S-3 of HEI (Registration No. 33-58820) filed on September 26, 1997 in connection with the sale of Medium-Term Notes, Series B.
4.5(d) Pricing Supplement No. 15 to Registration Statement on Form S-3 of HEI (Registration No. 33-58820) filed on September 29, 1997 in connection with the sale of Medium-Term Notes, Series B.
4.5(e) Pricing Supplement No. 16 to Registration Statement on Form S-3 of HEI (Registration No. 33-58820) filed on September 30, 1997 in connection with the sale of Medium-Term Notes, Series B.
4.5(f) Pricing Supplement No. 17 to Registration Statement on Form S-3 of HEI (Registration No. 33-58820) filed on October 2, 1997 in connection with the sale of Medium-Term Notes, Series B.
4.5(g) Pricing Supplement No. 18 to Registration Statement on Form S-3 of HEI (Registration No. 33-58820) filed on February 5, 1998 in connection with the sale of Medium-Term Notes, Series B.
4.5(h) Pricing Supplement No. 19 to Registration Statement on Form S-3 of HEI (Registration No. 33-58820) filed on February 6, 1998 in connection with the sale of Medium-Term Notes, Series B.
4.5(i) Pricing Supplement No. 20 to Registration Statement on Form S-3 of HEI (Registration No. 33-58820) filed on February 6, 1998 in connection with the sale of Medium-Term Notes, Series B.
4.5(j) Pricing Supplement No. 21 to Registration Statement on Form S-3 of HEI (Registration No. 33-58820) filed on February 12, 1998 in connection with the sale of Medium-Term Notes, Series B.
4.5(k) Pricing Supplement No. 22 to Registration Statement on Form S-3 of HEI (Registration No. 33-58820) filed on June 10, 1998 in connection with the sale of Medium-Term Notes, Series B.
4.5(l) Pricing Supplement No. 23 to Registration Statement on Form S-3 of HEI (Registration No. 33-58820) filed on June 10, 1998 in connection with the sale of Medium-Term Notes, Series B.
4.5(n) Pricing Supplement No. 1 to Registration Statement on Form S-3 of HEI (Registration No. 333-73225) filed on May 3, 1999 in connection with the sale of Medium-Term Notes, Series C.
4.5(o) Pricing Supplement No. 2 to Registration Statement on Form S-3 of HEI (Registration No. 333-73225) filed on April 11, 2000 in connection with the sale of Medium-Term Notes, Series C.
4.6 Composite conformed copy of the Note Purchase Agreement dated as of December 16, 1991 among HEI and the Purchasers named therein (Exhibit 4.6 to HEI's Annual Report on Form 10-K for the fiscal year ended December 31, 1991, File No. 1-8503).
4.7 Amended and Restated Agreement of Limited Partnership of HEI Preferred Funding, LP dated as of February 1, 1997 (Exhibit 4(e) to HEI's Current Report on Form 8-K dated February 4, 1997, File No. 1-8503).
4.8 Amended and Restated Trust Agreement of Hawaiian Electric Industries Capital Trust I (HEI Trust I) dated as of February 1, 1997 (Exhibit 4(f) to HEI's Current Report on Form 8-K dated February 4, 1997, File No. 1-8503).
4.9 Junior Indenture between HEI and The Bank of New York, as Trustee, dated as of February 1, 1997 (Exhibit 4(i) to HEI's Current Report on Form 8-K dated February 4, 1997, File No. 1-8503).
4.10 Officers' Certificate in connection with issuance of 8.36% Junior Subordinated Debenture, Series A, Due 2017 under Junior Indenture of HEI (Exhibit 4(l) to HEI's Current Report on Form 8-K dated February 4, 1997, File No. 1-8503).
4.11 8.36% Trust Originated Preferred Security (Liquidation Amount $25 Per Trust Preferred Security) of HEI Trust I (Exhibit 4(m) to HEI's Current Report on Form 8-K dated February 4, 1997, File No. 1-8503).
4.12 8.36% Junior Subordinated Debenture Series A, Due 2017, of HEI (Exhibit 4(n) to HEI's Current Report on Form 8-K dated February 4, 1997, File No. 1-8503).
4.13 Trust Preferred Securities Guarantee Agreement with respect to HEI Trust I dated as of February 1, 1997 (Exhibit 4(o) to HEI's Current Report on Form 8-K dated February 4, 1997, File No. 1-8503).
4.14 Partnership Guarantee Agreement with respect to the Partnership dated as of February 1, 1997 (Exhibit 4(p) to HEI's Current Report on Form 8-K dated February 4, 1997, File No. 1-8503).
Exhibit no. Description
----------- -----------
4.15 Affiliate Investment Instruments Guarantee Agreement with respect to
8.36% Junior Subordinated Debenture of HEIDI dated as of February 1,
1997 (Exhibit 4(q) to HEI's Current Report on Form 8-K dated
February 4, 1997, File No. 1-8503).
4.16 Certificate Evidencing Trust Common Securities of HEI Trust I dated
February 4, 1997 (Exhibit 4.12 to the Quarterly Report on Form 10-Q
of HEI Trust I and the Partnership, File No. 1-8503-02, for the
quarter ended March 31, 1997).
4.17 Certificate Evidencing Partnership Preferred Securities of the
Partnership dated February 4, 1997 (Exhibit 4.13 to the Quarterly
Report on Form 10-Q of HEI Trust I and the Partnership, File No.
1-8503-02, for the quarter ended March 31, 1997).
10.1 PUC Order Nos. 7070, 7153, 7203 and 7256 in Docket No. 4337,
including copy of "Conditions for the Merger and Corporate
Restructuring of Hawaiian Electric Company, Inc." dated September
23, 1982 (Exhibit 10 to Amendment No. 1 to Form U-1).
10.2 Regulatory Capital Maintenance/Dividend Agreement dated May 26,
1988, between HEI, HEIDI and the Federal Savings and Loan Insurance
Corporation (by the Federal Home Loan Bank of Seattle) (Exhibit
(28)-2 to HEI's Current Report on Form 8-K dated May 26, 1988, File
No. 1-8503).
10.2(a) OTS letter regarding release from Part II.B. of the Regulatory
Capital Maintenance/Dividend Agreement dated May 26, 1988 (Exhibit
10.3(a) to HEI's Annual Report on Form 10-K for the fiscal year
ended December 31, 1992, File No. 1-8503).
10.3 Executive Incentive Compensation Plan (Exhibit 10(a) to HEI's Annual
Report on Form 10-K for the fiscal year ended December 31, 1987,
File No. 1-8503).
10.4 HEI Executives' Deferred Compensation Plan (Exhibit 10.5 to HEI's
Annual Report on Form 10-K for the fiscal year ended December 31,
1990, File No. 1-8503).
10.5 1987 Stock Option and Incentive Plan of HEI as amended and restated
effective February 20, 1996 (Exhibit A to Proxy Statement of HEI,
dated March 8, 1996, for the Annual Meeting of Stockholders, File
No. 1-8503).
10.6 HEI Long-Term Incentive Plan (Exhibit 10.11 to HEI's Annual Report
on Form 10-K for the fiscal year ended December 31, 1988, File No.
1-8503).
10.7 HEI Supplemental Executive Retirement Plan effective January 1, 1990
(Exhibit 10.9 to HEI's Annual Report on Form 10-K for the fiscal
year ended December 31, 1990, File No. 1-8503).
10.8 HEI Excess Benefit Plan (Exhibit 10.13 (Exhibit A) to HEI's Annual
Report on Form 10-K for the fiscal year ended December 31, 1989,
File No. 1-8503).
10.9 Change-in-Control Agreement (Exhibit 10.14 to HEI's Annual Report on
Form 10-K for the fiscal year ended December 31, 1989, File No.
1-8503).
10.10 Nonemployee Director Retirement Plan, effective as of October 1,
1989 (Exhibit 10.15 to HEI's Annual Report on Form 10-K for the
fiscal year ended December 31, 1989, File No. 1-8503).
|
Exhibit no. Description
----------- -----------
10.11 HEI 1990 Nonemployee Director Stock Plan, as amended effective April
27, 1999 (Exhibit 10.11 to HEI's Annual Report on Form 10-K for the
fiscal year ended December 31, 1999, File No. 1-8503).
10.12 HEI 1999 Nonemployee Company Director Stock Grant Plan (Exhibit
10.12 to HEI's Annual Report on Form 10-K for the fiscal year ended
December 31, 1999, File No. 1-8503)..
10.13 HEI Nonemployee Directors' Deferred Compensation Plan (Exhibit 10.14
to HEI's Annual Report on Form 10-K for the fiscal year ended
December 31, 1990, File No. 1-8503).
10.14 HEI and HECO Executives' Deferred Compensation Agreement. The
agreement pertains to and is substantially identical for all the HEI
and HECO executive officers (Exhibit 10.15 to HEI's Annual Report on
Form 10-K for the fiscal year ended December 31, 1991, File No.
1-8503).
*11 Computation of Earnings per Share of Common Stock. Filed herein as
page 88.
*12.1 Computation of Ratio of Earnings to Fixed Charges. Filed herein as
pages 89 and 90.
13 HEI's Annual Report (Appendix B to the Proxy Statement prepared for
the Annual Meeting to Stockholders to be held on April 24, 2001)
(HEI Exhibit 13.1 to HEI's Current Report on Form 8-K dated February
23, 2001, File No. 1-8503).
18 KPMG LLP letter re: change in accounting principle (Exhibit 18.1 to
HEI's Quarterly Report on Form 10-Q for the quarter ended March 31,
2000, File No. 1-8503).
*21.1 Subsidiaries of HEI. Filed herein as pages 92 and 93.
*23 Accountants' Consent. Filed herein as page 95.
*99.1 Amended and Restated Hawaiian Electric Industries Retirement Savings
Plan, for incorporation by reference into Registration Statement on
Form S-8 (Registration No. 333-02103)
|
HECO:
3(i).1 HECO's Certificate of Amendment of Articles of Incorporation (filed June 30, 1987) (Exhibit 3.1 to HECO's Annual Report on Form 10-K for the fiscal year ended December 31, 1988, File No. 1-4955).
3(i).2 Statement of Issuance of Preferred or Special Classes in Series for HECO Series R Preferred Stock filed December 15, 1989 (Exhibit 3.1(a) to HECO's Annual Report on Form 10-K for the fiscal year ended December 31, 1989, File No. 1-4955).
3(i).3 Articles of Amendment to HECO's Amended Articles of Incorporation filed December 21, 1989 (Exhibit 3.1(b) to HECO's Annual Report on Form 10-K for the fiscal year ended December 31, 1989, File No 1-4955).
(filed May 24, 1990) (Exhibit 3(i).4 to HECO's Annual Report on Form
10-K for the fiscal year ended December 31, 1998, File No 1-4955)..
3(ii) HECO's By-Laws (Exhibit 3.2 to HECO's Annual Report on Form 10-K for
the fiscal year ended December 31, 1988, File No. 1-4955).
4.1 Agreement to provide the SEC with instruments which define the
rights of holders of certain long-term debt of HECO, HELCO and MECO
(Exhibit 4 to HECO's Annual Report on Form 10-K for the fiscal year
ended December 31, 1988, File No. 1-4955).
4.2 Amended and Restated Trust Agreement of HECO Capital Trust I (HECO
Trust I) dated as of March 1, 1997 (Exhibit 4(c) to HECO's Current
Report on Form 8-K dated March 27, 1997, File No. 1-4955).
4.3 HECO Junior Indenture with The Bank of New York, as Trustee, dated
as of March 1, 1997 (Exhibit 4(d) to HECO's Current Report on Form
8-K dated March 27, 1997, File No. 1-4955).
4.4 8.05% Cumulative Quarterly Income Preferred Security (liquidation
preference $25 per preferred security) of HECO Trust I (Exhibit 4(e)
to HECO's Current Report on Form 8-K dated March 27, 1997, File No.
1-4955).
4.5 8.05% Junior Subordinated Deferrable Interest Debenture, Series 1997
of HECO (Exhibit 4(f) to HECO's Current Report on Form 8-K dated
March 27, 1997, File No. 1-4955).
4.6 Trust Guarantee Agreement with respect to HECO Trust I dated as of
March 1, 1997 (Exhibit 4(g) to HECO's Current Report on Form 8-K
dated March 27, 1997, File No. 1-4955).
4.7 MECO Junior Indenture with The Bank of New York, as Trustee,
including HECO Subsidiary Guarantee, dated as of March 1, 1997 (with
the form of MECO's 8.05% Junior Subordinated Deferrable Interest
Debenture, Series 1997 included as Exhibit A) (Exhibit 4(h)-1 to
HECO's Current Report on Form 8-K dated March 27, 1997, File No.
1-4955).
4.8 HELCO Junior Indenture with The Bank of New York, as Trustee,
including HECO Subsidiary Guarantee, dated as of March 1, 1997 (with
the form of HELCO's 8.05% Junior Subordinated Deferrable Interest
Debenture, Series 1997 included as Exhibit A) (Exhibit 4(h)-2 to
HECO's Current Report on Form 8-K dated March 27, 1997, File No.
1-4955).
4.9 Agreement as to Expenses and Liabilities among HECO Trust I, HECO,
MECO and HELCO (Exhibit 4(i) to HECO's Current Report on Form 8-K
dated March 27, 1997, File No. 1-4955).
4.10 Amended and Restated Trust Agreement of HECO Capital Trust II (HECO
Trust II) dated as of December 1, 1998 (Exhibit 4(c) to HECO's
Current Report on Form 8-K dated December 4, 1998, File No. 1-4955).
|
Exhibit no. Description
----------- -----------
4.11 HECO Junior Indenture with The Bank of New York, as Trustee, dated
as of December 1, 1998 (with the form of HECO's 7.30% Junior
Subordinated Deferrable Interest Debenture, Series 1998, included as
Exhibit A) (Exhibit 4(d) to HECO's Current Report on Form 8-K dated
December 4, 1998, File No. 1-4955).
4.12 7.30% Cumulative Quarterly Income Preferred Security (liquidation
preference $25 per preferred security) of HECO Trust II (Exhibit
4(e) to HECO's Current Report on Form 8-K dated December 4, 1998,
File No. 1-4955).
4.13 Trust Guarantee Agreement with respect to HECO Trust II dated as of
December 1, 1998 (Exhibit 4(g) to HECO's Current Report on Form 8-K
dated December 4, 1998, File No. 1-4955).
4.14 MECO Junior Indenture with The Bank of New York, as Trustee,
including HECO Subsidiary Guarantee, dated as of December 1, 1998
(with the form of MECO's 7.30% Junior Subordinated Deferrable
Interest Debenture, Series 1998 included as Exhibit A) (Exhibit 4(h)
to HECO's Current Report on Form 8-K dated December 4, 1998, File
No. 1-4955).
4.15 HELCO Junior Indenture with The Bank of New York, as Trustee,
including HECO Subsidiary Guarantee, dated as of December 1, 1998
(with the form of HELCO's 7.30% Junior Subordinated Deferrable
Interest Debenture, Series 1998) (Substantially the same as the MECO
Junior Indenture included as Exhibit 4.14).
4.16 Agreement as to Expenses and Liabilities among HECO Trust II, HECO,
MECO and HELCO (Exhibit 4(i) to HECO's Current Report on Form 8-K
dated December 4, 1998, File No. 1-4955).
10.1 Power Purchase Agreement between Kalaeloa Partners, L.P., and HECO
dated October 14, 1988 (Exhibit 10(a) to HECO's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1988, File No.
1-4955).
|
10.1(a) Amendment No. 1 to Power Purchase Agreement between HECO and Kalaeloa Partners, L.P., dated June 15, 1989 (Exhibit 10(c) to HECO's Quarterly Report on Form 10-Q for the quarter ended June 30, 1989, File No. 1-4955).
10.1(b) Lease Agreement between Kalaeloa Partners, L.P., as Lessor, and HECO, as Lessee, dated February 27, 1989 (Exhibit 10(d) to HECO's Quarterly Report on Form 10-Q for the quarter ended June 30, 1989, File No. 1-4955).
10.1(c) Restated and Amended Amendment No. 2 to Power Purchase Agreement between HECO and Kalaeloa Partners, L.P., dated February 9, 1990 (Exhibit 10.2(c) to HECO's Annual Report on Form 10-K for the fiscal year ended December 31, 1989, File No. 1-4955).
10.1(d) Amendment No. 3 to Power Purchase Agreement between HECO and Kalaeloa Partners, L.P., dated December 10, 1991 (Exhibit 10.2(e) to HECO's Annual Report on Form 10-K for the fiscal year ended December 31, 1991, File No. 1-4955).
10.2 Power Purchase Agreement between AES Barbers Point, Inc. and HECO, entered into on March 25, 1988 (Exhibit 10(a) to HECO's Quarterly Report on Form 10-Q for the quarter ended March 31, 1988, File No. 1-4955).
10.2(a) Agreement between HECO and AES Barbers Point, Inc., pursuant to letters dated May 10, 1988 and April 20, 1988 (Exhibit 10.4 to HECO's Annual Report on Form 10-K for fiscal year ended December 31, 1988, File No. 1-4955).
10.2(b) Amendment No. 1, entered into as of August 28, 1988, to Power Purchase Agreement between AES Barbers Point, Inc. and HECO (Exhibit 10 to HECO's Quarterly Report on Form 10-Q for the quarter ended September 30, 1989, File No. 1-4955).
10.2(c) HECO's Conditional Notice of Acceptance to AES Barbers Point, Inc. dated January 15, 1990 (Exhibit 10.3(c) to HECO's Annual Report on Form 10-K for the fiscal year ended December 31, 1989, File No. 1-4955).
10.3 Amended and Restated Power Purchase Agreement between Hilo Coast Processing Company and HELCO dated March 24, 1995 (Exhibit 10 to HECO's Quarterly Report on Form 10-Q for the quarter ended March 31, 1995, File No. 1-4955).
10.3(a) Seconded Amended and Restated Power Purchase Agreement between Hilo Coast Power Company and HELCO dated October 4, 1999 (Exhibit 10 to HECO's Quarterly Report on Form 10-Q for the quarter ended September 30, 1999, File No. 1-4955).
10.4 Agreement between MECO and Hawaiian Commercial & Sugar Company pursuant to letters dated November 29, 1988 and November 1, 1988 (Exhibit 10.8 to HECO's Annual Report on Form 10-K for the fiscal year ended December 31, 1988, File No. 1-4955).
10.4(a) Amended and Restated Power Purchase Agreement by and between A&B-Hawaii, Inc., through its division, Hawaiian Commercial & Sugar Company, and MECO, dated November 30, 1989 (Exhibit 10(e) to HECO's Quarterly Report on Form 10-Q for the quarter ended September 30, 1990, File No. 1-4955).
10.4(b) First Amendment to Amended and Restated Power Purchase Agreement by and between A&B-Hawaii, Inc., through its division, Hawaiian Commercial & Sugar Company, and MECO, dated November 1, 1990, amending the Amended and Restated Power Purchase Agreement dated November 30, 1989 (Exhibit 10(f) to HECO's Quarterly Report on Form 10-Q for the quarter ended September 30, 1990, File No. 1-4955).
10.4(d) Letter agreement dated October 22, 1998 to Extend Term of Amended and Restated Power Purchase Agreement Between A&B-Hawaii, Inc., through its division, Hawaiian Commercial & Sugar Company, and MECO dated November 30, 1989, as Amended on November 1, 1990 (Exhibit 10.4(d) to HECO's Annual Report on Form 10-K for the fiscal year ended December 31, 1997, File No. 1-4955).
10.4(e) Termination Notice dated December 27, 1999 for Amended and Restated Power Purchase Agreement by and between A&B Hawaii, Inc., through its division, Hawaiian Commercial & Sugar Company, and MECO, dated November 30, 1989, as amended (Exhibit 10.2 to HECO's Quarterly Report on Form 10-Q for the quarter ended September 30, 2000, File No. 1-4955).
*10.4(f) Rescission dated January 23, 2001 of Termination Notice for Amended and Restated Power Purchase Agreement by and between A&B Hawaii, Inc., through its division, Hawaiian Commercial & Sugar Company, and MECO, dated November 30, 1989, as amended
10.5 Purchase Power Contract between HELCO and Thermal Power Company dated March 24, 1986 (Exhibit 10(a) to HECO's Quarterly Report on Form 10-Q for the quarter ended June 30, 1989, File No. 1-4955).
10.5(a) Firm Capacity Amendment between HELCO and Puna Geothermal Venture (assignee of AMOR VIII, who is the assignee of Thermal Power Company) dated July 28, 1989 to Purchase Power Contract between HELCO and Thermal Power Company dated March 24, 1986 (Exhibit 10(b) to HECO's Quarterly Report on Form 10-Q for the quarter ended June 30, 1989, File No. 1-4955).
10.5(b) Amendment made in October 1993 to Purchase Power Contract between HELCO and Puna Geothermal Venture dated March 24, 1986, as amended (Exhibit 10.5(b) to HECO's Annual Report on Form 10-K for the fiscal year ended December 31, 1997, File No. 1-4955).
10.5(c) Third Amendment dated March 7, 1995 to the Purchase Power Contract between HELCO and Puna Geothermal Venture dated March 24, 1986, as amended (Exhibit 10.5(c) to HECO's Annual Report on Form 10-K for the fiscal year ended December 31, 1997, File No. 1-4955).
10.5(d) Performance Agreement and Fourth Amendment dated February 12, 1996 to the Purchase Power Contract between HELCO and Puna Geothermal Venture dated March 24, 1986, as amended (Exhibit 10.5(b) to HECO's Annual Report on Form 10-K for the fiscal year ended December 31, 1995, File No. 1-4955).
Exhibit no. Description
----------- -----------
10.6 Purchase Power Contract between HECO and the City and County of
Honolulu dated March 10, 1986 (Exhibit 10.9 to HECO's Annual Report
on Form 10-K for the fiscal year ended December 31, 1989, File No.
1-4955).
|
10.6(a) Firm Capacity Amendment, dated April 8, 1991, to Purchase Power Contract, dated March 10, 1986, by and between HECO and the City & County of Honolulu (Exhibit 10 to HECO's Quarterly Report on Form 10-Q for the quarter ended March 31, 1991, File No. 1-4955).
10.6(b) Amendment No. 2 to Purchase Power Contract Between HECO and City and County of Honolulu dated March 10, 1986 (Exhibit 10.6(c) to HECO's Annual Report on Form 10-K for the fiscal year ended December 31, 1997, File No. 1-4955).
10.7 Power Purchase Agreement between Encogen Hawaii, L.P. and HELCO
dated October 22, 1997 (but with the following attachments omitted:
Attachment C, "Selected portions of the North American Electric
Reliability Council Generating Availability Data System Data
Reporting Instructions dated October 1996" and Attachment E, "Form
of the Interconnection Agreement between Encogen Hawaii, L.P. and
HELCO," which is provided in final form as Exhibit 10.7(a)) (Exhibit
10.7 to HECO's Annual Report on Form 10-K for the fiscal year ended
December 31, 1997, File No. 1-4955).
10.7(a) Interconnection Agreement between Encogen Hawaii, L.P. and HELCO dated October 22, 1997 (Exhibit 10.7(a) to HECO's Annual Report on Form 10-K for the fiscal year ended December 31, 1997, File No. 1-4955).
10.7(b) Amendment No. 1, executed on January 14, 1999, to Power Purchase Agreement between Encogen Hawaii, L.P. and HELCO dated October 22, 1997 (Exhibit 10.7(b) to HECO's Annual Report on Form 10-K for the fiscal year ended December 31, 1997, File No. 1-4955).
10.8 Low Sulfur Fuel Oil Supply Contract by and between Chevron and HECO dated as of November 14, 1997 (confidential treatment has been requested for portions of this exhibit) (Exhibit 10.8 to HECO's Annual Report on Form 10-K for the fiscal year ended December 31, 1997, File No. 1-4955).
10.9 Inter-Island Industrial Fuel Oil and Diesel Fuel Supply Contract by and between Chevron and HECO, MECO, HELCO, HTB and YB dated as of November 14, 1997 (confidential treatment has been requested for portions of this exhibit) (Exhibit 10.9 to HECO's Annual Report on Form 10-K for the fiscal year ended December 31, 1997, File No. 1-4955).
10.9(a) Agreement between HECO, MECO, HELCO, HTB, YB, Saltchuk Resources Inc. and Moana Pa'a Kai, Inc. dated October 29, 1999 relating to the Inter-Island Industrial Fuel Oil and Diesel Fuel Supply Contract (Exhibit 10.9(a) to HECO's Annual Report on Form 10-K for the fiscal year ended December 31, 1999, File No. 1-4955).
Exhibit no. Description
----------- -----------
10.10 Facilities and Operating Contract by and between Chevron and HECO
dated as of November 14, 1997 (confidential treatment has been
requested for portions of this exhibit) (Exhibit 10.10 to HECO's
Annual Report on Form 10-K for the fiscal year ended December 31,
1997, File No. 1-4955).
10.11 Low Sulfur Fuel Oil Supply Contract by and between BHP Petroleum
Americas Refining Inc. and HECO dated as of November 14, 1997
(confidential treatment has been requested for portions of this
exhibit) (Exhibit 10.11 to HECO's Annual Report on Form 10-K for the
fiscal year ended December 31, 1997, File No. 1-4955).
10.12 Inter-Island Industrial Fuel Oil and Diesel Fuel Supply Contract by
and between BHP Petroleum Americas Refining Inc. and HECO, MECO and
HELCO dated November 14, 1997 (confidential treatment has been
requested for portions of this exhibit) (Exhibit 10.12 to HECO's
Annual Report on Form 10-K for the fiscal year ended December 31,
1997, File No. 1-4955).
*10.13 Contract of private carriage by and between HITI and HELCO dated
December 4, 2000.
*10.14 Contract of private carriage by and between HITI and MECO dated
December 4, 2000.
10.15 HECO Nonemployee Directors' Deferred Compensation Plan (Exhibit
10.16 to HECO's Annual Report on Form 10-K for the fiscal year ended
December 31, 1990, File No. 1-4955).
10.16 HEI and HECO Executives' Deferred Compensation Agreement. The
agreement pertains to and is substantially identical for all the HEI
and HECO executive officers (Exhibit 10.15 to HEI's Annual Report on
Form 10-K for the fiscal year ended December 31, 1991, File No.
1-8503).
11 Computation of Earnings Per Share of Common Stock. See note on page
2 of HECO's Annual Report.
*12.2 Computation of Ratio of Earnings to Fixed Charges. Filed herein as
page 91.
13 Pages 2 to 42 and 44 of HECO's Annual Report (with the exception of
the data incorporated by reference in Part I, Part II, Part III and
Part IV, no other data appearing in the 2000 Annual Report to
Stockholder is to be deemed filed as part of this Form 10-K Annual
Report) (HECO Exhibit 13.2 to HECO's Current Report on Form 8-K
dated February 23, 2001, File No. 1-4955).
18 KPMG LLP letter re: change in accounting principle (Exhibit 18.2 to
HECO's Quarterly Report on Form 10-Q for the quarter ended March 31,
2000, File No. 1-4955).
*21.2 Subsidiaries of HECO. Filed herein as page 94.
*99.2 Reconciliation of electric utility operating income per HEI and HECO
Consolidated Statements of Income. Filed herein as page 96.
|
HEI Exhibit 11
Hawaiian Electric Industries, Inc.
COMPUTATION OF EARNINGS PER SHARE
OF COMMON STOCK
Years ended December 31, 2000, 1999, 1998, 1997 and 1996
(in thousands,
except per share amounts) 2000 1999 1998 1997 1996
--------------------------------------------------------------------------------------------------------------------
Net income (loss)
Continuing operations............ $45,744 $92,894 $94,628 $91,843 $80,555
Discontinued operations.......... -- 3,953 (9,817) (5,401) (1,897)
------------------------------------------------------------------------------
$45,744 $96,847 $84,811 $86,442 $78,658
==============================================================================
Weighted-average number of common
shares outstanding............ 32,545 32,188 32,014 31,375 30,310
==============================================================================
Adjusted weighted-average number of
common shares outstanding..... 32,687 32,291 32,129 31,470 30,388
==============================================================================
Basic earnings (loss) per common share
Continuing operations............ $1.41 $2.89 $2.96 $2.93 $2.66
Discontinued operations.......... -- 0.12 (0.31) (0.17) (0.06)
------------------------------------------------------------------------------
$1.41 $3.01 $2.65 $2.76 $2.60
==============================================================================
Diluted earnings (loss) per common
share
Continuing operations............ $1.40 $2.88 $2.95 $2.92 $2.65
Discontinued operations.......... -- 0.12 (0.31) (0.17) (0.06)
------------------------------------------------------------------------------
$1.40 $3.00 $2.64 $2.75 $2.59
==============================================================================
|
HEI Exhibit 12.1 (page 1 of 2)
Hawaiian Electric Industries, Inc.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
Years ended December 31, 2000, 1999, 1998, 1997 and 1996
2000 1999 1998
------------------------------------------------------------------------------
(dollars in thousands) (1) (2) (1) (2) (1) (2)
----------------------------------------------------------------------------------------------------------------------
Fixed charges
Total interest charges (3) .......... $198,471 $317,663 $159,729 $280,067 $145,449 $287,518
Interest component of rentals......... 4,451 4,451 4,429 4,429 3,599 3,599
Pretax preferred stock dividend
requirements of subsidiaries....... 2,900 2,900 3,415 3,415 9,404 9,404
Preferred securities distributions of
trust subsidiaries................. 16,035 16,035 16,025 16,025 12,557 12,557
------------------------------------------------------------------------------
Total fixed charges................... $221,857 $341,049 $183,598 $303,936 $171,009 $313,078
==============================================================================
Earnings
Pretax income from continuing
operations......................... $ 66,986 $ 66,986 $149,884 $149,884 $151,581 $151,581
Fixed charges, as shown............... 221,857 341,049 183,598 303,936 171,009 313,078
Interest capitalized.................. (3,089) (3,089) (2,844) (2,844) (5,915) (5,915)
------------------------------------------------------------------------------
Earnings available for fixed charges.. $285,754 $404,946 $330,638 $450,976 $316,675 $458,744
==============================================================================
Ratio of earnings to
fixed charges..................... 1.29 1.19 1.80 1.48 1.85 1.47
==============================================================================
|
(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.
HEI Exhibit 12.1 (page 2 of 2)
Hawaiian Electric Industries, Inc.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
Years ended December 31, 2000, 1999, 1998, 1997 and 1996--Continued
1997 1996
---------------------------------------------------------
(dollars in thousands) (1) (2) (1) (2)
--------------------------------------------------------------------------------------------------------
Fixed charges
Total interest charges (3) .................... $137,855 $226,954 $127,006 $218,170
Interest component of rentals.................. 2,973 2,973 3,583 3,583
Pretax preferred stock dividend requirements
of subsidiaries............................. 9,999 9,999 10,730 10,730
Preferred securities distributions of trust
subsidiaries................................ 10,600 10,600 -- --
---------------------------------------------------------
Total fixed charges............................ $161,427 $250,526 $141,319 $232,483
=========================================================
Earnings
Pretax income from
continuing operations....................... $150,616 $150,616 $136,585 $136,585
Fixed charges, as shown........................ 161,427 250,526 141,319 232,483
Interest capitalized........................... (6,190) (6,190) (5,862) (5,862)
---------------------------------------------------------
Earnings available for fixed charges........... $305,853 $394,952 $272,042 $363,206
=========================================================
Ratio of earnings to fixed charges............. 1.89 1.58 1.93 1.56
=========================================================
|
(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.
HECO Exhibit 12.2
Hawaiian Electric Company, Inc.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
Years ended December 31, 2000, 1999, 1998, 1997 and 1996
(dollars in thousands) 2000 1999 1998 1997 1996
--------------------------------------------------------------------------------------------------------------
Fixed charges
Total interest charges.......................... $49,062 $48,460 $47,921 $48,778 $47,451
Interest component of rentals................... 696 785 730 757 690
Pretax preferred stock dividend requirements of
subsidiaries................................. 1,438 1,479 4,081 4,150 4,358
Preferred securities distributions of trust
subsidiaries................................. 7,675 7,665 4,197 3,052 --
-------------------------------------------------------------
Total fixed charges............................. $58,871 $58,389 $56,929 $56,737 $52,499
=============================================================
Earnings
Income before preferred stock dividends of HECO. $88,366 $ 76,400 $ 84,230 $ 81,849 $ 85,213
Fixed charges, as shown......................... 58,871 58,389 56,929 56,737 52,499
Income taxes (see note below)................... 55,375 48,047 54,572 52,535 55,888
Allowance for borrowed funds used during
construction................................. (2,922) (2,576) (5,915) (6,190) (5,862)
-------------------------------------------------------------
Earnings available for fixed charges............ $199,690 $180,260 $189,816 $184,931 $187,738
=============================================================
Ratio of earnings to fixed charges.............. 3.39 3.09 3.33 3.26 3.58
=============================================================
Note:
Income taxes is comprised of the following:
Income tax expense relating to operating
income for regulatory purposes............ $55,213 $48,281 $54,719 $52,795 $56,170
Income tax expense (benefit) relating to
nonoperating results...................... 162 (234) (147) (260) (282)
-------------------------------------------------------------
$55,375 $48,047 $54,572 $52,535 $55,888
=============================================================
|
HEI Exhibit 21.1 (Page 1 of 2)
Hawaiian Electric Industries, Inc.
SUBSIDIARIES OF THE REGISTRANT
The following is a list of all direct and indirect subsidiaries of the registrant as of March 12, 2001. The state/place of incorporation or organization is noted in parentheses and subsidiaries of intermediate parent companies are designated by indentations.
Hawaiian Electric Company, Inc. (Hawaii)
Maui Electric Company, Limited (Hawaii)
Hawaii Electric Light Company, Inc. (Hawaii)
HECO Capital Trust I (Delaware)
HECO Capital Trust II (Delaware)
HEI Diversified, Inc. (Hawaii)
American Savings Bank, F.S.B. (federally chartered)
American Savings Investment Services Corp. (Hawaii)
ASB Service Corporation (Hawaii)
AdCommunications, Inc. (Hawaii)
American Savings Mortgage Co., Inc. (Hawaii)
ASB Realty Corporation (Hawaii)
HEI Power Corp. (Hawaii)
HEI Power Corp. Guam (Hawaii)
HEI Power Corp. Saipan (Commonwealth of the Northern Mariana Islands)
HEI Power Corp. International (Cayman Islands)
HEIPC Cambodia Ventures (Cayman Islands)
HEIPC Phnom Penh Power (Limited), LLC (Cayman Islands)
HEI Power Corp. Philippines (Cayman Islands)
HEIPC Philippine Ventures (Cayman Islands)
HEIPC Philippine Development, LLC (Cayman Islands)
Lake Mainit Power, LLC (Cayman Islands)
HEIPC Bulacan I, LLC (Cayman Islands)
HEIPC Bulacan II, LLC (Cayman Islands)
HEI Power Corp. China (Republic of Mauritius)
Dafeng Sanlian Cogeneration Co., Ltd. (People's Republic of China)
(76% owned by HEI Power Corp. China)
HEI Power Corp. China II (Republic of Mauritius)
United Power Pacific Company Limited (Republic of Mauritius)
Baotou Tianjiao Power Co., Ltd. (People's Republic of China)
(75% owned by United Power Pacific Company Limited)
HEI Power Corp. China III (Republic of Mauritius)
HEI Power Corp. China IV (Republic of Mauritius)
HEI Exhibit 21.1 (Page 2 of 2)
Hawaiian Electric Industries, Inc.
SUBSIDIARIES OF THE REGISTRANT
(continued)
HEI Investments, Inc. (Hawaii; continued in Nova Scotia, Canada) HEIPC Philippines Holding Co. (Republic of the Philippines) EPHE Philippines Energy Company, Inc. (Republic of the Philippines)
(50% owned by HEIPC Philippines Holding Co.)
East Asia Power Resources Corporation (Republic of the Philippines)
(approximately 91.7% owned by EPHE Philippines Energy Company, Inc.)
East Asia Diesel Power Corporation (Republic of the Philippines)
Sunrise Power Company Inc. (Republic of the Philippines)
(approximately 66.7% owned by East Asia Diesel Power
Corporation)
Duracom Mobile Power Company (Republic of the Philippines)
(40% owned by East Asia Diesel Power Corporation)
Pacific Energy Conservation Services, Inc. (Hawaii)
HEI District Cooling, Inc. (Hawaii)
ProVision Technologies, Inc. (Hawaii)
HEI Properties, Inc. (Hawaii)
HEI Leasing, Inc. (Hawaii)
Hycap Management, Inc. (Delaware)
HEI Preferred Funding, LP (a limited partnership in which Hycap Management,
Inc. is the sole general partner) (Delaware)
Hawaiian Electric Industries Capital Trust I (a business trust) (Delaware)
Hawaiian Electric Industries Capital Trust II (a business trust) (Delaware)
Hawaiian Electric Industries Capital Trust III (a business trust) (Delaware)
The Old Oahu Tug Service, Inc. (Hawaii)
Malama Pacific Corp. (Hawaii)
Malama Property Investment Corp. (Hawaii)
Malama Development Corp. (Hawaii)
Malama Mohala Corp. (Hawaii)
HECO Exhibit 21.2
Hawaiian Electric Company, Inc.
SUBSIDIARIES OF THE REGISTRANT
The following is a list of all subsidiaries of the registrant as of March 12, 2001. The state/place of incorporation or organization is noted in parentheses.
Maui Electric Company, Limited (Hawaii)
Hawaii Electric Light Company, Inc. (Hawaii)
HECO Capital Trust I (a business trust) (Delaware)
HECO Capital Trust II (a business trust) (Delaware)
HEI Exhibit 23
[KPMG LLP letterhead]
The Board of Directors
Hawaiian Electric Industries, Inc.:
We consent to incorporation by reference in Registration Statement Nos. 333-44737, 33-58820, 333-73225, 333-18809 and 333-56312 on Form S-3 and Registration Statement Nos. 33-65234, 333-05667 and 333-02103 on Form S-8 of Hawaiian Electric Industries, Inc., and Registration Statement Nos. 333-18809-01, 333-18809-02, 333-18809-03 and 333-18809-04 on Form S-3 of Hawaiian Electric Industries Capital Trust I, Hawaiian Electric Industries Capital Trust II, Hawaiian Electric Industries Capital Trust III and HEI Preferred Funding, LP of our report dated January 23, 2001, relating to the consolidated balance sheets of Hawaiian Electric Industries, Inc. and subsidiaries as of December 31, 2000 and 1999, and the related consolidated statements of income, retained earnings and cash flows for each of the years in the three-year period ended December 31, 2000, which report is incorporated by reference in the 2000 annual report on Form 10-K of Hawaiian Electric Industries, Inc. We also consent to incorporation by reference of our report dated January 23, 2001 relating to the financial statement schedules of Hawaiian Electric Industries, Inc. in the aforementioned 2000 annual report on Form 10-K, which report is included in said Form 10-K.
/s/ KPMG LLP Honolulu, Hawaii March 23, 2001 |
HECO Exhibit 99.2
Hawaiian Electric Company, Inc.
RECONCILIATION OF ELECTRIC UTILITY OPERATING
INCOME PER HEI AND HECO CONSOLIDATED
STATEMENTS OF INCOME
Years ended December 31,
----------------------------------------
(in thousands) 2000 1999 1998
-----------------------------------------------------------------------------------------------------------------
Operating income from regulated and nonregulated activities before
income taxes (per HEI Consolidated Statements of Income)........... $193,091 $174,714 $177,450
Deduct:
Income taxes on regulated activities............................... (55,213) (48,281) (54,719)
Revenues from nonregulated activities.............................. (6,535) (4,881) (7,384)
Add:
Expenses from nonregulated activities.............................. 1,818 1,289 805
----------------------------------
Operating income from regulated activities after income taxes (per HECO
Consolidated Statements of Income)................................. $133,161 $122,841 $116,152
==================================
|
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrants have duly caused this report to be signed on their behalf by the undersigned, thereunto duly authorized. The signatures of the undersigned companies shall be deemed to relate only to matters having reference to such companies and any subsidiaries thereof.
HAWAIIAN ELECTRIC INDUSTRIES, INC. HAWAIIAN ELECTRIC COMPANY, INC.
(Registrant) (Registrant)
By /s/ Robert F. Mougeot By /s/ Richard A. von Gnechten
--------------------------------------- --------------------------------
Robert F. Mougeot Richard A. von Gnechten
Financial Vice President, Treasurer and Financial Vice President of HECO
Chief Financial Officer of HEI
(Principal Financial Officer of HEI) (Principal Financial Officer
of HECO)
Date: March 20, 2001 Date: March 20, 2001
|
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrants and in the capacities indicated on March 20, 2001. The signature of each of the undersigned shall be deemed to relate only to matters having reference to the above-named companies and any subsidiaries thereof.
Signature Title ---------------------------------- ------------------------------------------ /s/ Robert F. Clarke Chairman, President and Director of HEI ---------------------------------- Chairman of the Board of Directors of HECO Robert F. Clarke (Chief Executive Officer of HEI) /s/ T. Michael May Senior Vice President and Director of HEI ---------------------------------- President and Director of HECO T. Michael May (Chief Executive Officer of HECO) /s/ Robert F. Mougeot Financial Vice President, Treasurer and ---------------------------------- Chief Financial Officer of HEI Robert F. Mougeot (Principal Financial Officer of HEI) /s/ Curtis Y. Harada Controller of HEI ---------------------------------- (Principal Accounting Officer of HEI) Curtis Y. Harada |
SIGNATURES (continued)
Signature Title ---------------------------------- ------------------------------------------ /s/ Richard A. von Gnechten Financial Vice President ---------------------------------- (Principal Financial Officer of HECO) Richard A. von Gnechten /s/ Ernest T. Shiraki Controller of HECO ---------------------------------- (Principal Accounting Officer of HECO) Ernest T. Shiraki /s/ Don E. Carroll Director of HEI ---------------------------------- Don E. Carroll /s/ Richard Henderson Director of HEI and HECO ---------------------------------- Richard Henderson /s/ Victor Hao Li Director of HEI ---------------------------------- Victor Hao Li /s/ Bill D. Mills Director of HEI ---------------------------------- Bill D. Mills /s/ A. Maurice Myers Director of HEI ---------------------------------- A. Maurice Myers |
SIGNATURES (continued)
Signature Title ---------------------------------- ------------------------------------------ /s/ Diane J. Plotts Director of HEI and HECO ---------------------------------- Diane J. Plotts /s/ James K. Scott Director of HEI and HECO ---------------------------------- James K. Scott /s/ Oswald K. Stender Director of HEI ---------------------------------- Oswald K. Stender /s/ Anne M. Takabuki Director of HECO ---------------------------------- Anne M. Takabuki |
/s/ Jeffrey N. Watanabe Director of HEI and HECO ---------------------------------- Jeffrey N. Watanabe /s/ Paul C. Yuen Director of HECO ---------------------------------- Paul C. Yuen |
HECO Exhibit 10.4(f)
[MECO Letterhead]
January 23, 2001
Mr. G. Stephen Holaday
Plantation General Manager
Hawaiian Commercial & Sugar Company
P. O. Box 266
Puunene, Hawaii 96784
Dear Mr. Holaday:
I would like to thank you and John Kreag for our discussion on January 12, 2001, regarding the generation needs for the island of Maui and the status of negotiations for a new Power Purchase Agreement under which HC&S would continue to play a significant role in meeting those needs beyond 2001. MECO and HC&S have had a long term, mutually beneficial relationship, and I fully expect that we will continue this relationship as our companies evolve to meet the challenges of a changing business environment on Maui.
MECO had expected to be able to negotiate a new, mutually acceptable agreement with HC&S by December 2000, which would have provided time to obtain approval
Mr. G. Stephen Holaday
January 23, 2001
Page Two
from the Hawaii Public Utilities Commission of the new agreement prior to the expiration of the existing PPA at the end of the day on December 31, 2001.(2)
Under the circumstances, the parties are not in a position to agree upon or finalize a new agreement within the time frame originally contemplated, although the parties continue to negotiate with respect to a new agreement. At the same time, it is mutually beneficial for the parties to be assured that HC&S will continue to deliver power to MECO, and MECO will continue to purchase such power, at least through 2004.
This letter documents and confirms the following actions and agreements by MECO and HC&S:
1. MECO rescinds the Termination Notice dated December 27, 1999.
2. HC&S agrees to and accepts the rescission of the Termination Notice.
3. MECO and HC&S agree that neither party will give written notice of termination under Article XVII of the PPA such that the PPA terminates prior to the end of the day on December 31, 2004. As a result, the PPA remains in full force and effect through December 31, 2004, and from year to year
Mr. G. Stephen Holaday
January 23, 2001
Page Three
thereafter, subject to termination on or after the end of the day on December 31, 2004 on not less than two (2) years' prior written notice by either party. For the PPA to terminate as of the end of the day on December 31, 2004, written notice of termination must be provided by either party on or before December 31, 2002.
If the foregoing meets with your approval, please execute the below acknowledgment and return the original to me, retaining the duplicate original for your files. MECO values its long-standing relationship with HC&S, and thanks you for your willingness to work cooperatively to position both companies for the future.
MAUI ELECTRIC COMPANY, LIMITED
By /s/ William A. Bonnet
--------------------------
Its President
--------------------------
Date: January 23, 2001
--------------------------
By /s/ Lyle J. Matsunaga
--------------------------
Its Assistant Treasurer
--------------------------
Date: January 23, 2001
--------------------------
|
Acknowledged and Agreed:
ALEXANDER & BALDWIN, INC., by its division
HAWAIIAN COMMERCIAL & SUGAR COMPANY
By /s/ G. Stephen Holaday
----------------------------
Its Vice President
----------------------------
Date: January 23, 2001
----------------------------
By /s/ John P. Kreag
----------------------------
Its Assistant Treasurer
----------------------------
Date: January 23, 2001
----------------------------
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HECO Exhibit 10.13
[LOGO] Inter-Island Fuel Transportation Contract [LOGO]
CONTRACT OF PRIVATE CARRIAGE
BY AND BETWEEN
HAWAIIAN INTERISLAND TOWING, INC.
AND
HAWAII ELECTRIC LIGHT CO., INC.
FINAL (December 4, 2000)
TABLE OF CONTENTS
1. TERM.................................................................................................. 2
1.1 Initial Term................................................................................. 2
1.2 Option to Extend Term........................................................................ 2
1.3 Final Voyage................................................................................. 2
2. VESSELS............................................................................................... 2
2.1 Warranty..................................................................................... 2
2.2 Barge........................................................................................ 3
2.3 Tug.......................................................................................... 3
2.4 Vessel Clarification......................................................................... 3
2.5 Substitution................................................................................. 3
2.6 Seaworthiness................................................................................ 5
2.7 Tank Calibration and Gauging................................................................. 6
2.8 Cargo Transfer Equipment..................................................................... 6
3. VESSEL PERSONNEL...................................................................................... 6
3.1 Complement................................................................................... 6
3.2 Tankermen.................................................................................... 7
3.3 Employee Responsibility and Training......................................................... 7
3.4 Master's Duties.............................................................................. 8
3.5 Safety Management............................................................................ 8
3.6 Mooring Master............................................................................... 9
3.7 Drugs and Alcohol............................................................................ 9
3.8 Equal Opportunity............................................................................ 9
3.9 Documented Procedures........................................................................ 10
3.10 Safety Program............................................................................... 10
4. CARRIAGE, LOADING AND DISCHARGE OF CARGO.............................................................. 11
4.1 Alternate Ports.............................................................................. 11
4.2 Safe Berth................................................................................... 11
4.3 Marine Facilities............................................................................ 11
4.4 Barge Makeup................................................................................. 12
4.5 Pumping In and Out........................................................................... 12
4.6 Cargo Hose Markings.......................................................................... 13
4.7 Cargo Handling............................................................................... 13
4.8 Cargo and Bunker Sample and Survey........................................................... 13
4.9 Cleaning..................................................................................... 14
4.10 Equipment Failure............................................................................ 14
4.11 Cargo Retainage.............................................................................. 14
4.12 Voyage Course and Speed...................................................................... 15
4.13 Other Trades................................................................................. 15
4.14 Joint Voyages................................................................................ 15
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5. RATES, CHARGES, ETC................................................................................... 16
5.1 Freight Rates................................................................................ 16
5.2 Shipments Made in Conjuction with Third Parties.............................................. 17
5.3 Annual Escalation............................................................................ 17
5.4 Cargo Volume................................................................................. 18
5.5 Laytime Duration............................................................................. 18
5.6 Laytime Loading.............................................................................. 19
5.7 Laytime Discharge............................................................................ 19
5.8 Demurrage.................................................................................... 19
5.9 Tankermen Charges............................................................................ 20
5.10 Heating of Fuel Oil Aboard the Tow........................................................... 20
5.11 Diesel Fuel Price Adjustment................................................................. 21
5.12 Additional Berths/Ports...................................................................... 22
5.13 Port, Dues, Taxes and Other Charges.......................................................... 22
5.14 Freight Earned............................................................................... 23
5.15 Billing, Payment and Disputes................................................................ 23
5.16 Waiver Of Claims............................................................................. 23
6. SCHEDULING............................................................................................ 24
6.1 Scheduling................................................................................... 24
6.2 Priority Resolution.......................................................................... 24
6.3 Notice of Cancellation or Delay.............................................................. 24
7. MAINTENANCE SERVICES AND OTHER REQUIREMENTS........................................................... 25
7.1 Maintenance of the Tug and Barge............................................................. 25
7.2 Other Required Services...................................................................... 25
8. INSURANCE............................................................................................. 26
8.1 Carrier's Insurances......................................................................... 26
8.2 Shipper's Insurances......................................................................... 26
8.3 Conditions Applicable to Insurances.......................................................... 27
8.4 Failure to Procure Insurance................................................................. 28
9. LIABILITY AND INDEMNITY............................................................................... 28
9.1 Carrier...................................................................................... 28
9.2 Shipper...................................................................................... 31
9.3 General Conditions........................................................................... 32
9.4 Indemnification.............................................................................. 32
10. LIBERTIES............................................................................................. 32
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11. FORCE MAJEURE......................................................................................... 33
11.1 Force Majeure Events......................................................................... 33
11.2 Carrier's Obligation......................................................................... 33
11.3 Shipper's Obligation......................................................................... 33
11.4 Notice of Force Majeure...................................................................... 34
12. LIMITATION OF LIABILITY............................................................................... 34
12.1 Limitation of Liability...................................................................... 34
12.2 Not A Demise................................................................................. 34
13. GENERAL AVERAGE....................................................................................... 34
14. POLLUTION............................................................................................. 35
14.1 Compliance................................................................................... 35
14.2 Oil Spill Response Plan...................................................................... 36
14.3 Pollution Mitigation......................................................................... 37
15. CHANGE OF OWNERSHIP OF CARRIER........................................................................ 37
16. TERMINATION........................................................................................... 37
16.1 Termination of Automatic Renewal............................................................. 37
16.2 Termination Based Upon Breach or Default..................................................... 38
16.3 Termination In Specific Instances............................................................ 38
16.4 Termination for Substandard Performance...................................................... 39
16.5 Prolonged Force Majeure...................................................................... 40
16.6 Total Loss of Barge.......................................................................... 40
16.7 Change of Ownership/Control.................................................................. 40
16.8 Automatic Termination........................................................................ 40
16.9 Termination By Assent........................................................................ 40
16.10 Other Conditions............................................................................. 41
17. DEFINITIONS........................................................................................... 41
18. DISPUTE RESOLUTION.................................................................................... 42
18.1 General...................................................................................... 42
18.2 Technical Disputes........................................................................... 42
18.3 All Other Disputes........................................................................... 43
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19. GENERAL PROVISIONS.................................................................................... 44
19.1 Audit........................................................................................ 44
19.2 Shipper's Representatives.................................................................... 45
19.3 Liens Upon the Cargo......................................................................... 45
19.4 Business Policy.............................................................................. 45
19.5 Notices...................................................................................... 45
19.6 Captions..................................................................................... 45
19.7 Assignment................................................................................... 46
19.8 Extension of Benefits........................................................................ 46
19.9 Entire Contract.............................................................................. 46
19.10 Severability................................................................................. 46
19.11 Regulatory Approval.......................................................................... 46
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EXHIBITS
A Barge Requirements A-1 Barge Specifications A-2 Interim Barge Specifications B Tug Requirements B-1 Tug Specifications C Minimum Requirements for Vessels Calling at SPM D Manning Requirements E No. 2 Diesel Oil Characteristics F No. 6 Fuel Oil Characteristics G Ports of Call |
Contract of Private Carriage
CONTRACT OF PRIVATE CARRIAGE
This Contract is made on this 4/th/ day of December, 2000, by and between HAWAIIAN INTERISLAND TOWING, INC. (hereinafter called "Carrier"), a Hawaii corporation whose principal place of business and address is Pier 21, Main Office, Honolulu, Hawaii 96817, and HAWAII ELECTRIC LIGHT CO., INC., (hereinafter called "Shipper" or "HELCO"), a Hawaii corporation whose principal place of business and address is P.O. Box 1027, Hilo, Hawaii 96721-1027.
W I T N E S S E T H :
WHEREAS, Shipper is in the business of generation, distribution, purchase and sale of electrical power on the Island of Hawaii; and
WHEREAS, Shipper utilizes large quantities of diesel and residual fuel oils in its generation process; and
WHEREAS, Shipper is in need of acquiring reliable and economical transportation of such diesel and residual fuel oils between Oahu and the Island of Hawaii; and
WHEREAS, Shipper's needs can best be met by the use of specialized Vessels dedicated primarily to serving Shipper's needs; and
WHEREAS, Carrier is in the business of transporting liquid petroleum products in bulk among and between the Hawaiian Islands; and
WHEREAS, Carrier has specialized Vessels that can effectively meet Shipper's needs; and
WHEREAS, Carrier is entering into a similar agreement with Maui Electric Co., Ltd. (MECO);
NOW THEREFORE, in consideration of these premises and of the mutual promises herein contained, Carrier agrees to provide the Vessels identified herein for the purpose of transporting Shipper's Cargo of diesel and fuel oils between the Island of Oahu and the Island of Hawaii subject to the following terms and conditions:
Contract of Private Carriage
1. TERM
1.1 Initial Term.
The initial term of this Contract shall be for a period of five (5) years, commencing on January 1, 2002. Carrier shall have the Vessels necessary for service under this Contract ready and tendered for delivery to Shipper on the 1st day of January, 2002. Carrier warrants that as of the date of commencement of this Contract, the Tug and Barge shall fully comply with the descriptions, particulars and capabilities set forth in this Contract, including, without limitation, Section 2., below, and Exhibits A, B and C, attached hereto and incorporated herein.
1.2 Option to Extend Term.
The term of this Contract shall automatically renew after the expiration of the initial term set forth in Subsection 1.1., above, for up to three (3) additional five (5) year periods beginning January 1, 2007, unless Carrier or Shipper gives written notice of termination to the other party as set forth in Subsection 16.1., below.
1.3 Final Voyage.
Should the Vessel be on a voyage laden with Shipper's Cargo upon the expiry of the term of this Contract, Carrier's obligation to provide the service contracted for herein shall continue at the same rate and conditions for such extended time as may be necessary for the completion of the delivery of Shipper's Cargo.
2. VESSELS
2.1 Warranty.
Carrier expressly warrants that during the full term of this Contract, Carrier's Vessels, being the Tug and Barge identified in this Section, shall conform to the minimal specifications, outfitting and operational requirements set forth herein, with Carrier to remain responsible for the seaworthiness and safety of the Vessels, equipment and operations consistent with the best marine practices available. Carrier shall tender the Barge, being the new build, double hulled and OPA-90 qualified Barge required by this Contract, to Shipper fully fit for service hereunder on or before December 1, 2002. However, from the commencement of the initial term of this Contract until December 1, 2002, Carrier shall be entitled to utilize the Barge identified on Exhibit A-2, attached hereto and incorporated herein, to provide the services required by this Contract (referred to herein as the Interim Barge); to the extent the Interim Barge as identified on Exhibit A-2, hereto, does not conform to the requirements of Exhibit A, hereto, it shall be treated as an approved exception to the requirements of Exhibit A.
Contract of Private Carriage
Should Carrier fail to tender the Barge fully fit for service herein on or before December 1, 2002, Carrier shall pay to Shipper the sum of $5,000 per day until the Barge is so tendered for delivery, with Shipper concurrently entitled to any other rights and remedies which may be available to it at law, in equity or pursuant to this Contract. Carrier agrees to use its reasonable best efforts to tender the Barge for delivery prior to December 1, 2002.
2.2 Barge.
The Barge shall be as identified on Exhibit A-1, attached hereto and incorporated herein (the attached Exhibit A-1 includes a description of the Barge to the degree currently possible; a final version of Exhibit A-1 shall be attached upon completion of construction of the Barge), and shall be outfitted in accordance with Exhibits A and C, attached hereto and incorporated herein. Such description, particulars and capabilities of the Barge shall be maintained by Carrier throughout the term of this Contract.
2.3 Tug.
The Tug shall be as identified on Exhibit B-1, attached hereto and incorporated herein, and shall be outfitted in accordance with Exhibits B and C, attached hereto and incorporated herein. Such description, particulars and capabilities of the Tug shall be maintained by Carrier throughout the term of this Contract.
2.4 Vessel Clarification.
For purposes of clarification, it is understood that the Tug and Barge, including the Interim Barge and any substitute Tug or Barge provided in accordance with Subsection 2.5., below, shall be individually referred to as Tug, Barge or Vessel and collectively referred to as Vessels for purposes of this Contract.
2.5 Substitution.
It is the intent of this Contract that Carrier shall provide Shipper with complete assurance that the Vessels shall be available to Shipper during the full term of this Contract. In this regard, Carrier warrants that during any period in which a Vessel is not available for service hereunder, regardless of the duration of such suspension of service or whether or not the suspension of service was scheduled or anticipated except as provided in Subsection 7.1., below, that a suitable substitute Vessel of generally similar capability and capacity, acceptable to Shipper and meeting the requirements set forth in this Section, shall be employed by Carrier for service hereunder at no additional cost to Shipper. All the provisions of this Contract shall apply to such suitable substitute Vessel.
Contract of Private Carriage
Carrier expressly warrants that during the full term of this Contract, the substitute Vessel(s) shall conform to the minimal specifications, outfitting and operational requirements set forth herein, with Carrier to remain responsible for the seaworthiness and safety of the substitute Vessels, equipment and operations consistent with the best marine practices available. Carrier shall be entitled to utilize as a substitute Vessel a tug and/or barge having technical specifications of no lesser functional capability of the Tug and Interim Barge to provide the contingent substitute services required by this Contract. At the commencement of the term of the Contract and on each January 1 thereafter, Carrier must identify and provide a description in writing to Shipper summarizing the general specifications, dimensions and service capabilities of the substitute Tug or substitute Tugs, if the specific vessel utilized is one among a number of appropriately capable vessels, and identify and provide a description in writing to Shipper summarizing the general specifications, dimensions, layout and service capabilities the substitute Barge or substitute Barges, if the specific vessel to be utilized is one among a number of appropriately capable vessels. Carrier must identify in writing whether the substitute Vessels are under its control through ownership or charter. Carrier must also identify the expected trading area of each of the substitute Vessels. The general adequacy of the substitute Vessels shall be assessed by Shipper, who shall have the right to approve substitution of specific vessels as circumstances requiring substitution arise, including approval of vessels which may not meet all of the requirements of the Tug and Barge set forth in this Contract. In such case, however, Shipper shall also have the right to specify in such approvals the maximum period of time such substitute Vessel shall be allowed to operate under the Contract. Carrier shall be entitled to subsequently identify alternate vessels in place of, or in addition to, the previously identified substitute Vessels, but such alternate or additional substitute Vessel(s) shall be subject to the written approval of Shipper, and Shipper's right to impose time limitations, as circumstances requiring substitution arise.
Carrier warrants that any substitute Tug or Barge shall be fully capable and ready to promptly perform and shall be in all other respects able to perform in accordance with the requirements set forth in this Contract, including, but not limited to, having valid coverage under Carrier's oil spill liability and other insurance policies and the ability to lawfully operate under a USCG Certificate of Financial Responsibility and USCG- approved oil spill response plan (hereinafter the "Plan") consistent with the Cargo, ports and facilities required herein. It is further understood and agreed that any substitute Tug or Barge must be regularly maintained and stationed at a port or place such that it will be available for service hereunder within fifteen (15) days following the date on which the Tug and/or Barge is not available for service hereunder.
Contract of Private Carriage
2.6 Seaworthiness.
With respect to any Vessel provided by Carrier pursuant to this Contract, Carrier shall be bound to exercise due diligence at all times during the entirety of the Contract term to:
A. make the Vessel seaworthy, tight, staunch, strong, fit and in a thoroughly efficient state, order and condition;
B. properly man the Vessel in accordance with Section 3., below, and Exhibit D, attached hereto and incorporated herein;
C. make the tanks and all other parts of the Barge in which Cargo is carried or to be carried fit and safe for the receipt, loading, stowage, carriage, preservation and discharge of the Cargo;
D. equip the Barge in accordance with the provisions of Exhibits A and C, attached hereto and incorporated herein;
E. equip the Tug in accordance with the provisions of Exhibits B and C, attached hereto and incorporated herein;
F. warrant that the Vessel is fully rigged with appropriate towing gear, fenders, hoses, reducers and all other necessary and/or appropriate equipment for the safe, efficient and proper loading of Cargo at Honolulu Harbor, Barbers Point Harbor or Tesoro Single Point Mooring and Sea Berth off-shore Barbers Point (hereinafter "Tesoro SPM") in accordance with Exhibit C, attached hereto and incorporated herein, and for the discharging of Cargo at ports or places in the Hawaiian Islands;
G. ensure that the Plan is approved and filed with all appropriate governmental authorities as required and is in accordance with the Vessel's configuration and equipment, nature and amount of Cargo carried or to be carried on board the Vessel; that the Plan provides for adequate response capability at the ports, places and marine facilities called and for seas and places of transit; that a copy of the Plan is carried on board the Vessel; and that the Vessel's Master, mates, officers, crew and tankermen are familiar and experienced with the Plan's implementation, and
H. warrant that all required United States Coast Guard (USCG) certifications for the Vessel are in full force and effect.
Contract of Private Carriage
2.7 Tank Calibration and Gauging.
All cargo tanks of the Barge shall have been calibrated and ullage tables prepared in accordance with applicable API/ASTM standards by a reputable independent inspector. The Barge shall have clearly legible and accurate draft markings both fore and aft. The ullage tables shall provide trim corrections. Wedge volume tables shall also be provided. The reference point for gauging the striking height at the gauging point, and the compartment number shall be clearly indicated on the gauging hatch of each cargo tank. Copies of the above mentioned ullage tables shall be provided to Shipper prior to commencement of service hereunder, and a legible copy shall be available on the Barge during loading and discharge.
2.8 Cargo Transfer Equipment.
Carrier will supply all necessary hoses, fittings, reducers and couplings (American and Metric) required for the USCG approved transfer of the Cargo to any and all loading and discharge headers and will ensure that such hoses, fittings and couplings will be available on a timely basis so as to meet Shipper's delivery schedule. All manifold valves and fittings, outboard of the last fixed support to the Barge's deck, that are used in the transfer of Cargo and ballast, shall be made of steel, malleable iron or other suitable material. Cast iron valves or fittings are not acceptable.
Carrier shall provide a sufficient number of cargo hoses of sufficient length and diameter, of a type appropriate for the nature of Shipper's Cargo, and suitable for the Cargo's efficient loading and discharging. Any and all cargo hoses used by the Vessel in performance of this Contract shall be appropriately inspected, hydro tested and marked no earlier than twelve (12) months preceding their use hereunder. Further, Carrier warrants that any and all cargo hoses used in service hereunder shall be inspected and hydro tested at intervals not to exceed twelve (12) months. A complete set of spare hoses, tested and ready for use, shall be carried aboard the Barge at all times.
3. VESSEL PERSONNEL
3.1 Complement.
Carrier warrants that, during the term of this Contract: the Vessel shall have a full and efficient complement of Master, officers, mates and crew, with adequate training and experience in operating all of the Vessels' equipment; the Master, officers, mates and crew shall possess valid and current certificates/documents issued and approved by the USCG; and, Carrier's personnel shall be trained, experienced, certificated and proficient in accordance with Exhibit D, attached hereto and incorporated herein.
Contract of Private Carriage
Carrier shall provide Shipper with professional histories showing the tank barge towing experience of the Master and officers serving on board the Vessel at the commencement of performance under this Contract. Similar histories shall be furnished for any new Master or officer assigned to the Vessel at the commencement of their responsibilities.
The Master of the Tug, including any relief or substitute Master, shall have a minimum of five (5) years of experience in the towing of tank barges in the capacity of Master, and each Mate of the Tug, including any relief or substitute Mate, shall have a minimum of three (3) years of experience in the towing of tank barges in the capacity of a Master or Mate. In addition, the Master shall have a minimum of five (5) previous arrivals and five (5) previous departures for any port at which the Tug and Barge call. These arrivals and departures must have been made while serving in the capacity of Mate, Master or observer on vessels of equivalent size and characteristics as the Vessels required hereunder.
3.2 Tankermen.
Carrier will furnish the necessary personnel for loading and discharging the Barge, including but not limited to providing or arranging for a minimum of two (2) trained, licensed and certificated tankermen to attend the Vessel at all times when the Vessel is arriving and departing the places of Cargo loading or discharging, during Cargo operations and at all times when the Vessel is at berth in a laden condition.
Carrier is to assign sufficient tankermen to maintain two (2) alert and rested tankermen on board during all Cargo transfer operations. The tankermen shall manipulate all Barge valves and shall handle all connections at the places of Cargo loading and discharging, as well as the necessary pumping facilities to affect the discharge of Cargo. In addition, Carrier shall furnish all mooring lines for the Barge, and all personnel required to handle mooring and tow lines.
3.3 Employee Responsibility and Training.
Carrier warrants that the Vessel's Master, officers and tankermen have formal job descriptions which include all duties and responsibilities applicable to Carrier's performance of services as required by this Contract. Carrier also warrants that such responsibilities and duties of the Master, officers and tankermen in such areas as seaworthiness of Vessel, safe navigation, weather and sea conditions, tow wires, preventing leakage, towing and deck machinery, condition of tanks, training and readiness, compliance with laws and regulations, including manning laws and regulations, and display of documents are set forth in written procedure documents which have been reviewed by such personnel and which are maintained on the Vessels.
Contract of Private Carriage
Carrier further warrants that all personnel have received as of the date of the commencement of performance under this Contract, and will continue to receive throughout the term of this Contract, formal instruction and informal training in conformity with the requirements of Shipper and Shipper's Cargo suppliers' terminal facilities in such areas as: general safety practices and procedures; fire fighting, oil spill control and other emergency procedures; health hazards including hazardous materials handling; and, tank barge operations for tankermen.
3.4 Master's Duties.
The Master of the Tug shall determine whether operations requested by Shipper can safely be undertaken and whether the Vessels are capable of undertaking or being employed to carry out the directions and orders of Shipper, provided that the Master shall not unreasonably refuse any request to undertake operations or carry out any order or direction specified by Shipper. The Master, although appointed by and in the employ of Carrier and subject to Carrier's direction and control, shall prosecute voyages with the utmost dispatch, shall render all reasonable assistance with the Tug's officers, crew and equipment, and shall carry out the requests of Shipper in connection with Shipper's agencies and arrangements, including but not limited to Shipper's Cargo suppliers and receivers, the terminal and marine facility personnel of Shipper's Cargo suppliers and receivers, and the Cargo inspectors. It is agreed that nothing in this Contract, however, shall be construed as vesting Shipper or its agents with any control over the physical operation or navigation of the Vessel.
If Shipper shall have reason to be dissatisfied with the conduct of the Master, mates, officers, crew and/or tankermen, Carrier shall, on receiving particulars of Shipper's complaint, investigate and, if necessary, make a change in the appointments or practices.
3.5 Safety Management.
Carrier shall obtain prior to the inception of this Contract, and shall maintain during the full term of this Contract including any extension period, full certification under the then current American Waterways Operators Responsible Carrier Program as well as ISO 9000 (or standards which supersede them). Carrier shall also obtain prior to the inception of this Contract, and shall maintain during the full term of this Contract including any extension period, full certification under ISO 14000 (or standards which supersede them).
Contract of Private Carriage
3.6 Mooring Master.
Carrier will use and employ the nominated mooring master (hereinafter "Mooring Master") to advise in mooring, connecting of hoses, discharging, loading, unmooring and departing from the Tesoro SPM as and if required by the Tesoro SPM terminal operator. However, at all times, the Master of the Tug shall remain responsible for the safety of the Vessels and their personnel during such operations.
The Mooring Master is supplied on the condition that in the performance of any service rendered with respect to the Vessels, he/she is the servant of the Vessels and Carrier, and not the servant of Shipper nor any of its associated or affiliated companies, nor any of Shipper's Cargo suppliers or receivers, nor any of the employees, representatives, servants and agents of any of the foregoing. The Vessels and Carrier shall indemnify and hold harmless Shipper, its associated and affiliated companies, and Shipper's Cargo suppliers and receivers, and any of the employees, representatives, servants and agents of any of the foregoing, of and from any losses, damages, delays, claims and liabilities arising out of the Mooring Master's rendering of services to the Vessels, including legal fees and costs. Presence of the Mooring Master on board in no way relieves the Master of the Tug or Carrier of any responsibilities under this Contract.
3.7 Drugs and Alcohol.
Carrier warrants that it has a policy on Drug and Alcohol Abuse (the "Policy") applicable to the Vessels which meets or exceeds the standards of the USCG and which provides that appropriate personnel, including seafarers and tankermen, be tested; the drug/alcohol testing and screening shall include reasonable cause testing, random testing, pre-employment testing and testing during routine medical examinations. Carrier warrants that the Policy will remain in effect during the full term of this Contract, and that Carrier shall exercise due diligence to ensure that the Policy is fully complied with.
3.8 Equal Opportunity.
During the term of this Contract, Carrier warrants that it shall comply with the requirements of the Federal Government and the State of Hawaii with respect to maintenance of non-segregated facilities, equal employment opportunity, affirmative action for veterans, disabled veterans, minorities and handicapped workers.
Contract of Private Carriage
3.9 Documented Procedures.
Carrier warrants that it has formal written procedures governing crew activity such as work vests, hard hats, breathing apparatus, safe access, smoking, lighting and lifesaving equipment. Carrier also warrants that it has formalized tankermen procedures in place which cover operational subjects such as, but not limited to, the following: emergency procedures; vessel inspection checklist covering towing gear, lights, machinery, cargo tanks, mooring gear, cargo gear, engine room and deck fittings; vessel mooring; cargo integrity; cargo transfer equipment connections; pre- transfer conference; cargo inspection and gauging procedures; trim and stress; static hazard procedures; specific cargo transfer procedures; cargo heating procedures, topping off procedures; tank stripping operations; transfer shutdown procedures; startup transfer procedures; operating logs; pollution control; cargo tank ventilation and tank entry hazards; and damaged barge management. Carrier further warrants that it has an audit or review program in place which includes provision for penalties or other disciplinary actions to assure compliance with prescribed safety practices and operating procedures.
Copies of these documents and the results of audits conducted by Carrier shall be provided to Shipper at or prior to the inception of the initial term of this Contract, and promptly upon any revision or change to written procedures or as audit results are received by Carrier.
3.10 Safety Program.
Carrier is to maintain a formal written safety program concerning all procedures, including, but not limited to, navigation, operations, cargo handling, tank cleaning, voyage repairs and documented monthly safety meetings.
Carrier is also to maintain formal written procedures to track and communicate to Shipper all events involving serious damage to the Vessels or marine facilities, injuries, oil spills and other casualties, including "near miss" incidents, involving Carrier or its affiliates, whether or not the event is related directly to services under this Contract. This program is intended to inform personnel and Shipper as to the causes, findings and recommendations arising from an investigation of such incidents with the objectives for Carrier of reducing the likelihood of a recurrence and improving the effectiveness and state of readiness of casualty response activity.
Contract of Private Carriage
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4. CARRIAGE, LOADING AND DISCHARGE OF CARGO
4.1 Alternate Ports.
The Cargo shall be loaded, transported and discharged by Carrier at and between the ports identified on Exhibit G, attached hereto and incorporated herein, as well as any substitute or other ports or berths within the State of Hawaii as may be identified by Shipper.
4.2 Safe Berth.
Carrier shall have the responsibility for determining the safety of each port and berth applicable to the services covered by this Contract, including entry into, laying afloat at, and egress from each such port and berth by the Vessels at all seasons, times and stages of tide. The ports and berths identified herein are agreed by Carrier to be safe for such purposes. In the event substitute or other ports or berths are nominated by Shipper, Carrier shall promptly inspect such ports and berths to determine whether the Vessels can safely enter, lay at and depart from such ports and berths at all seasons, times and stages of tide, and shall immediately notify Shipper in writing if the Vessels or either of them cannot do so, identifying the deficiencies with particularity. Should any port or berth become, in the reasonable opinion of Carrier, unsafe following commencement of this Contract, Carrier shall immediately notify Shipper in writing with full particulars of the hazards and/or dangers and shall await Shipper's instructions. Carrier shall be responsible for the safe navigation operation and berthing of the Tug and Barge at all times.
4.3 Marine Facilities.
The Vessels shall operate in compliance with any and all regulations, including operating, pollution abatement and safety regulations of the operator or governing regulatory bodies of any marine terminal facility, wharf, berth or dock for which the Vessels are nominated by Shipper to load or discharge Cargo hereunder, including when the Vessels are approaching, alongside or departing said facility, wharf, berth or dock. Should the Vessel fail to comply with such rules and regulations or should the terminal representative determine that an unsafe condition exists with respect to the Vessels or either of them, the terminal representative shall have the right to order the Vessels to immediately cease loading or unloading operations and leave the place of mooring. Any and all time lost as a result of such Vessel non-compliance shall not count as used laytime or as demurrage if the Vessels are on demurrage, and all costs and expenses that arise as a result of such non-compliance shall be for the sole account of Carrier.
Contract of Private Carriage
4.4 Barge Makeup.
Carrier shall be responsible for making up the Tug and Barge and for determining the method and position in which the Barge shall be towed.
4.5 Pumping In and Out.
All Cargo shall be loaded into the Barge by shore pumps as designated by Shipper and at the expense and risk of Shipper up to the shore riser or connection point on the SPM hose, as applicable, at which point Carrier's period of responsibility with respect to the Cargo shall commence. Carrier shall have the responsibility for making the connection between the Barge hose and the shore riser or connection point on the SPM hose, as applicable. Carrier's period of responsibility with respect to the Cargo shall continue during loading, stowage and transportation and until the Cargo has passed the shore riser at the discharge end, subject to Subsection 9.1.D.3., below.
All Cargo shall be discharged by the Barge pumps and at the expense and risk of Carrier up to the connection of the Barge hose to the shore riser at the discharge end, which connection between the Barge hose and the shore riser at the discharge end shall be Carrier's responsibility. Carrier shall provide all necessary and sufficient pumps, power, hoses, reducers and hands required on board for safely mooring and unmooring, connecting and disconnecting of hoses and loading and discharging Cargo. The Barge shall load and/or discharge up to three grades of Cargo simultaneously.
Carrier shall provide and deploy oil booms and any other pollution abatement equipment required by regulation or policy of the terminal. The Barge shall load at the rates requested by Shipper, its agents and/or the terminal facility personnel, having due regard for the safety of the Barge and the environment. Carrier warrants that Barge shall at all times be able to discharge Cargo at the rate indicated in Exhibit A hereto or maintain a minimum pressure at the Barge's manifold of 100 psi in accordance with Exhibit A hereto or the maximum pressure permitted by the terminal, whichever is lower.
All time lost as a result of Barge being unable to discharge Cargo in accordance with the pumping warranty set forth above shall not count as used laytime or, if Vessels are on demurrage, as time on demurrage. If the terminal or place of discharging does not allow or permit the Barge to meet the above warranty or requires discharging grades consecutively, the Master shall forthwith issue a Letter of Protest (which should, if practical, be acknowledged in writing) to such terminal or place. If the Master fails to issue the Letter of Protest, Carrier shall be deemed to waive any rights to contest that time was lost as a result of the Barge's failure to comply with the above pumping warranty. Any pumping time lost solely due to restrictions imposed by the terminal or place of discharge shall count as used laytime or, if the Barge is on demurrage, as time on demurrage.
Contract of Private Carriage
4.6 Cargo Hose Markings.
Before making hose connections for loading or discharging, or before changing the Cargo type to be transferred through the same hose, or when two or more hoses are used simultaneously, both ends of each hose shall be marked with Shipper's Cargo type and checked by Carrier's and Shipper's representative before any Cargo is moved. This is intended to avoid contamination or mixtures of Cargo.
4.7 Cargo Handling.
Carrier shall properly and carefully load, handle, stow, carry and discharge Shipper's Cargo. The types of Cargo carried under this Contract shall be petroleum products, including, but not limited to, aviation grade kerosene (to be used for non-aviation purposes only), non-aviation gas turbine fuels, naphtha, diesel fuel oils and residual fuel oils, with a maximum of three (3) grades within the Barge's natural segregation. It is the intention of Shipper that the Cargo transported under this Contract will include but not be limited to Grade A petroleum products, Diesel Fuel Oil and No. 6 Industrial Fuel Oil which are approximately described in Exhibits E and F, attached hereto and incorporated herein, respectively.
No Cargo, thing or substance which, due to its composition, size, shape, weight or any combination thereof, constitutes an unreasonable hazard to the Barge, its equipment and/or the safe operation thereof, shall be shipped, nor shall any voyage be undertaken nor any goods or Cargo loaded that would involve any risk of seizure, capture or penalty by any government or governmental authority, nor shall any contraband of war be shipped.
4.8 Cargo and Bunker Sample and Survey.
Carrier shall allow an independent inspector appointed with the approval of Shipper to survey and take samples of the Cargo and bunker tanks, cofferdams, ballast and slop tanks, or any other void space on the Barge prior to, during and after the time of the loading and discharge of Shipper's Cargo.
Contract of Private Carriage
4.9 Cleaning.
Upon commencement of service under this Contract, the Barge tanks shall be
completely clean and free of all retains and residues. Subsequent to
initial tender of the Barge, where the Barge has transported third-party
cargo or been other than in dedicated service to Shipper or MECO, Shipper
shall have the right to sample the residue of prior cargo in the Barge
before loading Cargo to determine the suitability of the Barge. In each
instance in which Carrier has transported third-party cargo, and before
loading Shipper's Cargo pursuant to this Contract, Carrier shall be deemed
to have warranted that the tanks, lines and pumps are free of any residue
and retainage not compatible with Shipper's Cargo to be loaded or which
may cause contamination to or loss or damage of Shipper's Cargo. Shipper
may inspect the Barge to ensure compliance with the foregoing; the time
required for such sampling shall not count as used laytime or demurrage if
the Barge is on demurrage. If, as a result of such inspection, the Barge
is found to be unsuitable, Shipper may order cleaning, or, if in Shipper's
judgment cleaning will not make the Barge suitable, Shipper may reject the
Barge at no cost to Shipper. The costs of such cleaning, including the
disposal of residues, shall be for Carrier's account, and the time
required for such initial cleaning shall not count as used laytime or
demurrage if the Vessels are on demurrage. The cost of cleaning, including
the disposal of residues, subsequent to initial presentation of the Barge,
and provided the Barge remains in dedicated service to Shipper, shall be
for the account of Shipper, and the time required for such additional
cleaning shall count as used laytime or demurrage if the Vessels are on
demurrage, provided such cleaning has been requested by Shipper or is
required because Shipper has loaded subsequent incompatible and/or
contaminated Cargo. In all other instances, the costs of cleaning tanks,
including the disposal of residues, s hall be for Carrier's account.
4.10 Equipment Failure.
Should Cargo remain on board after a voyage through equipment failure on
the Barge, or through other cause for which Shipper is not responsible,
Carrier shall be responsible to deliver the Cargo as directed by the
Shipper as promptly as possible, and Shipper shall not be liable for any
further or additional freight or demurrage charges.
4.11 Cargo Retainage.
Upon commencement of performance under this Contract, Carrier shall work
with Shipper and an independent inspector to initiate and update with each
voyage a written cargo retain log. Such log shall remain onboard the Barge
and shall be available for inspection and photocopying upon request of
Shipper. Within a reasonable period of time after execution of this
Contract, Carrier, Shipper, and independent inspector will meet to
determine a reasonable volume of Cargo retainage to be carried on each
voyage. Thereafter, on each voyage, Carrier will maintain the agreed upon
level of retainage per voyage.
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Contract of Private Carriage
In the event Shipper requests that Cargo be retained aboard the Barge in
excess of the agreed normal voyage retainage, such additional retainage
shall be returned to Oahu aboard the Barge, and shall thereafter remain
aboard the Barge until the next voyage, without further accrual of freight
charges or demurrage, though freight on such additional retainage shall be
paid on the voyage on which it was loaded.
4.12 Voyage Course and Speed.
Carrier does not guarantee any particular speed during any voyage and does
not warrant delivery of the Cargo at any particular date or time or to
meet any particular market or time for any particular use. However, due to
the critical nature of the Cargo, Carrier warrants that it shall prosecute
voyages with reasonable dispatch, shall proceed safely to designated ports
of loading and discharge and shall, in any event, take whatever steps may
be necessary, consistent with prudent seamanship, to make prompt and
scheduled delivery of the Cargo. Carrier shall have the sole discretion to
determine the speed and course which is prudent, and is to consider
factors including, but not limited to, sea and weather conditions, Vessel
capacities and capabilities, crew safety, other vessel traffic, port
conditions and environmental safety. The Barge may not be navigated within
five (5) miles of a lee shore or three (3) miles from any shore except in
approaching or departing a harbor or when safety and prudent seamanship
require passage between islands or operating closer to shore.
4.13 Other Trades.
Carrier shall have the right to employ the Barge in other trades so long
as Shipper's requirements under this Contract are fully met, with Shipper
to have first priority with respect to the use of the Tug and Barge at all
times. In the event Carrier has the opportunity to transport such third-
party cargo, it shall inform Shipper of the particulars thereof and obtain
Shipper's written permission prior to commencement of such services, which
permission shall not be unreasonably withheld.
4.14 Joint Voyages.
Shipper shall have the right to load and transport Cargo of MECO on any
voyage, which shall be referred to as a joint voyage. On any such joint
voyage, Shipper's Cargo shall be governed by this Contract while MECO
cargo shall be governed by its separate agreement with Carrier.
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Contract of Private Carriage
5. RATES, CHARGES, ETC.
5.1 Freight Rates.
The following freight rates ("Freight Rate(s)") shall be applicable to this Contract:
A. One of the three options set forth below shall be selected annually by Shipper on or before December 1 of each year as being the applicable Freight Rates for the next year for petroleum products transported in bulk for Shipper on voyages where petroleum products are not also transported in bulk for MECO or another party:
OPTION #1
-----------------------------------------------
Volume in Barrels Rate in $/BBL
-----------------------------------------------
Tier 1 minimum of 25,000 2.23
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Tier 2 25,001 to 32,500 1.03
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Tier 3 amount in excess of Tier 2 0.50
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OPTION #2
-----------------------------------------------
Volume in Barrels Rate in $/BBL
-----------------------------------------------
Tier 1 minimum of 30,000 1.94
---------------------------------------------------------
Tier 2 30,001 to 37,500 0.94
---------------------------------------------------------
Tier 3 amount in excess of Tier 2 0.50
---------------------------------------------------------
OPTION #3
-----------------------------------------------
Volume in Barrels Rate in $/BBL
-----------------------------------------------
Tier 1 minimum of 35,000 1.65
---------------------------------------------------------
Tier 2 35,001 to 42,500 0.88
---------------------------------------------------------
Tier 3 amount in excess of Tier 2 0.50
---------------------------------------------------------
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Contract of Private Carriage
B. Shipper may designate additional discharge port calls at Kawaihae, Hawaii during any voyage to Hilo. Shipper will compensate Carrier for such calls based upon the number of hours required to deviate from the normal return voyage from Hilo and the time in Kawaihae required for discharge at the demurrage rates set forth in Subsection 5.8., below, subject to Shipper's ability to apply any unused laytime for loading/discharging on that voyage against such demurrage charges. In addition to the above, Shipper shall reimburse Carrier for any port charges incurred at the additional port call.
C. The Freight Rate applicable to Shipper's Cargo on any joint voyage with MECO shall be ninety percent (90%) of the Freight Rate identified in Subsection 5.1.A., above. Shipper and MECO shall provide Carrier with information and instructions for invoicing on joint voyages.
D. In the event Shipper loads less than the volume of Cargo identified in subsection 5.1.A., Tier 1, above, aboard the Barge on any voyage, except joint voyages with MECO, Shipper shall pay Carrier freight based upon the minimum volume identified times the Freight Rate identified for Tier 1, above.
5.2 Shipments Made In Conjunction With Third Parties.
Subject to Shipper's advance permission, Carrier may transport petroleum products in bulk for parties other than Shipper or MECO (hereinafter "third-party cargo") on voyages performed under this Contract. For the purpose of determining the freight cost of Shipper's Cargo when transported by Carrier in conjunction with such third-party cargo, Shipper's Freight Rate shall be calculated according to Subsection 5.1.A., above, but with Shipper to receive a credit to the extent of such third party cargo against the volumes (including minimum volumes) beginning at Tier 1 and continuing into Tier 2 and/or Tier 3 to the extent of the volume of such third party cargo.
5.3 Annual Escalation.
The Freight Rates set forth in Subsections 5.1. and 5.2., above, and the demurrage rates in Subsection 5.8., below, shall be subject to an annual escalation effective as of January 1, 2003, and each January 1 thereafter, on the basis of the arithmetic average of two components each weighted equally. One component is the arithmetic average of the Producer Price Index for Industrial Commodities ("PPI") as published by the U.S. Department of Labor, Bureau of Labor Statistics for the period July through September preceding every January 1 in which service is rendered by Carrier hereunder commencing January 1, 2003, divided by the arithmetic average of the PPI for the three months, July through September, 2002. The second component is the arithmetic
Contract of Private Carriage
average of the hourly earnings in dollars per hour for the water transportation services industry as reported in "Employment and Earnings" published by the U.S. Department of Labor, Bureau of Labor Statistics ("EE") for the period July through September preceding every January 1 in which service is rendered by Carrier hereunder commencing January 1, 2003, divided by the arithmetic average of the EE for the three months, July through September, 2002. Such Freight Rates and Demurrage Rates shall continue during any extension pursuant to Subsection 1.2, above. In the event the foregoing indices, or either of them, are discontinued or materially altered, the parties shall promptly meet and agree upon alternate reference(s) which duplicate the functions served by the discontinued or altered indices and assure Carrier and Shipper are in substantially identical positions as before such discontinuation or alteration. However, in no event shall the Freight Rates for Carrier be less than the Freight Rates agreed at the inception of the initial term of this Contract.
5.4 Cargo Volume.
Freight charges shall be based upon net quantity of Cargo loaded into the Barge as shown by shore tank gauges or positive displacement meter, unless otherwise requested and agreed by the parties in advance. The quantity of Cargo so measured shall be corrected for liquid temperature to the quantity equivalent at sixty degrees Fahrenheit in accordance with the latest edition of the ASTM-IP Petroleum Measurement Tables.
5.5 Laytime Duration.
Allowable laytime for loading Cargo shall be fourteen (14) hours; for joint
voyages with MECO, the loading laytime shall be applied to the loading of
both Shipper's and MECO's Cargo, as such Cargo is loaded concurrently. The
allowable loading laytime solely for Shipper for such joint voyage with
MECO shall be that part of loading laytime which bears the same
relationship to the total loading laytime as the number of Shipper barrels
of Cargo bears to the total number of Shipper and MECO barrels of Cargo.
Allowable laytime for discharging at the Island of Hawaii shall be fourteen
(14) hours for a Cargo of 45,000 barrels or less, and, for a Cargo in
excess of 45,000 barrels, one additional hour of laytime shall be added to
the fourteen (14) hours for each 3,000 barrels or part thereof of Cargo
above 45,000 barrels, except for Cargo shipped on a joint voyage with MECO,
where such allowable laytime for discharging shall apply to both Shipper
and MECO Cargo. The allowable discharge laytime solely for Shipper for
such joint voyage with MECO shall be that part of discharge laytime which
bears the same relationship to the total discharge laytime as the number of
Shipper barrels of Cargo bears to the total number of Shipper and MECO
barrels of Cargo. Allowable laytime for loading and discharge operations
during a voyage shall be cumulative and reversible, and may be applied to
any claim for demurrage arising during that voyage, including demurrage
arising as a result of deviation.
Contract of Private Carriage
5.6 Laytime Loading.
Laytime shall commence at the loading berth, either at Honolulu Harbor or Barbers Point Harbor, when the Barge is alongside and secured at loading pier and Carrier notifies the terminal that the Barge is ready to receive; laytime shall cease when loading is completed. Demurrage charges for loading at Honolulu Harbor shall apply only to the Barge until loading is completed and the Barge is secured and ready for sea.
5.7 Laytime Discharge.
Laytime shall commence at discharge berth when the Barge is alongside and secured at discharge pier and Carrier notifies the terminal that the Barge is ready to discharge. Laytime shall cease when the discharge of Cargo is complete. Demurrage charges at discharge shall accumulate on the Tug for only that time during which the Tug is standing by.
5.8 Demurrage.
A. Tug (main engines operating): $350.00 per hour
B. Tug (main engines not operating): $200.00 per hour
C. Barge: $200.00 per hour
Counting of time for purposes of laytime and demurrage shall commence as set forth above, and shall continue uninterruptedly until completion of loading or discharging, except that time shall not be counted, or counting shall be suspended, at all times loading and/or discharging are delayed or prevented as a result of matters beyond Shipper's actual and direct control, including, but not limited to, periods of delay resulting from:
A. the Vessels in reaching, departing or at the berth (including weather delays, awaiting daylight, tide, assist tugs or pilots) caused by any reason or condition not reasonably within Shipper's control;
B. the Vessels in moving from port anchorage to all fast in berth or time consumed by the Vessel lining up, draining pumps/lines or cleaning tanks, pumps and lines, except as in Section 4.9., above;
C. any delay due to operational deficiency of the Vessels or breakdown or inability of the Barge to load or discharge Cargo;
D. prohibition of loading or discharging at any time by the port authorities or by the terminal facilities due to a violation of any operating and/or
Contract of Private Carriage
safety regulation due to the condition of the Vessels or either of them or act or omission by the Tug's Master, mates, officers or crew or the tankermen;
E. escape or discharge of oil or the threat of an escape or discharge of oil on or from the Vessels or either of them whether or not due to any condition of the Vessel or any act or omission to act of the Tug's Master, mates, officers or crew or the tankermen;
F. non-compliance with USCG regulations or failure to obtain or maintain any and all required inspection letters, certificates, oil spill response plan approval on the part of the Tug's Master, mates, officers or crew or the tankermen;
G. labor dispute, strike, go slow, work to rule, lockout, stoppage or restraint of labor involving the Tug's Master, mates, officers or crew or the tankermen or any assist tug, stand-by boat or pilot;
H. an event of Force Majeure as defined in this Contract; or,
I. the neglect or interference of Carrier, its agents, or employees;
none of which shall not be considered as used laytime or as demurrage if the Vessels are on demurrage. Carrier shall take any and all reasonable steps available to minimize demurrage time and charges.
5.9 Tankermen Charges.
All charges applicable to tankermen, including, but not limited to, compensation, travel, lodging and meals shall be deemed included in the applicable Freight Rate and shall be Carrier's sole responsibility. Carrier shall also be responsible for scheduling tankermen and transportation and lodging for tankermen.
However, when the Vessels are on demurrage and the tankermen are either standing by or attending operations, Shipper shall pay Carrier $42.50 per tankerman per hour.
5.10 Heating of Fuel Oil Aboard the Tow.
Shipper shall reimburse Carrier for the actual documented cost of fuel consumed by the Barge's cargo heating system when operated in response to Shipper's express instructions.
Contract of Private Carriage
5.11 Diesel Fuel Price Adjustment.
In addition to other charges contained in this Section 5., Shipper shall pay, or receive a credit for, a Diesel Fuel Price Adjustment ("DFPA"), reflecting changes in the cost of Tug fuel which shall be calculated on a voyage by voyage basis, as follows:
DFPA = (CFP - BFP) x DFC x (Shipper Volume / Total Volume)
Where,
CFP = For purposes of this Contract, the Current Fuel Price for No. 2 Diesel Fuel in dollars per gallon shall be defined as the arithmetic average of the Chevron and Tesoro Honolulu price for Low Sulfur No. 2 Diesel, computed to the nearest thousandths of a dollar, as reported in the edition of the Lundberg Wholesale Diary in effect upon the date of the completion of loading Shipper's cargo.
BFP = For purposes of this Contract, the Base Fuel Price in dollars per gallon shall be fixed at $1.260 for the duration of this Contract; it is derived by taking the arithmetic average of the Chevron and Tesoro Honolulu price for Low Sulfur No. 2 Diesel, computed to the nearest thousandths of a dollar, as reported in the edition of the Lundberg Wholesale Diary in effect as of September 15, 2000.
DFC = The actual diesel fuel consumed during the voyage, in gallons, as determined by sounding the fuel tanks of the Tug, before and after the voyage.
Shipper Volume = The Cargo volume in barrels being transported for Shipper during the subject voyage.
Total Volume = The total cargo volume in barrels being transported on the voyage including Shipper Cargo, cargo of MECO and third-party cargo.
Provided, however, that no DFPA shall be due unless the absolute difference between CFP and BFP is greater than ten percent (10%) of CFP. In the event of a billing for DFPA, Carrier shall provide documentation DFC, satisfactory to Shipper, with each invoice.
Contract of Private Carriage
5.12 Additional Berths/Ports.
When more than one berth within a port is required to complete the loading
or discharge of Shipper's Cargo, Shipper shall pay five hundred dollars
($500) to cover in full any and all additional expenses incurred by
Carrier by reason of calling at such additional berth. Such additional
expenses shall include, but not be limited to, shifting expense, dockage
and pilotage.
When more than one port (for which purpose the Tesoro SPM shall constitute
a separate port) is called to complete the loading of Shipper's Cargo,
Shipper shall reimburse Carrier for the amount of the normal port charges
of the second port of loading. Time spent in transit commencing at the
point of passing the sea buoy outbound at the first port of loading until
passing the sea buoy (or entering the normal anchorage area) inbound at
the second port of loading shall count as used laytime or demurrage if
Vessel is on demurrage.
5.13 Port, Dues, Taxes and Other Charges.
Carrier shall be responsible for providing and paying for the following,
which shall be deemed included within the applicable Freight Rate and
demurrage rate: all provisions, wages and other expenses of Master,
officers, crew and tankermen; fuel and lubricating oils and filters for
the Vessel; costs of maintaining and operating the Vessel and repairing
same to assure compliance with the requirements of this Contract; all fees
and other charges on the Vessel, including, without limitation, those
incurred for assist tugs, standby boats, oil spill boom deployment,
pilots, Mooring Master and other port costs; as well as payment of every
charge, expense, fee, assessment, cost or tax (including, but not limited
to, Hawaii general excise tax, except as assumed by Shipper below) of any
type or nature whatsoever applicable to the Vessel or otherwise arising
out of or relating to the services contemplated by this Contract, other
than the following charges, expenses, fees, assessments, costs and/or tax,
etc., which shall be Shipper's responsibility:
A. Shipper shall reimburse Carrier for the cost of the Mooring
Master and stand-by boat incurred solely as a result of the
Vessel loading Cargo at the Tesoro SPM.
B. Shipper shall be responsible for all charges directly and
specifically assessed upon the Cargo as well as independent
inspection and gauging of the Cargo, wharfage, pipeline tolls,
and guard services while the Barge is idle and loaded with
Shipper's Cargo retainage pursuant to the second subparagraph of
Subsection 4.11., above. For pipeline tolls, Carrier shall
prepare and submit the required documentation and the toll, and
shall be reimbursed by Shipper for the amount thereof.
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Contract of Private Carriage
C. Shipper shall be responsible for tankermen charges pursuant to Subsection 5.9., and the additional expenses identified in Subsections 5.11. and 5.12., above.
D. Shipper shall be responsible for Hawaii general excise tax on
freight, demurrage and tankermen charges, only; Hawaii general
excise tax shall not be paid by Shipper on any reimbursable cost
item or any other cost, charge or item.
5.14 Freight Earned.
Full freight to the intended destination of Shipper's Cargo shall not be
deemed earned until Cargo discharge is complete at the destination.
5.15 Billing, Payment and Disputes.
Payment for freight, demurrage and other allowed charges shall be made to
Carrier's business office address first set out above within thirty (30)
days after receipt of Carrier's invoice. Invoices for charges must be
accompanied by appropriate supporting documents. In cases of dispute as to
the amount of payment due, Shipper shall not withhold any amounts due
Carrier except for those amounts in dispute. Shipper will notify Carrier
in writing of any such disputed amounts within fifteen (15) days following
receipt of Carrier's invoice. Disputes as to invoices shall be resolved
pursuant to Subsection 18.2., below.
5.16 Waiver Of Claims.
Any claim for freight, demurrage and/or charges pursuant to this Section
5., only, shall be deemed waived, extinguished and absolutely barred if
such claim is not received by Shipper or Carrier, as the case may be, in
writing with supporting documentation within one hundred twenty (120) days
from the date of final discharge of the Cargo on the voyage with respect
to which said claim arises. This provision shall not apply with respect to
any other claims which might arise under this Contract .
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Contract of Private Carriage
6. SCHEDULING
6.1 Scheduling.
Carrier and Shipper understand and agree that meeting Shipper's demands for the most efficient scheduling, loading and discharging of the Barge will require the general cooperation of each party. To facilitate this objective, Shipper shall submit in writing to Carrier by the 20th of every month (or next working day) during the term of this Contract a proposed voyage schedule for the following calendar month stating anticipated loading and discharging times and locations. Carrier shall make the appropriate berth reservations and other such arrangements consistent with said schedule. Carrier shall confirm to Shipper within three (3) working days of receipt of Shipper's schedule the making of such reservations and arrangements verbally or by facsimile. It is understood and agreed that this tentative schedule is not binding on Shipper and is to be used only as a best-efforts estimate of Shipper's requirements.
6.2 Priority Resolution.
If circumstances should arise whereby Shipper and MECO both need and demand use of the Vessels at the same time, their parent, Hawaiian Electric Company, Inc. ("HECO"), will determine the priority as between them and notify Carrier. Carrier will be deemed to have fulfilled its obligation under this paragraph by following the priority established by HECO.
6.3 Notice of Cancellation or Delay.
Shipper will endeavor to advise Carrier, orally or in writing, as promptly as is reasonably practical, of the cancellation or delay of previously scheduled and confirmed service, giving at least four (4) hours notice for cancellation or delay of previously scheduled and confirmed service and at least four (4) hours notice for cancellation or delay of scheduled and confirmed shifting service. If less than four (4) hours notice of cancellation or delay of scheduled and confirmed services is given Carrier, then Shipper will pay for charges, if such charges are incurred, up to an amount of four (4) hours of demurrage at rates provided in Section 5., above. Carrier shall exercise its best efforts to minimize these charges by employing such tankermen and crew on its other vessels or otherwise utilizing their services in an effort to reduce these cancellation or delay charges. In such case, Carrier shall credit Shipper with the amount of these savings.
Contract of Private Carriage
7. MAINTENANCE SERVICES AND OTHER REQUIREMENTS
7.1 Maintenance of the Tug and Barge.
Carrier shall be solely responsible for maintenance of the Tug and Barge at its expense to assure that at all times they comply with the requirements of this Contract, including, without limitation, Section 2., above. Carrier specifically covenants and agrees that it will maintain the Vessels, their appliances and appurtenances, in a state of repair that will allow for safe and efficient operation during the full term of this Contract, including, without limitation, keeping the Vessels in full unexpired certification as may be required by the USCG or any other regulatory agency having jurisdiction. Carrier shall, at its expense, regularly drydock the Vessels for the purpose of keeping the Vessels in full unexpired certification and assuring that the Vessels meet all USCG requirements, with all charges incurred in connection therewith to be for Carrier's account. Shipper and Carrier agree to arrange scheduled shipments to accommodate required maintenance periods of up to ten (10) continuous calendar days, but not to exceed twenty (20) total calendar days, annually. It is further agreed that Carrier must notify Shipper in writing no later than ninety (90) days prior to the first day of any period when the Vessels are expected to be out of service and unavailable for services hereunder because of scheduled maintenance, repair and/or drydocking in order to permit such an arrangement of scheduled shipments. Failing such notification, Carrier shall arrange such suitable substitute service as required herein. Carrier shall designate a company representative to liaise with Shipper and report on the fulfillment of Carrier's responsibility to carry out routine hull and equipment inspections, preventative maintenance and schedule of Vessel repair, maintenance and drydocking.
7.2 Other Required Services.
Carrier shall provide the following additional services to Shipper:
coordinating with Shipper and consignees for the loading and discharging of
the Barge; making arrangements for berthing and pilotage at ports or places
of call; making follow-up arrangements when necessary due to schedule
changes, weather and other operational considerations, whether anticipated
or unanticipated; scheduling the loading and discharge of the Barge to meet
required arrival and sailing times; preparing loading plans for the Barge;
computing, advancing and filing with the State of Hawaii, Harbors Division,
all required fees and reports with respect to pipeline tolls incurred
during the loading of Cargo at Barbers Point Harbor and Cargo discharge at
Hilo and Kawaihae, Hawaii; and performing other operational services not
specified hereinabove which otherwise arise out of or relate to the
services to be provided to Shipper pursuant to this Contract. Charges for
the aforesaid services shall be deemed included within the Freight Rates
charged in Section 5., above.
Contract of Private Carriage
8. INSURANCE
8.1 Carrier's Insurances.
Carrier shall, at its sole expense including the expense of deductibles, premiums, calls and policy charges, procure and maintain the following insurances for the duration of this Contract:
A. Hull and Machinery Insurance upon the Tug and Barge pursuant to Pacific Coast Tug/Barge Form (1979), to the full actual market values thereof;
B. Protection & Indemnity Insurance, including full form pollution/ environmental risk coverage, upon the Tug and Barge pursuant to an entry with The West of England Ship Owner's Mutual Insurance Association (Luxembourg) with minimum limits of $1,000,000,000 as of the date of execution of this Contract and minimum limits thereafter to the extent maintained by the International Group of P&I Clubs or $700,000,000, whichever is greater, per occurrence, and with W.Q.I.S. authorized to provide the C.O.F.R. and primary full form pollution/environmental risk coverage;
C. Standard Workers Compensation and Employers Liability Insurance endorsed to be applicable to the state of Hawaii as well as the Longshore Act, with statutory limits for workers compensation and limits of $5,000,000 per occurrence for employers liability;
D. Broad form Marine General Liability Insurance, or Commercial General Liability Insurance with the watercraft and care, custody, control exclusions deleted, with minimum limits of $10,000,000 per occurrence; and,
E. Marine Contractual Legal Liability Insurance insuring Carrier's obligations pursuant to this Contract, with minimum limits of $10,000,000 per occurrence.
8.2 Shipper's Insurances.
Shipper shall, at its sole expense including the expense of deductibles, premiums and policy charges, procure and maintain the following insurances for the duration of the Contract:
A. All Risk Cargo Insurance upon all Cargo, including coverage for shortage and contamination (except for claims for contamination pursuant to section 9.1.D.3., below), to the full delivered values of such Cargo including freight and insurance.
Contract of Private Carriage
8.3 Conditions Applicable to Insurances.
The foregoing insurances shall be subject to the following additional conditions.
A. Carrier's insurances shall be subject to review and approval by Shipper with respect to insuring forms, conditions, deductibles, limits and underwriting security, at the inception of the initial term of this Contract as well as at any renewal or reissuance thereafter.
B. All policies shall be specifically endorsed to waive subrogation against the non-procuring party, except that the waiver of subrogation on Shipper's cargo insurance shall be subject to, and limited by, Subsection 9.1.D.3., below.
C. Shipper shall be specifically named as an insured upon the Marine General Liability/Commercial General Liability policy identified in Subsection 8.1.D., above, with such insurance to be endorsed to be primary to any insurance maintained by Shipper.
D. The Protection & Indemnity entry identified in Subsection 8.1.B., above, shall be specifically endorsed to include the following clauses: Privilege To Name Co-Assureds; Co-Assured/Waivers of Subrogation; and Contractual Liability. Shipper shall be named as a co-assured pursuant to the Privilege To Name as Co-Assureds and Co-Assureds/Waivers of Subrogation clauses, with the limits for the latter to be $30,000,000 per occurrence primary coverage and an additional $30,000,000 per occurrence excess coverage. This Contract shall be made subject to the Contractual Liability clause, with primary limits of $30,000,000 per occurrence and an additional $30,000,000 per occurrence excess coverage. The foregoing shall be effectuated so as to separately insure Shipper against any pollution/environmental risks incurred by Shipper with respect to this Contract, shall be primary to any insurances maintained by Shipper and shall be at Carrier's sole expense and without risk of liability to Shipper for any calls or premium expenses.
E. All policies shall be specifically endorsed to require thirty
(30) days advance written notice of non-renewal, cancellation or
other material change in insuring terms to the non-procuring
party.
Contract of Private Carriage
F. Each party shall provide the other party with certificate(s) of insurance confirming that the required insurance(s) has/have been placed, with Shipper entitled to require that Carrier provide certified copies of all policies, at the inception of the Contract term as well as at any renewal or reissuance thereafter.
8.4 Failure to Procure Insurance.
In the event a party fails to procure and/or maintain an insurance as required above, an insurance fails for any reason (including, without limitation, breach of policy condition or warranty) and/or an insurer otherwise refuses or is unable to pay, the party required to procure that insurance shall be deemed an insurer or self-insurer, shall accept and pay claims which would have otherwise been submitted to the failed insurance and shall indemnify and hold harmless (including legal fees and costs) the other party of and from any loss, damage, expense, claim, liability and/or suit resulting from such failure.
9. LIABILITY AND INDEMNITY
9.1 Carrier.
Contract of Private Carriage
When any pilot, Mooring Master, or Master or other officer of an assist tug or stand-by boat furnished to or engaged in the service of supplying Tug power or assistance to the Vessels, (whether or not said person is an employee, servant or representative of Shipper, its affiliated or associated companies, Shipper's agents or Shipper's Cargo suppliers or receivers) goes onboard the Vessels, it is understood and agreed that such person or persons are to be considered independent contractors and become the borrowed servant of Carrier and the Vessels for all purposes and in every respect and shall be subject to the exclusive supervision and control of the Vessels and their personnel, and Shipper and its associated and affiliated companies, as well as the Cargo suppliers and receivers and, the employees, representatives, servants and agents of the foregoing, shall not be liable for errors of navigation or management of the Vessels, or any other losses, damages, expenses, liabilities, claims and/or suits of any type or nature resulting therefrom. This shall include but not be limited to the giving of orders to any tug or stand-by boat engaged in assisting or handling the Vessels and to the ordering of the number and horsepower of tugs assisting or standing by the Vessels.
In respect to the foregoing, Carrier agrees to indemnify and hold harmless Shipper and its associated and affiliated companies as well as the Cargo suppliers and receivers and the employees, representatives, servants and agents of the foregoing of and from (including legal fees and costs) any and all losses, damages, expenses, liabilities, claims and/or suits of any type or nature whatsoever, whether to third parties or otherwise, arising from or relating to the acts or omissions of such pilot, Mooring Master, or master, officers or crew of any assist tug or stand-by boat.
Contract of Private Carriage
1. all foreseeable and unforeseeable consequential damages;
2. the reasonable costs of any required or necessary repair, cleanup or detoxification of an area of oil or hazardous material and the preparation and implementation of any closure, remedial or other required plans;
3. the reasonable costs of the investigation of any environmental claims by Shipper;
4. the reasonable cost of Shipper's enforcement of this Contract; and,
5. all reasonable costs and expenses incurred by Shipper in connection with Subsections 9.1.C.1. - 4., above, including, without limitation, reasonable legal fees and court costs.
Carrier shall insure Shipper against the foregoing pursuant to Subsection 8.3.D., above.
1. all loss or damage to Vessel(s), howsoever caused and regardless of whether resulting from Shipper's negligence or otherwise;
2. all liabilities for bodily injury, illness and/or death of Carrier's employees, howsoever caused;
Contract of Private Carriage
3. notwithstanding Carrier's period of responsibility, all liabilities occurring after the Cargo has passed the shore riser at discharge arising out of or relating to Carrier's misidentification of the type of Cargo being pumped, or Carrier pumping incorrect Cargo or Carrier pumping from the incorrect tank;
4. all liabilities of any type or nature whatsoever and any loss or damage in any fashion arising out of or associated with the transportation and handling of the Cargo during the period of responsibility assumed by Carrier pursuant to Subsection 4.5, above, and/or directly resulting therefrom and not otherwise specifically assumed by Shipper; and,
5. all other liabilities and loss or damage arising out of or relating to the transportation services contemplated by this Contract other than as specifically assumed by Shipper pursuant to Subsection 9.2., below.
9.2 Shipper.
Shipper's responsibility shall be limited to:
A. loss or damage to Cargo, including shortage and contamination (other than contamination pursuant to Subsection 9.1.D.3., above), arising out of or relating to the transportation and/or handling of Cargo by Carrier and/or others, specifically to include general average and salvage contributions, howsoever caused and regardless of whether resulting from Carrier's negligence, deviation, the unseaworthiness of a Vessel or otherwise; and,
B. all liabilities for bodily injury, illness and/or death of Shipper's employees, howsoever caused.
Contract of Private Carriage
9.3 General Conditions.
To the extent any other provision of this Contract specifically allocates liability, such provision shall be deemed included herein, except in the event of conflict between such other provision and this Subsection 9.3, such other specific provision shall override the liability allocation set forth in this Subsection 9.3. To the extent no provision of this Contract addresses a specific liability which has arisen, the allocation of that liability shall be based upon the respective fault and/or legal responsibility of each party.
For purposes of this Section 9: the term "liability(ies)" shall be deemed to include all third party liabilities and/or legal obligations, including, without limitation, demand, claim, proceeding, suit, fine and/or penalty; the term "loss or damage" shall be deemed to include first party claims for loss or damage, including, without limitation, physical damage as well as economic or other intangible loss and damage (not otherwise excluded in this Contract) but shall not include any "liability(ies)"; and, the term "transportation and handling" shall be interpreted comprehensively to include loading, stowage, trimming, securing, transportation, transfer, delivery, discharge and all other handling by Carrier with respect to the Cargo.
9.4 Indemnification.
Each party shall indemnify and hold the other party harmless (including legal fees and costs) of and from any charge, loss, damage, claim, liability and/or suit allocated to it pursuant to this Section 9. or elsewhere in this Contract; in furtherance of the foregoing, each party shall waive any exclusivity of remedy or immunity from suit afforded by any workers compensation or similar law.
10. LIBERTIES
The Vessels shall have liberty to sail with or without pilots, tow or be towed, and to deviate for the purpose of assisting vessels in distress, saving life or property at sea, landing any ill or injured person on board or taking on fuel, supplies or other necessaries, or for repair, provided that if it is necessary for the Tug to leave the Barge during any such deviation, the Barge shall be left in a position of safety and the service shall be resumed immediately upon completion of the deviation, except Carrier may at any time without penalty take such reasonable action as necessary for the saving of life at sea. Shipper shall not be responsible for any charge, cost or expense incurred by Carrier, the Vessels and/or the Cargo during the period of any such deviation.
Contract of Private Carriage
11. FORCE MAJEURE
11.1 Force Majeure Events.
Either party may terminate this Contract should an event or act of Force
Majeure continue uninterruptedly for a period of fifteen (15) days, upon
five (5) days advance notice to the other party. For purposes of this
Contract, an event or act of "Force Majeure" shall mean: acts of God, acts
of public enemy, hostilities or war (declared or undeclared), embargo,
riots, civil unrest, revolution, sabotage, insurrection, blockades,
strikes, epidemics, landslides, lightning, earthquakes, fires, hurricanes,
tsunamis, floods, tidal waves, volcanic eruptions, explosions, total or
partial expropriation, nationalization, confiscation, requisitioning or
abrogation of a government concession, closing of, or restriction on the
use of, a port or pipeline, inability to secure petroleum product by
reason of governmental regulations or otherwise, failure of Shipper's
suppliers' or its affiliated companies' machinery or pipelines, loss or
shortage of suitable crude oil or product supply or the suspension or
termination of Shipper's suppliers' crude oil or petroleum supply
contracts, suspension or termination of Shipper's petroleum product supply
contracts, or an event affecting Shipper's Cargo suppliers' production,
manufacturing, distribution, refining, delivery or receiving facilities,
power generation or power distribution affecting Shipper's Cargo
suppliers' facilities, unavailability of Cargo or any other cause or
contingency affecting Shipper's Cargo suppliers or otherwise not
reasonably within the control of Shipper or Carrier which materially
affects that party's ability to perform under this Contract.
11.2 Carrier's Obligation.
Carrier shall not be liable for delay or failure to perform under this
Contract resulting from an event or act of Force Majeure. Carrier's
obligations, including, but not limited to, rendering services under this
Contract, shall be reduced or suspended for any period in which an event
or act of Force Majeure exists as to Carrier and which can not be overcome
by Carrier through providing Shipper with a suitable substitute service as
identified in Subsection 2.5., above. In the event of any reduction or
suspension of Carrier's obligation to render service under this
Subsection, Shipper may obtain services from another operator for the
period of Force Majeure.
11.3 Shipper's Obligation.
Shipper shall not be liable for any delay or failure to perform under this
Contract resulting from an event or act of Force Majeure. Shipper's
obligations under this Contract shall be reduced or suspended for any
period in which an event or act of Force Majeure exists as to Shipper, or
Shipper's supplier, either singularly or collectively. However, nothing in
this Section 11. shall excuse Shipper from its obligation to make payments
of monies due hereunder for services rendered prior to said act or event
of Force Majeure.
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Contract of Private Carriage
11.4 Notice of Force Majeure.
The party claiming Force Majeure shall give the other party verbal notice
of such act or event of Force Majeure within twenty-four (24) hours of the
occurrence thereof and shall also send written confirmation of the same to
the other party immediately thereafter. The party claiming Force Majeure
shall use due diligence to cure any act or event of Force Majeure, and
shall give the other party verbal notice within twenty-four (24) hours
after the act or event of Force Majeure has terminated and shall send
written confirmation of the same to the other party immediately
thereafter.
12. LIMITATION OF LIABILITY
12.1 Limitation of Liability.
Except as otherwise agreed in this Contract, Carrier and Shipper shall be
entitled to assert by way of limitation of liability any principle of law
or provision of any statute or regulation of the United States that would
afford either Carrier or Shipper a limitation of such liability and the
provisions of any such statute or regulations limiting liability as
aforesaid are incorporated herein by reference and made applicable hereto
as though fully set forth herein. For purposes of such limitation of
liability, Shipper and Carrier waive any claim that this Contract or
anything contained herein is a personal contract of the other party.
12.2 Not A Demise.
The parties agree that this Contract shall be construed as a contract for
private carriage and not a demise or bareboat charter, and that no
provision of this Contract shall be construed as creating a demise or
bareboat charter of the Vessels or either of them to Shipper.
13. GENERAL AVERAGE
In the event of imminent danger, peril, disaster, damage or accident
before or after the commencement of the voyage, subjecting the Tug, Barge
and Cargo to a common peril, resulting from any cause whatsoever, whether
due to negligence or not, for which, or for the consequences of which,
Carrier is not responsible by statute, contract or otherwise, Shipper and
the owners of the Cargo shall contribute with Carrier in general average
to the payment of any sacrifices, losses or expenses of a General Average
nature that may be made or incurred and shall pay salvage and special
charges incurred in respect of the Cargo. If a salving ship is owned or
operated by Carrier or its affiliates, salvage shall be paid for based
upon the regular hourly rates hereunder.
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Contract of Private Carriage
General Average shall be adjusted, stated, and settled according to York/Antwerp Rules 1994 at Honolulu or such other place as the parties may agree, and as to matters not therein provided for, according to laws and usages of the port selected (except that any payment made by Carrier to Shipper pursuant to Subsections 9.1.B. and 9.1.C., above, and Section 14., below, or to any governmental agency (whether federal, state or local) or to others to remove oil or a threat of oil pollution, as well as any other payments, with respect to Vessel or Carrier's liability for the release of oil, shall not be deemed to be General Average sacrifices or expenditures).
If a General Average statement is required, it shall be prepared by adjusters jointly appointed by Carrier and Shipper, who are to attend to the settlement and collection of the General Average, subject to customary charges. General Average Agreements and/or security shall be furnished by Carrier and/or Shipper, if requested. Any cash deposit being made as security to pay General Average and/or salvage shall be remitted in a duly authorized and licensed bank at the place where the General Average statement is prepared.
14. POLLUTION
14.1 Compliance.
During the full term of this Contract, Carrier and the Vessels will comply
with all local, state and federal laws, rules and regulations of
whatsoever kind with respect to oil spill or other water pollution
liability or prevention applicable to the Vessels loading at, discharging
at, entering, leaving, remaining or passing through ports, places or
waters in the performance of this Contract. Carrier, at its sole risk and
expense, shall make all arrangements by equipping the Vessels, insurance,
bonds, securities or other evidence of financial responsibility,
capability or security, USCG approved Vessel-specific oil spill response
plan and related employee training, formal drills and exercises, and
otherwise and shall obtain all such certificates and documentary evidence
and take all such other action as may be necessary to satisfy such laws,
rules and regulations including but not limited to USCG pollution
prevention regulations including, but not limited to, 33 CFR parts 154,
155, 156 and 157 and the U.S. Federal Water Pollution Control Act, as
amended. The Vessels shall carry onboard a current U.S. Coast Guard
Certificate of Financial Responsibility (Water Pollution). Carrier agrees
to indemnify Shipper against any and all claims, damages, losses,
liabilities, expenses, including, but not limited to, reasonable legal
fees and all other consequences resulting from its failure to accomplish
the foregoing.
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Contract of Private Carriage
14.2 Oil Spill Response Plan.
Carrier shall provide Shipper with copies of the contingency and spill
response plans approved by and on file with the USCG and other local,
State and Federal authorities having jurisdiction. The spill response plan
must include a first aid response within the first thirty minutes of an
incident and a reliable source of follow-up clean up supplies (e.g. booms,
skimmers, vacuum trucks, manpower etc). As evidence of its ability to
access such oil spill response resources, Carrier warrants that it shall
provide sufficient oil spill response capability with respect to minor,
medium and major oil spill events occurring in near-shore and open-ocean
environments by maintaining contracts for spill response service with the
Clean Islands Council and the Marine Preservation Association/Marine Spill
Response Corporation for the term of this Contract and any extension and
supplement thereto, all of which shall be at Carrier's expense, including
the expense of any assessment by such organizations based upon the Cargo
or the quantities and/or types of Cargo transported.
Information provided Shipper with respect to Carrier's oil spill response
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plan should include, but not be limited to, the following:
A. Carrier Incident Command System (ICS) response team format.
B. Communication flow chart including names and 24-hour contacts of Carrier's Qualified Individual and other key participating company personnel.
C. Procedures for assembly of response team.
D. Check list for reporting minor oil spill events and check list which assists shore personnel in obtaining accurate information about major spill events from the Vessel.
E. Contact reference data for oil spill responders contracted to provide assistance to Carrier.
Contract of Private Carriage
14.3 Pollution Mitigation.
When a release, escape or discharge of petroleum product (including the
Cargo transported pursuant to this Contract) or any other hazardous
substance into the surrounding environment occurs from the Tug or the
Barge at any time, or from the Vessels during Carrier's period of
responsibility or while such petroleum product or other hazardous
substance is in Carrier's care, custody and control, or is otherwise
caused by the Vessels or Carrier's personnel, Carrier is obligated and
agrees to immediately take, at its sole expense, whatever measures are
necessary to retrieve and/or remove such petroleum product or other
hazardous substance from the environment, clean up and restore the
affected environment and assume and respond to every loss, damage,
expense, claim, liability, suit, fine, penalty and/or other consequence of
any type or nature, whether involving Carrier, Shipper or others, arising
out of or relating to such release, escape or discharge. Carrier shall
immediately inform Shipper of any such release, escape or discharge, of
measures taken in response as well as any loss, damage, expense, claim,
liability, suit, fine, penalty and other consequence arising therefrom. No
Vessel, tankermen or other charges will be incurred for Shipper's account
with respect to such release, escape or discharge.
15. Change of Ownership of Carrier.
Carrier shall provide Shipper sixty (60) days advance written notice of
any change of ownership/control of Carrier from that in existence on the
date of execution of this Contract which either separately or cumulatively
in conjunction with all other changes occurring from said date involves
more than forty nine percent (49%) of the ownership interest/stock of
Carrier, including voting rights associated with such ownership
interests/stock. Shipper shall have the right to request reasonable
information with respect to such change of ownership/control, and Carrier
shall provide such information promptly to Shipper.
16. TERMINATION
16.1 Termination of Automatic Renewal.
Either party may terminate the automatic renewal of this Contract pursuant
to Subsection 1.2, above. Carrier may terminate the automatic renewal of
this Contract for any successive five (5) year term by providing Shipper
with written notice of such termination two hundred seventy (270) or more
days prior to the expiration of the then current term. Shipper may
terminate the automatic renewal of this Contract for any successive five
(5) year terms by providing Carrier with written notice of such
termination ninety (90) or more days prior to the expiration of the then
current term.
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Contract of Private Carriage
16.2 Termination Based Upon Breach or Default.
This Contract may be terminated by a party upon the breach or default of
the other party as set forth in this Subsection. A party contending that
the other party is in breach or default of this Contract shall provide
written notice thereof to such other party, identifying with particularity
the breach or default and the proposed cure. The other party shall have
fifteen (15) days following receipt of such notice to cure the claimed
breach or default, or otherwise respond in writing. If the parties cannot
agree as to the existence of the breach or default or the appropriateness
of the cure, then the dispute resolution procedure set forth in Subsection
18.3., below, may be invoked by either party to resolve the dispute.
Should the other party fail to cure or respond within the time allowed,
then the party invoking this Subsection may terminate the Contract.
16.3 Termination In Specific Instances.
This Contract may be terminated by Shipper upon the occurrence of any of
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the following:
A. Failure of Carrier to maintain:
1. insurances as required under this Contract;
2. certification under AWO/RCP;
3. ISO 900 certification (or standards which supersede them);
4. ISO 14000 certification (or standards which supersede them);
5. classification by ABS;
6. certification by USCG for the Vessels;
7. suitable equipment, including substitute Vessels, pursuant to Section 2., above;
8. seaworthiness under provisions of Subsection 2.6., above;
9. drug and alcohol testing procedures for Tug personnel and Tankermen; and,
10. recommended and required inspection and maintenance of the Tug and Barge.
Contract of Private Carriage
B. Total loss or constructive total loss of the Barge as per Subsection 16.6., below.
C. The Vessels suffering more than two (2) marine casualties, reportable under 46 C.F.R. 4.05-1, in a calendar year.
D. The Vessels suffering more than three (3) minor oil spills (less than 10,000 gallons) in a calendar year.
E. The Vessels suffering more than one (1) medium oil spill (10,000 to 100,000 gallons) in a calendar year.
F. The Vessels suffering a single large oil spill (over 100,000 gallons) during the term of this Contract.
G. Failure of Carrier to provide two (2) alert, rested and certified Tankermen onboard during all cargo operations.
H. Failure of Carrier to report casualties and "near misses" to Shipper as per Subsection 3.10., above.
In the event any of the above should occur, Shipper may terminate this
Contract upon five (5) days advance written notice to Carrier.
16.4 Termination for Substandard Performance.
This Contract may be terminated by Shipper based upon the substandard
performance by Carrier of its obligations hereunder. Should Shipper
believe Carrier's performance is substandard and wish to terminate this
Contract pursuant to this Subsection, Shipper shall inform Carrier in
writing of each item of performance which is believed to be substandard,
providing full explanation, particulars and documentation of each such
allegation. Carrier shall have thirty (30) days from receipt of Shipper's
written statement of claim in which to respond in writing. If Carrier
fails to respond in writing within the required time period, Shipper may
terminate this Contract by providing Carrier with written notification of
termination, specifying in such notice the precise date for termination.
If Carrier responds in writing within thirty (30) days of receipt of
Shipper's written statement of claim, proposing to cure the items of
substandard performance, including the specifics of such cure, Shipper
shall have the option, which must be exercised promptly, of accepting such
cure and agreeing with a date by which such cure must be completed, or
rejecting the proposed cure and requiring arbitration
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Contract of Private Carriage
pursuant to Subsection 18.2., below. Should Carrier contest Shipper's
allegations of substandard performance and do so in writing to Shipper
within thirty (30) days of receipt of Shipper's written statement of
claim, either party may compel arbitration of the dispute pursuant to
Subsection 18.2., below. Any arbitration arising out of this Subsection
shall be final and binding upon the parties and may not be appealed.
16.5 Prolonged Force Majeure.
Either party may terminate this Contract pursuant to Subsection 11.1.,
above should an event or act of Force Majeure continue uninterruptedly for
a period of fifteen (15) days, upon five (5) days advance notice to the
other party.
16.6 Total Loss of Barge.
It is understood and agreed that in the event of a declaration of total
loss or constructive total loss of the Barge during the Contract term,
Carrier shall be entitled to utilize a substitute Barge for a period of
one hundred and twenty (120) days following the casualty giving rise to
such declaration. Within thirty (30) days following the event which caused
such declaration of total loss or constructive total loss, Carrier shall
declare in writing to Shipper whether it will provide a replacement Barge
for service under this Contract, meeting the requirements set forth
herein, including without limitation Section 2., above. Such replacement
Barge shall be tendered for delivery and approval of Shipper in accordance
with the terms of this Contract within ninety (90) days following such
declaration, failing which, Shipper shall have the unilateral right to
terminate this Contract by written notice to Carrier, notwithstanding
anything herein to the contrary.
16.7 Change of Ownership/Control.
In the event of change of ownership/control of Carrier as identified in
Section 15., above, Shipper shall have the right to terminate this
Contract upon thirty (30) days written notice to Carrier, which right may
be exercised at any time from receipt of the notice required pursuant to
Section 15., above, and for one (1) year thereafter.
16.8 Automatic Termination.
This Contract shall terminate automatically upon the appointment of a
receiver for a party, the making by a party of a general arrangement for
the benefit of creditors, or the filing of any type of bankruptcy
proceeding by or against a party.
16.9 Termination By Assent.
This Contract may be terminated at any time by the written agreement of
Carrier and Shipper.
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Contract of Private Carriage
16.10 Other Conditions.
Termination of this Contract by a party pursuant to this section shall
not waive, or estop that party from asserting, any other right or claim
which that party may have under applicable law or this Contract.
17. DEFINITIONS
The following terms shall have the definitions set forth below for
purposes of this Contract:
Barrel: A barrel shall mean 42 U.S. gallons at sixty (60) degrees
Fahrenheit.
HECO: refers to Hawaiian Electric Company, Inc.
HELCO: refers to Hawaii Electric Light Company, Inc.
Joint Voyage: refers to any voyage on which both HELCO and MECO Cargo are
transported on the Barge.
MECO: refers to Maui Electric Co., Ltd.
Offer Letter: refers to the Carrier's Offer Letter to HECO in response to
the RFP.
Period of Responsibility: Carrier's period of responsibility associated
with the Cargo shall commence at the shore riser connection and the SPM
hose connection, as applicable (with Carrier responsible for actually
making such connections) and shall continue as the Cargo is unloaded,
distributed throughout the Barge, transported through to destination and
until the Cargo passes the shore riser upon discharge (with Carrier
responsible for making the connection between the hose and the shore
riser). The Cargo shall be deemed completely within Carrier's care,
custody and control during the foregoing period of responsibility.
RFP: refers to the Request For Proposals issued by HECO on behalf of and
as agent for HELCO and MECO on July 28, 2000.
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Contract of Private Carriage
18. DISPUTE RESOLUTION
18.1 General.
There shall be two levels of dispute resolution applicable to this
Contract, each of which is defined in this Section.
18.2 Technical Disputes.
Technical disputes arising under or in the course of performance of this
Contract shall be resolved by a single arbitrator. Technical disputes
shall be limited to disputes arising pursuant to Subsections 5.15., 16.3.
or 16.4. of this Contract, as well as all disputes arising out of or
relating to: compliance with the requirements set forth in this Contract
as to the Tug and Barge; compliance with the requirements set forth in
this Contract for the Tug and Barge safety and environmental management;
Vessel operation and/or navigation issues; pumping rates, cargo volumes
and/or capacities; cargo losses; reporting requirements for marine
casualties and "near misses"; compliance with recommended and/or required
Vessel maintenance; adequacy of spill clean up equipment, procedures and
drills; adequacy of spare parts on hand; and, Tug and Barge performance
criteria.
Promptly following execution of this Contract, the parties shall meet and
shall agree upon a minimum of three (3) arbitrators who shall be
authorized to arbitrate disputes arising under this Subsection. Such
agreed list of arbitrators may be modified at any time by agreement of the
parties. The arbitrators shall be persons from within the maritime
industry who are agreed to be fair, neutral and knowledgeable of technical
matters pertinent to this Contract.
In the event of such technical dispute, either party may initiate
arbitration pursuant to this Subsection by written notice to the other
party, identifying the arbitrator from the agreed list who will resolve
the dispute. Promptly following appointment, the arbitrator shall be
responsible for establishing timetables and procedures for acquisition and
presentation of information as well as for hearing each party's side of
the dispute, but in any event the parties shall cooperate with the
arbitrator such that a final written decision shall be issued by the
arbitrator within sixty (60) days following appointment of the arbitrator.
The arbitrator shall in all respects be governed by the terms and
conditions of this Contract. The decision of the arbitrator shall be final
and binding upon the parties and may not be appealed. Each party shall
bear its own expenses in the arbitration of technical disputes, as well as
one-half of the fees and costs incurred by the arbitrator.
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Contract of Private Carriage
18.3. All Other Disputes.
All other disputes shall be resolved under the commercial arbitration rules of the American Arbitration Association.
Contract of Private Carriage
The arbitrators shall not consider any evidence or argument not presented during such period and shall not extend such period except by the written consent of both parties. At the conclusion of such period, the arbitrators shall have thirty (30) calendar days to reach a determination. To the extent not in conflict with the procedures set forth herein, such arbitration shall be held in accordance with the prevailing rules of the American Arbitration Association for commercial arbitration.
19. GENERAL PROVISIONS
19.1 Audit.
Shipper, at its sole discretion, may conduct its own audit of Carrier's
policies, procedures and may inspect the Tug and Barge at any time during
the term of this Contract for the limited purpose of verifying compliance
with the terms and conditions set forth in this Contract. No such audit or
inspection, however, shall increase Shipper's liabilities or
responsibilities nor shall relieve Carrier of any liability or
responsibility which it has assumed pursuant to this Contract.
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Contract of Private Carriage
19.2 Shipper's Representatives.
Shipper shall have the right and privilege of having its representative(s)
visit the Vessels and observe operations while at port or sea. Shipper's
representative(s) shall have access to the entirety of the Vessels, with
the Master, officers and crew to cooperate with such representative(s) and
to render any reasonable assistance that such representative(s) may
require.
19.3 Liens Upon the Cargo.
Neither Carrier nor any of Carrier's subcontractors, independent
contractors or employees shall assert any liens upon the Cargo.
19.4 Business Policy.
Carrier agrees to comply with all laws and lawful regulations applicable
to any activities carried out in the name, or otherwise on behalf, of
Shipper under the provisions of this Contract. Carrier agrees that all
financial settlements, billings and reports rendered by Carrier to
Shipper, as provided for in this Contract, shall, in reasonable detail,
accurately and fairly reflect the facts about all activities and
transactions handled for the account of Shipper.
19.5 Notices.
Except as otherwise expressly provided herein, all notices and
communications required by the terms hereof from Carrier to Shipper and
from Shipper to Carrier shall be made in writing, facsimile or telex to
the following addresses, or such other address as the parties may
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designate by notice, and shall be deemed given upon receipt:
Shipper: Manager, Power Supply Services Dept.
Hawaiian Electric Co., Inc.
P.O. Box 2750 PHONE: (808) 543-4303
Honolulu, Hawaii 96840 FAX: (808) 543-4366
Carrier: Gordon L.K. Smith
Hawaiian Interisland Towing, Inc.
Pier 21, Main Office PHONE: (808) 522-1000
Honolulu, Hawaii 96817 FAX: (808) 522-1003
19.6 Captions.
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Captions used herein are for convenience of reference only and shall have no force or effect or legal meaning in the construction or enforcement of this Contract.
Contract of Private Carriage
19.7 Assignment.
This Contract shall not be assigned by either party without the prior
written consent of the other party, which consent shall not be
unreasonably withheld, except that this Contract may be assigned by
Shipper to the Trustee under Shipper's First Mortgage Indenture dated May
1, 1941, as amended.
19.8 Extension of Benefits.
All limitations upon or exemptions from liability granted to a party
pursuant to this Contract shall be deemed extended to the directors,
officers, members, and employees of that party.
19.9 Entire Contract.
This document, including the RFP, Carrier's completed Prequalification
Questionnaire, Carrier's Offer Letter and all exhibits and attachments
referenced or otherwise incorporated herein, constitutes the entire
agreement between the parties and expressly supersedes and negates all
prior or contemporaneous negotiations, communications, understandings and
agreements, whether written or oral. This agreement shall not be modified
or amended except through a writing signed by both Shipper and Carrier.
19.10 Severability.
Carrier and Shipper agree that if, and in the event, any term or
provision of this Contract shall be rendered or declared invalid or
unenforceable by reason of any existing or subsequently enacted
legislation or by decree or judgment of any court which shall have or
acquire jurisdiction over the parties and each of them or jurisdiction
"in rem" of the Vessels, the invalidation or unenforceability of such
term or provision of this Contract shall not thereby affect the remaining
terms, provisions, rights and obligations herein contained.
19.11 Regulatory Approval.
This Contract is required to be filed with the Hawaii Public Utilities
Commission ("PUC") for approval, with such approval to be a condition
precedent to Shipper's obligation to perform hereunder. Following award
of this Contract to Carrier, both parties agree to use their best good
faith efforts to obtain such approval.
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Contract of Private Carriage
IN WITNESS WHEREOF, the parties hereto have caused this Contract to be executed as of the day and year first above written.
HAWAIIAN INTERISLAND TOWING, INC.
"Carrier"
By /s/ Gordon L. K. Smith Its President |
HAWAII ELECTRIC LIGHT COMPANY, INC.
"Shipper"
By /s/ Warren H. W. Lee Its President By /s/ Paul N. Fujioka Its Assistant Treasurer |
Contract of Private Carriage
EXHIBIT A
BARGE REQUIREMENTS
The following are warranted by Carrier with respect to the Barge and its equipment and machinery employed under this Contract.
The Barge shall be a new build, double-hulled and OPA-90 qualified tank barge.
Storage (minimum):
25,000 bbl. No. 6 Industrial Fuel Oil minimum. 30,000 bbl. No. 2 Diesel Fuel Oil minimum. 10,000 bbl Grade A Cargoes
Single voyage capacity (minimum):
65,000 bbl Total.
Any Barge used in service to Shipper shall be equipped with a system of cargo tanks and piping that will provide for the segregation of three grades. There shall be regular segregation of diesel and black oil; cross connection of other grades to be double blocked.
Piping is to be configured to allow future conversion of tanks dedicated to No. 6 fuel oil to diesel service at a date to be determined by Shipper.
Tanks shall be arranged to allow for proper trim control with any single cargo type loaded on board.
Any Barge used in service to Shipper shall be capable of ballasting water from designated ballast tanks located in the double bottom and wing tanks. A ballast pump shall be provided to ballast or de-ballast the Barge within ten hours.
Contract of Private Carriage
No. 6 Industrial Fuel Oil: 3,000 barrels per hour (BPH) at 110 Degrees F
minimum.
No. 2 Diesel Fuel Oil: 3,000 BPH minimum.
Grade A cargoes: 2000 BPH minimum
Rail pressure: 100 psi at manifold
Any Barge used in service to Shipper shall be equipped with cargo manifolds, piping valves, hoses, cranes and other equipment sufficient to permit Cargo loading and/or discharge operations for each cargo on both port or starboard side.
Any Barge used in service to Shipper shall be equipped with cargo manifolds, pumps and piping sufficient to permit the loading and discharge of three different Cargo grades simultaneously.
Any Barge used in service to Shipper shall be equipped to permit emergency shutdown of the pumping system from more than one location, of which at least one shall be on deck and situated such that no point on the barge deck is more than 75 feet from a shutdown.
Any Barge used in service to Shipper shall be equipped with a deck containment coaming to reduce the likelihood that cargo spilled from cargo hatches, hose connections, oil loading manifolds, hose storage trough, above-deck lines and valves and transfer connections may enter the water or land environment. Provision shall be made to assure that rainwater draining from the deck shall not carry contaminates overboard.
Spill tank(s) with total capacity of 1000 gallons, located just below the main deck aft, are to be provided to capture all contaminates that collect on the deck. The spill tanks are to be provided with pump-off capabilities located on the Barge in the vicinity of the spill tank(s).
Contract of Private Carriage
Any Barge used in service to Shipper shall be fitted with heating coils in all cargo tanks in which residual fuel oil type cargo, such as No. 6 Industrial Fuel Oil, is to be carried. The coils shall be supplied with heat by a diesel fired retort system of 5.0 million BTU's/hr capacity.
Any Barge used in service to Shipper shall have diesel generators of sufficient capacity to safely provide electrical power to all Barge equipment and machinery in any and all operations including full operation of pumps and other equipment necessary to loading/discharging of cargo with one generator out of service.
Diesel engines are to be inspected to ensure that all components are within manufacturer's tolerances; maintenance records are to be available for confirmation of PMS.
An overhaul shall be conducted on the generator engines of the Interim Barge prior to tendering for delivery to Shipper pursuant to this Contract if over 50 percent of the engine hours (based on manufacturer's recommendation for periods between overhauls) have been exhausted since the last overhaul period.
Any Barge used in service to Shipper shall be fitted with equipment of sufficient capacity and piping to safely clear cargo hoses of retained Cargo after completion of Cargo operations.
Any Barge used in service to Shipper shall be fitted with electronic and mechanical high level alarms (high and high-high) in all cargo tanks. Void spaces are to be fitted with bilge alarms. These alarms are to be fitted with audible and visible signals to alert the tankermen or Tug crew.
Any Barge used in service to Shipper shall have toilet facilities provided for use during loading and discharge operations. If portable, the facilities shall be capable of being properly secured so as to withstand boarding seas and inclement weather.
Contract of Private Carriage
All tanks, voids and ballast compartments are to be coated with materials acceptable to Shipper and compatible with the cargoes carried. Zinc anodes shall be installed in ballast tanks. Coatings are to be maintained and renewed as necessary. Coatings shall be in Good condition per ABS Coating Systems Guidance Assessment Scale.
There shall be no greater wastage from the original plate thickness in any tanks, voids, compartments, shell plating, fittings or piping than is allowed by the USCG, the relevant Classification Society or as otherwise allowable pursuant to Carrier's overriding responsibility for the seaworthiness and safety of all Vessels, equipment and operations consistent with the best marine practices available. Any release or discharge of Cargo caused by wastage in any tank, void, compartment, plating, fitting or piping shall be deemed a per se breach of Carrier's overriding responsibility for the seaworthiness and safety of all Vessels, equipment and operations consistent with the best marine practices available.
Any Barge used in service to Shipper shall have oil spill abatement equipment and supplies. Equipment and supplies shall include, but not be limited to1,500 feet (minimum) of oil spill boom, boom deployment skiff, spare bridles and two lines anchor/buoy system, sweeps, sorbent sheets, transfer pumps, and skimmer. In addition, personal protective clothing and gear and other related emergency oil spill cleanup equipment consistent with the Vessel's oil spill response plan and all U. S. Coast Guard requirements shall be provided.
Any Barge used in service to Shipper shall be rigged for towing operations with an emergency towing pennant or insurance wire. A pickup line with buoy shall be attached to the insurance wire and streamed when underway. The emergency tow wire and the shackles used to make the centerline tow pad at the bow need to be of comparable size to the tugs tow gear. In addition, the insurance wire is to lead from the bow tow pad down one side of the barge, to the stern, held in place with steel clips.
Any Barge used in service to Shipper shall be equipped with appropriate mooring bitts and sufficient forward winch/capstan and winch/capstan-drum capacity to lift the mooring hawser and chafe chain of the Tesoro Hawaii SPM. The forward winch/capstan is to be rigged to be capable to lift the barge chain tow bridles clear of the water when necessary.
Contract of Private Carriage
Any Barge used shall be equipped with a crane or A-frame type gallows, tie off bitts and manifold rail suitable for lifting and tying off the floating hose at that facility pursuant to the requirements set forth in Exhibit C attached hereto. The crane shall be sufficient to permit loading and/or discharge operation from each cargo on both sides of the Barge.
Carrier shall maintain spare parts in Hawaii to facilitate immediate repairs to major components necessary to the operation, loading and discharge of the Barge. These may include, cargo pumps, generators, retort, valves, compressors, ventilation fans, alarms, sensors, etc.
The Barge shall be equipped with anchoring and/or retrieval system or systems meeting USCG requirements as well as consistent with Carrier's overriding responsibility for the seaworthiness of all Vessels, equipment and operations consistent with the best marine practices available.
Applicable Laws of the United States for a Vessel of U.S. Registry
U.S. Coast Guard Certification of Inspection for ocean service as an unmanned tank barge, including compliance with 33 CFR 157.10d: Double Hulls on tank vessels
American Bureau of Shipping Rules for Building and Classing Steel Barges, Maltese Cross A1 and Circle E
International Load Line Certificate.
IMCO Rules for Tonnage Measurement
International Convention for Prevention of Pollution from Ships (MARPOL), Including Requirements Pertaining to the Issuance of International Oil Pollution Prevention Certificates
International Convention for Prevention of Collisions
Contract of Private Carriage
Oil Companies International Marine Forum (OCIMF) Recommendations for Oil Tanker Manifolds and Associated Equipment for Category "A" Vessels (16,000 to 25,000 DWT)
Oil Pollution Act of 1990
American Waterways Operators (AWO) - Responsible Carrier Program, ISO 9000 (or standards which supersede them) and ISO 14000 (or standards which supersede them).
Any Barge used in service to Shipper shall have cargo tanks provided with suction wells (recessed into the double bottom), butterworth plates, ullage openings, b-valves for revenue gauging, and pressure/vacuum valves.
Tank bottoms and tank outboard side bulkheads shall have their plate stiffeners located in the double hull void spaces.
Special attention shall be given to the fore end design to reduce the stresses induced by slamming, especially in the light condition. Additional strength should be provided in the Barge hull in way of areas that the Tug uses while maneuvering alongside or docking.
The Barge must comply with the vapor control, closed gauging and overfill protection requirements identified in 46 CFR, Chapter 1, Subchapter D, Part 39, and must specifically comply with 46 CFR 39.20-7, rather than 46 CFR 39.20-9.
Any Barge used in service to Shipper shall undergo a condition survey prior to final acceptance to ensure safe operability of the Barge. Carrier shall, at its expense and at the inception of the Contract term and each thirty (30) months thereafter, provide Shipper with a condition survey of the Barge which states that the Barge is in conformity with Contract requirements and is otherwise safe and suitable for the intended operation.
IEEE Std. No. 45, Recommended Practice for Electrical Installations on Shipboard and International Electro Technical Commission (IEC)
Contract of Private Carriage
EXHIBIT A-1
BARGE SPECIFICATIONS
(Exhibit A-1 includes a description of the Barge to the degree currently possible; a final version of Exhibit A-1 shall be attached upon completion of construction of the Barge)
(NEW-BUILD BARGE)
GENERAL:
The barge shall be built to the present ABS rules for building and classing a Maltese Cross A-1, unmanned oil tank barge, complying with OPA-90. The barge shall be certified to carry grade "A" or lower products. The barge is based on a proven design that has been in continuous service on the West Coast. The piping layout is based on the piping installed on Barge NOHO HELE. This system has proven to be exceptionally effective in the current fuel transportation contract. The design attributes of the new-build barge combine to optimize the barge's design and specifications for service in Hawaiian Electric Company, Inc.'s Fuel Transportation Contract.
The barge shall be delivered with the following documentation:
1. USCG Coast Guard Certificate of Inspection
2. ABS Load line Certificate
3. International Tonnage Certificate
4. USCG Stability Letter
5. USCG Certificate of Documentation
The barge hull shall have a length of 328', a width of 76', side shell depth of 22', with a 5' trunk; double hulled, all oceans grade "A". The hull shall have twelve (12) cargo tanks, being longitudinally divided with one (1) longitudinal centerline bulkhead and transversely divided with seven (7) transverse bulkheads.
CAPACITY:
Storage:
25,200 bbl. No. 6 Industrial Fuel Oil
34,200 bbl. No. 2 Diesel Fuel Oil
10,400 bbl Grade A Cargoes
Single voyage capacity:
69,600 bbl. Total.
OUTFITTING:
1. One (1) tanker man office
2. One (1) engine space
3. Four (4) 1000 watt floodlights located as requested
4. Four (4) double bitts
5. Eight (8) kevel bitts, four (4) located down each side
6. Towing pads
7. Four (4) recessed hull boarding ladders coming around the perimeter of deck
per regulatory requirements
Contract of Private Carriage
8. Six (6) push-knees, three per side
9. One (1) hose handling crane, 65 foot boom, approximately 2000 pound lifting
capacity,
10. Access ladders, 16 inch width, into all tanks/voids, approximately 28
locations
11. One (1) breakwater
12. One (1) mounting cones for a 20 foot spill van
13. Four (4) open chocks, located as directed
14. One (1) closed chock, located as directed
15. One set of USCG approved light screens and battery boxes (no lights)
16. Fire extinguishers, five (5) 20lb CO2
17. Ballast system
18. Ballast pump
19. Hand rails
20. Exterior paint, painted voids/ballast tanks; cargo tanks
CARGO SYSTEM:
1. Five (5) Caterpillar/equivalent 170hp pump engines
2. Two (2) Caterpillar/equivalent 80kw generator sets
3. Five (5) 10" 14GM 4-stage deep well Byron Jackson pumps, with Amarillo
right angle drives
4. Five (5) 30" deep well cans
5. Five (5) 4x6 relief valves
6. 12 expansions domes
7. 12 high level 1-meter "dip sticks"
8. 12 high level sound alarms
9. 12 "B" valves
10. Heating coils
11. Air compressor
12. One (1) towing shape, One "red" loading light, One red bravo flag located
on single mast positioned on the engine room
13. Vapor recovery, (3) systems with high pressure relief header valves;
suitable for 5000 barrels per hour loading
14. 10" below deck piping, loop system with 10" cargo valves and block valves
as per drawings
15. Three (3) remote shutdowns
16. 8" on deck cargo valves, piping and headers
17. Fuel shutdowns located outside the engine space
18. Spill containment for headers
19. Signage
20. Cargo pipe lines to be tested to 225 psi and certified with a safe working
load of 150 pounds.
CARGO SEGREGATION:
Barge is equipped with a system of cargo tanks and piping that will provide for the segregation of three grades. There is regular segregation of diesel and black oil; cross connection of other grades are double blocked. Piping is configured to allow future conversion of tanks dedicated to No. 6 fuel oil to diesel service. Tanks are arranged to allow for proper trim control with any single cargo type loaded on board.
Contract of Private Carriage
PLANS, MANUALS AND OTHER DATA
A. Construction Plans
The barge shall be constructed in accordance with U.S. Coast Guard approved plans.
B. Certification
Barge meets the following certification criteria:
a. Applicable Laws of the United States for a Vessel of U.S. Registry
b. U.S. Coast Guard Certification of Inspection for ocean service as an
unmanned tank barge, including compliance with 33 CFR 157.10d: Double Hulls
on tank vessels
c. American Bureau of Shipping Rules for Building and Classing Steel Barges,
Maltese Cross A1 and Circle E
d. International Load Line Certificate
e. IMCO Rules for Tonnage Measurement
f. International Convention for Prevention of Pollution from Ships (MARPOL),
Including Requirements Pertaining to the Issuance of International Oil
Pollution Prevention Certificates
g. International Convention for Prevention of Collisions
h. Oil Companies International Marine Forum (OCIMF) Recommendations for Oil
Tanker Manifolds and Associated Equipment for Category "A" Vessels (16,000
to 25,000 DWT)
i. Oil Pollution Act of 1990
j. American Waterways Operators (AWO) - Responsible Carrier Program, ISM, and
ISO 9002. Barge will meet ISO 14001 certification prior to the start of
the contract.
C. Builder's Shop Drawings and Layouts
The Builder shall prepare shop drawings and layouts as necessary to construct the vessel. Two copies of these shop drawings and layouts shall be furnished to the Owner for review and approval. The Builder shall furnish the Owner with copies of the lofted hull offsets for approval prior to fabrication.
D. Vendor Drawings and Technical Manuals
For all equipment purchased by the Builder, the Builder shall submit the following to the Owner:
Purchase Technical Specifications
Installation Plans and Technical Data
Preliminary Technical Manuals
Operation Manual
Maintenance and Service Manual
Assembly Drawings with repair part ordering information
E. Signs and Safety Precautions
The Builder shall prepare and post the safety and precaution signs, placards and notices required by the regulatory bodies. The Owner will furnish the Piping Diagrams and Oil Transfer Procedure required by the U.S. Coast Guard Regulation (CFR 33 part 155.720). These documents shall be suitably framed and posted in the Tankerman's Shelter. In addition, the Builder shall frame and post all the certificates required to be carried on board in the Tankerman's Shelter.
Contract of Private Carriage
F. Survey
Barge will undergo a condition survey prior to final acceptance to ensure safe operability of the Barge. Carrier shall, at its expense and at the inception of the Contract term and each thirty (30) months thereafter, provide Shipper with a condition survey of the Barge which states that the Barge is in conformity with Contract requirements and is otherwise safe and suitable for the intended operation.
G. Compliance
Barge complies with IEEE Std. No. 45, Recommended Practice for Electrical Installations on Shipboard and International Electro Technical Commission (IEC).
SCHEDULE
The Builder shall submit a schedule to the Owner that shows "key" dates such as "delivery of steel" and start of "pre-fabrication". The Owner shall be notified of anything that may effect the completion date. The schedule shall be updated every week as the work progresses.
MATERIALS
The Builder shall furnish all materials required. All material shall be
suitable for the service intended. The material specified on the plans shall be
used. Material substitutions shall not be made except with the approval of the
Owner. All steel used shall be new carbon steel, A.S.T.M. A-36 or A.B.S. Grade
A.
INSPECTION AND TESTS
The Builder shall be responsible for in process inspections. Prior to acceptance of the barge, at the convenience of the Contractor, a complete final inspection of all work will be made jointly by the Contractor and the Owner's Representative. Incomplete work noted during this inspection shall be completed by the Contractor prior to closing the spaces and acceptance of the barge by the Owner. The Builder shall fill all engines with water, anti-freeze, and lubricants. The engines, cranes, and electrical system shall be tested by the Builder. During start-up and test, an engine vendor's representative shall be engaged to check-out the engines. The Owner's Representative and the U.S. Coast Guard inspector shall be notified prior to engine and equipment tests so that they can attend the tests. The hull tanks and voids shall be hydrostatically and air tested in accordance with the A.B.S. Rules.
HULL STRUCTURE, ARRANGEMENT AND OUTFIT
A. Arrangement and Scantlings
The hull shall be constructed in accordance with the plans.
B. Hull
Special attention has been given to the fore end design to reduce the stresses induced by slamming, especially in light condition. Additional strength is provided in the Barge hull in way of areas that the Tug uses while maneuvering alongside or docking.
C. Fuel Tanks
Diesel Fuel oil tanks are to be installed as shown on the plans. The tanks are to be 5,900 gallons capacity each. The tanks are to be U.S. Coast Guard approved.
Contract of Private Carriage
D. Boarding Ladders
Boarding ladders shall be provided on each side at each end (4 places) as shown on the plans. The ladder rungs shall be one-foot apart and staggered for easy access. Hand grabs shall be installed on the deck and trunk sides as shown on the plans.
E. Vent and Limber Holes
Framing in the cargo tank spaces and voids shall be provided with limber and vent holes as shown on the plans. Framing in the rakes shall have adequate limbers to insure drainage.
F. Deck Houses
A steel deck house is to be installed aft to house a pump engine room, diesel generator room and a storeroom. A void shall be located under this deck house. Two bolted plate manholes shall be installed for access into this void. The engine rooms shall be provided with weather tight openings for engine cooling air and ventilation.
A Tankerman's shelter shall be installed on the starboard side forward.
A file cabinet (4 drawer, legal size), steel desk (30 x 60), steel swivel chair, and steel personnel lockers (single tier, 3 wide) shall be installed in the Tankerman's Shelter. Windows shall be installed on each of the four sides of the shelter to provide the Tankerman with a view of the deck. Half the windows shall be "slider" type capable of opening for ventilation. The store room bulkheads shall be fitted with steel shelving. Dead lights shall be located on the front and sides of the aft deck house so that the tankerman has a clear view of the deck from the Machinery Rooms.
G. Bitts, Kevels and Barge Connectors
Bitts, kevels, closed chocks, and Barge connection winches shall be furnished and installed as shown on the plans.
H. Deck Containment
Barge is equipped with a deck containment coaming to reduce the likelihood that cargo spilled from cargo hatches, hose connections, oil loading manifolds, hose storage trough, above-deck lines and valves and transfer connections may enter the water or land environment. Provisions are made to assure that rainwater draining from the deck will not carry contaminates overboard.
I. Spill Containment
Spill containment shall be provided at the two hose connections. Drain plugs shall be provided to drain clean water onto the deck.
J. Emergency Tow Wire
Barge is rigged for towing operations with an emergency tow wire. A pickup line with buoy is attached to the insurance wire and streamed when underway. The emergency tow wire and shackles used to make the centerline tow pad at the bow are of comparable size to the tug's tow gear. In addition, the insurance wire leads from the bow tow pad down the starboard side of the barge, to the stern, and is held in place with stainless steel clips.
Contract of Private Carriage
K. Mooring Equipment
Barge is equipped with appropriate mooring bitts and sufficient forward winch/capstan and winch/capstan-drum capacity to lift the mooring hawser and chafe chain of the Tesoro Hawaii SPM. The forward winch/capstan is rigged to be capable of lifting the barge chain tow bridles clear of the water when necessary.
L. Doors
Doors may be fabricated or purchased. They shall be weather tight or watertight. Watertight dogged doors shall be provided with two dog wrenches. Stowage shall be provided on each side of the door. Doors shall be fitted with suitable hold open devices and hasps for padlocks. Hold open devices shall be arranged with suitable hooks and eyes for securing so paint will not be worn by motion of the vessel.
M. Hose Handling Crane
Hose handling crane shall be installed as shown in the plans. The crane is to be pedestal mount, rotating, and hydraulically operated. Hydraulic power is to be furnished by a hydraulic pump driven by the generator drive engine. The crane is to be rated for a Safe Working Load of 1,000 pounds at 65 feet reach and 2000 pounds from 5 to 45 feet reach. The crane is to be operated from control valves mounted on the crane pedestal.
N. Draft and Identification Marks
Draft marks, name, and hailing port are to be installed as raised metal figures cut from 1/4 inch plate welded all around to the hull. The official number is to be placed in the bow rake port side next to the access hatch and outlined with weld beads. Name letters are to be 12" high. Other letters and figures are to be 6" high. The state name is not to be abbreviated.
O. Workmanship and Clean-up
In addition to the general regulatory body requirements, the following good workmanship practices shall be followed:
1. Welding is to be performed in accordance with the A.B.S. Rules.
2. Welding procedures as approved by the American Bureau of Shipping shall be
furnished to the Owner's Representative.
3. Personnel welding qualifications shall be furnished to the Owner's
Representative. If unsatisfactory welding is performed, the Owner's
Representative may direct the Contractor to remove unqualified individuals
from working on the vessel.
4. Inspection of welds shall be carried out in accordance with A.B.S. Rules
for Ocean Tank Barge Grade A vessels. The Owner's Representative shall
designate locations for radiographic and other non-destructive tests.
5. All cuts shall be neat and fair. Where necessary, unfairness shall be weld
repaired and/or ground out.
6. Decks, bulkheads, shell plating and other place structures shall have
surfaces reasonably fair, without buckles, kinks, or other surface
irregularities.
7. All exposed edges such as around holes and edges of flange plates shall be
ground smooth and the corners broken in order to protect personnel from
injury and for the adherence of paint.
8. All external welds exposed to the weather shall be continuous and sealed.
9. All cut-outs shall be fair and smooth without gouges. "Rough" cut-outs
shall be built up with weld and ground smooth.
10. Structural connections shall be properly fit. The Builder shall make
allowances so that stiffeners and brackets on opposite sides of plates line
up. Improper fitting shall be cause for rejection. The Builder shall
correct any bad fit-ups.
Contract of Private Carriage
11. All temporary brackets, clips and other projections used for construction
shall be removed, flushed off, and ground smooth.
12. Any indentation or pits from removal shall be filled with weld metal and
ground smooth.
13. Any indentation or pits from removal shall be filled with weld metal and
ground smooth.
14. All welds shall have slag completely removed.
15. Prior to delivery, the Builder shall thoroughly clean the barge. All
Builder's equipment, staging, temporary lighting, hoses and other equipment
used in construction shall be removed. Particular attention shall be
directed to the cargo piping and cargo tank spaces. All debris and dirt
shall be completely removed. All metal pieces, weld rod ends, bolts and
other foreign materials shall be completely removed.
P. TESORO HAWAII OFFSHORE SINGLE POINT MOORING TERMINAL
Carrier warrants the following with respect to the Barge and its equipment and machinery employed under this Contract:
a. Barge is configured to moor stern-to-the-buoy with the hose connections at the starboard-side manifolds.
b. Mooring equipment: Barge winches are capable of heaving the end of the 76mm chafe chain on board and adjacent to the barge mooring connection in a safe and efficient method.
c. Mooring connection: Barge is capable of accepting OCIMF-standard tri-plate at the end of the mooring hawser/chafe chain assembly.
d. Hose handling equipment: Its located at the starboard side cargo manifolds. The Safe Working Load of the hose derrick, crane or A-frame is 5 tons. Manifolds and hose hang off points are capable of sustaining the weight of the standard 12 inch floating cargo hose.
e. The Barge is equipped with an ocean oil containment boom equal in length to twice the length of the barge and is capable of being deployed by available personnel and boats.
MACHINERY AND PIPING
A. Multiple Grades
Barge is equipped with cargo manifolds, pumps and piping sufficient to permit the loading and discharge of three different Cargo grades simultaneously.
B. Cargo Tanks
Barge has cargo tanks provided with suction wells (recessed into the double bottom), butterworth plates, ullage openings, b-valves for revenue gauging, and pressure/vacuum valves. Tank bottoms and tank outboard side bulkheads have their plate stiffeners located in the double hull void spaces.
C. Cargo Pumps
Five cargo pumps shall be installed. Each pump shall have a minimum rating of 2000 barrels per hour at a discharge pressure of 125 psi. Pumps shall be vertical, centrifugal deep-well type with right angle drive capable of stripping. Pumps shall be Bryon-Jackson with mechanical seals and special Graphalloy bearings. Pump cans shall be fitted with nozzles for a relief valve discharge connection (6").
Contract of Private Carriage
D. Discharge Pumping Rates
a. No. 6 Industrial Fuel Oil: 4,000 barrels per hour (BPH) at 110 Degrees F.
b. No. 2 Diesel Fuel Oil: 4,000 BPH
c. Grade A cargoes: 2,000 BPH
d. Rail pressure: 125 psi at manifold
E. Generator Set Diesel Engines
Two generator sets shall be 80kw, driven by 170hp diesel engines as described on the plans. The engines shall be radiator cooled with features similar to the cargo pump engines with electric start by batteries.
F. Cargo Pump Diesel Engines
Each pump shall be driven by an industrial type radiator cooled diesel engine. A clutch shall be provided to disconnect the pump from the engine. The radiator shall be rated for an ambient temperature of 120 degrees Fahrenheit. The fan shall discharge the cooling air through the radiator away from the engine. Exhaust mufflers for spark arresting and noise reduction shall be installed. Pump drive engines shall be electric start by batteries. A primary fuel filter, sediment and water trap such as a Racor-dual element shall be installed in each engine fuel supply line in addition to the engine manufacturer's standard equipment. Pump engine controls shall be arranged for local control and for remote control (clutch and throttle controls) outside the machinery room in the weather on the forward deck house bulkhead. At the remote station, the only instrument required is a tachometer.
G. Emergency Shutdown
Barge is equipped to permit emergency shutdown of the pumping system from three locations on deck, situated such that no point on the barge deck is more than 75 feet from a shutdown.
H. Cargo Piping
The cargo piping shall be arranged as shown on the plans. Non-vortex forming bellmouths shall be installed at each cargo tank suction pipe. Valves inside the cargo tanks shall be fitted with remote operating reach rods and with valve stands located on deck. Reach rods and fittings shall be at least 1 1/2" in diameter. A pressure gage shall be installed at each pump discharge. A pressure/vacuum gage shall be installed in each pump suction. Valves and piping shall be in accordance with the regulatory body requirements. A cast steel relief valve shall be installed in each pump discharge. Adaptor fittings and blank flanges shall be furnished as shown on the plans. Hose storage racks shall be installed as shown on the plans. Hoses shall be rated for150 psi maximum working pressure and be suitable for suction vacuum conditions.
I. Manifolds
Barge is equipped with cargo manifolds, piping valves, hoses, cranes and other equipment sufficient to permit Cargo loading and/or discharge operations for each cargo on both port or starboard side.
J. Ballast
Barge is capable of ballasting water from designated ballast tanks located in the double bottom and wing tanks. A ballast pump is provided to ballast or de- ballast the Barge within ten hours.
Contract of Private Carriage
K. Vapor Control
Barge is equipped with ship-type vapor control system (barge-type is inadequate) suitable for eliminating potential overfill hazards, overpressure and vacuum hazards, and sources of ignition.
The vapor recovery and closed gauging system shall be installed as shown on the plans.
L. Heating
Barge is fitted with heating coils in all cargo tanks in which residual fuel oil type cargo, such as No. 6 Industrial Fuel Oil, is to be carried. The coils are supplied with heat by a diesel fired retort system of 5.0 million BTU's/hr capacity.
M. Electrical System
Barge has diesel generators of sufficient capacity to safely provide electrical power to all Barge equipment and machinery in any and all operations including full operation of pumps and other equipment necessary to loading/discharging of cargo with one generator out of service.
The electrical system shall be installed as shown on the plans. Two sets of batteries shall be installed to start the diesel engines. Each battery set shall consist of two heavy duty marine service batteries of at least 160 ampere-hours storage capacity for each battery. The battery banks shall be at least 24 volts and matched to the pump drive engine electrical system. A battery charger shall be installed to charge the pump engine starting batteries.
N. Hose Pressurization
Barge is fitted with compressed air equipment of sufficient capacity and piping to safely clear cargo hoses of retained Cargo after completion of Cargo operations.
O. Alarms
Barge is fitted with electronic and mechanical high level alarms (high and high- high) in all cargo tanks. Void spaces are fitted with bilge alarms with audible and visible signals to alert the tankermen or Tug crew.
P. Toilet Facilities
Barge has portable toilet facilities provided for use during loading and discharge operations. The portable facilities are capable of being properly secured so as to withstand boarding seas and inclement weather.
Q. Navigation Lights and Shapes
Navigation lights shall be installed as shown on the plans. A red barge loading light and a red loading flag shall be installed on a mast on top of the Tankerman's Shelter. The red loading light may be powered from the lighting system.
R. Oil Spill Abatement Equipment
Barge has oil spill abatement equipment and supplies including, but not be limited to, 1,500 feet of oil spill boom, boom deployment skiff, spare bridles and two lines anchor/buoy system, sweeps, sorbent sheets, transfer pumps, and skimmer. In addition, personal protective clothing and gear and other related emergency oil spill cleanup equipment consistent with the Vessel's oil spill response plan and all U.S. Coast Guard requirements are provided.
Contract of Private Carriage
S. Spares
Carrier will maintain spare parts in Hawaii to facilitate immediate repairs to major components necessary to the operation, loading and discharge of the Barge including cargo pumps, generators, retort, valves, compressors, ventilation fans, alarms, sensors, etc.
T. Anchoring System
The anchoring system is radio controlled for emergency release of the anchor by the tug. Anchor equipment meets the criteria for ABS Circle E.
PAINTING AND CORROSION PROTECTION
A. Sandblasting
All steel surfaces, including the interior of the liquid cargo tanks and void spaces, are to be sand blasted to "near white" metal finish as defined by the Steel Structures Painting Council (SSPC). Finish blasting shall be completed with dry air and grit to insure a moisture-free surface. Blasted surfaces shall be prime coated within the same work shift as the blasting is accomplished in order to prevent rusting.
B. Coatings
All tanks, voids and ballast compartments are coated with materials that are compatible with the cargoes carried. Zinc anodes are installed in ballast tanks.
All coatings will be supplied by the Builder. All surface preparation, temperature and humidity conditions, and applications of coating materials shall be in accordance with the coating manufacturer's recommendations. The Builder shall engage the services of a coating manufacturer's representative to provide technical assistance with the application and to inspect for conformance with the manufacturer's recommended practices. All surfaces will be inspected and approved by the coating manufacturer's representative before coating commences, between coats and after painting is completed. Satisfactory staging and lighting shall be provided for coating work and inspection. The coating manufacturer's representative shall submit a written report describing the surface preparation, coating types and finished dry film thicknesses. The coating manufacturer's warranty shall also be furnished to the Owner. Where dry film thickness (DFT) is specified, it shall have precedence over the number of coats specified. The film thickness readings shall be made with a General Electric, Elcometer, Microtest, or other approved gage in accordance with the manufacturer's instructions.
C. Touch-up Painting
The Builder shall "touch-up" all surfaces damaged during construction including equipment surfaces. Coatings shall match purchased equipment. When the barge is completed, all surfaces shall present a clean smooth appearance without blemishes. "Cut-in" paint boundaries shall be neat and sharp.
Contract of Private Carriage
EXHIBIT A-2
INTERIM BARGE SPECIFICATIONS
OWNER: Hawaiian InterIsland Towing, Inc.
NAME: NOHO HELE
TYPE: Fuel Barge
OFFICIAL NUMBER: 649 722
CALL SIGN: WTF 8117
DESIGNER/BUILDER: Marine Power Equipment
YEAR/LOCATION BUILT: 1982/Seattle
CLASSIFICATION: ABS + A1 Oil Barge
TONNAGE GROSS/NET: 4185
LOAD LINE: ABS
DIMENSIONS (L/B/B): 340' x 78' x 19'
NUMBER OF TANKS: 21
CAPACITY TOTAL: 30,400 No. 2 Diesel Fuel
37,080 No. 6 Industrial Fuel
LIGHT DRAFT: 5'
DEEP DRAFT: 16'
FUEL FOR PUMPS/GENERATOR: 10,096 Gallons
LUBES FOR PUMPS/GENERATOR: 110 Gallons
GENERATORS: 2 x GM 4.71's 75 kw each
PUMPS: 2 x GM 8V.71's for Black
3 x GM 6.71's for Diesel
OIL SPILL RESPONSE EQUIPMENT: Yes
CRANE/BOOM: 2 Ton CRANE/A Frame
ADDITIONAL EQUIPMENT: Container with Pollution Response Equipment
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Contract of Private Carriage Page 65 of 77 |
EXHIBIT B
TUG REQUIREMENTS
The following are warranted by Carrier with respect to the Tug and its equipment and machinery employed under this Contract.
Any Tug used in service to Shipper shall be equipped with a twin engine, twin-screw, twin rudder configuration or equivalent acceptable to Shipper. The Tug shall have sufficient engine power to control the Barge in all wind, weather, sea and emergency conditions likely to be encountered while providing the service required by the Contract, and as otherwise required pursuant to Carrier's overriding responsibility for the seaworthiness of all Vessels, equipment and operations consistent with the best marine practices available.
All propulsion equipment shall be inspected to ensure it is within manufacturer's recommended tolerances, and maintenance records are to be available to ensure that proper PMS has been performed. A Dychem contact test is to be conducted on reduction gears, clutches and bearings to determine if wear is within manufacturer's recommended tolerances.
An overhaul shall be conducted on the main propulsion engines of the Tug prior to tendering for delivery to Shipper pursuant to the Contract if over 50 percent of the engine hours (based on manufacturer's recommendation for periods between overhauls) have been exhausted since the last overhaul period.
Any Tug used in service to Shipper shall be provided with vital system redundancy. All key systems shall be constructed such that complete redundancy is provided for main propulsion, engine controls, steerage and controls, electrical power, fuel oil supply, bilge and fire pumps and communications (VHF, SSB radios).
Contract of Private Carriage
The tug shall be fitted with a house top fire and foam pilothouse controlled monitor for use in fighting fires on the barge. It shall be capable of discharging sea water or 3% AFFF foam at a rate of 375 GPM with 100 PSI minimum pressure at the nozzle. The pump and monitor shall be permanently installed and shall be capable of immediate operation. Provide seachest, piping, foam proportioner, valves, controls and components as necessary for a complete operating system. The pump may be engine or electric motor driven. If main propulsion engine driven it shall be capable of operating the pump at rated speed regardless of propeller RPM and thrust. The foam storage tank shall hold sufficient foam concentration to provide a 30 minute discharge of 3% concentration.
Any Tug used in service to Shipper shall be equipped with appropriate VHF and SSB communication equipment, cellular telephone, facsimile, and e-mail capabilities. In addition the Tug shall be equipped with two radars, fathometer, Global Positioning System receiver or equivalent position finding equipment, weather facsimile, magnetic and gyro compass, EPIRB, whistle, bell, rudder angle indicator, searchlight, autopilot, windshield wipers, navigation lights and public address system.
Any Tug used in service to Shipper shall be equipped with an Orville Hook.
The Tug shall have such systems as may be necessary to activate or utilize the Barge Anchoring System identified in Exhibit A, hereto.
Any Tug used in service to Shipper shall have spare parts in Hawaii to allow immediate repair of key components including, but not limited to, main engine block, heads, crankshaft, pistons, liners, pumps, blowers, reduction gears, propellers and propeller shafts.
Any Tug used in service to Shipper shall carry the following: Coast Pilot, Tide & Current Tables, charts, including Hawaiian Island coastal charts (full set) and large-scale charts for all harbors in Hawaii which are capable of accommodating the Tug and Barge, current Notices to Mariners, and Light List.
Contract of Private Carriage
Applicable Laws of the United States for a Vessel of U.S. Registry
U.S. Coast Guard Stability Letter which evidences compliance with regulations
American Bureau of Shipping Rules for Building and Classing Steel Vessels Under 90 meters (295 feet) in Length, A1 Towing, AMS Domestic Service
International Load Line Certificate
AWO - Responsible Carrier Program, ISO 9000 and ISO 14000 (or standards
which supersede them)
IEEE Std. No. 45, Recommended Practice for Electrical Installations on Shipboard and International Electro Technical Commission (IEC)
Any Tug used in service to Shipper shall be provided with a towing winch capable of towing the Barge under severe weather conditions. The towing winch shall be the double drum type with wire of suitable dimensions for towing the Barge on both drums at all times. Towlines shall have a closed socket at the end, and shall be of appropriate length consistent with Carrier's overriding responsibility for the seaworthiness and safety of all Vessels, equipment and operations consistent with the best marine practices available.
Any Tug used in service to Shipper shall be provided with diesel generators of sufficient capacity to safely provide electrical power to all Tug equipment and machinery in any and all operations, including full operation of pumps and other equipment with one generator out of service.
Diesel engines are to be inspected to ensure that all components are within manufacturer's tolerances; maintenance records are to be available for confirmation of PMS.
An overhaul shall be conducted on the generator engines of the Tug prior to tendering for delivery to Shipper pursuant to the Contract if over 50 percent of the engine hours (based on manufacturer's recommendation for periods between overhauls) have been exhausted since the last overhaul period.
Contract of Private Carriage
Any Tug used in service to Shipper shall be fitted with adequate fendering to ensure the Barge side shell is sufficiently protected.
Any Tug used in service to Shipper shall undergo a condition survey prior to final acceptance to ensure safe operability. Carrier shall, at its expense and at the inception of the Contract term and each thirty (30) months thereafter, provide Shipper with a condition survey of the Tug which states that the Tug is in conformity with Contract requirements and is otherwise safe and suitable for the intended operation.
Contract of Private Carriage
EXHIBIT B-1
TUG SPECIFICATIONS
OWNER: Hawaiian InterIsland Towing, Inc.
NAME: NIOLO
TYPE: Tow Boat/Salvage
OFFICIAL NUMBER: 653 612
CALL SIGN: WAM 2519
DESIGNER/BUILDER: Swift Ships
YEAR/LOCATION BUILT: 1982/Mississippi
CLASSIFICATION: ABS - A1 Towing
LOAD LINE: ABS
TONNAGE GROSS/NET: 99/67
DIMENSIONS (L/B/D): 117' x 34' x 17'
ENGINE/NUMBER/MODEL: EMD 2 x 16V 645 E Diesel
HORSEPOWER EACH/COMBINE: 1950 HP each: 3900 HP
BOLLARD PULL: 45 Tons
FUEL: 117,000 Gallons
SPEED: 12 Knots
RANGE: 7500 Miles
TOWING WINCH: Markey TDS-032 Double Drum
TOWING WIRE: (2) 2" x 2,000'
BOW WINCH: Yes
ACCOMMODATIONS: 5 x Staterooms = 10 Berths
ELECTRONICS: 2 x SSB - 2 x VHF - 2 x Radars -GPS
SAT NAV - Fathometer - Autopilot -
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Contract of Private Carriage Page 70 of 77 |
EXHIBIT C
MINIMUM REQUIREMENTS FOR BARGES CALLING AT
TESORO HAWAII OFFSHORE SINGLE POINT MOORING TERMINAL
The following are warranted by Carrier with respect to outfitting of any Tug and any Barge and their respective equipment and machinery employed under this Contract:
A. The Tesoro Hawaii Single Point Mooring and sea berth terminal facility offshore Barbers Point (hereinafter "SPM terminal") specifies that any barge must be configured to moor stern-to-the- buoy with the hose connections at the starboard-side manifolds. Bow-to mooring will only be accepted on a case by case basis with appropriate modifications to the barge layout and procedures as determined by the SPM terminal operator.
B. Mooring equipment: winches must be capable of heaving the end of the 76mm chafe chain on board and adjacent to the barge mooring connection in a safe and efficient method acceptable to the SPM terminal operator.
C. Mooring connection: The Vessel must be capable of accepting OCIMF-standard tri-plate at the end of the mooring hawser/chafe chain assembly. The Vessel must have appropriately positioned bitts for the snotter connection, Smit-type towing bracket or other suitable approved connection acceptable to the SPM terminal operator.
D. Hose handling equipment: It shall be located at the starboard side cargo manifolds. The Safe Working Load of the hose derrick, crane or A-frame shall be 5 tons. Manifolds and hose hang off points must be capable of sustaining the weight of the standard 12 inch floating cargo hose in the opinion of the SPM terminal operator.
E. A suitable mooring assist/stand-by boat must attend the Vessel at all times when approaching, when moored and when departing the SPM terminal.
F. The towing Tug shall at all times maintain a steady pull on the Barge in order to maximize the available distance from the SPM buoy. Common procedure is for the Barge to moor stern to the buoy with the towing Tug always engaged with the tow wire.
Contract of Private Carriage
G. The Barge shall be prohibited from mooring by the sole use of the mooring hawser pick up line. A mooring connection utilizing the chafe chain shall always be required.
H. A minimum of two (2) qualified tankermen shall be required to attend the Vessel during all oil transfer operations at the SPM terminal.
I. Carrier or the Barge operator shall take full responsibility in responding to any spill originating from the Vessel. The Barge shall be equipped with an ocean oil containment boom equal in length to twice the length of the Barge and which shall be capable of being deployed by available personnel and boats.
J. The Vessel, Master, officers, crew, tankermen and Carrier shall operate in compliance with any and all laws, rules, regulations and required procedures as set forth in the Tesoro SPM terminal Operations Manual as submitted to the USCG and in compliance with an USCG approved oil spill contingency plan.
K. Deviations, if any, from the preceding requirements must be expressly granted by the Tesoro SPM terminal operator.
Contract of Private Carriage
EXHIBIT D
MANNING REQUIREMENTS
The following are warranted by Carrier with respect to the Vessel's Master, officers, crew and tankermen employed under this Contract.
All operating personnel including Vessel's Master, officers and crew and tankermen and the immediate supervisors of the foregoing, are to receive training and exhibit proficiency in such areas as including, but not limited to, mandatory compliance with the various federal and State laws concerning safety and hazardous materials (OSHA, USCG, Hawaii DOH, Hawaii DOT), oil transfer procedures, fire fighting, oil spill prevention, oil spill contingency planning, oil spill response and other emergency operations and such proficiency and state of readiness shall be assessed through a program of continuous planning review, periodic exercises and drills.
The Master, officers and crew of any Tug providing service to Shipper shall have the appropriate licenses and endorsements, have received the appropriate experience and training for the seas, ports cargo and size and capability of the equipment employed in the performance of this Contract.
In addition, such personnel are to continue to receive whatever further training and experience is required to ensure that towing operations are conducted in a safe, efficient and professional manner consistent with the highest standards in the industry.
Inasmuch as the Master shall be held responsible for the quality of overall voyage operations, management and safety, it is a requirement that he have the appropriate USCG license and endorsement.
The Master shall be appropriately qualified by education at a college level or at an accredited maritime academy and/or by the equivalent progressive experience in navigation, pilotage, engine room operations, vessel classes, making/breaking tow, barge mooring, cargo transfer operations and safety procedures and shall have experience and/or the appropriate formal training in such areas as hazardous materials operations, fire fighting, oil spill clean-up and mitigation and other situations requiring emergency response.
Contract of Private Carriage
Carrier agrees and understands that a Master appointed to any Tug used in service to Shipper under this Contract shall have demonstrated reliability, leadership, crew management ability and evidence the very highest regard for the safety of Vessel and its crew, Cargo and the environment.
The Master of the Tug and at least one of the tankermen assigned to the Barge shall have completed a course of instruction in the Incident Command Systems conducted by the U.S. Coast Guard or other governmental agency. All personnel assigned to the Tug and Barge shall have completed a course in HAZWOPER instruction.
Shipper may at any time require an audit of Carrier's compliance with this Contract and the policies and procedures required for the certification under the AWO Responsible Carrier Program, ISO 9000 and ISO 14000 (or standards which supersede them).
The operators of the Barge providing service to Shipper shall have the appropriate certificates and endorsements, have received the appropriate experience and training for the seas, ports cargo and size and capability of the equipment employed in the performance of this Contract.
In addition, such personnel are to continue to receive whatever further training and experience is required to ensure that towing operations are conducted in a safe, efficient and professional manner consistent with the highest standards in the industry. All tankermen assigned to the Barge shall be fully certificated by the U.S. Coast Guard and qualified for service aboard the Barge.
Tankermen are to receive (as a minimum) training in the following subjects every 2 years or less:
Company Policies and Procedures;
First Aid;
CPR;
Confined Space Hazard Awareness;
Injury prevention;
Lock out/tag and procedures;
HAZWOPER;
Cargo knowledge / hazards;
Federal and State regulations;
Marine firefighting; and
First Responder / spill mitigation.
Contract of Private Carriage
The following drills are to be conducted annually in conjunction with terminal personnel, USCG, spill cleanup firms and harbor authorities (as appropriate):
Fire drill (each load port);
Oil spill (each load port); and
Personal injury.
The Master of the Tug and at least one of the tankermen assigned to the Barge shall have completed a course of instruction in the Incident Command Systems conducted by the U.S. Coast Guard or other governmental agency. All personnel assigned to the Tug and Barge shall have completed a course in HAZWOPER instruction.
Shipper may at any time require an audit of Carrier's compliance with this Contract and the policies and procedures required for the certification under the AWO Responsible Carrier Program, ISO 9000 and ISO 14000 (or standards which supersede them).
Shipper may reject the assigned Master and/or the lead Tankerman for cause, upon 3 days notice to Carrier.
Contract of Private Carriage
EXHIBIT E
NO. 2 DIESEL OIL CHARACTERISTICS
The No. 2 Diesel Oil to be transported hereunder shall have the following approximate characteristics:
--------------------------------------------------------------------------------
Specification Test
--------------------------------------------------------------------------------
Item Units Limits Method
--------------------------------------------------------------------------------
Gravity @ Degrees API 30.0 Min. D1298, or
60 deg. F. Specific Gravity .88 Max. D4052-86
--------------------------------------------------------------------------------
Viscosity @ SSU 32.6-40.1 D445, or
100 deg. F. D2161
--------------------------------------------------------------------------------
Pour Point Degrees F. 35 Max. D-97
--------------------------------------------------------------------------------
Flash Point, PM Degrees F. 150 Min. D93
--------------------------------------------------------------------------------
Ash PPM, Wt. 100 Max. D482
--------------------------------------------------------------------------------
Cetane Index 40 Min. D976
--------------------------------------------------------------------------------
Carbon Residue, 10% %, Wt. 0.35 Max. D524
Residuum
--------------------------------------------------------------------------------
Sediment & Water %, Vol. 0.05 Max. D1796
--------------------------------------------------------------------------------
Sulfur %, Wt. 0.40 Max. D1552, D2622, or
D4294
--------------------------------------------------------------------------------
Distillation, 90% Degrees F. 540-640 D86
Recovered
--------------------------------------------------------------------------------
Sodium + Potassium PPM, Wt. 0.5 Max D-3605
--------------------------------------------------------------------------------
Nitrogen PPM, Wt. Report D-4629
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Contract of Private Carriage
EXHIBIT F
NO. 6 FUEL OIL CHARACTERISTICS
The No. 6 Fuel Oil to be transported hereunder shall have the following approximate characteristics:
--------------------------------------------------------------------------------
Specification Test
--------------------------------------------------------------------------------
Item Units Limits Method
--------------------------------------------------------------------------------
Gravity @ Degrees API 6.5 Min. D1298, or
60 deg. F. D4052-86
--------------------------------------------------------------------------------
Viscosity @ SSU 179 Min. D445, or
122 deg. F. 226 Max. D2161
--------------------------------------------------------------------------------
Pour Point Degrees F. 55 Max. D-97
--------------------------------------------------------------------------------
Flash Point, PM Degrees F. 150 Min. D93
--------------------------------------------------------------------------------
BS & W %, Vol 0.5 Max. D1796
--------------------------------------------------------------------------------
Sulfur %, Wt. 2.00 Max. D1552, D2622, or
D4294
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Contract of Private Carriage
EXHIBIT G
PORTS OF CALL
LOADING PORTS:
1. Honolulu Harbor, Pier 30
2. Barber's Point Harbor, Pier 5 or 6
3. Tesoro SPM
DISCHARGING PORTS:
1. Hilo
2. Kawaihae
HECO Exhibit 10.14
[LOGO] Inter-Island Fuel Transportation Contract [LOGO]
CONTRACT OF PRIVATE CARRIAGE
BY AND BETWEEN
HAWAIIAN INTERISLAND TOWING, INC.
AND
Maui Electric Co., Ltd.
FINAL (December 4, 2000)
TABLE OF CONTENTS
1. TERM.................................................................. 2
1.1 Initial Term..................................................... 2
1.2 Option to Extend Term............................................ 2
1.3 Final Voyage..................................................... 2
2. VESSELS............................................................... 2
2.1 Warranty......................................................... 2
2.2 Barge............................................................ 3
2.3 Tug.............................................................. 3
2.4 Vessel Clarification............................................. 3
2.5 Substitution..................................................... 3
2.6 Seaworthiness.................................................... 5
2.7 Tank Calibration and Gauging..................................... 6
2.8 Cargo Transfer Equipment......................................... 6
3. VESSEL PERSONNEL...................................................... 6
3.1 Complement....................................................... 6
3.2 Tankermen........................................................ 7
3.3 Employee Responsibility and Training............................. 7
3.4 Master's Duties.................................................. 8
3.5 Safety Management................................................ 8
3.6 Mooring Master................................................... 9
3.7 Drugs and Alcohol................................................ 9
3.8 Equal Opportunity................................................ 9
3.9 Documented Procedures............................................ 10
3.10 Safety Program................................................... 10
4. CARRIAGE, LOADING AND DISCHARGE OF CARGO.............................. 11
4.1 Alternate Ports.................................................. 11
4.2 Safe Berth....................................................... 11
4.3 Marine Facilities................................................ 11
4.4 Barge Makeup..................................................... 12
4.5 Pumping In and Out............................................... 12
4.6 Cargo Hose Markings.............................................. 13
4.7 Cargo Handling................................................... 13
4.8 Cargo and Bunker Sample and Survey............................... 13
4.9 Cleaning......................................................... 14
4.10 Equipment Failure................................................ 14
4.11 Cargo Retainage.................................................. 14
4.12 Voyage Course and Speed.......................................... 15
4.13 Other Trades..................................................... 15
4.14 Joint Voyages.................................................... 15
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5. RATES, CHARGES, ETC................................................... 16
5.1 Freight Rates.................................................... 16
5.2 Shipments Made in Conjuction with Third Parties.................. 17
5.3 Annual Escalation................................................ 17
5.4 Cargo Volume..................................................... 18
5.5 Laytime Duration................................................. 18
5.6 Laytime Loading.................................................. 19
5.7 Laytime Discharge................................................ 19
5.8 Demurrage........................................................ 19
5.9 Tankermen Charges................................................ 20
5.10 Heating of Fuel Oil Aboard the Tow............................... 20
5.11 Diesel Fuel Price Adjustment..................................... 21
5.12 Additional Berths/Ports.......................................... 21
5.13 Port, Dues, Taxes and Other Charges.............................. 22
5.14 Freight Earned................................................... 23
5.15 Billing, Payment and Disputes.................................... 23
5.16 Waiver Of Claims................................................. 23
6. SCHEDULING............................................................ 23
6.1 Scheduling....................................................... 23
6.2 Priority Resolution.............................................. 24
6.3 Notice of Cancellation or Delay.................................. 24
7. MAINTENANCE SERVICES AND OTHER REQUIREMENTS........................... 24
7.1 Maintenance of the Tug and Barge................................. 24
7.2 Other Required Services.......................................... 25
8. INSURANCE............................................................. 25
8.1 Carrier's Insurances............................................. 25
8.2 Shipper's Insurances............................................. 26
8.3 Conditions Applicable to Insurances.............................. 26
8.4 Failure to Procure Insurance..................................... 27
9. LIABILITY AND INDEMNITY............................................... 28
9.1 Carrier.......................................................... 28
9.2 Shipper.......................................................... 31
9.3 General Conditions............................................... 31
9.4 Indemnification.................................................. 31
10. LIBERTIES............................................................. 32
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11. FORCE MAJEURE......................................................... 32
11.1 Force Majeure Events............................................ 32
11.2 Carrier's Obligation............................................ 33
11.3 Shipper's Obligation............................................ 33
11.4 Notice of Force Majeure......................................... 33
12. LIMITATION OF LIABILITY............................................... 33
12.1 Limitation of Liability......................................... 33
12.2 Not A Demise.................................................... 34
13. GENERAL AVERAGE....................................................... 34
14. POLLUTION............................................................. 35
14.1 Compliance...................................................... 35
14.2 Oil Spill Response Plan......................................... 35
14.3 Pollution Mitigation............................................ 36
15. Change of Ownership of Carrier........................................ 37
16. TERMINATION........................................................... 37
16.1 Termination of Automatic Renewal................................ 37
16.2 Termination Based Upon Breach or Default........................ 37
16.3 Termination In Specific Instances............................... 38
16.4 Termination for Substandard Performance......................... 39
16.5 Prolonged Force Majeure......................................... 39
16.6 Total Loss of Barge............................................. 40
16.7 Change of Ownership/Control..................................... 40
16.8 Automatic Termination........................................... 40
16.9 Termination By Assent........................................... 40
16.10 Other Conditions................................................ 40
17. DEFINITIONS........................................................... 41
18. Dispute Resolution.................................................... 41
18.1 General......................................................... 41
18.2 Technical Disputes.............................................. 42
18.3 All Other Disputes.............................................. 42
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19. GENERAL PROVISIONS.................................................... 44
19.1 Audit........................................................... 44
19.2 Shipper's Representatives....................................... 44
19.3 Business Policy................................................. 45
19.4 Notices......................................................... 45
19.5 Captions........................................................ 45
19.6 Assignment...................................................... 45
19.7 Extension of Benefits........................................... 46
19.8 Entire Contract................................................. 46
19.9 Severability.................................................... 46
19.10 Regulatory Approval............................................. 46
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EXHIBITS
A Barge Requirements
A-1 Barge Specifications
A-2 Interim Barge Specifications
B Tug Requirements
B-1 Tug Specifications
C Minimum Requirements for Vessels Calling at SPM
D Manning Requirements
E No. 2 Diesel Oil Characteristics
F No. 6 Fuel Oil Characteristics
G Ports of Call
Contract of Private Carriage
CONTRACT OF PRIVATE CARRIAGE
This Contract is made on this 4/th/ day of December, 2000, by and between HAWAIIAN INTERISLAND TOWING, INC. (hereinafter called "Carrier"), a Hawaii corporation whose principal place of business and address is Pier 21, Main Office, Honolulu, Hawaii 96817, and MAUI ELECTRIC CO., LTD., (hereinafter called "Shipper" or "MECO"), a Hawaii corporation whose principal place of business and address is 210 West Kamehameha Highway, Kahului, Hawaii 96732.
W I T N E S S E T H:
WHEREAS, Shipper is in the business of generation, distribution, purchase and sale of electrical power on the Islands of Maui, Lanai and Molokai; and
WHEREAS, Shipper utilizes large quantities of diesel and residual fuel oils in its generation process; and
WHEREAS, Shipper is in need of acquiring reliable and economical transportation of such diesel and residual fuel oils between Oahu and the Islands of Maui, Lanai and Molokai; and
WHEREAS, Shipper's needs can best be met by the use of specialized Vessels dedicated primarily to serving Shipper's needs; and
WHEREAS, Carrier is in the business of transporting liquid petroleum products in bulk among and between the Hawaiian Islands; and
WHEREAS, Carrier has specialized Vessels that can effectively meet Shipper's needs; and
WHEREAS, Carrier is entering into a similar agreement with Hawaii Electric Light Company, Inc. (HELCO);
NOW THEREFORE, in consideration of these premises and of the mutual promises herein contained, Carrier agrees to provide the Vessels identified herein for the purpose of transporting Shipper's Cargo of diesel and fuel oils between the Island of Oahu and the Islands of Maui, Lanai and Molokai subject to the following terms and conditions:
Contract of Private Carriage
1. TERM
1.1 Initial Term.
The initial term of this Contract shall be for a period of five (5) years, commencing on January 1, 2002. Carrier shall have the Vessels necessary for service under this Contract ready and tendered for delivery to Shipper on the 1st day of January, 2002. Carrier warrants that as of the date of commencement of this Contract, the Tug and Barge shall fully comply with the descriptions, particulars and capabilities set forth in this Contract, including, without limitation, Section 2., below, and Exhibits A, B and C, attached hereto and incorporated herein.
1.2 Option to Extend Term.
The term of this Contract shall automatically renew after the expiration of the initial term set forth in Subsection 1.1., above, for up to three (3) additional five (5) year periods beginning January 1, 2007, unless Carrier or Shipper gives written notice of termination to the other party as set forth in Subsection 16.1., below.
1.3 Final Voyage.
Should the Vessel be on a voyage laden with Shipper's Cargo upon the expiry of the term of this Contract, Carrier's obligation to provide the service contracted for herein shall continue at the same rate and conditions for such extended time as may be necessary for the completion of the delivery of Shipper's Cargo.
2. VESSELS
2.1 Warranty.
Carrier expressly warrants that during the full term of this Contract, Carrier's Vessels, being the Tug and Barge identified in this Section, shall conform to the minimal specifications, outfitting and operational requirements set forth herein, with Carrier to remain responsible for the seaworthiness and safety of the Vessels, equipment and operations consistent with the best marine practices available. Carrier shall tender the Barge, being the new build, double hulled and OPA-90 qualified Barge required by this Contract, to Shipper fully fit for service hereunder on or before December 1, 2002. However, from the commencement of the initial term of this Contract until December 1, 2002, Carrier shall be entitled to utilize the Barge identified on Exhibit A-2, attached hereto and incorporated herein, to provide the services required by this Contract (referred to herein as the Interim Barge); to the extent the Interim Barge as identified on Exhibit A-2, hereto, does not conform to the requirements of Exhibit A, hereto, it shall be treated as an approved exception to the requirements of Exhibit A.
Contract of Private Carriage
Should Carrier fail to tender the Barge fully fit for service herein on or before December 1, 2002, Carrier shall pay to Shipper the sum of $5,000 per day until the Barge is so tendered for delivery, with Shipper concurrently entitled to any other rights and remedies which may be available to it at law, in equity or pursuant to this Contract. Carrier agrees to use its reasonable best efforts to tender the Barge for delivery prior to December 1, 2002.
2.2 Barge.
The Barge shall be as identified on Exhibit A-1, attached hereto and incorporated herein (the attached Exhibit A-1 includes a description of the Barge to the degree currently possible; a final version of Exhibit A-1 shall be attached upon completion of construction of the Barge), and shall be outfitted in accordance with Exhibits A and C, attached hereto and incorporated herein. Such description, particulars and capabilities of the Barge shall be maintained by Carrier throughout the term of this Contract.
2.3 Tug.
The Tug shall be as identified on Exhibit B-1, attached hereto and incorporated herein, and shall be outfitted in accordance with Exhibits B and C, attached hereto and incorporated herein. Such description, particulars and capabilities of the Tug shall be maintained by Carrier throughout the term of this Contract.
2.4 Vessel Clarification.
For purposes of clarification, it is understood that the Tug and Barge, including the Interim Barge and any substitute Tug or Barge provided in accordance with Subsection 2.5., below, shall be individually referred to as Tug, Barge or Vessel and collectively referred to as Vessels for purposes of this Contract.
2.5 Substitution.
It is the intent of this Contract that Carrier shall provide Shipper with complete assurance that the Vessels shall be available to Shipper during the full term of this Contract. In this regard, Carrier warrants that during any period in which a Vessel is not available for service hereunder, regardless of the duration of such suspension of service or whether or not the suspension of service was scheduled or anticipated except as provided in Subsection 7.1., below, that a suitable substitute Vessel of generally similar capability and capacity, acceptable to Shipper and meeting the requirements set forth in this Section, shall be employed by Carrier for service hereunder at no additional cost to Shipper. All the provisions of this Contract shall apply to such suitable substitute Vessel.
Contract of Private Carriage
Carrier expressly warrants that during the full term of this Contract, the substitute Vessel(s) shall conform to the minimal specifications, outfitting and operational requirements set forth herein, with Carrier to remain responsible for the seaworthiness and safety of the substitute Vessels, equipment and operations consistent with the best marine practices available. Carrier shall be entitled to utilize as a substitute Vessel a tug and/or barge having technical specifications of no lesser functional capability of the Tug and Interim Barge to provide the contingent substitute services required by this Contract. At the commencement of the term of the Contract and on each January 1 thereafter, Carrier must identify and provide a description in writing to Shipper summarizing the general specifications, dimensions and service capabilities of the substitute Tug or substitute Tugs, if the specific vessel utilized is one among a number of appropriately capable vessels, and identify and provide a description in writing to Shipper summarizing the general specifications, dimensions, layout and service capabilities the substitute Barge or substitute Barges, if the specific vessel to be utilized is one among a number of appropriately capable vessels. Carrier must identify in writing whether the substitute Vessels are under its control through ownership or charter. Carrier must also identify the expected trading area of each of the substitute Vessels. The general adequacy of the substitute Vessels shall be assessed by Shipper, who shall have the right to approve substitution of specific vessels as circumstances requiring substitution arise, including approval of vessels which may not meet all of the requirements of the Tug and Barge set forth in this Contract. In such case, however, Shipper shall also have the right to specify in such approvals the maximum period of time such substitute Vessel shall be allowed to operate under the Contract. Carrier shall be entitled to subsequently identify alternate vessels in place of, or in addition to, the previously identified substitute Vessels, but such alternate or additional substitute Vessel(s) shall be subject to the written approval of Shipper, and Shipper's right to impose time limitations, as circumstances requiring substitution arise.
Carrier warrants that any substitute Tug or Barge shall be fully capable and ready to promptly perform and shall be in all other respects able to perform in accordance with the requirements set forth in this Contract, including, but not limited to, having valid coverage under Carrier's oil spill liability and other insurance policies and the ability to lawfully operate under a USCG Certificate of Financial Responsibility and USCG- approved oil spill response plan (hereinafter the "Plan") consistent with the Cargo, ports and facilities required herein. It is further understood and agreed that any substitute Tug or Barge must be regularly maintained and stationed at a port or place such that it will be available for service hereunder within fifteen (15) days following the date on which the Tug and/or Barge is not available for service hereunder.
Contract of Private Carriage
2.6 Seaworthiness.
With respect to any Vessel provided by Carrier pursuant to this Contract, Carrier shall be bound to exercise due diligence at all times during the entirety of the Contract term to:
A. make the Vessel seaworthy, tight, staunch, strong, fit and in a thoroughly efficient state, order and condition;
B. properly man the Vessel in accordance with Section 3., below, and Exhibit D, attached hereto and incorporated herein;
C. make the tanks and all other parts of the Barge in which Cargo is carried or to be carried fit and safe for the receipt, loading, stowage, carriage, preservation and discharge of the Cargo;
D. equip the Barge in accordance with the provisions of Exhibits A and C, attached hereto and incorporated herein;
E. equip the Tug in accordance with the provisions of Exhibits B and C, attached hereto and incorporated herein;
F. warrant that the Vessel is fully rigged with appropriate towing gear, fenders, hoses, reducers and all other necessary and/or appropriate equipment for the safe, efficient and proper loading of Cargo at Honolulu Harbor, Barbers Point Harbor or Tesoro Single Point Mooring and Sea Berth off-shore Barbers Point (hereinafter "Tesoro SPM") in accordance with Exhibit C, attached hereto and incorporated herein, and for the discharging of Cargo at ports or places in the Hawaiian Islands;
G. ensure that the Plan is approved and filed with all appropriate governmental authorities as required and is in accordance with the Vessel's configuration and equipment, nature and amount of Cargo carried or to be carried on board the Vessel; that the Plan provides for adequate response capability at the ports, places and marine facilities called and for seas and places of transit; that a copy of the Plan is carried on board the Vessel; and that the Vessel's Master, mates, officers, crew and tankermen are familiar and experienced with the Plan's implementation, and
H. warrant that all required United States Coast Guard (USCG) certifications for the Vessel are in full force and effect.
Contract of Private Carriage
2.7 Tank Calibration and Gauging.
All cargo tanks of the Barge shall have been calibrated and ullage tables prepared in accordance with applicable API/ASTM standards by a reputable independent inspector. The Barge shall have clearly legible and accurate draft markings both fore and aft. The ullage tables shall provide trim corrections. Wedge volume tables shall also be provided. The reference point for gauging the striking height at the gauging point, and the compartment number shall be clearly indicated on the gauging hatch of each cargo tank. Copies of the above mentioned ullage tables shall be provided to Shipper prior to commencement of service hereunder, and a legible copy shall be available on the Barge during loading and discharge.
2.8 Cargo Transfer Equipment.
Carrier will supply all necessary hoses, fittings, reducers and couplings (American and Metric) required for the USCG approved transfer of the Cargo to any and all loading and discharge headers and will ensure that such hoses, fittings and couplings will be available on a timely basis so as to meet Shipper's delivery schedule. All manifold valves and fittings, outboard of the last fixed support to the Barge's deck, that are used in the transfer of Cargo and ballast, shall be made of steel, malleable iron or other suitable material. Cast iron valves or fittings are not acceptable.
Carrier shall provide a sufficient number of cargo hoses of sufficient length and diameter, of a type appropriate for the nature of Shipper's Cargo, and suitable for the Cargo's efficient loading and discharging. Any and all cargo hoses used by the Vessel in performance of this Contract shall be appropriately inspected, hydro tested and marked no earlier than twelve (12) months preceding their use hereunder. Further, Carrier warrants that any and all cargo hoses used in service hereunder shall be inspected and hydro tested at intervals not to exceed twelve (12) months. A complete set of spare hoses, tested and ready for use, shall be carried aboard the Barge at all times.
3. VESSEL PERSONNEL
3.1 Complement.
Carrier warrants that, during the term of this Contract: the Vessel shall have a full and efficient complement of Master, officers, mates and crew, with adequate training and experience in operating all of the Vessels' equipment; the Master, officers, mates and crew shall possess valid and current certificates/documents issued and approved by the USCG; and, Carrier's personnel shall be trained, experienced, certificated and proficient in accordance with Exhibit D, attached hereto and incorporated herein.
Contract of Private Carriage
Carrier shall provide Shipper with professional histories showing the tank barge towing experience of the Master and officers serving on board the Vessel at the commencement of performance under this Contract. Similar histories shall be furnished for any new Master or officer assigned to the Vessel at the commencement of their responsibilities.
The Master of the Tug, including any relief or substitute Master, shall have a minimum of five (5) years of experience in the towing of tank barges in the capacity of Master, and each Mate of the Tug, including any relief or substitute Mate, shall have a minimum of three (3) years of experience in the towing of tank barges in the capacity of a Master or Mate. In addition, the Master shall have a minimum of five (5) previous arrivals and five (5) previous departures for any port at which the Tug and Barge call. These arrivals and departures must have been made while serving in the capacity of Mate, Master or observer on vessels of equivalent size and characteristics as the Vessels required hereunder.
3.2 Tankermen.
Carrier will furnish the necessary personnel for loading and discharging the Barge, including but not limited to providing or arranging for a minimum of two (2) trained, licensed and certificated tankermen to attend the Vessel at all times when the Vessel is arriving and departing the places of Cargo loading or discharging, during Cargo operations and at all times when the Vessel is at berth in a laden condition.
Carrier is to assign sufficient tankermen to maintain two (2) alert and rested tankermen on board during all Cargo transfer operations. The tankermen shall manipulate all Barge valves and shall handle all connections at the places of Cargo loading and discharging, as well as the necessary pumping facilities to affect the discharge of Cargo. In addition, Carrier shall furnish all mooring lines for the Barge, and all personnel required to handle mooring and tow lines.
3.3 Employee Responsibility and Training.
Carrier warrants that the Vessel's Master, officers and tankermen have formal job descriptions which include all duties and responsibilities applicable to Carrier's performance of services as required by this Contract. Carrier also warrants that such responsibilities and duties of the Master, officers and tankermen in such areas as seaworthiness of Vessel, safe navigation, weather and sea conditions, tow wires, preventing leakage, towing and deck machinery, condition of tanks, training and readiness, compliance with laws and regulations, including manning laws and regulations, and display of documents are set forth in written procedure documents which have been reviewed by such personnel and which are maintained on the Vessels.
Contract of Private Carriage
Carrier further warrants that all personnel have received as of the date of the commencement of performance under this Contract, and will continue to receive throughout the term of this Contract, formal instruction and informal training in conformity with the requirements of Shipper and Shipper's Cargo suppliers' terminal facilities in such areas as: general safety practices and procedures; fire fighting, oil spill control and other emergency procedures; health hazards including hazardous materials handling; and, tank barge operations for tankermen.
3.4 Master's Duties.
The Master of the Tug shall determine whether operations requested by Shipper can safely be undertaken and whether the Vessels are capable of undertaking or being employed to carry out the directions and orders of Shipper, provided that the Master shall not unreasonably refuse any request to undertake operations or carry out any order or direction specified by Shipper. The Master, although appointed by and in the employ of Carrier and subject to Carrier's direction and control, shall prosecute voyages with the utmost dispatch, shall render all reasonable assistance with the Tug's officers, crew and equipment, and shall carry out the requests of Shipper in connection with Shipper's agencies and arrangements, including but not limited to Shipper's Cargo suppliers and receivers, the terminal and marine facility personnel of Shipper's Cargo suppliers and receivers, and the Cargo inspectors. It is agreed that nothing in this Contract, however, shall be construed as vesting Shipper or its agents with any control over the physical operation or navigation of the Vessel.
If Shipper shall have reason to be dissatisfied with the conduct of the Master, mates, officers, crew and/or tankermen, Carrier shall, on receiving particulars of Shipper's complaint, investigate and, if necessary, make a change in the appointments or practices.
3.5 Safety Management.
Carrier shall obtain prior to the inception of this Contract, and shall maintain during the full term of this Contract including any extension period, full certification under the then current American Waterways Operators Responsible Carrier Program as well as ISO 9000 (or standards which supersede them). Carrier shall also obtain prior to the inception of this Contract, and shall maintain during the full term of this Contract including any extension period, full certification under ISO 14000 (or standards which supersede them).
Contract of Private Carriage
3.6 Mooring Master.
Carrier will use and employ the nominated mooring master (hereinafter "Mooring Master") to advise in mooring, connecting of hoses, discharging, loading, unmooring and departing from the Tesoro SPM as and if required by the Tesoro SPM terminal operator. However, at all times, the Master of the Tug shall remain responsible for the safety of the Vessels and their personnel during such operations.
The Mooring Master is supplied on the condition that in the performance of any service rendered with respect to the Vessels, he/she is the servant of the Vessels and Carrier, and not the servant of Shipper nor any of its associated or affiliated companies, nor any of Shipper's Cargo suppliers or receivers, nor any of the employees, representatives, servants and agents of any of the foregoing. The Vessels and Carrier shall indemnify and hold harmless Shipper, its associated and affiliated companies, and Shipper's Cargo suppliers and receivers, and any of the employees, representatives, servants and agents of any of the foregoing, of and from any losses, damages, delays, claims and liabilities arising out of the Mooring Master's rendering of services to the Vessels, including legal fees and costs. Presence of the Mooring Master on board in no way relieves the Master of the Tug or Carrier of any responsibilities under this Contract.
3.7 Drugs and Alcohol.
Carrier warrants that it has a policy on Drug and Alcohol Abuse (the "Policy") applicable to the Vessels which meets or exceeds the standards of the USCG and which provides that appropriate personnel, including seafarers and tankermen, be tested; the drug/alcohol testing and screening shall include reasonable cause testing, random testing, pre-employment testing and testing during routine medical examinations. Carrier warrants that the Policy will remain in effect during the full term of this Contract, and that Carrier shall exercise due diligence to ensure that the Policy is fully complied with.
3.8 Equal Opportunity.
During the term of this Contract, Carrier warrants that it shall comply with the requirements of the Federal Government and the State of Hawaii with respect to maintenance of non-segregated facilities, equal employment opportunity, affirmative action for veterans, disabled veterans, minorities and handicapped workers.
Contract of Private Carriage
3.9 Documented Procedures.
Carrier warrants that it has formal written procedures governing crew activity such as work vests, hard hats, breathing apparatus, safe access, smoking, lighting and lifesaving equipment. Carrier also warrants that it has formalized tankermen procedures in place which cover operational subjects such as, but not limited to, the following: emergency procedures; vessel inspection checklist covering towing gear, lights, machinery, cargo tanks, mooring gear, cargo gear, engine room and deck fittings; vessel mooring; cargo integrity; cargo transfer equipment connections; pre- transfer conference; cargo inspection and gauging procedures; trim and stress; static hazard procedures; specific cargo transfer procedures; cargo heating procedures, topping off procedures; tank stripping operations; transfer shutdown procedures; startup transfer procedures; operating logs; pollution control; cargo tank ventilation and tank entry hazards; and damaged barge management. Carrier further warrants that it has an audit or review program in place which includes provision for penalties or other disciplinary actions to assure compliance with prescribed safety practices and operating procedures.
Copies of these documents and the results of audits conducted by Carrier shall be provided to Shipper at or prior to the inception of the initial term of this Contract, and promptly upon any revision or change to written procedures or as audit results are received by Carrier.
3.10 Safety Program.
Carrier is to maintain a formal written safety program concerning all procedures, including, but not limited to, navigation, operations, cargo handling, tank cleaning, voyage repairs and documented monthly safety meetings.
Carrier is also to maintain formal written procedures to track and communicate to Shipper all events involving serious damage to the Vessels or marine facilities, injuries, oil spills and other casualties, including "near miss" incidents, involving Carrier or its affiliates, whether or not the event is related directly to services under this Contract. This program is intended to inform personnel and Shipper as to the causes, findings and recommendations arising from an investigation of such incidents with the objectives for Carrier of reducing the likelihood of a recurrence and improving the effectiveness and state of readiness of casualty response activity.
Contract of Private Carriage
4. CARRIAGE, LOADING AND DISCHARGE OF CARGO
4.1 Alternate Ports.
The Cargo shall be loaded, transported and discharged by Carrier at and between the ports identified on Exhibit G, attached hereto and incorporated herein, as well as any substitute or other ports or berths within the State of Hawaii as may be identified by Shipper.
4.2 Safe Berth.
Carrier shall have the responsibility for determining the safety of each port and berth applicable to the services covered by this Contract, including entry into, laying afloat at, and egress from each such port and berth by the Vessels at all seasons, times and stages of tide. The ports and berths identified herein are agreed by Carrier to be safe for such purposes. In the event substitute or other ports or berths are nominated by Shipper, Carrier shall promptly inspect such ports and berths to determine whether the Vessels can safely enter, lay at and depart from such ports and berths at all seasons, times and stages of tide, and shall immediately notify Shipper in writing if the Vessels or either of them cannot do so, identifying the deficiencies with particularity. Should any port or berth become, in the reasonable opinion of Carrier, unsafe following commencement of this Contract, Carrier shall immediately notify Shipper in writing with full particulars of the hazards and/or dangers and shall await Shipper's instructions. Carrier shall be responsible for the safe navigation operation and berthing of the Tug and Barge at all times.
4.3 Marine Facilities.
The Vessels shall operate in compliance with any and all regulations, including operating, pollution abatement and safety regulations of the operator or governing regulatory bodies of any marine terminal facility, wharf, berth or dock for which the Vessels are nominated by Shipper to load or discharge Cargo hereunder, including when the Vessels are approaching, alongside or departing said facility, wharf, berth or dock. Should the Vessel fail to comply with such rules and regulations or should the terminal representative determine that an unsafe condition exists with respect to the Vessels or either of them, the terminal representative shall have the right to order the Vessels to immediately cease loading or unloading operations and leave the place of mooring. Any and all time lost as a result of such Vessel non-compliance shall not count as used laytime or as demurrage if the Vessels are on demurrage, and all costs and expenses that arise as a result of such non-compliance shall be for the sole account of Carrier.
Contract of Private Carriage
4.4 Barge Makeup.
Carrier shall be responsible for making up the Tug and Barge and for determining the method and position in which the Barge shall be towed.
4.5 Pumping In and Out.
All Cargo shall be loaded into the Barge by shore pumps as designated by Shipper and at the expense and risk of Shipper up to the shore riser or connection point on the SPM hose, as applicable, at which point Carrier's period of responsibility with respect to the Cargo shall commence. Carrier shall have the responsibility for making the connection between the Barge hose and the shore riser or connection point on the SPM hose, as applicable. Carrier's period of responsibility with respect to the Cargo shall continue during loading, stowage and transportation and until the Cargo has passed the shore riser at the discharge end, subject to Subsection 9.1.D.3., below.
All Cargo shall be discharged by the Barge pumps and at the expense and risk of Carrier up to the connection of the Barge hose to the shore riser at the discharge end, which connection between the Barge hose and the shore riser at the discharge end shall be Carrier's responsibility. Carrier shall provide all necessary and sufficient pumps, power, hoses, reducers and hands required on board for safely mooring and unmooring, connecting and disconnecting of hoses and loading and discharging Cargo. The Barge shall load and/or discharge up to three grades of Cargo simultaneously.
Carrier shall provide and deploy oil booms and any other pollution abatement equipment required by regulation or policy of the terminal. The Barge shall load at the rates requested by Shipper, its agents and/or the terminal facility personnel, having due regard for the safety of the Barge and the environment. Carrier warrants that Barge shall at all times be able to discharge Cargo at the rate indicated in Exhibit A hereto or maintain a minimum pressure at the Barge's manifold of 100 psi in accordance with Exhibit A hereto or the maximum pressure permitted by the terminal, whichever is lower.
All time lost as a result of Barge being unable to discharge Cargo in accordance with the pumping warranty set forth above shall not count as used laytime or, if Vessels are on demurrage, as time on demurrage. If the terminal or place of discharging does not allow or permit the Barge to meet the above warranty or requires discharging grades consecutively, the Master shall forthwith issue a Letter of Protest (which should, if practical, be acknowledged in writing) to such terminal or place. If the Master fails to issue the Letter of Protest, Carrier shall be deemed to waive any rights to contest that time was lost as a result of the Barge's failure to comply with the above pumping warranty. Any pumping time lost solely due to restrictions imposed by the terminal or place of discharge shall count as used laytime or, if the Barge is on demurrage, as time on demurrage.
Contract of Private Carriage
4.6 Cargo Hose Markings.
Before making hose connections for loading or discharging, or before changing the Cargo type to be transferred through the same hose, or when two or more hoses are used simultaneously, both ends of each hose shall be marked with Shipper's Cargo type and checked by Carrier's and Shipper's representative before any Cargo is moved. This is intended to avoid contamination or mixtures of Cargo.
4.7 Cargo Handling.
Carrier shall properly and carefully load, handle, stow, carry and discharge Shipper's Cargo. The types of Cargo carried under this Contract shall be petroleum products, including, but not limited to, aviation grade kerosene (to be used for non-aviation purposes only), non-aviation gas turbine fuels, naphtha, diesel fuel oils and residual fuel oils, with a maximum of three (3) grades within the Barge's natural segregation. It is the intention of Shipper that the Cargo transported under this Contract will include but not be limited to Grade A petroleum products, Diesel Fuel Oil and No. 6 Industrial Fuel Oil which are approximately described in Exhibits E and F, attached hereto and incorporated herein, respectively.
No Cargo, thing or substance which, due to its composition, size, shape, weight or any combination thereof, constitutes an unreasonable hazard to the Barge, its equipment and/or the safe operation thereof, shall be shipped, nor shall any voyage be undertaken nor any goods or Cargo loaded that would involve any risk of seizure, capture or penalty by any government or governmental authority, nor shall any contraband of war be shipped.
4.8 Cargo and Bunker Sample and Survey.
Carrier shall allow an independent inspector appointed with the approval of Shipper to survey and take samples of the Cargo and bunker tanks, cofferdams, ballast and slop tanks, or any other void space on the Barge prior to, during and after the time of the loading and discharge of Shipper's Cargo.
Contract of Private Carriage
4.9 Cleaning.
Upon commencement of service under this Contract, the Barge tanks shall be completely clean and free of all retains and residues. Subsequent to initial tender of the Barge, where the Barge has transported third-party cargo or been other than in dedicated service to Shipper or HELCO, Shipper shall have the right to sample the residue of prior cargo in the Barge before loading Cargo to determine the suitability of the Barge. In each instance in which Carrier has transported third-party cargo, and before loading Shipper's Cargo pursuant to this Contract, Carrier shall be deemed to have warranted that the tanks, lines and pumps are free of any residue and retainage not compatible with Shipper's Cargo to be loaded or which may cause contamination to or loss or damage of Shipper's Cargo. Shipper may inspect the Barge to ensure compliance with the foregoing; the time required for such sampling shall not count as used laytime or demurrage if the Barge is on demurrage. If, as a result of such inspection, the Barge is found to be unsuitable, Shipper may order cleaning, or, if in Shipper's judgment cleaning will not make the Barge suitable, Shipper may reject the Barge at no cost to Shipper. The costs of such cleaning, including the disposal of residues, shall be for Carrier's account, and the time required for such initial cleaning shall not count as used laytime or demurrage if the Vessels are on demurrage. The cost of cleaning, including the disposal of residues, subsequent to initial presentation of the Barge, and provided the Barge remains in dedicated service to Shipper, shall be for the account of Shipper, and the time required for such additional cleaning shall count as used laytime or demurrage if the Vessels are on demurrage, provided such cleaning has been requested by Shipper or is required because Shipper has loaded subsequent incompatible and/or contaminated Cargo. In all other instances, the costs of cleaning tanks, including the disposal of residues, shall be for Carrier's account.
4.10 Equipment Failure.
Should Cargo remain on board after a voyage through equipment failure on the Barge, or through other cause for which Shipper is not responsible, Carrier shall be responsible to deliver the Cargo as directed by the Shipper as promptly as possible, and Shipper shall not be liable for any further or additional freight or demurrage charges.
4.11 Cargo Retainage.
Upon commencement of performance under this Contract, Carrier shall work with Shipper and an independent inspector to initiate and update with each voyage a written cargo retain log. Such log shall remain onboard the Barge and shall be available for inspection and photocopying upon request of Shipper. Within a reasonable period of time after execution of this Contract, Carrier, Shipper, and independent inspector will meet to determine a reasonable volume of Cargo retainage to be carried on each voyage. Thereafter, on each voyage, Carrier will maintain the agreed upon level of retainage per voyage.
Contract of Private Carriage
In the event Shipper requests that Cargo be retained aboard the Barge in excess of the agreed normal voyage retainage, such additional retainage shall be returned to Oahu aboard the Barge, and shall thereafter remain aboard the Barge until the next voyage, without further accrual of freight charges or demurrage, though freight on such additional retainage shall be paid on the voyage on which it was loaded.
4.12 Voyage Course and Speed.
Carrier does not guarantee any particular speed during any voyage and does not warrant delivery of the Cargo at any particular date or time or to meet any particular market or time for any particular use. However, due to the critical nature of the Cargo, Carrier warrants that it shall prosecute voyages with reasonable dispatch, shall proceed safely to designated ports of loading and discharge and shall, in any event, take whatever steps may be necessary, consistent with prudent seamanship, to make prompt and scheduled delivery of the Cargo. Carrier shall have the sole discretion to determine the speed and course which is prudent, and is to consider factors including, but not limited to, sea and weather conditions, Vessel capacities and capabilities, crew safety, other vessel traffic, port conditions and environmental safety. The Barge may not be navigated within five (5) miles of a lee shore or three (3) miles from any shore except in approaching or departing a harbor or when safety and prudent seamanship require passage between islands or operating closer to shore.
4.13 Other Trades.
Carrier shall have the right to employ the Barge in other trades so long as Shipper's requirements under this Contract are fully met, with Shipper to have first priority with respect to the use of the Tug and Barge at all times. In the event Carrier has the opportunity to transport such third- party cargo, it shall inform Shipper of the particulars thereof and obtain Shipper's written permission prior to commencement of such services, which permission shall not be unreasonably withheld.
4.14 Joint Voyages.
Shipper shall have the right to load and transport Cargo of HELCO on any voyage, which shall be referred to as a joint voyage. On any such joint voyage, Shipper's Cargo shall be governed by this Contract while HELCO cargo shall be governed by its separate agreement with Carrier.
Contract of Private Carriage
5. RATES, CHARGES, ETC.
5.1 Freight Rates.
The following freight rates ("Freight Rate(s)") shall be applicable to this Contract:
A. One of the two options set forth below shall be selected annually by Shipper on or before December 1 of each year as being the applicable Freight Rates for the next year for petroleum products transported in bulk for Shipper on voyages where petroleum products are not also transported in bulk for HELCO or another party:
OPTION #1
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Volume in Barrels Rate in $/BBL
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Tier 1 minimum of 40,000 0.95
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Tier 2 40,001 to 50,000 0.70
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Tier 3 amount in excess of Tier 2 0.50
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OPTION #2
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Volume in Barrels Rate in $/BBL
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Tier 1 minimum of 45,000 0.90
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Tier 2 45,001 to 50,000 0.70
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Tier 3 amount in excess of Tier 2 0.50
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B. Shipper may designate additional discharge port calls at Kaunakakai on the Island of Molokai and other ports or berths pursuant to Subsection 4.2 at Shipper's election during any return voyage from Kahului. Shipper will compensate Carrier for such calls based upon the number of hours to deviate from the Vessels' return voyage from Kahului and the time at such additional port(s) required for discharge at the demurrage rates set forth in Subsection 5.8., below, subject to Shipper's ability to apply any unused laytime for loading/discharging on that voyage against such demurrage charges (unused laytime to be divided equally between additional port calls if there are two). In addition, Shipper shall reimburse for any port charges incurred at the additional port(s) of call. Shipper shall invoice each entity (MECO-Maui and MECO-Molokai) separately pursuant to instructions provided by Shipper.
Contract of Private Carriage
C. The Freight Rate applicable to Shipper's Cargo on any joint voyage with HELCO shall be as follows:
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Volume in Barrels Rate in $/BBL
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Tier 1 minimum of 10,000 1.80
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Tier 2 10,001 and above 0.59
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The Freight Rate for Shipper on any joint voyage shall include all laytime, demurrage and tankermen charges such that the Freight Rate shall be deemed inclusive.
D. In the event Shipper loads less than the volume of Cargo identified in subsection 5.1.A., Tier 1, above, aboard the Barge on any voyage, except joint voyages with HELCO, Shipper shall pay Carrier freight based upon the minimum volume identified times the Freight Rate identified for Tier 1, above.
5.2 Shipments Made In Conjunction With Third Parties.
Subject to Shipper's advance permission, Carrier may transport petroleum products in bulk for parties other than Shipper or HELCO (hereinafter "third-party cargo") on voyages performed under this Contract. For the purpose of determining the freight cost of Shipper's Cargo when transported by Carrier in conjunction with such third-party cargo, Shipper's Freight Rate shall be calculated according to Subsection 5.1.A.., above, but with Shipper to receive a credit to the extent of such third party cargo against the volumes (including minimum volume) beginning at Tier 1 and continuing into Tier 2 and/or Tier 3 to the extent of the volume of such third party cargo.
5.3 Annual Escalation.
The Freight Rates set forth in Subsections 5.1. and 5.2., above, and the demurrage rates in Subsection 5.8., below, shall be subject to an annual escalation effective as of January 1, 2003, and each January 1 thereafter, on the basis of the arithmetic average of two components each weighted equally. One component is the arithmetic average of the Producer Price Index for Industrial Commodities ("PPI") as published by the U.S. Department of Labor, Bureau of Labor Statistics for the period July through September preceding every January 1 in which service is rendered by Carrier hereunder commencing January 1, 2003, divided by the arithmetic average of the PPI for the three months, July through September, 2002. The second component is the arithmetic average of the hourly earnings in dollars per hour for the water transportation services industry as reported in "Employment and Earnings" published by the U.S. Department of Labor, Bureau of Labor Statistics ("EE") for the period July through September
Contract of Private Carriage
preceding every January 1 in which service is rendered by Carrier hereunder commencing January 1, 2003, divided by the arithmetic average of the EE for the three months, July through September, 2002. Such Freight Rates and Demurrage Rates shall continue during any extension pursuant to Subsection 1.2, above. In the event the foregoing indices, or either of them, are discontinued or materially altered, the parties shall promptly meet and agree upon alternate reference(s) which duplicate the functions served by the discontinued or altered indices and assure Carrier and Shipper are in substantially identical positions as before such discontinuation or alteration. However, in no event shall the Freight Rates for Carrier be less than the Freight Rates agreed at the inception of the initial term of this Contract.
5.4 Cargo Volume.
Freight charges shall be based upon net quantity of Cargo loaded into the Barge as shown by shore tank gauges or positive displacement meter, unless otherwise requested and agreed by the parties in advance. The quantity of Cargo so measured shall be corrected for liquid temperature to the quantity equivalent at sixty degrees Fahrenheit in accordance with the latest edition of the ASTM-IP Petroleum Measurement Tables.
5.5 Laytime Duration.
Allowable laytime for loading Cargo shall be fourteen (14) hours; for joint
voyages with HELCO, the loading laytime shall be applied to the loading of
both Shipper's and HELCO's Cargo, as such Cargo is loaded concurrently.
The allowable loading laytime solely for Shipper for such joint voyage with
HELCO shall be that part of loading laytime which bears the same
relationship to the total loading laytime as the number of Shipper barrels
of Cargo bears to the total number of Shipper and HELCO barrels of Cargo.
Allowable laytime for discharging at the Island of Hawaii shall be fourteen
(14) hours for a Cargo of 45,000 barrels or less, and, for a Cargo in
excess of 45,000 barrels, one additional hour of laytime shall be added to
the fourteen (14) hours for each 3,000 barrels or part thereof of Cargo
above 45,000 barrels, except for Cargo shipped on a joint voyage with
HELCO, where such allowable laytime for discharging shall apply to both
Shipper and HELCO Cargo. The allowable discharge laytime solely for
Shipper for such joint voyage with HELCO shall be that part of discharge
laytime which bears the same relationship to the total discharge laytime as
the number of Shipper barrels of Cargo bears to the total number of Shipper
and HELCO barrels of Cargo. Allowable laytime for loading and discharge
operations during a voyage shall be cumulative and reversible, and may be
applied to any claim for demurrage arising during that voyage, including
demurrage arising as a result of deviation.
Contract of Private Carriage
5.6 Laytime Loading.
Laytime shall commence at the loading berth, either at Honolulu Harbor or Barbers Point Harbor, when the Barge is alongside and secured at loading pier and Carrier notifies the terminal that the Barge is ready to receive; laytime shall cease when loading is completed. Demurrage charges for loading at Honolulu Harbor shall apply only to the Barge until loading is completed and the Barge is secured and ready for sea.
5.7 Laytime Discharge.
Laytime shall commence at discharge berth when the Barge is alongside and secured at discharge pier and Carrier notifies the terminal that the Barge is ready to discharge. Laytime shall cease when the discharge of Cargo is complete. Demurrage charges at discharge shall accumulate on the Tug for only that time during which the Tug is standing by.
5.8 Demurrage.
A. Tug (main engines operating): $350.00 per hour
B. Tug (main engines not operating): $200.00 per hour
C. Barge: $200.00 per hour
Counting of time for purposes of laytime and demurrage shall commence as set forth above, and shall continue uninterruptedly until completion of loading or discharging, except that time shall not be counted, or counting shall be suspended, at all times loading and/or discharging are delayed or prevented as a result of matters beyond Shipper's actual and direct control, including, but not limited to, periods of delay resulting from:
A. the Vessels in reaching, departing or at the berth (including weather delays, awaiting daylight, tide, assist tugs or pilots) caused by any reason or condition not reasonably within Shipper's control;
B. the Vessels in moving from port anchorage to all fast in berth or time consumed by the Vessel lining up, draining pumps/lines or cleaning tanks, pumps and lines, except as in Section 4.9., above;
C. any delay due to operational deficiency of the Vessels or breakdown or inability of the Barge to load or discharge Cargo;
Contract of Private Carriage
D. prohibition of loading or discharging at any time by the port authorities or by the terminal facilities due to a violation of any operating and/or safety regulation due to the condition of the Vessels or either of them or act or omission by the Tug's Master, mates, officers or crew or the tankermen;
E. escape or discharge of oil or the threat of an escape or discharge of oil on or from the Vessels or either of them whether or not due to any condition of the Vessel or any act or omission to act of the Tug's Master, mates, officers or crew or the tankermen;
F. non-compliance with USCG regulations or failure to obtain or maintain any and all required inspection letters, certificates, oil spill response plan approval on the part of the Tug's Master, mates, officers or crew or the tankermen;
G. labor dispute, strike, go slow, work to rule, lockout, stoppage or restraint of labor involving the Tug's Master, mates, officers or crew or the tankermen or any assist tug, stand-by boat or pilot;
H. an event of Force Majeure as defined in this Contract; or,
I. the neglect or interference of Carrier, its agents, or employees;
none of which shall not be considered as used laytime or as demurrage if the Vessels are on demurrage. Carrier shall take any and all reasonable steps available to minimize demurrage time and charges.
5.9 Tankermen Charges.
All charges applicable to tankermen, including, but not limited to, compensation, travel, lodging and meals shall be deemed included in the applicable Freight Rate and shall be Carrier's sole responsibility. Carrier shall also be responsible for scheduling tankermen and transportation and lodging for tankermen.
However, when the Vessels are on demurrage and the tankermen are either standing by or attending operations, Shipper shall pay Carrier $42.50 per tankerman per hour.
5.10 Heating of Fuel Oil Aboard the Tow.
Shipper shall reimburse Carrier for the actual documented cost of fuel consumed by the Barge's cargo heating system when operated in response to Shipper's express instructions.
Contract of Private Carriage
5.11 Diesel Fuel Price Adjustment.
In addition to other charges contained in this Section 5., Shipper shall
pay, or receive a credit for, a Diesel Fuel Price Adjustment ("DFPA"),
reflecting changes in the cost of Tug fuel which shall be calculated on a
voyage by voyage basis, as follows:
DFPA = (CFP - BFP) x DFC x (Shipper Volume / Total Volume)
Where,
CFP = For purposes of this Contract, the Current Fuel Price for No. 2
Diesel Fuel in dollars per gallon shall be defined as the arithmetic
average of the Chevron and Tesoro Honolulu price for Low Sulfur No. 2
Diesel, computed to the nearest thousandths of a dollar, as reported in
the edition of the Lundberg Wholesale Diary in effect upon the date of the
completion of loading Shipper's cargo.
BFP = For purposes of this Contract, the Base Fuel Price in dollars
per gallon shall be fixed at $1.260 for the duration of this Contract; it
is derived by taking the arithmetic average of the Chevron and Tesoro
Honolulu price for Low Sulfur No. 2 Diesel, computed to the nearest
thousandths of a dollar, as reported in the edition of the Lundberg
Wholesale Diary in effect as of September 15, 2000.
DFC = The actual diesel fuel consumed during the voyage, in gallons,
as determined by sounding the fuel tanks of the Tug, before and after the
voyage.
Shipper Volume = The Cargo volume in barrels being transported for
Shipper during the subject voyage.
Total Volume = The total cargo volume in barrels being transported on
the voyage including Shipper Cargo, cargo of HELCO and third-party cargo.
Provided, however, that no DFPA shall be due unless the absolute
difference between CFP and BFP is greater than ten percent (10%) of CFP.
In the event of a billing for DFPA, Carrier shall provide documentation
DFC, satisfactory to Shipper, with each invoice.
5.12 Additional Berths/Ports.
When more than one berth within a port is required to complete the loading
or discharge of Shipper's Cargo, Shipper shall pay five hundred dollars
($500) to cover in full any and all additional expenses incurred by
Carrier by reason of calling at such additional berth. Such additional
expenses shall include, but not be limited to, shifting expense, dockage
and pilotage.
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Contract of Private Carriage
When more than one port (for which purpose the Tesoro SPM shall constitute
a separate port) is called to complete the loading of Shipper's Cargo,
Shipper shall reimburse Carrier for the amount of the normal port charges
of the second port of loading. Time spent in transit commencing at the
point of passing the sea buoy outbound at the first port of loading until
passing the sea buoy (or entering the normal anchorage area) inbound at
the second port of loading shall count as used laytime or demurrage if
Vessel is on demurrage.
5.13 Port, Dues, Taxes and Other Charges.
Carrier shall be responsible for providing and paying for the following,
which shall be deemed included within the applicable Freight Rate and
demurrage rate: all provisions, wages and other expenses of Master,
officers, crew and tankermen; fuel and lubricating oils and filters for
the Vessel; costs of maintaining and operating the Vessel and repairing
same to assure compliance with the requirements of this Contract; all fees
and other charges on the Vessel, including, without limitation, those
incurred for assist tugs, standby boats, oil spill boom deployment,
pilots, Mooring Master and other port costs; as well as payment of every
charge, expense, fee, assessment, cost or tax (including, but not limited
to, Hawaii general excise tax, except as assumed by Shipper below) of any
type or nature whatsoever applicable to the Vessel or otherwise arising
out of or relating to the services contemplated by this Contract, other
than the following charges, expenses, fees, assessments, costs and/or tax,
etc., which shall be Shipper's responsibility:
A. Shipper shall reimburse Carrier for the cost of the Mooring
Master and stand-by boat incurred solely as a result of the
Vessel loading Cargo at the Tesoro SPM.
B. Shipper shall be responsible for all charges directly and
specifically assessed upon the Cargo as well as independent
inspection and gauging of the Cargo, wharfage, pipeline tolls,
and guard services while the Barge is idle and loaded with
Shipper's Cargo retainage pursuant to the second subparagraph of
Subsection 4.11., above. For pipeline tolls, Carrier shall
prepare and submit the required documentation and the toll, and
shall be reimbursed by Shipper for the amount thereof.
C. Shipper shall be responsible for tankermen charges pursuant to
Subsection 5.9, and the additional expenses identified in
Subsections 5.11. and 5.12., above.
D. Shipper shall be responsible for Hawaii general excise tax on
freight, demurrage and tankermen charges, only; Hawaii general
excise tax shall not be paid by Shipper on any reimbursable cost
item or any other cost, charge or item.
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Contract of Private Carriage
5.14 Freight Earned.
Full freight to the intended destination of Shipper's Cargo shall not be
deemed earned until Cargo discharge is complete at the destination.
5.15 Billing, Payment and Disputes.
Payment for freight, demurrage and other allowed charges shall be made to
Carrier's business office address first set out above within thirty (30)
days after receipt of Carrier's invoice. Invoices for charges must be
accompanied by appropriate supporting documents. In cases of dispute as to
the amount of payment due, Shipper shall not withhold any amounts due
Carrier except for those amounts in dispute. Shipper will notify Carrier
in writing of any such disputed amounts within fifteen (15) days following
receipt of Carrier's invoice. Disputes as to invoices shall be resolved
pursuant to Subsection 18.2., below.
5.16 Waiver Of Claims.
Any claim for freight, demurrage and/or charges pursuant to this Section
5., only, shall be deemed waived, extinguished and absolutely barred if
such claim is not received by Shipper or Carrier, as the case may be, in
writing with supporting documentation within one hundred twenty (120) days
from the date of final discharge of the Cargo on the voyage with respect
to which said claim arises. This provision shall not apply with respect to
any other claims which might arise under this Contract.
6. SCHEDULING
6.1 Scheduling.
Carrier and Shipper understand and agree that meeting Shipper's demands
for the most efficient scheduling, loading and discharging of the Barge
will require the general cooperation of each party. To facilitate this
objective, Shipper shall submit in writing to Carrier by the 20th of every
month (or next working day) during the term of this Contract a proposed
voyage schedule for the following calendar month stating anticipated
loading and discharging times and locations. Carrier shall make the
appropriate berth reservations and other such arrangements consistent with
said schedule. Carrier shall confirm to Shipper within three (3) working
days of receipt of Shipper's schedule the making of such reservations and
arrangements verbally or by facsimile. It is understood and agreed that
this tentative schedule is not binding on Shipper and is to be used only
as a best-efforts estimate of Shipper's requirements.
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Contract of Private Carriage
6.2 Priority Resolution.
If circumstances should arise whereby Shipper and HELCO both need and demand use of the Vessels at the same time, their parent, Hawaiian Electric Company, Inc. ("HECO"), will determine the priority as between them and notify Carrier. Carrier will be deemed to have fulfilled its obligation under this paragraph by following the priority established by HECO.
6.3 Notice of Cancellation or Delay.
Shipper will endeavor to advise Carrier, orally or in writing, as promptly as is reasonably practical, of the cancellation or delay of previously scheduled and confirmed service, giving at least four (4) hours notice for cancellation or delay of previously scheduled and confirmed service and at least four (4) hours notice for cancellation or delay of scheduled and confirmed shifting service. If less than four (4) hours notice of cancellation or delay of scheduled and confirmed services is given Carrier, then Shipper will pay for charges, if such charges are incurred, up to an amount of four (4) hours of demurrage at rates provided in Section 5., above. Carrier shall exercise its best efforts to minimize these charges by employing such tankermen and crew on its other vessels or otherwise utilizing their services in an effort to reduce these cancellation or delay charges. In such case, Carrier shall credit Shipper with the amount of these savings.
7. MAINTENANCE SERVICES AND OTHER REQUIREMENTS
7.1 Maintenance of the Tug and Barge.
Carrier shall be solely responsible for maintenance of the Tug and Barge at its expense to assure that at all times they comply with the requirements of this Contract, including, without limitation, Section 2., above. Carrier specifically covenants and agrees that it will maintain the Vessels, their appliances and appurtenances, in a state of repair that will allow for safe and efficient operation during the full term of this Contract, including, without limitation, keeping the Vessels in full unexpired certification as may be required by the USCG or any other regulatory agency having jurisdiction. Carrier shall, at its expense, regularly drydock the Vessels for the purpose of keeping the Vessels in full unexpired certification and assuring that the Vessels meet all USCG requirements, with all charges incurred in connection therewith to be for Carrier's account. Shipper and Carrier agree to arrange scheduled shipments to accommodate required maintenance periods of up to ten (10) continuous calendar days, but not to exceed twenty (20) total calendar days, annually. It is further agreed that Carrier must notify Shipper in writing no later than ninety (90) days prior to the first day of any period when the Vessels are expected to be out of service and unavailable for services hereunder because of scheduled maintenance, repair and/or drydocking in order to permit such an arrangement of scheduled shipments. Failing
Contract of Private Carriage
such notification, Carrier shall arrange such suitable substitute service as required herein. Carrier shall designate a company representative to liaise with Shipper and report on the fulfillment of Carrier's responsibility to carry out routine hull and equipment inspections, preventative maintenance and schedule of Vessel repair, maintenance and drydocking.
7.2 Other Required Services.
Carrier shall provide the following additional services to Shipper:
coordinating with Shipper and consignees for the loading and discharging of
the Barge; making arrangements for berthing and pilotage at ports or places
of call; making follow-up arrangements when necessary due to schedule
changes, weather and other operational considerations, whether anticipated
or unanticipated; scheduling the loading and discharge of the Barge to meet
required arrival and sailing times; preparing loading plans for the Barge;
computing, advancing and filing with the State of Hawaii, Harbors Division,
all required fees and reports with respect to pipeline tolls incurred
during the loading of Cargo at Barbers Point Harbor and Cargo discharge at
Kahului, Lanai and Molokai, Hawaii; and performing other operational
services not specified hereinabove which otherwise arise out of or relate
to the services to be provided to Shipper pursuant to this Contract.
Charges for the aforesaid services shall be deemed included within the
Freight Rates charged in Section 5., above.
8. INSURANCE
8.1 Carrier's Insurances.
Carrier shall, at its sole expense including the expense of deductibles, premiums, calls and policy charges, procure and maintain the following insurances for the duration of this Contract:
A. Hull and Machinery Insurance upon the Tug and Barge pursuant to Pacific Coast Tug/Barge Form (1979), to the full actual market values thereof;
B. Protection & Indemnity Insurance, including full form pollution/ environmental risk coverage, upon the Tug and Barge pursuant to an entry with The West of England Ship Owner's Mutual Insurance Association (Luxembourg) with minimum limits of $1,000,000,000 as of the date of execution of this Contract and minimum limits thereafter to the extent maintained by the International Group of P&I Clubs or $700,000,000, whichever is greater, per occurrence, and with W.Q.I.S. authorized to provide the C.O.F.R. and primary full form pollution/environmental risk coverage;
Contract of Private Carriage
C. Standard Workers Compensation and Employers Liability Insurance endorsed to be applicable to the state of Hawaii as well as the Longshore Act, with statutory limits for workers compensation and limits of $5,000,000 per occurrence for employers liability;
D. Broad form Marine General Liability Insurance, or Commercial General Liability Insurance with the watercraft and care, custody, control exclusions deleted, with minimum limits of $10,000,000 per occurrence; and,
E. Marine Contractual Legal Liability Insurance insuring Carrier's obligations pursuant to this Contract, with minimum limits of $10,000,000 per occurrence.
8.2 Shipper's Insurances.
Shipper shall, at its sole expense including the expense of deductibles, premiums and policy charges, procure and maintain the following insurances for the duration of the Contract:
A. All Risk Cargo Insurance upon all Cargo, including coverage for shortage and contamination (except for claims for contamination pursuant to section 9.1.D.3., below), to the full delivered values of such Cargo including freight and insurance.
8.3 Conditions Applicable to Insurances.
The foregoing insurances shall be subject to the following additional conditions.
A. Carrier's insurances shall be subject to review and approval by Shipper with respect to insuring forms, conditions, deductibles, limits and underwriting security, at the inception of the initial term of this Contract as well as at any renewal or reissuance thereafter.
B. All policies shall be specifically endorsed to waive subrogation against the non-procuring party, except that the waiver of subrogation on Shipper's cargo insurance shall be subject to, and limited by, Subsection 9.1.D.3., below.
C. Shipper shall be specifically named as an insured upon the Marine General Liability/Commercial General Liability policy identified in Subsection 8.1.D., above, with such insurance to be endorsed to be primary to any insurance maintained by Shipper.
Contract of Private Carriage
D. The Protection & Indemnity entry identified in Subsection 8.1.B., above, shall be specifically endorsed to include the following clauses: Privilege To Name Co-Assureds; Co-Assured/Waivers of Subrogation; and Contractual Liability. Shipper shall be named as a co-assured pursuant to the Privilege To Name as Co-Assureds and Co-Assureds/Waivers of Subrogation clauses, with the limits for the latter to be $30,000,000 per occurrence primary coverage and an additional $30,000,000 per occurrence excess coverage. This Contract shall be made subject to the Contractual Liability clause, with primary limits of $30,000,000 per occurrence and an additional $30,000,000 per occurrence excess coverage. The foregoing shall be effectuated so as to separately insure Shipper against any pollution/environmental risks incurred by Shipper with respect to this Contract, shall be primary to any insurances maintained by Shipper and shall be at Carrier's sole expense and without risk of liability to Shipper for any calls or premium expenses.
E. All policies shall be specifically endorsed to require thirty
(30) days advance written notice of non-renewal, cancellation or
other material change in insuring terms to the non-procuring
party.
F. Each party shall provide the other party with certificate(s) of insurance confirming that the required insurance(s) has/have been placed, with Shipper entitled to require that Carrier provide certified copies of all policies, at the inception of the Contract term as well as at any renewal or reissuance thereafter.
8.4 Failure to Procure Insurance.
In the event a party fails to procure and/or maintain an insurance as required above, an insurance fails for any reason (including, without limitation, breach of policy condition or warranty) and/or an insurer otherwise refuses or is unable to pay, the party required to procure that insurance shall be deemed an insurer or self-insurer, shall accept and pay claims which would have otherwise been submitted to the failed insurance and shall indemnify and hold harmless (including legal fees and costs) the other party of and from any loss, damage, expense, claim, liability and/or suit resulting from such failure.
Contract of Private Carriage
9. LIABILITY AND INDEMNITY
9.1 Carrier.
When any pilot, Mooring Master, or Master or other officer of an assist tug or stand-by boat furnished to or engaged in the service of supplying Tug power or assistance to the Vessels, (whether or not said person is an employee, servant or representative of Shipper, its affiliated or associated companies, Shipper's agents or Shipper's Cargo suppliers or receivers) goes onboard the Vessels, it is understood and agreed that such person or persons are to be considered independent contractors and become the borrowed servant of Carrier and the Vessels for all purposes and in every respect and shall be subject to the exclusive supervision and control of the Vessels and their personnel, and Shipper and its associated and affiliated companies, as well as the Cargo suppliers and receivers and, the employees, representatives, servants and agents of the foregoing, shall not be liable for errors of navigation or management of the Vessels, or any other losses, damages, expenses, liabilities, claims and/or suits of any type or nature resulting therefrom. This shall include but not be limited to the giving of orders to any tug or stand-by boat engaged in assisting or handling the Vessels and to the ordering of the number and horsepower of tugs assisting or standing by the Vessels.
Contract of Private Carriage
In respect to the foregoing, Carrier agrees to indemnify and hold harmless Shipper and its associated and affiliated companies as well as the Cargo suppliers and receivers and the employees, representatives, servants and agents of the foregoing of and from (including legal fees and costs) any and all losses, damages, expenses, liabilities, claims and/or suits of any type or nature whatsoever, whether to third parties or otherwise, arising from or relating to the acts or omissions of such pilot, Mooring Master, or master, officers or crew of any assist tug or stand-by boat.
1. all foreseeable and unforeseeable consequential damages;
2. the reasonable costs of any required or necessary repair, cleanup or detoxification of an area of oil or hazardous material and the preparation and implementation of any closure, remedial or other required plans;
3. the reasonable costs of the investigation of any environmental claims by Shipper;
Contract of Private Carriage
4. the reasonable cost of Shipper's enforcement of this Contract; and,
5. all reasonable costs and expenses incurred by Shipper in connection with Subsections 9.1.C.1. - 4., above, including, without limitation, reasonable legal fees and court costs.
Carrier shall insure Shipper against the foregoing pursuant to Subsection 8.3.D., above.
1. all loss or damage to Vessel(s), howsoever caused and regardless of whether resulting from Shipper's negligence or otherwise;
2. all liabilities for bodily injury, illness and/or death of Carrier's employees, howsoever caused;
3. notwithstanding Carrier's period of responsibility, all liabilities occurring after the Cargo has passed the shore riser at discharge arising out of or relating to Carrier's misidentification of the type of Cargo being pumped, or Carrier pumping incorrect Cargo or Carrier pumping from the incorrect tank;
4. all liabilities of any type or nature whatsoever and any loss or damage in any fashion arising out of or associated with the transportation and handling of the Cargo during the period of responsibility assumed by Carrier pursuant to Subsection 4.5, above, and/or directly resulting therefrom and not otherwise specifically assumed by Shipper; and,
5. all other liabilities and loss or damage arising out of or relating to the transportation services contemplated by this Contract other than as specifically assumed by Shipper pursuant to Subsection 9.2., below.
Contract of Private Carriage
9.2 Shipper.
Shipper's responsibility shall be limited to:
A. loss or damage to Cargo, including shortage and contamination (other than contamination pursuant to Subsection 9.1.D.3., above), arising out of or relating to the transportation and/or handling of Cargo by Carrier and/or others, specifically to include general average and salvage contributions, howsoever caused and regardless of whether resulting from Carrier's negligence, deviation, the unseaworthiness of a Vessel or otherwise; and,
B. all liabilities for bodily injury, illness and/or death of Shipper's employees, howsoever caused.
9.3 General Conditions.
To the extent any other provision of this Contract specifically allocates liability, such provision shall be deemed included herein, except in the event of conflict between such other provision and this Subsection 9.3, such other specific provision shall override the liability allocation set forth in this Subsection 9.3. To the extent no provision of this Contract addresses a specific liability which has arisen, the allocation of that liability shall be based upon the respective fault and/or legal responsibility of each party.
For purposes of this Section 9: the term "liability(ies)" shall be deemed to include all third party liabilities and/or legal obligations, including, without limitation, demand, claim, proceeding, suit, fine and/or penalty; the term "loss or damage" shall be deemed to include first party claims for loss or damage, including, without limitation, physical damage as well as economic or other intangible loss and damage (not otherwise excluded in this Contract) but shall not include any "liability(ies)"; and, the term "transportation and handling" shall be interpreted comprehensively to include loading, stowage, trimming, securing, transportation, transfer, delivery, discharge and all other handling by Carrier with respect to the Cargo.
9.4 Indemnification.
Each party shall indemnify and hold the other party harmless (including legal fees and costs) of and from any charge, loss, damage, claim, liability and/or suit allocated to it pursuant to this Section 9. or elsewhere in this Contract; in furtherance of the foregoing, each party shall waive any exclusivity of remedy or immunity from suit afforded by any workers compensation or similar law.
Contract of Private Carriage
10. LIBERTIES
The Vessels shall have liberty to sail with or without pilots, tow or be towed, and to deviate for the purpose of assisting vessels in distress, saving life or property at sea, landing any ill or injured person on board or taking on fuel, supplies or other necessaries, or for repair, provided that if it is necessary for the Tug to leave the Barge during any such deviation, the Barge shall be left in a position of safety and the service shall be resumed immediately upon completion of the deviation, except Carrier may at any time without penalty take such reasonable action as necessary for the saving of life at sea. Shipper shall not be responsible for any charge, cost or expense incurred by Carrier, the Vessels and/or the Cargo during the period of any such deviation.
11. FORCE MAJEURE
11.1 Force Majeure Events.
Either party may terminate this Contract should an event or act of Force Majeure continue uninterruptedly for a period of fifteen (15) days, upon five (5) days advance notice to the other party. For purposes of this Contract, an event or act of "Force Majeure" shall mean: acts of God, acts of public enemy, hostilities or war (declared or undeclared), embargo, riots, civil unrest, revolution, sabotage, insurrection, blockades, strikes, epidemics, landslides, lightning, earthquakes, fires, hurricanes, tsunamis, floods, tidal waves, volcanic eruptions, explosions, total or partial expropriation, nationalization, confiscation, requisitioning or abrogation of a government concession, closing of, or restriction on the use of, a port or pipeline, inability to secure petroleum product by reason of governmental regulations or otherwise, failure of Shipper's suppliers' or its affiliated companies' machinery or pipelines, loss or shortage of suitable crude oil or product supply or the suspension or termination of Shipper's suppliers' crude oil or petroleum supply contracts, suspension or termination of Shipper's petroleum product supply contracts, or an event affecting Shipper's Cargo suppliers' production, manufacturing, distribution, refining, delivery or receiving facilities, power generation or power distribution affecting Shipper's Cargo suppliers' facilities, unavailability of Cargo or any other cause or contingency affecting Shipper's Cargo suppliers or otherwise not reasonably within the control of Shipper or Carrier which materially affects that party's ability to perform under this Contract.
Contract of Private Carriage
11.2 Carrier's Obligation.
Carrier shall not be liable for delay or failure to perform under this
Contract resulting from an event or act of Force Majeure. Carrier's
obligations, including, but not limited to, rendering services under this
Contract, shall be reduced or suspended for any period in which an event
or act of Force Majeure exists as to Carrier and which can not be overcome
by Carrier through providing Shipper with a suitable substitute service as
identified in Subsection 2.5., above. In the event of any reduction or
suspension of Carrier's obligation to render service under this
Subsection, Shipper may obtain services from another operator for the
period of Force Majeure.
11.3 Shipper's Obligation.
Shipper shall not be liable for any delay or failure to perform under this
Contract resulting from an event or act of Force Majeure. Shipper's
obligations under this Contract shall be reduced or suspended for any
period in which an event or act of Force Majeure exists as to Shipper, or
Shipper's supplier, either singularly or collectively. However, nothing in
this Section 11. shall excuse Shipper from its obligation to make payments
of monies due hereunder for services rendered prior to said act or event
of Force Majeure.
11.4 Notice of Force Majeure.
The party claiming Force Majeure shall give the other party verbal notice
of such act or event of Force Majeure within twenty-four (24) hours of the
occurrence thereof and shall also send written confirmation of the same to
the other party immediately thereafter. The party claiming Force Majeure
shall use due diligence to cure any act or event of Force Majeure, and
shall give the other party verbal notice within twenty-four (24) hours
after the act or event of Force Majeure has terminated and shall send
written confirmation of the same to the other party immediately
thereafter.
12. LIMITATION OF LIABILITY
12.1 Limitation of Liability.
Except as otherwise agreed in this Contract, Carrier and Shipper shall be
entitled to assert by way of limitation of liability any principle of law
or provision of any statute or regulation of the United States that would
afford either Carrier or Shipper a limitation of such liability and the
provisions of any such statute or regulations limiting liability as
aforesaid are incorporated herein by reference and made applicable hereto
as though fully set forth herein. For purposes of such limitation of
liability, Shipper and Carrier waive any claim that this Contract or
anything contained herein is a personal contract of the other party.
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Contract of Private Carriage
12.2 Not A Demise.
The parties agree that this Contract shall be construed as a contract for
private carriage and not a demise or bareboat charter, and that no
provision of this Contract shall be construed as creating a demise or
bareboat charter of the Vessels or either of them to Shipper.
13. GENERAL AVERAGE
In the event of imminent danger, peril, disaster, damage or accident
before or after the commencement of the voyage, subjecting the Tug, Barge
and Cargo to a common peril, resulting from any cause whatsoever, whether
due to negligence or not, for which, or for the consequences of which,
Carrier is not responsible by statute, contract or otherwise, Shipper and
the owners of the Cargo shall contribute with Carrier in general average
to the payment of any sacrifices, losses or expenses of a General Average
nature that may be made or incurred and shall pay salvage and special
charges incurred in respect of the Cargo. If a salving ship is owned or
operated by Carrier or its affiliates, salvage shall be paid for based
upon the regular hourly rates hereunder.
General Average shall be adjusted, stated, and settled according to
York/Antwerp Rules 1994 at Honolulu or such other place as the parties may
agree, and as to matters not therein provided for, according to laws and
usages of the port selected (except that any payment made by Carrier to
Shipper pursuant to Subsections 9.1.B. and 9.1.C., above, and Section 14.,
below, or to any governmental agency (whether federal, state or local) or
to others to remove oil or a threat of oil pollution, as well as any other
payments, with respect to Vessel or Carrier's liability for the release of
oil, shall not be deemed to be General Average sacrifices or
expenditures).
If a General Average statement is required, it shall be prepared by
adjusters jointly appointed by Carrier and Shipper, who are to attend to
the settlement and collection of the General Average, subject to customary
charges. General Average Agreements and/or security shall be furnished by
Carrier and/or Shipper, if requested. Any cash deposit being made as
security to pay General Average and/or salvage shall be remitted in a duly
authorized and licensed bank at the place where the General Average
statement is prepared.
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Contract of Private Carriage
14. POLLUTION
14.1 Compliance.
During the full term of this Contract, Carrier and the Vessels will comply
with all local, state and federal laws, rules and regulations of
whatsoever kind with respect to oil spill or other water pollution
liability or prevention applicable to the Vessels loading at, discharging
at, entering, leaving, remaining or passing through ports, places or
waters in the performance of this Contract. Carrier, at its sole risk and
expense, shall make all arrangements by equipping the Vessels, insurance,
bonds, securities or other evidence of financial responsibility,
capability or security, USCG approved Vessel-specific oil spill response
plan and related employee training, formal drills and exercises, and
otherwise and shall obtain all such certificates and documentary evidence
and take all such other action as may be necessary to satisfy such laws,
rules and regulations including but not limited to USCG pollution
prevention regulations including, but not limited to, 33 CFR parts 154,
155, 156 and 157 and the U.S. Federal Water Pollution Control Act, as
amended. The Vessels shall carry onboard a current U.S. Coast Guard
Certificate of Financial Responsibility (Water Pollution). Carrier agrees
to indemnify Shipper against any and all claims, damages, losses,
liabilities, expenses, including, but not limited to, reasonable legal
fees and all other consequences resulting from its failure to accomplish
the foregoing.
14.2 Oil Spill Response Plan.
Carrier shall provide Shipper with copies of the contingency and spill
response plans approved by and on file with the USCG and other local,
State and Federal authorities having jurisdiction. The spill response plan
must include a first aid response within the first thirty minutes of an
incident and a reliable source of follow-up clean up supplies (e.g. booms,
skimmers, vacuum trucks, manpower etc). As evidence of its ability to
access such oil spill response resources, Carrier warrants that it shall
provide sufficient oil spill response capability with respect to minor,
medium and major oil spill events occurring in near-shore and open-ocean
environments by maintaining contracts for spill response service with the
Clean Islands Council and the Marine Preservation Association/Marine Spill
Response Corporation for the term of this Contract and any extension and
supplement thereto, all of which shall be at Carrier's expense, including
the expense of any assessment by such organizations based upon the Cargo
or the quantities and/or types of Cargo transported.
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Contract of Private Carriage
Information provided Shipper with respect to Carrier's oil spill response plan should include, but not be limited to, the following:
A. Carrier Incident Command System (ICS) response team format.
B. Communication flow chart including names and 24-hour contacts of Carrier's Qualified Individual and other key participating company personnel.
C. Procedures for assembly of response team.
D. Check list for reporting minor oil spill events and check list which assists shore personnel in obtaining accurate information about major spill events from the Vessel.
E. Contact reference data for oil spill responders contracted to provide assistance to Carrier.
14.3 Pollution Mitigation.
When a release, escape or discharge of petroleum product (including the
Cargo transported pursuant to this Contract) or any other hazardous
substance into the surrounding environment occurs from the Tug or the
Barge at any time, or from the Vessels during Carrier's period of
responsibility or while such petroleum product or other hazardous
substance is in Carrier's care, custody and control, or is otherwise
caused by the Vessels or Carrier's personnel, Carrier is obligated and
agrees to immediately take, at its sole expense, whatever measures are
necessary to retrieve and/or remove such petroleum product or other
hazardous substance from the environment, clean up and restore the
affected environment and assume and respond to every loss, damage,
expense, claim, liability, suit, fine, penalty and/or other consequence of
any type or nature, whether involving Carrier, Shipper or others, arising
out of or relating to such release, escape or discharge. Carrier shall
immediately inform Shipper of any such release, escape or discharge, of
measures taken in response as well as any loss, damage, expense, claim,
liability, suit, fine, penalty and other consequence arising therefrom. No
Vessel, tankermen or other charges will be incurred for Shipper's account
with respect to such release, escape or discharge.
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Contract of Private Carriage
15. Change of Ownership of Carrier.
Carrier shall provide Shipper sixty (60) days advance written notice of any change of ownership/control of Carrier from that in existence on the date of execution of this Contract which either separately or cumulatively in conjunction with all other changes occurring from said date involves more than forty nine percent (49%) of the ownership interest/stock of Carrier, including voting rights associated with such ownership interests/stock. Shipper shall have the right to request reasonable information with respect to such change of ownership/control, and Carrier shall provide such information promptly to Shipper.
16. TERMINATION
16.1 Termination of Automatic Renewal.
Either party may terminate the automatic renewal of this Contract pursuant
to Subsection 1.2, above. Carrier may terminate the automatic renewal of
this Contract for any successive five (5) year term by providing Shipper
with written notice of such termination two hundred seventy (270) or more
days prior to the expiration of the then current term. Shipper may
terminate the automatic renewal of this Contract for any successive five
(5) year terms by providing Carrier with written notice of such
termination ninety (90) or more days prior to the expiration of the then
current term.
16.2 Termination Based Upon Breach or Default.
This Contract may be terminated by a party upon the breach or default of
the other party as set forth in this Subsection. A party contending that
the other party is in breach or default of this Contract shall provide
written notice thereof to such other party, identifying with particularity
the breach or default and the proposed cure. The other party shall have
fifteen (15) days following receipt of such notice to cure the claimed
breach or default, or otherwise respond in writing. If the parties cannot
agree as to the existence of the breach or default or the appropriateness
of the cure, then the dispute resolution procedure set forth in Subsection
18.3., below, may be invoked by either party to resolve the dispute.
Should the other party fail to cure or respond within the time allowed,
then the party invoking this Subsection may terminate the Contract.
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Contract of Private Carriage
16.3 Termination In Specific Instances.
This Contract may be terminated by Shipper upon the occurrence of any of the following:
A. Failure of Carrier to maintain:
1. insurances as required under this Contract;
2. certification under AWO/RCP;
3. ISO 9000 certification (or standards which supersede them);
4. ISO 14000 certification (or standards which supersede them);
5. classification by ABS;
6. certification by USCG for the Vessels;
7. suitable equipment, including substitute Vessels, pursuant to Section 2., above;
8. seaworthiness under provisions of Subsection 2.6., above;
9. drug and alcohol testing procedures for Tug personnel and Tankermen; and,
10. recommended and required inspection and maintenance of the Tug and Barge.
B. Total loss or constructive total loss of the Barge as per Subsection 16.6., below.
C. The Vessels suffering more than two (2) marine casualties, reportable under 46 C.F.R. 4.05-1, in a calendar year.
D. The Vessels suffering more than three (3) minor oil spills (less than 10,000 gallons) in a calendar year.
E. The Vessels suffering more than one (1) medium oil spill (10,000 to 100,000 gallons) in a calendar year.
F. The Vessels suffering a single large oil spill (over 100,000 gallons) during the term of this Contract.
Contract of Private Carriage
G. Failure of Carrier to provide two (2) alert, rested and certified Tankermen onboard during all cargo operations.
H. Failure of Carrier to report casualties and "near misses" to Shipper as per Subsection 3.10., above.
In the event any of the above should occur, Shipper may terminate this
Contract upon five (5) days advance written notice to Carrier.
16.4 Termination for Substandard Performance.
This Contract may be terminated by Shipper based upon the substandard
performance by Carrier of its obligations hereunder. Should Shipper
believe Carrier's performance is substandard and wish to terminate this
Contract pursuant to this Subsection, Shipper shall inform Carrier in
writing of each item of performance which is believed to be substandard,
providing full explanation, particulars and documentation of each such
allegation. Carrier shall have thirty (30) days from receipt of Shipper's
written statement of claim in which to respond in writing. If Carrier
fails to respond in writing within the required time period, Shipper may
terminate this Contract by providing Carrier with written notification of
termination, specifying in such notice the precise date for termination.
If Carrier responds in writing within thirty (30) days of receipt of
Shipper's written statement of claim, proposing to cure the items of
substandard performance, including the specifics of such cure, Shipper
shall have the option, which must be exercised promptly, of accepting such
cure and agreeing with a date by which such cure must be completed, or
rejecting the proposed cure and requiring arbitration pursuant to
Subsection 18.2., below. Should Carrier contest Shipper's allegations of
substandard performance and do so in writing to Shipper within thirty (30)
days of receipt of Shipper's written statement of claim, either party may
compel arbitration of the dispute pursuant to Subsection 18.2., below. Any
arbitration arising out of this Subsection shall be final and binding upon
the parties and may not be appealed.
16.5 Prolonged Force Majeure.
Either party may terminate this Contract pursuant to Subsection 11.1.,
above should an event or act of Force Majeure continue uninterruptedly for
a period of fifteen (15) days, upon five (5) days advance notice to the
other party.
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Contract of Private Carriage
16.6 Total Loss of Barge.
It is understood and agreed that in the event of a declaration of total
loss or constructive total loss of the Barge during the Contract term,
Carrier shall be entitled to utilize a substitute Barge for a period of
one hundred and twenty (120) days following the casualty giving rise to
such declaration. Within thirty (30) days following the event which caused
such declaration of total loss or constructive total loss, Carrier shall
declare in writing to Shipper whether it will provide a replacement Barge
for service under this Contract, meeting the requirements set forth
herein, including without limitation Section 2., above. Such replacement
Barge shall be tendered for delivery and approval of Shipper in accordance
with the terms of this Contract within ninety (90) days following such
declaration, failing which, Shipper shall have the unilateral right to
terminate this Contract by written notice to Carrier, notwithstanding
anything herein to the contrary.
16.7 Change of Ownership/Control.
In the event of change of ownership/control of Carrier as identified in
Section 15., above, Shipper shall have the right to terminate this
Contract upon thirty (30) days written notice to Carrier, which right may
be exercised at any time from receipt of the notice required pursuant to
Section 15., above, and for one (1) year thereafter.
16.8 Automatic Termination.
This Contract shall terminate automatically upon the appointment of a
receiver for a party, the making by a party of a general arrangement for
the benefit of creditors, or the filing of any type of bankruptcy
proceeding by or against a party.
16.9 Termination By Assent.
This Contract may be terminated at any time by the written agreement of
Carrier and Shipper.
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16.10 Other Conditions.
Termination of this Contract by a party pursuant to this section shall not waive, or estop that party from asserting, any other right or claim which that party may have under applicable law or this Contract.
Contract of Private Carriage
17. DEFINITIONS
The following terms shall have the definitions set forth below for purposes of this Contract:
Barrel: A barrel shall mean 42 U.S. gallons at sixty (60) degrees Fahrenheit.
HECO: refers to Hawaiian Electric Company, Inc.
HELCO: refers to Hawaii Electric Light Co., Inc.
Joint Voyage: refers to any voyage on which both HELCO and MECO Cargo are transported on the Barge.
MECO: refers to Maui Electric Co., Ltd.
Offer Letter: refers to the Carrier's Offer Letter to HECO in response to the RFP.
Period of Responsibility: Carrier's period of responsibility associated with the Cargo shall commence at the shore riser connection and the SPM hose connection, as applicable (with Carrier responsible for actually making such connections) and shall continue as the Cargo is unloaded, distributed throughout the Barge, transported through to destination and until the Cargo passes the shore riser upon discharge (with Carrier responsible for making the connection between the hose and the shore riser). The Cargo shall be deemed completely within Carrier's care, custody and control during the foregoing period of responsibility.
RFP: refers to the Request For Proposals issued by HECO on behalf of and as agent for HELCO and MECO on July 28, 2000.
18. DISPUTE RESOLUTION
18.1 General.
There shall be two levels of dispute resolution applicable to this
Contract, each of which is defined in this Section.
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Contract of Private Carriage
18.2 Technical Disputes.
Technical disputes arising under or in the course of performance of this
Contract shall be resolved by a single arbitrator. Technical disputes
shall be limited to disputes arising pursuant to Subsections 5.15., 16.3.
or 16.4. of this Contract, as well as all disputes arising out of or
relating to: compliance with the requirements set forth in this Contract
as to the Tug and Barge; compliance with the requirements set forth in
this Contract for the Tug and Barge safety and environmental management;
Vessel operation and/or navigation issues; pumping rates, cargo volumes
and/or capacities; cargo losses; reporting requirements for marine
casualties and "near misses"; compliance with recommended and/or required
Vessel maintenance; adequacy of spill clean up equipment, procedures and
drills; adequacy of spare parts on hand; and, Tug and Barge performance
criteria.
Promptly following execution of this Contract, the parties shall meet and
shall agree upon a minimum of three (3) arbitrators who shall be
authorized to arbitrate disputes arising under this Subsection. Such
agreed list of arbitrators may be modified at any time by agreement of the
parties. The arbitrators shall be persons from within the maritime
industry who are agreed to be fair, neutral and knowledgeable of technical
matters pertinent to this Contract.
In the event of such technical dispute, either party may initiate
arbitration pursuant to this Subsection by written notice to the other
party, identifying the arbitrator from the agreed list who will resolve
the dispute. Promptly following appointment, the arbitrator shall be
responsible for establishing timetables and procedures for acquisition and
presentation of information as well as for hearing each party's side of
the dispute, but in any event the parties shall cooperate with the
arbitrator such that a final written decision shall be issued by the
arbitrator within sixty (60) days following appointment of the arbitrator.
The arbitrator shall in all respects be governed by the terms and
conditions of this Contract. The decision of the arbitrator shall be final
and binding upon the parties and may not be appealed. Each party shall
bear its own expenses in the arbitration of technical disputes, as well as
one-half of the fees and costs incurred by the arbitrator.
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18.3. All Other Disputes.
All other disputes shall be resolved under the commercial arbitration rules of the American Arbitration Association.
Contract of Private Carriage
Contract of Private Carriage
19. GENERAL PROVISIONS
19.1 Audit.
Shipper, at its sole discretion, may conduct its own audit of Carrier's
policies, procedures and may inspect the Tug and Barge at any time during
the term of this Contract for the limited purpose of verifying compliance
with the terms and conditions set forth in this Contract. No such audit or
inspection, however, shall increase Shipper's liabilities or
responsibilities nor shall relieve Carrier of any liability or
responsibility which it has assumed pursuant to this Contract.
19.2 Shipper's Representatives.
Shipper shall have the right and privilege of having its representative(s)
visit the Vessels and observe operations while at port or sea. Shipper's
representative(s) shall have access to the entirety of the Vessels, with
the Master, officers and crew to cooperate with such representative(s) and
to render any reasonable assistance that such representative(s) may
require.
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Contract of Private Carriage
19.3 Liens Upon the Cargo.
Neither Carrier nor any of Carrier's subcontractors, independent
contractors or employees shall assert any liens against the Cargo.
19.4 Business Policy.
Carrier agrees to comply with all laws and lawful regulations applicable
to any activities carried out in the name, or otherwise on behalf, of
Shipper under the provisions of this Contract. Carrier agrees that all
financial settlements, billings and reports rendered by Carrier to
Shipper, as provided for in this Contract, shall, in reasonable detail,
accurately and fairly reflect the facts about all activities and
transactions handled for the account of Shipper.
19.5 Notices.
Except as otherwise expressly provided herein, all notices and
communications required by the terms hereof from Carrier to Shipper and
from Shipper to Carrier shall be made in writing, facsimile or telex to
the following addresses, or such other address as the parties may
designate by notice, and shall be deemed given upon receipt:
Shipper: Manager, Power Supply Services Dept.
Hawaiian Electric Co., Inc.
P.O. Box 2750 PHONE: (808) 543-4303
Honolulu, Hawaii 96840 FAX: (808) 543-4366
Carrier: Gordon L.K. Smith
Hawaiian Interisland Towing, Inc.
Pier 21, Main Office PHONE: (808) 522-1000
Honolulu, Hawaii 96817 FAX: (808) 522-1003
19.6 Captions.
Captions used herein are for convenience of reference only and shall have
no force or effect or legal meaning in the construction or enforcement of
this Contract.
19.7 Assignment.
This Contract shall not be assigned by either party without the prior
written consent of the other party, which consent shall not be
unreasonably withheld, except that this Contract may be assigned by
Shipper to the Trustee under Shipper's First Mortgage Indenture dated
March 1, 1948, as amended.
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Contract of Private Carriage
19.8 Extension of Benefits.
All limitations upon or exemptions from liability granted to a party
pursuant to this Contract shall be deemed extended to the directors,
officers, members, and employees of that party.
19.9 Entire Contract.
This document, including the RFP, Carrier's completed Prequalification
Questionnaire, Carrier's Offer Letter and all exhibits and attachments
referenced or otherwise incorporated herein, constitutes the entire
agreement between the parties and expressly supersedes and negates all
prior or contemporaneous negotiations, communications, understandings and
agreements, whether written or oral. This agreement shall not be modified
or amended except through a writing signed by both Shipper and Carrier.
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19.10 Severability.
Carrier and Shipper agree that if, and in the event, any term or provision of this Contract shall be rendered or declared invalid or unenforceable by reason of any existing or subsequently enacted legislation or by decree or judgment of any court which shall have or acquire jurisdiction over the parties and each of them or jurisdiction "in rem" of the Vessels, the invalidation or unenforceability of such term or provision of this Contract shall not thereby affect the remaining terms, provisions, rights and obligations herein contained.
19.11 Regulatory Approval.
This Contract is required to be filed with the Hawaii Public Utilities Commission ("PUC") for approval, with such approval to be a condition precedent to Shipper's obligation to perform hereunder. Following award of this Contract to Carrier, both parties agree to use their best good faith efforts to obtain such approval.
IN WITNESS WHEREOF, the parties hereto have caused this Contract to be executed as of the day and year first above written.
HAWAIIAN INTERISLAND TOWING, INC.
"Carrier"
By /s/ Gordon L. K. Smith Its President |
Contract of Private Carriage
MAUI ELECTRIC CO., LTD.
"Shipper"
By /s/ William A. Bonnet Its President By /s/ Lyle J. Matsunaga Its Assistant Treasurer |
Contract of Private Carriage
EXHIBIT A
BARGE REQUIREMENTS
The following are warranted by Carrier with respect to the Barge and its equipment and machinery employed under this Contract.
The Barge shall be a new build, double-hulled and OPA-90 qualified tank barge.
Storage (minimum):
25,000 bbl. No. 6 Industrial Fuel Oil minimum. 30,000 bbl. No. 2 Diesel Fuel Oil minimum. 10,000 bbl Grade A Cargo
Single voyage capacity (minimum):
65,000 bbl Total.
Any Barge used in service to Shipper shall be equipped with a system of cargo tanks and piping that will provide for the segregation of three grades. There shall be regular segregation of diesel and black oil; cross connection of other grades to be double blocked.
Piping is to be configured to allow future conversion of tanks dedicated to No. 6 fuel oil to diesel service at a date to be determined by Shipper.
Tanks shall be arranged to allow for proper trim control with any single cargo type loaded on board.
Any Barge used in service to Shipper shall be capable of ballasting water from designated ballast tanks located in the double bottom and wing tanks. A ballast pump shall be provided to ballast or de-ballast the Barge within ten hours.
Contract of Private Carriage
No. 6 Industrial Fuel Oil: 3,000 barrels per hour (BPH) at 110 Degrees F
minimum.
No. 2 Diesel Fuel Oil: 3,000 BPH minimum.
Grade A cargoes: 2000 BPH minimum
Rail pressure: 100 psi at manifold
Any Barge used in service to Shipper shall be equipped with cargo manifolds, piping valves, hoses, cranes and other equipment sufficient to permit Cargo loading and/or discharge operations for each cargo on both port or starboard side.
Any Barge used in service to Shipper shall be equipped with cargo manifolds, pumps and piping sufficient to permit the loading and discharge of three different Cargo grades simultaneously.
Any Barge used in service to Shipper shall be equipped to permit emergency shutdown of the pumping system from more than one location, of which at least one shall be on deck and situated such that no point on the barge deck is more than 75 feet from a shutdown.
Any Barge used in service to Shipper shall be equipped with a deck containment coaming to reduce the likelihood that cargo spilled from cargo hatches, hose connections, oil loading manifolds, hose storage trough, above-deck lines and valves and transfer connections may enter the water or land environment. Provision shall be made to assure that rainwater draining from the deck shall not carry contaminates overboard.
Spill tank(s) with total capacity of 1000 gallons, located just below the main deck aft, are to be provided to capture all contaminates that collect on the deck. The spill tanks are to be provided with pump-off capabilities located on the Barge in the vicinity of the spill tank(s).
Contract of Private Carriage
Any Barge used in service to Shipper shall be fitted with heating coils in all cargo tanks in which residual fuel oil type cargo, such as No. 6 Industrial Fuel Oil, is to be carried. The coils shall be supplied with heat by a diesel fired retort system of 5.0 million BTU's/hr capacity.
Any Barge used in service to Shipper shall have diesel generators of sufficient capacity to safely provide electrical power to all Barge equipment and machinery in any and all operations including full operation of pumps and other equipment necessary to loading/discharging of cargo with one generator out of service.
Diesel engines are to be inspected to ensure that all components are within manufacturer's tolerances; maintenance records are to be available for confirmation of PMS.
An overhaul shall be conducted on the generator engines of the Interim Barge prior to tendering for delivery to Shipper pursuant to the Contract if over 50 percent of the engine hours (based on manufacturer's recommendation for periods between overhauls) have been exhausted since the last overhaul period.
Any Barge used in service to Shipper shall be fitted with equipment of sufficient capacity and piping to safely clear cargo hoses of retained Cargo after completion of Cargo operations.
Any Barge used in service to Shipper shall be fitted with electronic and mechanical high level alarms (high and high-high) in all cargo tanks. Void spaces are to be fitted with bilge alarms. These alarms are to be fitted with audible and visible signals to alert the tankermen or Tug crew.
Any Barge used in service to Shipper shall have toilet facilities provided for use during loading and discharge operations. If portable, the facilities shall be capable of being properly secured so as to withstand boarding seas and inclement weather.
Contract of Private Carriage
All tanks, voids and ballast compartments are to be coated with materials acceptable to Shipper and compatible with the cargoes carried. Zinc anodes shall be installed in ballast tanks. Coatings are to be maintained and renewed as necessary. Coatings shall be in Good condition per ABS Coating Systems Guidance Assessment Scale.
There shall be no greater wastage from the original plate thickness in any tanks, voids, compartments, shell plating, fittings or piping than is allowed by the USCG, the relevant Classification Society or as otherwise allowable pursuant to Carrier's overriding responsibility for the seaworthiness and safety of all Vessels, equipment and operations consistent with the best marine practices available. Any release or discharge of Cargo cause by wastage in any tank, void, compartment, plating, fitting or piping shall be deemed a per se breach of Carrier's overriding responsibility for the seaworthiness and safety of all Vessels, equipment and operations consistent with the best marine practices available.
Any Barge used in service to Shipper shall have oil spill abatement equipment and supplies. Equipment and supplies shall include, but not be limited to1,500 feet (minimum) of oil spill boom, boom deployment skiff, spare bridles and two lines anchor/buoy system, sweeps, sorbent sheets, transfer pumps, and skimmer. In addition, personal protective clothing and gear and other related emergency oil spill cleanup equipment consistent with the Vessel's oil spill response plan and all U. S. Coast Guard requirements shall be provided.
Any Barge used in service to Shipper shall be rigged for towing operations with an emergency towing pennant or insurance wire. A pickup line with buoy shall be attached to the insurance wire and streamed when underway. The emergency tow wire and the shackles used to make the centerline tow pad at the bow need to be of comparable size to the tugs tow gear. In addition, the insurance wire is to lead from the bow tow pad down one side of the barge, to the stern, held in place with steel clips.
Any Barge used in service to Shipper shall be equipped with appropriate mooring bitts and sufficient forward winch/capstan and winch/capstan-drum capacity to lift the mooring hawser and chafe chain of the Tesoro Hawaii SPM. The forward winch/capstan is to be rigged to be capable to lift the barge chain tow bridles clear of the water when necessary.
Contract of Private Carriage
Any Barge used shall be equipped with a crane or A-frame type gallows, tie off bitts and manifold rail suitable for lifting and tying off the floating hose at that facility pursuant to the requirements set forth in Exhibit C attached hereto. The crane shall be sufficient to permit loading and/or discharge operation from each cargo on both sides of the Barge.
Carrier shall maintain spare parts in Hawaii to facilitate immediate repairs to major components necessary to the operation, loading and discharge of the Barge. These may include, cargo pumps, generators, retort, valves, compressors, ventilation fans, alarms, sensors, etc.
The Barge shall be equipped with anchoring and/or retrieval system or systems meeting USCG requirements as well as consistent with Carrier's overriding responsibility for the seaworthiness and safety of all Vessels, equipment and operations consistent with the best marine practices available.
Applicable Laws of the United States for a Vessel of U.S. Registry
U.S. Coast Guard Certification of Inspection for ocean service as an unmanned tank barge, including compliance with 33 CFR 157.10d: Double Hulls on tank vessels.
American Bureau of Shipping Rules for Building and Classing Steel Barges, Maltese Cross A1 and Circle E
International Load Line Certificate.
IMCO Rules for Tonnage Measurement
International Convention for Prevention of Pollution from Ships (MARPOL), Including Requirements Pertaining to the Issuance of International Oil Pollution Prevention Certificates
International Convention for Prevention of Collisions
Contract of Private Carriage
Oil Companies International Marine Forum (OCIMF) Recommendations for Oil Tanker Manifolds and Associated Equipment for Category "A" Vessels (16,000 to 25,000 DWT)
Oil Pollution Act of 1990
American Waterways Operators (AWO) - Responsible Carrier Program, ISO 9000 (or standards which supersede them) and ISO 14000 (or standards which supersede them).
Any Barge used in service to Shipper shall have cargo tanks provided with suction wells (recessed into the double bottom), butterworth plates, ullage openings, b-valves for revenue gauging, and pressure/vacuum valves.
Tank bottoms and tank outboard side bulkheads shall have their plate stiffeners located in the double hull void spaces.
Special attention shall be given to the fore end design to reduce the stresses induced by slamming, especially in the light condition. Additional strength should be provided in the Barge hull in way of areas that the Tug uses while maneuvering alongside or docking.
The Barge must comply with the vapor control, closed gauging and overfill protection requirements identified in 46 CFR, Chapter 1, Subchapter D, Part 39, and must specifically comply with 46 CFR 39.20-7, rather than 46 CFR 39.20-9.
Any Barge used in service to Shipper shall undergo a condition survey prior to final acceptance to ensure safe operability of the Barge. Carrier shall, at its expense and at the inception of the Contract term and each thirty (30) months thereafter, provide Shipper with a condition survey of the Barge which states that the Barge is in conformity with Contract requirements and is otherwise safe and suitable for the intended operation.
IEEE Std. No. 45, Recommended Practice for Electrical Installations on Shipboard and International Electro Technical Commission (IEC)
Contract of Private Carriage
EXHIBIT A-1
BARGE SPECIFICATIONS
(Exhibit A-1 includes a description of the Barge to the degree currently possible; a final version of Exhibit A-1 shall be attached upon completion of construction of the Barge)
(NEW-BUILD BARGE)
GENERAL:
The barge shall be built to the present ABS rules for building and classing a Maltese Cross A-1, unmanned oil tank barge, complying with OPA-90. The barge shall be certified to carry grade "A" or lower products. The barge is based on a proven design that has been in continuous service on the West Coast. The piping layout is based on the piping installed on Barge NOHO HELE. This system has proven to be exceptionally effective in the current fuel transportation contract. The design attributes of the new-build barge combine to optimize the barge's design and specifications for service in Hawaiian Electric Company, Inc.'s Fuel Transportation Contract.
The barge shall be delivered with the following documentation:
1. USCG Coast Guard Certificate of Inspection
2. ABS Load line Certificate
3. International Tonnage Certificate
4. USCG Stability Letter
5. USCG Certificate of Documentation
The barge hull shall have a length of 328', a width of 76', side shell depth of 22', with a 5' trunk; double hulled, all oceans grade "A". The hull shall have twelve (12) cargo tanks, being longitudinally divided with one (1) longitudinal centerline bulkhead and transversely divided with seven (7) transverse bulkheads.
CAPACITY:
Storage:
25,200 bbl. No. 6 Industrial Fuel Oil
34,200 bbl. No. 2 Diesel Fuel Oil
10,400 bbl Grade A Cargoes
Single voyage capacity:
69,600 bbl. Total.
OUTFITTING:
1. One (1) tanker man office
2. One (1) engine space
3. Four (4) 1000 watt floodlights located as requested
4. Four (4) double bitts
5. Eight (8) kevel bitts, four (4) located down each side
6. Towing pads
7. Four (4) recessed hull boarding ladders coming around the perimeter of deck
per regulatory requirements
Contract of Private Carriage
8. Six (6) push-knees, three per side
9. One (1) hose handling crane, 65 foot boom, approximately 2000 pound lifting
capacity,
10. Access ladders, 16 inch width, into all tanks/voids, approximately 28
locations
11. One (1) breakwater
12. One (1) mounting cones for a 20 foot spill van
13. Four (4) open chocks, located as directed
14. One (1) closed chock, located as directed
15. One set of USCG approved light screens and battery boxes (no lights)
16. Fire extinguishers, five (5) 20lb CO2
17. Ballast system
18. Ballast pump
19. Hand rails
20. Exterior paint, painted voids/ballast tanks; cargo tanks
CARGO SYSTEM:
1. Five (5) Caterpillar/equivalent 170hp pump engines
2. Two (2) Caterpillar/equivalent 80kw generator sets
3. Five (5) 10" 14GM 4-stage deep well Byron Jackson pumps, with Amarillo
right angle drives
4. Five (5) 30" deep well cans
5. Five (5) 4x6 relief valves
6. 12 expansions domes
7. 12 high level 1-meter "dip sticks"
8. 12 high level sound alarms
9. 12 "B" valves
10. Heating coils
11. Air compressor
12. One (1) towing shape, One "red" loading light, One red bravo flag located
on single mast positioned on the engine room
13. Vapor recovery, (3) systems with high pressure relief header valves;
suitable for 5000 barrels per hour loading
14. 10" below deck piping, loop system with 10" cargo valves and block valves
as per drawings
15. Three (3) remote shutdowns
16. 8" on deck cargo valves, piping and headers
17. Fuel shutdowns located outside the engine space
18. Spill containment for headers
19. Signage
20. Cargo pipe lines to be tested to 225 psi and certified with a safe working
load of 150 pounds.
CARGO SEGREGATION:
Barge is equipped with a system of cargo tanks and piping that will provide for the segregation of three grades. There is regular segregation of diesel and black oil; cross connection of other grades are double blocked. Piping is configured to allow future conversion of tanks dedicated to No. 6 fuel oil to diesel service. Tanks are arranged to allow for proper trim control with any single cargo type loaded on board.
Contract of Private Carriage
PLANS, MANUALS AND OTHER DATA
A. Construction Plans
The barge shall be constructed in accordance with U.S. Coast Guard approved plans.
B. Certification
Barge meets the following certification criteria:
a. Applicable Laws of the United States for a Vessel of U.S. Registry
b. U.S. Coast Guard Certification of Inspection for ocean service as an
unmanned tank barge, including compliance with 33 CFR 157.10d: Double Hulls
on tank vessels
c. American Bureau of Shipping Rules for Building and Classing Steel Barges,
Maltese Cross A1 and Circle E
d. International Load Line Certificate
e. IMCO Rules for Tonnage Measurement
f. International Convention for Prevention of Pollution from Ships (MARPOL),
Including Requirements Pertaining to the Issuance of International Oil
Pollution Prevention Certificates
g. International Convention for Prevention of Collisions
h. Oil Companies International Marine Forum (OCIMF) Recommendations for Oil
Tanker Manifolds and Associated Equipment for Category "A" Vessels (16,000
to 25,000 DWT)
i. Oil Pollution Act of 1990
j. American Waterways Operators (AWO) - Responsible Carrier Program, ISM, and
ISO 9002. Barge will meet ISO 14001 certification prior to the start of
the contract.
C. Builder's Shop Drawings and Layouts
The Builder shall prepare shop drawings and layouts as necessary to construct the vessel. Two copies of these shop drawings and layouts shall be furnished to the Owner for review and approval. The Builder shall furnish the Owner with copies of the lofted hull offsets for approval prior to fabrication.
D. Vendor Drawings and Technical Manuals
For all equipment purchased by the Builder, the Builder shall submit the following to the Owner:
Purchase Technical Specifications
Installation Plans and Technical Data
Preliminary Technical Manuals
Operation Manual
Maintenance and Service Manual
Assembly Drawings with repair part ordering information
E. Signs and Safety Precautions
The Builder shall prepare and post the safety and precaution signs, placards and notices required by the regulatory bodies. The Owner will furnish the Piping Diagrams and Oil Transfer Procedure required by the U.S. Coast Guard Regulation (CFR 33 part 155.720). These documents shall be suitably framed and posted in the Tankerman's Shelter. In addition, the Builder shall frame and post all the certificates required to be carried on board in the Tankerman's Shelter.
Contract of Private Carriage
F. Survey
Barge will undergo a condition survey prior to final acceptance to ensure safe operability of the Barge. Carrier shall, at its expense and at the inception of the Contract term and each thirty (30) months thereafter, provide Shipper with a condition survey of the Barge which states that the Barge is in conformity with Contract requirements and is otherwise safe and suitable for the intended operation.
G. Compliance
Barge complies with IEEE Std. No. 45, Recommended Practice for Electrical Installations on Shipboard and International Electro Technical Commission (IEC).
SCHEDULE
The Builder shall submit a schedule to the Owner that shows "key" dates such as "delivery of steel" and start of "pre-fabrication". The Owner shall be notified of anything that may effect the completion date. The schedule shall be updated every week as the work progresses.
MATERIALS
The Builder shall furnish all materials required. All material shall be suitable for the service intended. The material specified on the plans shall be used. Material substitutions shall not be made except with the approval of the Owner. All steel used shall be new carbon steel, A.S.T.M. A-36 or A.B.S. Grade A.
INSPECTION AND TESTS
The Builder shall be responsible for in process inspections. Prior to acceptance of the barge, at the convenience of the Contractor, a complete final inspection of all work will be made jointly by the Contractor and the Owner's Representative. Incomplete work noted during this inspection shall be completed by the Contractor prior to closing the spaces and acceptance of the barge by the Owner. The Builder shall fill all engines with water, anti-freeze, and lubricants. The engines, cranes, and electrical system shall be tested by the Builder. During start-up and test, an engine vendor's representative shall be engaged to check-out the engines. The Owner's Representative and the U.S. Coast Guard inspector shall be notified prior to engine and equipment tests so that they can attend the tests. The hull tanks and voids shall be hydrostatically and air tested in accordance with the A.B.S. Rules.
HULL STRUCTURE, ARRANGEMENT AND OUTFIT
A. Arrangement and Scantlings
The hull shall be constructed in accordance with the plans.
B. Hull
Special attention has been given to the fore end design to reduce the stresses induced by slamming, especially in light condition. Additional strength is provided in the Barge hull in way of areas that the Tug uses while maneuvering alongside or docking.
C. Fuel Tanks
Diesel Fuel oil tanks are to be installed as shown on the plans. The tanks are to be 5,900 gallons capacity each. The tanks are to be U.S. Coast Guard approved.
Contract of Private Carriage
D. Boarding Ladders
Boarding ladders shall be provided on each side at each end (4 places) as shown on the plans. The ladder rungs shall be one-foot apart and staggered for easy access. Hand grabs shall be installed on the deck and trunk sides as shown on the plans.
E. Vent and Limber Holes
Framing in the cargo tank spaces and voids shall be provided with limber and vent holes as shown on the plans. Framing in the rakes shall have adequate limbers to insure drainage.
F. Deck Houses
A steel deck house is to be installed aft to house a pump engine room, diesel generator room and a storeroom. A void shall be located under this deck house. Two bolted plate manholes shall be installed for access into this void. The engine rooms shall be provided with weather tight openings for engine cooling air and ventilation.
A Tankerman's shelter shall be installed on the starboard side forward.
A file cabinet (4 drawer, legal size), steel desk (30 x 60), steel swivel chair, and steel personnel lockers (single tier, 3 wide) shall be installed in the Tankerman's Shelter. Windows shall be installed on each of the four sides of the shelter to provide the Tankerman with a view of the deck. Half the windows shall be "slider" type capable of opening for ventilation. The store room bulkheads shall be fitted with steel shelving. Dead lights shall be located on the front and sides of the aft deck house so that the tankerman has a clear view of the deck from the Machinery Rooms.
G. Bitts, Kevels and Barge Connectors
Bitts, kevels, closed chocks, and Barge connection winches shall be furnished and installed as shown on the plans.
H. Deck Containment
Barge is equipped with a deck containment coaming to reduce the likelihood that cargo spilled from cargo hatches, hose connections, oil loading manifolds, hose storage trough, above-deck lines and valves and transfer connections may enter the water or land environment. Provisions are made to assure that rainwater draining from the deck will not carry contaminates overboard.
I. Spill Containment
Spill containment shall be provided at the two hose connections. Drain plugs shall be provided to drain clean water onto the deck.
J. Emergency Tow Wire
Barge is rigged for towing operations with an emergency tow wire. A pickup line with buoy is attached to the insurance wire and streamed when underway. The emergency tow wire and shackles used to make the centerline tow pad at the bow are of comparable size to the tug's tow gear. In addition, the insurance wire leads from the bow tow pad down the starboard side of the barge, to the stern, and is held in place with stainless steel clips.
Contract of Private Carriage
K. Mooring Equipment
Barge is equipped with appropriate mooring bitts and sufficient forward winch/capstan and winch/capstan-drum capacity to lift the mooring hawser and chafe chain of the Tesoro Hawaii SPM. The forward winch/capstan is rigged to be capable of lifting the barge chain tow bridles clear of the water when necessary.
L. Doors
Doors may be fabricated or purchased. They shall be weather tight or watertight. Watertight dogged doors shall be provided with two dog wrenches. Stowage shall be provided on each side of the door. Doors shall be fitted with suitable hold open devices and hasps for padlocks. Hold open devices shall be arranged with suitable hooks and eyes for securing so paint will not be worn by motion of the vessel.
M. Hose Handling Crane
Hose handling crane shall be installed as shown in the plans. The crane is to be pedestal mount, rotating, and hydraulically operated. Hydraulic power is to be furnished by a hydraulic pump driven by the generator drive engine. The crane is to be rated for a Safe Working Load of 1,000 pounds at 65 feet reach and 2000 pounds from 5 to 45 feet reach. The crane is to be operated from control valves mounted on the crane pedestal.
N. Draft and Identification Marks
Draft marks, name, and hailing port are to be installed as raised metal figures cut from 1/4 inch plate welded all around to the hull. The official number is to be placed in the bow rake port side next to the access hatch and outlined with weld beads. Name letters are to be 12" high. Other letters and figures are to be 6" high. The state name is not to be abbreviated.
O. Workmanship and Clean-up
In addition to the general regulatory body requirements, the following good workmanship practices shall be followed:
1. Welding is to be performed in accordance with the A.B.S. Rules.
2. Welding procedures as approved by the American Bureau of Shipping shall be
furnished to the Owner's Representative.
3. Personnel welding qualifications shall be furnished to the Owner's
Representative. If unsatisfactory welding is performed, the Owner's
Representative may direct the Contractor to remove unqualified individuals
from working on the vessel.
4. Inspection of welds shall be carried out in accordance with A.B.S. Rules
for Ocean Tank Barge Grade A vessels. The Owner's Representative shall
designate locations for radiographic and other non-destructive tests.
5. All cuts shall be neat and fair. Where necessary, unfairness shall be weld
repaired and/or ground out.
6. Decks, bulkheads, shell plating and other place structures shall have
surfaces reasonably fair, without buckles, kinks, or other surface
irregularities.
7. All exposed edges such as around holes and edges of flange plates shall be
ground smooth and the corners broken in order to protect personnel from
injury and for the adherence of paint.
8. All external welds exposed to the weather shall be continuous and sealed.
9. All cut-outs shall be fair and smooth without gouges. "Rough" cut-outs
shall be built up with weld and ground smooth.
10. Structural connections shall be properly fit. The Builder shall make
allowances so that stiffeners and brackets on opposite sides of plates line
up. Improper fitting shall be cause for rejection. The Builder shall
correct any bad fit-ups.
Contract of Private Carriage
11. All temporary brackets, clips and other projections used for construction
shall be removed, flushed off, and ground smooth.
12. Any indentation or pits from removal shall be filled with weld metal and
ground smooth.
13. Any indentation or pits from removal shall be filled with weld metal and
ground smooth.
14. All welds shall have slag completely removed.
15. Prior to delivery, the Builder shall thoroughly clean the barge. All
Builder's equipment, staging, temporary lighting, hoses and other equipment
used in construction shall be removed. Particular attention shall be
directed to the cargo piping and cargo tank spaces. All debris and dirt
shall be completely removed. All metal pieces, weld rod ends, bolts and
other foreign materials shall be completely removed.
P. TESORO HAWAII OFFSHORE SINGLE POINT MOORING TERMINAL
Carrier warrants the following with respect to the Barge and its equipment and machinery employed under this Contract:
a. Barge is configured to moor stern-to-the-buoy with the hose connections at the starboard-side manifolds.
b. Mooring equipment: Barge winches are capable of heaving the end of the 76mm chafe chain on board and adjacent to the barge mooring connection in a safe and efficient method.
c. Mooring connection: Barge is capable of accepting OCIMF-standard tri-plate at the end of the mooring hawser/chafe chain assembly.
d. Hose handling equipment: Its located at the starboard side cargo manifolds. The Safe Working Load of the hose derrick, crane or A-frame is 5 tons. Manifolds and hose hang off points are capable of sustaining the weight of the standard 12 inch floating cargo hose.
e. The Barge is equipped with an ocean oil containment boom equal in length to twice the length of the barge and is capable of being deployed by available personnel and boats.
MACHINERY AND PIPING
A. Multiple Grades
Barge is equipped with cargo manifolds, pumps and piping sufficient to permit the loading and discharge of three different Cargo grades simultaneously.
B. Cargo Tanks
Barge has cargo tanks provided with suction wells (recessed into the double bottom), butterworth plates, ullage openings, b-valves for revenue gauging, and pressure/vacuum valves. Tank bottoms and tank outboard side bulkheads have their plate stiffeners located in the double hull void spaces.
C. Cargo Pumps
Five cargo pumps shall be installed. Each pump shall have a minimum rating of 2000 barrels per hour at a discharge pressure of 125 psi. Pumps shall be vertical, centrifugal deep-well type with right angle drive capable of stripping. Pumps shall be Bryon-Jackson with mechanical seals and special Graphalloy bearings. Pump cans shall be fitted with nozzles for a relief valve discharge connection (6").
Contract of Private Carriage
D. Discharge Pumping Rates
a. No. 6 Industrial Fuel Oil: 4,000 barrels per hour (BPH) at 110 Degrees F.
b. No. 2 Diesel Fuel Oil: 4,000 BPH
c. Grade A cargoes: 2,000 BPH
d. Rail pressure: 125 psi at manifold
E. Generator Set Diesel Engines
Two generator sets shall be 80kw, driven by 170hp diesel engines as described on the plans. The engines shall be radiator cooled with features similar to the cargo pump engines with electric start by batteries.
F. Cargo Pump Diesel Engines
Each pump shall be driven by an industrial type radiator cooled diesel engine. A clutch shall be provided to disconnect the pump from the engine. The radiator shall be rated for an ambient temperature of 120 degrees Fahrenheit. The fan shall discharge the cooling air through the radiator away from the engine. Exhaust mufflers for spark arresting and noise reduction shall be installed. Pump drive engines shall be electric start by batteries. A primary fuel filter, sediment and water trap such as a Racor-dual element shall be installed in each engine fuel supply line in addition to the engine manufacturer's standard equipment. Pump engine controls shall be arranged for local control and for remote control (clutch and throttle controls) outside the machinery room in the weather on the forward deck house bulkhead. At the remote station, the only instrument required is a tachometer.
G. Emergency Shutdown
Barge is equipped to permit emergency shutdown of the pumping system from three locations on deck, situated such that no point on the barge deck is more than 75 feet from a shutdown.
H. Cargo Piping
The cargo piping shall be arranged as shown on the plans. Non-vortex forming bellmouths shall be installed at each cargo tank suction pipe. Valves inside the cargo tanks shall be fitted with remote operating reach rods and with valve stands located on deck. Reach rods and fittings shall be at least 1 1/2" in diameter. A pressure gage shall be installed at each pump discharge. A pressure/vacuum gage shall be installed in each pump suction. Valves and piping shall be in accordance with the regulatory body requirements. A cast steel relief valve shall be installed in each pump discharge. Adaptor fittings and blank flanges shall be furnished as shown on the plans. Hose storage racks shall be installed as shown on the plans. Hoses shall be rated for150 psi maximum working pressure and be suitable for suction vacuum conditions.
I. Manifolds
Barge is equipped with cargo manifolds, piping valves, hoses, cranes and other equipment sufficient to permit Cargo loading and/or discharge operations for each cargo on both port or starboard side.
J. Ballast
Barge is capable of ballasting water from designated ballast tanks located in the double bottom and wing tanks. A ballast pump is provided to ballast or de- ballast the Barge within ten hours.
Contract of Private Carriage
K. Vapor Control
Barge is equipped with ship-type vapor control system (barge-type is inadequate) suitable for eliminating potential overfill hazards, overpressure and vacuum hazards, and sources of ignition.
The vapor recovery and closed gauging system shall be installed as shown on the plans.
L. Heating
Barge is fitted with heating coils in all cargo tanks in which residual fuel oil type cargo, such as No. 6 Industrial Fuel Oil, is to be carried. The coils are supplied with heat by a diesel fired retort system of 5.0 million BTU's/hr capacity.
M. Electrical System
Barge has diesel generators of sufficient capacity to safely provide electrical power to all Barge equipment and machinery in any and all operations including full operation of pumps and other equipment necessary to loading/discharging of cargo with one generator out of service.
The electrical system shall be installed as shown on the plans. Two sets of batteries shall be installed to start the diesel engines. Each battery set shall consist of two heavy duty marine service batteries of at least 160 ampere- hours storage capacity for each battery. The battery banks shall be at least 24 volts and matched to the pump drive engine electrical system. A battery charger shall be installed to charge the pump engine starting batteries.
N. Hose Pressurization
Barge is fitted with compressed air equipment of sufficient capacity and piping to safely clear cargo hoses of retained Cargo after completion of Cargo operations.
O. Alarms
Barge is fitted with electronic and mechanical high level alarms (high and high- high) in all cargo tanks. Void spaces are fitted with bilge alarms with audible and visible signals to alert the tankermen or Tug crew.
P. Toilet Facilities
Barge has portable toilet facilities provided for use during loading and discharge operations. The portable facilities are capable of being properly secured so as to withstand boarding seas and inclement weather.
Q. Navigation Lights and Shapes
Navigation lights shall be installed as shown on the plans. A red barge loading light and a red loading flag shall be installed on a mast on top of the Tankerman's Shelter. The red loading light may be powered from the lighting system.
R. Oil Spill Abatement Equipment
Barge has oil spill abatement equipment and supplies including, but not be limited to, 1,500 feet of oil spill boom, boom deployment skiff, spare bridles and two lines anchor/buoy system, sweeps, sorbent sheets, transfer pumps, and skimmer. In addition, personal protective clothing and gear and other related emergency oil spill cleanup equipment consistent with the Vessel's oil spill response plan and all U.S. Coast Guard requirements are provided.
Contract of Private Carriage
S. Spares
Carrier will maintain spare parts in Hawaii to facilitate immediate repairs to major components necessary to the operation, loading and discharge of the Barge including cargo pumps, generators, retort, valves, compressors, ventilation fans, alarms, sensors, etc.
T. Anchoring System
The anchoring system is radio controlled for emergency release of the anchor by the tug. Anchor equipment meets the criteria for ABS Circle E.
PAINTING AND CORROSION PROTECTION
A. Sandblasting
All steel surfaces, including the interior of the liquid cargo tanks and void spaces, are to be sand blasted to "near white" metal finish as defined by the Steel Structures Painting Council (SSPC). Finish blasting shall be completed with dry air and grit to insure a moisture-free surface. Blasted surfaces shall be prime coated within the same work shift as the blasting is accomplished in order to prevent rusting.
B. Coatings
All tanks, voids and ballast compartments are coated with materials that are compatible with the cargoes carried. Zinc anodes are installed in ballast tanks.
All coatings will be supplied by the Builder. All surface preparation, temperature and humidity conditions, and applications of coating materials shall be in accordance with the coating manufacturer's recommendations. The Builder shall engage the services of a coating manufacturer's representative to provide technical assistance with the application and to inspect for conformance with the manufacturer's recommended practices. All surfaces will be inspected and approved by the coating manufacturer's representative before coating commences, between coats and after painting is completed. Satisfactory staging and lighting shall be provided for coating work and inspection. The coating manufacturer's representative shall submit a written report describing the surface preparation, coating types and finished dry film thicknesses. The coating manufacturer's warranty shall also be furnished to the Owner. Where dry film thickness (DFT) is specified, it shall have precedence over the number of coats specified. The film thickness readings shall be made with a General Electric, Elcometer, Microtest, or other approved gage in accordance with the manufacturer's instructions.
C. Touch-up Painting
The Builder shall "touch-up" all surfaces damaged during construction including equipment surfaces. Coatings shall match purchased equipment. When the barge is completed, all surfaces shall present a clean smooth appearance without blemishes. "Cut-in" paint boundaries shall be neat and sharp.
Contract of Private Carriage
EXHIBIT A-2
INTERIM BARGE SPECIFICATIONS
OWNER: Hawaiian InterIsland Towing, Inc.
NAME: NOHO HELE
TYPE: Fuel Barge
OFFICIAL NUMBER: 649 722
CALL SIGN: WTF 8117
DESIGNER/BUILDER: Marine Power Equipment
YEAR/LOCATION BUILT: 1982/Seattle
CLASSIFICATION: ABS + A1 Oil Barge
TONNAGE GROSS/NET: 4185
LOAD LINE: ABS
DIMENSIONS (L/B/B): 340' x 78' x 19'
NUMBER OF TANKS: 21
CAPACITY TOTAL: 30,400 No. 2 Diesel Fuel
37,080 No. 6 Industrial Fuel
LIGHT DRAFT: 5'
DEEP DRAFT: 16'
FUEL FOR PUMPS/GENERATOR: 10,096 Gallons
LUBES FOR PUMPS/GENERATOR: 110 Gallons
GENERATORS: 2 x GM 4.71's 75 kw each
PUMPS: 2 x GM 8V.71's for Black
3 x GM 6.71's for Diesel
OIL SPILL RESPONSE EQUIPMENT: Yes
CRANE/BOOM: 2 Ton CRANE/A Frame
ADDITIONAL EQUIPMENT: Container with Pollution Response Equipment
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Contract of Private Carriage Page 65 of 77 |
EXHIBIT B
TUG REQUIREMENTS
The following are warranted by Carrier with respect to the Tug and its equipment and machinery employed under this Contract.
Any Tug used in service to Shipper shall be equipped with a twin engine, twin-screw, twin rudder configuration or equivalent acceptable to Shipper. The Tug shall have sufficient engine power to control the Barge in all wind, weather, sea and emergency conditions likely to be encountered while providing the service required by the Contract, and as otherwise required pursuant to Carrier's overriding responsibility for the seaworthiness and safety of all Vessels, equipment and operations consistent with the best marine practices available.
All propulsion equipment shall be inspected to ensure it is within manufacturer's recommended tolerances, and maintenance records are to be available to ensure that proper PMS has been performed. A Dychem contact test is to be conducted on reduction gears, clutches and bearings to determine if wear is within manufacturer's recommended tolerances.
An overhaul shall be conducted on the main propulsion engines of the Tug prior to tendering for delivery to Shipper pursuant to the Contract if over 50 percent of the engine hours (based on manufacturer's recommendation for periods between overhauls) have been exhausted since the last overhaul period.
Any Tug used in service to Shipper shall be provided with vital system redundancy. All key systems shall be constructed such that complete redundancy is provided for main propulsion, engine controls, steerage and controls, electrical power, fuel oil supply, bilge and fire pumps and communications (VHF, SSB radios).
Contract of Private Carriage
The tug shall be fitted with a house top fire and foam pilothouse controlled monitor for use in fighting fires on the barge. It shall be capable of discharging sea water or 3% AFFF foam at a rate of 375 GPM with 100 PSI minimum pressure at the nozzle. The pump and monitor shall be permanently installed and shall be capable of immediate operation. Provide seachest, piping, foam proportioner, valves, controls and components as necessary for a complete operating system. The pump may be engine or electric motor driven. If main propulsion engine driven it shall be capable of operating the pump at rated speed regardless of propeller RPM and thrust. The foam storage tank shall hold sufficient foam concentration to provide a 30 minute discharge of 3% concentration.
Any Tug used in service to Shipper shall be equipped with appropriate VHF and SSB communication equipment, cellular telephone, facsimile, and e-mail capabilities. In addition the Tug shall be equipped with two radars, fathometer, Global Positioning System receiver or equivalent position finding equipment, weather facsimile, magnetic and gyro compass, EPIRB, whistle, bell, rudder angle indicator, searchlight, autopilot, windshield wipers, navigation lights and public address system.
Any Tug used in service to Shipper shall be equipped with an Orville Hook.
The Tug shall have such systems as may be necessary to activate or utilize the Barge Anchoring System identified in Exhibit A, hereto.
Any Tug used in service to Shipper shall have spare parts in Hawaii to allow immediate repair of key components including, but not limited to, main engine block, heads, crankshaft, pistons, liners, pumps, blowers, reduction gears, propellers and propeller shafts.
Any Tug used in service to Shipper shall carry the following: Coast Pilot, Tide & Current Tables, charts, including Hawaiian Island coastal charts (full set) and large-scale charts for all harbors in Hawaii which are capable of accommodating the Tug and Barge, current Notices to Mariners, and Light List.
Contract of Private Carriage
Applicable Laws of the United States for a Vessel of U.S. Registry
U.S. Coast Guard Stability Letter which evidences compliance with regulations
American Bureau of Shipping Rules for Building and Classing Steel Vessels Under 90 meters (295 feet) in Length, A1 Towing, AMS Domestic Service
International Load Line Certificate
AWO - Responsible Carrier Program, ISO 9000 and ISO 14000 (or standards
which supersede them)
IEEE Std. No. 45, Recommended Practice for Electrical Installations on Shipboard and International Electro Technical Commission (IEC)
Any Tug used in service to Shipper shall be provided with a towing winch capable of towing the Barge under severe weather conditions. The towing winch shall be the double drum type with wire of suitable dimensions for towing the Barge on both drums at all times. Towlines shall have a closed socket at the end, and shall be of appropriate length consistent with Carrier's overriding responsibility for the seaworthiness and safety of all Vessels, equipment and operations consistent with the best marine practices available.
Any Tug used in service to Shipper shall be provided with diesel generators of sufficient capacity to safely provide electrical power to all Tug equipment and machinery in any and all operations, including full operation of pumps and other equipment with one generator out of service.
Diesel engines are to be inspected to ensure that all components are within manufacturer's tolerances; maintenance records are to be available for confirmation of PMS.
An overhaul shall be conducted on the generator engines of the Tug prior to tendering for delivery to Shipper pursuant to the Contract if over 50 percent of the engine hours (based on manufacturer's recommendation for periods between overhauls) have been exhausted since the last overhaul period.
Contract of Private Carriage
Any Tug used in service to Shipper shall be fitted with adequate fendering to ensure the Barge side shell is sufficiently protected.
Any Tug used in service to Shipper shall undergo a condition survey prior
to final acceptance to ensure safe operability of the Tug. Carrier shall,
at its expense and at the inception of the Contract term and each thirty
(30) months thereafter, provide Shipper with a condition survey of the Tug
which states that the Tug is in conformity with Contract requirements and
is otherwise safe and suitable for the intended operation.
Contract of Private Carriage
EXHIBIT B-1
TUG SPECIFICATIONS
OWNER: Hawaiian InterIsland Towing, Inc.
NAME: NIOLO
TYPE: Tow Boat/Salvage
OFFICIAL NUMBER: 653 612
CALL SIGN: WAM 2519
DESIGNER/BUILDER: Swift Ships
YEAR/LOCATION BUILT: 1982/Mississippi
CLASSIFICATION: ABS - A1 Towing
LOAD LINE: ABS
TONNAGE GROSS/NET: 99/67
DIMENSIONS (L/B/D): 117' x 34' x 17'
ENGINE/NUMBER/MODEL: EMD 2 x 16V 645 E Diesel
HORSEPOWER EACH/COMBINE: 1950 HP each: 3900 HP
BOLLARD PULL: 45 Tons
FUEL: 117,000 Gallons
SPEED: 12 Knots
RANGE: 7500 Miles
TOWING WINCH: Markey TDS-032 Double Drum
TOWING WIRE: (2) 2" x 2,000'
BOW WINCH: Yes
ACCOMMODATIONS: 5 x Staterooms = 10 Berths
ELECTRONICS: 2 x SSB - 2 x VHF - 2 x Radars -GPS
SAT NAV - Fathometer - Autopilot -
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Contract of Private Carriage Page 70 of 77 |
EXHIBIT C
MINIMUM REQUIREMENTS FOR BARGES CALLING AT
TESORO HAWAII OFFSHORE SINGLE POINT MOORING TERMINAL
The following are warranted by Carrier with respect to outfitting of any Tug and any Barge and their respective equipment and machinery employed under this Contract:
A. The Tesoro Hawaii Single Point Mooring and sea berth terminal facility offshore Barbers Point (hereinafter "SPM terminal") specifies that any barge must be configured to moor stern-to-the-buoy with the hose connections at the starboard-side manifolds. Bow-to mooring will only be accepted on a case by case basis with appropriate modifications to the barge layout and procedures as determined by the SPM terminal operator.
B. Mooring equipment: winches must be capable of heaving the end of the 76mm chafe chain on board and adjacent to the barge mooring connection in a safe and efficient method acceptable to the SPM terminal operator.
C. Mooring connection: The Vessel must be capable of accepting OCIMF-standard tri-plate at the end of the mooring hawser/chafe chain assembly. The Vessel must have appropriately positioned bitts for the snotter connection, Smit-type towing bracket or other suitable approved connection acceptable to the SPM terminal operator.
D. Hose handling equipment: It shall be located at the starboard side cargo manifolds. The Safe Working Load of the hose derrick, crane or A-frame shall be 5 tons. Manifolds and hose hang off points must be capable of sustaining the weight of the standard 12 inch floating cargo hose in the opinion of the SPM terminal operator.
E. A suitable mooring assist/stand-by boat must attend the Vessel at all times when approaching, when moored and when departing the SPM terminal.
F. The towing Tug shall at all times maintain a steady pull on the Barge in order to maximize the available distance from the SPM buoy. Common procedure is for the Barge to moor stern to the buoy with the towing Tug always engaged with the tow wire.
Contract of Private Carriage
G. The Barge shall be prohibited from mooring by the sole use of the mooring hawser pick up line. A mooring connection utilizing the chafe chain shall always be required.
H. A minimum of two (2) qualified tankermen shall be required to attend the Vessel during all oil transfer operations at the SPM terminal.
I. Carrier or the Barge operator shall take full responsibility in responding to any spill originating from the Vessel. The Barge shall be equipped with an ocean oil containment boom equal in length to twice the length of the Barge and which shall be capable of being deployed by available personnel and boats.
J. The Vessel, Master, officers, crew, tankermen and Carrier shall operate in compliance with any and all laws, rules, regulations and required procedures as set forth in the Tesoro SPM terminal Operations Manual as submitted to the USCG and in compliance with an USCG approved oil spill contingency plan.
K. Deviations, if any, from the preceding requirements must be expressly granted by the Tesoro SPM terminal operator.
Contract of Private Carriage
EXHIBIT D
MANNING REQUIREMENTS
The following are warranted by Carrier with respect to the Vessel's Master, officers, crew and tankermen employed under this Contract.
All operating personnel including Vessel's Master, officers and crew and tankermen and the immediate supervisors of the foregoing, are to receive training and exhibit proficiency in such areas as including, but not limited to, mandatory compliance with the various federal and State laws concerning safety and hazardous materials (OSHA, USCG, Hawaii DOH, Hawaii DOT), oil transfer procedures, fire fighting, oil spill prevention, oil spill contingency planning, oil spill response and other emergency operations and such proficiency and state of readiness shall be assessed through a program of continuous planning review, periodic exercises and drills.
The Master, officers and crew of any Tug providing service to Shipper shall have the appropriate licenses and endorsements, have received the appropriate experience and training for the seas, ports cargo and size and capability of the equipment employed in the performance of this Contract.
In addition, such personnel are to continue to receive whatever further training and experience is required to ensure that towing operations are conducted in a safe, efficient and professional manner consistent with the highest standards in the industry.
Inasmuch as the Master shall be held responsible for the quality of overall voyage operations, management and safety, it is a requirement that he have the appropriate USCG license and endorsement.
The Master shall be appropriately qualified by education at a college level or at an accredited maritime academy and/or by the equivalent progressive experience in navigation, pilotage, engine room operations, vessel classes, making/breaking tow, barge mooring, cargo transfer operations and safety procedures and shall have experience and/or the appropriate formal training in such areas as hazardous materials operations, fire fighting, oil spill clean-up and mitigation and other situations requiring emergency response.
Contract of Private Carriage
Carrier agrees and understands that a Master appointed to any Tug used in service to Shipper under this Contract shall have demonstrated reliability, leadership, crew management ability and evidence the very highest regard for the safety of Vessel and its crew, Cargo and the environment.
The Master of the Tug and at least one of the tankermen assigned to the Barge shall have completed a course of instruction in the Incident Command Systems conducted by the U.S. Coast Guard or other governmental agency. All personnel assigned to the Tug and Barge shall have completed a course in HAZWOPER instruction.
Shipper may at any time require an audit of Carrier's compliance with this Contract and the policies and procedures required for the certification under the AWO Responsible Carrier Program, ISO 9000 and ISO 14000 (or standards which supersede them).
The operators of the Barge providing service to Shipper shall have the appropriate certificates and endorsements, have received the appropriate experience and training for the seas, ports cargo and size and capability of the equipment employed in the performance of this Contract.
In addition, such personnel are to continue to receive whatever further training and experience is required to ensure that towing operations are conducted in a safe, efficient and professional manner consistent with the highest standards in the industry. All tankermen assigned to the Barge shall be fully certificated by the U.S. Coast Guard and qualified for service aboard the Barge.
Tankermen are to receive (as a minimum) training in the following subjects every 2 years or less:
Company Policies and Procedures;
First Aid;
CPR;
Confined Space Hazard Awareness;
Injury prevention;
Lock out/tag and procedures;
HAZWOPER;
Cargo knowledge / hazards;
Federal and State regulations;
Marine firefighting; and
First Responder / spill mitigation.
Contract of Private Carriage
The following drills are to be conducted annually in conjunction with terminal personnel, USCG, spill cleanup firms and harbor authorities (as appropriate):
Fire drill (each load port);
Oil spill (each load port); and
Personal injury.
The Master of the Tug and at least one of the tankermen assigned to the Barge shall have completed a course of instruction in the Incident Command Systems conducted by the U.S. Coast Guard or other governmental agency. All personnel assigned to the Tug and Barge shall have completed a course in HAZWOPER instruction.
Shipper may at any time require an audit of Carrier's compliance with this Contract and the policies and procedures required for the certification under the AWO Responsible Carrier Program, ISO 9000 and ISO 14000 (or standards which supersede them).
The Shipper may reject the assigned Master and/or the Lead Tankerman for cause, upon 3 days notice to the Carrier.
Contract of Private Carriage
EXHIBIT E
NO. 2 DIESEL OIL CHARACTERISTICS
The No. 2 Diesel Oil to be transported hereunder shall have the following approximate characteristics:
-------------------------------------------------------------------------------------------------
Specification Test
-------------------------------------------------------------------------------------------------
Item Units Limits Method
-------------------------------------------------------------------------------------------------
Gravity @ Degrees API 30.0 Min. D1298, or
60 deg. F. Specific Gravity .88 Max. D4052-86
-------------------------------------------------------------------------------------------------
Viscosity @ SSU 32.6-40.1 D445, or
100 deg. F. D2161
-------------------------------------------------------------------------------------------------
Pour Point Degrees F. 35 Max. D-97
-------------------------------------------------------------------------------------------------
Flash Point, PM Degrees F. 150 Min. D93
-------------------------------------------------------------------------------------------------
Ash PPM, Wt. 100 Max. D482
-------------------------------------------------------------------------------------------------
Cetane Index 40 Min. D976
-------------------------------------------------------------------------------------------------
Carbon Residue, 10% %, Wt. 0.35 Max. D524
Residuum
-------------------------------------------------------------------------------------------------
Sediment & Water %, Vol. 0.05 Max. D1796
-------------------------------------------------------------------------------------------------
Sulfur %, Wt. 0.40 Max. D1552, D2622, or D4294
-------------------------------------------------------------------------------------------------
Distillation, 90% Degrees F. 540-640 D86
Recovered
-------------------------------------------------------------------------------------------------
Sodium + Potassium PPM, Wt. 0.5 Max D-3605
-------------------------------------------------------------------------------------------------
Nitrogen PPM, Wt. Report D-4629
-------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------
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Contract of Private Carriage
EXHIBIT F
NO. 6 FUEL OIL CHARACTERISTICS
The No. 6 Fuel Oil to be transported hereunder shall have the following approximate characteristics:
------------------------------------------------------------------------------------------------- Specification Test ------------------------------------------------------------------------------------------------- Item Units Limits Method ------------------------------------------------------------------------------------------------- Gravity @ Degrees API 6.5 Min. D1298, or 60 deg. F. D4052-86 ------------------------------------------------------------------------------------------------- Viscosity @ SSU 179 Min. D445, or 122 deg. F. 226 Max. D2161 ------------------------------------------------------------------------------------------------- Pour Point Degrees F. 55 Max. D-97 ------------------------------------------------------------------------------------------------- Flash Point, PM Degrees F. 150 Min. D93 ------------------------------------------------------------------------------------------------- BS & W %, Vol 0.5 Max. D1796 ------------------------------------------------------------------------------------------------- Sulfur %, Wt. 2.00 Max. D1552, D2622, or D4294 ------------------------------------------------------------------------------------------------- |
Contract of Private Carriage
EXHIBIT G
PORTS OF CALL
LOADING PORTS:
1. Honolulu Harbor, Pier 30
2. Barber's Point Harbor, Pier 5 or 6
3. Tesoro SPM
DISCHARGING PORTS:
1. Maui: Kahului Harbor
2. Molokai: Kaunakakai Harbor
HAWAIIAN ELECTRIC INDUSTRIES
RETIREMENT SAVINGS PLAN
Effective January 1, 1998
TABLE OF CONTENTS
-----------------
Page
----
INTRODUCTION ............................................................ 1
ARTICLE I PARTICIPATION ................................................ 2
1.1 Eligibility to Participate................................... 2
1.2 Employment Rules............................................. 3
1.3 Duration of Participation.................................... 3
ARTICLE II CONTRIBUTIONS ............................................... 4
2.1 Salary Reduction Contributions............................... 4
2.2 Bonus CODA................................................... 4
2.3 HEIDI Contributions.......................................... 4
2.4 Rollover Contributions....................................... 5
2.5 Rights of Returning Veterans................................. 6
ARTICLE III LIMITATIONS ON CONTRIBUTIONS ............................... 7
3.1 Section 401(k) Nondiscrimination Rules....................... 7
3.2 Maximum Contributions........................................ 9
ARTICLE IV ACCOUNTING AND INVESTMENTS .................................. 12
4.1 Assets To Be Held by Trustee................................. 12
4.2 Accounting................................................... 12
4.3 Investment of Accounts....................................... 13
ARTICLE V VESTING AND FORFEITURES ...................................... 18
5.1 Vesting...................................................... 18
5.2 Forfeitures.................................................. 21
ARTICLE VI PAYMENT OF VESTED BENEFITS .................................. 23
6.1 Commencement of Benefits..................................... 23
6.2 Form of Benefits............................................. 24
6.3 Death Benefits............................................... 24
6.4 In-Service Distributions..................................... 25
6.5 Installment Option for HEISOP Subaccounts.................... 26
6.6 Qualified Domestic Relations Orders.......................... 26
6.7 Eligible Rollover Distributions.............................. 27
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ARTICLE VII PLAN ADMINISTRATION......................................... 29
7.1 The PIC and Administrative Committee......................... 29
7.2 Trust Agreement.............................................. 30
7.3 Bonding...................................................... 30
7.4 Indemnification.............................................. 30
7.5 Plan Available to Participants............................... 31
7.6 Claims Procedures............................................ 31
ARTICLE VIII AMENDMENT, TERMINATION, AND MERGER......................... 32
8.1 Amendment.................................................... 32
8.2 Termination or Discontinuance................................ 32
8.3 Merger....................................................... 32
ARTICLE IX MISCELLANEOUS................................................ 34
9.1 No Right to Employment....................................... 34
9.2 Inalienability............................................... 34
9.3 Facility of Payment.......................................... 34
9.4 Construction of Plan......................................... 34
9.5 Benefits Payable From Trust.................................. 35
ARTICLE X DEFINITIONS.................................................. 36
ARTICLE XI TOP-HEAVY RULES.............................................. 41
11.1 Determination of Top-Heavy Status............................ 41
11.2 Special Top-Heavy Rules...................................... 43
11.3 Miscellaneous................................................ 44
ARTICLE XII EXECUTION.................................................... 45
APPENDIX A PRIOR FORMS OF BENEFIT....................................... 46
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Hawaiian Electric Industries, Inc. ("HEI") established the Hawaiian Electric Industries Retirement Savings Plan (the "HEIRS Plan") April 1, 1984, to enable the eligible employees of HEI and its participating subsidiaries to save for retirement on a tax-deferred basis. The HEIRS Plan document was last restated effective January 1, 1994, and the Internal Revenue Service issued a favorable determination letter with respect to the Plan on June 21, 1995. This restatement is effective January 1, 1998, except as otherwise provided herein.
A participant's benefits and rights under the HEIRS Plan shall be determined in accordance with the terms of the HEIRS Plan in effect on the date the participant terminates employment and shall not be affected by any subsequent amendment to the HEIRS Plan, unless, and only to the extent, specifically provided for in such amendment or otherwise required by law.
The HEIRS Plan is intended to be qualified under Sections 401(a) and 401(k) of the Internal Revenue Code.
Capitalized terms used in this document are defined in Article X.
Every Employee who was a Participant in the Plan on December 31, 1997, shall continue as a Participant under this restated Plan. Every other Employee other than a Leased Employee, an Employee employed on a contract basis, or an Employee in a collective bargaining unit that bargained in good faith for other or no retirement benefits is an Eligible Employee and may become a Participant after meeting the requirements set forth in this Section 1.1.
A Participant may amend or revoke a salary reduction election for any reason, such changes to take effect prospectively. If a Participant voluntarily terminates a salary reduction election, the Participant may resume salary reduction by completing a new election form and submitting it to his or her Participating Employer. A Participating Employer, the PIC, or the Administrative Committee may also revoke or amend a salary reduction election to prevent a Participant from exceeding one of the maximum limitations described in Article III. The
Administrative Committee may adopt and modify rules and procedures for salary reduction elections.
If a Participant separates from service with the Participating Employers and returns to employment as an Eligible Employee, such Participant shall be eligible to recommence active participation in the Plan immediately.
If an Eligible Employee incurs a One-Year Break in Service before meeting the requirements for participation in Sections 1.1(a) or 1.1(b), such Eligible Employee shall be treated as a new Eligible Employee upon return to service.
If an Employee becomes an Eligible Employee after he or she has commenced
working for a Participating Employer, the one-year service requirement in
Section 1.1(a) shall be treated as having begun on the Employee's first day of
work for the Participating Employer.
Once an Eligible Employee becomes a Participant, he or she shall remain a Participant until his or her entire vested Account balance is distributed or deemed distributed because of Retirement, Disability, death, or other separation from service.
Each Participating Employer shall make salary reduction contributions in accordance with the salary reduction elections of its Eligible Employees. An Eligible Employee may elect salary reduction contributions of 1% - 20% of his or her annual Compensation. Salary reduction contributions may be further limited in accordance with the Code limitations described in Article III.
Except as permitted under Section 2510.3-102 of the Department of Labor Regulations, salary reduction contributions shall be deposited with the Trustee no later than the fifteenth (15th) business day of the month following the month in which such amounts would have been paid to the Eligible Employee in cash but for the Eligible Employee's salary reduction election.
If a salary reduction contribution is made because of a mistake of fact, the contribution may be returned within one year after the contribution is made. The amount that may be returned is the amount contributed over the amount that would have been contributed had no mistake of fact occurred. Earnings on mistaken contributions may not be returned, but losses attributable thereto reduce the amount returned.
Beginning in the year 2000, Eligible Employees of American Savings Bank, F.S.B.
and its subsidiaries (collectively, the "Bank") may become eligible for a Merit
Performance Bonus (the "MP Bonus") if certain goals of the Bank are met in the
preceding year. Prior to the date an MP Bonus is payable, any Eligible Employee
of the Bank may elect to defer as a salary reduction contribution some part or
all (not less than 10%) of the MP Bonus that he or she would otherwise be
entitled to receive in cash. Any MP Bonus deferred as a salary reduction
contribution will be in addition to any salary reduction contribution made under
Section 2.1 and will not be subject to the 20% limitation expressed therein.
Any MP Bonus deferred will be treated as a salary reduction contribution,
subject to applicable Code limitations, in the year the MP Bonus would otherwise
be payable in cash.
For each Plan Year, each HEIDI Employer may determine and make a nonelective HEIDI contribution, which will be allocated among the eligible HEIDI Participants in accordance with the rules in this Section 2.3. Currently, the HEIDI Employers are committed to a contribution equal to six percent (6%) of the HEIDI Compensation the eligible HEIDI Participant earned from the HEIDI Employer during the Plan Year.
Each HEIDI Employer shall pay its HEIDI contribution to the Trustee prior to the due date, including extensions thereof, for filing the HEIDI Employer's tax return for the taxable year with
respect to which the contribution is made. Each HEIDI Employer makes each HEIDI contribution on the condition that it is deductible under Section 404 of the Code. If the deduction for any HEIDI contribution is disallowed under Section 404, such contribution, to the extent disallowed, may be returned to the HEIDI Employer within one year after the disallowance. Likewise, if a HEIDI Employer makes a HEIDI contribution based on a mistake of fact, such contribution may be returned to the Employer within one year after the contribution is made. The amount that may be returned is the amount contributed over the amount that would have been contributed had no mistake of fact occurred. Earnings on mistaken contributions or contributions for which a deduction has been disallowed may not be returned, but losses attributable thereto reduce the amount returned.
A HEIDI Participant is eligible to share in the HEIDI contribution for a Plan Year if the HEIDI Participant (1) is employed by the HEIDI Employer on the last day of the Plan Year, (2) transferred employment during the year to another Participating Employer and remains employed by such other Participating Employer on the last day of the Plan Year, or (3) terminated employment because of Retirement, death or Disability. A HEIDI Participant who is on approved leave of absence on the last day of the Plan Year, such as maternity or paternity leave, shall be treated as employed on such date by his or her HEIDI Employer.
Notwithstanding the preceding paragraph, for the 2000 Plan Year, HEI Power Corp. shall make a HEIDI contribution for a Highly Compensated Employee only if the Highly Compensated Employee terminated employment during 2000 because of retirement, death, or disability under the terms of the Plan in effect prior to this restatement or transferred employment to another Participating Employer before receiving notice of this change in eligibility for Highly Compensated Employees and remained employed at such other Participating Employer on December 31, 2000. For the 2001 Plan Year, HEI Power Corp. shall not make a HEIDI contribution for any Highly Compensated Employee.
Each HEIDI Employer's HEIDI contribution shall be allocated among the Accounts of its respective eligible HEIDI Participants, so that each such HEIDI Participant shall receive an allocation equal to the same percentage of his or her HEIDI Compensation as every other eligible HEIDI Participant employed by the same HEIDI Employer for the year. Except for HEIDI Participants returning from military leave who are entitled to USERRA contributions under Section 2.5, no HEIDI Participant shall be credited while on leave of absence with deemed HEIDI Compensation for purposes of calculating the HEIDI contribution.
Effective December 12, 1994, if a Participant returns to employment with a Participating Employer following a "military leave of absence," the Participant shall be eligible to have his or her military leave of absence counted as employment with the Participating Employer for purposes of salary reduction contributions and HEIDI contributions. The Administrative Committee has established written procedures to meet the requirements of the Uniformed Services Employment and Reemployment Rights Act of 1994 ("USERRA"). These procedures establish rules permitting reemployed veterans to makeup salary reduction contributions upon their return to employment with a Participating Employer and granting makeup HEIDI contributions for returning HEIDI participants. The USERRA procedures are incorporated herein by this reference and may be amended at any time without notice and without further amendment to this document.
(1) The ADP for the current Plan Year for the group of Eligible Employees who are HCEs is not more than the ADP in the previous Plan Year for the group of Eligible Employees who were NHCEs in the previous Plan Year multiplied by 1.25 [HCE ADP less than or equal to (NHCE ADP x 1.25)], or
(1) The ADP for a specified group of Eligible Employees for a Plan Year means the average of the ratios (calculated separately for each Eligible Employee in such group) of (i) the amount of the salary reduction contributions actually paid to the Plan on behalf of each such Eligible Employee for such Plan Year to (ii) such Eligible Employee's ADP Compensation for such Plan Year. The ADP of an Eligible Employee who is eligible to but does not elect to have salary reduction contributions made on his or her behalf for a Plan Year shall be zero.
(2) The ADP for any Eligible Employee who is an HCE for the Plan Year and who is eligible to have contributions allocated to his Account under two or more arrangements described in Section 401(k) of the Code that are maintained by a Participating Employer shall be determined as if such contributions were made under a single arrangement.
(3) In calculating the ADP for the group of NHCEs in the previous Plan Year, an Eligible Employee's status as an NHCE shall be determined using the definition of Highly Compensated Employee in effect for the previous Plan Year.
The provisions of Section 401(k)(3) of the Code and Section 1.401(k)-1(b) of the Treasury Regulations, as modified by the Small Business Job Protection Act of 1996, are incorporated in the Plan by this reference.
(1) If the Plan does not satisfy either of the ADP tests for a Plan
Year, the dollar amount of excess contributions for each affected HCE shall be
calculated in a manner consistent with Section 401(k)(8)(B) of the Code and
Section 1.401(k)-l(f)(2) of the Treasury Regulations, which states that the
amount of excess contributions for an HCE is the amount by which such HCE's
elective contributions must be reduced for the HCE's actual deferral ratio to
equal the highest permitted actual deferral ratio for the year.
(2) The excess contributions determined in step (1) shall be totaled and then distributed in accordance with steps (3) and (4).
(3) The elective contributions of the HCE with the highest dollar amount of elective contributions shall be reduced by the amount required to cause that HCE's elective contributions to equal the dollar amount of the elective contributions of the HCE with the next highest dollar amount of elective contributions. This amount shall then be distributed to the HCE. However, if a lesser reduction, when added to the total dollar amount already distributed under this step, would equal the total excess contributions for the group, the lesser reduction amount shall be distributed.
(4) If the amount distributed under the preceding paragraph is less than the total excess contributions, the steps in the preceding paragraph are repeated until the total excess contributions have been distributed. After the total excess contributions have been distributed, the ADP test is deemed to be satisfied, regardless of whether, if recalculated after the distributions, the ADP test would actually be satisfied.
(5) Any excess contributions shall be distributed no later than the last day of the Plan Year following the Plan Year in which the excess contributions were made. To avoid the 10% excise tax under Section 4979 of the Code, the Administrative Committee may cause such distributions to be made within the first 2-1/2 months of such Plan Year.
(6) The excess contribution to be so distributed shall be adjusted for income or loss, which shall be determined by multiplying the income or loss allocable to the HCE's salary reduction contributions for the Plan Year by a fraction, the numerator of which is the amount of the excess contribution on behalf of the HCE for the Plan Year and the denominator of which is the sum of the HCE's Account balance attributable to salary reduction contributions as of the beginning of the Plan Year plus the HCE's salary reduction contributions for the Plan Year. No adjustment shall be made for the gap period between the end of the Plan Year in which the excess contributions were made and the time when the excess contributions are distributed.
This limitation applies to the Participant and is based not only on salary reduction contributions to this Plan but also on "elective deferrals" to any other qualified retirement plan, including plans of other employers. "Elective deferrals" are contributions made to employer-sponsored, qualified retirement plans pursuant to salary reduction agreements and include salary reduction contributions, 401(k) and 403(b) annuity contributions to plans of other employers, and elective contributions to SIMPLE plans. Since neither the Participating Employers, the PIC, nor the Administrative Committee has knowledge of a Participant's elective deferrals in qualified retirement plans of other employers, it is the Participant's responsibility to monitor this limitation with respect to all elective deferrals. If a Participant's elective deferrals for a Plan Year are in excess of the 402(g) limit, the Participant must choose which plan to allocate the excess to. If the Participant chooses this Plan to allocate some or all of the excess to, the Participant must so notify the Administrative Committee no later than March 1 of the year following the year in which the excess occurred. The Participant's notice to the Administrative Committee must (i) be in writing, (ii) specify the amount of such excess for the preceding year allocated to the Plan, and (iii) be accompanied by the Participant's written statement to the effect that if such amounts are not distributed, such excess (when added to amounts deferred under other qualified retirement plans or arrangements) would exceed the limit imposed on the Participant by Section 402(g) of the Code for the year in which the contribution occurred. A Participant shall be deemed to have provided the foregoing notice to the Administrative Committee if the Participant's deferrals have exceeded the 402(g) limit taking into account only deferrals to this Plan and other plans sponsored by the Participating Employers or an Associated Company.
Any excess elective deferrals allocated to the Plan in accordance with the foregoing paragraph, plus any income and minus any loss allocable thereto, shall be distributed to the Participant no later than April 15 of the year following the year in which the excess occurred. Income or loss shall be determined by multiplying the income or loss allocable to the Participant's salary reduction contributions for the Plan Year by a fraction, the numerator of which is the amount of the excess deferrals under the Plan on behalf of the Participant for the Plan Year and the denominator of which is the sum of the Participant's Account balance attributable to salary reduction contributions as of the beginning of the Plan Year plus the Participant's salary reduction contributions for the Plan Year. No adjustment shall be made for the gap period between the end of the Plan Year in which the excess deferrals were made and the time when the excess deferrals are distributed.
of-living increases) or 25% of the Participant's 415 Compensation for the Plan Year. "Annual Additions" means the sum credited to a Participant's Account for a Plan Year of:
(1) all Employer contributions (HEIDI contributions and salary reduction contributions),
(2) all Employee contributions (none are currently allowed),
(3) forfeitures (there is no allocation of forfeitures under the Plan; any forfeiture of HEIDI contributions is used to reduce future HEIDI contributions), and
(4) with respect to "key employees" only, amounts contributed to a 401(h) account in a defined benefit plan or to a qualified asset account in a welfare benefit fund to provide postretirement medical benefits to or on behalf of the "key employee," except that the 25% limitation on Annual Additions shall not apply to any amounts treated as Annual Additions under this paragraph.
Assets transferred or rolled over from another qualified plan are not Annual Additions. Furthermore, the repayment of a Plan loan is not an Annual Addition. However, Annual Additions shall include salary reduction contributions for such Plan Year that are subsequently distributed to a Participant pursuant to this Article III, except to the extent of excess salary reduction contributions and earnings thereon refunded to the Participant by April 15 of the following Plan Year.
(1) In any case where a Participant is also a participant in any defined benefit plan maintained by a Participating Employer, the sum of the defined benefit plan fraction and the defined contribution plan fraction shall not (subject to the restrictions and exceptions contained in Section 415 of the Code) exceed 1.0 for any limitation year. Reduction of benefits or contributions or allocations to the plans, where required, shall be accomplished first by reducing the Participant's benefits under the defined benefit plans and then by reducing the contributions or allocations under the defined contribution plans. If the Participant participates in more than one defined benefit plan or more than one defined contribution plan maintained by a Participating Employer, reductions in each such category of plans shall be made first from the first such plan in which the Participant commenced participation and, if further reduction is required, from the second such plan in which the Participant commenced participation, and proceeding in such order until the 415(e) limitation is no longer exceeded.
(2) For purposes of this Section 3.2(c), the following terms shall have the following meanings:
(A) The term "defined benefit plan fraction" shall mean a fraction, the numerator of which is the projected annual benefit of the Participant determined as of the close
of the Plan Year and the denominator of which is the lesser of (i) the maximum
dollar limit of Section 415 of the Code for such Plan Year for a defined benefit
plan multiplied by 1.25, or (ii) the percentage of compensation limitation of
Section 415 of the Code for such Plan Year for a defined benefit plan multiplied
by 1.4.
(B) The term "defined contribution plan fraction" shall mean a fraction, the numerator of which is the Annual Additions to the Participant's Account for such Plan Year and the denominator of which is the lesser of (i) the maximum dollar limit of Section 415 of the Code for such Plan Year for a defined contribution plan multiplied by 1.25, or (ii) the percentage of compensation limitation of Section 415 of the Code for such Plan Year for a defined contribution plan multiplied by 1.4.
All contributions to the Plan shall be held and invested by the Trustee pursuant to the Trust Agreement and the rules set forth in this Article IV. There shall be no distinction between Accounts of Participants of different Participating Employers, except that if a Participating Employer withdraws from the Plan, the Accounts of affected Participants may be segregated and spun-off in accordance with the rules of Section 401(a)(12) and 414(l) of the Code.
The Trustee shall maintain accurate accounting of each Participant's interest in the Plan in accordance with the Trust Agreement.
. Salary Reduction . Participant Voluntary
. Rollover . HEI Diversified Plan
. Employer ASB . Employer Supplemental
. IRA . Voluntary HEISOP
. Employer HEISOP
The subaccounts may be changed by agreement between the PIC and the Trustee.
Account, and a quarterly loan servicing fee will be assessed for as long as the loan is outstanding. The current fee schedule is available from the Trustee.
February 1, 1996. Commencing January 1, 1999, a Participant with a HEISOP subaccount may diversify the investment of 100% of the units in the HEI Common Stock Fund credited to the Participant's HEISOP subaccount, and, thereafter, Participants with HEISOP subaccounts shall be solely responsible for the investment of their HEISOP subaccounts.
interest," as defined in Section 3(14) of ERISA. The loan program is administered by the Trustee in accordance with procedures approved by the Administrative Committee. The loan procedures are incorporated herein by this reference and may be amended at any time without notice and without further amendment to the Plan.
(A) $50,000, or
(B) 50% of the Participant's vested Account balance.
The $50,000 maximum shall be reduced by the excess (if any) of
(C) the highest outstanding balance of loans from the Plan during the one-year period ending on the date one day before the date on which the loan is made, minus
(D) the outstanding balance of loans from the Plan on the date the loan is made.
a Participant experiences an unforeseen or extraordinary situation that the Administrative Committee determines constitutes a "hardship". A Participant wishing to apply for a hardship loan must demonstrate to the satisfaction of the Administrative Committee that the Participant has an immediate and substantial financial need. Examples of situations that constitute "hardship" include (1) the purchase of a principal residence, (2) payment of medical expenses described in Section 213(d) of the Code incurred by the Participant, the Participant's spouse, children or other tax dependents, (3) payment of college tuition and related expenses for up to twelve months for the Participant, the Participant's spouse, children or other tax dependents, (4) payment of funeral expenses of a family member, or (5) payment to prevent eviction from the Participant's principal residence or foreclosure on the mortgage on the Participant's principal residence. Under no circumstances shall the Administrative Committee or the Trustee conduct the loan program in a manner which is more favorable to Participants who are HCEs than to other Participants.
(1) The Participant terminates employment for any reason without repaying the loan in full,
(2) While employed, the Participant falls more than three months behind on repayment of the loan, without repaying the unpaid balance,
(3) The Plan is terminated, or
(4) The Participant is involved as a debtor in a bankruptcy or insolvency proceeding brought by or against the Participant.
If there is a default, the following will occur:
(A) The principal amount of the loan plus interest accrued through the date of default will be a deemed distribution, subject to all applicable taxes. The Trustee will
issue Internal Revenue Service Form 1099-R to the Participant, reflecting the deemed distribution.
(B) Although the default will be a deemed distribution, the Trustee will not reduce the Participant's Account until a distributable event occurs under the terms of the Plan. The outstanding balance of the defaulted loan (including interest accruing after default) shall be considered outstanding in applying Section 4.3(f)(iii) to determine the maximum amount of any subsequent loan. Furthermore, the Administrative Committee shall balance the fact that the Participant is in default against the "hardship" demonstrated as the need for the second loan, and may deny a second loan based on the default.
Vesting determines the portion of the Participant's Account that he or she is entitled to receive when a distributable event occurs, such as Retirement or other separation from service. Any portion of a Participant's Account that is not vested upon separation from service shall be forfeited in accordance with the rules in Section 5.2.
Except as to HEIDI contributions and any investment earnings thereon, each Participant shall always be fully vested in his or her Account.
Years of Vesting Service Percentage
------------------------ ----------
Less than 2 0%
2 or more 100%
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If a former full-time HEIDI Participant is reemployed by a Participating Employer, vesting service shall be granted for the period of time beginning on the date such HEIDI Participant is reemployed and ending on the date such HEIDI Participant subsequently terminates employment with all the Participating Employers and Associated Companies. If such HEIDI Participant is reemployed within the 12-consecutive month period following the date on which the HEIDI Participant terminated employment, vesting service shall also be granted for the interim period.
If a full-time HEIDI Participant is absent from work for any period
(i) by reason of pregnancy, the birth of a child, or the placement of a child in
connection with such HEIDI Participant's adoption of the child or (ii) for
purposes of caring for such child for a period beginning immediately following
such birth or adoption, the full-time HEIDI Participant shall be credited with
additional vesting service equal to the lesser of such period or twelve months.
The severance from service date of a full-time HEIDI Participant who is absent
from work beyond the first anniversary of the first day of maternity or
paternity absence shall be the second anniversary of the first day of such
absence. The period between the first and second anniversaries shall not be
regarded as a period of service or a period of severance.
With respect to leaves of absence, vesting service shall be granted for:
(1) The period of time spent on military leave of absence. If a full-time HEIDI Participant on military leave of absence does not return to covered employment within five years after the completion of the military service, no additional vesting credit shall be granted for the period of military leave of absence.
(2) Personal leave of absence authorized by a Participating Employer that is not in excess of one year.
(3) A period of absence because of curtailment of work, not to exceed six months, provided the full-time HEIDI Participant returns to employment within two weeks after notification by a Participating Employer that work is available.
(4) Any other absence from active employment provided such absence is authorized by a Participating Employer.
Any full-time HEIDI Participant absent from active employment because of illness or injury will be treated the same as though such HEIDI Participant were actively employed so long as such HEIDI Participant receives Compensation from a Participating Employer prior to termination of employment.
In determining leaves of absence, a Participating Employer must act in a nondiscriminatory manner.
If a full-time HEIDI Participant incurs a One-Year Break in Service before becoming vested, vesting service granted prior to such One-Year Break in Service shall be disregarded after the continuous period of severance equals or exceeds five years.
If a full-time HEIDI Participant incurs five consecutive One-Year Breaks in Service, vesting service credited subsequent to such One-Year Breaks in Service shall be disregarded for purposes of determining the vesting percentage in HEIDI contributions before such One-Year Breaks in Service.
If a part-time HEIDI Participant incurs a One-Year Break in Service, which can occur even while the Participant remains employed by the Employer, the part-time HEIDI Participant's vested interest in HEIDI contributions and earnings thereon shall be affected as follows:
Following a One-Year Break in Service, a part-time HEIDI Participant's Years of Vesting Service prior to the break will not be taken into account in determining the Participant's vested interest in HEIDI contributions made after the break until such HEIDI Participant has again completed one Year of Vesting Service.
If a part-time HEIDI Participant incurs five consecutive One-Year Breaks in Service, such part-time HEIDI Participant's Years of Vesting Service after such five-year break shall not be taken into account for purposes of determining such part-time HEIDI Participant's vested interest in HEIDI contributions made prior to the break.
If a nonvested, part-time HEIDI Participant (a Participant with a 0% vested interest in HEIDI contributions and the earnings thereon) incurs a period of consecutive One-Year Breaks in Service equal to or exceeding five years, such HEIDI Participant's Years of Vesting Service prior to the break shall not count towards vesting credit in HEIDI contributions made after the break. Any Years of Vesting Service that are not required to be taken into account because of this subparagraph shall not be taken into account in applying this subparagraph to a subsequent break.
For part-time HEIDI Participants, a "One-Year Break in Service" means a calendar year during which the part-time HEIDI Participant does not complete more than 500 Hours of Service. If a Part-time HEIDI Participant is absent from work because of the pregnancy of the Participant or the Participant's spouse, the birth of the Participant's child, the adoption of a child by the Participant, or the care of a new child by birth or adoption, the Participant shall receive credit for up to 501 Hours of Service, which shall be counted under the Plan solely to determine whether a One-Year Break in Service has occurred. Hours of Service for maternity/paternity leave shall be credited at the normal rate of Hours worked by the Participant,
or, if there is no normal rate, at the rate of eight (8) Hours of Service per day of absence (up to 501 Hours). These Hours of Service shall be credited to the Plan Year in which the paternity/maternity absence begins if necessary to prevent a One-Year Break in Service in such Plan Year; otherwise, the Hours shall be credited to the immediately following Plan Year.
If a full-time HEIDI Participant transfers to part-time status, the full-time HEIDI Participant's vesting service shall consist of the number of Years of Vesting Service credited to such HEIDI Participant prior to the Plan Year in which the change in status occurred plus credit in the Plan Year in which the change in status occurred for a number of Hours of Service determined by crediting the HEIDI Participant with one hundred ninety (190) Hours of Service for any month in which the HEIDI Participant completed one Hour of Service as of the date the change of status occurred. After the change in status, the former full-time HEIDI Participant shall have his or her vesting service determined based on actual hours worked and in accordance with the rules for part-time HEIDI Participants set forth above.
be restored from current forfeitures or an additional HEIDI Employer contribution if a proper claim is later made for the Account. Any forfeitures restored under this paragraph shall be restored without adjustment for interest or any earnings or losses for the interim period.
A Participant with a vested Account balance may apply for and receive a distribution of his or her benefits upon separation from service. If a Participant's vested Account balance is $5,000 or less, the Participants vested Account balance will be distributed to the Participant in a single sum as soon as administratively feasible following separation from service. No consent of the Participant is required for this automatic cashout to be made. If a Participant's vested Account balance exceeds $5,000, no distribution may be made to the Participant before the Participant reaches Normal Retirement Age without the consent of the Participant.
Subject to a Participant completing the proper distribution forms, benefits must commence no later than the 60th day after the close of the Plan Year in which the latest of the following occurs:
(1) the Participant reaches Normal Retirement Age,
(2) the Participant reaches the tenth anniversary of the year in which the Participant commenced participation in the Plan,
(3) the Participant separates from service with the Employer, or
(4) the date specified in a written statement (signed by the Participant and provided to the Administrative Committee) in which the Participant elects to defer the payment of benefits.
Notwithstanding any provision of the Plan to the contrary, benefits shall be distributed in accordance with Section 401(a)(9) of the Code and accompanying regulations, including Proposed Treasury Regulations Section 1.401(a)(9)-2 which sets forth the requirements for incidental benefits, such as death benefits. A Participant who reached age 70 1/2 prior to January 1, 2000, had to begin receiving his or her benefits no later than April 1 following the calendar year in which the Participant reached age 70 1/2. This rule is retained for terminated, vested Participants and for any Participant who owns (directly or by attribution) more than 5% of the outstanding stock of the Company or stock possessing more than 5% of the total combined voting power of all the stock of the Company (either, a "5% owner"). Every Participant other than a 5% owner who reaches age 70 1/2 after December 31, 1999, while actively employed by a Participating Employer may elect (i) to commence receiving benefits on April 1 following the calendar year in which the Participant attains age 70 1/2 or (ii) to defer the commencement of benefits to a date no later than April 1 following the calendar year in which the Participant Retires. Any active Participant other than a 5% owner who reached age 70 1/2 before January 1, 2000, and has already begun receiving distributions may elect to stop distributions and recommence further distributions in the same form no later than April 1 following the calendar year in which such Participant Retires. The recommencement of distributions shall not constitute a new annuity starting date.
Effective as of the earlier of (i) the 90th day after a Participant receives a summary of material modifications describing the simplified form of benefits described in this Section 6.2 or (ii) January 1, 2002, the forms of benefit available to Participants and Beneficiaries are:
. a single sum (also known as a lump sum) payable as soon as administratively feasible following completion of all applicable distribution forms, and
. an installment option with respect to HEISOP subaccounts only, as described in Section 6.5.
Prior to the foregoing effective date, the Plan provided other forms of benefit, including a qualified joint and survivor annuity and a qualified preretirement survivor annuity. These forms of benefit and the transition rules with respect to them are described in Appendix A.
All distributions shall be in the form of cash, except that a Participant's investment in the HEI Common Stock Fund shall be converted to an equivalent number of shares of common stock of the Company. The normal form of distribution for investments held in the HEI Common Stock Fund shall be such converted shares of common stock. However, a Participant may elect to receive cash in lieu of common stock. The value of any fractional share equivalent shall be paid in cash.
If a Participant dies prior to distribution of the Participant's total vested Account balance, such Participant's designated Beneficiary shall be entitled to receive the Participant's remaining Account balance (reduced by any outstanding loans) as a death benefit. Death benefits may be paid as soon as administratively feasible following the Participant's death and must be made by the end of the year which contains the fifth anniversary of the Participant's death. The Beneficiary may elect to receive the death benefits in any of the forms available under Section 6.2 (subject to Appendix A, to the extent still effective).
A Participant's Beneficiary shall be the person designated as such on forms approved by the Administrative Committee, provided that a married Participant's spouse shall automatically be his or her Beneficiary unless the spouse has consented to an alternate Beneficiary. The spouse's signature on the consent form must be notarized or witnessed by an authorized Plan representative. A married Participant may name a contingent Beneficiary in the event the spouse predeceases the Participant. Unmarried Participants may name a primary and a secondary Beneficiary.
Subject to the rights of a married Participant's spouse, a Participant may revoke or change designation of Beneficiaries at any time on forms approved by the Administrative Committee.
Whenever a new Beneficiary form is filed, all former Beneficiary designations by such Participant shall automatically be revoked. If, upon the death of a Participant, there is no valid Beneficiary designation on file with the Administrative Committee or the Beneficiary has predeceased the Participant, the Beneficiary of the Participant's vested Account balance shall be, in order of priority:
(1) the Participant's surviving spouse, if any;
(2) the estate of the deceased Participant.
Facts as shown by the records of the Administrative Committee at the time of the Participant's death shall be conclusive as to the identity of the proper Beneficiary.
The amount requested may not exceed the amount required to relieve the immediate and heavy financial need after taking into consideration the amount of such need that may be satisfied from other resources reasonably available to the Participant. In connection with determining the amount of such need that may be satisfied from other resources, the Administrative Committee may rely on the Participant's written representation that the need cannot be relieved: (1) through reimbursement or compensation by insurance or otherwise, (2) by reasonable liquidation of the Participant's assets, to the extent such liquidation would not itself cause an immediate and heavy financial need, (3) by cessation of salary reduction contributions
under the Plan, or (4) through other distributions or nontaxable loans from the Plan or other plans maintained by a Participating Employer or any other employer of the Participant or by borrowing from commercial sources on reasonable commercial terms. If a Participant qualifies for and receives an in-service distribution on account of hardship from his or her Salary Reduction subaccount, the Participant shall not be permitted to make salary reduction contributions to the Plan for twelve months following the distribution.
Unless the Participant elects otherwise, the Participant's HEISOP subaccounts invested in the HEI Common Stock Fund shall be distributed in substantially equal periodic payments (not less frequently than annually) over a period not longer than the greater of
(1) five years, or
(2) in the case of a Participant with an Account balance in excess of $725,000, five years plus one additional year (but no more than five additional years) for each $145,000 or fraction thereof by which such balance exceeds $725,000. The $725,000 and $145,000 amounts are subject to increase with the cost of living in accordance with Section 409(o)(2) of the Code.
Through a Qualified Domestic Relations Order ("QDRO"), a Participant's spouse, child, or other tax dependent (each, an "alternate payee") may obtain rights to the Participant's benefits. A QDRO is a domestic relations order which assigns to an alternate payee or recognizes an alternate payee's right to receive all or a portion of the benefits payable with respect to a Participant under the Plan. A domestic relations order is not a QDRO and shall not be honored by the Plan if it requires the Plan to provide any form of benefit or other option of any kind not otherwise available under the Plan or requires the Plan to pay benefits in excess of the Participant's vested Account balance. The one exception to this rule is that, in accordance with a domestic relations order that the Administrative Committee or a court of competent jurisdiction determines to be a QDRO, the Administrative Committee may direct that a single-sum distribution be made to the alternate payee as soon as administratively feasible notwithstanding age, employment status, or any other factor that might prevent the Participant from receiving a distribution from his or her Account at the same time.
To be a QDRO, a domestic relations order must clearly specify (a) the name and last known mailing address of the Participant (unless otherwise known by the Administrative Committee) and the name and mailing address of the alternate payee, (b) the amount or percentage of the Participant's benefits to be paid by the Plan to each alternate payee or the manner in which such amount is to be determined, and (c) the form in which the benefit is to be paid. The domestic relations order must specifically designate the Plan as the Plan from which the benefits are to be paid. Finally, a domestic relations order cannot require the payment of benefits to an alternate payee which are required to be paid to another alternate payee under a previous QDRO.
The Administrative Committee has established procedures for determining whether a domestic relations order is a QDRO and for notifying the Participant and the alternate payee(s) of the receipt of the domestic relations order and of the steps that will be taken to determine whether the order is a QDRO. The procedures are incorporated herein by this reference and may be amended at any time without notice and without further amendment to the Plan.
If the Administrative Committee determines that a domestic relations order is a QDRO, the Administrative Committee will honor the QDRO. If the QDRO does not direct an immediate distribution as permitted by this Section 6.6, the Administrative Committee will direct the Trustee to establish a separate Account in the Plan for the alternate payee, and the alternate payee shall have all rights afforded under the Plan to Participants who are no longer employed by a Participating Employer. Primarily, this means the alternate payee will be able to direct the investment of his or her Account in accordance with the rules in Article IV, but the alternate payee will not be able to borrow from his or her Account.
Any costs incurred by the Plan in administering domestic relations orders shall be borne as normal expenses of the Plan and shall not be charged to the Account of the Participant involved.
Notwithstanding any provision of the Plan to the contrary, a "distributee" may elect, at the time and in the manner prescribed by the Administrative Committee, to have any portion of an "eligible rollover distribution" paid in a "direct rollover" to an "eligible retirement plan".
An "eligible rollover distribution" is any distribution of all or any portion of the balance to the credit of the distributee, except that an eligible rollover distribution does not include: any distribution that is one of a series of substantially equal periodic payments (not less frequently than annually) made for the life (or life expectancy) of the distributee or the joint lives (or joint life expectancies) of the distributee and the distributee's designated Beneficiary, or for a specified period of ten years or more; any distribution to the extent such distribution is required under section 401(a)(9) of the Code; the portion of any distribution that is not includible in gross income (determined without regard to the exclusion for net unrealized appreciation with respect to employer securities); and, effective January 1, 1999, any hardship distribution described in Section 401(k)(2)(B)(i)(IV) of the Code.
A "direct rollover" is a payment by the Plan directly to the eligible retirement plan specified by the distributee. An "eligible retirement plan" is an individual retirement account described in section 408(a) of the Code, an individual retirement annuity described in section 408(b) of the Code, an annuity plan described in section 403(a) of the Code, or a qualified trust described in section 401(a) of the Code that accepts the distributee's eligible rollover distribution. However, in the case of an eligible rollover distribution to a surviving spouse, an eligible retirement plan is only an individual retirement account or individual retirement annuity. A "distributee" includes a Participant and a Participant's spouse or former spouse who is an alternate payee under a QDRO.
Any eligible rollover distribution that the distributee chooses not to have directly rolled over is subject to 20% federal income tax withholding.
The Participating Employers have appointed the PIC to be the named fiduciary and Plan Administrator responsible for the operation and administration of the Plan. The Board of Directors of the Company may appoint, remove, and replace members of the PIC as the Board of Directors sees fit.
The PIC has established the Administrative Committee and authorized it to oversee the day-to-day administration of the Plan. The Administrative Committee is authorized to interpret and construe the provisions of the Plan, to resolve any ambiguities and reconcile any inconsistencies in its provisions, and to decide all questions of fact that arise in the operation of the Plan, in its discretion. Subject to the Claims Procedures in Section 7.6, the Administrative Committee shall determine, in its discretion, all questions with respect to any individual's rights under the Plan, including, but not limited to, eligibility for participation and eligibility for and the amount of benefits payable from the Plan.
The Administrative Committee may promulgate and publish such rules and procedures as it deems appropriate for its own actions and for the operation and administration of the Plan. An Administrative Committee member shall not have the right to vote on any matter relating solely to his or her own interests in the Plan, but may vote on matters affecting a class or group of Participants of which the member is a part.
All consents, elections, applications, designations, and other written submissions required or permitted under the Plan must be made on forms prescribed and furnished, or otherwise approved, by the Administrative Committee, and shall be recognized only if properly completed, executed, and returned to the Administrative Committee.
The Administrative Committee shall be responsible for complying with the reporting and disclosure requirements of ERISA.
The PIC and the Administrative Committee may employ attorneys, actuaries, accountants, and other service providers to give counsel to or otherwise assist them in performing their duties hereunder. The fees and expenses of such persons shall be paid in accordance with Section 4.2(c).
The PIC and the Administrative Committee may delegate their responsibilities and powers to any person or group of persons, and such delegees may serve in more than one role with respect to the Plan. The delegees may be Employees, in which case, as with the PIC and Administrative Committee members, they shall serve without compensation. Delegees shall serve at the pleasure of the delegor and may be removed or may resign at any time and for any reason.
The PIC and the Administrative Committee shall have all other powers and responsibilities granted to them in other Sections of this document or otherwise necessary or appropriate to carry out their respective responsibilities. At its discretion, the PIC may remove or replace the Administrative Committee or its individual members and may revoke, amend, or enlarge the authority of the Administrative Committee. The decisions of the PIC and Administrative Committee on any matters within their jurisdiction shall be binding and conclusive upon the Participating Employers and upon each Participant, Beneficiary, and other interested party.
The Company shall serve as the Plan's agent for the service of legal process.
The Company has entered into a Trust Agreement with the Trustee, which Trust Agreement governs the duties and responsibilities of the Company, the PIC, the Administrative Committee, and the Trustee with respect to the trust. The trust is part of the Plan, and any rights or benefits accruing to any person under the Plan shall be subject to all of the relevant terms of the Trust Agreement. In addition to the powers of the Trustee set forth in the Trust Agreement, the Trustee shall have any powers, express or implied, granted to it under the Plan. In the event of any conflict between the provisions of the Trust Agreement and the provisions of the Plan, the provisions of the Plan shall control, except in matters concerning the duties and responsibilities of the Trustee, in which case the Trust Agreement shall control. The fees and expenses of the Trustee shall be paid in accordance with the Trust Agreement and Section 4.2(c) hereunder.
Every fiduciary, except a bank or other fiduciary exempted by ERISA, shall be bonded in accordance with Section 412 of ERISA.
The Plan's fiduciaries shall not be liable for any mistake of judgment or other action taken in good faith. No fiduciary shall be personally liable by virtue of any contract, agreement, bond, or other instrument made or executed by himself or herself or any other fiduciary on behalf of the Plan.
The Participating Employers shall indemnify, defend, and hold harmless the members of the PIC and the Administrative Committee and employees of the Participating Employers acting on their behalf with respect to the Plan against any and all claims, losses, damages, expenses, and liabilities arising, directly or indirectly, from their responsibilities in connection with the Plan, except where any such liability is judicially determined to be the result of willful misconduct. The Participating Employers may purchase fiduciary liability insurance against this risk.
The Administrative Committee shall keep a copy of the Plan available at the offices of the Benefits Department of Hawaiian Electric Company, Inc. and American Savings Bank, F.S.B. which shall be open to inspection by Participants and their legal representatives during normal hours of business.
A Participant or Beneficiary may file a written claim for benefits with the Administrative Committee. The Administrative Committee shall consider such written claim and render a decision within ninety (90) days following receipt thereof. If the Administrative Committee denies any part of the claim, the Administrative Committee shall provide the claimant with written notice of the denial and of the claimant's right to a further review. The notice shall set forth, in a manner calculated to be understood by the claimant, the reason for the denial and shall refer to specific Plan provisions on which the denial is based and provide a description and explanation of additional information which the claimant might provide to perfect the claim.
Within ninety (90) days after receiving notice that a claim has been denied, the claimant may file a written appeal with the PIC. The claimant may submit written comments, documents, records, and other information relating to the claim. Upon request, the claimant may obtain, free of charge, reasonable access to, and copies of, documents, records, and other information relevant to the claim. The PIC may require the claimant to provide additional information or testimony as the PIC, in its sole discretion, deems useful or appropriate to its consideration of the claim. In reviewing the claim, the PIC shall take into account all comments, documents, records, and other information submitted by the claimant relating to the claim, without regard to whether such information was submitted or considered in the initial benefit determination. The PIC shall render its final decision within sixty (60) days of receipt of the request for reconsideration unless special circumstances require an extension of time. If such an extension is required, the PIC shall provide the claimant with written notice of the extension within the initial sixty (60) day period, and the PIC shall render its decision as soon as possible but in no event later than 120 days following receipt of the request for reconsideration. If the PIC's final decision is a denial of the claim, the PIC shall provide written notice of the denial, which notice shall set forth, in a manner calculated to be understood by the claimant, the reason for the denial and shall refer to specific Plan provisions on which the denial is based.
Claim determinations by the Administrative Committee and PIC shall be made in their discretion, as provided in Article VI. The final decision of the PIC shall be binding and conclusive on all persons.
If the Administrative Committee or PIC fails to respond to a claimant within the time limits set forth in this Article, the claimant may consider the claim denied. A claimant must comply with these procedures and exhaust all possibilities contained herein before seeking relief in any other forum.
The Company reserves the right to amend the Plan in whole or in part at any time and for any reason and to give such amendment retroactive effect to the extent permitted by applicable law. The PIC may approve and adopt any amendment to the Plan necessary to comply with the Code or ERISA or that does not have a substantial impact on the cost of the Plan. A Participating Employer may approve and adopt any amendment to the Plan relating solely to its Employees. All other amendments must be approved and adopted by the Board of Directors of the Company. Any amendment which affects the rights, duties, or responsibilities of the Trustee shall be effective against the Trustee only if made with the Trustee's consent.
The continuation of the Plan is not assumed as a contractual obligation by any Participating Employer. The Company may terminate the Plan and trust at any time and for any reason, and each Participating Employer may terminate its own participation in the Plan or discontinue contributions to the Plan at any time and for any reason. If the Plan is terminated (in full or in part) or if contributions to the Plan are discontinued as to any of the Participating Employers, the interest of each affected Participant shall be fully vested. Upon termination of participation in the Plan by one or some of the Participating Employers, the assets of the Plan may be spun-off to a new plan or distributed if permitted under ERISA and the Code.
The Plan may be merged or consolidated with, or its assets and liabilities may be transferred to another qualified plan and trust only if the benefits which would be received by a Participant in
the event of a termination of the transferee plan immediately after such transfer, merger, or consolidation are at least equal to the benefits the Participant would have received if the Plan had terminated immediately before the transfer, merger, or consolidation, and only if such transfer, merger, or consolidation does not otherwise result in the elimination of any accrued benefit.
Nothing contained in the Plan gives any Participant or Employee the right to be retained in the service of a Participating Employer or interferes with the right of a Participating Employer to discharge any Employee at any time. A Participant shall have no rights except those specifically provided in this document.
No Participant, Beneficiary, alternate payee, nor any other person having or claiming to have any right or interest of any kind in the Plan shall have any right to sell, assign, transfer, convey, hypothecate, anticipate, or otherwise dispose of such interest. No interest in the Plan shall be subject to any liabilities or obligations of, or any bankruptcy proceedings, claims of creditors, attachment, garnishment, execution, levy, or other legal or equitable process against a Participant, Beneficiary, alternate payee, or other person having or claiming to have any interest of any kind or character in or under this Plan, or such person's property. The prior sentence shall not apply to the creation, assignment, or recognition of any benefit payable with respect to a Participant pursuant to a qualified domestic relations order, nor to the enforcement of a judgment, settlement, or order described in Section 401(a)(13)(C) of Code, nor to any other exception listed in Section 401(a)(13) of the Code or the Treasury Regulations thereunder.
If any Participant or Beneficiary eligible to receive payments under this Plan is, in the opinion of the Administrative Committee, legally, physically, or mentally incapable of personally receiving and receipting for any payment under this Plan, the Administrative Committee may direct that such payments, or any portion thereof, be made to any person, persons, or institutions who have custody of such person, or are providing necessities of life (including, without limitation, food, shelter, clothing, and medical or custodial care) to such person, to the extent deemed appropriate by the Administrative Committee. Such payments shall constitute a full discharge of the liability of the Plan to the extent thereof. The Administrative Committee may withhold all other amounts due to such Participant or Beneficiary until a claim for such amounts is duly made by a duly appointed guardian or other legal representative of such payee.
All benefits payable under the Plan shall be paid solely from the trust, and the Participating Employers assume no liability or responsibility therefore.
Wherever used in this document, the following capitalized terms have the indicated meanings unless the context clearly implies otherwise:
10.5 Code means the Internal Revenue Code of 1986, as amended.
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10.6 Company means Hawaiian Electric Industries, Inc.
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10.7 Compensation means all straight-time pay and commissions paid during the
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Plan Year for services rendered to a Participating Employer. Compensation shall include elective contributions made by a Participating Employer to this Plan and to a cafeteria plan (other than FlexCredits and ASB Dollars) that are excluded from the taxable income of the Employee under Sections 402(e)(3) or 125 of the Code. Compensation shall not include overtime or premium pay, discretionary bonuses, reimbursements or other expense allowances, fringe benefits, deferred compensation, welfare benefits, or contributions (except for elective contributions) by a Participating Employer to this Plan or any other employee benefit plan. Compensation earned prior to an Eligible Employee becoming a Participant shall not be counted in determining contributions to the Plan. Compensation shall be limited to $160,000 annually, as adjusted for increases in the cost of living in accordance with Sections 401(a)(17)(B) and 415(d) of the Code.
Effective January 1, 1999, "Compensation" means the Employee's Box 1, W-2 earnings for the year, modified (i) to exclude discretionary bonuses (other than the Merit Performance Bonus of American Savings Bank, F.S.B.), fringe benefits, FlexCredits and ASB Dollars, reimbursements, moving expenses and other expense allowances,
retroactive pay increases, and special executive compensation; and (ii) to include elective contributions made by a Participating Employer to this Plan or to a cafeteria plan (other than FlexCredits and ASB Dollars) that are excluded from the taxable income of the Employee under Sections 402(e)(3) or 125 of the Code. Special executive compensation is noncash compensation and nonqualified deferred compensation available only to a select group of management Employees. Compensation earned prior to an Eligible Employee becoming a Participant shall not be counted in determining contributions to the Plan. Compensation shall be limited to $160,000 annually, as adjusted for increases in the cost of living in accordance with Sections 401(a)(17)(B) and 415(d) of the Code.
"HEIDI Compensation" means all straight-time pay and commissions paid (or accrued) during the Plan Year for services rendered to a HEIDI Employer. HEIDI Compensation shall include elective contributions made by a HEIDI Employer to this Plan and to a cafeteria plan (other than FlexCredits) that are excluded from the taxable income of the Employee under Sections 402(e)(3) or 125 of the Code. HEIDI Compensation shall not include overtime or premium pay, discretionary bonuses, reimbursements or other expense allowances, fringe benefits, deferred compensation, welfare benefits, or contributions (except for elective contributions) by a HEIDI Employer to this Plan or any other employee benefit plan. HEIDI Compensation earned prior to an Eligible Employee becoming a Participant shall not be counted in determining contributions to the Plan. HEIDI Compensation shall be limited to $160,000 annually, as adjusted for increases in the cost of living in accordance with Sections 401(a)(17)(B) and 415(d) of the Code.
"ADP Compensation" means the Employee's Box 1, W-2 earnings for the year, without modification. ADP Compensation shall be limited to $160,000 annually, as adjusted for increases in the cost of living in accordance with Sections 401(a)(17)(B) and 415(d) of the Code.
"415 Compensation" means the Employee's Box 1, W-2 earnings for the year, modified to include elective contributions made by a Participating Employer to this Plan or to a cafeteria plan that are excluded from the taxable income of the Employee under Sections 402(e)(3) or 125 of the Code.
10.9 Early Retirement Age means age 55.
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10.10 Eligible Employee means any Employee, other than a Leased Employee or an
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Employee employed on a "contract basis". An Employee is employed on a "contract basis" if the person is hired under written contract for a specific task or assignment.
organization covers the Leased Employee under a money purchase pension plan that provides a nonintegrated employer contribution of at least 10% of compensation, full and immediate vesting, and immediate participation for all employees it leases, and (2) Leased Employees do not constitute more than 20% of the Participating Employer's workforce.
A person who performs services for a Participating Employer as an independent contractor is not an Employee and is not eligible to participate in the Plan. An independent contractor is a person who performs services as an independent businessperson, as determined in accordance with the Code and ERISA. A person shall not be treated as an Employee for purposes of the Plan during any period in which such person is classified as an independent contractor by a Participating Employer, even if the person is later determined to have been a common-law employee during such period.
(a) any person who, during the Plan Year being tested or the immediately preceding year, owns or owned, directly or by attribution, more than 5% of the outstanding stock of the Company or more than 5% of the voting control of the Company; and
(b) any Employee who for the preceding year had 415 Compensation from a Participating Employer in excess of $80,000, as adjusted for increases in the cost of living in accordance with Sections 414(q) and 415(d) of the Code.
A "non Highly Compensated Employee" or "NHCE" is any Employee who is not an HCE for the year.
(a) Each hour during the Plan Year for which an Employee is paid or entitled to payment by a Participating Employer for the performance of duties. These hours are credited to the Plan Year performed.
(b) Each hour for which an Employee is paid or entitled to payment by a Participating Employer for periods during which the Employee performs no duties because of vacation,
holiday, illness, incapacity (including short-term disability), layoff, jury duty, military duty, or other approved leave of absence, except that Hours of Service shall not be counted where such payment is made or is due under a plan maintained solely for the purpose of complying with applicable worker's compensation, unemployment, or disability insurance laws, or solely to reimburse an Employee for medical or medically related expenses. To which Plan Year these hours are credited depends on the calculation of the payment. If the payment is calculated based on units of time, such as payment for two weeks vacation, the hours shall be credited to the Plan Year during which the time occurred (the Employee took the vacation). If the payment is based on an event rather than a period of time, such as a single sum payment made because of layoff or disability, the hours shall be credited to the first Plan Year or allocated reasonably and consistently between the first Plan Year and the second Plan Year during which the event took place.
(c) Each hour for which back pay, irrespective of mitigation of damages, is either awarded or agreed to by a Participating Employer. The same Hours of Service shall not be credited both under subparagraph (a) or (b), as the case may be, and this subparagraph (c). These hours will be credited to the Plan Year to which the award or agreement pertains and not to the Plan Year in which the award, agreement, or payment is made.
The Hour of Service rules stated in Department of Labor Regulations (S)2530.200b-2 are incorporated herein by reference, and any questions on the crediting of Hours of Service shall be resolved by reference to such regulations.
10.19 Normal Retirement Age means age 65.
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10.20 One-Year Break in Service for eligibility means a calendar year during
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which the Employee has not completed more than 500 Hours of Service. For vesting for regular, full-time HEIDI Participants, a "One-Year Break in Service" means severance from the employment of the Participating Employers and Associated Companies for a 12-consecutive month period. For vesting for part- time HEIDI Participants, a "One-Year Break in Service" is defined in Section 5.1(b)(iii)(B).
10.25 Plan Year means the calendar year.
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10.26 Retire or Retirement refers to a Participant's termination of employment
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with a Participating Employer after reaching Early Retirement Age.
For purposes of this Article XI, the following terms shall have the meanings set forth below:
(a) Key Employee: Any Employee or former Employee (and the beneficiaries of such Employee) who at any time during the determination period was:
(i) An officer of a Participating Employer having annual 415 Compensation greater than 50% of the dollar limit specified in section 415(b)(1)(A) of the Code for any such year; provided however, no more than the lesser of [x] 50 Employees or [y] the greater of three Employees or 10% of all Employees shall be regarded as officers,
(ii) One of the ten Employees having annual 415 Compensation from a Participating Employer of more than the dollar limit specified in Section 415(c)(1)(A) of the Code and owning (or considered as owning within the meaning of Section 318 of the Code) the largest interests in the Company; provided that if two or more Employees own an equal interest, the Employee having the greater annual 415 compensation shall be regarded as having the larger interest,
(iii) A 5% owner of the Company, or
(iv) A 1% owner of the Company who has an annual 415 Compensation of more than $150,000.
The determination period is the Plan Year containing the Determination Date and the four preceding Plan Years. The determination of who is a Key Employee shall be made in accordance with Section 416(i)(1) of the Code and the regulations thereunder.
A "non-Key Employee" is any Employee who is not a Key Employee.
(b) Top-heavy plan: The Plan shall be top-heavy if any of the following conditions exists:
(1) If the Top-Heavy Ratio for the Plan exceeds 60% and the Plan is not part of any required aggregation group or permissive aggregation group of plans.
(2) If the Plan is a part of a required aggregation group of plans but not part of a permissive aggregation group and the Top-Heavy Ratio for the group of plans exceeds 60%.
(3) If this Plan is a part of a required aggregation group and part of a permissive aggregation group of plans and the Top-Heavy Ratio for the permissive aggregation group exceeds 60%.
(4) For purposes of determining whether the Plan is a top-heavy plan, the accrued benefit of an individual who has not received any 415 Compensation from a Participating Employer at any time during the five-year period ending on the determination date shall be disregarded.
(c) Top-Heavy Ratio:
(1) If a Participating Employer maintains one or more defined
contribution plans (including any simplified employee pension plan) and the
Participating Employer has not maintained any defined benefit plan that during
the five-year period ending on the Determination Date has or had accrued
benefits, the Top-Heavy Ratio for the Plan alone or for the required or
permissive aggregation group as appropriate is a fraction, the numerator of
which is the sum of the account balances of all Key Employees as of the
Determination Date (including any part of any account balance distributed in the
five-year period ending on the Determination Date) and the denominator of which
is the sum of all account balances (including any part of any account balance
distributed in the five-year period ending on the Determination Date) of all
Participants as of the Determination Date, both computed in accordance with
Section 416 of the Code and the regulations thereunder. Both the numerator and
denominator of the Top-Heavy Ratio shall be adjusted to reflect any contribution
that is due but unpaid as of the Determination Date and is required to be taken
into account on that date under Section 416 of the Code and the regulations
thereunder.
(2) If a Participating Employer maintains one or more defined
contribution plans (including any simplified employee pension plan) and the
Participating Employer maintains or has maintained one or more defined benefit
plans that during the five-year period ending on the Determination Date has or
had accrued benefits, the Top-Heavy Ratio for any required or permissive
aggregation group as appropriate is a fraction, the numerator of which is the
sum of account balances under the aggregated defined contribution plan or plans
for all Key Employees and the present value of accrued benefits under the
aggregated defined benefit plan or plans for all Key Employees as of the
Determination Date and the denominator of which is the sum of account balances
under the aggregated defined contribution plans for all Participants and the
present value of accrued benefits under the defined benefit plans for all
participants as of the Determination Date, all as determined in accordance with
Section 416 of the Code and the regulations thereunder. Both the numerator and
denominator of the Top-Heavy Ratio shall be adjusted for any distribution of an
account balance or an accrued benefit made in the five-year period ending on the
Determination Date and any contribution due but unpaid as of the Determination
Date.
(3) For purposes of subparagraphs (1) and (2) above, the value of
account balances and the present value of accrued benefits shall be determined
as of the most recent Valuation Date that falls within or ends with the 12-month
period ending on the Determination Date, except as provided in Section 416 of
the Code and the regulations thereunder for the first and second plan years of a
defined benefit plan. The account balances and accrued benefits of a Participant
(i) who is not a Key Employee but who was a Key Employee in a prior year or (ii)
who has not been credited with at least one Hour of Service with any employer
maintaining the
Plan at any time during the five-year period ending on the Determination Date shall be disregarded. The calculation of the Top-Heavy Ratio, and the extent to which distributions, rollovers, and transfers are taken into account shall be made in accordance with Section 416 of the Code and the regulations thereunder. Deductible employee contributions shall not be taken into account for purposes of computing the Top-Heavy Ratio. When aggregating plans the value of account balances and accrued benefits shall be calculated with reference to the Determination Dates that fall within the same calendar year.
(d) Permissive aggregation group: The required aggregation group of plans plus any other plan or plans of the Participating Employer that, when considered as a group with the required aggregation group, would continue to satisfy the requirements of Sections 401(a)(4) and 410 of the Code.
(e) Required aggregation group: (i) Each qualified plan of the
Participating Employer in which at least one Key Employee participates or
participated at any time during the determination period (regardless of whether
the plan has terminated), and (ii) any other qualified plan of the Participating
Employer that enables a plan described in (i) to meet the requirements of
Sections 401(a)(4) and 410 of the Code. For this purpose, "Participating
Employer" shall include all employers aggregated under Section 414(b), (c), or
(m) with a Participating Employer.
(f) Determination Date: For any Plan Year subsequent to the first Plan Year, the last day of the preceding Plan Year. For the first Plan Year, the last day of that year.
(g) Valuation Date: The Determination Date as of which account balances or accrued benefits are valued for purposes of calculating the Top-Heavy Ratio.
(h) Present Value: Present value shall be based on a 6.5% interest rate and the UP-1984 Mortality Table with ages set back two years for Participants and seven years for Beneficiaries; provided that the present value of the accrued benefit of a non-Key Employee shall be determined under the method used for accrual purposes for all defined benefit plans of the Participating Employers, or if there is no such method, as if such benefit accrued not more rapidly than the slowest accrual permitted under Section 411(b)(1)(C) of the Code.
(a) If the Plan is or becomes top-heavy in any Plan Year, the provisions of this Article XI shall supersede any conflicting provisions in the Plan.
(b) (1) Except as otherwise provided in subparagraph 11.3 below, the Participating Employer contributions allocated on behalf of any Participant who is not a Key Employee shall be the lesser of (i) 3% of such Participant's 415 Compensation; or (ii) in the case where the Participating Employer has no defined benefit plan that designates the Plan to satisfy section 401 of the Code, the largest percentage of Participating Employer contributions and forfeitures, as a percentage of the first $160,000 (as adjusted) of the Key Employee's 415 Compensation, allocated on behalf of any Key Employee for that year. The minimum allocation
shall be determined without regard to any Social Security contribution. This minimum allocation shall be made even though, under other Plan provisions, the Participant would not otherwise be entitled to receive an allocation, or would have received a lesser allocation because of the Participant's failure to (i) complete 1,000 Hours of Service (or any equivalent provided in the Plan), (ii) to make mandatory Employee contributions to the Plan, or (iii) to earn compensation in excess of a stated amount.
(2) If a Participant is covered by both this Plan and a defined benefit plan, the minimum benefit required by Section 416 of the Code shall be provided by the defined benefit plan, provided that such benefit shall be offset by the benefits, if any, provided by this Plan.
(3) The minimum allocation required (to the extent required to be nonforfeitable under Section 416(b)) may not be forfeited under Section 411(a)(3)(B) or 411(a)(3)(D) of the Code.
(c) For any Plan Year in which this Plan is top-heavy, the Accounts of each Participant shall be fully vested. This vesting provision shall apply to all benefits within the meaning of Section 411(a)(7) of the Code except those attributable to Employee contributions, including benefits accrued before the effective date of Section 416 of the Code and benefits accrued before the Plan became top-heavy. Further, no reduction in vested benefits may occur in the event the Plan's status as top-heavy changes for any Plan Year. However, this paragraph does not apply to the Account balances of any Employee who does not have an Hour of Service after the Plan initially becomes top-heavy and such Employee's Account balance attributable to Participating Employer contributions and forfeitures shall be determined without regard to this paragraph.
(d) For purposes of computing the aggregate limitation on benefits and contributions for an Employee who participates in a defined contribution and defined benefit plans included in the aggregation group, the dollar limitation of 1.25 and the denominator of the fraction shall be reduced to 1.0.
The provisions of this Article XI shall not apply with respect to any Employee included in a unit of Employees covered by a collective bargaining agreement if there is evidence the retirement benefits were the subject of good faith bargaining between Employee representatives and the Participating Employer. For this purpose, the term "Employee representatives" does not include any organization more than half of whose members are employees who are owners, officers, or executives of the Participating Employer.
HAWAIIAN ELECTRIC INDUSTRIES, INC.
PENSION INVESTMENT COMMITTEE
In accordance with Section 6.2 and final Treasury Regulations permitting the
forms of benefit to be modified in a defined contribution plan, the forms of
benefit available under this Plan have been greatly simplified. This Appendix A
sets forth the Plan's forms of benefit available prior to the effective date in
Section 6.2.
The available forms of benefit depend on when a Participant became a Participant, the sources of contributions to the Participant's Account, and the marital status of the Participant at the time his or her benefits commence. A notice explaining the available forms of benefit and the benefit election procedures (the "Notice") will be provided to the Participant.
(1) a single-sum distribution (commonly known as a lump-sum distribution, although qualifying for any available favorable tax treatment associated with a lump-sum distribution is solely the responsibility of the Participant or Beneficiary), or
(2) For Employer ASB subaccounts only: payments in substantially equal monthly, quarterly, or annual installments over a fixed period of time not exceeding the life expectancy of the Participant or the joint life expectancy of the Participant and the Participant's spouse.
If a married Participant elects an optional form of benefit with his or her spouse's consent, the chosen form of benefit cannot subsequently be changed without the spouse's further consent. Once an annuity has been purchased or a single-sum payment made, the form of benefit cannot be changed.
Effective January 1, 1997, a Participant may elect (with spousal consent, if applicable) to waive the Election Period as part of the waiver of the QJSA. If the Election Period is waived, the distribution may be made at any time that is administratively feasible and that is more than seven days after the Notice was provided to the Participant.
except that a joint and survivor annuity is not an available form of benefit and no spousal consent is needed to waive the single life annuity.
There are two kinds of death benefits provided under the Plan: preretirement death benefits and death benefits provided after Retirement or other benefits have commenced. The forms of death benefit and the rules for such benefits depend on when a Participant became a Participant, the sources of contributions to the Participant's account, and the Participant's marital status.
The Administrative Committee shall provide each Pre-1989 Participant with a notice explaining what a QPSA is and that the Pre-1989 Participant has the right to waive the QPSA, provided the Pre-1989 Participant's spouse consents to the waiver on forms approved by the Administrative Committee. The spouse's consent must acknowledge the effect of the consent (loss of survivor rights), and the spouse's signature on the consent form must be notarized or witnessed by an authorized Plan representative. The alternate Beneficiary consented to by the spouse may not be changed without the further written consent of the spouse.
The notice with respect to the QPSA shall be provided to Pre-1989 Participants during a three-year period beginning in the year the Pre-1989 Participant reaches age 32 and ending at the end of the year preceding the year the Pre-1989 Participant reaches age 35.
The election period to waive the QPSA begins on the first day of the Plan Year in which the Participant attains age 35 and continues until the Participant's death or the commencement of Retirement benefits. If a Pre-1989 Participant terminates employment before the year in which he or she attains age 35, the Participant's election period begins when he or she terminates employment.
If a Pre-1989 Participant elects to waive the QPSA with spousal consent, the Pre-1989 Participant may choose a single-sum death benefit or designate a Beneficiary other than the Pre-1989 Participant's spouse. If the QPSA is not waived and the Pre-1989 Participant dies, the Pre-1989 Participant's surviving spouse shall be given the option to take the QPSA or elect a single- sum payment. A surviving spouse may direct that payments under the QPSA commence within a reasonable period of time after the Participant's death. If the Pre- 1989 Participant's vested Account balance exceeds $5,000, the QPSA may not be paid before the Participant would have attained Normal Retirement Age without the surviving spouse's consent. If the Pre-1989 Participant's Account balance is $5,000 or less, the Account balance shall be paid to the Pre-1989 Participant's surviving spouse or other Beneficiary in a single sum as soon as administratively feasible following the Pre-1989 Participant's death. No consent of the surviving spouse or other Beneficiary shall be required for this cashout to be made.
Participant would have attained age 70-1/2. The installment period chosen may not extend beyond the life expectancy of the Beneficiary.
Prior to the effective date in Section 6.2, a married Participant needs the consent of his or her spouse to obtain a Plan loan or an in-service distribution under Section 6.4.