HEI Exhibit 10.1

CONDITIONS FOR THE MERGER AND CORPORATE RESTRUCTURING

OF HAWAIIAN ELECTRIC COMPANY, INC.

THIS AGREEMENT, made as of the 23rd day of September, 1982, by and between
HAWAIIAN ELECTRIC INDUSTRIES, INC., a Hawaii corporation, whose principal place
of business and executive offices are located at 900 Richards Street, Honolulu,
Hawaii 96813 (“Industries” hereinafter), and PUBLIC UTILITIES COMMISSION,
DEPARTMENT OF BUDGET AND FINANCE, STATE OF HAWAII, whose address is 1164 Bishop
Street, Suite 900, Honolulu, Hawaii 96813 ( “Commission” hereinafter),

WITNESSETH THAT:

WHEREAS, Hawaiian Electric Company, Inc. (“HECO” hereinafter), a public utility
under the jurisdiction of the Commission, has filed an Application seeking
approval for Industries to own all of the issued and outstanding common stock of
HECO, Docket No. 4337; and

WHEREAS, Industries will become the holding company of HECO and will not be
subject to the jurisdiction of the Commission except through the investigative
powers of the Commission; and

WHEREAS, Hawaii Revised Statutes, Sections 269-17, 269-17.5, 269-19 and 417-11
require the Commission’s prior approval for the issuance of public utility
securities, ownership of more than 25 per cent of utility common stock by any
one person, and mergers by public utilities; and

WHEREAS, it appears reasonable, as a prerequisite to our approval, to impose
certain conditions to the merger

 

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and corporate restructuring so that the public welfare and HECO’s operations and
financial integrity are both protected; and

WHEREAS, the Commission by Decision and Order No. 7070 has approved HECO’s and
Industries’ Application for the merger and restructuring, subject, however, to
certain conditions specified in Decision and Order Nos. 7070, 7153 and 7203 and
to this Agreement being executed by the authorized officers of Industries;

NOW, THEREFORE, the parties hereto agree as follows:

1.     Hawaiian Electric Industries, Inc., its successors and assigns, including
all subsidiaries in which Hawaiian Electric Industries, Inc., or its
subsidiaries have a substantial interest, now existing or to be acquired or
created in the future, hereinafter collectively called “Industries”, shall
furnish to the Public Utilities Commission, State of Hawaii, hereinafter called
“Commission”, any and all records, books or documents of every nature and kind
when requested in writing by the Commission. The information requested of
Industries by the Commission shall relate to information that is necessary to
fulfill the statutory responsibilities of the Commission. Industries shall also
provide the same information requested by the Commission to the Public Utilities
Division, Department of Commerce and Consumer Affairs, State of Hawaii
(“Consumer Advocate” herein). The Consumer Advocate shall utilize the procedures
set forth in Section 269-54(d), Hawaii Revised Statutes, when it requests such
information from Industries.

 

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2.    Industries, when requested in writing or in open hearing, shall
voluntarily have any employee, officer, director or agent of Industries appear
before the Commission for the purpose of testifying before the Commission.

3.    The Commission shall have the right to investigate any matter, activity or
transaction between Hawaiian Electric Company, Inc., and its subsidiaries,
hereinafter collectively called “Utility Corporation”, and Industries. For
purposes of investigation, the Commission shall have the right to enter the
premises of Industries during normal working hours and to review any and all
records, books or documents of every nature and kind which relate to the
investigation or inquiry.

4.     Industries shall furnish to the Commission and the Consumer Advocate the
following: (1) quarterly and annual financial statements in reasonable detail;
(2) annual consolidated financial statements, in reasonable detail, certified by
independent certified public accountants; and (3) consolidating statements
involved in the preparation of the financial statements together with an
explanation of the nature of intercompany transactions and the basis of any
allocations made.

5.     The Commission and the Consumer Advocate shall have the right to review
any intercompany charges and allocations of common expenses between the Utility
Corporation and Industries. Such allocations shall include, but not be limited
to:

 

  a)

Salaries of personnel who perform duties for the utility as well as an
affiliate; and other

 

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related expenses such as payroll taxes, pension and group insurance costs,
travel and reimbursable expenses.

 

  b) Common expenses for facilities, including rent, taxes, depreciation and
insurance.

 

  c) Expenditures for outside services such as legal counsel, auditing,
advertising and public relations.

 

  d) Construction costs, including equipment and materials expended thereon.

Any intercompany charges and allocations not deemed proper for ratemaking and
quality of service purposes may be disregarded by the Commission in determining
allowable expenses, revenues, rate base and rate of return for the Utility
Corporation.

6.    Any plant or property carried on the books of the Utility Corporation
shall be subject to review by the Commission for determination of its
qualification as being “used or useful” in utility operation. The Commission may
exclude from the rate base any assets determined to be non-utility in nature, so
long as any related income and expenses are excluded from earnings in
determining rate of return.

7.    The Commission shall continue to have full authority over the Utility
Corporation’s issuance of securities. Normally the Commission will not approve
the issuance of any securities which would result in long-term debt being more
than 60%, or common equity being less than 35% of the Utility Corporation’s
capitalization. For this

 

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purpose, short-term bank loans utilized for interim financing of capital
projects shall not be included as part of capitalization. The capitalization
ratio restrictions in this paragraph shall in no way be construed to mean that
the Commission has relinquished its right to review at any time the Utility
Corporation’s financial policies.

8.    The Utility Corporation shall obtain its own interim and long-term
borrowing as in the pre-corporate restructuring period. Any cash advances made
to the Utility Corporation by Industries shall bear interest at a rate not
higher than that currently being paid on the Utility Corporation’s principal
bank borrowings.

9.    The Utility Corporation shall not loan directly or indirectly any funds to
Industries without prior Commission approval. Any loans made hereunder shall be
evidenced by a Note of Indebtedness specifying principal amount, interest rate
and maturity date. Such loans shall bear interest at a rate not less than that
paid by Industries on its principal bank loans.

10.    The Utility Corporation shall not pay cash dividends to its stockholders
in excess of 80% of its earnings available for payment of dividends in its
current fiscal year and preceding five years less the amount of dividends paid
by the Utility Corporation during such period when the Utility Corporation
consolidated common equity is less than 35% of total capital. In the event of a
decrease in earnings, judged by the board of directors of the Utility
Corporation to be temporary in nature, dividend payments may

 

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be continued during the balance of its fiscal year at current rates. In the
succeeding year, however, the Utility Corporation shall follow the restrictions
on dividend payments set forth in this paragraph unless otherwise permitted by
the Commission. The restriction in this paragraph shall in no way be construed
to mean that the Commission has relinquished its right to review at any time the
Utility Corporation’s dividend policy.

11.    The Utility Corporation shall not redeem any of its common stock without
prior approval of the Commission.

12.    In any transactions with affiliates, the Utility Corporation and the
affiliates shall deal fairly with each other, and where appropriate, Industries
shall retain and rely upon the advice of independent experts to assure such
fairness.

13.    The Utility Corporation shall not transfer any of its property which is
or was in the rate base nor assume any liabilities of Industries, directly or
indirectly, without the prior approval of the Commission. The determination of
the transfer value and the accounting and rate-making treatment thereof shall be
determined by the Commission at the time of approval of such transfer.

14.    The accounts, accounting methods and procedures of Industries shall be
maintained in such manner that they will accurately reflect, under generally
accepted accounting principles, the operations, assets and liabilities and the
overall financial condition of the Utility Corporation. The Utility Corporation
shall continue to

 

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comply in all respects with the procedures established by the Commission
pursuant to the Uniform System of Accounts.

15.    Industries shall always maintain a complete set of their books of
accounts and supporting records in the State of Hawaii.

16.    Industries shall not sell or otherwise divest itself of any of the common
stock of the Utility Corporation without the prior approval of the Commission.
The acquisition of Hawaiian Electric Industries, Inc., by a third party, whether
by purchase, merger, consolidation or otherwise, shall require prior written
approval of the Commission.

17.    In any of the foregoing matters, the information obtained by the
Commission and its Staff and/or the Consumer Advocate and its Staff shall be
considered as having been obtained for the sole purpose of properly exercising
the Commission’s jurisdiction over the Utility Corporation. Information relating
to the assets, liabilities, income and expense of Industries shall not be deemed
a public record, as that term is defined in Hawaii Revised Statutes,
Section 92-50, and shall not be open to public inquiry without the express
written permission of the management of Hawaiian Electric Industries, Inc.,
except in cases where they are material or relevant in a proceeding before the
Commission, or before the courts; said determination of materialness or
relevance to be determined by the presiding body.

18.    If at any time, the Commission finds that the Utility Corporation or
Industries is not complying in good faith with the provisions of this order, the
following procedures will be instituted:

 

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  a) The Utility Corporation or Industries or both shall be notified in writing
of the action, circumstance or condition which requires correction and the
measures necessary to rectify the situation.

 

  b) Industries shall have a minimum of ten days, unless extended further by the
Commission, in which to undertake the corrective measures.

 

  c) If Industries fails to undertake a correction of the breach of the
Agreement, the Consumer Advocate may initiate a request for an order to show
cause from the Commission or the Commission may institute a show cause
proceeding.

 

  d)

If Industries fails, after hearing and a decision rendered, to comply with the
Commission’s order to rectify the breach of this Agreement, the Commission may
take appropriate action to assure compliance with this Agreement, including,
without limitation, issuing an order requiring Industries (or its successor as
parent company of the Utility Corporation) to divest itself of its ownership of
the Utility Corporation’s common stock under terms and conditions which will
take into consideration the best interests of the

 

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Utility Corporation’s customers, employees and stockholders.

19.    Industries represents that the proposed merger and corporate
restructuring are designed for the following purposes:

 

  a) To separate the operations now conducted by Hawaiian Electric Company, Inc.
from future diversified activities which will be non-utility in nature. Such
diversified activities, if conducted by the present corporation, either directly
or through a subsidiary, could involve the Utility Corporation’s assets and
credit. If undertaken by an affiliate, there would be no involvement of the
utility, thus permitting the utility’s activities to be confined to an area more
clearly delineated for regulation by the Commission.

 

  b) To facilitate vertical integration which would be accomplished by entry
into alternate energy business by non-regulated affiliates of the Utility
Corporation which could supply energy to the Utility Corporation.

 

  c) To provide a means of assisting the efforts to enhance commercialization of
alternate energy technologies.

 

  d)

To allow greater flexibility in the financing of certain activities in the
alternate

 

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energy and other fields because the restrictive covenants in various instruments
under the first mortgage bonds and other securities of the Utility Corporation
would not apply.

20.    In construing or interpreting this document, the construction or
interpretation which most favors the regulation and control over the Utility
Corporation shall be applied.

21.    For good cause shown, the parties to this Agreement or the Consumer
Advocate may request that this Agreement be amended in whole or in part, but
this Agreement may not be amended without mutual consent of the parties to the
Agreement.

22.    Industries agrees that this Agreement shall be binding on its successors
and assigns.

23.    All papers to be served by either party regarding this Agreement shall
utilize the procedures outlined in Section 2-3 of the Rules of Practice and
Procedure of the Commission.

24.    This Agreement shall be governed by the laws of the State of Hawaii and
of the United States of America.

IN WITNESS WHEREOF, the undersigned have caused

 

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these presents to be executed as of the day and year first above written.

PUBLIC UTILITIES COMMISSION, DEPARTMENT OF BUDGET AND FINANCE, STATE OF HAWAII

 

By   /s/    Albert Tom   Albert Tom, Chairman

 

By   /s/    Sunao Kido   Sunao Kido, Commissioner

 

 

By   /s/    Clyde S. DuPont   Clyde S. DuPont, Commissioner

HAWAIIAN ELECTRIC INDUSTRIES, INC.

 

By   /s/    C. Dudley Pratt   Its President

 

By   /s/    Andrew T. F. Ing   Its Vice President

 

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STATE OF HAWAII    )       )    ss. CITY AND COUNTY OF HONOLULU    )   

On this 23rd day of September, 1982, before me appeared C. Dudley Pratt, Jr. and
Andrew T. F. Ing, to me personally known, who, being by me duly sworn, did say
that they are the President and Vice President, respectively, of HAWAIIAN
ELECTRIC INDUSTRIES, INC., a Hawaii corporation; that the seal affixed to the
foregoing instrument is the corporate seal of said corporation; that said
instrument was signed and sealed in behalf of said corporation by authority of
its Board of Directors and said officers acknowledged said instrument to be the
free act and deed of said corporation.

 

/s/    Eileen K. Bull

Notary Public, State of Hawaii

My Commission expires: 4-28-84

 

 

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