<PAGE>

================================================================================

                 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

<TABLE>
<CAPTION>
Commission        Registrant; State of Incorporation;                            I.R.S. Employer
File Number       Address; and Telephone Number                                  Identification No.
 ---------------  ------------------------------------------------------------   ----------------------
 <S>              <C>                                                            <C>
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
</TABLE>

Securities registered pursuant to Section 12(b) of the Act:

<TABLE>
<CAPTION>
                                                                                           Name of each exchange
Registrant                           Title of each class                                  on which registered
------------------------------------ ---------------------------------------------------  -------------------------
<S>                                  <C>                                                  <C>
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))
</TABLE>

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|

================================================================================
<PAGE>

================================================================================

<TABLE>
<CAPTION>
                                                    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
                                             ----------------------------------                 -----------------------------------

<S>                                                       <C>                                          <C>
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)
====================================================================================================================================
</TABLE>

                       DOCUMENTS INCORPORATED BY REFERENCE

<TABLE>
<CAPTION>
                                                                                          Part of
                                                                                          Form 10-K
                                                                                       into which the
                                                                                         document is
                              Document                                                  incorporated
-----------------------------------------------------------------------------------------------------------
<S>                                                                                <C>
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
</TABLE>

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.

================================================================================
<PAGE>

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                                                   Page
                                                                                                                   ----

<S>                                                                                                                  <C>
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
</TABLE>


                                       i
<PAGE>

                                GLOSSARY OF TERMS

Defined below are certain terms used in this report:

<TABLE>
<CAPTION>
Terms                     Definitions
-----                     -----------
<S>                       <C>
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
</TABLE>


                                       ii
<PAGE>

                          GLOSSARY OF TERMS (continued)

<TABLE>
<CAPTION>
Terms                     Definitions
-----                     -----------
<S>                       <C>
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.
</TABLE>


                                      iii
<PAGE>

                          GLOSSARY OF TERMS (continued)

<TABLE>
<CAPTION>
Terms                     Definitions
-----                     -----------
<S>                       <C>
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.
</TABLE>


                                       iv
<PAGE>

                          GLOSSARY OF TERMS (continued)

<TABLE>
<CAPTION>
Terms                     Definitions
-----                     -----------
<S>                       <C>
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.
</TABLE>


                                       v
<PAGE>

                           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.


                                       vi
<PAGE>

                                     PART I

ITEM 1. BUSINESS

HEI

HEI was incorporated in 1981 under the laws of the State of Hawaii and is a
holding company with subsidiaries engaged in the electric utility, savings bank
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


                                       1
<PAGE>

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.


                                       2
<PAGE>

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:

<TABLE>
<CAPTION>
                                            2000                            1999                           1998
                               -------------------------------------------------------------------------------------------
                                  Customer  Electric sales        Customer   Electric sales      Customer   Electric sales
(dollars in thousands)            accounts        revenues        accounts         revenues      accounts         revenues
--------------------------------------------------------------------------------------------------------------------------
<S>                                <C>          <C>                <C>          <C>               <C>           <C>
HECO ....................          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
                               ===========================================================================================
</TABLE>

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%
                            ===========================================

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.


                                       3
<PAGE>

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.


                                       4
<PAGE>

Selected consolidated electric utility operating statistics

<TABLE>
<CAPTION>
                                                         2000          1999          1998         1997          1996
                                                   ------------------------------------------------------------------
<S>                                                <C>           <C>           <C>          <C>            <C>
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
---------------------------------------------------------------------------------------------------------------------
</TABLE>

(1)   Sum of the peak demands on all islands served, noncoincident and
      nonintegrated.


                                       5
<PAGE>

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.

<TABLE>
<CAPTION>
                                              Island of      Island of    Island of    Island of    Island of
                                                  Oahu-          Maui-       Lanai-     Molokai-      Hawaii-
                                                   HECO           MECO         MECO         MECO        HELCO        Total
----------------------------------------------------------------------------------------------------------------------------
<S>                                              <C>           <C>            <C>           <C>       <C>          <C>
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
                                              ------------------------------------------------------------------------------
                                                 1,669.0         250.1         10.4         12.1        263.2      2,204.8
                                              ==============================================================================

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
----------------------------------------------------------------------------------------------------------------------------
</TABLE>

(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


                                       6
<PAGE>

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


                                       7
<PAGE>

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


                                       8
<PAGE>

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.


                                       9
<PAGE>

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


                                       10
<PAGE>

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


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<PAGE>

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


                                       12
<PAGE>

            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


                                       13
<PAGE>

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


                                       14
<PAGE>

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.


                                       15
<PAGE>

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.


                                       16
<PAGE>

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%


                                       17
<PAGE>

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


                                       18
<PAGE>

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)


                                       19
<PAGE>

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:

<TABLE>
<CAPTION>
                      HECO                       MECO                      HELCO                 Consolidated
               ------------------------------------------------------------------------------------------------------
               $/Barrel  (cent)/MBtu      $/Barrel  (cent)/MBtu     $/Barrel  (cent)/MBtu     $/Barrel  (cent)/MBtu
---------------------------------------------------------------------------------------------------------------------
<S>               <C>          <C>          <C>           <C>          <C>          <C>          <C>          <C>
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
</TABLE>

The average per-unit cost of fuel oil consumed to generate electricity for HECO,
MECO and HELCO reflects a different volume mix of fuel types and grades. In
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


                                       20
<PAGE>

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,


                                       21
<PAGE>

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


                                       22
<PAGE>

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.


                                       23
<PAGE>

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


                                       24
<PAGE>

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


                                       25
<PAGE>

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.



                                       26
<PAGE>

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:

<TABLE>
<CAPTION>
                                                                               Years ended December 31,
                                                                              --------------------------
                                                                              2000       1999       1998
--------------------------------------------------------------------------------------------------------
<S>                                                                           <C>        <C>        <C>
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
</TABLE>

(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.


                                       27
<PAGE>

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.

<TABLE>
<CAPTION>
                                                           Years ended December 31,
                                             ----------------------------------------------
(in thousands)                                      2000              1999             1998
-------------------------------------------------------------------------------------------
<S>                                           <C>               <C>              <C>
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
                                             ==============================================
</TABLE>

Asset/liability management

Interest rate sensitivity refers to the relationship between market interest
rates and net interest income resulting from the repricing of interest-earning
assets and interest-bearing liabilities. Interest rate risk arises when an
interest-earning asset matures or when its interest rate changes in a time frame
different from that of the supporting interest-bearing liability. Maintaining an
equilibrium between rate sensitive interest-earning assets and interest-bearing
liabilities will reduce some interest rate risk but it will not guarantee a
stable net interest spread because yields and rates may change simultaneously or
at different times and such changes may occur in differing increments. Market
rate fluctuations could materially affect the overall net interest spread even
if 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:


                                       28
<PAGE>

<TABLE>
<CAPTION>
                                                                           Amounts at December 31, 2000
                                                                           subject to repricing within
                                                             ---------------------------------------------------------
                                                                  1 year         >1-5           Over
(dollars in millions)                                            or less        years        5 years       Total (1)
---------------------------------------------------------------------------------------------------------------------
<S>                                                              <C>          <C>            <C>           <C>
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
                                                             --------------------------------------------------------

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%
---------------------------------------------------------------------------------------------------------------------
</TABLE>

(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.


                                       29
<PAGE>

Interest income and interest expense

The following table sets forth average balances, interest and dividend income,
interest expense and weighted-average yields earned and rates paid, for certain
categories of interest-earning assets and interest-bearing liabilities for the
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%

(1)   Includes stock in the FHLB of Seattle.


                                       30
<PAGE>

The following table shows the effect on net interest income of (1) changes in
interest rates (change in weighted-average interest rate multiplied by prior
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
                                             ==================================

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.


                                       31
<PAGE>

The following tables set forth the composition of ASB's loan and
mortgage/asset-backed securities portfolio:

<TABLE>
<CAPTION>
                                                                              December 31,
                                     ---------------------------------------------------------------------------------------------
                                                 2000                            1999                              1998
                                     ---------------------------------------------------------------------------------------------
(dollars in thousands)                   Balance    % of total           Balance     % of total             Balance     % of total
----------------------------------------------------------------------------------------------------------------------------------
<S>                                  <C>                <C>          <C>                  <C>           <C>                  <C>
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%
                                     =============================================================================================
</TABLE>

(1)   Includes renegotiated loans.


                                       32
<PAGE>

<TABLE>
<CAPTION>
                                                                                December 31,
                                                           -------------------------------------------------------
                                                                    1997                        1996
                                                           -------------------------------------------------------
(dollars in thousands)                                        Balance   % of total            Balance   % of total
------------------------------------------------------------------------------------------------------------------
<S>                                                        <C>              <C>          <C>               <C>
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%
                                                           =======================================================
</TABLE>

(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


                                       33
<PAGE>

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.


                                       34
<PAGE>

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:

<TABLE>
<CAPTION>
                                                                    December 31,
                                          ----------------------------------------------------------------
(in thousands)                                    2000         1999         1998         1997         1996
----------------------------------------------------------------------------------------------------------
<S>                                            <C>          <C>          <C>          <C>          <C>
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
                                          ================================================================
</TABLE>

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.


                                       35
<PAGE>

The following table presents the changes in the allowance for loan losses for
the years indicated.

<TABLE>
<CAPTION>
                                                                Years ended December 31,
                                         -------------------------------------------------------------------
(dollars in thousands)                          2000          1999          1998          1997          1996
------------------------------------------------------------------------------------------------------------
<S>                                          <C>           <C>           <C>           <C>           <C>
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%
                                         ===================================================================
</TABLE>

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


                                       36
<PAGE>

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.


                                       37
<PAGE>

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.

<TABLE>
<CAPTION>
                                                           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 %
------------------------------------------------------------------------------------------------------------------
<S>                                <C>            <C>            <C>         <C>             <C>           <C>
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%
                              ====================================================================================

<CAPTION>
                                                              Year ended December 31, 1998
                                                   ------------------------------------------------
                                                      Average        % of total           Weighted
(dollars in thousands)                                balance          deposits      average rate %
---------------------------------------------------------------------------------------------------
<S>                                                <C>                  <C>                   <C>
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%
                                                   ================================================
</TABLE>

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


                                       38
<PAGE>

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:

<TABLE>
<CAPTION>
                                                                         December 31,
                                                       ------------------------------------------------
(dollars in thousands)                                        2000             1999              1998
-------------------------------------------------------------------------------------------------------
<S>                                                     <C>              <C>               <C>
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%
                                                       ================================================
</TABLE>


                                       39
<PAGE>

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.


                                       40
<PAGE>

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.


                                       41
<PAGE>

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


                                       42
<PAGE>

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.


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<PAGE>

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.


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<PAGE>

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


                                       45
<PAGE>

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


                                       46
<PAGE>

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


                                       47
<PAGE>

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.


                                       48
<PAGE>

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


                                       49
<PAGE>

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.


                                       50
<PAGE>

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.


                                       51
<PAGE>

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


                                       52
<PAGE>

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


                                       53
<PAGE>

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


                                       54
<PAGE>

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:

                                                              S&P      Moody's
--------------------------------------------------------------------------------
HEI
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.


                                       55
<PAGE>

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.


                                       56
<PAGE>

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
                            ====================================================

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


                                       57
<PAGE>

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.

<TABLE>
<CAPTION>
                                                                                          Business experience for
HEI Executive Officers                                                                    past five years
---------------------------------------------------------------------------------------------------------------------
<S>                                                                                       <C>
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)
</TABLE>


                                       58
<PAGE>

<TABLE>
<CAPTION>
                                                                                          Business experience for
HEI Executive Officers                                                                    past five years
---------------------------------------------------------------------------------------------------------------------
(continued)

<S>                                                                                       <C>
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)
</TABLE>

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.


                                       59
<PAGE>

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.


                                       60
<PAGE>

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.


                                       61
<PAGE>

<TABLE>
<CAPTION>
                                                                                          Business experience for
HECO Executive Officers                                                                   past five years
-----------------------------------------------------------------------------------------------------------------------
<S>                                                                                       <C>
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)
</TABLE>


                                       62
<PAGE>

<TABLE>
<CAPTION>
                                                                                          Business experience for
HECO Executive Officers                                                                   past five years
----------------------------------------------------------------------------------------------------------------------
(continued)

<S>                                                                                       <C>
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)
</TABLE>

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.


                                       63
<PAGE>

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

<TABLE>
<CAPTION>
                                                                                        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       ($)        ($)       ($)             (#)            ($)       ($)
----------------------------------------------------------------------------------------------------------------------
<S>                                   <C>     <C>         <C>         <C>             <C>         <C>        <C>
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
</TABLE>


                                       64
<PAGE>

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.


                                       65
<PAGE>

               AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
                          FISCAL YEAR-END OPTION VALUES

<TABLE>
<CAPTION>
                                                                                 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 ($)
-----------------------------------------------------------------------------------------------------------------------------------
<S>                         <C>                <C>    <C>          <C>              <C>      <C>            <C>        <C>
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......       --                 --          --           --              -- /     --               -- /      --
</TABLE>

(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.


                                       66
<PAGE>

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.


                                       67
<PAGE>

<TABLE>
<CAPTION>
                               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
-------------------------------------------------------------------------------------------------------------------------
<S>                                     <C>                 <C>                <C>           <C>             <C>
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*
</TABLE>

*     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.


                                       68
<PAGE>

                                     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:

<TABLE>
<CAPTION>
                                                                                   Pages in HEI's and HECO's
                                                                                         Annual Report
                                                                                 ------------------------------
                                                                                      HEI            HECO
---------------------------------------------------------------------------------------------------------------
<S>                                                                                   <C>             <C>
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
</TABLE>

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:

<TABLE>
<CAPTION>
                                                                                      Page/s in Form 10-K
                                                                                 ------------------------------
                                                                                      HEI            HECO
---------------------------------------------------------------------------------------------------------------
<S>                                                                                   <C>                  <C>
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
</TABLE>

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.


                                       69
<PAGE>

(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.


                                       70
<PAGE>

[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


                                       71
<PAGE>

[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


                                       72
<PAGE>

                       Hawaiian Electric Industries, Inc.
           SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT
               HAWAIIAN ELECTRIC INDUSTRIES, INC. (PARENT COMPANY)
                            CONDENSED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                          December 31,
                                                                               -----------------------------------
(in thousands)                                                                             2000             1999
------------------------------------------------------------------------------------------------------------------
<S>                                                                                 <C>               <C>
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
                                                                               ===================================
</TABLE>

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.


                                       73
<PAGE>

                       Hawaiian Electric Industries, Inc.
      SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT (continued)
               HAWAIIAN ELECTRIC INDUSTRIES, INC. (PARENT COMPANY)
                         CONDENSED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
                                                                             Years ended December 31,
                                                                  ----------------------------------------------
(in thousands)                                                              2000           1999          1998
----------------------------------------------------------------------------------------------------------------
<S>                                                                       <C>            <C>           <C>
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
                                                                  ==============================================
</TABLE>

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.


                                       74
<PAGE>

                       Hawaiian Electric Industries, Inc.
      SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT (continued)
               HAWAIIAN ELECTRIC INDUSTRIES, INC. (PARENT COMPANY)
                       CONDENSED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                     Years ended December 31,
                                                                              ----------------------------------------
(in thousands)                                                                     2000          1999          1998
----------------------------------------------------------------------------------------------------------------------
<S>                                                                               <C>         <C>           <C>
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
                                                                              ========================================
</TABLE>

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.


                                       75
<PAGE>

                       Hawaiian Electric Industries, Inc.
                       and Hawaiian Electric Company, Inc.
                SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
                  Years ended December 31, 2000, 1999 and 1998

<TABLE>
<CAPTION>
====================================================================================================================
                   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
--------------------------------------------------------------------------------------------------------------------
<S>                                              <C>             <C>        <C>           <C>             <C>
                    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
                                             =======================================================================
</TABLE>

(a)   Primarily bad debts recovered.
(b)   Bad debts charged off.
(c)   Primarily related to the sale of YB.


                                       76
<PAGE>

                                INDEX TO EXHIBITS

The exhibits designated by an asterisk (*) are filed herein. The exhibits not so
designated are incorporated by reference to the indicated filing. A copy of any
exhibit may be obtained upon written request for a $0.20 per page charge from
the HEI Shareholder Services Division, P.O. Box 730, Honolulu, Hawaii
96808-0730.

Exhibit no.                           Description
-----------                           -----------
   HEI:
   ----

     3(i).1 HEI's Restated Articles of Incorporation (Exhibit 4(b) to
            Registration No. 33-7895).

     3(i).2 Articles of Amendment of HEI filed June 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).


                                       77
<PAGE>

Exhibit no.                           Description
-----------                           -----------
     4.5(a) Pricing Supplement No. 11 to Registration Statement on Form S-3
            of HEI (Registration No. 33-58820) filed on December 1, 1995 in
            connection with the sale of Medium-Term Notes, Series B (Exhibit
            4.8 to HEI's Annual Report on Form 10-K for the fiscal year ended
            December 31, 1995, 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.


                                       78
<PAGE>

Exhibit no.                           Description
-----------                           -----------
     4.5(m) Pricing Supplement No. 24 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).


                                       79
<PAGE>

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).


                                       80
<PAGE>

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).


                                       81
<PAGE>

Exhibit no.                           Description
-----------                           -----------
     3(i).4 Articles of Amendment to HECO's Amended Articles of Incorporation
            (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).


                                       82
<PAGE>

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).


                                       83
<PAGE>

Exhibit no.                           Description
-----------                           -----------
    10.1(e) Amendment No. 4 to Power Purchase Agreement between HECO and
            Kalaeloa Partners, L.P., dated October 1, 1999 (Exhibit 10.1 to
            HECO's Quarterly Report on Form 10-Q for the quarter ended September
            30, 2000, 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).


                                       84
<PAGE>

Exhibit no.                           Description
-----------                           -----------
    10.4(c) Letter agreement dated December 11, 1997 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(c) to HECO's Annual Report on Form 10-K for the fiscal year
            ended December 31, 1997, 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).


                                       85
<PAGE>

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).


                                       86
<PAGE>

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.


                                       87
<PAGE>

                                                                  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

<TABLE>
<CAPTION>
(in thousands,
except per share amounts)                     2000          1999            1998            1997            1996
--------------------------------------------------------------------------------------------------------------------
<S>                                        <C>           <C>             <C>             <C>             <C>
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
                                      ==============================================================================
</TABLE>


                                       88
<PAGE>

                                                  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

<TABLE>
<CAPTION>
                                                     2000                    1999                       1998
                                        ------------------------------------------------------------------------------
(dollars in thousands)                        (1)          (2)        (1)           (2)          (1)           (2)
----------------------------------------------------------------------------------------------------------------------
<S>                                         <C>          <C>        <C>           <C>          <C>          <C>
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
                                        ==============================================================================
</TABLE>

(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.


                                       89

<PAGE>

                                                  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

<TABLE>
<CAPTION>
                                                           1997                        1996
                                               ---------------------------------------------------------
(dollars in thousands)                                (1)             (2)           (1)          (2)
--------------------------------------------------------------------------------------------------------
<S>                                                 <C>            <C>           <C>          <C>
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
                                               =========================================================
</TABLE>

(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.


                                       90

<PAGE>

                                                               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

<TABLE>
<CAPTION>
(dollars in thousands)                                  2000        1999        1998        1997         1996
--------------------------------------------------------------------------------------------------------------
<S>                                                 <C>         <C>         <C>         <C>          <C>
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
                                                 =============================================================
</TABLE>


                                       91
<PAGE>

                                                  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)

                                      92
<PAGE>

                                                  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)

                                      93
<PAGE>

                                                               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)


                                       94
<PAGE>

                                                                  HEI Exhibit 23

[KPMG LLP letterhead]



                             Accountants' Consent
                             --------------------



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

                                      95
<PAGE>

                                                               HECO Exhibit 99.2

                        Hawaiian Electric Company, Inc.
                 RECONCILIATION OF ELECTRIC UTILITY OPERATING
                     INCOME PER HEI AND HECO CONSOLIDATED
                             STATEMENTS OF INCOME

<TABLE>
<CAPTION>
                                                                                Years ended December 31,
                                                                         ----------------------------------------
(in thousands)                                                                  2000         1999         1998
-----------------------------------------------------------------------------------------------------------------
<S>                                                                          <C>           <C>         <C>
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
                                                                             ==================================
</TABLE>

                                      96
<PAGE>

                                   SIGNATURES

      Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrants have duly caused this report to be signed
on their behalf by the undersigned, thereunto duly authorized. The signatures of
the undersigned companies shall be deemed to relate only to matters having
reference to such companies and any subsidiaries thereof.

HAWAIIAN ELECTRIC INDUSTRIES, INC.          HAWAIIAN ELECTRIC COMPANY, INC.
                        (Registrant)                               (Registrant)

By /s/ Robert F. Mougeot                    By  /s/ 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


                                       97
<PAGE>

                             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


                                       98
<PAGE>

                             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


                                      Director of HEI
----------------------------------
Kelvin H. Taketa


/s/ Jeffrey N. Watanabe               Director of HEI and HECO
----------------------------------
Jeffrey N. Watanabe


/s/ Paul C. Yuen                      Director of HECO
----------------------------------
Paul C. Yuen


                                       99