[§269-19.5]  Relations with an affiliatedinterest; definition; contracts with affiliates filed and subject to commissionaction.  (a)  For purposes of this section "affiliated interests"with a public utility includes the following:

(1)  Every person owning or holding, directly orindirectly, ten per cent or more of the voting securities of a public utility,and every person having ownership of ten per cent or more of voting securitiesof a person owning ten per cent or more of the voting securities of a publicutility;

(2)  Every corporation ten per cent or more of whosevoting securities is owned by any person owning ten per cent or more of thevoting securities of a public utility;

(3)  Every person who is an officer or director of apublic utility;

(4)  Every corporation operating a public utility, orproviding engineering, accounting, legal, or similar service to publicutilities or common carriers by water, which has three or more officers orthree or more directors in common with a public utility, and every othercorporation which has directors in common with a public utility where thenumber of common directors is more than one-third of the total number of theutility's directors.

(b)  The purpose of this section is toencourage companies providing essential utility and regulated transport serviceto Hawaii consumers to obtain their services, supplies, and equipment byrelying, to the extent practicable, on competitive procurement practices;provided that when companies obtain their services, supplies, and equipmentfrom affiliated interests, the contracts and agreements between the regulatedentity and its affiliates must be shown by clear and convincing evidence to bein furtherance of the interests of the public.

(c)  No contract or agreement providing for thefurnishing of management, supervisory, construction, engineering, accounting,legal, financial, or similar services, and no contract or agreement for thepurchase, sale, lease, furnishing or exchange of any real or personal propertyrights, including but not limited to real estate, improvements on land,equipment, leasehold interests, easements, rights-of-way, franchises, licenses,permits, trademarks, and copyrights, made or entered into after July 1,1988, between a public utility and any affiliated interest shall be valid oreffective unless and until the contract or agreement has been received by thecommission.  It shall be the duty of every public utility to file with thecommission a verified copy of any contract or agreement with an affiliatehaving a face value of at least $300,000, or a verified summary of anyunwritten contract or agreement having a face value of at least $300,000 withinforty-five days of the effective date of the contract or agreement.  Each andevery contract or agreement between a public utility and an affiliate forcapital expenditures other than for real property or an interest therein, shallbe accompanied with price quotations provided by at least two nonaffiliatedsuppliers, providers, or purveyors, or if such price quotations cannot beobtained without substantial expense to the utility, that the public utilityverify that fact by affidavit; provided that all contracts or agreementseffective at the time of a general rate proceeding which were discoverable andsubject to review by the commission, shall be valid and not subject tosubsequent regulatory review and action by the commission; provided further,however, that notwithstanding any other provision to the contrary, there shallbe no transfer of real property, or interest in real property between a publicutility and an affiliate, without prior approval of the commission, afterhearing, wherein the public utility must show that the transfer is in the bestinterest of the public utility and all of its customers.

No affirmative action is required by thecommission in regards to the filing of the contract or agreement; provided however, that if the commission, in its discretion, determines that the termsand conditions of the contract or agreement to be unreasonable or otherwisecontrary to the public interest, the commission shall notify the public utilityof its determination, whereupon the public utility shall have the option toalter, revise, amend, or terminate the contract or agreement, or assume the riskthat future payments for performance of the contract or agreement will bedeemed unreasonable and excluded by the commission for ratemaking purposes.

(d)  In any proceeding, whether upon thecommission's own motion or upon application or complaint, involving the ratesor practices of any public utility, the commission may exclude from theaccounts of the public utility any payment or compensation to an affiliatedinterest for any services rendered or property or service furnished, as abovedescribed, under existing contracts or agreements with the affiliated interestunless the public utility shall establish by clear and convincing evidence thereasonableness of the payment or compensation.

(e)  The commission shall have continuingsupervisory control over the terms and conditions of the contracts andagreements above described so far as necessary to protect and promote thepublic interest.  The commission shall have the same jurisdiction overmodifications of or amendments to contracts or agreements as it has overoriginal contracts or agreements.  The fact that the public utility may haveentered into contracts or agreements without submittal of documents to thecommission shall not preclude disallowance or disapproval of payments madepursuant thereto, for ratemaking purposes, if upon actual experience under thecontracts or agreements it appears that the payments provided for or made areor were unreasonable.  Every contract or agreement shall be expresslyconditioned upon the reserved power of the commission to take appropriateratemaking actions if, and as necessary, subsequent to submittal of thecontract or agreement in order to protect and promote the public interest.

(f)  Whenever the commission shall discoverthat any public utility is giving effect to any contract or agreement withoutthe contract or agreement having been received by the commission for review, asrequired by this section, the commission has authority to issue an order to thepublic utility to show cause why the public utility should not cease and desistfrom making any payments or otherwise giving any effect to the terms of thecontract or agreement, and the public utility shall have the opportunity toshow with clear and convincing evidence that the contract or agreement is in thebest interest of the public utility and all of its customers.

(g)  None of the provisions of this sectionshall apply to transactions with affiliated interests where the totalconsideration involved in a transaction is less than $300,000 for any calendaryear provided that multiple payments under any contract or agreement shall beadded together for purposes of construing this provision; and provided,further, that the provisions of this section shall apply to any contract oragreement structured specifically to avoid regulation hereunder.

(h)  Transactions between affiliated Hawaiibased utilities shall be exempt from the provisions of this section. [L 1988, c368, §1]