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



(1)  Every person owning or holding, directly or
indirectly, 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 securities
of a person owning ten per cent or more of the voting securities of a public
utility;



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



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



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



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



(c)  No contract or agreement providing for the
furnishing of management, supervisory, construction, engineering, accounting,
legal, financial, or similar services, and no contract or agreement for the
purchase, sale, lease, furnishing or exchange of any real or personal property
rights, 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 or
effective unless and until the contract or agreement has been received by the
commission.  It shall be the duty of every public utility to file with the
commission a verified copy of any contract or agreement with an affiliate
having a face value of at least $300,000, or a verified summary of any
unwritten contract or agreement having a face value of at least $300,000 within
forty-five days of the effective date of the contract or agreement.  Each and
every contract or agreement between a public utility and an affiliate for
capital expenditures other than for real property or an interest therein, shall
be accompanied with price quotations provided by at least two nonaffiliated
suppliers, providers, or purveyors, or if such price quotations cannot be
obtained without substantial expense to the utility, that the public utility
verify that fact by affidavit; provided that all contracts or agreements
effective at the time of a general rate proceeding which were discoverable and
subject to review by the commission, shall be valid and not subject to
subsequent regulatory review and action by the commission; provided further,
however, that notwithstanding any other provision to the contrary, there shall
be no transfer of real property, or interest in real property between a public
utility and an affiliate, without prior approval of the commission, after
hearing, wherein the public utility must show that the transfer is in the best
interest of the public utility and all of its customers.



No affirmative action is required by the
commission in regards to the filing of the contract or agreement; provided 
however, that if the commission, in its discretion, determines that the terms
and conditions of the contract or agreement to be unreasonable or otherwise
contrary to the public interest, the commission shall notify the public utility
of its determination, whereupon the public utility shall have the option to
alter, revise, amend, or terminate the contract or agreement, or assume the risk
that future payments for performance of the contract or agreement will be
deemed unreasonable and excluded by the commission for ratemaking purposes.



(d)  In any proceeding, whether upon the
commission's own motion or upon application or complaint, involving the rates
or practices of any public utility, the commission may exclude from the
accounts of the public utility any payment or compensation to an affiliated
interest for any services rendered or property or service furnished, as above
described, under existing contracts or agreements with the affiliated interest
unless the public utility shall establish by clear and convincing evidence the
reasonableness of the payment or compensation.



(e)  The commission shall have continuing
supervisory control over the terms and conditions of the contracts and
agreements above described so far as necessary to protect and promote the
public interest.  The commission shall have the same jurisdiction over
modifications of or amendments to contracts or agreements as it has over
original contracts or agreements.  The fact that the public utility may have
entered into contracts or agreements without submittal of documents to the
commission shall not preclude disallowance or disapproval of payments made
pursuant thereto, for ratemaking purposes, if upon actual experience under the
contracts or agreements it appears that the payments provided for or made are
or were unreasonable.  Every contract or agreement shall be expressly
conditioned upon the reserved power of the commission to take appropriate
ratemaking actions if, and as necessary, subsequent to submittal of the
contract or agreement in order to protect and promote the public interest.



(f)  Whenever the commission shall discover
that any public utility is giving effect to any contract or agreement without
the contract or agreement having been received by the commission for review, as
required by this section, the commission has authority to issue an order to the
public utility to show cause why the public utility should not cease and desist
from making any payments or otherwise giving any effect to the terms of the
contract or agreement, and the public utility shall have the opportunity to
show with clear and convincing evidence that the contract or agreement is in the
best interest of the public utility and all of its customers.



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



(h)  Transactions between affiliated Hawaii
based utilities shall be exempt from the provisions of this section. [L 1988, c
368, §1]