Item 1.01. Entry into a Material Definitive Agreement.
Hawaiian Electric Company, Inc., Hawaii Electric Light Company, Inc., and Maui Electric Company, Limited, (collectively, the Utilities) and PAR Hawaii Refining, LLC (PAR) entered into a supply contract on January 21, 2019, for the Utilities' Low Sulfur Fuel Oil (LSFO), High Sulfur Fuel Oil (HSFO), No. 2 Diesel (Diesel), and Ultra-Low Sulfur Diesel (ULSD) requirements (Original Contract). Due to the temporary shutdown of one of the crude units of PAR as a result of COVID-19, the local production of LSFO has been disrupted. On June 9, 2020, the Utilities and PAR entered into a first amendment to the Original Contract (First Amendment) to cover LSFO purchases commencing August 15, 2020.
This First Amendment amends only the LSFO pricing to create a two-tiered structure based on volume, with all tier-1 LSFO purchases up to the tier-1 maximum to be purchased exclusively from PAR at the established pricing, and purchases in excess of that volume (tier-2) either from PAR at the established pricing, or from an alternative supplier. The tiered structure enables the Utilities to source tier-2 volumes from other suppliers, which provides the Utilities potential cost savings and opportunities to test the market and work with alternative suppliers. The Utilities filed an application with the Public Utilities Commission of the State of Hawaii (PUC) requesting, among other things, approval of the First Amendment and to recover the costs associated with the First Amendment through the energy cost recovery clause to the extent the costs are not recovered in base rates.
If PUC approval is not received by August 4, 2020 or if the Utilities’ request for PUC approval is denied, the First Amendment allows the Utilities to terminate the First Amendment by August 6, 2020. If the Utilities exercise their right to terminate the First Amendment, the Utilities believe they will be able to adequately source LSFO from other suppliers.
The foregoing description of the First Amendment is limited and qualified in its entirety by reference to the full text of the First Amendment, which will be filed as an exhibit to the registrant's Quarterly Report on Form 10-Q for the second quarter of 2020.
HEI and Hawaiian Electric intend to continue to use HEI's website, www.hei.com, as a means of disclosing additional information. Such disclosures will be included on HEI's website in the Investor Relations section. Accordingly, investors should routinely monitor such portions of HEI's website, in addition to following HEI's, Hawaiian Electric's and American Savings Bank, F.S.B.'s (ASB) press releases, HEI’s and Hawaiian Electric’s SEC filings and HEI’s public conference calls and webcasts. The information on HEI's website is not incorporated by reference in this document or in HEI’s and Hawaiian Electric’s Securities and Exchange Commission (SEC) filings unless, and except to the extent, specifically incorporated by reference. Investors may also wish to refer to the PUC website at dms.puc.hawaii.gov/dms (Docket No. 2020-0090 for the First Amendment to the PAR contract proceeding) in order to review documents filed with and issued by the PUC. No information on the PUC website is incorporated by reference in this document or in HEI’s and Hawaiian Electric’s other SEC filings.
FORWARD-LOOKING STATEMENTS
This report may contain “forward-looking statements,” which include statements that are predictive in nature, depend upon or refer to future events or conditions, and usually include words such as “will,” “expects,” “anticipates,” “intends,” “plans,” “believes,” “predicts,” “estimates” or similar expressions. In addition, any statements concerning future financial performance, ongoing business strategies or prospects or possible future actions 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 the accuracy of assumptions concerning HEI and its subsidiaries, the performance of the
industries in which they do business and economic and market factors, among other things. These forward-looking statements are not guarantees of future performance.
Forward-looking statements in this report should be read in conjunction with the “Cautionary Note Regarding Forward-Looking Statements” and “Risk Factors” discussions (which are incorporated by reference herein) set forth in HEI’s and Hawaiian Electric’s Annual Report on Form 10-K for the year ended December 31, 2019 and HEI’s and Hawaiian Electric’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2020 and HEI’s future periodic reports that discuss important factors that could cause HEI’s results to differ materially from those anticipated in such statements. These forward-looking statements speak only as of the date of the report, presentation or filing in which they are made. Except to the extent required by the federal securities laws, HEI, Hawaiian Electric, ASB and their subsidiaries undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.