Idaho Public Utilities Commission

Case No. IPC-E-12-02, Order No. 32465

February 24, 2012

Contact: Gene Fadness (208) 334-0339, 890-2712

Idaho Power proposes settlement with Hoku Industries

The Idaho Public Utilities Commission is taking comments through March 7 on a proposed settlement to a Pocatello manufacturing plant’s request to amend its contract with Idaho Power Company.

Idaho Power threatened to disconnect service to Hoku Materials, Inc. last December because production delays caused by market conditions made it difficult for the polysilicon manufacturer to make a minimum monthly payment of about $1.8 million. The minimum monthly payment is not based on electricity consumed – the plant is not yet in production – but is required to meet expenses Idaho Power incurs to be ready to meet Hoku’s expected demand up to 82 megawatts.

Both commission staff and Idaho Power maintain the proposed settlement addresses Hoku’s cash flow problems while at the same time protecting the utility and its customers. The proposed agreement reduces Hoku’s monthly minimum payment to about $800,000 for up to 18 months through June 2013. To protect customers and the company from the lost revenue due to the lower minimum payment, the agreement also proposes to require Hoku to eventually reimburse the difference between the current and the proposed minimum plus 6 percent interest via monthly payments through November 2014. Further, Hoku agrees to make an initial payment of $3.8 million to Idaho Power, with $2 million of that coming from an existing $4 million deposit already provided by Hoku. The remaining $1.8 million will be paid over the next 18 months at $100,000 per month. If the plant is able to increase production it must give Idaho Power 30 days’ notice when it plans to exceed 10 MW and six-months’ notice when it plans to exceed 20 MW.

These provisions, the company and commission staff maintain, ensure Idaho Power and its ratepayers are protected while allowing Hoku time for the polysilicon market to improve. Ratepayers are impacted because Idaho Power included the revenue it was originally contracted to receive from Hoku in both its 2011 rate case filing and its Power Cost Adjustment filings. Without the Hoku revenue, the resulting deficiency would have had to been made up by other Idaho Power customers. The proposed settlement ensures that Idaho Power customers are no worse off than they otherwise would have been had the contract not been amended, according to commission staff.

The reduction in Hoku’s minimum monthly payment flows through Idaho Power’s annual Power Cost Adjustment (PCA) resulting in higher than normal net power supply expenses, which are passed on to Idaho Power customers. The settlement proposes that the customer share of the deferred revenue that would have otherwise come from Hoku be tracked on a monthly basis with a 6 percent carrying charge. That balance will then be reimbursed to customers over the 12-month period from December 2013 to November 2014.

Hoku, which will manufacture, market and sell polysilicon to the solar industry, originally said it would be taking energy on June 1, 2009, but then requested an amendment to the contract with a December 1, 2009, online date. In February 2010, the commission approved an Idaho Power and Hoku request to amend the contract to waive payment of the monthly minimum charge until April 1, 2011. Unable to pay its November 2011 bill, Hoku filed a petition in December asking the commission to protect it from termination and suspend its monthly minimum payment until an amendment to the contract is approved. The commission denied the suspension because it would violate a commission prohibition of "retroactive ratemaking," which would occur if the commission stayed collection of rates already under contract.  Further, the commission said, entirely suspending Hoku's payments adversely impacts other customers.  The commission directed Idaho Power and Hoku to immediately enter into negotiations to reform the contract. The settlement proposed this week is the result of those negotiations.

Hoku did eventually pay its November and December bills.

Idaho Power’s rate schedule requires that large power service customers whose demand exceeds 20 megawatts make special contract arrangements with the company. Contracts for large-load customers provide protection to the company and other retail customers from system impacts that some large loads could impose because of their sheer size or operating characteristics.

The 2009 contract between Hoku and Idaho Power provides that Hoku take service under two rate blocks.  The first block of energy (all use over 25 MW) is priced at the commission’s published avoided-cost rate used for small-power (PURPA) projects. The first block includes a “take-or-pay” provision, obligating Hoku to pay first block energy and demand charges regardless of whether it consumes power.  The second block (up to 25 MW) is priced at the traditional embedded cost rate for Idaho Power’s large special-contract customers.

The production delays are the result of conditions in the polysilicon market. The spot market price for solar-grade polysilicon dropped below $30 per kilogram in 2011 from about $200 in 2006. The high demand for polysilicon led to rapid increases in production and by the second half of 2011, supply began to exceed demand and prices fell below the industry’s average production costs. According to Hoku, this is expected to continue for another six months, but then the market is anticipated to improve for manufacturers. To maintain its operation, Hoku is drawing on various reserves or loans. 

Hoku claimed that termination of service would have prevented completion of the plant’s construction, possibly freeze sensitive electronic equipment and threaten 160 jobs.  To date, Hoku has invested more than $600 million in its Pocatello plant, including paying the cost of transmission and substation facilities to service the plant. The conversion of silicon to polysilicon is energy intensive, accomplished through large electric power reactors. When fully operational, Hoku expects to generate $35.9 million in revenue for Idaho Power, Hoku claims.

The commission plans to handle this request in a modified procedure that uses written comments rather than conducting a hearing. Comments are accepted via e-mail by accessing the commission’s homepage at www.puc.idaho.gov and clicking on "Comments & Questions About a Case." Fill in the case number (IPC-E-12-02) and enter your comments. Comments can also be mailed to P.O. Box 83720, Boise, ID 83720-0074 or faxed to (208) 334-3762.

A full text of the commission’s order, along with other documents related to this case, is available on the commission’s Web site. Click on “File Room” and then on “Electric Cases” and scroll down to the above case number.

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