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Idaho PUC Proposes Power Payment Program

The Hoku Solar panel plant in Pocatello is still not up and running and it appears to the GUARDIAN it may never reach production, despite all kinds of taxpayer subsidies and tax credits.

The company got behind in its payments to Idaho Power and now the Idaho Public Utilities Commission is proposing an agreement that would cut the current obligation for payments, but in reality place the company deeper in debt. The price of solar panels has plummeted along with the price of Hoku stock in recent months.

The complete text of the IP{UC press release follows.

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.

Comments & Discussion

Comments are closed for this post.

  1. chicago sam
    Feb 24, 2012, 6:18 pm

    Ms. Smith in a presentation to a legislative committee last week said that contracts between buisnesses and Utility’s must be honored when questioned about 20 year contracts. And now the IPUC ordered Idaho Power and Hoku to renegotate their contract with the clear intention of favoring Hoku in the process. What gives?

  2. Thanks for your question, Sam. It is a good one. If you e-mail to: AnswerMeThis@puc.idaho.gov, I will be happy to answer your question.
    Gene Fadness
    Idaho Public Utilities Commission’334-0339

    EDITOR NOTE–The GUARDIAN is concerned about yet another public agency stemming the flow of information in a public forum. Next move will be to eliminate blogs, newspapers, and TV news in favor of the government doing it all!!

  3. chicago sam
    Feb 27, 2012, 8:29 pm

    Cmon Gene –You have been very open and informative with your answers. Now you say my question is a good one and you won’t give me a public answer? Bad enought the Commission always deliberates behind closed doors with no public access. Maybe Ms. Smith would like to answer.

  4. OK, David and Sam, because I like you guys so much, I give in. Please remember, that not all decisions made here are mine and any state employee will tell you how careful he/she must be when our legislator friends are in town. Regarding your question:

    First, the question contains a presumption that is not correct. In the original application from Hoku challenging Idaho Power’s termination notice, the Commission did not suspend the termination of Hoku’s Nov 2011 payment and did not retroactively suspend the minimum payments when it issued Order No. 32437 on Jan 13, 2012. And the Commission did not “clearly favor” Hoku. What the Commission said was:

    “We also direct Idaho Power and Hoku to immediately enter into negotiations regarding Hoku’s Petition to reform the amended special contract. Staff counsel shall facilitate the negotiation in an effort to determine whether the parties can settle the issue in Hoku’s reformation petition. Without deciding the issue, we advise the parties that waiver of the first block energy charge beginning with the January 2012 bill should be part of their negotiations. If settlement negotiations are not fruitful, the Commission will issue further instructions regarding the processing of the petition.”

    Thus, the Commission did not “favor” Hoku but merely directed the parties to see if they could settle the current dispute. If settlement was not possible, than the Commission was prepared to resolve the matter.

    In addition, the amended special contract recognizes that the parties may amend their special contract. The Commission did not order the parties to amend their special contract but directed the parties to see if they could settle their dispute – that led to the modification of the contract. Finally, in rare cases the Commission may abrogate a special contract when it determines that an existing contract seriously harms the public interest, though there is a high burden in determining what is in the public interest. And as the Commission noted in its Order: “When evaluating contractually set rates, the question is ‘whether the rates seriously harm the public interest, not . . . whether [the rates] are unfair to one of the parties that voluntarily assented to the contract.’” The US Supreme Court has laid out several factors to consider when reviewing contracts.

  5. chicago sam
    Feb 28, 2012, 9:31 pm

    In the game where millions of dollors are at stake it is hard to fault HOKU for trying to bluff Idaho Power and the Commission into suspending payments. However on the other side of it Idaho Powers rate payers are still at risk if a default is made sometime in the future. By moifying the terms of the contract [with big brother watching carefully] it probably just postpones a bad result which will be in no ones interest and I believe sets a precedent for other companys who are defaulting on their power bill. All that wind power the Utilitys are having to buy need a home but that’s another story. Thanks for the explanation of the Commissions thinking

  6. Gene Fadness
    Feb 29, 2012, 11:12 am

    Sam,
    Well, Sam just pointed out why sometimes it is pointless to take time to try and explain things to some who either are not listening, or perhaps my writing needs to improve. Nobody was bluffed here and Sam or any other Idaho Power ratepayers won’t pay one cent for electricity to serve Hoku, now or in the future.

  7. chicago sam
    Feb 29, 2012, 1:01 pm

    It’s OK Gene, I know it is your job to defend the Commission. However, I still contend Hoku was bluffing as they eventually came up with the money. Also, yoi need to reread the press release you put out. “Ratepayers are impacted because Idaho Power include the revenue ir was origionally contracted to receive from Hoku in both it’s 2011 rate case filing and it’s power cost adjustment filings. Without the Hoku revenue, the resulting deficiencey would have had to be made up by other Idaho Power customers.”

  8. Gene Fadness
    Feb 29, 2012, 7:19 pm

    And you need to re-read again. Ratepayers are impacted when revenue already approved in rates is no longer available. But the amended contract makes sure that doesn’t happen. That’s the reason for the agreement. And don’t dismiss what I write as simply my job to defend the commission. These are the facts, not spin. Read the agreement. Read the contract. Read the press release.

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