Idaho Public Utilities Commission
Case
No. IPC-E-12-02, Order No. 32486
March
15, 2012
Contact:
Gene Fadness (208) 334-0339, 890-2712
Commission adopts Idaho Power-Hoku settlement
A
settlement between Hoku Industries and Idaho Power Company is in the public
interest and protects all parties, including ratepayers, the Idaho Public
Utilities Commission ruled today.
Hoku,
a Pocatello plant that will manufacture and sell polysilicon to the solar
industry, requested an amendment to its contract with Idaho Power after the
utility threatened to disconnect service when Hoku fell behind in its minimum
monthly payments. Conditions in the
polysilicon market are preventing Hoku from beginning production, causing cash
flow problems and an inability to make its previously required monthly payment
of about $1.8 million. The minimum
monthly payment is not based on electricity consumed, but is required to meet
expenses Idaho Power incurs to be ready to meet Hoku’s expected demand of up to
82 megawatts.
The
commission directed the parties to attempt a settlement, which was successfully
negotiated and presented to the commission for approval last month. Today the commission said the settlement
“adequately balances the burdens and benefits among Hoku, Idaho Power and other
customers.” The commission directed the
parties to submit their revised contract within 30 days.
The
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 from the lower minimum payment,
Hoku will reimburse the difference between the current and the revised minimum charge
in payments spread through November 2014, plus 6 percent interest. Hoku will also make an initial payment of $3.8
million, with $2 million of that coming from a $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. Hoku 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.
Giving
Hoku immediate relief from its monthly minimum payment allows it to better
manage its cash flow, complete plant construction and provides time for the
polysilicon market to adjust, the commission said. “For its part, Idaho Power is protected by the
up-front payment and avoids litigation.
Finally, ratepayers are made whole by the recovery of deferred minimum
payment at the end of the revised special contract. Ratepayers are compensated
by the 6 percent carrying charge on the deferred balancing mechanism,” the
commission said.
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 settlement ensures customers are no worse
off than they otherwise would have been had the contract not been amended.
Hoku 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
petitioned the commission in December to protect it from termination and
suspend its monthly minimum until the contract could be amended. The commission denied the suspension because
it would violate a commission prohibition of "retroactive
ratemaking," if the commission stayed collection of rates already
under contract. Entirely suspending Hoku's payments adversely impacts
other customers, the commission said. Instead, the commission directed
Idaho Power and Hoku to negotiate to reform the contract. 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. 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 initial 2009 contract between Hoku and Idaho Power provided
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.
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