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.