20120113Volume I.pdf

ORIGINAL.BEFORE. THE IDAHO PUBLIC UTILITIES COMMISSION
HOKU MATERIALS, INC.,
Complainant,
vs.CASE NO. IPC-E-11~28
IDAHO POWER COMPANY,
ORAL ARGUMENTRespondent.
BEFORE
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O".COMMISSIONER PAUL KJELLANDER (Presiding
COMMISSIONER MACK REDFORD
COMMISSIONER MARSHA H. SMITH
PLACE:Commission Hearing Room
472 West Washington Street
Boise, Idaho
DATE:January 11, 2012
VOLUME I -Pages 1 - 35
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CSB REPORTING
Constance S. Bucy, CSR No. 187
23876 Applewood Way * Wilder, Idaho 83676
[phone] *[phone]
Email csb~heritagewifi.com
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1 APPEARANCES
2 For the Staff:
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For Idaho Power Company:
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9 For Hoku Materials, Inc.:
Donald L. Howell ,II ( Esq.
Deputy Attorney General
472 West Washington
Boise, Idaho 83720-0074
Lisa D. Nordstrom, Esq.
and Jason B. Williams, Esq.
Idaho Power Company
Post Office Box 70
Boise, Idaho 83707-0070
McDEVITT & MILLER
by Dean J. Miller, Esq.
Post Office Box 2564
Boise, Idaho 83701-2564
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APPEARANCES
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1 BOISE, IDAHO, WEDNESDAY, JANUARY 11,2012,2:00 P. M.
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4 COMMISSIONER KJELLANDER: Well, good
5 afternoon. This is the time and place for an oral
6 argument on Case No. IPC-E-11-28. My name is Paul
7 Kj ellander. I'LL be the Chair this afternoon. To my
8 right is Commissioner Mack Redford and to my left is
9 Commissioner Marsha Smith. As we begin today, we'll take
10 the appearances of the parties and we'll begin with the
11 Complainant.
12 MR. MILLER: Thank you, Mr. Chairman.
13 Dean J. Miller of the firm McDevitt & Miller on behalf of
14 Hoku Materials, and if permissible, I would like to make
15 a couple of other introductions. With me is Mr. Scott
16 Paul who is the chief executive officer of Hoku
17 Materials. Behind me is Mr. Ed Church who is the manager
18 of the Pocatello facility in charge of day-to-day
19 operations, and sitting next to him is Ms. Joanne
20 Hirase-Stacey who is in-house counsel for Hoku at
21 Pocatello. I know this is an oral argument, but the
22 company personnel are here to assist in the event any
23 questions go beyond my range of knowledge.
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COMMISSIONER KJELLANDER: Thank you, Mr.
Miller. Let's move now to Idaho Power.
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1 MS. WILLIAMS: Good afternoon,
2 Mr. Chairman, Commissioners, Jason Williams appearing on
3 behalf of Idaho Power Company. With me is co-counsel
4 Lisa Nordstrom.
5 COMMISSIONER KJELLANDER: Welcome, and why
6 don't we look to the Staff and, Mr. Howell, I recognize
7 it's not your intent to engage in the discussion today,
8 but since you're here, why don't we officially for the
9 record make your presence known.
10 MR. HOWELL: Thank you, Mr. Chairman. For
11 the record, I'm Donald Howell, Deputy Attorney General,
12 representing the Commission Staff.
13 COMMISSIONER KJELLANDER: Is there anyone
14 else we need to recognize? Seeing no one, then let's see
15 if there are any preliminary matters that need to come
16 before us.
17 MR. MILLER: Just one very minor matter,
18 Mr. Chairman. On page 5 of the Hoku Materials response
19 document, paragraph 10 there is a typographical error.
20 About five lines down the page you see the words "Tariff
21 19T. " That should be "Tariff 9T." Other than that, we
22 have no preliminary matters.
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24 Anything from Idaho Power?
COMMISSIONER KJELLANDER: Thank you.
25 MS. WILLIAMS: Nothing, Mr. Chairman.
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1 COMMISSIONER KJELLANDER: Okay. Well, it
2 appears as if we1 re ready to begin and Mr. Miller.
3 MR. MILLER: Thank you, Madam or
4 Mr. Chairman. I know you've had an opportunity to review
5 our pleadings, so I won't review them in great detail
6 other than to offer just some preliminary observations,
7 then see what the other parties have on their mind and
8 then, hopefully, be able to make a concluding responsive
9 remark, so the starting place we believe is Rule 605 of
10 the Commission's customer relations rules which provides
11 that the Commission may stay termination of service upon
12 its finding that the public interest requires service to
13 be maintained.
14 Hoku recognizes, Mr. Chairman and
15 Commissioners, that in making a public interest
16 evaluation, you must take into account a large number of
17 factors, not just Hoku' s circumstance, but other
18 circumstances and factors as well, so what we have
19 attempted to do is propose for you a resolution that
20 takes into account the considerations and interests not
21 just of Hoku, but of everyone who has an interest in the
22 outcome, and the resolution that we have proposed is set
23 forth on pages 2 and 30f our response papers, and I'll
24 just briefly review with you our proposed public interest
25 resolution.
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1 First, we're asking that the Commission
2 stay the termination of service based on the so far
3 unpaid November invoice, and we recognize that in
4 connection with a stay, the Commission can impose or
5 create conditions around the stay in order to achieve a
6 public interest result, just as the Commission did in the
7 Scottish Power case, so we are suggesting a number of
8 condi tions to accompany a stay which we think, as I've
9 said, will serve a public interest outcome.
10 First, in order to ensure that Idaho Power
11 is paid, we're suggesting that amounts currently -- an
12 amount currently held in deposit be applied to the
13 November invoice so that Idaho Power is paid. As the
14 Commission knows, Idaho Power has on hand a $4 million
15 deposi t which we believe could be applied to the 1.8
16 million under the November bill to ensure that Idaho
17 Power is paid, and we're also committing that as soon as
18 possible and not more than 15 days from an order , Hoku
19 would make a payment to Idaho Power Company to replenish
20 its deposit so that it comes back up to the $4 million
21 leveL.
22 As the Commission knows, we have filed a
23 separate new complaint seeking reformation of the
24 existing electric service agreement. I understand that
25 today is not the day to argue the merits of the second
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1 complainta.nd the request for reformation, but we also
2 think that enough of a showing has been made both by the
3 responsi ve papers and the allegations of the verified
4 complaint that the Commission should expeditiously move
5 to consideration of the second complaint, the contract
6 reformation complaint, and in the meantime should suspend
7 Hoku' s obligation to make payments under the first energy
8 block charges of the existing contract, and that during
9 the stay period Hoku should pay for energy that it
10 consumes and Hoku is offering or suggesting that it would
11 continue to pay the first block demand charges.
12 The reason we think this suggestion is in
13 the public interest is that it ensures that Idaho Power
14 Company will in fact be paid for the service it provides.
15 We do think based on our response that it is inequitable,
16 unjust and unfair for Hoku to continue to make payments
17 for energy that it does not consume, and I'll touch again
18 on that in a moment, and finally, we believe that if that
19 relief is granted, the current $4 million deposit which
20 Hoku is offering here to replenish within a short period
21 of time will be adequate to cover any future payment
22 difficul ties which we hope will not occur.
23 We think that the circumstances of the
24 case really cry out for relief along these lines. As we
25 point out in our response, during the month of November,
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1 the company, Hoku, consumed approximately 46,000
2 kilowatt-hours of energy. If those kilowatt-hours of
3 actual consumption were priced under the applicable Idaho
4 Power tariff, the bill would be about $2,000. Instead,
5 the bill under the existing agreement is close to$l ~6
6 million, or to put it in a different way, the bill
7 currently under the electric service agreement is about,
8 is $ 65,000 a day. The actual consumption based on
9 November would produce a daily bill. of $ 91.00, so it's
10 our view that the inequity currently occurring is so
11 manifest and is so great that the Commission properly in
12 the public interest could stay the obligation to make
13 first block energy payments while it's moving to
14 consideration of the second complaint and, of course,
15 Hoku is committing, obviously, to cooperate in every way
16 possible to expeditiously consider the second complaint.
17 So, hopefully, that gives you an overview
18 of our point of view. I'd be happy to answer any
19 questions to the extent I can and will look forward to
20 responding comments after hearing other parties' points
21 of view.
22 COMMISSIONER KJELLANDER: Let's see if we
23 have any questions before we move on. Commissioner
24 Smith?
25 COMMISSIONER SMITH: Just one,
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1 Mr. Miller.
2 MR. MILLER: Yes.
3 COMMISSIONER SMITH: Yeah, Paul and I do
4 look a lot alike. Has your client made or tendered any
5 payments from the time you filed until now?
6 MR. MILLER: No.
7 COMMISSIONER SMITH: Thank you.
8 COMMISSIONER KJELLANDER: Commissioner
9 Redford.
COMMISSIONER REDFORD: I think everyone is
11 aware of what you1 veargued, Mr. Miller. It seems to me
12 that the correspondence and the negotiations between
13 these two entities have been very slight, mostly by
14 letter. I'm wondering if you or Hoku has explored any
15 other credit arrangements whereby it could guarantee a
16 payment to Idaho Power in the event this Commission
17 should want to give you the relief you ask for and
18 specifically, I'm talking about bank guarantees, you
19 know, demand guarantees or there are a plethora of credit
20 arrangements whereby Idaho Power could be assured of and
21 guaranteed their sums notwithstanding what happens to the
22 complaint and further proceedings in this case.
23 MR. MILLER: Mr. Chairman and Commission,
24 if it would be permissible, I don't right at this moment
25 know the answer to that question. If either now or
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1 perhaps. after hearing from Idaho Power we could have a
2 short break, I'd be happy to try and elaborate.
3 COMMISSIONER REDFORD: That would be fine
4 with me, Mr. Chairman.
5 COMMISSIONER KJELLANDER: Mr. Miller, in
6 your resolution that you were describing to us earlier
7 and is included in the documents you filed with the
8 Commission, you reference that the amount that's
9 currently being held in deposit would be used for the
10 November bill. What about December? Hasn't that bill
11 already arrived? Isn't that already in Hoku' s
12 possession?
13 MR. MILLER: Yes, Mr. President,
14 Mr. Chairman. Hoku has received the December bill and
15 it's not yet due and payable, although it's getting
16 close. What we're -- as part of the relief that we're
17 asking is that the obligation to pay the first energy
18 block charge in the December bill be suspended. As I've
19 indicated, Hoku would pay the £irst block demand charge
20 and the first -~ and an amount to pay for all energy
21 actually consumed and Hoku is offering to restore the
22 $1.8 million to the deposit account, so we think that if
23 the Commission grants our requested relief with respect
24 to the December bill and orders Hoku, which it will do,
25 to replenish the deposit account, then the company will
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1 be adequately secured for payment of what's actually
2 consumed.
3 COMMISSIONER KJELLANDER: Okay, are there
4 any other questions? Thank you, Mr. Miller.
5 Letfs move now to Mr. Williams with Idaho
6 Power.
7 MS. WILLIAMS: Thank you, Mr. Chairman,
8 Commissioners. I will spare the Commission a recitation
9 of the facts related to the business relationship.between
10 Idaho Power and Hoku, but based on the filings we've made
11 with the Commission over the last couple of years, I
12 think it's patently evident that Idaho Power has been
13 accommodating to Hoku' s request to amend the terms of the
14 special contract that i thas with Idaho Power , as well as
15 delay implementation of certain terms in the contract, in
16 particular, the minimum payment requirements which we
17 delayed for a period of 14 months in allowing -- in
18 giving Hoku flexibility, additional time needed to ramp
19 up its operations, so I'd like to spend some time, I'm
20 going to argue in two general areas.
21 First of all, I want to respond to some of
22 the allegations made in the December 29th complaint, and
23 then in addition to that, secondly, I'm going to address
24 some of the contentions which are new raised by Hoku in
25'their response to our motion to dismiss, including the
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1 public interest argument that Hoku' s counsel was talking
2 about just a moment ago.
3 First off, the complaint, I guess out of
4 the gate I'd like to talk about what is and what is not
5 included in the complaint that was filed December 29th.
6 Most importantly, the complaint doesn't allege any
7 wrongdoing by Idaho Power. In legal parlance, the
8 complaint fails to state a claim upon which relief can be
9 granted. The fact is Idaho Power has performed all of
10 its obligations under the special contract. It has
11 planned, built and designed an electrical system that is
12 capable of delivering up to 82 megawatts of energy to
13 Hoku and that's what Hoku contracted for. To this day
14 Idaho Power stands ready to deliver that service to Hoku
and I don't think Hoku will dispute this and certainly
there isn't any evidence to dispute this.
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17 The Hoku complaint acknowledges that Hoku
18 does not currently consume the amount of energy that is
19 subj ect to the minimum billing requirements. The
20 complaint also states that because Hoku is not yet
21 producing revenue, it must draw on reserves and loans to
22 pay its operating costs. The complaint further states
23 that Hoku representatives contacted representatives of
24 Idaho Power in December of 2011 to inform Idaho Power
25 that Hoku was having cash flow shortages and that Hoku
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1 would be able to pay Idaho Power for its November invoice
2 in January of 2012. That is true.
3 Specifically, Hoku senior management
4 contacted Idaho Power senior management and told them
5 that it was having some issues receiving funding from its
6 parent corporation, which it's our understanding that
7 corporation is an arm of the Chinese government and that
8 there are issues associated with transferring funds
9 between Chinese and American banks, but during those
10 conversations, Hoku assured Idaho Power that the money
11 would be in during the first few days of January of 2012
12 and that our bill would get paid. Well, here we are
13 January 11th and we haven't been paid.
14 Instead, we have a brand new Commission
15 docket where Hoku is asking. this Commission to unwind the
16 contract that they've approved twice already, so in a
17 nutshell, there's just two allegations in the complaint.
18 First, Hoku is saying we're not using all the energy that
19 you're making available to us under the contract, and
20 second, we will get you your money by the first of the
21 year. What's important is that neither one of those
22 allegations have anything to do with Idaho Power.
23 There's no wrongdoing on our behalf. We haven't breached
24 the agreement. We've stood by that Commission-approved
25 a.greement and to this day stand ready to provide service
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1 under it.
2 There is an additional statement in the
3 complaint and that has to do with Hoku' s$4 million
4 deposit. In both the December 29th complaint and in its
5 response to our motion to dismiss, Hoku has consented to
6 allow Idaho Pówer to use a portion of the deposit as an
7 offset to the November 2011 invoice, which is about $1.9
8 million. From our perspective and in accordance with our
9 Rule L tariff, we generally do not apply deposits to
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10 offset amounts until the service has been terminated, but
11 in this instance and given the size of the customer we're
12 talking about and the fact of the harm that is occurring
13 to our customers, Idaho Power would be willing if this
14 Commission ordered to use that $4 million deposit amount
15 to pay all current amounts due to Idaho Power, so to be
16 clear, we sehtthe November invoice, which was due at end
17 of December, for 1.9 million. We sent the December
18 invoice on January 4th, which is about $2 million, and
19 which is due to Idaho Power by January 19th, but because
20 it does not appear Hoku is going to pay that invoice, we
21 would ask that the Commission allow us to immediately use
22 that $4 million deposit to pay all amounts that Hoku owes
23 to us.
24 So to summarize, and it's in our motion to
25 dismiss, I would like to be clear from the complaint
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1 standpoint what Idaho Power is asking from this
2 Commission. One, we're asking that the Commission grant
3 our motion to dismiss and issue an order dismissing the
4 complaint because it fails to allege any controversy or
5 dispute. Two, we ask that this Commission issue an order
6 setting a specific termination date. This will give
7 Idaho Power clear guidance as to when it can disconnect
8 service to Hoku. Clearly, any such order would provide
9 that if Hoku gets current and stays current on its bills,
10 as well as provides enough money to fully fund its $5.8
11 million deposit, we would forego termination, and lastly,
12 we ask that the Commission issue an order allowing the
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company to use the current Hoku deposit that is in our
possession to apply to all amounts currently due to Idaho
15 Power.
16 Now, I' dlike ,to move to the second part
17 of my argument and I'd like to address some of the issues
18 raised by Hoku in its response to our motion to dismiss
19 and particularly address the public interest standard
20 that Hoku has raised. First, I would like to address the
21 Commission's utility customer relations rules relating to
22 termination of service. As cited in our motion to
23 dismiss, Ida.ho Power cannot terminate service to a
24 customer so long as there is a pending complaint against
25 the company and so long as the customer continues to pay
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1 all amounts that are not in dispute, including its
2 current utility bills.
3 As I described earlier, the December 29th
4 complaint fails to allege any complaint or any claim of
5 controversy or dispute between Idaho Power and Hoku.
6 Since Hoku is not paying i tsbill, we believe that we
7 have the authority under that Commission rule to go ahead
8 and terminate service to Hoku anyway regardless of the
9 new pleading that it filed on Monday, and as a practical
10 matter, T can't help but suspect that Hoku may be playing
11 fast and loose with the Commission's procedural rules.
12 I do not believe it is the intent of the
13 Commission's rules to allow disgruntled customers to
14 continue to file complaints for the purposes of
15 forestalling termination of service. More importantly,
16 we don't think that the pleading that they filed on
17 Monday. is properly labeled as a complaint. It's really
18 an application to amend an existing Commission order and
19 we believe that the Commission can process that
20 application separately in a stand-alone proceeding
21 without regard as to whether or not Idaho Power
22 terminates the service to Hoku under the current
23 agreement.
24 Next, I would like to talk about what Hoku
25 has proposed and what Mr. Miller alluded to as one of
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1 Hoku's offers and that has to do with the stay period
2 wherein Hoku asks that this Commission retroactively go
3 back to the first of December to suspend the special
4 contract and allow Hoku to become a Schedule 9 customer
5 until the Commission issues an order in the contract
6 reformation case. That proposal is not only contrary to
7 this Commission's long-standing prohibition against
8 retroactive ratemaking , it also offends the basic tenets
9 of contract law. Hoku is effectively saying in
10 retrospect, I don't like the deal I entered into a few
11 years ago, so I'd like the Commission to help us go
12 backwards and unwind that deal. We don't think that's
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appropriate and we don f t think it should be allowed.
Next, I would like to address the
15 so-called safety valve provision to the special contract,
16 section 5.7. This provision of the contract allows Hoku
17 to request Idaho Power to release all or a portion of the
18 first block energy charge and credit it back to Hoku.
19 This particular provision of the agreement goes on to
20 state that the value of that credit would need to be
21 negotiated between the parties, as well as takes into
22 consideration other factors.
23 Hoku' s response to our motion to dismiss,
24 and I'm quoting here, "Idaho Power's refusal to grant
25 relief under the safety valve clause is at the core of
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1 this dispute."That's just not correct. Whileboth
2 Hoku and Idaho Power have in the past looked at the
3 release of the first block energy obligations as a way of
4 exploring pricing relief for Hoku, the fact is Hoku has
5 not formally requested a release from their obligations
6 under' the first block. They haven't told us how much
7 energy they would like to release, when they would like
8 the energy released. They haven't proposed what the
9 value of that credit should be, nor have they told us if
10 or when they would like that energy back. Moreover, the
11 December 29th complaint fails to allege that as a matter
12 in controversy, so procedurally, even if Hoku' s
13 allegation were correct, it's not properly before the
14 Commission today.
15 Next, I'd like to address Hoku' s
16 allegation that the November 2011 invoice to Hoku of
17 $1,890,000 contains within it in a gross profit of
18 $1,887,000 or 99.85 percent. That's just preposterous
19 and it's not true. The fact of the matter is the way the
20 pricing mechanism works for the Hoku contract, of that
21 $1.9 million, 1.6 million of it is supposed to flow back
22 to other customers through the company's power cost
23 adj ustment mechanism, so in reality, what Hoku' s failure
24 to pay the November 2011 invoice means is that all other
25 customers are going to experience an increase in power
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1 supply expenses of $ 1.6 million for the month of
2 November.
3 Next, I'd like to address Hoku' s
4 allegation that the company overearned in 2011 because of
5 the $11.5 million of revenue it received from Hoku. As
6 anini tial matter, Idaho Power strongly disagrees with
7 the characterization that we overearhed in 2011. The
8 truth of the matter is we did earn higher than our
9 authorized 10. 5 percent return on equity, but that was
10 primarily the result of a federal income tax refund that
11 the company diligently pursued over a number of years,
12 and as this Commission is fully aware, as a result of the
13 company's diligence in pursuing that tax refund, we are
14 going to be sharing the benefits of that money with
15 customers; however, as of right now, because Hoku hasn't
16 paid two months of the bills for services we provided in
17 2011 and by all appearances it doesn't plan that they're
18 going to pay, w.e' re going to have to make a downward
19 adjustment in the amount of that sharing mechanism,
20 giving all other customer classes less than they would
21 have received had Hoku honored its obligations under the
22 special contract.
23 Next, I 'dlike to address the issue of
24 cost and this is a very important issue. The Hoku
25 response to our motion to dismiss focused on cost
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1 alleging that the minimum contract payment under their
2 special contract far exceeds the actual cost to Idaho
3 Power for the small amount of energy that Hoku is
4 actually consuming. Mr. Miller just told you a few
5 minutes ago the same argument. Hoku believed that it's
6 inequitable that they're paying so much more than the
7 actual amount of energy they're consuming, but cost is
8 not the correct inquiry, revenues are.
9 Having just issued an order in Idaho
10 Power's general rate case less than two weeks ago, this
11 Commission is very aware of the complexities involved in
12 determining an electric utility's revenue requirement,
13 including how those revenues are allocated among various
14 customer classes. If one customer fails to contribute
15 its share of the overall revenue requirement, other
16 classes will have to contribute to make up that
17 shortfall.
18 Special contract customers like Hoku are a
19 customer class of one, so if Hoku doesn't contribute its
20 share of anticipated revenues, the utility will have to
21 look to all other customer classes to make up that
22 shortfall. What's particularly troubling to Idaho Power
23 is that Hoku intervened and actively participated in our
24 Idaho general rate case. They were at the table during
25 settlement discussions. They signed the stipulation that
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1 was submitted to this Commission. They knew what the
2 revenue requirement was supposed to be under that
3 agreement, and not once did they indicate to us, the
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4 Commission Staff or any other party or this Commission
5 that the revenues were going to be less than what was
6 forecasted because of the issues Hoku is now raising
7 today.
8 So finally, this leads me to the public
9 interest analysis and why Hoku' s failure to pay under the
10 special contract is going to harm not only Idaho Power,
11 but it' sgoing to have a direct and immediate negative
12 impact on all of our other customers. Initially, I'd
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like to point out that I believe Hoku has
mischaracterized the standard of review associated with
15 the termination of service under the Commission's utiii ty
16 customer relations rule. That's Rule 605 that Mr. Miller
.17 mentioned earlier.
18 The genera.l rule appears to mean that a
19 utility can disconnect service if the utility follows the
20 procedure prescribed by the Commission's rules; however,
21 a stay of termination may be granted in extraordinary
22 circumstances if this Commission makes findings that the
23 public interest required service to be maintained to that
24 particular customer, so a stay as is being requested by
25 Hoku does not appear to be the normal course under the
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1 Commission's procedural rules, and more importantly, and
2 as I'm going to explain, there is nothing in the public
3 interest that warrants staying termination of Hoku' s
4 service.
5 Now, I will accept Hoku' s positive public
6 interest standard that they made in their response to our
7 motion to dismiss and that is one which they claim, and I
8 believe Mr. Miller alluded to, it needs to balance the
9 interests of four constituencies: Idaho Power,
10 ratepayers generally, Hoku, and the economy of the State
11 of Idaho.
12 Let's look at each of these four groups.
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First, Idaho Power. Hoku owes us $3.9 million today for
services we provided and a $ 1.8 million deposit. They
15 aren't paying what they owe us. They are in breach of
16 the special contract and as I speak, Hoku is taking
17 service from Idaho Power without paying for it. Hoku' s
18 failure to honor the terms and conditions of the special
19 contract will have a direct adverse impact on Idaho
20 Power's 2012 financial performance, including our
21 earnings. From Idaho Power's perspective, its interests
22 would be best served by Hoku doing what it promised in
23 the special contract . Idaho Power has no interest in
24 this Commission granting a stay of termination.
25 The next group which Hoku labels
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1 ratepayers generally, but is more appropriately and
2 accurately described as Idaho Power's half a million
3 other customers, those customers are going to be
4 adversely impacted in at least three ways. First, as I
5 alluded to earlier, Hoku' s first block energy revenues
6 flow through as a credit to power supply expenses in the
7 company's PCA. If Hoku fails to perform under the
8 special contract and refuses to pay those first block
9 energy charges, it will cost all of Idaho Power's other
10 customers millions of dollars in higher supply expenses.
11 Second, the incentive tax credits or
12 lTC's, as i mentioned earlier, as a result of Hoku' s
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failure to perform under the agreement, Idaho Power is
going to experience a revenue shortfall most likely
15 requiring the company to accelerate additional ITC' s so
16 that it can meet at least a 9.5 percent ROE which was
17 approved by this Commission in Order No. 32424. Those
18 ITC' s belong to all of Idaho Power's customers. They
1 9 shouldn't be used as an offset solely for Hoku, but
20 because Hoku is refusing to pay its bills, that is likely
21 what is going to happen.
22 Third, if Hoku does not pay and has no
23 plans to pay going forward, the company is going to have
24 to take a hard look at its overall revenue requirement
25 and explore taking the revenues we had anticipated to
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1 receive from Hoku and spread them among all other
2 customer classes, which will result in increasing
3 customer rates across the board, so it's clear that the
4 interests of Idaho Power's other half a million customers
5 would be best served if Hoku performed under its special
6 agreement. They have no interest in seeing this
7 Commission grant a stay of termination.
8 The third group I want to talk about is
9 the economy of the State of Idaho.Well, as I've just
10 described, Hoku's failure to perform under the special
11 contract is going to result in a rate increase for all of
12 our other customers. I don't know of a single customer
13 of ours that would argue an increase in rates is good for
14 their business, and as for Hoku asa going concern and
15 its impact on the local economy over in Pocatello, I'm
16 not sure what to believe.
17 Before the new year, Idaho Power was told
18 by Hoku that it would be getting a new injection of cash
19 at the first of the year and that it would pay its bills.
20 There were insinuations that if Idaho Power cut the
21 electricity to the Hoku plant that 166 jobs would be
22 placed in jeopardy. Now, two weeks later, Hoku still
23 hasn't paid us and instead it's demanding reformation of
24 the special contract, and importantly, as Attachment 2 to
25 Hoku's response to our. motion to dismiss , it includes an
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1 affidavit of Hoku' sCEO that states, and I'm quoting here
2 from about halfway through paragraph 4 of Mr. Paul's
3 affidavi t, "Hoku is well positioned for success as the
4 market corrects and returns to a stable and healthy price
5 structure. In order to maintain its business operations,
6 and to ready its plant for future operations when the
7 market corrects...," to me, that sounds like Hoku plans
8 to mothball the plant and wait for thepolysilicon
9 industry to rebound.
10 I don't know what mothballing the plant
11 means for those 166 employees at Hoku, but I do know that
12 has nothing to do with Idaho Power and it has nothing do
13
14
with this Commission, so it's clear that the economy of
the State of Idaho is best served by Hoku doing what it
15 promised to do in the special contract and that it has no
16 interest in the Commission granting a motion for stay.
17 Lastly, the fourth constituency, Hoku.
18 Sure, Hoku is going to benefit if now in hindsight it is
19 able to break the special contract it entered into with
20 Idaho Power and shift all of the negative financial
21 consequences to Idaho Power and Idaho Power's other
22 customers. You know, the Hoku response correctly cites a
23 previous Commission order by which this Commission
24 acknowledges that there this is no precise definition of
25 the term public interest, but I cannot imagine any
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1 defini tion of public interest whereby the electric
2 utility and its 500,000 customers should be left holding
3 the bag for one customer that refuses to honor its
4 contract.
5 So to briefly recap, we ask that the
6 Commission issue an order dismissing Hoku' s complaint.
7 We ask that the Commission issue an order setting a
8 termination date whereby Idaho Power can disconnect
9 service to Hoku unless Hoku becomes current on all of its
10 current outstanding invoices and replenishes the deposit
11 so we have 5.8 million. We ask that the Commission issue
12 an order allowing Idaho Power to immediately apply the $4
13 million. Hokudeposit to Hoku' s current outstanding
14 invoices, and lastly, we ask that the Commission deny
15 Hoku' s request to stay termination of service because it
16 clearly is not in the public interest.
17 I'd be happy to answer any questions.
18 COMMISSIONER KJELLANDER: Thank you. Do
19 we have any questions? Commissioner Smith.
20 COMMISSIONER SMITH: Mr. Williams, I just
21 need a clarification. When you were talking about the
22 impact to other customers, you had an item 1, which is
23 the revenue flows through the PCA, and then an item 3,
24 which is the revenue shortfall spread to others. Are
25 those two different things or the same thing?
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1 MS. WILLIAMS: Commissioner Smith, they
2 are two different things. The way the Hoku agreement is
3 set up is there's two blocks of energy, and the first
4 block is based on the marginal-based pricing a.nd all of
5 those revenues go through the PCA. The second block is
6 embedded-based pricing. Now, Hoku has ..-
7 COMMISSIONER SMITH: Okay, I've got it.
8 MS. WILLIAMS: Okay.
9 COMMISSIONER SMITH: Thank you.
10 COMMISSIONER KJELLANDER: Are there any
11 further questions?
12 COMMISSIONER REDFORD:No.
13 COMMISSIONER KJELLANDER: Just one. In
14 the Hoku response, Mr. Williams, there was a reference on
15 page 5, No. 9 I believe is what the section has been
16 labeled as, that talks a.bout Hoku being obligated to pay
17 for the first block of the demand and energy charges as
18 of April 2011, and then the next sentence states that
19 Hoku was not physically interconnected at that time in
20 April. Was that due to any delay or anything that Idaho
21 Power had control over with regards to that
22 interconnection not being physically in place in April of
23 2011?
24 MS. WILLIAMS: Mr. Chairman, no. The fact
25 of the matter is we required a deposit from Hoku before
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1 we energized and interconnected and they refused to pay
2 anything for a deposit until, I believe, October and it
3 might have been November, so when we did get the deposit,
4 that's when we finally energized. No, we were ready to
5 connect and deli Verenergy had they paid us their
6 deposit.
7 COMMISSIONER KJELLANDER: Okay, thank you.
8 Any further questions?
9 COMMISSIONER REDFORD:No,
10 Mr. Chairman.
11 COMMISSIONER KJELLANDER: Mr. Howell, I
12 know that you had not intended to say anything, but I did
13 want to give you an opportunity to tell us that again.
14 MR. HOWELL: Staff doesn't have anything
15 to add. It thinks the issue has been flushed out
16 adequately by the two parties.
17 COMMISSIONER KJELLANDER: Thank you,
18 Mr. Howell. Let's return now to Mr. Miller.
19 MR. MILLER: Mr. Chairman, I don't want to
20 unduly prolong the proceeding, but I wonder if we could
21 have a short break for a conference and then be able to
22 wrap up.
23 COMMISSIONER KJELLANDER: Mr. Miller, who
24 is the conference with?
25 MR. MILLER: The conference with my
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1 clients.
2 COMMISSIONER KJELLANDER: Certainly. What
3 we'll do is we'll go off the record. How much time do
4 you need?
5 MR. MILLER: Ten minutes.
6 COMMISSIONER KJELLANDER: We'll take a
7 ten-minute break and then we'll return. Thank you.
8 MR. MI LLER : Than k you, Mr. Cha i rman .
9 (Recess. )
10 COMMISSIONER KJELLANDER: We'll go back on
11 the record. Mr. Miller, before we broke you had
12 requested a period of ten minutes for a conference.
13 We're now back on the record and the floor is yours.
14 MR. MILLER: Thank you very much,
15 Mr. Chairman. Let me first try and address Commissioner
16 Redford's question about the use of letters of credit or
17 other security for the deposit. Although this isn't in
18 the record, I'll represent this is what I've been told
19 and that is that in order to secure a letter of credit,
20 the company would have to make a deposit with the
insti tution issuing the letter of credit in a cash amount
equal to the letter of credit,and there would be
21
22
23 interest and other expenses associated with issuing a
24 letter of credit~
25 The company, therefore, concluded that
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1 it fS best to try and keep the deposit replenished with
2 cash rather than some secondary level of security, and
3 it's for that reason that the company or Hoku is offering
4 to replenish the deposit amount within a time to be
5 established by the Commission, so I hope that addresses
6 your question.
7 COMMISSIONER KJELLANDER: Commissioner
8 Redford.
9 Well, I heard whatCOMMISSIONER REDFORD:
10 you said and unless bank letters of credit and demand
11 guarantees have changed since I was dealing with it on a
12 regular basis, I don't think that statement is accurate.
13 Thank you.
14 MR. MILLER: From what I know, that's what
15 I know, but we can address that at some other time, if
16 necessary. Well, if the Commission would permit, I would
17 just make a few responding remarks to Mr. Williams'
18 remarks. With respect to the deficiencies, the claimed
19 deficiencies, of the initial complaint terminating
20 service, we would simply point out that one day after the
21 Hoku. November bill became due, Idaho Power issued its
22 termination notice, seven-day notice, so we had very
23 little time in which to prepare a complaint and did what
24 we could within that time, but we feel that the response
25 subsequently filed cures any defects in the original
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1 complaint and very fully sets forth our point of view.
2 Throughout Mr. Williams' remarks, he at
3 one point accused Hoku of playing fast and loose with the
4 Commission's rules and at other points implied that Hoku
5 is materially breaching its commitments in an unjustified
6 way, and I must say I take some umbrage at that
7 characterization.
8 First, I would not represent a party who I
9 thought was doing that, and second, theaffidavi t of Mr.
10 Paul and the other pleadings that we have filed clearly
11 establish that Hoku' s difficulties are due to events
12 beyondi ts control. It is not a circumstance where Hoku
13 isa. willful violator of agreements that it's made.
14 Hoku,as I indicated, is the victim of circumstances
15 beyond its control and I think has legitimately called to
16 the Commission 's attention the inequities associated with
17 the current circumstance and proposed a reasonable way to
18 resolve them, so it is not the circumstance that Hoku is
19 merely attempting to avoid obligations. It is the
20 circumstance that it's a victim of circumstances and has
21 ina proper way proposed to the Commission a method for
22 resolving current inequities.
23 With respect to the public interest
24 analysis and discussion, it certainly is true that the
25 impacts on other ratepayers will at some point need to be
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1 considered. It's also true that every customer,
2 including Hoku, is entitled to receive service at rates
3 that are fair, just and reasonable. The Commission over
4 a long period of time has moved in a way to try and
5 reduce unfair subsidies between one class and another
6 class, and it's true that Hoku is a class by itself, and
7 it's also our belief that it's currently providing a
8 massive subsidy to everyone else, but the important point
9 is that those issues don't need to be resolved today and
10 would urge the Commission not to jump to any conclusions
11 about what the impacts to other ratepayers might be based
12 on an adj ustment to the Hoku contract in the reformation
13 case.
14 We think all those issues can be addressed
15 there and legitimately addressed there, but as I've
16 indicated, for the short term, we have offered to
17 replenish the deposit account so that for the short at
18 least while wef reworking through those issues, no one is
19 harmed. Those are all questions to be resolved at some
20 later time, and just a quick comment on the recent Idaho
21 Power rate case.
22 It's clear that the first block revenue
23 was not at issue in that case. It's also clear that the
24 case was resolved by a black box settlement. I certainly
25 never would have signed that black box settlement
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1 agreement if I thought that it was somehow impeding our
2 ability to ina subsequent proceeding undertake a review
3 of the first block rates, so just by way of summary, Hoku
4 is not willfully attempting to avoid what it should
5 rightfully do. Hoku is requesting that a reasonable
6 process be established to review what we think is a
7 legitimate issue and that is whether the existing
8 contract should be amended to take into account
9 circumstances as they now exist, and I know that this
10 isn't the place to argue the second case, but I'll just
11 observe that we have gone to great lengths in that case
12 to suggest only the most minimal reformation of the
13 existing contract., so for all these reasons, members of
14 the Commission, we would ask you, as I know you will, to
15 give serious consideration to the requests for relief
16 that are set forth in our responsive pleadings.
17 COMMISSIONER KJELLANDER: Thank you,
18 Mr . Miller . Are there any questions? Commissioner
19 Smith.
20 COMMISSIONER SMITH: Thank you,
21 Mr. Miller. Looking at Mr. Paul's affidavit, it looks to
22 me like it was clear to your client that there were
23 difficulties and that was clear long before you got your
24 November bill and long before you got your seven..day
25 termination notice. I guess I'm wondering why did you
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1 wait until there's a crisis to ask us to explore these
2 issues which you have to know will take some time?
3 They're not easy for us. I don't agree with you that no
4 one is harmed, and I do believe that you had to have also
5 known that the Hoku reVenues were pro formed into the
6 ca.lculation of the rate case, so I guess I'm just
7 wondering why we waited for a crisis.
8 MR. MILLER: Thank you, Commissioner
9 Smi th. This really isn't in the record, so I'll just
10 have to represent what I think to be the circumstances
11 and that is that over several months Hoku went to quite
12 great sacrifice to attempt to meet its obligations under
13 the amended service agreement and during that period of
14 time had discussions with Idaho Power that were
15 unsuccessful in obtaining any relief, so in an effort to
16 avoid what has now occurred, which is litigation, Hoku
17 continued to make payments under the contract and, in
18 fact, taking into account the deposit, the payments for
19 construction of the transmission and substation
20 facilities and payments under the amended service
21 agreement has made over the course of this relationship
22 payments in excess of $30 million to Idaho Power Company,
23 and with respect to your second point, it' smy
24 understanding, and perhaps I'm wrong on this, that the
25 only thing that's pro formed into base rates is the
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1 second block of energy, if they are at all, and because
2 it is a black box settlement, I'm not convinced that any
3 amount of revenue is currently embedded in Idaho Power
4 Company's rates, but that's an issue for the subsequent
5 case, I think.
6 COMMISSIONER SMITH: Thank you,
7 Mr . Miller .
8 MR. MILLER: Thank you for the question.
9 COMMISSIONER KJELLANDER: Are there any
10 other questions?
11 COMMISSIONER REDFORD: No.
12 COMMISSIONER KJELLANDER: Is there
13 anything else that needs to come before the Commission
14 today? If not -- excuse me?
15 MR. MILLER: Just to thank you for your
16 time and consideration.
17 COMMISSIONER KJELLANDER: Thank you,
18 and those were going to be my comments to all of you
19 is to thank you for your time and consideration, for
20 your ability to represent your cases, and the
21 Commission will deliberate on the matters before us
22 and in a timely fashion will render a decision.
23 Again, we appreciate you being here today for the oral
24 argument and we will do our best to try and get a
25 decision out as soon as it's practicable, so with that,
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1 then, we are adjourned.
2 (The oral argument adjourned at 3:05 p.m.)
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1
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AUTHENTICATION
4 This is to certify that the
5 foregoing oral argument held in the matter of Hoku
6 Materials, Inc., Complainant, versus Idaho Power Company,
7 Respondent, commencing at 2: 00 p.m.., on Wednesday,
8 January 11, 2012, at the Commission Hearing Room, 472
9 West Washington Street, Boise, Idaho, is a true and
10 correct transcript of said oral argument and the original
11 thereof for the file of the Commission.
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/1 ....~$ -fr; t!.Q,
CONSTANCE S. BUCY
Certified Shorthand Reporter
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