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Idaho Public Utilities Commission
Case No. IPC-E-11-28, Order No. 32437
January 13, 2012
Contact: Gene Fadness (208) 334-0339, 890-2712
Hoku must pay December bill to Idaho Power by January 26
A Pocatello manufacturing plant paid a $1.9 million past due November bill to Idaho Power Company Friday, but the plant may still face termination of service if its December bill plus $13,500 in interest from its late November payment is not paid by January 26.
Hoku Materials, Inc., which is building a polysilicon manufacturing plant, instructed its bank, the Industrial and Commercial Bank of China, to wire a $1.9 million payment to the utility Friday. Idaho Power had threatened to terminate service by Jan. 3, but that was forestalled after Hoku filed a complaint with the Idaho Public Utilities Commission on Dec. 29. The commission heard oral arguments from both sides on Thursday.
A commission order issued Friday denies Hoku's request to suspend its December and future payments, but also denies Idaho Power's request for an additional $1.8 million deposit on top of a $4 million deposit already paid by Hoku. The order also directs Idaho Power and Hoku to negotiate a possible amendment to their sales contract because of a reduction in the commission’s published avoided-cost rate on which part of Hoku’s contract is based. The company also alleges that changes in the polysilicon market prevent the plant from becoming fully operational for another few months.
In another development, Idaho Power on Friday claimed Hoku failed to disclose it had completed a financing arrangement with its Chinese bank that made $10 million available to the company for operations and maintenance. Idaho Power claims that Hoku was aware of the loan one hour before Thursday’s oral argument but did not provide that information during the hearing.
During oral argument, Hoku acknowledged it had not paid its November bill (until Friday) because the decline in the polysilicon market has prevented the plant from producing revenue. To maintain its operation, Hoku is drawing on various reserves or loans. Hoku claims that termination of service will prevent completion of the plant’s construction, possibly freeze sensitive electronic equipment and threaten 160 jobs.
Idaho Power claims it has “gone out of its way to accommodate Hoku,” by modifying its original contract and delaying implementation. The loss of revenue from such a large customer poses “imminent financial harm,” to Idaho Power’s other customers because about $1.6 million of the payment flows through the annual Power Cost Adjustment (PCA) to offset the utility’s annual power costs. Also, customers may not receive their share of a tax benefit the commission just approved, Idaho Power claims.
The commission denied Hoku's request that payments under the current contract be suspended because doing so 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, suspending Hoku's payments adversely impacts other customers.
Regarding the increased deposit requested by Idaho Power, the commission said Hoku's $4 million deposit complies with the commission's rule that tariffs not exceed twice the amount of a customer's estimated monthly bill. If Hoku does not make its December payment by Jan. 26, Idaho Power will be allowed to withdraw the amount due from the $4 million deposit.
Idaho Power’s rate schedule requires that large power service customers whose demand exceeds 25 megawatts (Hoku’s peak monthly demand when fully operational can be up to 82 MW) 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 special contract between Hoku and Idaho Power, originally approved in 2009 and amended later that year, 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, requiring Hoku to pay 6.16 cents per kilowatt-hour. The first block also has a “take-or-pay” provision that requires Hoku to either take the power Idaho Power provides every month or pay the monthly minimum regardless of whether Hoku consumed power. Hoku claims it has paid $11.57 million in monthly minimum charges even though it had not actually taken delivery of electricity.
The second block (up to 25 MW) is priced at the traditional embedded cost rate for Idaho Power’s large special contract customers.
The published PURPA rate, rather than a market rate, was chosen because it gives Hoku the certainty of a fixed-price during the life of its contract. The second-block rate, the standard embedded rate, which is less than the avoided-cost rate, was chosen because of the belief Hoku should be entitled to the benefit of paying the rate similar to other large customers for at least a portion of its load. Charging Hoku the lower embedded rate for its entire load would likely place upward pressure on all of Idaho Power’s customer rates.
The original four-year contract gave Idaho Power adequate time to incorporate Hoku’s new load into its system. After Idaho Power completed the necessary transmission and generation expansion to serve Hoku at year-round capacity, the utility would recommend that Hoku be treated just like all other special-contract customers.
Hoku also filed a petition asking the commission to re-open the section of the contract that deals with the first block rate. Hoku claims the commission has reduced the avoided-cost rate by about 12 percent since 2009, due primarily to falling natural gas prices. Further, Hoku said the take-or-pay provision is unreasonable given changes in the polysilicon market that prevent the company from full production. Hoku claims that a provision of the original contract allowed it to request a release from its first block energy commitment with adequate notice but that Idaho Power twice refused to release Hoku from its monthly minimum payment.
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