20120109Response.pdf

McDevitt & Miller LLP
Lawyers F~.E:CE:i
[phone]
[phone] (Fax)
420 W. Bannock St~~ JAll -9 P~1 3: 08
P.O. Box 2564-837&1
Boise, Idaho 83702
¡U
Chas. F. McDevitt
Dean J. (Joe) Miler
Januar 9, 2012
Vïa Hand Delivery
Jean Jewell Secreta
Idaho Public Utities Commssion
472 W. Washigton St.
Boise, Idaho 83720
Re: Hoku Materials, Inc. v. Idaho Power
Case No. IPC-E-11-28
Dear Ms. Jewell:
Enclosed for fig in the above matter, please fid an origial and seven (J copies of Holm
Materis, Inc.'s Response.
Kidly retu a fie staped copy to me.
Very Truy Yours,
McDevitt & Mier LLP
~U!
DJM/hh
End.
Dea J. Miler (ISB No. 1968)
Chas. F. McDevitt (lSB No. 835)
McDEVI & MILER LLP
420 West Banock Street
P.O. Box 2564-83701
Boise, ID83702
Tel: [phone]
Fax: [phone]
joecæcdevitt-miller.com
r~ ~:: C i !
2n¡l? Jf.iJ -9 P'¡'1 3: 08...... i'lli
Attorneys for Hoku Materials, Inc.
BEFORE THE IDAHO PUBLIC UTIITS COMMSSION
Case No. IPC-E-1l-28
HOKU MATERIALS, INC.,
Complainant,
RESPONSE OF HOKU
MATERIALS, INC.
v.
IDAHO POWER COMPANY,
Respondent.
COMES NOW Hoku Materials Inc., ("Hoku") and, as permitted by Order No. 32431,
responds to Idao Power Company's Answer, Motion to Dismiss and Motion to Set Termnation
Date ("Idaho Power Pleadings").
INTRODUCTION
1 . Ths Response is divided into thee sections. In the first, Hoku outlines the relief it
is requesting from the Commssion. Section II elaborates on the reasons for the requested relief.
The final section responds, to the extent not covered in the first two sections, to allegations in the
Idao Power Pleadings.
RESPONSE OF HOKU MATERIALS INC-l
SECTION I
2. The operable legal stadard under which ths case is evaluated is Rile 605 of the
Commission's Utilty Customer Relations Riles, IDAP A 31.21.01, which provides in par, "The
Commssion may stay termination of servce upon its fiding that the public interest requires
service to be maintaned to the customer."
3 . When makng a public interest determination, the Commssion considers all
relevant facts and circumstances. See Order No. 28213, In re: Scottish Power, Case No. PAC-E-
99-1. The Commssion may also impose conditions upon a proposed activity to insure the public
interest is served. Id As the Commission said in Scottish Power:
"The term "public interest" as it appears in Idaho Code § 61-328, is not specifically
defined anywhere in tht statute nor anywhere in Title 61 of the Idaho Code. Moreover,
we find no defitive defintion of the term in any Idao Supreme Cour opinion
interpreting § 61-328. The Idao Supreme Cour ha rued that the term "public interest"
(as used in relation to a motor carer statute) "is not susceptible of precise defintion."
Browning Freight Lines, Inc. v. Wood, 99 Idao 174, 180,579 P.2d 120, 126 (1978).
The Cour rued that "(i)n general, where the Commssion is requied to consider the
'public interest,' it must look to 'the interest of the public, their needs and necessities and
location and, in fact, all the surounding facts and circumstaces...to the end that the
people be adequately served. Order No. 28213, Pg. 33
4. Contemporaneously with the filing of ths Response, ~ Hoku is filing with the
Commission a Complaint for Reformation of Contract and Reparations. A tre copy is attached
as Exhbit 1.
5 . As discussed in more detal herein, Hoku respectfuly suggests that a correct
public interest result in ths case, balancing the needs ofIdao Power, of ratepayers generally, of
Hoku (also a ratepayer), and of the economy of the State ofIdaho is as follows:
a. The Commssion shoild temporarly stay termination of service based on the
November invoice, with the followig conditions to apply durg the period of a stay
(Stay Period).
RESPONSE OF HOKU MATERIALS INC-2
b. The Commission should requie Idaho Power to apply amounts held in deposit to pay
the November invoice in the amount of $1 ,895,656.26.
c. As soon as possible, and no later than 15 calendar days afer ths Order, Hoku shou1d
make a payment to Idaho Power to replenish the deposit account.
d. Durg the Stay Period, the Commission should establish a procedural schedu1e to
expeditiously consider and decide the issues raised by the Complaint. The Stay
Period shou1d be orders to have commenced December 1, 2011 and extend to the time
the Commission issues a fial order in the Complaint case.
e. Durg the Stay Period, commencing December, 2011, Hoku shou1d be requied to
pay for monthy energy it actuly consumes at the rates contaned in Idaho Power's
Schedu1e 19T.
f. Upon the later to occur of (a) 15 calendar days afer ths Order, or 15 calenda days
afer receipt of a revised invoice for the month of December, 2011 that reflects only
the amounts owing to Idaho Power for the energy actuly consumed pursuant to the
imediately preceding pargraph e, Hoku shou1d make a payment Idaho Power for
such invoice.
g. Durng the Stay Period, commencing December 1,2011, Hoku's obligation to pay
First Block Energy (as defined in the Amended and Restated Electrc Service
Agreement, a tre copy of which is atthed to Hoku's Complaint Contesting
Termination (AESA)) charges shou1d be suspended.
h. Durng the Stay Period, the Commssion shou1d preclude Idao Power from
attempting termination of servce for non-payment of a claimed $1.8 millon deposit.
RESPONSE OF HOKU MATERIALS INC-3
SECTIONll
6. Before respondig to the speific allegations in Idaho Power's Pleadings, Hoku
believes it is importt for the Commssion to undersd the strctue of the AESA. Pursuat to
the AESA, Hoku's demand and energy requiements are divided into two segments for pricing
puroses, referred to as the First Block and Second Block. The AESA defines First Block
Contract Demand as the number of kilowatts Idaho Power has agreed to make available as listed
in Section 6 of the AESA. These amounts are fixed by month in the AESA. First Block Energy
is the number of kilowatt hours determned by multiplyig the First Block Contract Demand by
the number of hours in the biling period, mu1tiplied by the Contract Load Factor. Under the
AESA, commencing in April of 20 11, Hoku became obligated by the terms of the AESA to pay
the Firt Block Demand and Energy Charges regardless of whether it actully consumed demand
or energy.
7. While the AESA creates a contractu obligation to pay, the AESA balances the
obligation to pay with an importt "safety valve." Paragraph 5.7 of the AESA allows Hoku to
request a waiver of First Block Energy Charges. As discussed in more detal below and in the
attached Complait for Contract Reformation, Idaho Power's refusal to grant relief under the
safety valve clause is at the core of this dispute. As wrtten, the safety valve clause is imperfect
because it grants to Idaho Power the sole discretion as to whether to grant relief. The Complaint
for Contract Reformation asks the Commission to correct this deficiency by allowing for
Commission supervision of the waiver decision.
8. Furer, the AESA establishes a rate for First Block Energy charges of$.061660.
The AESA rate for First Block Energy charges was established by reference to Idaho Power's
then existing published avoided costs. Since 2009, the Commission has entered orders lowering
RESPONSE OF HOKU MATERIALS INC-4
Idaho Power's avoided costs and curent avoided costs are approximately 12% lower than the
First Block Energy rate contained in the AESA.
9. As noted, Hoku became obligated to pay the First Block Demand and Energy
charges in April, 2011. Hoku was not physically interconnected to the Idao Power system in
April, 2011, and did not become interconnected until November, 2011. Between April and
November, Hoku paid to Idaho Power Company a total of$11,572,211 for First Block Demand
and Energy minimum charges, despite the fact that Idaho Power did not deliver a single electron
of electrcity to the Hoku Facilty.
10. Durng the month of November, 2011, the first month Hoku was physically
interconnected, the actu consumption was 220 KW of demand and 46,167 KWH of energy. To
fuer ilustrate the magnitude of the inequity curently occurng under the AESA, Hoku
believes this level of monthly consumption wou1d otherwse be priced under Idaho Power's
Tariff Schedule 19T, Large General Service. Under that taff, the rate for demand is $4.47 per
KW and the rate for energy is $.037902 per KWH (assuming all consumption is on-peak).
Pricing the actu consumption at those rates wou1d produce a monthy bil for demand and
energy of $2, 732. Yet, the AESA requires a payment for demand and energy of $1 ,890, 158,
producing for Idaho Power Company a gross profit of$I,887,421, or 99.85% gross margin.
Assumg the $2,732 price of actu consumption roughy reflects Idao Power's actu cost of
serving the Hoku load, the revenue produced under the AESA is approximately 700 times Idao
Power's cost of service (1,890,158/2,684 = 691).
RESPONSE OF HOKU MATERIALS INC-5
11. The Idao Power Pleadings! make a different calculation and say that Hoku's
power bil rus approximately $65,000 per day. Hoku does not dispute that calcu1ation based on
the required minmum First Block Energy payment under the AESA. Hoku observes, however,
as fuer ilustration of the curent inequity, and assumg the $2,732 price of actu November
consumption, Hoku's daly power bil wou1d be $91 (2,732/30 = 91.06).
12. Furer, Hoku has paid to Idaho Power the entire cost of constrcting facilties to
serve Hoku's load. In September of2008, Hoku and Idao Power entered into an agreement
whereby Hoku agreed to pay the entire cost of constrcting approximately six miles of 138,000
volt overhead transmission, a new 138,000-13,800 volt substation to supply up to 82 MWs with
two 67 MV A transformers. Hoku also paid for requied additional facilties at other Idaho Power
existing substations. Hoku has fuly performed that ageement and has paid to Idaho Power
$18,049,182 for constrction of the facilties. Pursuant to the agreement, Idaho Power retas
ownership of the facilties and the agreement provides, "Hoku recognzes that the Requested
Facilties will become par ofIdao Power's integrated electrcal transmission and distrbution
system and will be used by Idaho Power to provide electrc servce to other existing, and future
customers." Thus, neither Idaho Power nor its other customers are burdened by the cost of
facilties to serve Hoku and, in fact, are benefitted by those facilties, at no cost to them.
13 . Hoku fuer believes that Idaho Power incurs minial or zero cost associated
with the First Block contract miniums. Whle the trcated natue of ths proceedig precludes
formal discovery on ths issue, and Idao Power has never demonstrated its actu cost of
servce, notwthstading that, two prior Commission Orders support Hoku's belief. The first is
Order No. 31005, issued in Case No. IPC-E-08-21. That case involved a previous waiver of the
First Block Energy minimum payment. An issue in the case was whether Idao Power wou1d
i Idao Power Pleadigs, pargraph 17.
RESPONSE OF HOKU MATERIALS INC-6
incur cost when not providing service. Based on the record and representations ofIdao Power,
the Commssion concluded:
"If Hoku does not tae minmum service under the contract, Idaho Power may have to
unwind positions that are long in two of 16 months in the waiver period. Unwiding the
long positions cou1d prove to be a net cost or benefit to other customers as the cost or
benefit flows though the PCA. Because the long positions are relatively small, Sta
believes the impact on other customers will be inignificant. Staff recommends that the
Commission approve the Letter Agreement. The unwiding costs are unown but
estimated to be small or non-existent"
14. The second is Order No. 32424, issued in Case No. IPC-E-II-22, in which Idaho
Power requested an accounting order with respect to accumulated deferred income ta credits.
There, based on the Company's Application and a Stipu1ation between the paries, the
Commssion found that Idaho Power's earngs for the year 2011 wou1d exceed the Company's
authorized retu on equity of 10.5%, producing a customer benefit of approximately $20 milion
under an approved sharing formu1a. In previous years, Idaho Power's earngs did not exceed its
authorized retu on equity. In 2011, upon receiving $11.5 milion in revenue from Hoku,
without signficant off-setting cost, Idaho Power over-eared its authorized retu on equity.
From ths, it is possible to infer that revenue from the Hoku First Block charges is providing a
massive subsidy to both Idaho Power's earngs and to other Idaho Power customers2.
1 5. Attached hereto as Exhibit 2 is the Affdavit of Scott Pau1, the Chief Executive
Offcer of Hoku. As established by the Affdavit, Hoku's curent fiancial stress is not the resu1t
of negligence or ineptitude, but is the result of distubances in the global solar and polysilcon
markets.
2 The Company's Application in Case No. IPC-E-11-22, did not contain detaled accountig information regarding
the source of over-earings and it is conceivable that other factors contrbuted to the over earings. It, however,
seems undeniable that $11.5 milion in Hoku revenue, without off settg cost, had some contrbution.
RESPONSE OF HOKU MATERILS INC-7
16. Hoku acknowledges that Idaho Power has demanded a deposit in the amount of
$5.8 milion. It is undisputed that $4 millon of the demanded deposit ha been paid and $1.8
milion is unpaid.
17. It is importt to note, however, tht the demanded deposit amount is not
incorporated in the AESA and has not been approved by the Commission. The deposit resu1ts
from the unlateral demand of Idaho Power, occurng outside the AESA. Whle Hoku has paid
the $4 millon portion of the deposit, it did so only because payment was necessar to begin
takng service. Hoku does not believe it ha made a contractu commitment to pay the
demanded deposit.
18. Hoku fuher asserts that Idaho Power's unilateral demand for an additional $1.8
milion is uneasonable because Hoku's highest estimated demand and energy usage for the next
twelve months of operations is unikely to exceed the First Block Energy charges, which,
including demand charges, are less than $2.0 millon per month. Ru1e L only authorizes a
deposit that is equal to two times the highest anticipated bil in the next twelve months.
Therefore, the $4.0 milion deposit shou1d be sufcient. Hoku has informed Idaho Power of this
reduced power forecast; however, Idaho Power has continued to demand the additional $1.8
millon deposit.
Furer, takng into account payments made under the AESA, payments made under the
constrction agreement and amounts paid as a deposit, Hoku has paid to Idaho Power a total of
approximately $36 millon. In light of ths, the implication in the Idaho Power Pleadngs that
Hoku ha failed to fulfill any of its obligations under the AESA borders on fantay.
RESPONSE OF HOKU MATERIALS INC-8
19. Based on all these circumstaces, a stay oftermnation, subject to the conditions
suggested above, is reasonable and in the public interest. Hoku fuer notes that it is not unusua
for the Commssion to temporarly stay or alter the rights of paries while it devotes necessar
time to resolution ofreguatory issues. See e.g. Order No. 32212, Case No. GNR-E-1O-4, In Re:
Adjust Published Avoided Cost Rate Eligibilty Cap; Order No. 30277, Case No, IPC-E-05-22,In
Re: Temporarily Suspend PURP A Obligation.
SECTION III
20. Hoku now tus to statements in the Idaho Power Pleadings, to the extent they
have not previously been rebutted or explained.
21. In paragraph 8 of the Idao Power Pleadings, Idao Power points to Commssion
Order 31005, and the Commssion's expressed concern that other customers not be burdened by
the AESA and its implementation. Hoku acknowledges the legitimacy of ths concern, but as
observed above, other customers have likely received a significant subsidy from Hoku's First
Block revenues. Moreover, Hoku canot conceive of how it wou1d be in other customers'
interest to termnate service to Hoku. When the Hoku facilty is fuly operational it is anticipated
that revenue for the AESA shou1d be approximately $20 milion per year, which revenue wou1d
be reflected either in the Power Cost Adjustment on in the calcu1ation of base rates, to the benefit
of all customers.
22. In paragraph 11, Idaho Power alleges it has "gone out of its way to accommodate
Hoku." Hoku believes it wou1d not benefit the Commission to attempt a sumar of the long
history of discussions and communcations between Hoku and Idaho Power regarding the AESA.
Sufce it to say, Hoku's perspective is the opposite. And, on the most importt issue-whether
RESPONSE OF HOKU MATERIALS INC-9
Idaho Power wou1d grant a waiver of First Block Energy charges under paragraph 5.7-Idao
Power has been unovable.
23. In paragraph 12, Idaho Power alleges that Hoku has missed a payment and not
provided any assurance of payment. Two responding observations are appropriate: First, as a
couresy and in the interests of maitag clear communcations, Hoku informed Idaho Power
in advance that the payment may be delayed, authorized Idaho Power to apply the $4 milion
deposit to satisfy the November bil, and asked again if the $1.8 milion additional deposit cou1d
be waived. Idaho Power's response was to insist on payment in full of the November invoice,
while offering only to extend by two months the date when the $1.8 milion deposit wou1d be
due. Idaho Power then served its Termination Notice one day after the November payment
became past due. Idaho Power did not fuer communcate with Hoku either to discuss payment
arangements or payment assurances. Second, as set fort in Hoku's Complaint, Idaho Power
has on hand a $4 milion deposit and Hoku has consented to a draw upon the deposit. Idaho
Power can pay itself at any time it desires.
24. In paragraph 13, Idaho Power alleges that Hoku has fied a complaint to forestal
disconnection and continue to receive servce even though there is no controversy between the
paries. This Response and Hoku's Complaint for Reformation of Contract and Reparations fied
contemporaneously herewith, demonstrate that there is indeed a substantial and legitimate
dispute between the paries. And, as noted above, Hoku has attempted to demonstrate its good
faith by allowig amounts on deposit to pay the November invoice.
25. In paragraph 17, as noted above, Idao Power calcu1ates tht Hoku's power bil
approximates $65,000 day and worres this daily rate will drai amounts deposited; therefore,
Idaho Power argues, applying the deposit to past due amounts will eliminate the securty deposit
RESPONSE OF HOKU MATERILS INC-I0
and expose Idaho Power to immediate credit risk beginnng with the electrical servce provided
in Januar. To mitigate this imediate risk, Idaho Power is requestig the immediate disconnect
of Hoku's power supply. This arguent is moot ifthe First Block Energy is waived and ifHoku
is only biled for the energy consumed, as requested herein..
CONCLUSION
WHREFORE, Hoku respectfuly requests of the Commssion that:
a. The Commission temporarly stay termation of servce based on the November invoice,
with the followig conditions to apply durng the period of a stay (Stay Period).
b. The Commssion require Idaho Power to apply amounts held in deposit in payment of the
November invoice in the amount of $1,895,656.26.
c. As soon as possible, and no later than 15 calendar days afer ths Order, Hoku make a
payment to Idaho Power to replenish the deposit account.
d. Durg the Stay Period, the Commssion should establish a procedural schedu1e to
expeditiously consider and decide the issues raised by the Complait. The Stay Period
should extend to the time the Commission issues a final order in the complait case.
e. Durng the Stay Period, commencing December, 2011, Hoku should be required to pay
for monthy energy actually consumed at the rates contaied in Idaho Power's Schedu1e
19T.
f. Upon the later to occur of (a) 15 calendar days afer ths Order, and (b) 15 calenda days
after receipt of a revised invoice for the month of December, 2011 that reflects only the
amounts owig to Idao Power for the energy actually consumed pursuat to the
immediately preceding paragraph 5, Hoku shou1d make a payment Idaho Power for such
invoice.
RESPONSE OF HOKU MATERILS INC-ii
g. Durg the Stay Period, commencing December, 2011, Hoku's obligation to pay First
Block Energy charges shou1d be suspended.
h. Durg the Stay Period, the Commssion shou1d preclude Idao Power from attempting
termination for non-payment of a claimed $1.8 milion deposit.
DATED this ~day of Januar, 2012.
HOKU MATERIALS, INC
By:~2 ..
Attorney for Hoku Materials, Inc.
RESPONSE OF HOKU MATERILS INC-12
VDCATION
STATE OF HAWAI )
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Coun of Holuu )
Sctt Pa be fi duy sw dep an says th he. is th CEO ofHo Mas
In.,th he ha re th foring Rens an mows th cont th an th th sa
ar tr to th be ofbi lmowlee an belf.c!
Sc Pa
RESPNSE OF HOKUMA1' INC-13
State of HawaU
Ci ty & Coty of Honolulu
On 01/0912012
l
, before me. Sii A. Higa
(ler ;1I ii""e of IIotry)
persally appeaed Sco Pau
(ii""e(S) of s;iierS))
pernaly known to me (or prved to me on the bais of satisfatory evidece) to be th person(s) whose
nae(s) is/are subscbe to the with inbuent and acowleded to me tht be/she/they executed the sae
in his/her/their authrid capacity(ies), an tht by bis/erltei signtus) on the inbuent the peron(s),
or the entity up belf of which the person(s) aced execute the, inbuent.
WITESS my hand and offcial seal.
~re Øh (SEAL)
SHON A. HlG
Exn Da: Me 11,2012My Commission Expire:
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Ths ar for Offcial Notal Seal
NOTARY PUBLIC CERTIFICATION
Doc. Date:
Nota . Name:
Do. Descption:
0110912012
Shan A. Higa
Respone OfHoku Marial Inc
# Pages: 15
Judicial Ciruit: Firt
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Not Signni:
Date: 01109/2012
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ALL PUROSE ACKNOWLEDGMENT
10-1770 (HI) (Rev. 710)
CERTIFICATE OF SERVICE
I hereby certify that on the~ day of Janua, 2012, I caused to be served a tre and
correct copy of the foregoing document, upon:
Jean Jewell, Secretar
Idaho Public Utilties Commssion
472 West Washington Street
P.O. Box 83720
Boise,ID 83720-0074
jjewell~puc.state.id. us
Hand Delivered
U.S. Mail
Fax
Fed. Express
Email
Lisa D. Nordstrom
Idaho Power Company
1221 W. Idao St. (83702)
POBox 70
Boise, ID 83707-0070
lnordstrom~idahopower.com
Hand Delivered
U.s. Mail
Fax
Email
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McDEVITT & MILLER LLP
BY
RESPONSE OF HOKU MATERIALS INC-14
Dean J. Miller (lSB No. 1968)
Chas. F. McDevitt (lSB No. 835)
McDEVITT & MILER LLP
420 West Banock Street
P.O. Box 2564-83701
Boise, ID 83702
Tel: [phone]
Fax: [phone]
joe(ßmcdevitt-miller.com
Attorneys for Hoku Materials, Inc.
BEFORE THE IDAHO PUBLIC UTILITIES COMMSSION
Case No.
HOKU MATERILS INC,
Complainant,
COMPLAIT FOR CONTRACT
REFORMATION AND
REPARATIONSv.
IDAHO POWER COMPANY,
Respondent.
COMES NOW Hoku Materials Inc., ("Hoku"), pursuat to RP 54, and for claims agait
Idaho Power Company ("Idaho Power", "the Company", "IPCo") complains and alleges as
follows, to wit:
STATEMENT OF FACTS
1. Hoku is a corporation organized and existing under the laws of the State of Delaware and
authoried to conduct business in the State of Idaho.
2. Hoku is constrcting a manufactug facilty in Pocatello, Idao, for the purose of
manufactung, marketing and selling polysilcon to the solar industr ("Facilty").
3. Idaho Power Company is an electrc utility company subject to the jursdiction of the
Idaho Public Utilties Commssion ("Commission").
COMPLAINT FOR CONTRACT REFORMATION AND REPARTIONS-I
EXHBIT 1
PAGE10F7
4. On September 17,2008, Hoku and Idaho Power entered into an Agreement for Electrc
Service for the supply of electrc power and energy to the Facilty. On June 19,2009, Hoku and
Idaho Power entered into an Amended and Restated Agreement for Electrc Service ("AESA")
which superseded and replaced the September 17, 2008, Agreement for Electrc Service. On
Ju1y 24,2009, the Commission entered Order No. 30869, Case No. IPC-E-08-21 approving the
AESA. A tre and correct copy of the AESA is attched hereto as Exhbit 1.
5. Pursuat to the AESA, Hoku's demand and energy requirements are divided into two
blocks for pricing puroses. The AESA defines First Block Contract Demand and the number of
kilowatts Idaho Power has agreed to make available as listed in Section 6 of the AESA. First
Block Energy is the number of kilowatt hours determed by mu1tiplying the First Block
Contract Demand by the number of hours in the biling period, multiplied by the Contract Load
Factor. Under the AESA, commencing in April of2011, Hoku is obligated to pay the First
Block Demand and Energy Charges regardless of whether it actuly consumes or demands
energy.
6. The AESA establishes a rate for First Block Energy charges of$.061660. The AESA
rate for First Block Energy charges was established by reference to Idaho Power's then existing
published avoided costs. Since 2009 the Commission has entered orders lowering Idaho Power's
avoided costs and curent avoided costs are approximately 12% lower than the First Block
Energy rate contained in the AESA.
7. Hoku re-alleges as if fuly set fort herein, and incorporates by reference, paragraphs 9-
12 ofHoku's Response to Idaho Power Pleadings, filed contemporaeously herewith.
COMPLAIN FOR CONTRACT REFORMATION AND REPARATIONS-2
EXHIBIT 1
PAGE2oF7
8. At the time the AESA was executed it was the mutu assumption of the pares that the
polysilcon deposition reactors wou1d be energized and operational, and Hoku would begin its
production ramp-up by December 1,2009.
9. Through a series of events and circumstances beyond the control of Hoku, although some
of the polysilcon deposition reactors have been energized and become operational, Hoku has not
yet begu its production ramp-up.
10. Pargraph 5.7 of the AESA provides:
"Release of First Block Energy: With adequate notice and the written consent of Idaho
Power, Hoku may request a release of all or par of its First Block Energy purchase
commtment in retu for credit on its First Block Energy Charge. The value of the credit
will be determined by mutual agreement and will tae into consideration the timing of the
notice and Idao Power's abilty to mange any supply commtments made on Hoku's
behalf."
11. In March, 2011, Hoku's offcials met with Idaho Power's offcials at Idao Power's
offces and requested ofIdaho Power a release of First Block Energy pursuat to paragraph 5.7
of the AESA. Idaho Power uneasonably refused a release. On or about Augut 16, 2011, Hoku
requested in wrting of Idaho Power a release of First Block Energy pursuat to Paragraph 5.7.
Idaho Power again uneasonably refused a release.
12. As wrtten, Paragraph 5.7 is contrar to the public interest because it vests sole discretion
in Idao Power Company.
STATEMENT OF LEGAL AUTHORITY
13. Whle Hoku acknowledges that the Commission does not have authority to alter a
contract merely to relieve one or the other of the pares from an unprofitable or injudicious
undertng, the Commission does have the authority and the responsibilty to reform or alter
terms of contracts tht are contrar to the public interest. The Idaho Supreme Cour has
confrmed the Commission's authority to modify contracts when required by the public interest.
COMPLAINT FOR CONTRACT REFORMATION AND REPARATIONS-3
EXHIBIT 1
PAGE30F7
See Agricultural Products v. Utah Power & Light, 98 Idaho 23, 557 P.2d 617 (1976). And,
Idaho Power Company has recently acknowledged ths authority in pleadings filed with the
Commission:
"The Commission, in its role as the reguatory authority for all investor owned, public
utilities in the state of Idaho, has an independent obligation and duty to assure that all
contracts entered into by the public utilities it reguates are u1tiately in the public interest.
In the state of Idaho, contracts are aforded constitutional protection agait interference
from the State. Idao Const. Ar. I, § 16. However, despite ths constitutional protection, the
Commssion may anu1, supersede, or reform the contracts of the public utilties it reguates
in the public interest. Agricultural Products Corp. V. Utah Power & Light Co., 98 Idaho 23,
29,557 P.2d 617, 623 (1976) ("Intederence with private contracts by the state reguation of
rates is a valid exercise of the police power, and such reguation is not a violation of the
constitutional prohibition agaist impairment of contractu obligations. "); see also Federal
Power Comm's v. Sierra Pac. Power Co., 350, US. 348, 76 S.Ct. 368, 100 L.Ed. 388 (1 956);
United Gas Pipe Line Co. v. Mobile Gas Service Corp., 350 U.S. 332, 76 S.Ct. 373, 100
L.Ed. 373 (1956) (U.S. Supreme Cour fiding that rates fixed by contract could be modified
only "when necessar in the public interest"). The Commssion may intedere in such a way
with the contracts of a public utilty only to prevent an adverse afect to the public interest.
Agricultural Products, 98 Idaho at 29. "Private contracts with utilties are regarded as entered
into subject to reserved authority of the state to modify the contract in the public
interest."Id." See Reply Comments ofIdao Power Company, Case No. IPC-E-I0-59.
(2011).
The Commssion has recently exercised its public interest authority not merely to modify
contracts, but to reject them entirely. See e.g. Order No. 32256, Case No. IPC-E-11-58, Order
No. 32298, Case No. IPC-E-51-55; Order No. 32255, Case No. IPC-E-11-57.
The AESA by its own terms implies that the Commssion may modify contract terms.
Section 14.1 provides:
"The terms, conditions, and rates set fort in this Agreement and Schedule 32 are subject
to the continuig jursdiction of the Commission."
COMPLAINT FOR CONTRACT REFORMATION AND REPARATIONS-4
EXHIBIT 1
PAGE40F7
The Commssion also has authority to require reparations for excessive or discriinatory
charges pursuant to Idao Code §61-641:
"61-641. Overcharge-Reparation.-When complaint has been made to the
commission concernng any rate, fare, toll, rental or charge for any product, or
commodity, fushed or service performed by any public utilty, and the commission has
found, afer investigation, that the public utilty has charged an excessive or
discriminatory amount for such product, commodity or servce, the commission may
order that the public utilty make due reparation to the complainant therefor, with interest
from the date of collection: provided, no discrination will result from such reparation.
(1913, ch. 61, § 67a, p. 247; reen. C.L. 106:147; C.S.,§ 2515; I.C.A., § 59-641.)"
FIRST CLAIM FOR RELIEF-CONTRACT REFORMTION
14. Paragraph 5.7 shou1d be reformed to provide:
"Release of First Block Energy: With adequate notice and the wrtten consent of Idaho
Power or by order of the Commission, Hoku may request a release of all or par of its
First Block Energy purchase commitment in retu for credit on its First Block Energy
Charge. The value of the credit will be determined by mutual agreement or by order of
the Commission and will tae into consideration the timing of the notice and Idaho
Power's abilty to manage any supply commtments made on Hoku's behalf."
SECOND CLAIM FOR RELIEF-REPARTIONS
15. Hoku is entitled to reparations for First Block Energy and Demand payments in an
amount to be determined by the Commission.
THIRD CLAIM FOR RELIEF-SUSPENSION OF FIRST BLOCK ENERGY
16. The Commission should enter its order releasing First Block Energy charges until such
time as Hoku is prepared to commence the production ramp-up of its polysilcon deposition
reactors.
WHREFORE, Hoku respectfuly requests of the Commission that:
1. Reform the ARESA as herein requested.
2. Release First Block Energy as herein requested.
3. Award to Hoku reparations in an amount to be determed.
COMPLAINT FOR CONTRACT REFORMATION AND REPARTIONS-S
EXHIBIT 1
PAGE50F7
4. Grant such other relief as is appropriate in the circumstace.
DATED this !t day of Januar, 2012..,
HOKU MATERIALS, INC
BY:~\Lo
DeanJ.ller
Attorney for Hoku Materials, Inc.
COMPLAINT FOR CONTRACT REFORMATION AND REPARTIONS-6
EXHIBIT 1
PAGE6oF7
CERTIFICATE OF SERVICE
I hereby certfy that on theQ~ay of Janua, 2012, I caused to be served a tre and
correct copy of the foregoing document, upon:
Jean Jewell, Secretar
Idaho Public Utilties Commission
472 West Washington Street
P.O. Box 83720
Boise,ID 83720-0074
jjeweii~puc.state.id. us
Hand Delivered
U.S. Mail
Fax
Fed. Express
Email
Lisa D. Nordstrom
Idaho Power Company
1221 W. Idaho St. (83702)
POBox 70
Boise, ID 83707-0070
lnordstrom~idahopower.com
Hand Delivered
U.S. Mail
Fax
Email
~i.
"i.
"i.Ù
)4"i.ù
;(
McDEVITT & MILLER LLP
ByM.~y~\Q)
COMPLAINT FOR CONTRACT REFORMATION AND REPARATIONS-7
EXHIBIT 1
PAGE70F7
Dea J. MiUer (ISB No. 1968)
Chas.. F. McDevitt (ISB No. 835)
McDEVIlT & MILLER LLP
420 West Banock Street
P.O. Box 256483701
Boise~ ID 83702
Tel: 208.343.750
Fax: [phone]
ioeáV,mcdevi tt-mil 1 er.cu 11
Attornys for Hoku Materials. Inc.
BEFORE THE IDAHO PUBLIC UTn~ITIES COMMISSION
Case No. IPC-E-1l-28
HOKU MATERIALS, INC..
AFFIDAVIT OF SCOTT PAUL
Complainant,
v.
IDAHO POWER COMPANY,
Respondent.
STATE OF HAWAII )
: ss
County of Honolulu )
I, Scott Paul, being first duly sworn upon nn oath deposes and says:
I. I am the Chicf Executivc Otl1ccr of Holm Materials Inc., and am familar with
circumstances surrunding the global market for solar-grde polysilcon, the product which wil
be manufactured at Hoku's Pocatello facilty. I am over the age of21 and make this Affdavit of
my own knowledge.
2. In 2011, the spot markct price for solar-grade polysilicon. the product to be
manutactured by Hoku Materals, dropped below $30 pèr kilogrm. its lowest point in rect
memory.. Wh Hoku Materials entered the polysilcon business in 200, the spot market prce
A FFIOA VIT OF !'COTT P AI II ..1
EXHIBIT 2
PAGEloF4
for polysilcon was approximately $200 per kilogr, customer wer signng i ()yea fixed
price contracts, and industr analysts were foreg robust demand in the years to come. In
2008, market price climbed even higher, in some case exceing $500 per kilogram.
3. The high demand for polysilicon led to unprecented increaes in polysìlcon
production ~pacity from incumbent an new produce; and, in the second half of 201 J, supply
bean to exceed demand by an extrordinarly wide margi. What was expected to be a short-
ter glut has turned into a prolonged downward cycle in the maret, with today's price falìng
below the industr's average production costs. This is expeed to continue for at least the next
six months, until the excess inventory is consumed by the downstrea solar cell market. In the
meatime, to mitigate losses, many polysHicon plants arund the world are reducing theíT
producton output or idling plants. For example, MEMC, a St. Louís based company, recently
announce the suspension of production at their polysilcon plant in Mero~ Itay, and has
disclosed that they are evaluating the peranent shutdoWI of that 6,00 metrc tons facilty if
they cannt reduce their production costs, including the reegotiation oftheir electricity rates. III
addition, many facUities in China are idle today, and may not resume operations due to tlieir less
effcient proceses and higher cost strcture.
4. The currnt spot maret prices ar not sustaínable-entual1y the excess
inventory wil be consumed and the market wil corrct. However, it is unlikely that we wil see
a return to the recrd high prices of just a few years ago, and companies with poor cost strctu
wil not surve in the new market environment. This market situation was not generally
foreseen by industr anlysts, and is not within the control of Hoku Materials. Fortnately,
Hoku bas a long-tenn cost advantage relative to many ofthe idled plants due to its effcient
production proess, and the availabilty of low-cost hydropower in Idaho. Although Hoku
AFFlnAVlT OF ~COTT PAHt..l
EXHIBIT 2
PAGE20F4
cannot sustin its business operations at today's prce, and would not begin high volume
production in the current market environment, Holm is well positioned for sucess as the maret
correct and retnms to a stable and healthy prce strctu. In order to maintan. its busiess
operations, and to ready its plant for future operatons when the maret corrts, it nees to
remai connected to the power grd to complete its commissioning acivities, but it also nees to
reuce its operating expenes. Right now. the firs block energy charge frm Idaho Power is
Hoku's largest single opeting expense-and Hoku can only afford to pay for the power it is
consuming.
DATED this 9th day of Januar, 2012.6:~
CEO, Hoku Materals, Inc.
à FFIOAVIT f'F SCOTT P A ll..::
ExIBIT 2
PAGE30F4
State of Hawaii
City & County of Honolulu ¡
On 01/6/2012 , before me, Sharon A. Higa
(liere in~el' name of noti",)
personally app.re Scott Paul
(nameM of Signer(.ç))
personaUy knoy,ri to me (or proved to me on the basis of satisfactory evidence) to be the person(s) whose
l1ame(s) islar subscribe to the within instument and acknowledged to me that he/she/they executed the same
in his/her/their authorized capacity(ies), and that by hislher/their signature(s) on the instrument the person(s),
or the entity upon behalf of which the person(s) acted, executed the instrument.
and o.Oìcinl seal.WITNESS my
(SEAL)
,"Signature
SHON A. HlGA
My Commission Expir.es: Exra Dae: Ma 11,201
,
.-,"
This area for Omi:ial' 'Notarial Seal
NOTARY PUBLIC CERTIICATION
Doc. Date:
Notary Name:
Doc. Description:
01/09/2012 # Pages: 4
Judicial Circuit: FirstSharon A. Higa
Affdavit ofScot1 Paul
Notary Signature:Çl
Date: 01/06/2012
ALL PURPOSE ACKNOWLEDGMENT
IO.1no (HI) (Rev. 7109)
EXHIBIT 2
PAGE40F4