The dispute between Idaho Power and Pocatello polysilicon manufacturer Hoku Corp illustrates the Idaho Public Utilities Commission’s challenge of balancing the needs of a start-up company with the expectations of a regulated utility and its other customers.

It also may send a message about Idaho’s business climate.

Hoku had planned to begin production of polysilicon, the raw material for solar panels, in 2009. That’s when it signed a contract with Idaho Power. The investor-owned utility had come to Hoku, offering a good deal because the plant planned to shutdown during the summer, Idaho Power’s peak demand months.

At the time, Hoku was a Hawaii-based solar company with a Japanese name ready to invest $400 million in Idaho to meet a growing need for polysilicon worldwide, especially in China.

“If not for Idaho Power, we would not have built our plant in Pocatello,” Hoku CEO Scott Paul.

But the economy was going south, and it was hard for Hoku to get capital to finish construction. Then Baoding Tianwei Group, a Chinese national energy company, became Hoku’s controlling stockholder, bringing millions of dollars to Idaho and taking care of Hoku’s capital shortage.

Hoku and Idaho Power negotiated extensions. But the relationship soured.

The Idaho Public Utilities Commission’s job is to regulate utilities like Idaho Power, which have a monopoly on electric power distribution. That means it has no competitors, so the PUC’s role is to provide a fair return for investors while ensuring ratepayers pay a fair price for their electricity,

The three-person commission is not an economic development promoter, but how it interprets the public interest in its decisions has major economic implications for Idaho.

Last week, the PUC heard oral arguments in a complaint filed by Hoku against Idaho Power. The gist of the arguments is that Hoku has paid Idaho Power $33 million — for deposits, infrastructure and electricity — but hasn’t yet started production.

The commission Friday denied Hoku's request to suspend payments, but also denied Idaho Power's request for an additional $1.8 million deposit. It ordered the two companies to negotiate an amendment to their contract.

Hoku instructed its bank Friday to wire the $1.9 million November payment to Idaho Power.

Hoku wants to rewrite its contract so it doesn’t have to pay until it begins using the massive amount of power it plans to use when it is producing polysilicon. And Idaho Power wants to get paid what it’s due because a contract, after all, is a contract.

Jason Williams, Idaho Power corporate counsel, argued Wednesday that Hoku’s failure to pay its bill since Nov. 1 is having a “direct and immediate” impact on all of its other customers.

“If Hoku doesn’t contribute its share of revenue, the other customers will have to pick up the difference,” Williams told the PUC. But the PUC said Idaho Power should lower the rate to reflect other changes in the complicated rate structure.

Hoku has 160 people working now, but expects to go into production later this year as the polysilicon market improves. Baoding Tianwei’s latest infusion last week was $10 million for operating costs, and Paul said he expects more soon.

But the CEO doesn’t want to hand it all over the Idaho Power. He wants to renegotiate the contract.

“Hoku’s difficulties are due to circumstances beyond its control,” said its attorney, Joe Miller.

But should Idaho Power’s customers and its stockholders take the hit for Hoku’s risks in the marketplace?

Here’s the PUC’s quandary: If Hoku were to go under, Idaho Power’s half-million customers would suffer as much or more than if the Hoku contract is changed.

And state and local leaders won’t be happy if 160 workers are laid off so Hoku can pay a power bill.

For Paul, it’s an issue of fairness. He says the decision goes beyond his company and Idaho Power.

Fairness is at the heart of Chinese business culture, he said. And his Chinese investors aren’t the only ones watching.

“The outcome on this situation will have a direct impact on how Chinese investors look at Idaho,” Paul said.

Rocky Barker: 377-6484