A news service for the people of Michigan from the Mackinac Center for Public Policy

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Bill Would Keep $60 Million Special Deal in Place for Hemlock Semiconductor

General Motors, other companies against subsidizing special electric deal

Hemlock Semiconductor Corp., one of Michigan's most favored corporate welfare recipients, wants to be billed for just two-thirds of the electricity it uses.

For years, the state of Michigan has obliged by setting up a 32 percent discount rate for the Saginaw County company, which saves it roughly $60 million annually.

This sweetheart deal for Hemlock is scheduled to end soon, but if passed, House Bill 5013 would allow Hemlock to continue getting the lower rate indefinitely.

In addition to its electricity rate discount, Hemlock has received — and continues to receive — hundreds of millions of dollars in subsidies and tax breaks from the state and from local governments. However, because the state's corporate welfare arm, the Michigan Economic Development Corp., does not provide full information about deals it makes, it is not possible to report the total dollar amount of these subsidies and tax breaks.

According to the Mackinac Center for Public Policy, what has been established is that Hemlock Semiconductor was offered at least $26.75 million in Michigan Economic Growth Authority (MEGA) credits in four projects from 2004 to 2008.

The company also got an "Anchor Jobs Credit" and an "Anchor District Credit" in 2008. When the legislature passed these credits it was not known what they were going to cost. Six years later, the totals are unreported. Hemlock also is getting a MEGA polycrystalline silicon credit, which will be worth $29,000 next year and is supposed to be worth $357 million over the life of the credit.

There has also been at least $300 million in local property tax abatements for the company and $40 million in State Education Tax abatements and other incentives. 

James Hohman, assistant director of fiscal policy with the Mackinac Center, said lawmakers need to research and evaluate the full track record of Hemlock Semiconductor's special subsidies and tax breaks to put House Bill 5013 in perspective.

"Government officials have already given a tremendous amount of incentives to this one firm," Hohman said "The Legislature should insist on analyzing the results of those expenditures before agreeing to give further favors to the company."

Hemlock Semiconductor is a joint venture of Dow Corning, Shin-Elsu Handotai Company and Mitsubishi. It produces polycrystalline silicon, which is used for solar panels and electronic devices.

The company is the largest electricity customer at a single site in Michigan. According to Hemlock, at full production, it uses about 420 megawatts of electricity, which is estimated to be three times the electricity used by all of the households in Lansing and Ann Arbor combined.

Several years ago, the state Legislature provided significant tax abatements as an incentive for Hemlock Semiconductor to expand in Michigan. The incentive package included an agreement under which the Michigan Public Service Commission allowed Consumers Energy to provide electric service at a significantly reduced rate.

In 2008, Public Act 286 changed the way electricity rates for customer classes are set. Before the 2008 legislation, large commercial and industrial customers subsidized residential rates. The 2008 legislation required the MPSC to set electric rates so that each customer class pays its true cost of service. That change would have put an end to Hemlock's special deal on its electricity rate before now. But, in 2010 the state Legislature enacted legislation that allowed Hemlock to continue to receive its special lower rate until the legislation expires on Dec. 1, 2015.

House Bill 5013, sponsored by House Majority Floor Leader Jim Stamas, R-Midland, would eliminate the automatic "repealer" provision from the 2010 legislation making Hemlock's lower rate permanent. The legislation is before the House Energy and Technology Committee and hearings on it are ongoing.

Speaking on behalf of Hemlock Semiconductor at a hearing earlier this month, Andy Colouris, area vice president for area public affairs with Dow Corning, told the committee that 1,700 jobs at Hemlock were "at stake" if the company lost its special lower electricity rate. The implication was that Hemlock might consider moving to Tennessee if it loses its special electricity rate deal in Michigan.

However, some major businesses and business groups oppose letting Hemlock keep its discount. Representatives from the Michigan Chamber of Commerce and General Motors have testified against House Bill 5013, arguing that other businesses shouldn't be subsidizing a lower electricity rate for Hemlock Semiconductor. According to testimony given by representatives of General Motors, the subsidizing of Hemlock's lower electricity rate is costing the Detroit automaker about $1 million annually.

Neither Colouris nor Rep. Stamas responded to requests for comment.

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See also:

Energy Expert: Michigan Should Eliminate Its Utility Monopoly For Lower Prices

Expert: Utilities Distorting Electric Choice Track Record

Bill Would Open Up Competition In Michigan's Electricity Market

With Competition Diminished, Michigan Citizens Paying High Price For Electricity

Meet James Hohman, Assistant Director of Fiscal Policy at the Mackinac Center. James discusses his latest project, an analysis of Proposal 1, the proposal on personal property tax reform that will appear on the August 5th ballot. Read more about Proposal 1 here: http://www.mackinac.org/20246


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