An Arizona development firm is pushing back against a zoning setback in Pocatello, filing a formal appeal after city officials blocked plans to convert the dormant former Hoku polysilicon plant into a large-scale artificial intelligence data center. Lex Developments LLC and principal Gus Schultz submitted the appeal through attorney Jon Stenquist on June 1, 2026, asking the city to reverse its Conditional Use Permit denial.
The Hoku facility, a well-known piece of Pocatello’s industrial history, has sat largely unused since the original polysilicon operation ceased. Lex Developments has been working to repurpose the property for AI data processing infrastructure, a sector experiencing rapid growth nationally.
Why the Permit Was Denied
The city’s hearing examiner turned down the CUP application after determining that Lex Developments had not satisfied the standard established under Chapter 17.02.130 D of the Pocatello Municipal Code, which requires applicants to demonstrate their project will not harm public interests or threaten community health, safety, and welfare. The ruling was notable in part because it overrode the recommendation of city planning staff, who had supported conditional approval of the project.
In addition to denying the permit, the hearing examiner established a substantial list of requirements any future application would need to address before moving forward. Those prerequisites include detailed analyses of wastewater discharge, chemical pretreatment systems, total water consumption, electrical infrastructure demands, and broader environmental impacts — an extensive package the developers regard as premature for the preliminary approval stage.
Public sentiment at the hearing ran sharply against the proposal. More than 300 residents attended to voice opposition, with concerns about water drawn most heavily from the crowd. Many speakers worried that a facility of this magnitude could compete with Idaho agricultural users and strain Pocatello’s municipal water supply.
Lex Developments disputes that the project poses a meaningful water threat. Company representatives have described their facility design as a closed-loop system that would consume between 80 and 95 percent less water than a conventionally designed data center operation. The appeal argues that this distinction did not receive adequate consideration.
Legal Arguments Behind the Challenge
Stenquist’s appeal advances two separate lines of argument against the examiner’s ruling. The first challenges the procedural path the city required. According to the filing, the project should have been evaluated under Section 17.01.160.C of the municipal code — a provision addressing unlisted uses and authorizing operations similar to those already permitted in a given zone — rather than being subjected to the full CUP review process.
The second argument centers on the industrial history of the Hoku site itself. Because the property previously received approvals for heavy industrial use, the developers contend the proposed data center fits within that existing designation and should not require the level of scrutiny applied during the CUP review. On those combined grounds, the appeal characterizes the denial as “arbitrary and capricious” and “disproportionate and fundamentally unjust.”
The filing also takes direct aim at the scope of pre-application work the examiner demanded. The appeal document states: “The CUP process is not intended to require applicants to incur the full cost of final engineering, utility design, environmental analysis, and construction-level studies before obtaining preliminary and conditional land use authorization.” The developers argue that conditioning any future filing on construction-grade engineering turns the permit process into something it was never designed to be.
Development Authority Funding Requests Withdrawn
Separate from the zoning dispute, Schultz had been set to appear before the Pocatello Development Authority on May 20 seeking two distinct funding allocations. The first request was for $200,000 to fund a feasibility study with Idaho Power examining what would be required to restore the Hoku building’s electrical service to a 200-megawatt capacity. The second sought $500,000 for concrete removal on the property. Both items were pulled from the agenda before the meeting took place, and no public rationale was offered for removing them. Whether Schultz intends to refile those requests at a future Development Authority meeting has not been confirmed.
What Comes Next
As of the appeal filing date, the City of Pocatello had not set a hearing date to consider the challenge. When that proceeding is scheduled, the developers will have a formal opportunity to argue that the hearing examiner misapplied the municipal code and set an improperly high evidentiary threshold. The case carries implications beyond this single project — how Pocatello chooses to evaluate large technology infrastructure proposals on brownfield industrial sites will shape the city’s posture toward future economic development opportunities. Water rights holders and agricultural stakeholders across southeast Idaho will be closely monitoring the outcome. For additional Idaho economic development and infrastructure coverage, visit Idaho News and the Idaho News Network.