Amid dam sale critiques, Consumers offers to send profits to safety fund

Hoping to convince regulators to approve the sale of its 13 dams to a private equity firm, Consumers has offered a concession
Rather than pocketing $270 million in profits from the sale, Consumers has offered to put the money in a fund to cover unforeseen maintenance needs
Critics of the proposal have called it “spin” designed to make a bad deal look good

As it looks to garner support for a proposed dam sale a Michigan judge called “highly problematic,” Consumers Energy has offered a concession:

Instead of pocketing the $270 million ratepayer-funded payday the company claims it is eligible to receive through the sale, Consumers has offered to put that money into a fund to cover long-term maintenance on the dams in the event that new owners can’t afford the bill.

Company officials made the offer Wednesday in a 107-page filing with the Michigan Public Service Commission, which is expected to decide in the coming months whether to approve the sale of 13 Consumers dams to Confluence Hydro, a subsidiary of Maryland-based private equity firm Hull Street Energy.

The concession comes after Administrative Law Judge James Varchetti advised the commission to reject the deal, concluding after months of deliberations that it is “not in the public interest.”

Varchetti wrote that the transaction threatens public safety, may not be the cheapest option for ratepayers and fails to ensure that new owners will be “financially committed and able” to maintain the century-old dams, which need hundreds of millions of dollars’ worth of repairs and upgrades.

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In a public announcement that described the fund as “shareholder dollars,” Consumers Senior Vice President of Electric Supply Chris Fultz said the offering “reflects our commitment to demonstrating good faith and accountability.”

But critics of the dam sale contend Consumers should not receive the $270 million from ratepayers to begin with and the money is not enough to overcome deeper concerns about the sale.

“The spin is amusing,” said Howard Learner, CEO of the Environmental Law & Policy Center, which represents several groups opposing the sale. “This is not Consumers Energy shareholders picking up the cost. This is Consumers Energy charging Michigan utility ratepayers more for something that should, by the terms of their transaction, be Confluence Hydro’s financial responsibility.”

A release from Consumers also hailed new commitments from Confluence, including a community engagement plan and a vow to maintain the current land boundaries surrounding the dams when it seeks to renew their federal operating licenses.

A map of Consumers Energy's dams in Michigan

In their Wednesday filing, utility lawyers Bret Totoraitis and Evan Keimach rejected other conditions sale critics have urged regulators to impose upon the sale, writing that there is “not a need for any further safeguards” that would require renegotiation of the agreement Consumers has struck with Confluence.

Critics including MPSC staff members and Attorney General Dana Nessel have called for a so-called “parent guarantee” through which Hull Street Energy would inherit liability for the dams if Confluence goes bankrupt, restrictions on the company’s ability to sell the dams and a requirement that land surrounding the dams be given to the state if it ceases to be used for hydropower generation.

The deal would involve Consumers selling the dams for $1 apiece and inking a 30-year contract obligating ratepayers to buy back the power the dams produce at double the market price plus a $270 million cut for Consumers. The utility’s officials argue the sale-and-buyback plan is still cheaper than keeping or demolishing the dams.

Several outside groups have disputed that claim, accusing Consumers of overestimating the cost of alternatives.

Consumers first unveiled the plan last fall, after two years of deliberations about whether to keep, sell or remove its 13 dams on the Au Sable, Grand, Manistee, Muskegon and Kalamazoo rivers.

All told, the deal would cost Consumers ratepayers $3.4 billion, or an average of $1,800 per person over the 30-year contract. Company officials have said the sum ensures Confluence Hydro has enough money to pay for long-term maintenance while turning a profit.

Confluence, which plans to divvy the dams up among 13 subsidiary LLCs, has vowed to shore up and relicense them to continue producing power. However, the proposed deal does not hold Confluence to that vow and critics fear it would repeat a longstanding pattern of utilities giving unwanted dams away to more loosely regulated private owners who fail to invest in maintenance, shifting safety risks and repair costs onto taxpayers.

Twelve of the 13 dams are high-hazard, meaning they could kill people and inflict widespread economic damage if they failed.

Several critics — including staff within the Michigan Public Service Commission — have urged regulators to reject the company’s claim to the $270 million, arguing it amounts to double-dipping by a utility that has already reaped untold millions off the dams.

Consumers instead has offered to take in the money and then give it to the state to pay for any dam safety needs not covered by Confluence.

“This proposal is a concrete and meaningful response to address the speculative and unsupported safety concerns expressed by certain parties and by the (judge),” Totoraitis and Keimach wrote.

If regulators reject the sale, Consumers officials have said they will look to decommission the dams — a prospect cheered by environmentalists who hope to reverse the harm the structures have inflicted on rivers and feared by the small-town communities surrounding the dams, where economies revolve around the structures’ vast reservoirs.

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