Consumers Energy’s sale plan would turn unprofitable dams into $270M payday

Consumers Energy currently reaps no profit off its 13 dams on Michigan Rivers
The utility’s plan to sell the dams and buy back the power would change that, bringing in $270 million in profits while ratepayer costs skyrocket
Company officials say the law requires the profit; critics aren’t so sure

While Consumers Energy pitched its proposal to sell 13 Michigan dams as a cost-saving measure for its ratepayers, the sale would include a ratepayer-funded payday for the utility and some of its employees.

By ditching the unprofitable dams and buying back the power they produce, Consumers aims to collect at least $270 million in new profits from customers who now receive the same power for less, according to details spread across thousands of pages of regulatory filings tied to the sale plan.

Consumers would also reroute tens of millions of dollars customers have prepaid for the dams’ decommissioning to employee bonuses and legal and consulting fees.

“We’re really struggling to see where the benefit is to the customers,” said Rod Williamson, executive director of the Association of Businesses Advocating Tariff Equity, a group representing industrial power customers.

If approved by the Michigan Public Service Commission, the profit margin would push total ratepayer costs for the sale-and-buyback plan to $3.4 billion over the life of the 30-year contract, or about $1,800 per person if divided equally among Consumers’ 1.9 million ratepayers.

RELATED:

Consumers officials contend rates would rise even higher if the utility kept or removed the structures, because Consumers would seek to charge ratepayers billions in maintenance or demolition costs. Critics have disputed that math.

Some critics of the arrangement, which relies on incentives written into Michigan’s 2023 clean energy law, call it an abuse of a statute that was supposed to encourage new renewable energy developments. Others call it “double dipping” by a utility that has already reaped untold millions off the century-old dams.

Consumers officials contend the so-called “financial compensation mechanism” is legally required, that the other expenses are justified and that the overall sale plan benefits ratepayers.

“This is not about profiting from the power, but about ensuring reliability and value for customers under established regulatory standards,” company spokesperson Trisha Bloembergen wrote in response to questions from Bridge Michigan.

Consumers plans to sell some of Michigan’s largest dams to a subsidiary of a Maryland-based private equity firm as the utility looks to exit a hydropower business that produces just 1% of its annual power at nine times the price of any other source.

Consumers officials have described the sale as a win for ratepayers and the small communities where life revolves around the artificial lakes created by the dams. The sale would allow Consumers and its customers to avoid vast repair or demolition costs by enlisting new owners who’ve vowed to keep the dams intact.

Men fish in a boat on a lake — Anglers drift in Lake Allegan, the reservoir created by Calkins Bridge Dam on the Kalamazoo River. (Kelly House/Bridge Michigan)

But critics have accused Consumers of downplaying potential drawbacks, including the risk that more loosely regulated private owners will fail to maintain the dams or will choose to sell them along with tens of thousands of surrounding acres that are part of the sale.

Others have argued demolishing the dams or keeping them in Consumers’ hands would be cheaper.

“Any of these options, in our opinion, are lower-cost to the customers than what Consumers is proposing,” Williamson said.

Profits for Consumers, rate hikes for customers

In announcing the sale plan last fall, Consumers offered limited details:

Confluence Hydro, a newly created subsidiary of Maryland-based Hull Street Energy, would buy the 13 dams on the Kalamazoo, Grand, Muskegon, Manistee and Au Sable rivers for $1 apiece, then sell the power back to Consumers at a $160 per megawatt hour — double the market rate for comparable power — plus a 2.5% annual increase.

Officials said the price would give Confluence enough money to upgrade the aging structures while still turning a profit.

Thousands of pages of exhibits, testimony and discovery subsequently filed with the Public Service Commission reveal how Consumers would profit off the sale, too.

The company wants to charge ratepayers an 8.75% return on the power it buys from the dams, which would generate between $270 million and $278 million over 30 years. That would push ratepayers’ costs closer to $174 per megawatt hour.

(Editor’s note: The Consumers Energy Foundation is one of several funders of Bridge Michigan. The foundation had no influence in reporting, writing or editing this story.)

Utilities typically aren’t allowed to profit off power sales. Their profits come from building infrastructure (think power plants and solar arrays) that customers pay off gradually, plus a guaranteed rate of return, in a process called depreciation.

But noting that hydropower is renewable energy, Consumers officials argue the sale-and-buyback plan makes them eligible for an exception that lawmakers carved out in 2023 for utilities that sign long-term renewable energy contracts.

The intent, said state Sen. Sam Singh, an East Lansing Democrat who cosponsored the law, was to speed the energy transition and lower costs by encouraging competitive bidding for renewable developments.

In general, monopoly utilities favor building their own infrastructure because they profit off doing so, but “oftentimes, that can be more expensive for the ratepayers,” Singh said.

So lawmakers sought a workaround. The law specifies that the state “shall authorize an annual financial incentive” for utilities that buy renewable power from someone else.

Singh said lawmakers didn’t anticipate Consumers’ plan to claim eligibility by selling unwanted assets and buying back the electricity at an inflated rate. He called it a “departure” from the law’s intent.

“The intent has always been to try to bring new energy to the grid,” Singh said, not to let utilities extract new profit from infrastructure “they’ve already owned and profited from for years.”

The line between legal and appropriate

Asked how much Consumers has profited off the dams in their century of existence, utility spokesperson Bloembergen said Consumers doesn’t keep track.

Lately though, the flow has dwindled to virtually nothing.

Ratepayers have more than repaid the $414.8 million Consumers spent building and maintaining structures, leaving a remaining value of “nearly zero,” Bloembergen said.

Matt Bandyk, a consultant for the residential ratepayer advocacy group Citizens Utility Board of Michigan, called Consumers’ attempt to extract new profits from the fully depreciated dams “a bit unseemly.”

Williamson, the representative for industrial power users, called it “egregious.”

“I can’t speculate on motive,” he said. “All I can talk about is the mechanisms and the benefit to the utility … and they’re proposing that they take these same assets where they already earned a return on their investment, and now they’re looking to get another profit.”

Bloembergen, the Consumers spokesperson, countered such criticism by arguing the ratepayer-funded incentives could ultimately lower ratepayer costs.

Asked how, she said “customers benefit because Consumers is proposing the lowest reasonable cost option for the dams under established regulatory standards.”

In filings with the Public Service Commission — whose three appointed leaders will decide whether to approve the sale — several groups have urged rejection of the profit plan.

Commission staffer Jesse Harlow argued it would set a dangerous precedent of “double dipping” by utilities.

Sebastian Coppola, an expert witness for Attorney General Dana Nessel, said it would “unduly enrich Consumers Energy at the expense of its customer.”

And a witness for the industrial power user group argued there is “no need” to incentivize Consumers to buy energy from assets it already owns.

But given how the 2023 law was written, it’s unclear whether the commission could approve the sale plan while denying Consumers’ incentive claim, said Erik Nordman, director of the Institute of Public Utilities at Michigan State University.

“What’s appropriate and what’s legal may be two different things,” Nordman said.

About $29 million of additional money ratepayers paid into the dams has been set aside to cover future decommissioning costs.

Consumers plans to spend the vast majority of that money on sale closing costs — including bonuses of up to 150% of the base salary for salaried workers who stick around through the sale — stock payouts and legal and consulting fees. The remaining $2 million would be returned to ratepayers for a credit of about $1.05 per person.

That plan, too, has prompted pushback from critics who call the costs excessive and unjustified.

So far, utility officials have been unwilling to budge.

In a March 2 filing with the Public Service Commission, company engineering chief Richard Blumenstock wrote that, if commissioners don’t approve the sale plan as-is, Consumers would instead seek to demolish all 13 dams.

“Any conditions or adjustments to the transaction are not appropriate and Confluence Hydro and Consumers Energy are not open to their consideration,” Blumenstock wrote.

Any proposal to demolish the dams would require regulatory approval, too, likely prompting lengthy debate about the best course of action for the 13 structures and how it would impact ratepayers and the public.

An administrative law judge overseeing the contested case tied to the dam sale will issue a preliminary recommendation in June. The Public Service Commission’s final decision is expected in September.

Thank you to our Michigan Environment Watch sponsors

Bridge Michigan Environment Watch is made possible by generous financial support from our sponsors. Sponsorship supports our independent journalism mission but does not constitute sponsor endorsement of individual articles or editorial content. Bridge Michigan journalism remains fact- and data-driven and independent at all times.

Please visit the About page for more information and to subscribe to Environment Watch. Interested in becoming a sponsor? Contact Emma Carr.