- Citing concerns about ‘stranded assets,’ state officials want regulators to impose conditions on Consumers Energy’s plan to sell its hydropower dams
- In new testimony, utility officials say they’d sooner decommission the dams than renegotiate the sale
- The ultimatum raises the stakes of a sale that could reshape Michigan rivers and cost ratepayers billions
Take it or leave it.
That’s Consumers Energy’s response after state officials expressed reservations about the utility’s plan to sell 13 aging hydropower dams to a private equity firm.
If state regulators don’t approve the sale to Confluence Hydro as-is, a company executive wrote Monday in testimony to those regulators, Consumers plans to decommission all 13 dams — a move sure to anger fans of the reservoirs created by the impoundments.
The ultimatum comes after several groups urged the Michigan Public Service Commission to reject the sale plan or impose conditions, contending Consumers’ proposed terms put the public at risk by failing to ensure Confluence or subsequent owners will maintain the hulking structures.
In his testimony, Consumers Executive Director of Engineering Richard Blumenstock wrote that those terms are non-negotiatable.
“Any conditions or adjustments to the transaction are not appropriate and Confluence Hydro and Consumers Energy are not open to their consideration,” Blumenstock wrote.
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That irked sale critics, who said the ultimatum reinforces their concerns about transferring the dams from a state-regulated utility to a private buyer not subject to state oversight.
“They’re doing a disservice to their customers by framing it this way,” said Daniel Abrams, an attorney with the Environmental Law and Policy Center, which represents five river conservation groups that oppose the sale.
Confluence itself did not submit any testimony and company spokesperson Natalie Joubert declined to answer questions from Bridge Michigan about the proposed conditions on the sale.
Joubert touted Confluence’s “long-term vision to own, upgrade and relicense all 13 dams” and said the company has “the tools, track record and experience to be successful in Michigan.”
For years now, Consumers has been looking to exit the hydropower business as costs to maintain its 13 dams on the Muskegon, Manistee, Au Sable, Grand and Kalamazoo rivers exceed revenues from the electricity they generate.
Last fall, the company announced a plan to sell the dams for $1 apiece to Confluence, a subsidiary of Maryland-based private equity firm Hull Street Energy, then sign a 30-year contract to buy back their power at double the market rate.
The arrangement would cost Consumers and its customers $1.25 billion in today’s dollars, but company officials estimate that’s at least $500 million cheaper than keeping or decommissioning the dams.
Ratepayer advocates and environmental groups dispute that math, contending Consumers has dramatically overestimated costs to keep or decommission the dams. By their estimate, selling is the most expensive option.
Other critics of the sale agreement, including staff within the Michigan Public Service Commission and the Michigan Department of Attorney General, have warned that the proposed sale terms leave the dams vulnerable to unscrupulous owners.
Commission staff have “significant concerns about the long-term future of the Hydro fleet, including the potential for these dams to become stranded assets with significant liabilities that could ultimately become the responsibility of the State,” commission staffer Jonathan DeCooman wrote in testimony last month.
While Confluence has vowed to keep the dams for the long term and invest in needed maintenance, the sale agreement doesn’t hold the company to those vows.
Monopoly utilities like Consumers have a financial incentive to spend money maintaining their dams, because captive ratepayers typically cover those costs plus a guaranteed profit margin. They’re also subject to strict state oversight.
Neither is true for private hydropower owners.
That creates a risk they will underinvest in the structures, resulting in dangerous situations like the 2020 Midland dam failures and bankruptcies that leave taxpayers holding the repair tab.
Hoping to avoid that outcome, commission staff and representatives for Attorney General Dana Nessel have recommended a host of conditions on the sale agreement, including financial assurances, a “parent guarantee” through which Hull Street Energy would inherit liability 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.
In his testimony, Blumenstock called those proposed conditions unreasonable and unnecessary, while stating that there is “no reason” to believe Confluence would accept them.
“We need to move forward in a timely fashion with the sale,” Consumers spokesperson Brian Wheeler told Bridge Michigan on Tuesday.
A spokesperson for Nessel countered that her office’s proposed conditions “matter a great deal for Consumers Energy customers, and she stands by the necessity of those recommendations.”
“It is our hope the MPSC will advocate for those same customers, even if Consumers Energy recommends disregarding their interests,” said Nessel spokesperson Danny Wimmer.
While Consumers officials have said they would pursue decommissioning if the Michigan Public Service Commission rejects the sale, such a plan would also likely need commission approval.
If presented with a decommissioning proposal, commissioners would weigh its impact on ratepayers’ power bills and Consumers’ capacity to deliver reliable energy before deciding whether to approve it, agency spokesperson Matt Helms said.
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