Judge: Michigan should reject Consumers’ ‘highly problematic’ dam sale
By Kelly House, Bridge Michigan
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Michigan should reject Consumers Energy’s plan to sell its 13 Michigan dams to an out-of-state private equity firm, an administrative law judge overseeing the proposed sale concluded Wednesday.
In a 312-page recommendation to state regulators who will ultimately decide whether to approve the sale, Judge James Varchetti wrote that the deal “is inconsistent with the public interest,” “highly problematic” and “unreasonable and imprudent.”
Varchetti, who has spent months gathering evidence and testimony from Consumers and interest groups that support and oppose the sale, concluded that the transaction threatens public safety and may not be the cheapest option for ratepayers.
“For a transaction involving infrastructure like major hydroelectric dams to be in the public interest, it would be a transaction that ensured the new owner is financially committed and able to meet the dam’s full lifecycle needs, thereby protecting taxpayers from assuming future liabilities such as decommissioning costs,” Varchetti wrote. “This transaction fails that test.”
The advice comes nine months after Consumers first proposed selling its aging dams in the AuSable, Grand, Kalamazoo, Manistee and Muskegon rivers to a Maryland-based private equity firm for $1 apiece, then inking a 30-year contract that would obligate the company’s 1.9 million ratepayers to buy back the power at twice the market rate, plus pay a $270 million profit to Consumers.
Spokespeople for Consumers Energy and its proposed buyer, Confluence Hydro, expressed disappointment in the recommendation but noted that it is not legally binding.
The Michigan Public Service Commission, a trio of utility regulators appointed by Gov. Gretchen Whitmer, is expected to decide by September whether to approve the sale.
“We believe the judge did not appropriately recognize the major benefits of the sale, Consumers spokesperson Katie Carey said.
Arguing the deal would bring “significant cost savings” for ratepayers while “protecting the 13 communities and tens of thousands of people who depend on the dams,” Carey said Consumers officials will continue to advocate for sale approval.
Michigan should reject Consumers Energy’s plan to sell its 13 Michigan dams to an out-of-state private equity firm, an administrative law judge overseeing the proposed sale concluded Wednesday.
In a 312-page recommendation to state regulators who will ultimately decide whether to approve the sale, Judge James Varchetti wrote that the deal “is inconsistent with the public interest,” “highly problematic” and “unreasonable and imprudent.”
Varchetti, who has spent months gathering evidence and testimony from Consumers and interest groups that support and oppose the sale, concluded that the transaction threatens public safety and may not be the cheapest option for ratepayers.
“For a transaction involving infrastructure like major hydroelectric dams to be in the public interest, it would be a transaction that ensured the new owner is financially committed and able to meet the dam’s full lifecycle needs, thereby protecting taxpayers from assuming future liabilities such as decommissioning costs,” Varchetti wrote. “This transaction fails that test.”
The advice comes nine months after Consumers first proposed selling its aging dams in the AuSable, Grand, Kalamazoo, Manistee and Muskegon rivers to a Maryland-based private equity firm for $1 apiece, then inking a 30-year contract that would obligate the company’s 1.9 million ratepayers to buy back the power at twice the market rate, plus pay a $270 million profit to Consumers.
Spokespeople for Consumers Energy and its proposed buyer, Confluence Hydro, expressed disappointment in the recommendation but noted that it is not legally binding.
The Michigan Public Service Commission, a trio of utility regulators appointed by Gov. Gretchen Whitmer, is expected to decide by September whether to approve the sale.
“We believe the judge did not appropriately recognize the major benefits of the sale, Consumers spokesperson Katie Carey said.
Arguing the deal would bring “significant cost savings” for ratepayers while “protecting the 13 communities and tens of thousands of people who depend on the dams,” Carey said Consumers officials will continue to advocate for sale approval.
All told, the deal would cost Consumers ratepayers $3.4 billion, or an average of $1,800 per person.
Consumers officials contend that’s a good deal because they would otherwise seek the MPSC’s permission to charge ratepayers billions to repair or demolish the unprofitable dams.
But critics have accused them of downplaying the risks. They fear the deal would repeat a longstanding pattern of utilities transferring unwanted dams to private owners who fail to invest in maintenance, raising the risk of dam failures while pushing repair or removal costs onto taxpayers.
The structures generate meager power while operating at a $152 million annual loss. The largest among them, the Hardy Dam on the Muskegon River, needs a multi-hundred-million-dollar spillway upgrade to comply with modern flood safety standards. All but one of the 13 dams are high-hazard, meaning a failure would likely kill people and inflict widespread property damage.
Confluence Hydro, the company set to buy the dams along with tens of thousands of surrounding acres, has vowed to modernize and relicense them to generate energy for decades to come.
In a statement Wednesday, Confluence spokesperson Natalie Joubert said the company “looks forward to continuing to demonstrate to the Michigan Public Service Commission our proven track record of success, owning and operating dozens of hydroelectric power facilities, improving their safety, increasing their sustainability, and generating clean, reliable energy for the communities we proudly serve.”
But critics are wary of the deal, arguing weak contract language and a maze-like corporate structure make it doubtful the company will uphold those vows.
Confluence, which itself is a subsidiary of Maryland-based private equity firm Hull Street Energy, proposes to further divide ownership of the dams by creating 13 of its own limited-liability subsidiaries. Company officials have described that as standard industry practice, but critics see it as a way for Hull to profit off the dams while avoiding liability for their upkeep.
Sale opponents hailed Wednesday’s ruling as a victory for Consumers ratepayers and Michigan taxpayers.
“The evidentiary record seems to support the position that the coalition has taken all along: That this sale would not be in the public interest,” said Bob Stuber, executive director of the Michigan Hydro Relicensing Coalition.
Hull Street has bought and sold dozens of dams and power plants across the US since its formation in 2014. More recently, the company has entered the data center business.
The Consumers sale proposal culminated years of deliberations by the utility over whether to keep, sell or remove the dams, which average 106 years old.
The company had no easy options.
Beyond being expensive to maintain, the dams are destructive to rivers, blocking fish habitat while warming the water, depleting oxygen levels and trapping sediment upstream. Many environmentalists would like to see them removed.
But in their century-plus of existence, the lake-like impoundments created by the dams have become beloved fixtures of nearby communities. Homes, marinas and campgrounds have all cropped up along their shores.
The sale plan has support from some local governments and waterfront homeowners’ associations, whose leaders see it as a way to secure the reservoirs’ future.
Sale critics include Michigan Attorney General Dana Nessel, state environmental and utility regulators, ratepayer advocates and outside environmental groups, all of whom contend the deal puts the public at risk.
Some argue it’s too costly for ratepayers. Others say the contract terms make it too easy for Confluence to sell or demolish the dams, parcel off the surrounding land or avoid spending money to keep the structures safe. Yet others balk at Consumers’ attempt to profit off the sale, accusing Consumers of “double dipping” on unwanted assets that ratepayers have already paid-off.
In his recommendation to the Public Service Commission, Varchetti appeared to share many of those concerns.
He wrote that Consumers has failed to prove that the sale is cheaper than keeping or decommissioning the dams and panned the company’s proposal to reap $270 million in ratepayer-funded profits off the deal.
Taken together, Varchetti wrote, the inflated power price and the proposed profit scheme would set “troubling precedent” that rewards Consumers “for shedding its own future obligations while placing substantial financial risk onto ratepayers and taxpayers.”
Consumers officials have rejected calls to add more safeguards to the sale plan, saying if regulators don’t approve the sale as-is, the utility will seek to demolish all 13 dams.
Stuber called that ultimatum “absurd,” saying he would like to see a community-based approach to decide the best course of action, dam-by-dam.
“All of these projects are unique in their own right,” Stuber said. “You have to sit down with the local community and the larger statewide community, and say what’s the best future?”
Both fans and foes of the sale plan have criticized the utility’s refusal to negotiate.
Coco Soodek, who represents the Lake Allegan Association, a pro-sale group representing landowners on the reservoir behind the Calkins Bridge Dam, called it “tin-eared” and called upon Consumers to start making concessions.
“I would like them to do this sale,” Soodek said. “But it sounds like if they want to do it, they have to be reasonable.”
If not, she said, “I don’t agree with the ALJ’s decision, but I understand it.”
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