Lansing — Michigan Natural Resources Commissioners on Wednesday grilled executives from Consumers Energy and Confluence Hydro on the companies’ plan for the private equity company to buy Consumers’ 13 hydropower dams.
Among their most pressing questions: Why do Confluence Hydro investors believe they can earn money from operating the dams when Consumers officials consider dam ownership a bad financial deal?
“If you can’t make sense of it and you own the asset today, debt-free, how can they make sense of it?” Commissioner James Laporte asked during Wednesday’s commission meeting. “Some cost is going to get transferred to someone else so they can make money.”
Selling the dams is the lower-cost option for customers when compared to Consumers taking on the costs of decommissioning or continuing to operate them, said Rick Blumenstock, Consumers executive director of electric supply engineering.
Blumenstock and Confluence Hydro executives gave a presentation defending the proposed sale to the NRC on Wednesday.
The proposed sale price is $1 per dam. It comes with a 30-year power purchase agreement in which Consumers will pay about twice the normal cost of hydroelectric power.
The sale is about more than money, Blumenstock said. It’s also about transferring future costs of maintaining and operating the dams to Confluence Hydro.
“If they produce energy, we pay for it, but the value is more than just the energy capacity or the renewable energy credits that get produced,” Blumenstock told commissioners. “It’s avoidance of future capital that you noted earlier, as well as the full transfer of all future liabilities associated with the dams.”
Commissioner Mark Eyster said moving that liability to Confluence also means removing state oversight, since Confluence would not be regulated by the Michigan Public Service Commission, which regulates Consumers and other privately held utilities in Michigan.
“The danger I see is that the people of this state are no longer protected,” Eyster said. “These are major resources, major consequences to the people of the state.”
The Natural Resources Commission sets hunting and fishing rules in Michigan. Commissioners won’t decide on the proposed sale, but they say the future of the dams has grave implications for the state’s natural resources. The Michigan Public Service Commission will decide on the dam sale later this year.
At their March meeting, Natural Resources Commissioners heard from critics of the dam sale. At that meeting, Department of Natural Resources Director Scott Bowen said the department took the “rare” step of intervening in the case before the MPSC and said he fears the dams will eventually become the state’s liability.
At the end of their Wednesday meeting, Natural Resources Commissioners are scheduled to vote on a resolution to oppose the dam sale. The resolution says the plan “presents significant uncertainty and potential risk to Michigan’s public trust resources and to the public.”
Will the dams ever be decommissioned?
Although the dams are between 91 and 120 years old, Confluence Hydro doesn’t see decommissioning in their future, Confluence Hydro Chief Operating Officer Jillian Lawrence and Hull Street Energy Vice President of External Affairs Natalie Joubert said after the meeting.
The dams could be maintained and operated in perpetuity, Lawrence said.
“As long as they’re serving a function and in good condition I don’t see that there’s an end of life,” Lawrence said. “It’s like the Hoover Dam. When will the Hoover Dam cease to exist?”
Jourbert said Confluence Hydro plans to relicense the dams. Those licenses would extend into the 2070s. After that, the dams’ future will depend on their condition, the economics and regulation of hydropower, she said.
When asked whether Confluence had a plan for saving money for the eventual decommissioning of the dams, Joubert said the company plans to use its revenues from Consumers’ power purchase to invest in the dams and operate them.
Why Consumers wants to sell its dams
Dams require significant investment but provide “relatively small revenue” for customers, Blumenstock said. They also provide relatively little energy, only about 1% of Consumers’ power supply.
The dams generate about $13.3 million in revenue for Consumers, Blumenstock said Wednesday. He said operating them costs Consumers about $13 million. Meanwhile, the cost of upgrades needed at the Hardy Dam alone cost above $350 million.
In March, Consumers asked FERC for permission to delay those upgrades until the end of 2028, allowing time for MPSC to rule on the proposed sale and for Confluence Hydro to coordinate construction.
Moving that cost to Confluence is a good financial deal for customers and will maintain the reservoirs that people use for fishing, boating and swimming, Blumenstock said.
The power purchase agreement between Consumers and Confluence Hydro is key to making the dam sale work, officials from both companies said Wednesday. It will incentivize Confluence to keep the dams licensed and producing power, since Consumers only has to pay if the dams are providing power, Blumenstock said.
The agreement also ensures Confluence has a “stable, secure source of revenue to ensure we upgrade these facilities, relicense them” and keep owning them, Joubert said.
Commissioners raised Confluence Hydro’s track record of buying and selling dams as an issue on Wednesday. The company has purchased 47 dams and sold 45 of them, Lawrence and Joubert said Wednesday. The dams it sold did not come with power purchase agreements, they said.
Confluence is committed to operating the dams for the long-term, Joubert and Lawrence said. They acknowledged concerns from sale critics who worry Confluence Hydro could move to sell some of the land that comes with the dam purchase, but said that isn’t part of the company’s plan.
“We have no intent to do that,” Lawrence said. “In our history, our prior ownership, we have never requested a license amendment for the purposes of shrinking the boundary or divesting of the land. We are not real estate developers.”
Why dams matter to Michigan fishing, hunting
Although they are regulated by the MPSC, Consumers’ hydropower dams impact Michiganians’ fishing and hunting options.
As they create energy, the dams warm water and harm the fisheries on iconic northern Michigan rivers. A dam failure could devastate downstream communities and environments, as happened when the privately owned Edenville and Sanford dams failed in 2020.
The surrounding lands and ponds the dams create are used for fishing, hunting and other recreational activities. That’s a key reason some people support the sale, although others fear Confluence Hydro could try to sell the land for profit.
If the dams are sold to Confluence Hydro, they will be regulated only by the Federal Energy Regulatory Commission and only if the dams continue to be licensed to produce power, Fewins said.
“In good conscience I cannot see how this is good for the State of Michigan,” Fewins said. “Right now, we are in a weak enforcement environment on the federal level. My confidence in (the Federal Energy Regulatory Commission) is decreasing right now.”
The future of the dams means a lot to Consumers even if the sale is approved, Blumenstock said. Consumers employees who work on the hydropower dams will move to Confluence Hydro.
“Our brand is on it,” he said. “Everyone will remember them as Consumers Power dams even if we sell them.”
The companies will not proceed with the sale if the MPSC places any limitations or restrictions on it, Blumenstock said after the meeting Wednesday. If the sale is not approved outright, Consumers will decommission the dams, he said.
Public Service Commission staff members and Michigan Attorney General Dana Nessel both suggested conditions be placed on the sale, such as holding Hull Street Energy liable if any of its subsidiary dam owners go bankrupt.
