By Kennedy Maize
Michigan gas-and-electric utility Consumers Energy, a subsidiary of CMS Energy, is engaged in a complex and controversial dance as it attempts to spin off its entire fleet of 13 elderly hydroelectric projects to a private equity investor, which in turn might resell or shut the dams without state regulatory approval.
The dams — built along five Michigan rivers between 1906 and 1935 — total 132 MW of generating capacity. One of the projects — the 9-MW Croton Dam on the Muskegon River — is listed on the National Register of Historic Places.
In its 2,284-page filing last October, the Jackson-based utility said the sale to Confluence Hydro, a subsidiary of Maryland-based Hull Street Energy, “allows Consumers Energy to transfer substantial future operational and environmental liabilities and risk to Confluence and because it is the lowest-cost option for the future of these plants. The transaction also benefits the state of Michigan and the numerous local communities where the Facilities are located by preserving the dams and related impoundments, which provide important economic and recreational benefits in those communities and to the state.”
As part of the deal, Hull Street would pay Consumers $1/dam and then would sell Consumers the power from the dams under a 30-year power purchase agreement. The utility would pay Confluence $160/MWh with an annual 2.5% escalation, presumably less than it now costs the utility to operate the dams. The deal also includes an “Environmental Indemnity Agreement,” which Consumers says “is necessary to effectuate Confluence’s assumption of the environmental liabilities associated with the Facilities.”
The earthen dams are coming up for renewal of their Federal Energy Regulatory Commission licenses between June 2034 and May 2041. The utility says. “As the relicensing process – which can take up to seven years to complete – approached, Consumers Energy began evaluating the future of the Facilities. The aging plants require significant capital investments in order to maintain their FERC operating licenses.”
In a news release, Consumers said, “Hull Street Energy is an investment firm that has significant experience owning, operating and investing capital in power generation assets across North America, including 47 hydroelectric facilities.”
The case has led to a voluminous docket of well more than a hundred comments, with more coming. The statewide online news service MLive reported, “The deal structure worries conservation groups and state agencies, who say that allowing Consumers dams to fall into private hands based out-of-state creates environmental, public safety and liability risks….”
Looming in the background is Michigan’s experience in the 2020 Edenville Dam disaster. The 1924-vintage, 4.8-MW privately-owned earthen embankment dam in Central Michigan collapsed during a flood. In a retrospective piece last May on the fifth anniversary of the failure, MLive wrote, “A torrent of floodwater from the Tittabawassee and Tobacco rivers ripped homes off foundations and washed out bridges; overwhelming a second dam, flooding downtown Midland and sending 10,000 people into evacuation during a pandemic.”
Whether Hull Street will hang onto the dams or flip them to a new buyer is one of the issues facing the Michigan Public Service Commission. MPSC staff in filed testimony last week said it looks like Hull Street is free to spin off the dams to a new buyer. According to MPSC engineer Jonathan DeCooman, “Staff did not find any terms or conditions which would limit the ability of Confluence to transfer ownership of all or part of the hydro fleet to an unaffiliated third party.” The staff testimony also found that the contract does not require that Confluence operate the dam for the full 30-years of the deal.
Chicago-based Environmental Law and Policy Center, which works on issues in the upper Midwest, also raised questions about the deal in filed testimony opposing the deal. ELPC was representing five Michigan conservation groups. In a news release, ELPC said, “Residents and visitors across Michigan depend on healthy ecosystems and enjoy beautiful river views, so there are broad concerns about the future risks of selling the dams.”
Bob Stuber, Executive Director of Michigan Hydro Relicensing Coalition, one of the ELPC’s group, said: “Consumers has publicly acknowledged that these hydropower projects are economically marginal, so it begs the question: if Consumers is challenged to turn a profit from these projects, how will a private equity firm be able to do it?”
Bryan Burroughs of Michigan Trout Unlimited said his “primary concern is seeing the natural resource impairment to our nationally-unique cold-water rivers finally stop. Michigan must also learn from past mistakes and stop letting Michiganders and our outdoors get hurt by this corporate profit and liability game of musical chairs.”
Should Hull Street and Confluence succeed at the Michigan commission, they will also face a trip to Washington and the Federal Energy Regulatory Commission, which will have to approve the transfer of the licenses, and where the future of the dams may again arise.
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