Consumers Energy Hydropower Projects Sale – Perils and Pitfalls

Croton Dam – Muskegon River

Recently, Consumers Energy announced that it is planning to sell its 13 hydropower projects as the outcome of its three-year long-term planning. Consumers would sell the physical assets for each project for $1 and enter into a 30-year power-purchase agreement with the buyer for all the power generated from each project, and in turn sell this power to its customers. The Michigan Hydro Relicensing Coalition (Michigan United Conservation Clubs (MUCC), Michigan Council of Trout Unlimited, Great Lakes Council of Fly Fishers International, Anglers of the Au Sable, and Michigan Steelhead and Salmon Fishermen’s Association) is opposed to this sale for the following reasons:

• Disincentive for future capital investments in the dams: Since Consumers’  hydropower projects produce energy sold directly for its customers, it is a regulated utility that can seek cost-recovery through Michigan Public Service Commission rate hikes. Thus, there has always been an incentive to invest in dam improvements. However, this cost-recovery mechanism will no longer be an option for the new owner given that it would not be selling power directly to the public.  The new owner will have no incentive to make long-term investments in the dams.

• Economic viability: Consumers acknowledges that these hydropower projects are marginally economical.  Consumers is a well managed corporation, so it begs the question “if Consumers is challenged to turn a profit from these projects, how will another entity be able to, especially without a cost-recovery mechanism?”

• Ratepayer “unfairness”: While a new owner cannot pass along any future investments to the public, Consumers will be able to pass along the costs of the power purchase agreement to its ratepayers.  This is unfair as ratepayers will continue to pay for an expensive renewable energy source, especially to those ratepayers who do not have a local interest in the hydropower projects.

• Abandonment of local communities: Consumers has been part of the fabric of these communities for over 100 years.  To sell with essentially a “good luck, FERC will make sure that everything will be okay” is washing its hands of corporate responsibility to these communities.  Consumers needs to be a good neighbor and not pass the buck.

• Water Quality: Six of the hydropower projects currently do not meet state water quality standards for temperature during summer months, impairing downstream fisheries.  This impact has to be mitigated by MDNR fish stocking, all paid by fishing license revenues.  This water quality issue will make the future relicensing (beginning in four years) of these projects very difficult.

• Tribal consideration: The Tribes are the longest standing community members associated with these river systems.  As such, the proposed sale needs to fully respect and honor Tribal concerns regarding gathering rights, Tribal lands, and species of cultural significance such as lake sturgeon ((Nmé).

• Post-sale license requirement implementation: Even though Consumers has stated that all existing license requirements go with the projects, and any proposed sale would need both FERC and MPSC approval, there is no guarantee that a new owner will continue to meet all of the requirements.  History has demonstrated that new owners of older hydropower projects in Michigan are not as committed.  Just remember the Edenville and Sanford catastrophic dam failures and how the public ultimately picked up the tab. And it’s happening again at the UP Au Train Project.

• “Mining” the Projects: The potential for a new owner to simply “mine” the projects for the revenue from power generation is real.  This happened on the Tittabawasee River and contributed to the catastrophic dam failures.  And it is currently occurring at the Au Train hydropower project where the owner has failed to invest in mandated safety improvements for 20+ years.  In fact, the owner also mined the project’s assets, using project lands as collateral to secure financing and now the bank has foreclosed on these lands.  This transfer of land through foreclosure is a direct violation of the FERC license requirements.  Further, it resulted in the closure of the required Forest Lake campground, now no longer available for public recreation.

Ultimately, after a sale of the hydropower projects, profit may get put before compliance, investments for dam safety, and ultimately anything set aside for the eventual disposition of these aging dams. And the public should not get stuck with the bill when that arises.