A big fight is simmering in Michigan over the smallest of energy deals.
The dispute pits the state’s second-largest utility, Consumers Energy, against conservation groups and the agency tasked with shepherding the state’s natural resources, which are challenging the utility’s plan to sell 13 aging, uneconomic hydroelectric dams for $1 apiece to a Maryland private equity firm.
The sale to Confluence Hydro, which must be approved by state regulators, seeks to unlock the more than $1 billion of investment needed to relicense the 100-year-old dams. It’s a plan welcomed by the communities that built up around the dams’ reservoirs, which are now hubs for boating, fishing and swimming.
But a coalition of conservation groups and anglers, who prize the state’s river systems, seek to block the deal. The groups say that the terms of the sale and the proposed ownership structure are full of red flags. And they point to a spotty record of private dam ownership in Michigan, including dam failures that have led to catastrophic flooding.
“None of the commitments made by Consumers and Confluence add up,” said Robert Kelter, an attorney with the Chicago-based Environmental Law and Policy Center, which is representing the conservation and angler groups known as the Michigan Hydro Relicensing Coalition.
At stake is whether handing over a fleet of aging, expensive hydro dams — which play only a tiny role in Michigan’s clean energy goals — is justified by the economic benefit they provide their host communities. The dams are among hundreds in Michigan that are nearing a century of use, raising safety concerns as climate change fuels heavier rains and extreme weather.
Among the angler coalition’s objections are the establishment of a limited liability corporation for each of the dams and an agreement that Consumers Energy purchase power from Confluence Hydro at an above-market price.
“They set up 13 separate LLCs to ringfence them so that they can bankrupt any one of the individual dams if they’re not profitable,” Kelter said.
It’s a view shared by Michigan’s Department of Natural Resources, which has likewise urged the state’s Public Service Commission to reject the deal. It’s the first time in DNR’s 100-year-plus history that it has intervened in a utility case.
With the PSC expected to act on the sale this summer, Confluence Hydro is emphasizing its due diligence.
Natalie Joubert, the company’s vice president of external affairs and policy analysis, said Confluence Hydro spent more than a year researching the investment and negotiating contact terms that support relicensing and continued operation of the dams.
The newly formed company is focused exclusively on hydropower, she said, and brings with it the financial capability and “innovative thinking” to make the dams a small but important player in Michigan’s clean energy future.
“We view hydro as an exceptional resource, but it’s under-appreciated in a lot of ways,” Joubert said. “We see a lot of opportunity as the fleet ages, as our power demand is growing throughout the country, to upgrade the equipment and improve dam infrastructure and use some innovative approaches so that these assets can operate efficiently well into the future.”
Other key parties in the case include Michigan Attorney General Dana Nessel and the staff of the PSC, which advises the commission. Nessel and PSC staff agree that the sale is in the public interest, but their separate endorsements hinge on regulators adopting specific conditions.
Among the conditions is that Confluence Hydro’s parent company, Hull Street Energy, guarantee any liabilities associated with the dams if they fall into bankruptcy.
But Consumers Energy said any changes to the deal is a nonstarter and insists the sale agreement won’t be renegotiated.
The deal is take it or leave it, the utility said.
“It was a very complex negotiation that took over a year with Hull Street and Confluence,” Adam Monroe, the utility’s executive director of hydro operations, said in an interview. “A significant amount of work from both sides went into that. … We do not plan to adjust that deal going forward.”
The utility has suggested it will pursue the next lowest cost option — decommissioning and demolishing the dams — if the sale isn’t approved.
Joubert declined to go into detail, but said the formation of an LLC for dam ownership is common in the hydropower industry and provides administrative, legal and financial “efficiencies.” She said Confluence Hydro intends to be the long-term owner and operator of the assets.
A perfect solution?
The 13 hydro dams at issue sit along five Michigan rivers. All were built between 1905 and 1936 and can collectively produce 132 megawatts of electricity — about 1 percent of the utility’s renewable generation.
The future of the dams has long posed a dilemma for Consumers Energy.
The utility spent years weighing options, meeting with host communities and other parties and ultimately seeking proposals from potential buyers.
The dams are among the most expensive energy in Consumers Energy’s power fleet, costing many times more than other sources of electricity because of the maintenance required for their upkeep.
But the utility faces pressure from the communities that developed around the reservoirs created by the hydro dams. Residents have urged the utility to continue the dams’ operation after their operating licenses begin to expire in 2034.
Consumers Energy estimates that dismantling the dams would cost about $1.7 billion — an option that would also destroy property values, the recreation economies that center on the reservoirs and local tax revenue.
Take two of the communities: Croton and Big Prairie townships in western Michigan, just north of Grand Rapids. Dozens of properties border the nearby Hardy and Croton dams along the Muskegon River — homes that provide a critical tax base for the townships. The human-made lakes also draw tourists who boat, fish and camp there.
“Full decommissioning would likely have disastrous effects on the townships,” local officials told the PSC.
But relicensing the dams with the Federal Energy Regulatory Commission would be even more costly than demolishing them, according to Consumers Energy.
The sale announced in September seemed the perfect solution — one that would extend the lives of the dams for decades and avoid the utility from having to make the massive investment necessary to demolish or refurbish them.
Power prices
At the core of the deal is a 30-year contract that calls for Consumers Energy to buy the dams’ output for $160 per megawatt-hour with a 2.5 percent annual increase.
The price is about double what Consumers Energy would pay for power in the regional market, but it still represents the cheapest of the solutions, the utility said.
Opponents of the sale challenge the utility’s analysis. They say the estimate for decommissioning the dams is inflated. Forcing customers to pay above-market prices for power — along with a provision that would let Consumers Energy earn a profit on those energy purchases — is also a bum deal for customers, they argue.
Among those most actively challenging the sale is the Michigan Hydro Relicensing Coalition, which includes groups such as Michigan Trout Unlimited, Michigan Steelhead and Salmon Fishermen’s Association, the Great Lakes Council of Fly Fishers International and Anglers of the Au Sable.
The groups say the five river systems and the state as a whole would be better without the dams, which impede the natural flow of sediment in the river channel and the warming of downstream waters, making them unsuitable for summer trout fishing.
The angler coalition and Michigan DNR contend that the sale is premised solely on promises. That should worry regulators, along with Confluence Hydro’s unwillingness to guarantee that it will operate the dams long-term, they say.
Joubert said Confluence Hydro’s parent company, Hull Street Energy, has deep expertise safely running and maintaining dozens of hydro plants in the Northeast. The 30-year power contract to sell the energy from the Michigan dams to Consumers Energy was purposefully structured to enable the company to make needed upgrades and relicense them, she said.
That power purchase agreement, she said, “really incentivizes us to be in Michigan for the long term.”
But critics have pointed out in PSC filings that Hull Street Energy has sold or tried to sell all but two of 47 purchased dams within five years of owning them. That suggests, they say, that the company will likely try to flip the Michigan dams, too.
Safety concerns
The company’s plans to assign each dam to an LLC, sheltering Confluence Hydro and its parent company from creditors if one of the dams goes bankrupt, has also drawn scrutiny.
It’s a point that strikes a nerve in Michigan, where the 2020 failure of the Edenville dam in Midland led to flooding that forced the evacuation of 10,000 people and caused hundreds of millions of dollars in damages.
The catastrophe led to a blizzard of lawsuits including a Chapter 11 bankruptcy filing by the dam’s owner last year.
More recent flooding, just weeks ago, illustrates the benefit of keeping the dams in the hands of public utilities overseen by state regulators, the angler coalition said.
Democratic Gov. Gretchen Whitmer declared a state of emergency last month for 40 Michigan counties as floodwaters came within inches of overtopping a 104-year-old dam near Cheboygan. Hydro turbines at the dam, which had been out of service since 2023, were restarted by Consumers Energy to relieve pressure and avoid another potential disaster.
Joubert said the company understands the heightened concerns about dam safety following the Edenville disaster but dismissed suggestions that Confluence Hydro wouldn’t be a responsible owner. The parent company’s record of safely maintaining dams demonstrates otherwise, she said.
Meanwhile, Confluence Hydro and Consumers Energy also say concerns of the Michigan PSC losing regulatory oversight of the dams are misplaced.
The commission only regulates the sale of energy produced by the dams, said Monroe, the Consumers Energy executive. Monroe is among 53 utility employees who would be hired by Confluence Hydro if the sale is approved.
FERC is an able regulator with sole oversight of dam safety regardless of which company’s logo is on the assets, he said.
“My direct experience with the FERC is that they’ve been a very good regulator, ensuring that we’re doing what’s necessary to keep our facilities safe,” he said.
