The Cease Generation Order – Why it Happened, What it Means

By now most of the public in the area of the Wixom Reservoir know that the Federal Energy Regulatory Commission (FERC) has issued an order to Boyce Hydro Power, LLC, the licensee of the hydro power project located on the Edenville Dam, to cease electric generation as of 11/27/2017.  The licensee has complied with this order.  Operators will continue to manage the reservoir levels and shoreline property owners will not be adversely affected as might be feared.

The FERC order was issued in part because the licensee has not met certain progress submittal deadlines for the design of an auxiliary spillway proposed for the Tobacco River side of the Edenville Dam, which federal regulators have determined is necessary to safeguard against the magnitude of a theoretical flood that may occur every 500,000 to 1 million years.

As determined by the licensee’s engineering consultants and reported to FERC in April 2015, the probability of the “Probable Maximum Flood” (PMF) event occurring in the next five to ten years ranges between five in one million to ten in one million.

In order to mitigate this PMF risk, the Edenville dam must be modified to effect a total discharge flow of 64,000 cubic feet per second (cfs).  The current constructed capacity is calculated to be approximately 30,000 cfs.  Detailed construction plans for modifications to the six concrete spillways were proposed in 2012 to accommodate additional discharge for the PMF.  However, when the construction costs for that design were estimated, the total cost of implementation was over $8 million.  Given the revenue produced at current contract rates, the licensee could not absorb that expense with operating revenues.  Moreover, long term financing would not be available due to the fact that current rates paid by Consumers Energy for Electrical Generation are insufficient to debt service the required financing.

In 2013, as an interim measure, the licensee agreed with FERC that two auxiliary spillways in the earthen dam structure itself (one on the Tobacco side of the dam and one on the Tittabawasse side) could be constructed to partially mitigate the PMF.  The licensee had been working on developing construction plans for this interim solution for two years with its former Dam Safety Engineer who retired in May of this year.  The licensee was consequently required to engage a new engineering firm in July to complete this initial spillway design.  Starting in July, the new engineers had to review all of the previous work.  As a result, the scope of the project expanded significantly as the engineers determined the need for additional design and structural changes to ensure that the project would meet all safety, engineering and FERC requirements.  Consequently, the project has taken longer than anticipated to complete.  Nevertheless, FERC is aware that this work is continuing as the consulting engineers recently submitted a progress report to FERC detailing approximately 800 hours of engineering time expended on the project since July.

Design and construction of the Tobacco Auxiliary Spillway alone is projected to cost more than $1.25 million.  What has not been acknowledged by FERC is the fact that in excess of $340,000 in engineering and consultant expenses have been spent by the licensee over the last seven years in the effort to satisfy FERC’s requirement for a design that would pass this remote (if not improbable) PMF event at the Edenville dam.

As stated, long-term financing for these modifications is not available to the licensee for two reasons: banks will not finance capital improvements that do not increase income; and the indications from Consumers Energy are that it does not intend to renew its long-term contract to buy power from the licensee, which is due to expire in 2022.  Moreover, recent rate-setting orders by the Michigan Public Service Commission will unfairly cut the rates to be paid to small independent power generators like Boyce.  These rate cuts will likely affect the licensee as early as 2018.

FERC’s stop generation order will have the following effects:

  • Cut Boyce Hydro Power, LLC’s income from all of its four hydro power projects by 50-55%.
  • Make flood management more difficult and more expensive because the operators will have to manage water levels using only the mechanical spill gates.  Without the normal turbine discharge, approximately 1,600 cubic feet per second of flow that would normally be passed through the turbines will have to be accounted for by spill gate openings.
  • Reduce Boyce Hydro Power, LLC’s ability to successfully comply with FERC orders for PMF mitigation and other dam safety issues by depleting the very resources needed to do so.

Despite a 50% reduction in revenue, BHP is committed to making sure its dams are safe and properly operated, and will work with its attorneys and FERC to resolve this issue for the benefit of all concerned.

Boyce Hydro Power, LLC provides clarification to Wixom Lake Association’s Update

The Wixom Lake Association has published an Update on its website (www.wixomlakeassociation.org) about the recent Order to Cease Generation imposed on Boyce Hydro Power, LLC by the Federal Energy Regulatory Commission.  Below is additional information and clarification provided by the Licensee, Boyce Hydro Power, LLC.

“Boyce Hydro has been ordered by the Federal Energy Regulatory Commission (FERC) to stop generating electricity at the Edenville Dam, effective Nov. 27, 2017. Boyce is licensed by FERC to operate the dam and is required to comply with that license.”   TRUE.  Boyce stopped generation at Edenville at 9:59 p.m. on Monday 11/27/2017 in compliance with the order.

“The immediate concern for Wixom lake property owners and users is the lake level. This FERC order should have no effect on recreational use of the lake. The FERC order specifically requires Boyce to maintain the lake at normal seasonal levels.” TRUE.  Boyce operators will continue to regulate the water levels in the reservoir using only the mechanical gates on the six spillways on the Edenville dam.  Boyce Hydro loses the ability to pass approximately 1,600 cfs of water through the dam in the event of flood conditions wherein the six gates at the Edenville Dam are open to their maximum capacity. Thus controlling the flow of water through the dam in the event of a flood event such as occurred last June will be less attenuated as gates will have to be opened more aggressively at the outset of a pending flood condition. This has the potential to concentrate and exacerbate the timing of the release of flood waters at the Sanford Dam.

“Please keep an eye on lake levels and alert us via the “Contact us” button above if you see major deviations from normal lake levels. Keep in mind that the lake should be lowered approx. 2.5′ (two and one half feet) to the normal winter level around December 15.”  Partially true.  Actually, the allowed drawdown is 3 feet, not 2.5 feet.  The public should not notice any deviations from normal operations.

“The longer-term concern is operation and maintenance of the dam. Due to the dam’s design, operators need to monitor lake level and then open or close spillway gates to maintain the level within limits set by Boyce’s license.”  TRUE.  See above.

“As noted in the order, the spillways need significant maintenance, particularly the Tobacco River side spillways.”  Partially true.  The spillways are in good condition and not in any danger of failure.  Maintenance is ongoing, not only for the concrete structures, but the earthen dam itself.  What FERC refers to in its order is the walls on either side of the Tobacco spillway on the downstream side.  These were beginning to show cracks and rotation, but were repaired last year and are holding up very well, as demonstrated by the fact that they did not fail or deteriorate during or after the flood in June.  FERC wants these walls rebuilt and plans and specifications were submitted to FERC almost a year ago for this work. 

“As long as the “cease generation” order is in effect, Boyce will derive no income from the Edenville Dam, but will continue to incur expenses. Obviously, this is not a workable long-term situation.” TRUE.  And in fact the expense of operators will probably increase.  The Edenville project represents 50-55% of total Boyce Hydro Power revenue from power production at its four dams.

“It is much too soon to know what will happen and speculation is pointless.” Thank you for recognizing that fact.  Rest assured, however, that Boyce Hydro Power is committed to the safety of its dam operations for the public and its employees.  Boyce is working with its attorneys and FERC to arrive at a solution to benefit all concerned.

“FERC is well-aware of the situation and our State and Federal Congressional representatives have been contacted. The resolution is FERC’s responsibility and will depend on how Boyce cooperates with FERC in the future.”  Boyce has been cooperating with FERC to the extent possible.  The demands placed on Boyce by FERC’s regulations are numerous and it is only possible to do so much with the engineering and financial resources available.  Hundreds of thousands of dollars have been spent on the PMF over the last seven years alone.

“Wixom Lake Association will continue to monitor the situation and share relevant information via this web site.” Boyce Hydro will also continue to monitor the Wixom Lake (Reservoir) Association as well.

Don’t Blame Them; They Just Work Here

It has come to our attention that some of Boyce Hydro’s employees have encountered rude and belligerent behavior from some members of the public, just because they work for Boyce Hydro.  Not only is this kind of behavior unacceptable in civil society, it is misdirected.   Persons with complaints about how Boyce Hydro goes about its business have no right to take those complaints out on hard working members of the Boyce Hydro staff.  They don’t make policy; they carry it out.

Boyce Hydro’s operators are responsible for starting and stopping the machines, opening and closing the head gates when required, monitoring the water levels in the reservoirs to ensure compliance with the Federal licenses, monitoring the earthen dams to make sure they are stable and draining water properly, and many other tasks.  This is a full time job for four men and a 24-hour a day job in spring.  Boyce Hydro employs nine full time people from the local area, two local contractors and their staff virtually year round, and several young men during the summer to help with various construction and maintenance projects.  Like you, all these people have families, shop, dine and otherwise enjoy their community.  Anyone who denigrates hard working people like these just because they don’t like the company they work for should be ashamed of themselves.

Like it or not, Boyce Hydro is a part of your community.  Boyce Hydro employs some of your neighbors, buys materials and supplies from local businesses, hires local contractors and generally contributes to the economic well-being of parts of Gladwin and Midland Counties.  Also, all of this activity is paid for due to the fact that Boyce Hydro is in the business of electrical energy production from the renewable resource of water.  This fact makes it possible for the four reservoirs – Sanford, Wixom, Smallwood, and Secord – to exist.  As a private enterprise, Boyce Hydro is self-supporting.  Were this not the case, the public would have to pay for the maintenance and repair of 87-year-old earthen dams and concrete civil structures and water level regulation through assessment districts or taxes.

Contrary to popular belief, the extra property taxes that are paid by lake-front homeowners do not contribute to any of the dam maintenance or daily operations.  Not one penny of public money is provided to Boyce Hydro for these important services.  If the dams stopped making electricity tomorrow, all of the maintenance and repair tasks would have to continue – at someone’s expense.

So the next time you see a Boyce Hydro employee, you might just want to say “Thank You.”  He’s working so you can have a lake to boat on and fish in.

Less than 50 cents a day

The question was posed in an article in the Midland Daily News on May 23rd:  “If $170 a year would save your lakefront property, would you pay it?” (See MDN story 2013-05-23.)

Preliminary calculations provided to the Wixom Lake Association’s DPSG by Boyce Hydro Power LLC (BHP) indicate that, if the community were to support a bond to fund the PMF spillway alteration project, and if BHP receives rate parity from Consumers for its energy, thus providing enough additional after tax revenue to pay approximately 30% of the estimated annual debt service for a long-term revenue bond, the estimated 3,400 residents around Wixom Lake might have to contribute approximately $150 or less per year.  That’s less than $0.50 per day per household.

License Surrender – What it Means

What will FERC do if Boyce Hydro Power LLC cannot afford to commit to the PMF spillway alteration construction schedule?  FERC asserts that it cannot allow an “unsafe” dam to continue to operate, and it doesn’t give the licensee very many options.  FERC says, “comply, or else.”  The “or else” is license surrender.  Absent the ability to pay for the construction (and BHP will not begin the construction if it cannot afford to finish it, contrary to rumors), the only option is to surrender the license.

A license surrender means the dam’s ability to produce power would be revoked and potentially the spillways would be breached to allow the lake to be drained and the rivers to return to their natural condition.  This could be a time-consuming process, and in the meantime FERC could require BHP to lower Wixom Lake eight or more feet to provide a “buffer” for flood control until it is completed.  If this comes to pass, residents will have recreation curtailed for a lot longer than if the construction were funded, and their property values will certainly be reduced.

Costs and Financing – Correction to DPSG White Paper #2

A group of concerned citizens within the Wixom Lake Association, the Dam Project Study Group (DPSG), has posted information on the WLA’s website which contains certain inaccurate and potentially misleading information.  Boyce Hydro Power LLC has brought this to their attention, but after several days the record has not been corrected.  See below:

  1. Company structure: Boyce Hydro LLC is the operating company retained by Boyce Hydro Power, LLC, the FERC licensee, which leases the dam from a business entity owned by the W.D. Boyce Trusts.
  2. Contracts for purchase of power and RECs:  Boyce Hydro Power, LLC’s Power Purchase Agreement (PPA) with Consumers Energy expires in 2022, and there is no certainty that it will be renewed at that time. Its agreement with Detroit Edison (DTE) for the purchase of Renewable Energy Credits (RECs) expires at the end of 2015 and there is no certainty that it will be renewed or at what rate.  There is no increase in the price for RECs on the horizon.  RECs are calculated on energy production, not income from other sources. If DTE does not renew, and a new buyer for RECs is not found, this source of income could dry up in just a couple of years.
  3. Potential for income utilization:  The White Paper lists the potential increase of income for all four of the Boyce Hydro Power FERC-licensed dams, not just Edenville.  However, the Edenville hydroelectric facility is a stand-alone business entity and it is incorrect to assert that revenue from the other entities can or will be used to pay the debts of another.

We appreciate the fact that there is a group attempting to get information to the public, however, for that information to be of value, it must be accurate.

How Much — and Who Pays?

Construction estimates from a reputable local firm, Gerace Construction, put the cost of the PMF spillway alterations at roughly $8 million.  That’s $8,000,000.00.  This may not seem like a lot of money these days.  But to a small company, such as Boyce Hydro Power, it is a sizeable hurdle to overcome.  The Edenville Dam is already encumbered with debt, which was incurred in order to finance FERC-mandated dam maintenance and stability improvements.  These improvements have been ongoing and Boyce Hydro Power has spent over $1.3 million on the Edenville Dam for various safety improvements since 2007.

Several factors influence Boyce Hydro Power LLC’s ability to fund the FERC-mandated PMF alterations:

  • Private financing is not an option unless the dam makes more money from the sale of its single product, electricity;
  • The PMF spillway alteration does not increase the dam’s ability to generate income in any way;
  • Negotiations with Consumers Energy over rates have failed to obtain future rate increases;
  • Consumers Energy pays Boyce Hydro Power 30% less than the average it pays for hydroelectric power to the 14 other independent producers in the state, per documents filed with the MPSC (see 2012 Consumers rates). (Note: if this document does not open in Adobe Reader, it will not display properly.)
  • Costs of operations continue to rise, from gasoline (imagine how the price of gasoline and diesel affects the price of everything) to employee benefits such as health insurance, not to mention the cost of maintaining and repairing 88-year old concrete structures, machinery, and generating equipment.

An increase in the rates Consumers pays Boyce Hydro Power LLC would provide a significant boost to the Company’s ability to defray some of the cost of the PMF, but not all of it by any stretch.  The Company has been lobbying for State and Federal relief, so far to no avail.  Grant funding has not been found for which the PMF alteration project would qualify.

Boyce Hydro Power is pursuing the rate increase avenue aggressively, but it remains to be seen whether or not those efforts will be successful.  If there is a rate increase that achieves parity with the other independent hydro power producers, Boyce Hydro Power would be able to dedicate additional after tax cash flow — potentially $252,000 per year from the Edenville hydroelectric operations — to funding part of the total PMF alteration construction, if it is financed by a long term bond fund.

Estimated annual debt service for public bonds in the amount necessary to finance the PMF spillway alterations will probably cost over $700,000 per year. More to come on this topic.

The Draw Down – Why and When

A  lot has been said and written about the proposed draw down of Wixom Lake as a necessary component of the FERC-mandated PMF construction.  The drawdown is required during the phase of construction in which the sheet pile cofferdam is installed while work on concrete pier extensions takes place.  3D PMF alteration3

The pier extensions provide the ability for “stoplogs” to be installed in front of the spillways and for the sheet pile cofferdam to be removed.  All of this makes it possible for the rest of the construction on the spillway to be done “in the dry.”

3D PMF alteration4

While the cofferdam is in place, half of the dam’s ability to pass flood waters is out of service.  That is why the drawdown is necessary, and why it takes place in summer.  The drawdown is a precautionary measure.which provides a “buffer” in the reservoir in case of an unexpected flood, so that the one remaining spillway structure has a chance to pass enough flood water to avoid dam failure.  While rare, floods have been known to happen in summer.

The FERC-mandated construction schedule calls for this to take place on the Tobacco dam in the summer of 2014 and on the Tittabawassee side (the powerhouse) in summer of 2017.