Why DTE’s billion dollar claim is pure bilge

DTE’s front group, the Ann Arbor Responsible Energy Coalition, has a simple but effective strategy for scaring voters into voting ‘no’ on Proposal E: say that public power will cost a billion dollars. Of course Proposal E does not authorize taking over DTE, and costs little or nothing. But let’s consider a future acquisition. The billion dollar figure comes from the February 2025 “Ann Arbor Municipalization Study” by Charles River Associates (CRA), a study that DTE paid CRA to produce. Churning out such biased studies is standard practice for private utilities faced with a public acquisition threat. The utility can thus cite inflated costs calculated by “experts.” CRA made the following false or exaggerated claims:

  • The study claims that lost economies of scale would result in 40% higher O&M (operations and maintenance) costs. In fact, by joining the Michigan Public Power Agency (MPPA), Ann Arbor would share the cost of most of these services with other Michigan munis, achieving similar economies of scale to DTE.

  • The study argues that Ann Arbor would have to pay both capital costs and operational costs. In fact, we already pay these costs through our DTE bills. They would not be new costs.

  • The study layers on the cost of transmission, which we also currently pay through our bills.

  • The study states that DTE lowers costs because it’s vertically integrated, when in fact we pay more because of DTE’s obsolete power plants. We will be billed for years for shuttered coal plants, as well as a surcharge that covers the future decommissioning of the Monroe nuclear power plant. A muni would have no such obligations, and could reduce rates accordingly.

  • The study sets DTE’s asset value at $350 million, almost double the value estimated by the city’s 2023 feasibility study by 5Lakes Energy. CRA supplied no evidence, and applied an accounting method typically not used in asset transactions to arrive at this figure.

  • CRA sets near-term capital costs at $290 million, which is higher than DTE’s own figures. These are costs that we also are already paying for through our current bills. Long-term capital costs are similarly exaggerated.

  • The study cites wildly inflated figures for making DTE “whole” on long term transactions, especially securitization. Ann Arbor’s system represents a miniscule part of such obligations.

  • CRA’s figure for grid separation costs is roughly equivalent to the asset value of the entire system as estimated by 5Lakes Energy, and orders of magnitude higher than what other communities have paid. CRA provides zero documentation. We can only assume these are completely made up numbers.

  • The study assumes higher costs for renewable energy over the next 20 years, when in fact these costs are declining in both absolute and relative terms compared to fossil fuels.

  • The study made other errors, for example setting DTE’s rate at 16 cents per kilowatt hour, when in fact DTE currently charges residences 21 cents/kWH. This conveniently allows the study to inflate Ann Arbor’s future residential electric rates relative to DTE.  The 20 year DTE projection was far below DTE’s historic average of rate increases between 2008 to 2024.

For a full analysis, go to https://annarborpublicpower.org/news/response-to-cra-study.

It’s true that the city’s 2023 phase 1 study, by 5Lakes Energy, set a range of possible costs between $281 million and $1.15 billion. However, 5Lakes allowed for almost $1 billion in possible stranded costs. This is improbable in the extreme. DTE is facing a severe shortage in generation capacity as it retires coal plants and faces massive new power demand from data centers, so Ann Arbor leaving the system is not going to leave DTE’s current power plants without retail customers. Stranded generation should be zero, while state courts have previously struck down stranded distribution cost recovery. 5Lakes also made technical errors regarding stranded cost calculations that the environmental law firm Troposphere documented in a report we commissioned.

So what will it cost to take over DTE?

  1. The city’s 2023 phase 1 study, by 5Lakes Energy, put the value of DTE’s physical assets at $130 million, using the standard original cost less depreciation (OCLD) accounting method. Multiplying by 1.5, typical in such asset transactions, brought the valuation to $195 million.

  2. We may have to compensate DTE for “going concern” (goodwill and the value of the franchise). Such costs are hard to estimate, but they’re very unlikely to approach the physical value of DTE’s assets. Regarding stranded costs, DTE almost certainly won’t have stranded generation, because it’s scrambling for capacity to serve new hyperscale data centers and to replace coal plants set to retire in 2028 and 2032.

  3. In 2005, Winter Park, Florida, following its own legal battle with Florida Power (now Duke Energy), paid $42 million to acquire the grid, including going concern and stranded costs. That’s about $71 million in today’s dollars. Winter Park’s population is 31,000, one-fourth Ann Arbor’s. So a comparable cost here would be about $300 million. That number is our working assumption, but only an assumption. We need a rigorous and objective phase 2 feasibility study to really know.