Response to Questions About City of Ann Arbor 100% Renewable Energy Options Analysis
What the Phase 1 Study Got Wrong
“What will it cost to take over DTE?“ is one of the most asked questions about municipalization, as it should be. We hoped for at least an estimate from the city’s phase 1 feasibility study. That study, by consulting firm 5Lakes Energy, was released as the “100% renewable energy options analysis” in September, 2023. Unfortunately, the municipalization part was plagued by errors. It concluded that acquiring DTE’s local assets could cost anywhere from $281 million to $1.15 billion. A2P2 asked environmental attorney Chris Bzdok of Troposhere Legal to analyze the study’s methods and conclusions. Mr. Bzdok found numerous errors that inflated the high-end cost estimates. Bottom line, the cost should be in the low six figures, and nowhere near $1 billion.
The main errors in the report:
Ann Arbor’s high end “stranded cost” obligation (compensation to DTE for assets that will earn less after Ann Arbor leaves DTE’s service area), is inflated due to improper application of the Federal Energy Regulatory Commission (FERC) stranded cost rule.
The study’s authors, in their stranded cost calculations, included not only stranded generation costs, which are allowed, but also distribution costs, which almost certainly are not, according to the FERC rule and a Michigan legal precedent.
The study assumed 20 years of stranded generation at a time when DTE is planning to add substantial capacity to replace its retiring coal plants--and more recently, to serve hyperscale data centers. There is no realistic scenario where DTE would be stranding any capacity for 20 years after Ann Arbor leaves.
The study presents no evidence to support its assumption that Ann Arbor cannot municipalize by 2030. Several cities have accomplished this in less time.
The full Bzdok memo can be found here.
Despite these errors, the 5Lakes study did recommend that the city conduct a phase 2 feasibility study. That has yet to happen. In March, 2025, City Council narrowly voted against funding such a study. So the question remains: What will buying out DTE cost? We still need a properly designed phase 2 study to arrive at an objective, accurate answer. But the phase 1 errors, along with the DTE generation capacity shortage, means little if any stranded cost compensation. Therefore the real cost should be around $300 million. We will need a phase 2 study to confirm that.
