Big utilities locked in court battle over pricey overhaul of power plant on Lake Michigan

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Almost 15 years ago, Michigan’s two largest utilities kicked off an $800-million effort to overhaul a sprawling hydroelectric plant perched on the shore of Lake Michigan.

The 1970s-era facility has been heralded as an engineering marvel, its massive reservoir near Ludington visible from space. The project would sustain the plant as it enters its golden years and plays a starring role in Michigan’s transition to clean energy.

Things haven’t gone to plan.

Today, the utilities, DTE Energy and Consumers Energy, are entering the fourth year of a high stakes legal battle with the company they hired for the overhaul. The outcome, experts say, could have repercussions felt on Michiganders’ power bills.

The utilities allege their contractor, an American subsidiary of Japanese multinational Toshiba Corp., botched upgrades on the Ludington Pumped Storage Plant, which DTE and Consumers co-own.

Key components on five-story underground turbines that produce power are already cracked and degrading, they allege. The plant leaks.

Its generating turbines are unlikely to reach the 30-year service life they hired Toshiba to achieve, and the contractor has repeatedly failed to fix the issues, DTE and Consumers claim in court.

In a statement to MLive, the utilities called the Ludington plant a “critical piece” of their long-term plans to serve millions of Michigan customers with reliable and affordable energy.

“Toshiba failed to deliver on promises made in its contract to perform work at the plant, and Toshiba failed to provide a meaningful remedy despite these shortcomings,” they said. “Consumers Energy and DTE were forced to take legal action to hold Toshiba accountable and protect our customers.”

They seek more than $690 million in damages, plus $130 more in prejudgment interest. They’ve already spent $30 million each to address the problems, per a regulatory filing.

In court, Toshiba and its subsidiary Toshiba American Energy Systems Corp. have denied the claims. They have gripes of their own.

The companies counter sued, alleging the utilities obstructed completion of the work and are improperly withholding payments. They’re owed over $15 million, and the utilities damage claims are “wildly inflated,” they argue in court.

“While plaintiffs opportunistically seek a huge cash windfall through this action, their claims cannot be squared with the specific terms of the contract,” Toshiba attorneys wrote.

In an email to MLive, Toshiba America Chief Legal Officer Timothy Fraser said the company does not comment on ongoing litigation.

The giant water battery on Lake Michigan

When it was built, the Ludington plant was the largest of its kind in the world, and it remains a key piece of Michigan’s power grid decades later.

Think of it as a giant battery, initially meant to harness excess nuclear power from plants along Lake Michigan. At times of low demand or excess power supply, like at night, it pumps water uphill from the lake to a 27 billion-gallon manmade reservoir.

Read more: On Lake Michigan, a giant water battery aids clean energy transition

Then, when electricity is needed, it kicks into reverse. Water flows back down at a rate that could fill an Olympic swimming pool in seconds, spinning turbines to generate power like a hydro dam.

The utilities hope it will increasingly be able to store cheap renewable power from wind and solar installations, which don’t generate consistently. Now, it helps smooth out price variation.

“Its real function is to buy cheap power and sell expensive power,” said Douglas Jester, managing partner of 5 Lakes Energy, a Michigan energy policy consulting firm.

It does the job well. Given its age, DTE and Consumers began to plan to upgrade the plant in the mid-2000s, as they also prepared to relicense it to run through 2069.

It selected a Toshiba company to carry out a 10-year overhaul of each of the plant’s six generating units, upgrading massive 300-ton turbine blades to become more efficient and boosting Ludington’s potential output in the process.

It was a big-ticket job, with the contract eventually swelling to nearly $560 million, per court documents.

Delays and defects dog overhaul project, utilities claim

The Ludington project didn’t go as planned, to hear the utilities tell it.

“Toshiba’s work has been plagued by delay,” they alleged in court. The complex overhaul work involved disassembling and replacing hundreds of tons of equipment, taking generating units offline. It dragged out longer than expected.

In total, delays stretched over 1,361 days where one or more units was unavailable to deliver power, according to a report the utilities have filed in court informing their ask for damages.

Making matters worse, Toshiba’s work introduced “significant defects” to components at the plant. The utilities allege it has refused to rectify them despite numerous requests. When it has attempted repairs, it used a “trial-and-error approach” or installed “mere stopgaps,” the utilities claim.

Seals and electrical switches Toshiba installed are defective and unreliable, they allege, requiring unplanned outages to address.

Among the more significant issues is cracking and deterioration caused by bubbles in the water on 72-foot in circumference steel rings that are part of the water passage through the plant’s units.

The defect on newly overhauled rings has led to “substantial amounts” of water leaking from some of them, the utilities say. Two of the six units have been placed on “last on, first off” status this year, limiting their usage to about 50 hours a year, according to a recent court filing.

In court, Toshiba has claimed plant components experienced similar degradation prior to the overhaul. Its work reached contract milestones that were deemed satisfactory after inspection by the utilities, and the generating units have returned to service, achieving efficiency gains in the process, the company says.

Toshiba‘s warranty also doesn’t cover some of the specific damage the utilities allege, it argues in legal filings.

In April, it requested a judge decide the case in its favor. The utilities pushed back, hoping the case will proceed toward a trial.

“This case must be tried,” attorneys for DTE and Consumers wrote. “No amount of strained parsing can avoid the triable case that Toshiba performed defective work, failed to stand behind its obligations, and now must compensate the utilities for the cost to make its broken promises right.”

As repair costs mount, who will pay?

The outcome of the dispute could reverberate outside the corporate boardrooms of the companies involved.

DTE and Consumers each rely on their millions of ratepaying customers to cover the costs of big capital projects like the plant upgrades.

In 2024, they terminated the contract with Toshiba and engaged another engineering firm to develop a repair plan for Ludington at a cost of $3.6 million, per court filings. Repairs on one unit will begin in 2026.

Each utility has spent more than $30 million on capital replacements at the plant, they told state regulators in a February filing.

Those regulators with the Michigan Public Service Commission have given DTE and Consumers permission to sequester those costs, delaying the process of seeking to recover them through customers’ power bills.

In theory, if they are awarded damages in court, that will offset the additional investments in the plant. But whether they are awarded those costs, or if they are complete or partial, remains to be seen, according to Jester.

“Whether there’ll be any remaining amount to be rolled over to customers in the future just depends on the outcome,” he said.

The Public Service Commission has also not guaranteed they will allow the utilities to pass any costs onto customers and will have to decide whether DTE and Consumers reasonably managed the situation if a bill comes due after the lawsuit is resolved, he said.

Alternatively, if damages awarded exceed the repair costs, savings could be passed back to customers, Jester said.

Regulators are monitoring the litigation and will apply “appropriate standards of review” should the utilities request costs related to the dispute be included in rates in the future, said Public Service Commission spokesperson Matt Helms in a statement.

For now, the lawsuit remains pending. A hearing on a motion for summary judgement Toshiba has filed is scheduled for June 11.

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