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Michigan overpaid for battery plants, utility customers may be stuck with the bill

Michael D. Farren and Jason Hayes, guest writers

Many believe that Michigan’s subsidies for the new General Motors electric vehicle and Ultium battery plants in Lansing are old news. But the deal was only just finalized, and there’s reason to believe that state legislators have wildly overpaid for the project.

Michael D. Farren

That’s because Ultium, a partnership between GM and LG Energy Solutions, had already signed a contract that could represent a $937 million subsidy over the next 20 years from the Lansing Board of Water and Light. Media coverage of the big announcement reported the partnership would receive $824 million in subsidies from the State of Michigan, but it failed to mention BWL’s role, or who else would subsidize Ultium. Here’s what the press accounts omit: State and local bureaucrats have approved a total subsidy package worth $1.8 billion — more than double what the public was previously told.

Until March 9, only about $1.1 billion of that amount had been approved by the Michigan Strategic Fund, a state board charged with doling out these subsidies. But the Michigan House and Senate appropriations committees recently granted another $666 million that GM and Ultium requested. Of that amount, $66 million from the Strategic Site Readiness Program will go to the Lansing utility to pay for infrastructure improvements at the battery plant. But the remaining $600 million looks like a blatant handout for GM.

Jason Hayes

Here's the kicker: If the appropriations committees had refused to authorize a $600 million subsidy, it likely wouldn’t have changed GM’s decision about where to locate the electric vehicle plant. It’s highly advantageous to locate EV manufacturing next to a battery plant, since it’s much harder to move the nearly finished vehicles otherwise. In addition, GM already has two manufacturing facilities in the area, as well as an established logistics network that provides supplies and ships completed vehicles out to customers.

In short, if Ultium builds its factory in this location (and it’s already received $1.2 billion in subsidies to do so), then GM would be foolish to locate its plant elsewhere. That means the $600 million the state will now give GM is not an incentive as economic development officials often try to argue — instead, it’s an unnecessary corporate handout.

With GM reporting $14.3 billion in net profits last year, taxpayers should be scratching their heads, wondering why this payment is necessary. And responsible policymakers should recognize that the money could be better spent on projects that benefit the people of Michigan, or even better, left in their wallets.

Meanwhile, officials at BWL have tried to reassure their 100,000 customers they won’t get stuck with the bill for Ultium’s subsidy. Without supporting information, though, the assertion rings hollow. Thanks to Ultium, the utility will have to increase the amount of electricity it buys or makes by 30 percent.

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While buying in bulk can save costs, it’s hard to see how the Lansing utility can offer Ultium a 50 percent price cut without having to raise the price on other customers down the road. BWL officials have already signaled that they’ll need to build additional electricity generating capacity within five years — and Ultium’s 20-year contract probably means that the utility’s other customers will get stuck with that bill.

Michael D. Farren is senior research fellow at the Mercatus Center at George Mason University, and Jason Hayes is director of environmental policy at the Mackinac Center for Public Policy.