Ruling Nips Energy Plans

Ruling Nips Energy Plans, WE Chief Says

Dec 05 - Milwaukee Journal Sentinel

Ruling nips energy plans, WE chief says

Efforts to improve the state's power grid after a reliability crisis seven years ago have been jeopardized by a court ruling last week, the leader of the state's largest utility says.

Dane County Circuit Judge David Flanagan on Monday overturned the state's approval of Wisconsin Energy's $2.15 billion coal plant project in Oak Creek.

If upheld, Flanagan's ruling also would render illegal regulators' approval of a $750 million coal plant already under construction near Wausau, as well as the controversial, $420 million Wausau-to-Duluth power line, Wisconsin Energy Chairman Gale Klappa said in an interview.

Klappa said the ruling would invalidate all of the commission's recent decisions, whether for coal-fired or natural gas-fired power plants.

"Candidly, until the process is clear, I don't know what else can get built," Klappa said. "Based on this, the progress -- in terms of improving the infrastructure in the state -- is dead."

Flanagan's 54-page decision stunned the state's utilities, policy- makers and even foes of the Oak Creek plant who object to its use of coal as fuel. While the decision supported the state Public Service Commission's conclusion that the plants are needed to meet growing demand for power, Flanagan found that the commission broke state law by not requiring Wisconsin Energy to propose an alternate site for the project and for not taking into account the cost of the power lines for the new plants.

His decision vacated the November 2003 approval of coal plants that Wisconsin Energy is banking on to help feed southeast Wisconsin's appetite for electricity. The plants are central to business and profit plans for the Milwaukee-based company.

Appeals and warnings

The reverberations from the judge's unprecedented decision continued by week's end, including efforts to put the Oak Creek project back on track. Both Wisconsin Energy and the state Public Service Commission promised appeals.

Other steps included discussions with Gov. Jim Doyle and key lawmakers, and warnings to Wisconsin Energy's customers that the price of the project will be much higher because of delays. Customers will face years of successive rate increases to pay for the plant.

"There may be several points brought out in the lawsuit that will require a legislative remedy," said Sen. Robert Cowles (R-Green Bay), who chairs the state Senate's energy committee. "This could be a big deal. If this drags out a couple years, this could put us back into the dilemmas we faced a couple years ago."

Already being drafted, he said, is legislation that would mean utilities would no longer have to propose alternative sites for new facilities on existing power plant sites.

The utility's opponents say Wisconsin Energy's rhetoric is overheated, and its warnings of power shortfalls too bleak.

"There's no imminent reliability crisis even if the plant is delayed," said Charlie Higley, executive director of the Wisconsin Citizens' Utility Board. "Electricity growth in southeast Wisconsin has not grown as quickly as We Energies estimated earlier in the decade."

Supporters of the new plant say that the struggling economy and mild weather may have kept demand for electricity soft, but a return to normal weather and an economic comeback will create even more thirst for power.

Future energy needs

The reliability crisis in the summers of 1997 and 1998, spawned by operating problems at nuclear plants, an aging and congested power-line network and other issues, resulted in urgent pleas by utilities for conservation.

Those problems spurred a move led by then-Gov. Tommy Thompson to streamline how Wisconsin builds power plants to encourage construction of new plants. The last plant, which operates around- the-clock, opened 20 years ago.

Construction delays will drive up the cost of the coal project if the company and commission's appeals win in court. And the price of electricity will go up dramatically if the coal pant ultimately is rejected and the utility needs to build more new natural gas-fired plants, the company says.

"Some people are painting a very bleak picture here, and it's not a bleak picture at all," said Chip Brewer, head lobbyist at S.C. Johnson & Son Inc., leader of the opposition to the coal-plant project. "This decision gives southeastern Wisconsin an opportunity to address its long-term energy needs in a responsible way."

S.C. Johnson was one of several opponents that filed suits against the plant, which produced Flanagan's decision.

Johnson wants a more balanced approach that incorporates natural gas-fueled plants, an expansion of generation from renewable sources such as wind and a commitment to energy efficiency.

"Already in this state we get an overwhelming amount of our energy from coal," Brewer said.

The price of delays?

As the state sought to prevent another reliability problem, both the commission and Wisconsin Energy concluded that new coal-fired plants are an important part of the state's energy mix. Though more polluting, coal helps keep the state from relying too much on natural gas, which has more volatile prices.

Building a natural gas plant the size of the Oak Creek project would increase the state's consumption of natural gas by 25%, making power plants compete for natural gas with industries that need it for factories, Klappa said.

Of particular concern, Klappa said, is a Flanagan ruling that new power plants must receive all of their environmental permits before energy regulators approve the project. If upheld, that would render illegal all the plants that have been built in Wisconsin in recent years, he said.

"That's just not how this industry works, anywhere," Klappa said.

Even Calpine Corp., a San Jose-based builder of natural gas- fired plants that was one of those suing Wisconsin Energy in the Oak Creek case, disagrees with the finding, Calpine spokesman John Flumerfelt said.

Other ramifications of the decision:

* Opponents of the Wisconsin Public Service Corp. coal plant already under construction near Wausau are weighing whether to use Flanagan's ruling as the basis to sue to overturn that plant's permits, said Sierra Club lawyer Bruce Nilles.

* A case pending in Dane County against the Wausau-to-Duluth power line argues some of the same points, said Glenn Stoddard, lawyer for the Save Our Unique Lands group that mobilized to fight the $420 million project.

* About $30 million of We Energies' $85 million request for a price increase could be upended by Flanagan's ruling, a Standard & Poor's analyst estimated. The Citizens' Utility Board argues that shareholders, not ratepayers, should have to shoulder costs for a plant that now has no legal authority to be built.

* Wisconsin Energy was assessing how much construction delays will cost customers if the project isn't back on track by May, when the utility hopes to start construction.

Klappa expressed confidence that the company could receive a ruling by May enabling it to begin construction.

Others were less optimistic that the construction will remain on track, particularly given that the utility still needs environmental permits from the state and federal governments before it can begin construction.

"There clearly will be delays now. And this puts an even greater emphasis on energy conservation," said Nino Amato, president of the Wisconsin Industrial Energy Group. "Our only hope is to use energy conservation as a bridge to maintaining reliability and affordability."

We Energies is the trade name of Wisconsin Electric Power Co. and Wisconsin Gas LLC, principal subsidiaries of Wisconsin Energy Corp. The company provides service to more than 1 million electric and natural gas customers in Wisconsin and the Upper Peninsula of Michigan.

Both the Public Service Commission and Wisconsin Energy say the Oak Creek project received more scrutiny than any other power plant project, with extensive hearings and a case file that is 6,000 pages long.

Critics see the case as a symbol of a commission process that has tilted too far in favor of power companies since the 1990s' reliability crisis.

"All of this is showing that the PSC has been, in our view, prejudging these things, and just sort of going through a pro-forma (review) process," said Stoddard, whose firm represents opponents of the coal plants and the northern Wisconsin power line. "And I think that's the way Judge Flanagan analyzed it."

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