Mar 20 - McClatchy-Tribune Regional News - Thomas Content Milwaukee Journal Sentinel

State regulators will soon decide whether Wisconsin's largest utility should fix up or shut down its 50-year-old coal-fired power plant in Oak Creek, a decision that could cost ratepayers $750 million or more.

We Energies says a $750 million retrofit, including pollution controls that would keep the plant running until 2030, is far more affordable than closing the plant and spending billions on a new, less-polluting plant to replace it.

A retrofit also would buy time as regulators decide how hard to clamp down on power plants in response to concern about their contribution to global warming.

The decision will mean yet another hit for We Energies customers, who have seen several rate increases in recent years to pay for a $3 billion power-plant building program that's under way. That boom includes construction of two cleaner-burning coal plants in Oak Creek, next to the one being considered for the retrofit. Since the utility started collecting funds for new power plants in 2004, the typical residential customer's annual electric bill has surged by $226, or 28%, to $1,028.

Skeptics of the utility's retrofit plan say the state has plenty of power available, even if the old boilers are shut down, thanks to the plants under construction and slowing demand for electricity.

We Energies says keeping the older plants running is the most cost-effective way to keep Wisconsin from suffering power shortages by the end of the next decade.

A decision is expected by regulators in the next month. The utility wants to begin the retrofit project this spring.

The Oak Creek dilemma is the result of a court decision last year approving an agreement between the Environmental Protection Agency and We Energies to settle charges that the utility violated the federal Clean Air Act.

The consent decree approved in October requires We Energies to reduce emissions from its coal plants in Pleasant Prairie, Oak Creek and Marquette, Mich. It requires the most stringent environmental controls to be placed on the Oak Creek and Pleasant Prairie plants by 2012. The controls were added in Pleasant Prairie two years ago, at a cost of more than $300 million.

Regulators now must decide if it makes more sense for the utility's customers, whose rates went up in January and are poised to go up again soon, to upgrade the Oak Creek facility, which is about 25 years older than the one in Pleasant Prairie.

"These are really old units which are really at the end of their useful life and should be shut down," said Katie Nekola, energy program director at the conservation group Clean Wisconsin.

In addition to the court decision, new rules for power plants are expected to be coming shortly, in response to concern about global warming. The industry is expecting that plants built after 2020 will be required to capture emissions of carbon dioxide and bury the carbon underground. But the technology to capture and bury the carbon is still being developed.

We Energies Chairman Gale Klappa said the retrofit would create "a bridge for a number of years" while policy-makers determine how utilities must help reduce greenhouse gases.

"Then we can take a step back and assess all of the technological changes that are taking place," Klappa said.

Energy experts say the creation of regional or national plans to reduce global warming emissions are likely within a few years. Such plans would come from Congress or agreements among states and are likely to make utilities essentially pay a fee for higher emissions of carbon dioxide. Coal plants emit far more of the leading greenhouse gas, carbon dioxide, than other power plants.

For power-hungry manufacturers, the question comes down to the bottom line: The Wisconsin Industrial Energy Group says We Energies hasn't done enough detailed analysis to determine whether costs would be higher for customers by keeping the plants running or shutting them down in 2012. Though it offered qualified support for the retrofit project, the industrial energy group urged the state Public Service Commission to do a more detailed study of the project.

Also disappointing the manufacturers' group: We Energies recently announced it would not use a less costly method of financing the projects.

Under the cheaper plan, the utility would have opted to forgo earning a profit on its investment in the power plant upgrade. The financing plan might have saved customers as much as 20% of the total cost, or $150 million.

The $1 billion sale of the Point Beach nuclear plant and a move by regulators to reduce the maximum amount of profit the utility can earn "have put a pressure on earnings that won't allow us to further reduce earnings," said Roman Draba, utility vice president of regulatory affairs.

There's also been controversy about the information that We Energies has presented in defense of the retrofit project.

Consumer groups say the utility provided regulators inadequate and often erroneous information. The utility says its analysis was thorough, and that its errors were not significant.

But in an unusual twist, an administrative law judge sanctioned We Energies for failing to provide information to Clean Wisconsin and to the Citizens' Utility Board in a timely manner. The judge awarded $10,500 to the utility board and Clean Wisconsin.

"This utility expects to spend millions upon millions of ratepayer dollars while resisting providing information that would allow anyone to assess the reasonableness of spending all that money," said Clean Wisconsin's Nekola.

Utility spokesman Brian Manthey said the dispute was a difference of legal interpretation about whether the reports were relevant to the actual requests submitted by the advocacy groups.

Clean Wisconsin and the utility board recently proposed a compromise, calling for the Public Service Commission to allow two 1960s-era boilers to be upgraded, but also calling for two older boilers to be shut down.

"We can keep the lights on without keeping every dirty old coal plant limping along indefinitely," Nekola said. Shutting down the oldest boilers would reduce the greenhouse gas emissions from the Oak Creek complex and "would save $100 million as opposed to putting equipment on all four units," said Citizens' Utility Board Executive Director Charlie Higley.

We Energies says though its plants aren't young, they operate more efficiently than other coal-fired power plants in the state, meaning they generate fewer emissions of carbon dioxide per ton of coal burned.

For the utility, Klappa said, shutting down two of the four units wouldn't make financial sense. Adding the controls to all four boilers would cost just 30% more than the cost to install the control equipment on half of the Oak Creek boilers.