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Monday, Dec. 31, 2007

Oak Creek Coal Plant’s Expansion in Limbo

Will customers get stuck with We Energies’ mistake on the

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Just before Thanksgiving, a judge gave We Energies some bad news: That $100 million pipe you’re building into Lake Michigan may not be legal.

Nevertheless, We Energies is continuing to build it and, what’s more, it wants its customers to pay for it.



On Nov. 21, state administrative law judge William S. Coleman Jr. ruled that the water-cooling system at We Energies’ expanding Oak Creek coal-fired power plant must meet more stringent environmental standards. Coleman ruled that the open-cycle cooling system now under construction should meet standards set for new facilities, not for the expansion of existing facilities. The suit was brought by Clean Wisconsin and the Sierra Club, two environmental advocates that have challenged the coal plant’s expansion since it was proposed a few years ago.



The disputed cooling system is part of the $2.2 billion expansion of the coal-fired power plant in Oak Creek with questionable environmental and economic impacts. The company expects the first new unit to go online in 2009, with the second unit following in 2010, as scheduled. The cooling system consists of a 9,250-foot pipe that extends into Lake Michigan, bringing in 3.2 billion gallons of water a day to cool the plant. The water would then be returned to Lake Michigan 10 to 15 degrees warmer than it was when it was extracted, and environmental advocates say it will adversely affect the lake.



As a result of the judge’s decision, We Energies must go back to the Department of Natural Resources (DNR) and make the case that the system currently meets the tougher standards for new facilities. If the DNR agrees, it will grant a new operating permit for the cooling system; the current permit for construction is still valid. If the DNR disagrees with We Energies’ argument, the company may have to come up with a new system—one that it warns could cost an additional $300 million to build.



Nevertheless, We Energies is proceeding with the construction of the open-cycle cooling system, which is banned in Indiana and Illinois, without the permit in place.



We Energies spokesman Brian Manthey said that the water intake system is almost completely built, and he’s confident that the DNR will approve the permit under the new regulations. Manthey said that the company has modified the intake system to reduce the number of fish that would be killed from the rush of water into the pipe, and also is building a reef along the Lake Michigan shoreline to be more environmentally friendly to the aquatic life.



“We feel strongly that this is the best system for the environment,” Manthey said.



He estimated that the DNR would grant a new permit for the structure sometime in 2008.



“The decision was such that we have to go back to the DNR, but we’ll go back and get the permit, and we feel confident that we’ll be able to do that,” Manthey said. “Is it assured that we’ll get it? Of course not.”



Funding in Question

That bit of doubt about the DNR’s decision is what Clean Wisconsin is seizing on in its latest challenge to We Energies. The utility is currently asking the state Public Service Commission (PSC) for a rate increase of about 7% in 2008 and another 7% in 2009; part of that increase is to reimburse We Energies for the cost of its Oak Creek expansion. The company is hoping the PSC makes its decision on the rate increase before the end of the year, so it can raise prices for electricity in January. A number of elected officials pointed out that if the state or a local unit of government continued to propose tax increases similar to We Energies’ rate increases, there would be a tax revolt.



Specifically, We Energies is asking that its customers pay $166 million next year toward its construction projects. About $19 million of that would go toward the disputed cooling system in Oak Creek. We Energies is also requesting that customers pay $19 million in 2009 for the system.



Manthey said that the $100 million for the cooling system would eventually be paid for by the ratepayers, even if it isn’t approved by the DNR.



“It would be recovered over time,” Manthey said.



But Katie Nekola, staff attorney for Clean Wisconsin, said that We Energies’ customers shouldn’t have to foot the bill for a system that’s currently in legal limbo.



“We are arguing that, given the uncertainty of this whole system, ratepayers shouldn’t be made to bear the cost of this at this point,” Nekola said. “This is a risk that the company is taking, and if they’re willing to do that, the shareholders should bear the risk, not the customers who can’t afford it.”



According to documents filed in November with the PSC regarding We Energies’ rate request, Clean Wisconsin is charging that the utility knew that the cooling system was risky and went ahead with the construction anyway.



“[We Energies] has ignored and failed to account for the substantial risk that its extraordinarily expensive intake structure will be unusable,” the document reads. “It has taken the risk of moving ahead notwithstanding legal challenges and, now, a federal court case that rejected the very analysis relied upon by [We Energies] in pursuing approval of the intake.”



The document also charges that We Energies has no Plan B ready in the event that the DNR does not grant the new permit. Manthey confirmed that the company has no alternative for the current cooling system.



“Right now we’re looking at the DNR approving it,” Manthey said.



He said he wouldn’t comment on alternatives until the DNR makes its ruling.



“At this point we don’t know what the alternative would be,” Manthey said. “It’s a hypothetical situation. Other than [changing] the intake system, what would the DNR tell us to do? Would they need to tell us to modify what we’re doing? Would we have to reduce something? Add something else? I think we would have to make a decision at that point [after the next DNR ruling].”



Charlie Higley, executive director of the Citizens Utility Board (CUB), predicted that the PSC will give We Energies its requested rate increase before the end of the year, but said that if the DNR decides next year to deny the company its permit for the cooling system, the repercussions will be huge.



Right now, Higley said, the uncertainty over the DNR’s decision could affect the company’s stock price, which took a dip after Coleman’s ruling in November and has since recovered. Shareholders, unlike We Energies’ customers, can stop doing business with the company if they believe it’s a bad bet.



“There’s this huge cloud hanging over the cooling structures,” Higley said. “We Energies has to tell its investors about these problems. The analysts have been asking [We Energies CEO] Gale Klappa questions about the uncertainty of the legality of some of the structure. Investors don’t like to hear that kind of stuff. That puts Wall Street on edge.”

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