Klappa: Wisc. Energy didn’t know about ballooning utility project cost

WEC Energy Group headquarters building
WEC Energy Group's Milwaukee corporate headquarters.

Leaders at Wisconsin Energy Corp., including chief executive officer Gale Klappa, were unaware of the ballooning cost of a Chicago utility project before the company completed its acquisition of Integrys Energy Group in June, Klappa said.

WEC Energy Group headquarters building
WEC Energy Group’s Milwaukee corporate headquarters.

“There is a cost estimate that we learned about after we closed the acquisition,” Klappa said. “There was a cost estimate provided to the prior management that it cost north of $8 billion.”

The Peoples Gas Accelerated Main Replacement Program was initially projected to cost $2.2 billion, but an outside audit showed in January that costs had risen to about $8 billion. The leaders of Integrys and its Peoples Gas utility didn’t disclose that $8 billion estimate to Wisconsin Energy Corp. prior to the acquisition, Klappa said.

“In fact, we notified the Illinois Commerce Commission when we found out about the new cost estimate,” he said.

Peoples Gas, which provides natural gas to the Chicago area, is one of the utilities Milwaukee-based Wisconsin Energy assimilated in the $9 billion acquisition of Integrys Energy Group that formed Milwaukee-based WEC Energy Group Inc. in June.

The utility also didn’t disclose the higher project cost to the Illinois Commerce Commission while it was seeking approval for the acquisition, the ICC alleges.

Illinois Attorney General Lisa Madigan on Nov. 9 filed a petition with the Illinois Commerce Commission to investigate possible violations of the Public Utilities Act by WEC, Integrys Holding Inc. and The Peoples Gas Light and Coke Co.

The commission launched a formal investigation on Nov. 18. The ICC can penalize a corporation for each misrepresented fact by up to $500,000.

WEC Energy Group is scheduled to provide updated information to the ICC about the project on Nov. 30. Once it learned of the ballooning figure, WEC took a “bottoms up look” at the entire project, Klappa said.

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Molly Dill, former BizTimes Milwaukee managing editor.

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