Wisconsin Energy Corp. is converting its Valley Power Plant in Milwaukee from coal to natural gas, a project that could cost upward of $65 million and result in increased utility rates for some of the company’s customers.
The facility is located on 22 acres in the Menomonee Valley and has been in service since 1968. It generates 280 megawatts of power.
The plant is a critical energy resource for Milwaukee, since it provides electricity for the grid, voltage support for the downtown central business district and steam heat for almost every major building downtown, said Gale Klappa, CEO, president and chairman of Wisconsin Energy.
The landmass at the Valley site won’t support a scrubber, which would clean the existing coal plant’s emissions, so natural gas will be used instead to reduce pollution, Klappa said.
The project, which includes replacing the boilers and burners at the Valley plant, is expected to be completed in 2015 and will cost $60 to 65 million.
The first step is an expansion of the natural gas pipeline near the facility at an additional cost of $26 million. The pipeline would be in service in 2014.
“If we wanted to switch tomorrow to run natural gas instead of coal we couldn’t do it,” he said. “There’s not enough pipeline capacity running through that area to fuel that plant so that it can operate the way it needs to operate.”
According to the Public Service Commission, the agency that regulates Wisconsin’s utility industry, Wisconsin Energy has applied for a 3.6 percent increase in base electric rates for both 2013 and 2014 for electric and a slight rate decrease for gas.
The 450 downtown businesses that use steam from Wisconsin Energy will see rates rise by as much as 8 percent. Some, including Northwestern Mutual and Aurora Sinai Medical Center, have filed testimony to the PSC about the impact of the rate increases.
However, the increases are also related to a number of additional investments the company is making in the region.
“A number of factors are involved in setting the rates for the next two years, but the top cost drivers in the rate case are renewable energy projects built to meet the state’s renewable energy mandate and an environmental project at the previously existing units at the Oak Creek Power Plant to meet current and future air regulations,” said Brian Manthey, a spokesman for Wisconsin Energy. “All of the projects were previously approved by the PSC.”
The Valley conversion project is necessary to meet Environmental Protection Agency regulations that are expected to go into effect by 2017, and this is the most cost-effective way to update the facility, Klappa said.
“Our customers are already paying for the environmental controls that the EPA is working to mandate in other states,” Klappa said. “I believe that you will see electric rates in particular in other states rising faster in the years ahead than they will here.”
The conversion of the plant is also expected to provide savings of about $20 million in operating costs per year, which electric customers will realize, said Brian Manthey, a spokesman for Wisconsin Energy.
“One of the things we have been able to accomplish is to look at the trends that we see in environmental regulation and other kinds of regulation that affect our business and try to understand the impact of the trends of those regulations on what we need to do,” Klappa said. “That has helped us stay ahead of the curve and actually build some of this infrastructure and actually stay ahead of these regulations in a cost effective way.”
The Citizens Utility Board of Wisconsin, which represents more than 9,000 consumers against utilities, supports the conversion of the Valley plant because it will ultimately mean lower rates for most customers, said Charlie Higley, executive director of the CUB.
However, Wisconsin Energy does not need to increase rates this significantly in the near term to cover the costs of meeting environmental regulations, Higley said.
The CUB has suggested to the PSC that the $45 million cost Wisconsin Energy incurred as a result of litigation related to the expansion of the Oak Creek plant should be covered by the company, not customers. The CUB also says it found another $85 million in costs it believes customers should not have to pay.
“We’re not disputing that they can raise rates for pollution controls on their power plants,” Higley said. “They’re asking way too much, and not only that, but they’ve been earning record (earnings) recently. The company’s need for a rate increase, we believe, is greatly exaggerated.”