Wisconsin Energy touts cost-effective capital spending

In an era when demand growth is incremental at best, Wisconsin Energy (NYSE:WEC) is focusing on cost-effective expenditures for generation projects and grid modernization, Chairman and CEO Gale Klappa told the Barclays conference Sept. 11 in New York City.

“If we are in an era, and I believe we are, of almost zero kilowatt hour sales growth,” utilities must be mindful of ratepayer tolerance. The companies that succeed in upcoming years must hold rate increases “reasonably close to the level of inflation,” Klappa said.

The key will be to invest in capital that can decrease operation and maintenance costs, Klappa said.

Klappa made his comments in response to a question about power customers being close to the breaking point on their electric bills.

Wisconsin Energy has invested $8.3bn on infrastructure investment in the past decade or so. The company has been able to deliver both “mega projects” and smaller ones cost-effectively, Klappa aid.

The company is now moving away from mega projects toward capital spending that increases renewal energy, modernizes the grid and helps it meet environmental standards.

Here are a few highlights:

** Biomass: A 50-MW biomass plant in Rothschild, Wis., is 94% complete and should be ready by the end of 2013. This is a $268m project. It will be fueled with wood waste from the northern Wisconsin forests. Construction is nearly complete and testing is underway. This will be located at the site of a Domtar paper mill.

Hydro: Wisconsin Energy expects to spend between $60m and $65m to build a new powerhouse at its Twin Falls hydroelectric facility. Providing regulatory approval is gained as expected, the company expects powerhouse construction to start in spring of 2014 with completion in 2016.

Coal-to-gas: The company hopes to finish the conversion of its Valley power plant in Milwaukee from coal-to-natural gas by early 2016. The conversion cost is $65m to $70m and follows completion of a $26m gas pipeline upgrade.

Wires: Wisconsin Energy subsidiaries plan to rebuild 2,000 miles of electric distribution lines between now and 2017. Much of this infrastructure is more than 50 years old, Klappa said.

Wisconsin Energy will replace 18,500 power poles; 20,000 transformers and hundreds of substation components.

Also, through its 26.2% investment in American Transmission Co., the company is exploring new transmission projects outside of Wisconsin and Michigan, Klappa said.

Wisconsin privatization: Wisconsin’s governor is giving “serious thought” to privatizing more than 30 steam heat and power generation facilities at state-owned sites including universities. “We would certainly be interested [in bidding on such a venture],” Klappa said. “It’s a business we know well.”

Fuel Blending: An extensive test-burn is underway at one of the new Oak Creek coal units that came online a few years ago. Unit 2 at Oak Creek is experimenting with a blend that includes 20% western coal from the Powder River Basin (PRB) coal along with 80% of the more expensive eastern coal, Klappa said. This test burn could last well into 2014. The company thinks it can reap significant fuel savings by blending in the cheaper PRB coal but it wants to ensure that no significant equipment problems or other complications will result, the CEO added.


About Wayne Barber 4201 Articles
Wayne Barber, Chief Analyst for the GenerationHub, has been covering power generation, energy and natural resources issues at national publications for more than 20 years. Prior to joining PennWell he was editor of Generation Markets Week at SNL Financial for nine years. He has also worked as a business journalist at both McGraw-Hill and Financial Times Energy. Wayne also worked as a newspaper reporter for several years. During his career has visited nuclear reactors and coal mines as well as coal and natural gas power plants. Wayne can be reached at wayneb@pennwell.com.