Wisconsin Energy Corp., the state’s largest electricity and natural gas provider, plans to invest $3.5 billion in infrastructure upgrades and renewable energy projects across the state by 2016.
The investment from the Milwaukee-based company will improve electric reliability for both businesses and consumers, while injecting funds into Wisconsin businesses, creating jobs and serving as a driver of economic growth.
Among the planned improvements are the construction of a biomass plant in northern Wisconsin and the replacement of aging utility poles and equipment around the state.
That’s atop the $7.8 billion Wisconsin Energy has invested over the past nine years to keep its equipment and facilities updated and meet regulatory standards.
Wisconsin Energy’s improvements have put Wisconsin out ahead of other states in meeting expected environmental standards and providing for a reliable power grid for the next 10 years.
Wisconsin Energy has helped the state build a competitive advantage over other states in terms of energy reliability, according to Lee Swindall, vice president of business and industry development at the Wisconsin Economic Development Corp.
“It’s been widely documented and it’s well known, but the energy infrastructure is in serious need of investment upgrade,” Swindall said. “Their reliability ratings alone as a benchmark relative to other utility providers I think are a pretty solid indication of how seriously Wisconsin Energy takes its role.”
Flipping the switch
Wisconsin Energy projects it will spend about $700 million of the $3.5 billion investment per year over the next four years.
In 2013, the total will be $678 million, with $105 million going to the energy generation fleet, $289 million on replacing electric delivery equipment like power poles and transformers, $217 million allotted to replacing aging gas pipelines, $43 million spent on retrofitting existing facilities to improve environmental performance and $24 million going to renewables, including the completion of the biomass plant.
The $3.5 billion investment is part of Wisconsin Energy’s ongoing effort to avoid brownouts and blackouts, said Gale Klappa, president, chief executive officer and chairman of the company.
The threat of energy reliability problems for the Midwest region began around 2000, when it became clear the region could not support the economy going forward without significant infrastructure and power plant capacity investments, he said.
So, several Midwestern states banded together to create a network of power suppliers and began investing in additional power plants, said Kristin Ruesch, communication director for the Wisconsin Public Service Commission, which regulates the state’s utility industry.
The Midwest Independent Transmission System Operator (MISO) Inc. was formed in 2001 to provide energy for Wisconsin, Minnesota, Michigan and parts of Illinois, Iowa, Missouri, Indiana, Kentucky, the Dakotas and Montana. It has a total generation capacity of 132,313 megawatts for the market served and can provide more if needed for surrounding reliability.
Due to record temperatures this past summer, the demand for MISO power was very high, and the region nearly ran short on power, Klappa said.
“On the 5th or 6th of July, the region, not just Wisconsin but the entire Midwest, came very close to an energy shortage and a cascading brownout and perhaps a blackout,” Klappa said. “The major power plants that we have built over the past decade were asked to run above their rate of capacity for hours on end on July 5th and July 6th.”
The four generating units Wisconsin Energy recently brought online provide a total of 2,380 MW of power, and they made a significant difference in preventing reliability problems, Klappa said.
“We were closely monitoring the demand this summer,” Ruesch said. “Demand was quite high and reaching peak capacity. Because of the planning that utilities have engaged in in the past decade, essentially, the lights stayed on.”
Investing for the future
Wisconsin Energy’s holdings include:
- Twenty-three power generation facilities around the state.
- A Port Washington natural gas plant.
- Three coal-fired plants in the Milwaukee area.
- Thirteen hydro-electric facilities in northern Wisconsin and the upper peninsula of Michigan.
- Three wind farms.
- Three additional power plants used only during peak times.
The company recently demolished a 75-year-old coal power plant in Port Washington and built a new, state-of-the art natural gas-fueled power plant in its place. The new facility’s first unit came online in July 2005, and the second was put into service in spring 2008.
The Port Washington plant cost $664 million, which is a competitive price going forward, Klappa said.
Wisconsin Energy also recently addressed its other 75-year-old facility, the Oak Creek Power Plant, expanding north of the current site to build two major coal-fired units. The first went into operation in February 2010 and the second in January 2011. The units cost $2.3 billion, and the company owns 85 percent of them, sharing ownership with Madison Gas & Electric and WPPI Energy of Sun Prairie.
“These units are equipped with all of the most modern, state-of-the-art emission controls that are known to mankind,” Klappa said. “These are among literally the cleanest-burning coal fired power plants anywhere in the world.”
Over the summer, Wisconsin Energy also completed the addition of safeguard and emission controls at the existing Oak Creek coal plant. The scrubbers that have been installed will clean sulfur dioxide from the plant’s emissions and new catalytic reduction facilities will act like a giant car muffler, he said.
“We have four older units in Oak Creek that are still very efficient but did not have the modern, state-of-the-art emission controls,” Klappa said. “We have completed this project on time, slightly better than budget, at a cost of $900 million.”
While Klappa is not sure yet how many total jobs will be created by the new investments, the company’s projects have created nearly 6,000 construction jobs since 2003, including 3,500 on the Oak Creek expansion alone.
Ahead of the curve
Wisconsin Energy’s investments in updating its infrastructure and meeting future environmental standards and energy needs has caused its rates to rise a bit above the national average, but that will even out when other states start meeting these impending standards, Klappa said.
The Public Service Commission approves any rate increases by Wisconsin utilities. The agency forecasts and models the kinds of investments that are needed and advises utilities on building new generating facilities, Ruesch said. The PSC deemed Wisconsin Energy’s recent projects as necessary for the state’s energy demands.
MISO asked Wisconsin to exceed energy needs by about 14 percent to meet its reserve margin for 2013. At the moment, Wisconsin is producing a 22 percent reserve margin, a healthy surplus, she said.
While other states do not publish their reserve margins, “They are going to have some catching up to do,” to match Wisconsin’s energy supply, Ruesch said.
For example, during July 2011, Chicago’s Commonwealth Edison Company was experiencing extreme heat and did not have the power to cover its needs during peak usage. So, it purchased energy from Wisconsin Energy, directly benefiting Wisconsin ratepayers, she said.
Elsewhere in the region, Indianapolis Power & Light is taking a few pages out of Wisconsin Energy’s playbook to serve Indiana’s energy needs. The Indiana utility plans to invest $1.3 billion over the next few years, its largest investment in decades, according to an IndyStar.com report.
Part of the investment would include IPL’s first natural gas power plant, to open in 2017. IPL will also install pollution filters on its existing coal plants.
When all is said and done, Wisconsin will have one of the best, most reliable energy supply and delivery products in the nation, Klappa said.
“From the standpoint of having power plant capacity that meets the expected rules going forward, I think we are clearly ahead of the game,” he said.
Wisconsin Energy is planning ahead to meet growing energy demands and injecting a large sum of money in economic development across the state.
“We are actually in the process of adding to our engineering staff, and in addition to that, that $3.5 billion represents a significant amount of construction work,” Klappa said. “There’s no question that there will be a positive effect on the Wisconsin economy.”
Delivering the future
Wisconsin Energy must meet the state’s renewable energy portfolio standard by 2015, with 10 percent of electricity sold coming from renewable sources, Klappa said.
Since the state does not have especially strong wind to power turbines and some types of power cost more than others, Klappa has focused on installing a variety of renewable power sources to meet the goal.
“There is no perfect energy source. They all have their issues,” he said.
While the company’s wind farms fill part of the quota, Wisconsin Energy is also in the process of building a $255 million biomass plant in Rothschild on the site of the Domtar Corp. paper mill. Construction is about 45 percent complete and is expected to be finished by the end of 2013.
The project has created nearly 400 construction jobs and is expected to create about 150 permanent jobs, mostly related to the procurement and delivery of biomass, said Brian Manthey, a spokesman for Wisconsin Energy.
The facility will burn wood scrap such as treetops, bark, stumps and sawdust from northern Wisconsin’s logging industry, Klappa said.
“It’s just like a conventional power plant – the only difference is the source of fuel,” he said. “We believe that diversity is incredibly important, not only in terms of our general philosophy of doing business and hiring but also in our fuel sources.”
Wisconsin Energy also is currently converting its only remaining power plant in Milwaukee, the Menomonee Valley Power Plant, from coal to natural gas. While the plant meets current environmental standards, Wisconsin Energy is proactively converting it in anticipation of Environmental Protection Agency standards that are expected to tighten by 2017.
“We can build the modern efficient power plant capacity that can support economic growth in the state and the region, but now we have to turn our focus more intently on what I call delivering the future,” Klappa said.
That future includes rebuilding 2,500 miles of electric distribution lines and 28,000 power poles that are more than 50 years old. The company will also replace 28,000 transformers and hundreds of substation components by 2016.
On the natural gas side, Wisconsin Energy will replace about 83,000 individual gas distribution lines and 1,200 miles of old gas mains.
“We’ve got a lot to do now with the basic nuts and bolts of our business,” Klappa said. “The mega projects, the huge power plants, are complete – we have sufficient capacity. Now we need to make sure the delivery of that capacity and energy to you remains reliable.”
Klappa’s leadership
Klappa has served at the helm of Wisconsin Energy since 2004. He previously served as the executive vice president, chief financial officer and treasurer at Southern Company, a major utility in Atlanta.
Klappa has been active in developing the regional economy, helping to drive the formation of the M7 regional partnership and serving as chairman and now vice chairman of the Metropolitan Milwaukee Association of Commerce (MMAC).
He sits on the boards of two major companies in the region, Joy Global Inc.and Badger Meter Inc., and is a director of the Edison Electric Institute and the Electric Power Research Institute.
Klappa recently shared his thoughts on the region’s economic development needs and building leaders with the Greater Milwaukee Committee.
“I think the business community here really cares about the future of this community,” he said. “We need the same kind of zeal and the same kind of commitment from government. We need governmental leaders who understand business, who can work with business, because none of us can do this alone.”
While Milwaukee has some catching up to do to match the development efforts of other cities, it has made significant progress in focusing on key industries and helping startups, he said.
Since M7 began its efforts seven years ago, Milwaukee has attracted 4,900 jobs, almost $250 million in new annual payroll and more than $400 million in additional capital investment.
Klappa has built a management team that has significant, extensive and broad experience in both the regulated and unregulated sides of the utility industry, he said.
He has worked to put a succession plan in place, whereby four senior officers are younger, in their mid-40s.
“You have to have the attitude that you need to put the best people you can find around you,” Klappa said. “All of them have very long runways and I’m very pleased with where we are from the standpoint of our talent base and our future succession plan.”
