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Who will pay for cost overruns at Oak Creek power plant?

OAK CREEK, Wis. (AP) – Wisconsin regulators will decide who should pay for cost overruns at one of the largest construction projects in the state, a $2 billion power plant in a Milwaukee suburb.

Critics say We Energies ratepayers should not have to pay for the extra $177 million that was tacked on to the cost of the plant in Oak Creek. The overruns are tied to legal fees resulting from opposition before the plant was built and to a dispute with a contractor during construction. The state Public Service Commission will decide in the next several months whether those costs should be passed on to ratepayers through higher electric rates.

Part of the cost overruns include $13 million in attorney fees that led to the settlement of a contract dispute between We Energies and the project’s contractor, Bechtel Power Corp. Public Service Commission staff said regulators might want to cap the amount of We Energies’ legal fees based on the high rate charged by attorneys, some of which exceeded $700 an hour.

The Citizens’ Utility Board, meanwhile, says We Energies shouldn’t have signed a construction contract with Bechtel Power Corp., because there were legal questions that hung over the project. Several plaintiffs concerned about the environmental impact filed a lawsuit to block the project. Board consultant Richard Hahn said the utility shouldn’t have moved forward with its contractors.

A circuit court ruling that withdrew the construction permit for the project “is not a simple lawsuit as it was characterized by the company,” Hahn said. “It’s the primary basis upon which the company was allowed to build such a large project. Its revocation was not simple litigation to be ignored.”

The Milwaukee Journal Sentinel reported that We Energies executives said steel and construction prices were rising, so signing with Bechtel was the right thing to do. Construction stalled by extreme weather conditions also played a role in higher costs for the project, the utility said.

The overall rate increase sought by We Energies would result in bills climbing by 5 percent, or $138 million, in 2013, and by 3.6 percent, or $104.1 million, in 2014.

The new power plant that’s at the center of the overrun dispute is now among the most efficient coal-fired power plants in the country, according to We Energies. But it has run little this year because of plant repairs, as well as the falling price of natural gas.

Information from: Milwaukee Journal Sentinel,

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