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Railroad Problems to Cause We Energies' Fuel Costs to Rise

Posted on: Friday, 19 August 2005, 12:00 CDT

Aug. 19--We Energies said that it will face $45 million to $60 million in higher fuel costs as a result of railroad problems in the west that have slowed coal deliveries and forced the utility to burn more expensive natural gas.

The Milwaukee-based utility this week asked state regulators for permission to pass along those increases to its customers at a later date.

The company is working to keep a one-month supply of coal at its Pleasant Prairie and Oak Creek power plants and the Edgewater coal-fired plant in Sheboygan that it operates jointly with other utilities.

Coal shipments have moved to the Great Lakes as a result of the rail troubles. The utility is having coal sent here from Duluth by ship, and is then moving the fuel by truck to power plants.

The utility is also considering rerouting coal trains bound for Pleasant Prairie plant in Kenosha County to send that coal directly to Oak Creek, We Energies said in a filing with the state Public Service Commission.

When all of the higher costs would hit customers' bills is unknown, though some of those costs could be charged to customers later this year.

We Energies is the third Wisconsin utility to ask for permission to bill customers at a later date for higher fuel costs relating to the slowed shipments from Wyoming's Powder River Basin.

Two weeks ago, Madison-based Wisconsin Power & Light Co. said it projected additional fuel costs of $14 million to $22 million this year and next. Eau Claire-based NSP-Wisconsin, a division of Xcel Energy, said it was seeing fuel costs by $2.1 million more than it can collect from customers under current electric rates.

The commission hasn't yet acted on those requests.

We Energies announced last month that it was taking steps to conserve coal and was keeping an eye on the transportation situation. But until this week, the utility did not offer an estimate of the costs tied to the coal-delivery problems.

Utilities that rely on coal from Wyoming mines have been told to expect a 15 percent to 20 percent reduction in coal deliveries as crews in that state work to fix tracks ruined by harsh spring weather. The track problems led to two derailments in May.

The track repairs could extend into next spring, Union Pacific said, and We Energies said its coal supplies will not return to "optimal levels" until after that.

We Energies told regulators that it was trying to run its coal-fired plants less often, forcing it to rely on more expensive natural gas-fired plants. The changes are expected to cost $30 million to $40 million this year and $15 million to $20 million next year.

The reliance on natural gas-generated electricity comes as the spot price of natural gas is nearly a record for summer, spurred on by high prices of crude oil. Last week, the spot price of natural gas reached its highest point in nearly four years.

The combination of higher natural gas costs and the slower coal deliveries could result in We Energies receiving authorization from the PSC to raise customers' rates this fall.

Because of high fuel costs, customers' rates were raised this year on an interim basis, subject to a PSC audit and reviews that are continuing. That increase, for $114.9 million, resulted in a 5 percent increase on customers' bills, beginning in March.

For the typical residential customer, the hikes added more than $3 to the monthly electric bill.

But if the utility can demonstrate that its costs have increased even further, the increase approved in March could be modified when the commission finalizes its review of the matter, said Roman Draba, We Energies vice president of regulatory affairs and policy.

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Source: The Milwaukee Journal Sentinel

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