By THOMAS CONTENT

The most expensive construction project in state history, We Energies' new $2.3 billion coal-fired plant in Oak Creek, has begun generating power, having reached several construction milestones in recent months, the company's chairman said Thursday.

The plant consists of two coal-fired boilers next to an older coal plant on Lake Michigan. The first of the two boilers began burning coal earlier this month and has been running at 25% of maximum power in recent days, said Gale Klappa, chairman and chief executive of Wisconsin Energy Corp., the parent of We Energies.

Bechtel Power Corp., the contractor on the project, also has made progress on building the second boiler, which is now 74% complete, Klappa said.

The project's cost is roughly double the combined cost of building Miller Park and rebuilding the Marquette Interchange.

"What we're seeing at Oak Creek is significant progress in the past three months," Klappa said.

Bechtel is now testing the plant at 25% of its full output, and plans to ramp that up to 50% within the next few days.

The Oak Creek project was hit with construction delays and cost overruns that are the subject of a nearly $500 million dispute between We Energies and Bechtel. The companies tried to resolve the dispute through mediation, but the case is now in the hands of a three-person arbitration panel. A decision is expected late next year or in 2011, Klappa said.

Bechtel claimed that harsh weather conditions and labor problems contributed to construction delays and extra costs for the project. We Energies objects to most of the claims but agreed that weather conditions played a role in some of the delays, Klappa said.

Under the original timeline, the first boiler was scheduled to open in September, but Bechtel said it would finish the project by the end of December. The contractor is slightly behind schedule at this point but optimistic the project will be done by year's end, according to Klappa.

When completed, the two boilers will generate 1,230 megawatts of power -- enough to serve more than 1 million homes.

Construction of the plant began in June 2005, after the state Supreme Court rejected legal challenges to the plant filed by S.C. Johnson & Son Inc. and environmental groups.

The environmental groups objected to adding coal-fired energy at a time of growing concern about emissions linked to global warming.

To address those concerns and meet the state's renewable power mandate, We Energies has retired an old coal-fired power plant in Port Washington and announced plans for new wind farms, biomass energy projects and an expansion in solar power.

The company opened the largest wind farm in the state last year and has proposed an even bigger project, the Glacier Hills Wind Park, in Columbia County.

The second Oak Creek coal boiler is scheduled for completion at the end of August.

We Energies customers have seen costs linked to the project send electricity bills higher since 2004. The main drivers of big jumps in customers' electric bills since that time have been costs linked to power plant construction and fuel costs.

Power plant construction costs are a factor in the 2010 price increase proposed by We Energies that the state Public Service Commission will vote on in November. That proposal would raise customers' bills 7% from current levels, taking into account a drop in rates earlier this year.

Also proposed to be included in rates are costs linked to a settlement of lawsuits filed by groups that challenged the legality of water permits for the water intake systems for the Oak Creek plant.

We Energies and its utility partners, Madison Gas & Electric Co. and WPPI Energy, decided that adding cooling towers, instead of relying on the cooling system already built, could have added more than $1 billion to the price tag of the project. The settlement was projected to cost the three utilities $105 million over 20 years.

Customers including the Wisconsin Industrial Energy Group, which represents large industrial power users, have objected to raising rates to pay for the legal settlement.

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