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Appeals court sides with utilities on need for gas peaking facilities

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Appeals court sides with utilities on need for gas peaking facilities

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The Public Service Commission (PSC) of Wisconsin’s decision authorizing Wisconsin Electric Power Co. and Wisconsin Gas LLC to build and operate two natural gas peaking facilities can move forward following a decision by the Wisconsin Court of Appeals.

The Sierra Club initially sued the PSC in Dane County Circuit Court to block the approval. When Judge Ryan D. Nilsestuen ruled in the regulator’s favor, the organization took the case to the Court of Appeals. The Court affirmed Judge Nilsetuen’s decision.

The Sierra Club did not respond to a request for comment on the ruling.

In its appeal, the Sierra Club argued the PSC’s decision was unlawful, citing multiple objections including that the decision was made by PSC staff and not commissioners, there were errors in the load projections, a 5% reserve margin applied by the PSC was an unpromulgated rule and that PSC improperly shifted the burden of proof of compliance with the Energy Priorities Law (EPL) to the Sierra Club as opposed to the two utilities.

The utilities filed an application with the PSC in 2020 to build the two LNG peaking facilities so they could better meet consumers’ peak demand needs in southeastern Wisconsin. According to the application, the facilities would store natural gas in a liquefied form to provide a ready supply of natural gas in their distribution system during peak demand periods, which normally happen on the coldest days of winters. The utilities said there was a projected capacity deficiency and no capacity in the interstate pipelines that currently supply natural gas to the region to cover projected loads.

The project’s expected cost was estimated at $409 million in 2020.

The PSC conducted a Class 1 contested case proceeding on the utilities’ application, which Sierra intervened as a party. The factual record was then developed by the parties, the commission staff and an administrative law judge. The utilities and the Sierra Club filed written direct testimony, rebuttal testimony and exhibits. A hearing session allowed the parties to cross-examine certain witnesses. A total of 15 witnesses testified and nearly 80 exhibits were entered into the record. A public listening session was then held and written comments were accepted.

After the hearings, the utilities and the Sierra Club each submitted initial and reply briefs, which the PSC staff used to create a draft decision matrix. The parties then included their own position on each issue along with their own factual record citations. The materials were then given to the PSC commissioners to guide their discussion of the application at an open meeting held Nov. 4. 2021.

At the meeting, the commissioners decided to approve the utilities’ plan with various conditions. On Dec. 22, 2021, the Commission Secretary signed and issued the final decision. The Sierra Club petitioned for judicial review with the circuit court affirming the final decision. The organization then appealed the decision.

On appeal, the Court reviewed the PSC’s decision, not the circuit court decision. The Court responded separately to each of the Sierra Club’s arguments.

The Sierra Club argued the conclusion was unlawful because PSC staff and not PSC commissioners wrote the decision. The court ruled, however, that “the commissioners’ discussion at the open meeting established they had reviewed the factual record and made reasoned, legal determinations based off that report. That the commissioners tasked staff with drafting the final decision ‘consistent with discussion’ does not mean that it was the staff as opposed to the commissioners who made” the decision.

The Court also noted the Sierra Club cited no legal authority prohibiting staff from drafting the final decision.

The Sierra Club’s second argument claimed there was no need for the two LNG facilities and the utilities inflated their demand projections since they included Foxconn, which wound up building a smaller campus in Racine County than originally planned. As part of the initial information gathering, the utilities called a gas commodity expert as a witness who explained the large customer “represents merely approximately 2% of (the utilities’) capacity requirements and is not a meaningful driver of the need for the LNG project to meet peak-day demand.”

In its discussions, the PSC Commission recognized the factual dispute in the utilities’ load forecasts, but determined they were acceptable and that the commercial and industrial load “is only one component of the utilities’ forecast.” The Court ruled the PSC’s decision was reasonable.

The Sierra Club also questioned the utilities’ included 5% reserve margin, but the Court said testimony showed the PSC usually requires natural gas utilities to maintain that margin in their gas supply contracts. The PSC also said the 5% reserve margin is “a planning target, not enforceable standard or threshold.”

In its final appeal argument, the Sierra Club claimed the PSC committed an error of law when considering the Energy Priorities Law (EPL), which states “Wisconsin’s energy policy and gives agencies and government units a list of energy source options and the priority in which they should be considered when making a decision.”

The Court found the utilities specifically addressed the EPL in its project application. Before the PSC, the Sierra Club was critical of how the utilities applied the EPL and proposed various efficiency and demand options. In response, the utilities said some of the organization’s suggestions, such as using temperature-controlled interruptible tariffs and technology, were not feasible. The PSC determined the utilities’ project “complie[d] with the state energy policies on prioritization of fuel choices and the promotion of energy conservation and efficiency.”

The Court disagreed with the Sierra Club’s assessment the PSC “improperly shifted the burden” of proof to the organization that the LNG facilities did not comply with the EPL. In its ruling, the Court said the utilities responded with evidence that the Sierra Club’s alternatives were not feasible or cost effective to meet the capacity gap and the PSC was correct when it determined the project complied with the EPL.

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