June 21, 2007

Ms. Sandra J. Paske Secretary to the Comm ission Public Service Commission of W i sconsin Post Office Box 7854 Madison, WI 53707-7854

Dear Ms. Paske:

Oak Creek Pow er Plant Units 5, 6, 7, and 8 – Installation of Wet Flue Gas Desulfuriz a t ion and Selective Catalytic Reduction Facilities and Associated Equipment for Control of Sulfur Di oxide and Nitrogen Oxide Emissions PSCW File No. 6630-CE-299

Pursuant to §196.49, W i s. Stats., and PSC 112, W i s. Adm

. Code, W i sconsin Electric Power Company (“W i sconsin Elec tr ic” or “ t he Com p any”) is subm itting the attached applic ation f o r a Certif ic ate of Authority f o r au th oriza tion to instal l sulfur dioxide and nitrogen oxide control technol ogy on units 5, 6, 7, and 8 at the Oak Creek Power Plant.
These controls are a sig n ifi cant part of W i sconsin Electri c’s comm it m e nt to m eet new environm ental em ission requirem e nts to im pr ove air quality in Southeast W i sconsin. W i sconsin Electric h a s d e term ined th at th is pr o j e c t is integ r al to its com p liance s t ra teg y for m eetings its obligations unde r the Clean Air Interstate Rule (“CAIR”) and the Federal 8 Hour Ozone requirements, as well as with th e U.S. Environm ental Pro t ection Age n cy in accordan ce with a Consent Decree p r esently lo d g ed in federal court. In addition, this project is a part of the C o m p any’s Powe r the Future strategy announced in 2000, which includes investing in new generation facili ties, improving the environm ental performance of our existing facilities, and upgrad ing our existing distribution system

. If the equipm ent is not installed, the only op tion available to W i scons in Electric und er the Consent Decree is to prem aturely shut down Oak Creek units 5-8 on Decem ber 31, 2012. The shutdown option would require construc tion of over 1,000 m e gawatts of baseload generation b y Decem ber 31, 2012 in order to m eet the p r ojected energy requirem e nts of W i sconsin Electric’s custom ers. Although 2012 is several years off, new baseload generation can take up to10 years to perm it and construct. Oak Creek units 5-8 have been in operation since 1959, and they have a useful li fe of another 20 to 25 years. The results of the Com p any’s generation expansion m odel, EGEAS, show that upgrading the em ission control system s at the Oak Creek units is the best answer for our custom ers, saving them over $600 million.Ms. Sandra J. Paske June 21, 2007 Page 2

Wisconsin Electric is implementing a thre e-part strategy to reduce emissions.

• Environmental controls and retirements: Through December 31, 2006, the Company has spent approximately $355.0 million for emission controls, and it is estimated that we will have spent in ex cess of $1 billion in capital by the end of 2013. The Port Washington coal fired units we re recently retired and replaced with combined cycle natural gas units.

• Renewable energy: We have significan tly increased the number of customers buying renewable energy, have added renewable energy to our generation portfolio, and have worked to increas e the visibility and understanding of renewable energy among our cust omers and the general public.

• Efficiency: We have an active energy e fficiency initiative that is also an outgrowth of the Company’s Power the Futu re plan. This effort is on schedule and the Company is investigating other similar initiatives.
Significant actions taken or pl anned to implement this stra tegy include the following:

• Installing the Pleasant Prairie Power Plant air quality control equipment;

• Retiring 500 MW of older coal generation;

• Constructing 145 MW of wind generation;

• Investing in 55 MW of energy efficiency, as well as investigat ing continuation of such efforts. The Company’s pending ra te filing addresses future efforts.

• The Company is currently considering an RFP for non-wind renewables in order to evaluate the current availabil ity and price of non-wind options.

From an even broader perspective, the Company has taken early steps to address greenhouse gas emissions by:

• Renewing the Point Beach Operating License;

• Hosting an innovative project at Pleasant Prairie Power Plant to demonstrate a new technology to capture carbon dioxide (CO 2 ) emissions from a coal-fired power plant;

• Creating one of the first successful green pricing renewable energy programs in the country;

• Taking a proactive approach to working with governmental agencies and other groups to address greenh ouse gas emission; and

• Participating in numerous initiatives to address climate change issues, including the Belize forest preservation.Ms. Sandra J. Paske June 21, 2007 Page 3

The Com p a ny respectfully requests that a hear ing be held for this project. Although a hearing is not required f o r projects aut horized under W i sconsin Statutes §196.49, the Comm ission has discretionary authority to order one ( See W i s. Adm i n. Code PSC 112.07). In a sim ilar projec t, the a pplication by W i sconsin Public Service Corporation (W PSC) to install pollution control equi pm ent on W e ston 3 (which W P SC has since withdrawn), a petitioner had requested a c ontes ted case hearing on W PS’s fleet-wide plan for air

em ission reductions. The Comm ission denied th e petitione r’ s re quest but, on its own motion, ordered a hearing be held so that the public could better understand issues related to the project. The Comm ission ordered the sc ope of the hearing be narrowed to focus on the application and its m e rit—the proposed tech nology and cost effectiv eness rather than a system wide look at W P S’s fleet ( See Order dated March 22, 2007 in Docket No. 6690- CE-197). Consisten t with the Commission ’s order in th at pro ceeding, we respectfully request that a hearing with the sam e narrow sc ope be held for this project. The Com p any requests the Comm ission to hold a prehearing co nference on the project by the end of July to f acilita te the schedule f o r review as described in the attached application.

Please contact Mr. Paul Farron at 414-221-3958 for infor m ation or if you have any further questions.
Sincerely,

Rom a n A. Draba Vice Presid ent Regulatory Affairs and Policy

cc: Mr. Scot Cullen – P S CW Mr. Jim Lepinski - PSCW Mr. Robert Norcross - PSCW Mr. Dan Sage – PSCW Mr. David Siebert - WDNRWisconsin Electric Pow e r Company ’ s A pplication to Install Wet Flue Gas Desulfurization and Selective Cataly ti c Reduction Facilities and Associated Equipment On Oak Creek Pow e r Plant Units 5, 6, 7 & 8 for Control of Sulfur Dioxide and Nitrogen Oxide Emissions

Pursuant to §196.49, W i s. Stats. and PSC 112, W i s. Adm

. Code, W i sconsin Electric Power Com p any (“W i sconsin Electric” or “the Com p any”), requests authorization to install lim estone based, forced oxidation, wet flue gas desu lfurization ("W F GD") sulfur dioxide (“SO 2 ”) control technology and selective catalytic reduction (“SCR”) nitrogen oxide (“NO x ”) control technology on units 5, 6, 7, and 8 at Oak Creek Power Plant (the “Project”). The Project will also include the installation of a new com m on chim ney for the existing units, lim estone and gypsum handling equipm ent to support the new W F GD, and a new auxiliary electrical system to supply the loads being installed. The total estim ated cost of the Project is $820 m illion, including AFUDC. Oak Creek Power Plant (“OCPP”) is located in both the City of Oak Creek, Milwaukee County, and the Village of Caledonia, Racine County, W i sc onsin. OCPP currently consists of four fossilfueled generating units, each with a pulverized-coal-fired boiler and steam turbine generator. Unit 5 was placed in service in 1959, with a net sum m e r rating of 261 MW . Unit 6 was placed in service in 1961, with a net sum m e r rating of 264 MW . Unit 7 was placed in service in 1965, with
a net sum m e r rating of 298 MW . Unit 8 was placed in service in 1967, with a net sum m e r rating of 312 MW . Two additional units are currently being constructed on the site.
The Com p any also subm its this application to the Com m i ssion pursuant to the provisions of § 30.025, W i s. Stats., as revised by 2003 W i sconsin Act 89, and has com p lied with the applicable pre-application requirem e nts. This application is also being subm itted to the W i sconsin Departm e nt of Natural Resources (“W DNR”) and includes the m a terials necessary for joint application to W DNR and the Arm y Corps of Engineers f o r required waterway perm its. This will enable W DNR to issue the Chapter 30 perm it for the Project within 30 days of an affirm ative decision in this docket.
Reason for the Project

W i sconsin Electric proposes to install these control technologies at OCPP as part of its

com m itm ent to m eet environm ental requirem e nts related to power plant em issions at a reasonable cost. W i sconsin Electric has determ ined that this project is integral to its com p liance strategy f o r

m eeting its obligations under the Clean Air Interstate Rule (“CAIR”) and the Federal 8 Hour Ozone requirem e nts, as well as with the U.S. Environm ental Protection Agency (“EPA”) in accordance with a Consent Decree presently lodged in federal court.
The Federal CAIR establishes state and federal em ission caps for NO x and SO 2 , with initial reductions required by January 1, 2009 for NO x and January 1, 2010 for SO 2 . Additional reductions for NO x and SO 2 are required by January 1, 2015. The W DNR has proposed rules to im plem ent CAIR in W i sconsin. These rules are currently in the final approval process. Under the Federal 8 Hour Ozone Rule Milwaukee and Racine Counties, where the Oak Creek Power Plant is located, are designated as m oderate non-attainm e nt for ozone. The W DNR has proposed Reasonably Achievable Control Technology (“RACT”) rules for NO x em issions for the

m oderate non-attainm e nt counties. Phase II of the RACT rules will require additional NO x reductions by May 1, 2013, beyond the CAIR requirem e nts, from electric generating units located in the non-attainm e nt counties. The RACT rules are also in the final approval process. The W DNR has recently subm itted a request to EPA to redesignate counties in southeast W i sconsin as

Wisconsin Electric Power Com p any Page 1 June 15, 2007Wisconsin Electric Pow e r Company ’ s A pplication to Install Wet Flue Gas Desulfurization and Selective Cataly ti c Reduction Facilities and Associated Equipment On Oak Creek Pow e r Plant Units 5, 6, 7 & 8 for Control of Sulfur Dioxide and Nitrogen Oxide Emissions

attainm e nt f o r ozone. The RACT rules are part of the redesignation request and will continue to apply even if EPA approves DNR’s redesignation request.

The term s of the proposed Consent Decree require the Com p any to install SCR and FGD technology, as well as m eet a 30-day rolling average em ission rate of 0.10 pounds per m illion Btu for both NO x and SO 2 , on Oak Creek units 5 through 8 (“OC 5-8”). In order to com p ly with the schedule proposed in the Consent Decree, the SCR and W F GD system s for OC 5-8 m u st be in service by Decem ber 31, 2012.

W ith the com p letion of the installation of SCR and W F GD technologies at the Pleasant Prairie Power Plant in the spring of 2007, OC 5-8 are the largest rem a ining sources of NO x and SO 2
em issions in the W i sconsin Electric system . Installation of SCR and W F GD technologies at OCPP will reduce SO 2 em issions by 80-90% and NO x em issions by 60-70%, consistent with the requirem e nts of the CAIR and RACT rules and the Consent Decree. The Project, as proposed, provides a $614 m illion savings over the alternatives considered and presented in this application.

If the equipm ent is not installed, the only option available to W i sconsin Electric under the Consent Decree, is to prem aturely shut down Oak Creek units 5-8 on Decem ber 31, 2012. The shutdown option would require construction of over 1,000 m e gawatts of baseload coal generation by Decem ber 31, 2012 in order to m eet the projected energy requirem e nts of W i sconsin Electric’s
custom ers. Although 2012 is several years off, new baseload generation can take up to 10 years to
perm it and construct. Because there is insufficient tim e to perm it and construct baseload generation by 2012, W i sconsin Electric would need to rely on higher cost natural gas generation and purchased energy. Although Oak Creek units 5-8 have been in operation since 1959, they have a useful life of another 20 to 25 years.
Description of the Project Flue gas from each unit’s boiler is currently routed through an econom izer, an air heater, an electrostatic precipitator, and induced draft fans prior to exiting through the chim ney (See Appendix A, Exhibit A). The Com p any plans to com b ine the flue gas flows downstream of the existing induced draft fans for units 5 and 6 into a single W F GD absorber tower with integral heat exchanger, and com b ine the flue gas downstream of the existing induced draft fans for units 7 and 8 into a second W F GD absorber tower and heat exchanger. The W F GD system s will include a

com m on lim estone reagent preparation system and a com m on gypsum dewatering system . Bulk lim estone and gypsum storage and handling will utilize the facilities under construction to serve the expansion units. Cleaned flue gas from each absorber tower will be routed to new booster fans. The gas is then routed to new heat exch angers and SCR reactor m odules (tail-end design), before being discharged to a new chim ney (See Appendix A, Exhibit B). The reagent for the SCR

m odules will be supplied by a com m on aqueous am m onia storage and injection system . Appendix A, Exhibits C, D, E and F, are illustrations of the proposed SCR and W F GD installations.

Wisconsin Electric Power Com p any Page 2 June 15, 2007Wisconsin Electric Pow e r Company ’ s A pplication to Install Wet Flue Gas Desulfurization and Selective Cataly ti c Reduction Facilities and Associated Equipment On Oak Creek Pow e r Plant Units 5, 6, 7 & 8 for Control of Sulfur Dioxide and Nitrogen Oxide Emissions

Major Permits

Air Perm it The Project will require an Air Pollution Control Construction Perm it (“Air Construction Perm it”) from W DNR prior to com m e ncem ent of construction. Air m odeling to support the
perm it application has not identified any issues that cannot be addressed to satisfy expected
perm it conditions. A perm it application is being subm itted to W DNR coincident with this application.

Water Perm its Project construction and operation will require the f o llowing water-related perm its: WDNR Chapter 30 Permit. A perm it pursuant to Chapter 30, W i s. Stats., is required for three reasons. First, Site Grading and Storm w ater Managem e nt plans are required according to the provisions of §30.025 W i s. Stats, and NR 216, W i s. Adm

. Code. These plans will be included as part of the initial W DNR subm ittals, with additional detailed plans to be included in subsequent W DNR subm ittals. Second, because portions of the Project will be constructed on existing historical lakebed fill, the Project require s approval by the W DNR under §30.21, W i s. Stats. Finally, a tem porary barge unloading f acility m a y be required to f acilitate construction and

m i nim i ze Project cost. Although no new perm anent lakebed fill will be required, and all
tem porary barge unloading f acility structures will be rem oved and the lake bed restored when the Project is com p leted, these tem porary activities require an approval by W NDR under §30.21, W i s. Stats. No wetlands will be disturbed in construction of the Project so no W DNR wetland water quality certif ication is required.
The Com p any will apply f o r these required Ch. 30 authorizations in a joint application to W DNR and the Arm y Corps of Engineers, which also m u st approve activities af f

ecting navigable waters, as described below. A copy of the joint W DNR/Arm y Corps perm it application is provided in Appendix B. Army Corps of Engineers Permit. If needed, the tem porary barge f acilities will require an Arm y Corps of Engineers Perm it. The Com p any is working with the Corps to provide the necessary inf o rm ation to obtain a perm it, and is subm itting a joint W DNR/Arm y Corps perm it application at the sam e tim e as this subm ission. Wisconsin Pollutant Discharge Elimination System (“WPDES”) Permit. The current W P DES perm it for the Oak Creek plant, which is an operational perm it that m u st be renewed every five years, expires in March, 2010. The renewal application m u st be subm itted by Septem ber, 2009. The Com p any plans to include inform ation about discharges from the W F GD, which would

com m e nce in 2012, in that perm it renewal application. The Com p any anticipates that W DNR will revise and reissue the W P DES Perm it to authorize these discharges, and that the perm it will be issued approxim a tely two years ahead of the sc heduled start of W F GD discharge from OC 5-8.

Wisconsin Electric Power Com p any Page 3 June 15, 2007Wisconsin Electric Pow e r Company ’ s A pplication to Install Wet Flue Gas Desulfurization and Selective Cataly ti c Reduction Facilities and Associated Equipment On Oak Creek Pow e r Plant Units 5, 6, 7 & 8 for Control of Sulfur Dioxide and Nitrogen Oxide Emissions

Project Scope The scope of the Project includes the following:

• Installation of four SCR reactors containing NO x and, potentially, CO catalyst m a terial through which flue gas will be routed. Each SCR installation will include a gas-gas heat exchanger, a steam heat exchanger for final tem p erature control, the SCR reactor structure, am m onia injection system , structur al steel and access platform s, insulation and lagging, instrum e ntation and controls, and associated foundations.

• Addition of four new booster fans for the com b ined gas paths to overcom e the increased differential pressure resulting from installation of the SCR and W F GD system s and new ductwork.

• Rem oval of existing ductwork and installation of new ductwork to perm it installation of the W F GD and SCR system s in the flue gas paths.

• Installation of auxiliary power supply equipm ent, electrical system s (m otor control centers, etc.), and controls to support the new equipm ent.

• Pre- and post-installation testing for evaluation of SCR system perform a nce.

• Pre- and post-installation testing for evaluation of W F GD system perform a nce.

• Installation of process lines to inject am m onia reagent upstream of all SCR reactors from a

new am m onia reagent storage f acility, sized to serve the f our units.

• Installation of process steam lines to support the SCR reheat requirem e nts for the four units.

• Installation of two W F GD system s, one for com b ined units 5 and 6, and one for com b ined units 7 and 8. Each W F GD absorber tower will be supplied with a heat exchanger to elim inate the need for special m a terials in the construction of the ductwork and the fans. The W F GD system s include a com m on lim estone reagent preparation system , a com m on gypsum dewatering system , structural steel and access platform s, insulation and lagging, instrum e ntation and controls, and associated foundations and buildings.

• Expansion of the station auxiliary power system to serve the additional load associated with the W F GD and SCR system s. New equipm ent includes station auxiliary transform e rs, 13.8 kV and 6.9 kV switchgear, load centers and m o tor control centers.

• Installation of a com m on chim ney that will include two individual chim ney liners, one f o r each flue gas path. The new chim ney will also include structural steel and access platform s, insulation and lagging, and associated foundations.

• Modif i cation or expansion of the plant’s wastewater treatm e nt f acilities, or installation of additional facilities as necessary to process the effluent of the new W F GD equipm ent.

Wisconsin Electric Power Com p any Page 4 June 15, 2007Wisconsin Electric Pow e r Company ’ s A pplication to Install Wet Flue Gas Desulfurization and Selective Cataly ti c Reduction Facilities and Associated Equipment On Oak Creek Pow e r Plant Units 5, 6, 7 & 8 for Control of Sulfur Dioxide and Nitrogen Oxide Emissions

• Dem o lition of the existing chim neys and associated equipm ent af ter the f i nal unit is tied into the new gas cleaning system and returned to com m e rcial operation.

• Installation of new Continuous Em issions Monitoring System s (“CEMS”) for the new gas cleaning paths, and a com m on Data Acquisition and Handling System (“DAHS”) to provide m onitoring, recording, and report generation of em issions in accordance with air
perm it requirem e nts.

• Existing system s and com ponents requiring m odification include: com p ressed air, circulating water, service water, fire prot ection, auxiliary steam , electrical distribution, instrum e ntation and controls, and plant com m unications.

Coal Combustion Products

The new W F GD and SCR system s are downstream of the fly ash collection system and, as such, will have no im pact on existing fly ash utilization. The W F GD system s will produce com m e rcial grade gypsum which can be used in the m a nufacture of wall board. The Com p any plans to m a rket this gypsum

.
Scheduling and Procurement

The Com p any anticipates a 55 m onth construction schedule and, therefore, respectfully requests Com m i ssion approval by January 1, 2008 in order to m eet the following schedule:

Activity Start Finish_ Design Engineering 02/01/07 1 0 / 3 1 / 0 8
Procurement and Fabrication (released for Engineering-only prior to Commission approval)

W F GD System s 04/18/07 10/15/09

SCR System s 03/21/07 08/15/09

Lim e stone Handling System s 09/15/08 12/15/10 Gypsum Handling System s 09/15/08 12/15/10
Chim ney 08/30/07 01/15/09

W a stewater System 10/15/07 12/15/10

Wisconsin Electric Power Com p any Page 5 June 15, 2007Wisconsin Electric Pow e r Company ’ s A pplication to Install Wet Flue Gas Desulfurization and Selective Cataly ti c Reduction Facilities and Associated Equipment On Oak Creek Pow e r Plant Units 5, 6, 7 & 8 for Control of Sulfur Dioxide and Nitrogen Oxide Emissions

Construction
Mobilize 01/15/08 05/01/08
Unit 5 and 6 Start of W o rk 05/01/08
Unit 5and 6 In Service 12/01/12
Unit 7and 8 Start of W o rk 05/01/08
Unit 7 and 8 In Service 03/01/12

Dem o lition of Existing Chim neys 03/01/13 08/31/13

Com m i ssion approval by January 1, 2008 is essential to facilitate an orderly design, procurem ent,

m a nufacturing and construction schedule. The OC PP site is extrem ely congested, necessitating careful construction planning and sequencing in order to avoid im pacts to existing plant operations and the construction and start up of the two expansion units.

Tim e ly approval of the Project will also help the Com p any m a nage increased costs arising f r om current equipm ent and m a terials shortages that are the result of the num erous em ission reduction and new coal plant construction projects proposed and under construction. It will also allow the Com p any to better m a nage risks associated with com p eting for a lim ited supply of skilled labor (design engineers, craft labor, etc.) for these sam e projects.

Project Cost and Financing

W i sconsin Electric estim ates the cost to install the W F GD system , SCR system and related equipm ent to be $820,000,000, detailed as follows:
Capital Cost ($1,000) Unit 5&6 Unit 7&8 Common

W F GD System $57,978 $57,978 $8,865 SCR System $126,357 $126,357 $7,137

Site and Balance of Plant $112,275 51,720 $67,907
Removal Cost ($1,000) Site Preparation and Dem o lition $3,768 $1,644 $11,883 Total Cost by Facility ($1,000) $333,426 $270,746 $145,828

Total Project Cost ($1,000) $ 7 5 0
, 0 0 0

AFUDC (Based on 50% of CWIP) ($1,000) $70,000 Gross Project Cost ($1,000) $820,000

Wisconsin Electric Power Com p any Page 6 June 15, 2007Wisconsin Electric Pow e r Company ’ s A pplication to Install Wet Flue Gas Desulfurization and Selective Cataly ti c Reduction Facilities and Associated Equipment On Oak Creek Pow e r Plant Units 5, 6, 7 & 8 for Control of Sulfur Dioxide and Nitrogen Oxide Emissions

The f i nal capital versus expense cost split m a y change af ter detailed design is com p leted. The cost of the Project will be m e t f r om internal sources and/or f r om the issuance and sale of securities.
Description and Cost of Property Being Retired

The f acilities to be retired consist of the existing chim neys, the attached f l ue gas ducts and Oak Creek Unit 9. The gross book cost of equipm ent to be retired is as follows:

Plant Account Description Gross Book Cost

311 Structure and Im provem e nts $ 2,334,132

312 Boiler Plant Equipm ent $ 6,228,809

341-346 Com bustion Turbine $ 2,225,265

T O T A L $ 1 0 , 7 8 8 , 2 0 6 There is no salvage value associated with the equipm ent to be retired.
Effect of the Project on Cost of Operation and Reliability of Service

W i sconsin Electric believes that the proposed Project is the m o st advantageous m eans of discharging its obligation as a public utility. Installation of wet f l ue gas desulf urization system s and selective catalytic reduction system s on Oak Creek units 5 through 8 will m a intain the reliability of the Com p any’s service while signif i cantly reducing sulf ur dioxide and nitrogen oxides em itted from the plant. In addition, the Project will com p ly with § 196.49 W i s. Stats. Section 196.49(3) (b), W i s. Stat., provides that no project m a y proceed until the Com m i ssion has certified that public convenience and necessity require the project. The Com m i ssion m a y refuse to certif y a project if it appears that the com p letion of the project will do any of the f o llowing:

1. Substantially im pair the ef f i ciency of the service of the public utility.

2. Provide f acilities unreasonably in excess of the probable f u ture requirem e nts.
3. W h en placed in operation, add to the cost of service without proportionately increasing the value or available quantity of service unless the public utility waives consideration by the Com m i ssion, in the fixation of rates, of such consequent increase of cost of service.

Alternatives

The Com p any retained the services of W a shington Group International to perform a detailed technology assessm ent to determ ine the m o st cost-effective m eans of m eeting the Com p any’s

em ission reduction goals. A copy of this study, “Oak Creek Units 5, 6, 7 and 8, NO x /SO 2 Em issions Reduction Study”, is included as A ppendix C. The study reviewed in-furnace NO x reduction and SCR for NO x control, and wet forced oxidation flue gas desulfurization, spray dryer absorbers, and circulating fluid bed absorbers for SO 2 control. The study also evaluated two

em erging m u lti-pollutant reduction system s: Powerspan ECO and J Power ReACT. The study concluded that the m o st cost-effective technologies that m e et the target em ission rates were SCR

Wisconsin Electric Power Com p any Page 7 June 15, 2007Wisconsin Electric Pow e r Company ’ s A pplication to Install Wet Flue Gas Desulfurization and Selective Cataly ti c Reduction Facilities and Associated Equipment On Oak Creek Pow e r Plant Units 5, 6, 7 & 8 for Control of Sulfur Dioxide and Nitrogen Oxide Emissions

and W F GD. These com b ined technologies provide the lowest evaluated cost, the highest rem oval efficiencies, and have the m o st com m e rcial experience and industry acceptance. The Com p any did not consider the purchase of SO 2 and NO x allowances as a viable alternative because the Consent Decree does not perm it use of such allo wances in com p lying with its requirem e nts.
Once it was determ ined that SCR and FGD were the m o st cost-effective technologies, the study evaluated alternate arrangem e nts of the technology. The technology assessm ent concluded that installation of SCRs on units 5 and 6 in the traditional “hot side” arrangem e nt, between the

econom izer outlet and the air heater inlet, was not physically possible short of dem o lition and reconstruction of the existing electrostatic precipitators (“ESP”) and other m a jor interferences. This would increase construction costs dram atically and result in increased replacem ent power costs for the estim ated 18-24 m onth outage required for dem o lition and reconstruction. The arrangem e nt of the Unit 7 ESP directly behind the Unit 8 econom izer and air heater created signif i cant construction and outage penalties as well f o r a Unit 8 “hot side” SCR. As a result of these constraints, the proposed arrangem e nt of W F GD followed by “tail end” SCR was selected as the lowest total evaluated cost solution. “Tail end” SCR has been successfully dem onstrated at

m a ny power plants in Germ any, where they were installed in retrofit situations sim ilar to those found at OCPP (See Appendix A, Exhibit G). This arrangem e nt requires energy, in the form of
steam or natural gas, to reheat the flue gas to the tem p erature required for the NO x catalytic reaction. The costs associated with the use of this energy have been included in the overall Project cost evaluation.

The f i nal alternative studied was the early retirem ent of the f our existing Oak Creek units on Decem ber 31, 2012, with replacem ent of the Oak Creek 5-8 energy and capacity from new f

acilities and purchases. This alternative was analyzed using EGEAS to m odel the W i sconsin Electric system . It resulted in system costs (Discounted Revenue Requirem e nts, “DRR”) that were over $600 m illion higher than the alternative proposed in this filing. Sensitivity analyses were perform e d, including fuel cost variations and clim ate change scenarios. Installing environm ental controls on Oak Creek units 5 through 8 was the low cost alternative in every analysis. In addition, EGEAS was used to m odel the cost im pacts of installing controls on Oak Creek units 7 and 8 and prem aturely retiring Oak Creek units 5 and 6. This evaluation showed the savings decreased by over 50% as com p ared to the savings associated with controlling Oak Creek units 5- 8. This dem onstrates that Oak Creek units 5 and 6 continue to be valuable assets in the Com p any’s generating fleet.

This econom ic analysis included estim ated capital and O&M requirem e nts necessary to m a intain reliable operation of the Oak Creek units to norm a l end of life. The com p lete analysis is included as Appendix D.

Wisconsin Electric Power Com p any Page 8 June 15, 2007Wisconsin Electric Pow e r Company ’ s A pplication to Install Wet Flue Gas Desulfurization and Selective Cataly ti c Reduction Facilities and Associated Equipment On Oak Creek Pow e r Plant Units 5, 6, 7 & 8 for Control of Sulfur Dioxide and Nitrogen Oxide Emissions

Project Risk Factors The following risks are inherent in this Project and m a y im pact its cost and schedule:

• Market conditions f o r craf t labor can af f

ect project cost. Com p etition f o r labor resources can tighten the m a rket and shortages of skilled labor in the area, due to other projects utilizing the sam e craf ts, m a y extend the construction schedule and increase installation
costs.

• Market conditions f o r air quality system s have increased costs substantially over the past three years. Variability in f u ture escalation rates is a signif i cant project risk.

• The construction of the W F GD and the SCR system s m u st take place in an area directly south, west and east of the operating units. The construction site is extrem ely congested, resulting in an increased potential for schedule delays and com m e nsurately higher costs.

• Production interruptions of the existing units and longer-than-planned tie-in outages present a risk to project cost and schedule. In addition, the Project will require

m odifications to existing plant system s, such as the control and electrical system s, which carry the risk of unscheduled production interruptions.

Environmental Review Information Environmental Screening . Additions or replacem ents of plant equipm ent, such as described in this application, are norm a lly categorized as Category III actions under § PSC 4.10(3), W i s. Adm

. Code and do not norm a lly require the preparation of an Environm ental Assessm ent or an Environm ental Im pact Statem ent. Flood Hazard Exposure/Impact

. The location of the proposed facilities is not within a floodway or the 100-year floodplain. Archaeological and Historic Resources

. There are no known archaeological or historic resources in the area of the Project site. Additionally, due to prior construction activities at the site, it is unlikely that any previously unidentif ied archaeological resources will be disturbed. Threatened or Endangered Species

. There will be no im pacts to any threatened or endangered species as a result of this project. There are no federally listed species at the Project site. W h ile the bald eagle is known to m i grate through the area, there are no known nests on or adjacent to the Project site. Plans will be developed to accom m odate the continued use of the existing Peregrine Falcon nest on the chim ney during construction. A nesting box will be provided on the new chim ney to allow relocation of the f a lcons prior to dem o lition of the existing chim neys. There is a state endangered herbaceous plant species located im m e diately south of the Project site. This plant will not be af f

ected by the Project. The plant was identif ied during wetland delineations and plant surveys done in 2002 by Dr. Don Reed, Southeastern W i sconsin Regional Planning Com m i ssion. Specifically, this plant is located in the upland woodland adjacent to

Wisconsin Electric Power Com p any Page 9 June 15, 2007Wisconsin Electric Pow e r Company ’ s A pplication to Install Wet Flue Gas Desulfurization and Selective Cataly ti c Reduction Facilities and Associated Equipment On Oak Creek Pow e r Plant Units 5, 6, 7 & 8 for Control of Sulfur Dioxide and Nitrogen Oxide Emissions

wetlands that are about 500 feet west of Lake Michigan and to the southwest of two existing
wastewater treatm e nt settling basins located south of OCPP Unit 8.

Entities Affected by this Project The entities affected by the proposed Project include the EPA, W DNR, Arm y Corps of Engineers, W i sconsin Departm e nt of Com m e rce, Village of Caledonia, City of Oak Creek, US Fish & W ildlife Service, Milwaukee County, Racine County, Federal Aviation Adm i nistration, and W I Departm e nt of Health & Fam ily Services. A listing of perm its and approvals, including affected entities, is provided in Appendix A, Exhibit H. C oncurrently with the filing of this application, the Com p any is filing applications with W DNR for the Construction Air Perm it and NR 216 Perm it, and with W DNR and the Arm y Corps for the Chapter 30 and Arm y Corps perm its. The Com p any does not anticipate any difficulty obtaining the required perm its and approvals.

W i sconsin E l ectr i c Power Com p any Page 10 June 15, 2007