Doyle staged his bill signing in the Milwaukee suburb of Oak Creek where We Energies wants to build three coal-fired plants.
The new law pays counties and municipalities up to $125 million for each plant.
We Energies' building plan is opposed by some environmental and business groups who argue the plants should burn cleaner natural gas.
The governor told those gathered that businesses will locate in Wisconsin only if the state can guarantee enough power. Doyle says the state does not have the luxury of saying no to new power plants and transmission lines.
The law compensates communities for the costs of hosting a power plant, including road construction and security.