Minnesota regulators must consider whether a proposed natural gas plant in Superior could have "significant environmental effects" before allowing the project to proceed, a three-judge panel ruled Monday.

The Minnesota Court of Appeals said the state's Public Utilities Commission erred when it declined to consider potential impacts the Nemadji Trail Energy Center could have on air, water, land and other natural resources. The court reversed the agency's October 2018 approval of the project and sent it back to the commission for further review.

Duluth-based Minnesota Power is proposing to build the $700 million plant with La Crosse-based Dairyland Power Cooperative on a plot of land between Enbridge Energy's Superior terminal and the Nemadji River.

The utility company maintains that the 550-megawatt plant would supplement its push for more renewable energy sources "when the wind isn't blowing and sun isn't shining" and lessen the company's dependence on coal.

But several environmental groups contended that the PUC was wrong in its approval of the plant because the agency denied an environmental review of the project, the state should give preference to emission-free power plants and the company did not show the plant was needed.

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The appeals court said state law requires the preparation of an environmental assessment worksheet when a citizen petition "demonstrates that, because of the nature or location of the action proposed in the agreement, there may be potential for significant environmental effects."

The panel unanimously sent the case back to the PUC to consider whether that review is needed. An environmental assessment worksheet is a brief document designed to lay out the basic facts of a project necessary to determine if a full environmental impact statement is required for the proposed project.

"We see it as a straightforward reading of the environmental review statute," said Evan Mulholland, the Minnesota Center for Environmental Advocacy attorney who argued the case. "You can't just say, 'Well, because it's in Wisconsin we don't have to look at the impacts,' when it's a Minnesota agency making a decision about a Minnesota utility that is clearly going to affect people in Minnesota and the environment of Minnesota."

Minnesota Power and Dairyland Power Cooperative have proposed a $700 million natural-gas power plant, Nemadji Trail Energy Center, which would be located near the Husky refinery in Superior and provide between 525 and 625 megawatts of power. (Photo courtesy of Minnesota Power)
Minnesota Power and Dairyland Power Cooperative have proposed a $700 million natural-gas power plant, Nemadji Trail Energy Center, which would be located near the Husky refinery in Superior and provide between 525 and 625 megawatts of power. (Photo courtesy of Minnesota Power)

Minnesota Power contended that environmental review is not necessary from Minnesota regulators.

The project is currently being considered by the Public Service Commission of Wisconsin, which is weighing whether the plant "satisfies the reasonable needs of the public for an adequate supply of electric energy," its "design and location or route is in the public interest" and "will not have undue adverse impact on other environmental values." A decision is expected in 2020.

"We are disappointed in this unprecedented decision because Minnesota environmental review has never been applied to a facility outside the state of Minnesota, just as other states' policies shouldn’t apply to Minnesota’s environmental review," the company said in a statement.

"We feel the rigorous and thorough review by Wisconsin regulators that is currently underway will adequately address any environmental concerns and the steps we are taking to mitigate any environmental impact. The Minnesota Public Utilities Commission’s approval of the affiliated interest agreements as part of this process included a robust analysis of carbon emissions and agreed that the Nemadji Trail Energy Center project should go forward."

The PUC earlier denied the environmental groups' petition because it said the plant was not subject to the Minnesota Environmental Protection Act (MEPA). The commission concluded that the law does not apply to affiliate organizations — in this case, South Shore Energy, the Wisconsin-based subsidiary of Allete/Minnesota Power — and because the plant in Wisconsin is outside Minnesota's jurisdiction.

But the appeals court rejected both arguments.

“Restricting the commission’s regulatory role because a public utility proposes to act through an affiliate would prevent the commission from undertaking its core functions, including assessing how the utility’s action will affect the environment," Judge Louise Dovre Bjorkman wrote in the 15-page opinion.

The panel noted that while the plant would be physically located in Wisconsin, the site is only about 2 ½ miles from Duluth and Lake Superior. The judges said MEPA requires "all state agencies to consider ‘to the fullest extent practicable’ the environmental consequences flowing from their actions" and has no limitations based on geography or use of affiliate companies.

"The commission’s consideration of the affiliated-interest agreements is its sole opportunity to address Minnesota Power’s construction and operation of NTEC," Bjorkman wrote.

Mulholland said he doesn't see a path forward for the plant without a full environmental impact statement. But he and other activists called for Minnesota to reassess the entire project.

"We shouldn't be investing hundreds of millions of dollars on fossil-fuel infrastructure, unless there's a really, really good reason to do it," Mulholland said. "We should be mitigating the carbon emissions from projects and we should be looking at it differently than we did 10, 20, 30 years ago."

RELATED: At hearing in Superior, public disagrees on proposed natural gas power plant

Environmental groups contend that the project is not only expensive and unnecessary, but also would be a significant driver of climate change and pollution.

“This plant would have added millions of tons of greenhouse gas pollution to the atmosphere, for decades,” said Izzy Laderman, a Duluth East High School student and member of Friends of the Climate, which submitted a brief in support of the appeal. “We do not want to pay for another fossil fuel power plant and we do not want to suffer the consequences of its pollution for the next 40 years.”

Minnesota Power has argued that the plant will "help sustain our commitment to renewable resources by providing energy when renewable energy is not readily available and supporting additional renewable development."

“We are reviewing the decision and considering all of our options,” Julie Pierce, Minnesota Power's vice president of strategy and planning, said in a statement. “Flexible natural gas is a critical part of our EnergyForward strategy to provide our customers with safe and reliable power while reducing coal on our system and adding more renewables to our portfolio, with Minnesota Power poised to reach 50% renewable energy by 2021.”