Three months after state regulators rejected a proposed coal-fired power plant in Rogers City—determining that it was unneeded and warning that it would sharply boost northern Michigan’s electricity rates—the company pushing the plant is suing the state on constitutional grounds.

Wolverine Power Supply Cooperative Inc. says that the regulators misused a state law and violated due process by requiring the utility to prove it needed the proposed coal plant before permitting it.

The state responded to the filing, asking the district court to strike the suit. A hearing is set for Sept 28.

If the court continues the case, however, Wolverine could have some company: The Holland City Council voted unanimously on Sept. 2 to sue the state for rejecting its proposed coal-fired plant, too. The state denied Holland’s permit for the same reason it turned down Wolverine: regulators could see no real need for the added generating capacity.

In a hint that Holland may also file suit on constitutional grounds, council members said they are suing because they, not the state, have the right to decide their community’s energy future, since its power company is largely municipally regulated.

Wolverine filed its case on Aug. 10 in the state circuit court in Missaukee County, where its home office is located. The suit challenges the Michigan Department of Natural Resources and the Environment’s May 21, 2010denial of the company’s proposed 600 MW power plant, which would have burned coal, petroleum coke, and biomass in a huge limestone quarry near Lake Huron.

Wolverine’s suit argues that in following an executive directive by Governor Jennifer Granholm, MDNRE misused parts of Michigan’s 1994 Natural Resources and Environmental Protection Act (NREPA) and then violated the state Constitution by making a new law without the Legislature.

Wolverine’s suit and Holland’s challenge come at a crucial time in the Granholm administration’s push to build a clean-energy manufacturing industry in the state. The governor’s Department of Energy, Labor, and Economic Growth (DELEG) has recruited a significant number of clean-energy industries to the state, particularly in battery technology and manufacturing, making that economic sector Michigan’s fastest-growing.

But a court decision allowing utilities to build unneeded, expensive new coal plants—regulators say Wolverine residential customers’ monthly would bills rise by $76, for example—could discourage more wind, solar, battery, and energy efficiency companies from setting up shop in Michigan, according to clean energy advocates.

They point out that clean energy manufacturing can create far more new jobs than building new coal plants, which each produce about 1,500 temporary and 100 permanent jobs.

The Politics of Practicality
Wolverine’s suit also has political implications. Although both gubernatorial candidates—Democrat Virg Bernaro and Republican Rick Snyder—claim to be conservationists, Wolverine officials plainly hope that Michigan’s next governor drops the state’s legal defense. Wolverine President and CEO Eric Baker recently told the Presque Isle County Advance that if his co-op could not get coal-plant approval from Ms. Granholm, it would have to get it from the next governor.

Both Mr. Bernero, who as Lansing mayor recently saw his own town’s municipal utility cancel plans for a new coal plant in favor of a natural gas-fired facility, and Mr. Snyder speak enthusiastically about bringing new, clean-energy jobs to Michigan.

Mr. Bernero supports renewable energy goals for Lansing, including cutting greenhouse gas emissions 20 percent by 2020. The Michigan League of Conservation Voters, which endorsed both candidates for the August primary, finds that Mr. Bernero’s clean energy positions form a “good, comprehensive plan,” according to the online news service Grist.

Mr. Snyder, the first Republican gubernatorial candidate to receive a LCV endorsement, also supports clean energy, including new coal plants “when it’s clean coal replacing old coal,” according to Grist. While Wolverine calls the proposed Rogers City plan its “Clean Energy Venture,” however, no American utility has operated a large “clean coal” plant.

And supporting new coal could also carry its own political risks, thanks largely to the state’s confirmation of what coal opponents have long said: a new coal plant would dramatically boost electric rates for Wolverine’s 225,000 customers. Governor Granholm made that point in her public comments regarding the Rogers City plant permit denial.

"We are protecting hundreds of thousands of Michigan homeowners, businesses, and farmers from paying a whopping increase in their electric bills, which would have been among the highest in the nation," Ms. Granholm said, pointing to the MDNRE’s prediction that the proposed project would increase customer rates by 60 percent, to over 20 cents per kilowatt-hour—the highest in the nation, after Hawaii.

Citizen groups that strongly oppose both plants would likely step in to defend the decision if a new governor cancels MDNRE’s response.

Those groups could include the Sierra Club, Natural Resources Defense Council, Great Lakes Environmental Law Center, Lone Tree Council, Ecology Center, Clean Water Action, Michigan Environmental Council, Citizens for Environmental Enquiry, Michigan Energy Alternatives, and Michigan Land Use Institute, which have jointly filed a steady stream of written and public comments about the proposed plants throughout the approval processes.

Where Is the Need?
While Wolverine has repeatedly disputed the MDNRE’s core finding, provided by the Michigan Public Service Commission, that the utility has no need for a new coal plant, the firm decided not to argue that point in court.

Instead, the suit questions the legality of Ms. Granholm’s February 4, 2008 directive, which told regulators to determine if the state needed any of the “slew of new coal plants,” as the governor put it, that utilities were then proposing for Michigan—as many as eight new ones—even as demand for electricity in the state fell rapidly.

Pointing to two sections of Michigan’s Natural Resources and Environmental Protection Act and a section of the federal Clean Air Act, Ms. Granholm told the Michigan Department of Environmental Quality (now part of MDNRE), in cooperation with the Public Utilities Commission, to determine whether there were “feasible and prudent alternatives” for meeting electric demand “that would better protect Michigan’s” public health and environment than the proposed coal plants. If there were, permit applications should be denied, she said.

Ms. Granholm also ordered regulators to evaluate the state’s current and future electricity demand, and to consider other alternatives utilities could use to meet it, including efficiency, building plants that capture and bury emissions, or continuing to purchase power from other generators—which is how Wolverine has always obtained most of its power.

MDEQ/MDNRE has since ruled on three coal plant proposals—in Rogers City, Bay City, and Holland—and found no need for any of them. The agencies did allow Consumers Energy’s 930 MW Bay City proposal to proceed—but only after the company agreed to shutter five older plants.

Ironically, that Bay City project is now on hold, too. Consumers cited the same cause that state officials did when they turned down the Rogers City and Holland plants: no demand for new electricity.

‘A Waste of Money’
Wolverine’s suit leans heavily on the opinion of Michigan State Attorney General Mike Cox.

Mr. Cox wrote, in several lengthy arguments, that Ms. Granholm’s order improperly applied one part of NREPA to another, that it misused the federal Clean Air Act, and that the resulting rules violated the state Constitution’s separation of powers clause by essentially making new laws without the Legislature’s approval.

But the Michigan Department of Environmental Quality, which initially handled the permitting, did not depend solely on the governor’s directive in requiring Wolverine to prove it needed the plant. Instead, then-MDEQ Director Steve Chester invoked a voluntary section of the federal Clean Air Act that allows states administering the act to require that a project posing potential environmental harm first prove that there’s genuine need for it.

Wolverine’s suit, however, does not mention Mr. Chester’s use of the Clean Air Act, nor sections of the state’s original Michigan Environmental Protection Act, which coal plant opponents argue require a “prudent and feasible alternatives” analysis for projects that likely would harm the environment.

Faith Bugel, a senior attorney for the Environmental Policy & Law Center, a Chicago-based non-profit that has fought the coal plant proposals on behalf of the citizen groups, called Wolverine’s appeal “a huge waste of ratepayer money” in the face of what she said is a very comprehensive and legally sound ruling from the MDNRE on why the coal plant was not needed.

“I have to say we are confident the governor’s executive directive was completely proper,” Ms. Bugel said.

Gov. Granholm’s office and a spokeswoman for the MDNRE declined a comment on Wolverine’s lawsuit, citing the ongoing litigation.

Meanwhile, Wolverine spokesman Ken Bradstreet said his company remains eager to move forward with its plant, which would use the limestone quarry’s existing industrial docks to unload coal-bearing lake freighters, and the limestone to help control the plant’s pollution.

“We’ve got an incredible world-class site for a generation plant,” Mr. Bradstreet told the Presque Isle Advance newspaper when announcing the company’s decision to appeal. “We believe it has an excellent potential for a power plant of some sort. We don’t want to let this go by the board. This is an opportunity that we have invested quite a few of our resources in.”

In Holland, after the city council voted unanimously to appeal the state’s rejection of its plant, a modest 78 MW proposal, City Attorney Andy Mulder told the local paper that state law specifically excludes municipal utilities from Public Service Commission control. Councilman Myron Tretheway concurred.

“This isn’t about getting coal approved,” Mr. Tretheway told The Holland Sentinel. “This is about fighting for a municipality’s rights to its Home Rule status.”

But coal plant opponents see both appeals as a waste of ratepayer money. The first round of a Holland appeal could cost $65,000, according to one estimate. Wolverine officials have been tight-lipped about the money they are spending to promote their Rogers City plant, but indicated more than a year ago that they had already spent $20 million while attempting to develop the project.