The ruling by the Department of Administration's Office of Administrative Hearings upheld the October 2007 denial of an air-quality permit for Hays-based Sunflower Electric Power Corp. The utility wants to build the plants outside Holcomb, in Finney County, where it already has one plant.
Secretary of Health and Environment Rod Bremby's denial cited potential carbon dioxide emissions and the dangers of global warming. Sunflower and its allies contend Bremby exceeded his authority, but Bremby said he acted under his power to protect the environment and public health.
Following this development the Department of Health and Environment acknowledged: "The matter ultimately will be decided by the Kansas Supreme Court."
Bremby's decision generated seven legal challenges from Sunflower, one of its partners or local officials.
Besides the appeal to the Department of Administration, three challenges are before the Kansas Supreme Court and one was filed in federal court. Two cases filed in Finney County District Court were dismissed by a judge there in July.
The Supreme Court had said in April that it wouldn't consider its three cases until the administrative appeal and the Finney County cases were resolved.
"We were directed by the Supreme Court to exhaust our administrative remedies, which we have done," Sunflower said in a statement.
Sunflower now has 15 days to ask Bremby to reverse his October 2007 decision, although it is not expected to do so. Gov. Kathleen Sebelius, who appointed Bremby, has backed his decision.
"While we believe the secretary was authorized to deny the permit, we have always known that ultimately the Kansas Supreme Court would need to determine that," Nicole Corcoran, the governor's spokeswoman, said.
Sunflower said it hopes the administrative ruling will lead to a quick Supreme Court ruling.
"Every day the project is delayed costs Kansans thousands of jobs, jeopardizes affordable energy rates and threatens future energy reliability," the company said.
Environmentalists were pleased by the ruling, in which hearing officer Tracy Diel said Bremby acted legally but also noted that questioning an agency's interpretation of state law "is the realm of the appellate courts."
"It will protect our health and environment from the threats by the Holcomb expansion," said Sierra Club spokeswoman Stephanie Cole.
Nick Persampieri, attorney for Earthjustice in Denver, said: "The Kansas Supreme Court will have the final word, and we plan to ask the court to reach the same conclusion as the administrative officer."
The two new plants would provide 1,400 megawatts of generating capacity, enough to meet the peak demands of 700,000 households, according to one state estimate.
Sunflower and a sister utility, Midwest Energy Inc., serve about 400,000 customers in 55 Kansas counties.
Sunflower wants to sell about 86 percent of the new power to two out-of-state electric cooperatives that are helping finance the project: Tri-State Generation and Transmission Association Inc. of Westminster, Colo., and Golden Spread Electric Cooperative of Amarillo, Texas.
Bipartisan majorities in the Kansas House and Senate have supported the project, which is expected to cost $3.6 billion and is viewed by many lawmakers as economic development. Legislators approved three bills to overturn Bremby's decision this year, but Sebelius vetoed them.
Many legislators also were upset with Bremby because the state has no written standards on carbon dioxide emissions and had taken no steps to regulate greenhouse gases until Bremby acted.
"Pretty clearly, I don't think anyone believed he had the authority to do what he did," said House Speaker Melvin Neufeld, an Ingalls Republican. "What Bremby did was write new law, and the court won't allow that."