The Sierra Club has accused Duke Energy Indiana Inc. of artificially inflating the amount of air pollution a proposed coal-to-gas power plant planned for Knox County would be allowed to emit.

In a lawsuit filed Thursday in U.S. District Court here the San Francisco-based environmental group alleges Duke Energy did not install required pollution-control equipment at its old coal-fired plant or obtain necessary permits.

And that, the club charges, artificially inflated the amount of air pollution its replacement plant will be allowed to emit.

In February, the Sierra Club was one of three environmental groups that appealed Indiana's approval of an air pollution permit for the new plant. They cited health risks to residents and warned of the construction costs passed on to consumers.

Duke Energy counters that the Sierra Club is incorrect, that the Edwardsport plant complied with the Clean Air Act and that the environmental group simply wants to block the coal-to-gas power plant from being built.

"They are trying to stop any plant that is a coal plant, even if it is a clean-burning one," Duke Energy spokeswoman Angeline Protogere said.

At issue is the 630-mega watt power-generating plant Duke is building to replace its existing 130-megawatt plant in northern Knox County.

Construction of the $2 billion plant is estimated to increase the electric bills of Duke's 770,000 Indiana customers by approximately 16 percent by 2012.

State utility regulators in November gave Duke clearance to build the new facility; and the Indiana Department of Environmental Management issued Duke an air pollution permit in January.

In the lawsuit, the Sierra Club alleges that Duke Energy and its Cinergy predecessors made repeated modifications to boilers and associated equipment at the old Edwardsport plant over the years without installing additional pollution controls or obtaining permits, violating the New Source Review provision of the Clean Air Act.

That provision requires the oldest and dirtiest power plants and refineries to install modern pollution controls whenever they make major modifications that substantially increase pollution.

The suit asks the federal court to stop Duke from proceeding with the new plant or operating the old one until pollution-control measures are installed and permits are obtained.

"We're saying that they should be held to a higher standard for pollution reductions than they are asking for in the permit - and we're saying they should have to reduce their pollution more than they want to; and our argument is based on the New Source Review requirements," said Bill Hayden, chairman of the Sierra Club's Hoosier Chapter executive committee.

Protogere noted that the new plant's net emissions of sulfur dioxide, nitrogen oxide and fine particulate matter - 2,900 tons per year - will be significantly lower than the old plant's emissions - 13,000 tons per year. Moreover, the new plant will operate 100 percent of the time, while the old plant operates only 30 percent of the time.

The assistant commissioner of the Indiana Department of Environmental Management's Office of Air Quality, Dan Murray, disputed the Sierra Club's allegations.

"I am not aware of any pending or open enforcement actions against Duke for any of these things the Sierra Club is alleging," Murray said.

Hayden acknowledged that one of the Sierra Club's objections to the plant is that the coal-to-gas process would produce carbon dioxide, a greenhouse gas that contributes to global warming.

Protogere noted that by 2014, the electricity demand of Duke's customers will reach 300 to 600 megawatts.

"This is not a case of either do this or do nothing; we have to find a way to meet customers' needs," she said.

A hearing date has not yet been scheduled in U.S. District Court before federal Judge Sarah Evans Barker.

The Associated Press contributed to this report.