The decision late Thursday by the 2nd U.S. Circuit Court of Appeals concluded that it was improper for the EPA to let power plants circumvent environmental laws - for instance, restocking polluted water with new fish instead of paying to upgrade their technology.
It said the EPA's decisions must "be driven by technology, not cost," unless two technologies produce essentially the same benefits but have much different costs.
"EPA's goal is to protect fish and the ecosystem while meeting the nation's need for reliable energy sources," said Benjamin H. Grumbles, the agency's assistant administrator for water. The agency was reviewing the decision, he said.
The ruling drew praise from environmental groups and six states that had sued.