One of the state's largest coal-burning power plants is getting $430 million upgrade — an investment in emissions control that will sharply increase electric rates for customers of a northern Minnesota utility.

The Minnesota Public Utilities Commission (PUC) voted 3-2 Wednesday to approve Minnesota Power's plan for an environmental retrofit of its largest generator, Boswell Unit 4 in Cohasset, Minn.

The three-year project, to start this fall and expected to employ 500 workers at its peak, will bring the 585-megawatt generator into compliance with state and federal regulations to reduce smokestack emissions of mercury, the utility said.

To pay for the retrofit, the 143,000 customers of the Duluth-based power company face a significant boost in rates. Iron Range taconite producers and other large industrial customers, which consume about 60 percent of the utility's output, can expect an 8.9 percent rate increase by 2017. Residential customers face a 5.9 percent increase by then.

"It is a significant increase, but it is a significant resource on our system," said Margaret Hodnik, the utility's vice president of regulatory and legislative affairs. "It is the workhorse of our system."

The goal of the project is to reduce the unit's mercury emissions from about 220 pounds to about 25 pounds per year. Mercury is a toxic heavy metal that ends up in waterways, resulting in state health advisories to limit fish consumption from many lakes and rivers.

WPPI Energy, a power supplier to 51 Wisconsin municipal power companies, owns 20 percent of Boswell 4 and will pay a share of the upgrade cost.

Across the nation, large coal-fired power plants face the prospect of upgrading emissions controls to meet mercury regulations. But the retrofits likely won't help with looming regulations for carbon dioxide. The Obama administration announced in June that it would regulate such greenhouse gas emissions at existing coal plants by 2015.

In Minnesota, a dozen coal plants, mostly smaller units, are being retired. But many large coal burners, like Boswell Unit 4, are projected to keep operating for decades because utilities rely on them as them inexpensive, reliable sources of electricity.

"Am I wild about seeing a large-capacity coal plant continue to operate given the unknowns we face? No," said PUC Chairwoman Beverly Jones Heydinger, who nonetheless voted to approve the project.

Two commissioners, Dennis O'Brien and Nancy Lange, wanted a delay to further study replacing or repowering the unit with natural gas. But other commissioners said the company had made its case for staying with coal.

Although some large coal power plants are able to reduce mercury at modest cost, Minnesota Power said Boswell 4 required new scrubbers and other expensive technology. The retrofit also promises to reduce sulfur dioxide emissions by 40 percent, improving air quality in the region.

Environmental groups led by the Minnesota Center for Environmental Advocacy, a nonprofit St. Paul law firm, contended the upgrade is too expensive, is unnecessary to comply with mercury emissions rules and extends the life of plant that emits greenhouse gases.

But two state agencies supported the retrofit. The Commerce Department, which reviews utility investments on behalf of ratepayers, said the project was the best deal for them. The state Pollution Control Agency said the large-scale upgrade is needed to comply with mercury emissions rules.

Minnesota Power, long the state's most coal-dependent power company, plans to stop burning the fuel at three older electrical generators in Hoyt Lakes, Minn., and Schroeder, Minn., in 2015. A planned $345 million wind farm expansion in North Dakota will allow the utility to meet the state's mandate for 25 percent of power from renewable sources a decade before the 2025 deadline.

Those shifts are part of Minnesota Power's long-range "EnergyForward" plan to rely on one-third renewable energy, one-third natural gas and one-third coal, which the PUC approved Wednesday.