Colorado's rules were approved as several states were battling the Bush administration over a mercury standard the states felt was too weak. Last year, a federal appeals court overturned the Bush administration's approach for mercury reduction that allowed plants with excessive smokestack emissions to buy pollution rights from other plants that foul the air less.
The Obama administration is seeking more stringent controls on mercury.
Mercury is a powerful toxin that accumulates in fish and poses a risk of nerve and brain damage, especially to pregnant women and children.
About 40 percent of the manmade mercury pollution in the United States comes from coal-fired power plants.
Nichols said Xcel's current permit for the new Pueblo unit will cut mercury emissions by about 65 percent. But experience with other coal-fired plants shows that technology is available to reduce the pollution by up to 95 percent, he added.
"They could be doing a lot better," Nichols said. "The permit they have now doesn't cut it."