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The Minnesota Court of Appeals has ordered state regulators to rework a long-awaited pollution permit related to a leaking 1960s-era Iron Range taconite tailings basin, saying it might need tougher standards to protect local waters.

The decision, issued Monday, kicks the contentious permit back to the Minnesota Pollution Control Agency (MPCA), which issued the updated version last year after allowing the facility to operate for more than two decades with an expired, temporary permit.

The basin holds mining waste from Minntac's mine in Mountain Iron, which is owned by Pittsburgh-based U.S. Steel Corp. and is the country's largest taconite operation.

At issue are pollutants — primarily the mining ­byproduct sulfate — leaking into nearby waters from Minntac's 13-square-mile, unlined basin.

The updated water quality permit called for U.S. Steel to reduce sulfate in the basin within 10 years and install a collection system to capture and return contaminants leaking out of the western side of the basin.

U.S. Steel appealed the permit because the MPCA denied its request for a variance from groundwater-quality standards, and also denied its request to hold a contested-case hearing.

The Fond du Lac Band of Lake Superior Chippewa and the environmental group WaterLegacy separately appealed, arguing that the contaminants seeping out into surface water — directly and through groundwater — were violating water quality standards, decimating downstream wild rice and worsening mercury contamination of fish.

The appeals were bundled. And in a complicated decision, state Appeals Court Judge Jeanne M. Cochran found that the MPCA did not err when it concluded that the federal Clean Water Act doesn't govern industrial discharges into groundwater. The law is ambiguous, and the agency's interpretation was reasonable, she said.

However, she said the MPCA did err by applying so-called Class 1 water-quality standards — standards set for human drinking water — to determine groundwater conditions for the permit. Because of that, she said, she couldn't make a decision on U.S. Steel's challenge for a variance and an administrative hearing.

Cochran also agreed with the tribe and WaterLegacy that the MPCA failed "to take the requisite 'hard look' " at including certain stringent water effluent standards in the permit. The standards, called water-quality-based effluent limits, or WQBELs, are clear, numerical standards for pollutants such as sulfate. Cochran instructed the MPCA "to make substantiated findings" regarding whether the WQBELs are required in the permit. The MPCA has said that the state's wild rice sulfate water quality standard would apply if the WQBEL standards are required, she said.

The absence of these WQBELs is also at the heart of ongoing disputes over the water quality permit the agency issued last year to PolyMet Mining for the state's first copper-nickel mine on the Iron Range.

Rita Aspinwall, a spokeswoman for the Fond du Lac Band, issued a statement saying, "After nearly 15 years of urging the MPCA to enforce state water quality standards in updating the Minntac permit, which expired in 1992, the Band is cautiously optimistic that tailings basin pollutants will finally be reduced."

Minntac's tailings basin has been polluting surrounding waters such as Twin Lakes for decades, it said.

The band noted that the affected area includes "wild rice waters that lie within the western border of the 1854 Ceded Territory, where the Band retains off-reservation treaty rights to hunt, fish, and gather."

U.S. Steel did not respond to a request for comment. The Minnesota Center for Environmental Advocacy, which filed a friend of the court brief, said the Appeals Court decision underscores its view that the MPCA doesn't effectively regulate the mining industry. "We've been waiting almost three decades now for a modern permit to regulate Minntac's water pollution and again, it's failed," the center's spokesman Aaron Klemz said.

MPCA spokesman Darin Broton said the agency is assessing its next steps and "will continue engaging with stakeholders to ensure the state's groundwater and surface water are protected."

WaterLegacy lawyer Paula Maccabee called the decision a "first step" in setting meaningful limits on sulfate. The Minntac tailings basin is one of "a few huge discharges of sulfate pollution" in the state, she said.

Parties have 30 days to file an appeal with the Supreme Court.

Jennifer Bjorhus • 612-673-4683