BILLINGS, Mont. - A rural Texas utility has filed a lawsuit challenging the federal government's suspension of a major loan initiative for coal-fired power plants across the country.

In March, the Rural Utilities Service announced it was suspending indefinitely new loans for coal plants. The agency cited rising construction costs and uncertainty over climate change.

The decision affected $1.3 billion in loans sought for projects in Kentucky, Illinois, Arkansas and Missouri. A Montana plant was denied a loan - also over cost concerns - a few weeks before the program was suspended.

On Thursday, the coal industry began to push back in court in a bid to revive the loan program. Prior efforts to resolve the issue through Congress have fallen short.

The lawsuit by the East Texas Electric Cooperative, filed in U.S. District Court in Texas, seeks to force the government to process the utility's $240 million loan applications for two Arkansas coal plants.

The suit claims environmentalists pressured the government into suspending the loans through lawsuits and by encouraging members of Congress to discontinue funding for the program.

East Texas Power characterized those actions as an "assault" that was "designed to stop the construction of all coal plants nationwide."

"In our view, the difficulties we've encountered with the Rural Utilities Service are the result of legal challenges initiated by the Sierra Club," said Ryan Thomas, chief financial officer for the Texas utility.

"They've alleged the Rural Utilities Service has been engaged in widespread unlawful conduct in issuing loans and lien accommodations. We don't believe there's any merit to the Sierra Club allegations."

Defendants in the suit are the Sierra Club; the Rural Utilities Service and its administrator, James Andrew; and Agriculture Secretary Edward Schafer, whose agency has oversight for the program.

Since 2001, Rural Utilities had issued $1.3 billion in loans for power plant construction. But costs for coal plants have spiked sharply in the last several years, in the face of global competition for labor and materials.

Those increases are set against the potential future costs of controlling greenhouse gas emissions. The two billion tons of those gases produced annually by coal-fired plants exceed the emissions from any other source in the country.

Rural Utilities spokesman Jay Fletcher said the loans program will remain on hold until his agency can impose a new fee on utilities seeking loans. That would require plant developers to put up about 2 percent of a project's cost as a way of safeguarding the federal government's investment, Fletcher said.

To illustrate the government's potential financial exposure through the loan program, Fletcher pointed to cost increases at the proposed Highwood Generating Station in Great Falls, Mont.

In 2004, the price estimate for the 250-megawatt plant was $450 million. By the time its loan application was denied in February, that had swollen to $750 million.

"It was wholly possible that if we had approved its loan, its costs could have exceeded a billion dollars. Those kind of increases we were seeing over and over again," Fletcher said.

"We want to make sure we safeguard taxpayers by charging a fair subsidy rate" to plant developers.

The agency's efforts to impose that a fee is bogged down in negotiations with members of Congress who would have to authorize it, he said.

Fletcher declined to comment on the charge that his agency suspended its loans under pressure from environmentalists. He said he could not discuss pending litigation.

Trip Van Noppen, president of the environmental legal firm Earthjustice, said the East Texas Power lawsuit showed that the coal industry continues to push back against efforts to control its greenhouse gas emissions. Van Noppen's firm represents the Sierra Club in many of its lawsuits over coal power.

"This is a lot of public money," Van Noppen said. "We should be using that money on cleaner energy resources that are better for the environment."