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First, Yanked is correct that the Koch Brothers own mills in WI also, as they own the Georgia Pacific paper mills (there are several in Green Bay).  Also, there is no history of their mills having any more violations than any other corporation. 

Second, no I don't think all the testing WI requires is over regulation if you care about having clean water and air.  However, it is getting to the point where they are trying to regulate things beyond the capability of even the best equipment out there, which would make it difficult for some mills to stay in business since it would require millions in capital, which they just don't have.  Also, every mill has a full environmental department, people who do the testing, and several people who do the reporting and interacting with the DNR.  So there are probably more jobs required to do the monitoring than if there was less monitoring required.

Finally, it is difficult for papermakers in the US to compete with China since they have no environmental regulations and very little pay for their workers.  That is the main reason that many local WI mills are either shutting down or really struggling, combined with a rapidly shrinking demand for printer and magazine paper.

I'm not really sure on the DNR vs. EPA issue.  I do know that in WI and MN (the two main states I have worked) that the state DNR's set the regulations for air and water emissions.  Typically, the state regulations need to meet or exceed the regulations put forth by the EPA.  Some states are more strict than others when it comes to what is allowed or not allowed.  Also, the DNR works with the mills to determine a plan for each site as some use river water, some use lake water, some discharge back into the bodies of water, and some discharge into municipal waste water plants.  The DNR is much more willing to work with mills if they are up front with their info and self report any minor violations.