UPDATE 1-Southern Co unit to build Mississippi coal plant

* Mississippi Power accepts revised regulatory order

* Utility agrees to $2.88 billion price cap

(Recasts, adds company, regulator comment)

HOUSTON, May 27 (Reuters) - Southern Co's (SO.N) Mississippi Power unit will move forward to build an advanced coal-fired power plant after state regulators loosened financial restrictions that the company said earlier would kill the project, the utility said on Thursday.

Mississippi Power had asked the Mississippi Public Service Commission to reconsider conditions it placed on the utility's plan to build a 582-megawatt integrated gasification combined-cycle (IGCC) plant in Kemper County, Mississippi.

Late on Wednesday, the commission voted 2-1 to raise a price cap it placed on the Kemper project by nearly $500 million to $2.88 billion and to allow the utility to begin charging customers for some plant costs years before it is expected to begin producing electricity.

Mississippi Power had said a $2.4 billion price cap included in an April 29 commission order along with other conditions "created unacceptable risks to the company, our customers, our lenders and our investors."

In a rehearing request, Mississippi Power proposed the $2.88 billion price cap and asked the commission to allow it to begin recovering certain Kemper-related costs in 2012.

While accepting parts of the company's proposal, the commission but did not agree to all the changes sought by Mississippi Power.

"After a comprehensive review of yesterday's order, we have determined the stringent conditions that the commission imposed will still allow us to move forward to finance and construct the plant," said Tommy Anderson, the utility's vice president.

The Kemper County plant will burn Mississippi lignite coal and has garnered supported from economic development groups and Governor Haley Barbour for the jobs it will create.

Commission Chairman Brandon Presley, who opposed the plant in April as too risky for ratepayers, voted against the revised order Wednesday.

In a dissenting opinion, Presley criticized the action by the other two commissioners in acquiescing to the utility's objections.

"In effect, the company has controlled the analysis of the options, told the commission there was only one option, then declared that that one option was available only on terms comfortable for the company," Presley said.

"The April 29th order refused to allow one company to dictate to Mississippi in that way. Today's order reverses that posture and (leaves) MPC ratepayers in the cold," he said.

Kemper's critics -- owners of merchant power plants in the region and an environmental organization -- said the utility was counting on high natural gas prices to justify the plant's economics at a time when the U.S. natural gas supply is climbing with new production that should keep costs in check.

IGCC technology heats coal to convert it into a synthesis gas that is processed to remove sulfur, mercury and other pollutants before being sent to a traditional combined cycle power plant to produce electricity.

(Reporting by Eileen O'Grady; Editing by Phil Berlowitz)