UPDATE 1-AEP drops scrubber request for Big Sandy coal unit

HOUSTON May 30 (Reuters) - American Electric Power's Kentucky utility withdrew its request to spend $940 million to install environmental equipment to keep its 800-megawatt Big Sandy 2 coal-fired unit running, a spokesman said on Wednesday.

Citing changing market conditions over the last few months, AEP spokesman Ronn Robinson said Kentucky Power is "re-evaluating all options."

Robinson said the company has determined more generation will be available in the Kentucky market in the 2015-16 time frame than previously thought.

"That allows us to review our options and that may still include installing a scrubber," Robinson said. "We can revisit it."

Kentucky Power initially said it would retire the larger unit at the Big Sandy station as part of a plan to shut 6,000 MW of coal-fired generation to meet stricter emission rules coming from the U.S. Environmental Protection Agency.

In March, the utility changed positions, telling regulators it wanted to install a scrubber at the Big Sandy unit.

That move drew opposition from environmental and consumer groups due to the high cost for Kentucky Power's 173,000 customers.

"Burdening Kentuckians with a billion dollar retrofit of an outdated coal plant would be a bad decision, and we are glad that AEP has realized that," said Wallace McMullen, Energy Chair of the Cumberland Chapter of the Sierra Club.