UPDATE 1-Okla. regulators to deny new coal plant

(Recasts, adds company comment)

HOUSTON, Sept 10 (Reuters) - Oklahoma utility regulators on Monday signaled they will deny a permit to build a $1.8 billion coal-fired power plant in Oklahoma, reversing a favorable recommendation from a hearing judge issued last month.

PSO, a unit of American Electric Power Co. (AEP.N), said in a release that the Oklahoma Corporation Commission indicated in an oral order that the panel will deny an application to build the 950-megawatt Red Rock coal plant, a joint project between PSO and OGE Corp's (OGE.N) Oklahoma Gas & Electric.

"Obviously we are very disappointed in the commissioner's order today," said PSO President Stuart Solomon in a statement. "We still need additional power supplies to support our customers' needs, so we will quickly review our options and make another proposal to the commission."

While the commission has not yet voted to deny the permit, "it became clear that the final order would have the net effect of denying the Red Rock application," said Matt Skinner, a commission spokesman.

"It's safe to assume we will not move forward," said OGE spokesman Brian Alford. "We are disappointed for our customers. They are the ones who will lose."

Oklahoma's two largest utilities argued that the use of coal to produce electricity would help keep electric rates down and reduce Oklahoma's dependence on pricier natural gas.

Because of Red Rock's cost, the utilities sought a commission order saying the plant's power would be needed in order to ensure they could recover the investment.

The utilities sought a favorable ruling from the commission before mid-September, citing a deadline to move forward to finalize a fixed-price contract for the plant.

Alford said commissioners discussed the state's need for additional power by 2012, noting that OGE will been about 300 additional megawatts and PSO will need about 450 MW.

Oklahoma City-based Chesapeake Energy Corp. (CHK.N), the nation's third largest natural gas producer which opposed to the new coal plant, praised the commission's action.

"We know the decision was reached after a thoughtful, thorough and fair review of the economics and environmental facts," said Tom Price Jr., Chesapeake's senior vice president of corporate development, in a statement.

A consortium that included Chesapeake waged an unsuccessful court challenge to the OCC hearing on Red Rock in July.

Price said Chesapeake opposed Red Rock because increased burning of coal worsens air quality and may contribute to global warming problems.

Chesapeake also disputed the argument that electricity generated from coal will be more economical than power produced from gas, citing the expected creation of a tax or surcharge on carbon dioxide emissions which will hurt coal plants more than gas plants.