UPDATE 1-Carolina public agency suspends $2 bln coal plant

(Adds Santee Cooper comment)

HOUSTON, Aug 24 (Reuters) - The board of Santee Cooper, South Carolina's state-owned electric and water utility, decided on Monday to suspend efforts to build a 600-megawatt, coal-fired power plant in Florence County.

The 11-member board voted unanimously to drop work to permit the $2.2 billion Pee Dee Energy Campus, citing falling overall electric demand, the prospect of increased costs from federal carbon regulation and lower future power purchases from Santee Cooper's largest customer, according to a press release.

Santee Cooper chairman O.L. Thompson said the recession, carbon legislation and a decision by Central Electric Power Cooperative to buy electricity from another company in 2013 reduced the need for new generation.

Environmentalists and South Carolina Governor Mark Sanford opposed the project, citing high costs and potentially dangerous emissions of carbon dioxide, a greenhouse gas blamed for global warming. Coal-fired plants are the biggest single contributor of CO2 emissions.

While the chance that the project could be revived after Monday's suspension are remote, "we want to leave that option open," in case there are other developments related to Santee Cooper's plan to build a new nuclear plant with Scana Corp (SCG.N), or a change in Central Electric's future power procurement plan, said Santee Cooper spokeswoman Laura Varn.

Santee Cooper's overall power sales are down 5 percent from last year, said Lonnie Carter, chief executive officer. "We anticipate that as the economy recovers from this economic downturn, long-term power needs will be lower," he said.

The Pee Dee Energy Campus obtained an air permit last year from South Carolina regulators and was working for federal permits, the agency said.

Santee Cooper has spent $242 million so far, mostly to buy equipment which Varn said the agency would expect to recoup if the Pee Dee plant is eventually scrapped.

Thompson said the decision could save Santee Cooper customers money by avoiding the large capital outlay for construction.

"We are acting today in the best interests of our customers, our bondholders and the state," he said.

In addition to uncertainty over future power demand, Santee Cooper's Carter cited "tremendous" cost implications associated with carbon capture and storage requirements in climate legislation under consideration in Washington D.C.

"The cost of the technology and the carbon tax are unknown and expected to be high and this uncertainty causes great concern for Santee Cooper in considering future coal plants," Carter said.

By 2019, Central Electric said it intends to cut its power purchases from Santee Cooper by about 1,000 MW, the agency said.

Santee Cooper is the state's largest power producer, supplying electricity to about 2 million residents, directly or through indirect sales. It is state-owned but receives no state funding. (Reporting by Eileen O'Grady; Editing by Marguerita Choy)