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AEP unit seeks rehearing on Ark coal-plant ruling

* Arkansas utility seeks rehearing on Turk plant order

* Order jeopardizes cost-recovery from Arkansas customers

HOUSTON, June 1 (Reuters) - A unit of American Electric Power Co Inc AEP.N said it was seeking a rehearing of an Arkansas Supreme Court ruling that jeopardizes the utility's ability to recover a portion of the costs of a coal-fired power plant in Arkansas, the company said on Tuesday.

The state supreme court last month ruled that the Arkansas Public Service Commission had not followed correct procedures when it said AEP’s Southwestern Electric Power Co (SWEPCO) could build the John W. Turk Jr. 600-megawatt, coal-fired plant. The case was remanded to the PSC, which has also asked for a rehearing.

The Turk plant, already under construction in Arkansas, got the go-ahead in 2007, and is about 22 percent complete.

The Arkansas court ruling, which supported a lower appeals court decision, could jeopardize SWEPCO’s ability to recover its share of Turk’s $1.7 billion construction cost from its 113,500 customers in Arkansas.

The company is also preparing to fight a separate legal challenge to stop construction of the plant in Hempstead County, a company spokesman said.

The Turk plant is being opposed by the Sierra Club, Audubon Arkansas and a coalition of Arkansas hunting clubs.

AEP Chief Executive Mike Morris said in April that the Supreme Court ruling would not alter the company’s plan to finish the coal plant, expected to begin operating in October 2012.

Morris said if SWEPCO was unable to recover the share of Turk’s cost allocated to its Arkansas ratepayers, it would sell that output to the wholesale market.

SWEPCO has about 474,000 customers and owns a 73 percent stake in the Turk plant, which will also supply power to its customers in Texas and Louisiana.

Interest in coal-fired power plants, which produce about half the electricity consumed in the United States, surged when natural gas prices rose earlier in the decade, but coal’s resurgence led to widespread opposition from environmental groups.

Coal emits more carbon dioxide than any other fuel. Public concern about greenhouse gas emissions and climate change has resulted in cancellations of dozens of coal plants as prospects for carbon regulation increased. (Reporting by Eileen O’Grady)