* AEP to upgrade one coal unit, shut another * AEP Oklahoma to become more reliant on natural gas * Energy companies to shut over 30,000 MW of coal power April 24 (Reuters) - American Electric Power Co Inc agreed with U.S. environmental regulators to reduce emissions from the two coal units at the 1,815-megawatt (MW) Northeastern power plant in Oklahoma. Ohio-based power company AEP said in a release its Oklahoma utility, Public Service Company of Oklahoma (PSO), would upgrade one of the 460-MW units at the Northeastern plant in 2015 and retire the other 460-MW unit in 2016. The emissions upgrades would reduce nitrogen oxides, sulfur dioxide, mercury and other toxic gases and cost PSO about $175 million, company representatives told Reuters. AEP said the Oklahoma utility entered into an agreement in principle with the U.S. Environmental Protection Agency (EPA), the State of Oklahoma and the Sierra Club environmental group. That agreement addresses the Oklahoma PSO's future obligations under the EPA's Regional Haze rule and EPA's Mercury and Air Toxics Standard (MATS), AEP said. Under the agreement, PSO would reduce emissions by installing control equipment on one of the Northeastern units in 2015 and retire the other unit in 2016. The coal unit with the emissions controls would be retired in the 2025-26 timeframe. Over the past couple of years, energy companies have announced the retirement of more than 30,000 MW of coal-fired generating capacity due to a combination of historically low natural gas prices, increasingly more stringent federal environmental regulations and weak demand power growth. For a Factbox on coal unit to retire see The Northeastern plant has several units, including the 131-MW natural gas and oil-fired Unit 1, which entered service in 1961, 462-MW natural gas-fired Unit 2 (1970), 460-MW coal-fired Units 3 (1979) and 4 (1980), two 149-MW natural gas combustion turbines (2001), according to federal data. AEP WITHDRAWS LAWSUIT AEP said following this agreement PSO would withdraw its lawsuit against the EPA regarding the Regional Haze rule. "This landmark agreement outlines a clear and cost-effective path for compliance by PSO's Oklahoma coal-fired generating units with the EPA's new rules," Stuart Solomon, PSO's president and chief operating officer said in the release. "It allows PSO to implement a compliance plan that resolves the company's most significant environmental issues, provides a manageable transition for our generation fleet, and assures continued reliability for our customers," Solomon said. PSO gets about 31 percent of the power it sells to customers from gas-fired plants, 37 percent from coal, 14 percent from wind and 18 percent from purchased power. With the shutdown of the coal units, the company representatives said the company would be more reliant on natural gas-fired generation. AEP said PSO will file with Oklahoma regulators an environmental compliance plan that reflects the agreement. The regulators must approve costs associated with the plan before the utility can recover those costs from customers. The company representatives could not say what impact the agreement would have on rates in part because the timing on putting the emission control systems in service was still a few years out. Oklahoma has some of the lowest cost in the nation. The average retail cost of power in Oklahoma is about 7.6 cents per kilowatt hour versus the national average of 9.8 cents, according to federal data. PSO has more than 4,300 MW of generating capacity and serves more than 532,000 power customers in eastern and southwestern Oklahoma.