UPDATE 1-Utility drops $2 bln Fla. advanced coal-fired plant

(Adds company, environmental comment)

HOUSTON, Oct. 4 (Reuters) - TECO Energy's (TE.N: Quote, Profile, Research) Tampa Electric utility will drop plans to build a $2 billion advanced coal-fired plant, citing uncertainty over carbon dioxide regulation and rising project costs, the company said on Thursday.

In July, the utility sought regulatory approval to build a 632-megawatt integrated gasification combined-cycle, or IGCC, coal plant, in Polk County. Tampa Electric has operated a 260-MW IGCC plant at the Polk site since 1996.

While utility executives said they continue to support use of coal in new ways, the IGCC project was too risky at the current time, according to a statement.

"We believe there is a role for IGCC in Tampa Electric's future generation plans, but with the uncertainty of carbon capture and sequestration regulations being discussed at the federal and state levels, the timing is not right to utilize it for a baseload facility needed by 2013," said Tampa Electric President Chuck Black.

Southern Co. (SO.N: Quote, Profile, Research), American Electric Power AEP.N, and NRG Energy (NRG.N: Quote, Profile, Research) are involved in IGCC development while several proposed plants, including projects in Texas and Connecticut, have been deferred.

Even with the awarding of $133.5 million in federal tax credits, Black said regulatory uncertainty and potential cost increases led to concern that IGCC "may not be the most cost-effective technology to use at this time."

"We are not prepared to expose our customers and shareholders to that risk," he said.

IGCC plants use coal or petroleum-derived gas in a turbine to generate electricity. IGCC technology allows for the separation of pollutants currently regulated in the United States -- nitrogen oxide, sulfur dioxide and mercury -- from the gas before burning it, and in the future may allow for the capture of carbon dioxide, a greenhouse gas blamed for global warming.