Both companies citied the bad economy and the growing cost of the project.
AEP was a founding member of the FutureGen Alliance, a coalition of coal and power companies that formed in 2006 to build the plant. There are now nine members.
The proposed FutureGen power plant is supposed to be built in Illinois and test new technologies to filter out and capture carbon dioxide, a gas linked to global warming.
The project has teetered since its inception.
In 2006, the U.
S. Department of Energy was on board to pay about 70 percent of the power plant's projected $1 billion price tag.
The cost to build and run the plant has since ballooned to $2.4 billion.
Even though the federal government is promising to supply $1.1 billion of the plant's revised cost, no one knows who will pay for the balance, said AEP spokeswoman Melissa McHenry.
McHenry said AEP also balked at a request to pay $5 million annually to help support the alliance. She said the company has spent $1.5 million on the project since 2006.
AEP slashed its capital budget this year to $2.6 billion. It was $4 billion last year.
"It's a financial decision," McHenry said. "It's not an indication that we don't consider FutureGen a worthwhile project."
Mike Mudd, an AEP executive and the chief executive officer of the FutureGen Alliance, said that Southern Co., an Atlanta-based utility, also has dropped out of the project.
Mudd said he plans to stay with the alliance, which is looking to add 11 business partners. Unless the alliance finds ways to lower the plant's cost by the end of the year, the project could lose government funding.
The plant was supposed to start operations in 2010.
Energy officials abandoned the FutureGen project in January 2008, saying it was too expensive. But the Obama administration revived it on June 12, when it announced that the plant would be built in Mattoon, Ill., after all.
Ohio officials failed to lure FutureGen to either of two sites in the Buckeye State.
John Thompson, director of the Clean Air Task Force's Coal Transition Project, said the loss of AEP and Southern could mothball FutureGen again.
The Boston-based advocacy group supported FutureGen at one time. But Thompson said proposals to build larger power plants that would capture carbon dioxide in Australia and China have made the Mattoon plant obsolete.
"The progress on FutureGen has been glacial," he said.