American Electric Power Co. (AEP) and Southern Co. (SO) are pulling out of Futuregen, a U.S. government-backed project to capture and store the greenhouse-gas emissions from a coal-fired power plant, the companies' top executives said Thursday.

The companies, two of the biggest coal-burning utilities in the U.S., are exiting the Futuregen Alliance just weeks after it won renewed support from the federal government. The Obama administration earlier this month all but guaranteed almost $1.1 billion for the project, to be based in Mattoon, Ill., reviving a project that had suffered a major setback in early 2008 when the Bush administration backed out of funding plans after costs almost doubled. The companies' departure from the alliance was reported earlier by Bloomberg News.

The project envisions the building of a power plant that will capture and permanently store underground 60% of the carbon-dioxide emitted in combustion. This is down from the original aim to capture 90% of the plant's CO2 emissions. The plant would test the technology on a commercial level, a critical step in the face of likely federal climate change legislation that would limit greenhouse gas emissions.

"We've moved onto other projects," Southern Chief Executive David Ratcliffe said on the sidelines of the Edison Electric Institute conference in San Francisco. He said he told Energy Secretary Steven Chu that "I've had to devote my resources to other, more tangible projects that are moving faster," adding he still strongly supports the Futuregen project and Southern would share information with developers.

Southern will begin in 2011 capturing a fraction of the CO2 from its 2,525-megawatt Barry plant near Mobile, Ala., in a partnership with the Department of Energy and Mitsubishi Heavy Industries Ltd. (7011.TO). Southern will also manage and operate the Department of Energy's new National Carbon Capture Center near Wilsonville, Ala., where carbon-capture technologies will be developed. In addition, Southern unit Mississippi Power in January filed plans to build a 582-megawatt plant that would be fueled with gas derived from coal, with carbon-capture capability.

AEP said it would be pulling out of Futuregen on July 1. Chief Executive Mike Morris said AEP was going to devote its resources to other sequestration projects, including a plant in West Virginia. The company will start in September to test CO2 capture-and-storage technology at the coal-fired Mountaineer plant in New Haven, W.Va., injecting up to 165,000 metric tons of CO2 a year into the ground.

"It's going to happen a whole lot sooner than Futuregen," Morris said on the sidelines of the conference. He added, however, that he still supports Futuregen, noting the alliance's CEO, Michael Mudd, comes from AEP and AEP engineers would continue working on the Illinois project.

"AEP's decision to withdraw from the FutureGen Alliance is a financial decision and not an indication that the company does not consider FutureGen a worthwhile project," AEP spokesman Pat Hemlepp said in an email.

The remaining members of the alliance include U.S. and overseas coal companies, including Consol Energy Inc. (CNX), Peabody Energy Corp. (BTU) and BHP Billiton Ltd. (BHP), and utilities E.on AG (EOAN.XE) and China Huaneng Group.

-By Mark Peters and Cassandra Sweet, Dow Jones Newswires; 212-416-2457; mark.peters@dowjones.com

(Christine Buurma in New York contributed to this report.)