Apr. 13--Peabody Energy Corp.'s plans to build a $2 billion coal- fired power plant in western Kentucky advanced a step Wednesday when a state official upheld an air permit for the controversial project.

The ruling by LaJuana Wilcher, environmental and public protection cabinet secretary, comes eight months after an administrative hearing officer in the state said the permit should be re-examined to find ways to cut emissions.

Wilcher did order the state's Division of Air Quality to amend the air permit originally issued for Thoroughbred Generating Station in 2002 to require reductions in mercury and nitrogen oxide emissions. Environmental groups that challenged the state's decision to issue the permit say the modifications required by Wilcher don't go far enough.

"We think this is a setback for Kentucky," said Hank Graddy, an attorney for the Sierra Club and other groups that appealed the permit. "It's also a setback for those who claim to be championing clean coal technologies."

Environmental groups argue that Peabody should be required to show regulators that it gave serious consideration to so-called "clean coal" technology that converts high-sulfur coal from Kentucky or Illinois into a synthetic gas before it's burned, stripping out more pollutants.

St. Louis-based Peabody is the world's largest publicly traded coal company. It is seeking to expand the market for its millions of tons of coal reserves and has invested millions of dollars in projects used to convert the sooty black ore into cleaner-burning synthetic gas. However, the company says technology to use gas made from coal for power generation isn't ready for use on a project as large as Thoroughbred, and Wilcher agreed.

Graddy said his clients are considering whether to appeal Wilcher's order.

Peabody announced plans to build the 1,500 megawatt power plant in western Kentucky, near Central City, more than five years ago.

Efforts to build the plant are being closely watched in Illinois and Missouri because the Thoroughbred project is similar to the Prairie State plant that Peabody wants to build near Lively Grove, Ill., about 50 miles southeast of St. Louis. The air permit issued for that project last year was appealed to the U.S. Environmental Appeals Board.

Peabody said the ruling in Kentucky represents a "milestone." Construction was initially supposed to begin before Prairie State, but its development now lags the Illinois plant.

Both plants are expected to take about four years to build, Peabody said. The company said it could begin site work on the Prairie State project by the end of the year. Peabody hasn't announced when it plans to begin work on Thoroughbred.