State regulators have squashed for now the city of Gary's plan to take down the Mitchell Generating Station for lakefront development and expansion of a second runway at Gary/Chicago International Airport.

On Wednesday, the Indiana Utility Regulatory Commission dismissed a proposed settlement that would pave the way for NIPSCO to turn the plant over to the city.

The action also short-circuits NIPSCO's plans to unburden itself of the mothballed generating station, which it says has outlived its usefulness.

The commission wrote it was concerned about "the uncertain and open ended nature" of the agreement, which would give it no say in the future of the plant.

Both the city of Gary and NIPSCO were considering their next move Thursday.

"It's certainly not an end-of-the-world thing," Gary Mayor Scott King said.

In any new attempt to acquire the plant, the city will be more strident in emphasizing its environmental concerns, particularly concerning mercury emissions, King said.

Gary's petition was opposed by LaPorte County, which contends the mothballing of the plant forced NIPSCO customers to pay more for electricity. The Indiana Office of Utility Consumer Counselor also raised concerns.

LaPorte County now is contemplating asking the IURC to force NIPSCO to reopen the plant, according to county attorney Shaw Friedman. Lakefront development doesn't trump all other needs, Friedman said.

"Important as that (lakefront development) may be, having affordable electricity for Gary and Northwest Indiana residents is important, too," Friedman said.

NIPSCO expressed disappointment with the ruling and noted it could jeopardize the long-term expansion of the Gary airport.

NiSource Inc., NIPSCO's parent company, noted in a prepared release issued Thursday that the IURC's ruling would have no financial impact on NiSource. It also noted NIPSCO's petition was dismissed without prejudice.

The IURC's decision leaves the door open for the city and NIPSCO to come back with a more detailed settlement proposal.

But the commission made it clear the city and NIPSCO will have to address meatier issues -- such as the value of the Mitchell plant, adjustments to customer rates, cleanup costs and the possibility of building a new plant at the site.

One of NIPSCO's own witnesses testified it could cost up to $53 million to demolish the plant and do an environmental cleanup.

NIPSCO mothballed the Dean H. Mitchell plant in January 2002, citing decreased demand because of the depressed steel industry and sagging economy. It is one of four large coal-fired power plants the utility owns.

Since then, much of NIPSCO's demand has recovered with the rebound in steel and burgeoning residential development in Northwest Indiana.

NIPSCO is the largest utility in Indiana with 443,000 electric and 712,000 natural gas customers.

The IURC's action Wednesday will not interfere with the Gary airport's plan to expand its main runway, which this week received a green light and a pledge of $57.8 million in funds from the Federal Aviation Administration.

But the airport also has plans to expand its cross runway in the future, and the power plant's smokestacks are dead in the way of where planes would take off or land.

Casino developer Don Barden, fresh off his purchase of Trump Casino just southwest of the power plant, has plans to expand eastward by building a convention center, hotel and amphitheatre.

In testimony before the IURC, Mayor King said the land on which the power plant sits could become an extension of that development.

Under its proposed agreement with NIPSCO, the city would have acquired the Dean H. Mitchell plant for only $1. In exchange, the city would have helped round up government funds for cleanup of the site.