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The company developing a coal-gasification plant that divided Kanab residents is pulling the plug after failing to meet the terms of its federal grant to demonstrate a new energy-production technology.

California-based Viresco Energy, LLC, had won a $2.4 million Department of Energy grant in 2010, thanks to a congressional earmark secured by then-Sen. Bob Bennett, R-Utah.

The goal was to prove gasification processes developed by engineers at the University of California, Riverside. But many residents fought the project, fearing it would put an industrial eyesore inside city limits, spewing pollution from a 70-foot stack that would mar Kanab's redrock vistas.

Viresco principal Jim Guthrie and his supporters, however, said these concerns were overblown.

Still, one group is suing Kanab, seeking to overturn the conditional-use permit it issued, and had backed an unsuccessful ballot measure that would have required voter approval for any gasification project inside the town.

"There were tremendous financial risks associated with it," said critic Sky Chaney, president of Taxpayers Association of Kane County. "Guthrie wanted to put waste into our water treatment system. He said the liquid waste would be like distilled water, but his experts later said it could be dangerous and would be shipped away in barrels."

But, in the end, it probably wasn't environmental activism that doomed the project, which would have provided temporary employment to seven, but rather a lack of interest from investors.

Now Guthrie is seeking to back out of his lease with the state School and Institutional Trust Lands Administration and to reclaim the 10-acre site, located a few miles south of downtown near the new Jackson Flat Reservoir.

Guthrie chose Kanab because Utah's regulatory climate was more friendly to new energy projects than California's. But now he claims foot-dragging on the part of Kanab officials to issue necessary permits held up the project.

"We kept telling the city that time is money. Then Bob Bennett wasn't able to stay in office," Guthrie said.

The city approved the conditional-use permit more than two years ago, but had not issued a building permit because Viresco had failed to file a plan to meet the decommissioning requirements, according to town documents. The city insisted on getting a bond to ensure compliance with a requirement to take down the stack, which exceeded the town's height restrictions.

Other than clearing brush and putting in a gravel base, not much work had been done at the site, according to SITLA officials.

Far more effort went into producing a 490-page environmental assessment, which concluded the project posed no significant impact.

Guthrie's plan was to process small amounts of coal, about five tons a day for brief stretches, to determine the commercial feasibility of a patented process that taps steam to convert various carbon-based materials into useful fuels. The project was highlighted in Gov. Gary Herbert's 2011 energy plan.

Under the terms of the DOE grant, the $2.4 million was to cover 80 percent of the project's costs, and Viresco was to raise the remaining $600,000.

Darryl Shockley, the official at DOE's National Energy Technology Laboratory overseeing the Viresco grant, forwarded queries to an agency spokeswoman, who would say only that Viresco failed to meet its obligations, so the grant was terminated. DOE officials did not respond to repeated requests for elaboration.