A big power company accused of spreading smog and acid rain across a dozen states agreed Tuesday to pay at least $4.6 billion to cut chemical emissions in what the government called the largest environmental settlement in federal history.

The agreement with American Electric Power Co. ends an eight-year legal battle over reducing smokestack pollution that drifted across Northeast and mid-Atlantic states, chewing away at mountain ranges, bays and national landmarks.

AEP, based on Columbus, Ohio, maintains it never violated Clean Air Act rules to curb emissions, and had already spent or planned to pay $5.1 billion on scrubbers and other equipment to reduce its pollution.

"Plans change," said acting Assistant Attorney General Ron Tenpas, announcing the settlement filed in U.S. District Court in Columbus, where a trial against AEP originally was scheduled to begin Tuesday. "And obviously there is a big difference between a company saying it has plans to do something in the future and a company being bound by an order of the court to take those steps."

Failure to comply with the settlement could result in daily penalties of hundreds of thousands of dollars, government attorneys said. Additionally, AEP must pay a $15 million civil fine and $60 million in cleanup and mitigation costs to help heal polluted land in the Shenandoah National Park and waterways including the Chesapeake Bay.

In all, the costs and civil fines will far exceed any company payout in an environmental case, the attorneys said. The 1989 Exxon Valdez oil spill, by contrast, yielded $1 billion in restoration and restitution costs, although Exxon Mobil Corp. estimates it has so far spent $3.5 billion and faces an additional $2.5 billion in criminal penalties.

The case against AEP began in 1999 when eight states and about a dozen environmental groups joined the Environmental Protection Agency's crackdown on energy companies accused of rebuilding coal-fired power plants without installing pollution controls as required. In states like New York, officials complained that acid raid linked to sulfates and nitrates from coal-fired plants were eating away at landmarks, including the Statue of Liberty.

AEP has more than 5 million customers in 11 states. It has countered that the work in at least some of its plants was routine maintenance that didn't fall under federal requirements for pollution controls.

In a statement Tuesday, chief executive officer Michael G. Morris said the company still believes that, noting that the settlement did not find AEP guilty of violating the Clean Air Act. "But we have also said that we would be willing to consider ways to reasonably resolve these issues," he said.

As part of the settlement, AEP will clean up 46 coal-fired operations in 16 of the plants in Ohio, Indiana, Kentucky, Virginia and West Virginia. Morris also noted the risk of AEP paying a far greater fine if the company had fought the case in court and lost.

"While we would have preferred that the agreement not include a civil penalty -- a position we argued vigorously during our discussions with the plaintiffs -- this settlement is an excellent outcome for our shareholders," he said.

AEP said it has paid nearly $1.6 billion since 2004 on equipment to cut emission in coal-fired plants in Kentucky, Ohio, Virginia and West Virginia and will be spending an additional $1.6 billion for environmental controls in two more plants. Both costs are part of the company's $5.1 billion plan reduce the emissions of its eastern region by 2010.

The states involved in the lawsuit were: Connecticut, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Rhode Island and Vermont. Connecticut Attorney General Richard Blumenthal called the settlement "huge and historic."

"Clean air enforcement is alive and well despite Bush administration efforts to gut the Clean Air Act," said Blumenthal, a Democrat.

In all, 13 environmental groups joined the lawsuit as well. They included the Sierra Club, whose executive director on Tuesday accused AEP of for years evading the law.

"The massive reductions in smog, fine soot and acid rain from these plants will profoundly benefit both public health and the environment, said Sierra Club executive director Carl Pope.

In all, the government brought eight lawsuits against polluters accused of violating the Clean Air Act. Four are still ongoing, and AEP was considered the largest polluter of the bunch, government attorneys said. Tuesday's settlement will reduce pollution by 1.6 billion pounds each year through 2018, said EPA assistant administrator Grant Nakayama. By contrast, government enforcement efforts has led to emissions reductions of about one billion pounds or less annually over the last three years, he said.

The crackdown should also lead savings of an estimated $32 billion in annual health costs to treat lung and respiratory problems caused by the pollution, Nakayama said.

"That is just huge when you talk about the amount of emission reduction," he said.