The previous investment record was when Virginia-based Dominion Resources Inc agreed in 2003 to spend US$1.2 billion on pollution controls in an EPA settlement.

AEP spokesman Pat Hemlepp disputed the US$4.6 billion figure and pointed out that the number did not appear anywhere in the consent decree filed in a US. district court in Ohio on Tuesday. The 121-page settlement came the day that a trial was scheduled to begin.

In its deal, AEP agreed to pay US$15 million in civil penalties and US$60 million in pollution cleanup costs to end the "new source review" case brought by the Justice Department in 1999.

AEP, whose fleet of coal-fired power plants form the backbone of the Midwest's power grid, agreed to cut soot and smog emissions by 813,000 tons a year when the agreement takes full force in about a decade.

AEP Chairman Mike Morris said he had always believed his company complied with the law and "that remains our position today."

But the settlement "enables us to make much-needed efficiency improvements at our plants without fear of additional (pollution) allegations," Morris said in a statement.

The 16 power plants have a total capacity of about 22,000 megawatts and comprise most of AEP's eastern fleet of facilities, located in Indiana, Ohio, Kentucky, Virginia and West Virginia.

Prevailing wind currents push pollution from those plants into Northeast and mid-Atlantic states. They also contribute to haze in the national parks like Smoky Mountain National Park and rising acid rain levels in the Adirondack Mountains.

The government accused AEP of modifying those plants, many of which were built in the 1970s, to extend their lives without including equipment to remove sulfur dioxide and nitrogen oxides -- precursors to smog and acid rain.

AEP has spent US$2.6 billion since 2004 to install pollution-control equipment at coal-fired plants in Kentucky, Ohio, Virginia and West Virginia, and will spend more than US$5.1 billion fleetwide by 2010 on emission controls, Hemlepp said.

"We are doing these projects to comply with existing or upcoming environmental regulations, not because of some sort of requirement in the settlement agreement," he said.

EPA's Nakayama called the US$4.6 billion figure "a solid and conservative number," and said it would probably end up higher.