Dominion Resources Inc. agreed to spend $1.2 billion to reduce air pollution at eight power plants in Virginia and West Virginia in the largest such settlement ever under the federal Clean Air Act, company and state officials said yesterday.

The company will spend the money over the next 10 years, installing scrubbers and making other pollution control improvements at its plants, gradually reducing sulfur and nitrogen emissions and thus eliminating major sources of acid rain and smog from the Washington region, Richmond and the Chesapeake Bay, officials said.

Dominion's agreement with the Environmental Protection Agency, the Justice Department and five states including Virginia resolves an EPA investigation begun in 1999, directed at Dominion's power plant in Mount Storm, W.Va., and a separate civil lawsuit by New York state, which complained of far-reaching environmental damage from the power plant's emissions. West Virginia, Connecticut and New Jersey also are parties to the agreement.

In 2000, Dominion, which is based in Richmond and operates Virginia's largest power company, reached a preliminary settlement with the EPA and various state regulators. Negotiations on a final agreement slowed during the transition from the Clinton to the Bush administrations, then picked up again. The agreement is expected to be signed next week, officials said.

"The primary benefits of these settlement efforts will be the health of our citizens and of our environment," EPA Administrator Christine Todd Whitman said. Dominion has already finished some of the work covered by the agreement, and some of the spending is also aimed at improving the company's efficiency and profitability. Replacement of coal-burning power plants at its Possum Point power station in Dumfries with cleaner-burning gas units is expected to be complete by summer. Equipment to reduce nitrogen-oxide emissions at two Mount Storm units will be in place this summer and a third one will be complete in 2004, the company said.

When all the work is done, sulfur-dioxide emissions at the Dominion coal-fired plants in Virginia and West Virginia will be reduced by 64 percent from 2000 levels. Nitrogen-oxide emissions will be reduced by 66 percent from 2000 levels.

Dominion also will spend about $14 million on environmental projects, including $2 million to protect land in the Cheat River Gorge in West Virginia and $1 million for hybrid vehicles in Shenandoah National Park. The company will also pay a $5.3 million federal fine to settle the original Clean Air Act issues at the Mount Storm plant.

Virginia Gov. Mark R. Warner (D) said in a prepared statement, "These emissions reductions will mean substantial improvements in air quality across Virginia," including clearer park views, a cleaner Chesapeake Bay and healthier forests.

Dominion has already budgeted for much of the work and will spread the cost of the projects over more than a decade. The company said the costs would not affect its current profit projections.

"This is something we worked three years to get and we're very happy to be this close to having it resolved," said Dan Genest, a company spokesman. "We obtained some flexibility to make some modifications and upgrades to our plants that will help us to improve their efficiency."

While Dominion initiated settlement negotiations with the EPA and the states, other power companies have fought efforts to tighten pollution controls under a policy called "new source review." The policy involves levels of controls required on power plants that expand or substantially modify generating units.

A trial in one case just concluded and two more are going to trial this summer and fall. "We're continuing to prosecute these cases, and are pressing for outcomes through settlement or litigation," said J.P. Suarez, the EPA's assistant administrator.

Staff writer Eric Pianin contributed to this report.