Cyclists pass by the power plant on the Mount Vernon trail. (Bill O'Leary/WASHINGTON POST)

Alexandria’s controversial coal-burning power plant, once considered one of the largest single sources of air pollution in the Washington area, will probably close by October 2012, its owner and the city announced Tuesday.

The surprise announcement culminates a 12-year battle to close the six-decade-old Potomac River plant, which local activists and environmentalists blame for causing or contributing to dozens of cases of serious illness each year.

A spokeswoman for GenOn, the owner of the plant, said the plant has complied with environmental regulations and called the planned closing a “good business decision but a difficult one” because its 120 jobs will vanish.

It appears the economics of energy, in particular the prospect of increasingly costly pollution controls, pushed GenOn to consider pulling the plug.

If the plant does indeed wind down, the site could open up options for redeveloping Alexandria’s waterfront, an effort that has focused on a far smaller stretch of about eight blocks.

Long known by the name of its former owner, Mirant — which through a merger became GenOn — the plant sits on 25 prime acres. The parcel cuts Old Town Alexandria off from the water and is adjacent to a popular walking and bicycling trail on National Park Service land.

The GenOn plant provides up to 5 percent of the area’s electricity, but its importance has diminished in recent years as more power has been carried into the area on two new high-voltage transmission lines. Under a 2008 agreement with the city, it has also reduced the pollutants it emits from its smokestacks but still was fined for permit violations in the spring. It also was forced to compete with cheaper and cleaner natural gas-generated electricity just as the nation entered a recession.

As part of the deal announced Tuesday, the City of Alexandria will release about $32 million it was holding in escrow that GenOn was going to use to pay for new environmental controls at the plant. To get that money back, GenOn agreed to close the generation station by Oct. 1, 2012, or “if the plant is needed beyond that date for reliability purposes, as soon as it is no longer needed,” the agreement said.

The anticipated closure of the plant was greeted with measured enthusiasm by local activists who have been working on the issue since 1999 and were taken by surprise by the deal.

“I’m just a little bit concerned about the clause in the deal that says ‘unless . . . ’ ” said Poul Hertel, an Alexandria resident who started looking into the issue with Elizabeth Chimento in 1999. “That takes a bit off the exuberance, because it’s potentially moving the goal line. . . . Let’s just say the cork is still in the champagne bottle until everyone signs off on it.”

GenOn has 89 years to go on a 99-year lease on the property from Pepco, and GenOn spokeswoman Misty Allen said the company will retain and maintain the site. Whether the company will sell or sublet the land for an expansion of the city’s waterfront is one of many possibilities, Allen said.

Even though some groups have floated plans for the plant’s site, Alexandria Mayor William D. Euille said it was too soon to ponder how the waterfront might change. He said he had asked the City Council to schedule a work session for this fall to begin “potential planning” for the site.

The eight-block stretch of waterfront that is the focus of a proposed redevelopment plan is bookended by warehouses owned by a subsidiary of The Washington Post Co. Acquiring them is considered a key step in moving the plan forward.

Alexandria officials said they had been working with GenOn to implement environmental controls that both sides had agreed to in a July 2008 settlement. GenOn had placed $34 million in an escrow account to pay for measures to keep the air clean and had spent about $2 million.

But a much bigger expenditure of escrow funds loomed: The company was soon to spend the remaining money to retrofit the waterfront plant in order to manage dust coming from coal piles and particulate emitting from the smoke stacks, said Bill Skrabak, deputy director of environmental services for Alexandria. A contractor was to be hired by the city and GenOn next month, with an initial outlay of $1 million to $2 million. That was to be followed in March by the payment of the bulk of the money left in escrow.

GenOn concluded that the expenditures didn’t work for them. Given that demand for the power the plant generates wasn’t growing as quickly as expected, the nation’s economic stagnation and the possibility that more expensive pollution controls would be required by the Environmental Protection Agency, GenOn opted to close up and keep the cash.

To close by next October, GenOn and the city must obtain consents from various local and federal agencies. If the plant is still operating in January 2014, Euille said GenOn will make a one-time payment of $750,000 to the city.

Whether the plant is needed for the reliability of the power grid will be made by PJM Interconnection, a regional transmission organization that coordinates the movement of electricity in the Mid-Atlantic. Ray Dotter, PJM’s spokesman, said the organization was assessing whether the Potomac River plant was needed, at the request of the District. The agency also received a notice Tuesday from GenOn of its intention to shut down, and it is required to respond within 30 days, Dotter said.

D.C. Mayor Vincent C. Gray called the deal “great news. Doing this will relieve the District of the burden of pollution that may be adversely affecting the health and well-being of our residents, particularly those in Ward 8,” Gray (D) said in a statement.

The Sierra Club, which has been active in the grass-roots campaign to close the Alexandria plant and other coal-fired generation plants around the country, said that it will hold GenOn to the 2012 date.

“The agreement . . . to retire a major source of pollution in our nation’s capital is a huge symbolic step towards moving the nation beyond coal,” Michael Brune, the club’s executive director, said in a news release.

U.S. Rep. James P. Moran (D-Va.), who has been involved in the plant controversy since he was Alexandria’s mayor, credited residents working with city officials for the agreement. “The extinction of this dinosaur of a facility is heartily welcomed,” Moran said in a news release.

Near the plant, residents and business owners welcomed the news.

Douglas Rosenthal, who runs a human resources consulting firm less than a block from the plant, said he remembers about four years ago when his employees found ash settled on their car windows.

Resident Robert Hull is glad simply because the health risk will soon be gone. Suffering from chronic bronchitis and living in the nearby Marina Towers, Hull said the fumes have caused his lungs to burn for 31 weeks a year for the past eight years. He never left, he said, because he couldn’t afford to.

“I’m awful glad that it’s closing,” he said with a rasp.

Others were less enthusiastic. Ray Pfeifer, president of the community group for the nearby Canal Place Condominium, said that residents had not raised any issues concerning the plant in the 12 years he has been at community meetings.

“It’s not as if we’re sitting here and it’s Pittsburgh, 1950,” he said.

Still, he said, neighbors will nonetheless be pleased that there will be less noise from the trains and trucks that deliver to the plant.

Staff writers Tim Craig and Victor Zapana contributed to this report.