AEP had previously announced it would stop using coal at the Muskingum River plant and switch it to natural gas. The company had already planned to retire another coal-fired power plant in Kentucky that is covered by the settlement, even though it was not required to stop using coal.
"We haven't committed to specifically retire any unit," said Melissa McHenry, an AEP spokeswoman.
The company also said Monday that while the cuts required are more than the initial agreement, it was planning to do them to meet a new EPA regulation aimed at reducing mercury and other air toxics from the nation's power plants.
Environmentalists said the deal will ensure the company doesn't change its mind.
"This is the first official commitment they are making to stop burning coal at these units," said Nachy Kanfer, a deputy director for the Sierra Club's Beyond Coal Campaign.
The states involved in the lawsuit included New York, Connecticut, Massachusetts, Maryland, New Hampshire, New Jersey, Rhode Island and Vermont.
Business Editor Jared Hunt contributed to this report.