Susan Montoya Bryan ALBUQUERQUE -- A two-year legal battle over the disposal of millions of tons of coal combustion waste in northwestern New Mexico is on the verge of being settled with a $10.2 million agreement announced Wednesday by the Sierra Club, a BHP Billiton mining company and the state's largest electric utility.

Settlement documents were filed by the groups in U.S. District Court in Albuquerque. The agreement is awaiting approval from a federal judge.

The settlement calls for about $8 million to be spent on structures that would prevent any contaminants from reaching the San Juan River as well as other environmental remediation projects. More than $2 million would cover the Sierra Club's attorney and expert fees.

"We're drawing attention to the fact that this is going to be a step forward for clean water. But as long as they're burning coal and mining coal up there, there's still risks to our air and water," said Rachele Huennekens, a spokeswoman for the Sierra Club.

The environmental group vowed to continue pushing Public Service Company of New Mexico, the plant's operator, to make more aggressive investments in clean energy.

"The fight is not over for us in terms of thinking about how we're going to move New Mexico beyond coal to clean energy. We're absolutely dedicated to that," Huennekens said.

The Sierra Club sued in 2010 to stop the disposal in unlined pits of waste left over from burning coal at the San Juan Generating Station, an 1,800-megawatt plant that provides electricity to 2 million customers in the Southwest. The group claimed toxins from the coal combustion waste were leaching into surrounding ground and surface water.

PNM and San Juan Coal Co. argued that groundwater testing and seismic images done as part of the negotiations confirmed the coal combustion waste was not entering groundwater sources.

Jac Fourie, president of the coal mine, said the settlement talks were focused on finding solutions to the Sierra Club's concerns.

"The Sierra Club's scientist was on-site day by day during the testing and surveying," he said. "We believe that our cooperation and transparency was a critical factor in answering the Sierra Club's legitimate questions about how we safely manage these materials every day."

Under the settlement, the current system for capturing shallow groundwater would be expanded to include areas downstream from both the power plant and the mine. The captured water would then be diverted to an evaporation pond.

River restoration work on the Navajo Nation and studies on microbial and selenium sources are also planned as part of the agreement.

PNM Resources President and Chief Executive Pat Vincent-Collawn said she disagreed with the lawsuit's allegations but found value in reaching a settlement that provided additional environmental benefits and avoided further litigation.

PNM officials noted that the settlement would not require any changes in the way coal is mined or handled or any changes related to the management of coal ash at the plant or disposal at the mine.

Coal ash contains arsenic, selenium, lead, cadmium and mercury. Federal regulators have been struggling to decide whether to regulate the ash as a hazardous material.

The U.S. Environmental Protection Agency initially proposed stricter regulations after a December 2008 breach of an earthen dam at the Tennessee Valley Authority's Kingston Plant spilled 5.4 million cubic yards of the sludge into the Emory River and across 300 acres in the Swan Pond community, destroying or damaging about two dozen homes.

No one was hurt, but the EPA described the breach as "one of the worst environmental disasters of its kind."

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