Environment Secretary Ron Curry said the agreement, known as a consent decree, is designed to provide safeguards to protect regional air quality.
"We fought to ensure the company invests in supplemental environmental projects that will directly benefit the residents of Dona Ana County by providing for the reduction of harmful air pollution in the area," Curry said.
The agreement also calls for El Paso Electric to tune up its boilers at the plant. However, that's something the utility was planning as part of its annual maintenance, said Andy Ramirez, vice president for power generation.
The Environment Department filed a complaint against El Paso Electric last fall, alleging the plant exceeded emission rates for nitrogen oxides, carbon monoxide and sulfur dioxide.
But El Paso Electric argued that the plant was not in violation. Ramirez said the utility and the state differed in their interpretations of the emission limits and the calibration of the plant's equipment.
Ramirez said the consent decree spells out what is required at the plant to prevent any future disagreements.
The plant's three units can generate 246 MW of electricity. They run primarily on natural gas, but fuel oil is stored at the site as a backup.