UPDATE 2-Indiana power company settles pollution charges

* Settlement pact includes $3.5 mln civil penalty

* Agreement must be approved by a federal court (Adds company comment, last two paragraphs)

WASHINGTON Jan 13 (Reuters) - Northern Indiana Public Service Co, a distribution company of NiSource Inc (NI.N), has agreed to settle allegations it violated the Clean Air Act and invest about $600 million in pollution control technologies, U.S. authorities said on Thursday.

The agreement also requires NIPSCO to spend $9.5 million on environmental mitigation projects and pay a $3.5 million civil penalty, the Justice Department and Environmental Protection Agency said.

The proposed settlement will cover violations at its coal-fired power plants in four cities in Indiana and will lead to annual reductions in nitrogen oxide emissions by 18,000 tons and sulfur dioxide emissions by 46,000 tons, they said.

The pollution control equipment will be installed at three of its plants, and a fourth site, in Gary, Indiana, will be permanently retired, the agencies said.

The settlement is subject to a public comment period and approval by a federal court.

The company said the settlement would result in programs designed to improve the environment in northern Indiana.

"We currently operate one of the cleanest-burning coal fleets in Indiana. With these investments, we will continue our leadership position and further improve air quality for residents in northern Indiana," NIPSCO CEO Jimmy Staton said. (Reporting by Jeremy Pelofsky, editing by Dave Zimmerman, Bernard Orr)