The agreement requires Duke to pay any "reasonable" cost associated with the Feb. 2 spill at its power plant near Eden, which coated 70 miles of the river in grey sludge. The U.S. Fish and Wildlife Service is also a party to the deal.
Duke signed a similar agreement with the U.S. Environmental Protection Agency last month.
The nation's largest electricity company has begun the task of vacuuming up large pockets of toxic ash that settled to the bottom of the river as far downstream as Danville, Virgina. Duke must also pay for the ongoing monitoring by government agencies of the spill's impact on aquatic life.
The agreement places no cap on what the company might be required to spend. Duke said in April that it had spent $15 million on containing the spill and the immediate aftermath. But it reiterated in a regulatory filing to investors on Monday that it is unable to predict future costs for the cleanup, new laws passed in the wake of the spill or any environmental fines that might be levied against the company.
N.C. Department of Environment and Natural Resources spokeswoman Susan Massengale said Monday that the agreement provides "a process that attempts to avoid lawsuits by the parties," but does not bar the states from filing suit if the company does not uphold its commitments.
"This is an important step in the process of returning, as closely as possible, the Dan River to the condition it was before the spill," Massengale said.
Recent testing of water samples from the river show the level of contamination decreased quickly after the spill as the ash and the toxic heavy metals it contains sank to the bottom. However, environmental officials say those contaminated sediments are churned back up into the water at time of high flow, such as after a big rainstorm.
The byproduct left behind when coal is burned to generate electricity, the ash contains numerous toxic substances, including arsenic, selenium, chromium, thallium, mercury and lead. Wildlife officials will be collecting tissue samples from fish in the Dan to monitor whether the contamination works its way up the food chain. Public health officials in both states have advised residents not to eat fish caught downstream of the spill site.
Towns downstream of the spill site that rely on the river for drinking water, including Danville and South Boston in Virginia, have successfully been filtering out the contamination from the treated water supplied to residents.
"This agreement represents a significant milestone in Duke Energy's ongoing efforts to restore and monitor the Dan River and surrounding environment," the company said in a written statement. "Duke Energy is fully committed to the river's long-term health and well-being."
The recent agreements do not resolve an ongoing criminal investigation into the spill and the close relationships between Duke executives and North Carolina politicians and regulators. Federal prosecutors issued at least 23 grand jury subpoenas after the spill to Duke and state officials.
North Carolina lawmakers are currently debating a bill about what to do with Duke's 33 ash dumps at 14 power plants in North Carolina, which are located along rivers and lakes that cities and towns rely on for drinking water. State environmental officials say all of Duke's unlined waste pits, which contain more than 100 million tons of ash, are contaminating groundwater.
Duke has agreed to remove all of its remaining ash at the Eden plant and three other sites, but wants to consider options for its other facilities that could include leaving the ash where it is, capped with plastic sheeting and a layer of soil. Duke has warned lawmakers it could cost as much as $10 billion if it is forced to remove its ash at all 14 sites in North Carolina, with the company's electricity customers footing most of the bill.
Follow AP writer Michael Biesecker at Twitter.com/mbieseck