Analysis

Some 11 months ago, the Supreme Court divided deeply as it decided a preliminary issue in a long-running spat between neighboring states over their competing needs for water.  For the first time in the Court’s history of refereeing such interstate disputes, the majority allowed private claimants to something owned by sovereign states to assume a key role in the lawsuit.  The 5-4 decision sparked a rousing dissent by Chief Justice John G. Roberts, Jr.

It now turns out that the ruling may well have been the key to the settlement of the entire dispute, leading to the lawsuit’s dismissal earlier this month.  The case was South Carolina v. North Carolina (138 Original).  Here, in a comment that was more prophetic than perhaps even the Justices knew, is what the majority said at one point: “Duke Energy has demonstrated powerful interests that likely will shape the outcome of this litigation.

By allowing a private company, Duke Energy Carolinas LLC, to intervene to represent its own interests even if neither of the two states involved endorsed the company’s claims, the Court made the firm an equal legal combatant.  And, when negotiations that followed the ruling came to an end this Fall, the two states rallied around Duke Energy’s interests, and made a deal that might last for the next four or five decades, supposedly a model for regional cooperation.

First, some background.  As early as 2002, perhaps years before, South Carolina and North Carolina were actively feuding over claims to the waters of the Catawba River. That is a 440-mile-long stream that rises in the Bue Ridge Mountains in North Carolina, crosses into South Carolina to become the Wateree River, and then the Santee River, before emptying into the Atlantic.

The river system is a major source of water in both of the states, but, when dry times come, there supposedly is not enough flow to meet the demand.  The fast-growing city of Charlotte, N.C., is one of the thirstiest consumers of the river’s waters.   The Catawba-Wateree is heavily regulated, especially the stream flows that go into and out of 11 river dams that Duke Energy operates to produce electricity at 13 stations, serving 2 million people in the Carolinas.

Because Duke Energy has had a 50-year federal license to operate its hydroelectric system in the Carolinas, the actual river flows are subject to control by the U.S. Federal Energy Regulatory Commission.  Still, the two neighboring states have fought over who can withdraw water from the river, for what uses, and who gets to decide.  A bistate commission exists to give advice on the river waters’ use, but it has no enforcement authority.

South Carolina has long believed that trouble began in 1991, when North Carolina’s legislature passed a law allowing diversion or pumping waters out of the Catawba, and transfer them to other river systems.  Permits for withdrawal or “inter-basin transfers” were controlled by North Carolina’s Environmental Management Commission.

According to South Carolina, that Commission had issued at least two permits that resulted in large diversions from the Catawba, in volumes significantly larger than had previously been allowed.  The extra withdrawals, the down-river state contended, were especially harmful during droughts. When a number of cities in North Carolina lined up for added permits, South Carolina called for negotiations with North Carolina.  In a December 2006 letter to North Carolina officials, South Carolina officials warned that they might sue in the Supreme Court, but preferred talks on an interstate compact to divide up the river water allocations.

Getting no satisfaction, South Carolina filed its original lawsuit against North Carolina in the Supreme Court, in June 2007.  Prior Supreme Court rulings on interstate rivers, South Carolina’s lawsuit contended, “make clear that North Carolina, as the up-river state, has no right to claim control over the entire flow of the Catawba River, but instead is under a duty to ensure that South Carolina, the down-river state, enjoys the benefits of the Catawba River as well.”

Under the Constitution, the Supreme Court has the authority to act as a trial court for “original” lawsuits filed directly before the Justices, when two states are in dispute, and no prior proceedings have occurred in lower courts.

South Carolina asked the Court to take on the case, and then bar North Carolina from using its water transfer law to control shares of the Catawba’s waters.  North Carolina urged the Court to stay out of the dispute, arguing, among other things, that drought conditions were the problem, not North Carolina’s withdrawals.

In addition, North Carolina noted that Duke Energy was even then involved in attempts to get the Federal Energy Regulatory Commission to renew its hydroelectric license, for another 50 years after its then-scheduled 2008 expiration.

The issue of water allocation was directly at stake in Duke Energy’s pending application at FERC. North Carolina told the Justices.

The Court on October 7, 2007, gave South Carolina permission to go forward with its lawsuit before the Justices.  In time, the first major issue arose: would the Court allow Duke Energy, and other private parties, to intervene in the lawsuit, to make their own claims, perhaps distinct from the interests of the two states?

In the 5-4 decision last January 20, the Court allowed Duke Energy and a private water supply group to enter the case as parties.  Justice Samuel A. Alito, Jr., in the majority opinion, wrote: “It is likely that any equitable apportionment of the river will need to take into account the amount of water that Duke Energy needs to sustain its operations and provide electricity to the region, thus giving Duke Energy a strong interest in the outcome of this litigation.”

Moreover, Alito said, “Duke Energy has a unique and compelling interest in protecting the term of its existing license,” as well as in the terms it had proposed to FERC as part of its re-licensing application.  A Duke Energy news release in August 2006 (it can be read here) described the so-called “Comprehensive Relicensing Agreement” it would submit to FERC.

A key paragraph in that new release reads: “A new protocol will establish a basin-wide approach to reduce water use during drought situations.  These conservation efforts apply to hydroelectric generation, water flows for recreation and public and industrial water system withdrawals.  The goal is to manage the available water supply until rain restores reservoir water storage and groundwater to normal levels.  Duke Energy and the Public Water System owners are also establishing a Water Management Group to jointly fund long-term initiatives that will improve water quantity and quality management across the basin.”

At the time of the Supreme Court ruling last year, however, neither South Carolina nor North Carolina embraced Duke Energy’s initiative.  In fact, the Court’s opinion noted that neither state had signed the agreement “or expressed an intention to defend its terms.”  Thus, it concluded, “Duke Energy should be permitted to represent its own interests.”

Apparently, that conclusion was a catalyst.  Within seven months after the Court had made Duke Energy’s interests a central part in the dispute, a Catawba River advisory panel suggested that the company’s “Comprehensive Licensing Agreement” should be “a starting point for settlement negotiations.”  That started a new round of direct negotiations involving the two states and others, including Duke Energy.

Finally, on November 12, all sides in the case before the Supreme Court, along with others interested in the dispute, reached a final agreement — keyed directly to the Duke Energy plan, with its water allocation approach.  The deal was publicly announced on December 21.  A news release by South Carolina’s Attorney General, Henry McMaster, can be read here.  It provides links to the actual terms of the settlement agreement and to the final Supreme Court papers, including the dismissal of 138 Original.

McMaster said in the news release that the Supreme Court’s “acceptance of the case was clearly a pivotal event in reaching the settlement.”  He did not mention the Court’s perhaps more consequential step, elevating the role of Duke Energy and the company’s plans for getting its license renewed, for perhaps another 40 or 50 years.

The Supreme Court’s dismissal order, along with documents associated with it, are linked here.

McMaster concluded his public statement this way: “Though the terms of the settlement, both North and South Carolina will be  close neighbors rather than a plaintiff and defendant in a lawsuit.”

(DISCLOSURE: The law firm of Akin Gump represented one of the private groups allowed to intervene in the case; not Duke Energy.  The writer of this post works independently from the law firm’s practice.)

Posted in South Carolina v. North Carolina, Analysis, Featured, Merits Cases

Recommended Citation: Lyle Denniston, The key to settling a big fight, SCOTUSblog (Dec. 27, 2010, 7:40 PM), http://www.scotusblog.com/2010/12/the-key-to-settling-a-big-fight/