No. 138, ORIGINAL

In the

Supreme Court of the United States

STATE OF SOUTH CAROLINA,

Plaintiff,

v.

STATE OF NORTH CAROLINA,

Defendant.

On Exceptions to the First

Interim Report of the Special Master

BRIEF OF THE STATE OFNORTH CAROLINA IN OPPOSITION

TO PLAINTIFF’S EXCEPTIONS

ROY COOPER

Attorney General

State of North Carolina

Christopher G. Browning, Jr.*

James C. Gulick

J. Allen Jernigan

Marc D. Bernstein

Jennie W. Hauser

North Carolina

Department of Justice

Post Office Box 629

Raleigh, N.C. 27602

(919) 716-6900

March 9, 2009 *Counsel of Record

i

QUESTION PRESENTED

Whether the Special Master correctlyconcluded that the advantages ofallowing the motions to interveneoutweighed any potential disadvantageand that the limited participation ofthese intervenors is consistent with thisCourt’s precedent.

ii

TABLE OF CONTENTS

QUESTION PRESENTED . . . . . . . . . . . . . . . . . . . . i

TABLE OF AUTHORITIES . . . . . . . . . . . . . . . . . . iii

STATEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

SUMMARY OF ARGUMENT . . . . . . . . . . . . . . . . . 5

ARGUMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

I. THE COURT SHOULD REJECT SOUTHCAROLINA’S INVITATION TO ADOPT ABLANKET RULE THAT ONLY THE UNITEDSTATES, INDIAN TRIBES AND STATESMAY INTERVENE IN WATER RIGHTSCASES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

II. SOUTH CAROLINA’S CONCERN OVERTHE POSSIBILITY OF WIDE-SCALEINTERVENTION IS MISPLACED. . . . . . . . . 13

III. THE UNITED STATES ERRS IN ASSERTINGTHAT THE PRESENCE OF INTERVENORSWOULD MAKE SETTLEMENT MOREDIFFICULT . . . . . . . . . . . . . . . . . . . . . . . . . . 15

IV. EACH OF THE THREE INTERVENORS HASSUFFICIENT INTEREST TO JUSTIFY ITSPARTICIPATION IN THIS ACTION . . . . . . . 18

V. THE PRESENCE OF THE INTERVENORSWILL NOT PREJUDICE THE PARTIES . . . 24

CONCLUSION . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

iii

TABLE OF AUTHORITIES

CASES

Arizona v. California, 373 U.S. 546 (1963) . . . . . . 9

Arizona v. California, 460 U.S. 605 (1983) . . . . . . 9

College Sav. Bank v. Fla. PrepaidPostsecondary Educ. Expense Bd.,527 U.S. 666 (1999) . . . . . . . . . . . . . . . . . . . . . 16

Colorado v. Kansas, 320 U.S. 383 (1943) . . . . . . . 16

Idaho ex rel. Evans v. Oregon, 462 U.S. 1017 (1983) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9, 10

Kentucky v. Indiana, 281 U.S. 163 (1930) . . . . . . . 9

Lincoln Prop. Co. v. Roche,546 U.S. 81 (2005) . . . . . . . . . . . . . . . . . . . . . . 11

Maryland v. Louisiana,451 U.S. 725 (1981) . . . . . . . . . . . . . . . . . . . . 6, 9

Nebraska v. Wyoming, 515 U.S. 1 (1995) . . . . . . . 11

New Jersey v. New York,345 U.S. 369 (1953) . . . . . . . . . . 7, 10, 11, 22, 23

iv

CONSTITUTIONS AND STATUTES

U.S. CONST. ART. I, § 10, cl. 3 . . . . . . . . . . . . . . . . 16

N.C. Gen. Stat. § 143-215.22L (2009) . . . . . . . . . . . 1

MISCELLANEOUS

16 JAMES WM. MOORE, MOORE’S FEDERAL

PRACTICE § 107.14(2)(c)(v) (3d ed. 2006) . . . . 11

1

STATEMENT

1. Under North Carolina law, any transfer ofwater from one river basin to another in excess oftwo million gallons per day must first be approvedby the North Carolina Environmental ManagementCommission (“NC EMC”). N.C. Gen. Stat. § 143-215.22L (2009). On December 19, 2006, the SouthCarolina Attorney General wrote to the NorthCarolina Attorney General threatening to bring anoriginal action in the event that the NC EMC wereto approve a specific interbasin transfer (“IBT”)relating to the Catawba River that was pendingbefore the NC EMC. S.C. Br. in Support of Motionfor Leave to File Bill of Compl., Ex. 2. Afterreviewing the impacts of the proposed IBT, as wellas South Carolina’s comments and concerns, the NCEMC reduced the size of the proposed IBT to a smallfraction of the original request. With thissubstantial reduction, the IBT permit was approvedby the NC EMC in January 2007. Despite the NCEMC’s efforts to respond to South Carolina’sconcerns, South Carolina proceeded to file its Motionfor Leave to File a Bill of Complaint.

As foreshadowed by the demand letter of theSouth Carolina Attorney General, South Carolina’sBill of Complaint in this action is focused on IBTsfrom the Catawba River. In its Bill of Complaint,South Carolina alleges:

3. In 1991, North Carolinaenacted an “interbasin transferstatute” that purports to authorize thetransfer of large volumes of water

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from one river basin in North Carolinato another basin in that State. Underthat statute, North Carolina hasauthorized the transfer of at least 48million gallons per day from theCatawba River Basin, with the mostrecent such transfer authorized inJanuary 2007.

4. These past transfers – andthreatened pending transfers – exceedNorth Carolina’s equitable share ofthe Catawba River. . . .

Bill of Compl. ¶¶ 3, 4; see also S.C. Br. in Supp. ofMot. for Leave to File Bill of Compl., p. 9 (“TheNorth Carolina interbasin statute, and the transfersfrom the Catawba River authorized under thatstatute, are directly contrary to this Court’sdecisions with respect to interstate rivers.”). TheBill of Complaint expressly singles out three IBTauthorizations held by: 1) the City of Charlotte, 2)the Cities of Concord and Kannapolis jointly, and 3)Union County (acting through the Catawba RiverWater Supply Project (“CRWSP”) and pursuant tothe statute’s grandfather provision). Bill of Compl.¶¶ 20, 21. Other than the permits held by Charlotteand Concord/Kannapolis, the NC EMC has issued noIBT permits with respect to the Catawba River.

In its prayer for relief, South Carolina requeststhat North Carolina be enjoined from authorizingthe existing IBTs and issuing any future IBTpermits. Bill of Compl., Prayer for Relief. South

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Carolina made a comparable request in anApplication for Preliminary Injunction.

2. Shortly after this Court granted SouthCarolina leave to file a Bill of Complaint, DukeEnergy Carolinas, LLC (“Duke Energy”), CRWSPand the City of Charlotte filed motions for leave tointervene as defendants. This Court referred thosemotions to the Special Master.

Each of the three intervenors has a substantialand unique interest in this action. Duke Energyowns and operates a series of 11 dams and reservoirsalong the Catawba/Wateree River – six in NorthCarolina, one at the North Carolina/South Carolinaborder, and four in South Carolina. These reservoirsallow Duke Energy to generate hydroelectric powerand supply cooling water for its two nuclear powerplants and three coal-fired plants in the CatawbaRiver Basin. Lake Wylie, formed by the seventhdam along the Catawba River, is located on theborder between North Carolina and South Carolina.The flow of water from the Catawba River into SouthCarolina is therefore controlled by Duke Energy.

Duke Energy is currently in the process ofseeking a new license for its 11 dams and reservoirs(“Catawba-Wateree Hydro Project”). As part of itsrelicensing process before the Federal EnergyRegulatory Commission (“FERC”), Duke Energysought to include all stakeholders in an effort tobuild a consensus concerning the terms of a newlicense for these dams. The discussions andnegotiations between Duke Energy and thestakeholders ultimately led to a Comprehensive

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Relicensing Agreement (“CRA”) that was signed byDuke Energy and 69 stakeholders in the Summer of2006 and amended in December 2006. Thesignatories to the CRA include natural resourcesagencies of both South Carolina and North Carolina.That agreement sets out minimum rates of waterflow into South Carolina from the Duke Energyreservoirs and, among other things, mandatesspecific conservation measures for all water usersduring drought conditions. The CRA constitutes arequest by its signatories that FERC grant DukeEnergy a license, subject to the terms and conditionsof the CRA, for the Catawba-Wateree Hydro Project.

CRWSP is a joint venture consisting of a politicalsubdivision of South Carolina (Lancaster CountyWater and Sewer District) and a political subdivisionof North Carolina (Union County). Under NorthCarolina’s IBT statute, Union County has authorityto take five million gallons per day from theCatawba River. In the absence of this IBT, CRWSPcould not completely serve its customers in bothStates. As a result, if this Court were to issue aninjunction and equitable apportionment decreeprohibiting the Union County IBT, the centralpurpose for the joint venture would fail.

The City of Charlotte transfers more water fromthe Catawba River than all other North Carolinatransfers combined. Moreover, after Duke Energy, itis the largest consumer of water from the CatawbaRiver in either North Carolina or South Carolina.The City of Charlotte is dependent on this IBT toserve the water needs of the City – water that isconsumed by both North Carolina residents and the

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thousands of South Carolina residents who commuteeach day to work in the Charlotte area.

3. After this Court’s referral of the motions tointervene to the Special Master, the Special Masterconducted a hearing in Richmond, Virginia. SouthCarolina opposed the motions to intervene. NorthCarolina consented to the motions of Duke Energyand CRWSP. North Carolina took no position withrespect to the motion of the City of Charlotte. AsNorth Carolina explained in filings with the SpecialMaster, North Carolina was not in a position toconsent to Charlotte’s motion to the extent that themotion asserts that North Carolina will notadequately defend Charlotte’s IBT permit.

The Special Master concluded that Duke Energy,CRWSP and the City of Charlotte each have a directand compelling interest in this action and that theirpresence would facilitate the prompt resolution ofthis dispute. She accordingly issued an orderrecommending that they be allowed to intervene, ona limited basis, as defendants. Thereafter, SouthCarolina moved the Special Master forreconsideration. The Special Master denied SouthCarolina’s motion for reconsideration.

SUMMARY OF ARGUMENT

South Carolina asserts that in an equitableapportionment action only the United States, Indiantribes or other States should be permitted tointervene. This argument is inconsistent with thisCourt’s express recognition that flexibility is thelinchpin of equitable apportionment actions.

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Additionally, South Carolina’s view cannot besquared with this Court’s observation that it “is notunusual to permit intervention of private parties inoriginal actions.” Maryland v. Louisiana, 451 U.S.725, 745 n.21 (1981). In determining whetherintervention is appropriate in an original action, thisCourt and its Special Masters should be guided bythe practical needs and limitations of the specificcase at hand – not inflexible rules as advocated bySouth Carolina. Here, the Special Master carefullyweighed the interests of both party States, theinterests of the intervenors, and the practicaladvantages and disadvantages of their participationin assessing whether the intervenors’ presencewould assist her in reaching the proper outcome inthis case.

South Carolina further asserts that the SpecialMaster’s recommendation, if adopted by this Court,would result in widespread intervention in this andother original actions. South Carolina’s fear isunfounded. Only four entities are singled out inSouth Carolina’s Bill of Complaint – three of whomhave moved to intervene. The Special Master’srecommendation is consistent with this Court’sprecedent and is highly fact-specific. Accordingly,the recommendation, if adopted by this Court, wouldnot provoke a stampede of intervenors in this orother original actions.

The United States asserts that allowing themotions to intervene would impede the possibility ofsettlement between the party States. Prior to itsfiling of an amicus brief on February 20, 2009, theUnited States has had no involvement in this

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proceeding. In contrast, the Special Master hasconducted numerous hearings and conferencesinvolving the party States and intervenors.Accordingly, she is in a much better position to judgewhether the presence of the intervenors wouldfacilitate or hinder settlement negotiations.Moreover, the United States fails to recognize thatthe traditional method for settling original actions(i.e., entry into a compact) requires approval by thestate legislatures, as well as Congress. Excludingthe intervenors from the settlement process wouldhinder, not facilitate, the ability of the party Statesto obtain legislative enactment of a compact.

The Special Master appropriately concluded thateach of the three intervenors has a direct, compellingand concrete interest in participating, in a limitedrole, in this action. The interests of all three areattacked by South Carolina in the Bill of Complaint.Duke Energy controls the flow of the Catawba Riveras a result of its operation of the numerous damsand reservoirs along the river. Its motion tointervene is therefore particularly compelling.Similarly, both Charlotte and CRWSP stand as “theauthorized agent[s] for the execution of the sovereignpolicy which threatened injury” to South Carolina.New Jersey v. New York, 345 U.S. 369, 375 (1953).Accordingly, the Special Master’s recommendationstands solidly on the precedents of this Court.

Finally, the Special Master correctly concludedthat neither party State would suffer any prejudice ifthese parties are allowed to intervene. In fact,South Carolina does not even make a cursoryattempt to assert prejudice.

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The Special Master engaged in the appropriateweighing of interests in determining whether thepresence of these three intervenors would facilitatethe prompt resolution of this action. North Carolinarespects and supports the Special Master’s carefullyconsidered recommendations.

ARGUMENT

PLAINTIFF’S EXCEPTIONS TO THE FIRSTINTERIM REPORT SHOULD BE DENIED

Both South Carolina and the United States paintthe decision of the Special Master as opening thefloodgates of intervention in all equitableapportionment actions. It will not. Rather, herdetermination stands as a realistic and practicalobservation, based on the unique circumstances ofthis specific case, that granting the intervenors alimited role in this action will facilitate the properresolution of this dispute. The Special Master’srecommendation is entirely consistent with thisCourt’s precedent.

I. THE COURT SHOULD REJECT SOUTHCAROLINA’S INVITATION TO ADOPT ABLANKET RULE THAT ONLY THEUNITED STATES, INDIAN TRIBES ANDSTATES MAY INTERVENE IN WATERRIGHTS CASES.

While chastising the Special Master foradopting a “one-size-fits-all” rule, South Carolinaand the United States advocate a blanket rule thatwould allow only the United States, Indian tribes

9

and States to intervene in water rights cases. SeeS.C. Br., p. 21 (arguing that the Court should notpermit “non-sovereign water users in an action toapportion equitably an interstate river betweenStates”); U.S. Br., p. 7 (“The Special Master soughtto formulate a one-size-fits-all rule to govern non-state parties’ participation in original actions in thisCourt . . . .”). The blanket rule proposed by SouthCarolina should be rejected by this Court.

Each original action is unique. As reflected bythis Court’s precedent, the unique factors of eachcase can and should be considered in determiningwhether intervention is appropriate. See, e.g.,Arizona v. California, 460 U.S. 605, 613-15 (1983)(permitting Indian tribe to intervene in originalaction involving water rights); Maryland v.Louisiana, 451 U.S. 725, 745 n.21 (1981) (“[I]t is notunusual to permit intervention of private parties inoriginal actions.”); see also Kentucky v. Indiana, 281U.S. 163, 173-74 (1930) (“An individual citizen maybe made a party where relief is properly sought asagainst him, and in such case he should havesuitable opportunity to show the nature of hisinterest and why the relief asked against himindividually should not be granted.”).

When the Court exercises its originaljurisdiction in a dispute involving water rights, theCourt must “resolve[] interstate claims according tothe equities.” Arizona v. California, 373 U.S. 546,562 (1963). This delicate balancing of interests doesnot lend itself to inflexible rules that may hinder theweighing of the many factors necessary to ensure afair and equitable allocation. See Idaho ex rel. Evans

10

The analysis of the intervention motions, of1

course, would be completely different if the intervenorswere seeking to assert claims for relief as a plaintiff.See S.C. Br., p. 18 n.11. Here, the intervenors are notasserting any affirmative claim for relief.

v. Oregon, 462 U.S. 1017, 1026 n.10 (1983)(“Flexibility is the linchpin in equitableapportionment cases . . . .”). Nevertheless, SouthCarolina proposes an inflexible rule that wouldpreclude a Special Master from hearing fromintervenors whose presence would aid the weighingof those equities.

The rule advocated by South Carolina cannot bereconciled with this Court’s express holding thatlocal governments may participate in an originalaction when named as a defendant. In New Jersey1

v. New York, 345 U.S. 369, 375 (1953), this Courtexpressly recognized that the City of New York couldparticipate as a defendant in an equitableapportionment action brought pursuant to thisCourt’s original jurisdiction when that city stands as“the authorized agent for the execution of thesovereign policy which threatened injury” to thecomplaining State.

South Carolina asserts that this Court’sdecision in New Jersey v. New York isdistinguishable because the City of New York wasnamed as a defendant against its will, and a plaintiffshould be the master of his own complaint. S.C. Br.,p. 31. South Carolina correctly notes that in actionsfiled in federal district court, a plaintiff is generally

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master of his own complaint. 16 JAMES WM. MOORE,MOORE’S FEDERAL PRACTICE § 107.14(2)(c)(v), at107-67 (3d ed. 2006) (under federal rules of civilprocedure, “the plaintiff is the master of thecomplaint and has the option of naming only thoseparties the plaintiff chooses to sue”); see LincolnProp. Co. v. Roche, 546 U.S. 81, 91 (2005) (citinggeneral rule in context of action filed in district courtand governed by federal rules of civil procedure). Inan original action, however, this general rule mustgive way to the Court’s traditional “gatekeepingfunction” and the Court’s desire to closely manage itsoriginal docket. See Nebraska v. Wyoming, 515 U.S.1, 8 (1995).

Under South Carolina’s reading of New Jersey v.New York, the City of Charlotte could be made adefendant if it had been included in the caption ofSouth Carolina’s Bill of Complaint, but becauseCharlotte was not so named, it may not be joined asan intervenor. That position defies logic. ThisCourt, rather than South Carolina, must determinewho should stand as defendants in this action,irrespective of whether South Carolina has carefullycrafted its Bill of Complaint in an effort to avoidnaming as defendants the instrumentalities of itspurported harm.

If South Carolina were correct that this Court’sprecedents create a blanket rule againstintervention in water rights cases, there would havebeen no need for the Court to refer the interventionmotions to the Special Master. In addition to thebriefing before this Court, the States andintervenors have submitted numerous briefs and

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have engaged in several oral arguments before theSpecial Master with respect to the motions at issue.Under South Carolina’s theory, that effort wascompletely unnecessary because the Special Mastershould have summarily denied those motions. TheCourt’s decision to refer this issue to the SpecialMaster, however, reflects that the resolution of themotions requires a careful balancing analysis and isnot governed by an inflexible rule that wouldautomatically preclude intervention. If suchbalancing of interests were not necessary, the Courtcould have issued a one sentence order disposing ofthe motions and saving the Special Master, theStates and the intervenors unnecessaryexpenditures, time and effort.

The blanket rule that South Carolina advocateswould also undermine the very role that SpecialMasters play in original actions. The Special Masteris in the best position to determine whether thepresence of intervenors will benefit the resolution ofthe case and the extent to which the intervenors’involvement should be limited. Having engaged innumerous hearings and status conferences in whichthe intervenors participated, the Special Masterunderstands fully the dynamics of this dispute andwhether the presence of the intervenors would assistin its prompt resolution. The motions to interveneare first and foremost a case management issue – adetermination that the Special Master is in the bestposition to make given her unique perspective.Here, the Special Master believes the presence of theintervenors to be an asset, rather than a detriment.This Court should accept the considered and well-

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reasoned recommendation of the Special Master asto how to best move this case forward.

II. SOUTH CAROLINA’S CONCERN OVERTHE POSSIBILITY OF WIDE-SCALEINTERVENTION IS MISPLACED.

South Carolina asserts that the SpecialMaster’s recommendation, if adopted by this Court,would result in wide-scale intervention in otheroriginal actions. S.C. Br., p.15 (arguing that theSpecial Master has “open[ed] the door to widespreadintervention in original actions generally”); see alsoU.S. Br., p. 21 (Special Master’s recommendation“raises the specter of wide-scale intervention byindividual water users”). Such a concern isunfounded.

The Special Master concluded that each of thethree intervenors has a direct, compelling andconcrete interest in the present dispute. InterimReport, pp. 25, 27-28, 32. The Special Mastercorrectly observed that the number of similarlysituated parties is extremely small. See id. at 25. Infact, there are a total of four – only three of whomhave moved to intervene. The Bill of Complaintfocuses on three interbasin transfers (the City ofCharlotte, Concord/Kannapolis and CRWSP/UnionCounty) and the utility that controls the flow of theCatawba River through the operation of its federallypermitted system of dams and reservoirs. TheSpecial Master recognized that the presence of DukeEnergy, Charlotte and CRWSP would not make thelitigation unmanageable nor would the granting ofthe motions result in widespread requests by others.

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Given the passage of almost two years since2

South Carolina moved to file a Bill of Complaint, anymotion by Concord/Kannapolis at this late stageundoubtedly would be denied. The few additionalNorth Carolina municipalities with “grandfathered”IBTs that, arguably, could have sought to intervenewould likewise be precluded from doing so at this latedate.

Only one other interbasin transfer (Concord/Kannapolis) is mentioned in the Bill of Complaint. 2

The granting of the present motions would notresult in a rash of intervention motions in othercases. The Special Master’s lengthy report focuseson the unique facts of each intervenor and thenature of South Carolina’s specific challenge to eachintervenor’s rights and interests. As the SpecialMaster recognized, Charlotte and CRWSP have beenspecifically attacked by South Carolina as the “agentor instrumentality of the harm” of which SouthCarolina complains. Interim Report, p. 15. SouthCarolina’s Bill of Complaint explicitly seeks reliefagainst both. See id. at 22-23, 27-28. The SpecialMaster also recognized that Duke Energy hasunique rights and interests in this action as a resultof its control of the dams on this river system. Id. at28-29.

As set forth above, the Special Master properlyconsidered the unique circumstances of the disputeand the practicalities of managing the litigationbefore her. Given the fact-specific nature of herrecommendation, there is simply no risk that by

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Other than its filing of an amicus brief, the3

United States has had no involvement in thisproceeding. Accordingly, this Court should defer to theSpecial Master’s assessment as to whether thepresence of the intervenors would make settlementmore difficult, rather than the assessment of theActing Solicitor General.

adopting that recommendation, this Court willspawn a plethora of intervention motions in othercases.

III. THE UNITED STATES ERRS INASSERTING THAT THE PRESENCE OFI N T E R V E N O R S W O U L D M A K ESETTLEMENT MORE DIFFICULT.

In its amicus brief, the United States arguesthat the motion to intervene should be deniedbecause the presence of the intervenors will makesettlement more difficult. U.S. Br., pp. 8, 21-22.3

Specifically, the United States asserts that anyexpansion of the number of parties would make itless likely that the case could be settled. Id. at 21.That argument, however, fails to consider fully theprocess by which States traditionally have settledwater right disputes.

Should North Carolina and South Carolinasuccessfully negotiate a settlement of the presentdispute, such a resolution would likely need to bememorialized through a compact between the States.See S.C. Mot. for Leave to File Bill of Complaint, Ex.2, at 8 (Letter of Dec. 19, 2006 from General

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McMaster to General Cooper) (noting that the“alternative to litigation” is to “negotiate aninterstate compact”). An interstate compact, ofcourse, requires that the terms of the compact beratified by the legislatures of the party States.Additionally, the compact must be approvedby Congress. U.S. CONST. ART. I, § 10, cl. 3 (“NoState shall, without the consent of Congress, . . .enter into any Agreement or Compact with anotherState . . . .”); see also College Sav. Bank v. Fla.Prepaid Postsecondary Educ. Expense Bd., 527 U.S.666, 686 (1999) (“Under the Compact Clause, U.S.Const., Art. I, § 10, cl. 3, States cannot form aninterstate compact without first obtaining theexpress consent of Congress . . . .”); Colorado v.Kansas, 320 U.S. 383, 392 (1943) (recognizing thatsettlements of equitable apportionment actionsshould be “pursuant to the compact clause of thefederal Constitution”). Because a compact must beenacted by the state legislatures and Congress, allinterested persons can petition their electedrepresentatives with respect to any proposedsettlement of the present dispute.

The brief of the United States leaves theincorrect impression that two States can reach asettlement agreement in confidence without havingto consider the views of interested parties. That,however, is simply not the case. In fact, if interestedparties are excluded from the process (as the UnitedStates advocates), they are more likely to derail anytentative agreement when that agreement must bevoted on by the state legislatures and members ofCongress.

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The United States also fails to recognize thatthe involvement of the three specific intervenors(whose motions the United States opposes) is crucialin working toward any realistic settlement of thisaction. The amount of water released from the damsowned and operated by Duke Energy controls theflow of the river into South Carolina. In light of therole of Duke Energy in managing (andunderstanding) the flow of this river for over onehundred years, any attempt to exclude Duke Energytotally from the negotiation process would beextremely short-sighted. In fact, Duke Energy wasthe principal facilitator for bringing South Carolina,North Carolina and other interested parties togetherto negotiate and execute a ComprehensiveRelicensing Agreement in connection with DukeEnergy’s new FERC license application for theCatawba-Wateree Hydro Project. Thosenegotiations, which appeared successful until thefiling of this action by South Carolina, produced anegotiated settlement with respect to the rate ofwater flow into South Carolina from the DukeEnergy reservoirs, as well as an agreement as tospecific conservation measures that all water usersare required to undertake during drought conditions.

Similarly, excluding the City of Charlotte andCRWSP from any negotiation efforts would likelydoom those efforts to failure. In this action, SouthCarolina seeks to enjoin the interbasin transfers ofboth of those entities. Settlement is much morelikely if the parties that are the focus of SouthCarolina’s claims are included in settlementdiscussions. Moreover, if Charlotte and CRWSPwere completely excluded from settlement

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discussions, both States would likely have greatdifficulty in obtaining the necessary legislativesupport for a compact.

The Special Master wisely recognized thatallowing these three intervenors to participate inthis action, in a limited role, would aid in theresolution of this dispute, irrespective of whetherthis dispute is ultimately resolved by a decree fromthis Court or through a negotiated settlement.

IV. EACH OF THE THREE INTERVENORSHAS SUFFICIENT INTEREST TOJUSTIFY ITS PARTICIPATION IN THISACTION.

Each of the three intervenors has a compellingjustification for being heard in this action. TheSpecial Master properly considered the interests ofthe intervenors, the impact their presence mighthave on the party States and whether their presencewould add to her ability to obtain and assimilate theinformation necessary for her to properly understandthis unique water system. Prior to the rulings thatSouth Carolina now challenges, the Special Masterhad the benefit of nine status conferences and oneformal hearing (spanning a total of 668 transcriptpages) in which the intervenors participated. Thus,the Special Master clearly understood theadvantages and disadvantages of allowing theintervenors to participate and how their presencewould affect the litigation. She concluded that theparticipation of these entities, in a limited role,would assist her in reaching the proper outcome inthis case and that any potential downside to their

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participation could be controlled and minimized.North Carolina respects and supports the SpecialMaster’s conclusion.

1. Duke Energy’s request to intervene is welltaken. Duke Energy built and has owned andoperated the dam system that controls this river forover a hundred years. These dams are licensed byFERC. As the Special Master noted, “[b]oth Duke’sexisting . . . license and the agreed-to terms for itsprospective FERC license set minimum flowrequirements under various conditions, includingtimes of drought.” Interim Report, p. 29. But for thepresence of these dams, the natural flow of the riverwould fluctuate so greatly that it would be quitedifficult to have sustainable development in theCatawba River Basin in either State. Moreover,Duke Energy is the largest consumer of water fromthe Catawba River – water that is used to produceelectricity for the benefit of residents of both States.

Despite Duke Energy’s substantial interests inthe Catawba River, South Carolina asserts thatDuke Energy stands in the same class as all otherpersons who consume water from this river – a classof persons that is adequately represented by NorthCarolina as parens patriae. North Carolinavehemently disputes this contention and does notpurport to represent the interests of Duke Energy inthis litigation.

The relief that South Carolina requests, inaddition to striking down North Carolina’s IBTstatute and the existing IBTs, is an allocation of aspecific flow of water into the State of South

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Carolina (which South Carolina apparently believesto be 711 million gallons per day). Bill of Compl.¶ 14. When natural conditions do not support a flowat this level, sustaining such a flow into SouthCarolina could be achieved by either: 1) drawingdown water from the reservoirs owned and operatedby Duke Energy; 2) reducing North Carolina’s in-take from the river, or 3) some combination of both.Duke Energy’s financial interests in preserving thestored energy capacity behind each of its dams standin sharp contrast to North Carolina’s interests inthis action.

As the Special Master recognized, Duke Energyalso has a compelling interest in ensuring that theComprehensive Relicensing Agreement is notundermined by this litigation. In that agreement,Duke Energy, South Carolina, North Carolina,numerous local governments in both States, andvarious private entities agreed on flow parametersfor the river, as well as conservation measures intimes of drought. South Carolina’s filing andprosecution of this action threatens to underminethe core environmental provisions of the agreement.Under these unique circumstances, Duke Energyshould be permitted an opportunity to be heard.

Through its dams, Duke Energy controls theflow of this river and has a vital stake inmaintaining its reservoirs in both States. Thatinterest is not aligned with either South Carolina orNorth Carolina. Accordingly, Duke Energy shouldbe permitted to intervene.

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2. The interests of CRWSP have been expresslyattacked by South Carolina in the Bill of Complaint.In this action, South Carolina seeks to enjoinCRWSP’s current IBT. Accordingly, CRWSP has asubstantial interest in being heard in this action.

CRWSP stands in an extremely difficultposition as a result of this litigation. CRWSP is ajoint venture consisting of a political subdivision ofSouth Carolina (Lancaster County Water and SewerDistrict) and a political subdivision of NorthCarolina (Union County). If South Carolina were tosucceed in enjoining the IBT on which CRWSP reliesto serve its customers in Union County, the jointventure would undoubtedly unravel, therebycreating great hardship for residents in both States.Although North Carolina opposes South Carolina’srequest that all IBTs in North Carolina be enjoined,the State of North Carolina does not and cannotrepresent the financial interests of a politicalsubdivision of the State of South Carolina. Thus, theinterests of CRWSP are not and cannot adequatelybe represented by either State. CRWSP’s motion tointervene should therefore be allowed.

3. Charlotte’s IBT dwarfs all other transfers ofwater in North Carolina from the Catawba River.This IBT is specifically attacked in the Bill ofComplaint, and South Carolina requests that NorthCarolina be enjoined from allowing Charlotte tocontinue its transfers of water from the CatawbaRiver. Thus, South Carolina’s Bill of Complainteffectively paints a bulls-eye on the City ofCharlotte. As a result, Charlotte has a substantial

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and compelling interest in requesting leave tointervene.

Before the Special Master, Charlotte assertedthat its interest were not adequately represented bythe State of North Carolina. The State of NorthCarolina disagrees with this assertion by Charlotte.Nevertheless, North Carolina does not believe thatthis factor is, or should be, determinative here.Charlotte transfers more water from the CatawbaRiver than all other North Carolina transfers fromthe Catawba combined. Moreover, after DukeEnergy, it is the largest consumer of water from theCatawba River in either North Carolina or SouthCarolina. As a result, its role with respect to thisriver is unique and has caused it to be singled out bySouth Carolina. Charlotte’s involvement in thisdispute is precisely analogous to the role of the Cityof New York in New Jersey v. New York, 345 U.S.369 (1953). As in New Jersey v. New York, Charlotteis “the authorized agent for the execution of thesovereign policy which threatened injury” to thecomplaining State. Id. at 375. Just as the City ofNew York was permitted to participate as adefendant in that original action, Charlotte shouldbe permitted to participate as a defendant here. Thefact that South Carolina chose not to name Charlotteas a defendant should not be controlling.

In New Jersey v. New York, the Court deniedthe motion to intervene filed by the City ofPhiladelphia – a motion that was filed over twodecades after the original action had beencommenced. This Court recognized that thepresence of Philadelphia at such a late stage would

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In New Jersey v. New York, the State of4

Pennsylvania opposed intervention by the City ofPhiladelphia. 345 U.S. at 372. Here, North Carolinaconcurs with the Special Master’s recommendation toallow Charlotte to intervene.

add little given the fact that the State ofPennsylvania had been represented throughout theproceeding. In doing so, the Court noted that underthe doctrine of parens patriae, a State is deemed torepresent its citizens for otherwise “a state might bejudicially impeached on matters of policy by its ownsubjects.” 345 U.S. at 373. This statement,however, must be read in the context of theprocedural posture of that case. South Carolina ismistaken in reading this sentence to mean thatwhen a State is made a party to an original action,its subjects cannot also be made parties. If this werethe case, the Court would not have allowed the Cityof New York to participate as a defendant given thepresence of the State of New York in that action.Here, Charlotte’s unique status makes it morecomparable to New York than to Philadelphia. Thisis particularly true given that North Carolina is notconcerned that it will be judicially impeached byCharlotte’s positions in this action.4

In light of South Carolina’s specific attack onCharlotte in the Bill of Complaint, North Carolinaagrees with the Special Master’s recommendationthat Charlotte be allowed to intervene.

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V. THE PRESENCE OF THE INTERVENORSWILL NOT PREJUDICE THE PARTIES.

The Special Master concluded that the presenceof the intervenors will not prejudice either NorthCarolina or South Carolina. See, e.g., InterimReport, p. 42. In South Carolina’s lengthy brief insupport of her exceptions, South Carolina fails topoint to a single, concrete example of prejudice thatwill be suffered by either State.

The Special Master has taken an active, hands-on approach to managing this original action. Shehas instituted a practice of conducting detailedmonthly telephonic conferences to ensure that thecase is progressing. Those conferences frequentlyaddress the specifics of all pending discovery.Additionally, the parties have been directed tosubmit written status reports to the Special Masteron a monthly basis. Given the tremendousefficiencies that the Special Master has imposed todate in this action, North Carolina is confident thatthe Special Master will not allow the presence of theintervenors to negatively impact the progress orcosts of this proceeding.

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CONCLUSION

The plaintiff’s exceptions to the Special Master’sFirst Interim Report should be denied.

Respectfully submitted,

ROY COOPERAttorney General of North Carolina

Christopher G. Browning, Jr.*Solicitor General of North Carolina

James C. GulickSenior Deputy Attorney General

J. Allen JerniganSpecial Deputy Attorney General

Marc D. BernsteinSpecial Deputy Attorney General

Jennie W. HauserSpecial Deputy Attorney General

March 9, 2009 *Counsel of Record