Personal and financial privacy laws, same-sex marriages, medical marijuana laws, the purchase of Canadian pharmaceuticals, even the limited right to physician-assisted euthanasia in Oregon, are all issues of contention between state or local governmental bodies and the law-enforcement/regulatory agencies of the United States.

Those matters—and the strange politics of the present day that witness a highly conservative administration actively encroaching on presumed states’ rights in so many areas, while some state politicians decry the lack of sufficient federal involvement in others—are well beyond the purview of this column. So, I’ll stick to the topics of energy, environment and corporate accountability, focusing on actions by particular representatives of state government: Offices of the Attorneys General.

By now, just about every sentient business and energy professional knows the names of Elliot Spitzer, Bill Lockyer and Richard Blumenthal. For anyone who doesn’t, they are, respectively, the attorneys general of New York, California and Connecticut, who have been redefining the cutting edges of state/federal jurisdiction for several years. It was Spitzer who successfully squeezed the Wall Street financial community while goading the U.S. Securities & Exchange Commission into enacting financial reforms and multi-billions of dollars in settlements. Lockyer seems to schedule at least one news conference per week castigating the Federal Energy Regulatory Commission for some aspect of the California market meltdown of 2000/01. Blumenthal has recently shifted his battle plans from the Cross Sound Cable uncivil war with Long Island, New York, to take on generators and power sellers in the federally sanctioned wholesale markets run by the New England Independent System Operator.

They are not the only “Top Cops” of various states who are actively engaged in legal territorial disputes. Nevada Attorney General Brian Sandoval has been confronting the Nuclear Regulatory Commission and the Department of Energy for years over the siting of a nuclear waste dump at Yucca Mountain. The New Jersey AG recently announced a $500,000 fine against NUI Corporation’s Energy Brokers, Inc., unit for overcharging local utilities for natural gas sales in what might be argued as interstate commerce. Attorneys general from the Northwestern states of Washington, Oregon and Montana pursue their own grievances against FERC, Enron and others for various acts of omission and/or commission during the Western power crisis.

Texas Attorney General Greg Abbott inherited an Enron Task Force from his predecessor John Cornyn and has tried to keep pressure on the federal bankruptcy case to limit professional fee payments (see TBE 07/06/04). In the words of deputy attorney general Joe Boyd, “The State of Texas is ultimately paying these fees since each dollar spent on fees takes one dollar away from the funds available to pay the creditors.”

Besides being the chief law-enforcement agency at the state level, the attorneys general in many cases also are the top consumer advocates, as well as overseers of corporations and non-profit groups chartered in their jurisdictions. As such, they intervene in state utility rate proceedings and the more novel class of cases that sometimes involve federal issues. For instance, the Rhode Island attorney general’s office practices a traditional kind of oversight by helping negotiate a distribution rate settlement with Narragansett Electric. But the Virginia AG’s Division of Consumer Council is treading entirely new territory when it openly questions whether utility AEP should be allowed to join the PJM Interconnection for regional transmission services, even though FERC claims jurisdiction over PJM.

State litigators have also joined forces on several occasions to pursue environmental actions that cut across state borders. Among the most protracted cases have been actions filed by East Coast states against utilities that operate coal-fired power plants in Ohio, with multiple jurisdictions seeking redress under the terms of the 1970 Clean Air Act against such utilities as Ohio Edison/FirstEnergy, AEP and Cinergy.

The basis for these states’ complaints is that they sit downwind from pollution emitting power plants, and that while the plaintiff attorneys general cannot pursue local actions across state lines, they can take advantage of “citizen suit” provisions of the Clean Air Act.

One of these suits, which pitted New York, New Jersey and Connecticut—along with the U.S. Environmental Protection Agency—against Ohio Edison, last August resulted in a federal court finding that the utility skirted “new source review” (NSR) regulations when it performed upgrades on seven power stations. This precedent-setting outcome is being used as leverage in similar cases against AEP and Cinergy. Meanwhile, the remedy phase of the Ohio Edison case has been postponed from this month to early next year while “meaningful settlement negotiations” are being conducted, said a source from the plaintiffs side this week. A global settlement of the issue with multiple states and utilities is not out of the realm of possibility.

Of particular interest in these types of cases is that suits filed during the Clinton Administration were cooperatively pursued by states and federal EPA. Now, the states find themselves taking on the cases without federal support, and frequently in direct opposition to the Bush Administration’s environmental policies. In May, New Jersey joined New York, Connecticut and Pennsylvania in a suit against Allegheny Energy’s coal-fired plants in West Virginia—sans U.S. EPA participation.

Last December, a federal judge issued a stay of EPA’s latest interpretation of NSR rules at the behest of several of these Eastern states. The pressure, from states as well as from environmental groups, is forcing EPA to conduct a 180-day comment period and review of how it distinguishes “routine maintenance” from more sweeping refurbishments that would trigger a new permit process.

Meanwhile, a broader coalition of Northeastern attorneys general challenges everything from how EPA quantifies power plant emissions to its lack of enforcement of such pollutants as carbon and mercury. In late June, for example, eleven states, ranging from Maine and Massachusetts to New Mexico and California, joined in opposition to the EPA’s proposed standards allowing power plants to purchase mercury offset credits rather than limiting pollution.

“It is deeply disturbing that in order to protect our air quality and the health of our citizens, state attorneys general must file suit against the EPA, the very agency that should be leading the fight against air pollution,” says Peter C. Harvey, the New Jersey Attorney General. “EPA has proposed rules that would create huge loopholes for industry, and it has abdicated its enforcement responsibility in this area. We will continue to fight EPA's rule changes and to aggressively pursue suits against companies that have broken the law and polluted our air.”

It should be obvious that state attorneys general do not always prevail in various cases, especially when they take federal/state jurisdictional issues head on. A most recent example is the dismissal this month of California AG Lockyer’s state-action complaints against a half-dozen power generation companies, ostensibly for double-dealing their reserve capacity during the power crisis. Federal regulatory pre-emption trumped state actions in this case.

Though just the latest frustration for California politicians, the court’s determination at least helps clarify the bright line between FERC’s authority over wholesale power markets and state policing of intrastate commerce. This established a boundary distinct from that in another California/FERC case that was concluded in June, in which FERC was roundly chastised by the U.S. Court of Appeals for trying to assert too much control over the governing board of the California ISO.

Together with other actions—environmental, financial and medical—these state/federal conflicts are redefining jurisdictional boundaries and the electricity business in ways never before contemplated.

Despite the emphasis on energy litigation and the associated rhetoric, attorneys general are frequently more effective in reaching settlements than in collecting court precedents. While Lockyer has been singularly unsuccessful seeking redress against “market manipulators” in the courtroom, this past week’s $208 million settlement with Duke Energy netted far more than what Duke was expected to pay in the FERC’s California refund proceeding (Duke will drop about $123 million in claims for non-payment of energy deliveries and pay about $85 million in cash to California and neighboring states). Similarly, the biggest scores made by Lockyer over the past two years have been by participating in global settlements with Williams ($1.4 billion) and El Paso ($1.7 billion).

The Bottom Line: Remember, New York AG Elliot Spitzer caught flak from critics for settling with Merrill Lynch for $100 million rather than taking the company all the way through court. But it was that deal that led to across-the-board settlements between the financial community and the SEC, proving that attorneys general can effectively push the federal/state line without breaking it.

Arthur O’Donnell is Energy Central’s Editorial Director—Newsletters. The Business Electric is found exclusively on Energy Central.

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