Attorneys for Nevada argued the firm had irreparable conflicts of interest. At the same time it is helping the Department of Energy to build the nuclear site 100 miles northwest of Las Vegas, it also represents more than a dozen utility companies that have sued DOE because a repository has not been built yet.

But the four NRC commissioners on Thursday dismissed the complaint. They indicated the state's position was "nothing more" than "mere concern or speculation."

The commissioners said they would be concerned if evidence showed that Yucca license hearings would be compromised. But in this case, "no such showing has been made."

In a 10-page order, the commissioners also said they were reluctant to "interfere in arrangements between parties and their lawyers."

The commission's ruling was "not unexpected," said Martin Malsch, an attorney for Nevada. "We expected it would be a difficult decision for the commission." He said the state is studying its options on possible appeals.

"We are pleased with the commission's ruling," a DOE spokesman said.

The Department of Energy argued Morgan Lewis, a firm with more than 1,400 lawyers, had a different practice handling Yucca licensing from the one managing utility lawsuits.

The department said Morgan Lewis was the only firm with adequate experience for repository licensing.

DOE and Morgan Lewis in September signed for an initial contract period that runs through Dec. 31, 2011, for $47.7 million, with five succeeding one-year options. The total contract value could reach $109 million.

The department's inspector general's office reviewed the contract and said in April that DOE followed procedures to obtain conflict of interest waivers and to demand the firm erect "firewalls" to mitigate conflicts among lawyers handling the nuclear waste cases.

But the inspector said it was "disturbing" that DOE did not fully document its decision-making that led to the hiring.

Contact Stephens Washington Bureau Chief Steve Tetreault at stetreault@stephensmedia.com or 202-783-1760.