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10/30/80 Energy Action Educational v. Cecil D. Andrus

October 30, 1980




Before ROBINSON and WALD, Circuit Judges; and HAROLD GREENE,* United States District Judge for the District of Columbia.


Appeal from the United States District Court for the District of Columbia (D.C. Civil Action No. 79-1633)



For a second time in this case we are asked to determine whether the bidding systems employed by the Secretary of the Interior in leasing government offshore properties for oil and natural gas development comply with the Outer Continental Shelf Lands Act as substantially amended in 1978 ("OCSLA" or "the Act").1 In an earlier decision this court found that the bidding systems utilized by the Secretary at that time did not contravene "the letter of the law."2 We noted, however, that the time might come when the Secretary's continued failure to use the panoply of experimental bidding systems authorized by the Act would amount to an abuse of discretion.3 Now we decide that, given the absence of significant progress toward experimenting with critical alternatives to front end cash bonus bidding systems since our prior decision, the day has arrived when the Secretary's continued delay is unreasonable and frustrates the essential purposes of OCSLA.

The present appeal challenges the district court's denial of appellants' motion for partial summary judgment, and in the alternative, motion for a preliminary injunction. Having heard argument on the appeal on an expedited basis, as required by statute,4 this court affirmed the district court's refusal to enjoin the three lease sales scheduled for the fall of 1980 in an order dated September 29, 1980.5 This opinion addresses the remaining aspects of the appeal not disposed of by the September 29, 1980 order. II. BACKGROUND

We revisit a controversy initially ruled upon by this court almost a year ago. The parties now before the court are the same as they were then: Plaintiff-Appellants are seven consumer and two labor organizations, three private citizen-taxpayers, and two California governmental entities.6 The Defendant-Appellees are the Secretaries of the Interior and Energy, and the United States. Appellants' complaint, filed over a year ago, claimed that the Secretary of Energy failed to issue regulations for all the bidding systems set out in OCSLA, and that the sale of Outer Continental Shelf leases in the absence of those regulations violated OCSLA.7 Appellants also claimed that the Secretary of Interior's use of the cash bonus-fixed royalty bidding system, both before and after the 1978 Amendments to OCSLA, amounts to an abuse of discretion.8

The case first came before this court upon appellants' challenge to the district court's two orders denying appellants' motions for preliminary injunctive relief to stop further lease sales. In an opinion authored by the late Judge Leventhal this court affirmed the district court's rulings.

Judge Leventhal's analysis began with a review of the history of the federal statutes enacted to provide for the development of offshore land on the "Outer Continental Shelf."9 A reprise of this legislative background is appropriate before analyzing our prior opinion.

The 1978 OCSLA Amendments

OCSLA, originally enacted in 1953, was the first federal statute to regulate the development of OCS oil and gas resources.10 Since that time the federal government has been actively engaged in leasing OCS lands.11 Before its amendment in 1978 the Act specified two alternative formats for lease bidding. The Secretary was directed to conduct competitive bidding by sealed bids either (1) on the basis of a cash bonus bid with a fixed royalty (fixed at no less than 12 1/2 percent of the gross revenue of the lease), or (2) by a royalty rate bid with a fixed cash bonus payment.12 Prior to 1978 virtually all of the OCS lease sales were transacted by the cash bonus-fixed royalty method with the royalty set in advance of bidding at 16 2/3 percent (one-sixth) of the gross value of production.13 Under that system, a lease would be awarded to the qualified bidder with the highest cash bid deemed acceptable to the Secretary on a particular tract.

With the exception of one minor amendment,14 the original version of OCSLA remained untouched until 1978.15 By the mid-1970's, however, several cross-currents generated support for revising OCSLA.16 The onset of the energy crisis, dramatized by the oil embargo of 1973, heightened the attractiveness of the uncertain OCS resources to those concerned with reducing this country's dependence on foreign oil supplies.17 At the same time, local governments, environmental and citizen organizations, commercial and recreational fishing interests, and other groups expressed increasing concern over possible deleterious effects of rapid OCS development. They sought a greater voice in developing and regulating future OCS ventures.18

Some of these interest groups focused attention on the inadequacies of the existing bidding system specified by OCSLA. In light of skyrocketing fuel prices it was asserted that the prevalent cash bonus-fixed royalty method of bidding could not assure the government a fair return on its leases, because total royalties paid to the government were declining as a percentage of gross proceeds on wells. In addition, the necessity to make extremely high "front end" cash bonus payments in order to participate in the lease sales coupled with the high risk associated with developing some OCS lots had the anticompetitive effect of limiting participation in the lease sales to only the largest concerns.19

Congress responded to the competing concerns for acceleration of OCS development, environmental protection, and involvement of all interested parties in OCS development by enacting the OCSLA Amendments of 1978. With regard to lease sale bidding procedures, Congress expressly retained the two bidding systems previously authorized, but added five other specific alternatives as well as any nonenumerated bidding method the Secretary of the Interior determines to be useful to accomplish the purposes and policies of the Amendments.20 The Secretary is required to use the enumerated alternatives to the cash bonus-fixed royalty method for not less than 20 percent but not more than 60 percent of all acreage offered for leasing each year during a five year experimentation period specified by the statute.21 In addition, although the Act provides that lease sales are to be conducted by the Secretary of the Interior, it is the Secretary of Energy who, in consultation with the Secretary of the Interior, must promulgate regulations governing the use of alternative authorized bidding options.22 The Secretary of Energy must report to Congress annually concerning the use and nonuse of the alternative bidding options.23 The Secretary of the Interior must also evaluate the competitive impacts of the use and nonuse of bidding options in an annual report to Congress, as well as reporting before each lease sale of the planned use of particular bidding systems.24 Finally, the Secretary of the Interior is required to prepare and maintain a comprehensive oil and gas leasing program to implement the different policies of the Act.25 That program must adhere to general principles spelled out in the statute, including a balanced consideration of economic, social, and environmental concerns and the assurance of a fair market value on leased land to the government.26

This Court's Prior Decision

Three OCS lease sales were held between the September 18, 1978 effective date of the OCSLA Amendments and the June 22, 1979 filing date of appellants' lawsuit. In each instance the Secretary of the Interior chose cash bonus-fixed royalty bidding for part of the tracts to be leased, while using another bidding system a cash bonus system with a fixed non-linear (semi-logarithmic) sliding scale royalty27 for the other tracts. The Secretary planned to use the same mix of bidding systems in four more lease sales that were scheduled to occur between June and November, 1979.

Appellants' suit challenged the Secretary of the Interior's continued use of the cash bonus-fixed royalty bidding system. Judge Leventhal described the thrust of the litigation:

The essence of appellant's complaint is that cash bonus-fixed royalty bidding, particularly with the royalty fixed at 16 2/3 %, cannot yield fair market value nor generate adequate competition as mandated by the amended OCS Act. Only through the issuance and use of regulations authorizing alternative systems, most notably the profit-sharing options, can the government achieve the statutory objectives. However, according to appellant, issuance of those regulations has been unduly delayed by a "jurisdictional squabble" between the Departments of Energy and the Interior.28

Appellants sought declaratory and injunctive relief leading to the suspension of all OCS leasing until the Secretary of Energy promulgated regulations governing the use of all of the alternative bidding systems authorized by OCSLA. In particular, appellants' objective was the promulgation of regulations for bidding incorporating net profit sharing. Appellants also sought an injunction against any further leasing under the cash bonus-fixed (16 2/3 percent) royalty method as well as an investigation of existing leases with appropriate remedial action if it were demonstrated that the then existing leases would not return a fair yield to the government.

Before the first of the four planned 1979 lease sales appellants moved for a preliminary injunction to prevent any further sales "in the absence of regulations establishing the full range of bid systems mandated by ." The district court denied the motion ruling that appellants had failed to show a likelihood of success in prevailing on the merits.29 Appellants did not appeal this ruling, but rather, moved for modification of the order so as to enjoin the award of leases in the first scheduled sale on the basis of cash bonus-fixed royalty bidding. After bids were opened for the June, 1979 sale, appellants renewed their motion for a modification, arguing that the actual bidding results contravened the Act. This motion was denied by the district court on the basis that appellants had "still failed to show that utilization of the cash bonus-fixed bidding system with a 16 2/3 percent fixed royalty violates" OCSLA.30

On appeal this court refused to grant preliminary injunctive relief. In announcing this result the court carefully limited the scope of the issue decided to "whether the continued partial use of cash bonus-fixed royalty bidding as planned for the near future by the Secretary violates the statutory scheme."31 (Emphasis supplied). On the basis of the record at that point in the litigation the court would not say that the government's leasing activities violated the legislative scheme.32 The opinion emphasized that while Congress anticipated the continued "substantial" use of the traditional cash bonus-fixed royalty form of bidding, "Congress (also) sought experimentation among bidding systems, usually through direct comparisons between cash bonus-fixed royalty bidding and other options, in order to obtain reliable information as to the relative advantages and disadvantages of the enumerated systems. It was hoped that this testing would ultimately enable the Secretary to utilize the system or mix of options which emerged as superior."33

A reasonable timetable for achieving this mix of options was suggested in the opinion. Judge Leventhal referred to the House Committee Report's "disapproval" of the possibility that the new regulations would take up to two years to issue.34 The opinion also noted a June 1979 GAO Report recommending that alternative bidding systems be issued "no later than January 1, 1980." Further, the opinion recognized that Congress had provided flexibility in scheduling deadlines for compliance with the 1978 Amendments. For example, the amended Act requires the preparation of a comprehensive five year oil and gas leasing program.35 The Act provides that either after approval of that plan by the Secretary, or in any event no later than March, 1980 (eighteen months following the September, 1978 effective date of the 1978 Amendments), no leases were to be issued unless issued pursuant to the comprehensive plan. Nevertheless, Congress made it clear that leasing was to continue until the comprehensive leasing program became operational, both during the interim between enactment of the 1978 Amendments and the approval of the plan, and thereafter for so long as the plan was under judicial or administrative review.36 The opinion concluded:

Congress did not expect changes to take place overnight. To the contrary, it fully anticipated that an optimal comprehensive leasing plan took time as much as 18 months or longer to become operational. Accordingly, it drafted a detailed schedule for instituting the program, placing outside time limits on the completion of each stage.37

(Emphasis supplied.)

At the same time the opinion did recognize that the Secretary's leeway on ...

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