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

UNITED STATES COURT OF APPEALS FOR THE DISTRICT OF COLUMBIA CIRCUIT


October 30, 1980

ENERGY ACTION EDUCATIONAL FOUNDATION, ET AL., APPELLANTS

v.

CECIL D. ANDRUS, SECRETARY OF THE INTERIOR, ET AL. 1980.CDC.265 DATE DECIDED: OCTOBER 30, 1980

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

UNITED STATES COURT OF APPEALS, DISTRICT OF COLUMBIA CIRCUIT

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

APPELLATE PANEL:

DECISION OF THE COURT DELIVERED BY THE HONORABLE JUDGE WALD

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 timing was not boundless:

At some point in time the Secretary's delay in issuing profit-sharing regulations and in failing to experiment among alternative bidding systems more widely may constitute a violation of the OSC Act amendments.38

It merits interjecting at this point that both at the time of our earlier opinion and subsequently, the government's intentions and actual progress toward meeting a reasonable timetable for issuance of profit sharing regulations has been a source of some confusion. For example, proposed regulations dealing with profit sharing were said to be forthcoming imminently at the time of argument in the earlier case. When issued in December, 1979 they dealt only with the cash bonus bidding-fixed net profit share option, option . But it is not at all clear whether the parties or even the court focused at the time of the earlier opinion on the fact that the forthcoming regulations were not to include variable net profit share bidding, option . It is also commonplace to find general references to net profit share bidding systems which do not distinguish between fixed and variable net profit options, in statements sprinkled throughout the legislative history and in the arguments of counsel and the prior opinion of this court,39 as well as in appellees' reports to the Congress on its implementation plans as to OCSLA.40 The fact is that neither then nor now have there ever been proposed or final regulations for variable net profit share bidding.41

Subsequent Events

Since this court's earlier decision, the Secretary of Energy has issued final regulations governing four of the seven alternative bidding schemes enumerated by OCSLA.42 All of these four regulations, however, had been under consideration at the time of our prior decision.43 Only one of the regulations involves a non-front end cash bonus bidding system (royalty bid-fixed cash bonus, option and there is also unrefuted evidence on the record that appellees have now determined not to make further use of this option.44 Indeed, the Department of Energy reported to Congress on the basis of its leasing experience in 1978 that the disadvantages of royalty bidding "are too high a price to pay for the lower cash bonuses and higher bonus participation rates expected under royalty bidding."45

As regards the other three untested statutory bidding systems two of which do involve non-front end cash bonus alternatives there has been no significant progress in issuing regulations since the prior decision of this court other than a preliminary "notice of inquiry" for comments on the development of work commitment bidding systems.46 In particular, nothing has been done as to the critical variable net profit share bidding system; the record shows only a representation by appellants that a "contract for analysis" (content and completion date unknown) was let out in the summer of 1980.47

Meanwhile, the comprehensive five year leasing plan as mandated by section 18 of the Act48 has been approved and thirty-six lease sales scheduled under its terms. Three such sales were scheduled for the end of 1980 and one of these occurred shortly after argument of the present appeal.49 The next six sales are currently planned to be held in consecutive months beginning in May, 1981. If appellees continue on their course, it seems evident that 1981 will pass, and with it over one-half of the five year statutory period for experimenting with bidding alternatives and over one-third of the five year comprehensive leasing program, with no experimentation with variable net profit share bidding. The prospects for expecting such experimentation are further dampened by appellees' refusal to recognize any statutory obligation to issue regulations on variable net profit share bidding by any specific time or indeed any time at all.50 III. ANALYSIS

Before the trial court, both sides moved for summary judgment. Appellants sought partial summary judgment or, in the alternative, a preliminary injunction, on the grounds that the government was in violation of the Act because it still had not developed regulations for all of the bidding systems as required by OCSLA. In turn, the government appellees moved for summary judgment; first on the ground that the Act did not require promulgating all of the authorized regulations before further lease sales took place, and, second, on the ground that the continued use of cash bonus-fixed royalty bidding did not amount to an abuse of discretion. In moving for judgment on the first issue the government relied on two independent arguments: (1) OCSLA does not require issuance of regulations for all or any particular bidding system(s), and (2) even if OCSLA imposes an obligation to issue regulations on all the specified bidding systems, appellees are proceeding at a reasonable pace toward fulfilling this duty.

After the case was reassigned,51 the district judge denied all the motions for summary judgment and appellants' motion for a preliminary injunction. The articulated reason for the refusal to grant the summary judgment motions was that the court found a genuine factual issue existed as to whether OCSLA requires the issuance of regulations for all the enumerated bidding systems before further leasing activity can take place.52 Since, along with both parties,53 we disagree with her conclusion that this is a factual issue which precludes granting summary judgment rather than a legal issue as to the Secretaries' obligations under OCSLA, we find it necessary as well as appropriate to construe OCSLA as it relates to the requirement to issue regulations on alternative bidding systems. Although cognizant of the absence of either a final judgment or certification pursuant to 28 U.S.C. § 1292(b), we nonetheless perceive no interests to be served by further delaying consideration of the basic statutory issue dominating this protracted litigation, a question of law which cannot be illuminated by the development of additional facts at trial. Reaching the critical legal issue now not only serves the interests of judicial economy, but provides essential guidance for the ongoing litigation upon remand.

We feel further justified in reaching this issue in order to decide the appeal of the refusal to enjoin the 1981 lease sales, which was not disposed of by our order of September 29, 1980. There is no question that jurisdiction exists to decide issues related to the surviving portion of the appeal from the denial of the preliminary injunction.54

The basis for the district judge's denial of a preliminary injunction as reflected by her analysis of the likelihood that appellants would succeed on the merits, rested in substantial part on her view that OCSLA imposes no obligation on the Secretaries to issue regulations or to experiment with net profit share bidding so long as they "retreat from the sole and exclusive use of the cash bonus-fixed royalty bidding system and ... develop and use other systems which promise to meet the goals and policies of the 1978 Amendments."55 Accordingly, we proceed with an interpretation of the relevant portions of OCSLA, as they relate to the Secretary's duty to issue regulations on alternative bidding systems, particularly the variable net profit option specified in section 8(a)(1)of the Act.

OCSLA's Mandate to Experiment With Alternative Systems

The purpose of section 8 of OCSLA is clear. Section 8 mandates the Secretary of the Interior to experiment over a five year period with alternative systems for OCS lease sales other than front end cash bonus bidding. The objective of the required experimentation is to arrive at the optimal system or systems in order:

to make such resources available to meet the Nation's energy needs as rapidly as possible, to balance orderly energy resource development with protection of the human, marine, and coastal environments, to insure the public a fair and equitable return on the resources of the Outer Continental Shelf, and to preserve and maintain free enterprise competition.56

To that end, the Secretary is authorized to utilize the seven specific bidding systems set out in section 8.57 To further his experimental goals, he is also authorized to require bidders to bid under more than one system simultaneously "in order to obtain statistical information to determine which bidding alternatives will best accomplish the purposes and policies of this subchapter."58

There is no issue as to the Secretaries' duty to experiment with alternative systems to traditional front end cash bonus bidding the government terms it "uncontested" that the "Secretaries of Energy and Interior are obligated to experiment with alternative leasing systems to eventually determine the best possible approach to the development of gas and oil" in offshore reserves.59 And indeed the legislative history of the Amendments is replete with assertions to that effect. For example, the House Committee Report states:

The leases have (in the past) been awarded by auction, traditionally on the basis of cash bonus bids. With the present shortage of investment capital that will prevail for many years, increasing risks of uncertainty, and the increasing integration and concentration of energy industries, there is now doubt whether cash bonus bidding remains the best system for the future. One purpose of H.R. 1614 is to authorize alternative leasing arrangements and require experimentation with them. It will enable the Secretary of the Interior, who administers the federal leasing program, to strike a proper balance between securing a fair return to the Federal Government for the lease of its lands, increasing competition in exploitation of resources, and providing the incentive of a fair profit to the oil companies, which must risk their investment capital.60

(Emphasis supplied.)

It was never in doubt that the purpose of section 8's authorization of the seven bidding options was to foster experimentation with a five year period with new alternatives to the traditional cash bonus-fixed royalty bidding system:

The obvious intention of the committee in revising the procedures for use of new bidding systems is to determine what system or systems in what situations, provide the best means to lease our federal resources in the Outer Continental Shelf. Subsection (a) is intended to provide procedures to answer this question.... to mandat(e) use of new systems, to insure they are tested and studied, and to provide for random selection, to insure fair tests and studies, ...61

(Emphasis supplied.) The Senate Committee Report was in accord that section 8's purpose was "to assure that the new leasing systems would be tried."62 (Emphasis supplied.)

The Conference Committee Report also stressed the obligation of the Secretary to test the new leasing systems. In rejecting a House provision that tracts utilizing different bidding systems be selected on a "random" basis, the Conference Report nonetheless admonished:

Although there is no requirement for random selection, the Secretary, in setting forth systems for use on tracts, shall seek to secure a fair selection of different methods on different tracts. The purpose of such a selection is to assure that adequate information is obtained as to relative advantages and disadvantages of the various bidding systems, including the front-end bonus bid systems as applied to different types of tracts, having different expectations of the amount of hydrocarbon that can be recovered.63

(Emphasis supplied.)

The government's contention, as we understand it, is that although there is a generalized obligation to experiment, the Secretary is free to choose to experiment with some but not other bidding system options. We do not believe that the legislative history supports this position insofar as it would allow him to ignore the options that do not involve front end cash bonuses as the bidding variable. Rather, it strongly suggests to us that Congress was particularly interested in assuring that the non-cash bonus variable bidding systems be tried at least during the five year period to determine their potential to attract bidders other than the major oil companies who had dominated the bidding under the pre-1978 OCSLA system.

Thus the Senate Committee Report emphatically stated:

(The proposed act) authorizes a wide variety of new bidding systems. These are designed to reduce the front end cash bonus, increase the government's return on actual production of oil or gas, make it easier for smaller companies to enter the OCS development business, and increase the availability of funds for exploration.64

(emphasis supplied).

The mandate of the House Committee Report was equally vigorous: "It was the intention of the Committee that there be a clear mandate given to the Secretary to require him to use bidding systems other than the cash bonus bid."65

Both the Senate and the House Committee Reports state:

The basic thrust of all these new options is to reduce the reliance on large front-end cash bonuses as the means of obtaining a fair price for the public's property. The committee wants to authorize lease allocation systems that would encourage the widest possible participation in competitive lease sales consistent with receipt by the public of fair market value for its resources. The committee believes that (net profit share and other) arrangements can be effective in shifting Government revenue away from initial bonuses and into deferred payments made out of a lease-holder's profits based on actual production of oil or gas.66

The Conference report also adopted the basic thesis that:

Bidding systems other than bonus bidding, including royalty, net profit, work commitment, and non-enumerated systems (emphasis supplied), are to be utilized in at least 20 percent and not more than 60 percent of the tracts offered for leasing in all OCS areas during each of the next 5 years.67 (Emphasis in original.)

In view of these statements, we find it difficult to give credence to a view of the Act which would permit the Secretaries to totally ignore prominently mentioned new non-cash bonus bidding alternatives without any testing at all, even if they have otherwise satisfied OCSLA's minimum percentage requirement for experimenting with new leasing systems.

Indeed we note that at one point in the legislative history of the 1978 Amendments, a proposed amendment was defeated on the House floor that would have allowed the Secretary "complete flexibility" to decide whether or not to issue regulations or utilize any specific alternative bidding systems. Representative Murphy, House manager of the bill, was adamantly opposed on the ground that "this amendment strikes at the very heart of this bill promotion of competition."68

Representative Murphy objected strongly for the following reasons:

During its almost 3 years of hearings, the committee heard repeatedly about the lack of competition in offshore leasing. In fact, the reason for this lack of competition is because of the present bidding system the use of high front-end bonus bids which create a barrier for the entry of small and medium-sized oil firms as well as other potential exploration and development companies.... After much discussion, and much debate, the committee decided to include many new bidding options as part of the Outer Continental Shelf Lands Act.

This mandate of use of new bidding systems is strongly supported by the present Carter administration. Recognizing the need to not only to experiment but use new bidding systems, the Secretary of the Interior has repeatedly stated to our committee that he believes that having such a mandate will be a positive incentive to doing extensive and detailed background, experimentation, and follow-up on new bidding systems.

The present provision therefore provides an incentive to use new bidding systems, and sufficient flexibility to the Secretary of Interior to experiment, study and finalize the use of the new bidding system....69

(emphasis supplied).

During the debate that preceded defeat of the aforementioned amendment, numerous legislators, from both the majority and minority parties, reiterated their belief that experimentation with new non-cash bonus bidding systems was and should remain mandatory under the bill.70

We conclude therefore from a reading of the legislative history that the Secretary of Energy does have a statutory obligation to promulgate regulations on the major alternatives to front end cash bonus bidding, including the variable net profit share bidding option so as to allow experimentation with such a system to take place during the five year period specified for such experimentation.71

The Pace of Implementing OCSLA

As of this date, over two years after passage of the Act, regulations have not been issued nor consequently has there been any experimentation with three of the seven bidding systems enumerated in OCSLA, two of which do not involve cash bonus bidding.72 The government has argued strenuously, nonetheless, that Congress in its oversight capacity has condoned the failure to experiment with or issue regulations on variable net profit or work commitment bidding systems. Congress has kept abreast of the development of the OCSLA bidding systems, primarily through the activities of a House Select Committee on OCS Oversight ("Oversight Committee").73 Appellees would imply Congressional approval as to their pace in implementing OCSLA by virtue of the Oversight Committee's silence. It is, of course, the earlier Congressional action in adopting OCSLA rather than subsequent Congressional inaction, to which we must look primarily for reliable guidance in determining the scope of appellees' obligations under the Act.74 But, even if we are to weigh the expressions of a post-enactment committee significantly on the intent of an earlier Congress that passed the legislation, we find little sustenance in the hearings and report of the Oversight Committee on this specific issue. In its 1979 report the Oversight Committee warned: "If sales are less than competitive, if new systems are not used, if fair market value is not obtained, action might be necessary."75 (emphasis supplied). It anticipated that "During the next two years, new regulations are to be promulgated, new leasing programs prepared, new bidding systems established and applied.... During the next two years most frontier areas will be leased and exploration in some frontier areas substantially completed."76 (emphasis supplied).

In December, 1979 the Committee held hearings on the implementation of alternative bidding systems and was told by Energy officials that "in the near future (Energy) will be publishing final regulations dealing with alternative bidding systems."77 In those same hearings, one of appellants here, Energy Action Educational Foundation, urged issuance of regulations dealing with both fixed and variable net profit share bidding, while Energy and Interior officials informed the Committee of their progress on fixed net profit share bidding and other alternatives avoiding any mention of variable net profit bidding at all.78 The final report of the Oversight Committee then concluded that "the implementation process has proceeded reasonably well, but there have been delays as exemplified by the jurisdictional conflict between (Interior) and (Energy)"; it recommended, accordingly, "interagency coordination must be enhanced ... and the issuance of (Energy) regulations in its five major areas of responsibility (should take place) by January 1, 1981."79

It is thus difficult for us to construe the Oversight Committee's statements as excusing appellees from what we construe as a statutory obligation to issue regulations necessary to allow all bidding options under section 8 to be tested in some fashion during the five year "experimental" period. It seems more likely to us that the Oversight Committee (either intentionally or unintentionally) simply avoided directly resolving any implicit conflict between Energy Action's plea for action and the Department of Energy's silence with respect to issuance of regulations on variable net profit bidding. We must, consequently, look almost entirely to the original legislative history preceding enactment for our guidance and we construe that history as requiring good faith experimentation with non-cash bonus alternatives.

We also note that appellees have never, in fact, stated in the annual reports to Congress required by the Act that they do not intend to utilize a variable net profit bidding system.80 In contrast the Department of Energy has utilized the end of the year report to announce its dissatisfaction with royalty bidding.81

Appellees also argue that because "the basic thrust of all these new options is to reduce the reliance on large front end cash bonuses as a means of obtaining a fair price for the public's property,"82 it is sufficient to utilize only some of the enumerated bidding methods. Again, the legislative history is too emphatic about the prominent role of the new, and as yet untried non-front end cash bonus options to permit so liberal an interpretation of the mandate on experimentation. It may well be that one or more of these new options, when tested may prove unsatisfactory, but it is not credible that the Secretaries can permissibly reject them out of hand, when the statutory history is explicit regarding Congressional interest in maximizing competition and encouraging "the widest possible participation" in lease sales.

Alternatives like the variable net profit share bidding option (and the work commitment bid system) are designed to reduce front end cash payment and to stimulate competition to a greater degree than the options already in place which still focus bidding on the front end cash bonus. Although we obviously cannot determine at this point whether the non-cash bonus variable systems will have the salutory effect in practice that their supporters claim, acquiring this information is precisely the objective of the Congressionally mandated experimentation with new systems.

It is also clear to us that the obligation to experiment with "net profit share" bidding so frequently referred to in the Committee reports and floor debate is not fully satisfied solely through experimentation with fixed net profit share bidding. The statute itself sets out as distinct alternatives two types of net profit share bidding fixed and variable to be experimented with in the five year period. The variable net profit bidding alternative represents the more innovative alternative, and the greater departure by far from the traditional cash bonus system. The separate provision for the variable net profit share bidding alternative in section 8(a)(1)did not materialize out of thin air; its origins may be traced to specific testimony and dialogues between legislators and witnesses about this particular type of bidding while OCSLA was pending before Congress. During the hearings several witnesses and legislators exhibited significant interest in and knowledge of variable net profit share bidding;83 comparisons were made between variable royalty and variable net profit options; comparisons which usually favored variable net profit bidding.84 Discussions were also held on the differences between variable net profit share bidding and variable cash bonus-fixed net profit share bidding.85 The testimony about variable net profit bidding was by no means all favorable; concerns were expressed that it would encourage irresponsible bidders; discourage perseverance in drilling; would be costly and complicated to administer and involve the government too deeply in the oil and gas business.86 Yet even some of its vigorous opponents suggested it might prove useful and attractive for particular tracts.87 Representatives of the gas distribution industry, among others, affirmatively advanced a variation of this option.88 Senator Johnston questioned several witnesses specifically about the variable net profit share method.89 Although subsequent to enactment the distinction between fixed and variable profit sharing options seems at times to have blurred,90 the pre-enactment record reveals a clearer focus, among key witnesses and legislators, on the two distinct options dealing with profit share bidding, a recognition ultimately reflected in the express language of section 8 of the Act. Particularly in light of assurances by administration witnesses that "all" alternative options to cash-bonus bidding would be tried91 we do not think it a reasonable construction of the Act that experimentation with variable net profit share bidding can be rejected.

The Secretaries' Obligations At This Time

Having found in the language and history of the Act a Congressional imperative to promulgate regulations, as a necessary prelude to experimentation, involving non-cash bonus statutory bidding alternatives, including variable net profit share bidding, the critical question is when does such an obligation become due. Appellees argue that even if such an obligation exists, their pace in issuing regulations so far has been reasonable and OCSLA contains no specific deadlines for promulgation of particular regulations.92 Indeed, appellees advance the circular assertion, noted by the district court, that the regulations have proceeded apace with the Secretary's desire to utilize particular bidding systems.93

We conclude that the obligation to promulgate regulations on net profit variable bidding must be fulfilled with the maximum possible speed consistent with procedural and statutory rulemaking requirements. Congress legislated five years as an "experimental" period with alternative bidding systems; that period began September 18, 1978, over two years ago. Even if the Secretary were to propose regulations tomorrow, it would still take well into 1981 before they could be finally promulgated, and we are aware that even the proposal of such regulations must be preceded by weighty deliberations.94

By mid-1981 before the next lease sale, now scheduled for May the midway point in the five year experimental period for alternative bidding systems will have passed. If there is to be meaningful experimentation with variable net profit share bidding, then preparations for promulgation of the necessary regulations must begin immediately. The five year comprehensive leasing plan which went into effect in June, 1980 anticipates thirty-six lease sales, almost one-third of which will have been held by the end of 1981. If the variable net profit share bidding option is to have any kind of a fair trial, it would seem that it must be eligible to be utilized within the next year.95

The government correctly notes the understandable reluctance of courts to block scheduled lease sales until regulations on all enumerated bidding systems are issued.96 This reluctance to upset the orderly administration of OCS leasing is most recently reflected in this court's affirmance of the district court's refusal to enjoin the three sales scheduled this fall.97 Our deference to the discretion of the district court on this aspect of her ruling is grounded in the reasonableness of her conclusions regarding irreparable harm and the balance of public equities in the three sales scheduled for the end of 1980. We can, however, reasonably draw the line as to future sales now scheduled for late spring and the summer of 1981. First, it should be feasible for the needed regulations to be in place before the next round of sales. Second, given the relatively distant future date of the 1981 sales, if the schedule needs to be adjusted at all the likely cost and inconvenience should not be as substantial with several months advance notice as would have been the case for the three sales scheduled later this year. Most important, by mid-1981 failure to issue regulations on variable net profit share bidding and work commitment bidding creates a clear violation of the statutory mandate to experiment with alternatives to front end cash bonus systems and accordingly a clear case of irreparable harm to appellants, and the public and private interests they represent. Thus, the public harm in losing any realistic opportunity to test all the OCSLA leasing methods will outweigh any incidental delay to the transaction of additional lease sales. Further delay in issuing these regulations would mean that experimentation with these options could only occur, if at all, in the last year or two of the five year period, upon whatever tracts remain for exploration. This circumstance would in turn raise a serious question of whether a fair test of variable net profit sharing would be possible, if use of that option were consigned to the last of five years for sales of relatively few and possibly less significant tracts. While, as the government maintains, it may be advantageous to garner experience with one new bidding system before moving on to experiment with another98 we conclude the time has now passed when such advantages can be said to outweigh the disadvantages of failing to allow for any adequate testing or experimentation with the major non-cash bonus of Congressionally authorized bidding systems. In sum if there is to be significant experimentation with the range of non-cash options specified in the Act, the remaining regulations for those options should be in place in 1981, before the next battery of planned lease sales which begin in May, 1981.99 III. HOLDING

For the foregoing reasons, it is our judgment that appellees have an obligation to issue regulations for the remaining two non-cash bonus bidding systems enumerated by Congress in section 8(a)(1)and of the Act and that the obligation to put the regulation-issuing process into operation vests immediately and should be completed in mid-1981. To conclude otherwise would be to find, against the weight of the legislative history, that Congress intended to allow two-thirds of the non-cash bonus variable bidding options it specified to go untried or at best to be placed at an intolerable disadvantage in the five year experimental period despite Congress' explicit commitment to encouraging greater competition and broader participation in OSC development.

Upon remand, then, the district court should insure that, to the maximum extent feasible, regulations for the two non-cash bonus variable bidding options set out in section 8(a)(1)and are promulgated before further lease sales take place in 1981. The court, within its general equitable discretion to order or withhold injunctive relief in the public interest, after hearing from the Secretaries as well as the plaintiffs, should immediately proceed with the task of setting a precise timetable for their issuance that takes account of future scheduled lease sales as well as any other relevant information proffered by the parties.**

Remanded for proceedings consistent with this opinion

APPELLATE PANEL: FOOTNOTES

* Sitting by designation pursuant to 28 U.S.C. § 292(a).

Opinion for the Court filed by Circuit Judge WALD.


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