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WATT v. ENERGY ACTION EDUCATIONAL FOUNDATION ET AL.

SUPREME COURT OF THE UNITED STATES


decided: December 1, 1981.

WATT, SECRETARY OF THE INTERIOR, ET AL
v.
ENERGY ACTION EDUCATIONAL FOUNDATION ET AL.

CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE DISTRICT OF COLUMBIA CIRCUIT.

O'connor, J., delivered the opinion for a unanimous Court.

Author: O'connor

[ 454 U.S. Page 153]

 JUSTICE O'CONNOR delivered the opinion of the Court.

We are asked to review a decision of the United States Court of Appeals for the District of Columbia Circuit compelling the Secretary of the Interior to experiment with the use of certain statutorily defined bidding systems in awarding leases for oil and gas exploration and development on the Outer Continental Shelf. Because the decision below incorrectly construes the Outer Continental Shelf Lands Act Amendments of 1978, 92 Stat. 629, 43 U. S. C. § 1331 et seq. (1976 ed. and Supp. III), we reverse.

I

The Outer Continental Shelf Lands Act of 1953 (OCS Lands Act), 67 Stat. 462, as amended, 92 Stat. 629, 43 U. S. C. § 1331 et seq. (1976 ed. and Supp. III), authorizes the Secretary of the Interior to lease tracts of the Outer Continental Shelf (OCS)*fn1 for the exploration and development of mineral resources, including oil and gas. As originally passed, the OCS Lands Act authorized the Secretary to solicit sealed bids either by fixing a royalty rate of not less than 12 1/2%, and requiring bids on the amount of an initial "cash bonus" to be paid at the time the lease was awarded, or by

[ 454 U.S. Page 154]

     fixing the amount of the cash bonus, and requiring bids on the royalty rate. 43 U. S. C. § 1337(a). The OCS Lands Act vested complete discretion in the Secretary to choose between these two bidding systems. In practice, prior to 1978 virtually all tracts were leased on the basis of a fixed royalty of 16 2/3% of the gross value of production, with bidding on the amount of the cash bonus. See H. R. Rep. No. 95-590, p. 138 (1977); S. Rep. No. 95-284, p. 72 (1977).

During the mid-1970's, the Nation's increasing dependence on imported oil focused public attention on the OCS as a potential source of domestic petroleum and natural gas. See H. R. Rep. No. 95-590, supra, at 53-54. At the same time, the traditional OCS bidding procedures came under close scrutiny because dramatic increases in petroleum prices made existing cash bonuses seem miserly relative to the revenues generated from wells on OCS leaseholds. Members of Congress began to express reservations about the ability of the traditional cash bonus, fixed royalty system to assure a fair return to the Government, principally because it appeared that only the major oil companies could risk paying a large cash bonus to lease a tract of unknown value. Because the number of bidders was often limited to a handful of giant concerns, competition for the leases seemed tepid, and there was no assurance that the ultimate return to the Government was adequate. See, e. g., id., at 47, 54.

Responding to these and other pressures for modernization of the OCS Lands Act, Congress passed the Outer Continental Shelf Lands Act Amendments of 1978 (1978 Amendments), Pub. L. 95-372, 92 Stat. 629.*fn2 Through the 1978 Amendments, Congress sought to experiment with alternatives to the traditional bidding system. To this end, it increased

[ 454 U.S. Page 155]

     the number of authorized bidding systems from 2 to 10, 43 U. S. C. § 1337(a)(1) (1976 ed., Supp. III), and directed the Secretary of the Interior to develop a 5-year plan of experimentation with the new systems. §§ 1337(a)(5)(B), 1344. Four of the newly authorized systems use a cash bonus bid (including the cash bonus, fixed royalty system, which was specifically retained in § 1337(a)(1)(A)),*fn3 three use a royalty rate bid,*fn4 one uses a "profit-share" bid,*fn5 and two use a "work-commitment" bid.*fn6

Although the 1978 Amendments, like the original OCS

[ 454 U.S. Page 156]

     Lands Act, give the Secretary of the Interior the discretion to select among the various authorized bidding systems, that discretion is no longer total. The statute now requires the Secretary to experiment with the nine nontraditional systems in "not less than 20 per centum and not more than 60 per centum of the total area offered for leasing each year," § 1337(a)(5)(B), unless he determines that those percentage requirements are "inconsistent with the purposes and policies" of the 1978 Amendments.*fn7

The 1978 Amendments assure ongoing congressional oversight of the Secretary of the Interior's leasing activities by requiring frequent reports to Congress on the operation of the bidding systems. For example, the Secretary of Energy, who has responsibility for issuing regulations governing OCS bidding,*fn8 must report within six months of the end of each fiscal year "with respect to the use of [the] various bidding options," including, "if applicable, the reasons why a particular bidding system has not been or will not be utilized." § 1337(a)(9). In addition, the Secretary of the Interior must submit each fiscal year a report that includes "an evaluation of the competitive bidding systems permitted under [the 1978 Amendments], and, if applicable, the reasons why a particular bidding system has not been utilized," as well as "an evaluation of alternative bidding systems not permitted

[ 454 U.S. Page 157]

     under [the 1978 Amendments], and why such system or systems should or should not be utilized." §§ 1343(2)(A) and (B).

To date, the Secretary of Energy has issued regulations for a number of the bidding systems, including three of the four systems using cash bonus bidding, 10 CFR §§ 375, 376 (1981) (the cash bonus bid, fixed royalty system and the cash bonus bid, fixed sliding-scale royalty system); §§ 376, 390 (the cash bonus bid, fixed net profit-share system), as well as the royalty bid, fixed cash bonus system, §§ 375, 376, the net profit-share bid, fixed cash bonus system, §§ 376, 390, and the work-commitment bid, fixed cash bonus and fixed royalty system, 46 Fed. Reg. 35614 (1981) (to be codified in 10 CFR §§ 376, 390). For his part, the Secretary of the Interior has prepared a 5-year program for the period from June 1980 to May 1985, calling for 36 sales, each involving a number of tracts. Brief for Petitioners 7. The Secretary of the Interior has so far used the nontraditional bidding systems in leases covering 49% of the total area offered, but has experimented with only two of the nine authorized alternative bidding systems: the cash bonus bid, fixed profit-share system, and the cash bonus bid, fixed sliding-scale royalty system. Id., at 8, and n. 12. The Secretary of the Interior has not experimented, however, with any of the systems using a factor other than the size of a cash bonus as the bidding variable.*fn9

[ 454 U.S. Page 158]

     II

This litigation grows out of the Secretary of the Interior's continued reliance on cash bonus bidding systems. The respondents here, nine consumer groups, two state governmental entities, and three private citizens, brought suit against the United States, the Secretary of the Interior and the Secretary of Energy, alleging that the Secretaries had abused their discretion by failing to experiment with bidding systems that do not use the size of a cash bonus as the bidding variable. In essence, they complained that bonus bidding cannot generate adequate competition to yield a fair market return for OCS oil and gas as required by the 1978 Amendments. They sought declaratory and injunctive relief prohibiting further lease sales until the Secretary of Energy promulgated regulations for each of the alternative bidding systems, and prohibiting the further use of the cash bonus, low royalty bidding systems.

[ 454 U.S. Page 159]

     Three days after they filed suit and four days before a planned lease sale, the respondents filed a motion for a preliminary injunction barring all further lease sales until regulations had been promulgated for each of the bidding options contained in the 1978 Amendments. The District Court denied the motion because the respondents had not shown a likelihood of prevailing on the merits, and because the pace at which the Secretary of Energy was issuing regulations was not unlawfully slow in light of the complexity involved in preparing such regulations.*fn10 The Court of Appeals affirmed the District Court's ruling and remanded the case for further proceedings. Energy Action Educational Foundation v. Andrus, 203 U. S. App. D.C. 169, 631 F.2d 751 (1979).

On remand, both parties moved for summary judgment, and the respondents renewed their motion for a preliminary injunction barring future lease sales until additional bidding system regulations had been issued. The District Court denied all motions for summary judgment as well as the respondents' motion for a preliminary injunction, 516 F.Supp. 90 (DC 1980), and the respondents once more appealed.

[ 454 U.S. Page 160]

     This time, the Court of Appeals affirmed the District Court only to the extent that it refused to enjoin lease sales scheduled for September, October, and November 1980. Turning to the underlying dispute, the court concluded both that the 1978 Amendments require the Secretary of the Interior to experiment with at least some of the bidding systems that do not use the size of a cash bonus as the bidding variable, and that the Secretary of Energy must issue appropriate regulations for the alternative bidding systems.*fn11 Energy Action Page 160} Educational Foundation v. Andrus, 210 U. S. App. D.C. 20, 654 F.2d 735 (1980).

We granted the Government's petition for certiorari to review this construction of the 1978 Amendments. 450 U.S. 1040.

III

Before examining the merits, we must consider the petitioners' contention that the respondents do not have standing to challenge the Secretary of the Interior's choice of bidding systems.

There are three groups of plaintiffs in this litigation: (1) the State of California, which claims standing as an involuntary "partner" with the Federal Government in the leasing of OCS tracts in which the underlying pool of gas and oil lies under both the OCS and the 3-mile coastal belt controlled by California; (2) California and the city of Long Beach, which compete with the Federal Government in the leasing of off-shore oil and gas properties; and (3) consumers of oil and gas and of oil- and gas-derived products.*fn12 Because we find California has standing, we do not consider the standing of the other plaintiffs. See Arlington Heights v. Metropolitan Housing Development Corp., 429 U.S. 252, 264, and n. 9 (1977); Buckley v. Valeo, 424 U.S. 1, 12 (1976) (per curiam).

The 1978 Amendments require the Federal Government to turn over a fair share of the revenues of an OCS lease to the neighboring coastal State whenever the Federal Government and the State own adjoining portions of an OCS oil and gas

[ 454 U.S. Page 161]

     pool. See 43 U. S. C. § 1337(g)(4) (1976 ed., Supp. III). California thus has a direct financial stake in federal OCS leasing off the California coast. In alleging that the bidding systems currently used by the Secretary of the Interior are incapable of producing a fair market return, California clearly asserts the kind of "distinct and palpable injury," Warth v. Seldin, 422 U.S. 490, 501 (1975), that is required for standing.

To demonstrate that it has standing, however, California must also show that there is a "fairly traceable" causal connection between the injury it claims and the conduct it challenges, Arlington Heights v. Metropolitan Housing Development Corp., supra, at 261, so that if the relief sought is granted, the injury will be redressed, Simon v. Eastern Ky. Welfare Rights Org., 426 U.S. 26, 41-46 (1976). The petitioners argue that the relief California seeks -- experimental use on some OCS lease tracts of non-cash-bonus bidding systems -- will not ensure that the Secretary will try these systems on parcels leased off the California coast. According to the petitioners, even if California were to win its suit, cash bonus systems might nevertheless still be used to lease tracts overlying California's pools. The petitioners assert that California therefore lacks standing because it has failed to show that the relief requested would cause the Secretary of the Interior to use non-cash-bonus bidding systems on California's parcels.

The essence of California's complaint, however, is that the Secretary of the Interior, by failing to test non-cash-bonus systems, has breached a statutory obligation to determine through experiment which bidding system works best. According to California, only by testing non-cash-bonus systems can the Secretary of the Interior carry out his duty to use the best bidding systems and thereby assure California a fair return for its resources. The petitioners' argument, California contends, improperly assumes that the Secretary of the Interior would perversely refuse to adopt a non-cash-bonus bidding

[ 454 U.S. Page 162]

     system proved by experiment to be superior to the cash bonus alternatives.

We share California's confidence that, after experimentation, the Secretary would use the most successful bidding system on all suitable OCS lease tracts, including those off the California coast. For this reason, we agree with California that it has standing to challenge the Secretary of the Interior's refusal to experiment with non-cash-bonus bidding systems. Therefore, we proceed to the merits.

IV

In passing the 1978 Amendments, Congress committed the Government to the goal of obtaining fair market value for OCS oil and gas resources. The 1978 Amendments themselves proclaim this intention,*fn13 and the legislative history is replete with references to this purpose.*fn14 The respondents urge that non-cash-bonus bidding systems are more likely to achieve the statutory objectives than the cash bonus systems used to date, so that the Secretary of the Interior's continued reliance on cash bonus bidding violates the statutory scheme.

A

We begin, as always in a case in which the meaning of a statute is at issue, by examining Congress' language. If Congress meant to restrain the Secretary of the Interior's discretion in experimenting with the various alternative bidding systems, we can expect the statute to reflect that intent. But it does not.

Despite the various reservations concerning the traditional cash bonus bidding system recorded in the legislative history

[ 454 U.S. Page 163]

     of the 1978 Amendments, Congress not only failed to repudiate the traditional cash bonus, fixed royalty system specified in § 1337(a)(1)(A), but affirmatively directed that the Secretary of the Interior use that system in the bidding for tracts covering at least 40% of the total area leased in each year of the 5-year plan. § 1337(a)(5)(B). The only express limitation Congress put on the use of the traditional system was that it not be used on more than 80% of the total area offered each year. Ibid. In short, Congress can hardly be said to have rejected even the traditional cash bonus system. Moreover, among the experimental bidding alternatives listed in the 1978 Amendments, Congress expressly specified cash bonus as the bid variable in three systems.*fn15 Most significantly, Congress left to "the discretion of the Secretary," § 1337(a)(1), the choice among the various nontraditional alternatives, evidently leaving to his expert administrative determination the complex, technical problem of deciding which alternative bidding systems are more likely to further the statute's objectives. In addition, Congress granted the Secretary further discretion to abandon the statutory requirements for the percentage use of the nontraditional alternatives, should he determine that those requirements are inconsistent with the statutory purposes and policies. § 1337(a)(5)(B).

The respondents argue that the Secretary's discretion is limited by § 1344(a)(4), which directs that "[leasing] activities shall be conducted to assure receipt of fair market value for the lands leased and the rights conveyed by the Federal Government." According to the respondents, the Secretary is violating § 1344(a)(4) by refusing to try non-cash-bonus bidding,

[ 454 U.S. Page 164]

     because cash bonus bidding allegedly does not assure that fair market value is received for the Government's resources.

Section 1344(a)(4) cannot support the weight the respondents attach to it. Section 1344 directs the Secretary of the Interior to "prepare and periodically revise, and maintain an oil and gas leasing program" consistent with the "principles" enumerated in §§ 1344(a)(1)-(4). The receipt of fair market value, the fourth listed principle, is only one of many general considerations commended to the Secretary's attention.*fn16 The section directs that the Secretary's entire leasing program be consistent with the principles enumerated. Yet elsewhere the statute requires the Secretary's program to use the traditional cash bonus, fixed royalty system on as

[ 454 U.S. Page 165]

     much as 80%, and on no less than 40%, of the acreage leased. § 1337(a)(5)(B). So Congress cannot have considered the traditional cash bonus system incapable of providing a fair market return, for that is the one system Congress required the Secretary to use. We therefore conclude that § 1344(a)(4) cannot fairly be read to constrain indirectly the Secretary's discretion in choosing to use the alternative cash bonus bidding systems.

The only express statutory check on the Secretary of the Interior's discretion is the requirement that he periodically report to the Congress his reasons for failing to use any of the alternative bidding systems.*fn17 The statute thus recognizes that, in appropriate circumstances, some of the alternative bidding systems may not be used. Plainly, Congress considered close congressional scrutiny to be sufficient restraint on the Secretary's discretion to choose among the statutory options.

In short, nothing in the statute suggests that Congress intended to channel the Secretary of the Interior's discretion in choosing among the alternative bidding systems, and nothing in the statute singles out the non-cash-bonus systems for special consideration. Therefore, we conclude that the language of the 1978 Amendments requires experimentation with at least some of the new bidding systems, but leaves the details to the Secretary's discretion.

B

According to the respondents, however, the legislative history of the 1978 Amendments mandates constraints on the Secretary of the Interior's discretion not expressly stated in

[ 454 U.S. Page 166]

     the statute. In particular, the respondents cite the repeated, unfavorable references to "cash bonus" bidding found throughout the legislative history to support their contention that Congress intended to direct the Secretary of the Interior to experiment with bidding systems in which the bidding variable is not the size of a cash bonus.

What clearly emerges from the legislative history, however, is not congressional dissatisfaction with all forms of cash bonus bidding, but rather with large front-end payments. Plainly, Congress intended to encourage more competitive bidding by requiring experimentation with bidding alternatives, regardless of the bid variable involved, that would reduce the size of the front-end payments associated with the traditional cash bonus bid, fixed royalty system.*fn18

[ 454 U.S. Page 167]

     Such a reduction of the front-end payments can be achieved, however, with any bidding system that increases the amount of the payments made throughout the life of a lease, since a bidder will be willing to pay less "up front" if he expects to pay more "downstream." This inverse relationship between the size of up-front and downstream payments holds true, of course, regardless of which factor is used as a bidding variable. Congress plainly understood this relationship, because it expressly included three new cash bonus bid systems among the experimental alternatives intended to reduce large front-end payments.

Contrary to the respondents' suggestions, Congress' references to "bonus bidding" and the "cash bonus system," when seen in context, are merely a shorthand description of the

[ 454 U.S. Page 168]

     Secretary of the Interior is well advised to forgo experimentation with the non-cash-bonus alternatives. That question is for Congress alone to answer in the exercise of its oversight powers.

For these reasons, the judgment of the Court of Appeals compelling the use of non-cash-bonus bidding systems is hereby reversed.

It is so ordered.

Disposition

210 U. S. App. D.C. 20, 654 F.2d 735, reversed.

Counsel FOOTNOTES

* E. Edward Bruce filed a brief for Atlantic Richfield Co. et al. as amici curiae urging reversal.


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