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WATT v. ENERGY ACTION EDUCATIONAL FOUNDATION ET AL.

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 ...


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