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Watt II – The Five-Year Program On Remand

Gas processing plant in the White River area, Colorado. Courtesy of BLM.

NRS | Federal Lands | Mineral and Petroleum Resources | The Five-Year Program in the Courts

By May of 1983 the remanded five year program as further revised by Secretary Watt was back before the Circuit Court before a different panel of judges.  The original petitioners were augmented by the States of Florida, Oregon and Washington, and others, and re-asserted many of the original claims. While the program projected for the years 1982-1987 remained, even after addressing the remand issues, much the same as the one promulgated by Secretary Andrus, there were some significant and controversial differences.    Chief among these was the size of the lease offerings scheduled.  Unlike his predecessor, Secretary Watt had designated each of the enormous planning areas of the Outer Continental Shelf(“OCS”)   as an intended lease sale.  See State of Cal. By and Through Brown v. Watt, 712 F.2d 584, 591-94 (D. C. Cir. 1983) (“Watt II”).

The Court set the stage for its review by carefully differentiating the review process in State of Cal. By and Through Brown v. Watt, 668 F.2d 1290 (D.C. Cir. 1981) (“Watt I”), from its own.  According to the panel, the Watt I Court was addressing primarily the Secretary’s “erroneous interpretation of the statute,” reviewed under a stricter standard than either the factual findings or policy judgments involved in the present challenge, which went to the adequacy of, rather than the statutory authorization for, the Secretary’s analysis.  Id. at 590.   The factual findings and policy judgments involved in addressing the issues of adequacy, by contrast, were “matters on which the Secretary is entitled to greater deference.” Id.  Armed with that weapon, they proceeded to make short shrift of the petitioners’ challenges to the remanded program.

The Size of the Projected Sales

The Court first addressed the controversial “size” issue.  Although the Secretary had responded to Watt I’s finding of lack of specificity by delineating the proposed lease sales more precisely with relationship to their coastal impacts, see Id. at 593-94, each lease sale comprised an entire planning area of millions and millions of acres.1  Furthermore, the Secretary had conceded that it was likely that only a portion of the immense planning areas would actually be offered for lease.  Id. at 592.  Since Watt I appeared to have invalidated “expansive area designations” on the ground that they would give inadequate notice to affected jurisdictions, see 668 F.2d at 1304, petitioners had some confidence that the same result would obtain.  They were wrong.

Designation of the entire planning area as a lease sale reflected in the case of the remanded plan a policy judgment consistent with the statutory command to expedite OCS leasing, and which implicated the staged leasing process contemplated by the Outer Continental Shelf Lands Act Amendments of 1978(“OCSLAA”).   Secretary Watt had determined that because of the dismal record of exploration on the OCS, the actual areas to be offered for leasing would depend on an interactive process in which both the Department of the Interior, and, in turn, industry, the states and other parties would identify areas of potential interest in a process known as the “call for information.”  The designation of the entire planning area as available for these expressions reflected a policy judgment not to limit them in advance, and to maximize the resource judgments and intentions of industry and other interested parties in identifying them.  See Id. at 593. The Watt II Court determined that nothing in the requirement that the plan “consist of a schedule of proposed lease sales indicating, as precisely as possible, the size, timing, and location of leasing activity…,” 43 U.S.C. § 1344(a), was an obstacle to this procedure.

Noting that the Watt I Court had declined to define the degree of precision required by the phrase “as precisely as possible,” the Court determined that precision at this stage was ultimately dependent on the intentions of the Secretary, and that if he were “genuinely considering” offering an entire area in one lease, all that was required was that he “reveal his full intentions” to interested parties. Id. at 592.  The likelihood of the sale being pared down after receipt of further information was thus irrelevant, since the precise delineations could only be determined in response to the call for information, which conceivably could identify the entire area as desirable for leasing.  Id.  Size, per se, was equally irrelevant, since nothing in the statute spoke to it.

Since the Secretary is considering offering a lease which includes the entire planning area, he can designate the entire planning area as one proposed lease regardless of its size.

Id. at 593.  Finally, the Court’s holding was squared with Watt I by noting that the Secretary had indeed broken up the planning areas themselves so that affected jurisdictions were arguably on greater notice than they had been under the system disapproved in Watt I. Id. at 593-94.

The Court similarly validated the Secretary’s choice to examine environmental sensitivity and marine productivity of the various regions according to a methodology (habitat sensitivity to oil spills) which “he reasonably determined would result in the most reliable comparison” among the regions, again applying a deferential standard of review.  Id. at 595-97 In other words, the Secretary was free to choose any methodology so long as it was not irrational.

The Edge of Deference – the Cost Benefit Analysis Error

The Court’s treatment of petitioners’ challenge to the Secretary’s cost benefit analysis exposed why the “substantial evidence” standard reserved for “factual findings” under the hybrid standard of review enunciated in Watt I  afforded cold comfort to petitioners in the planning context, the Court noting that in the area of “predictive” facts, and in the undertaking of a “type of analysis … not … performed extensively in the past,” the Secretary would be afforded “great deference.” Id. at 600.

Therefore, although we are obligated to review the factual findings of the Secretary in order to determine that they are supported by substantial evidence in the record, we realize that these findings must be somewhat speculative.

Id.   These deferential principles were, however, put to a severe test in the case of one issue which came before the Watt II Court.

Petitioners contended that in calculating the net quantifiable economic value of each area for use in the overall cost benefit analysis, the Secretary discounted the external costs associated with development to present value but didn’t similarly discount the economic benefits of oil production, resulting in either an understatement of costs or an overstatement of benefits.  The Court acknowledged that the Secretary had failed to discount to present value one of the three components of economic benefit, the amount the Government would receive in royalty payments.  Id. at 604-06.  This would seem on the face of it to require a remand: a clear error in methodology, or alternatively, a factual finding without evidentiary support in the record.  The Court took a different tack.

Acknowledging that “[t]he Secretary's cost benefit calculations were not as precise as they could have been,"  Id. at 605, the panel examined how the cost benefit analysis was utilized by the Secretary, and determined that the error was insignificant.  It reasoned that because the Secretary had consciously understated benefits and overstated costs, and because he “realized that the cost benefit analysis could be used only for generalized conclusions,” the process essentially “allow[ed] room for just such errors.” Id.  Notwithstanding the possibility that the rankings of the areas by net social value (and therefore the timing of leasing) might change were the error to be corrected, the Court was unwilling to remand for what it considered to be a “minor flaw” in the overall process.  Id. at 605-606.

One could equally argue that because the cost benefit analysis process was so inexact, those aspects of it which could be exactly quantified should be free from error, see Watt I, 668 F. 2d at 1301-02, and the Watt II panel struggled with this issue in language which had difficulty arriving at a comfortable characterization of the matter. See, e.g., 712 F.2d at 605 (“This is not to say that …[the Secretary’s cost benefit conclusions] were erroneous.”); and Id. (“We are not suggesting that the Secretary's error with respect to the calculation of royalties was exactly offset by these other assumptions.”).  We may speculate that the Court’s unwillingness to remand was influenced by the urgency with which Congress had commanded OCS development to go forward, the diligent compliance by the Secretary with the remand instructions of the Watt I panel, and the overall thoroughness of the analysis.

It is also important to realize that because the analysis is speculative and predictive in nature, it could go on forever. However, it is clear that Congress did not want the Secretary to spend years developing a five-year leasing program. Indeed, the Secretary was required to submit the first proposed program to Congress, the Attorney General, and the Governors of the affected states within nine months of the effective date of the 1978 amendments.  Thus, “the final decision as to how much analysis is necessary in view of the available data must be the agency's subject to judicial review only for obviously incorrect results or methodology.”  In sum, the aspects of the Secretary's cost benefit analysis challenged are aspects with regard to which the Secretary is entitled to substantial deference. It is important to keep this in mind, as we evaluate the Secretary's performance under section 18(a)(3).

Id. at 600.

1Secretary Watt had designated as a single lease sale, in an example noted by the Court, a planning area of 133 million acres of the OCS.
The largest actual offering in the history of the OCS program amounted to no more than 2.9 million acres. Id. at 592 n. 31.


Updated May 12, 2015

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