TITLE: B-307767, Department of Interior--Royalty-in-Kind Oil and Gas Preferences, November 13, 2006
BNUMBER: B-307767
DATE: November 13, 2006
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B-307767, Department of Interior--Royalty-in-Kind Oil and Gas Preferences, November 13, 2006
B-307767
November 13, 2006
The Honorable Wayne Allard
United States Senate
The Honorable Ken Salazar
United States Senate
Subject: Department of Interior--Royalty-in-Kind Oil and Gas Preferences
This responds to your request for our opinion regarding the Secretary of
Interior's authority, under section 342(j) of the Energy Policy Act of
2005, to "grant a preference" in the disposal of royalty oil or gas
received by the United States.
42 U.S.C. sect. 15902(j)(1). The purpose of section 342(j) is to provide
"additional resources to any Federal low-income energy assistance
program." Id. In this regard, you ask whether section 342(j) provides
sufficient authority for the Secretary to provide such programs with oil
and gas at a discount to fair market value.
The Department of Interior maintains that section 342(j) of the Energy
Policy Act does not permit such oil and gas sales at a discount to fair
market value. Although not necessarily the only reading of the provision,
we agree with Interior that this is the better reading of section 342(j).
As we explain below, the issue posed presents a close question of
statutory construction. In our, and Interior's view, the phrase "grant a
preference" in section 342 does not mean to grant a discount to fair
market value where the same section requires sales or transfers to be at
not less than market value and there is no indication that Congress
intended "preference" to include a discount to fair market value.[1]
BACKGROUND
The United States leases federal lands containing oil and gas deposits
under two specific programs: the Mineral Land Leasing Act of 1920
(MLLA)[2] governs land deposits and the Outer Continental Shelf Lands Act
of 1953 (OCSLA)[3] governs lease of oil and gas deposits from offshore or
submerged lands.
The MLLA authorizes the Secretary of the Interior to lease oil and gas
deposits, and certain federal lands containing oil and gas deposits, to
U.S. citizens, associations, corporations, or municipalities. 30 U.S.C.
sect. 181. Lessees must pay the United States a royalty of at least 12.5
percent of the value of the oil or gas removed or sold from the leased
land. 30 U.S.C. sect. 226(b)(1).[4] As an alternative to collecting cash
royalty payments, the Secretary may take a percentage of the value of
royalties in actual barrels of oil or volumes of natural gas, a so-called
"royalty in kind" or "royalty oil and gas." 30 U.S.C. sect. 192. MLLA
authorizes the Secretary to sell to the public royalty oil and gas
accruing to the United States under such leases except when, in the
Secretary's judgment, it is desirable to retain the oil and gas for the
use of the United States, such as filling the nation's Strategic Petroleum
Reserve. Id. Under MLLA, the Secretary must "grant preference" to
refineries not having their own source of supply for crude oil, but sales
to such refineries must be "at not less than the market price." Id.
Similarly, the OCSLA authorizes the Secretary of the Interior to lease oil
and gas deposits from offshore or submerged lands on the outer continental
shelf off the United States. 43 U.S.C. sections 1335, 1337. Like their
onshore counterparts, offshore oil and gas lessees must pay the United
States a royalty of not less than 12.5 percent, which the Secretary also
may demand in kind. 43 U.S.C. sections 1335, 1337, and
1353(a)(1).[5] OCSLA also authorizes the Secretary to sell royalty oil and
gas to the public or to transfer such oil or gas upon request to the
Secretaries of Defense or
Energy or the Administrator of the General Services Administration for
federal use.
43 U.S.C. sect. 1353. Royalty oil or gas sold under OCSLA must not be sold
for more than its regulated price or, if no regulated price applies, must
not be sold at less than its fair market value. Id.
Section 342 of the Energy Policy Act of 2005[6] governs Interior's program
on oil and gas royalties in kind. It applies to all royalties accepted in
kind under any federal oil or gas lease or permit under section 36 of MLLA
(30 U.S.C. sect. 192), section 27 of OCSLA (43 U.S.C. sect. 1353), or any
other federal law governing leasing of federal land for oil and gas
development. 42 U.S.C. sections 15902(a). It requires the Secretary to
sell royalties taken in kind at not less than fair market value. 42 U.S.C.
sections 15902(b)(3)(A).
Another subsection, section 342(j), permits the Secretary, in the sale of
royalty oil and gas, to "grant a preference to any person, including any
Federal or State agency, for the purpose of providing additional
resources to any Federal low-income energy assistance program." 42 U.S.C.
sect. 15902(j). It is this subsection which is at issue here. Under the
Low-Income Home Energy Assistance Program (LIHEAP),[7] the federal
government provides block grants to states, the District of Columbia, U.S.
territories, and Indian tribes to assist low-income households that pay a
high proportion of household income for home energy needs. 42 U.S.C. sect.
8621. Grantees provide assistance through payments to eligible households,
energy suppliers, and weatherization providers. The question before us is
whether section 342(j) authorizes the Secretary to sell royalty-in-kind
oil or gas at a discount to fair market value.
DISCUSSION
As noted above, section 342(b)(3)(A) clearly states that the Secretary may
not sell or dispose of any royalty production taken in kind for less than
the market price. Thus, we need to examine whether the phrase "grant a
preference" or the term "preference" means a discount to fair market value
and supersedes the specific provision precluding sale at not less than
fair market value.
Neither section 342(j) nor other sections of the Energy Policy Act define
the phrase "grant a preference" or the term "preference." Nothing in the
Act indicates that
"preference" means a discount to fair market value. There is little
legislative history except for a floor statement by Senator Salazar, who
offered his interpretation of the
provision when the conference report was being considered. 151 Cong. Rec.
S9269
(July 28, 2005) (statement of Senator Salazar). Senator Salazar described
section 342(j) as authorizing
"the Secretary of Interior [to] begin a demonstration program that would
provide royalty in kind natural gas to low-income energy consumers at
below market cost. In order to do so, the Secretary could enter into
agreements with natural gas distribution companies to provide them natural
gas at below market value as long as they guarantee [that] such gas will
be delivered to low-income energy consumers. In practice, the transfer
would occur through accounting mechanisms, not the actual exchange of
natural gas molecules."
Id. Obviously, Senator Salazar deemed the preference to be a discount to
fair market value because he states it would provide natural gas to
consumers "at below market costs." The problem is that the language of the
statute does not say "price preference," but only "preference," and
another provision of the same section of the statute specifically requires
disposal at not less than fair market value. The Supreme Court has found
that while floor statements provide an individual member's reasons for
offering an amendment or supporting particular legislation, they do not
necessarily represent the meaning and purpose of the lawmaking body
collectively. Duplex Printing Press Co. v. Deering, 254 U.S. 443, 474
(1921).
In the absence of some indication to the contrary, Congress is usually
deemed to use words in their common, ordinary sense. B-303495, Jan. 4,
2005, citing Mallard v. United States District Court, 490 U.S. 296, 300-01
(1989). One measure of the common, ordinary meaning of words is a standard
dictionary. Id. Black's Law Dictionary, for example, defines "preference"
as "the act of favoring one person or thing over another." Black's Law
Dictionary 1197 (7^th ed. 1999). Similarly, the Merriam-Webster's
Collegiate Dictionary defines "preference" as "the power or opportunity of
choosing." Merriam-Webster's Collegiate Dictionary 916
(10^th ed. 2001). These definitions lead us to read "preference" as a
priority in access or the choosing or favoring of one person over another.
We acknowledge that preference could also mean choosing or favoring one
person over another by offering one person a lower price. With respect to
this situation, however, there is a specific provision requiring sales or
transfers to be at not less than market value, which we cannot ignore.
We looked at other laws that deal with the United States selling or
transferring something of value to see how Congress has commonly used the
term "preference" in
enacting other preference provisions.[8] The Taylor Grazing Act, for
example, directs
that "preference shall be given in the issuance of grazing permits . . ."
43 U.S.C. sect. 315b. This provision has been interpreted as granting a
priority in access to grazing permits. The Supreme Court described
preference claims under the Taylor Grazing Act as "first" or "second" or
as "higher" or "lower" priority claims. Public Lands Council v. Babbitt,
529 U.S. 728, 733-35 (2000). In other words, those "who bring themselves
within a preferred class set up by the statute and regulations are
entitled as of right to permits as against others who do not possess the
same facilities for economic and beneficial use of the range." Red Canyon
Sheep Co. v. Ickes, 98 F.2d 308 (D.C. Cir. 1938). The Secretary sets
grazing fees for these permits without regard to preference rights. See 43
U.S.C. sect. 315b; 43 C.F.R. sect. 4130.8-1.
Also, section 9(c) of the Reclamation Project Act of 1939 provides that in
sales or leases of electric power or power privileges made by the
Secretary, preference shall be given to municipalities and other public
corporations or agencies and to cooperatives and other nonprofit
organizations. 43 U.S.C. sect. 485h(c). The preference clause requires
only that public entities be given a preference over private entities in
access to power generated by federal reclamation projects. Santa Clara v.
Andrus, 572 F.2d 660 (9^th Cir. 1978). See also B-210656, Aug. 4, 1983.
Other laws govern the pricing of these sales or leases. See 10 C.F.R. part
903 (identifying such laws).
Interior's Solicitor has concluded that section 342(j) does not provide
the Secretary with authority to sell royalty-in-kind oil or gas at less
than fair market value. Letter from R.M. "Johnnie" Burton, Director,
Minerals Management Service, to Senator Ken Salazar, Jan. 31, 2006. The
Solicitor found that "section 342(j) left unchanged all the provisions
requiring sale of [royalty-in-kind] production at not less than the
`market price' or `fair market value.'" Solicitor's Memo, at 15. We agree.
We think section 342 should be read as a whole. The better reading is that
it does not authorize the Secretary to dispose of royalty-in-kind oil and
gas at less than fair market value. Certainly, section 342(j), standing
alone without reference to fair market value, might be read as permitting
a price preference.[9] To read section 342(j)
alone, however, would require us to disregard section 342(b), which
requires disposal at market price. It is a cardinal principle of statutory
construction that a statute
ought to be so construed that, if it can be prevented, no clause,
sentence, or word shall be superfluous, void, or insignificant. TRW Inc.
v. Andrews, 534 U.S. 19, 31 (2001), citing United States v. Menasche, 348
U.S. 528, 538-39 (1955) ("[i]t is our duty `to give effect, if possible,
to every clause and word of a statute'" (quoting Montclair v. Ramsdell,
107 U.S. 147, 152 (1883))).
We note that section 342(j) also requires the Secretary to submit a report
to Congress assessing the effectiveness of granting preferences under
section 342(j) and providing specific recommendations on the continuation
of the authority to grant preferences. 42 U.S.C. sect. 15902(j)(2). In
implementing section 342(j), the Department of Interior may wish to
consult with the Department of Health and Human Services (HHS) on ways to
offer an access preference to energy distributors. For example, HHS
officials who administer the LIHEAP program explained to us informally
that some states which receive LIHEAP block grants negotiate directly with
utility vendors to provide discounted utility rates for LIHEAP-eligible
households. Interior and HHS may wish to consider, for example, whether
granting an access preference in the sale of royalty-in-kind gas to
utilities that have offered discounted rates to states may indeed provide
additional resources to the LIHEAP program. If, however, the Secretary
determines that the section 342(j) preference provision does not
effectively provide additional resources for any federal low-income energy
assistance programs, the Secretary should report and make recommendations
to Congress on legislative reforms to that authority.[10]
CONCLUSION
The issue posed presents a close question of statutory construction. The
Department of Interior maintains that section 342(j) of the Energy Policy
Act of 2005, which permits it to "grant a preference" in royalty oil and
gas sales to provide additional resources to any federal low-income energy
assistance program, does not permit such oil and gas sales at a discount
to fair market value. Although not necessarily the
only reading of the provision, we agree with Interior that this is the
better reading of
section 342(j). In our, and Interior's view, the phrase "grant a
preference" in section 342 does not mean to grant a discount to fair
market value where the same section requires sales or transfers to be at
not less than market value and there is no indication that Congress
intended "preference" to include a discount to fair market value.
Gary L. Kepplinger
General Counsel
B-307767
DIGEST
Section 342(j) of the Energy Policy Act of 2005, 42 U.S.C. sect. 15902(j),
does not authorize the Secretary of the Interior to dispose of in-kind
royalty oil and gas at a discount to fair market value. Section
342(b)(3)(A) requires the Secretary to sell all royalty oil and gas taken
in kind at not less than fair market value. We agree with the Department
of the Interior that the phrase "grant a preference" in section 342 does
not mean to grant a discount to fair market value where the same section
requires sales or transfers to be at not less than market value and there
is no indication that Congress intended "preference" to include a discount
to fair market value.
------------------------
[1] Our practice when rendering opinions is to obtain the views of the
relevant federal agency to establish a factual record and to elicit the
agency's legal position on the subject matter of the request. GAO,
Procedures and Practices for Legal Decisions and Opinions, GAO-06-1064SP
(Washington, D.C.: Sept. 2006). In this instance, Senator Salazar's office
provided us with a copy of a legal memorandum from the Office of the
Solicitor, Department of the Interior, on the issue addressed in this
opinion. Memorandum from Associate Solicitors, Divisions of Mineral
Resources and General Law, Office of the Solicitor, Department of the
Interior, to the Director, Minerals Management Service, Dec. 28, 2005
(Solicitor's Memo) (concluding that section 342(j) does not provide the
Department with the authority to receive less than fair market value for
the royalty gas or oil). Through informal discussions, we confirmed that
the December 28, 2005, memorandum continues to represent the Solicitor's
interpretation of section 342(j).
[2] MLLA is codified, as amended, in scattered sections of title 30 of the
United States Code.
[3] 43 U.S.C. sections 1331-1356a.
[4] See also 43 C.F.R. part 3100. See generally Department of the
Interior, Bureau of Land Management, The Federal Onshore Oil and Gas
Leasing System, available at
www.blm.gov/nhp/300/wo310/oandg/docs/LeasingBrochure.pdf (last visited
Oct. 27, 2006).
[5] See also 30 C.F.R. parts 256, 260. See generally B-205877, Mar. 16,
1982; Department of Interior, Minerals Management Service, Leasing Oil and
Natural Gas Resources--Outer Continental Shelf, available at
www.mms.gov/ld/PDFs/GreenBook-LeasingDocument.pdf (last visited Oct. 27,
2006).
[6] Pub. L. No. 109-58, title III, subtitle E, sect. 342, 119 Stat. 594,
697 (Aug. 8, 2005), codified at 42 U.S.C. sect. 15902.
[7] The Low-Income Home Energy Assistance Act of 1981, Pub. L. No. 97-35,
title XXVI, 95 Stat. 357, 893 (Aug. 13, 1981), as amended, is codified at
42 U.S.C. sections 8621-8630.
[8] For a few preference provisions relating to the United States as a
procurer of goods or services, see B-297889, B-297889.2, Mar. 20, 2006
(citing preference provisions relating to procurement).
[9] For example, both sections 342(h) and (i), regarding sales to small
refineries and federal agencies, require sales at not less than market
price. We are not persuaded, however, that the lack of a similar
requirement from section 342(j) compels a construction of section 342(j)
as permitting disposal of royalty oil and gas at less than market price.
We will not loosely construe such statutory silence as meaning Congress
intended to authorize disposal of federal property at less than market
price, particularly where Congress's constitutional prerogative to dispose
of United States property is implicated, U.S. Const. Art. IV, sect. 3, Cl.
2. The Property Clause of the Constitution grants Congress power "to
dispose of and make all needful Rules and Regulations respecting the
Territory or other Property belonging to the United States."
[10] For example, we note a bill pending in the House of Representatives,
H.R. 5111, 109^th Cong. (2006), which would amend section 342(j) to
authorize a discount in the sale of royalty-in-kind oil and gas.