Welcome to The New Interior, a periodic update from Steptoe & Johnson LLP to keep you informed of coming changes at the Department of Interior, and for related matters on Capitol Hill and elsewhere with a new administration taking charge in Washington, D.C.  We intend to bring you the very latest on anticipated moves by the Obama Administration and in the 111^th Congress over the next several months, as a new direction takes shape for Interior-related positions and policies.

If you would like to speak with a Steptoe attorney about our Interior practice, please reply to this email or contact Tom Collier (202.429.6242) or Jody Cummings (202.429.8096). 

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Post-Inauguration Tidbits

Salazar Names Chief of Staff, Work Gets Underway

Hours after the inauguration of President Barack Obama on Tuesday, Ken Salazar was unanimously confirmed by the Senate as Secretary of Interior.  In a welcoming ceremony at the Department earlier this week, Salazar announced that Tom Strickland would serve as his Chief of Staff.  Strickland is a former U.S. Attorney for the District of Colorado and Colorado Senate candidate.  Most recently, Strickland was executive vice president and chief legal officer of Minnesota-based UnitedHealth Group.

In addition, Renee Stone, a Washington, D.C. attorney, will be Salazar’s Deputy Chief of Staff.  Stone has had extensive previous Interior experience, including positions as Acting Deputy Solicitor, Associate Solicitor for Parks and Wildlife, Associate Solicitor for Land and Water, and Chief of Staff of the National Park Service.  Stone first landed at Interior during the Clinton Administration when she was hired by Steptoe’s Tom Collier (then-Secretary Babbitt’s Chief of Staff) to be Special Assistant to the Solicitor.

Insiders believe that Secretary Salazar is primarily interested in larger scope energy and global warming issues, which Carol Browner – White House Chief of Energy and Environmental Issues – will be coordinating with several agencies, including Interior, from the White House.  Rumor has it that prior to taking the Secretary position, Salazar requested President Obama’s assurances that Salazar would be a “player” on energy and environmental issues.  To the extent those issues siphon away the Secretary’s attention, it leaves a panoply of more traditional Interior issues to be managed by Deputy Secretary David Hayes.  Perhaps this expanded portfolio is one of the things that encouraged Hayes to return to the same job he held at the end of the Clinton Administration.  Hayes, of course, is well-versed in all of these challenges and should be able to handle them well.  In no way does this potential concentration of focus suggest that Secretary Salazar won’t have the final say on all issues in the Department.  However, it could indicate where both men may spend much of their time.

Solicitor of Interior Pick Coming Soon?

The two frontrunners for Solicitor of Interior appear to be David Getches, Dean of the University of Colorado Law School, and John Leshy, a law professor at the University of California Hastings School of Law. Getches would likely be an exciting choice for Indian Country.  He was the founding Executive Director of the Native American Rights Fund, and has been a strong advocate for tribal governance on reservation lands.  He is widely considered a national authority on natural resources and Indian law issues   Getches has some prior DOI experience, serving as a special consultant to the Secretary of the Interior in 1996.

If Leshy is picked, it would be a return to his old position at Interior, which he held for the entire Clinton Administration.  Leshy has written leading casebooks on federal land and resources law and water law.  He has also served on several commissions and advisory bodies and has been a consultant to many nonprofit organizations, foundations, governmental agencies, and Indian tribes. He is currently a trustee of the Grand Canyon Trust, the Natural Heritage Institute, and Western Progress, a progressive think tank covering the intermountain west.

Rumor has it that Getches may have the inside track to the Solicitor position.

Focus: MMS

The Transition Team has no doubt had their hands full trying to address the myriad of issues likely to be faced by the new Director of the Minerals Management Service (MMS) and the new Assistant Secretary for Land and Minerals Management (ASLM).  President Obama and Secretary Salazar may similarly find it difficult to find people willing to accept the less than plum job as Director and the officially prune-listed job of ASLM.  The issues facing the holders of those jobs include wading into the shark-infested waters of the outer continental shelf (OCS) oil and gas and, now, alternative energy leasing programs; reforming and restoring credibility in the revenue collection and royalty-in-kind programs; and minimizing the effects of unfavorable court decisions.

Offshore Oil & Gas Leasing

On top of the list of issues for the new Administration will be the hot potato of offshore drilling.  The OCS has been kept off-limits for drilling for more than a decade under Presidential withdrawal and Congressional moratoria.  Despite having always been controversial, these directives died with barely a whisper in the last year.  The issue will be teed up early on as the Department decides what to do about the 5-Year OCS Oil and Gas Leasing Program, covering 2010-2015, which the Bush Administration jump-started several years early.  Just four days before President Obama took office, the Bush Administration published a Draft Proposed Program for 2010-2015.  The plan authorizes more than 30 energy exploration lease sales for tracts along the Atlantic, Pacific, Alaska and Gulf Coasts.  The new Administration will likely take a long look at the proposal, and decide whether to continue that process and, if not, what to say about why it is not doing so. 

The existing 5-Year Leasing Program, covering the period 2007-2012, is itself full of hot potatoes that will need to be juggled early on.  That program includes the first sale scheduled to be held in the Mid-Atlantic offshore Virginia since 1983.  While the sale itself is not scheduled to be held until 2011, the sale process is such that the date for providing comments on that sale closed a few days ago on January 13, 2009.  The new Administration will then be left to define a proposed sale area and publish a draft environmental impact statement if it desires to proceed with a sale, or stop it in its tracks and explain why.  Other potentially controversial sales are scheduled to be held offshore Alaska in the Cook Inlet and the Chukchi in 2010 and the North Aluetian Basin in 2011.  The new Director and ASLM will face the challenge of balancing President Obama’s promise to include domestic OCS production in his overall energy plan with concerns for the environment.

Aside from access issues, the new Administration will have to be ready to address the 5th Circuit’s decision on January 12, 2009 in Santa Fe Snyder Corp v. Norton.  The MMS has been subject to criticism from many in Congress because of its implementation of the Deepwater Royalty Relief Act of 1995 (which encouraged deepwater oil and gas operations by establishing royalty relief for certain leases), because it issued some OCS leases in 1998 and 1999 without oil and gas price triggers to end royalty relief when prices rose above a certain level.  The Santa Fe decision essentially moots the criticism by invalidating the price triggers that had been included in the leases subject to royalty relief unless a certain very large volumetric threshold of production has been met.  The new Administration will undoubtedly appeal the decision, but with little likelihood of certiorari, it will need to arrive at an approach to address the decision in the face of what will probably be a groundswell of claims requesting refunds of billions of dollars in royalties.  Other royalty relief provisions for the OCS will almost certainly be carefully scrutinized as well.

Royalty Management

Review and oversight of the royalty management program will include the added challenge of leading a demoralized staff suffering from many criticisms associated with its oversight of the royalty-in-kind and royalty auditing program and the lingering taint of recent well-publicized employee scandals.  The weight of those controversies may press the new Administration to consider alternative means of collecting revenues associated with oil, gas and mineral production.  Even if no organizational or programmatic changes are made, the new Administration will need to restore credibility to the beleaguered programs. 

In addition, almost every new Administration routinely takes a close look at the economic terms of the existing agreements between the government and its oil, gas and mineral lessees as well as the valuation of those commodities in the revenue system.  The new Administration will undoubtedly take the same course.  President-elect Obama has already indicated that one of his priorities will be to ensure that such leases are not warehoused by lessees without an adequate return to the government.  Reviewing oil, gas and mineral valuations is riddled with controversy. 

Offshore Alternative Energy

In addition to its traditional role, MMS picked up new regulatory authority for oversight of alternative energy projects on the OCS in the Energy Policy Act of 2005.  Not surprisingly, that new authority comes with controversy of its own – the Cape Wind Offshore Project.  Initially floated in the 1990s, the Cape Wind Project would permit 24 square miles of federal waters 4.7 miles offshore Cape Cod, Massachusetts in the Nantucket Sound to be used by wind turbine generators.  Just before leaving town, the Bush Administration issued a Final Environmental Impact Statement (FEIS) for the Project.  The FEIS just issued is not a decisional document. After publication of the FEIS, as required by law, there is a minimum 30-day mandatory waiting period before the MMS may issue a Record of Decision (ROD).  As the White House has issued a memorandum to halt pending and finalized rulemakings that have yet to be published or go into effect, it could take much longer to see final action on the FEIS.   While President Obama has been a strong supporter of alternative energy, under the right circumstances, it is unclear whether this particular project meets the relevant criteria.  There has been significant opposition to the project in Massachusetts and it remains to be seen what the Obama Administration will do about the ROD. 

In addition to the Cape Wind Project, the MMS’s decision on the final alternative leasing rulemaking is pending.  A final rule for the new leasing program should be ready for the new Administration to review early on.  Several members of Congress and several states have been eagerly awaiting the final rule.  If the new Administration feels a need to rework it, more delays would be in the offing. 

Finally, the new Administration will find itself in the middle of a dispute between the MMS and the Federal Energy Regulatory Commission (FERC) over which agency has what authority over wave and ocean current energy projects on the OCS.  The MMS proposed rule asserts jurisdiction over those projects, as does the FERC in Pacific Gas & Electric Co., Project Nos. 12781, et al., 125 FERC ¶ 61,045 (2008). 

In sum, the new occupants in these jobs at the Interior Department will need to be up-to-speed on these and other controversial issues in order to hit the ground running.