The statements and views expressed in the postings on the Ocean & Offshore Energy Projects and Policy Blog are my own and do not reflect those of Nixon Peabody LLP. This Blog does not provide specific legal advice. Reading or visiting this Blog does not create an attorney client relationship. This Blog should not be used as a substitute for competent legal advice from a licensed professional attorney in your state.

Wednesday, December 7, 2011

Federal Update: BOEM Requests Comments on Proposed Lease Auction Process

BOEM Issues Auction Format Information Request; Public Comments Due on January 12

On December 5, 2011, the Bureau of Ocean Energy Management (BOEM) published a notice in the Federal Register entitled “Request for Information on the State of the Offshore Renewable Energy Industry—Auction Format Information Request (AFIR)” (AFIR) which seeks comments on proposed lease-sale auction procedures designated for offshore wind energy development on the Outer Continental Shelf. The AFIR provides for a 45-day public comment period set to expire on January 12, 2012. BOEM has also announced a workshop designed to educate stakeholders about the proposed auction format options and to solicit feedback. The workshop will take place on Friday December 16, 2011 from 8:30 a.m. to 3:30 p.m at the South Interior Building in Washington, D.C. Additional information about the workshop can be found here.

The auction methods proposed in the AFIR were designed in consideration of BOEM’s program objectives, which include:

  • BOEM’s statutory obligation to seek a “Fair Return” for leases granted on the OCS;
    economic efficiency;

  • program efficiency and manageability;

  • “lease boundary flexibility” to enable bidders to select optimal lease areas within the confines directed by BOEM;

  • fair competition among all interested bidders;
    process transparency;

  • equal treatment and consideration of all bids by BOEM; and

  • consistency.

The AFIR proposes several potential auction formats for use in a variety of circumstances including single lot leases and multiple lot leases. For example, for single lot auctions, BOEM proposes to employ a “simultaneous ascending clock auction” or SACA format. Under a SACA, BOEM would set the minimum bid price for a specific lot. If more than one bidder is willing to meet the asking price, BOEM would increase the price incrementally, requesting bidder acceptance at each increase until only one bidder remains. If all bidders drop out at the same price point, BOEM has indicated a number of possible approaches to break the tie. BOEM has also suggested a number of rules that would apply to bidders in a SACA, such as minimum and maximum numbers of lots that a prospective bidder can bid upon.

For multiple lot auctions, BOEM proposes a number of alternative auction formats including variations on the SACA approach. One proposed alternative to the SACA approach would ask bidders to submit bids at or above the designated minimum lot price in each round of bids. The auction would end when each subsequent round of bidding yields the same bid prices as the previous round. BOEM would then award the lease to the bid producing maximum revenue.

A general description of the proposed auctions is provided in the AFIR. A more comprehensive explanation of the auction formats along with BOEM’s commissioned study of various auction formats for the issuance of renewable energy leases (conducted by Power Auctions LLC) is available here.

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