Case No. VFA-0340, 26 DOE ¶ 80,231

November 7, 1997

DECISION AND ORDER

OF THE DEPARTMENT OF ENERGY

Appeal

Name of Petitioner: Convergence Research

Date of Filing: October 9, 1997

Case Number: VFA-0340

On October 9, 1997, Convergence Research (CR) filed an Appeal with the Office of Hearings and Appeals (OHA) of the Department of Energy (DOE) from a determination that DOE’s Bonneville Power Administration (BPA) issued to CR on September 16, 1997. That determination concerned a request for information CR submitted pursuant to the Freedom of Information Act (FOIA), 5 U.S.C. § 552, implemented by the DOE in 10 C.F.R. Part 1004. If the present Appeal were granted, BPA would be required to release the responsive material to CR.

I. Background

The BPA, a federal agency within the DOE, was created by Congress in 1937 to market low-cost hydroelectric power generated by the Federal Columbia River Power System, a series of dams along the Columbia River in Oregon and Washington. 16 U.S.C. §§ 832-832m. Congress later expanded BPA’s mandate to include marketing authority over almost all electric power generated by federal facilities in the Pacific Northwest. 16 U.S.C. §§ 838b, 838f. In 1980, Congress passed the Pacific Northwest Electric Power Planning and Conservation Act, 16 U.S.C. § 839, to ensure that BPA’s low cost power would continue to be marketed to existing BPA customers. Congress also required the BPA to offer initial long-term (20 year) firm power sales contracts to all existing BPA public body and cooperative customers (public agency customers). 16 U.S.C. § 839c(g)(1)(A). By 1982, BPA had executed contracts with approximately 140 public agency customers. Memorandum from Timothy Johnson, Office of General Counsel, BPA, to Valerie Vance Adeyeye, OHA Staff Attorney (October 27, 1997) (BPA Memo).

Prior to 1994, BPA published annually customer sales and generation statistics, containing data derived from customer power bills. This data consisted of annual energy demand, deliveries, and revenues generated by customer. However, after the passage of the Energy Policy Act of 1992, Pub. L. No. 102-486, 106 Stat. 2776 (1992), deregulation of the wholesale electricity market resulted in competitors entering BPA’s existing market. BPA Memo at 2. BPA began to feel the effects of this new competition by 1994. Id. One intent of the Energy Policy Act was to promote greater competition in bulk power marketing by encouraging new entrants. Association of Public Agency Customers, Inc. v. Bonneville Power Administration, 1997 WL 586809, at *3 (9th Cir. Sept. 24, 1997). Congress sought to encourage wholesale power marketing competition between utilities and independent power producers and thereby reduce the cost of electricity to consumers. Id. at *4. As a result, the price of wholesale power in the Pacific Northwest dropped, and BPA faced price competition for the first time in its history. Id. With the published annual statistics, BPA’s new competitors had access to the market profile of any BPA customer, and thus armed “are assumed to have been able to undercut BPA in its attempt to either retain customers or compete for those customers with access to the market.” BPA Memo at 2. BPA then began “a process of re- engineering itself to resemble more closely a private sector utility. As part of this process, BPA has engaged in an ongoing process of analyzing the markets in which it now competes, its potential customer base and its pricing strategy.” Ball, Janik and Novack, 25 DOE ¶ 80,197 (1996) (Ball). See also The Oregonian, Case No. VFA-0336, 26 DOE ¶ (November 3, 1997) (The Oregonian). Consequently, BPA has determined that the annual customer sales statistics have become commercial information and are treated as confidential. BPA Memo at 2. In August 1997, CR requested that BPA release on an ongoing basis:

Copies of capacity and energy sales and revenue information for each BPA customer, for calendar year 1995, fiscal year 1995, calendar year 1996, fiscal year 1996, and all future fiscal and calendar years. The data should identify all BPA customers and show, by customer, the HLH firm Demand in kW for each customer, Energy Deliveries in kWh for each customer, Dollar Revenues from each customer, the mills/kWh rate paid by each customer, and all applicable rate schedules in effect for each customer.

Letter from Kevin Bell (Bell), Principal, Convergence Research, to FOIA Compliance Officer, BPA (August 6, 1997). Bell attached a sample containing information “from the publicly available BPA Calendar Year 1994 Generation and Power Sales document.” Id. Bell indicated that the material was required for “ongoing detailed research, public education and advocacy on the policies and practices of BPA in a restructured electric market environment.” Id.

On August 18, 1997, BPA acknowledged the receipt of CR’s request and stated, correctly, that the FOIA applies only to documents already in existence and cannot be used on an “ongoing” basis. Letter from FOI Officer, BPA, to CR (August 18, 1997). On August 22, 1997, BPA informed CR that the Generation and Power Sales document had been discontinued. Letter from Senior Vice President, Power Business Line, BPA to CR (August 22, 1997). However, BPA provided CR with a copy of the replacement document, “Generation and Sales Statistics,” an aggregation of sales information by fiscal year, similar in content and format to a corporate income statement. Id. On September 16, 1997, BPA indicated that it had identified a responsive customer sales document containing demand, average rates, and revenue for each customer. Letter from Steven Hickok, Senior Vice President, Power Business Line, BPA, to CR (September 16, 1997). Nonetheless, BPA withheld this information under Exemption 5 because it was now considered confidential commercial information in view of the post-Energy Policy Act business environment. Id. On October 9, 1997, Bell filed this Appeal on behalf of CR.

II. Analysis

The FOIA generally requires that federal agencies release documents to the public upon request. However, the FOIA lists nine exemptions that set forth the types of information which may be withheld at the discretion of an agency. 5 U.S.C. § 552(b). Exemption 5 of the FOIA exempts from mandatory disclosure documents that are "inter-agency or intra-agency memorandums or letters which would not be available by law to a party other than an agency in litigation with the agency." 5 U.S.C. § 552(b)(5); 10 C.F.R. § 1004.10(b)(5). The Supreme Court has held that this provision exempts "those documents, and only those documents, normally privileged in the civil discovery context." NLRB v. Sears, Roebuck & Co., 421 U.S. 132, 149, 95 S. Ct. 1504, 1515 (1975) (Sears). However, the Supreme Court has recognized that Exemption 5 also incorporates those “privileges which the Government enjoys under the relevant statutory and case law in the pre-trial discovery context.” Renegotiation Board v. Grumman Aircraft Engineering Corp., 421 U.S. 168, 184, 95 S.Ct. 1491, 1500 (1975). Accordingly, “[t]he test under Exemption 5 is whether the documents would be ?routinely’ or ?normally’ disclosed upon a showing of relevance.” F.T.C. v. Grolier, 462 U.S. 19, 26, 103 S. Ct. 2209, 2214 (1983) (citing Sears, 421 U.S. at 148-49, 95 S. Ct. at 1515 (1975)). Therefore, if a privilege is well recognized by statute or in the case law, it may properly be invoked under Exemption 5. See United States v. Weber Aircraft Corp., 465 U.S. 797, 799-801, 104 S. Ct. 1488, 1492-93 (1984).

A. The Confidential Commercial Information Privilege

Among the privileges incorporated by the courts under Exemption 5 is the “confidential commercial information privilege.” See, e.g., Federal Open Market Comm. v. Merrill, 443 U.S. 340, 99 S. Ct. 2800 (1979) (Merrill) (holding that since disclosure of Domestic Policy Directives would significantly harm the Government’s monetary functions or commercial interests, they could properly be withheld under Exemption 5); Government Land Bank v. General Services Administration, 671 F.2d 663 (1st Cir. 1982) (Land Bank) (withholding a government generated real estate appraisal); Hack v. Department of Energy, 538 F. Supp. 1098 (D.D.C. 1982) (holding that conceptual design reports utilized in procuring architectural services were confidential commercial information properly withheld under Exemption 5 prior to selection of the successful bidder) (Hack).

“The Federal courts have long recognized a qualified evidentiary privilege for trade secrets and other confidential commercial information.” Merrill, 443 U.S. at 356, 99 S. Ct. at 2810. In fact, the Supreme Court looked to Rule 26(c)(7) of the Federal Rules of Civil Procedure, which provides that a district court may prevent or restrict discovery of confidential commercial information, and concluded that Exemption 5 incorporates a qualified privilege for confidential commercial information, at least to the extent that this information is generated by the Government itself in the process leading up to awarding a contract. Id. The courts have applied this privilege in the FOIA context to prevent the Government from being placed at a competitive disadvantage and to facilitate the consummation of contracts. Id., 443 U.S. at 360, 99 S. Ct. at 2812. Exemption 5 therefore “protects the government when it enters the marketplace as an ordinary commercial buyer or seller.” Land Bank, 671 F.2d at 665 (footnote omitted).

B. The Agency’s Burden Under the Privilege

The protection that this privilege affords is limited in scope and lasts only as long as necessary to protect the government’s commercial interests. Merrill, 443 U.S. at 360, 99 S. Ct. at 2812; Hack, 538 F. Supp. at 1104. Moreover, the application of this privilege is not automatic. Merrill, 443 U.S. at 362, 99 S. Ct. at 2813. The burden is upon the agency to show that the records it seeks to withhold under the privilege are confidential and that their disclosure might be harmful. American Standard v. Pfizer, Inc., 828 F.2d 734, 746 (Fed. Cir. 1987) (applying the privilege in the civil discovery context). In the civil discovery context, once these burdens are met, the burden shifts to the party seeking disclosure to prove that disclosure should occur by establishing a substantial need for those documents. R&D Business Systems v. Xerox Corp., 152 F.R.D. 195, 196-197 (D. Colo. 1993) (Xerox). In the FOIA context, however, the individual FOIA applicant’s need for information is not to be taken into account in determining whether materials are exempt under Exemption 5. See Merrill, 443 U.S. at 362-63, 99 S. Ct. at 2813, and cases cited therein. Accordingly, courts have found that documents which are immune from discovery absent a showing of substantial need are not “routinely” or “normally” available to parties in litigation and therefore are exempt from mandatory disclosure under Exemption 5. F.T.C. v. Grolier, Inc., 462 U.S. 19, 27, 103 S. Ct. 2209, 2214 (1983). Therefore, if the agency has shown that it has maintained the confidentiality of the withheld records and that their release might result in harm to the government’s commercial interests, the agency could properly withhold the records under Exemption 5.

1. Confidentiality

In the present case, there is no indication in the record that BPA has not maintained the confidentiality of the documents in question. In fact, BPA states in its “Billing Data Request Guidelines” that customer-specific data are released only to the customer or to authorized BPA personnel. See Attachment C to BPA Memo. We therefore turn to the next issue before us: whether release of the customer lists would likely result in harm to BPA’s commercial interests, including its ability to consummate contracts.

2. Harm to Agency’s Commercial Interests

Bell argues that “[t]here is no particular reason why information readily available in 1994 should suddenly be a vital secret in 1995. The information requested has no relation to current operations. It is history with no residual time value.” Appeal at 3. He further submits that because BPA’s financial structure and revenue requirements are public information, competitors already know how much BPA must charge to recover its costs. Id.

We conclude that, contrary to Bell’s assertions, the change in the wholesale electricity market that occurred after the passage of the Energy Policy Act justifies BPA’s current withholding of confidential commercial information developed after this market transformation. BPA began to feel the effects of the new law in 1994, and consequently took steps to protect customer information that it had previously shared with the public. BPA Memo at 2. Release of the withheld information would provide BPA’s new competitors with otherwise unavailable insight into BPA’s potential future marketing strategies. BPA developed this information for the purpose of enabling it to formulate a marketing strategy for securing its existing customer base and possibly broadening that base as well. If BPA’s competitors obtained this marketing information, it would provide them with valuable insights into BPA’s future marketing strategy, hindering BPA’s ability to compete in the manner of a private sector actor. See Xerox, 152 F.R.D. at 197 (disclosure of marketing strategy and research would cause competitive harm); In Re Adobe Systems, Inc. Securities Litigation, 141 F.R.D. 155, 162 (disclosure of documents containing marketing information would educate competitors and would adversely affect negotiating leverage with customers); Weed Associates, 24 DOE ¶ 80,159 at 80,645 (1994) (disclosure of future marketing plans would likely cause substantial harm to competitive position); Ball, 25 DOE at 80,744 (release of BPA customer lists would provide BPA competitors with insight into potential BPA marketing strategy); The Oregonian (release of BPA customer information would compromise BPA’s market strategy). If BPA’s present and potential customers obtained this information, it would provide them with undue leverage in future contract negotiations for the purchase of electrical services from BPA. Id. Accordingly, BPA has established a likelihood of significant competitive harm that would result from release of the sales statistics. We therefore find that they are properly withheld under Exemption 5.

C. Public Interest in Disclosure

The fact that material requested falls within a statutory exemption does not necessarily preclude release of the material to the requestor. DOE regulations implementing the FOIA provide that “[t]o the extent permitted by other laws, the DOE will make records available which it is authorized to withhold under 5 U.S.C. § 552 whenever it determines that such disclosure is in the public interest.” 10 C.F.R. § 1004.1.

We find that release of the withheld material would not be in the public interest. Bell argues that the public interest in this information lies in its importance to customers trying to obtain cost-based rates. Although release of this data would provide some benefit to such customers, it would be far outweighed by the harm that BPA would suffer from the disclosure of confidential commercial information to its competitors. Accordingly, we conclude that release of the withheld material protected under Exemption 5 would result in foreseeable harm to the interests that are protected by the confidential commercial information privilege. See Memorandum from Janet Reno, Attorney General, to Heads of Departments and Agencies (October 4, 1993) (stating that the Department of Justice will defend the assertion of a FOIA exemption only in those cases where the agency articulates a reasonably foreseeable harm to an interest protected by that exemption).

It Is Therefore Ordered That:

(1) The Appeal filed by Convergence Research, OHA Case No. VFA-0340, on October 9, 1997, is hereby denied.

(2) This is a final order of the Department of Energy from which any aggrieved party may seek judicial review pursuant to the provisions of 5 U.S.C. § 552(a)(4)(B). Judicial review may be sought in the district in which the requester resides or has a principal place of business, or in which the agency records are situated, or in the District of Columbia.

George B. Breznay

Director

Office of Hearings and Appeals

Date: November 7, 1997