Case No. VFA-0350, 26 DOE ¶ 80,239

December 19, 1997

DECISION AND ORDER

OF THE DEPARTMENT OF ENERGY

Appeal

Name of Petitioner: Convergence Research

Date of Filing: November 14, 1997

Case Number: VFA-0350

On November 14, 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 October 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

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 (1997). 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 (1997). 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 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) (1997). By 1982, BPA had executed contracts with approximately 140 public agency customers. Memorandum from Timothy Johnson, Office of General Counsel, BPA, to Steve Goering, OHA Staff Attorney (December 3, 1997) (BPA Memo).

Prior to 1994, BPA published annually customer-specific 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, 126 F.3d 1158, 1165 (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 1165-66. 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. at 1166. 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 (November 3, 1997). Consequently, BPA has determined that the annual sales and revenue statistics on a customer by customer basis have become commercial information and are treated as confidential. BPA Memo at 2.

In September 1997, CR requested that BPA “make available for examination and selective copying, at a mutually convenient time and location, all bills for products and services provided by BPA to wholesale customers dating from January 1, 1994, to September 24, 1997.” Letter from Kevin Bell, CR, to BPA (September 24, 1997).

BPA responded to CR’s request on October 16, 1997, stating that

[i]n addition to the amount due, individual customer power bills contain several pieces of information that in the aggregate constitute market sensitive information. Such information, if released and subsequently provided to [BPA]’s competitors, would give them otherwise unavailable insight into [BPA]’s immediate future marketing opportunities and strategy. Consistent with Exemption 5 under FOIA, [BPA] has determined that the information contained in its wholesale power bills is confidential and that the release of such information may result in harm to [BPA]’s commercial interest.

Letter from Sharon Zenner, Power Billing Manager, BPA, to Kevin Bell, CR (October 16, 1997) (citation omitted).

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 (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 (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 (1983) (citing Sears, 421 U.S. at 148-49 (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 (1984).

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 (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. 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. 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).

A. Whether the Documents at Issue are Inter-Agency or Intra-Agency Memorandums

The Appellant contends that the power bills withheld by BPA are not inter-agency or intra-agency memorandums and thus not within the scope of FOIA Exemption 5. CR first argues that the bills are not memoranda, as they “do not contain opinions, recommendations, analyses, or anything else relating to the thought process of any agency employee. They do not record information for internal purposes or contain any input for later decisional use.” Appeal at 5. CR further contends that the bills are not inter-agency memoranda because they are “sent outside the BPA to non-agencies.” Id. at 5-7. BPA states that the power bills are used for internal purposes in that they provide the source data for generating internal customer sales reports. Memorandum of telephone conversation between Timothy A. Johnson, BPA, and Steven Goering, OHA (December 8, 1997). In a recent decision on an Appeal filed by CR, we upheld BPA’s withholding of these reports, which contained demand, average rates, and revenue for each of BPA’s customers, under the confidential commercial information privilege of Exemption 5. See Convergence Research, Case No. VFA-0340 (November 7, 1997).

We find that the documents at issue in this case are intra-agency memoranda within the scope of Exemption 5 of the FOIA. Exemption 5 protects “communications outside the agency so long as those communications are part and parcel of the agency’s deliberative process.” Dow Jones & Co. v. Department of Justice, 917 F.2d 571, 574 (D.C. Cir. 1990). In the present case, it appears that BPA’s power bills are not only sent to customers outside the agency, but also serve an internal agency purpose of communicating the data necessary to create customer sales reports that in turn inform BPA’s decision- making process. Given this additional internal use of the power bills, we conclude that the bills qualify as intra-agency memoranda and meet the threshhold test for protection under FOIA Exemption 5.

B. Whether the Documents at Issue are Shielded by the Exemption 5 Confidential Commercial Information Privilege

1. The Agency’s Burden Under the Privilege

The protection that the confidential commercial information 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; Hack, 538 F. Supp. at 1104. Moreover, the application of this privilege is not automatic. Merrill, 443 U.S. at 362. 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, 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 (1983). Therefore, if the agency has shown that it has maintained the confidentiality of the withheld records and that their release might harm the government’s commercial interests, the agency could properly withhold the records under Exemption 5.

2. 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 A 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.

3. Harm to Agency’s Commercial Interests

In two very recent decisions, we found that BPA properly withheld customer-specific commercial information under the Exemption 5 confidential commercial information privilege, based upon the harm to BPA’s commercial interests that would likely result from release of the information. See Convergence Research, Case No. VFA-0340 (November 7, 1997) (demand, average rates, and revenue); The Oregonian, Case No. VFA-0336 (November 3, 1997) (load amounts and exit fees). The same considerations discussed in those decisions lead us to conclude in the present case that the release of the customer-specific information contained in the power bills withheld by BPA, including the amounts of electricity purchased and the rates at which it was sold, would likely cause competitive harm to BPA in the hands of its competitors, who could use the information in their marketing of electricity to BPA’s customers.

In reaching these conclusions, we reject as irrelevant the Appellant’s argument that our decision should be guided by Congress’ decision to “include government entrepreneurial and business-like activities (such as Amtrak and the United States Postal Service) within the reach of the FOIA . . . .” Appeal at 8. As certainly as Congress chose which entities would be subject to the FOIA generally, Congress also chose to include in the FOIA certain exemptions. And the issue before us is not whether BPA is subject to the FOIA, as it undeniably is, but whether the information in question is exempt from release under the Act.

We similarly are not persuaded by the Appellant’s assertion that any “truly determined competitor of BPA’s could obtain access to most of [the] customer bills if it were willing to make the data requests to the 170 or more customers which would be obliged to respond,” thus making it “economically feasible for a multimillion dollar power marketer to expend resources to make requests . . . upon 170 entities but extremely burdensome for a member of the public to do the same widespread gathering.” Appeal at 8-9. Assuming, arguendo, the accuracy of the Appellant’s unsupported assertion, the fact that competitors of BPA would have to expend significant resources to track down this information from “170 or more” sources merely illustrates the advantage that these same competitors would gain if BPA were to make the information publicly, and much more easily, available from one source.

Nonetheless, BPA withheld the documents at issue in their entirety, and the FOIA requires that "[a]ny reasonably segregable portion of a record shall be provided to any person requesting such record after deletion of the portions which are exempt . . . ." 5 U.S.C. § 552(b) (1982). See EPA v. Mink, 410 U.S. 73, 89, 91 (1973); Mead Data Central, Inc. v. Air Force, 556 F.2d 242, 259-62 (D.C. Cir. 1977), cert. denied, 436 U.S. 927 (1978); Casson, Calligaro & Mutryn, 10 DOE ¶ 80,137 at 80,615 (1983). Segregation and release of non-exempt material is not necessary where it is "inextricably intertwined" with the exempt material so that release of the non-exempt material would "compromise" the withheld material, or where the amount of non-exempt material is small and so interspersed with exempt material that it would pose "an inordinate burden" to segregate. Lead Indus. Ass'n v. OSHA, 610 F.2d 70, 83-86 (2d Cir. 1979).

In the present case, we find that reasonably segregable portions of the power bills withheld by BPA can be released to the Appellant. The rationale BPA advances, and which we accept, to justify withholding the power bills goes to the customer-specific nature of the information contained in them. BPA Memo at 2-5. Based on our review of samples of the withheld documents, we believe that BPA should, without facing an inordinate burden, be able to redact any information in the bills that identifies particular customers. We will therefore remand this matter to BPA for a new determination releasing the remainder of the information in the documents or explaining in detail its reasons for withholding any of this information.(1)

In making its new determination, BPA should also take into account the fact that it has already made publicly available customer-specific information regarding its electricity sales through September 30, 1995. We find such information in a document, a copy of which was submitted by the Appellant, entitled “Generation and Power Sales,” which lists sales in Calendar Year 1994. BPA has also provided us with a copy of BPA’s Fiscal Year 1995 report, which contains customer-specific sales information for the period ending September 30, 1995. BPA’s determination should specifically address the basis, if any, for withholding any portion of bills for sales prior to this date.

It Is Therefore Ordered That:

(1) The Freedom of Information Act Appeal filed by Convergence Research on November 14, 1997, Case Number VFA-0350, is hereby granted as specified in Paragraph (2) below, and is denied in all other respects.

(2) This matter is hereby remanded to the Bonneville Power Administration, who shall issue a new determination in accordance with the instructions set forth in the above Decision and Order.

(3) This is a final order of the Department of Energy from which any aggrieved party may seek judicial review pursuant to 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: December 19, 1997

(1)In its response to the present Appeal, BPA also contends that certain of the information withheld is exempt under Exemption 4 of the FOIA, though BPA did not cite this Exemption in its determination to the Appellant. BPA Memo at 5-6. If BPA wishes to claim Exemption 4 as a basis for withholding any of the information at issue, it should do so when it issues its new determination to the Appellant.