Case No. VFA-0503, 27 DOE ¶ 80,216

July 8, 1999

DECISION AND ORDER

OF THE DEPARTMENT OF ENERGY

Appeal

Name of Petitioner:B.P. Exploration, Inc.

Date of Filing:June 9, 1999

Case Number: VFA-0503

On June 9, 1999, B.P. Exploration, Inc. (BP), filed an Appeal from a determination the Strategic Petroleum Reserve Project Management Office (SPR) of the Department of Energy (DOE) issued to it on May 13, 1999. In that determination, SPR denied a request for information that BP filed under the Freedom of Information Act (FOIA), 5 U.S.C. § 552, as implemented by the DOE in 10 C.F.R. Part 1004. The FOIA requires that a federal agency generally release documents to the public upon request. The FOIA, however, lists nine exemptions that set forth the types of information that a federal agency may withhold at its discretion. 5 U.S.C. § 552(b); 10 C.F.R. § 1004.10(b).

I. Background

In a January 14, 1999 request for information, BP sought a copy of a lease agreement between the SPR and Exxon Pipeline Company (Exxon) for certain specified DOE pipelines. In its February 8, 1999 determination, SPR released a redacted copy of the lease agreement in which the various rental fees Exxon would pay DOE for use of the pipelines were withheld. SPR withheld the fees pursuant to Exemption 4 of the FOIA. BP subsequently appealed SPR's February 8 determination to this Office. In an April 3, 1999 Decision, we found that the SPR's February 8 determination letter did not adequately justify SPR's withholding of the fee information by specifically explaining how Exemption 4 applied to the withheld information. See B.P. Exploration, Inc., 27 DOE ¶ 80,197 at 80,746 (1999). Consequently, we remanded the case to SPR so that it could either issue another determination adequately explaining why the information was properly withheld pursuant to Exemption 4 or release the withheld information. Id.

SPR issued another determination on May 13, 1999. In this determination SPR again withheld the rental fee information. SPR asserted that the confidential fee information had been obtained from Exxon and this information was confidential. SPR stated that Exxon had informed it that it would suffer commercial harm from the release of the fee information. Specifically, the determination letter stated that release of the fee information would compromise Exxon's negotiating position with potential pipeline shippers and that competitors would be able to determine how Exxon establishes its tariff rates to charge other firms. SPR noted that release of the withheld fee information would damage DOE's own commercial interests since it shares from the revenue from the leased pipelines. SPR also asserted in its May 13 determination letter that release of the withheld information would

impair the government's ability to obtain necessary information in the future. BP subsequently filed the appeal before us now.

In its submission, BP challenges the application of Exemption 4 to the fee information. Specifically, BP asserts that the fee information in the lease agreement was created by the federal government. Thus, such information is not "obtained from a person" as required by Exemption 4. BP also challenges the fee information's characterization as "confidential" information. BP asserts that the competitive harm rationale explained in the determination letter does not support a finding that release of the information would cause Exxon competitive harm. BP also argues that commercial harm to the government itself would not be sufficient justification to invoke Exemption 4 to the withheld fee information. Lastly, BP argues that release of the fee information would further the goal of the FOIA to promote open government and would shed light on the public's evaluation of an agency's performance in the area of government contracting.

II. Analysis

Exemption 4 exempts from mandatory public disclosure "trade secrets and commercial or financial information obtained from a person and privileged or confidential." 5 U.S.C. § 552(b)(4); 10 C.F.R. § 1004.10(b)(4). In order to qualify under Exemption 4, a document must contain either (1) trade secrets or (2) information that is "commercial" or "financial," "obtained from a person," and "privileged or confidential." National Parks & Conservation Ass'n. v. Morton, 498 F.2d 765 (D.C. Cir. 1974) (National Parks). In National Parks, the United States Court of Appeals for the District of Columbia Circuit found that commercial or financial information submitted to the federal government involuntarily is "confidential" for purposes of Exemption 4 if disclosure of the information is likely either (1) to impair the government's ability to obtain necessary information in the future or (2) to cause substantial harm to the competitive position of the person from whom the government obtained the information. Id. at 770; Critical Mass Energy Project v. NRC, 975 F.2d 871 (D.C. Cir. 1992), cert. denied, 113 S. Ct. 1579 (1993) (Critical Mass). By contrast, information a submitter provides to an agency voluntarily is "confidential" if it is of a kind that the provider would not customarily make available to the public. Critical Mass, 975 F.2d at 879. Because Exxon was required to submit a proposed rental fee in negotiating the lease agreement with SPR, we find that the withheld information was "involuntarily" submitted to SPR. William E. Logan, Jr., 27 DOE ¶ 80,198 (1999). Thus, for the information to be withheld under Exemption 4, the National Parks test must be met.

Under National Parks, the first requirement for Exemption 4 protection is that the withheld rental fee information contained in the pipeline leases must be "commercial" information. Second, the information must be "obtained from a person." We find that the withheld rental rates are "commercial" information. With regard to whether the information was "obtained from a person," SPR's May 13 determination asserts that the fee information was so obtained because corporate entities such as Exxon are considered to be "persons" for Exemption 4 purposes and because in negotiating the lease agreement Exxon was required to submit to SPR a proposed rental amount for the use of the pipeline. BP challenges SPR's assertion that the withheld fee information was "provided" by Exxon. BP believes that the fees incorporated into the lease agreement were probably not the fees proposed by Exxon in its initial offer but fees derived as a result of negotiation between Exxon and SPR. Consequently, the fees in the lease agreement were not in fact obtained from Exxon.

BP directs our attention to Comstock International (U.S.A.) v. Export-Import Bank of the United States, 464 F. Supp. 804 (D.D.C. 1979) (Eximbank) as support for this argument. In Eximbank, the requester sought a copy of a loan agreement entered into between Eximbank, a federal agency, and a private firm. The Court noted in its decision that the information contained in the loan agreement "is not submitted to the government but rather generated by it through Eximbank's participation in the negotiation process." 464 F. Supp. at 807-08. Thus, BP asserts that Eximbank holds that information resulting from negotiations between a private firm and the federal government can not be considered as having been "obtained" from the non-governmental party.

We believe that BP has misconstrued the Court's holding in Eximbank. The portion of the decision quoted by BP was in reference to the Court's discussion of whether information in a certain document was "confidential," specifically, whether disclosure of the loan agreement would threaten the government's ability to obtain similar information in the future. Id. That discussion does not affect the Court's explicit holding that the loan agreement had been obtained from a person. Id. at 806. Because the withheld rental fee information was a result of a negotiation between Exxon and SPR, we find that the withheld fee information was "obtained from a person" for Exemption 4 purposes. See William E. Logan, Jr., 27 DOE ¶ 80,198 (1999).

To qualify for Exemption 4 protection under National Parks, information must also be "confidential." The withheld information is "confidential" if it meets the test set out in National Parks. In this case, the withheld rental fee information would be considered "confidential" if release would impair the government's ability to obtain necessary information in the future or cause substantial harm to the competitive position of Exxon. In its May 13 determination letter, SPR noted that Exxon had stated that it would suffer competitive harm since the amount that Exxon pays DOE for the lease is part of the overall expense to Exxon for that pipeline. Release of the fee information, it is claimed, would compromise Exxon's negotiating position with potential pipeline shippers. Exxon also claims that it would suffer harm in that release of the fee information would show competitors how Exxon establishes its tariff rates for transporting oil through the pipeline. SPR also noted in its May 13 determination that because DOE shares in the revenue generated by the pipeline, DOE financial interests would also be undermined by release of the rental fee information. SPR also found that release of the rental fees would impair its ability to obtain necessary information in the future.

BP asserts that release of the withheld information would cause no competitive harm. First, BP points out that Exxon does not compete with pipeline shippers; indeed, such firms are in reality Exxon's customers. BP points out that any competitive harm in Exxon's negotiating position with pipeline shippers resulting from release of the information is essentially nullified by the regulatory environment in which oil pipeline carriers operate. Specifically, BP notes that Exxon, by regulation, is required to set its pipeline tariff rates to its customers based upon its costs, including pipeline leasing costs. Further, BP asserts that, since Exxon must justify its tariff rates to the Federal Energy Regulatory Commission based upon its cost of service, there is little likelihood that Exxon could be placed at a commercial disadvantage if the rental fees contained in the lease agreement are disclosed to its customers. BP also asserts that the withheld information would be made available in connection with a protest filed against Exxon tariff rates. Additionally, BP argues that in the absence of a reasonable expectation of confidentiality on the part of a submitter of information, Exemption 4 does not apply. In the present case, Exxon could not have had a reasonable expectation that the rental rates would be treated as confidential since there was no confidentiality provision in the lease itself. BP also argues that SPR has not demonstrated that release of the withheld information would impair its ability to obtain similar information especially in light of the fact that the withheld information resulted from a negotiation between Exxon and SPR and was not submitted or obtained from Exxon. BP also asserts that overall price and unit terms in government contracts are routinely disclosed to the public and cites numerous cases to that effect.

SPR's explanation concerning potential competitive harm is insufficient for us to make an affirmative finding on this issue. While SPR alleges that release of the rental fees would enable Exxon's potential customers to negotiate lower rates, it fails to specifically explain how potential customers could use this information to negotiate lower rates or how these lower rates (and presumably lower profit margins) would significantly reduce its competitive position. Further, Exxon does not give a sufficiently detailed explanation of how competitor oil transportation firms could use the rental rates to determine Exxon strategy in setting tariffs for its pipeline operations and why this would adversely effect Exxon's competitive position. (1) Further, economic harm to the DOE's financial interest would not satisfy the National Parks "competitive harm" test. The harm referred to in National Parks is the harm to the person from whom the government obtained the information. National Parks, 498 F.2d at 770. Thus, in the present case, the only competitive harm which is relevant is that potentially occurring to Exxon.

Similarly, we do not have enough information to conclude from the information contained in the May 13 Determination Letter that the withheld information is confidential by virtue of the fact that release would impair the government's ability to collect similar information in the future. SPR did not specifically identify any reasons why the release of the rental fees would inhibit its ability to collect similar information in the future. While SPR did state that its financial interest would be harmed if Exxon's negotiating position with potential customers were impaired, this consideration does not address the National Parks "impairment" prong for determining confidentiality for Exemption 4 purposes.

With regard to the present case, we have already remanded this case once to SPR for a more detailed justification of how Exemption 4 applies to the withheld rental rates. Our normal practice would be for us to make our own analysis of possible economic harm based upon the information available and decide on the applicability of Exemption 4. However, any analysis of potential economic harm is complicated by the fact that the Federal Energy Regulatory Commission regulates the rates and practices of oil pipeline companies engaged in interstate transportation. See 18 C.F.R. §§ 340-348. In light of the unique environment in which pipeline companies operate, the complexity of the issues, and the fact that SPR and Exxon are the best sources of information on this issue, we will give SPR one more opportunity to specifically detail what competitive harm Exxon would suffer from release of the rental rates. Consequently, on remand SPR shall issue another determination letter either releasing the rental fee rates or fully providing a detailed description of how Exemption 4 applies to the withheld material. If SPR again withholds the information, BP may then appeal to this Office and we will issue a final determination.

It Is Therefore Ordered That:

(1) The Appeal filed by B.P. Exploration, Inc. on June 9, 1999, Case No. VFA-0503, is granted in part as set forth in Paragraph (2) below, and denied in all other respects.

(2) This matter is hereby remanded to the Strategic Petroleum Reserve Project Management Office for further consideration in accordance with the instructions contained in the foregoing decision.

(3) This is a final Order of the Department of Energy of 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 either in the district where 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: July 8, 1999

(1)We note however, that we are also not convinced by BP's arguments regarding the lack of potential economic harm to Exxon. In the event that Exxon's pipeline rates were protested to the Federal Energy Regulatory Commission or required to be provided to FERC to justify its proposed tariff rates, it is not certain that commercial information such as Exxon's lease rate for the pipeline would be made available to the public. FERC could subject the lease rates or other commercial information to an order which would protect them from disclosure or other non-litigation use by the protestor. See Memorandum of telephone conversation between Dave Ulevich, Regulatory Gas Utility Specialist, FERC, and Richard Cronin, OHA Staff Attorney (June 29, 1999). Thus, we do not find in any event the withheld rental fees would become common knowledge to Exxon's competitors. While BP is correct that the lease itself does not have a confidentiality provision, SPR has submitted a letter dated on the same day the lease agreement was signed. In this letter, Exxon states that it considers portions of the lease, including the rental fee information, to be commercial information that is privileged and confidential. See January 13, 1999 letter from George G. Persyn, Project Manager, Hoover Offshore Pipeline System, Exxon, to Patricia C. Sigur, Realty Officer, SPR. We believe that this letter provides sufficient evidence that Exxon had an expectation of confidentiality regarding the rental fees.

The "unit price" cases cited by BP are not determinative regarding the lack of competitive harm. In many of these cases courts have held that the release of "unit prices" would not provide information that would competitively harm the submitter of the information because the unit prices are themselves composed of many components which would still remain hidden or are highly variable. See, e.g., Pacific Architects & Engineers v. Department of State, 906 F. 2d 1345 (9th Cir. 1990); Acumenics Research & Tech., Inc. v. Department of Justice, 843 F. 2d 800 (4th Cir. 1988). Unlike those cases, the rental fees in this case would constitute a single price element of Exxon's cost in operating its pipeline.