Case No. VFA-0522, 27 DOE ¶ 80,236

October 8, 1999

DECISION AND ORDER

OF THE DEPARTMENT OF ENERGY

Appeal

Name of Petitioner: BP Exploration, Inc.

Date of Filing: September 1, 1999

Case Number: VFA-0522

On September 1, 1999, BP 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 August 11, 1999. In that determination, SPR denied BP's request for information submitted 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 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 the 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 SPR’s February 8 determination letter did not justify SPR’s withholding of the fee information because it did not adequately explain how Exemption 4 applied to the withheld information. BP 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 fee information had been obtained from Exxon and that it was confidential. SPR stated that Exxon had informed it that Exxon would suffer commercial harm from the release of the fee information. BP subsequently appealed SPR’s May 13 determination to this Office. In a July 8, 1999 Decision, we again found that SPR’s justification for withholding the information was insufficient. BP Exploration, Inc., 27 DOE ¶ 80,216 (1999). However, we again remanded

the matter to SPR. We stated that we believed we did not have the expertise to analyze the potential economic harm to Exxon based upon the information available. Id.

SPR issued a third determination on August 11, 1999. In this determination, SPR again withheld the rental fee information. SPR asserts that the fee information is confidential because release of this information would cause competitive harm to Exxon. SPR states that Exxon intends to operate the leased pipeline system as a common carrier, which involves the setting of a tariff in accordance with Federal Energy Regulatory Commission (FERC) requirements. SPR states that the integrity of this rate making process would best be served if information BP is requesting remains confidential unless and until FERC intervention is called for. In other words, SPR maintains that BP can obtain whatever data is relevant to the tariff setting process under the supervision of the FERC in the context of a protest proceeding. Alternatively, SPR claims that the DOE’s ability to obtain this information in the future would be jeopardized should it release the information to BP.

BP argues that SPR has not provided an adequate justification for its decision to withhold the requested information. BP challenges SPR’s claim of competitive harm by asserting that Exxon will not be injured by the release of the lease rates. Appeal Letter dated September 1, 1999, from David K. Monroe and Gregg S. Avitabile, Galland, Kharasch, Greenberg, Fellman & Swirsky, P.C., Counsel for BP, to George B. Breznay, Director, Office of Hearings and Appeals (OHA), DOE, at 6. In fact, BP asserts that it will not agree to a negotiated rate unless it has the lease fee information. Moreover, BP argues that SPR’s rationale for withholding the information assumes that the information is “confidential” without applying the statutory criteria that define the term. Finally, BP challenges SPR’s rationale for its alternate basis for withholding the information-- that disclosure would impair the DOE’s ability to obtain information in the future-- contending that SPR has again focused on injury to the financial interest of the government, an argument that OHA rejected in its May 13 determination.

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 (a) trade secrets or (b) information that is (1) "commercial" or "financial," (2) "obtained from a person," and (3) "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 under non-voluntary conditions is "confidential" for purposes of Exemption 4 if disclosure of the information is likely either (i) to impair the government's ability to obtain necessary information in the future or (ii) to cause substantial harm to the competitive position of the person from whom the information was obtained. Id. at 770; Critical Mass Energy Project v. NRC, 975 F.2d 871, 879 (D.C. Cir. 1992), cert. denied, 113 S. Ct. 1579 (1993) (Critical Mass). By contrast, information that is provided to an agency voluntarily is considered "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. As we stated in our July 8, 1999 Decision, 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. BP Exploration, Inc., 27 DOE ¶ 80,216 at 80,796 (1999); see William E. Logan, Jr., 27 DOE ¶ 80,198 (1999). Thus, as we held previously, for this information to be properly withheld under Exemption 4, the National Parks test must be met. In the July 8, 1999 Decision, we also found that the information was “commercial” and “obtained from a person.” BP Exploration, Inc., 27 DOE at 80,796-97. Therefore, the only issue before us is whether this information is “confidential.”

In this case, the withheld information would be considered “confidential” if release would (a) cause substantial harm to the competitive position of Exxon or (b) impair the government’s ability to obtain the necessary information in the future. In its August 11 determination letter, SPR found that release would cause Exxon to suffer substantial competitive harm by hurting Exxon’s negotiating position with potential pipeline shippers. Determination Letter dated August 11, 1999, from Michael McWilliams, Assistant Project Manager for Management and Administration, SPR, to Stephen J. Chrien, BP (August 11 Determination Letter). However, SPR still has not demonstrated how potential customers could use this information to negotiate lower rates and, therefore, cause competitive harm.

Understanding SPR's position requires reference to the FERC tariff proceedings. Specifically, there are two primary methods for setting the tariff under FERC guidelines. (1)

The first method is to negotiate a price with an unaffiliated shipper. This is what Exxon is currently attempting to do with BP. Under this method, SPR believes that the non-affiliated shipper could use the lease rate information to negotiate a lower tariff with Exxon, and thereby injure Exxon in a cognizable manner. However, SPR has failed to specifically explain how the non-affiliated shipper would be able to use this information to negotiate the lower tariffs and thereby cause Exxon competitive harm. BP Exploration, Inc., 27 DOE at 80,796. The second method is to consider the cost of service to determine the tariff. Under the cost of service method, the carrier determines the tariff and submits the supporting work papers to FERC. Again, SPR fails to explain how release of the withheld information would enable Exxon's competitors to injure Exxon economically for tariffs established under the cost of service method. It is true that we have found in FOIA cases that release of sensitive commercial information submitted to the DOE by a bidder in the procurement context could injure the bidder by allowing a competitor to undercut the bidder in succeeding procurement actions. See, e.g., William E. Logan, Jr., 27 DOE ¶ 80,198 (1999) (possibility of pipeline rental bid competition); City of Federal Way, 27 DOE ¶ 80,191 (1991). This is very different from the present situation, in which SPR has presented no evidence to support its contention that Exxon would suffer economic harm. Consequently, we can not find that SPR has demonstrated that disclosure of the lease rates would cause substantial harm to Exxon's competitive position.

Nor can we conclude that SPR has demonstrated that release of the information would impair the government’s ability to obtain the information in the future. SPR’s assertion that disclosing the lease fees would impair its ability to attract potential pipeline lessees in the future, in the absence of other information, is unpersuasive. Disclosure of contract prices have been found to be a "cost of doing business with the government." Racal-Milgo Gov't Sys. v. SBA, 559 F. Supp. 4, 6 (D.D.C. 1981); see ATT Info. Sys. v. GSA, 627 F. Supp. 1396, 1403 (D.D.C. 1986) ("strong public interest in release of component and aggregate prices in Government contract awards"). Moreover, SPR has attempted to equate the potential negative financial impact of a disclosure with the potential negative impact on its ability to obtain information in the future. SPR's financial argument simply does not address the criteria set forth in National Parks.

In essence, SPR seems to be arguing that the DOE should defer to FERC a decision on the releasability of the information BP requests, inasmuch as that information may be of significance in an eventual tariff proceeding at FERC. SPR refers us to no provision in the FOIA that would allow us to take into account of or give significance to the possibility of a later rate-making proceeding. Nor has SPR argued that the documents responsive to BP's request should be referred to FERC for processing. 10 C.F.R. § 1004.5(f) (setting forth the conditions under which referral to another agency is appropriate). The documentary information BP seeks is in the possession of the DOE, and the DOE has a statutory duty to reach a conclusion on the basis of the best information now available to it, including information about the likelihood of competitive harm.

Because SPR has failed to demonstrate that release of the withheld information would either cause substantial harm to the competitive position of Exxon or impair the government’s ability to obtain the necessary information in the future, we find that the withheld information is not "confidential" for Exemption 4 purposes. Thus, Exemption 4 was improperly applied by SPR to withhold the documents.

III. Conclusion

SPR has now had three opportunities to justify the withholding of the lease fees. SPR has once again failed to show that this information is “confidential” because it would either impair the government’s ability to obtain the information in the future or cause substantial harm to the competitive position of Exxon. Therefore, we will order the release of the lease fees in accordance with the notification provisions of 10 C.F.R. § 1004.11.

It Is Therefore Ordered That:

(1) The Freedom of Information Act Appeal filed by BP Exploration, Inc., on September 1, 1999, Case No. VFA-0522, is hereby granted as specified in Paragraphs (2) and (3) below.

(2) This matter is hereby remanded to the Strategic Petroleum Reserve Project Management Office of the Department of Energy which shall promptly release the requested information.

(3) Prior to the release of the information pursuant to Paragraph (2) of this Decision and Order, the Strategic Petroleum Reserve Project Management Office of the Department of Energy shall, in accordance with 10 C.F.R. § 1004.11, notify the submitter of the intended release no less than seven (7) calendar days prior to the intended disclosure of the information in question.

(4) 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: October 8, 1999

(1)In its determination, SPR alleges that there are three methods to set a tariff rate. In fact, one of the three methods that SPR mentions, the market-based method, is only available should a carrier establish that it “lacks significant market power in the market in which it proposes to charge market-based rates.” 18 C.F.R. § 348.1. This third method is not applicable here.