Case No. VFA-0572, 27 DOE ¶ 80,277

May 19, 2000

DECISION AND ORDER

OF THE DEPARTMENT OF ENERGY

Appeal

Name of Appellant: Center for Public Integrity

Date of Filing: April 19, 2000

Case Number: VFA-0572

On April 19, 2000, the Center for Public Integrity (Appellant) filed an Appeal from a final determination issued on April 10, 2000 by the Department of Energy’s Office of Fossil Energy (FE). In that determination, FE withheld several documents in response to a Request for Information filed by the Appellant on January 5, 2000 under the Freedom of Information Act (FOIA), 5 U.S.C. § 552(b), as implemented by the DOE in 10 C.F.R. Part 1004. This Appeal, if granted, would require FE to release the withheld information.

I. BACKGROUND

This Appeal arises from the sale of NPR-1, commonly known as the Elk Hills Naval Petroleum Reserve, conducted by FE. On January 5, 2000, the Appellant filed a request for information with FE, seeking in pertinent part: “The names of all entities that placed bids on NPR-1, any portion thereof, and the amounts of all bids.”

On April 10, 2000, FE issued a determination letter indicating that it was withholding the names of the unsuccessful bidders and the amounts of their bids under Exemption 4 of the FOIA. Determination Letter at 1. FE contended that release of the bid amounts and identities of the unsuccessful bidders would cause substantial competitive harm to the firms that submitted the unsuccessful bids and would impair FE’s ability to obtain similar information in the future. The present Appeal challenges FE's withholdings under Exemption 4.

II. ANALYSIS

The FOIA generally requires that records held by federal agencies be released to the public upon request. 5 U.S.C. § 552(a)(3). However, the FOIA lists nine exemptions that set forth the types of information that an agency may withhold. 5 U.S.C. § 552(b)(1)-(b)(9); 10 C.F.R. § 1004.10(b)(1)- (b)(9). These nine exemptions must be narrowly construed. Church of Scientology of California v. Department of the Army, 611 F.2d 738, 742 (9th Cir. 1980) (citing Bristol-Meyers Co. v. FTC, 424 F.2d. 935 (D.C. Cir.), cert, denied, 400 U.S. 824 (1970)). “An agency seeking to withhold information under an exemption to FOIA has the burden of proving that the information falls under the claimed exemption.” Lewis v. IRS, 823 F.2d 375, 378 (9th Cir. 1987). It is well settled that the agency’s burden of justification is substantial. Coastal States Gas Corp. v. Department of Energy, 617 F.2d 854, 861 (D.C. Cir. 1980).

The only exemption that FE expressly claimed in the present case is found at 5 U.S.C. § 552(b)(4) (Exemption 4). 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). “Like all FOIA exemptions, Exemption 4 is to be read narrowly in light of the dominant disclosure motif expressed in the statute.” Washington Post Co. v. United States HHS, 865 F.2d 320, 324 (D.C. Cir. 1989). In order to be withheld under Exemption 4, a document must contain either (a) trade secrets or (b) 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).

Where, as in this case, the agency determines that the information at issue is not a trade secret, but is instead “commercial or financial” and “obtained from a person,” it must then determine whether the information is "privileged or confidential." If the information is subject to a valid claim of legal privilege on the part of its submitter, it may properly be withheld under Exemption 4. In order to determine whether the information is "confidential" the agency must first decide whether the information was involuntarily or voluntarily submitted. If the information was voluntarily submitted, it may be withheld under Exemption 4 if the submitter would not customarily make such information available to the public. Critical Mass Energy Project v. Nuclear Regulatory Comm’n, 975 F.2d 871, 879 (D.C. Cir. 1992) (Critical Mass), cert. denied, 113 S. Ct. 1579 (1993). Information is considered to have been submitted involuntarily if, as in this case, any legal authority compels its submission, including informal mandates that call for the submission of the information as a cost of doing business with the government. Lepelletier v. FDIC, 977 F. Supp. 456, 460 n.3 (D.D.C. 1997). Since the withheld information was involuntarily submitted, the agency must show that its disclosure is likely to either (i) impair the government's ability to obtain necessary information in the future or (ii) cause substantial harm to the competitive position of the person from whom the information was obtained before withholding it under Exemption 4. National Parks, 498 F.2d 765 at 770; Critical Mass, 975 F.2d 871 at 879.

Once the DOE decides to withhold information, both the FOIA and the Department’s implementing regulations require the agency to provide a reasonably specific justification for its withholding. 5 U.S.C. § 552(a)(6); 10 C.F.R. § 1004.7(b)(1); Mead Data Central, Inc. v. Department of the Air Force, 566 F.2d 242 (D.C. Cir. 1977); National Parks & Conservation Ass'n v. Kleppe, 547 F.2d 673 (D.C. Cir. 1976) (Kleppe); Digital City Communications, Inc., 26 DOE ¶ 80,149 at 80,657 (1997); Data Technology Industries, 4 DOE ¶ 80,118 (1979). This allows both the requester and this Office to understand the basis for claiming the exemption and to determine whether the claimed exemption was accurately applied. Tri-State Drilling, Inc., 26 DOE ¶ 80,202 at 80,816 (1997). It also aids the requester in formulating a meaningful appeal and this Office in reviewing that appeal. Wisconsin Project on Nuclear Arms Control, 22 DOE ¶ 80,109 at 80,517 (1992).

Thus, if an agency withholds material under Exemption 4 because its disclosure is likely to cause substantial competitive harm, it must state the reasons for believing such harm will result. Larson Associated, Inc., 25 DOE ¶ 80,204 (1996); Milton L. Loeb, 23 DOE ¶ 80,124 (1993). Conclusory and generalized allegations of substantial competitive harm are unacceptable and cannot support an agency's decision to withhold requested documents. Public Citizen Health Research Group v. F.D.A., 704 F.2d 1280, 1291 (D.C. Cir. 1983); Kleppe, 547 F.2d at 680 ("Conclusory and generalized allegations are indeed unacceptable as a means of sustaining the burden of nondisclosure under the FOIA").

In this case, FE does not contend that the withheld information contains “trade secrets.” Moreover, since it is clear that the withheld information is “commercial,” “was obtained from a person,” and is not “privileged,” the only issue in the present case is whether the withheld information is “confidential” in nature.

FE has set forth three reasons for withholding the bid amounts and identities of the unsuccessful bidders as confidential information protected by Exemption 4. First, FE contends that release of this information would cause substantial competitive harm to the unsuccessful bidders. Second, FE contends that release of this information would impair the Government’s ability to obtain future bids for assets it wishes to sell. Third, FE contends that releasing this information would be inconsistent with the mandate of legislation requiring that the sale of NPR-1 be conducted in a manner “consistent with commercial practices.” National Defense Authorization Act for Fiscal Year 1996, Pub. L. 104-106 (110 Stat. 186).

Competitive Harm

We first consider FE's withholding of the documents under Exemption 4's “competitive harm” prong. The determination letter contends that:

Release of this information would likely cause substantial harm to the competitive position of the persons to whom it pertains. Since the oil and gas business is highly competitive, the knowledge that a company is bidding on an oil and gas producing property would reveal business strategy and would affect the amount of bids that will have to be offered on the next property. Also release of the specific dollar amount bid on the Elk Hills property could reveal the bidder’s valuation methodology and analytical approach to formulating that bid and could provide insight into the company’s growth strategies.

Determination Letter at 2.

The issue before us arises in an atypical context. It involves bid information submitted by entities seeking to purchase from a federal agency. In contrast, most of the FOIA cases involving bid information have involved entities that submitted bids in an effort to sell the government goods and services. However, this distinction does not affect the validity of relevant FOIA case law or its applicability here. It matters not that information was submitted in this case in order to buy from the government rather than to sell to it. What this body of case law requires us to focus on is the likelihood of competitive harm - i.e. whether a bidder’s competitors could use the information provided to predict the submitter’s future bids.

The information sought here is the total bid amounts. Our previous cases, as well as the courts, have viewed with skepticism claims that the release of total bid amounts would cause harm by allowing a bidders’s competitors to predict its future bidding strategy. Accordingly, this office has consistently held that the total price of a contract, after the contract has been awarded, usually does not reveal details of the submitter’s bidding strategy and thus cannot normally be withheld under Exemption 4. See Baker, Donaldson, Bearman & Caldwell, 27 DOE ¶ 80,164 (1998) (Baker) (citing Covington & Burling, 20 DOE ¶ 80,124 at 80,571 (1990)); Morgan, Lewis & Bockius 20 DOE ¶ 80,165 at 80,688 (1990) (Morgan). Nor does the mere fact that the contents of a document might be useful to competitors in future bids constitute sufficient ground to withhold the document. Baker, 27 DOE at 80,655 (citing Morgan, 20 DOE at 80,688). The courts clearly mandate that in order to receive protection under Exemption 4, the expected harm must be substantial in nature. See, e.g., National Parks and Conservation Association v. Morton, 498 F.2d 765, 770 (D.C. Cir. 1974).

The courts have carefully scrutinized the withholding of aggregate pricing data, such as total bid amounts, under Exemption 4. In Pacific Architects & Engineers v. United States Department of State, 906 F.2d 1345 (9th Cir. 1990) (Pacific Architects), the Ninth Circuit found that aggregate pricing information was not confidential under Exemption 4 since it was made up of a number of fluctuating variables, and therefore would not allow competitors to calculate its bidding strategy. In Gulf & Western Industries, Inc. v. United States, 615 F.2d 527, 530 (D.C. Cir. 1979) (Gulf), the D.C. Circuit enunciated a standard for determining whether the disclosure of commercial information would likely cause substantial harm to a firm’s competitive position. That court found that disclosure of information will result in substantial competitive harm if its release allows competitors to estimate, and thus undercut, the submitter’s future bids. Gulf, 615 F.2d at 530. Courts have not upheld protection under Exemption 4's competitive harm prong when agencies have been unable to convincingly show that release of information would be of substantial assistance to competitors attempting to estimate and undercut the submitter’s bids. See, e.g., Pacific Architects; GC Micro Corp. v. Defense Logistics Agency, 33 F.3d 1109 (9th Cir. 1994); Acumenics Research and Technology v. United States Department of Justice, 843 F.2d 800, 807 (4th Cir. 1988).

While the law does not require FE to engage in a highly sophisticated economic analysis of the possible harm to the bidders that might result from disclosure, see Public Citizen Health Research Group v. FDA , 704 F.2d 1280 (D.C. Cir. 1983), in order to prevail, FE must meet its burden of showing substantial competitive harm to the bidders. FE has not met this burden.

In accordance with the DOE’s FOIA regulations, FE solicited comments on the advisability of releasing the unsuccessful bids from each of the unsuccessful bidders. Six of the 14 unsuccessful bidders responded to FE’s request for comments. Those six commenters each expressed concerns that release of the bid amounts and the identities of the bidders might allow their competitors to outbid them in future sales of petroleum producing properties. However, we are of the impression that release of the bid amounts and the identities of the bidders would not provide the bidders’ competition with substantial insight into their bidding strategies. A bid amount appears to us to be dependent on several variables including the bidder’s estimates of: the productive capacity of a unique petroleum producing property, future market conditions, applicability of future production technology and the particular bidder’s expected future supply and demand for petroleum products. With so many variables involved, it is unlikely that much useful information about a bidder’s future acquisition strategies can be gleaned from the release of the bid amounts.

We note that an unpublished decision by the United States District Court for the District of Columbia, Raytheon Co. v. Department of the Navy, No. 89-2481 (D.D.C. 1989) (Raytheon) contains some discussion and analysis which relate to the issues raised herein. In Raytheon, the court considered a request for the total cumulative amount that an unsuccessful bidder had bid for a government contract. The district court found that the total cumulative price could be properly withheld under Exemption 4, since its release could be expected to cause substantial harm to the unsuccessful bidder’s competitive position.

The Raytheon court’s ultimate holding that the unsuccessful bid amount could be withheld under Exemption 4's competitive harm standard is based upon evidence presented in a confidential affidavit that demonstrated factually how the contract price could be used by the bidder’s competitors to derive data harmful to its competitive position. This evidentiary showing has not been made here. Finally, we note that the Raytheon case apparently involved only bid amounts and not the identity or identities of the bidders, so it has no bearing on the issues concerning the withholding of bidders’ identities.

It may well be the case that FE, with its expertise in the oil and gas industry, may have knowledge or insight, that we lack, into how the withheld information might be used to estimate a submitter’s future bids. However, the determination letter does not satisfactorily explain how knowledge that a particular firm placed a bid on all or part of NPR-1 or of the amount it bid would allow its competitors to estimate that firm’s future bidding strategy. Accordingly, we are remanding this portion of the appeal to FE to issue a new determination letter in accordance with the instructions set forth below.

The Appellant contends that the potential for competitive harm to these bidders has been diminished by the passage of time. The Appellant notes that the bids were submitted over 30 months ago. During this time, the Appellant correctly contends, the oil and gas industry has undergone significant change. As courts have noted, the passage of time can, in some circumstances, mitigate the potential for harm that could have otherwise resulted from the release of commercial information. See Lee v. FDIC, 923 F. Supp. 451, 455 (S.D.N.Y. 1996); Teich v. FDA, 751 F. Supp. 243, 253 (D.D.C. 1990). Therefore, in weighing whether to withhold the information under Exemption 4's competitive harm prong, FE must consider the effect of the passage of time on the potential for competitive harm if the information were released, and provide an explanation of its reasoning in its new determination letter should it decide to withhold this information.

Impairment

We now turn to FE’s contention that release of the unsuccessful bids would impair the government’s ability to obtain similar information in the future. Essentially, FE is contending that release of unsuccessful bids would impair the government’s ability to receive bids in future sales of government-owned oil and gas properties.

The courts have denied protection under the impairment prong when the benefits associated with submission of particular information make it unlikely that the agency’s ability to obtain similar submissions in the future will be impaired. See, e.g., McDonnell Douglas Corp. v. NASA, 981 F. Supp. 12, 15 (D.D.C. 1997) (finding that release of contract price information would not cause impairment since “[g]overnment contracting involves millions of dollars and it is unlikely that release of this information would cause [the agency] difficulty in obtaining future bids”) (reverse FOIA suit) (appeal pending); Badhwar v. United States Department of the Air Force, 622 F. Supp. 1364, 1377 (D.D.C. 1985), aff’d in part and rev’d on other grounds, 829 F.2d 182 (D.C. Cir. 1987) (no impairment when submission mandatory if supplier wished to do business with the government); Racal-Milgo Gov’t Sys. v. SBA, 559 F. Supp. 4, 6 (D.D.C. 1981) (no impairment because “[i]t is unlikely that companies will stop competing for Government contracts if the prices contracted for are disclosed”); but see Orion Research v. EPA, 615 F.2d 551, 554 (1st Cir. 1980) (finding impairment for technical proposals submitted in connection with government contract because release “would induce potential bidders to submit proposals that do not include novel ideas”). These cases recognize that the benefits of doing business with the government can be considerable and are generally sufficient to ensure that firms will continue to submit bids even if these bids are made public. We find no reason suggesting that this logic does not apply to the facts of the present case. Accordingly, we are not persuaded by FE’s contention that release of the withheld information would impair FE’s ability to obtain bids on future sales of petroleum producing properties.

National Defense Authorization Act

FE further contends that releasing this information would be inconsistent with the mandate of § 3412(d) of the National Defense Authorization Act for Fiscal Year 1996. Section 3412(d) requires that DOE’s sale of NPR-1 be conducted in a manner “consistent with commercial practices.” National Defense Authorization Act for Fiscal Year 1996, Pub. L. 104-106 (110 Stat. 186). FE contends that since the commercial practice in the oil and gas industry is to keep bids for properties confidential, this statute requires that FE must not release the bids. FE’s reliance on this statute is misplaced.

The FOIA allows the withholding of information under other statutes only if they meet the criteria set forth in Exemption 3. See, e.g., Essential Information, Inc. v. USIA, 134 F.3d 1165, 1168 (D.C. Cir. 1998). Exemption 3 allows the withholding of information prohibited from disclosure by another statute only if the statute either “(A) requires that the matters be withheld from the public in such a manner as to leave no discretion on the issue, or (B) establishes particular criteria for withholding or refers to particular types of matters to be withheld.” 5 U.S.C. § 552(b)(3) (1994 & Supp. II 1996). The D.C. Circuit has expressly held that “a statute that is claimed to qualify as an Exemption 3 withholding statute must, on its face, exempt matters from disclosure.” Reporters Comm. for Freedom of the Press v. United States Department of Justice, 816 F.2d 730, 735 (D.C. Cir.); modified on other grounds, 831 F.2d 1124 (D.C. Cir. 1987); rev’d on other grounds, 489 U.S. 749 (1989).

Section 3412(d) of the National Defense Authorization Act is clearly not a withholding statute under Exemption 3, since it does not specifically indicate that the agency must withhold particular information. We therefore find that the information sought cannot be withheld on that basis.

Duty to Segregate

We note also that FE withheld both the unsuccessful bid amounts and the unsuccessful bidders’ identities. 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 under this subsection." 5 U.S.C. § 552(b). However, segregation and release of non-exempt material is not necessary when it is inextricably intertwined with the exempt material, such that release of the non- exempt material would compromise the confidentiality of the withheld material. Lead Industries Association v. OSHA, 610 F.2d 70, 83-86 (2d Cir. 1979). The duty to segregate and release non- exempt material requires FE to consider separately the identities of the unsuccessful bidders and the bid amounts. FE has not demonstrated, for example, how releasing the bid amounts without identifying the parties who submitted the bids could enable competitors to predict their competitors’ future bidding strategies.

Accordingly, on remand, FE must conduct an additional review of any information it seeks to withhold from the Appellant in order to determine whether it contains information that can be segregated and released to the public.

Correspondence with the Office of the Vice President

At the same time that it requested the names of bidders and bid amounts, the Appellant also requested: “Any memoranda, correspondence, or other documents regarding any communication between the Office of the Vice President of the United States and DOE regarding the sale of NPR-1.”

The Determination Letter indicated that FE’s search for documents had not identified any documents that were responsive to this request. Determination Letter at 3. However, during the pendency of the present Appeal, FE submitted a number of documents to this office. Among these documents was a report on the sale of NPR-1 prepared by the DOE and addressed to Vice President Gore, albeit in his capacity as President of the United States Senate.

The DOE report delivered to the Vice President in his capacity as President of the Senate is a responsive document and should have been so identified. However, since FE has indicated that it has provided the Appellant with the document, its failure to identify it as responsive requires no corrective action.

III. CONCLUSION

We are remanding the present Appeal to FE. On remand, FE shall either release all or part of the withheld information or provide a new justification for any continued withholdings.

It Is Therefore Ordered That:

(1) The Appeal filed by the Center for Public Integrity, Case No. VFA-0572, is hereby granted as specified in Paragraph (2) below and denied in all other aspects.

(2) This matter is hereby remanded to the Office of Fossil Energy, which shall issue a new determination in accordance with the instructions set forth above.

(3) 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: May 19, 2000