Case No. VFA-0722

March 21, 2002

DECISION AND ORDER

OF THE DEPARTMENT OF ENERGY

Appeal

Name of Appellant: Southern California Edison

Date of Filing: February 13, 2002

Case Number: VFA-0722

The present Appeal is one of several that have arisen out of a contract dispute between the Appellant and BPA. On March 21, 2001, the Appellant filed a twelve-part request for information with BPA. On May 14, 2001, BPA issued a determination letter in response to the March 21, 2001 request. On June 13, 2001, the Appellant appealed BPA's determination. On July 3, 2001, we issued a Decision and Order granting the Appeal in part and remanding portions of it to BPA for further processing. Southern California Edison, 28 DOE ¶ 80,176 (2001) (VFA-0677). (1)

On January 11, 2002, BPA issued a second determination letter in response to the instructions set forth in VFA-0677. In its January 11, 2002 determination letter, BPA adequately described the results of its searches, clearly indicated which information it was withholding and appropriately specified the exemptions under which each item of withheld information was withheld. BPA also produced two additional long term contracts in their entirety and portions of additional short term and long term contracts. However, the January 11, 2002 determination letter continued to withhold portions of a number of documents under Exemptions 4 and 5 of the Freedom of Information Act. 5 U.S.C. § 552. On February 13, 2002, the present appeal was filed contending that BPA has improperly withheld information under Exemptions 4 and 5.

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)-(9); 10 C.F.R. § 1004.10(b)(1)-(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) (Coastal States).

The information that BPA continues to withhold falls under two categories. The first category consists of information contained in contracts made directly between BPA and outside entities to which it sold, from which it purchased or with which it exchanged electrical power (bi-lateral agreements). The second category consists of information contained in bids submitted by BPA to either the California Independent System Operator (CISO) or the California Power Exchange (CPX).

Bilateral Agreements

BPA, citing Exemption 4, redacted information which consisted of “amounts of energy, total energy amounts, price and total revenue, . . . advance reservation fees, . . . quantity, demand limits, total megawatt hour (MWh), . . . and monthly revenue” from bilateral agreements it released to the Appellant. (2)

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 or is confidential, 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), aff’d in part, rev’d in part and remanded on other grounds, 164 F.3d 37 (D.C. Cir.1999). Since such information is 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 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 the January 11, 2002 determination letter, BPA invoked Exemption 4 claiming that release of the redacted information which consisted of “amounts of energy, total energy amounts, price and total revenue, . . . advance reservation fees, . . . quantity, demand limits, total megawatt hour (MWh), . . . and monthly revenue” would cause substantial competitive harm to those entities that had entered into the contracts at issue if released. The only rationale provided by BPA for its conclusion is that one of those entities that had entered into the contracts at issue requested that BPA keep this information confidential. Although, pursuant to Executive Order No. 12,600, consultation with a submitter of financial or business information is a required step in the FOIA evaluation process, an agency is required to determine for itself whether the information in question should be disclosed. Lee v. FDIC, 923 F.Supp. 451, 455 (S.D.N.Y. 1996); accord Exec. Order No. 12,600 § 5 (notification procedures specifically contemplate that agency makes ultimate determination concerning release). There is no evidence in the record that BPA made the requisite determination.

Moreover, BPA’s justification consists of conclusory and generalized allegations of substantial competitive harm. As the cases set forth above clearly indicate, such conclusory and generalized allegations of substantial competitive harm are unacceptable and cannot support an agency's decision to withhold requested documents under the FOIA.

Accordingly, we are remanding those portions of the Appeal concerning the bilateral agreements to BPA. On remand, BPA shall either promptly release the information it has withheld under Exemption 4 to the Appellant (after complying with the mandate set forth by Executive Order No. 12,600), or issue a new determination letter withholding the information with an appropriate justification.

Bids Submitted to Either the California Independent System Operator (CISO) or the California Power Exchange (CPX)

BPA also redacted information from many of the bids it submitted to either the CISO or CPX that it released to the Appellant. This information indicates the prices at which electrical power was purchased or sold, the quantities of electric power that was purchased or sold and the descriptions of any options in current or recent historical trading. In support , BPA contended that release of this information would cause harm to the BPA’s own commercial interests, and it invoked Exemption 5's confidential commercial information privilege. (3)

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). To qualify for withholding under Exemption 5, information must meet two conditions: it must be an inter- agency or intra-agency document, i.e. its source and its recipient must each be a Government agency, and it must fall within the ambit of a privilege against discovery under judicial standards that would govern litigation against the agency that holds it. Department. of Interior v. Klamath Water Users, 121 S. Ct. 1060, 1065 (2001) (Klamath). The Appellant, citing Klamath, however, contends that this information is not intra-agency or inter-agency in character. Specifically, the Appellant contends that the information at issue is contained in “negotiated contracts . . . which are the product of interaction with outside parties.” Appeal at 4.

In Klamath, the Court noted that in some cases courts have found that communications between the government and outside consultants hired by them are, in effect, inter-agency or intra-agency documents and therefore protected by Exemption 5. Noting further that “in such cases, the records submitted by outside consultants played essentially the same part in an agency’s process of deliberation as documents prepared by agency personnel might have done,” the Court found:

[T]he fact about the consultant in the typical cases is that the consultant does not represent an interest of its own, or the interest of any other client, when it advises the agency that hires it. Its only obligations are to truth and its sense of what good judgment calls for, and in those respects the consultant functions just as an employee would be expected to do.

Id., 121 S. Ct. at 1066-67. In contrast, the Court in Klamath found that communications between an agency and an outside entity that was not acting as an objective outside consultant are clearly not inter-agency or intra-agency documents. Id., 121 S. Ct. at 1067-69. Turning to the present case, it appears that bids submitted to the CISO or CPX can be considered to constitute “inter-agency or intra-agency” communications pursuant to Exemption 5.

The California Independent System Operator (CISO) and Power Exchange (CPX) are both nonprofit public benefit corporations organized under the laws of California. The CISO was created to ensure efficient use and reliable operation of the electric transmission grid. The CPX was created to provide an efficient, competitive energy auction open on a non-discriminatory basis to all suppliers and purchasers. In order to accomplish these objectives, the CISO and CPX provided a neutral clearinghouse for energy and ancillary service transactions.

All non-governmental utilities in California were required by law to sell all their power into, and purchase all their power out of, the CPX, until it was dissolved on January 31, 2001. The CPX established a "market clearing price" equal to the last, highest bid received. All successful sale bidders received the market-clearing price, regardless of the amount of their bid. In this manner, the CPX acted objectively to facilitate the trade, matching up energy sale bids with purchaser requests. When the energy sale was accomplished, the sellers did not know who the buyers were on the other side of the transaction, and vice versa. There was no negotiation between the bidders and the CPX, simply the submission of the bid, and then a response indicating whether the bidder was successful, and if so, what the market-clearing price will be. The CPX also collected money owed for CPX transactions from buyers, and disbursed money for CPX sales to the sellers.

Similarly, the CISO operates the supplemental energy market in California for reliability purposes. CISO market participants can submit bids into the CISO supplemental energy markets. The CISO is the ultimate purchaser of the energy, which is used to satisfy ancillary services and other reliability requirements for CISO transmission system operation. However, just as in the case of the CPX, the price of this transaction is not determined pursuant to a bilateral negotiation between buyer and seller, but is set as a “market clearing price” similar to that described above. The CPX and CISO therefore acted as objective agents, performing marketing functions on behalf of BPA. Moreover, the CPX and CISO, in facilitating the marketing of BPA’s electrical power, acted to further BPA’s interest and did not act on their own behalf at the expense of other outside parties’ interests.

Even if the information that BPA withheld under Exemption 5 is part of the agency’s inter-agency or intra-agency communications, it still cannot be properly withheld under Exemption 5, unless it falls within the ambit of a privilege against discovery under judicial standards that would govern litigation against the agency that holds it. The Supreme Court has held that Exemption 5 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). The Supreme Court has recognized that Exemption 5 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)

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). 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. Merrill, 443 U.S. at 356. 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). It is this privilege upon which BPA bases its Exemption 5 claim on in this case.

It is important to note that the protection afforded by this particular privilege is limited in scope and lasts only as long as necessary to protect the government’s commercial interests. Id. In Merrill, the Court stated that the confidential commercial information privilege protects information generated in the process of awarding a contract. Merrill, 443 U.S. at 360. However, the Court also indicated that the privilege expires upon the awarding of the contract. Id. Nevertheless, it is conceivable that the release of some information generated during the awarding of a contract might potentially continue to place the government at a competitive disadvantage if released even after the contract in question has been executed. Accordingly, we will remand this portion of the Appeal to BPA to afford it an opportunity to show (1) that the release of the information it is withholding under Exemption 5's confidential commercial information privilege would place the government at a competitive disadvantage, and (2) that this information could be withheld without departing from the holdings set forth in Merrill.

Conclusion

We are remanding the present Appeal to BPA with instructions either to promptly release the information it withheld from the Appellant in its January 11, 2002, determination letter or to issue a new determination letter which adequately justifies continued withholding of the information.

It Is Therefore Ordered That:

(1) The Appeal filed by Southern California Edison, Case No. VFA-0722, is hereby granted as specified in Paragraph (2) below and denied in all other aspects.

(2) This matter is hereby remanded to the Bonneville Power Administration, 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: March 21, 2002

(1)The Appeal in, VFA-0677 was originally based upon two separate determinations regarding two different FOIA requests. Accordingly, we split the Appeal into two separate cases. Those issues arising from the determination letter issued on May 14, 2001, which responded to a request filed on March 21, 2001, were adjudicated under Case Number VFA-0677. Those issues arising from the determination letter issued on June 4, 2001, which responded to a request filed on April 21, 2001, were adjudicated under Case Number VFA-0678.

(2)The May 14, 2001, determination letter also withheld this information under Exemption 5's confidential commercial information privilege. However, BPA has withdrawn its claim that the information it withheld from the bilateral agreements is exempt from disclosure under Exemption 5.

(3)BPA also invoked Exemption 4 to withhold this information. We have determined that BPA was the source of this information. That fact is a necessary prerequisite for reliance on Exemption 5, as discussed below. At the same time, however, it also rules out the application of Exemption 4 to the same information, as Exemption 4 requires that the information to be protected must be “obtained from a person,” that is, created outside BPA and submitted to BPA. Allnet Communication Svcs. v. FCC, 800 F. Supp. 984, 988 (D.D.C. 1992) (“person” under Exemption 4 “refers to a wide range of entities invluding corporations, associations and public or private organizations other than agencies”), aff’d, No. 92-5351 (D.C. Cir. May 27, 1994).