Case No. VFA-0723

March 25, 2002

DECISION AND ORDER

OF THE DEPARTMENT OF ENERGY

Appeal

Name of Appellant: Southern California Edison

Date of Filing: February 14, 2002

Case Number: VFA-0723

This Appeal arises out of a contract dispute between Southern California Edison (the Appellant) and the Bonneville Power Administration (BPA). On April 2, 2001, the Appellant filed a seven-part request for information with BPA under the Freedom of Information Act (FOIA). On June 4, 2001, BPA issued a determination letter to the Appellant. The Appellant appealed the June 4, 2001 determination letter to the Department of Energy’s (DOE) Office of Hearings and Appeals (OHA) on June 12, 2001. (1) On July 11, 2001, OHA issued a decision and order remanding the June 12, 2001 Appeal to BPA for further processing. On January 14, 2002, BPA issued a new determination letter in which it released additional information to the Appellant. However, BPA continued to withhold information under Exemptions 4 and 5 of the FOIA. The present appeal was filed on February 14, 2002 contending that the information that BPA continues to withhold under Exemptions 4 and 5 cannot properly be withheld under those exemptions and therefore should be released. (2)

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 the FOIA has the burden of proving that the information falls under the claimed exemption. See 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). Only Exemptions 4 and 5 are at issue in the instant case.

Exemption 4

BPA withheld price and quantity information from contracts which it has executed for the purchase or sale of electrical power under Exemption 4 contending that its release could cause competitive harm to the parties that contracted with BPA. (3) 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 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). If the agency determines the material is a trade secret for the purposes of the FOIA, its analysis is complete and the material may be withheld under Exemption 4. Public Citizen Health Research Group v. Food & Drug Admin., 704 F.2d 1280, 1286, 1288 (D.C. Cir. 1983) (Public Citizen). If the material does not constitute a trade secret, a different analysis applies. First, the agency must determine whether the information in question is commercial or financial. It is well settled that any information relating to business or trade meets this criteria. See, e.g., Lepelletier v. FDIC, 977 F. Supp. 456, 459 (D.D.C. 1997), aff’d inpart, rev’d in part & remanded on other grounds, 164 F.3d 37 (D.C. Cir.1999). The Court of Appeals for the Second Circuit has specifically held that the term "commercial," as used in the FOIA, includes anything "pertaining or relating to or dealing with commerce." American Airlines, Inc. v. National Mediation Bd., 588 F.2d 863, 870 (2d Cir. 1978). Next, the agency must determine whether the information is "obtained from a person." 5 U.S.C. § 552(b)(4). Finally, the agency must determine whether the information is "privileged or confidential." In order to determine whether the information is "confidential," the agency must first decide whether the information was either 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), cert. denied, 507 U.S. 984 (1993) (Critical Mass). If the information was involuntarily submitted, before withholding it under Exemption 4 the agency must show that release of the information 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. National Parks, 498 F.2d at 770; Critical Mass, 975 F.2d at 879.

Once the DOE decides to withhold information, both the FOIA and the Department’s 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 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 on the grounds that 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, 704 F.2d at 1291; 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 present case, BPA claims that release of price and quantity information from contracts which it has executed for the purchase or sale of electrical power could cause substantial competitive harm to the parties that it has contracted with. The only rationales provided by BPA for this conclusion are (1) that BPA’s customers view pricing information as commercially sensitive, and (2) that BPA’s customers competitors could use pricing and quantity information to “undercut prices being offered to penetrate their customer base.” January 14, 2002 Determination Letter at 5.

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). Accordingly, BPA’s customers’ objections to release of the information do not alone establish that its release could cause substantial competitive harm.

More importantly, BPA’s conclusory contention that its customers’ competitors could use information about the price and quantity of electric power that they have purchased from BPA in the past to underbid BPA’s customers in future sales of electric power is without merit. Courts have traditionally viewed with great skepticism the claim that the release of past pricing and quantity data would allow competitors to predict an entity’s future pricing strategy, since past pricing determinations involve a number of fluctuating variables. GC Micro Corp. v. Defense Logistics Agency, 33 F.3d 1109, 1114 (9th Cir. 1994); Acumenics Research & Tech. v. Department of Justice, 843 F.2d 800, 805-8 (4th Cir. 1988). BPA has not shown how its customers’ competitors could use past pricing and quantity information to predict BPA’s customers’ future offering prices for resales of electric power or for sales of goods and services produced with the electric power purchased from BPA. Accordingly, we are remanding that portion of the present Appeal concerning withholdings under Exemption 4 to BPA. On remand, BPA must promptly either release the withheld information or issue a new determination letter withholding the information under a different FOIA exemption or providing a much more detailed and convincing explanation of how its release could cause substantial competitive harm to its customers. (4)

Exemption 5

BPA has also invoked Exemption 5 to withhold price and quantity information, as well as the descriptions of any options in current or recent historical trading floor contracts, from bids it made to the California Independent System Operator (CISO) or to the California Power Exchange (CPX). Specifically, BPA contends that release of this information would cause harm to the BPA’s own commercial interests.

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 CISO and 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 an energy sale was accomplished, the seller did not know who the buyer was, 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 though we find 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 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.

The January 14, 2002 Determination Letter cites a previous opinion issued by this office in support of BPA’s contentions that (1) “release of contract pricing information would harm BPA’s commercial interests by interfering with its ability to negotiate future contracts,” and (2) “power sale pricing information in executed contracts with BPA are [sic] properly exempt from disclosure under Exemption 5.” January 14, 2002 Determination Letter at 5, citing Wenatchee World, 28 DOE ¶ 80, 129 (2001) (Wenatchee). BPA’s reliance upon Wenatchee is, however, misplaced for several reasons. First, the Wenatchee opinion clearly indicated that its holding was limited to a unique and specific fact pattern. Wenatchee, 28 DOE at 80,639-40. Second, the Wenatchee opinion was based upon an overly broad reading of Merrill that failed to take note of Merrill’s holding that the confidential commercial information privilege expires upon the execution of a contract. Third, the Wenatchee opinion did not consider the issues raised by the Supreme Court’s clarification, in Klamath, of when data can be considered as intra-agency or inter-agency information. Had it done so, it clearly would have concluded that the contracts in question were not intra-agency or inter-agency documents and therefore would not have found them to be protected by Exemption 5.

Conclusion

For the reasons set forth above, we are remanding this Appeal to BPA. BPA must either release the information it has withheld to the Appellant or issue a new determination letter which contains a sufficient justification for its withholdings.

It Is Therefore Ordered That:

(1) The Appeal filed by Southern California Edison, Case No. VFA-0723, 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 25, 2002

(1)The Appeal originally filed by the Appellant on June 12, 2001, was based upon two separate determinations regarding two different FOIA requests. 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. The present proceeding concerns the documents at issue in Case Number VFA-0678.

(2)BPA has withdrawn its Exemption 5 claim for any information it redacted from bilateral agreements with purchasers of BPA’s electrical power. BPA continues to withhold information redacted from bids it submitted to the California Independent System Operator (CISO) and the California Power Exchange (CPX) under Exemption 5.

(3)BPA also notes that the other parties to these contracts wish that the contracts be treated as exempt from disclosure.

(4)BPA also withheld information from bids submitted to the CISO and CPX under Exemption 4. 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 this 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 including corporations, associations and public or private organizations other than agencies”), aff’d, No. 92-5351 (D.C. Cir. May 27, 1994).