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Gay Street ) Knoxville, TN 37902-1004 ) ) Plaintiff, ) ) v. ) ) U.S. DEPARTMENT OF ENERGY ) 1000 Independence Avenue, S.W. ) Washington, DC 20585-0001, ) ) Defendant. ) _______________________________________________________ )
Civil Action No. 10-1335 (RLW)
PLAINTIFF’S RESPONSE TO DEFENDANT’S CROSS-MOTION FOR PARTIAL SUMMARY JUDGMENT AND REPLY TO DEFENDANT’S OPPOSITION TO PLAINTIFF’S MOTION FOR PARTIAL SUMMARY JUDGMENT Pursuant to Rule 56 of the Federal Rules of Civil Procedure, Plaintiff submits its Response to Defendant’s Cross-Motion for Partial Summary Judgment and Reply to Defendant’s Opposition to Plaintiff’s Motion for Partial Summary Judgment. Plaintiff hereby submits a response to Defendant’s statement of material facts not in genuine dispute and a memorandum of law.
RESPONSE TO DEFENDANT’S STATEMENT OF MATERIAL FACTS NOT IN GENUINE DISPUTE Pursuant to Local Civil Rule 7(h)(1), Plaintiff Southern Alliance for Clean Energy (“SACE”) hereby submits this response to Defendant Department of Energy’s (“DOE”) statement of material facts as to which there is no genuine dispute. 1. 2. Not disputed. Not disputed.
Not disputed but not material. Applications for loan guarantees are not at issue in
DOE’s Cross-Motion for Partial Summary Judgment. 4. 5. 6. 7. 8. Not disputed. Not disputed. Not disputed. Not disputed. Not disputed but not material. Applications for loan guarantees are not at issue in
DOE’s Cross-Motion for Partial Summary Judgment. 9. 10. 11. 12. Not disputed but not material. Not disputed. Not disputed. Not disputed but not material. Applications for loan guarantees are not at issue in
DOE’s Cross-Motion for Partial Summary Judgment. 13. 14. 15. Not disputed. Not disputed. Disputed. Each term sheet expressly provided that it contained “the terms and
conditions of DOE’s offer” to provide a loan guarantee. The documents themselves thus provide that the terms and conditions were DOE’s, not the applicants. Defendant’s Cross-Motion for Partial Summary Judgment (“DOE Cross-Motion”), Pulliam Declaration Ex. C (Municipal Electric Authority of Georgia (“MEAG”) Term Sheet (February 13, 2010, revised and submitted March 1, 2011); Plaintiff’s Motion for Partial Summary Judgment (“SACE’s Motion”), Ex. I (Georgia Power Company Term Sheet (February 13, 2010); SACE’s Motion, Ex. K (Oglethorpe Power Corporation Term Sheet (February 13, 2010)).
Disputed. When issued by DOE, each term sheet was simply an offer. As stated in
the letters accompanying each term sheet, a conditional commitment was made “[u]pon the due execution and delivery of this Term Sheet by the Company and payment of the portion of the ‘Loan Facility Fee’ that is due and payable upon such execution and delivery . . . .” DOE CrossMotion, Pulliam Decl., Ex. C at 1-5; SACE’s Motion, Ex. I at 1-5; SACE’s Motion, Ex. K at 1-5. 17. 18. 19. 20. 21. 22. 23. Not disputed but not material. Not disputed but not material. Not disputed. Not disputed. Not disputed. Not disputed. Not disputed but not material. The only matter at issue in DOE’s Cross-Motion
for Partial Summary Judgment is whether information was properly withheld under FOIA Exemption 4. 5 U.S.C. § 552(b)(4). 24. 25. 26. 27. 28. Not disputed. Not disputed. Not disputed. Not disputed. Not disputed.
MEMORANDUM IN SUPPORT OF PLAINTIFF’S RESPONSE TO DEFENDANT’S CROSS-MOTION FOR PARTIAL SUMMARY JUDGMENT AND REPLY TO DEFENDANT’S OPPOSITION TO PLAINTIFF’S MOTION FOR PARTIAL SUMMARY JUDGMENT Plaintiff, the Southern Alliance for Clean Energy (“SACE”), submits this memorandum of law in response to Defendant Department of Energy’s (“DOE”) Cross-Motion for Partial Summary Judgment and in reply to DOE’s Opposition to SACE’s Motion for Partial Summary Judgment. In partial response to SACE’s March 25, 2010 Freedom of Information Act (“FOIA”) request, DOE provided three heavily redacted term sheets, (“Term Sheets”), setting forth the terms and conditions of DOE’s offers to provide loan guarantees, to Municipal Electric Authority of Georgia (“MEAG”), Georgia Power Company, and Oglethorpe Power Corporation (collectively “the Applicants”). DOE claimed the redacted information was withheld pursuant to FOIA Exemption 4, 5 U.S.C. § 552(b)(4), (“Exemption 4”). However, DOE has not met its burden of showing that any of the redacted information was properly exempt from disclosure. Specifically, DOE’s declarations and other materials failed to demonstrate that any of the individual redactions were: 1) obtained from a person or 2) confidential. See Critical Mass Energy Project v. NRC, 975 F.2d 871, 873 (D.C. Cir. 1992); Nat’l Parks & Conservation Ass’n v. Kleppe, 547 F.2d 673, 677 (D.C. Cir. 1976) (“Nat’l Parks II”). DOE failed to demonstrate that the withheld information was confidential by failing to show that i) the release of the information will likely cause competitive harm, and ii) disclosure of the redacted information will impair DOE’s ability to effectively implement the loan guarantee program. Moreover, SACE has shown that the information being withheld does not fall under Exemption 4. Therefore, SACE respectfully requests that this Court deny DOE’s Cross-Motion for Partial Summary Judgment and grant SACE’s Motion for Partial Summary Judgment.
In the alternative, SACE requests that the Court take the matter under advisement and order DOE to file the complete Term Sheets with the Court, under seal, for in camera review. Based on this review and on the record, the Court may determine whether there are material facts in dispute that prevent the Court from resolving the matter on summary judgment. If summary judgment is appropriate, the Court should review the Term Sheets and make a de novo determination on each redaction. DISCUSSION SACE seeks partial summary judgment only on the issue of whether the information in the Term Sheets is being unlawfully withheld under Exemption 4. Under Exemption 4, an agency may withhold information that is (a) “commercial or financial,” (b) “obtained from a person,” and (c) “privileged or confidential.” 5 U.S.C. § 552(b)(4). It is undisputed that the information at issue is “commercial” or “financial.” DOE, however, failed to demonstrate that the information was “obtained from a person” and “privileged and confidential.” To make such a demonstration, under the second requirement, DOE must show that the information was actually “obtained from a person.” Grumman Aircraft Eng’g Corp. v. Renegotiation Bd., 425 F.2d 578, 582 (D.C. Cir. 1970). Additionally, to establish that the information is “confidential,” DOE must show that the release of the information i) will likely cause substantial harm to the competitive position of the person from whom it was obtained, or ii) impair the government’s ability to obtain necessary information in the future. Nat’l Parks II, 547 F.2d at 677. As is set forth below, 1) DOE’s terms and conditions of its offers to issue loan guarantees to the Applicants were not “obtained form a person” simply because these terms and conditions were subject to negotiation, and 2) the information is not confidential because (i) the release of the information will not likely cause competitive harm, and (ii) disclosure of the redacted
information in the Term Sheets would not impair DOE’s ability to effectively implement the loan guarantee program. A. DOE Has Failed to Demonstrate That the Redacted Information in the Term Sheets was “Obtained From a Person.” DOE failed to meet its burden of showing that each redacted item was, in fact, “obtained from” one of the Applicants. In every case involving Exemption 4 (including those relied upon by DOE), the court required the agency to provide a specific, factual basis establishing that redacted information was actually obtained from a person. With limited exceptions, however, DOE did not attempt to show that the Applicants were the source of each redacted item. Instead, DOE contended that the redacted terms and conditions were obtained from the Applicants merely because they were the result of a negotiation. DOE offered nothing more than a conclusory assertion that “information provided by each Applicant [was] incorporated into the terms and conditions of the Conditional Commitment Letters.” Defendant’s Cross-Motion for Partial Summary at 13 (hereinafter “DOE Cross-Motion”). No court that SACE is aware of has embraced the sort of categorical approach to Exemption 4 advocated by DOE. Regardless of whether the withheld information resulted from protracted negotiations, or was generated entirely within an agency, for Exemption 4 to apply, the agency must show that the information was actually obtained from a person. See, e.g., Bloomberg L.P. v. Bd. of Governors of the Fed. Res. Sys., 649 F. Supp. 2d 262, 277 (S.D.N.Y. 2009) (“[p]lain language” used to determine when information is “obtained from a person”). For example, in Public Citizen, this Court found that a negotiated royalty rate was obtained from a licensee because “it is the rate provided by the licensees to the NIH in the royalty arrangements.” Pub. Citizen Health Research Grp. v. NIH, 209 F. Supp. 2d 37, 44-45 (D.D.C. 2002). Under the NIH program in Public Citizen, prospective licensees were required to “submit proposed royalty 6
information.” Id. Although the final royalty was subject to negotiation between the agency and licensee, “the licensee must still provide the information in the first instance.” Id. Thus, the royalty rate information was “obtained from a person” within the meaning of Exemption 4 because the licensee was the “ultimate source” of that information. Id.; see also McDonnell Douglas Corp. v. U.S. Dep't of the Air Force, 375 F.3d 1182, 1187 (D.C. Cir. 2004) (holding that option pricing was confidential and should have been withheld pursuant to Exemption 4 where it was “undisputed” that the bidding party “was required to provide to the Air Force the option prices and the information in the CLINs in order to compete for the contract”). In another FOIA case addressing the application of Exemption 4 to the terms of a NIH contract, In Defense of Animals v. National Institutes of Health, 543 F. Supp. 2d 83, 102-03 (D.D.C. 2008), negotiated terms regarding incentive payments given by NIH to a contractor were not covered by Exemption 4 because they were not “obtained from a person.” While reaching opposite conclusions on the question of whether the particular negotiated terms and conditions were obtained from a person, both Public Citizen and In Defense of Animals turn in the specific facts alleged by the defendant agency. Pub. Citizen, 209 F. Supp. 2d 37; In Defense of Animals, 543 F. Supp. 2d 83. In contrast to the factual showing in Public Citizen, in In Defense of Animals, this Court found that “Defendants have nowhere demonstrated that the contractor was the source of the information in the first instance and not the agency.” In Defense of Animals, 543 F. Supp. 2d at 103. Negotiated terms and conditions in a government contract are “obtained from a person” only when the agency shows that a person was the actual source of the information. Beyond the government contracting realm, agency-generated documents “may be covered by Exemption 4 if they contain summaries and reformulations of information supplied
by a source outside of the government.” Judicial Watch, Inc. v. Exp.-Imp. Bank, 108 F. Supp. 2d 19, 28 (D.D.C. 2000) (citing Gulf & W. Indus. v. United States, 615 F.2d 527, 529-30 (D.C. Cir. 1979). Thus, in Judicial Watch, this Court determined that the information being withheld from release by the federal Export-Import Bank was “obtained from a person” because “the Bank obtained the information from the insurance applicants themselves, commercial lenders for the applicant, or a purchaser of the goods at issue.” Id. Similarly, in Gulf & W. Indus., the plaintiff sought a report compiled by the Armed Services Board of Contract Appeals (ASBCA), which “included, among other things, ‘actual costs for units produced,’ ‘actual scrap rates,’ ‘break-even point calculations’ and ‘actual cost data.’” 615 F.2d at 530. Upon examination, the D.C. Circuit found it “apparent that the ASBCA deleted portions of the report which contained information supplied by [Contractor] or from which information supplied by [Contractor] could be extrapolated.” Id.; see Phila. Newspapers, Inc. v. Dep’t of Health & Human Serv., 69 F. Supp. 2d 63, 65 (D.D.C. 1999) (stating that an agency audit includes analysis and charts prepared by the government which was not obtained from a person); Bloomberg, 649 F. Supp. 2d at 278 (“While the Remaining Term Reports certainly include information about the FRBs’ interactions with the borrowers, it is a non sequitur to say that information about a person is obtained from a person.”). In this case, DOE argued that negotiated terms and conditions incorporate information from the Applicants, seemingly as a matter of law, without showing that any particular redaction actually includes information obtained from the Applicants. DOE “nowhere demonstrated that [an Applicant] was the source of the information in the first instance and not the agency.” In Defense of Animals, 543 F. Supp. 2d at 103.
DOE’s claim that the negotiated terms and conditions were obtained from the Applicants is based exclusively on the accompanying Declaration of David Frantz. See DOE Cross-Motion at 5, 13-14. Mr. Frantz attests: (1) “[i]n October 2009, DOE delivered to each Applicant an initial term sheet,” DOE Cross-Motion, Franz Decl. ¶ 13; (2) “[e]ach Applicant then responded to the term sheet with “issues lists” and conducted follow-up in person and telephonic meetings to discuss and negotiate the terms and conditions contained in the initial term sheet,” id.; (3) “[m]ost of the terms and conditions in the initial term sheet drafts offered to the Applicants (Initial Terms) were extensively negotiated . . . and were, therefore, subsequently incorporated into the Conditional Commitment,” id. ¶ 15; and, finally, (4) “[a]fter DOE and each applicant reached a consensus on the final terms and conditions of the Applicant’s term sheet, the final term sheet was executed thereby becoming a Conditional Commitment.” Id. ¶ 16. Nowhere in his declaration did Mr. Frantz claim that a specific term or condition contained in any of the Term Sheets was actually obtained from one of the Applicants. Undoubtedly, the Applicants submitted a large volume of commercial and financial information to DOE during the application and negotiation process; however, DOE did not provided a factual basis showing that any of the redacted items actually incorporates information obtained from the Applicants. While DOE contended that “each Applicant supplied” information, such as cost estimates, assumptions about interest rates and financing costs, and loan draw and amortization schedules, DOE did not show where any such information actually appears in the Term Sheets. DOE Cross-Motion at 13; see also 10 C.F.R. § 609.6 (setting forth requirements for submission of application for a loan guarantee). With the possible exception of the schedules attached to each Term Sheet, neither the Frantz Declaration nor the Vaughn indices
accompanying DOE’s Cross-Motion demonstrated that any of the negotiated terms and conditions includes information obtained from an Applicant. In the absence of specific facts showing a redacted item is obtained from an Applicant, there is no basis to conclude that the Term Sheets are anything other than “the terms and conditions of DOE’s offer to provide” loan guarantees to the Applicants. Section 1703 of Title XVII of the Energy Policy Act of 2005, authorizes the Secretary of Energy to make loan guarantees for qualified projects “on such terms and conditions as the Secretary determines . . . only in accordance with this section.” 42 U.S.C. § 16512. Under the statute, DOE’s loan guarantees must include terms and conditions addressing amount, repayment, interest rate, term, defaults, fees, records and audits, full faith and credit, and wage rate requirements. Id. DOE regulations implementing Title XVII, codified at 10 C.F.R. Part 609, set forth policies and procedures for receiving, evaluating, and approving applications for loan guarantees, including negotiation and issuance of term sheets and conditional commitments. According to these regulations, a Term Sheet “means an offering document issued by DOE that specifies the detailed terms and conditions under which DOE may enter into a Conditional Commitment with the Applicant.” 10 C.F.R. § 609.2. A Conditional Commitment “means a Term Sheet offered by DOE and accepted by an Applicant . . . . Id. Thus, both the statute and implementing regulation, as well as the Term Sheets themselves, contemplate DOE setting forth terms and conditions necessary for obtaining a loan guarantee. Yet, DOE incongruously argued that the negotiated terms and conditions are proprietary to the Applicants. DOE has failed to meet its burden to show the withheld information was “obtained from a person.”
For the foregoing reasons, DOE failed to establish that the withheld information was “obtained from a person.” Thus, SACE’s Motion for Partial Summary Judgment should be granted and DOE’s Cross-Motion denied. B. The Withheld Information Is Not “Confidential.” DOE failed to meet its burden of showing that each redacted item was confidential because either 1) the release of the information would cause competitive harm or 2) disclosure of the redacted information in the Term Sheets would impair DOE’s ability to effectively implement the loan guarantee program. 1. DOE failed to establish that release of the information will likely cause competitive harm. It is well established that the opponent of disclosure—not the requester—bears the burden of proving whether substantial competitive harm is likely to result. McDonnell Douglas Corp., 375 F.3d at 1195. 1 Further, the opponent’s burden is heightened, as courts “have viewed [Exemption 4] arguments with skepticism . . . .” Ctr. for Pub. Integrity v. DOE, 191 F. Supp. 2d 187, 194 (D.D.C. 2002). 2 Under Exemption 4, information is “confidential” if it is required to be submitted to the government and disclosure is likely to “cause substantial harm to the competitive position of the person from whom the information was obtained.” Nat’l Parks I, 498 F.2d 765, 770. 3 As this Circuit has instructed, “the competitive harm that matters is a competitor’s affirmative use of
Contrary to this requirement, DOE argues that SACE’s “speculation” is insufficient support of its claims of lack of competitive injury. DOE Cross-Motion at 11. DOE’s attempt to switch the burden of proof is misleading and contrary to law. 2 Notably, DOE failed to assert in its “Statement of Material Facts Not in Genuine Dispute” that disclosure of the withheld information would result in competitive harm. 3 While courts have adopted a more lenient test for determining the confidentiality of information that was voluntarily submitted to the government, Critical Mass Energy Project v. NRC, 975 F.2d 871, 872 (D.C. Cir. 1992), DOE agrees that the information at issue was required to be submitted to the government. DOE Cross-Motion at 11. Thus, Applicants’ statements that the redacted information is not customarily or voluntarily submitted are misleading. See Long Decl. ¶ 7; Higgins Decl. ¶ 11.
proprietary information that could reap a commercial windfall for the competitor . . . .” Gilda Indus. v. U.S. Customs & Border Prot. Bureau, 457 F. Supp. 2d 6, 9 (D.D.C. 2006); see also Pub. Citizen, 704 F.2d 1280, 1291 n.30 (“[E]mphasiz[ing] that the important point for competitive harm in the FOIA context . . . is that it be limited to harm flowing from the affirmative use of proprietary information by competitors.”) (punctuation and emphasis in original). Only under limited circumstances may an opponent of disclosure show a likelihood of substantial harm to a competitive position. Release of information must allow competitors to “accurately calculate” their “future bids and [their] pricing structure” such that competitors could “estimate and undercut [their] bids.” Boeing Co. v. U.S. Dep’t of the Air Force, 616 F. Supp. 2d 40, 45 (D.D.C. 2009); see also Ctr. for Pub. Integrity, 191 F. Supp. 2d at 194 (requiring disclosure unless agencies demonstrate that release would be of substantial assistance to competitors in estimating and undercutting future bids). In establishing a likelihood of competitive harm, there must be a clear link between “the release of information and the possibility of harm . . . .” Id. at 47 (explaining that four years of comprehensive pricing data did not contain a “logical, consistent pattern . . . that would permit extrapolation by a competitor”); see also McDonnell Douglas, 375 F.3d at 1189 (finding a likelihood of substantial competitive harm when disclosure would “significantly increase the probability that competitors would underbid” a company) (emphasis added). There is no “per se rule that in all cases prohibits or requires the release of one particular type of information.” Boeing, 616 F. Supp. 2d at 45. Each case is viewed independently to determine whether the particular information could cause substantial competitive harm if released. Id. However, Exemption 4 does not apply where the damage as a result of the release of
confidential information is only speculative. Nat’l Parks II, 547 F.2d at 679. Opponents of disclosure must provide more than “mere conclusory opinion testimony,” and must support their claims with “specific factual or evidentiary material.” Id. DOE advanced four arguments in its Cross-Motion as to why disclosure would cause competitive harm—each of which was insufficient to meet the government’s heavy burden under Exemption 4. 4 DOE’s alternative financing argument was that disclosure of certain proposed terms would significantly undermine the Applicants’ negotiating position in an alternative financing transaction. DOE Cross-Motion at 16, 18, 20. DOE stated that an Applicants’ “ability to compete in the marketplace is influenced heavily by its ability to effectively manage borrowing costs,” and that disclosure of these terms would increase those costs. DOE CrossMotion at 15. This argument fails as a matter of law. The harm to a competitive position recognized by courts is harm that flows from the affirmative use of the information by competitors. See, e.g., Gilda Indus., 457 F. Supp. 2d at 9 (stating that the competitive harm that matters is a competitor’s affirmative use of proprietary information); Pub. Citizen, 704 F.2d at 1291 n.30 (explaining that the important point for competitive harm is whether the harm flows from a competitor’s affirmative use of the information). Under DOE’s argument, however, an Applicant’s competitor would not use the information to increase the Applicant’s borrowing costs. Instead, lenders, who do not compete with applicants in the energy market, would presumably use the information to force applicants into accepting less than favorable loan terms. Even if true, courts do not recognize this type of harm for the purpose of withholding information under Exemption 4. Additionally, in connection with its alternative financing argument, DOE suggested that
As stated above, the burden is on DOE to justify its redactions. See McDonnell Douglas, 375 F.3d 1182. Therefore, instead of arguing line-by-line why each of DOE’s justifications is insufficient, SACE combines DOE’s arguments into four general categories that are employed throughout the Vaughn indices and explains why each is insufficient.
increases in borrowing costs cause competitive harm because increased borrowing costs affect the Applicants’ ability to compete in the energy market. DOE Cross-Motion at 15, 18, 21. DOE’s argument failed to show a likelihood of competitive harm. Although DOE argued that disclosure increases borrowing costs and increased borrowing costs would impact the Applicants’ price of electricity, which in turn would harm the Applicants, this does not amount to “competitive harm” for Exemption 4 purposes. Courts are reluctant to recognize remote harm that is not directly attributable to the disclosure of the information. See Nat’l Parks II, 547 F.2d at 679 (stating that Exemption 4 does not apply where damage resulting from the release of confidential information is only speculative). Conjecture, without “specific factual or evidentiary material,” fails to meet DOE’s burden of showing a likelihood of substantial competitive harm resulting from a competitor’s use of the information in the Term Sheets. Furthermore, DOE’s alternative financing argument was highly speculative. DOE argued that if the Applicants need to seek alternative financing, “[l]enders will consider those types of terms to be the new baseline from which they will develop their pricing,” which would increase borrowing costs. DOE Cross-Motion, Pulliam Decl., Ex. G at 2 (Oglethorpe Vaughn index). DOE provided no basis for the theory that private lenders would extract concessions from the Applicants. Instead, DOE stated that the negotiated terms are not typical of financing for the Applicants’ projects. It is for this very reason that DOE’s argument was not only speculative but illogical. If the Applicants were to face higher borrowing costs from private lenders, it would be because the Applicants would seek loans from private lenders uninterested in providing millions of dollars in loan subsidies, not because certain terms and conditions are disclosed. Even if DOE’s argument made sense, Exemption 4 does not apply where the damage as a result of the disclosure is only speculative. Nat’l Parks II, 547 F.2d at 679. Thus, DOE did not provided
sufficient evidence to meet its burden. DOE failed to show that competitors would use the information and the alleged harm to the Applicants is highly speculative. DOE’s second argument was that disclosure of the proposed terms would unfairly benefit competitors who are seeking federal loan guarantees under the Title XVII Loan Program. DOE Cross-Motion at 17; see also DOE Cross-Motion, Pulliam Decl., Ex. H at 1 (MEAG Power Vaughn index). 5 According to DOE, this information would be “highly valuable” to Applicants’ competitors and would allow them to “better evaluate financing alternatives for their nuclear generating units.” DOE Cross Motion, Pulliam Decl., Ex. F at 3 (Georgia Power Vaughn index). However, DOE never alleged how the information would allow the Applicants to “better evaluate financing alternatives.” Id. DOE provided no factual or evidentiary basis to conclude that a competitor could glean useful information from DOE’s terms and conditions. And even if a competitor could use such information to “better evaluate financing alternatives,” this would not result in “competitive harm” to the Applicants because competitors’ mere benefit from disclosure is immaterial under Exemption 4. The relevant inquiry is whether the Applicants’ competitors will affirmatively use the information to harm the Applicants’ competitive position. Gilda Indus., 457 F. Supp. 2d at 9; Pub. Citizen, 704 F.2d at 1291 n.30 (explaining that the important point for competitive harm is whether the harm flows from a competitors’ affirmative use of the information). DOE’s argument was thus legally insufficient because it failed to cite “specific factual or evidentiary material” to show that competitors would affirmatively use the information to harm Applicants’ competitive position. Nat’l Parks II, 547 F.2d at 679. Third, DOE argued that the information would provide Applicants’ “competitors with insight into its financing plan for this project, inform estimates of [Applicants’] cost of funding
Notably, even though all three Applicants compete in the same markets and are jointly pursuing the project, this argument is not offered as justification for withholding the information with regard to Oglethorpe Power.
the project and, consequently, its cost of power produced from the project.” DOE Cross-Motion at 21. Again, this argument was insufficient to meet the DOE’s burden. This argument rested on the assumption that competitors will be able to calculate Applicants’ ultimate cost of power. DOE, however, cannot rest on assumptions; it is required to produce “specific factual or evidentiary material” that illustrates how Applicants’ competitors could “accurately calculate” its “pricing structure” so that they could “estimate” its cost of power. Boeing, 616 F. Supp. 2d 40. As in Boeing, DOE failed to establish a clear link “between the release of information and the possibility of harm.” Id. at 47. When release of the information will not “allow a competitor to extrapolate data that would likely cause substantial competitive harm,” the information must be released. Id. As such, DOE’s third argument failed because it was based on no more than conclusory opinion testimony and was not supported with specific factual or evidentiary material. Fourth, DOE argued that disclosure of the date by which the Nuclear Regulatory Commission (“NRC”) may terminate a conditional commitment would allow Applicants’ business competitors and various groups who do not support development of new nuclear plants to influence or delay NRC’s decision. DOE Cross-Motion at 21; see also DOE Cross-Motion, Pulliam Decl., Ex. F at 4 (Georgia Power Vaughn index). DOE’s argument was again highly speculative, supported only by a conclusory one-sentence explanation in the form of opinion testimony with no factual or evidentiary backing. Id. (stating, without explanation, that “various groups that do not support development of the new nuclear plants could take actions to negatively affect or delay MEAG’s ability to satisfy these terms”). Furthermore, whether “various groups” will use the information to delay NRC’s decision is immaterial. See Pub. Citizen, 704 F.2d at 1291 n.30 (stating that competitive harm is “limited to harm flowing from
the affirmative use of proprietary information by competitors”) (emphasis in original). Thus, DOE’s fourth argument failed to meet the burden of showing a likelihood of substantial competitive harm. Additionally, DOE’s Vaughn indices included an argument not incorporated in its CrossMotion. In its Vaughn indices, DOE argued that it would be unfair to disclose the information because “competitors are not required to disclose . . . proposed terms of financing alternatives they may be considering with respect to their proposed new nuclear generating units.” DOE Cross-Motion, Pulliam Decl., Ex. F at 3 (Georgia Power Vaughn index). DOE’s concern regarding fairness to the Applicants is not relevant to the legal inquiry. To meet its burden under Exemption 4, DOE was required to show a likelihood of substantial competitive injury to the Applicants—not unfairness to the Applicants. Nat’l Parks II, 547 F.2d at 679. Courts recognize that disclosure of negotiated contract prices is a “cost of doing business with the government.” Racal-Milgo Govt. Syst., Inc. v. Small Bus. Admin., 559 F. Supp. 4, 6 (D.D.C. 1981). Any purported unfairness is simply a cost of doing business with DOE in an effort to receive substantial government subsidies; it has no application to the relevant legal question of whether there will be substantial competitive harm. Lastly, DOE relied on National Parks II for the proposition that it is “‘virtually axiomatic’ that disclosure of commercial and financial information is likely to cause competitive harm in light of the ‘extremely detailed and comprehensive nature of the financial records requested.’” DOE Cross-Motion at 15, 16 (quoting Nat’l Parks II, 547 F.2d at 684). DOE’s reliance on National Parks II is misplaced. Nat’l Parks II, 547 F.2d. 673. The information exempt from disclosure in National Parks II was comprehensive and detailed financial information. See id. (exempting Opening Balance Sheets that reveal assets, liabilities, net worth
and additional supporting information). 6 Nowhere has DOE attempted to establish that the withheld information is comparable to the information at issue in National Parks II. Id. at 676. In particular, the negotiated terms and conditions are qualitatively different from the extremely detailed and comprehensive nature of the financial records requested in National Parks II. Id. In National Parks II, the exempt information was periodically submitted and included prices charged by the concessioners and the franchise fee charged to the government. Id. Here, the withheld information includes negotiated terms and conditions of a loan guarantee, not the Applicants’ pricing strategy for electricity. Therefore, it is not “virtually axiomatic” that disclosure of the negotiated terms and conditions will cause Applicants competitive harm, and DOE has not provided a factual or evidentiary basis for finding competitive harm. Nat’l Parks II, 547 F.2d at 684. Thus, DOE’s analogy to National Parks II was unpersuasive. Id. For the foregoing reasons, DOE failed to meet its burden of showing a likelihood of competitive harm due to the release of the Term Sheets. Thus, SACE’s Motion for Partial Summary Judgment should be granted and DOE’s Cross-Motion denied. 2. Disclosure of the Term Sheets would not impair DOE’s ability to effectively implement the loan guarantee program. At the outset, SACE notes that DOE improperly assumed throughout its government impairment argument that the information sought is “confidential.” DOE Cross-Motion at 21-23. SACE does not concede, and DOE did not show, that the information sought is “confidential” under either the traditional National Parks factors or a government impairment theory. 7 Nat’l
Additionally, the Opening Balance Sheets held exempt from disclosure in National Parks II called for “discrete information such as cash in banks and on hand, marketable securities and investments, notes and accounts receivable, prepaid expenses, fixed assets and accumulated depreciation (including location, date acquired, useful life, cost, accumulated depreciation and book value for every concessioner-owned and government-owned structure), notes and accounts payable, mortgages and long-term liabilities, accrued liabilities, and the names of all partners or major stockholders, together with their percentage of ownership or shareholdings.” 547 F.2d at 676. 7 Plaintiff notes that the D.C. Circuit has not conclusively ruled on whether the government impairment theory is a legitimate factor in the Exemption 4 “confidentiality” test. But see Pub. Citizen, 209 F. Supp. 2d at 51-52
Parks II, 547 F.2d 673. Further, while courts have taken account of the government’s interest in the effectiveness of its programs, such a consideration is not dispositive and is only a factor to be balanced in ruling on whether the disputed information is “confidential.” See Pub. Citizen, 209 F. Supp. 2d at 52. DOE essentially argued that applicants may be discouraged from participating in the federal loan guarantee program because of applicants’ fear of disclosure of the terms and conditions of the loan guarantees and possible complications with third party negotiations. In turn, that would handicap DOE’s ability to carry out Congress’ purpose in promoting clean energy projects. But this argument was entirely speculative, in contradiction to this Court’s requirement that government impairment must be established with specific evidence, not conclusory or speculative assertions. Comstock Int’l, Inc. v. Exp.-Imp. Bank, 464 F. Supp. 804, 807 (D.D.C. 1979). DOE failed to provide anything more than conclusory statements from Applicants’ own declarations that power companies would be less willing to freely negotiate and apply for federal loan guarantees. Beyond the speculative nature of its assertions, DOE’s argument illogically asserted that disclosure would adversely impact the loan guarantee program because loan applicants are “typically unable to obtain conventional private financing [sic],” and are faced with a demanding and competitive application process. DOE Cross-Motion at 22. 8 Rather than impairing government programs, relevant caselaw plainly asserts that competition and lack of available
(construing Critical Mass III, 830 F.2d at 286, to include “impairment of the effectiveness of a government program [a]s a proper factor for consideration in conduction an analysis under FOIA exemption 4”). In fact, the Second Circuit Court of Appeals has expressly rejected the program effectiveness test in consideration of FOIA Exemption 4. Bloomberg v. Bd. of Governors, 649 F. Supp. 2d 262, n.15 (S.D.N.Y. 2009) (“In light of the strong presumption in favor of interpreting FOIA exemptions narrowly, not to mention the Court of Appeals’s guidance that the program effectiveness test constitutes “speculation,” this Court will not import or apply the program effectiveness test in this action.” (citation omitted)). Plaintiff assumes, for the sake of argument, that the D.C. Circuit does accept the government impairment theory. 8 It should be noted that DOE’s reliance on the Long Declaration, ¶ 12 and the Frantz Declaration, ¶ 18 is unsupported by its Statement of Undisputed Facts.
alternatives lead to the obvious conclusion that disclosure will not obstruct the purposes of the government program. See, e.g., Pub. Citizen, 209 F. Supp. 2d at 51-54 (finding that the effectiveness of the government program would be impaired because fewer firms would be willing to engage with the government if the royalty information was released); Judicial Watch, 108 F. Supp. 2d at 30 (finding that disclosure would impair the agency’s ability to carry out its statutory purpose because foreign purchasers could seek financing outside of the U.S. and purchase non-U.S. goods if subjected to the risk of disclosure). For example, in Public Citizen, the Bayh-Dole Act directed agencies to patent and promote NIH research. 209 F. Supp. 2d at 52. Affidavits submitted in support of confidentiality professed that NIH was not “the only game in town” and that in the face of disclosure, licensees would not seek to partner with the agency. Id. at 53. Further, due to little competition for NIH technologies and the fact that most applications involved only one interested participant, the government’s technologies did not draw such interest that there would always be a number of firms willing to contract with NIH, and the government program would thus be impeded by disclosure. Id. at 54. In contrast to the patent program in Public Citizen, the federal loan guarantee program is literally “the only game in town.” DOE admitted as much in its response when it noted that applicants are typically unable to find private financing. DOE Cross-Motion at 22. DOE cited Judicial Watch for the proposition that disclosure would deter applicants’ use of government loan opportunities. DOE Cross-Motion at 22. DOE’s reliance, however, was unsupported by the facts in that case, where withholding was ultimately justified under the government impairment theory because loan applicants had the option of financing with either domestic or international banks, the latter proffering no risk of disclosure. Judicial Watch, 108 F.
Supp. 2d at 30. As such, disclosure would interfere with the bank’s purpose in supporting domestic transactions because all else being equal, loan applicants will choose the institution that does not disclose information. Id. As discussed supra, DOE is “the only game in town” and unlike the agencies in Judicial Watch and Public Citizen, has a virtual monopoly on loans to nuclear power companies because these programs are simply too risky for private financing. In addition, there is stiff competition for federal loan guarantees; DOE received applications for loan guarantees for 17 new nuclear projects, showing that if one applicant withdraws due to required disclosures, another private producer will quickly step in. DOE Cross-Motion, Franz Decl. ¶ 9; see also, Dep’t of Energy, DOE Announces Loan Guarantee Applications for Nuclear Power Plant Construction (Oct. 2, 2002), http://lpo.energy.gov/?p=843. The assumption that potential recipients of loan guarantees would forego a government subsidy worth tens of millions of dollars because of the risk of disclosure of the terms of these guarantees was speculative and illogical. Indeed, the facts here are much more closely aligned to those in Buffalo Evening News, Inc. v. Small Business Administration, 666 F. Supp. 467 (W.D.N.Y. 1987). The plaintiff there sought specific loan information regarding the amount extended to borrowers, the amount repaid to date, and the current disposition of the loans. Id. at 471. The Small Business Administration (“SBA”) argued that such information would discourage borrowers from utilizing its services and thus disrupt the purpose of the program. Id. Distinguishing the type of case in Judicial Watch and Public Citizen, where a loan entity is “one of many highly competitive governmentsupported credit unions, whose ability to effectively compete would be irreparably impaired if the loan status records were disclosed,” the court relied on the plaintiff’s argument that the SBA is uniquely situated with no equivalent alternative source for “low cost debt financing.” Id.
(distinguishing Comstock, 464 F. Supp. 804). As such, the government failed to show that “small businesses will reject the low interest loans sponsored by the SBA” in the face of disclosure, and the documents were thus not “privileged or confidential” under Exemption 4. Id. The competitive nature of the federal loan guarantee application process and nuclear facilities’ clear inability to obtain financing elsewhere underlies the fallacy of the government’s argument. Rather, disclosure of these terms should be considered a “cost of doing business with the government.” Racal-Milgo, 559 F. Supp. at 6. It is highly unlikely that “companies will stop competing for Government contracts” if disclosure is mandated here. Id. The government’s argument that because disclosure is not customary, private parties will be reluctant to seek loan guarantees from DOE defied basic logic. If the government wishes to establish a program wherein taxpayers support private nuclear development, it does so with the knowledge that FOIA exemptions are to be construed narrowly. Dep’t of the Air Force v. Rose, 425 U.S. 352, 361 (1976). Against this legal backdrop, and in support of the public interest, disclosure of “[a]dequate information enables the public to evaluate the wisdom and efficiency of federal programs and expenditures.” Racal-Milgo, 559 F. Supp. at 6. CONCLUSION The information redacted from the Term Sheets is unlawfully withheld under Exemption 4. For the foregoing reasons, DOE’s Cross-Motion for partial summary judgment should be denied and SACE’s Motion for Partial Summary Judgment should be granted.
Dated: March 22, 2011
/s/______________________ James B. Dougherty 709 3rd Street SW Washington, DC 20024 (202) 488-1140 DC Bar No. 939538
/s/______________________ Lawrence Sanders Turner Environmental Law Clinic 1301 Clifton Road Atlanta, GA 30322 (404) 712-8008 GA Bar No. 625711 Pro hac vice Counsel for Southern Alliance for Clean Energy
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