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UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA ) ) ) ) ) ) ) ) ) ) ) )

SOUTHERN ALLIANCE FOR CLEAN ENERGY, Plaintiff, v. UNITED STATES DEPARTMENT OF ENERGY, Defendant.

Civil Action No. 10-1335 (RLW)

REPLY MEMORANDUM IN FURTHER SUPPORT OF DEFENDANTS CROSS-MOTION FOR PARTIAL SUMMARY JUDGMENT Defendant, United States Department of Energy (DOE or Agency), properly applied FOIA Exemption 4 to withhold portions of three non-binding Conditional Commitment Letters containing confidential commercial information obtained from three applicants seeking loan guarantees from DOE for the construction and operation of two new nuclear generating units. Through its submission of detailed declarations from the Director of the Origination Division of the Loan Programs Office at DOE and each of the three applicants, DOE carried its burden of demonstrating that the redacted portions in the term sheets contained commercial information obtained from the applicants and that disclosure of the terms will likely result in substantial competitive injury to the applicants. In its response to Defendants cross-motion and reply in support of its partial motion (Pl.s Oppn & Reply), Plaintiff contends that DOEs withholdings are improper because the redacted information was not obtained from the applicants and is not confidential. Plaintiffs assertions are belied by the record. DOE has sufficiently justified its redactions pursuant to Exemption 4 of commercial and financial information in each of the three term sheets.

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There is, therefore, no need for the Court to conduct an in camera review of the withheld records, as Plaintiff urges, because there are no material facts in dispute that would prevent the entry of partial summary judgment for DOE.1 See Am. Civil Liberties Union v. U.S. Dept of Defense, 628 F.3d 612, 626 (D.C. Cir. 2011) (Although Congress provided district courts the option to conduct in camera review under FOIA, the statute does not compel the exercise of that option.). If, however, the Court finds it necessary to review the term sheets, DOE will produce them for in camera inspection upon request. For the reasons set forth in its opening brief and below, Defendant respectfully requests that the Court grant partial summary judgment in favor of DOE on the claims asserted with respect to Item 6 of Plaintiffs FOIA request and deny Plaintiffs motion for partial summary judgment. ARGUMENT I. DOE PROPERLY APPLIED EXEMPTION 4 TO REDACT TERMS OBTAINED FROM THE LOAN GUARANTEE APPLICANTS It is well settled that agency-generated documents may fall within Exemption 4 if they contain summaries and reformulations of information supplied by a source outside 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)); see Pub. Citizen Health Research Group v. NIH, 209 F. Supp 2d 37, 44-45 (D.D.C. 2002). Plaintiff The decision of whether to conduct in camera inspection is left to the broad discretion of the trial judge. Center for Auto Safety v. E.P.A., 731 F.2d 16, 20 (D.C. Cir. 1984). As a general rule, [i]f the agencys affidavits provide specific information sufficient to place the documents within the exemption category, if this information is not contradicted in the record, and if there is no evidence in the record of agency bad faith, then summary judgment is appropriate without in camera review of the documents. Larson v. Dept of State, 565 F.3d 857, 869 (D.C. Cir. 2009) (quoting Hayden v. N.S.A., 608 F.2d 1381, 1387 (D.C. Cir. 1979)); People for the Am. Way Fdn. v. Natl Park Serv., 503 F. Supp. 2d 284, 307 (D.D.C. 2007) (noting that in camera review is generally disfavored). Here, DOE has submitted detailed Vaughn indices and declarations that permit meaningful review of its Exemption 4 claims. 2
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contends that Exemption 4 does not apply to the term sheets because the Agency purportedly did not attempt to show that the Applicants were the source of each redacted item, although it allows that the exemption may cover the possible exception of the schedules attached to each Term Sheet. Pl.s Oppn & Reply at 6-9. The evidence squarely contradicts Plaintiffs claim that DOE did not demonstrate that the Applicants were the source of the redacted items. Contrary to Plaintiffs assertion that

[n]owhere in his declaration did Mr. Frantz claim that a specific term or condition . . . was actually obtained from one of the Applicants, David Frantz, Director of the Origination Division of LPO, directly addressed the source of the redacted terms or conditions in his declaration. In his sworn testimony, Mr. Frantz explained that most of the terms and conditions in the initial term sheet drafts offered to the Applicants were extensively negotiated, although a few of the initial terms remained unchanged and were subsequently incorporated into the Conditional Commitment Letters. See Frantz Decl. 15. He identified the specific provisions of the initial terms that were not the subject of negotiations with Georgia Power, Oglethorpe, or MEAG, and were therefore deemed not to have been obtained from the Applicants: Georgia Power Conditional Commitment Letter: Sections 1, 6, 11, 12 (Application Fee), 15, 18(d) and (g); Oglethorpe Conditional Commitment Letter: Sections 1, 11, 12 (Application Fee), 15, Conditions Precedent to Initial Advance for Borrower 17(a), (g), (k), (l); and MEAG Conditional Commitment Letter: Sections 6, Conditions Precedent to Financial Closing Date 17(h), (o), (t), (u), (cc), (dd), Conditions Precedent to Each Advance 18(d), (e), (g), (j), and (k).

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Id. Additionally, Mr. Frantz noted that, despite having undergone revision as the result of negotiations with the Applicants, certain of the initial terms were nonetheless released to the Plaintiff, including: Georgia Power Conditional Commitment Letter: Sections 2, 3, 7, 13, Conditions Precedent to Initial Advance for Borrower 17(a)-(l), 23, and 28; Oglethorpe Conditional Commitment Letter: Sections 2 (paragraphs 1-3), 3, 7, 10, 23, 24, 25, 27, 28; and MEAG Conditional Commitment Letter: Sections 1, 2 (paragraphs 1-3), 3 (paragraph 1), 4 (paragraphs 1 and 3), 5, 10 (paragraphs 1-3), 11, 13, Conditions Precedent to Financial Closing Date 17(c), (g), (i), (j), (n), (p), (q), (r), (s), (z), (aa), (ee), Conditions Precedent to Each Advance 18(a), (c), (l), 23, 29, and 30. Id. Through Mr. Frantzs identification of the provisions that either remained unchanged, or had been revised but were deemed releasable, DOE proffered specific evidence that the redacted terms had been arrived at through negotiations with the Applicants and that an Applicant was the source of the redacted information in the first instance. Thus, despite the fact that portions of the Conditional Commitment Letters were created by DOE, this does not preclude the application of Exemption 4. See Gold Anti-Trust Action Committee, Inc. v. Board of Governors of Federal Reserve System, No. 09-2436 (ESH), 2011 WL 332541, at *12 (D.D.C. Feb. 3, 2011) (An agency may withhold portions of its own reports containing information supplied by third parties.). Moreover, Mr. Frantz attested that each applicant provided the following information: (1) estimates of its cost to construct, own and operate its interest in the Vogtle Project, including assumptions about interest rates and financing costs specific to each Applicant; (2) projections

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related to nuclear fuel, training costs, and applicable capitalized interest during construction; (3) historical and projected financial statements, financial models, resource plans and financing plans supporting their assumptions to construct, finance, own and operate the Vogtle Project; and (4) loan draw schedules reflecting their own projected eligible project costs and amortization schedules. Frantz Decl. 14. Following extensive negotiations between the Agency and the Applicants, the information provided by each Applicant was incorporated into the final terms and conditions of its Confidential Commitment. Id. The testimony from the Applicants further substantiated Mr. Frantzs testimony that the redacted materials incorporate terms supplied by the Applicants. As the Assistant Treasurer of Georgia Power stated, Georgia Power delivered information to the DOE Loan Guarantee Program reflecting representative terms for other full recourse financing transactions involving Georgia Power, and consequently [t]he final term sheet developed and accepted by the parties reflects the essential input of Georgia Power and could not have been created without the information provided by Georgia Power. Long Decl. 7. As an example, Mr. Long pointed to the proposed collateral provisions that were redacted from the term sheets as provisions that could not have been developed without information and further input provided by Georgia Power. Id. In connection with the collateral provisions, Georgia Power provided the Loan Program Office with a copy of a modern utility first mortgage bond indenture involving another regulated utility which served as the template for discussions between DOE and Georgia Power regarding utility first mortgage bond indenture provisions. Id. Likewise, Oglethope negotiated the terms in its Conditional Commitment Letter and voluntarily submitted sensitive, non-public commercial and financial information that was incorporated into the term sheets. Higgins Decl. 11, 17(A). Specifically, the project cost

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estimates redacted from Schedules I and II, and the repayment schedule redacted from Schedule III, are all based directly on information provided by Oglethorpe to DOE. Id. 11. MEAG similarly proffered evidence that [a] great number of the withheld information in the CC represents specific financing terms and conditions negotiated at length and agreed with the DOE. Fuller Decl. 17. In addition to the declarations from the Applicants, DOE submitted a separate Vaughn index for each term sheet, which address line-by-line the bases for withholding the redacted terms. See Pulliam Decl. Exs. F, G & H. The cases relied upon by Plaintiff do not support a finding that the redacted materials were generated by DOE; rather, they compel the conclusion that the redacted materials were provided by the Applicants. In all but one of the cases cited by Plaintiff, the courts have concluded that negotiated terms reflecting information supplied by third parties were entitled to protection under FOIA. See Def.s Mem. at 12-13; Public Citizen Health Research Group v. FDA, 704 F.2d 1280, 1291 (D.C. Cir. 1983); Judicial Watch, 108 F. Supp. 2d at 28. The court reached the opposite result in In Defense of Animals v. National Institute of Health, finding that incentive award amounts in a contract proposal between NIH and a contractor had not been obtained from a person because the award amounts were amounts that NIH agreed to pay to the contractor, not the other way around. In Defense of Animals v. Natl Inst. of Health, 543 F.Supp.2d 83, 102-03 (D.D.C. 2008). The court therefore concluded that there was no evidence that the contractor was the source of the information in the first instance. Id. In contrast, DOE has pointed to specific and ample record evidence that the redacted materials reflect information supplied by the Applicants that was incorporated into the Conditional Commitment Letters. Accordingly, because the redacted terms in the Conditional

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Commitment Letters were obtained from the Applicants in the first instance, DOE properly withheld the redacted information pursuant to FOIA Exemption 4. I. DOE PROPERLY APPLIED EXEMPTION 4 TO REDACT CONFIDENTIAL TERMS Plaintiff next claims that DOE failed to demonstrate that disclosure of the redacted information would cause competitive harm to the Applicants or impair DOEs ability to effectively implement the loan guarantee program.2 Pl.s Oppn & Reply at 11-22. Neither argument has any merit. To begin, DOEs statement that Plaintiff offers only speculation in support of its claims of lack of competitive injury is in no way an attempt to switch the burden of proof. See id. at 11 n.1. DOE correctly noted that the agency bears the burden of proof with respect to its withholdings, and more than satisfied this burden with its reasonably detailed declarations. See Def.s Mem. at 9-10. Plaintiff also erroneously contends that an agency must meet a heightened burden in claiming Exemption 4. See Pl.s Oppn & Reply at 11. Indeed, National Parks I, of course, does not require the party invoking Exemption 4 to prove disclosure certainly would cause it substantial competitive harm, but only that disclosure would likely do so. McDonnell Douglas Corp. v. U.S. Dept. of the Air Force, 375 F.3d 1182, 1187 (D.C. Cir. 2004) (citing Natl Parks & Conservation Assn v. Morton, 498 F.2d 765, 770 (D.C. Cir. 1974)). Plaintiffs arguments fail for two independent reasons: disclosure of the redacted terms will likely cause substantial competitive harm to the Applicants and impair DOEs ability to implement the loan guarantee program. Plaintiff makes the curious assertion that 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. Pl.s Oppn & Reply at 11 n.2. This is incorrect. DOEs Statement of Material Facts clearly indicated that, upon consideration of the views and justifications provided by the Applicants and by LPO subject matter experts, DOE made its independent determination as to whether the information was protected from disclosure pursuant to Exemption 4, which necessarily involved an assessment of whether disclosure would likely cause competitive harm. See Def.s Statement of Material Facts Not in Genuine Dispute 20-24. 7
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A.

Disclosure Will Likely Cause Substantial Competitive Harm

Plaintiff parses DOEs arguments regarding the substantial competitive harm likely to result into separate arguments, claiming that each of the Agencys explanations is insufficient to meet its burden under Exemption 4. Pl.s Oppn & Reply 13-18. In reviewing an agencys determination regarding competitive harm, the D.C. Circuit does not require that a party show actual competitive harm in order to make an adequate showing of the likelihood of substantial competitive harm. Public Citizen, 704 F.2d at 1291. Courts recognize that predictive

judgments are not capable of exact proof, and thus generally defer to the agencys predictive judgments as to the repercussions of disclosure. United Techs. Corp., Pratt & Whitney Div. v. United States DOD, 601 F.3d 557, 563 (D.C. Cir. 2010) (quoting McDonnell Douglas, 375 F.3d at 1191, n.4 (citation omitted)). While Plaintiff does not dispute that Georgia Power,

Oglethorpe, and MEAG each face actual competition in the market for energy sales, Plaintiff contends that the likelihood of competitive harm resulting from disclosure is highly speculative and conclusory. See Pl.s Oppn & Reply at 13-18. However, the record reveals that there is a likelihood of substantial competitive injury to the competitive position of the Applicants. First, the declarations and Vaughn indices establish that disclosure of the redacted materials could cause significant harm to the Applicants because their competitors could use that information to the Applicants detriment. See Def.s Mem. at 15-21. As the Assistant Treasurer of Georgia Power attested, information relating to the terms upon which DOE may be willing to make federal loan guarantees for new nuclear projects would be highly valuable to competitors who are seeking federal loan guarantees under the competitive Title XVII Loan Program, thereby permitting these competitors to better evaluate financing alternatives for their new nuclear

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generating units. See Long Decl. 13. In particular, the redacted information contains detailed project costs estimates and loan draw schedules, which are of value to competitors who are or may be considering the construction of new nuclear generating units and would otherwise need to devote resources in developing these estimates and schedules. Id. 14. As the Chief Financial Officer of Oglethorpe explained in her declaration, and as demonstrated in the Vaughn index attached as Exhibit G to the Pulliam Declaration, Oglethorpes ability to remain competitive in the wholesale power market is directly influenced by its ability to construct, acquire, and finance power and capacity sources in the most cost-efficient manner possible. See Higgins Decl. 7. Finally, as the Chief Financial Officer of MEAG Power stated, disclosure of specific cost allocations among MEAGs special purpose vehicles would enable competing power suppliers to estimate its costs of supplying electricity and compete unfairly against MEAG by offering to sell power to potential third party purchasers at the same as or less than what MEAG may be able to sell. See Fuller Decl. 9. Second, courts have also found that competitive harm to a partys negotiating position in future matters involving counterparties (not limited to competitors) is sufficient to trigger the protections of FOIA Exemption 4. In particular, courts have found competitive harm where there is a threat of injury to a submitters future negotiating position in obtaining financing on favorable terms: Exemption 4 also protects the insureds future negotiating position. An insureds policy reflects understandings reached by the parties to the export transaction. The insured parties, exporters and banks, often agree to additions to or deletions from the Banks standard export insurance policy. If sensitive information contained in a policy or its underlying documentation -- e.g., when the insured has made a concession to the Bank -- became publicly known, it could hinder the insureds ability to obtain future financing on favorable terms.

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See Judicial Watch, 108 F. Supp. 2d at 29; see also Essex Electro Engrs, Inc. v. U.S. Secy of Army, 686 F. Supp. 2d 91, 94 (D.D.C. 2010) (finding that Exemption 4 applies to unit pricing information that could damage a contractors ability to competitively vie for same or similar future projects, limit the contractors bargaining power with its subcontractors, and disclose the economies of scale the contractors hopes to achieve in contract performance or the pricing strategies and risks it is willing to accept); Starkey v. United States Dept of Interior, 238 F. Supp. 2d 1188, 1195 (S.D. Cal. 2002) (recognizing a competitive harm claim where release of information would adversely affect the information providers ability to negotiate water rights). The harm to the Applicants negotiating position in future transactions is even more acute here, considering the nonbinding nature of the proposed terms set forth in the conditional commitments. The conditional commitments reflect only proposed terms for a financing

transaction related to the construction of two new nuclear generating units at the Vogtle Plant and, therefore, do not reflect binding terms for a completed financing. Frantz Decl. 17; Long Decl. 8; Higgins Decl. 10; Fuller Decl. 8. In the event DOE were to exercise its discretion to terminate the conditional commitments, the Applicants will be required to find alternative financing for the two new Vogtle units. Frantz Decl. 17; Long Decl. 8; Higgins Decl. 10; Fuller Decl. 8. Hence, if the terms of the conditional commitments are publicly disclosed, this would provide potential financing sources with valuable information relating to terms Applicants would be willing to accept in connection with a financing related to the Vogtle Units, thereby undermining the ability of each borrower to obtain financing on terms more favorable than the ones proposed in the conditional commitments. See, e.g., Long Decl. 10-11. Plaintiff claims there is no basis for the theory that private lenders would extract concessions from the Applicants, and asserts, without any support, that [i]f the Applicants were

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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. Pl.s Oppn & Reply at 14. This unsupported assertion ignores the wealth of evidence that DOE has proffered. See Long Decl. 10-11 (Georgia Powers negotiating position in an alternative financing transaction for the construction of the Vogtle units, if necessary, could be significantly undermined.); Higgins Decl. 14-15 (Signaling to future potential lenders that Oglethorpe is willing to consider terms included in the Confidential Information could undermine Oglethorpes bargaining position in alternative financing negotiations, with consequent negative impact on operational flexibility and stability of Oglethorpes financings and increased financing costs, which in turn would harm Oglethorpes competitive position.); Pulliam Decl. Ex. G at 2; Fuller Decl. 7, 10, 14 (Disclosure of these specific financing terms and conditions would provide unfair bargaining advantage to MEAG Powers current and future lenders in their negotiations with MEAG Power and it would embolden them to insist on same or similar restrictions on MEAG Power, which may result in increased financing costs to MEAG Power and its Participants and increased energy costs to Participants end-customers.). In sum, the declarations and Vaughn indices provide reasonably detailed support demonstrating that substantial competitive injury will likely result if the redacted terms in the Conditional Commitment Letters is disclosed. The Court should therefore find that the redacted information is confidential within the scope of Exemption 4. B. Disclosure Will Likely Impair DOEs Ability to Carry Out the Loan Guarantee Program

While the D.C. Circuit has not addressed the question, district courts have found the impairment of the effectiveness of a government program to be a proper factor for consideration

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in an Exemption 4 analysis. See Pub. Citizen Health Research Group v. Natl Inst. of Health, 209 F. Supp. 2d 37, 44 (D.D.C. 2002).3 Plaintiff contends that [r]ather than impairing

government programs, relevant case law plainly asserts that competition and lack of available alternatives lead to the obvious conclusion that disclosure will not obstruct the purposes of the government program. Pl. Oppn & Reply at 20. Plaintiffs attempt to distinguish Public Citizen and Judicial Watch from this case by arguing that the Applicants have no choice but to participate because the federal loan program is the only game in town misstates the relevant inquiry and mischaracterizes DOEs position. DOE provided evidence that disclosure of the requested information would have an adverse impact on the Agencys ability to implement the loan guarantee program. Specifically, the Energy Policy Act directs LPO to issue loan guarantees to encourage business or non-federal governmental entities to develop and finance clean energy projects that employ innovative technologies. Frantz Decl. 18. Given that the competitive application process demands a comprehensive review of confidential and sensitive trade, financial, commercial and technical information, applicants expect that their confidential information will not be subject to disclosure during the pendency of negotiations. Id. The disclosure of sensitive and confidential

information could significantly and adversely impair the Applicants performance and completion of the Vogtle Project, which would in turn impair DOEs ability to carry out its mission to work with non-federal entities to facilitate the development of clean energy projects. Id. Plaintiffs attempts to dismiss this articulated harm as conclusory statements is

unpersuasive. Pl.s Oppn & Reply at 19. The potential reluctance to negotiate with DOE is underscored by the Assistant Treasurer of Georgia Power, who stated that [i]n the event DOE is Plaintiff notes that the Second Circuit Court of Appeals, which is not controlling authority, has rejected the program effectiveness test. Pl.s Oppn & Reply at 18-19 n.7. The test has, however, been applied by several district courts in this jurisdiction. 12
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required to make premature disclosure of proposed terms of its loan guarantee transactions, this may jeopardize the willingness of parties such as Georgia Power or other borrowers . . . to negotiate freely. Long Decl. 12. Thus, DOE properly withheld the redacted terms in the Conditional Commitment Letters upon its determination that disclosure would interfere with the agencys ability to carry out its statutory purpose of promoting and financing the construction of clean energy projects to meet the growing energy needs of the country. See Judicial Watch, Inc., 108 F. Supp. 2d at 30. CONCLUSION For the reasons set forth in Defendants opening brief and as discussed above, Defendant respectfully requests that this Court grant its motion for partial summary judgment as to the claims asserted with respect to Item 6 of Plaintiffs FOIA request. Date: April 26, 2011 Respectfully submitted, RONALD C. MACHEN JR., D.C. Bar #447889 United States Attorney for the District of Columbia RUDOLPH CONTRERAS, D.C. Bar #434122 Chief, Civil Division By: /s/ Michelle Lo MICHELLE LO Assistant United States Attorney 555 4th Street, N.W. Washington, D.C. 20530 Tel: (202) 514-5134 Fax: (202) 514-8780 Michelle.Lo2@usdoj.gov .

Of counsel: Marilyn M. Madarang, Esq. Office of General Counsel U.S. Department of Energy

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