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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 (RCL)

DEFENDANTS REPLY IN FURTHER SUPPORT OF ITS MOTION FOR SUMMARY JUDGMENT AND OPPOSITION TO PLAINTIFFS CROSS-MOTION FOR SUMMARY JUDGMENT Plaintiff, Southern Alliance for Clean Energy (SACE), does not dispute that the United States Department of Energy (DOE or Agency) conducted an adequate search for records responsive to its March 25, 2010 FOIA request at issue in this case. Nor does Plaintiff challenge DOEs redaction of information protected from disclosure under Exemption 6. In its opposition to Defendants motion for summary judgment and cross-motion for summary judgment, Plaintiff challenges DOEs application of Exemption 4 to withhold credit subsidy cost estimates and other terms and conditions of the loan guarantees for the construction and operation of two nuclear reactors at the Vogtle Electric Generating Plant (Vogtle Project), and application of Exemption 5 to withhold inter- and intra-agency recommendations, opinions, analyses, and other non-factual material developed in the decision-making process for the loan guarantee agreements, which have not yet been finalized. For the reasons set forth in its opening brief and below, DOE respectfully submits that the Court should grant summary judgment in its favor and deny Plaintiffs cross-motion for summary judgment

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BACKGROUND DOE incorporates by reference the background statement set forth in its motion for summary judgment. See Mem. of Points & Auth. in Support of Def.s Mot. for Summ. J. (Def.s Mem.) at 2-11. ARGUMENT I. DOE Properly Withheld Credit Subsidy Cost Estimates and Other Loan Guarantee Terms Pursuant to FOIA Exemption 4 Plaintiff challenges DOEs invocation of Exemption 4 to withhold portions of 41 records that contain credit subsidy cost estimates and other loan guarantee terms. Although it does not contest the commercial or financial nature of this information, Plaintiff disputes that these records have been obtained from a person and are confidential within the meaning of 5 U.S.C. 552(b)(4). See Mem. in Support of Pl.s Cross-Mot. for Summ. J. & in Oppn to Def.s Mot. for Summ. J. (Pl.s Mem.) at 11. Plaintiffs objections lack evidentiary and legal basis. A. Credit Subsidy Cost Estimates Were Derived from Financial, Commercial, and Technical Information Supplied by the Applicants, and Therefore Obtained From A Person Plaintiff acknowledges that documents containing summaries or

Although

reformulations of information supplied by a source outside the government are protected from disclosure under Exemption 4, Plaintiff contends that the Government is unequivocally the source of the credit subsidy cost estimates. Pl.s Mem. at 11-15. The credit subsidy cost reflects the estimated long-term cost to the Government calculated on a net present value basis, excluding administrative costs. See Second Supplemental Declaration of David Frantz (Second Supp. Frantz Decl.) 3. DOE does not dispute that its Loan Programs Office (LPO), in coordination with the Office of Management and Budget (OMB), bears responsibility for calculating the credit subsidy cost estimates and eventually calculating the final credit subsidy

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cost in accordance with the Federal Credit Reform Act of 1990. Id. 3-4. The role of the LPO and OMB in determining the credit subsidy cost for each loan transaction using various tools and methodologies approved by OMB does not, however, alter the fact that the Applicants were the source of the financial information in the first instance. Id. 4-5. Indeed, the excerpt of the Vaughn index that Plaintiff quotes confirms this. See Vaughn Index Appendix A at p. 3 (stating that the credit subsidy cost estimate was developed from the detailed due diligence information prepared by [Georgia Power]). As David Frantz, Acting Executive Director of LPO and Director of the Origination Division of LPO, explained, the determination of the credit subsidy cost relies, among other factors, technical, financial, and other project-related information provided by the Applicants, inputs and analyses conducted by third parties, and LPOs analysis and review of all related information. Second Supp. Frantz Decl. 4. The input originate, primarily, from data that the Applicants . . . have provided to the Government and includes comprehensive information about the structure and financing plan of the project, financial model with the projected project output, the projected credit rating of the project, items such as the off-take contracts, construction and related contracts, financial reports, construction cost data and similar information about the Applicants and the project. Id. Based upon LPOs analysis of the Applicant-provided data, LPO develops its assessment of the credit risk of the transaction and the expected recoveries of the transaction in the event of a default. Id. 5. Therefore, because LPO derived the credit subsidy cost estimates from the information supplied by the Applicants, the Agency properly withheld this information under Exemption 4. See Pub. Citizen Health Research Group v. Natl Inst. of Health, 209 F. Supp. 2d 37, 44-45 (D.D.C. 2002) (upholding the withholding of the royalty rate in an agreement between a licensee and the National Institutes of Health because the

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licensee still must provide the information in the first instance, even if the final royalty rates may be the result of negotiation between the licensee and the agency). B. Other Loan Guarantee Terms Were Derived from Financial, Commercial, and Technical Information Supplied by the Applicants, and Therefore Obtained From A Person

With regard to the redactions of other loan guarantee terms, Plaintiff claims that [w]ith limited exceptions DOE does not attempt to show that the Applicants were the source of each redacted item. Pl.s Mem. at 15. Plaintiff makes no effort to identify these limited

exceptions, or even point to one single record that supports its assertion that DOE failed to demonstrate that the loan guarantee terms were derived from financial data supplied by the Applicants. This case is readily distinguishable from In Defense of Animals v. National Institutes of Health, which concluded that the Government could not apply Exemption 4 to [i]ncentive payments that the government will provide to a contractor for meeting certain goals because the payments reflected amounts that the agency had agreed to pay to the contractor and there was no evidence that the contractor was the source of the information in the first instance. 543 F. Supp. 2d 83, 102-03 (D.D.C. 2008). Here, through its supporting declarations and the Vaughn index, DOE explained that its decision to issue a loan guarantee is based on a competitive review of confidential and sensitive trade, financial, commercial and technical information submitted by applicants. Supp. Frantz Decl. 5. Although the terms and conditions discussed for the loan guarantee agreement were ultimately the product of extensive negotiations between DOE and the Applicants, see Frantz Decl. 13-14, DOE demonstrated that the Applicants were, in the first place, the sources of information pertaining to rights, obligations, contractual arrangements with DOE and other third parties, estimated project costs, credit analyses and rating, equity commitment, and reporting and other requirements related to the loan guarantee for the Vogtle

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Project. See Vaughn Index Appendix A at 1. See Def.s Mem. at 16-17. The Agency has therefore demonstrated that the other loan guarantee terms were obtained from a person. C. Disclosure Would Result in Substantial Competitive Harm to the Applicants and Impair DOEs Ability to Effectuate Its Statutory Mandate

Finally, Plaintiff claims that DOE has not met its burden of demonstrating that disclosure of the credit subsidy cost estimates and other loan guarantee terms would cause substantial competitive harm to the Applicants or impair DOEs ability to implement the loan guarantee program established in Title XVII of the Energy Policy Act. Although DOE need not

demonstrate the existence of both harms in order to establish that the withheld information is confidential, Plaintiffs conclusory arguments are insufficient to overcome DOEs evidence with respect to both harms. See Natl Parks & Conservation Assn v. Morton, 498 F.2d 765, 770 (D.C. Cir. 1974) (Natl Parks I), as modified by Natl Parks & Conservation Assn v. Kleppe, 547 F.2d 673, 679 (D.C. Cir. 1976) (Natl Parks II). To begin with, DOE has proffered ample evidence that, until and unless the loan guarantees are finalized, disclosure of the credit subsidy cost estimates and other loan guarantee terms at this time could (1) adversely affect the Applicants ability to negotiate favorable financing terms should they require alternative sources of financing; (2) permit the Applicants competitors to better evaluate financing alternatives; (3) create confusion in the credit market; and (4) expose the Applicants to unfavorable negotiating positions with other lenders. Def.s Mem. at 20-23. Plaintiff dismisses all of these reasons with the assertion that it is simply not the case that alternative financing arrangements, apart from . . . the [federal] loan guarantee program, exist. Pl.s Mem. at 18. Putting aside the total lack of support for Plaintiffs assertion, DOEs recognition that such projects are typically unable to obtain conventional private financing does not compel the conclusion that no alternative financing, conventional or

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otherwise, exists.

Indeed, each Applicant attested that it would seek alternative financing

arrangements were the loan guarantees to fail to materialize. See Long Decl. [ECF No. 12-3] 8 (In the event the Secretary of DOE terminates the Conditional Commitment at any time as permitted in 10 C.F.R. Section 609.2 or if Georgia Power and DOE are unable to agree on the terms of the definitive loan guarantee agreement, Georgia Power will not receive federal loan guarantees. In this case, Georgia Power will be required to find alternative financing in the amount of about $3.4 billion for the construction of the Vogtle Units.); Higgins Decl. [ECF No. 12-4] 11, 14 (indicating that there are other financing options available); Fuller Decl. [ECF No. 12-5] 7. Plaintiff next attacks as impermissibly speculative the DOEs reasoning that the disclosure of loan terms would permit the Applicants competitors to better evaluate their financing options and would undermine the Applicants future negotiating position.1 Pl.s Mem. at 18-21. Its position that DOE fail[s] to reference specific factual or evidentiary material is without merit, as DOEs justifications are based on the claims of Exemption 4 that Georgia Power, Oglethorpe, and MEAG supplied to the Agency, see Supp. Pulliam Decl. [ECF No. 29-5] 21, and the declarations previously submitted in connection with the Agencys partial motion for summary judgment. Indeed, Plaintiff discusses the very evidentiary material upon which DOE relies but urges that DOE be held to a greater level of detail than courts have required. Courts do not, however, require that a party show actual competitive harm in order to make an adequate showing of the likelihood of substantial competitive harm; rather, a showing of To the extent Plaintiff suggests that these points are somehow invalid because DOE previously raised similar arguments in connection with the briefing on the conditional commitment letters that were the subject of the parties cross-motions for partial summary judgment, see ECF Nos. 11-15, 19, any such inference should be rejected. The conditional commitment letters are one stage of the loan guarantee process, and disclosure of terms in those letters would logically cause the same competitive harm to Applicants as disclosure of other terms and conditions of the loan guarantee. 6
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[a]ctual competition and the likelihood of substantial competitive injury is sufficient. Pub. Citizen Health Research Group, 704 F.2d 1280, 1291 (D.C. Cir. 1983); Kahn v. Fed. Motor Carrier Safety Admin., 648 F. Supp. 2d 31, 36 (D.D.C. 2009). Importantly, it is undisputed that Georgia Power, Oglethorpe, and MEAG each face actual competition in the market for energy sales. See Pl.s Mem. at 17-21. Plaintiffs

contention that DOEs arguments lack factual or evidentiary basis from which to conclude that a competitor could glean useful information from DOEs loan guarantee terms and conditions, is contradicted by the reasonably detailed explanations in the Second Supplemental Frantz Declaration and the Vaughn index of the likelihood of substantial competitive injury resulting from disclosure of the credit subsidy cost estimates. As Mr. Frantz explained, the credit subsidy fee, which incorporates financial and commercial information provided by the Applicants, is a preliminary estimate and will not be final until the loan guarantee for the Vogtle Project is finalized, so it is difficult to know if the final credit subsidy cost estimate will be within the estimated credit subsidy range that is issued concurrently with the conditional commitment. See Second Supp. Frantz Decl. 7-8. Moreover, as described in the Vaughn index, disclosure of information such as the credit fee subsidy cost estimates in the DOE letter to Georgia Power dated January 15, 2009, Vaughn Index No. Attachments to SR2, would be of great value to GPCs investor owned utility competitors who are still considering DOE loan guarantees as financing alternatives because the competitors would receive the benefit of GPCs significant due diligence work essentially at no cost. See Vaughn Index Appendix A at p. 3; id. at p. 5 (Disclosure of the Credit Subsidy Information could cause commercial harm to OPC by providing potential lenders information they can use to exercise undue bargaining leverage for future financings, particularly any alternative financing OPC may need for the additional Vogtle

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units if the DOE loan guarantee transaction is not finalized.); id. at p. 7 (Disclosure of this information would provide unfair bargaining advantage to MEAGs current and future lenders in their negotiations with MEAG and embolden them to insist on recovering these types of costs from MEAG based on MEAGs agreement with DOE to do so in this case.). DOE has also provided reasonably detailed explanations for the other loan guarantee terms.2 See, e.g., Vaughn Index Appendix A p. 2 (Information relating to the terms upon which DOE may be willing to make federal loan guarantees for new nuclear projects would . . . allow these competitors to better evaluate financing alternative for their new nuclear generating units.); Long Decl. 13; Vaughn Index Appendix A p. 5 (If potential lenders or financial counterparties knew that OPC was willing to consider terms generally applicable to project level financing s or that create atypically broad, costly and/or risky obligations, it is very likely that they would seek similar terms and conditions in alternative financing agreements causing OPC to suffer undue bargaining disadvantages in future loan and financing negotiations.); Higgins Decl. 12-16; Vaughn Index Appendix A p. 5 (Public disclosure of this information is likely to result in substantial competitive harm to MEAG because it would . . . (2) enable competing power suppliers to estimate MEAGs costs of supplying electricity and compete unfairly against MEAG by offering to sell power to potential third party purchasers at less than what MEAG might be able to sell to them based on MEAGs costs . . .); Fuller Decl. 8-17. Accordingly, the Court should reject Plaintiffs conclusory allegations that the likelihood of substantial competitive harm resulting from disclosure of credit subsidy cost estimates and other loan Plaintiff appears to agree that competitive harm would result to Georgia Power in the event that the DOE loan guarantee did not materialize and Georgia Power had to seek alternative financing, see Pl.s Mem. at 19, but contends that no less than three assumptions are required to make that conclusion. This is erroneous. The likelihood of substantial competitive harm from premature disclosure of loan guarantee terms rises above the speculative level because Georgia Power faces the possibility of finding alternative financing for the Vogtle Project until a definitive loan guarantee agreement is finalized. See Long Decl. 8. 8
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guarantee terms is too speculative. See Kahn, 648 F. Supp. 2d at 36 (eschewing the need for a sophisticated economic analysis to determine whether there is a likelihood of substantial competitive injury). Plaintiff also challenges DOEs alternative argument that disclosure of the credit subsidy cost estimates and other loan guarantee terms would adversely affect DOEs administration of the loan guarantee program as speculative and illogical. Pl.s Mem. at 22. Rather than supporting Plaintiffs argument, Comstock Intl (U.S.A.), Inc. v. Export-Import Bank of United States, 464 F. Supp. 804 (D.D.C. 1979), bolsters DOEs argument that disclosure of the non-final terms and conditions of the loan guarantee agreements, including the non-final credit subsidy cost estimates, would impair DOEs ability to promote the development of clean energy projects that employ innovative technologies. The court in Comstock concluded that the Export-Import Bank properly withheld under FOIA a loan agreement because potential loan applicants might seek financing outside the United States because of their unwillingness to subject themselves to the possible risk of disclosure, borrowers would be less inclined to make concessions that could be disclosed to a future lender, and discourage commercial bank participation with Eximbank on joint loan agreements, thus impairing Eximbanks ability to control overall financing of transactions. Id. at 808. Articulating similar concerns, Mr. Frantz explained that [d]islcosure of such sensitive and confidential information to the public, which includes Applicants competitors, could significantly and adversely impact the Applicants performance and completion of the Vogtle Project and would have a chilling effect on future applicants decisions to apply for loan guarantees from DOE because of the negative impact of such disclosure on a companys competitive position. Frantz Decl. [ECF No. 12-1] 18; see also Long Decl. 12 (It is not customary for financing parties to publicly disclose the particular

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proposed terms of a financing transaction that is pending negotiation of binding agreements.). Further, Plaintiff again mistakenly equates the observation that loan applicants are typically unable to obtain conventional private financing with the lack of available alternative sources of funding. Pl.s Mem. at 22. Other than its own conjecture, Plaintiff has failed to proffer evidence that there are no available alternative financing sources, and the testimony from the Applicants is to the contrary. Accordingly, DOE concluded that disclosure of the non-final terms and conditions of the Vogtle loan guarantee agreement could hinder the performance and completion of the Vogtle Project, and deter other companies from applying for loan guarantees from DOE at the risk of having non-final financing terms disclosed, and properly applied Exemption 4 to withhold portions of the 41 records at issue. II. DOE Properly Withheld Inter- and Intra-Agency Communications Pertaining to the Loan Guarantees Pursuant to Exemption 5 Plaintiff challenges DOEs withholding pursuant to the deliberative process privilege of Exemption 5 as improper because DOE purportedly fail[ed] to provide reasonably specific justifications for withholding in its Vaughn index and therefore cannot show that the redacted information is predecisional or deliberative. Pl.s Mem. at 23-24. Plaintiffs arguments are unavailing, as they fail to address the reasonably detailed and non-conclusory justifications that DOE has provided through the Supplemental Frantz Declaration and the Vaughn index. First, without any specific reference to the nature of the information that DOE withheld, Plaintiff flatly asserts that the requested information is not pre-decisional because [t]he conditional commitment letters executed by the Applicants represent a formal agency adoption of policies relating to the terms and conditions of the loan guarantees. Pl.s Mem. at 24. Plaintiffs suggestion that the Agencys deliberations ended with the issuance of conditional

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commitment letters misunderstands the nature of the information withheld and the work performed by LPO. Unlike memoranda routinely used by agency staff as guidance in

conducting their audits, and [that] were retained and referred to [by agency staff] as precedent, see Coastal States Gas Corp. v. Dept of Energy, 617 F.2d 854, 866 (D.C. Cir. 1980), there can be no inference that the predecisional documents here had been adopted as agency policy. As Mr. Frantz explained, DOEs decision to issue a loan guarantee is based on a competitive review of confidential and sensitive trade, financial, commercial and technical information submitted by applicants. Supp. Frantz Decl. 5. As part of this review, Agency staff engaged in internal deliberations in the form of recommendations, analyses, speculation, and other nonfactual information prepared during the decision-making process relating to the issuance of the loan guarantee for the Vogtle Project. Id. 10. Although DOE issued conditional commitment letters on February 13, 2010, see Frantz Decl. [ECF No. 12-1] 16 & Pulliam Decl. [ECF No. 12-2] Exs. C, D & E, DOE staff continued to perform their review and analyses for purposes of generating a definitive, non-conditional loan guarantee agreement. See Supp. Frantz Decl. 10 (explaining that all the Exemption 5 withholdings related to the issuance of the loan guarantee for the Vogtle Project). The Agency has therefore carried its burden to establish[ ] what deliberative process is involved, and the role played by the documents in issue in the course of that process. Coastal States, 617 F.2d at 868. Moreover, Plaintiffs reference to the conditional commitment letters as the formal agency adoption of policies relating to the terms and conditions of the loan guarantees is illogical considering that a number of the withheld records post-date the Conditional Commitment Letters and pertain to the overall loan guarantee for the Vogtle Project. See, e.g., Vaughn Index No. SR41 (email string dated March 5, 2010 containing DOE

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personnel/consultant discussions regarding DOE consultations and coordination with OMB/Treasury on the Vogtle Project); KS10 (email string dated May 13, 2010 containing DOE personnel/consultant discussion related to the comparison and update of the [Credit Review Board] presentation). Second, Plaintiffs contention that the requested information is not deliberative because [t]he charts and analyses redacted pursuant to Exemption 5 likely contain facts, Pl.s Mem. at 24, similarly misunderstands the Agencys evaluative process for issuing the loan guarantees. While it is true that, in the abstract, charts and analyses likely contain facts such as financial data, the work that the Agency performed in identifying and culling factual information deemed relevant from the universe of confidential and sensitive trade, financial, commercial, and technical information that the Applicants submitted is itself deliberative. Disclosure of financial information that DOE staff culled from a mass of available data would expose [the agencys] decisionmaking process in such a way as to discourage candid discussions within the agency and thus undermine the agencys ability to perform its functions. McKinley v. FDIC, 744 F. Supp. 2d 128, 140 (D.D.C. 2010) (quoting Quarles v. Dept of the Navy, 893 F.2d 390, 392 (D.C. Cir. 1990)). Plaintiffs claim that DOE never asserts that these facts reflect discretion and

judgment ignores Mr. Frantzs explanation that DOE based its decision to issue loan guarantees upon a competitive review of confidential and sensitive trade, financial, commercial and technical information submitted by applicants and utilized this information to prepare recommendations, analyses, speculation, and other non-factual information. See Supp. Frantz Decl. 5, 10. Thus, DOE properly applied Exemption 5 to redact, for example, discussions of provisions in the term sheets and the Equipment, Procurement and Construction contract, see Vaughn Index No. NW124-127, draft term sheet for Georgia Power financing, see Vaughn Index

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No. NW277-279, and a proposed statement from the Credit Committee, see Vaughn Index No. SR228. In sum, Plaintiffs conclusory and cursory arguments fail to overcome the established principle that the deliberative process privilege extends to factual material where the factual material is so inextricably intertwined with the deliberative sections of documents that its disclosure would inevitably reveal the government's deliberations. In re Sealed Case, 121 F.3d 729, 737 (D.C. Cir. 1997); Gold Anti-Trust Action Comm., Inc. v. Bd. of Governors of Fed. Reserve Sys., 762 F. Supp. 2d 123, 135 (D.D.C. 2011). In short, Plaintiff ignores the bulk of DOEs evidence in challenging DOEs withholdings under Exemption 5, and its objections are lacking in merit. Accordingly, because the DOE properly applied Exemption 5 to withhold predecisional deliberative communications, the Court should grant summary judgment in favor of DOE. CONCLUSION For the reasons set forth in DOEs opening brief and as discussed above, DOE respectfully requests that the Court grant its motion for summary judgment and deny Plaintiffs cross-motion for summary judgment. Date: February 17, 2012 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

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

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