Opinion
Opinion By: Chris Gorman, Attorney General; Amye B. Majors, Assistant Attorney General
OPEN RECORDS DECISION
This matter comes to the Attorney General on appeal from the actions of Henderson Municipal Power & Light, hereinafter referred to as HMP&L, in responding to Mr. Chuck Stinnett's June 2, 1993, request to inspect certain records in its custody. Those records are identified as:
All correspondence and memorandum [sic] concerning compliance with the federal Clean Air Act at the city-owned Station Two power plant.
A copy of the contract through which [HMP&L] (or the Henderson Utility Commission or the City of Henderson) and Big Rivers Electric Corp. have agreed to sell SO [2] allowances to Centre Financial Products Limited.
Mr. Stinnett is the Business Editor for The Gleaner, Henderson's Daily Newspaper, and his request was made under the Kentucky Open Records Act.
Mr. Kendel D. Bryan, General Manager for HMP&L, denied Mr. Stinnett's request in a letter dated June 8, 1993. Relying on KRS 61.878(1)(i), he explained that memoranda and documents dealing with compliance with the federal Clean Air Act would not be released "because such materials are preliminary information exempted from inspection by [that provision]." In addition, he refused to release the allowance purchase agreement between Centre Financial Products, Ltd., HMP&L, the City of Henderson, and Big Rivers Electric Corporation, arguing that the document "contains confidential and proprietary information exempt from inspection by KRS 61.878(c) [sic]." Continuing, he observed:
This contract will not be closed until fall, 1993, to allow recording of the transaction on the books of the United Stated Environmental Protection Agency. The current market in SO [2] emission allowances is highly volatile. The disclosure of the composition and structure of the allowance purchase agreement prior to closing would greatly prejudice Centre Financial Products Ltd. and would confer an unfair advantage upon its competitors. The parties to the transaction have covenanted not to disclose the terms and provisions of the allowance purchase agreement except to the extent required by applicable law or judicial or administrative process.
Mr. Bryan indicated, however, that Centre Financial Products had authorized HMP&L to release a summary of the basic terms and conditions of the allowance purchase agreement "as a compromise of this matter."
On June 15, 1993, this Office contacted Mr. Bryan and HMP&L. Pursuant to KRS 61.880(2), we asked that Mr. Bryan provide us with additional information to substantiate the position he took in his June 8 letter. Specifically, we requested that Mr. Bryan "note the narrow language of [KRS 61.878(1)(c)], and briefly explain how the agreement falls within its parameters. " In addition, we requested that he elaborate on the position he took relative to "memoranda and documents dealing with the Clean Air Act compliance."
On June 22, Mr. Bryan responded to our letter, advising the Attorney General that HMP&L would release all correspondence and memoranda concerning compliance with the Clean Air Act on file with the Utility. Part one of Mr. Stinnett's request could therefore be treated as moot. With respect to the allowance purchase agreement, Mr. Bryan explained:
[Part two of Mr. Stinnett's request] concerns the executory contract to sell an unspecified number of SO [2] emission allowances allocated to the city-owned electric generating plant by the U.S. Environmental Protection Agency ("EPA") for the total amount of $ 26,850,000. Big Rivers Electric Corporation and HMP&L share in these allowances in proportion to the output taken from the plant by each utility. . . .
The contract cannot be consummated until EPA is prepared to record the transaction as part of its Allowance Tracking System. HMP&L takes the position that the executory contract is not a 'final action' by a public agency until the transaction is closed. Therefore, the exact language and composition of the contract should be exempt from disclosure under KRS 61.878(c)(1) [sic] to the extent that the document contains proprietary and confidential information furnished by Centre Financial Products, Ltd., the premature disclosure of which information would be potentially damaging to that party.
Mr. Bryan attached a copy of a letter dated June 8, 1993, from Centre Financial Products, Ltd., objecting to disclosure of the agreement together with a summary of the agreement which it is willing to disclose.
In that letter, M. Eileen Kelly, Managing Director and General Counsel for Centre Financial Products, argued that her corporation is entitled "under the Agreement" to have its sensitive proprietary information and trade secrets protected. Elaborating on this position, she observed:
Affording confidential protection to the Agreement is consistent with any duty or requirement which the City of Henderson and the Utility Commission may have to inform the public under the Kentucky Open Records Act (KRS 61.870 to 61.884); no valid interest warrants violating Centre Financial's confidences.
The information contained in the Agreement would not customarily be released to the public; it provides numerous specific confidential details, the release of any of which can be harmful, and in the aggregate discloses a broad view of a private business' confidential fundamental decision process.
In closing, Ms. Kelly expressed the view that the Open Records Law "was not enacted to give business rivals a periscope into each others confidential domains," and argued for a narrow construction of the law.
The question presented in this open records appeal is whether Henderson Municipal Power and Light properly denied Mr. Stinnett's request to inspect the allowance purchase agreement between HMP&L, Big Rivers Electric Corporation, and Centre Financial Products, Ltd. For the reasons set forth below, we conclude that HMP&L improperly denied the request and must promptly arrange for Mr. Stinnett to inspect the agreement. Because HMP&L has agreed to release the documents identified in part one of Mr. Stinnett's request, we shall treat the issue raised by Mr. Bryan's initial denial of that portion of the request as moot. OAG 91-140.
As amended by the 1992 General Assembly, KRS 61.878(1)(c) provides for the nondisclosure of:
1. Records confidentially disclosed to an agency, generally recognized as confidential or proprietary, which if openly disclosed would permit an unfair commercial advantage to competitors of the entity that disclosed the records, and which are compiled and maintained:
a. In conjunction with an application for a loan;
b. In conjunction with the regulation of commercial enterprise, including mineral exploration records, unpatented, secret commercially valuable plans, appliances, formulae, or processes, which are used for the making, preparing, compounding, treating, or processing of articles or materials which are trade commodities obtained from a person; or
c. For the grant or review of a license to do business.
In order to successfully raise this exception, an agency must establish that the requested records: (1) were confidentially disclosed; (2) are generally recognized as confidential or proprietary, such that disclosure would permit an unfair commercial advantage to competitors; and (3) were submitted either in conjunction with an application for a loan, in conjunction with the regulation of a commercial enterprise, or for the grant or review of a license to do business. It is the opinion of this Office that HMP&L has failed to sustain its burden of proving that the records withheld satisfy this three part test.
Mr. Bryan asserts that the allowance purchase agreement "contains proprietary and confidential information furnished by Center Financial Products, Ltd., the premature disclosure of which information would be potentially damaging to that party." Because the current market in SO[2] emissions is "highly volatile," he argues that disclosure of the agreement "prior to closing" would prejudice the corporation. Consistent with this view, he explains that the parties have covenanted not to disclose the terms of the allowance purchase agreement.
It is clear that Mr. Bryan's invocation of KRS 61.878(1)(c) to authorize nondisclosure of the agreement reflects a liberal construction of that exception which is not warranted by the express language of the statute, and the policy which underlies it. Mr. Bryan does not establish that the agreement was submitted in conjunction with an application for a loan, the regulation of a commercial enterprise, or for the grant or review of a license to do business. Nor do we believe that he could make such a showing. The record at issue in this appeal is an agreement, or contract, for the sale of SO[2] emission allowances allocated to the city-owned electric generating plant by the EPA to a private corporation, Centre Financial Products, Ltd. The agreement does not fall within the parameters of KRS 61.878(1)(c)1.a., b., or c. insofar as it was not submitted in conjunction with an application for a loan, the regulation of a commercial enterprise, or the grant or review of a license to do business. Since we are bound by a rule of strict construction, we reject Mr. Bryan's claim that the records are exempt pursuant to KRS 61.878(1)(c). OAG 91-105; 92-ORD-1020; 93-ORD-22.
Moreover, and assuming for the sake of argument that the agreement fell within the parameters of that exception, it is our opinion that HMP&L failed to sustain its burden of proving that the records are generally recognized as confidential or proprietary such that disclosure would permit an unfair commercial advantage to competitors. Although Mr. Bryan and Ms. Kelly repeatedly assert that the agreement contains "confidential and proprietary information," and that premature disclosure would confer an unfair advantage on Centre Financial's competitors, and although this Office afforded HMP&L an opportunity to substantiate its position relative to this concern, neither the Utility nor the corporation offered any explanation as to how release of the requested record would place the corporation at a competitive disadvantage. Mere invocation of the exception supported by bare allegations, without an adequate explanation of how the exception applies to the record withheld, does not satisfy the burden of proof imposed on the agency by KRS 61.880(2) and KRS 61.882(3). We therefore conclude that HMP&L improperly denied Mr. Stinnett's request.
Turning to HMP&L's second line of defense, we begin by noting that Mr. Bryan failed to properly cite KRS 61.878(1)(h) or (i) in denying Mr. Stinnett access to the agreement. Because he indirectly referenced these provisions, arguing that the "executory contract is not a 'final action' by a public agency until the transaction is closed, and it cannot be consummated until EPA records it as part of its Allowance Tracking System," we will address the applicability of KRS 61.878(1)(h) and (i) to the agreement.
Among those records which may be excluded from the application of the Open Records Act, in the absence of a court order directing disclosure, are:
(h) Preliminary drafts, notes, correspondence with private individuals, other than correspondence which is intended to give notice of final action of a public agency;
(i) Preliminary recommendations, and preliminary memoranda in which opinions are expressed or policies formulated or recommended;
In
University of Kentucky v. Courier-Journal & Louisville Times Co., Ky., 830 S.W.2d 373 (1992), the Kentucky Supreme Court analyzed a similar situation and concluded, at page 378:
These subsections exempt only documents which are preliminary in nature. The Response signed by the NCAA constituted the final result of an extensive investigation. . . .
The fact that the Response was submitted prior to final action by the NCAA is irrelevant. The only agency subject to the provisions of the [Open Records] Act is the University. The submission of the report to the NCAA by the University constitutes final action of the University, an agency subject to the disclosure requirements contained in the Act. . . .
[O]nce the University made full and complete disclosure of the materials contained in the Response to the NCAA, it subjected these documents to full disclosure once the University's action became final. The documents sought by the Appellees are not protected from disclosure by the exemptions of subsection (1) [(h) ] and [(i) ].
In our view, this holding can be extended to the facts presented in the present appeal. HMP&L's submission of the allowance purchase agreement to the federal EPA constitutes final action of HMP&L, which is subject to the mandatory disclosure provisions of the Open Records Law. The fact that the agreement was submitted prior to EPA's final action is irrelevant. The agreement is therefore not protected by KRS 61.878(1)(h) and (i).
We are not persuaded that the existence of a nondisclosure covenant between HMP&L and Centre Financial Products, Ltd., is controlling. This Office has repeatedly recognized that a public agency's promise of confidentiality can only be honored if it is consistent with the Open Records Law. See e.g., 93-ORD-22. HMP&L cannot abrogate the mandatory provisions of the Open Records Law by a promise of confidentiality.
Henderson Municipal Power & Light may challenge this decision by initiating action in the appropriate circuit court pursuant to KRS 61.880(5) and KRS 61.882.