Proposed Rule2022-16608
Duty of Candor
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
August 12, 2022
Issuing agencies
Energy DepartmentFederal Energy Regulatory Commission
Abstract
The Federal Energy Regulatory Commission (Commission) proposes to add a requirement that all entities communicating with the Commission or other specified organizations related to a matter subject to the jurisdiction of the Commission submit accurate and factual information and not submit false or misleading information or omit material information. An entity is shielded from violation of the regulation if it has exercised due diligence to prevent such occurrences.
Full Text
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<title>Federal Register, Volume 87 Issue 155 (Friday, August 12, 2022)</title>
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[Federal Register Volume 87, Number 155 (Friday, August 12, 2022)]
[Proposed Rules]
[Pages 49784-49793]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-16608]
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DEPARTMENT OF ENERGY
Federal Energy Regulatory Commission
18 CFR Part 1d
[Docket No. RM22-20-000]
Duty of Candor
AGENCY: Federal Energy Regulatory Commission, Department of Energy.
ACTION: Notice of proposed rulemaking.
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SUMMARY: The Federal Energy Regulatory Commission (Commission) proposes
to add a requirement that all entities communicating with the
Commission or other specified organizations related to a matter subject
to the jurisdiction of the Commission submit accurate and factual
information and not submit false or misleading information or omit
material information. An entity is shielded from violation of the
regulation if it has exercised due diligence to prevent such
occurrences.
DATES: Comments are due October 11, 2022.
ADDRESSES: Comments, identified by docket number, may be filed in the
following ways. Electronic filing through <a href="https://www.ferc.gov">https://www.ferc.gov</a>, is
preferred.
<bullet> Electronic Filing: Documents must be filed in acceptable
native applications and print-to-PDF, but not in scanned or picture
format.
<bullet> For those unable to file electronically, comments may be
filed by U.S. Postal Service mail or by hand (including courier)
delivery.
[cir] Mail via U.S. Postal Service only: Addressed to: Federal
Energy Regulatory Commission, Office of the Secretary, 888 First Street
NE, Washington, DC 20426.
[cir] For delivery via any other carrier (including courier):
Deliver to: Federal Energy Regulatory Commission, Office of the
Secretary, 12225 Wilkins Avenue, Rockville, MD 20852.
FOR FURTHER INFORMATION CONTACT:
Gabe Sterling, Legal Information Office of Enforcement, Division of
Investigations, Federal Energy Regulatory Commission, 888 First Street
NE, Washington, DC 20426, (202) 502-8891, <a href="/cdn-cgi/l/email-protection#fa9d9b9888939f96d4898e9f889693949dba9c9f8899d49d958c"><span class="__cf_email__" data-cfemail="ccabadaebea5a9a0e2bfb8a9bea0a5a2ab8caaa9beafe2aba3ba">[email protected]</span></a>.
Andrea Cerbin, Legal Information Office of Enforcement, Division of
Investigations, Federal Energy Regulatory Commission, 888 First Street
NE, Washington, DC 20426, (202) 502-8362, <a href="/cdn-cgi/l/email-protection#ec8d82889e898dc28f899e8e8582ac8a899e8fc28b839a"><span class="__cf_email__" data-cfemail="6908070d1b0c08470a0c1b0b0007290f0c1b0a470e061f">[email protected]</span></a>.
[[Page 49785]]
SUPPLEMENTARY INFORMATION:
Table of Contents
Paragraph Nos.
I. Background......................................... 7
A. Existing Duties of Candor...................... 8
B. 18 CFR 35.41(b)................................ 16
C. Limitations of the Existing Duty of Candor 20
Rules............................................
II. Discussion........................................ 23
A. The Need for a Broad Duty of Candor............ 26
B. 18 CFR 35.41(b) Provides a Fair Basis for a 32
Broader Duty of Candor...........................
C. Authority for the Proposed Rule................ 35
D. Interpretive Guidance and Application of the 39
Proposed Rule....................................
III. Information Collection Statement................. 45
IV. Environmental Analysis............................ 46
V. Regulatory Flexibility Act Analysis................ 47
VI. Comment Procedures................................ 49
VII. Document Availability............................ 52
1. Pursuant to sections 206, 215, 307, and 309 of the Federal Power
Act (FPA),\1\ sections 5, 14, and 16 of the Natural Gas Act (NGA),\2\
sections 1(5)(a), 12(1)(a), 13, and 15 of the Interstate Commerce Act
(ICA),\3\ sections 311(c) and 501(a) of the Natural Gas Policy Act of
1978 (NGPA),\4\ and sections 402(a)(2) and 402(h) of the Department of
Energy Organization Act,\5\ the Commission proposes to add a new part
1d to title 18 of the Code of Federal Regulations to require that any
entity communicating with the Commission or other specified
organizations (as identified below) related to a matter subject to the
jurisdiction of the Commission submit accurate and factual information
and not submit false or misleading information, or omit material
information.\6\ However, the Commission proposes that exercising due
diligence to prevent such occurrences would be an affirmative defense
to violations of the requirement.
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\1\ 16 U.S.C. 824e, 824o, 825f, 825h.
\2\ 15 U.S.C. 717d, 717m, 717o.
\3\ 49 U.S.C. app. 1(5)(a), 12(1)(a), 13, 15.
\4\ 15 U.S.C. 3371(c), 3411(a).
\5\ 42 U.S.C. 7172(a)(2), (h).
\6\ The dissent argues that the rule applies to a ``lack of
communication,'' which is not accurate. While a material omission in
a communication could violate the rule, a lack of communication
would not. As this notice of proposed rulemaking (NOPR) explains,
this proposal does not impose a duty of disclosure.
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2. A variety of current Commission regulations prohibit, in defined
circumstances, inaccurate communications to the Commission and other
organizations upon which the Commission relies to carry out its
statutory obligations in the Commission-jurisdictional electric,
natural gas, and oil industries and markets. However, these existing
requirements cover only certain communications and impose a patchwork
of different standards of care for such communications.
3. The Commission relies extensively upon the accuracy of
information provided to it and to other organizations for effective
decision making. Reliance on inaccurate information inhibits the
Commission's regulatory oversight and could lead to substantial harm,
whether it is communicated to the Commission or to the other
organizations upon which the Commission relies to assist it to carry
out its regulatory responsibilities. We are concerned that the
Commission has no explicit requirement that communications related to a
matter subject to the jurisdiction of the Commission be accurate or
even that they not include intentional misrepresentations.
4. We believe that a broadly applicable duty of candor will improve
the Commission's ability to effectively oversee jurisdictional markets
by ensuring the Commission and organizations upon which the Commission
relies base decisions on accurate information. Effective Commission
oversight depends on entities' use of due diligence to reduce the
possibility that false or inaccurate information is communicated to the
Commission and other organizations upon which it relies. Further,
intentional or reckless communication of false or inaccurate
information is always unacceptable.
5. All persons appearing before the Commission and entities
communicating with organizations regulated by the Commission should
know that truthfulness is expected and required, that communications
should be made following due diligence, and that communications should
never be intentionally or recklessly misleading. However, we understand
that there is a balance between ensuring accurate communications and
the burden required to ensure that accuracy. By adopting a flexible
standard, ``due diligence,'' and limiting the relevant communications
to specific recipients related to matters subject to the jurisdiction
of the Commission, we expect that such additional burdens, if any,
would be minimal.
6. We seek comment on all aspects of the proposed rule, including
specifically the following: the need for a broad duty of candor rule;
whether 18 CFR 35.41(b) provides a reasonable foundation for the
proposed expanded duty of candor rule; the Commission's authority for
the proposed rule; whether there are categories of entities or
individuals that should be exempted from the duty of candor; the scope
of the communications covered by the rule; and whether the regulation
properly identifies all organizations who assist the Commission to
carry out its statutory obligations and communications to whom should
be subject to a duty of candor.
I. Background
7. Among the existing patchwork of Commission requirements imposing
a duty of candor applicable to some Commission-regulated entities and
markets is 18 CFR 35.41(b), which applies only to ``Sellers'' in
electric markets, defined as a person who has either obtained or
applied for market-based rate authority under the auspices of the
FPA.\7\ The Commission proposes here to adopt a broader regulation
based upon our significant experience with Sec. 35.41(b). By way of
background, we first discuss some of the other duties of candor
applicable to entities within the Commission's jurisdiction. Then, we
[[Page 49786]]
discuss 18 CFR 35.41(b) and its history in greater detail. Then, we
turn to the limitations of these requirements.
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\7\ A ``Seller'' is ``any person that has authorization to or
seeks authorization to engage in sales for resale of electric
energy, capacity or ancillary services at market-based rates under
section 205 of the Federal Power Act.'' 18 CFR 35.36(a)(1).
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A. Existing Duties of Candor
8. The Commission has adopted various regulations imposing a duty
of candor for specific types of communications, and the vast majority
of these regulations involve communications to the Commission or
Commission staff. In each instance, the controlling regulation was
adopted as part of specific regulatory requirements or procedures
rather than as a broad requirement applicable to all of the
Commission's oversight responsibilities, including areas where the
Commission relies on other organizations to assist it in exercising its
authorities. This history, discussed in the paragraphs to follow, has
resulted in a limited set of requirements that may fail to ensure that
the Commission can make decisions based on accurate information.
9. For many decades, the Commission's governing statutes and
adopted regulations have required that certain submissions to it be
made under oath and penalty of perjury. For example, FPA 304 requires
that entities submit periodic or annual reports under oath,\8\ FPA
307(a) requires that written statements in investigations be under
oath,\9\ and FPA 4(b) allows the Commission to require certain
hydroelectric-related filings to be submitted under oath.\10\ The NGA
allows submissions under oath in investigations,\11\ periodic forms
must be provided under oath,\12\ and 18 CFR 385.1907 requires
compliance reports to be under oath as well. The provision in 18 CFR
385.2005 (Rule 2005 of the Commission's Rules of Practice and
Procedure) requires that any filing with the Commission must be signed
and that a signature constitutes a certificate that the signer knows
the contents are true to the best of his/her knowledge and belief.\13\
Testimony and evidence submitted in proceedings before Commission
Administrative Law Judges must be submitted under oath.\14\
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\8\ 16 U.S.C. 825c.
\9\ 16 U.S.C. 825f(a).
\10\ 16 U.S.C. 797(b).
\11\ 15 U.S.C. 717m(a).
\12\ 15 U.S.C. 717i(a).
\13\ 18 CFR 385.2005(a).
\14\ See, e.g., 18 CFR 385.506(b), 385.507(d).
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10. While the authorities referenced above require submissions to
be made under oath, other regulations impose differing obligations for
communications. For example, the Commission has interpreted 18 CFR
157.5 to require applicants under NGA 7 seeking pipeline certificates
of public convenience and necessity to disclose ``fully and
forthrightly . . . all information relevant to the application.'' \15\
NGA 7(d) requires that applications for certificates shall be made in
writing to the Commission, be verified under oath, and ``shall be in
such form, contain such information, and notice thereof shall be served
upon such interested parties and in such manner as the Commissions
shall, by regulation, require.'' \16\ ICA 20(7)(b) prohibits the
knowing and willful filing of any ``false entry'' in any annual or
other report required to be filed under this section.\17\
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\15\ See Black Marlin Pipeline Co., 4 FERC ] 61,039, at 61,088
(1978).
\16\ 15 U.S.C. 717f(d).
\17\ 49 U.S.C. App. 20(7)(b).
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11. The Commission also has adopted amendments to blanket sales
certificates ``to ensure the integrity of the natural gas market.''
\18\ Citing staff's findings in its Final Report on the Western Energy
Crisis,\19\ the Commission expressed concerns about attempted
manipulation in the natural gas industry such as ``reporting . . .
false data'' and as a result agreed with staff's recommendation to
``condition natural gas companies' blanket certificates on providing
accurate and honest information to entities that publish price
indices.'' \20\ Acting under NGA 7, the Commission also promulgated
Market Behavior Rules, including rules specifically requiring Sellers
that report their trades to index publishers to ``provide accurate and
factual information and not knowingly submit false or misleading
information or omit material information to any such publisher.'' \21\
As the Commission stated, the candor requirement in the amendments to
natural gas blanket sales certificates was simply to ``be honest and
forthright with the Commission and the institutions it has established
to implement open-access transportation and entities publishing indices
for the purpose of price transparency.'' \22\ These rules remain in
place today.\23\
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\18\ Amendments to Blanket Sales Certificates, Order No. 644, 68
FR 66323 (Nov. 26, 2003), 105 FERC ] 61,217, at P 109 (2003).
\19\ Final Report on Price Manipulation in Western Markets:
Fact-Finding Investigation of Potential Manipulation of Electric and
Gas Prices, Docket No. PA02-2-000 (Mar. 2003).
\20\ Order No. 644, 105 FERC ] 61,217 at P 13.
\21\ Id. P 70.
\22\ Id. P 44.
\23\ See 18 CFR 284.288(a), 284.403(a). These provisions were
originally adopted as 18 CFR 284.288(b) and 284.403(b), but were re-
ordered following revisions to those sections arising from the
Commission's implementation of specific anti-manipulation authority
granted by the Energy Policy Act of 2005's creation of new NGA
section 4A. See Amends. to Codes of Conduct for Unbundled Sales Srv.
& for Persons Holding Blanket Mktg. Certificates, Notice of Proposed
Rulemaking, 70 FR 72090 (Dec. 1, 2005), 113 FERC ] 61,189 (2005);
Amends. to Codes of Conduct for Unbundled Sales Serv. & for Persons
Holding Blanket Mktg. Certificates, Order No. 673, 71 FR 9709 (Feb.
27, 2006), 114 FERC ] 61,166 (2006).
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12. For individuals, the Commission's Rules of Practice and
Procedure impose a duty of candor on those appearing before it: ``A
person appearing before the Commission or the presiding officer must
conform to the standards of ethical conduct required of practitioners
before the Courts of the United States.'' \24\ The minimum such
standard is found in Rule 11 of the Federal Rules of Civil Procedure,
which provides that any submission to the court impliedly certifies
that factual or legal representations made therein have a reasonable
basis in fact or law ``to the best of the person's knowledge,
information, and belief, formed after an inquiry reasonable under the
circumstances.'' \25\ Practitioners before the Courts of the United
States are also bound by the ethical rules of any bar of which they are
a member. The American Bar Association's Model Rules of Professional
Conduct, upon which numerous state bar rules are based, provide, among
other things, that ``a lawyer shall not knowingly make a false
statement of fact or law to a tribunal or fail to correct a false
statement of material fact or law previously made to the tribunal by
the lawyer.'' \26\ In addition to the explicit prohibition against
``knowingly'' making false statements, the official comments that
accompany the Model Rules make clear that the lawyer is required to
exercise due diligence to ensure, under certain circumstances, that the
information provided is not false or misleading.\27\
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\24\ 18 CFR 385.2101(c). ``Person'' in this context is not
confined to attorneys, as non-attorneys may also appear before the
Commission. 18 CFR 385.2101(a).
\25\ Fed. R. Civ. P. 11(b).
\26\ Model Rules of Prof'l Conduct R. 3.3(a)(1).
\27\ Model Rules of Prof'l Conduct R. 3.3 cmt. 3 (``an assertion
purporting to be on the lawyer's own knowledge, as in an affidavit
by the lawyer or in a statement in open court, may properly be made
only when the lawyer knows the assertion is true or believes it to
be true on the basis of a reasonably diligent inquiry. There are
circumstances where failure to make a disclosure is the equivalent
of an affirmative misrepresentation.'').
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13. Under 18 CFR 1c.1(a)(2) and 1c.2(a)(2), it is unlawful, in
connection with jurisdictional natural gas and electric transactions,
``[t]o make any untrue statement of a material fact or to omit to state
a material fact necessary in order to make the statements made, in the
light of the circumstances under which they were made, not
[[Page 49787]]
misleading.'' \28\ Order No. 670 explained that these regulations did
not adopt a general affirmative duty of disclosure, but applied to
communications whether they are voluntary or required.\29\ Moreover,
false statements by themselves are not actionable under the regulation.
Rather, there is a violation only ``if all of the other elements of a
violation are present'' (including scienter).\30\
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\28\ 18 CFR 1c.1(a)(2), 1c.2(a)(2).
\29\ Prohibition of Energy Mkt. Manipulation, Order No. 670, 71
FR 4244 (Jan. 26, 2006), 114 FERC ] 61,047, at PP 35-37, 41-42
(2006).
\30\ Id. P 41.
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14. Federal law, in fact, contemplates criminal sanctions for
intentionally false statements made to any branch of the United States
Government, including the Commission. Under 18 U.S.C. 1001(a),
individuals who ``in any matter within the jurisdiction of the
Government . . . make any materially false, fictitious, or fraudulent
statement or representation'' can be fined or imprisoned for up to five
years. However, the Commission has no authority to prosecute such
violations.
15. Taken as a whole, these statutory and regulatory provisions
create obligations for candor in various communications made to or
before the Commission in a variety of circumstances. But these
obligations are individually limited.
B. 18 CFR 35.41(b)
16. We believe that existing Sec. 35.41(b) can form the basis for
a broader rule that applies to a wider range of communications in the
Commission's regulation of the electric, natural gas, and oil
industries and markets.\31\ Section 35.41(b) of the Commission's
regulations prohibits false statements made by entities who have sought
or obtained electric market-based rate authority. The provision
currently provides that a Seller must provide accurate and factual
information and not submit false or misleading information, or omit
material information, in any communication with the Commission, with
Commission-approved market monitors, with Commission-approved regional
transmission organizations, with Commission-approved independent system
operators, or with jurisdictional transmission providers, unless the
Seller exercises due diligence to prevent such occurrences.
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\31\ In 2016, the Commission proposed a new rule requiring
virtual traders and financial transmission rights (FTR) traders to
report certain information about their legal and financial
connections to other entities (i.e., connected entity information).
The Commission also proposed to extend the Sec. 35.41(b) duty of
candor to these traders. See Data Collection for Analytics &
Surveillance & Mkt.-Based Rate Purposes, Notice of Proposed
Rulemaking, 81 FR 51726 (Aug. 4, 2016), 156 FERC ] 61,045, at PP 44-
48 (2016). The Commission ultimately declined to adopt this part of
the rule. See Data Collection for Analytics & Surveillance & Mkt.-
Based Rate Purposes, Order No. 860, 84 FR 36390 (July 26, 2019), 168
FERC ] 61,039, at P 4 & Glick dissenting at n.6 (2019). However, the
Commission transferred the record to Docket No. AD19-17-000 for
possible additional consideration in the future of a requirement to
provide connected entity information to the Commission. Id. P 184.
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17. In the aftermath of the Western Energy Crisis, the Commission
found that dishonest and abusive practices by Sellers with market-based
rate authority led to unjust and unreasonable rates.\32\ It also found
that market-based rate Sellers were under an implicit duty not to
engage in fraudulent or deceptive conduct.\33\ When it instituted
Market Behavior Rule 3 (later codified as 18 CFR 35.41(b)), the
Commission explained that ``[t]he integrity of the processes
established by the Commission for open competitive markets rely on the
openness and honesty of market participant communications.'' \34\ The
Commission adopted the Market Behavior Rules for Sellers with market-
based rate authority through its ratemaking authority under FPA
206.\35\ The Commission found that Sellers' existing tariffs and
authorizations, without clearly-delineated rules of the road to govern
market participant conduct, were unjust and unreasonable. Without such
behavioral prohibitions, the Commission found that it would not be able
to ensure that rates are the product of competitive forces and thus
would remain within a zone of reasonableness. It further found that its
Market Behavior Rules ``will help ensure that rates are the product of
competitive forces and thus remain just and reasonable.'' \36\
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\32\ See San Diego Gas & Elec. Co. v. Sellers of Energy &
Ancillary Servs., 65 FR 67040 (Nov. 8, 2000), 93 FERC ] 61,121, at
61,349 (2000) (finding ``that the electric market structure and
market rules . . . are seriously flawed and that these structures
and rules . . . have caused, and continue to have the potential to
cause, unjust and unreasonable rates . . . .''); Ord. Establishing
Refund Effective Date and Proposing to Revise Mrkt.-Based Rate
Tariffs & Authorizations, 66 FR 59241 (Nov. 27, 2001), 97 FERC ]
61,220, at 61,974 (2001) (instituting a proceeding under FPA section
206 ``to investigate the justness and reasonableness of the terms
and conditions of market-based rate tariffs and authorizations'' in
the wake of market abuses); Investigation of Terms & Conditions of
Pub. Util. Mkt.-Based Rate Authorizations, 68 FR 40924 (July 9,
2003), 103 FERC ] 61,349, at P 5 (2003) (proposing to amend the
requirements of market-based rate authority ``to provide clearly-
delineated `rules of the road' to market-based rate sellers while,
at the same time, not impairing the Commission's ability to provide
remedies for market abuses whose precise form and nature cannot be
envisioned today''); Ord. Amending Mkt.-Based Rate Tariffs &
Authorizations, 68 FR 65902 (Nov. 24, 2003), 105 FERC ] 61,218
(2003) (amending requirements for market-based rate authority by
adding Market Behavior Rules after notice and comment).
\33\ Enron Power Mktg, Inc., 102 FERC ] 61,316, at P 8.
\34\ Ord. Amending Mkt.-Based Rate Tariffs & Authorizations, 105
FERC ] 61,218 at P 107.
\35\ 16 U.S.C. 824e.
\36\ Ord. Amending Pub. Util. Mkt.-Based Rate Tariffs &
Authorizations, 68 FR 65902 (Nov. 24, 2003), 105 FERC ] 61,218, at P
3.
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18. The duty of candor adopted in 18 CFR 35.41(b) has been upheld
by the courts. For example, in Kourouma, the D.C. Circuit upheld the
provision's constitutionality against a challenge based on alleged
vagueness and lack of fair notice.\37\ In Coaltrain, the U.S. District
Court for the Southern District of Ohio upheld the Commission's
authority to promulgate Sec. 35.41(b) under FPA section 206 and found
that the Commission properly applied Sec. 35.41(b) to statements made
in investigations.\38\ The court also rejected the argument that, in
adding section 221 to the FPA related to false reports to index
publishers, Congress ``intended to narrowly circumscribe FERC's
authority [to prohibit false statements], limiting it to highly
specific statements in the price reporting area.'' \39\
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\37\ Kourouma v. FERC, 723 F.3d 274, 278-79 (D.C. Cir. 2013).
Kourouma also confirmed that the regulation did not require that the
communicating entity have an intent to make a false statement. Id.
\38\ FERC v. Coaltrain Energy, L.P., No. 2:16-cv-732, 2018 WL
7892222, at *24-27 (S.D. Ohio Mar. 30, 2018).
\39\ Id. at *26 (citation and quotation marks omitted).
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19. Although Sec. 35.41(b) has been an effective tool to ensure
the accuracy of communications by Sellers (i.e., persons which have
sought or obtained Commission-approved market-based rate authority
pursuant to FPA 205), there are a number of limitations that constrict
its application and highlight the inconsistent levels of accuracy
required of various entities in connection with different activities
subject to the jurisdiction of the Commission.
C. Limitations of the Existing Duty of Candor Rules
20. As the above discussion demonstrates, the Commission has
adopted a variety of duties of candor regarding communications made to
it as well as to other entities, but it has not adopted a standardized
requirement affecting all types of communications related to matters
subject to the jurisdiction of the Commission.
21. Moreover, for many communications made to the Commission, and
organizations upon which the Commission relies in carrying out its
statutory responsibilities, there is no explicit requirement that such
[[Page 49788]]
communications be accurate. For example, the truth of statements made
in most filings to the Commission are limited to the signing attorney's
knowledge--not the underlying truth of the statements made, or the care
with which they were determined to be truthful. In many circumstances,
there is no requirement that care be taken that communications to the
Commission or its staff are indeed truthful (e.g., in filings, during
investigations, in procedural communications, and during uncontested
proceedings).
22. Similarly, absent a restriction contained in a tariff
provision, there may be no explicit requirement of candor for various
important communications fundamental to the functioning of a market
that produces just and reasonable rates: for example, communications
from shippers to interstate pipelines, from transmission customers to
transmission utilities, from transmission utilities to independent
system operators (ISOs) or regional transmission organizations (RTOs),
and from wholesale demand response participants to ISOs, RTOs, or
transmission providers. Even intentional miscommunications may not be
explicitly prohibited by our regulations, unless made pursuant to a
violation of the Commission's Anti-Manipulation Rule under part 1c of
the Commission's regulations.
II. Discussion
23. The Commission proposes to adopt a new part 1d within title 18
of the Code of Federal Regulations to require that entities ensure the
accuracy of communications related to a matter subject to the
Commission's jurisdiction when communicating with the following
entities: the Commission, Commission-approved market monitors,
Commission-approved RTOs, Commission-approved ISOs, jurisdictional
transmission or transportation providers, or the Electric Reliability
Organization and its associated Regional Entities. Ensuring the
accuracy of such communications will increase confidence in Commission-
jurisdictional industries and markets and will improve the Commission's
ability to meet its statutory responsibilities. The integrity and
effectiveness of the Commission's regulatory oversight and decision-
making authority rely on and require accuracy in communications to each
of these entities.
24. To this end, the Commission proposes to adopt a requirement
that every entity must provide accurate and factual information and not
submit false or misleading information, or omit material information,
in any communication with the Commission or with a range of other
organizations including Commission-approved market monitors,
Commission-approved RTOs and ISOs, as well as jurisdictional
transmission or transportation providers, or the Electric Reliability
Organization and its associated Regional Entities, where such
communication relates to a matter subject to the jurisdiction of the
Commission, unless the entity exercises due diligence to prevent such
occurrences.
25. In the following sections, we discuss: (A) why a broad duty of
candor requirement is needed to protect Commission-jurisdictional
industries and markets; (B) the Commission's, Sellers', and the courts'
favorable experience with application of 18 CFR 35.41(b); (C) the
statutory authorities supporting the proposed rule; and (D)
interpretive guidance for the proposed rule and how it will be applied.
A. The Need for a Broad Duty of Candor
26. It is indisputable that communications related to matters
subject to the jurisdiction of the Commission should be complete,
honest, and accurate in order for the Commission to effectively carry
out its regulatory responsibilities. The Commission, and equally the
organizations upon which the Commission relies to carry out its
statutory responsibilities, need complete, honest, and accurate
information to make important policy and economic decisions affecting
the fairness, competitiveness, and reliability of markets. Submission
of false or misleading information, or omission of material
information--whether intentionally or reckless--could lead the
Commission to reach decisions that it otherwise would not have made,
such as erroneously approving or denying (1) requests to construct and
operate infrastructure projects, (2) applications for merger or
consolidation of jurisdictional electric facilities, (3) applications
for market-based rate authority, or (4) requests to revise tariff
provisions. Likewise, submission of false or misleading information, or
omission of material information could inhibit the Commission's ability
to ensure that the rates, terms, and conditions of service of natural
gas and oil pipelines and public utilities are just and reasonable and
not unduly discriminatory or preferential. Similarly, it could lead the
Commission or its staff to close an investigation that should continue,
or to adopt policies that are ineffective. The submission of false or
misleading information, or omission of material information could lead
an ISO or RTO to make decisions that jeopardize competition, fairness,
and reliability of electric markets, and that potentially harm market
participants and cause them to lose confidence that markets are working
fairly and producing results consistent with market rules and
fundamentals. False information could also result in an interstate gas
pipeline misallocating capacity.
27. We recognize that communications in markets as large, complex,
and active as those the Commission regulates will sometimes include
inadvertent errors or oversights. Identifying and punishing all
mistaken communications, or expending undue resources to prevent every
error, is both impractical and unnecessary.
28. We believe, therefore, that a balance must be struck between
the need for accurate information and the burden of ensuring the
accuracy of that information. Based on the Commission's experience with
its existing regulations (especially 18 CFR 35.41(b)), we believe that
a duty of candor should apply to: (1) all entities, including both
organizations and individuals; (2) communications to the Commission and
to certain other specified organizations that administer, participate
in, or operate markets and facilities subject to the Commission's
jurisdiction; and (3) communications related to a matter subject to the
jurisdiction of the Commission. However, no entity should be penalized
or otherwise sanctioned for inaccurate communications where due
diligence has been exercised to ensure the communications'
accuracy.\40\ In addition, consistent with the need to exercise due
diligence, it should be clear that intentional or reckless
miscommunications are never permissible.
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\40\ It is the Commission's expectation that any entity
providing inaccurate information would, upon discovery, provide
corrections as expeditiously as possible, whether due diligence had
been previously exercised or not. However, in the event such
initiative were not exercised, the Commission could require that
corrective actions be undertaken irrespective of whether it also
pursues sanctions for a duty of candor violation.
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29. We believe that the duty of candor rule proposed herein will
provide clarity that benefits the industries and markets the Commission
regulates. If an entity communicates with the Commission or one of the
other specified organizations identified in the regulation, it will
know or be on notice that it must exercise due diligence in all its
communications related to a matter subject to the jurisdiction of the
Commission.
[[Page 49789]]
30. Notwithstanding the potential adoption of this proposed
regulation, we are not proposing to remove other duties of candor from
our existing regulations. Those duties of candor and that proposed here
are not inconsistent. Further, we note that the proposed rule, if
adopted, would not impose a general affirmative duty of disclosure, but
would apply to communications whether they are voluntary or
required.\41\
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\41\ This clarification is similar to the clarification the
Commission adopted for the candor requirements discussed in Order
No. 670. See Order No. 670, 114 FERC ] 61,047 at PP 35-37, 41-42.
---------------------------------------------------------------------------
31. Providing inaccurate information to entities not named in the
proposed regulation is also potentially problematic and may be
actionable under other statutes and regulations in certain
circumstances (e.g., intentional misrepresentations may form the basis
for enforcement action under 18 CFR part 1c). We welcome comment on
whether the scope of communications subject to the proposed duty of
candor is adequate or should be expanded.
B. 18 CFR 35.41(b) Provides a Fair Basis for a Broader Duty of Candor
32. We propose to adopt a duty of candor rule that is based upon
the existing duty of candor rule in 18 CFR 35.41(b). Since adoption of
the Market Behavior Rules twenty years ago, the accuracy of
communications by Sellers has improved substantially. While Sec.
35.41(b) is likely not the only reason for this improvement, we believe
that Sellers understand the regulation and generally attempt to comply
with it. The Commission now has an abundance of experience and
precedent applying Sec. 35.41(b), which has been upheld in court as
described above. We intend for this experience to inform the
application of this proposed new rule, which is substantially similar
in form and function, albeit broader in application.
33. Although the Commission's focus in adopting Sec. 35.41(b) was
Sellers with market-based rate authority, we find that the rule's
underlying rationale--that the Commission cannot rely on market
mechanisms to generate just and reasonable outcomes if those mechanisms
have been undermined by inaccurate information--applies more broadly.
34. In fact, implicit in any Commission order is the presumption
that representations made to the Commission and others are complete,
accurate, and free of fraud, deception, or misrepresentation.
Similarly, actions taken by market participants are taken with the
understanding that the underlying information provided to them is
accurate. One court described Sec. 35.41 as aimed at ``ensur[ing] the
integrity and smooth functioning of the markets.'' \42\ A broader
requirement imposing a duty of candor will serve the same purpose
across more of our regulated industries and markets. The Commission has
explained that ``[t]he integrity of the processes established by the
Commission for open competitive markets rely on the openness and
honesty of market participant communications.'' \43\ The Commission
cannot exercise its regulatory authority effectively and appropriately
if entities can provide the Commission, or other organizations upon
which the Commission relies, with inaccurate information with impunity.
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\42\ Kourouma, 723 F.3d at 276.
\43\ Ord. Amending Mkt.-Based Rate Tariffs & Authorizations, 105
FERC ] 61,218 at P 107.
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C. Authority for the Proposed Rule
35. The Commission has broad statutory authority, described below,
to issue rules and regulations to allow it to effectively perform its
regulatory functions. This authority includes the power to require
accurate communications from those who choose to engage in Commission-
jurisdictional markets or who communicate to the Commission about those
markets. The Commission has previously implemented specific duty of
candor regulations under this broad authority and it similarly has the
authority to adopt a more generally applicable duty of candor.\44\
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\44\ If an agency can require communications or if it acts as a
gatekeeper to participation in matters subject to the agency's
jurisdiction, it can require candor in communications related to
those matters. See, e.g., SEC v. Jensen, 835 F.3d 1100, 1112-113
(9th Cir. 2016) (rule under Sarbanes-Oxley Act requiring corporate
officers to certify financial statements includes implicit
truthfulness requirement; SEC may bring enforcement action for
certifying false financial statements); U.S. v. Bilzerian, 926 F.2d
1285, 1298 (2d Cir. 1991) (requirement under section 13(d)(1) of
Securities Exchange Act of 1934 to file form disclosing stock
ownership creates duty to file truthfully and completely; criminal
penalties may be imposed for violating duty); Completeness and
Accuracy of Information, 52 FR 49362 at 49365 (Dec. 1987) (Nuclear
Regulatory Commission stating ``[i]t is inconceivable that Congress
would have established the broad regulatory authority in the Atomic
Energy Act, which is considered unique, and not granted sufficient
authority for the Commission to require communications, regardless
of the format, to be complete and accurate.'' (citation omitted)).
---------------------------------------------------------------------------
36. The Commission has the statutory obligation under such statutes
as the FPA, NGA, ICA, NGPA, and the Administrative Procedure Act to
ensure that wholesale rates, and rules or practices directly affecting
such rates, are just and reasonable,\45\ and that its own actions are
based on reasoned decision-making. Introducing incorrect or inaccurate
information into the Commission's decision-making process can lead to
uneconomic, unfair, unjust, unreasonable, or even dangerous outcomes
regarding many areas within the Commission's jurisdictional authority,
including transmission and transportation decisions, hydroelectric
licensing and operations, pipeline approval and operations, electric
reliability, and enforcement actions. The current patchwork of
requirements is insufficient to encompass all the situations in which
the Commission must be assured that it is receiving accurate
communications that are necessary for it to adequately conduct its
regulatory oversight.
---------------------------------------------------------------------------
\45\ Elec. Power Supply Ass'n v. FERC, 577 U.S. 260, 277-78
(2016).
---------------------------------------------------------------------------
37. The following authorities support the Commission's issuance of
the proposed regulation:
<bullet> FPA 206, NGA 5, and ICA 13 and 15. As was the case with
our adoption of 18 CFR 35.41, we believe that FPA 206 and the parallel
provisions in the NGA and ICA provide a basis for adoption of the
proposed regulation because information in our markets must be accurate
to ensure that wholesale rates, and rules or practices directly
affecting such rates are just and reasonable.
<bullet> FPA 307, NGA 14, and ICA 12(1)(a). Section 307 of the FPA
and parallel section 14 of the NGA permit the Commission to obtain
information needed to conduct investigations. Section 12(1)(a) of the
ICA similarly permits the Commission to obtain information about the
management and business of oil pipelines. Given the Commission's
authority to obtain information, it follows that the Commission should
be entitled to receive accurate information.
<bullet> FPA 309, NGA 16, NGPA 501(a), and Department of Energy
Organization Act 402(a)(2) and 402(h). These sections give broad
authority to the Commission to adopt regulations that are necessary or
proper to effectuate its regulatory obligations. The Commission and the
markets it regulates cannot function properly without the submission of
accurate information.
<bullet> FPA 215. Section 215 conveys to the Commission, the
Electric Reliability Organization, and Regional Entities the duties to
obtain information and act upon that information. These obligations
cannot be fulfilled without
[[Page 49790]]
communication of accurate information.\46\
---------------------------------------------------------------------------
\46\ See Rules Concerning Certification of the Elec. Reliability
Org. & Procs. for the Establishment, Approval, & Enforcement of
Elec. Reliability Standards, Order No. 672, 71 FR 8662 (Feb. 17,
2006), 114 FERC ] 61,104, at P 114, order on reh'g, Order No. 672-A,
71 FR 19814 (Apr. 18, 2006), 114 FERC ] 61,328 (2006) (``to fulfill
its obligations under this Final Rule, the ERO or a Regional Entity
will need access to certain data from users, owners and operators of
the Bulk-Power System. Further, the Commission will need access to
such information as is necessary to fulfill its oversight and
enforcement roles under the statute''); 18 CFR 39.2(d) (``[e]ach
user, owner or operator of the Bulk-Power System within the United
States . . . shall provide the Commission, the Electric Reliability
Organization and the applicable Regional Entity such information as
is necessary to implement section 215 of the Federal Power Act'').
---------------------------------------------------------------------------
<bullet> NGPA 311(c). Section 311(c) permits the Commission to
prescribe terms and conditions to transportation authorizations under
NGPA 311. One such condition can be to require that section 311
pipelines provide accurate information in their submissions to the
Commission.
<bullet> ICA 1(5)(a). Transportation charges must be just and
reasonable and charges based upon incorrect information are not just
and reasonable.
38. We welcome comments on the Commission's authority to implement
the proposed regulation.
D. Interpretive Guidance and Application of the Proposed Rule
39. To facilitate comment on the proposed regulation, we provide
the following clarifications and expand upon some aspects of the
proposed regulation. We welcome comments and requests for further
clarification, as needed, on these points.\47\
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\47\ We note that the dissent calls for comments on multiple
aspects of the proposed rule. We also encourage such comments. We
believe that our consideration of the proposed rule, like all notice
and comment rulemakings, will be enhanced by robust comments from a
wide variety of interested parties.
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40. The proposed regulation utilizes the term ``entity'' because we
believe that covered communications (i.e., those that relate to a
matter subject to the jurisdiction of the Commission) from all types of
organizations, as well as from individuals (or, where appropriate,
concurrently from both), should reflect accurate and factual
information, and should not reflect false or misleading information or
omit material information. The term ``entity'' applies to both the
entity making the communication as well as the entity responsible for
the communication. Thus, if an entity relies upon a non-employee agent
for the submission of a communication, the principal would not escape
application of the regulation, absent a showing of due diligence.\48\
Although the rule as proposed applies to all entities, we seek comment
on whether there are specific types of organizations or individuals who
should be exempted from the proposed regulation.
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\48\ A common example occurs in communications to the Commission
where a company submits a document through its outside counsel. In
such a circumstance, both the company and counsel should exercise
``due diligence'' to ensure the accuracy. Of course, due diligence
for counsel in such circumstances likely will simply amount to
ensuring that it has no reason to believe the falsity of the
information provided. The responsible company would bear a greater
burden to ensure the communication's accuracy.
---------------------------------------------------------------------------
41. Further, we intend to interpret the term ``communication''
broadly, including informal and formal communications, verbal or
written, and via any method that may be used for transmission. We also
intend to interpret the term ``Commission'' under this provision to
include communications to Commission staff. Communications to the other
listed entities include communications to individuals employed or
acting on behalf of those entities, including agents and contractors of
the covered entities.
42. The proposed regulation applies to communications that relate
to a matter subject to the jurisdiction of the Commission.
Communications that are tangential or unrelated to matters subject to
the jurisdiction of the Commission are not covered by the proposed
regulation. For example, the proposed regulation typically would not
apply to communications about contracts for general services with
jurisdictional entities or employee/employer disputes within a
jurisdictional entity.
43. The exercise of due diligence would be a defense to an alleged
violation of the proposed regulation. The concept of due diligence is
well developed in the context of duties of candor and the Commission
and courts have precedent applying this defense.\49\ We intend for due
diligence to include all relevant facts related to whether reasonable
steps were taken by the communicator(s) to ensure the accuracy and
completeness of a communication in light of all of the circumstances.
Many facts will bear upon consideration of a due diligence defense
including, but not limited to, whether a communication had to be made
without sufficient time for additional diligence to be undertaken, the
importance and materiality of the communication to the recipient, the
duration and consistency of the communication at issue, whether the
communication was voluntary or required, whether the communication was
in response to a specific request for information or was unsolicited,
the size and sophistication of the communicator(s), and the
communication's effect on the marketplace or the Commission's
regulatory responsibilities.
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\49\ See, e.g., FERC v. Coaltrain, 501 F. Supp. 3d 503, 526
(S.D. Ohio 2020) (``A Seller can avoid liability for a violation if
it shows it had a process to ensure the accuracy of its responses.''
(citation omitted)); id. at 527 (``Coaltrain can avoid liability if
it shows that it conducted a reasonable investigation to make sure
it produced the relevant and material information and followed a
process to ensure the accuracy of its responses.''); Kourouma, 723
F.3d at 278 (``Contrary to Kourouma's assertion, so read, Market
Behavior Rule 3 does not subject filers like Kourouma to strict
liability, but reserves punishment for those who do not act with
requisite care when submitting information to FERC.''); Kourouma,
135 FERC ] 61,245, at P 21 (2011) (``submission of false or
incomplete information on behalf of a seller by an individual that
did not personally know it to be false or incomplete in the absence
of a process to insure data accuracy and sufficiency will not excuse
the seller's conduct under the rule.'' (internal citations and
quotations omitted)).
---------------------------------------------------------------------------
44. We recognize that the best-intentioned entities may, and
occasionally will, inadvertently provide inaccurate information. Even
where due diligence cannot be demonstrated, it is not the Commission's
intention to investigate or penalize all potential violations of the
proposed regulation. As a general matter, we do not intend to penalize
inadvertent errors, especially those of limited scope and impact. The
Commission retains discretion not to pursue enforcement actions in such
instances and will exercise that discretion, as appropriate, in
implementing the proposed regulation, as the Commission does with all
other Commission regulations.
III. Information Collection Statement
45. Regulations of the Office and Management and Budget (OMB)
implementing the Paperwork Reduction Act (PRA) (44 U.S.C. 3501 through
3520) require Federal agencies to obtain approval from the OMB before
conducting or sponsoring certain collections of information
requirements imposed by agency rule.\50\ This proposed rule would not
impose any new or modified information collections. Moreover, the
substance of the communications that would be affected by the proposed
rule has been approved by OMB. Therefore, OMB review of this proposed
rule under the PRA is not required.
---------------------------------------------------------------------------
\50\ See 5 CFR 1320.3(c)(4)(i).
---------------------------------------------------------------------------
IV. Environmental Analysis
46. The Commission is required to prepare an Environmental
Assessment
[[Page 49791]]
or an Environmental Impact Statement for any action that may have a
significant adverse effect on the human environment.\51\ The Commission
has categorically excluded certain actions from this requirement as not
having a significant effect on the human environment. Included in the
exclusion are rules that include information collection or that are
clarifying, corrective, or procedural or that do not substantially
change the effect of the regulations being amended.\52\ The actions
proposed herein fall within these categorical exclusions in the
Commission's regulations.
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\51\ Reguls. Implementing the Nat'l Env. Pol'y Act of 1969,
Order No. 486, 52 FR 47897 (Dec. 17, 1987), FERC Stats. & Regs. ]
30,783 (1987) (cross-referenced at 41 FERC ] 61,284).
\52\ 18 CFR 380.4(a)(5) and (a)(2)(ii).
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V. Regulatory Flexibility Act Analysis
47. The Regulatory Flexibility Act of 1980 (RFA) \53\ generally
requires a description and analysis of proposed rules that will have
significant economic impact on a substantial number of small entities.
The Commission intends to pose the least possible burden on all
entities both large and small.
---------------------------------------------------------------------------
\53\ 5 U.S.C. 601-12.
---------------------------------------------------------------------------
48. Although this NOPR applies to many types of entities, including
small entities, the burden associated with proposed regulation should
be minimal. We expect that almost all entities regularly communicate
with the Commission and jurisdictional actors with accuracy and
honesty. We also believe that such communications already regularly
occur with due diligence exercised and, thus, there should be no new
burdens associated with the proposed rule on small entities. Further,
due diligence for a small entity will often be different than for an
entity with more resources and the proposed regulation accommodates
these differences in resources. Therefore, the proposed regulation does
not appear to pose a significant change to small entities.
VI. Comment Procedures
49. The Commission invites interested persons to submit comments on
the matters and issues proposed in this notice to be adopted, including
any related matters or alternative proposals that commenters may wish
to discuss. Comments are due October 11, 2022. Comments must refer to
Docket No. RM22-20-000, and must include the commenter's name, the
organization they represent, if applicable, and address in their
comments. All comments will be placed in the Commission's public files
and may be viewed, printed, or downloaded remotely as described in the
Document Availability section below. Commenters on this proposal are
not required to serve copies of their comments on other commenters.
50. The Commission encourages comments to be filed electronically
via the eFiling link on the Commission's website at <a href="https://www.ferc.gov">https://www.ferc.gov</a>. The Commission accepts most standard word processing
formats. Documents created electronically using word processing
software must be filed in native applications or print-to-PDF format
and not in a scanned format. Commenters filing electronically do not
need to make a paper filing.
51. Commenters that are not able to file comments electronically
may file an original of their comment by USPS mail or by courier-or
other delivery services. For submission sent via USPS only, filings
should be mailed to: Federal Energy Regulatory Commission, Office of
the Secretary, 888 First Street NE, Washington, DC 20426. Submission of
filings other than by USPS should be delivered to: Federal Energy
Regulatory Commission, 12225 Wilkins Avenue, Rockville, MD 20852.
VII. Document Availability
52. In addition to publishing the full text of this document in the
Federal Register, the Commission provides all interested persons an
opportunity to view and/or print the contents of this document via the
internet through the Commission's Home Page (<a href="https://www.ferc.gov">https://www.ferc.gov</a>). At
this time, the Commission has suspended access to the Commission's
Public Reference Room due to the President's March 13, 2020
proclamation declaring a National Emergency concerning the Novel
Coronavirus Disease (COVID-19).
53. From the Commission's Home Page on the internet, this
information is available on eLibrary. The full text of this document is
available on eLibrary in PDF and Microsoft Word format for viewing,
printing, and/or downloading. To access this document in eLibrary, type
the docket number excluding the last three digits of this document in
the docket number field.
User assistance is available for eLibrary and the Commission's
website during normal business hours from the Commission's Online
Support at 202-502-6652 (toll free at 1-866-208-3676) or email at
<a href="/cdn-cgi/l/email-protection#fc9a998e9f9392909592998f898c8c938e88bc9a998e9fd29b938a"><span class="__cf_email__" data-cfemail="a7c1c2d5c4c8c9cbcec9c2d4d2d7d7c8d5d3e7c1c2d5c489c0c8d1">[email protected]</span></a>, or the Public Reference Room at (202) 502-
8371, TTY (202)502-8659. Email the Public Reference Room at
<a href="/cdn-cgi/l/email-protection#d8a8adbab4b1bbf6aabdbebdaabdb6bbbdaab7b7b598bebdaabbf6bfb7ae"><span class="__cf_email__" data-cfemail="b1c1c4d3ddd8d29fc3d4d7d4c3d4dfd2d4c3dededcf1d7d4c3d29fd6dec7">[email protected]</span></a>.
List of Subjects in 18 CFR Part 1d
Administrative practice and procedure.
By direction of the Commission.
Commissioner Danly is dissenting with a separate statement
attached.
Issued: July 28, 2022.
Debbie-Anne A. Reese,
Deputy Secretary.
In consideration of the foregoing, the Commission proposes to add
part 1d to title 18 of the Code of Federal Regulations to read as
follows:
PART 1d--DUTY OF CANDOR
Sec.
1d.1 Accuracy of communications.
Authority: 42 U.S.C. 7101-7352; 5 U.S.C. Ch. 5; E.O. 12009, 42
FR 46267, 3 CFR, 1978 Comp., p. 142.
Sec. 1d.1 Accuracy of communications.
Any entity must provide accurate and factual information and not
submit false or misleading information, or omit material information,
in any communication with the Commission, Commission-approved market
monitors, Commission-approved regional transmission organizations,
Commission-approved independent system operators, jurisdictional
transmission or transportation providers, or the Electric Reliability
Organization and its associated Regional Entities, where such
communication relates to a matter subject to the jurisdiction of the
Commission, unless the entity exercises due diligence to prevent such
occurrences.
Note: The following appendix will not appear in the Code of
Federal Regulations.
Appendix--Commissioner James P. Danly's Dissent
United States of America Federal Energy Regulatory Commission
Duty of Candor
Docket No. RM22-20-000 (Issued July 28, 2022)
DANLY, Commissioner, dissenting:
1. I dissent from this notice of proposed rulemaking seeking to
extend the duty of candor--which currently applies to ``Sellers'' in
electric markets \1\--to ``any entity'' in ``any communication''--or
lack of communication--associated with any ``matter subject to the
jurisdiction of the Commission.'' \2\ This expands the duty of
candor well beyond current Commission
[[Page 49792]]
practices.\3\ Knowledge or intent does not matter. The materiality
of the erroneous statement does not matter. The powers we propose to
grant ourselves in this rulemaking are so broad and the standards so
vague that, if finalized, it would be a simple proposition for the
Commission to ``find'' that any factually untrue statement,
regardless of context, violates the duty of candor, exposing the
speaker to sanctions. And rather than establish guard rails or
explicit limits to our powers, we instead say ``just trust us.''
This proposal is chillingly broad in its scope and, by its plain
terms, would encompass constitutionally protected speech.
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\1\ 18 CFR 35.41(b).
\2\ Duty of Candor, 180 FERC ] 61,052, at proposed 1d.1 (2022)
(NOPR).
\3\ See Prohibition of Energy Mkt. Manipulation, Order No. 670,
114 FERC ] 61,047, at P 49, reh'g denied, 114 FERC ] 61,300 (2006).
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2. Much of what the Commission and our jurisdictional entities
routinely do involves `` `matter[s] of political, social, or other
concern to the community' or . . . `is a subject of general interest
and of value and concern to the public.' '' \4\ Speech on such
matters `` `occupies the highest rung of the hierarchy of First
Amendment values, and is entitled to special protection.' '' \5\
Precisely because of the public import of the matters subject to its
jurisdiction, the Commission, at the direction of Congress, is
encouraging greater public participation in its proceedings. Unwary
members of the public, taking up our offer to engage the Commission
(or the listed jurisdictional entities) in a manner they would
doubtless believe is civically virtuous, could--by the plain
language of this rulemaking--be subject to liability. The very
possibility of such sanctions goes well beyond a reasonable attempt
to deter falsehoods and will instead chill speech at the core of the
First Amendment's protections.
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\4\ Snyder v. Phelps, 562 U.S. 443, 453 (2011) (quoting Connick
v. Myers, 461 U.S. 138, 146 (1983); San Diego v. Roe, 543 U.S. 77,
83-84 (2004)).
\5\ Id. at 452 (quoting Connick v. Myers, 461 U.S. at 145).
---------------------------------------------------------------------------
3. The obvious question in response is what is the harm in
simply extending the existing duty of candor? Would it not seem to
make sense that people should tell the truth when conducting
Commission-related activities? Is it not true that no court has held
the existing duty of candor unlawful? \6\ The answer is that the
proposed rule encompasses a far greater range of activities by a far
greater number of speakers than the existing duty of candor and does
so without standards of materiality or intent, or a clearly defined
safe harbor to protect the unwary from liability.
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\6\ In Kourouma v. FERC, the court dismissed a vagueness
challenge to Market Behavior Rule 3, which the court characterizes
as ``reserv[ing] punishment for those who do not act with requisite
care when submitting information to FERC.'' 723 F.3d 274, 278 (D.C.
Cir. 2013). The current rule, however, is distinguishable because of
its much broader scope. It applies to ``any entity,'' i.e., any
member of the public who engages in a FERC-related communication
with a covered entity, and not just ``sellers,'' who could be
presumed to be relatively sophisticated actors, and applies far
beyond the scope of sharing information with FERC in required
filings. It is at least reasonable to put the onus on sellers to
engage in ``due diligence,'' when communicating with the Commission.
The Commission cannot, therefore, assume a similar result should
this rule, as broadly drafted as it is, be reviewed in the courts.
---------------------------------------------------------------------------
4. The proposed duty of candor provides that:
Any entity must provide accurate and factual information and not
submit false or misleading information, or omit material
information, in any communication with the Commission, Commission-
approved market monitors, Commission-approved regional transmission
organizations, Commission-approved independent system operators,
jurisdictional transmission or transportation providers, or the
Electric Reliability Organization and its associated Regional
Entities, where such communication relates to a matter subject to
the jurisdiction of the Commission, unless the entity exercises due
diligence to prevent such occurrences.\7\
---------------------------------------------------------------------------
\7\ NOPR, 180 FERC ] 61,052 at proposed Sec. 1d.1.
---------------------------------------------------------------------------
5. So, for example, under the plain language of this provision,
the Commission could find a violation of the duty of candor if a
landowner (``entity'') exaggerates a complaint (``submit[s] . . .
misleading information'') in an email to the pipeline developer with
a right-of-way on her land (``in any communication with . . .
jurisdictional transmission or transportation providers''). What if
the landowner is angry about construction noise and says something
like ``I've never heard such a racket,'' but in fact she had heard
such a racket at a Poison concert in 1988? Absurd? Yes. Duty of
candor violation? Also, yes.
6. In a recent generic proceeding, a commenter called claims
made in a petition for rulemaking ``largely defamatory.'' \8\ Were
they? Does the Commission propose to police such accusations as
enforcement matters when political opponents or, even, competitors
file complaints against each other?
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\8\ American Gas Association, Protest, Docket No. RM21-15-000,
at 9 (Apr. 26, 2021).
---------------------------------------------------------------------------
7. Commission enforcement of such violations may be unlikely,
but the language the majority uses to reassure the public is quite
alarming and amounts to ``just trust us'':
[I]t is not the Commission's intention to investigate or
penalize all potential violations of the proposed regulation. As a
general matter, we do not intend to penalize inadvertent errors,
especially those of limited scope and impact. The Commission retains
discretion not to pursue enforcement actions in such instances and
will exercise that discretion, as appropriate, in implementing the
proposed regulation, as we do with all other Commission
regulations.\9\
---------------------------------------------------------------------------
\9\ NOPR, 180 FERC ] 61,052 at P 44 (emphasis added).
---------------------------------------------------------------------------
So, are we to understand that it is the Commission's intention
to penalize not all potential violations? Not all leaves a lot of
potential violations. The Commission promises as a general matter
not to prosecute inadvertent errors, but intent should be an
essential element of the claim. And, when the Commission states that
it ``retains discretion'' not to pursue enforcement actions, it
necessarily means that the Commission also retains discretion to
pursue enforcement actions. Assurances like these cannot save the
proposed rule. For constitutional purposes, what matters is the text
of the regulation. The Commission cannot grant itself sweeping
discretionary powers and then tell the public to ``trust us.'' As
the Supreme Court has put it, ``the First Amendment protects against
the Government; it does not leave us at the mercy of noblesse
oblige.'' \10\
---------------------------------------------------------------------------
\10\ United States v. Stevens, 559 U.S. 460, 480 (2010).
---------------------------------------------------------------------------
8. In his concurrence in Alvarez, Justice Breyer describes the
danger inherent in an unbounded authority to police false
statements:
[T]he pervasiveness of false statements, made for better or for
worse motives, made thoughtlessly or deliberately, made with or
without accompanying harm, provides a weapon to a government broadly
empowered to prosecute falsity without more. And those who are
unpopular may fear that the government will use that weapon
selectively . . . .\11\
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\11\ United States v. Alvarez, 567 U.S. 709, 734 (2012) (Breyer,
J., concurring in the judgement).
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9. Given the absence of limiting principles, this ``duty of
candor'' risks ``broadly empowering'' the Commission to turn itself
into a Ministry of Truth, policing the truth or falsity of an
enormous sweep of communications. The rule is drafted so broadly
that enforcement staff are likely subject to it. I am sure the
subjects of investigations will appreciate this commitment to
integrity.
10. Experience with the existing duty of candor suggests that
promises of prosecutorial discretion are in the eye of the beholder,
or in this case, the prosecutor. In practice, the Office of
Enforcement frequently finds duty of candor violations when it finds
any manipulative act or tariff violation. If a company is charged
with violating an RTO tariff, duty of candor allegations appear
almost automatic.\12\
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\12\ See, e.g., NRG Power Mktg. LLC, 174 FERC ] 61,016 (2021)
(finding tariff violation and duty of candor violation arising out
of same bidding behavior); see also id. (Danly, Comm'r, dissenting)
(opposing settlement in circumstances where target company has
little leverage or likelihood of success against the Office of
Enforcement in FERC-administered proceedings).
---------------------------------------------------------------------------
11. There is a sad irony to this rulemaking. The actual
``candor'' of communications within the industry will suffer.
Employees at one utility (``transmission organization'') will
hesitate to call or email counterparts at another utility
(``transmission organization'') without first seeking the advice of
counsel to make sure they have done their ``due diligence'' before
engaging in ``any communication.'' This will deter cooperation
within the industry and is not likely to be good for anyone.
12. There remain a few obvious questions: What about penalties?
The NOPR says nothing about what sanctions the Commission plans to
impose for this new class of violation. Presumably, it will be left
to the Commission's discretion under its penalty guidelines \13\ or
on a ``case-by-case''
[[Page 49793]]
basis as it often is with the existing duty of candor, at least when
other violations are involved.\14\
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\13\ See Enforcement of Statutes, Orders, Rules, & Regs., 132
FERC ] 61,216 (2010); Enforcement of Statutes, Regs. & Orders, 123
FERC ] 61,156 (2008).
\14\ See, e.g., Coaltrain Energy, L.P., 155 FERC ] 61,204, at P
292 (2016).
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13. As usual, I strongly encourage anyone with the inclination
or an interest in this proceeding to comment on the issues it
raises.
14. In particular, I ask for comments on the fundamental
question whether the proposed duty of candor creates Constitutional
due process concerns because it is impermissibly vague. What
conduct, exactly, is prohibited? Is there any way to cure the void-
for-vagueness concerns?
15. How would a ``due diligence'' safe harbor work for members
of the public, like the concert-going landowner who, in her
communications with one of the listed entities, may be ``prone to
hyperbole''? Will the proposal chill public engagement with FERC and
the listed jurisdictional entities? Should the Office of Public
Participation offer sessions on how to qualify for the safe harbor
when members of the public engage with RTOs and Utilities? I
particularly encourage consumer advocates to comment on what the
implications of this rule might be.
16. Further, does the Commission have the statutory authority to
extend the duty of candor as far as proposed? Does the Commission's
interest in protecting the integrity of its proceedings really
extend to ``any entity'' in ``any communication'' ``relate[d] to a
matter subject to the jurisdiction of the Commission'' with the
rule's range of listed entities?
17. It may be possible to narrow the proposed duty of candor so
that it would not grant the Commission such sweeping enforcement
powers. I solicit comment on whether an intent or materiality
requirement would allay concerns that the rule will impermissibly
encompass core First Amendment protected speech.
18. Another irony: the Commission may be unlikely to get much
candor from the regulated community in response to this NOPR. Most
companies will be reticent to file comments in opposition to a
proposed rule of candor. But voicing opposition to an impermissibly
vague and broad rule that exposes a company to sweeping liability
does not mean that the company supports lying to the Commission.
They should not be hesitant. I strongly encourage industry comments
and would be particularly interested in any experience with the
application of the current duty of candor to the extent any entity
is at liberty to discuss them. I also welcome a thorough analysis of
our existing caselaw to fully judge how the existing duty of candor
has been applied.
19. I look forward to reviewing the full record. My hope is that
it will be sufficient to persuade the majority not to finalize this
rule. We do not need rules for everything, especially when they are
as problematically vague and broad as the proposal here.
For these reasons, I respectfully dissent.
James P. Danly,
Commissioner.
[FR Doc. 2022-16608 Filed 8-11-22; 8:45 am]
BILLING CODE 6717-01-P
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