FERC recently issued a Notice of Proposed Rulemaking (NOPR) to expand the existing duty of candor rule by adding a requirement in 18 CFR Part 1 that any entity communicating with FERC or other specified related organizations to a matter within the jurisdiction of FERC must submit accurate and factual information and must not submit false or misleading information or omit material information. However, exercising due diligence to prevent the submission of false or inaccurate information would constitute an affirmative defense against violations of the requirement.
In addition to communications with FERC, communications with the following entities would be subject to the expanded duty of candor rule: FERC-approved market monitors, FERC-approved regional transmission organizations (RTOs), (ISO) systems approved by FERC, transmission or transport providers, and the Electric Reliability Organization and its associated regional entities.
FERC said its existing regulations that prohibit inaccurate communications only cover certain communications and impose a patchwork of different standards of care for communications. For example, 18 CFR § 35.41(b), which prohibits communicating false or misleading information to FERC, RTOs, ISOs, and jurisdictional transmission providers, applies only to entities that have obtained or requested a market-based tariff authority.
Various sections of the Federal Power Act and the Natural Gas Act require that certain submissions to FERC be made under oath. The rules prohibiting manipulation of the electricity and natural gas market prohibit misrepresentation of a material fact or omission of a material fact, but do not provide for a general obligation of affirmative disclosure or unknowing violation.
FERC explained that because it relies on the accuracy of information provided to it and other organizations in order for FERC to make effective decisions and fulfill its regulatory responsibilities , a broadly enforceable franchise requirement will improve FERC’s ability to effectively oversee markets.
FERC invites comments on the proposed rule, specifically on the following points:
- Need for a general rule on the duty of candor
- Whether 18 CFR § 35.41(b) provides a reasonable basis for the proposed expanded duty of candor rule
- Power of FERC to implement proposed settlement
- Is the scope of communications covered by the proposed duty of candor rule adequate or should it be expanded?
- Are there specific types of organizations or individuals that should be exempt from the proposed regulations
- Does the settlement correctly identify all organizations that assist FERC in fulfilling its statutory obligations and communications to which entities should be subject to a duty of candor?
Although FERC has stated in the NOPR that it retains discretion not to pursue enforcement action in all potential violations of the proposed regulations, FERC leaves open the possibility of potential enforcement action based on a communication that violates the expanded duty of candor rule or another allegation as part of a broader enforcement action.
Although it provides an affirmative defense of due diligence, a breach of the expanded duty of candor rule does not require proof of intent or that the information disclosed is material. The proposed expanded candor rule is broad in scope and would apply to all communications with FERC or specified organizations, whether mandatory or voluntary, formal or informal, verbal or written. It would also apply to communications from the entity itself or from an agent or contractor of the entity.
Comments on the proposed rule are due 60 days after the date of its publication in the Federal Register.
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