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 organizations related to a matter that is subject to FERC’s jurisdiction 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 be an affirmative defense to 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), FERC-approved independent system operators (ISOs), jurisdictional transmission or transportation providers, and the Electric Reliability Organization and its associated Regional Entities.
FERC stated that its existing regulations that prohibit inaccurate communications cover only certain communications and impose a patchwork of different standards of care for communications. For example, 18 CFR § 35.41(b), which prohibits false or misleading information from being communicated with FERC, RTOs, ISOs, and jurisdictional transmission providers, only applies to entities that have obtained or applied for market-based rate authority.
Various sections of the Federal Power Act and the Natural Gas Act require certain submissions to FERC to be made under oath. The rules prohibiting electric and natural gas market manipulation prohibit making any untrue statement of a material fact or omitting a material fact, but do not provide for a general affirmative duty of disclosure or for a violation without scienter.
FERC explained that, given its reliance on the accuracy of information provided to it and other organizations in order for FERC to engage in effective decision making and to carry out its regulatory responsibilities, a broadly applicable duty of candor will improve FERC’s ability to effectively oversee jurisdictional markets.
FERC seeks comments on the proposed rule, and specifically the following:
- Whether there is a 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
- FERC’s authority to implement the proposed regulation
- Whether the scope of communications covered by the proposed duty of candor rule is adequate or should be expanded
- Whether there are specific types of organizations or individuals who should be exempted from the proposed regulation
- Whether the regulation properly identifies all organizations that assist FERC to carry out its statutory obligations and communications to whom entities should be subject to a duty of candor
Although FERC stated in the NOPR that it retains the discretion not to pursue enforcement actions in all potential violations of the proposed regulations, FERC leaves open the possibility of a potential enforcement action based on a communication that violates the expanded duty of candor rule or an additional allegation in a broader enforcement action.
Although it provides for a due diligence affirmative defense, a violation of the expanded duty of candor rule does not require evidence of intent or that the information communicated be material. The proposed expanded duty of candor rule is broad in scope and would apply to any communications with FERC or the specified organizations, whether they are required or voluntary, formal or informal, and verbal or written. It would also apply to communications by the entity itself or an agent or contractor of the entity.
Comments on the proposed rule are due 60 days after the date it is published in the Federal Register.
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