Duty of Candor, 49784-49793 [2022-16608]

Agencies

• DEPARTMENT OF ENERGY
• Federal Energy Regulatory Commission

[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 [www.gpo.gov]
[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 https://www.ferc.gov, is 
preferred.
     Electronic Filing: Documents must be filed in acceptable 
native applications and print-to-PDF, but not in scanned or picture 
format.
     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, [email protected].
    Andrea Cerbin, Legal Information Office of Enforcement, Division of 
Investigations, Federal Energy Regulatory Commission, 888 First Street 
NE, Washington, DC 20426, (202) 502-8362, [email protected].

[[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\
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    \42\ Kourouma, 723 F.3d at 276.
    \43\ Ord. Amending Mkt.-Based Rate Tariffs & Authorizations, 105 
FERC ] 61,218 at P 107.
---------------------------------------------------------------------------

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\
---------------------------------------------------------------------------

    \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:
     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.
     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.
     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.
     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'').
---------------------------------------------------------------------------

     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.
     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\
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    \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).
---------------------------------------------------------------------------

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 https://www.ferc.gov. 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 (https://www.ferc.gov). 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 
[email protected], or the Public Reference Room at (202) 502-
8371, TTY (202)502-8659. Email the Public Reference Room at 
[email protected].

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.
---------------------------------------------------------------------------

    \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).
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    \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?
---------------------------------------------------------------------------

    \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\
---------------------------------------------------------------------------

    \11\ United States v. Alvarez, 567 U.S. 709, 734 (2012) (Breyer, 
J., concurring in the judgement).
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \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\
---------------------------------------------------------------------------

    \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