Aug 12 -- 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. Comments are due October 11, 2022.
The Need for a Broad Duty of Candor
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.
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.
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. In addition, consistent with the need to exercise due diligence, it should be clear that intentional or reckless miscommunications are never permissible.
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.
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.
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.