Powering Strong Communities

APPA Says FERC Communications Proposal is Overly Broad, Should be Withdrawn

A proposal by the Federal Energy Regulatory Commission (FERC) to add a new provision to its regulations that would impose a “duty of candor” on any entity communicating with the Commission, its staff, or certain other entities is overly broad and would likely chill communications while presenting significant enforcement challenges for the Commission, the American Public Power Association (APPA) said in urging FERC to withdraw the proposal.

APPA submitted comments on Nov. 10 to FERC in response to a FERC Notice of Proposed Rulemaking (NOPR) that would amend the Commission’s regulations to add the new provision.

APPA noted that it has long been a proponent of Commission rules that guard against market manipulation and that promote just and reasonable market outcomes for consumers, consistent with the Commission’s obligations under the Federal Power Act (FPA).  “APPA also recognizes the need for the Commission to be able to rely on accurate information in executing its duties under the FPA and other statutes it is tasked with administering.”

APPA “can understand the appeal of trying to ensure this goal by adopting a generic requirement simply ‘to tell the truth,’” it added.

“APPA is compelled, however, to express serious concerns with the NOPR and the Proposed Regulation.  The proposed rule would be exceptionally broad – both in terms of the entities to which it would apply and the scope of communications it would cover.” 

There is no intent element, nor is there any materiality requirement -- except as to factual omissions, which the Proposed Regulation would also encompass, it said.

“The rule would apply to unintentional and immaterial mistakes, subject only to the ability of a target of an investigation to demonstrate that it exercised ‘due diligence’ to assure the accuracy of the communication.”

APPA said it concurs in FERC Commissioner James Danly’s assessment “that the breadth of the proposed rule would likely chill communications while presenting significant enforcement challenges for the Commission.”

APPA said it is particularly concerned by the NOPR as it relates to communications with entities other than the Commission and its staff. 

The Proposed Regulation would likely apply to essentially all communications with Regional Transmission Organizations (RTOs), Independent System Operators (ISOs), market monitors, the Electric Reliability Organization (ERO) and its Regional Entities, as well as a sweeping array of communications with utilities.

The NOPR “does not provide a reasoned basis for such an expansive candor regulation,” APPA argued. It said there is no discussion of any specific instances where the lack of a general duty of candor obligation has undermined the Commission’s ability to carry out its obligations. Moreover, the NOPR’s description of the existing statutory, regulatory, and ethical requirements for honest communications “tends to show that any problem the Commission is attempting to solve is a narrow one that would be better addressed through a more targeted response.”

Even if there were a clearly identified need for the rule, the NOPR fails to establish the legal authority for adopting the Proposed Regulation or for enforcing it against entities that are not generally subject to the Commission’s jurisdiction, such as APPA’s public power utility members, the trade group said.

The NOPR indicates, for example, that authority to adopt the duty of candor is grounded, at least in part, in section 206 of the FPA.

The Commission’s authority under section 206 is limited to “public utilities,” however, and the NOPR does not explain how it could extend liability to a non-public utility for a violation of a rule based on FPA section 206.

Public utilities refers to those entities regulated by FERC, not non-jurisdictional utilities such as public power utilities.

“Nor do the other FPA provisions cited in the NOPR provide a basis for the generically applicable duty of candor. In addition to these problems with the statutory underpinnings of the proposed rule, the rule is overly broad and presents significant due process concerns, particularly in the context of communications with jurisdictional transmission or transportation providers.”  

APPA urged the Commission to withdraw the NOPR. “Any specific gaps in the coverage of existing candor requirements should be addressed by more targeted proposed rules to address those particular circumstances,” it said.

If the Commission proceeds, however, “APPA recommends that the proposed duty of candor be limited to written or recorded communications of factual information to the Commission or its staff, and that the rule include a materiality requirement.”

Regardless of the scope of any final rule, the Commission should, at a minimum, specify that non-public utilities would generally not be subject to enforcement for violation of the duty of candor under FPA section 316A, APPA said.  Section 316A of the FPA allows FERC to assess significant financial penalties against entities that violate certain FPA provisions or FERC rules or orders issued under those provisions.