Commissioner James Danly Statement
July 28, 2022
Docket No. RM22-20-000
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 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.
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.
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.
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]
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.
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?
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]
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]
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]
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.
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]
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.
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” basis as it often is with the existing duty of candor, at least when other violations are involved.[14]
As usual, I strongly encourage anyone with the inclination or an interest in this proceeding to comment on the issues it raises.
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?
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.
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?
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.
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.
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.
[1] 18 C.F.R. § 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).
[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).
[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.
[7] NOPR, 180 FERC ¶ 61,052 at proposed § 1d.1.
[8] American Gas Association, Protest, Docket No. RM21-15-000, at 9 (Apr. 26, 2021).
[9] NOPR, 180 FERC ¶ 61,052 at P 44 (emphasis added).
[10] United States v. Stevens, 559 U.S. 460, 480 (2010).
[11] United States v. Alvarez, 567 U.S. 709, 734 (2012) (Breyer, J., concurring in the judgement).
[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).
[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).