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FERC Enforcement Uses Duty of Candor Rule to Impose Penalties on PJM Utility for Allegations Related to Transmission Planning Process

Insight

V&E Energy Update

January 7, 2025
AOL - Electric Power And Utility Reg
Insight

V&E Energy Update

January 7, 2025

By Bill Scherman, Jeffrey Jakubiak, Jason Fleischer, Thomas Kirby, and Laura Swett

The Federal Energy Regulatory Commission’s (“FERC” or “Commission”) Office of Enforcement (“Enforcement”) continues to focus on enforcing its duty of candor rules, with a recent action resulting in a $6.6 million civil penalty and a requirement to file at least one compliance monitoring report to settle alleged violations of 18 C.F.R. § 35.41(b) of the Commission’s regulations. The settlement resolved a FERC Enforcement investigation into whether a utility-member of PJM Interconnection, LLC violated 18 C.F.R. § 35.41(b) of the Commission’s regulations by failing to fully and accurately provide information to PJM in connection with a request for approval of a $546 million transmission project under PJM’s Regional Transmission Expansion Plan (“RTEP”) process.1

At issue was a project to address reliability planning criteria violations. The utility hired external consultants and then shared the consultants’ recommendations as part of presentations made to PJM. Enforcement Staff alleged that the utility inaccurately presented the conclusions of the external consultations to PJM and that the utility made assumptions that were not based on observed evidence. Enforcement Staff also claimed that the utility failed to fully and accurately provide information in its presentations to PJM about the line that was the subject of the RTEP project.

This case is an important reminder that the Commission continues to focus on its duty of candor rules. Last year, FERC explored in a notice of proposed rulemaking whether to impose a new duty of candor requirement across the industries it regulates.2 That proposal was widely criticized and was never finalized. As a result, the Commission’s present duty of candor rule only applies to “sellers” with, or seeking authority to make, wholesale sales of electricity, capacity, or ancillary services at market-based rates. But this latest action itself seems far afield from typical market-based rate activity, and instead relates to regional transmission planning pursuant to a regional transmission organization’s tariff. Although there are currently no duty of candor rules specifically applicable to regulated natural gas or oil pipeline entities, FERC Enforcement continues to extend the reach of the rules it has.

In the end, as a result of this investigation, the utility implemented processes that improve its documentation. And therein lies a take away — the best defense to these types of duty-of-candor allegations by FERC Enforcement is to create, to the extent feasible, contemporaneous documentation that supports and explains why decisions are being made, what information is being communicated, and why. This is a general practice that is wise to follow for “sellers” with or seeking market-based rate authority, or other entities regulated under different provisions of FERC’s regulations. FERC’s enforcement theories, and its rules, continue to develop.

1 Public Service Electric and Gas Co., 189 FERC ¶ 61,175 (2024).

2 Duty of Candor, 180 FERC ¶ 61,052 (2022).

Key Contacts

Counsel
Thomas Kirby

This information is provided by Vinson & Elkins LLP for educational and informational purposes only and is not intended, nor should it be construed, as legal advice.