I. Introduction
The Center for Environmental Accountability (“CEA”) submits this reply comment to express its support for reform of the Federal Energy Regulatory Commission’s (“FERC” or “Commission”) approach to granting and enforcing blanket authorizations under Section 203 of the Federal Power Act (“FPA”) and to respond to the arguments made by asset managers and their allies defending the status quo.
Under Section 203 of the FPA, the Commission must find that the transfer of ownership of jurisdictional assets is consistent with the public interest.1 In implementing this provision, the Commission explained that the leading harm to the public interest it was concerned about anticompetitive effects that would hurt ratepayers.2 As a result, FERC reasonably concluded that “when a purchaser of a minority interest in a public utility lacks the ability to influence control over that acquired public utility, the Commission will not consider the purchase a consolidation of utility assets and therefore the acquisition will not adversely impact competition in any market.”3 And so whether or not a blanket authorization is consistent with the public interest turns principally on an asset manager’s “ability to influence control.”4
Though their animating concerns may differ, the initial comments of both a coalition of Republican attorneys general and of a group of blue state ratepayer advocates agree that the Commission should revise its policy.5 So do the comments of the Transmission Access Policy Study Group (“TAPS”), whose membership is largely composed of transmission-dependent utilities that are either public power agencies or member owned electrical cooperatives.6 And so too do the comments of Consumer’s Research, the Manhattan Institute, and the American Enterprise Institute.7
To each of these commentors it is obvious that large investment companies like Blackrock, Vanguard, and State Street (“the Big Three”) are using their enormous “passive” holdings to exert control over FERC jurisdictional public utilities. The Big Three combined own, on average, 25.8 percent of the 22 largest publicly traded utility companies, are the top three owners in more than half, and are among the top six owners of every single one.8 Combined, the Big Three own between 21 percent and 31.5 percent of each company examined and Vanguard alone owns an average of 11.5 percent.9 With this ownership, these asset managers exert control in direct violation of the public interest requirements of Section 203 and in violation of whatever blanket authorizations they may have received. While the particular evidence of control or its anticompetitive effects varies from comment to comment, all agree that FERC must apply greater scrutiny in its blanket authorization process and take appropriate measures to make sure that such control does not continue.
In contrast, the comments defending the status quo, denying that the large asset managers exercise control over utilities, come from the asset managers themselves and trade associations that represent or are controlled by asset managers. In the latter category are comments from the American Council of Renewable Energy (“ACORE”), whose members include asset managers, the Edison Electric Institute (“EEI”), the trade association for the utilities whose largest shareholders are the large asset managers, and the Electric Power Supply Association (“EPSA”), whose members are entangled in a complicated web of ownership with asset managers.10 Far from dispelling concerns over control, this alliance demonstrates it, showing just how intertwined the asset managers have become with FERC jurisdictional entities during the present blanket authorization regime.
Consider ACORE, a commenter representing the renewable energy industry. ACORE includes among its “Leadership Council Members” executives from BlackRock, State Street, and other asset managers and financial institutions.11 A BlackRock executive is on ACORE’s board of directors.12 And BlackRock is among its “Executive Sponsors”—“the top echelon of ACORE supporters.”13 This is all entirely unsurprising: ACORE’s self-declared mission is to “[u]nite finance, policy and technology to accelerate the transition to a renewable energy economy.”14 It exists to facilitate asset manager control of public utilities.
Unsurprisingly, the comments from these organizations do little to rebut the evidence of control presented in the record. Instead, they make weak burden shifting arguments, saying that it is the Commission that must prove that the asset manager’s control is inconsistent with the public interest or that what looks like “control” is actually just advocacy for good corporate governance that would happen even without the asset manager’s interference.15 The current policy of insouciance is good, they explain, because it “facilitate[s] a lower carbon future.”16 In other words the asset managers are not exercising control and it’s good that they are.
CEA submits these comments to rebut these arguments. The asset managers have publicly admitted that they control public utilities. Indeed, they are proud of how they have used this control to pressure utilities to adopt their preferred public policies. But that is not the asset managers’ decision to make. It is the Commission’s duty “to ensure that all jurisdictional transactions subject to section 203 are consistent with the public interest.”17 Common ownership by large asset managers—if not actively restrained—flattens the market, limits competition, and harms the public interest.
The Commission must, at a minimum, increase its scrutiny of blanket authorization applications and begin enforcing the anti-control commitments in the blanket authorizations that it has previously granted. The Commission should also institute a generic proceeding to make clear what practices constitute “control” and what steps investment companies must take to demonstrate that they are no longer exercising “control” over public utilities. These steps are necessary for FERC to fulfill its statutory obligation to only allow the acquisition of securities of public utilities if such transactions are consistent with the public interest.
Reply Comments on Federal Power Act Section 203 Blanket Authorizations for Investment Companies
I. Introduction
The Center for Environmental Accountability (“CEA”) submits this reply comment to express its support for reform of the Federal Energy Regulatory Commission’s (“FERC” or “Commission”) approach to granting and enforcing blanket authorizations under Section 203 of the Federal Power Act (“FPA”) and to respond to the arguments made by asset managers and their allies defending the status quo.
Under Section 203 of the FPA, the Commission must find that the transfer of ownership of jurisdictional assets is consistent with the public interest.1 In implementing this provision, the Commission explained that the leading harm to the public interest it was concerned about anticompetitive effects that would hurt ratepayers.2 As a result, FERC reasonably concluded that “when a purchaser of a minority interest in a public utility lacks the ability to influence control over that acquired public utility, the Commission will not consider the purchase a consolidation of utility assets and therefore the acquisition will not adversely impact competition in any market.”3 And so whether or not a blanket authorization is consistent with the public interest turns principally on an asset manager’s “ability to influence control.”4
Though their animating concerns may differ, the initial comments of both a coalition of Republican attorneys general and of a group of blue state ratepayer advocates agree that the Commission should revise its policy.5 So do the comments of the Transmission Access Policy Study Group (“TAPS”), whose membership is largely composed of transmission-dependent utilities that are either public power agencies or member owned electrical cooperatives.6 And so too do the comments of Consumer’s Research, the Manhattan Institute, and the American Enterprise Institute.7
To each of these commentors it is obvious that large investment companies like Blackrock, Vanguard, and State Street (“the Big Three”) are using their enormous “passive” holdings to exert control over FERC jurisdictional public utilities. The Big Three combined own, on average, 25.8 percent of the 22 largest publicly traded utility companies, are the top three owners in more than half, and are among the top six owners of every single one.8 Combined, the Big Three own between 21 percent and 31.5 percent of each company examined and Vanguard alone owns an average of 11.5 percent.9 With this ownership, these asset managers exert control in direct violation of the public interest requirements of Section 203 and in violation of whatever blanket authorizations they may have received. While the particular evidence of control or its anticompetitive effects varies from comment to comment, all agree that FERC must apply greater scrutiny in its blanket authorization process and take appropriate measures to make sure that such control does not continue.
In contrast, the comments defending the status quo, denying that the large asset managers exercise control over utilities, come from the asset managers themselves and trade associations that represent or are controlled by asset managers. In the latter category are comments from the American Council of Renewable Energy (“ACORE”), whose members include asset managers, the Edison Electric Institute (“EEI”), the trade association for the utilities whose largest shareholders are the large asset managers, and the Electric Power Supply Association (“EPSA”), whose members are entangled in a complicated web of ownership with asset managers.10 Far from dispelling concerns over control, this alliance demonstrates it, showing just how intertwined the asset managers have become with FERC jurisdictional entities during the present blanket authorization regime.
Consider ACORE, a commenter representing the renewable energy industry. ACORE includes among its “Leadership Council Members” executives from BlackRock, State Street, and other asset managers and financial institutions.11 A BlackRock executive is on ACORE’s board of directors.12 And BlackRock is among its “Executive Sponsors”—“the top echelon of ACORE supporters.”13 This is all entirely unsurprising: ACORE’s self-declared mission is to “[u]nite finance, policy and technology to accelerate the transition to a renewable energy economy.”14 It exists to facilitate asset manager control of public utilities.
Unsurprisingly, the comments from these organizations do little to rebut the evidence of control presented in the record. Instead, they make weak burden shifting arguments, saying that it is the Commission that must prove that the asset manager’s control is inconsistent with the public interest or that what looks like “control” is actually just advocacy for good corporate governance that would happen even without the asset manager’s interference.15 The current policy of insouciance is good, they explain, because it “facilitate[s] a lower carbon future.”16 In other words the asset managers are not exercising control and it’s good that they are.
CEA submits these comments to rebut these arguments. The asset managers have publicly admitted that they control public utilities. Indeed, they are proud of how they have used this control to pressure utilities to adopt their preferred public policies. But that is not the asset managers’ decision to make. It is the Commission’s duty “to ensure that all jurisdictional transactions subject to section 203 are consistent with the public interest.”17 Common ownership by large asset managers—if not actively restrained—flattens the market, limits competition, and harms the public interest.
The Commission must, at a minimum, increase its scrutiny of blanket authorization applications and begin enforcing the anti-control commitments in the blanket authorizations that it has previously granted. The Commission should also institute a generic proceeding to make clear what practices constitute “control” and what steps investment companies must take to demonstrate that they are no longer exercising “control” over public utilities. These steps are necessary for FERC to fulfill its statutory obligation to only allow the acquisition of securities of public utilities if such transactions are consistent with the public interest.