Proposed Rule2023-28665
Federal Power Act Section 203 Blanket Authorizations for Investment Companies
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
December 27, 2023
Issuing agencies
Energy DepartmentFederal Energy Regulatory Commission
Abstract
The Federal Energy Regulatory Commission (Commission) seeks comment on whether, and if so, how, the Commission should revise its policy on providing blanket authorizations for investment companies under the Federal Power Act. The Commission also seeks comment on what constitutes control of a public utility in evaluating holding companies', including investment companies', requests for blanket authorization and what factors it should consider when evaluating control over public utilities as part of a request for blanket authorization.
Full Text
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<title>Federal Register, Volume 88 Issue 247 (Wednesday, December 27, 2023)</title>
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[Federal Register Volume 88, Number 247 (Wednesday, December 27, 2023)]
[Proposed Rules]
[Pages 89346-89351]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-28665]
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DEPARTMENT OF ENERGY
Federal Energy Regulatory Commission
18 CFR Part 33
[Docket No. AD24-6-000]
Federal Power Act Section 203 Blanket Authorizations for
Investment Companies
AGENCY: Federal Energy Regulatory Commission.
ACTION: Notice of inquiry.
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SUMMARY: The Federal Energy Regulatory Commission (Commission) seeks
comment on whether, and if so, how, the Commission should revise its
policy on providing blanket authorizations for investment companies
under the Federal Power Act. The Commission also seeks comment on what
constitutes control of a public utility in evaluating holding
companies', including investment companies', requests for blanket
authorization and what factors it should consider when evaluating
control over public utilities as part of a request for blanket
authorization.
DATES: Initial comments are due March 26, 2024 and reply comments are
due April 25, 2024.
ADDRESSES: Comments, identified by docket number, may be filed in the
following ways. Electronic filing through <a href="http://www.ferc.gov">http://www.ferc.gov</a>, is
preferred.
<bullet> Electronic Filing: Documents must be filed in acceptable
native
[[Page 89347]]
applications and print-to-PDF, but not in scanned or picture format.
<bullet> For those unable to file electronically, comments may be
filed by USPS mail or by hand (including courier) delivery.
[cir] Mail via U.S. Postal Service Only: Addressed to: Federal
Energy Regulatory Commission, Secretary of the Commission, 888 First
Street NE, Washington, DC 20426.
[cir] Hand (including courier) delivery: Deliver to: Federal Energy
Regulatory Commission, 12225 Wilkins Avenue, Rockville, MD 20852.
The Comment Procedures Section of this document contains more
detailed filing procedures.
FOR FURTHER INFORMATION CONTACT:
Noah Monick (Legal Information), Office of the General Counsel, Federal
Energy Regulatory Commission, 888 First Street NE, Washington, DC
20426, <a href="/cdn-cgi/l/email-protection#dc92b3bdb4f291b3b2b5bfb79cbab9aebff2bbb3aa"><span class="__cf_email__" data-cfemail="377958565f197a58595e545c775152455419505841">[email protected]</span></a>.
Michelle Wei (Technical Information), Office of Energy Market
Regulation, Federal Energy Regulatory Commission, 888 First Street NE,
Washington, DC 20426, <a href="/cdn-cgi/l/email-protection#b8f5d1dbd0ddd4d4dd96efddd1f8deddcadb96dfd7ce"><span class="__cf_email__" data-cfemail="662b0f050e030a0a034831030f260003140548010910">[email protected]</span></a>.
SUPPLEMENTARY INFORMATION:
1. In this Notice of Inquiry (NOI), the Commission seeks comment on
whether, and if so, how, the Commission should revise its policy on
providing blanket authorizations for investment companies \1\ under
section 203(a)(2) of the Federal Power Act (FPA).\2\ The Commission
also seeks comment on what constitutes control of a public utility in
evaluating holding companies', including investment companies',
requests for blanket authorization and what factors it should consider
when evaluating control over public utilities or holdings companies
thereof as part of a request for blanket authorization.
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\1\ For the purposes of this NOI, the term ``investment
companies'' refers to those companies meeting the definition of
``investment companies'' in the Investment Company Act of 1940,
which includes any issuer that ``holds itself out as being engaged
primarily, or proposes to engage primarily, in the business of
investing, reinvesting, or trading in securities.'' 15 U.S.C. 80a-3.
If commenters believe the Commission should apply a different
definition or use a different term, they are encouraged to explain
in their comments.
\2\ 16 U.S.C. 824b(a)(2).
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I. Background
2. Section 203(a)(2) of the FPA provides that:
No holding company in a holding company system that includes a
transmitting utility or an electric utility shall purchase, acquire,
or take any security with a value in excess of $10,000,000 of, or,
by any means whatsoever, directly or indirectly, merge or
consolidate with, a transmitting utility, an electric utility
company, or a holding company in a holding company system that
includes a transmitting utility, or an electric utility company,
with a value in excess of $10,000,000 without first having secured
an order of the Commission authorizing it to do so.\3\
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\3\ Id.
3. The Commission has both established in its regulations and
granted by Commission order blanket authorizations under section
203(a)(2) for transactions that meet certain criteria. In Order No.
669,\4\ the Commission promulgated regulations to implement the
amendments to section 203 in the Energy Policy Act of 2005 (EPAct
2005),\5\ including granting blanket authorizations for certain types
of transactions, such as foreign utility acquisitions by holding
companies, intra-holding company system financing and cash management
arrangements, certain internal corporate reorganizations, and certain
investments in transmitting utilities and electric utility
companies.\6\ The Commission stated that its goal in promulgating the
new regulations was ``to ensure that all jurisdictional transactions
subject to section 203 are consistent with the public interest and at
the same time ensure that our rules do not impede day-to-day business
transactions or stifle timely investment in transmission and generation
infrastructure.'' \7\ For example, one of the blanket authorizations
granted by the Commission provides authorization for holding companies
regulated by the Board of Governors of the Federal Reserve Bank or by
the Office of the Comptroller of the Currency, under the Bank Holding
Company Act of 1956 as amended by the Gramm-Leach-Bliley Act of 1999,
to acquire and hold an unlimited amount of the securities of holding
companies that include a transmitting utility or an electric utility
company.\8\ The blanket authorization requires that the securities be
held either as a fiduciary, as principal for derivatives hedging
purposes incidental to the business of banking (so long as it commits
not to vote such securities to the extent they exceed 10 percent of the
outstanding shares), as collateral for a loan, or solely for purposes
of liquidation and in connection with a loan previously contracted for
and owned beneficially for a period of not more than two years (subject
to conditions and a reporting requirement).\9\
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\4\ Transactions Subject to FPA Section 203, Order No. 669, 113
FERC ] 61,315 (2005), order on reh'g, Order No. 669-A, 115 FERC ]
61,097, order on reh'g, Order No. 669-B, 116 FERC ] 61,076 (2006);
see Blanket Authorization Under FPA Section 203, Order No. 708, 122
FERC ] 61,156, order on reh'g, Order No. 708-A, 124 FERC ] 61,048
(2008), order on reh'g, Order No. 708-B, 127 FERC ] 61,157 (2009)
(amending the Commission's regulations pursuant to FPA section 203
to provide for additional blanket authorizations under FPA section
203(a)(1)).
\5\ Energy Policy Act of 2005, Public Law 109-58, 119 Stat. 594
(2005).
\6\ See 18 CFR 33.1(c).
\7\ Order No. 669, 113 FERC ] 61,315 at P 4.
\8\ 18 CFR 33.1(c)(9).
\9\ See id. Sec. (c)(9)(i)-(iv).
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4. Prior to Order No. 669, the Commission's order in UBS AG granted
a blanket authorization on an individual basis for UBS AG and Bank of
America to acquire public utility securities during their banking
businesses.\10\ The Commission stated that it was satisfied that the
applicants in that proceeding would be precluded from using their
fiduciary holdings to serve their own interests, rather than the
interests of their fiduciary clients. The Commission stated that
``backstop protection is provided by the procedures, controls and
monitoring programs banking institutions are required to have in place
in order to conduct fiduciary activities and the comprehensive nature
of supervision and regulation by Bank Regulators of banks' fiduciary.''
\11\
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\10\ UBS AG, 101 FERC ] 61,312 (2002), order on reh'g, 103 FERC
] 61,284, order on reh'g, 105 FERC ] 61,078 (2003).
\11\ UBS AG, 105 FERC ] 61,078 at P 16.
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5. The Commission has also issued blanket authorizations, on a
case-specific basis to investment companies, that allowed the
acquisitions of securities in public utilities over the $10 million
threshold established by EPAct 2005 and up to 20% of the outstanding
voting securities of a given public utility. For instance, in 2006, the
Commission granted a blanket authorization for Capital Research and
Management Company to acquire utility securities on behalf of its
funds, subject to certain conditions.\12\ As a result of these
conditions, including limitations on the amount of both collective
ownership and ownership of securities for each individual fund,
governing policies, and status as beneficial owners eligible to file
Schedule 13G under the Securities' and Exchange Act of 1934,\13\ the
Commission found that Capital Research and Management Company could not
exercise control over public utilities, and that there would be no harm
to the public interest that could otherwise result from their holding
significant equity positions in public
[[Page 89348]]
utilities.\14\ The Commission noted that the repeal of the Public
Utility Holding Company Act of 1935 (PUHCA 1935) and modifications to
section 203 of the FPA had changed the law governing investment in
utility securities.\15\ The Commission found that a blanket
authorization was appropriate to ``encourage greater investment in
utilities by mutual funds,'' provided that the Commission can perform
continuing oversight in accordance with section 203 of the FPA.\16\
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\12\ Cap. Research & Mgmt. Co., 116 FERC ] 61,267 (2006).
\13\ 15 U.S.C. 78a et seq.
\14\ Cap. Research & Mgmt. Co., 116 FERC ] 61,267 at P 32.
\15\ Id. PP 26-27 (citing 15 U.S.C. 79a et seq.).
\16\ Id. P 28.
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6. The Commission issued other individual blanket authorizations
after its order in Capital Research & Management Co. applying similar
conditions.\17\ The blanket authorizations were time-limited, for a
period of three years, based on the Commission's reasoning that it
should periodically reevaluate whether the blanket authorizations
remained consistent with the public interest.\18\ The Commission has in
several instances granted subsequent requests for extensions of those
blanket authorizations upon the same terms and conditions of the
original orders.\19\
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\17\ See Ecofin Holdings Ltd., 120 FERC ] 61,189 (2007); The
Goldman Sachs Grp., 121 FERC ] 61,059 (2007); Morgan Stanley, 121
FERC ] 61,060 (2007); Legg Mason, Inc., 121 FERC ] 61,061 (2007);
Horizon Asset Mgmt., Inc., 125 FERC ] 61,209 (2008); Franklin Res.,
Inc., 126 FERC ] 61,250 (2009); BlackRock, Inc., 131 FERC ] 61,063
(2010). Additional blanket authorizations were granted via delegated
authority where applicants met the criteria established in
previously-issued Commission orders. See T. Rowe Price Grp., Inc.,
119 FERC ] 62,048 (2007) (delegated order); Lord, Abbett & Co. LLC,
129 FERC ] 62,239 (2009) (delegated order); Mario J. Gabelli GGCP,
Inc., 137 FERC ] 62,127 (2011) (delegated order); The Vanguard Grp.,
Inc., 168 FERC ] 62,081 (2019) (delegated order).
\18\ See Cap. Research & Mgmt. Co., 116 FERC ] 61,267 at P 46
(``[G]iven the importance of balancing the need for regulatory
oversight with the provision of some business certainty, the
Commission grants the requested authorizations, as conditioned, on a
temporary basis. The authorization expires three years from the date
of this order, without prejudice to requests to extend the
authorization.'').
\19\ See, e.g., The Goldman Sachs Grp., 134 FERC ] 61,227
(2011); BlackRock, Inc., 179 FERC ] 61,049 (2022).
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7. In 2010, the Commission undertook a generic proceeding to
address the acquisition of voting securities of a public utility by
holding companies in response to a petition by the Electric Power
Supply Association (EPSA) requesting that the Commission provide
clarification on the Commission's jurisdiction over investors holding
between 10% and 20% of a public utility's outstanding voting securities
who are eligible to file a statement of beneficial ownership with the
Securities and Exchange Commission.\20\ In that proceeding, the
Commission issued a Notice of Proposed Rulemaking (NOPR) proposing to
create a FERC form wherein holding companies would affirm that an
investor did not control a public utility when the investor refrained
from engaging in certain actions.\21\ Entities signing the form would
have been eligible for a blanket authorization for the acquisition of
up to 20% of the outstanding voting securities of a public utility or
holding company thereof. Comments on the NOPR generally fell into two
groups. The first group believed that the Commission's proposal was too
restrictive and that an investor would be unwilling to commit to the
restrictions on the proposed FERC form, such that the Commission's
proposal did not provide the original relief requested by EPSA; the
second group believed the Commission could be opening up wholesale
energy markets to anticompetitive behavior through partial acquisitions
of the securities of multiple public utilities without adequate
oversight. The Commission ultimately decided that, having considered
these comments, it was persuaded to not seek to adopt the proposed
reforms, and withdrew the NOPR and terminated the rulemaking
proceeding.\22\
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\20\ Control & Affiliation for Purposes of Mkt.-Based Rate
Requirements Under Section 205 of the Fed. Power Act & the
Requirements of Section 203 of the Fed. Power Act, 130 FERC ]
61,046, at P 4 (2010) (citing Securities Exchange Act of 1934, 15
U.S.C. 78a et seq. (2000)).
\21\ Id. PP 36-37 (requiring an affirmation from the investor
that, among other things, it will: not seek or accept representation
on the public utility's board of directors or otherwise serve in any
management capacity; not request or receive non-public information,
either directly or indirectly, concerning the business or affairs of
the public utility; and not solicit, or participate in any
solicitation of, proxies involving the public utility).
\22\ Control & Affiliation for Purposes of Mkt.-Based Rate
Requirements Under Section 205 of the Fed. Power Act & the
Requirements of Section 203 of the Fed. Power Act, 157 FERC ] 61,064
(2016).
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8. Since the Commission revised its regulations to expand blanket
authorizations under section 203(a)(2) and began granting case-specific
blanket authorizations for holding companies, including investment
companies, there have been changes in the public utility, finance, and
banking industries that warrant consideration of whether the
Commission's blanket authorization policy continues to work as
intended. These changes include consolidation in the public utility
industry as well as the growth of large index funds and asset managers.
Factors such as the repeal of PUHCA 1935 and increased interest in U.S.
utility assets by foreign companies/investors and private equity
investors have led to the greater consolidation of utility holding
companies, as shown by utility merger activity of approximately $200
billion from 2012 to 2018.\23\ At the beginning of 2010, there was
approximately $2.3 trillion invested in index funds, which grew to
$11.4 trillion by the end of 2019.\24\ Index funds are estimated to
have grown from 20% of the fund market in 2011 to 43% by the end of
2021.\25\ Both commenters and FERC Commissioners have noted that this
change in the manner in which assets are owned and controlled warrants
the Commission's careful consideration to make sure that its blanket
authorization policy is consistent with the public interest.\26\
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\23\ See Lillian Federico, State Regulatory Reviews Are Creating
Headwinds For Utility Merger Activity, S&P GLOBAL (Apr. 5, 2019),
<a href="https://www.spglobal.com/marketintelligence/en/news-insights/research/state-regulatory-reviews-are-creating-headwinds-for-utility-merger-activity">https://www.spglobal.com/marketintelligence/en/news-insights/research/state-regulatory-reviews-are-creating-headwinds-for-utility-merger-activity</a>.
\24\ Financial Times, Index Funds Break Through $10m-in-Assets
Mark, <a href="https://www.ft.com/content/a7e20d96-318c-11ea-9703-eea0cae3f0de">https://www.ft.com/content/a7e20d96-318c-11ea-9703-eea0cae3f0de</a> (Jan. 7, 2020).
\25\ Investment Company Institute, 2022 Investment Company
Factbook, at 29 (2022), <a href="https://www.icifactbook.org/pdf/2022_factbook.pdf">https://www.icifactbook.org/pdf/2022_factbook.pdf</a>.
\26\ Commissioners Danly, Clements, and Christie have raised
concerns related to the influence of large investment companies over
public utilities and whether there is adequate scrutiny in the grant
of some blanket authorizations. See BlackRock, Inc., 179 FERC ]
61,049 (Clements, Comm'r, concurring at P 3); BlackRock, Inc., 179
FERC ] 61,049 (Christie, Comm'r, concurring at PP 4-6); Joint
Statement of Commissioner Danly & Commissioner Christie Regarding
The Vanguard Group, Inc. et al., Docket No. EC19-57-001, at PP 7-9
(Aug. 11, 2022) (eLibrary Accession No. 20220811-4002); Joint
Statement of Commissioner Danly & Commissioner Christie Regarding
The Vanguard Group, Inc., et al., Docket No. EC19-57-002, at P 7
(May 9, 2023) (eLibrary Accession No. 20230509-4000).
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II. Discussion
9. We are issuing this NOI to further explore whether, and if so,
how, the Commission should revise its policy on blanket authorizations
for holding companies, including investment companies, under section
203(a)(2) of the FPA. We invite all interested persons to submit
comments and reply comments on any or all of the questions listed
below. Commenters need not answer all the questions.
A. Blanket Authorization Policy
10. As noted above, the Commission has granted company-specific
blanket authorizations under section 203(a)(2) for holding companies,
including investment companies' managed funds, to acquire the voting
securities of public utilities and holding companies thereof, in
addition to the blanket authorizations granted by the Commission in its
regulations. We seek comment on
[[Page 89349]]
current Commission policy as well as whether, and if so, how, the
Commission should revise its policy.
(Q1) Please describe whether the Commission's current blanket
authorization policy, as set forth in the Commission's regulations or
on a case-specific basis, is sufficient to ensure that holding
companies, including investment companies, lack the ability to control
the public utilities and holding companies whose securities they
acquire and that the transactions underlying the blanket authorization
are consistent with the public interest.
(Q2) If the Commission's current policy is insufficient, how should
the Commission revise its case-specific blanket authorizations for
holding companies, including investment companies, to acquire voting
securities? How should the Commission revise its regulations providing
certain blanket authorizations under section 203(a)(2)?
(Q3) Are the existing conditions and restrictions associated with
case-specific blanket authorizations, such as the submission of
Securities and Exchange Commission (SEC) Schedule 13D and 13G filings,
effective in ensuring that holding companies, including investment
companies, lack control over public utilities, and holding companies
thereof, such that the Commission can be assured that the transactions
underlying the blanket authorization are consistent with the public
interest?
(Q4) Does the current scope or availability of blanket
authorizations for the acquisition of voting securities by holding
companies, including investment companies, create concerns regarding an
adverse effect on competition or jurisdictional rates?
(Q5) If there are concerns with the current policy regarding grants
of blanket authorizations to holding companies, including investment
companies, are there specific commitments or other conditions from
holding companies, including investment companies, that could give the
Commission assurance that such blanket authorizations are consistent
with the public interest?
(Q6) The blanket authorization in 18 CFR 33.1(c)(9)(iv) requires
that a holding company file--when securities are held ``[s]olely for
purposes of liquidation and in connection with a loan previously
contracted for and owned beneficially for a period of not more than two
years,''--on a public basis and within 45 days of the close of each
calendar quarter, both its total holdings and its holdings as
principal, each by class, unless the holdings within a class are less
than one percent of outstanding shares, irrespective of the capacity in
which they were held. Specifically, there have been cases where it was
unclear, based on the record, whether an entity has satisfied the
requirements for blanket authorization under 18 CFR 33.1(c)(9).\27\
Should the Commission require a holding company, or a subsidiary of
that company, that qualifies for FPA section 203 blanket authorization
under 18 CFR 33.1(c)(9) to report on what basis it qualifies (i.e.,
``(i) [a]s a fiduciary; (ii) [a]s principal for derivatives hedging
purposes incidental to the business of banking and it commits not to
vote such securities to the extent they exceed 10 percent of the
outstanding shares; (iii) [a]s collateral for a loan; or (iv) [s]olely
for purposes of liquidation and in connection with a loan previously
contracted for and owned beneficially for a period of not more than two
years . . . .'')? Are there any other measures that the Commission
should take to oversee compliance with the terms of these blanket
authorizations?
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\27\ See, e.g., Black Hills Colo. Elec., LLC, 184 FERC ] 61,172,
at P 19 (2023) (``Black Hills MBR Sellers state that State Street
represented to them that State Street qualifies under section
33.1(c)(9) of the Commission's regulations for blanket authorization
under section 203(a)(2) of the FPA to acquire and hold an unlimited
amount of securities of holding companies that include a
transmitting utility or an electric utility company.'') (citation
omitted); see also id. (Danly, Comm'r, concurring at P 3) (``It is
not clear to me whether State Street satisfies the requirements
above and nothing in Black Hills MBR Sellers' filing demonstrates
which, if any, of the elements of our regulation State Street
satisfies.'').
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(Q7) The case-specific blanket authorizations granted by the
Commission to investment companies generally require informational
filings of holdings, similar to that required of the blanket
authorization in 18 CFR 33.1(c)(9)(iv). Are these informational filings
sufficient for the Commission to maintain an appropriate level of
oversight for compliance with the terms of blanket authorizations? Are
there any other measures that the Commission should take to oversee
compliance with the terms of these blanket authorizations?
B. Large Investment Companies
11. The three largest index fund investment companies currently
vote over 20% of the stock in the largest U.S. public companies, a
number that may soon rise to 40%.\28\ Some have argued that the size of
these investment companies creates issues related to competition and
gives the investment companies unique leverage over the utilities whose
voting securities they control.\29\ Additionally, some have argued that
the largest index funds have used their ownership stakes to pressure
utilities to meet particular public policy goals, despite committing to
not exercise control over the utilities.\30\ We seek comment on
whether, and if so, how, the Commission should consider the size of an
investment company in evaluating a request for blanket authorization
under section 203(a)(2).
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\28\ See Nathan Atkinson, If Not the Index Funds, Then Who?, 17
BERKELEY BUS. L.J. 44, 45 (2020) (``In recent years, large asset
managers have reached incredible sizes, managing trillions of
dollars of assets on behalf of tens of millions of clients. The
largest three, BlackRock, Vanguard, and State Street, taken together
(the `Big Three'), vote about 20% of shares in most large companies,
with the majority of these shares held in passive index funds.'')
(citation omitted); Lucian Bebchuk & Scott Hirst, The Specter of the
Giant Three, 99 B.U. L. REV. 721, 724 (2019).
\29\ See Public Citizen, Inc., Protest, Docket No. EC16-77-002,
at 1 (filed Mar. 11, 2022) (``Not only is it impossible for a fund
manager of BlackRock's size and scope to remain a passive investor,
scholarly research demonstrates that BlackRock's accumulation of
voting securities constitutes control over utilities, and its
horizontal power over competing utilities harms competition.'').;
see also Einer Elhauge, Horizontal Shareholding, 129 HARV. L. REV.
1267, 1267 (2016) (``A small group of institutions has acquired
large shareholdings in horizontal competitors throughout our
economy, causing them to compete less vigorously with each
other.'').
\30\ See Consumers' Research, Inc., Motion to Intervene and
Protest, Docket No. EC19-57-002, at 4-5 (filed Nov. 28, 2022)
(arguing that the three largest index funds have ``have embarked on
a full-scale engagement and proxy-voting strategy to force utility
companies to comply with various decarbonization goals''); see also
Eric C. Chaffee, Index Funds & ESG Hypocrisy, 71 CASE W. RES. L.
REV. 1295, 1298-1299 (2021) (noting statements by index fund
managers related to climate and sustainability goals).
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(Q8) How can the Commission effectively evaluate the influence and
control exerted by holding companies, including investment companies,
regardless of their size, over public utilities when considering
blanket authorizations under section 203(a)(2)? What factors should be
prioritized to ensure a fair and comprehensive assessment while
maintaining a straightforward and equitable process for all holding
companies, including investment companies?
(Q9) Please describe whether and how the Commission should consider
holding companies', including investment companies', pre-existing
ownership and control of public utilities and holding companies thereof
in determining whether to grant blanket authorizations under section
203(a)(2).
(Q10) How should the Commission distinguish between various types
of investment vehicles for purposes of section 203(a)(2) blanket
authorizations?
(Q11) What are the impacts on the public interest, both positive
and negative, of holding companies, including investment companies,
holding voting securities in multiple
[[Page 89350]]
public utilities and Commission-regulated entities?
(Q12) What other ways may up to 20% ownership or control of
multiple public utilities and holding companies thereof by holding
companies, including investment companies, affect the public interest
that the Commission should consider?
C. Evaluation of Control Under Section 203 of the FPA
12. Often, when seeking a blanket authorization under section
203(a)(2), an investment company will argue that its investments in
public utilities do not allow for it to control the public utility,
including control over the day-to-day management and operations of the
utility, or holding company thereof.\31\ However, it has been argued
that by holding voting securities in a large number of public
utilities, investment companies are able to influence utility behavior
in ways that are not captured by the Commission's current analysis of
control.\32\ We seek comment on what factors the Commission should
consider when evaluating control over public utilities as part of a
request for blanket authorization.
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\31\ See, e.g., BlackRock, Inc., 131 FERC ] 61,063 at P 17.
\32\ See Senator Michael S. Lee et al., Letter to Commission,
Docket No. EC16-77-002 at 5 (filed June 28, 2023) (``Many of
[BlackRock's] significant attempts to influence control, however,
have likely been behind closed doors, in the form of `investor
engagement' with the backdrop of [Climate Action 100+] and [the Net
Zero Asset Managers Initiative]'s coordinated activities and massive
collective voting power.'').
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(Q13) In what way may a holding company, including an investment
company, exert control over public utilities that is not currently
captured by the Commission's current policies and regulations?
(Q14) What strategies or actions taken by holding companies,
including investment companies, or the actions of a public utility that
is the subject of a blanket authorization could demonstrate control or
a degree of influence that would require prior Commission review under
section 203(a)(2)? In other words, what are the indicia of control that
the Commission could look to when assessing whether a holding company
can exercise control?
(Q15) Does holding the voting securities, notwithstanding
commitments not to exercise control, of multiple public utilities
provide a form of control or influence that is not addressed by the
Commission's current polices and regulations? If so, how? And how
should the Commission resolve this form of control or influence?
(Q16) Should the Commission consider the impact of investment
companies holding public utility voting securities on long-term
planning by public utilities or other issues beyond day-to-day control
over utility operations? If so, how?
(Q17) What corporate governance factors should the Commission
consider when evaluating whether investment companies can exercise
control over public utilities? For instance, should the Commission
consider the ability of an investment company to influence board
membership of a public utility and, if so, how?
III. Comment Procedures
13. The Commission invites interested persons to submit comments on
the matters and issues identified in this notice. Initial comments are
due March 26, 2024 and reply comments are due April 25, 2024. Comments
must refer to Docket No. AD24-6-000, and must include the commenter's
name, the organization they represent, if applicable, and their address
in their comments. All comments will be placed in the Commission's
public files and may be viewed, printed, or downloaded remotely as
described in the Document Availability section below. Commenters on
this proposal are not required to serve copies of their comments on
other commenters.
14. The Commission encourages comments to be filed electronically
via the eFiling link on the Commission's website at <a href="http://www.ferc.gov">http://www.ferc.gov</a>. The Commission accepts most standard word processing
formats. Documents created electronically using word processing
software must be filed in native applications or print-to-PDF format
and not in a scanned format. Commenters filing electronically do not
need to make a paper filing.
15. Commenters that are not able to file comments electronically
may file an original of their comment by USPS mail or by courier-or
other delivery services. For submission sent via USPS only, filings
should be mailed to: Federal Energy Regulatory Commission, Office of
the Secretary, 888 First Street NE, Washington, DC 20426. Submission of
filings other than by USPS should be delivered to: Federal Energy
Regulatory Commission, 12225 Wilkins Avenue, Rockville, MD 20852.
IV. Document Availability
16. In addition to publishing the full text of this document in the
Federal Register, the Commission provides all interested persons an
opportunity to view and/or print the contents of this document via the
internet through the Commission's Home Page (<a href="http://www.ferc.gov">http://www.ferc.gov</a>).
17. From the Commission's Home Page on the internet, this
information is available on eLibrary. The full text of this document is
available on eLibrary in PDF and Microsoft Word format for viewing,
printing, and/or downloading. To access this document in eLibrary, type
the docket number excluding the last three digits of this document in
the docket number field.
18. User assistance is available for eLibrary and the Commission's
website during normal business hours from the Commission's Online
Support at 202-502-6652 (toll free at 1-866-208-3676) or email at
<a href="/cdn-cgi/l/email-protection#a4c2c1d6c7cbcac8cdcac1d7d1d4d4cbd6d0e4c2c1d6c78ac3cbd2"><span class="__cf_email__" data-cfemail="ccaaa9beafa3a2a0a5a2a9bfb9bcbca3beb88caaa9beafe2aba3ba">[email protected]</span></a>.
By direction of the Commission. Commissioner Christie is concurring
with a separate statement attached.
Issued: December 19, 2023.
Debbie-Anne A. Reese,
Deputy Secretary.
United States of America
Federal Energy Regulatory Commission
Federal Power Act Section 203 Blanket Authorizations for Investment
Companies
Docket No. AD24-6-000
(Issued December 19, 2023)
CHRISTIE, Commissioner, concurring:
1. Public utilities, sometimes called ``public service
corporations'' or ``public service companies'' under various state
laws,\1\ are not garden-variety, for-profit, shareholder-owned
companies. In particular, public utilities that provide electrical
power to retail customers are usually holders of a state-granted
monopoly franchise that comes with various public service obligations,
such as providing reliable power service at rates that are just and
reasonable. So whether a public utility is owned by investors directly
or through a holding company structure, it is absolutely essential for
regulators to make sure that the interests of investors do not conflict
with the public service obligations that a utility has. And yes, there
is a potential conflict. That potential conflict requires heightened
regulatory scrutiny when huge investment companies and asset managers,
as well as large private equity funds, which individually and
collectively direct literally trillions of dollars in capital, appear
to be acting not as passive investors simply seeking the best risk-
based returns for their own clients, but instead appear to be actively
using their investment power to affect how the
[[Page 89351]]
utility meets its own public service obligations. That is why this
proceeding is so essential, to explore those issues and determine
whether the Commission's own regulations and regulatory practices are
still sufficient to protect the interests of the customers of public
utility companies which, again, are likely to be monopoly providers of
a vital public service such as electrical power.
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\1\ See, e.g., Va. Code Ann. Sec. 56.1 et seq.
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2. As I mentioned in my concurrence to an earlier order extending
BlackRock, Inc.'s (BlackRock) blanket authorization under section 203
of the Federal Power Act (FPA),\2\ it simply is no longer a credible
assertion that investment managers, like BlackRock, State Street
Corporation, and The Vanguard Group, Inc., are always or should be
assumed to be merely passive investors. These investment managers are
often the three biggest investors in publicly traded companies across
the U.S. economy, including the utility industry, and wield significant
financial power by virtue of their investments.\3\ These investment
managers may occasionally use that financial power to push various
types of policy agendas, agendas that may ultimately conflict with the
utility's public service obligations to its customers.\4\ Or, totally
different from any policy goal, the threat may come from a private
equity investor's attempt to turn a quick profit on a short-term trade
by undercutting utility practices that are designed to serve its retail
customers over the long term, not the short-term interests of the
private equity investor.
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\2\ BlackRock, Inc., 179 FERC ] 61,049 (2022) (Christie, Comm'r,
concurring at P 3) (BlackRock Concurrence), available at <a href="https://www.ferc.gov/news-events/news/commissioner-christies-concurrence-blackrocks-authorization-buy-voting-securities">https://www.ferc.gov/news-events/news/commissioner-christies-concurrence-blackrocks-authorization-buy-voting-securities</a>.
\3\ You can see the extent of these investment managers'
holdings through the quarterly reports the Commission receives as
part of the requirements associated with section 203(a)(2) blanket
authorizations. See, e.g., BlackRock, Quarterly Report, Docket No.
EC16-77-002 (filed Nov. 15, 2023) (detailing holdings in several
publicly traded holding companies with public utility subsidiaries).
\4\ See BlackRock Concurrence at PP 4-5.
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3. One focus recently, and rightfully so, has been on ``ESG''
(environmental, social, and governance-related) corporate initiatives,
with huge asset managers pushing policy decisions that should be left
to elected legislators. For example, I have pointed out the reliability
problems that will result from premature dispatchable generation
retirements that may come from these initiatives.\5\ Decisions on the
appropriate generation resources mix for a public utility with a state-
granted franchise are policy decisions for state policymakers, not huge
Wall Street asset managers.
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\5\ See, e.g., Testimony of Commissioner Mark C. Christie,
Oversight of FERC: Adhering to a Mission of Affordable and Reliable
Energy for America, United States House of Representatives (June 12,
2023), available at <a href="https://www.ferc.gov/media/testimony-commissioner-mark-c-christie-oversight-ferc-adhering-mission-affordable-and">https://www.ferc.gov/media/testimony-commissioner-mark-c-christie-oversight-ferc-adhering-mission-affordable-and</a>; Written Testimony of Commissioner Mark Christie
Before the Committee on Energy and Natural Resources, United States
Senate (Sept. 27, 2021), available at <a href="https://cms.ferc.gov/media/written-testimony-commissioner-mark-christie-committee-energy-and-natural-resources-united">https://cms.ferc.gov/media/written-testimony-commissioner-mark-christie-committee-energy-and-natural-resources-united</a>.
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4. But let us be clear--``ESG'' investor activity is simply a
symptom of a larger, more pernicious threat that has always existed in
the utility industry: improper investor influence and control over
public utilities. Large investors can and do force utilities to make
decisions that are contrary to their public service obligations to
their retail customers. This, among other related concerns, is exactly
why Congress enacted a suite of consumer protection statutes, including
the FPA almost 100 years ago. Congress's subsequent revisions to the
FPA over the years, such as by the Energy Policy Act of 2005, signal
the ongoing importance of consumer protection in the Commission's
regulatory responsibilities, including under section 203. Congress may
have directed the Commission to streamline its regulations to
facilitate greater investments in the utility industry, such as through
section 203 blanket authorizations,\6\ but that streamlining does not,
and should never, come at expense of protecting consumers. Indeed, it
is the Commission's task to balance these two competing
responsibilities and to continue to revisit and evaluate that balance.
So I fully agree that this NOI is timely and compelling and I look
forward to moving forward on it.
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\6\ See, e.g., Transactions Subject to FPA Section 203, Order
No. 669, 113 FERC ] 61,315 (2005), order on reh'g, Order No. 669-A,
115 FERC ] 61,097, order on reh'g, Order No. 669-B, 116 FERC ]
61,076 (2006).
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For these reasons, I respectfully concur.
Mark C. Christie,
Commissioner.
[FR Doc. 2023-28665 Filed 12-22-23; 2:00 pm]
BILLING CODE 6717-01-P
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</html>Indexed from Federal Register on December 27, 2023.
This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.