Dive Brief:

• Commissioners Mark Christie and James Danly of the Federal Energy Regulatory Commission are seeking information from Vanguard Group about whether it has tried to influence utility generation mixes through its stock ownership.

• Vanguard’s request for a blanket authorization to own up to 20% of a utility company’s voting shares demands scrutiny because Vanguard and its affiliates could potentially exercise “profound control” over the utilities it owns, Christie and Danly said in a joint statement Thursday, noting that since FERC approved Vanguard’s previous authorization in 2019, the company’s assets under management have grown from $5 trillion to $8.5 trillion.

• “Should a company like Vanguard seek to influence the management and operation of Utilities’ generation portfolio, for example, this could have a significant impact on the rates consumers pay for electrical service,” the commissioners said.

Dive Insight:

Under the Federal Power Act, FERC issues blanket authorizations allowing financial firms like Vanguard to own up to 20% of a utility company’s voting securities, with no individual fund or affiliated entity owning more than 10%.

As an example of the role major investment firms play in utility stock ownership, Vanguard Group was NextEra Energy Resources’ top institutional shareholder, with a 9.28% stake in the company on March 30; six Vanguard mutual funds owned an additional 7.89% of NextEra’s shares, according to Yahoo Finance.

Vanguard and its affiliated investment companies and funds in February asked FERC to extend its existing blanket authorization for three years. On Monday, a day before Vanguard’s authorization was set to expire, FERC staff extended the authorization by nine months.

In their statement seeking more information from Vanguard, Christie and Danly said financial firms could seek to influence a utility’s power plant portfolio through their control of voting securities.

“The commission must assure itself that, at the very least, companies seeking this type of authorization are subject to controls designed to ensure that such influence is impossible,” Christie and Danly said.

The commissioners asked Vanguard to respond to a series of questions, including disclosing any communications between the company and utility boards of directors about plans to retire power plants and their long-range resource plans.

“What processes or policies do the Applicants have in place to ensure that they do not force or advocate for policies that will have the effect, even indirectly, of changing the manner in which power is generated or transmitted which will necessarily have an effect on rates?” the commissioners asked.

In response to BlackRock’s similar request for blanket authorization to own up to 20% of a utility company’s voting securities, Public Citizen, a consumer watchdog group, warned in March that FERC may not be adequately reviewing utility ownership by financial firms.

BlackRock, Vanguard and State Street controlled 82% of all assets flowing into all investment funds over the last decade and command as much as 80% of the global exchange-traded fund market, Tyson Slocum, director of Public Citizen’s energy program, said in the protest.

Slocum urged FERC to assess whether granting BlackRock blanket authorization to own up to 20% of a utility company would harm competition and produce unjust rates.

In a concurrence to the decision approving BlackRock’s application in April, FERC Commissioner Allison Clements said the agency may not have adequate tools to evaluate the effects of blanket authorizations for major investment firms buying utility voting securities. She encouraged “further generic consideration” of the analysis required by the commission when evaluating blanket authorizations.

In a separate concurring statement, Christie said it is unlikely large financial firms are simply passive investors.

“The claim that huge asset managers such as BlackRock, State Street and Vanguard are merely passive investors in publicly held corporations, investing purely for the benefit of their beneficiaries ― many of whom are retirees receiving pensions ― is no longer credible,” Christie said. “BlackRock, in particular, has been openly aggressive in using its massive financial power to influence corporate policy in areas far attenuated from the legitimate money-management goals of protecting the incomes and investment interests of its beneficiaries.”

The Thursday statement from Christie and Danly could be connected to a backlash to environment, social and governance investing, Ari Peskoe, director of Harvard Law School’s Electricity Law Initiative, said in an email Thursday.

Late last month, West Virginia State Treasurer Riley Moore barred BlackRock, Goldman Sachs Group, JPMorgan Chase & Co., Morgan Stanley and Wells Fargo & Co. from entering into banking contracts with the state because they are boycotting fossil fuel companies.