Federal Power Act Section 203 Blanket Authorizations for Investment Companies, 88900-88905 [2023-28443]
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Federal Register / Vol. 88, No. 246 / Tuesday, December 26, 2023 / Notices
Home Page on the internet, this
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ferc.gov.
Dated: December 19, 2023.
Debbie-Anne A. Reese,
Deputy Secretary.
[FR Doc. 2023–28438 Filed 12–22–23; 8:45 am]
BILLING CODE 6717–01–P
DEPARTMENT OF ENERGY
Federal Energy Regulatory
Commission
[Docket No. ER24–698–000]
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Castanea Project, LLC; Supplemental
Notice That Initial Market-Based Rate
Filing Includes Request for Blanket
Section 204 Authorization
This is a supplemental notice in the
above-referenced proceeding of
Castanea Project, LLC’s application for
market-based rate authority, with an
accompanying rate tariff, noting that
such application includes a request for
blanket authorization, under 18 CFR
part 34, of future issuances of securities
and assumptions of liability.
Any person desiring to intervene or to
protest should file with the Federal
Energy Regulatory Commission, 888
First Street NE, Washington, DC 20426,
in accordance with Rules 211 and 214
of the Commission’s Rules of Practice
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and Procedure (18 CFR 385.211 and
385.214). Anyone filing a motion to
intervene or protest must serve a copy
of that document on the Applicant.
Notice is hereby given that the
deadline for filing protests with regard
to the applicant’s request for blanket
authorization, under 18 CFR part 34, of
future issuances of securities and
assumptions of liability, is January 8,
2024.
The Commission encourages
electronic submission of protests and
interventions in lieu of paper, using the
FERC Online links at https://
www.ferc.gov. To facilitate electronic
service, persons with internet access
who will eFile a document and/or be
listed as a contact for an intervenor
must create and validate an
eRegistration account using the
eRegistration link. Select the eFiling
link to log on and submit the
intervention or protests.
Persons unable to file electronically
may mail similar pleadings to the
Federal Energy Regulatory Commission,
888 First Street NE, Washington, DC
20426. Hand delivered submissions in
docketed proceedings should be
delivered to Health and Human
Services, 12225 Wilkins Avenue,
Rockville, Maryland 20852.
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 (https://
www.ferc.gov). 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.
User assistance is available for
eLibrary and the Commission’s website
during normal business hours from
FERC Online Support at 202–502–6652
(toll free at 1–866–208–3676) or email at
ferconlinesupport@ferc.gov, or the
Public Reference Room at (202) 502–
8371, TTY (202) 502–8659. Email the
Public Reference Room at
public.referenceroom@ferc.gov.
The Commission’s Office of Public
Participation (OPP) supports meaningful
public engagement and participation in
Commission proceedings. OPP can help
members of the public, including
landowners, environmental justice
communities, Tribal members and
others, access publicly available
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information and navigate Commission
processes. For public inquiries and
assistance with making filings such as
interventions, comments, or requests for
rehearing, the public is encouraged to
contact OPP at (202) 502–6595 or OPP@
ferc.gov.
Dated: December 19, 2023.
Debbie-Anne A. Reese,
Deputy Secretary.
[FR Doc. 2023–28435 Filed 12–22–23; 8:45 am]
BILLING CODE 6717–01–P
DEPARTMENT OF ENERGY
Federal Energy Regulatory
Commission
[Docket No. AD24–6–000]
Federal Power Act Section 203 Blanket
Authorizations for Investment
Companies
Federal Energy Regulatory
Commission.
ACTION: Notice of inquiry.
AGENCY:
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 section 203(a)(2) of
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
25, 2024 and reply comments are due
April 24, 2024.
ADDRESSES: Comments, identified by
docket number, may be filed in the
following ways. Electronic filing
through https://www.ferc.gov, is
preferred.
• Electronic Filing: Documents must
be filed in acceptable native
applications and print-to-PDF, but not
in scanned or picture format.
• For those unable to file
electronically, comments may be filed
by USPS mail or by hand (including
courier) delivery.
Æ Mail via U.S. Postal Service Only:
Addressed to: Federal Energy
Regulatory Commission, Secretary of the
Commission, 888 First Street NE,
Washington, DC 20426.
Æ Hand (including courier) Delivery:
Deliver to: Federal Energy Regulatory
Commission, 12225 Wilkins Avenue,
Rockville, MD 20852.
SUMMARY:
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Federal Register / Vol. 88, No. 246 / Tuesday, December 26, 2023 / Notices
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,
Noah.Monick@ferc.gov.
Michelle Wei (Technical Information),
Office of Energy Market Regulation,
Federal Energy Regulatory Commission,
888 First Street NE, Washington, DC
20426, Michelle.Wei@ferc.gov.
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.
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
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
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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).
3 Id.
4 Transactions Subject to FPA Section 203, Order
No. 669, 113 FERC ¶ 61,315 (2005), order on reh’g,
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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
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
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 Law109–58,
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. § (c)(9)(i)–(iv).
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88901
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
5. The Commission has also issued
blanket authorizations, on a casespecific 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
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
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.
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
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
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).
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
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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
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
or accept representation on the public utility’s
board of directors or otherwise serve in any
management capacity; not request or receive nonpublic 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).
23 See Lillian Federico, State Regulatory Reviews
Are Creating Headwinds For Utility Merger Activity,
S&P GLOBAL (Apr. 5, 2019), https://
www.spglobal.com/marketintelligence/en/newsinsights/research/state-regulatory-reviews-arecreating-headwinds-for-utility-merger-activity.
24 Financial Times, Index Funds Break Through
$10m-in-Assets Mark, https://www.ft.com/content/
a7e20d96-318c-11ea-9703-eea0cae3f0de (Jan. 7,
2020).
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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
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
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 casespecific 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
25 Investment Company Institute, 2022
Investment Company Factbook, at 29 (2022),
https://www.icifactbook.org/pdf/2022_factbook.pdf.
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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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
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
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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?
(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
Sellers’ filing demonstrates which, if any, of the
elements of our regulation State Street satisfies.’’).
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
PO 00000
Frm 00040
Fmt 4703
Sfmt 4703
88903
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).
(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
public utilities and Commissionregulated 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
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 fullscale 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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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.
(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?
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.’’).
VerDate Sep<11>2014
20:25 Dec 22, 2023
Jkt 262001
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
25, 2024 and reply comments are due
April 24, 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 https://www.ferc.gov. 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 (https://
www.ferc.gov).
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–
PO 00000
Frm 00041
Fmt 4703
Sfmt 4703
502–6652 (toll free at 1–866–208–3676)
or email at ferconlinesupport@ferc.gov.
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 riskbased returns for their own clients, but
instead appear to be actively using their
investment power to affect how the
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.
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
1 See,
e.g., Va. Code Ann. § 56.1 et seq.
Inc., 179 FERC ¶ 61,049 (2022)
(Christie, Comm’r, concurring at P 3) (BlackRock
2 BlackRock,
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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.
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.
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.
khammond on DSKJM1Z7X2PROD with NOTICES
Prohibited
1. CP22–2–000
2. CP22–2–000
3. CP22–2–000
4. CP22–2–000
For these reasons, I respectfully concur.
[FR Doc. 2023–28443 Filed 12–22–23; 8:45 am]
BILLING CODE 6717–01–P
DEPARTMENT OF ENERGY
Federal Energy Regulatory
Commission
[Docket No. RM98–1–000]
Records Governing Off-the-Record
Communications
This constitutes notice, in accordance
with 18 CFR 385.2201(b), of the receipt
of prohibited and exempt off-the-record
communications.
Order No. 607 (64 FR 51222,
September 22, 1999) requires
Commission decisional employees, who
make or receive a prohibited or exempt
off-the-record communication relevant
to the merits of a contested proceeding,
to deliver to the Secretary of the
VerDate Sep<11>2014
File date
..........................................................................................................
..........................................................................................................
..........................................................................................................
..........................................................................................................
Concurrence), available at https://www.ferc.gov/
news-events/news/commissioner-christiesconcurrence-blackrocks-authorization-buy-votingsecurities.
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,
20:25 Dec 22, 2023
Jkt 262001
Commission, a copy of the
communication, if written, or a
summary of the substance of any oral
communication.
Prohibited communications are
included in a public, non-decisional file
associated with, but not a part of, the
decisional record of the proceeding.
Unless the Commission determines that
the prohibited communication and any
responses thereto should become a part
of the decisional record, the prohibited
off-the-record communication will not
be considered by the Commission in
reaching its decision. Parties to a
proceeding may seek the opportunity to
respond to any facts or contentions
made in a prohibited off-the-record
communication and may request that
the Commission place the prohibited
communication and responses thereto
in the decisional record. The
Commission will grant such a request
only when it determines that fairness so
requires. Any person identified below as
having made a prohibited off-the-record
communication shall serve the
document on all parties listed on the
official service list for the applicable
proceeding in accordance with Rule
2010, 18 CFR 385.2010.
Exempt off-the-record
communications are included in the
decisional record of the proceeding,
unless the communication was with a
cooperating agency as described by 40
CFR 1501.6, made under 18 CFR
385.2201(e) (1) (v).
The following is a list of off-therecord communications recently
received by the Secretary of the
Commission. This filing may be viewed
on the Commission’s website at https://
www.ferc.gov using the eLibrary link.
Enter the docket number, excluding the
last three digits, in the docket number
field to access the document. For
assistance, please contact FERC Online
Support at FERCOnlineSupport@
ferc.gov or toll free at (866) 208–3676, or
for TTY, contact (202) 502–8659.
Mark C. Christie
Commissioner
Docket Nos.
Frm 00042
Fmt 4703
Sfmt 4703
Presenter or requester
12–12–2023
12–12–2023
12–13–2023
12–15–2023
2023) (detailing holdings in several publicly traded
holding companies with public utility subsidiaries).
4 See BlackRock Concurrence at PP 4–5.
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 https://www.ferc.gov/media/
testimony-commissioner-mark-c-christie-oversightferc-adhering-mission-affordable-and; Written
Testimony of Commissioner Mark Christie Before
PO 00000
88905
FERC
FERC
FERC
FERC
Staff 1
Staff 2
Staff 3
Staff 4
the Committee on Energy and Natural Resources,
United States Senate (Sept. 27, 2021), available at
https://cms.ferc.gov/media/written-testimonycommissioner-mark-christie-committee-energy-andnatural-resources-united.
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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]]>Agencies
[Federal Register Volume 88, Number 246 (Tuesday, December 26, 2023)]
[Notices]
[Pages 88900-88905]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-28443]
-----------------------------------------------------------------------
DEPARTMENT OF ENERGY
Federal Energy Regulatory Commission
[Docket No. AD24-6-000]
Federal Power Act Section 203 Blanket Authorizations for
Investment Companies
AGENCY: Federal Energy Regulatory Commission.
ACTION: Notice of inquiry.
-----------------------------------------------------------------------
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 section 203(a)(2) of 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 25, 2024 and reply comments are
due April 24, 2024.
ADDRESSES: Comments, identified by docket number, may be filed in the
following ways. Electronic filing through https://www.ferc.gov, is
preferred.
Electronic Filing: Documents must be filed in acceptable
native applications and print-to-PDF, but not in scanned or picture
format.
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.
[[Page 88901]]
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, [email protected].
Michelle Wei (Technical Information), Office of Energy Market
Regulation, Federal Energy Regulatory Commission, 888 First Street NE,
Washington, DC 20426, [email protected].
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.
---------------------------------------------------------------------------
\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).
---------------------------------------------------------------------------
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\
---------------------------------------------------------------------------
\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 Law109-58, 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).
---------------------------------------------------------------------------
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.
---------------------------------------------------------------------------
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 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\
---------------------------------------------------------------------------
\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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[[Page 88902]]
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\
---------------------------------------------------------------------------
\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).
---------------------------------------------------------------------------
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. Sec. 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),
https://www.spglobal.com/marketintelligence/en/news-insights/research/state-regulatory-reviews-are-creating-headwinds-for-utility-merger-activity.
\24\ Financial Times, Index Funds Break Through $10m-in-Assets
Mark, https://www.ft.com/content/a7e20d96-318c-11ea-9703-eea0cae3f0de (Jan. 7, 2020).
\25\ Investment Company Institute, 2022 Investment Company
Factbook, at 29 (2022), https://www.icifactbook.org/pdf/2022_factbook.pdf.
\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 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
[[Page 88903]]
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 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
[[Page 88904]]
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 25, 2024 and reply comments are due April 24, 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 https://www.ferc.gov. 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 (https://www.ferc.gov).
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
[email protected].
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 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
[[Page 88905]]
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 https://www.ferc.gov/news-events/news/commissioner-christies-concurrence-blackrocks-authorization-buy-voting-securities.
\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 https://www.ferc.gov/media/testimony-commissioner-mark-c-christie-oversight-ferc-adhering-mission-affordable-and; Written Testimony of Commissioner Mark Christie
Before the Committee on Energy and Natural Resources, United States
Senate (Sept. 27, 2021), available at https://cms.ferc.gov/media/written-testimony-commissioner-mark-christie-committee-energy-and-natural-resources-united.
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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. 2023-28443 Filed 12-22-23; 8:45 am]
BILLING CODE 6717-01-P
