By Ross Kerber
(Reuters) – U.S. energy regulators have another window of opportunity to clarify the role that giant fund firms should play in corporate ownership.
It’s a good chance to resolve a nagging question for investors and stock issuers alike.
In October BlackRock asked the U.S. Federal Energy Regulatory Commission to extend for another three years its permission to own up to 20% of the shares of publicly-traded U.S. utilities.
BlackRock hopes for quick approval, but it faces concerns about its size and its record on environmental issues. A year ago, FERC began a separate review of the impact of financial companies like BlackRock and passive-fund rivals Vanguard and State Street, but nothing formal has come of that inquiry or a similar review by a bank regulator.
In addition, last week a group of Republican attorneys general filed a suit charging the three firms with violating antitrust law through climate activism. They said this reduced coal production and boosted energy prices.
BlackRock and State Street call the suit “baseless.” Vanguard declined to comment on it. Vanguard and State Street declined to comment on the FERC reviews for this article.
Asked about FERC matters, a BlackRock representative said it provides $52 billion in capital to 54 regulated companies above the 10% threshold for which it needs regulators’ permission.
The investments are made “on behalf of our clients, and our focus is on delivering them financial returns,” the company said in a statement sent by the representative.
As I reported in March, BlackRock previously told FERC that few regulatory changes are needed. Vanguard suggested FERC adopt new expectations for passive investors like having them pledge to refrain from nominating corporate directors.
BIG AND CHEAP
Together the wrangling points to unintended consequences of a clear good for investors: the low fees charged by the Big Three. The expense ratios of index equity funds stood at 0.05% as of 2023, compared to 0.65% for actively managed funds, according to trade group the Investment Company Institute.
The cheap fees have brought the three firms a flood of assets – currently a collective $26 trillion – giving them more clout over corporate decision-making than they likely ever anticipated.
Studies paint a mixed picture of whether giant funds harm competition. A 2023 U.S. Federal Reserve Bank of Atlanta review found “relatively little evidence” of such problems. Big utilities like having the funds as long-term owners who in practice side against environmental shareholder resolutions.
Now FERC will have a chance to put those facts in context. In a joint protest of BlackRock’s application, consumer groups Public Citizen and the Private Equity Stakeholder Project wrote that recent deals like BlackRock’s purchase of Global Infrastructure Partners are transforming the New York asset manager from a hands-off passive investor to an active one, and called for hearings to review the waiver application.
“I think FERC is going to be the first key regulator to say, we’ve seen enough, BlackRock has gotten too big,” Public Citizen Energy Program Director Tyson Slocum said in an interview.
Some of the same Republican attorneys general that sued BlackRock also have asked FERC to hold a hearing on the firm’s application. Among other things, they questioned BlackRock’s involvement in investor climate groups and suggested the firm should have to explain critical proxy vote it casts at utilities.
Kevin Thompson, a Republican who is a member of the Arizona Corporation Commission, which joined the AGs on their FERC filing, said in an interview the energy regulator needs to do more to consider the interests of ratepayers.
“The public shouldn’t have to worry about the investors’ thumb being on the scale of decisions of the operating companies if they don’t do exactly what the investors want,” Thompson said.
The BlackRock representative said the claims made against it at FERC “are baseless and clearly contradicted by BlackRock’s record,” and noted its energy holdings are regularly reviewed by federal and state regulators.
“Limiting Americans’ ability to invest in the energy sector would hurt consumers at a time when energy affordability and reliability are more important than ever,” BlackRock said.
A spokesman for FERC Chairman Willie Phillips, a Democrat, said he would not be available for an interview. Mark Christie, the senior Republican commissioner who has been skeptical of asset managers’ size, in an interview declined to discuss BlackRock’s pending application.
Christie said he supported FERC’s ongoing industry review as a way to scrub whether big asset managers do more than passively hold stocks.
Or as he put it, “The question is, do they influence the actions of the public utility?”
(Reporting by Ross Kerber; Editing by David Gregorio)
