A group of 17 states, through their Attorneys General (“State AGs”), filed a motion (“Motion”) on May 10, 2023, requesting that the Commission audit and investigate whether BlackRock is acting as an “activist” investor, thereby violating Section 203 of the Federal Power Act (“FPA”) and the Commission’s latest reauthorizations for BlackRock to acquire public utility securities. The Motion comes shortly after Commissioners Danly and Christie issued a joint statement regarding a different investment company, Vanguard Group, Inc. (“Vanguard”), questioning whether Vanguard’s “enormous accumulation” of utility assets may enable it to exercise “profound control” over those utilities.

Under Section 203(a)(2) of the FPA, any public utility holding company seeking to acquire more than $10 million in voting securities in another utility must secure an order from the Commission authorizing it to do so. Through its implementing regulations, FERC has established a number of blanket authorizations for transactions otherwise subject to Section 203(a)(2). In April 2022, the Commission issued a reauthorization of BlackRock’s blanket authorizations for three-years, permitting BlackRock to, among other things, acquire up to 20% of the voting securities of any single public utility (“2022 BlackRock Order”). The Commission determined that BlackRock’s reauthorization would not have an adverse effect on competition, rates, or regulation and that BlackRock would not have the ability to influence control over public utilities. Among the restrictions in the reauthorization is that BlackRock may not “exercise control over the day-to-day management or operations” of any of the public utilities whose securities BlackRock acquires.

In their Motion, the State AGs argued that BlackRock is violating Section 203 of the FPA and the 2022 BlackRock Order by acting as an “environmental activist” rather than as a passive investor, as required under the FPA. The State AGs argued that, through its membership in several environmentally-focused organizations, “BlackRock aims to pressure or force utility companies to phase out traditional energy investment.” As such, the State AGs requested that FERC: (1) audit BlackRock to determine whether BlackRock and its funds are in compliance with their representations and commitments regarding passivity in their 2022 application for reauthorization and (2) grant other relief, such as ordering BlackRock to function as passive, non-controlling investors and to cease coordination with other asset managers and owners to influence control of utility operations.

Specifically, the State AGs alleged that BlackRock is violating Section 203 of the FPA and the 2022 BlackRock Order by: (1) being part of “holding companies” that have not received FERC authorization to exceed 20% ownership in FPA-covered utilities; and (2) not functioning as “passive, non-controlling investors.” The State AGs argued that because BlackRock is signatory to various environmental groups, such as Climate Action 100+ and the Net Zero Asset Managers initiative, that aim to have public utilities reduce their fossil fuel usage, BlackRock is part of holding companies whose purpose is to influence the operations of FPA-covered utilities. Additionally, the State AGs asserted that BlackRock, “as an asset manager with trillions in assets under management,” is not a passive investor when it “joins with other asset managers to use tens of trillions of assets under management to influence fundamental changes in utility company operations.” Accordingly, the State AGs claimed that by acting as an “environmental activist,” BlackRock has violated Section 203 of the FPA and the 2022 BlackRock Order.

The State AG Motion comes shortly after a FPA Section 203 blanket reauthorization request from another investment company, Vanguard, was granted by operation of law, drawing criticism from Commissioners Danly and Christie in a joint statement. In their joint statement, Commissioners Danly and Christie questioned whether institutional investors with blanket authorizations are truly passive and whether they “can still potentially exercise substantial control over the utilities whose securities they hold.”

A copy of the Motion can be found here.

A copy of the Joint Statement from Commissioners Danly and Christie regarding the Vanguard reauthorization can be found here.