Commissioner Christie’s Concurrence to Global Infrastructure Management-BlackRock Section 203 Order, EC24-58

Docket No. EC24-58-000

I concur in today’s order authorizing, under section 203 of the Federal Power Act, a transaction in which BlackRock Funding, Inc., a newly created subsidiary of BlackRock, Inc. (BlackRock), will acquire all of the limited liability company interests in Global Infrastructure Management, LLC (Transaction). 

I have long been concerned with huge asset managers, like BlackRock, seeking to acquire interests in public utilities, especially in traditional load-serving entities (LSEs).[1]  The influence that large shareholders, BlackRock or otherwise, can potentially exert across the consumer-serving utility industry should not be underestimated.  Such horizontal shareholdings pose the threat of decreased innovation, reduced competition, and ultimately higher prices to consumers, as well as the prospect of chilling investment in exactly the new generation resources we need to meet increased demand for power and to enhance the reliability of the grid.  So this is an issue that deserves much greater scrutiny, as I have stated before.[2] 

For purposes of this Transaction, I concur because it is consistent with Commission precedent and policy and because BlackRock has previously received a section 203 blanket authorization.[3]   BlackRock, pursuant to its blanket authorization, already holds interests in many LSEs as well as independent power producers (IPPs).  And in this Transaction, the other shoe drops:  BlackRock now seeks to acquire interests in even more IPPs, primarily in California, a relevant market in which it already holds extensive interests pursuant to its blanket authorization.  Of course, IPPs present the threat of competition to the generation tied to these other holdings, along with the generation BlackRock itself seeks to build.  BlackRock is now firmly on both sides of the competition fence, as protestors here assert.

But, because of BlackRock’s blanket authorization, there is no further scrutiny.  Whether an entity with a blanket authorization is or will be on both sides of the fence should be front and center for serious scrutiny in any next steps taken on the Blanket Authorization Notice of Inquiry. You do not need a Ph.D. in economics to see the potential for anticompetitive conduct and outcomes when an investment entity like a huge asset manager seeks to own generation assets that will be — or should be — competitors.  Market power is an ever-present concern, and one rule I taught my law students is that any seller with market power will use it.  That’s not a moral judgment, just economic reality.   

And, as I have also expressed previously, and which merits reiteration here, public utilities are not typical 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.[4]

Not only does this potential conflict present problems from the consumer protection and reliability perspectives, but it also can produce structural changes to the very markets that the Commission regulates, leading the Commission to fix and tweak rates and practices under section 205, rather than preventing the concerning structural change from occurring in the first place.

More fundamentally, however, the concentration of horizontal shareholding in the entities regulated by the Commission causes less innovation, in a time where innovation is exactly what we need.  We need more investment in the generation units that enhance reliability and reduce consumer prices, not less.  Cross-ownership creates the threat of the exercise of market power.  Market power, even through concentrated horizontal shareholding, deters investment; it does not encourage it.  And importantly, truly effective regulation of transactions affecting public utilities does not result in a chilling of investment.  Investors will always seek an adequate return, which good utility regulation recognizes.  And it is the Commission’s responsibility, indeed all utility regulators’ responsibility, to make sure that such money is not being needlessly extracted from consumers’ pockets through exercises of market power or other forms of rent-seeking. 

For these reasons, I respectfully concur.

______________________________

Mark C. Christie

Commissioner