E-1: Commissioner Christie’s Concurrence to Federal Power Act Section 203 Blanket Authorization Notice of Inquiry: E-1, AD24-6

Docket No. AD24-6-000

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.

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 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. 

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.

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.

For these reasons, I respectfully concur.