Joint Statement of James P. Danly and Mark C. Christie Regarding The Vanguard Group, Inc.

Docket No. EC19-57-002

On November 7, 2022, The Vanguard Group, Inc. (Vanguard), along with its advisory subsidiaries Vanguard Global Advisors, LLC, Vanguard Asset Management, Ltd., Vanguard Investments Australia Ltd., Vanguard Fiduciary Trust Company (Vanguard Subsidiaries), its 34 affiliated investment companies (Investment Companies), and its affiliated mutual funds and other investment funds (Applicant Funds) (collectively, Applicants) filed an application pursuant to section 203(a)(2) of the Federal Power Act (FPA)[1] and part 33 of the Commission’s regulations[2] seeking a three-year extension of the blanket authorization granted by delegated order on August 8, 2022.[3] 

At the time that the 2022 Delegated Order issued, we wrote to highlight a number of issues regarding Vanguard’s February 16, 2022 blanket authorization application.[4]  In our Joint Statement, we recognized Vanguard’s ability to vote large percentages of publicly traded companies’ shares due to its substantial holdings of regulated public utilities.[5]  Vanguard’s previous blanket authorization application also included a request to exclude from the 10% and 20% limits on acquisitions of the voting securities of U.S. Traded Utilities (Utilities) the Utility voting securities held in the portfolios of, and managed by, external advisors on behalf of certain externally advised funds.  The 2022 Delegated Order did not grant this request;[6] instead, the 2022 Delegated Order extended Vanguard’s blanket authorization on the same terms and conditions as granted in the 2019 Delegated Order[7] authorizing Applicants’ blanket authorization.

As provided by FPA section 203(a)(5),[8] Applicants’ November 7, 2022 application has been deemed granted by operation of law, rather than by a vote of the Commission.[9]  We note that Vanguard provided partial responses to the questions in our Joint Statement.  We also acknowledge that Vanguard no longer requests to exclude certain Utility voting securities from the 10% and 20% blanket authorization acquisition limits.

Because of the procedural posture of this case, we cannot further explore Applicants’ answers and whether they address the concerns we expressed over the possibility that Vanguard may be able to exercise “profound control” over the Utilities whose securities it holds.[10]  Vanguard’s assets under management have increased from approximately $5 trillion at the time of the February 15, 2019 blanket authorization application to approximately $6.7 trillion at the time of the most recent application on November 7, 2022.[11]  The enormous accumulation of such assets enables Vanguard to vote large percentages of publicly traded companies’ shares.  The Commission has had a long history of scrutinizing corporate structures which allow for the common ownership of,[12] or influence upon,[13] public utilities.[14]  Vanguard’s Application raises a number of issues that demand Commission scrutiny because Vanguard may be able to exercise profound control over the Utilities whose securities it holds, including the potential to influence decisions of the Utility management that could have serious effects on the reliability of power service and rates for customers.

Vanguard represents in its Application that it is abiding by the conditions in the 2022 Delegated Order and its “own investment guidelines” that “preclude[]” Vanguard “from acquiring or holding securities with the effect or for the purpose of exercising control or management of the U.S. Traded Utilities in which investment has been made.”[15]  These guidelines, however, do not appear in the record, so their sufficiency in this respect cannot be assessed.  Further, Vanguard states that each Vanguard Advised Fund has “Proxy Voting Procedures and Guidelines adopted by each Fund’s Board.”[16]  These Proxy Voting Procedures and Guidelines are also missing from the record.  Vanguard made these same representations in its previous application, and Vanguard continues to not include these guidelines, contracts, and/or advisory agreements in the record here.  Vanguard’s failure to include material upon which its application is predicated hampers the Commission’s ability to assess the independence of the advisors or examine how much control or oversight Vanguard actually retains. 

When applicants re-apply for blanket authorization under FPA section 203(a)(2), the Commission is obligated to conduct some inquiry as to whether the applicants have actually adhered to the terms of the blanket authorizations.  Allowing asset managers to self-certify is not sufficient.

It is difficult to accept unquestioningly that asset managers, like Vanguard, are merely passive investors in publicly held corporations, investing purely for the benefit of their beneficiaries, regardless of the terms and conditions they may agree to for the sake of FPA section 203(a)(2).  Indeed, horizontal shareholding, or common shareholding between horizontal competitors, could reduce incentives to compete in a given product market.  This is especially so in concentrated markets.  But even if one believes that asset managers like Vanguard are “passive,” institutional investors can still potentially exercise substantial control over the Utilities whose securities they hold. 

This is an economy-wide issue that merits the attention of Congress itself.  The Commission, however, under FPA section 203, can take action to ensure that the effects of horizontal shareholding do not negatively impact regulated public utilities.  The Commission’s task is to ensure that regulated public utilities are not pushed to undermine their primary responsibility to deliver reliable power to consumers at just and reasonable rates.  To this end, we hope that the Commission will scrutinize the effects of horizontal shareholding with respect to asset managers, like Vanguard, to ensure that such holdings are not used in a manner that jeopardizes reliability or impacts rates.  The Commission has a duty to scrutinize whether blanket authorizations under FPA section 203(a)(2) are appropriate for entities with already extensive holdings of regulated public utilities and remain consistent with the public interest.

For these reasons, we respectfully issue this joint statement.