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US regulator examines power play by big asset managers

A member of the U.S. Federal Energy Regulatory Commission (FERC) called for scrutiny of top asset managers’ ownership of power utilities, as the oversight body began a review.

Critics have voiced concern about the growing share of corporate stocks held by passive investors, although FERC in May extended an authorization for big index funds to own utility shares.

In a notice on its website the energy regulator said it had “launched an inquiry into whether and how to revise its policy on financial investment company ownership of electric utilities.”

Speaking at a meeting in Washington D.C., which was webcast, Commissioner Mark Christie said big power and water companies often operate as local monopolies, with public service obligations that can conflict with investor interests in areas like profits or environmental goals.

Christie said the commission has to “apply strict scrutiny when a huge asset manager like Vanguard or State Street or BlackRock is buying a big chunk of either the (utility) company itself or its holding company.”

“It’s great that we’re looking at whether or not we need to change the rules of the road” for authorizing utility ownership, Christie said.

The three firms together manage around $20 trillion, much of it from investors who find their low-cost funds attractive, and are usually among the top investors in S&P 500 companies such as big power utilities. Their growth has led to concerns across the political spectrum about the firms’ impact on markets and corporate governance.

Representatives for BlackRock (BLK.N) and State Street Corp (STT.N) did not immediately comment. In a statement sent by a spokesperson, Vanguard said it leaves management decisions to companies.

“By design, passively managed index funds acquire shares of a company in order to track an underlying index, not for the purpose of controlling or influencing company strategy or day-to-day operations,” Vanguard said.

Technically FERC on Tuesday posted a “notice of inquiry” reviewing its policy for granting waivers to ownership limits. In remarks to journalists after the meeting FERC Chair Willie Phillips did not give a timetable for the review’s completion or indicate his views.

“It’s time to revisit our authority regarding these financial institutions,” he said.

Another commissioner, James Danly, said during the meeting that he would welcome comments about what types of utility control should receive scrutiny.

Even “soft control,” or the influence of investment companies, could violate requirements utilities operate for ratepayers’ benefit, said Danly, who will not be able to vote on the matter because his term is ending. Reuters

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