Attorneys general from 13 conservative states asked FERC this week to reject Vanguard’s request for a waiver allowing it to acquire large stakes in utilities, saying the investment giant’s climate activism violates its promise not to influence the companies’ management (EC19-57-001).

Attorneys general from Utah, Indiana, Alabama, Arkansas, Kentucky, Louisiana, Mississippi, Montana, Nebraska, Ohio, South Carolina, South Dakota and Texas cited Section 203 of the Federal Power Act, which prohibits holding companies like Vanguard from acquiring more than $10 million in securities of a utility without commission authorization.

In 2019, the commission granted Vanguard a blanket authorization to acquire up to 20% ownership in aggregate by Vanguard and its affiliates and subsidiaries or up to 10% ownership by any individual Vanguard fund. The commission said it was relying on Vanguard’s assurances that it would not invest “for the purpose of managing” utility companies or seek to “exercise any control over the day-to-day management” of them.

“Now, Vanguard’s own public commitments and other statements have at the very least created the appearance that Vanguard has breached its promises to the commission by engaging in environmental activism and using its financial influence to manipulate the activities of the utility companies in its portfolio,” the AGs said. They asked the commission to hold a hearing to determine whether Vanguard has violated the 2019 authorization and whether granting it an extension is in the public interest.

In February, Vanguard asked FERC to extend the initial three-year authorization for another three years.

Vanguard did not respond to a request for comment Wednesday.

The AGs cited Vanguard’s 2021 decision to join the Net Zero Asset Managers Alliance, nearly 300 asset managers who pledge to work together to “accelerate the transition towards global net zero emissions” and to prioritize “the achievement of real economy emissions reductions within the sectors and companies in which [it] invest[s].”

The states also pointed to Vanguard’s membership in the Ceres Investor Network, which works with “investors around the world to accelerate action on climate change.” Vanguard has told its portfolio companies that it will support shareholder proposals requiring the pursuit of climate risk mitigation targets, the states say.

They noted that Berkshire Hathaway’s PacifiCorp, which serves Utah, currently gets 20% of its energy from coal or natural gas. “Consumers in Utah would be harmed if their costs went up because of closure of these facilities or substitution of more expensive energy sources,” they said.

“We are concerned that Vanguard’s actions with respect to influencing environmental corporate policy — especially in combination with the stated motives of [money managers] BlackRock and State Street Global Advisors — will inflate the rates consumers and our states pay for electrical service.” (See BlackRock to Divest from Coal Companies.)

Extension Sought

Vanguard’s request to extend the 2019 waiver also asked FERC to exclude from the 10% and 20% limits securities of utilities in portfolios managed by unaffiliated external advisers.

On Aug. 8, the Office of Energy Market Regulation extended the 2019 authorization for nine months, prompting a critical joint statement from Republican commissioners James Danly and Mark Christie, who noted that Vanguard’s assets under management have increased from about $5 trillion to $8.5 trillion since the 2019 order.

“Vanguard’s application raises a number of issues that demand commission scrutiny because Vanguard could potentially exercise profound control over the utilities it owns,” they said. “The commission cannot merely rubber stamp requests for blanket authorizations if it is to carry out its statutory duty to ensure that the accumulation of such substantial equity in utilities is not contrary to the public interest. Should a company like Vanguard seek to influence the management and operation of utilities’ generation portfolio, for example, this could have a significant impact on the rates consumers pay for electrical service.”

‘Woke’ or Not?

In addition to the challenge by the AGs in conservative states, Vanguard’s climate policies have also attracted protests by climate activists such as the Earth Quaker Action Team, which says the fund manager is “the world’s largest investor in coal and #2 investor in major climate-harming projects across the globe.”