FERC on Sept. 6 approved a deal in which BlackRock seeks to buy all the limited liability company interests in Global Infrastructure Management for $3 billion in cash and 12 million shares of BlackRock Funding (EC24-58). 

Global Infrastructure owns or controls 6,937 MW of generation in CAISO, 606 MW in PJM, 463 MW in ISO-NE, 787 MW in SPP and generation outside RTO/ISO markets. The company also is trying to buy 50% interest in North East Offshore, Revolution Wind and South Fork Wind, which are developing offshore wind off the Northeast, and it has investments in FERC-regulated natural gas infrastructure. 

BlackRock is a publicly traded investment management firm that controls gas-fired resources in various parts of the U.S., including 3,374 MW in PJM, 1,042 MW in Arizona and 945 MW in Georgia, as well as other facilities that fall under FERC jurisdiction. 

The application drew a joint protest from Public Citizen, and the Private Equity Stakeholder Project and Sierra Club separately protested it.

The two firms’ capacity overlaps in CAISO and PJM, where, after the deal is completed, BlackRock would control 10 and 2.2%, respectively, of generation in those markets. The percentage in California was high enough to require the applicants to run a delivered price test, which showed the combination lacks a material competitive effect on CAISO’s market. 

The joint protest argued otherwise, saying BlackRock should have to include any utility in which it holds 10% or more voting shares, which represents more than 20 firms. BlackRock said its shares in those firms are covered by an effective blanket authorization from FERC and it does not control them. (See BlackRock Decision Unearths FERC Wariness of Investor Influence on Utilities.) 

FERC agreed with the applicants’ findings that the deal would not impact horizontal market power and agreed that BlackRock does not need to include its investments covered by the blanket authorization in the analysis. 

BlackRock does not exercise any control over those utilities, so it does not need to include their generation in the delivered price test, FERC said. 

The joint protest argued the application is silent on how BlackRock can manage its passive ownership of voting shares of utilities that compete with its active, direct holdings. They argued FERC should conduct a formal reassessment of the blanket authorization as part of its review of the deal with Global Infrastructure. 

FERC said under the blanket authorization, BlackRock agreed it would not exercise control over the day-to-day management of any covered utilities. It would be required to file a separate application if it sought to exercise direct control over the management or operations of a utility outside of that authorization, as it did with the Global Infrastructure deal. 

“We decline to reassess BlackRock’s blanket authorization in this proceeding or to hold a hearing on BlackRock’s blanket authorization at this time,” FERC said. “Questions about the conditions applicable to BlackRock’s blanket authorization are beyond the scope of this proceeding.” 

‘Economic Reality’

Commissioner Mark Christie wrote a concurrence to the order saying he’s long been concerned about huge asset managers like BlackRock seeking to acquire interests in utilities. (See FERC Reconsidering Blanket Authorizations for Investment Companies.) 

“The influence that large shareholders, BlackRock or otherwise, can potentially exert across the consumer-serving utility industry should not be underestimated,” Christie said. “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.” 

BlackRock already owned passive shares in IPPs in California and is expanding its active control over more of them, but FERC cannot examine the issues cited in the protests due to the blanket authorization. 

“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,” Christie said. “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.”