Federal Energy Regulatory Commission finds BlackRock/GIP merger application “deficient”

A proposed merger of asset manager giant BlackRock and private equity firm Global Infrastructure Partners (GIP) is currently under review by the Federal Energy Regulatory Commission (FERC.) This $12.5 billion deal would be BlackRock’s largest acquisition in 15 years and would significantly expand BlackRock’s direct control over energy infrastructure assets, materially shifting BlackRock’s management orientation from a passive investment manager to an active owner of energy infrastructure.

On June 5, FERC replied to the application with a “Deficiency Letter” filing, outlining seven key areas in which BlackRock and GIP’s application is deficient. BlackRock and GIP must now respond to these issues in order for FERC to evaluate whether the proposed merger can continue.

The issues raised by FERC focus on the effects that this merger could have on competition and the specific “blanket authorization” that BlackRock is currently operating under, which allows it to own up to 20% of the voting shares of public utilities. The FERC deficiency letter asks Blackrock and GIP to explain whether the merger is “consistent with the facts and circumstances the Commission relied upon in granting the blanket authorization” to Blackrock. Global Infrastructure Partners is seeking to acquire a utility holding company even as Blackrock retains large stakes in several other utilities.

As a joint Private Equity Stakeholder Project (PESP) and Public Citizen protest points out, on May 6 GIP announced it is acquiring ALLETE, the holding company that controls Minnesota Power and Superior Water, Light and Power Company—two public utilities with more than 165,000 captive customers. BlackRock controls 13.1% of Allete’s voting shares as well as significant stakes in several other utilities. The PESP/Public Citizen protest notes that “The application is silent on how BlackRock can simultaneously manage its passive ownership of voting shares of utilities that compete with its active, direct holdings—an income prioritization conflict for BlackRock that threatens competition, rates and regulation.”

“This transaction would triple the infrastructure assets that BlackRock actively manages and could lead to substantially more active management (e.g. ALLETE acquisition) as Blackrock pursues its ambitions to grow its infrastructure business,” said Alissa Jean Schafer, Climate Director at the Private Equity Stakeholder Project. “A merger of this size and type deserves careful scrutiny.”

The PESP/Public Citizen joint protest calls for FERC to conduct an evidentiary hearing in order to effectively evaluate the complex ways in which a combined BlackRock-GIP threatens competition. The deficiencies raised in this week’s response to BlackRock and GIP from FERC underscore the need for that hearing.

Sierra Club has also filed a protest against the merger. Citizens Utility Board of Minnesota and the Citizens Utility Board of Wisconsin, two consumer advocate nonprofits currently in ALLETE’s service territory, have joined as interveners as well.