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State AGs Accuse Vanguard of Pressuring Utility Companies Over Climate

Thirteen state attorneys general are asking the Federal Energy Regulatory Commission (FERC) to hold a hearing about the actions of Malvern-based investment company Vanguard toward utility companies in which it has invested.

The states, whose utilities use coal and natural gas, accuse Vanguard of kowtowing to climate activists to actively manage utilities it invests in to move away from fossil fuels to renewable energy, raising utility bills for consumers in those states.

In their complaint, the attorneys general for Utah, Indiana, Alabama, Arkansas, Kentucky, Louisiana, Mississippi, Montana, Nebraska, Ohio, South Carolina, South Dakota, and Texas allege Vanguard has gone back on its 2919 promises to FERC not to interfere with the management of these utilities. They ask that FERC hold a hearing rather than simply agreeing to approve Vanguard’s latest request for a three-year approval for an extension of its investments in utility companies.

A spokeswoman for Attorney General Josh Shapiro did not respond when asked if his office plans to join the complaint. Pennsylvania utility companies also use natural gas. And Pennsylvania produced some 7.6 trillion cubic feet of natural gas from the Marcellus Shale in 2021, second only to Texas, according to the U.S. Energy Atlas. The state is also third for coal production. It is also the second-highest exporter of energy to other states after Texas.

Vanguard has also been the subject of climate change protests.

“Vanguard, pursuant to its environmental commitments, has taken actions through its stewardship, engagement, and proxy-voting strategies to control the day-to-day operations of its portfolio utility companies in violation of the 2019 Authorization. For example, in its own publications, Vanguard warns its portfolio companies that it will support shareholder proposals that require the pursuit of climate risk mitigation targets and disclosure of greenhouse gas emissions or other climate-related metrics,” the complaint said.

“Vanguard also engages companies in carbon-intensive industries to have risk mitigation targets that are aligned with the Paris Agreement and disclosure of progress against those risk-mitigation targets,” the complaint said.

Further, the complaint said, “Vanguard’s environmental mandates impose costs on its portfolio companies, and it is highly plausible that those costs are passed on to consumers directly or indirectly by hampering access to capital or foreclosing certain revenue-generating opportunities. A holding company of Vanguard’s size and influence should not be overlooked; to do so would be an abdication of the Commission’s statutory duty to safeguard the energy markets.

“Finally, we note that in joining (climate activist groups) NZAM and Ceres, Vanguard has engaged (and promises to continue to engage) in organizations that coordinate conduct with other major financial institutions, including BlackRock and State Street, to impose net-zero requirements on publicly traded utilities. This group effort to control day-to-day operations of public utilities raises serious concerns about the continuing efficacy of the 10 percent and 20 percent ownership limits imposed by the 2019 Authorization and the Office of Energy Market Regulations’ nine-month extension order.”

“As an investor-owned asset manager, Vanguard’s role is to promote long-term value creation for investors in our funds, leaving management and policy decisions to companies and policymakers. We look forward to working through the regulatory process,” said Alyssa Thornton, a spokeswoman for Vanguard.

Previously, she told Delaware Valley Journal, “Vanguard considers climate change to be a fundamental risk to many companies and their shareholders’ long-term financial success. As an investment manager and steward of our clients’ assets, we have a responsibility to ensure investors are aware of material risks, and that portfolio companies are taking the appropriate steps to manage and mitigate those risks on behalf of their shareholders.

“As such, we continue to address climate change risk by engaging with the companies held in our funds on their climate risk oversight, mitigation, and disclosures; through thoughtful investment products that help investors manage certain climate-related risks and opportunities; and, through engagement with policymakers, regulators, and other industry participants,” she said.

When asked to comment, Douglas Pyle, co-founder of Radnor Capital Management, said it is not unusual for investment firms to cater to clients’ wishes as far as avoiding certain industries. In the past, those shunned groups tended to be alcohol, tobacco, and firearms manufacturers. Now fossil fuels are deemed unacceptable by some investors.

“We have managed a lot of ‘socially responsible’ money, but the clients came to us and said, ‘Here are the things that we find objectionable,’” said “Pyle. “So, we would do it, but we would not do it for all of our clients, whether they wanted it or not.”

Pyle noted that investors can pull their money, which the state of Florida just did, withdrawing $3 billion from the investment firm Blackrock.

Asked if Vanguard has a fiduciary duty to make money for its clients rather than focusing on climate change activism, Pyle said, “I would say yes. But they must have alternatives for regular investment funds where that’s not a priority versus putting everybody into something that has those guidelines.”

With a workforce of more than 8,000 people, Vanguard is the largest employer in Chester County.

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Is Aqua’s ‘No Rate Hike’ Pledge a Hollow Promise?

As the complex legal and political battle over the future of the Chester Water Authority rages on, most CWA customers are focused on one simple question:

What about my rates?

Aqua America has made a $410 million bid for the water authority’s assets. They are pledging to keep the 200,000 current CWA customers’ rates flat for a decade. Make the deal, Essential Utilities Chairman and CEO Chris Franklin told Delaware Valley Journal, and “there will be no movement in what the customer pays.”

Not so fast, says the CWA’s attorney Frank Catania.

“Aqua can’t promise not to raise rates because Aqua doesn’t set the rates. The PUC [Public Utility Commission] does.”

And this is where the debate over the impact to ratepayers of the city of Chester’s attempt to sell the CWA gets complicated. The story also highlights the fact that, in the end, there is no certainty about future rates under the Aqua deal.

It all comes down to another simple question: Who can ratepayers trust?

Catania says it’s not Aqua. “If Chester sells to Aqua, it’s not a matter of ‘if’ there will be higher rates, but ‘when,” Catania told DVJournal.

“To my knowledge, we’re the only bidder who has said what rates will look like for the next decade – no other utility in the entire country has done that,” Franklin responds. “Has Chester Water made a similar pledge?”

But “no new rate hikes” is a much easier promise to make than it is to keep. Particularly in the case of Aqua and the CWA.

Aqua has been on a buying spree across Pennsylvania, snatching up sewer and water systems under a 2016 law known as Act 12. This law lets investor-owned utilities charge ratepayers for the appraised fair-market value of the assets. Aqua currently provides water service to nearly 450,000 customers in 32 Pennsylvania counties and wastewater service in 15 more.

As Aqua raises rates to cover its costs, the rates of its previous customers come into play under a policy known as “single tariff pricing.” Its premise is that similar customers should pay similar prices for similar services — a situation that absolutely wouldn’t exist for other Aqua’s customers in the CWA service territory.

“Our rates are one-third to one-half those of Aqua,” Catania says. “The PUC isn’t going to let one set of Aqua customers pay rates half as high as others in the same territory.” The CWA is scheduled to raise rates in 2022 for the first time in 11 years.

It’s an issue at the heart of a complaint filed on September 13 by the Office of Consumer Advocate regarding Aqua’s current request for a rate increase.

“Aqua has base rate cases for both water and wastewater pending before the [PUC] right now, and the OCA filed a complaint and is an active party in those cases,” Interim Acting Consumer Advocate Christine Hoover told DVJournal.

“The goal is to move customers towards the cost of service, Hoover said. “If there are relatively lower rate customers, but their cost of service is much higher, then the goal is to move them towards that cost service in each case.”

And part of that cost is determined by what the company, in the case of Aqua, pays for the water system. “The revenue requirement is driven by the purchase price, the rate-making rate base in a fair market value acquisition,” Hoover said.

This means higher rates under Aqua, the CWA and its allies argue. “Aqua can say ‘we’re not going to raise your rates for ten years,’ but what that really means is we’re going to take 10 years to get you up to single tariff pricing,” said Catania. “And if the PUC says, ‘no, that’s not OK, you’ve got to do it in three years because it’s unfair to other customers,’ then Aqua can say, ‘well, we didn’t want to raise your rates yet, but there’s no choice and it’s not our fault.’ And everyone is stuck paying higher rates.”

Aqua says they have the answer:  “The city of Chester will take part of the $410 million [purchase price] and put it in a rate stabilization fund,” Franklin said. “There will be no movement in what the customer pays.”

Hoover said she is unaware of any similar workaround as part of a transaction approved by the PUC and declined to speculate about the viability of such an approach. But if rates are half those of similar Aqua customers and CWA is currently collecting $42 million in revenue, filling that gap would in theory be $420 million over the next decade — more than the entire offer Aqua has made.

There’s no reason to believe the PUC would immediately double anyone’s rates — indeed, it would violate their strategy of avoiding rate shock — but gradually raising rates over a decade would still mean tens of millions of dollars from the stabilization fund, and rising with every rate increase.

Meanwhile, current Aqua customers are looking at rate hike requests ranging from 20.49 percent in Bensalem to an 86 percent increase in Sun Valley. It’s part of Aqua’s systemwide 17.86 percent increase currently before the PUC.

Aqua points to its high level of customer service —  more than 300,000 water quality tests per year — and the fact that it’s a local company that’s been part of the community for more than a century.

“We’ve been around as community partners for 135 years,” Franklin said. “We can make necessary investments to make Chester Water a very strong, viable water system.” And, Franklin said, the company is pledging to keep all the Authority’s employees, with commensurate pay and benefits.

Good news for the workers, but it also adds to the costs.

Asked to provide an example of a similar rate stabilization fund that successfully met a “no rate hikes” pledge, an Aqua spokesperson said via email: “A similar rate stabilization fund was formed by DELCORA (the Delaware County Regional Water Quality Control Authority) as part of its asset purchase agreement with Aqua in 2019.”

How well that fund will work has yet to be tested.

“They’ve never been able to hold to a rate agreement in place,” Catania said. “Never. Not even once. They make these promises and then the PUC lets them get away with not honoring them.”

Catania says the fundamental problem is that the focus of this deal between Aqua, the city of Chester, and the Department of Community and Economic Development is the city’s ongoing fiscal crisis. Chester is desperate for cash and the DCED is desperate to keep the city from falling off a pension-fund financing cliff.

“The DCED is trying to help out the government of the city of Chester,” Catania said. ‘We’re trying to help out the ratepayers. They’re our priority.”