BlackRock, Canadian Pension Plan to co-own Minnesota Power – is that a good thing? 

On May 6, 2024, ALLETE, Inc. (the company that owns Minnesota Power), issued a press release announcing its plan to be acquired by two large, private investors: the Canada Pension Plan Investment Board (“CPP Investments”) and Global Infrastructure Partners (“GIP”). Meanwhile, GIP is in the process of being acquired by BlackRock, the world’s largest asset manager. This is a big deal—both financially and historically. The vast majority of regulated, investor-owned utilities operating in the United States are public companies or subsidiaries of public companies. Private ownership raises interesting, complex questions for the Minnesota Public Utilities Commission (PUC), Minnesota Power ratepayers, host communities, and other stakeholders interested in or affected by the outcome of this transaction. This blog post provides an overview of what we know about this transaction and questions and concerns it raises for us. It also describes the role CUB plans to play as ALLETE and its new partners seek regulatory approval of the acquisition.  

What is the difference between a public company and a private company? 

Public companies and private companies are treated differently under federal and state securities regulations.  

Public companies are subject to more stringent public disclosure and reporting requirements. Anyone can review a public company’s highly-detailed securities filings on the Securities and Exchange Commission’s (“SEC”) EDGAR system (and often on a public company’s own website) and use that information to inform their decision on whether to buy, hold, or sell a financial interest in the company. Securities filings can also be helpful to advocates like CUB, as they help us review and understand the business decisions and financial health of a utility, its corporate parent, and affiliated companies. Shares of public companies are also traded on public securities exchanges. This often means that a variety of shareholders influence company decisions that are subject to shareholder approval. 

Private companies are subject to less stringent public reporting/disclosure requirements. This can make their business operations much less transparent to the public. Shares of private companies are not traded on public securities exchanges, meaning they are typically held by a smaller number of shareholders. This concentrates voting power and decision-making authority among fewer individuals or entities. 

What we know now about the investors and their plan to acquire ALLETE 

The Canada Pension Plan Investment Board was established in 1997 to oversee and invest the funds held by the Canada Pension Plan. As of March 31, 2024, CPP Investments manages over $462.5 billion in assets on behalf of 22 million Canadians. According to its website, CPP Investments holds “a diversified portfolio primarily comprised of long-term tangible assets, including renewable energy sources such as wind, solar and hydro, as well as conventional power, upstream oil and gas, energy midstream, carbon capture and Liquefied Natural Gas.”  

Global Infrastructure Partners is a private equity fund headquartered in New York City and with 10 offices around the world. GIP has approximately $106 billion in assets under management and has large holdings in energy and transportation infrastructure. 

BlackRock, Inc., is an asset management firm headquartered in New York City and with offices in 38 countries around the world. It is the world’s largest asset manager, with $10 trillion in assets under management. BlackRock has significant holdings in traditional and renewable energy resources. BlackRock already owns around 13% of ALLETE’s shares. 

ALLETE has entered into an agreement with CPP Investments and GIP, whereby the latter entities plan to purchase the entire ALLETE company for $6.3 billion. Under the agreement, GIP would own about 60% of ALLETE, and CPP Investments about 40%. Meanwhile, GIP is, itself, in the process of being acquired by BlackRock. If both acquisitions are successful, BlackRock will end up owning 60% of ALLETE. 

Before the acquisition of ALLETE can be completed, it is subject to the approval of ALLETE’s existing shareholders, and various state, federal, and international regulatory agencies. (BlackRock’s acquisition of GIP is similarly subject to approval by a number of regulatory agencies.) These regulatory processes are designed to ensure ALLETE's acquisition is in the public interest. This involves analyzing the impacts of the sale on rates, regulation, and competition, among other considerations. The acquiring entities represent diverse interests, and their role in the purchase will be carefully evaluated. 
 

Questions this raises for us 

Below are several questions that have arisen for CUB as we consider the consequences of this acquisition. 

How will this acquisition affect Minnesota Power’s rates?   

A primary concern for CUB is uncertainty over whether/how this acquisition will affect Minnesota Power’s rates. Sophisticated, powerful institutional investors may have an incentive to try to increase rates to generate a higher return on their investment. Because they are not located in Minnesota, they may have less appreciation for the unique challenges affecting ratepayers and communities in northern Minnesota. We are generally concerned that Minnesota Power, under new ownership, will push for more and/or more significant rate increases in the future. 

Will Minnesota Power maintain positive working relationships with advocates and host communities? 

In a public agenda meeting before the PUC earlier in May, Minnesota Power’s CEO and regulatory staff assured the PUC that it intends to continue business as usual at Minnesota Power, and that Minnesota Powers existing staff will continue to operate out of Duluth. Minnesota Power also sought to assure the PUC and the public that the acquisition will not negatively impact the relationships Minnesota Power has developed with stakeholders and local communities, nor the commitments it has made regarding its affordability programs and clean energy transition. Finally, Minnesota Power has suggested that the acquisition will benefit the utility (and by extension, its ratepayers) by allowing it to have better access to capital to fund planned investments. 

We appreciate these early comments from the utility, and are hopeful these assurances will prove true. However, we intend to review the acquisition with a healthy skepticism in order to advocate for ratepayers’ interests and help hold Minnesota Power accountable along the way. 

How will the acquisition inform future return on equity determinations? 

CUB has recently pushed back on utilities’ proposals to increase their authorized return on equity (“ROE”) in rate cases. The authorized ROE is an important factor in determining how much a utility can collect from customers in rates to generate profits. It is well established that utilities are permitted to earn a reasonable return that allows it to attract capital, maintain financial integrity and creditworthiness, and compete with its peers.  On the other hand, an ROE cannot be so high as to disregard ratepayers’ interests in paying affordable rates. 

As noted above, Minnesota Power has indicated that the acquisition will provide ALLETE and Minnesota Power with more ready access to capital. If so, that access to capital should inform future determinations on what ROE is appropriate for Minnesota Power.  

How will foreign ownership affect Minnesota Power’s operations? 

The U.S., generally, and Minnesota, specifically, obviously have a strong relationship with Canada. Nevertheless, foreign ownership of a regulated utility introduces new questions and challenges. For example, what regulatory approvals are needed from Canadian regulators, and how will those processes differ from and affect U.S. federal and state regulatory decisions?  What other concerns may come from foreign ownership? 

How will ALLETE and its new owners manage conflicts of interest? 

CPP Investments, GIP, and BlackRock each own assets in numerous companies—including some that may do business with Minnesota Power. This may create incentives for the investors to push Minnesota Power to select and pay third-party vendors in a way that benefits the investors, then seek recovery of those costs through rates. This could create a windfall for the investors, funded by Minnesota Powers ratepayers. How will the regulated utility manage that potential conflict in a way that ensures ratepayers do not end up paying more than they should?  

Will ALLETE’s corporate structure change? 

Minnesota Power is currently an “operating division” of ALLETE, Inc., and not a separate subsidiary. We assume the organizational structure of ALLETE will change as part of the acquisition. We are curious to see what changes will take place and how voting and financial rights in the regulated utility will be structured. There may be good reason to separate the regulated utility function of the ALLETE business from other, unregulated functions. Doing so could, in theory, help insulate Minnesota Power from some of the concerns raised above. On the other hand, we are concerned that sophisticated lawyers will devise a complex legal structure that renders Minnesota Power’s decision-making and financial rights less transparent. We will be looking, for example, to see if Minnesota Power’s officers need board approval to make certain decisions. And, if so, who will serve on that board, and who will have authority to appoint or remove board members in the future?  

Will BlackRock have too much control over the energy/utility sector? 

There is growing concern that BlackRock has too much power and influence due to its enormous size. For context, the amount of assets under BlackRock’s management ($10 trillion) is higher than the annual gross domestic product of each country in the world, other than the U.S. and China.  

U.S. Senator Bernie Sanders recently submitted a letter to the U.S. Federal Trade Commission and the U.S. Justice Department regarding BlackRock’s acquisition of GIP, noting the acquisition shows that “BlackRock is looking to further concentrate its economic power, which is dangerous for our economy and consumers.”  

The Sierra Club also recently filed protests with FERC regarding BlackRock’s acquisition of GIP, pointing out that BlackRock is the single largest shareholder of Enbridge Energy, one of Minnesota Power’s two pipeline customers. This presents a potential conflict of interest.  

Joint advocates Public Citizen and the Private Equity Stakeholder Project also filed two protests with FERC, noting in the second “BlackRock’s acquisition of GIP, and, in turn, GIP’s purchase of ALLETE, fundamentally transforms BlackRock from the world’s largest passive investor into an entity with active control over significant power market assets, threatening competition, rates and regulation.” 

What comes next? 

ALLETE/Minnesota Power intends to file a petition seeking the PUC’s approval of the acquisition this July. Once it is filed, the PUC will open one or more comment periods—and will perhaps refer the petition to a contested case proceeding before an administrative law judge. CUB intends to be involved in that process to advocate for ratepayers. 

Meanwhile, other approval processes are, or will be, underway in other jurisdictions. CUB has, for the first time in our history, filed a petition to intervene in the FERC docket considering BlackRock’s proposed acquisition of GIP. Our involvement there will initially be as an observer; however, if FERC opens a comment period around how this acquisition will relate to and affect GIP’s role in acquiring ALLETE, we may get more involved. 

There will be future opportunities for interested Minnesotans to file public comments on the acquisition with the PUC. Keep an eye on our blog for updates and more information on deadlines and opportunities to make your voice heard.