Minnesota Public Utilities Commission decides on procedure for addressing private acquisition of Minnesota Power
On May 6, 2024, ALLETE, Inc. (the company that owns Minnesota Power, an electric utility serving northern Minnesota), 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. I previously wrote about CUB’s early assessment of this plan.
Here I offer some updates on my earlier post. My comments are broken into two sections. First, I discuss how the Minnesota Public Utilities Commission (PUC) is addressing these proposed transactions. Then I discuss how the Federal Energy Regulatory Commission (FERC) is addressing them.
The Role of the Minnesota Public Utilities Commission
On July 19, 2024, GIP, CPP, and ALLETE filed a petition with the PUC seeking it’s approval of the proposed acquisition. (See PUC Docket No. E-015/PA-24-198.) On July 23, the PUC issued a notice requesting comments on the petition and recommendations on how, procedurally, the petition should be addressed. Numerous parties responded to this notice, including CUB; the Minnesota Department of Commerce (the Department); the Minnesota Office of the Attorney General (OAG); a consortium of Minnesota Power’s large power customers (the Large Power Intervenors, or LPI); low-income advocate, Energy CENTS Coalition (ECC); several labor organizations; and a rural environmental and democracy advocate, CURE. While each party offered differing perspectives on the petition, some common threads emerged amongst multiple parties.
Applicable Legal Standard
First, several parties discussed the legal standard the PUC must apply when determining whether to approve or deny the proposed acquisition. According to Minnesota law, if the PUC finds that the proposed acquisition “is consistent with the public interest it shall give its consent and approval by order in writing.” In our (and several other parties’) view, the PUC cannot determine the acquisition is consistent with the public interest merely by assessing whether it is in the business interests of ALLETE, Inc. and those seeking to acquire it. Such a determination must also consider the interests of ratepayers who rely on Minnesota Power’s electric service for their daily needs.
Contested Case Proceeding
Second, several parties recommended that the PUC refer the petition to the Minnesota Office of Administrative Hearings (OAH) for a contested case proceeding before an administrative law judge. The PUC typically makes such a referral when a matter is particularly complex, novel, and/or involves a significant amount of utility or ratepayer funds. This docket checks each of those boxes: it is relatively rare for a regulated utility company to be acquired, particularly by a private partnership. As discussed above, determining whether such a transaction is “consistent with the public interest” may involve a broad analysis of applicable facts and law. And the proposed acquisition involves a significant, $6.2 billion price tag. (This is the amount the investors have agreed to pay to ALLETE shareholders.)
Conflicts of Interest
Third, some parties raised concerns about potential conflicts of interest that arise when an investor has significant financial interests in both a utility and in other businesses that enter into contracts with that utility. For example, if an investor owns a significant interest in both an electric utility and a data center that uses large amounts of electricity, the investor (in theory) could push the utility to sell electricity to the data center at a lower price than is reasonable or fair to the utility’s other customers. To protect against these sorts of conflicts, Minnesota law generally prohibits utilities from entering into a contract with an “affiliated interest” unless that contract is approved by the PUC. “Affiliated interest” is defined broadly and may include other companies held in GIP’s, CPP’s, and/or BlackRock’s portfolios.
BlackRock’s Role
Finally, several parties raised concerns about whether and how BlackRock’s pending acquisition of GIP will affect a judge’s and/or the PUC’s review of the acquisition. If both the GIP/CPP acquisition of ALLETE and the BlackRock acquisition of GIP are approved, then BlackRock will end up owning (at least indirectly) around 60 percent of ALLETE.
We have a few broad concerns about this. First, it is procedurally awkward for these two acquisitions to be happening concurrently. In its Petition, Minnesota Power says relatively little about BlackRock’s pending acquisition of GIP and argues that transaction is mostly irrelevant to the PUC’s decision to approve the GIP/CPP acquisition of ALLETE.
We generally disagree with this argument. It would be an inefficient use of the PUC’s resources (along with the many stakeholders involved in this docket) to assess whether GIP/CPP’s ownership of ALLETE is consistent with the public interest when GIP’s own ownership structure is subject to significant change. Second, with over $9 trillion in assets under management, BlackRock owns a stake in numerous companies around the world, including many of the large industrial customers that receive electric service from Minnesota Power and other companies involved in the generation and transmission of electricity. If BlackRock increases its ownership interest in ALLETE, the concerns about potential conflicts and the “affiliated interests” discussed above become more complex.
We are also concerned that the interests of Minnesota Power ratepayers will become easier to overlook as ownership and control of ALLETE becomes more concentrated amongst powerful, global entities headquartered outside of Minnesota. Minnesota Power currently provides the largest revenue stream for ALLETE Inc.’s family of companies, meaning ALLETE’s leadership is inherently interested in ensuring Minnesota Power operates successfully—both financially and in terms of how Minnesota Power engages with, and is perceived by, the communities it serves. If the BlackRock acquisition of GIP and the GIP/CPP acquisition of ALLETE are both successful, the majority ownership interest in Minnesota Power/ALLETE will become a relatively tiny asset held in BlackRock’s vast, global portfolio. We simply don’t know what consequences, if any, this will have for Minnesota ratepayers and the rural communities receiving services from Minnesota Power.
CUB intends to look further into these, and other, questions during the contested case hearing. We have engaged an expert witness, Scott Hempling, to assist in this review. Mr. Hempling is a renowned expert in this area and has testified in numerous regulatory proceedings involving utility mergers and acquisitions.
The Role of the Federal Energy Regulation Commission
Meanwhile, the transactions described above are also subject to the review and authorization of the Federal Energy Regulatory Commission. FERC already reviewed and authorized BlackRock’s acquisition of GIP. They are currently in the process of reviewing GIP’s/CPP’s acquisition of ALLETE.
BlackRock’s Acquisition of GIP - FERC Docket No. EC24-58-000
On September 6, 2024, FERC issued an order authorizing BlackRock’s acquisition of GIP. In doing so, FERC was (apparently) not persuaded by protests some parties raised regarding BlackRock’s growing influence in the energy and utility sectors. (See my prior post for a summary of those protests.) However, the authorization acknowledged concerns regarding GIP’s acquisition of ALLETE and noted those issues would be addressed in a separate FERC proceeding. Also, FERC Commissioner Mark Christie issued a noteworthy concurring opinion that raised interesting perspectives on what it would mean for an entity like BlackRock to expand its ownership of regulated utilities:
The influence that large shareholders, BlackRock or otherwise, can potentially exert across the consumer-serving utility industry should not be underestimated. 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[.]
Commissioner Christie further notes that public utilities “are not typical for-profit, shareholder-owned companies.” Rather, they are “holders of a state-granted monopoly franchise that comes with various public service obligations, such as providing reliable power service at rates that are just and reasonable.” He concludes his concurrence by noting it is the responsibility of all utility regulators to make sure “money is not being needlessly extracted from consumers’ pockets through exercises of market power” that large, powerful investment companies like BlackRock wield in the marketplace.
GIP/CPP Acquisition of ALLETE - FERC Docket No. EC24-105-000
Meanwhile, on July 19, 2024, ALLETE filed a petition with FERC seeking its authorization of GIP’s/CPP’s acquisition of ALLETE. ALLETE argued the transaction is “consistent with the public interest,” largely because it will not have an adverse effect on competition, utility rates, or the regulation of Minnesota Power. ALLETE also argued “the Proposed Transaction will provide significant benefits to ALLETE and its customers by providing ALLETE with access to additional financing flexibility to further support its commitment to provide affordable, reliable, and increasingly clean energy to its customers.”
We are hopeful that ALLETE’s assurances about the transaction will prove true. However, we believe it is important for FERC to closely review the terms of the transaction and to identify potential risks it creates for ratepayers and others likely to be affected by the transaction. We are particularly hopeful FERC will heed Commissioner Christie’s call to make sure “money is not being needlessly extracted from consumers’ pockets through exercises of market power.”
On September 17, 2024, CUB filed a motion to intervene in this FERC proceeding. At this point, our intervention simply identifies CUB as a party interested in the outcome of the proceeding, and preserves our ability to file comments, should FERC request them. Other parties to this docket, including LPI (the consortium of large industrial customers of Minnesota Power), filed protests recommending that FERC take a closer look at certain details and impacts of the acquisition.
We look forward to tracking this proceeding and potentially becoming further involved in it, should the opportunity arise.
What comes next?
Soon, the Minnesota PUC will issue an order formally referring the Minnesota docket to the OAH for a contested case proceeding. After that referral is made, parties to the contested case will meet with the assigned judge to work out a case schedule. In the meantime, the PUC ordered Minnesota Power to supplement its petition with additional information. We expect Minnesota Power to file that in early October. Minnesota Power will then file direct testimony from its own experts further explaining the proposed transaction and supporting Minnesota Power’s request for its approval.
We, along with our expert witness, will be reviewing this information in the coming weeks and will be filing our own testimony analyzing the acquisition and reacting to Minnesota Power’s arguments and recommendations. The PUC expects the judge assigned to the contested case to return a report explaining the judge’s analysis and recommendations by July 2025. Though that report will inform the PUC’s analysis of the acquisition, it will ultimately be up to the PUC to decide whether or not to approve it. That decision will likely come next fall.
Members of the public will also have opportunities to make their voices heard throughout this process. The judge overseeing the contested case will likely schedule public hearings on this matter, and anyone interested in submitting a written comment can do so by following the PUC’s instructions here. (If you do submit a public comment, be sure to reference PUC Docket Number E-015/PA-24-198, and know that everything included in your comment will become part of the public record.)
Meanwhile, we will continue to track the FERC process that is simultaneously underway to address federal authorization of the CPP/GIP acquisition of ALLETE.
Keep an eye on our website for additional updates, and sign up for our newsletter to keep track of ALLETE, Inc.’s acquisition of Minnesota Power.