Three reasons we're worried about the acquisition of Minnesota Power

As we have previously discussed, ALLETE, Inc. (the company that owns local utility Minnesota Power) has reached a deal to be acquired by two large, private investors: the Canada Pension Plan Investment Board (CPP) and Global Infrastructures (GIP). GIP itself is wholly owned by the global investment firm BlackRock. This article provides an update on where things stand today. 

Before Minnesota Power can be sold, the transaction must be approved by the Minnesota Public Utilities Commission (PUC). Last July, ALLETE, GIP, and CPP submitted a joint petition requesting the PUC’s approval. In the months since, several parties have reviewed the petition in greater detail – often with the help of consultants with deep expertise in mergers and acquisitions, private equity, and utility regulation. Outside experts hired by the Minnesota Department of Commerce, a group of large industrial customers of Minnesota Power, CUB, the Sierra Club, and the nonprofit CURE each filed testimony that recommended the Commission reject the deal. An internal expert at the Minnesota Office of the Attorney General was also highly critical of the proposed sale. Some labor unions have been more supportive—though even some of that support has been tepid as union leaders await firmer commitments from the petitioners to continue employing local union labor moving forward. 

Having read through the various parties’ analyses, here is an update on CUB’s latest concerns about the proposed acquisition. 

The petition is light on facts and enforceable commitments regarding access to capital. 

In order for the proposed acquisition to be approved, Minnesota Power, CPP, and GIP have the burden to prove it is consistent with the public interest. So far, the companies’ main argument is that ALLETE will have an easier time raising the funds needed for Minnesota Power to meet the new requirement that Minnesota electricity reach net-zero carbon emissions by 2040. It is true that ALLETE will need to make significant investments to achieve these goals and to otherwise meet increasing demand for electricity. For the purposes of this case, the issue is not whether ALLETE will need to raise significant funds to make those investments, but rather whether ALLETE’s ability to do so would be improved under the private ownership structure proposed in the petition—and improved so much that the potential benefits of that improvement outweigh any potential risks arising from the new ownership structure. 

Several witnesses pointed out that ALLETE has not shown it lacks access to capital now. As a publicly traded company, ALLETE currently raises equity capital by selling stock via public markets—where hundreds or thousands of investors (including BlackRock and many other institutional investors) have historically been willing to provide it.  

If the acquisition is successful, ALLETE will become a private company, meaning it will no longer have access to public markets and will rely solely on two institutional investor-owners for its capital needs. The companies have provided no evidence that CPP and GIP would be obligated to provide ALLETE the capital it needs, when it needs it. This creates the risk that the buyers could withhold their approval of certain decisions—or withhold providing capital—if Minnesota Power is not operating consistent with their expectations. 

Potential risks to consumers outweigh potential benefits. 

Under the deal, CPP and GIP would acquire ALLETE for a considerable premium. The buyers have agreed to pay $6.2 billion ($67 per share). This is much higher than what ALLETE was worth before the deal was announced.  

The buyers claim they will not attempt to recover this premium from Minnesota Power customers. They will, however, need to recover that premium from somewhere in order to cover the costs of the acquisition and earn a return on their investment. Minnesota Power is ALLETE’s largest source of revenue. It will be difficult for the buyers to recover their acquisition premium entirely from revenue produced by smaller, unregulated ALLETE businesses. We worry that the buyers’ efforts to earn a return on their investment will require significant rate increases for Minnesota Power’s customers. 

If the investors find their investment in ALLETE is not performing to their satisfaction, they may try to sell off that underperforming asset. Doing so would put the PUC, consumer advocates, and Minnesota Power customers between a rock and a hard place. On one hand, if the buyers retain ownership of an asset they no longer want to own because it is underperforming, they may try to cut costs like customer service, tree trimming, or other spending that does not provide a return for shareholders but is necessary for a well-functioning utility. On the other hand, if the buyers move to quickly re-sell ALLETE due to perceived underperformance, other potential buyers may be less eager to buy it. This could put ALLETE and Minnesota Power into a more precarious situation. Re-selling ALLETE would again require the PUC’s approval, meaning the PUC, government agencies, and other advocates would have to repeat this resource-intensive regulatory process under potentially more dire circumstances. 

In addition to the above concerns, both buyers hold (either directly or through investment funds they manage) significant financial interests in many other companies that do business directly with Minnesota Power and/or work in utility-adjacent fields. This is particularly true of GIP, which is now owned by BlackRock, the world’s largest asset manager. This creates potential conflicts of interest, where the buyers could be motivated to make decisions impacting ALLETE that favor their direct interests, or their fund investors’ interests, elsewhere—potentially in ways that harm or increase costs for Minnesota Power and its customers. At the very least, the sheer size of GIP and BlackRock would make it extraordinarily complicated for Minnesota Power to report and other parties to review “affiliated interest” filings required under Minnesota law.  

The petitioners have not publicly shared important details about their future plans. 

Finally, several parties have raised concerns about the partners’ lack of transparency sharing their forward-looking plans. Many of the details of those plans are hidden from public view behind trade secret designations. And, in some instances, CPP and GIP have redacted information they claim is privileged without following appropriate legal procedures for doing so. It makes it harder for the public to understand the potential pros and cons of the proposed transaction when they do not have access to information hidden from public view. It also makes it more challenging for advocates like us—and, ultimately, the PUC—to explain to the public why we take certain positions on whether the proposed transaction is consistent with the public interest. Finally, it sets a bad tone for how the companies will work with stakeholders, government agencies, and the PUC in the future. If they are reluctant to publicly disclose information now when it is in their interest to earn stakeholders’ support, we can only assume they will be even more reluctant to do so if the transaction is approved. 

What comes next? 

The contested case process is still far from over. Over the coming months, parties in the case will provide additional testimony and legal briefs to the judge overseeing the case. In mid-July, the judge will issue a detailed summary of the facts and arguments along with recommendations for what actions the PUC should take. The PUC has ultimate authority to decide whether to approve or deny the petition—and even an approval may be subject to significant modifications or conditions. 

How to participate 

In person 

The judge has scheduled several public hearings in early April, where anyone can attend and make their voices heard:  

In writing 

Anyone interested in submitting a written comment can do so by following the PUC’s instructions here. If you submit a comment, be sure to reference PUC Docket Number 24-198, and know that everything included in your comment will become part of the public record. 

Keep an eye on our website—and sign up for our newsletter—for additional updates as we work through this process.