BlackRock’s GIP strives to acquire northern Minnesota utility

PESP submits expert testimony as BlackRock’s Global Infrastructure Partners strives to acquire northern Minnesota utility, Minnesota Power

In February, the Private Equity Stakeholder Project (PESP) submitted direct testimony on behalf of CURE MN to the Minnesota Public Utilities Commission (MN PUC) regarding the proposed acquisition of ALLETE, the parent company of Duluth-based utility Minnesota Power, by BlackRock’s Global Infrastructure Partners (GIP) and the Canada Pension Plan Investment Board. This proposed acquisition serves as a bellwether in the utility space, with the state approval centering on the question of public interest. If the deal is approved, Minnesota Power would be among a few outlier  vertically integrated utilities owned by private equity, putting captive rate-payers directly into the hands of profit-seeking investors, potentially setting a dangerous precedent for future acquisitions.

PESP’s testimony, based on industry expertise and research regarding the specific deal, provides an overview of the private equity business model as well as the risks of private equity investments in general and in regards to the proposed acquisition of ALLETE. 

“The cost of new capital may be more expensive for Minnesota Power if GIP is allowed to acquire it due to the high target annual return and cash yield expected by GIP’s investors”, said Jim Baker, Executive Director of the Private Equity Stakeholder Project.” BlackRock’s recent acquisition of GIP may create conflicts of interest due to BlackRock’s significant ownership stakes in ALLETE customers.”

“The risks associated with the typical high debt loaded onto the portfolio companies of private equity investors and the complications of BlackRock’s wide reach of energy investments may impact the public interest of the transaction”, said Nichole Heil, Senior Research and Campaign Coordinator with the Private Equity Stakeholder Project. 

The MN PUC will ultimately make a ruling on whether this proposed transaction is in the public interest of Minnesota Power ratepayers. A variety of stakeholders, including government agencies, Minnesota Power customers, and advocates, echoed the sentiments of PESP’s testimony, weighing in on whether they believe the proposed transaction is in the public interest. 

The Minnesota Department of Commerce provided direct testimony concluding that the acquisition is not likely to have “meaningful public interest benefits, and it could cause significant harm to the Company’s ratepayers by causing rates to be higher than they would be absent the transaction.” Similarly, a consultant, specializing in electricity and gas industry regulation, planning and analysis, providing direct testimony on behalf of the Sierra Club, found that the proposed transaction poses several probable impacts on cost and risk, recommending the MN PUC to reject the acquisition. Finally, a consultant of the Large Power Intervenors, an ad-hoc consortium of Minnesota Power’s largest and most energy-intensive customers, had the same conclusion that the proposed acquisition is not in the public interest and recommended the MN PUC to reject it.

The expert testimonies by the parties and intervenors in this contest case proceeding have now been filed. Evidentiary hearings for parties and intervenors will take place the first week of April and public hearings are scheduled from April 7-11 throughout Minnesota and online. The administrative law judge will issue a report with recommendations to the MN PUC this summer with a decision from the MN PUC on the proposed acquisition likely to come this fall.