Minnesota Judge recommends denying BlackRock’s acquisition of ALLETE

On July 15th, Minnesota Administrative Law Judge Megan J. McKenzie (ALJ) issued a report of Findings of Fact, Conclusions of Law and Recommendations (report) in the contested case proceeding for the petition of Duluth-based utility Minnesota Power’s parent company ALLETE to be purchased by Global Infrastructure Partners (GIP), a whole owned subsidiary of BlackRock, and the Canada Pension Plan Investment Board (CCPIB). Based on the evidence presented throughout the hearing, the ALJ report recommends that the Minnesota Public Utilities Commission deny the acquisition of ALLETE by GIP. 

As outlined in the filing, the ALJ recommends denying BlackRock’s proposed acquisition of the utility because the facts of the proceeding did not prove that the deal is in the public interest. Notably, in the Judge’s analysis, considering the risks and benefits of the acquisition, the ALJ highlighted a discrepancy between the public documents submitted by BlackRock’s GIP and CPPIB and the non-public discussions and materials submitted to the Judge and some intervenors. The ALJ found, “the nonpublic evidence reveals the Partner’s intent to do what private equity is expected to do – pursue profit in excess of public markets through company control. The Partners themselves have carefully committed to do very little, instead largely making commitments through expected holding companies or Minnesota Power itself.”  

BlackRock, GIP and CPPIB have argued that the acquisition is in the public interest because the partners would be able to provide ALLETE with sufficient access to capital for Minnesota Power to meet the Minnesota Carbon Free Standard, a state-mandated energy transition requirement. Minnesota Power’s application for the acquisition highlighted this access to capital as having benefits for ratepayers and the climate. However, after analyzing written and verbal expert testimony, including numerous materials and conversations marked as “highly confidential” and therefore not released publicly, the ALJ found “the Petitioners did not prove by a preponderance of evidence that they will be unable to meet the Carbon Free Standard absent the Acquisition, nor did they guarantee or present sufficient evidence showing that the standard will be met as a result of the Acquisition.” In regards to the “highly confidential” details of the case, the judge also stated: “In considering the true risks and benefits of the Acquisition, it is critical that the Petitioner’s agreements and private discussions do not comport with their public statements.” 

PESP contributed to the contested case hearing as an expert witness for a community-based organization, CURE. PESP’s expert testimony focused on explaining the private equity business model, the potential impacts of private equity ownership of ALLETE on ratepayers, workers and the planet, and highlighted how BlackRock’s business interests in ALLETE’s customers and competitors may impact the public interest. Throughout the report, the ALJ references PESP’s testimony 42 times, particularly in articulating the private equity industry and how the private equity playbook often fails to align with public interests. 

Post-Report Comment Period Solidifies Stakeholder Positions

Following the ALJ report, a public comment and subsequent reply comment period commenced, which saw the acquisition proponents attempt to discredit the findings of the ALJ report and criticize Judge McKenzie directly. Opponents of the deal, the Large Power Intervenors (LPI), a consortium of Large Power and Large Light and Power customers of Minnesota Power, called out a “lack of respect” from BlackRock and others in the proceeding. LPI describes the joint comment of Minnesota Power, GIP, and CPPIB to be “a tone unforeseen in Minnesota regulatory proceedings and demonstrating an utter lack of respect for the Minnesota regulatory process”. The LPI reply comment continues to echo support for the ALJ report and its findings, recommending that the BlackRock deal be denied. 

The Attorney General (AG) reply comments address claims of the acquisition proponents that the ALJ report is biased, responding, “the Petitioners seem unable to understand why else the ALJ would discount their overconfident claims that the transaction holds only benefits and no risks. But there is a much simpler explanation. The ALJ’s decision is not hard to understand in light of her key credibility finding: that the Petitioners are talking out one side of their mouths with their public filings and out the other in their private communications”. The AG reply comment goes on further to say “the Petitioners’ unjustified attack on a public servant is troubling and provides a glimpse of how new ownership could change Minnesota Power’s regulatory advocacy”. The AG retains its position that the acquisition would harm public interest and recommends that the Minnesota PUC deny it.

Other deal opponents showed steadfast adherence to their opposition of the acquisition showing the financial flaws of the deal and the subsequent settlement offered by the Department of Commerce. Community-based groups Minnesota Citizens Utility Board (CUB) and CURE spoke to how the deal and settlement fall short to protect Minnesota Power ratepayers. CURE called out the high return on equity (ROE) project supporters agreed on coupled with an argument that a one-year rate freeze is inadequate. CUB also reviewed claims pertaining to rate savings proposed by the settlement, saying “around two-thirds of the purported costs savings ($88.4 million out of $132.4 million) are “one time” benefits, and $34 million of that $88.4 will likely expire after the Company files its next rate case”. The comment further referred to the Department of Commerce’s comment about “the Acquisition as providing “savings ”to ratepayers is highly misleading”. The organization also claims that it is likely the company would take the chance in it’s first rate case to raise costs, including ROE, negating any savings to ratepayers stipulated in the settlement.

In addition to financial arguments why the substance of the proposed acquisition may not be in the public interest, a variety of groups have pointed out potential influence of Minnesota Power and the potential buyers over commenters in support of the acquisition. CURE and CUB  both pointed to joint comments of International Union of Operating Engineers Local 49 and the North Central States Regional Council of Carpenters. The groups submitted an initial comment that was contradictory – simultaneously supporting the ALJ report, which recommended to deny the deal, but then calling on the MN PUC to approve the acquisition. The group then sent a corrected version of their comment  removing the support for the ALJ report, where the metadata reveals that the revised comments were authored by Counsel of the GIP/BlackRock and CPPIB. In addition, independent analysis by the Energy and Policy Institute found that of the nearly 500 public oral and public comments submitted regarding the proposed acquisition, about 81 of them were in support of the acquisition, with at least 72 of those supportive comments coming from individuals or organizations having direct financial ties to Minnesota Power or ALLETE.

The Proposed Acquisition Makes Headlines

The potential sale of Minnesota Power has seen opposition from ratepayers and stakeholders at public hearings throughout Minnesota Power’s service area. Additionally, Duluth City Councilor Wendy Durrwachter has heard similar concerns from her constituents. “There are a lot of alarms that go off with a private equity firm buying a utility”, said Durrwachter. 

Outside of Minnesota, the pending sale has made headlines in Utility Dive, Truthout, and the New York Times. BlackRock and GIP’s lawyer having a hand in the reply comments submitted by local labor unions made headlines in The Lever who covered BlackRock’s influence over the case:

“For more than a year, the commission has borne witness to a tooth-and-nail fight over the proposed BlackRock takeover of Minnesota Power’s publicly traded parent company, Allete. But over the last several weeks, after a state judge issued a strongly worded ruling opposing the deal, the fight has taken on a new character, demonstrating the enormous political influence of private equity and electric utility companies — and how they can wield their power to quell opposition.

In the wake of the judge’s July ruling, several unions in the state swiftly proclaimed their support for the BlackRock deal. In at least one instance, union comments bear the fingerprints of an attorney working for BlackRock, document metadata shows.“

Nationally, this acquisition is seen as a test case for the appetite of the private equity industry to invest in captive ratepayer utilities. There’s also speculation about how this potential new trend of private equity investing in utilities may relate to the industry’s increase in data center investments. As electricity demand for data centers is anticipated to continue growing, to what extent will private equity make a play to capture outsized returns from this emerging sector and what will the impact on utility customers and their communities be?