BlackRock’s bid for Minnesota Power worries consumer advocates

This story was originally published by Minnesota Reformer Private equity shops have earned outsized returns on investments in soundness care telecommunications and housing with mixed results for consumers Now they may be running the same playbook on the once-sleepy utility business with BlackRock s proposed takeover of the parent company of Duluth-based Minnesota Power as a key test incident Populace filings in the hotly contested matter show ratepayer advocates labor unions environmental groups and major customers of Minnesota Power on different sides of the issue At the heart of the matter is a simple question Is it a good or bad thing for the world s largest asset manager to have a controlling stake in a regional utility A private equity buyout of the electric utility serving large swathes of northern Minnesota could weaken its finances and jeopardize its compliance with Minnesota s carbon-free power standard while raising rates and reducing reliability for more than customers administrative law judge Megan J McKenzie disclosed on July McKenzie s lengthy analysis called on the Minnesota Community Utilities Commission or the PUC to reject the proposed deal Private equity giant BlackRock the Canada Pension Plan Commitment Board and Minnesota Power s parent company clapped back on Aug in a detailed rebuttal They called the judge s nonbinding summary not an accurate or balanced summary or analysis of the record and disclosed it does not even attempt to provide a meaningful discussion of the evidence arguments and counterarguments The dueling filings represent the latest volleys in a bitterly contested proceeding before the PUC The saga dates back to last May when the Canadian pension group and an infrastructure stake firm then in the process of merging with BlackRock publicized an agreement to buy Allete a publicly traded company that owns Minnesota Power a smaller Wisconsin utility and other potency assets The commission has veto power over inhabitants utility mergers in Minnesota If the proposed deal closes BlackRock-controlled Global Infrastructure Partners would own of Allete and the pension board the Minnesota Department of Commerce reported in a filing last August The private equity industry has cultivated a reputation for being a very extractive actor in the marketplace announced Karlee Weinmann research and communications manager for the Ability and Plan Institute a utility watchdog that is not directly involved in the proceeding We know that the playbook is to quote-unquote streamline these companies so this is a fearsome prospect for workers and consumers Weinmann added Advocates Deep pockets allow for capacity transition Labor unions clean strength groups and Allete argue that deep-pocketed owners enable rather than curtail the massive investments in new vitality generation transmission and distribution infrastructure Minnesota Power demands to meet a state mandate to produce of its electricity from carbon-free sources by This transaction will not impact our ability to meet Minnesota s carbon-free goals On the contrary this is why the acquisition is needed Minnesota Power spokesperson Amy Rutledge stated in an email Advancing the clean-energy future requires major assets and the long-term experienced investors we have chosen as partners will give us the access to capital needed for this potential transition St Paul-based nonprofit Fresh Force agreed in an Aug filing and an Aug blog post saying in the latter that the merger would significantly mitigate exposure to the transition to clean strength in Minnesota an outcome that is in direct alignment with Fresh Resource s mission Related Apocalypse not now Understanding how the Big Beautiful Bill unsettles Minnesota s clean strength goals In the Aug post Fresh Potential disclosed risks to Minnesota Power s transition have increased since January as congressional Republicans and the Trump administration unwound federal aid for renewable vigor and slapped tariffs on imported cars vigor equipment raw materials and more Trump s tariffs disproportionately impacted the utility s base of large industrial customers including two taconite mines idled this year Fresh Potential reported Allete s latest earnings description proved electricity sales to taconite customers fell to of total sales in the second quarter of from a year earlier Telling regulators one thing investors another The company s insistence that it requirements private capital partners to finance its transition plan clashes with latest statements to federal securities regulators that it can get adequate funding from inhabitants markets commented Brian Edstrom senior regulatory advocate for the Citizens Utility Board of Minnesota CUB Minnesota opposes the deal as an official participant in the PUC proceedings What irks me is when utilities tell the commission one thing and investors another that s exactly what happened here Edstrom reported Allete rejected two previous buyout offers from GIP and its Canadian partner before accepting a third higher offer Edstrom noted That means the new owners will essentially start in the red and they ll have to make up that premium before they start earning a return he revealed Weinmann stated confidential or redacted PUC filings obscure critical information about how the new owners plan to do that But in general utilities make money when they build things and customers subsidize those costs she reported Community utility commissions set customers rates based on utilities operating expenses plus a fair rate of return on commitment or profit margin Though the tightly regulated system keeps customer costs in check critics say it encourages utilities to spend more on capital projects The coming AI cash wave Edstrom stated the massive strength requirements of artificial intelligence statistics centers represent a generational opportunity for well-capitalized infrastructure investors like BlackRock Input centers share of U S electricity consumption could nearly triple between and the U S Department of Power disclosed in December in one of its final reports of the Biden era The AI-energy opportunity may be even greater in states with ambitious clean power goals that require replacing fossil-fueled power plants with carbon-free generation and building new batteries substations and transmission lines to serve them Edstrom revealed Earlier this year private equity firm Blackstone no relation to BlackRock explained it would buy the largest investor-owned utility in New Mexico where Blackstone already has big infrastructure venture plans and which requires all utilities to be carbon-free by That utility s parent company TXNM Power also serves parts of Texas a fast-growing information center industry It s no secret that Blackrock and GIP see a big opportunity in investing in the confluence of AI and input centers and capacity because they all require each other and require a lot of money Edstrom revealed BlackRock CEO Larry Fink reported as much in a CNBC interview last month Infrastructure is just at the beginning of a golden age he announced moving his hand up and to the right Fink s interviewer called the Global Infrastructure Partners acquisition a hell of a well timed deal and remarked later in the conversation that investments in digitization power grids and decarbonization all go together Minnesota has not long ago attracted a flurry of large-scale content center proposals amid power grid congestion in bigger IT markets like northern Virginia Facts centers proposed in Xcel and Great River Resource territory as of January would if built consume about million homes worth of power A secretive LLC s proposal for a light industrial rise on acres in Hermantown an area served by Minnesota Power carries a few hallmarks of a information center the Star Tribune broadcasted in May An IT facility that large could consume several hundred megawatts of power at full threshold potentially offsetting a longer-term decline in electricity demand from the taconite industry Minnesota Power s peak load is about megawatts Hazard to ratepayers overbuilding It s fine to build new infrastructure to serve big power loads Edstrom revealed but where it gets tricky is where private equity owners start putting pressure on the utility to invest in more than is truly necessary by overbuilding new assets or by spending more to build their own generation than they would to purchase power from independent power plant owners or other utilities Douglas Jester a Michigan-based power analyst and expert witness who testified in the Allete merger proceeding on behalf of CUB Minnesota disclosed in an interview that private equity buyers may see smaller utilities as ripe for higher returns Jester was a close observer of and expert witness in proceedings involving Upper Peninsula Power Company a small Michigan utility that has passed between two private owners since the early s UPPCO s first private owner Balfour Beatty Infrastructure Partners petitioned Michigan regulators for a rate increase soon after the transaction closed citing unexpectedly high pension costs increased staffing necessities and the fact that it was now a small higher-risk utility Jester advised the Minnesota Inhabitants Utilities Commission UPPCO s original comment that there would not be rate increases as conclusion of the transaction was not true Jester reported the Reformer The under-examined pension issue in particular added up to a critical addition to rates and those things take a long time to fade Jester mentioned UPPCO has also requested Michigan regulators to approve rate increases related to system investments under its second owner Axium Infrastructure Those proceedings have been typical of the push and pull between utilities regulators and other stakeholders Like all utilities they reliably ask for increased return on equity and we inevitably argue against it he announced But in Jester s view the Axium-controlled UPPCO is ahead of schedule in complying with a state carbon-free power mandate similar to Minnesota s and does not appear to be overspending to justify its returns There are issues with private equity ownership of any utility but new UPPCO leadership is very responsive to inhabitants initiative he revealed Jester revealed the divergence shows how fundamental it is for state regulators to scrutinize proposed utility mergers A July settlement between the Minnesota Department of Commerce and Minnesota Power could help move the BlackRock-Allete deal forward Reversing its prior opposition to the deal the department commented the agreement would allow the merger to proceed in a way that protects the citizens interest The settlement rebutted specific concerns McKenzie would raise four days later It delivers immediate ratepayer benefits by prohibiting Minnesota Power from requesting a rate increase until next November and reducing its authorized return on equity from to It shores up the utility s ability transition plan by requiring buyers to provide sufficient equity capital to finance nearly billion in planned infrastructure investments while contributing million to develop cutting-edge clean firm technologies like long-duration batteries And it would impose major financial penalties for any decline in institution quality while strengthening corporate governance and worker protections the department announced In a subsequent announcement Allete reiterated that following the transaction it will remain locally managed and operated in Duluth and will continue to be regulated by the PUC ensuring local oversight and control of rates and potency planning It s unclear when the PUC will hold a final vote on the merger which federal vigor regulators have already approved If it does get the green light Jester explained it will set up an crucial test situation for private utility investors looking to follow in BlackRock s footsteps one he s not sure will pan out as anticipated I see quite a bit of pressure on regulators to recognize that over the last years or so utilities have been receiving authorized returns on equity that are materially higher than in competitive sectors with otherwise comparable risks he stated If regulators crack down on those elevated rates of return he added that s not an ecosystem where I would expect private equity to thrive Independent Journalism for All As a nonprofit newsroom our articles are free for everyone to access Readers like you make that achievable Can you help sustain our watchdog reporting the present day AID figure tipContainer socContainer subscribeShortcodeContainer donateContainer display none significant youtubeContainer position relative padding-bottom padding-top px height overflow hidden margin-bottom px youtubeContainer iframe video-container object video-container embed position absolute top left width significant height margin px px essential newsroomSidebar width max-width padding px border-top solid px 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