DULUTH — Two private equity funds will take over Minnesota Power later this year, the state Public Utilities Commission unanimously decided Friday, Oct. 3.
The approval wraps over a year of back-and-forth after the two groups proposed acquiring the utility’s parent company, Duluth-based ALLETE, which provides power for large swaths of Northern and central Minnesota from Long Prairie to Babbitt.
Global Infrastructure Partners, or GIP, will indirectly own 60% of the company. The Canada Pension Plan Investment Board, or CPP Investments, will indirectly own the other 40%.
GIP was acquired by BlackRock, the world’s largest asset management firm, last year. CPP Investments is one of the world’s largest private equity investors and independently oversees Canada Pension Plan funds.
In explaining their decision to approve the sale, PUC commissioners said they were initially skeptical of the arrangement, but numerous stipulations and agreements by the partners that create benefits for Minnesota Power customers made them comfortable approving the deal.
“[The benefits] would not happen but if we approved the acquisition,” said PUC Chair Katie Sieben. “So while it’s not a perfect docket, and there are things I would change if I was able to do it on our own, I really commend the work of all of the parties, the partners, my colleagues, for helping us get to a place that I think we can all be very proud of.”
ALLETE says it needs money to fund the clean energy transition required by the 2023 state law compelling utilities to produce 100% carbon-free electricity by 2040. The investors will provide that capital.
“Today’s decision caps a comprehensive public process and positions ALLETE well to meet the significant infrastructure demands of the clean-energy transition without compromising the high-quality service and commitments to reliability and affordability that define our company,” stated Bethany Owens, ALLETE chair, president and CEO, in a news release.
Opponents of the sale questioned the extent of the capital need and objected to private equity as the solution, arguing that private equity’s business practices focus too heavily on returns and would hurt ALLETE in the long term.
A unique coalition fought against the acquisition, including environmental and consumer advocacy groups, the Residential Utilities Division of the state Attorney General’s Office and Minnesota Power’s largest commercial customers, like U.S. Steel and UPM Blandin.
Private equity firms manage funds for their investors and have a fiduciary duty to do what is best for those investors.
“BlackRock would go from the largest [management firm] to the smallest very, very quickly if we were to somehow disadvantage ALLETE to benefit some other investment in some other place,” said Jonathan Bram, GIP founding partner, in Friday’s PUC meeting.
PUC Vice Chair Joseph Sullivan said he wasn’t in favor of the sale until some final settlement details emerged in the last week. He said he’s still concerned about the long-term consequences.
“But I do think that the benefits in the near-term and the medium-term clearly outweigh the status quo and clearly show the partners, the parties, are taking very serious the commitment to the state,” he said.
So, what exactly are all these benefits?
The investors agreed to tens of millions in direct credits to customers that the PUC and others proposed, said Commissioner Audrey Partridge. That includes $50 million in bill credits, $10 million in home efficiency improvements for low- and moderate-income customers, $3.5 million to buy down customers’ overdue bills and $50 million for a clean energy investment fund.
“Frankly, these are all commitments we could not have achieved through the public market,” Partridge said. “And they will directly reduce the bills of Minnesota Power’s customers now and going forward.”
Environmental group CURE, which opposed the sale, remains skeptical of the commitments.
“While figures like $50 million may sound like a lot, the very temporary protections, programs, and funding tacked onto this deal cannot offset the billions of dollars of profit the new owners intend to reap from Northern Minnesota households and businesses,” stated Legal Director Hudson Kingston in a Friday news release.
In her comments, Partridge also listed the wide variety of enforceable stipulations the investors agreed to, including labor protections, fully funding Minnesota Power’s five-year capital plan and maintaining an investment-grade credit rating before accessing dividends. The investors also cannot pass on the cost of the acquisition or increased costs of debt to customers and agreed to additional transparency requirements.
“Though we disagree with the Commission’s decision, we genuinely hope they are correct in their assessment,” stated a news release from Minnesota Citizen Utility Board, which opposed the sale. “We also appreciate the Commission's efforts to impose conditions that help mitigate risk of harm to ratepayers.”
The commissioners thanked all those involved in the lengthy approval process, including the administrative law judge who opined in July that the PUC should not approve the sale.
“The ALJ did a good job in her report in articulating and summarizing where the overall petition was at, at that point,” Chair Sieben said. “And because of the collective work of partners, stakeholders, labor, environmental groups and others, we’ve made the overall package better for Minnesota Power customers.”
Partridge said the opponents “really tested” Minnesota’s regulatory model by considering all that could go wrong.
She and other commissioners emphasized the PUC will still be able to regulate the utility moving forward. Per state statute, the PUC sets electricity rates, enforces service quality, oversees energy system planning —which is underway for Minnesota Power—and implements state energy policy.
But a Minnesota utility has never been owned by private equity, and this case is creating a new path, Commissioner John Tuma said.
“One of the things that I saw in the public comments was, ‘Well we can’t trust these five people [the PUC commissioners] to take control of these behemoth, trillion-dollar giants that are coming in.’ Well, no, you can’t folks,” Tuma said, adding that it takes input from all sorts of groups for the PUC to make its decisions.
“You guys develop the record. Bring it to us. If there is any misbehavior, we can deal with it,” said Commissioner Hwikwon Ham.
“ ... Please do not have a preconceived conclusion it’s going to be bad for everybody.”
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