REGIONAL— The proposed acquisition of Minnesota Power parent company ALLETE by two massive private venture capital entities is facing stiff opposition from an unusual coalition of stakeholders, ranging from nonprofit consumer advocates to the mining and wood products industry.
The Minnesota Department of Commerce has also expressed its strong opposition to the proposed purchase, citing the potential of significant harm to Minnesota Power’s existing customers.
The $6.2 billion acquisition is a joint venture by a Blackrock subsidiary, known as Global Infrastructure Partners, or GIP, and the Canada Pension Plan Fund, or CPP, a pension fund with over 22 million contributors. Both firms seek to maximize long-term results for members or shareholders while mitigating risk.
The two venture firms argue that ALLETE’s ongoing transition to renewable energy sources and new transmission capacity will require considerable capital investment over the next several years, which is something they claim they can provide more efficiently than public capital markets. ALLETE is a publicly traded company, while the two firms that seek to acquire the company are privately held. Under their proposal, the two firms would pay $3.9 billion for the acquisition of ALLETE and another $2.3 billion through the assumption of debt. ALLETE shareholders would receive $67 per share under the deal. GIP would become a 60-percent owner of ALLETE, while CPP would own 40 percent.
Critics of the acquisition, which must be approved by the Minnesota Public Utilities Commission, say that Blackrock’s and CPP’s claim of greater access to capital is unsupported by evidence and they worry that the firms’ plans to inject significant amounts of capital into ALLETE’s utility holdings has the potential to cause unsustainable rate increases for its customers. Electric rates of investor-owned utilities, like Minnesota Power, are regulated by the MPUC, but such utilities typically have a right to a reasonable rate of return on investments in infrastructure. According to testimony of the two firms, they are motivated to invest in ALLETE’s substantial capital expenditure plan and, ultimately, realize a significant return on that investment.
That return would inevitably have to come from ratepayers, noted Christopher Walters, a consultant who reviews the financial implications of utility investments. Walters offered extensive testimony on behalf of the Large Power Intervenors, an ad hoc group of Minnesota Power’s largest industrial customers. “Information that has been produced [by Blackrock and CPP] reveals staggering levels of investment, unsustainably large rate increases in the near term, and a general loss of control over investment decisions,” noted Walters in his written testimony. “These potential harms far outweigh any potential benefits, rendering the proposed transaction inconsistent with the public interest.”
While the two companies insist they are committed to maintaining affordable rates, Walters said that claim is undermined by a lack of transparency by Blackrock and CPP. “Throughout this proceeding, the applicants have objected to many information requests, provided answers that were nonresponsive to intervenor and party inquiries, and have provided heavily redacted responses to dozens of discovery requests…”
GIP cites its considerable expertise in the utilities and energy sectors as another public benefit of their proposed joint acquisition in addition to their access to capital. But Craig Addonizio, public utilities analyst coordinator for the Minnesota Department of Commerce, called both of those supposed benefits highly speculative. “First, the petitioners have not provided meaningful evidence that the company’s current access to capital is inadequate or that the acquisition will improve its access to capital,” stated Addonzio in the department’s written comments. “Second, the petitioners have not provided meaningful evidence that access to the Partners’ expertise will translate to material benefits to the company or its ratepayers, such as lower rates resulting from operational cost cutting or improved procurement processes. Therefore, acquisition should not be expected to provide any benefits to the public interest.”