Above photo: The logo of BlackRock is pictured during “Il Salone del Risparmio” at Allianz MiCo on April 10, 2024, in Milan, Italy. “Il Salone del Risparmio” is the largest Italian event in the asset management industry. Emanuele Cremaschi / Getty Images.
An administrative law judge has issued a report siding with opponents of BlackRock’s acquisition of an electric utility.
There’s been a significant development in hotly contested proceedings happening in northern Minnesota over whether Allete, owner of the region’s main electric utility, Minnesota Power, will be acquired by two new private equity owners, including the asset management behemoth BlackRock.
After months of hearings, an administrative law judge published a report that unambiguously recommended state regulators deny approval of the deal, concluding that, based on the evidence from proceedings, Allete and the acquiring partners “have not met their burden of proof to show the transaction is consistent with the public interest.”
Minnesota’s Public Utilities Commission had referred the case to the administrative law judge to independently analyze the facts and legal aspects and make a recommendation. While nonbinding, the report will inform the Public Utilities Commission’s upcoming decision on whether or not to approve a $6.2 billion deal struck in May 2024 that would see Allete, a publicly traded electric utility, taken private by Global Infrastructure Partners, which is owned by BlackRock and the Canada Pension Plan Investment Board.
Intervenors against the private equity acquisition of Allete — including ratepayer advocates, watchdog organizations, and climate groups — welcomed the administrative law judge’s report, even as the ultimate decision to approve the deal still resides with the Public Utilities Commission, which must determine whether it’s in the public interest.
The drama in Minnesota has national repercussions as Wall Street firms are increasingly eying utilities as demand for electricity for data centers is booming. It also shows that private equity’s intensifying grab for basic infrastructure everyone depends on will face pushback.
“This is coming, and people need to be prepared for it,” Maggie Schuppert, a Minnesota Power customer and director of strategic initiatives with CURE, a rural community advocacy group, told Truthout.
Rejecting Private Equity
A Truthout review of the administrative law judge report shows that the report sided with opponents of the acquisition on nearly every major point of contention, and that its findings of fact were largely consistent with the arguments offered by opponents of the acquisition.
Critically, the report stated that Allete did not demonstrate its need to abandon public markets and turn to private equity to access the investment capital needed to comply with Minnesota’s law requiring 100 percent carbon-free electricity sources by 2040, which is Allete’s core justification for the deal.
Allete “has not established that there is a significant risk that the public markets will be unable to meet its probable capital needs,” the report stated, noting that Allete’s “financial health is strong,” confirmed by the company’s own claims in recent Securities and Exchange Commission filings.
More broadly, the report strongly sided with critics’ overarching argument that a private equity takeover of a vital local utility presents major risks for ratepayers, given private equity’s extractive business model and its checkered ownership history.
Notably, the report found that the public statements made by the Petitioners (Global Infrastructure Partners, the Canada Pension Plan Investment Board, and Allete/Minnesota Power) “do not comport” with their “agreements and private discussions” around the deal’s “true risks,” concluding that the “nonpublic evidence reveals the Partners’ [Global Infrastructure Partners’ and the Canada Pension Plan Investment Board’s] intent to do what private equity is expected to do — pursue profit in excess of public markets through company control.”
This speaks to a big frustration that Brian Edstrom, a senior regulatory advocate with the nonprofit Citizens Utility Board of Minnesota, felt during the hearings regarding what he calls the “inconsistencies” between what Global Infrastructure Partners and the Canada Pension Plan Investment Board say to the public versus what’s kept private and confidential.
While Edstrom would not discuss confidential material from the hearings, he told Truthout that “it’s frustrating because it makes it harder for advocates like us to tell the full details around our concerns when so many of those details are hidden from public view.”
For example, the administrative law judge’s report noted that BlackRock/Global Infrastructure Partners and Canada Pension Plan Investment Board expect an annual return, which was redacted, that “significantly exceeds the returns produced by publicly traded utilities,” and that they “are most likely to make up the difference between a plausible regulated return and the targeted return through financial engineering.”
These findings align with concerns put forth by critics that the new owners of Allete, and thereby Minnesota Power, would, in common private equity fashion, seek higher investor returns that could destabilize the utility and hurt captive ratepayers.
“A Straightforward Victory”
Moreover, whereas Allete claimed the deal with Global Infrastructure Partners and the Canada Pension Plan Investment Board was based on “values,” the report suggested a prime driver was, instead, the huge $1.5 billion acquisition premium that would flow to shareholders, including top executives, with the acquisition, noting that “the evidence shows the Partners were ultimately the only bidders for the company and were chosen based on their willingness to pay a stock premium.”
The report also found that key “commitments” made by Global Infrastructure Partners and the Canada Pension Plan Investment Board were nonbinding and unenforceable — all key arguments that critics sought to demonstrate during the hearings.
Additionally, the report questioned the climate rationale behind the acquisition, finding “significant risks that the Partners will be unwilling or unable to provide ALLETE sufficient capital to transition its regulated operations in Minnesota from fossil fuels to renewable energy,” while noting that Allete was also “planning significant capital spending on fossil fuels,” including over “over 1,000 megawatts of new natural gas generating capacity.”
All told, opponents of the deal see the report as a vindication of their criticism of the deal.
“It’s really important that people understand this isn’t just one judge’s opinion, but rather the outcome of a full-on case,” said Schuppert. “We’re treating this as a straightforward victory in a longer process.”
“An Especially Acute Threat”
The administrative law judge report comes as private equity investors are increasingly eying utilities, whose steady returns appeal to Wall Street portfolios, especially as the data center boom increases the demand for energy.
This is a story that is garnering national headlines. “Large Wall Street investment firms are moving to acquire U.S. utility companies in an effort to benefit from the rising demand for electricity from data centers,” noted The New York Times on July 17.
Karlee Weinmann, a Minnesota-based researcher with the Energy and Policy Institute, a utility industry watchdog group, told Truthout that private equity takeover of utilities like Allete presents a “troubling prospect.”
“Private equity has earned its reputation as one of the most extractive forces in the marketplace across industries, with private equity investment becoming synonymous with hollowing out acquired companies to maximize profits,” said Weinmann.
“That is bad news in any sector, but when we’re talking about electric utilities, which are monopoly providers of an essential service, it’s an especially acute threat to people and communities,” she added.
BlackRock, the world’s largest asset manager, is one of those Wall Street firms that is gunning for utilities. BlackRock has traditionally focused on public markets, buying up stock and bonds through its index funds, but in recent years it has turned toward private investment, especially in infrastructure.
BlackRock’s billionaire founder and CEO Larry Fink recently gushed to CNBC about a “melding of public and private markets” and the “enormous” opportunity for BlackRock around investing in infrastructure, which he said was “just at the beginning of a golden age.”
“We believe there’s a need for trillions of dollars investing in infrastructure” related to power grids and AI, said Fink. “All of this is all part of a plan.”
Fink emphasized the centrality of its 2024 acquisition of Global Infrastructure Partners as a key move in this “plan” for BlackRock, and he lauded Global Infrastructure Partners’ $25.5 billion Fund V — the fund that would hold a 40 percent ownership stake in Allete if the deal goes through.
Edstrom emphasized that the ordinary utility customers could be stuck with footing the bill for Fink and other private equity firms’ growing appetite for utilities.
“On the other end of that are captive customers that are paying for essential services, and that gets lost in the equation when you have New York asset managers who are not in the business of providing safe and reliable electric service, but rather in the business of making money for their clients,” Edstrom told Truthout.
“If the acquisition is approved,” Edstrom added, “Minnesota Power will continue to be regulated by the Minnesota Public Utilities Commission, but the investors will have far more control over the utility’s operations than Allete’s current shareholders do. The investors’ primary interest will be maximizing a return on their investment.”
“There’s a fundamental question here of whether captive utility customers, who have no choice in what utility they buy electricity from, should be subsidizing profits for private equity investors,” said Weinmann. “If you ask that question to just about anyone besides the private equity investors, you hear a resounding no.”
New research by Weinmann also argues that a significant portion of the testimony during the hearings favoring the private equity acquisition “came from utility employees or others with financial ties to the company,” raising concerns over potential conflicts of interests.
“An Organizing Opportunity”
Truthout reached out to BlackRock for comment but did not receive a response. A representative from Allete shared a statement emphasizing that the company “strongly disagree[s] with the conclusions in this non-binding recommendation” and noted that the Minnesota Department of Commerce, which had previously opposed the acquisition, recently announced that it reached a settlement with the Partners that shifted its stance. The settlement “includes additional public protections and benefits for our customers,” Allete told Truthout.
The administrative law judge’s report noted that she reviewed the settlement with the Department of Commerce and that “her concerns regarding the Acquisition have not been resolved and it does not change the Administrative Law Judge’s recommendation to disapprove the Acquisition.”
Hudson Kingston, CURE’s legal director, told Truthout that the Commerce Department’s settlement was “somewhat shocking” in light of the administrative law judge report’s unreserved opposition to the deal. “You can’t make an inherently bad deal good by just adding a few conditions to it,” Kingston said.
For Edstrom, the overarching takeaway from the report, and after months of testimony from all sides, is that the Allete deal “is not in the public interest and should be denied.”
The administrative law judge decision “is really thorough, well-reasoned, and grounded in substantial evidence,” he said. “It almost completely agrees with the positions of the parties that have opposed the acquisition.”
While the administrative law judge’s report is nonbinding, Weinmann says these recommendations “are always a very valuable resource to commissioners who then have the responsibility of making the final decision.”
“In this case,” she added, “it’s evident that the judge took a very detailed look at the record and came to a very stark and clear conclusion about the potential risks to ratepayers if this transaction is allowed to proceed,” she said.
Ultimately, the Minnesota Public Utilities Commission will decide, likely in the fall, whether to accept the report’s findings and reject the deal. Alternatively, it could approve the deal with added stipulations informed by the report, or just discount the report and approve the deal altogether.
Critics of the deal that Truthout spoke with expressed feelings that ranged from nervous to optimistic about the ultimate outcome. “BlackRock is Goliath compared to anything,” said Kingston, adding that Minnesota regulators need to be the “David” that “really stands up for the people.”
As giant asset managers like BlackRock increasingly look toward utilities and other infrastructure to rake in new returns, Schuppert thinks others around the U.S. should be paying attention to what’s happening in Northern Minnesota.
“Minnesota is a test case,” she said. “We need to prepare for private equity coming after our entire utility sector.”
“But,” she added, “it’s also an organizing opportunity for the public power movement.”
