Why BlackRock Wants to Buy Your Electric Utility — Episode 240 of Local Energy Rules

Brian Edstrom:
That premium, if I didn’t mention earlier, that is payable directly and solely to Allete’s shareholders. None of that comes back to rate payers.

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John Farrell:
Is the acquisition of a monopoly utility company in the public interest? If the shareholders will receive 100 times the financial benefits of the captive utility customers, what happens when two private owners control the future of a company providing an essential public service to major industries and thousands of ordinary customers?
Joining me in May 2025, Brian Edstrom, senior regulatory advocate with the Citizens Utility Board of Minnesota, waves a few red flags about the proposed purchase of a Minnesota utility company by a duo that includes a Canadian pension fund and a subsidiary of BlackRock, the world’s largest private investment fund. It’s a great dive into the tension between private monopoly profit and the public service of electricity. I’m John Farrell, director of the Energy Democracy Initiative at the Institute for Local Self-Reliance, and this is Local Energy Rules, a podcast about monopoly power, energy democracy, and how communities can take charge to transform the energy system.

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John Farrell:
Brian, welcome to Local Energy Rules.

Brian Edstrom:
Thank you for having me, John. I’m glad to be here.

John Farrell:
I love to ask this question of everybody, kind of like what’s your backstory, but how did you end up in a job where you are litigating over utility purchases?

Brian Edstrom:
Well, my career path has been a windy one. I went to law school starting in 2006 with kind of a general interest in public service and perhaps nonprofit work, but not quite sure exactly what I wanted to do, but figuring a law degree would open a lot of new doors, which it has. But right after law school I moved to Washington D.C. and worked as a contractor with the federal government, the Department of Justice, for a while, first in their civil rights division and then in their civil division doing civil fraud investigations involving large securities transactions. That led me to a job back here in Minnesota at the Minnesota Department of Commerce as the assistant director and then the director of securities. So I really was focused on securities regulation for a while for the first part of my legal career. Then I spent a few years in private practice mostly doing corporate and securities transactional work.
I happened to work with a couple solar developers that needed some help with that kind of legal structuring and just was generally interested in their business. And that kind of made me think more about the transition to renewable energy and kind of the big challenges and opportunities that were happening there. And I just generally was, after being in private practice for a while, was feeling an urge to get back into more of a public service oriented career and something focused on more public policy. So I made a big leap about five years ago and applied for a job with Citizens Utility Board — CUB — without really having much knowledge at all about how regulated utilities work and how utilities regulation works. So it was a big learning curve, but I’ve really enjoyed learning about that process and like I said, playing a role in trying to navigate these complicated challenges and opportunities that we’re in right now in the energy sector.

John Farrell:
Thank you for deciding to go into public service. We need folks like you that are out here representing public interest and consumers as Citizens Utility Board does so well. So let’s start with the basics about this transaction. What is the proposed purchase of Minnesota Power and why does it have to be approved by the State’s Public Utilities Commission?

Brian Edstrom:
Yeah, there are two large institutional investors that have proposed to acquire Allete, which you mentioned is kind of the parent company of Minnesota Power, and one of those is called the Canadian Pension Plan Investment Board. It was established by the Canadian government to invest the funds held by the Canada Pension Plan. They manage around $460 billion in assets on behalf of 22 million Canadians, and the other investor is called Global Infrastructure Partners, and they’re a large private equity fund based in New York and they are owned by BlackRock, the largest institutional investor in the world. And I think they are interested in acquiring Allete both to stabilize their investment portfolio as a regulated monopoly. Regulated utilities have a fairly steady revenue stream that investors might be able to rely on with more confidence than other, more volatile, companies that may produce a bigger return but may also fail.
And Allete, according to their petition, is wanting this acquisition to happen because they believe that they have enormous need for new capital to comply with Minnesota’s carbon free standard, and that is to achieve net zero carbon emissions by 2040. And they do, and will have to make a lot of investments in the next several years in light of that standard and their efforts to meet it. But to go back to your question, the commission needs to approve this because there’s a statute that requires a transfer of property over a certain dollar value, which this certainly is well over that, to be approved by the Commission and the Commission has to find it consistent with the public interest. I think the kind of policy reason behind that is to allow the Commission to have some oversight into how a regulated utility, regulated monopoly, might sell off its assets in a way that could benefit its shareholders, but not necessarily its rate payers. So the commission plays a role in helping ensure that rate payers are protected in that situation.

John Farrell:
I should mention, I did an interesting interview, I think it was episode 109, with Scott Hempling on this podcast, who has written a lot about utility mergers and for people who are interested in sort of a deeper dive on that concept of what does the public interest mean sort of more generally not in the scope of any particular acquisition, he has a lot to say about it. I found both his book on the subject and my conversation with him to be really fascinating about that idea of what the public interest is and how commissions do or maybe don’t do very successfully balancing those private and public interests from time to time. I dunno if you’ve read Scott Hempling or found his work useful in this at all, kind of curious.

Brian Edstrom:
I totally agree that Scott’s scholarship and his book on this subject is one of the preeminent resources that folks look to on this topic.

John Farrell:
One of the things I was really curious about in reading about this proposed acquisition was why the buyers seem to be willing to pay such a high price. So in an article on the Citizens Utility Board of Minnesota website, it sounds like expert witnesses think that BlackRock is offering between $393 million and $1.5 billion above the company’s actual value. Why pay so much?

Brian Edstrom:
That’s a great question and one that we’ve focused on a fair amount in our briefs and in the articles that I’ve written about this, and even in their own documents, there’s something called the proxy statement, which was filed with the Securities and Exchange Commission, and it’s attached to the petition that Minnesota Power filed requesting the commission’s approval. That describes the process that Minnesota Power and Allete went through when deciding to enter into a merger agreement with the partners. And it describes the negotiation process and sort of when offers were made and what they were made. And that’s all public and anyone can read it. It shows that the partners actually made three offers to Allete. The first two were a lower price per share, and Allete rejected those two. And there were also other potential investors that had been identified that were reluctant to spend such a premium to acquire Allete.
So they dropped out before even making an offer. So I think to answer your question, part of the reason they offered such a significant premium is because Allete pushed them to. They rejected their first two offers because that premium wasn’t high enough. And my thought is, back to my first answer, is I think they’re willing to invest that kind of premium because they see something in Allete that their analysis shows allows them to earn a return that will enable them to recoup that premium and then some to make a return on their investment. So that alone is somewhat concerning to us, not somewhat. It is quite concerning to us because they need to make that premium back before they even start to get into positive territory. So the higher that premium is, the more pressure is on the investors to try to recoup a lot of revenue from Allete and ultimately Minnesota Power, which we’re concerned will put pressure on them to want to or have to increase rates. And in that proxy statement, even Allete calculates the acquisition premium at being between 19% and 22%. So that’s not just CUB’s opinion or another intervenor’s opinion. Those percentages come straight from the proxy statement.

John Farrell:
I like to remind people that in two thirds of US states including Minnesota utilities are vertically integrated monopolies, which is to say that the state has granted them an exemption from competition to produce and deliver electricity to ultimate customers. So when BlackRock and the Canadian Pension Board are buying Allete and buying Minnesota Power, they’re effectively buying captive electricity customers. They don’t just buy the infrastructure, they’re actually buying the customer base. And I’m kind of curious, you kind of touched on this already, but I don’t know if you want to say more about what implications that could have or how the buyers might make their money back.

Brian Edstrom:
Yeah, that’s exactly right. The concept of captive customers means that most folks do not have choice in how they receive their electricity short of going off the grid or moving to a different utility service territory. So if Minnesota Power customers are unhappy with Allete being sold to BlackRock and Canadian Pension Plan Investment Board, they don’t have a lot of say in that. One concern that can arise there is because GIP and BlackRock in particular and also the Canadian Pension Plan Investment Board have such vast holdings and diverse holdings, there is concern that they could somehow use the influence they have over Allete to create a benefit for other companies in their portfolio. So for example, BlackRock has ownership interests in some of the largest industrial customers that Minnesota Power services. They also have large holdings in other utility infrastructure throughout the country and including some other companies that might contract with Minnesota Power. So those are called affiliated interests. So if one of those investors kind of uses their influence and control over Allete and Minnesota power to benefit an affiliated interest that might work well for their portfolio companies, but could cause captive rate payers to pay more than maybe necessary if there was say another vendor or another company that might’ve been able to work more cost effectively with Minnesota Power or if the lead in Minnesota Power might have negotiated with a vendor or another company more effectively to keep their costs low.

John Farrell:
Right. Alright. I suppose another one could be, you mentioned the BlackRock portfolio includes some ownership interest in some of the industrial customers served by Minnesota Power. As I understand it, some of those rates that those customers pay are negotiated bilaterally directly with the utility. For some large customers, they could potentially lobby to get lower rates for those customers, which then could potentially increase rates on other customers other than those industrial customers.

Brian Edstrom:
Yeah, that’s exactly right. And that was one of my initial concerns when I first saw this petition that just that might happen — that those particular affiliated interests might allow some of those large industrial customers to end up paying lower rates and residential customers paying higher rates. As this has played out though, actually the group, there’s a group called Large Power Intervenors, which is sort of a consortium of those large industrial customers and they’re among several parties that oppose the acquisition. So they, like we, are concerned that their rates will go up if the acquisition is approved.

John Farrell:
Interesting. So I want to come back to that concept that you outlined earlier on about this sort of public interest requirement so that because Minnesota Power is a regulated monopoly utility, even though it’s a for-profit company, the fact that it would transfer a large, in this case, ownership of the whole entity. The law says that the utility commission that oversees this utility needs to make sure that the acquisition is in the public interest. So I’m kind of curious, what have buyers promised to utility customers? I know in some of the research that I did a few years ago on utility mergers, there’s often some sort of sweetener in an acquisition deal to say, oh, well we’re going to keep rates low for two years, we guarantee it or something. I also know that based on how those have played out over time that you might find, they’ll promise a rate rebate and then they’ll subsequently raise rates and just take it all back within five years. So what has been promised, and I guess what is your confidence that it will play out to be to the benefit of utility customers

Brian Edstrom:
Yeah, that’s a great question with kind of a long answer. First on the law itself, there’s been some interesting debate in legal briefs between the parties about what the law requires and what the legal standard is. And at a basic level, the statute that sort of is the key statute underlying the legal standard in this instant just says the commission has to find that the acquisition is “consistent with the public interest” in order to approve it. In the past, in an order that the commission issued in 1990, which Allete cited in their petition and later in their briefs, the commission essentially said that that standard just requires that there isn’t some sort of new harm created for customers. So if the acquisition allows things to continue more or less the same and kind of the status quo continues for customers, that’s good enough, is essentially what the commission previously said.
So Allete has kind of taken that position here too. They argue that they don’t have to show net benefits to customers, that there’s not some new benefit that outweighs whatever risks there are, just that as long as the status quo continues, that’s good enough for the public interest standard to be met. We and some other parties have taken a somewhat more nuanced approach to that, partly because Allete really grounds a lot of their arguments for why this acquisition is needed and why it is in the public interest in compliance with the carbon-free standard. So they say that they need to access new capital, which these investors are able to provide in order to comply with the carbon-free standard and invest the money that they need to achieve net zero carbon emissions by 2040. What that does though is that brings the actual carbon-free standard and that legislation into the picture and the statute that creates that carbon free-standards.
It includes language that requires the commission to “maximize public benefits” when implementing the carbon-free standards. So we’ve made the argument that it’s inconsistent for Allete to, on one hand, say they kind of just need to maintain the status quo, and on the other hand say that the whole purpose of this acquisition is to help them comply with a new legal requirement that requires the commission to maximize public benefits when implementing it.
So all told, we’ve argued that really there needs to be to be some net benefit met, and by that I just mean the potential benefits of the acquisition being approved have to outweigh the potential risks. So that’s kind of how we have articulated the applicable legal standard. And some other parties have taken a similar approach.
As far as commitments Allete and the partners, the investors, have made several commitments that they say help meet that standard. The largest one is the investors have committed to fund the five-year capital plan that Allete has articulated in its last annual report filed with the Securities and Exchange Commission. So they have a five-year capital plan that is significant, involves over a billion dollars in investments. So on one hand, if you look at it in a vacuum, that is a significant commitment to invest that much money over a short period. But the commitment they make is really just witnesses saying that they’ll do that in their testimony. But the actual legal documents, the merger agreement that establishes what the acquisition will look like and what the responsibilities are of Allete and the investors effectuating that acquisition does not include any binding term that requires the partners to invest any equity capital beyond their initial investment to acquire the company. So we and others have expressed a lot of concern about that because despite the partners sort of stated commitments, what happens if they change their mind and how enforceable will that commitment be?
And that’s really kind of an open question. It will not be very, I don’t think, contractually enforceable by Allete against the partners because the merger agreement that they signed, which is a big, long complicated legal document, does not include that kind of commitment.
Allete and the investors say that if the commission includes in an order approving the acquisition sort of a reference to that commitment or say that their approval is kind of conditioned on that commitment being met, even that isn’t sort of a rock solid way of ensuring that commitment is enforceable. The commission will continue to have jurisdiction over Allete’s regulated business, Minnesota Power, but they won’t have jurisdiction directly over the investors or the other entities that they’ve created in this new organizational chart holding companies and things above Allete. So that’s sort of saying, well, if the partners don’t honor the commitment, the commission can just order them to inject a billion dollars into Allete. And I just don’t feel very confident that that will hold up if it comes to that. If the partners change their mind, if their investment isn’t performing as they want it to and they decide to sell it early or they want to divert capital to another portfolio company, or if they experience their own financial troubles and just don’t have that much money available to it for any reason, it just creates a risk that there could be a problem where those commitments are not enforceable.

John Farrell:
Let me ask you a follow-up question on this one before you talk about any of the other commitments, which is just utilities have a fairly generous rate of return for what are essentially very low risk investments. Usually that rate of return is around 10%. I think for Minnesota Power it might be slightly lower in the nine point something percentage range. I can understand BlackRock saying we have other more lucrative investments we might want to make with our billion dollars, but I guess I’m kind of curious, the idea that this is some sort of commitment to the benefit of rate payers seems odd because whoever puts in that billion dollars is going to earn a healthy return on it. So I don’t really understand why that’s anything that you could even put on the consumer side of the ledger here in terms of being a benefit when ultimately some investor and/or utility investors are the ones that are going to get the money from that. Yes, that will help comply with the carbon free standard, but the sort of litigation about whether that billion dollars in the way that they want to spend it is in the public benefit is like a different question. So I don’t know. I’m a skeptic here that saying you’re going to inject a billion dollars is actually really that great of a promise from the start.

Brian Edstrom:
And I share that skepticism, though I think it does cut both ways a bit. So yes, that is true. The motivation and the reason and the benefit for them of investing that level of money is because they hope to earn a return on it. So to get that money back and then some eventually through their investment. On the other hand, I do think it is a fair concern for Minnesota to raise that they’ve never raised that amount of capital in that short of a period before, and they’re concerned about their ability to raise that much money on public stock exchanges by issuing new securities, when they do issue new securities that will dilute the ownership that existing shareholders have. So it might kind of harm some existing shareholders’ current holdings. So those are valid concerns. It’s balancing that against the concern you articulated that investing all this money, I mean in some ways the more money the partners can invest in new utility infrastructure where they’re allowed by the commission to earn a rate of return for them can be a very good investment that a stable, secure investment. But the more return they earn and the more of that comes from rate payers, the more rates might go up. So it’s one big balancing test. Part of our argument is Allete suggests that they may not be able to raise that amount of capital on the public markets, and/or if they do that, it might have other issues, but they haven’t really demonstrated that the public markets have not been able to provide the capital they need when they need it in the past, and given just the uncertainties about if by leaving the public markets and going private, they become solely reliant on these two investors for all their capital needs. So again, if something goes wrong where either those investors feel reluctant to give the capital or can’t or they’re not earning the return that they expect and want to sell their investment, that’s a risk also. So a commission has to balance those things.

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John Farrell:
We are going to take a short break. When we come back, I ask Brian about other commitments to utility customers made by the proposed buyers, the risks of ownership by private equity and where we are in the purchase process. You’re listening to a local Energy Rules podcast with Brian Edstrom, senior regulatory advocate with the Citizens Utility Board of Minnesota.
Hey, thanks for listening to Local Energy Rules. We’re so glad you’re here. If you like what you’ve heard, please help other folks find us by giving the show a rating and review on Apple Podcasts or Spotify — five stars if you think we’ve earned it. As a bonus, I’ll gladly read your review aloud on the show if it includes an energy related joke or pun. Now back to the program.

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John Farrell:
That’s an interesting side of this that I didn’t understand before, that they would, by going private, cut off their access to capital on public markets. That’s fascinating. I kind of cut you off when you were talking about some of the other commitments they might’ve made. So there was the billion dollar investment. We’ve talked through kind of how that could be a benefit, might have some liabilities associated with it. What else has been promised or is on the table that might be of benefit to utility customers from this acquisition?

Brian Edstrom:
Yeah, so like I said, I think that investment commitment is probably the biggest one. They’ve also made, I don’t know, 30 or 40 other statements that they describe as commitments. If anyone listening is interested in digging into the weeds, those are attached to Jennifer Katie’s rebuttal testimony filed in this docket. And I won’t be able to rattle all of those off the top of my head, but some of them are, a lot of them, I think are commitments to just kind of continue the status quo of how Minnesota operates now. Allete sort of acknowledges that, but say that by committing to these things, we are showing that we won’t take actions that will change the status quo in a way that might harm customers. But they don’t make, in my opinion, don’t make a ton of new commitments that are sort of new proactive things that they’ll do, in light of the acquisition, to balance some of the new risks of harm that we and others have identified.
But there are a few. So one is around low income programs. So Minnesota Power has a program called CARE, which allows low income customers to pay a little less on their electric bill if they qualify for that program. It’s a rate payer funded program, so most Minnesota Power customers will see a slight charge on their bill to cover the cost of that program. And because it’s a rate payer funded program, the commission has to approve the budget for it and any changes to it. So one of the “commitments” they made is to continue the CARE program under its current budget so that it will continue to serve the same low-income customers it currently serves. That’s good. The CARE program is a great program that we support, but it’s not really a new commitment because proposing to not change it, it just means they’re proposing not to ask the commission’s permission to change it, which the commission probably wouldn’t approve anyway because it’s a needed program and a popular program. So that feels a little, the commitment might sound better than it, I think actually is.
There is one new commitment where the investors have committed to paying off current arrears. So people that are currently overdue on their bills up to about $3.5 million. So essentially forgiving those arrearages. And that’s good for current folks that are behind on their bills, but that would be a one-time payment that obviously wouldn’t prevent people from getting behind on their bills again, especially if their rates go up dramatically. Although that’s kind of a nice thing that the partners have offered, I don’t think that and the other commitments they’ve made are sort of significant enough to offset the risks that we’re concerned about.

John Farrell:
Maybe to put it in context too — I, for one, don’t think continuing a program you would need permission to discontinue is any kind of benefit. So I’ll just make my judgment there. Let’s just take the arrears thing, $3.5 million from investors to pay off utility debt when the current owners of Minnesota Power based on the low end estimate are going to get a premium of over $300 million. It’s like 1%, a hundred units of benefit to the investor to one for the customer seems like a pretty low ratio. So I don’t know, I’m hoping there’s more you’re going to say that’s going to impress me of what they’ve offered Brian.

Brian Edstrom:
Yeah, I share that frustration, and you’re right. That premium, if I didn’t mention earlier, that is payable directly and solely to Allete’s shareholders. None of that comes back to rate payers, even though rate payers have helped pay for the ongoing development and maintenance of that company, of Minnesota Power. So yeah, $3.5 million, again, sort of might sound like a lot in the vacuum, but just the Allete officers and directors who approved this acquisition will collectively make more than that on selling their shares and that information is public in that proxy statement that I referenced earlier too.

John Farrell:
I want to ask you a little bit more about the fact that the company’s being taken private through this purchase. One bit of background is that in 1935, the US government passed a law called the Public Utilities Holding Company Act that was meant to prevent acquisitions of non-adjacent utility companies with the idea that there really aren’t benefits to utility customers with this monopoly service of having them. At the time, what was happening was utility companies were sort of buying up unrelated and unregulated assets all over the country. It was inflating their stock price, and in fact, some of the research suggests that that actually was a contributing factor to the Great Depression, that people made investments in utility companies thinking them safe, and the holding company sort of obscured the more risky nature of the investments that these companies were making. So you have that as a bit of background here.
That law was repealed in 2005, so no longer limits the way that utilities merge, which is why we’ve seen a lot of growth in utility mergers and acquisitions. But just to talk specifically about the issues with going private though, you had mentioned that this idea of affiliate entities was one of the liabilities here. You could have sort of self-dealing of, oh, we’re giving discounts to our industrial customers that we have an ownership share in through Minnesota Power in a way that affects other customer bills. And I guess you also mentioned the fact that you can’t go to public capital markets anymore. Are there other risks that you see in this issue of going private in the acquisition of Minnesota Power that folks should be aware of?

Brian Edstrom:
Yeah, another interesting complication that I have to be a little careful because not all of this is public, some of it is trade secret, so I can’t talk about it in a great detail. But another issue is how Allete will be governed. As a public company right now, Allete has a board of directors. I think most of the directors, or at least some of them are appointed by shareholders via a shareholder vote. And then they have shareholders that occasionally have the right to vote on things. So like the shareholders voted on approving this acquisition and they did approve it. But many of Allete’s decisions about its business operations, including Minnesota Power’s operations, are managed by the board of directors or at least the bigger decisions that really affect the company. If the acquisition closes, the investors will really control that board and then some. So GIP will be able to appoint six directors directly to a 13 person board and the Canadian Pension Plan will be able to appoint four directors.
So collectively they will have 10 of 13 board seats. And because the two investors are investing in partnership and both want to see a return on their investment, we’re concerned that they’ll often vote together and they’ll essentially control the board. They will always be able to outvote those other three directors. The other three will be the Allete CEO, Bethany Owen, and two independent directors. But we’re concerned that their voices will be sort of lost and the investors will always be able to control that. And then the investors also will maintain certain consent rights. So even above and beyond those board approvals, they will have to provide their consent to certain actions being taken. And the details of that is trade secret, but that’s really kind of different from the current structure. So again, we are concerned that that means they will be both controlling the board and the sole source of capital.
So that means if they’re unhappy with how their investment is performing, they could either use their influence on the board to kind of push Minnesota power into doing different things that increases their return, or they could cut costs, they could try to raise rates. And some of those things are still subject to the commission’s approval. So there’s some ability for us and others and the commission itself to fight against that, but that’s a possibility. And/or as the sole investors, they could withhold their capital diverted elsewhere and sort of put pressure on the company that way. And that’s the part where the commission’s authority over enforcing that is a little less clear. So the governance structure is a big deal, and that’s a big topic that a lot of parties have argued about in their briefs.

John Farrell:
I want to just dwell on this last one. I was already thinking it seems like you have an opportunity, to put it bluntly, of hostage taking. If you have a utility that needs to make capital investment in repairing distribution lines, even just like let’s say there’s a natural disaster, there’s a tornado, there’s something, there’s a huge flood has happened in Duluth about 10 years ago where they got a foot of rain in 24 hours. It damages substations at whatever. The utility needs capital. Investors, as you say, maybe they’re unhappy, they’re not earning the return they want. Is there a way that they could essentially say, we won’t put in the money to repair these things, we won’t provide the capital unless you increase the rate of return for those investments?

Brian Edstrom:
Well, I don’t think I see it quite so starkly. I think there’s the risk that they could create more friction around some of that, but the commission will still play a role there and certainly in allowing an increased rate of return and they might be able to compel Minnesota Power to repair things that affect its ability to provide safe and reliable electric service. So I think it’d be hard if there was truly a dire maintenance issue for the investors to somehow not provide capital that might be needed to fund that. Their argument on this is, well, now if we’ve invested billions of dollars to acquire a company, we want to see the company succeed because the better the company does, the better our investment will do. And there’s truth to that too. So I think it’s fair to concede that point to a certain degree, but again, my concern is that they are providing capital because it’s not a charity.
They want to make money off their investment. So yeah, if they feel somehow that their capital is being deployed in a way that doesn’t allow them to earn a return that they expect, I’m concerned that they could create some friction in that process or try to decide they want to sell off their investment. And even that is subject to the commission’s approval like this acquisition is. So if these investors end up owning Allete and five years from now want to sell it, we’ll end up going through a process like this again. But then the commission will be in a kind of between a rock and a hard place where they won’t necessarily want to require two institutional investors to continue holding an asset they don’t want to hold anymore. But if they try to sell it really soon like that, there might be even less interest in other buyers who want to buy it, which means another institutional investor might be even less attractive than these two. So that in and of itself is a risk that we’re concerned about.

John Farrell:
I don’t know, I’m thinking right now about the Kauai Island Utility Cooperative, which was formed in 1990 after the investors that owned the utility decided to exit the utility business. And when they decided to sell, instead of selling to another private investor, a cooperative was formed where utility customers put in capital and I think probably supported by the state, I don’t know the full details of that financial transaction. So I can imagine at least one outcome here being if BlackRock and the Canadian Pension folks don’t like owning Allete, they could sell it back and it could become a consumer-owned utility as we have a couple dozen of in Minnesota. Not that that’s a simple process, but just imagining for now that there is a greener pasture ahead potentially in that incident where they decide they don’t like the idea of owning Minnesota Power.

Brian Edstrom:
I don’t know that much about that and sort of the idea of a cooperative ownership, though CURE is one of the parties in this case, and I think they might’ve said something to that effect in their initial brief. Another possibility is that rather than sell it to another private investor, they could make it public again and do an IPO and then we’d be back to where we are right now. And in theory, those arguments about not being able to access the capital they need from public markets would be they’d be back in that boat.

John Farrell:
I want to ask you about a sort of parallel concept. I talked, I don’t remember if we actually, Mark and I actually talked about it in the podcast where I interviewed him. He’s the former utility executive that has worked a lot on utility rate of return. He’s been talking about an intriguing idea and comes to this idea of having access to capital about what he calls competitive direct equity, where he’s saying he wants utility commissions to essentially open up and have a bidding process and say, okay, so Minnesota Power needs a billion dollars to meet the state’s low carbon standard. We will allow the owner to provide it before the sale, Minnesota Power investors, to provide the capital, or we’ll just see if there’s anybody else out there who wants to bid in lower than the current rate of return. So it’s like, oh, if you are happy with an 8% rate of return instead of a 9% or 10%, I think it’s kind of an intriguing idea. I know this is completely unrelated to this purchase, but I’m just kind of curious what you think if that concept was legal and workable, do you think that that potentially is a way that the commission could ensure that there is access to capital for the utility company in any ownership structure?

Brian Edstrom:
Interesting. That’s the first I’ve heard of that concept. I certainly think it’s an intriguing concept, how it would work practically and via the legal structuring of securities offerings and sales and ownership. It sounds kind of complex to me as a former securities person. To me that seems like there might have to be some different class of stock issued or something where… I’d have to think more about that. The mechanics sound complicated, but the idea sounds intriguing.

John Farrell:
Alright, we’ll leave it at it’s an intriguing idea. Thanks for opining on it even however, briefly. I just wanted to ask you one last question then, but first to just thank you for going into such detail about this acquisition and its implications for customers and for the state. What’s the current status of this proposed purchase and how can people follow along, even get involved if they’re interested?

Brian Edstrom:
Yeah, so it’s pretty far along at this point. It’s been going on, this process, since last July I think. Yeah, or maybe last May. About a year ago is when Allete first announced that this acquisition was potentially happening and then they filed a petition with the commission seeking its approval in July, and that kind of kicked off this regulatory process. So we’re talking on May 30th right now. What’s happened before then is the company filed a petition last July. The commission referred that to the Office of Administrative Hearings for what’s called a contested case proceeding, which is sort of like litigation light. It’s a more formal legal process where an administrative law judge oversees the record being developed by witnesses, filing testimony by through an evidentiary hearing where parties can cross examine each other’s witnesses. There are several public hearings held where people throughout the state could participate and make their voices heard, and then each parties had the opportunity to file an initial brief and then a replied brief replying to others’ initial briefs.
So we just filed our reply briefs on May 29th, and now what will happen next is the administrative law judge will issue a report in July that outlines her findings and conclusions and recommendations and that basically that means she’ll kind of summarize the evidentiary record as she sees it, summarize her legal conclusions about how the law applies to that record and make recommendations to the commission as to what they should do. It’s not a binding judicial opinion, it’s a recommendation and a resource for the commission. But ultimately the commission will have the final say in whether or not to approve, deny, or approve with modifications or conditions, the acquisition. And before they do that, they will also have a hearing. I imagine it might be a fairly long and complicated hearing where they’ll want to hear from the parties and ask questions and try to better understand some of our arguments.
So I’m assuming that hearing will happen probably sometime this fall, and at that hearing is when they’ll make a decision and then issue a formal order sometime thereafter. As far as how people can get involved at this stage, it’s a little more limited now the time for submitting public comments has passed or the evidentiary record has formally closed now. People still can file public comments that will show up on the commission’s e-docket system. So if you hear this and really care about this and are interested in it, you can still file something that will be publicly available. The commissioners might still read it, but it won’t be part of the evidence that’s summarized in the judge’s report that she issues in July.

John Farrell:
But I imagine, as I have done, people may be able to follow along with updates from Citizens Utility Board of Minnesota. You’ve had on your blog and have been doing some storytelling about what’s been going on, and I imagine people could get updates or get on your email list if they’re interested in keeping up with what’s going on?

Brian Edstrom:
Yeah, you can visit cubminnesota.org. That’s C U B Minnesota all spelled out dot org. And I think if you go to a tab that says news or something like that, you’ll get to our articles. I have written several about this topic, and what I try to do there is, I mean, I obviously have my own opinions about this, but I try to just kind of present what our concerns are, what some of the issues are. It certainly reflects my own bias, but I think it’s important to say that, I mean, this is a complicated docket, it’s a complicated issue, and it’s not all black and white. Minnesota Power and Allete have raised some fair concerns about what it will take to raise capital, and there are potential benefits with the acquisition, and there are potential risks. As I said at the top, we’re concerned that the potential risks outweigh the benefits, but I think the commission will have a hard time grappling with that, and ultimately it’s up to them to make that decision.

John Farrell:
Well, Brian, thank you again for joining me, giving us a deep dive on this. As you mentioned just now, it’s really complex and hard for people on the outside to understand, and I hope this conversation makes it a little bit easier for people who might want to understand why this is important and maybe don’t have the chops to be involved in evidentiary hearings and filing legal briefs. I think you did a great job of explaining to folks and really appreciate your time.

Brian Edstrom:
Great. Yeah, happy to do it. Thanks for inviting me.

*****

John Farrell:
Thank you so much for listening to this episode of Local Energy Rules with Brian Edstrom, senior regulatory advocate with the Citizens Utility Board of Minnesota.
On the show page. Look for a link to several blog posts from the CUB website about the proposed acquisition and the concerns it raises for captive utility customers, as well as my paper on the outcomes of utility mergers. We’ll also have links to my podcast interview about utility mergers with Scott Hempling, episode 109, and my recent interview with Mark Ellis about the excessive rates of return for for-profit utility companies, episode 226.
Local Energy Rules is produced by myself and Ingrid Behrsin with editing provided by audio engineer Drew Birschbach. Tune back into Local Energy Rules every two weeks to hear how we can take on concentrated power to transform the energy system. Until next time, keep your energy local and thanks for listening.