A bulk of the comments submitted in favor of a proposed private equity takeover of Minnesota Power parent company Allete came from utility employees or others with financial ties to the company, prompting a judge to question the authenticity of their support for the controversial deal.

The transaction would put Minnesota Power under the ownership of Global Infrastructure Partners, a subsidiary of the multitrillion-dollar global investment firm BlackRock, and the Canada Pension Plan Investment Board. The proposition has stoked widespread opposition from consumer advocates and environmental groups, who argue the transaction would increase the risk of higher rates for customers and reduce transparency. A judge who reviewed the proposed transaction issued a report last week urging the Minnesota Public Utilities Commission to reject the deal.

Minnesota Power is an electric utility serving 150,000 customers in the northeastern part of the state. Public comments delivered in writing and at a series of public hearings widely echoed concerns that utility ownership by a large private equity firm – which are infamous for making cutbacks in acquired companies to boost profits for themselves – would harm ratepayers. But laced through the public record are a number of comments advocating for the transaction, nearly all of which appear to trace back to individuals or organizations tied to Minnesota Power. 

The pattern caught the attention of Administrative Law Judge Megan J. McKenzie, who reviewed the acquisition proposal. 

The ALJ noted in her July report that “numerous commenters” who indicated they support the deal are Minnesota Power employees, and “many other supportive commenters” were from organizations that receive monetary support from Minnesota Power, including through its philanthropic foundation. Their remarks, the ALJ wrote, “largely repeated” the utility’s messaging to employees and public about the deal.

In her report, the judge detailed nearly 500 oral and written comments submitted in response to the acquisition. The vast majority opposed the transaction. Roughly 81 supported (or did not explicitly oppose) the deal, according to an Energy and Policy Institute review. At least 72 of those were from individuals and organizations that appear to have ties – often financial – to Minnesota Power or Allete, according to publicly available information.

“These commenters often indicated support for Minnesota Power but did not comment on the merits of the transaction itself,” the ALJ wrote. “It is unclear whether these individuals felt obligated to support Minnesota Power due to the financial support they are provided by the company.”

Minnesota Power grantees show up to support utility position

Representatives of a number of nonprofit and community organizations that have received funding or other resources from Allete, Minnesota Power, and/or the Minnesota Power Foundation registered their support of the deal. 

Such commenters include leaders at local chapters of well-known and influential community organizations like the United Way (various chapters of which count Minnesota Power among donors – and received $200,000 in Minnesota Power Foundation giving last year – with utility staff serving on at least one of their boards); YMCA (local chapters of which have received thousands of dollars from the utility foundation in recent years); Habitat for Humanity (which has received hundreds of thousands of dollars from Minnesota Power); the Duluth Children’s Museum (which lists Minnesota Power as a top-tier partner that provided at least $20,000 this year); and Second Harvest food shelf (a repeat recipient of funds from the utility, which has also organized additional employee donations). 

Several supportive commenters specifically referred to Minnesota Power’s support for their causes and organizations over the years, including financial backing as well as employee volunteer hours, scholarships, and internships. Lesser-known foundation grantees also submitted public comments generally advocating for the proposed acquisition. 

Utility beneficiaries throwing their weight behind Minnesota Power’s agenda follows a familiar playbook in which utilities recruit grant recipients as champions of their preferred policy and regulatory outcomes. In cases elsewhere, utility foundation grantees have created a perception of broad community support for utilities’ positions in regulatory proceedings and the media. The trade association for electric utilities, the Edison Electric Institute, highlights the approach in an industry “tactical guide.”  

A spokesperson for the utility did not respond to questions from the Energy and Policy Institute about whether it recruited grant recipients to comment in favor of the proposed transaction. However, one commenter – Kathy Lange, executive director of a local Habitat for Humanity chapter – told the Energy and Policy Institute that a utility representative asked her to “share [her] experiences working with MN Power from a community perspective” at the public hearing but did not advise her on her comments.

As the ALJ noted in her report, remarks lauding Minnesota Power’s donations to community organizations generally did not offer deep insights on the proposed private equity takeover. Some expressed hope that charitable contributions would continue if regulators approve the deal. 

In regulatory filings, Minnesota Power stated that the utility will maintain the same “level of charitable contributions” for five years following the deal’s closure. But, as transaction critics and the judge have noted, the enforceability of that promise – and others made to ostensibly soften criticism of the deal – is unclear.

Minnesota Power, Allete pay dues to other deal supporters

Supportive comments also came from representatives of several organizations that receive other kinds of financial support from Minnesota Power and Allete – payment for membership, or sponsorship of programming.

These groups include regional outfits like MiningMinnesota, a pro-mining group that lists Minnesota Power in its Platinum-tier membership category that costs $10,000. Additionally, the transaction notched support from a series of dues-based economic development organizations located across Minnesota Power’s service territory. In addition to its membership in one such organization, Minnesota Power also raised extra funds for it.

The Minnesota Chamber of Commerce is among the membership-based, pro-business groups that rallied behind the proposed transaction. Minnesota Power and Allete have sponsored its programming and reports consistently over the years. 

In addition, multiple supportive commenters were affiliated with the pro-business group Downtown Duluth, which is the location of Minnesota Power’s headquarters and has received event support from the utility. Its board includes Minnesota Power lobbyist Kate Van Daele, who is also listed as a contact on the Minnesota Power Foundation website and provided individual comments in support of the transaction.

Utility worker, union support raises similar questions

A third category of supportive commenters with potential conflicts of interest includes roughly two dozen with names that match employees of Minnesota Power and Allete, some of whom identified themselves as utility employees in their comments. These utility staff hold a range of positions with the utility, including at least one lobbyist, the assistant to Allete’s CEO, and interns.

Representatives of several labor unions that rely on Minnesota Power for jobs also filed supportive comments. The backing of labor unions can be potent in blue states like Minnesota, and a flyer prepared by Allete features the unions that back the deal. Union comments, as described in the ALJ’s report, generally focus on jobs without addressing concerns that the acquisition risks higher rates for working families.

The utility spokesperson contacted by the Energy and Policy Institute did not respond to questions about whether the company solicited supportive comments from utility employees, interns, or labor unions. 

The acquisition would deliver a one-time payout to Allete shareholders, many of whom are current and former utility employees, including executives who have been awarded thousands of shares as part of their compensation plans.

Minnesota Power indicated in regulatory filings that utility employees “will maintain the same or better position and compensation and benefits” for two years after the proposed transaction closes, and all existing collective bargaining agreements will be honored. But the ALJ suggested that commitment sounds better than it is.

The utility had no prior plans to get rid of employees, reduce compensation or benefits, or renege on collective bargaining agreements, the judge wrote, meaning that the pledge “would maintain the status quo and thus is not a benefit of the proposed acquisition,” she wrote. “The time-limited nature of this Commitment diminishes its illusory value even further.”

Proposed acquisition high stakes for utility, customers

While various individuals and organizations within Allete’s network have registered their support for the deal, the majority of public comments indicate opposition to the proposed deal. Several consumer and environmental advocates – including the Minnesota Attorney General’s Office, the Citizens Utility Board of Minnesota, Sierra Club, CURE MN, and even a group of Minnesota Power’s large industrial customers – all oppose the transaction. 

Days before the ALJ filed her recommendation, the Minnesota Department of Commerce dropped its opposition in exchange for a settlement that includes a one-year base rate freeze and slightly lower utility profit margin. Allete issued a statement saying that the judge’s report “mischaracterizes the parties, their agreements and plans, and the benefits and risks of the acquisition” and “inadequately reflects” the settlement. 

Still, other consumer advocates say the deal struck with the Department of Commerce doesn’t do enough to protect ratepayers.

The stakes of the prospective take-private deal are high for Minnesota Power customers – and for Allete shareholders. The deal would deliver a premium to shareholders more than 20 percent Allete’s average share price leading up to the deal announcement. The premium, according to the ALJ and expert witness testimony, translates to an estimated $1.5 billion above the company’s book value – a windfall that would accrue entirely to shareholders, not utility customers. 

Private equity buyers will seek to recoup the purchase price plus a return that is heftier than what the public markets would offer – a core tenet of private equity that the ALJ said was reflected in company filings.

Ultimately, the prospective private equity owners’ quest for profits could be subsidized by higher rates for Minnesota Power customers. Residential customers could be particularly vulnerable, consumer advocates warn, because BlackRock’s sprawling investment portfolio includes stakes in various companies that do business with Allete. The conflict of interest could result in BlackRock seeking sweeter deals for those companies, at the expense of everyday customers.

As it stands, Minnesota Power is the cornerstone of Allete’s business. But as part of a vast, multinational investment portfolio, the utility would be a “minor asset,” utility regulation expert Scott Hempling said in a filing. Other testimony highlights the case of the Michigan Upper Peninsula Power Company (UPPCO), whose rates have soared above the state average after a private equity firm acquired the utility.

Compounding concerns, the private equity ownership group had sought to seize 10 of 13 Allete board seats under its proposal, theoretically giving them the ability to control decision-making and override opposition from the other three directors – Allete CEO Bethany Owen and two independent board members. The recently inked settlement with the Department of Commerce moderates that position by expanding the board to 14 seats, though just six – a minority – would be independent directors.

Allete has said the private equity takeover is necessary to improve its access to capital and to fund investments that align with state clean energy goals – a claim the ALJ and others have questioned. When the company rejected two previous lower takeover bids, it indicated the public capital markets could meet its capital needs – reiterating what it had told shareholders in 2023 and 2024, in annual shareholder reports that would no longer be required if the company were under private ownership. 

Additionally, if it goes private, Allete could no longer access the public capital markets. Instead, it would be fully reliant on its new owners, who could choose to invest elsewhere in service of their financial gains.

The utility and its prospective buyers have attempted to allay concerns with a series of promises, including to retain employees, continue charitable contributions, and most crucially, fulfill the utility’s five-year capital investment plan. But it’s an open question whether those commitments actually have teeth. 

In recommending that regulators reject the proposed deal, the ALJ noted that Allete and its prospective buyers have “carefully committed to do very little.”

“In considering the true risks and benefits of the Acquisition, it is critical that the Petitioner’s agreements and private discussions do not comport with their public Statements,” the judge wrote. “The nonpublic evidence reveals the Partner’s intent to do what private equity is expected to do – pursue profit in excess of public markets through company control.”

The Minnesota Public Utilities Commission will decide whether to approve or reject the proposed acquisition in September.

Photo credit: Peg Furshong with CURE