Allete meets tough hometown crowd over pending sale of Duluth company

DULUTH – Protesters took advantage of a Minnesota Power presentation to Duluth’s City Council this week to oppose a private acquisition of the utility ahead of planned public hearings.

Under the deal announced last May, New York-based Global Infrastructure Partners (GIP) will own 60% of Minnesota Power parent company Allete, while Canada Pension Plan Investment Board (CPP) will have a 40% stake. The transaction must be approved by the Minnesota Public Utilities Commission (PUC), which is scrutinizing the potential $6.2 billion deal, and planned public hearings could draw more detractors.

On Monday, several residents asked the City Council to publicly oppose the sale of the Duluth-based company.

The goal of private equity firms is to “make money for investors,” and they will likely cut Allete’s workforce, Duluthian Justin Dean said.

“They don’t care about Minnesotans,” he said. “They don’t care about providing affordable power or clean energy.”

Duluth resident Beth Tamminen said she’s a “small-time” Allete shareholder who would benefit from the sale.

But research shows GIP typically holds its investments for less than a decade, she said, making it a “very good chance” it would sell in a few years, putting the city’s stake as Allete headquarters in jeopardy.

Minnesota Power, which serves a 26,000-square-mile area in northeast Minnesota, says going private will help it meet the state’s carbon-free regulations by 2040. The company needs to raise a huge amount of money to pay for new infrastructure, including wind farms and transmission lines, to generate clean power and eliminate coal from its system.

The utility plans to spend more than $4 billion over the next five years, a capital plan that is nearly four times larger than any in the last decade and vast compared to its size.

Raising that kind of cash in public markets carries risks and challenges, said Minnesota Power regulatory vice president Jennifer Cady, who shared with the council Monday the utility’s decarbonization goals and acquisition information.

“Public markets are a volatile place for us to be,” she said, citing last week’s Cleveland-Cliffs layoff announcement as an example.

The utility’s exposure to its large industrial customers — which use the most power, but as in Cleveland-Cliffs, usage can be inconsistent based on markets — in part makes it harder to raise money in the public market, Cady said.

GIP, on the other hand, offers “patient capital.” That’s how Joshua Taran, manager of financial planning for Allete, described it in December testimony submitted to the PUC.

Minnesota Power’s spending spree is attractive for the buyers. Regulated public utilities recoup the costs of these purchases from their customers over the life of an asset at rates set by the PUC. As a result, GIP can earn a “fair and reasonable return,” founding partner Jonathan Bram testified.

Allete and GIP have also made other promises, including that the acquisition would not result in layoffs, that employees would keep at least the same compensation and benefits for two years, and that headquarters will remain in Duluth.

Still, the deal has drawn considerable opposition during PUC proceedings so far, including from consumer advocates, environmental nonprofits, Minnesota Power’s largest industrial customers, and the administration of Gov. Tim Walz.

The Minnesota Department of Commerce said that taking Allete private would probably not result in meaningful benefits and could even lead to higher electric rates for Minnesota Power customers.

The Commerce Department also argued that Allete overstates the risk of raising money as a publicly traded company.

Craig Addonizio, a public utilities analyst coordinator for the state agency, testified that Allete will have to compete with other investments owned by GIP and CPP, and it would have access to a smaller potential pool of capital compared with public ownership.

Addonizio said the acquisition would raise “significant risk” of higher debt financing costs, which would then increase Minnesota Power’s rates. (Allete maintains the sale won’t affect electric rates.)

Addonizio also said new owners could invest heavily in Allete’s other “riskier” businesses — which aren’t regulated by the PUC — and magnify risk of potential financial problems or even bankruptcy if those other businesses struggle.

A coalition of Minnesota Power’s largest customers — including paper mills, taconite mines and Enbridge Energy — also urged the PUC to reject the acquisition.

Christopher Walters, a consultant for the large power customers, testified the deal would result in “staggering levels of investment, unsustainably large rate increases in the near-term, and a general loss of control over investment decisions.”

Walters said if Minnesota Power’s spending plan were scaled back to keep rates more affordable, GIP and CPP could simply decide to sell and throw the utility and its customers into flux.

Skeptics also took aim at GIP’s owner: BlackRock. The world’s largest asset manager recently purchased GIP.

The Commerce Department said this would increase the risk of self-dealing between Allete and the other sprawling investment holdings and affiliates of GIP and BlackRock. The arrangement could also reduce transparency, the department said, because Allete would be subject to fewer public disclosure regulations as a privately held company.

Minnesota Power itself will remain a public utility, regulated by the PUC, and the company argues its disclosure won’t meaningfully change. The company and its buyers also say there are protections in place against self-dealing and argue they have been and will be transparent with the state.

A large contingent of Superior, Wis., residents who oppose a gas-fired power plant proposed by Minnesota Power and other utilities also filled the council chamber Monday.

City councilors took no votes related to the acquisition, but some of them expressed concern.

BlackRock “has all the money in the world,” Councilor Wendy Durrwachter said, and “billionaires are taking over our country.”

“I would like to know of an example where [state] regulations were actually honored by a company of this size,” she said.

Several public hearings for the buyout are scheduled in early April across northeast Minnesota.