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BlackRock’s bid for Minnesota Power worries consumer advocates • Minnesota Reformer [1]

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Date: 2025-08-19

Private equity shops have earned outsized returns on investments in health care, telecommunications and housing — with mixed results for consumers.

Now, they may be running the same playbook on the once-sleepy utility business, with BlackRock’s proposed takeover of the parent company of Duluth-based Minnesota Power as a key test case. Public filings in the hotly contested matter show ratepayer advocates, labor unions, environmental groups and major customers of Minnesota Power on different sides of the issue.

At the heart of the matter is a simple question: Is it a good or bad thing for the world’s largest asset manager to have a controlling stake in a regional utility?

A private equity buyout of the electric utility serving large swathes of northern Minnesota could weaken its finances and jeopardize its compliance with Minnesota’s carbon-free power standard — while raising rates and reducing reliability for more than 150,000 customers, administrative law judge Megan J. McKenzie said on July 15. McKenzie’s lengthy report called on the Minnesota Public Utilities Commission — or the PUC — to reject the proposed deal.

Private equity giant BlackRock, the Canada Pension Plan Investment Board and Minnesota Power’s parent company clapped back on Aug. 4 in a detailed rebuttal. They called the judge’s nonbinding report “not an accurate or balanced summary or analysis of the record” and said it “does not even attempt to provide a meaningful discussion of the evidence, arguments, and counterarguments.”

The dueling filings represent the latest volleys in a bitterly contested proceeding before the PUC. The saga dates back to last May, when the Canadian pension group and an infrastructure investment firm then in the process of merging with BlackRock announced an agreement to buy Allete, a publicly traded company that owns Minnesota Power, a smaller Wisconsin utility and other energy assets. The commission has veto power over public utility mergers in Minnesota.

If the proposed deal closes, BlackRock-controlled Global Infrastructure Partners would own 60% of Allete and the pension board 40%, the Minnesota Department of Commerce said in a filing last August.

“The private equity industry has cultivated a reputation for being a very extractive actor in the marketplace,” said Karlee Weinmann, research and communications manager for the Energy and Policy Institute, a utility watchdog that is not directly involved in the proceeding.

“We know that the playbook is to quote-unquote streamline these companies…so this is a fearsome prospect for workers and consumers,” Weinmann added.

Advocates: Deep pockets allow for energy transition

Labor unions, clean energy groups and Allete argue that deep-pocketed owners enable rather than curtail the massive investments in new energy generation, transmission and distribution infrastructure Minnesota Power needs to meet a state mandate to produce 100% of its electricity from carbon-free sources by 2040.

“This transaction will not impact our ability to meet Minnesota’s carbon-free goals. On the contrary, this is why the acquisition is needed,” Minnesota Power spokesperson Amy Rutledge said in an email. “Advancing the clean-energy future requires significant investment and the long-term, experienced investors we have chosen as partners will give us the access to capital needed for this energy transition.”

St. Paul-based nonprofit Fresh Energy agreed in an Aug. 4 filing and an Aug. 6 blog post, saying in the latter that the merger “would significantly mitigate risk to the transition to clean energy in Minnesota — an outcome that is in direct alignment with Fresh Energy’s mission.”

In the Aug. 6 post, Fresh Energy said risks to Minnesota Power’s transition have increased since January as congressional Republicans and the Trump administration unwound federal support for renewable energy and slapped tariffs on imported cars, energy equipment, raw materials and more. Trump’s tariffs disproportionately impacted the utility’s base of large industrial customers, including two taconite mines idled this year, Fresh Energy said.

Allete’s latest earnings report showed electricity sales to taconite customers fell to 28% of total sales in the second quarter of 2025, from 35% a year earlier.

Telling regulators one thing, investors another

The company’s insistence that it needs private capital partners to finance its transition plan clashes with recent statements to federal securities regulators that it can get adequate funding from public markets, said Brian Edstrom, senior regulatory advocate for the Citizens Utility Board of Minnesota.

CUB Minnesota opposes the deal as an official participant in the PUC proceedings.

“What irks me is when (utilities) tell the commission one thing and investors another…that’s exactly what happened here,” Edstrom said.

Allete rejected two previous buyout offers from GIP and its Canadian partner before accepting a third, higher offer, Edstrom noted. That means the new owners “will essentially start in the red and they’ll have to make up that premium before they start earning a return,” he said.

Weinmann said confidential or redacted PUC filings obscure critical information about how the new owners plan to do that. But in general, “utilities make money when they build things and customers subsidize those costs,” she said.

Public utility commissions set customers’ rates based on utilities’ operating expenses plus a fair rate of return on investment, or profit margin. Though the tightly regulated system keeps customer costs in check, critics say it encourages utilities to spend more on capital projects.

The coming AI cash wave

Edstrom said the massive energy needs of artificial intelligence data centers represent a generational opportunity for well-capitalized infrastructure investors like BlackRock. Data centers’ share of U.S. electricity consumption could nearly triple between 2023 and 2028, the U.S. Department of Energy said in December in one of its final reports of the Biden era.

The AI-energy opportunity may be even greater in states with ambitious clean energy goals that require replacing fossil-fueled power plants with carbon-free generation and building new batteries, substations and transmission lines to serve them, Edstrom said.

Earlier this year, private equity firm Blackstone — no relation to BlackRock — said it would buy the largest investor-owned utility in New Mexico, where Blackstone already has big infrastructure investment plans and which requires all utilities to be carbon-free by 2050. That utility’s parent company, TXNM Power, also serves parts of Texas, a fast-growing data center market.

“It’s no secret that Blackrock (and) GIP see a big opportunity in investing in the confluence of AI and data centers and energy because they all require each other and require a lot of money,” Edstrom said.

BlackRock CEO Larry Fink said as much in a CNBC interview last month.

“Infrastructure is just at the beginning of a golden age,” he said, moving his hand up and to the right. Fink’s interviewer called the Global Infrastructure Partners acquisition “a hell of a (well) timed deal” and remarked later in the conversation that investments in digitization, power grids and decarbonization “all go together.”

Minnesota has recently attracted a flurry of large-scale data center proposals amid power grid congestion in bigger IT markets like northern Virginia.

Data centers proposed in Xcel and Great River Energy territory as of January would, if built, consume about 2.3 million homes’ worth of power. A secretive LLC’s proposal for a “light industrial” development on 210 acres in Hermantown — an area served by Minnesota Power — “carries some hallmarks of a data center,” the Star Tribune reported in May.

An IT facility that large could consume several hundred megawatts of power at full capacity, potentially offsetting a longer-term decline in electricity demand from the taconite industry. Minnesota Power’s peak load is about 1,625 megawatts.

Risk to ratepayers: overbuilding

It’s fine to build new infrastructure to serve big power loads, Edstrom said, but “where it gets tricky is where (private equity owners) start putting pressure on the utility to invest in more than is truly necessary” by overbuilding new assets or by spending more to build their own generation than they would to purchase power from independent power plant owners or other utilities.

Douglas Jester, a Michigan-based energy analyst and expert witness who testified in the Allete merger proceeding on behalf of CUB Minnesota, said in an interview that private equity buyers may see smaller utilities as ripe for higher returns.

Jester was a close observer of and expert witness in proceedings involving Upper Peninsula Power Company, a small Michigan utility that has passed between two private owners since the early 2010s.

UPPCO’s first private owner, Balfour Beatty Infrastructure Partners, petitioned Michigan regulators for a rate increase soon after the transaction closed, citing unexpectedly high pension costs, increased staffing needs and the fact that “it was now a small, higher-risk, utility,” Jester told the Minnesota Public Utilities Commission.

“UPPCO’s original statement that there would not be rate increases as result of the transaction was not (true),” Jester told the Reformer. The under-examined pension issue, in particular, “added up to a significant addition to rates…and those things take a long time to fade.”

Jester said UPPCO has also asked Michigan regulators to approve rate increases related to system investments under its second owner, Axium Infrastructure. Those proceedings have been typical of the push and pull between utilities, regulators and other stakeholders.

“Like all utilities, they always ask for increased return on equity and we always argue against it,” he said.

But in Jester’s view, the Axium-controlled UPPCO is ahead of schedule in complying with a state carbon-free power mandate similar to Minnesota’s and does not appear to be overspending to justify its returns.

“There are issues with private equity ownership of any utility, but new (UPPCO) leadership is very responsive to public policy,” he said.

Jester said the divergence shows how important it is for state regulators to scrutinize proposed utility mergers.

A July 11 settlement between the Minnesota Department of Commerce and Minnesota Power could help move the BlackRock-Allete deal forward. Reversing its prior opposition to the deal, the department said the agreement would allow the merger to proceed “in a way that protects the public interest.”

The settlement rebutted some concerns McKenzie would raise four days later.

It delivers “immediate ratepayer benefits” by prohibiting Minnesota Power from requesting a rate increase until next November and reducing its authorized return on equity from 9.78% to 9.65%.

It shores up the utility’s energy transition plan by requiring buyers to provide “sufficient equity capital” to finance nearly $5 billion in planned infrastructure investments while contributing $50 million to develop cutting-edge “clean firm” technologies like long-duration batteries.

And it would impose “significant financial penalties” for any decline in service quality while strengthening corporate governance and worker protections, the department said.

In a subsequent announcement, Allete reiterated that following the transaction, it “will remain locally managed and operated in Duluth and will continue to be regulated by the PUC, ensuring local oversight and control of rates and energy planning.”

It’s unclear when the PUC will hold a final vote on the merger, which federal energy regulators have already approved. If it does get the green light, Jester said it will set up an important test case for private utility investors looking to follow in BlackRock’s footsteps — one he’s not sure will pan out as anticipated.

“I see quite a bit of pressure on regulators to recognize that over the last 20 years or so, utilities have been receiving authorized returns on equity that are materially higher than in competitive sectors with otherwise comparable risks,” he said. If regulators crack down on those elevated rates of return, he added, “that’s not an environment where I would expect private equity to thrive.”

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[1] Url: https://minnesotareformer.com/2025/08/19/blackrocks-bid-for-minnesota-power-worries-consumer-advocates/

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