Brown: Is the Minnesota Power sale in the public interest? A judge is skeptical.

Opinion editor’s note: Strib Voices publishes a mix of commentary online and in print each day. To contribute, click here.

•••

As costs continue to rise for everything from produce to manufactured goods, Minnesotans could certainly do without significant increases in their utility bills.

That’s why an investment group’s recent bid to acquire Allete, the parent company of Minnesota Power, generated heated comments throughout several public hearings held earlier this year. Ratepayers worry that the sale might lead to higher electricity rates in the future. This week, those consumers found their concerns validated in court.

On Tuesday, Administrative Law Judge Megan McKenzie recommended that the Minnesota Public Utilities Commission deny the Allete acquisition. In an unambiguous ruling, the judge stated that the companies involved “have not met their burden of proof to show the transaction is consistent with the public interest.”

This nonbinding ruling will inform PUC commissioners as they make the final decision about the acquisition in coming months.

Pay close attention to what happens next.

Mergers and acquisitions occur all the time. But there’s something unique about the partners trying to buy Minnesota Power. They include the Canada Pension Plan Investment Board and Global Infrastructure Partners, which is owned by the world’s largest private investment firm, BlackRock. The sale would essentially establish BlackRock as the controlling interest.

BlackRock is already a minority shareholder of Allete, just as it holds shares in many companies you know. But taking over the company suggests BlackRock has big plans for a key sector of Minnesota’s economy. That’s something the judge noted in her report.

“Consistent with the strategies of private equity investors generally, the Partners plan to become deeply involved in [Allete’s] governance,” wrote McKenzie.

Investment like this carries benefits and risks. Such deals infuse cash to upgrade facilities and technology, something supporters of this merger cite. Allete says that the deal is necessary for Minnesota Power to meet state clean energy goals by 2040.

But, on the other hand, these kinds of investors expect higher returns year over year. BlackRock didn’t get so big settling for simple market-based gains. It will want more than what Allete currently generates, in revenue and electricity alike. Thus, ratepayers could be asked to pay for the investment down the line. That’s certainly what the judge suspects. She also lost patience with inconsistencies in the merger proposal.

“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,” wrote McKenzie. “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 judge’s report called into question several of the investor promises, suggesting that promises of capital infusion weren’t backed up by evidence.

“That should give everyone serious concerns about this deal, and the idea that the utility’s workforce and 150,000 customers will be saddled with a utility that isn’t overly concerned with honest dealing,” said Hudson Kingston, one of the attorneys for CURE, a Minnesota organization that argued against the merger. “We expect the Public Utilities Commission to stand by the public and reject any utility acquisition that will harm Minnesotans and the economy only to enrich private equity speculators.”

Despite the ruling, Allete and its potential new owners are forging ahead, suggesting commissioners dismiss the judge’s 67-page recommendation.

“The ALJ report mischaracterizes the parties, their agreements and plans, and the benefits and risks of the acquisition,” read a statement from Allete.

Its next stop is the PUC, where political influence becomes a more potent force.

Allete complained that the judge didn’t consider the state Commerce Department’s agreement last week to lift its opposition to the merger. That late deal includes a one-year freeze on electricity rates. But the timing of that announcement so late in the process raises a whole new set of questions.

We live in a market-based system. Markets serve us well when they innovate and generate capital for local economies. And yet, we might also trace the rise in day-to-day costs to the financial commodification of necessities like health care, housing and energy. It’s hard not to see this deal as more of the same.

When core functions of society are required to produce ever-growing returns for the relative few, we find ourselves on a financial treadmill that gets faster each year. We’re already jogging. Some would have us run.

That’s why we should slow down and protect the public interest first.