The BlackRock Situation Just Got Worse...

BlackRock's Power Grab: Controlling Your Basic Needs?

Key Concepts:

• Real Assets: Tangible assets like housing, infrastructure, and land.
• Global Infrastructure Partners (GIP): A large investment fund acquired by BlackRock that owns infrastructure systems.
• Minnesota Power: A utility company owned by Allete, which GIP is attempting to acquire.
• Public Utility Commission (PUC): A regulatory body that oversees critical services like electricity.
• Regulated Monopoly: A market where a single provider is granted exclusive rights to provide a service, subject to government regulation.
• Private Equity: Investment in companies not listed on a public stock exchange.
• Captive Rate Base/Captive Customers: A customer base with limited or no alternative providers for essential services.
• Data Centers: Facilities housing computer systems and associated components, requiring significant energy.

BlackRock's Acquisition Strategy

BlackRock is shifting its strategy from investing in stocks to acquiring full or majority ownership of infrastructure systems, specifically "real assets." This includes essential services like water, energy, transportation, and housing. The acquisition of Global Infrastructure Partners (GIP) is a key step in this direction. GIP already owns significant infrastructure assets globally, including shares of major airports.

The Minnesota Power Case: A Test Case

BlackRock, through GIP, is attempting to acquire Allete, the parent company of Minnesota Power, which provides electricity to 150,000 people. This deal is a test case for BlackRock's expansion into essential services. The acquisition requires approval from the Minnesota Public Utility Commission (PUC), a board of five people appointed by the governor. A judge has already recommended against the deal.

Community Concerns and Opposition

Community members in Duluth and surrounding areas are concerned about the potential impacts of BlackRock's acquisition on rates, service quality, and long-term investments in the community. There are fears that BlackRock will prioritize short-term profits over the needs of the community.

Quote: "We depend on Minnesota power for our regional economy, for our heat, for our transportation, and indeed for clean water. We need this company to continue to make long term investments in our community. But that's not what this acquisition is about. This acquisition is about maximizing short term profit."

Bob Tammen, a longtime Minnesota Power employee and customer, expressed concern about BlackRock's potential control over land and mineral rights owned by Minnesota Power.

The UPPCO Example: Rate Hikes and Instability

The case of Upper Peninsula Power Company (UPPCO) in Michigan serves as a cautionary tale. After being acquired by a private equity firm in 2014, UPPCO customers experienced multiple rate hikes. The company was later sold to another private equity firm, leading to further rate increases.

Alissa Jean Schafer, director of climate and energy at the Private Equity Stakeholder Project: "UPPCO customers have seen a spike in their rates, many say that they can't afford. After the private equity firm took it over, shortly thereafter, they raised the bills. A couple of years later, bills went up again. Then that private equity firm sold it to a different private equity firm. Once the new private equity owners were in control, they raised bills again. Since 2014, UPPCO, being owned by private equity, has seen four bill hikes."

Potential Impacts on Clean Energy Goals

There are concerns that BlackRock may not adhere to Minnesota's clean energy goals, including the requirement for 100% carbon-free electricity by 2040. BlackRock's size and capital could allow them to disregard state laws, viewing potential fines as insignificant.

The Broader Trend: Asset Manager Playbook

The Minnesota Power case is part of a larger trend of asset managers acquiring essential services. The typical playbook involves:

1. Acquiring the asset using debt (loans).
2. Running the asset as cheaply as possible for a few years.
3. Selling the asset, often to another asset manager, at a profit.

This model prioritizes profit for asset managers over the needs of customers.

The Captive Customer Base

Utilities in regulated states have a "captive rate base," meaning customers have limited or no alternative providers. This makes them attractive investments for asset managers, as they provide a guaranteed revenue stream.

How the Deals Work: Investment Funds and Debt

Asset managers typically set up investment funds to acquire assets. They invest a small percentage of their own capital (1-5%) and attract investments from other large companies. The fund then borrows money to finance the acquisition, using the acquired company's assets as collateral. This means that customers ultimately pay off the debt incurred by the asset manager.

BlackRock and Data Centers

BlackRock is aggressively moving to control various aspects of the supply chain related to AI and data centers, including data center development, computer software, computer hardware, and potentially the power companies that supply electricity to these data centers.

Larry Fink: "We need energy, but we also need the last mile. We need a power line that goes from the energy source to the energy user... If we're not going to unlock this, it's going to be harder and harder to build out these AI data centers."

Community Action and Alternatives

Communities are exploring options to regain control over their essential services, including purchasing utility assets from companies like Superior Water, Light, and Power in Wisconsin.

Bob Tammen: "We should have local control, local communication, and be neighbors on a national level."

Conclusion

BlackRock's pursuit of "real assets" represents a significant shift towards controlling essential services. The Minnesota Power case highlights the potential risks to communities, including rate hikes, reduced service quality, and disregard for clean energy goals. Community action and alternative ownership models are being explored to counter this trend and ensure local control over essential services. The final hearing for the Minnesota Power buyout is on September 25th, and the decision is set to be made on October 3rd.