Private investment firms that are helping finance America’s artificial intelligence race and the huge buildout of energy-hungry data centers are getting interested in the local utilities that deliver electricity to regular customers — and the servers that power AI.
Billions of dollars from such firms are now flowing toward electric utilities in places including New Mexico, Texas, Wisconsin and Minnesota that deliver power to more than 150 million customers across millions of miles of power lines.
“The reason is very simple: because there’s a lot of money to be made,” said Greg Brown, a University of North Carolina at Chapel Hill professor of finance who researches private equity and hedge funds.
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Private investment firms that have done well investing in infrastructure over the last 15 years now have strong incentives to add data centers, power plants and the services that support them at a time of rapid expansion and spiking demand ignited by the late 2022 debut of OpenAI’s ChatGPT, Brown said.
BlackRock's CEO Larry Fink said as much in a July interview on CNBC, saying infrastructure is “at the beginning of a golden age.”
“We believe that there’s a need for trillions of dollars investing in infrastructure related to our power grids, AI, the whole digitization of the economy" and energy, Fink said.
Deals are in the works
In recent weeks, private equity firm Blackstone has sought regulatory approval to buy out a pair of utilities, Albuquerque-based Public Service Company of New Mexico and Lewisville, Texas-based Texas New Mexico Power Co.
Wisconsin earlier this year granted the buyout of the parent of Superior Water, Light and Power and the owner of Northern Indiana Public Service Co. last year sold a 19.9% stake in the utility to Blackstone.
However, a fight has erupted in Minnesota over the buyout of the parent of Duluth-based Minnesota Power and the outcome could determine how such firms expand their holdings in an industry that's a nexus between regular people, gargantuan data centers and the power sources they share.
Under the proposed deal, a BlackRock subsidiary and the Canada Pension Plan Investment Board would buy out the publicly traded Allete, parent of Minnesota Power, which provides power to 150,000 customers and owns a variety of power sources, including coal, gas, wind and solar.
Both sides of the fight have attracted influential players ahead of a possible Oct. 3 vote by the Minnesota Public Utilities Commission. Raising the stakes is the potential that Google could build a data center there, a lucrative prospect for whoever owns Minnesota Power.
Opponents of the acquisition suspect that BlackRock is only interested in squeezing bigger profits from regular ratepayers. Allete makes the opposite argument, that BlackRock can show more patience because it is free of the short-term burdens of publicly traded companies.
More buyouts worry opponents
Opponents also worry that a successful Minnesota Power buyout will launch more such deals around the U.S. and drive up electric bills for homes.
“It's no secret that private equity is extremely aggressive in chasing profits, and when it comes to utilities, the profit motive lands squarely on the backs of ratepayers who don’t have a choice of who they buy their electricity from,” said Karlee Weinmann of the Energy and Policy Institute, which pushes utilities to keep rates low and use renewable energy sources.
The buyout proposals come at a time when electricity bills are rising fast across the U.S., and growing evidence suggests that the bills of some regular Americans are rising to subsidize the rapid buildout of power plants and power lines to supply the gargantuan energy needs of Big Tech’s data centers.
Mark Ellis, a former utility executive-turned-consumer advocate who gave expert testimony against the Minnesota Power buyout, said he's talked to private equity firms that want to get into the business of electric utilities.
“It’s just a matter of what’s the price and will the regulator approve it,” Ellis said. “The challenge is they’re not going to come up for sale very often.”
That's because electric utilities are seen as valuable long-term investments that earn around 10% returns not on the electricity they deliver, but the upcharge that utility regulators allow on capital investments, like upgrading poles, wires and substations.
That gives utility owners the incentive to spend more so they can make more money, critics say.
