Latham, Kirkland, and Skadden Advise on ALLETE Going Private

US-based energy company ALLETE, Inc. (NYSE: ALE) announced it will be taken private by a partnership led by the Canada Pension Plan Investment Board and Global Infrastructure Partners in a deal valued at $6.2 billion. ALLETE expects the transaction to close mid 2025 and the company will withdraw from the New York Stock Exchange. 

“ALLETE is a leading energy company and provider of safe, reliable, and competitively priced energy with a national footprint,” according to the companies’ joint press release. “Together, ALLETE and its family of companies, which includes regulated utilities and renewable energy companies, are focused on driving the clean-energy transition by expanding renewables, reducing carbon, enhancing grid resiliency, and driving innovation.”

U.S. electricity prices have surged in recent years, rising an inflation-adjusted 5% in 2022 and nearly 4% in 2023. According to the Bureau of Labor Statistics, nominal electricity prices have increased by 29.1% from January 2020 to January 2024. 

A graph showing the price of energy

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Source: Statista

Electricity prices are driven by five primary factors: 

  1. fuel costs: the prices of the underlying fuel that powers the electrical plant, such as coal, oil, or natural gas, will fluctuate, causing increased costs that are often passed along to consumers. For example, natural gas prices jumped in 2022 when Russian invaded Ukraine, resulting in strong upward pressure on electricity prices since natural gas is the largest source of energy for electricity production, accounting for approximately 40% of U.S. production. This is a large increase from 1990, when natural gas accounted for just 12.3% of U.S. production. 
  2. power plant costs: expenses necessary to build, maintain, operate and finance the plant that produces the electricity. Different regions have varying mixes of plants from coal to nuclear to gas to hydro, each plant with their specific costs. 
  3. transmission and distribution needs: costs of maintaining and repairing power lines and distribution systems needed to get the electricity to homes. 
  4. weather: fluctuations in weather affect prices in various ways, such as when a heat wave increases demand for cooling and places upward pressure on prices or severe weather damages infrastructure. On the other hand, heavy rains and snow can often help hydroelectric prices. 
  5. regulations: many states either fully regulate or partially regulate prices. This can result in delayed effects of oil and gas price spikes, with regulators approving price changes sometimes many months after the increase or decrease in oil and gas prices. Government mandates for safety measures, switching to renewable sources, and other matters also drive prices. 

While electricity generation accounts for a majority of costs, distribution and the other factors above play significant roles. This is why electricity prices have remained stubbornly high even though natural gas and oil prices have moderated from the spikes of 2022. Different states face differing prices based on their mix of infrastructure needs, regulations, and types of power plants. For example, Hawaii has the highest prices in the nation as its plants rely on oil that must shipped in and then the electricity must be distributed across multiple islands with varied terrain. 

2023 electricity map

According to DealPulse’s M&A database, which harnesses both AI and attorneys to digest the granular deal points of publicly-announced transactions, ALLETE is advised by Skadden, Arps, Slate, Meagher & Flom LLP and Affiliates. Canada Pension Plan Investment Board and Global Infrastructure Partners are advised by Kirkland & Ellis LLP and Latham & Watkins LLP.