In ‘unprecedented’ deal, Minnesota co-ops buy out utility

A group of 12 cooperatives in southern Minnesota have purchased the distribution assets of Alliant Energy Corp.’s Minnesota operations for $127 million.

Announced Friday, the deal between the cooperatives and Alliant Energy may be the one of the first times in history co-ops have acquired a major asset of an investor-owned utility.

More than 43,000 customers and 70 employees will transition from Alliant Energy, based in Madison, Wisconsin, to the Southern Minnesota Energy Cooperative (SMEC). Co-ops absorbed Alliant Energy customers within their footprints, with some seeing their membership triple.

“I think it’s unprecedented to have a number of co-ops make a purchase of this size and this scale,” said Steele-Waseca Cooperative Electric operations division manager Kim Huxford. “It’s the first of its kind.”

The cooperatives formed in 2013 to negotiate the deal with Alliant Energy. It met with approvals from the Minnesota Public Utilities Commission, Iowa Utilities Board and the Federal Regulatory Energy Commission.

Alliant Energy’s Minnesota business represented only four percent of its customer base, according to spokesman Scott Reigstad. The majority of its roughly 950,000 customers live in Iowa and southern Wisconsin.

“This allows us to serve our customers in Iowa and Wisconsin more efficiently and cost-effectively,” he said. “In Minnesota the customers were spread over a large geographic area and it wasn’t really cost efficient to serve them.”

Alliant has little concern over the co-ops’ ability to service their former customers. “We have confidence in their ability to provide good service, Reigstad said. “Most of them have been in business for more than 70 years.”

As part of the deal, Alliant Energy will provide wholesale electricity to SMEC members through a 10-year power purchase agreement. In April, he added, Alliant Energy sold its Minnesota gas operations, which represented 2.5 percent of its customer base, to Minnesota Energy Resources Corporation.

The co-ops saw in the deal more customers and “more economies of scale that will benefit our current membership,” he said. Fixed costs, for example, can now be spread over a larger number of customers, he said.

The footprint of the SMEC with the acquisition now spreads to the Iowa and Wisconsin borders, Huxford said, while adding new customers to every co-op’s customer list.

Owatonna-based Steele-Waseca will gain around 1,600 new customers that are being added to the existing membership of 9,000. That works out to 4.32 percent of Alliant Energy’s Minnesota customer base.

“You need strong growth in order to keep rates stable,” he said, noting the rare opportunity to add so many customers at once.

Alliant Energy will continue to provide electrical generation to some SMEC members, he said. The utility’s former customers have been notified of the change by mail and received a transition guide, letter and name and phone number of their new electric provider.

For customers the change to being part of a co-op should be beneficial, Huxford said. They will be closer to the headquarters of their local coop should they have questions, problems or issues, he said.

Since co-ops are closer to customers – and owned by them – the response time to power outages and other problems “should be quicker,” he said. Co-ops operate more like a democracy, customers having an opportunity to vote on issues, attend annual meetings, and “have a voice in going forward,” he said.

Perhaps the biggest difference, however, comes in sharing profits. At the end of the year if a c-op shows a profit after expenses and investments, its customers receive a “capital credit” in the form of check, he said.

The co-ops are excited to be serving thousands of new customers.

“We feel we can bring a lot to the table for those folks,” Huxford said. “We’re going to do the best job we can.”