Dive Brief:

• Minnesota regulators have approved a request from an investor-owned utility in the south of the state to sell its assets to 12 electric co-ops in a $122 million deal, the Minneapolis Star-Tribune reports.
• The PUC voted 4-0 last week to authorize Interstate Power & Light (IPL), which serves about 43,000 customers, to sell its assets in a deal that the paper reports could raise residents' power prices. Each of the 12 co-ops will absorb a portion of the IOU's customers, in numbers ranging from 500 to 15,000 per co-op.
• Business and consumer groups objected to IPL shareholders making a profit on the sale of the assets, which was reportedly priced at $17 million above the actual value of the IOU's assets. 

Dive Insight:

In what some members of the co-op community are calling a "golden opportunity" for Minnesota co-ops to expand their customer base beyond their usual service areas, Minnesota regulators have approved Interstate Power & Light's request to sell its assets to a dozen of the state's cooperatives.

The Star-Tribune points out that the sale represents "the closing of a historical loop" in electric delivery. In the early 20th century, many co-ops were set up to bring electricity to rural areas that did not provide enough load for investor-owned utilities to justify extending service to their residents. 

The co-ops argue that the deal will provide long-term benefits to the area's customers, but the deal will likely cause residents to pay more for electricity in the short term, the paper reports. IPL has a 10-year power purchase agreement with its parent company Alliant Energy to purchase electricity at higher rates than today, meaning that customers could reportedly see bill increases of 5-7% after the deal closes. 

In recognition of possible price hikes, the PUC is barring the co-ops from raising distribution rates for three years, and then limiting those increases to 5% per year for two years. After that, the co-ops, which currently have higher rates than IPL, will be free to set their own rates. 

While this type of IOU asset sale is not commonplace, it is also not without precedent. In 2005, two Illinois co-ops purchased assets from Alliant for $47 million, and in 2009 three Virginia co-ops bought the assets that served 102,000 customers from Potomac Edison for $320 million.

Conversely, the assets of many co-ops were on the target list for IOU takeovers last decade. In 2005, Public Utilities Fortnightly penned an article finding that IOUs looking into co-op acquisitions were finding "fertile territory for growth" while in 2007, EnergyBiz published an article highlighting the trend of IOU-co-op acquisitions and partnerships.