After a two-year hiatus, United members again will begin receiving member dividends in October 2023.
Following the financial fallout from Winter Storm Uri in 2021 and the resulting Chapter 11 bankruptcy filing of United’s former power supplier, Brazos Electric Power Cooperative, United’s board of directors voted to suspend member dividends because of the uncertainties surrounding the final power bill United would be required to pay for the extraordinary costs associated with the winter storm.
United’s board voted earlier this year to reinstate the Member Dividend program after the conclusion of the trial in November 2022 and the securitization of the final amount (approximately $440 million).
“We are so pleased to be able to give member dividends back to our United members this year,” said United CEO Cameron Smallwood. “When members pay their electric bill each month, they’re not only paying for the reliable service, but also investing in the company they partly own. As a result of that equity stake in the business, United members share in cooperative margins. After paying for all operating costs for the fiscal year, members may receive a part of the money left over.”
Member dividends accumulate based on the amount of electricity used by each member. Each year, United’s board of directors may vote to retire a portion of these dividends, based on the financial stability of the cooperative. Dividend checks are issued when the credited amount is $20 or greater. Credits up to $19.99 are applied to active accounts. Since 2000, United has distributed $83 million in member dividends. These member dividends represent the member-owners’ return on equity in United Cooperative Services.
Electric cooperatives presently have only one primary source of equity capital, which is contributed by the members. Member equity is the essential tool for United to build, maintain and upgrade the facilities necessary in providing reliable, affordable electric service to the cooperative’s membership.
Several factors impact the total member dividend sum United is able to return. The Texas population has grown at a rapid pace in recent years with no significant slowdown in sight. United’s membership has grown at between 4.2 and 4.5 percent during the last two years—the most rapid growth the cooperative has seen in decades. With that growth comes the need to grow the cooperative’s utility plant to meet the energy requirements of the growing membership.
United’s fiber-optic internet project, which the members voted 91 percent in favor of the cooperative implementing, requires a significant investment to provide this necessary service to its membership. Both of these vital services are extremely capital-intensive efforts, which affects the amount of member dividends the cooperative is able to return while being sensitive to the requirements of its loan covenants.
The recent higher prices for electrical infrastructure and the Brazos Electric Cooperative bankruptcy also factor into how much members receive in member dividends.
Electric utilities are a capital-intensive industry requiring a large investment in plant and equipment. Equity and borrowed capital allow United to serve a growing number of consumers while implementing the latest technology to provide the best possible service to its members. A large amount of cash is necessary to keep up with construction during periods of fast growth, such as what United’s service territory experienced in recent years. That growth and need for more infrastructure is also paired with higher prices for the electrical equipment and infrastructure due to inflation in recent years. Simply put, it now costs substantially more to get power to members and maintain current infrastructure than ever before.
Following the conclusion of the Brazos bankruptcy trial, Brazos became a transmission and distribution utility. It ceased generating electricity and no longer procured wholesale power for its 16-member distribution cooperatives. With these changes, Brazos also elected to cease retiring its own capital credits (member dividends), which it had begun to distribute back to its member-cooperatives for several years prior to the bankruptcy. For now, United will no longer receive a portion of Brazos’ capital credits (member dividends) that it can pass along to United members.
“Our board and management apply very conservative business philosophies in leading this organization, which allows for United to provide a valuable and reliable service,” Smallwood said. “We are proud to be able to continue our long tradition of returning member dividends to the people we serve.”