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Welcome to United’s PowerTalk podcast, a production of United Cooperative Services. We’re a distribution co-op serving 79,000 members, 110,000 meters and more than 34,000 internet subscribers! Tune in to each episode to hear stories about service, power, and the people working behind the scenes to provide our membership with exceptional service and value. Learn more about the cooperative and how we serve our community in North Texas at ucs.net.
John Davis:
Hello and welcome to United's PowerTalk.
I'm John Davis, and for those of you joining us for the first
time,
welcome. If you've come back to enjoy a second podcast,
we're glad to have you back.
United's PowerTalk is your cooperative's new podcast,
where we tell you stories of service,
power and the people behind it all.
We'll be coming to you every other month this year,
and I invite you to join us each time to learn more about the
people at your co-op and how we deliver exceptional service and
value each day for both electricity and high speed internet.
Affordability, oh, it's on everybody's mind these days.
Since the pandemic six years ago,
it seems every time consumers turn around to buy gas,
groceries, or anything else, prices continue to go up and that
includes energy prices.
And yes, electricity rates have increased,
but they have increased at a much slower rate when compared to
other products. That's good news for consumers.
In this episode, we'll meet with United CEO Cameron Smallwood to
discuss what is driving the prices of energy and what the
cooperative is doing to help keep these prices down as best as it
can for United members.
Cameron, thank you for joining us today.
Let's start this conversation with a quick explanation for how
United members are billed.
Cameron Smallwood:
Well, John, first of all, thank you for having me.
John Davis:
Absolutely.
Cameron Smallwood:
I really appreciate you taking the time to spend with me and have
a discussion today.
I think it will be really helpful for our members. And so yeah,
so you asked how we bill our members.
Well, we put it in the mail or put an email together,
right?
That's what you're asking?
John Davis:
That's it.
Cameron Smallwood:
No, what you're really asking is,
is where does our cost come from,
right? That's what we're talking about.
Obviously, everybody's got challenges paying bills right now.
Cost is up everywhere. And it's really important to me for our
members to have an understanding of what drives cost,
you know, when they get their bill in the mail or get that email
or that auto draft,
and they see that money come out of their account,
we really want our members to understand what drives that.
John Davis:
Right. And I also want to kind of talk about how it's not just
the end consumers who are affected.
We're affected by inflation.
Cameron Smallwood:
Right. And your co-op is not any different than that.
You know, we see the same cost pressures as you do at the grocery
store.
You know, we buy materials, all of that's gone up.
We buy trucks, all of that's gone up.
You know, the same thing that our members are dealing with,
we deal with at the co-op.
But when you pay a dollar to us,
what percentage of that goes to the different buckets,
if you will, that we're responsible to pay on behalf of our
members?
So when you look at that dollar,
about $0.75 of that is just a direct pass through for what
we call power costs. And so that doesn't come from us.
It comes from other parties. It's billed to us,
and we just directly pass it through.
There's no markup on that. And then the other 25% in today's
dollars,
that comes basically from us, to pay for the things that you're
cooperative.
With, over half of that, just paying debt service and,
and things that we really don't have control over.
And so when we look at our, what we build the members,
you know,
about that 15%, 12%. That's what our,
what we actually have control of at the co-op.
And so if you look at that dollar,
let's just call it $0.12 of that dollar.
You know, we can actually control what gets billed.
Now that's sort of a misnomer too,
because we can't stop trimming trees.
We can't stop paying for gas, things like that.
So can we really control that? No.
At the end of the day, that 25% that comes from your co-op and
pays for your co-op to run every day.
Not a lot of control on that either,
to be honest with you.
John Davis:
Right, right. Let's take a look at the larger portion,
the power supply portion of this bill.
Can you give our members an explanation of what's included in
that big portion of the bill?
Cameron Smallwood:
75% of the bill is what I was talking about is the power supply
cost of the bill.
And that's really multiple components.
The biggest of those components,
which is over $0.50 of the dollar you send us,
is for the energy itself. And so we have different contracts that
we have in place.
We buy some beforehand. We buy some during the time you're using
it.
We sort of mix it up, and we try to do the most cost advantageous
thing for our members.
And we're continuing to get better at that as we go forward.
And I'm sure we'll talk about later that this is something that's
relatively new for us to manage that power supply component of
the bill, which is the energy we purchase on behalf of our
members.
But there's more components. So I told you 75%,
and I told you the energy was a little over 50%,
so there's still some more to go there.
The transmission costs that we pay for,
so those are the transmission lines that we utilize to get the
generation from the market to our substations.
We have to pay for that. And that runs just under 10%.
So that $0.10 of that dollar is to pay for transmission.
Back in Winter Storm Uri, just a reminder,
we went through a process there of our power supplier filed for
reorganization bankruptcy, and we had to go through that.
And as a result of that, we did have to pay our part of power
costs from Winter Storm Uri,
which is a pretty big failure across the market in ERCOT back in
'21.
Well, we we did pay our part of that,
and we had to borrow money to do that.
And in order to do that, we had to take out loans,
basically long term loans,
that we have to pay back over time. That's what we call
securitization.
The securitization is about 8% of that billing and power supply
cost today,
but it's basically paying for power that we used during Winter
storm Uri,
but we did get a discount on that based on the bankruptcy
settlement.
John Davis:
Right. Right.
Cameron Smallwood:
And then substations. It's a small piece,
but it is a piece.
It's a couple percentage points.
So a few cents out of that dollar you spend to us pays for the
substations that we have where we take our lines and such from
and distribute power. And so, as you can see,
that 75% is made up of several different buckets.
John Davis:
Gotcha. And it sounds like all those different buckets are may
fall victim to inflation,
just like everything else.
Cameron Smallwood:
They do, and let me talk about trends on a few of those buckets.
The biggest piece is obviously the energy piece.
We've been working for a number of years to drive cost out of
that part of the member's bill.
A year ago, we gave options to our members of how after the
bankruptcy process,
they wanted us to handle that. And our members were really clear
to us.
They wanted us to do that for them. So we did,
and we have done that,
and we continue to optimize that process.
And so I'm hopeful over the next few years,
we're going to be able to drive a little bit more cost out of
that part of the bucket, if you will.
But our challenge is there's some headwinds that we're hitting
that I have a feeling are going to reverse some of our trends,
too. But I think short term, we have the potential to reduce some
costs there.
So, you know, if we can reduce,
let's say, half a penny or something,
that's real money to our members. So we're working on that right
now. And we have a goal to do that.
But the long term challenges are the growth in Texas and how
that's going to impact the market.
And I feel like that's going to have an adverse effect,
if you will,
on what we're trying to do to lower costs,
but we'll see over time.
But I think the short term, though,
is we're going to continue to have some success in bringing that
part of the bill down. We'll shift to the transmission bucket.
I'll talk, that's the next largest bucket as a part of the power
supply cost.
And the short term trends, I think are pretty stable there in the
next couple of years.
But we do have some really big headwinds coming there too.
The state of Texas, obviously is growing.
I mentioned that already. And because of that,
we have to continue to to build the grid out.
And when I say the grid, I mean the transmission grid,
it has to be reliable,
and it has to meet the growth of the future.
And there is a lot of growth coming.
And so there's a lot of transmission investment that is planned
right now and is going to be starting to hit the books in the
next couple of years, and we'll have to start paying for it.
The thought is a lot of that is going to be covered because of
the growth.
So if you're selling more energy,
then there's more to spread that cost over.
So maybe it doesn't have an impact.
But based on history and what we've seen happen in the past,
I guess times of transmission and investment,
I think there is a chance for the long term cost of transmission
to go up to be a bigger part of the members bill going forward.
The next item that I'd like to talk about is the securitization
piece.
And so the good news there, it's a long term bond,
28 year bond,
that we bought to pay for that. We're several years in already.
And what we're expecting as we grow and we sell more kilowatt
hours to different members,
that gets we have a fixed bond payment.
So that gets spread across more kilowatt hour sales. So the more
we sell,
the more that gets spread out. And so over time,
we're expecting that to drop from about a penny down to about a
half a penny towards the end of the securitization period.
So over the long term, that number is going to continue to be a
smaller and smaller portion of the bill as we go forward.
So that's an exciting thing to know that that is going to roll
off at some point.
And then substations, don't expect that to change significantly
as a percentage of the whole.
It might actually go down a little bit,
but we don't, we have some investment coming,
but it's not significant compared to the whole.
So I'm not seeing a bunch of increase there.
It's going to be pretty stable. So if you put all that together,
you know,
I gave you all these parts and pieces,
you put it all back together. There's some things that could go
up, some things that could go down and some things that are
stable.
So all that means it's probably relatively stable going forward.
John Davis:
That's good news, at least we kind of know what's coming.
Okay, so now let's talk about the smaller component of the bill,
the 25% you were talking about.
What makes that up?
Cameron Smallwood:
So the 25% is what we call the distribution cost on the bill.
So that's the money that you pay and send to us that actually
runs the cooperative.
And so we do have margin in that,
and so it's a pretty small part of that 25%.
But we actually have to have some margin,
some, you know, in a for profit business,
you call it, you know, profit in our case,
it's margin.
The reason we call it margin because we're a not-for-profit
electric cooperative,
right. And so any money that we make above the expenses
ultimately gets allocated back to the members and returned at a
future date. It doesn't go to a shareholder,
often a far distant place or,
you know, different investors. It never goes there.
It actually stays with the co-op and gets paid back over time.
So all of that's included in those costs,
but it sort of breaks down if you look at that 25%.
And I mentioned it earlier, about half of it is what we would
call fixed,
and about half of it is what we would call controllable,
even though it's not fully controllable,
if you will. But the fixed, those are not decisions that we're
making today that affect that.
It's really based on the debt and all the accounting things that
have to happen with running a company.
The other half being what we call the controllable.
That has to do with how many people we have,
how many people we employ,
how many vehicles we have, how much gas we use,
you know, the electric bill,
so to speak, of the buildings, all that falls into the
controllable section.
So what can we actually control?
And I use this example because vegetation management.
So that's us going out and trimming trees across our system.
And we have over 12,000 miles of distribution lines that we have
to keep clear over time.
And we have to trim those regularly to ensure that the lights
stay on when the wind blows and the storms come.
That's our number one biggest expense line item.
And so we could cut that, and we could.
But the end result is going to be members are not going to be
happy with that decision.
It's not going to be an acceptable cut,
even though we call it controllable.
We can stop cutting them, but within a year or two,
our members are going to throw a fit because they're going to be
having more outages than they want.
Reliability is going to suffer,
and that's not something that we feel is acceptable. And second,
there's an expectation. And, you know,
many folks don't know this,
but our Texas legislature last year or last session passed
several bills that actually require us to do certain maintenance
practices now. And that's all codified into law,
and we have to we have to follow those rules.
And vegetation management is one of those things.
John Davis:
And I know you've mentioned this before in other discussions,
we run pretty lean and mean when it comes to to employees.
You want to tell me a little bit about that?
Cameron Smallwood:
Yeah, sure. There's co-ops all across the country of all
different sizes,
but there's a number that are similar to our size.
And we look at how many employees they use to fulfill their
services compared to what we do.
We have about 30 to 35 employees less on average than co-ops,
similar size across the US.
And we do the same thing. And so I'm really happy to say that we
have a really efficient workforce of folks that wear a lot of
hats, but it keeps everybody busy and focused.
And we understand why we're here.
You know, there's a purpose as to why we're here,
and we're focused on that. And it helps the day go by quick.
Everybody's busy. But at the same time,
that's what makes us who we are here at United.
We're a pretty efficient organization.
John Davis:
Let's talk a little bit about how much inflation has impacted
what the cooperative pays to be a cooperative to do what we do.
I was wondering if we could talk about what it looked like in
2020 as opposed to 2025.
Cameron Smallwood:
Yeah, that's not very long ago,
is it?
John Davis:
No, it's not.
Cameron Smallwood:
Yeah. So 2020, it looked a little bit different than it does
today.
We've got a number of things going on.
But in 2020 our total cost of electric service.
So what we were spending, if you will,
and then passing back to the members,
was close to $200 million. And in 2025 year end.
So I know we're into 2026. But when we look at a full year,
that's our most recent full year,
and we're at $390 million. So that's a different number
altogether.
John Davis:
It's nearly double.
Cameron Smallwood:
Almost double. And so why is that?
Well, there's a lot of reasons. You know,
I just talked about all those buckets. And what I can say when I
look at that breakdown from from 2020 compared to 2025,
you know,
I was talking about the 25% and the 75%.
And then I got into the buckets and,
well, the actual pie chart looks very similar.
There's only one difference, and that's the securitization.
And so the securitization didn't exist in 2020 because that was
pre-Winter Storm Uri.
We hadn't had that event happen yet.
So that wasn't a part of the cost,
but that's part of this increase.
John Davis:
Okay.
Cameron Smallwood:
But it's only a part of the story.
You know, our transmission cost bucket,
if you look at that go back 15 years ago,
we were paying about 10 million.
Now we pay almost $40 million in transmission costs.
That's a pretty significant increase.
John Davis:
Definitely.
Cameron Smallwood:
Some of it's because of growth,
but some of it's because the transmission rates have increased
over time. But that's not it either.
Not all of it. It's pretty much hit in every category.
And so if you look at our cost,
it's gone up.
You know, the cost of vehicles has gone up. The cost of goods and
services have gone up that we utilize.
The cost of debt has gone up just all across the board,
just as consumers are dealing with in general,
our members are dealing with in general,
so are we dealing with in general.
And so you throw all that together and that $180 million increase
over five years.
That's what it is. And so if you wonder why rates have gone up
over time,
you know, that's why rates have gone up over time.
But if you look at our rate, let's talk about our rate.
John Davis:
Yeah.
Cameron Smallwood:
So back when we exited the bankruptcy with with Brazos.
So Brazos went through bankruptcy.
We had to exit through that process,
and we began to do our own power supply at that point in time.
So that was March of '23. So if you look at our rate from March
23rd to current,
it's about the same. The actual rate our members pay per kilowatt
hour hasn't changed very much.
It went up a little bit in November of '24.
We did a distribution rate increase because we had to at that
point in time,
and we implemented that. So we had a small bump up of costs
there,
about 10 to $12, and then go about a year past that point,
and you'll see a corresponding drop of about the same.
So what happened there? Well, in January this past year,
we actually had a decrease because of some of our power supply
arrangements that we worked through.
And so if you look at what you're paying now,
it's the same primarily that you were paying back in March of
'23. It says, you know, at times I have members call and say,
hey,
your rates have gone up. Well, that's not really true.
If you look at what our rate has done over the time,
it's actually been flat.
It's been very consistent. If you look at the market,
though, that we compare against.
So if you were on Oncore close to our territory and had to select
an REP.
Or if you're on Texas-New Mexico power lines and had to select an
REP.
If we look at those average rates for those two different
offerings,
it's all over the map.
John Davis:
Yeah.
Cameron Smallwood:
It's plus or -$7,500 around where we've been.
And most of the time it's a little bit more expensive than us.
So we've maintained competitiveness during this whole time since
March of '23.
On top of that, we've maintained consistency as well.
And so we're not bouncing all around the map.
We're just a flat line, which I think our members value that our
costs aren't bouncing around.
They're pretty much the same. And they've been the same since
March of '23.
John Davis:
Could we talk a little bit more about the big D word,
data centers?
What's going on here in Texas? What are we seeing,
and what are we about to see?
Cameron Smallwood:
Right. Well, why did you call it the big D?
John Davis:
Well, it depends on which side of the argument you're on.
Cameron Smallwood:
Yes. Now, I understand that completely.
And obviously some of our members are caught in the middle of
this right now.
Here in Johnson County, Hood County.
Those are the primary counties where we're seeing the discussions
happen right now.
So when we look at data centers,
it's a trend across actually the world.
I mean, they're being built all over the world right now. But
specifically in the U.S.,
Virginia has sort of had the the market,
so to speak, on data centers and the growth of data centers,
but they're sort of tapped out for lots of different reasons. I
mentioned it a bit ago about the markets in the Northeast and
some of the challenges there. And our state has made some pretty
big moves into trying to spur the development
of data centers in Texas. And so that comes from the economic
development groups in Texas,
the governor's office, etc. There's a long list of folks that
would like to see that happen because of the value it could bring
to Texans. And but now we've sort of shifted into reality is,
okay,
now they're wanting to come. There's decisions that are being
made and properties being purchased and now real people are being
affected, you know. So real landowners are saying there might be
a data center next to me?
What does that mean? And that means our members.
And so we've talked to quite a few of them and where they're at
in the in the process right now.
Texas is basically developing a set of rules to govern how data
centers interconnect to the grid to ensure
that we have a reliable grid going forward.
And we all want that. And so we support that at United for good
rules to be written and for rules to be followed.
That way we can control the outcomes that we all want to see out
of the out of adding data centers to our grid.
Now, with that said, you know, there's challenges with it,
but there's benefits too.
And so I want to talk about United's obligation to serve those
data centers.
So, you know, we've already had members call us and ask us
questions about data centers potentially being on our system.
Today, we don't serve any. We're talking to quite a few of them
that want to interconnect with us,
but they're waiting on this ERCOT process and state process to
wrap up so they can move forward.
So basically, all the data centers that haven't already broken
ground as of about a year or two ago,
they're all sort of in a holding pattern right now waiting for
the final rules.
So once those are released, and we're expecting that to come,
let's say around June of this year,
then you're going to start seeing some movement again on the data
centers.
And we have a number of them that do want to construct in our
area,
have already purchased land and have already started the process
with us,
Brazos and ERCOT to do the interconnection,
but they're still waiting on the rule set to be complete so they
can move forward. So what does that mean for us?
Well, when some data center comes to us and knocks on our door
and says,
hey, co-op, and we want to connect to you,
we can't tell them no.
As long as they have followed all the rules,
they have rights to the property and done everything they're
supposed to, and then they sign all of our agreements and follow
all of our rules and expectations,
then we have an obligation to actually serve them.
If they're in our territory, we have to serve them.
So we are working with them right now a number of them.
Are any of them going to actually happen? We don't know that yet.
At the end of the day,
we're going to serve those that follow all the rules and meet all
the expectations and pay all the fees.
But know this anybody that we serve,
we're going to do the right thing and make sure the risk is
mitigated for the membership. So obviously there'll be a new
member,
you know, data center that connects with us,
but they'll be treated in a certain manner to ensure that they
don't shift costs to other members and that they pay their fair
share if they do interconnect with our system.
John Davis:
So you mentioned benefits. What kind of benefits would a data
center bring to the co-op?
Cameron Smallwood:
We've studied this out at the co-op already to determine what's
going to happen if they do interconnect with us.
Number one, I mentioned part of our power supply bucket was
securitization cost.
And I mentioned in that discussion that we have a fixed bond
payment that we have to make every year,
and that's going to go down over time for the members,
you know,
per member, because we're growing.
Well, if you start selling a lot of kilowatt hours to a data
center,
which we would be in this case,
then that lowers the securitization unit cost for everybody.
So what we've looked at, we have done a study on just one
gigawatt data center,
and we have a number of them of that size talking to us right
now,
but just one of them that adds and goes up to full load will
reduce our securitization cost that we pass through to the
members from a penny per kilowatt hour down to 0.1 pennies.
John Davis:
Wow.
Cameron Smallwood:
So primarily wipes it out. Wow. Not completely,
but almost.
And so it becomes a much smaller part of what our average member
will pay for the securitization,
which, you know, that's an 8 to 10% savings on the bill.
So that's something.
John Davis:
That is something. Yeah.
Cameron Smallwood:
Yeah. And so the other part is margins.
And so I was talking about margins earlier.
And of course we have to collect enough margins to keep our
bankers happy.
And anything we do have in margins gets sent back to the members
at the end of the day.
But when a data center connects,
they will be producing margins as well.
And so when they do connect, we'll be quote unquote "making
money" on those folks,
and it will stabilize our distribution rate base.
So our hope is over time, if we add a few of these folks and they
do their share,
they pay their share, then ultimately they're going to help us to
stabilize our distribution rate increases of the future.
Two major benefits that we get financially from the data centers.
Obviously, there's other benefits. What we're starting to see is
them being a really good community partner.
And being engaged in the communities that they're locating.
And I think that's a great benefit to the communities as well.
So there are some good things that can come out of it too.
John Davis:
Well, you mentioned paying their fair share. What would that
entail?
Cameron Smallwood:
That's a great question, John. So if you can imagine,
when you build a house,
you have to do certain things to connect to the grid.
It's pretty small. It's a small part,
a small piece of the puzzle,
if you will, economically, of building that house.
In a data center, it's a little different scenario because they
use a lot of energy,
there's a lot of infrastructure that actually has to be built.
And so the idea of paying their fair share is when they
interconnect with us,
they're going to pay for all of those costs of interconnecting.
Not just a small part, all of it.
And that's something that we're going to hold tight to.
They have to pay all of their interconnection costs,
and that's a pretty much a standard that's been being set across
the country right now. And the data centers understand that too,
because it can be expensive to interconnect them to the grid.
And we don't want other members sharing that cost.
John Davis:
So the co-op is doing everything they can to keep costs down for
members.
What role do members play in keeping their bills lower?
How can they save money?
Cameron Smallwood:
And John, I would argue that's the million dollar question right
now,
right? It's because our rate has stayed flat.
I already mentioned that earlier in our talk,
but members continue to call us and complain about,
you know, the challenges they have paying their bill. Well,
our rate hasn't gone up, so what's changing? Well,
it's in the summer, it's in the winter when the air conditioners
never stop running or when their heaters never stop running.
John Davis:
Okay.
Cameron Smallwood:
And it really drives their energy costs up.
And depending on insulation, all sorts of different things,
it really affects the bill.
Are our rates going up? No, their usage is going up.
And so what can we do as the co-op to help our members use less
of the product we sell?
That's the goal. And so, I'm going to suggest that you invite one
of our employees on our next podcast to have a
discussion with our members of how can they affect their bill.
John Davis:
I think that sounds like a great idea.
That'll be the dead of summer, right,
when they'll want to do it.
Cameron Smallwood:
Exactly. And I think if members will engage with us on this,and
we're here to educate and assist every way we can.
We do energy audits for free. We don't charge for that service
for our experts to come into your home.
We have so many different options to help our members use less of
the product we sell.
We really want to work on that with our members as we go forward.
John Davis:
Perfect. Before we close, is there anything else you'd like to
add?
Anything I may have forgotten to ask?
Cameron Smallwood:
Well, I'll say this. We're going to have a lot of opportunities
to meet with our members and our communities upcoming.
And so I really hope that as we move from community to community
and have those meetings that our members will take time to come
see us, come visit with us and have a broader discussion about
what we're talking about on today's podcast.
John Davis:
Excellent. Cameron, thank you for taking the time to talk to us
today.
Cameron Smallwood:
Absolutely, John, I really appreciate it and look forward to many
future discussions with you.
John Davis:
I know they're coming.
Cameron Smallwood:
Yes, sir.
John Davis:
Thank you for taking the time to join us here today on United's
PowerTalk.
We'll see you again next time.