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Serving Outside the Box: United Electric Cooperative Delivers Broadband to New Markets - CoBank Site
Serving Outside the Box: United Electric Cooperative Delivers Broadband to New Markets
A growing number of electric cooperatives are adding broadband offerings to their service mix, delivering high-speed internet to their rural members while diversifying their balance sheets.
United Electric Cooperative has taken this business strategy a step further as one of the first electric cooperatives to offer fiber connectivity to customers living outside of its electric distribution territory – and delivering significant financial return to its members in the process.
United Electric serves 7,500 customers in northwest Missouri and southwest Iowa across 3,700 miles of distribution lines. But in 2013, the cooperative expanded its services beyond traditional electric distribution services to offer fiber-to-the-home internet service through its subsidiary, United Fiber; this set the stage for it to ultimately make the unprecedented move in 2016 to expand this service beyond its electric distribution territory.
To get started, United Electric identified enclaves adjacent to its natural electric footprint, making arrangements with the resident electric utilities to use their poles to string United Fiber’s wire. This proved highly attractive and today United Fiber has 40,000 customers, only 5,000 or so of whom are members of the electric cooperative.
Unusually, United Fiber is organized as a for-profit company owned by the electric cooperative. Operating independently, it responds to market pressures to maximize its returns while delivering reliable service in underserved rural communities. Profits flow to the cooperative and are ultimately returned, at least in part, to electric distribution members via enhanced patronage payments.
CoBank has a mindset of getting to ‘yes’ and finding a way to support its customers, and they were willing to finance this project when no one else would. It’s a sophisticated bank with an open mind, and with the expertise to understand our business model and the broader communications sector,
Jim Bagley, CEO of United Electric Cooperative
“We started offering fiber services outside of our electric distribution territory about eight years ago. Today, we’re much larger on the fiber side than the electric side, and every one of our 10,000 electric meters has seen a $1,200 impact in either patronage or rebates since 2017,” said Jim Bagley, CEO of United Electric Cooperative.
Having relied in large part on government grants and stimulus programs to subsidize the initial build-outs, this year United Fiber turned to the financial markets to finance what it predicts will be the final phase of its communications infrastructure project, which is expected to add 18,000 customers over the next two years – all outside of its electric distribution footprint.
Financing an endeavor of this size can be complicated, especially for some commercial lenders that are unfamiliar with the nuances of the industry – in this case, both the ownership structure between cooperative and for-profit fiber company and the out-of-territory expansion. That’s when United Fiber turned to its longtime financial partner, CoBank, which offered flexibility and extensive industry knowledge. The bank quickly pulled together an $80 million financing package that was backed by four additional Farm Credit lenders.
“CoBank has a mindset of getting to ‘yes’ and finding a way to support its customers, and they were willing to finance this project when no one else would. It’s a sophisticated bank with an open mind, and with the expertise to understand our business model and the broader communications sector,” said Bagley. “This is the largest facility we’ve ever taken on, and we would not have gotten in front of the other Farm Credit banks without CoBank on our side.”
This is the first CoBank financing of an exclusively out-of-territory fiber build for a for-profit subsidiary of an electric cooperative.
“We were committed to working through this complex financing in order to support United Fiber’s, and United Electric’s, success,” said Tamra Reynolds, managing director for CoBank’s electric distribution lending division. “We anticipate that other electric cooperatives will evolve their broadband business strategies similarly as a way to improve cash flow and benefit their members, as well as provide essential communications service to underserved communities.”
