SMECO Proposes Rate Adjustments

HUGHESVILLE, Md. (June 18, 2010)—Southern Maryland Electric Cooperative, Inc. (SMECO) is filing a request with the Maryland Public Service Commission to restructure and increase its Distribution Service rates. SMECO hasn't changed the Customer Charge on its customers' monthly electric bills in 16 years and the Distribution Charge has not changed in three years.

Customer bills have two main components, the Standard Offer Service (SOS) and the Distribution Service. The SOS Energy Charge and Power Cost Adjustment together cover the cost of power. SMECO makes no profit on Standard Offer Service; the cost of power is simply a pass-through cost. The wholesale price that SMECO pays for power is passed on to customers without any mark-up. The SOS portion of the customer bill has decreased over the past year as a result of SMECO's management of its power portfolio and the decrease in wholesale power costs. SMECO's reduced power costs have resulted in savings today of almost $24 a month for average-use residential customers compared to May of 2009. SMECO's proposal does not affect the SOS portion of the customer bill.

SMECO proposes a change in the Distribution Service charges that will result in an increase of about five percent on the average customer's overall bill, though that percentage will vary depending on individual usage. SMECO's rate filing proposes a Customer Charge of $29.56 per month and a Distribution Charge of $0.02092 (2.092 cents) per kilowatt-hour, reduced from $0.0289 (2.89 cents) for electricity consumption. The reduction in the Distribution Charge will save average-use residential customers over $10.00 a month on the portion of the bill determined by kilowatt-hour usage.

The transition will bill many fixed costs at a fixed rate, and bill variable costs based on usage-splitting costs into demand-related and customer-related components. Aligning the fixed costs to a fixed Customer Charge will cover the minimum equipment necessary to connect each customer to the grid. These items include power poles, overhead conductors, underground conductors, and transformers-costs incurred by each customer regardless of the quantity of electricity purchased.

"SMECO has worked hard not only to control these distribution costs, but to reduce our wholesale power costs, as well," said Austin J. Slater, Jr., SMECO President and CEO. "As a non-profit electric cooperative, revenue from our customers' bills generates the working capital required to continue providing the most reliable service possible. Net profit margins not required for working capital are passed back to our customer-members in the form of Capital Credits. Our goal from the beginning has been to bring our customer-members-our owners-safe, reliable electric service at a reasonable rate. As the infrastructure ages and expands, SMECO continues to focus on providing that reliability."

"From 2008 to 2009, the number of service interruptions was reduced by 16 percent, including during the major storms that affected the area," according to Ken Capps, SMECO's Senior Vice President of Engineering and Operations, and Chief Operating Officer. "This continued improvement in reliability is due to the many system enhancements underway at SMECO. In 2009, we added $42 million in new infrastructure, including new distribution and transmission equipment, up from $22 million in 1994. Projected capital requirements for the next 10 years, in transmission and distribution alone, exceed $552 million. System maintenance, material costs, and operating costs also continue to rise and SMECO must recover these costs in order to continue to provide safe, reliable electric service to our members."

SMECO is now serving more than 148,000 accounts. "Our construction plans for the next 20 years include substations and transmission lines to meet our customers' requirements for energy and reliability. In addition to keeping up with the growth in Southern Maryland, SMECO has introduced new customer services, such as online bill payment. We are using new technologies, such as automated meters that download monthly usage information. We're keeping pace with our customers' demands," Slater said. "Although we have consolidated and streamlined services to maintain cost-effectiveness, the co-op requires this modest rate increase to provide the level of reliability customers expect and to maintain SMECO's financial integrity."

Source: SMECO

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