SMECO Announces Another Rate Increase

Customer-owned Electricity Co-Op says increase is required to fund construction costs fueled by growing customer base

HUGHESVILLE, Md. (September, 28, 2007)—Southern Maryland Electric Cooperative, Inc. (SMECO) last week announced an increase to its Distribution Service rate. This measure will result in an increase of about 3.9 percent on a residential customer's overall bill. A typical customer using 1,300 kilowatt-hours (kWh) per month will have an increase of about $5.75 on average, according to SMECO officials. The higher rates will be reflected on customer's bills prepared on or after October 1, 2007.

Using the SMECO-provided average monthly bill increase of $5.75 and the approximate customer base of 142,000, the rate increase will gross the utility approximately $816,500 a month, or $9,798,000 annually.

Customer bills have two main components, the Distribution Service and the Standard Offer Service (SOS). The costs SMECO incurs for power lines, utility poles, transformers, substations, buildings, vehicles, employees, and the cost of rebuilding after a hurricane or a tornado are covered by the Distribution Service portion of customers' monthly bills.

SMECO's residential Distribution Charge was $0.0279 per kWh for the summer months and $0.0219 per kWh for the winter. The new rate is $0.0289 (2.89 cents) per kWh year-round.

The residential Customer Charge of $8.60 per month is not changing. The Customer Charge and the Distribution Charge under the rate schedules for general service customers, street lights, and security yard lights will also be adjusted.

The SOS Energy Charge and Power Cost Adjustment together cover the cost of energy. SMECO makes no profit on Standard Offer Service. The wholesale price that SMECO pays for energy is passed on to customers without any mark-up.

According to SMECO, this is the first change in SMECO's Distribution Charge since 1994. As energy costs nationwide have increased over the past couple of years, the SOS portion of the customer bill has changed, but the rates for Distribution Service have not changed in 13 years. During that period, the number of customers has grown from 102,600 to 142,000, or 38.4%.

SMECO justifies the rate increase by pointing to increased construction costs to meet growing customer demands. SMECO's annual construction costs have increased from $22 million in 1994 to $49 million in 2006. According to Austin J. Slater, Jr., SMECO President and CEO, SMECO's construction plans for the next 20 years include substations and transmission lines to meet customers' requirements for energy and reliability.

In a prepared statement, Slater stated, "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."

SMECO is a customer-owned electric cooperative providing electricity to over 142,000 customers in southern Prince George's County, and in Charles County, St. Mary's County, and all but the northeast portion of Calvert County. Co-ops are distinctly different from investor-owned utilities because co-ops are owned by their customers, and these members vote for men and women who sit on the Board of Directors.

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