Southern Maryland Electric Cooperative is filing an application with the Maryland Public Service Commission (PSC) to reduce its energy charges. 

SMECO’s Standard Offer Service (SOS) rate is made up of the energy charge and the Power Cost Adjustment (PCA). SMECO is filing to reduce the residential winter energy charge from 11.24 cents per kilowatt-hour (kWh) to 9.11 cents per kWh, a reduction of almost 19 percent. Winter energy charges appear on bills rendered November through May. Residential energy charges for summer will decrease from 12.59 cents per kWh to 9.75 cents per kWh, a reduction of 22 percent. The filing will be submitted in late December, and, if approved by the PSC, the reduced charge will appear on customer-members’ March 2010 bills.

Lower power supply costs have been reflected in the PCA on SMECO’s monthly electric bills. Customers have received a credit every month since February. The credit reduces the overall SOS rate, which is made up of the PCA and the energy charge. With the PCA credit, the SOS rate for December has, in effect, been reduced from 11.24 cents per kWh to 10.41 cents per kWh. The total SOS rate in March will be the combination of the new reduced energy charge and the PCA, which changes monthly.

Sonja Cox, SMECO’s Senior Vice President and Chief Financial Officer, explains the reasons for the reduction: “Electricity prices decreased this year because of the mild weather. The weather affects demand for energy, and lower demand results in reduced prices.” According to Cox, commodity prices for energy were lower this summer than they were in the summer of 2008. She added that natural gas prices dropped from $13 per million British thermal units (BTUs) in 2008 to $3 per million BTUs in 2009.

SMECO’s new rates are based on forecasted power costs for March 2010 to February 2011, which are estimated to be $87.93 per megawatt-hour (MWh) for wholesale power supply. This cost is 16 percent less than the estimated costs the co-op submitted in its last filing in August 2008.

According to Cox, SMECO does not mark up or make a profit on energy charges. The co-op also uses a portfolio approach to purchasing power, using long-term and short-term contracts and contracts for base load and peak load. She added, “Our portfolio of power supply agreements reduces the swings in energy prices and helps to save money for our customer-members overall.”

SMECO is a customer-owned electric cooperative providing electricity to over 147,000 services 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. 

Co-ops also issue capital credits to their members.  What are capital credits?  They are the member’s share of the co-op’s margins, based on how much electricity the member purchased and the rate at which the account was billed.  SMECO’s margins—revenue less expenses—are used as working capital for new construction and system improvements.  Each year, SMECO determines what percentage of the capital credits can be distributed to the members.  Capital credits are then issued by check or credited to the member’s electric bill.