Vol73-6 June 2023

Responsible Governance

Electric utilities in the United States fall into three main categories: investor-owned, public power, and cooperatives. Investor-owned utilities are private, for-profit companies owned by their shareholders. Public power utilities, also called municipals, are not-for-profit companies owned by cities and counties. Cooperatives represent a unique business model because they are not-for-profit companies owned by the customers receiving electricity—their members.

Cooperatives operate under democratic membership and every person with an account has a say in how SMECO is managed. SMECO is governed by its Board of Directors, its executive team, and its members. Members elect the Board of Directors, who work with the cooperative’s executive team to ensure SMECO is serving its members’ needs while maintaining a strong financial foundation. Each year, SMECO members vote on any proposed bylaw changes and elect five of the 15 board members to represent them for a three-year term. Members can cast their vote by mail or online and, in 2022, 8,661 members chose to cast their vote.

Serving on the cooperative’s Board of Directors is a very active and engaging commitment. The cooperative’s Board is made up of 15 SMECO members who meet monthly to review and confirm annual work programs, financial plans, contracts, internal employee policies, external communication policies, rates, and tariff changes.

Once elected, Board members receive formal training through the National Rural Electric Cooperative Association, a trade organization representing more than 900 electric cooperatives across America. Board members also participate in conferences or courses offered by CoBank or the National Rural Utilities’ Cooperative Finance Corporation, two financing organizations that work with electric cooperatives.

SMECO’s Board makes a commitment to uphold the cooperative principles as they provide guidance, oversee and approve management’s decisions, create controls used to assess the effectiveness of operations, and hold SMECO accountable to the standards and expectations of service to its members.

SMECO’s Board members have a broad expanse of business knowledge and experience, and one thing they have in common is a desire to serve their local community. One of the biggest ways they serve is working with SMECO management to ensure the cooperative stays financially sound and continues to provide safe, reliable, and affordable power.

In addition to electing Board members and voting on bylaw amendments, members also invest in their cooperative every time they pay their bill. The Distribution Services portion of the bill covers the expenses required to run the cooperative. These expenses include office buildings, cables, poles, substations, vehicles, and employees, as well as the costs of rebuilding after a major storm. SMECO then uses margins—revenue minus expenses—as working capital for new construction, system improvements, and facility upgrades.

SMECO’s mission to put members first by delivering safe, reliable, affordable, and sustainable electricity and related services that exceed expectations includes continually monitoring its electric grid and making upgrades and improvements. In 2022, working capital was used to further that mission with a number of capital improvements despite supply chain issues. Like utilities across the nation, SMECO faced challenges in the supply chain, particularly for steel, transformers, and semiconductors, causing delays in construction.

SMECO completed construction of its Southern Region facility in Leonardtown, and the new customer service office was opened to the public in 2022. SMECO also completed the second phase of construction for the new Chaptico substation, completed phase two of the new Mount Victoria substation, continued construction of a 69-kV transmission line connecting the Chaptico substation to the Ryceville substation, and replaced two substation transformers. These updates help SMECO ensure safe, reliable power. Other cooperative improvements included a website refresh intended to make the site more user-friendly and a major overhaul to SMECO’s Account Manager, a digital self-service portal where members can pay their bill and check their energy usage. The updated Account Manager brought many services online that would previously have required a phone call—including setting up payment arrangements and start/stop service requests. The update also creates the framework that will enable the utility to add additional services online in an effort to provide improved customer experience.

Cooperative members help finance SMECO’s operations, and they also realize one of the benefits of being a cooperative member—capital credits. At an investor-owned utility, a portion of the profits (called “margins” by electric cooperatives) goes to the shareholders of the utility. Those shareholders often do not even live in the area served by that utility.

At a cooperative, the members are the owners and receive a portion of the margins. At the end of each year, capital credits are allocated to a special account for each member, based on how much electricity the member purchased and the rate at which the account was billed. SMECO’s Board of Directors regularly evaluates the financial condition of the cooperative and determines when those allocated capital credits will be refunded to the members. SMECO’s margins are based on the cooperative’s revenue and expenses, not the cost of energy. SMECO makes no profit on energy costs, and energy rates have no impact on SMECO’s margins.

The cooperative refunded nearly $7.1 million in capital credits in 2022. Since 1937, SMECO has refunded more than $116 million in capital credits to its members. When a person belongs to an electric cooperative, every penny spent on the electric bill benefits the member.

Environmental Steward