Remarks by Austin J. Slater, Jr., SMECO President and CEO

8/24/2017 4:00:00 PM - by SMECO

(The following remarks were delivered at SMECO’s Annual Members’ Meeting on August 23.)

Good evening and thank you for attending our 2017 annual meeting.  This is our 79th meeting of members since our founding in 1937, and it also represents a significant change in how we conduct this important responsibility, but more on that later.

It is my honor to now recognize several elected officials, special guests, and business partners who have taken the time and interest to join us tonight.

  • Johnny Wood, former member of the Maryland House of Delegates
  • Margaret Phipps, Calvert County Register of Wills 

Thank you for coming.

We’ve also invited a guest from the National Rural Electric Cooperative Association to say a few words tonight.

Jim Matheson is Chief Executive Officer of NRECA, which is the organization that represents more than 900 not-for-profit, consumer-owned electric cooperatives nationwide. Co-ops provide service to 42 million people in 47 states. Jim joined NRECA in July 2016 following distinguished careers in both the public and private sectors.

Jim received a Bachelor’s Degree in Government from Harvard University, and an MBA in Finance and Accounting from UCLA. Prior to entering government service, he worked in the energy industry for several years.

Born and raised in Salt Lake City, Jim served as a United States Representative from Utah for seven terms, from 2001 to 2015. He was Chief Deputy Whip for the House Democratic Caucus and served as co-chairman of the Blue Dog Coalition. Jim was also a member of the House Energy and Commerce Committee, as well as the Financial Services, Transportation and Infrastructure, and Science committees.

[[Comments by Jim Matheson]

Thank you, Jim.

For some time now the SMECO board and I have been examining how we conduct our annual meeting.  This examination was prompted by a steady decline in meeting attendance and voting.  Last year’s meeting set a new low in participation with only 740 attending the meeting and 880 voting, when adding in the 140 absentee ballots cast; and this out of over 134,000 members.  The combination of changing interests, double income families, and competing interests has placed the once popular cooperative annual meeting as a very low priority to today’s families.  To put it differently, SMECO now has over 137,000 members.  With only 740 members attending last year’s meeting, that’s an engagement level of only ½ of 1 percent.  It is definitely time for something different.

So, we discussed internally about how to increase attendance and what would be a reasonable goal.  Is it 25 percent, 30 percent, 50 percent?  Let’s take the lower and more conservative 25 percent.  At that level, since most members come with family, we could expect to have in excess of 70,000 people attend.  Where would we put them?  We concluded that any meaningful participation had to be achieved by other means. 

Across the country our sister co-ops, also squaring-up to the same realities, have moved to mail-in balloting.  This measure allows greater democratic participation and recognizes the changing lifestyles of our members and the scope of our size.  The only other electric cooperative in Maryland, Choptank Electric on our Eastern Shore, has been using mail-in ballots successfully for several years.  Additionally, we found that the mail-in approach will save our members more than $87,000 per meeting, as we no longer have to rent the stadium, staff for registration, or pay for food and entertainment.  But it is critical that we offer our members the forum to exercise their governance rights, voice their concerns and opinions regarding their cooperative, and conduct our annual business session; and that’s exactly why we are gathered here tonight.

The official results are in and we had 9,800 mail-in ballots returned by our members.  That represents an 11-fold increase over last year’s results, thereby involving many more members in exercising their democratic rights.  While saving almost $90,000 to boot.  I want to thank the Credentials & Election Committee for their extra efforts in assisting us in this transition. They were recognized by Mr. Bell earlier, but I would like to give them a hand. 

Allow me now to shift to other topics of the utmost interest to you, our members, and those would be reliability and the cost of service.  First, the cost of providing you service has been falling dramatically.  As many of you know, we filed earlier this year to reduce our commodity charge. This is the cost of the actual electrons that flow over our lines; we reduced that charge by 10 percent and began billing you at 6.6 cents per kilowatt-hour this month, which represents the lowest our commodity rate has been in 12½ years.  This is important, because this is the largest part of your bill, about 60 to 70 percent of the total.  And going forward the news remains good.  Our forecast is that over the next five years, 2018 through 2022, our total cost of power will continue to decline by almost 5 percent, going as low as 5.5 cents per kilowatt-hour in 2022.  This is great news for our members and you will see this in your bills going forward.  Our decision to manage our own power portfolio has paid dividends to our customers, as we continue to capture good deals in the market and eliminate any mark-ups or profit from what you pay.

Also, on August 1st we filed with the Maryland Public Service Commission for permission to reduce our distribution delivery rates by almost $2 million, those rates haven’t been reduced since the ’80s.  The combination of a reallocation of our transmission costs to customers outside of our service area, and cost-cutting measures by our management team provided us the opportunity to bring this benefit to your bills as well.  We hope that we will achieve the prompt regulatory approval necessary to bring you reduced costs as soon as possible.

Like your electric bill, reliability ranks very high in your assessment of our performance.  And we take that responsibility very seriously.  Every year the Maryland Public Service Commission conducts an assessment of the reliability of all State electric utilities.  This very comprehensive study culminates in a hearing where each utility is compared, side by side, to other utilities and to individual state mandated standards.  The hearing for the 2016 reporting year occurred most recently on July 25th; allow me to share some of the results.  Bottom line, SMECO scored at the top in virtually all categories examined by the Commission.  SMECO had the best score in the state for the number of outages that occurred; the average SMECO customer had .89 outages during 2016.  Similarly SMECO had the third lowest average outage duration of 113 minutes; the best in the State was 108 minutes. SMECO also met all State standards for service restoration during regular operations and during Major Storm Events, and we scored 100 percent in our response time to downed wires.

The Commission also examines how efficiently we communicate with our customers.  They monitor the average time to answer customer calls and the number of abandoned calls, that’s when a customer hangs up before the call is answered.  I’m pleased to report that we answer 85 percent of your calls within 30 seconds; in fact, our average time to answer a call is only 21seconds, which is the second lowest in the state.  Our abandoned call rate was only 1.77 percent of all calls, again one of the best scores in the State.  Two other categories the Commission examines are vegetation management and Poorest Performing Feeders.  Vegetation management, or how we trim trees around our power lines, is rated on cycle time.  We use a 4-year cycle and have maintained or exceeded that objective in all of the last four years.  Several utilities use a 5-year cycle. We think a 4-year cycle pays big dividends. And finally, we did not pass the poorest performing feeder category; in fact, all the state’s electric companies failed this standard.  A feeder is the main 3-phase line coming out of our substations to serve anywhere from several hundred to over a thousand services.  We had one repeat poorest performing feeder, #11 out of the Cedarville substation.  We are working hard to correct this problem.

Each year, SMECO’s margins—revenue less expenses—are allocated to customers’ capital credit accounts. SMECO uses margins as working capital for new construction and system improvements. Then, whenever the Board of Directors determines that the financial condition of the co-op warrants, members receive a refund.

I am pleased to report that this year we are returning $3.8 million in capital credit refunds to our membership; that includes $2.85 million in a general refund that was distributed last month and an additional $950,000 in special refunds.  Capital credits are just one more advantage our members enjoy by being part of a cooperative.

As a cooperative, SMECO will always put its members first and be responsive, reliable, and resourceful—the power you can count on.  Thank you for entrusting your cooperative to our management and thank you for attending our meeting this evening.

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