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SMECO takes over electricity at Pax River
Navy base's service privatized
Friday, May 8, 2009
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Southern Maryland Electric Cooperative and the U.S. Navy have signed an agreement to privatize electricity services at three facilities in Southern Maryland in a $19 million deal over five years, SMECO announced this week.
Privatization means a public utility takes over ownership and the operation of the facility's electric system for a specified length of time. For the next 50 years, SMECO will become responsible for the electric systems at Patuxent River Naval Air Station in Lexington Park, the Webster Field Annex in St. Inigoes, and the Navy Recreation Center in Solomons.
The Navy will pay SMECO a fixed charge of about $400,000 a month — about $4.8 million per year over the next five years — while SMECO installs about 1,200 new meters, addresses "serious" safety issues, transfers the facilities' voltage systems to bring them to "utility grade" and replaces cables, said Austin J. Slater Jr., president and CEO of SMECO. After all the meters are installed, the Navy will be billed for its electricity and commodity use by meter.
The Navy has turned over the title to all of its electric systems and equipment, valued at $20 million to $24 million, to SMECO, Slater said. The deal will allow SMECO to leverage its equipment investment with about 1,200 new customers. Attaining new members is typically the only way the utility cooperative can grow, Slater said.
The armed forces were directed years ago to conduct a cost-benefit analysis of whether to privatize utility systems on military bases and until last year, the Navy, at a national level, had been slow to get behind the trend, Slater said.
The Patuxent River Naval Air Station was commissioned on April 1, 1942, and the electric system operates on a different voltage than SMECO's. The three facilities used energy the equivalent of 6 percent of SMECO's entire customer base last year, Slater said — 194,611 megawatt-hours. While it previously purchased power from SMECO on its grid, the Navy base had operated and serviced its own system.
"The Navy will get the depth of our co-op's expertise. We're looking forward to fortifying the naval air station's capabilities and keeping it competitive with the other military facilities that vie for contracts, funding and military responsibilities," said Ken Capps, SMECO's vice president of engineering and operations, in a statement.
The award was made May 1, and that began a 90-day transition period. SMECO will use that time to gather information and prepare procedures and business processes. On Aug. 1, SMECO will begin serving the Navy installations directly.
SMECO will reallocate current resources to perform the work. SMECO's line crews will receive training to become familiar with the electric system at the naval facilities.
The co-op will have a minimum of two crews on site during the next five years, a 1-acre site to use for its base of operations and office space in the public works department at Pax River.
Slater said SMECO proposed to privatize the electric system for Indian Head Division, Naval Surface Warfare Center and its Stump Neck annex in Charles County in 2004 but has not heard back about implementation.
