SSE Plc (SSE) - Preliminary results for year ended 31 March 2012
RNS Number : 4217D
16 May 2012
SSE plc's financial report for the year to 31 March 2012
16 May 2012
Mar 2012 Mar 2011 Change Mar 2010
Total Recordable Injury Rate^1 0.11 0.12 - 8% 0.14
Working days lost through injuries 53 171 - 118 days 73
Full-Year Dividend 80.1p 75.0p + 6.8% 70.0p
Adjusted Profit Before Tax* £1,335.7m £1,310.1m + 2.0% £1,290.1m
Adjusted Profit After Tax* £1,122.3m £1,041.9m + 7.7% £1,016.0m
Adjusted Earnings Per Share* 112.7p 112.3p + 0.4% 110.2p
Investment and Capital Expenditure £1,706.9m £1,443.7m + 18.2% £1,315.2m
Customer Minutes Lost (SHEPD) 73 78 - 5 mins 74
Customer Minutes Lost (SEPD) 60 64 - 4 mins 65
Energy Supply Customers (GB and Ire) 9.55m 9.65m - 1% 9.35m
GB customer complaints to third 896 1,161 - 23% 1,231
Power Station Availability (Gas) 94% 88% + 7% 94%
Power Station Availability (Coal) 89% 84% + 6% 92%
Capacity for Renewable Energy^2 3,020MW 2,450MW + 570MW 2,370MW
^1Per 100,000 hours worked ^2Including pumped storage
Lord Smith of Kelvin, Chairman of SSE, said:
"There are three issues over which SSE has no control but which in one way or
another touched every part of its business in 2011/12 - upheaval in global
energy markets, widespread economic uncertainty and the weather. Higher
wholesale gas prices, falling demand for energy and a succession of winter
storms presented major challenges for the wholesale, retail and networks parts
"The fact that, despite all of this, SSE has again delivered increases in the
full-year dividend and in adjusted profit before tax* demonstrates the
resilience inherent in its balanced model of market-based and
economically-regulated businesses, and the robustness of its strategy of
focusing on operations and investment in each of those businesses. It also
demonstrates the commitment and professionalism of the people who work for SSE
throughout the UK and Ireland.
"For some people, 'profit' and 'dividend' are contentious words when it comes
to energy, but profit and dividend allow SSE to employ people, pay tax, make
investments that keep the lights on and provide an income return that
shareholders like pension funds need.
"At the same time, SSE recognises that it must continually earn the right to
make a profit and pay dividends, so 2012/13 and beyond will be about
continuing the work to earn the trust of customers in retail and business
markets, meeting the needs of energy network customers and investing in assets
to support secure and lower carbon supplies of energy in the future. If this
is achieved, there can be every confidence that SSE will extend further its
record of annual above-inflation dividend growth, with an increase of at least
2% more than inflation for 2012/13."
* In line with SSE's approach since September 2005, this financial report
describes adjusted operating profit before exceptional items, remeasurements
arising from IAS 39, and after the removal of taxation and interest on profits
from jointly controlled entities and associates, unless otherwise stated. In
addition, it describes adjusted profit before tax before exceptional items,
remeasurements arising from IAS 39 and after the removal of taxation on
profits from jointly-controlled entities and associates. It also describes
adjusted earnings and earnings per share before exceptional items,
remeasurements arising from IAS 39, deferred tax and hybrid coupon payments.
DELIVERING THE DIVIDEND
Operating Profit* by Segment
Mar 12 - £ Mar 12 - % split Mar 11 - £ Change - £
Networks £737.1m 44% £690.5m + £46.6m
Retail £321.6m 19% £400.5m - £78.9m
Wholesale £607.9m 37% £571.5m + £36.4m
Delivering sustained real growth in the dividend
· Full-year dividend up 6.8% to 80.1p per share
· Dividend covered 1.41 times by adjusted earnings per share*
· Thirteenth successive full-year dividend increase
· Targeting full-year dividend increase of at least RPI inflation +2% in
· Targeting annual dividend increases above RPI inflation in 2013/14 and
Sticking to well-established financial principles
· Adjusted profit before tax* up 2.0% to £1,335.7m
· Thirteenth successive increase in adjusted profit before tax*
· Capital and investment expenditure up 18.2% to £1,706.9m
· Adjusted net debt and hybrid capital up 14.7% to £6.76bn
· Average debt maturity of 9.3 years
Keeping the lights on and supporting growth
· Operating profit* up 6.7% to £737.1m
· Capital investment in electricity networks up 48.5% to £489.0m
· Electricity transmission Regulated Asset Value up 37.5% to £770m
· Total network RAV (inc share of SGN) up 9.3% to £5.86bn
· 'Fast track' for Electricity Transmission Price Control
Earning the right to make a profit
· Operating profit* down 19.7% to £321.6m
· All 10 Building Trust commitments delivered; further commitments made
· Total energy customer accounts (GB and Ire) down 100,000 to 9.55
· Agreement to acquire 130,000 customers in NI from Phoenix Holdings
· GB gas consumption (ave) down 19.9%; electricity consumption (ave) down
Securing the energy people and businesses need
· Operating profit* up 6.4% to £607.9m
· 570MW (net) of additional capacity for renewable energy operational
· Output from gas-fired power stations down 26%; from coal-fired stations
· Output of renewable energy (hydro and wind) up 73%
· £42.6m operating profit* from Gas Production (£4.6m from two months in
Continuing strategy for dividend growth
SSE's core purpose is to provide the energy people need in a reliable and
sustainable way. In fulfilling this purpose, SSE requires the support of the
shareholders who have invested in its shares, and it continues to believe
their investment should be remunerated through the payment of dividends, for
four key reasons:
· receiving and reinvesting dividends is the biggest source of an
investor's return over the long term;
· dividends provide income for those investors who do not wish to
· dividend targets provide a transparent means with which to hold
management to account; and
· a long-term commitment to dividend growth demands a disciplined,
consistent and long-term approach to operations, investments and acquisitions.
As a result of this, SSE's strategy remains the delivery of sustained real
growth in the dividend payable to shareholders through the efficient operation
of, and investment in, a balanced range of economically-regulated and
market-based businesses in energy production, storage, distribution, supply
and related services, mainly in the UK and Ireland.
The objective of delivering annual above-inflation increases in the dividend
paid to shareholders means SSE has a clear, measurable and practical goal
which sets the long-term financial context for its operational and investment
Sticking to financial principles to underpin dividend growth
The requirement on SSE to maintain a disciplined, consistent and long-term
approach to the management of business activities is underpinned by a series
of long-standing financial principles:
· strength: maintenance of a strong balance sheet, evidenced by
commitment to the criteria for a single A credit rating;
· rigour: rigorous analysis to ensure investments are well-founded and
achieve returns greater than the cost of capital;
· discipline: deployment of a selective and disciplined approach to
acquisitions, which should enhance earnings per share over the medium and long
· measurement: use of the economics of purchasing the company's own
shares in the market as the first measurement against which financial
decisions are taken.
The application of these principles supports the fulfilment of SSE's first
financial responsibility to shareholders: the delivery of sustained real
Delivering dividend growth for a thirteenth successive year
For 2011/12, the Board is recommending a final dividend of 56.1p per share,
making a full-year dividend of 80.1p, an increase of 6.8% on the previous
year. The full-year dividend is:
· covered 1.41 times by SSE's adjusted earnings per share*;
· more than three times the first full-year dividend paid by SSE, in
· more than twice the full-year dividend paid eight years ago, in 2004.
The recommended full-year dividend increase of 6.8% represents the thirteenth
successive above-inflation dividend increase since SSE paid its first
full-year dividend in 1999. SSE is now one of just five continuing FTSE 100
companies to have delivered better-than-inflation dividend growth every year
during this period, and ranks third amongst that group in terms of compound
annual growth rate.
Of the 48 companies which have been FTSE 100 constituents since 1998, when SSE
joined the Index, SSE is ranked10th for Total Shareholder Return.
Targeting sustained dividend growth over the long term
As Capita Registrars Dividend Monitor, published in February 2012, stated, a
'company's value depends, most fundamentally, on the ability of the firm to
make money and return it to shareholders. Ultimately, dividends are the
principal way in which corporate profits are distributed.' It is in
recognition of this that SSE's key financial objective is the delivery of
annual above-inflation increases in the dividend paid to shareholders, and its
targets are to deliver:
· a full-year dividend increase of at least 2% more than RPI inflation
for 2012/13; and
· annual above-RPI inflation dividend increases from 2013/14 onwards.
In this context, inflation is defined as the average annual rate across each
of the 12 months to March.
SSE's policy is that dividend targets should be:
· set in a way which is consistent with SSE's financial principles (see
· realistic and attainable, so there can be the fullest possible
confidence in their achievability; and
· consistent with maintaining dividend cover over the medium term within
a range around 1.5 times, which is close to the average dividend cover which
SSE has achieved in the most recent four years.
Maintaining a balanced range of energy businesses through which to achieve
SSE has adopted new reportable segments covering Networks, Retail and
Wholesale businesses and is the only company listed on the London Stock
Exchange which owns, operates and invests in such a balanced group of
economically-regulated energy businesses, such as electricity networks, and
market-based energy businesses, such as energy supply and electricity
generation. The balance between these activities means that:
· while energy is at their core, SSE has a diverse range of businesses;
· within those businesses, SSE has a diverse range of assets; and
· to add to those assets, SSE has a diverse range of investment options.
This balance, diversity, growing asset base and range of investment options
means that SSE has a broad platform from which to deliver the levels of
profitability and the long term value required to support sustained real
dividend growth. In addition, the risks to the achievement of that growth are
contained by that balance and by the diversity of SSE's businesses, assets and
Moreover, the fact those businesses, assets and investment options are almost
entirely in Great Britain, Northern Ireland and the Republic of Ireland means
that SSE is able to combine diversity with a depth of experience, knowledge
and understanding of the markets in which it operates.
Sustaining dividend growth through a period of change
Energy markets in Great Britain and Ireland are increasingly shaped by the EU
Climate Change and Renewable Energy Package, which aims to achieve by 2020:
· a reduction of at least 20% in the levels of greenhouse gas emissions
across the EU, compared with 1990 levels; and
· an increase to at least 20% of all energy consumption being generated
from renewable sources.
In addition, the EU has a non-binding target to achieve a 20% reduction in
energy consumption by 2020 through improvements in energy efficiency and in
June 2011 the European Commission proposed an Energy Efficiency Directive.
The proposed Directive is broad in scope and would replace a number of
The EU Package provides the context for four major developments which are
under way in public policy and regulation and which will affect SSE's
operations and investments for years to come:
· Ofgem's new 'RIIO' model for the economic regulation of energy networks
in Great Britain is now going through the key tests of actual Price Control
· the Retail Market Review in Great Britain, being undertaken by Ofgem,
is designed to deliver improvements in the operation of the retail markets for
electricity and gas;
· the UK Government's White Paper, Planning our electric future, sets out
a series of proposed reforms to the market arrangements for electricity
generation in Great Britain; and
· energy markets on the island of Ireland are undergoing a process of
harmonisation to support further the development of competition, for the
benefit of customers.
At the heart of these developments is the energy 'trilemma' - the need for
supplies of energy that are secure, sustainable and affordable. There are
three other significant factors with which energy companies such as SSE have
· as the decline of oil and gas production from the UK Continental Shelf
continues, there is a continuing integration of UK energy prices into the
wider global market, which means macro economic and geopolitical factors are
· demand for energy in the UK and Ireland is, rightly, on a downward
trend through the effects of investment in, and greater awareness of, energy
efficiency measures, more efficient appliances and price sensitivity on the
part of customers; and
· the expectation that the decarbonisation of the economies in the UK and
Ireland will present opportunities for flexible and skilled employment that is
sustainable in every sense.
As well as dealing with geopolitical, macro economic and energy-specific
issues, SSE acknowledged, in a submission to the UK and Scottish Governments
in February 2012, that it would have to decide whether the additional risk of
regulatory and legislative change with regard to Scotland, raised by the
forthcoming referendum on its future, means it should apply a risk premium to
any investment proposal in Scotland and assess the impact of such a premium on
whether or not to proceed with the proposed investment.
Setting the right long-term priorities to achieve dividend growth
SSE has identified five long-term priorities across its balanced range of
businesses which reflect, and are consistent with, the changes under way at
global, EU and UK and Irish levels and with addressing the energy 'trilemma'.
The long-term priorities are:
· efficiency, responsiveness and innovation in energy networks;
· gaining and retaining the trust of a growing number of household energy
· breadth and depth in the provision of energy-related services to
businesses and other organisations;
· competitive and sustainable energy procurement; and
· flexible and 'greener' electricity production.
In focusing on these priorities, SSE will maintain a strong emphasis on its
six core values, the 'SSE SET' of Safety, Service, Efficiency, Sustainability,
Excellence and Teamwork. It believes these values are especially significant
because energy is something which people need rather than want and so the
highest possible standards in its operations and investments are essential.
This means that safety must come first. SSE believes that the effective
management of safety issues is a barometer of effective management of all
operational and investment-related activities. In 2011/12, its Total
Recordable Injury Rate per 100,000 hours worked was 0.11, compared with 0.12
in 2010/11 and 0.14 in 2009/10. The total number of working days lost in SSE
as a result of injuries occurring during the year was 53, compared with 171 in
the previous year. The Total Recordable Injury Rate and total number of
working days lost as a result of injuries occuring during 2011/12 were the
lowest that SSE has had.
In addition, and in keeping with its commitment to sustainability, SSE's
target for every year is zero environmental incidents which result in it being
served with an enforcement notice or prosecution by a government-sponsored
environment protection agency. There were no such incidents during 2011/12,
the second successive year in which this was achieved.
The prospects for dividend growth in 2012/13 and beyond
The economic outlook for the UK and Ireland in 2012/13 continues to be
uncertain, and the global nature of energy markets means that SSE, like every
other company in the sector, has to be prepared to manage the energy
consequences of exceptional and unpredictable macro-economic, geopolitical or
other events of potentially global significance.
Against this uncertain background, and with its strategic focus on efficiency
in operations and investment, SSE's core operational priorities during 2012/13
· carry out all work in a safe and responsible manner, with a lower Total
Recordable Injury Rate;
· maintain strong cost control throughout all business activities;
· distribute electricity and (through Scotia Gas Networks) gas with the
minimum possible interruptions to supplies;
· demonstrate responsiveness and innovation in the management of
electricity and gas networks;
· develop and sustain long-term partnerships and contracts with business
customers and other large organisations;
· improve the standards of service delivered to energy supply customers
and continue the drive to build trust in it as an energy supplier;
· work with the UK government and Ofgem to secure a stable and
competitive framework for electricity generation and energy supply in Great
· optimise the management of its portfolio of energy assets and contracts
and of its energy procurement; and
· ensure power stations maintain a high level of flexibility and fuel
efficiency to generate electricity in response to customers' needs and market
SSE's main investment priorities are to support sustainable earnings and
dividend growth by:
· making significant progress in its programme of capital investment in
electricity and (through Scotia Gas Networks) gas networks, including
· commissioning assets in renewable energy, including completion of the
wind farm development at Clyde;
· meeting development and construction goals in its investment programme,
including identifying opportunities for possible new fuel-efficent gas-fired
power stations; and
· improving the flexibility and efficiency of its existing fleet of
thermal power stations and maintaining options for future development.
The delivery of a strong operational performance and the achievement of its
investment priorities should enable SSE to discharge its first financial
responsibility to shareholders in 2012/13: an increase of at least 2% more
than RPI inflation in the full-year dividend. It should also put SSE in a
good position to deliver dividend increases that are greater than RPI
inflation from 2013/14 onwards.
Changing Reportable Segments
In its Annual Report 2011, SSE said that its reporting requirements may evolve
and during 2011/12 it completed a review of the reportable segments contained
within its financial statements. The review was undertaken following the
creation of SSE's Management Board in January 2011 and resulting changes in
the way that SSE manages, reviews and reports internally its businesses.
The previous segments - Energy Networks, Generation and Supply and Other
Energy and Utility Services - have been replaced with the following:
· Networks - the economically-regulated transmission and distribution of
electricity and gas and other related networks;
· Retail - the supply of electricity, gas and other services to household
and business customers; and
· Wholesale - the production, storage and generation of energy and energy
These are consistent with the principle that components of a business qualify
as separate reporting segments if they are capable of earning revenue and
incurring expenses in their own right.
SSE believes that the adoption of these segments will add further transparency
to its business and to the financial performance of each part of it. In
particular, the new segments are consistent with SSE's continuing work to
build customers' trust in energy supply, where there will now be separate
reporting of profit.
Increasing Adjusted Profit Before Tax*
These financial results for the year to 31 March 2012 are reported under
International Financial Reporting Standards, as adopted by the EU. SSE's
focus has consistently been, and remains, on profit before tax before
exceptional items, remeasurements arising from IAS 39, and after the removal
of taxation on profits from jointly controlled entities and associates.
This 'adjusted profit before tax'* was first adopted as a key performance
indicator by SSE in 2005/06 and it:
· reflects the underlying profits of SSE's business;
· reflects the basis on which the business is managed; and
· avoids the volatility that arises from IAS 39.
The tables below reconcile SSE's adjusted profit before tax* to its reported
profit before tax and set out the position after tax and in respect of
adjusted earnings per share*. The volatility that arises from IAS 39 is also
Mar 12 Mar 11 Mar 10 Mar 09
£m £m £m £m
Adjusted Profit before Tax* 1,335.7 1,310.1 1,290.1 1,253.7
Movement on derivatives (IAS 39) (509.0) 1,423.3 399.8 (1,262.1)
Exceptional items (551.6) (625.0) - 102.7
Tax on JCEs and Associates (6.6) 3.3 (51.3) (40.4)
Interest on convertible debt - - - (0.6)
Reported Profit before Tax* 268.5 2,111.7 1,638.6 53.3
Adjusted Profit before Tax* 1,335.7 1,310.1 1,290.1 1,253.7
Adjusted current tax charge (213.4) (268.2) (274.1) (300.4)
Adjusted Profit after Tax* 1,122.3 1,041.9 1,016.0 953.3
Reported Profit after Tax^1 197.8 1,504.5 1,235.5 112.3
Number of shares for basic and adjusted 937.8 927.6 921.9 883.0
Adjusted EPS*^1 112.7p 112.3p 110.2p 108.0p
Basic EPS 21.1p 162.2p 134.0p 12.7p
^1Includes a deduction for hybrid debt coupon payment of £65.5m in the year
to March 2012.
Factors affecting Adjusted Profit before Tax* in 2011/12
Adjusted profit before tax* rose by 2.0%, from £1,310.1m to £1,335.7m in the
year to 31 March 2012. The level of adjusted profit before tax* was
constrained by four main factors (comparisons with the year to 31 March 2011
unless otherwise stated):
· the wholesale cost of gas, which was typically around 20% higher;
· 'spark' spreads (the difference between the cost of gas and the price
of the electricity produced from it), which were around 75% lower;
· the decision to shield household customers from rising wholesale energy
prices for as long as practical before eventually implementing a price
increase in September; and
· the actual reduction in average consumption of both electricity (6.9%)
and gas (19.9%) by household customers in the GB market.
In addition, there was a 5.4% reduction in operating profit* in Electricity
Distribution due to the timing of revenue recovery.
Despite these factors, growth in adjusted profit before tax* was still
achieved, for four main reasons:
· a significant rise (73%) in the output of renewable energy (hydro and
wind), reflecting more favourable weather conditions and an increase in the
amount of on- and offshore wind farm capacity which SSE has in operation;
· operating profit of £42.6m from the gas production assets acquired by
SSE towards the end of 2010/11;
· an increase of 54.5% in the operating profit* of Electricity
Transmission, reflecting the increase in its asset base resulting from capital
· greater allowed revenue in Scotia Gas Networks, supporting an increase
of 43.5% in that business' contribution to adjusted profit before tax*.
All of this illustrates that SSE continues to benefit from maintaining a
balance between economically-regulated and market-based businesses because it
is able to continue to deliver increases in adjusted profit before tax* even
when, as in 2011/12, there are significant issues to be managed within
individual businesses. It also illustrates that major benefits from SSE's
programme of investment in new assets are now emerging and making a positive
contribution to sustaining growth in adjusted profit before tax*.
Impact of the movement on derivatives (IAS 39)
At 31 March 2012, there was a net derivative financial liability in SSE's
balance sheet arising from IAS 39 of £17.6m, before tax, compared with a net
asset of £438.8m, before tax, at 31 March 2011. This consists of:
· a liability following the valuation of financial instruments used by
SSE to hedge its exposure to financial risks such as interest rates; and
· an asset relating to the forward commodity purchase contracts for gas,
coal, oil, carbon and wholesale electricity that SSE, like all major energy
suppliers, has to enter into to ensure that the future requirements of its
customers are met.
IAS 39 requires SSE to record these contracts at their 'fair value' at each
balance sheet date. This involves comparing the contractual price for
commodities against the prevailing forward market price at 31 March. On that
date this year, the average contractual price was lower than the market price
(in other words, the contracts were 'in the money'). The actual value of the
contracts will be determined as the relevant commodity is delivered to meet
customers' energy needs. For around 70% of the total energy volume, this will
be over the next 12 months. As a result, SSE believes the movement in fair
value of the contracts is not relevant to the underlying performance in
The movement on derivatives under IAS 39 of £509m shown in the table above and
on the face of the Income Statement is primarily due to the change in the
commodity contract position between the 'in the money' positions on 31 March
2011 and 31 March 2012, when the average contractual price continued to be
lower than the prevailing forward market price, but not as much as
previously. SSE sets out these movements in fair value separately, as
re-measurements, as the extent of the actual profit or loss arising over the
life of the contracts giving rise to this liability will not be determined
until they unwind.
The pre-tax exceptional items totalling £551.6m relate to the Wholesale
(£491.6m) and Retail (£60.0m) segments and are mainly non-cash.
In the Wholesale segment, changing market conditions have resulted in
impairment and other charges being made against the value of some electricity
generation plant, CO emissions allowances, goodwill relating to gas storage
assets and gas and oil production prospects. In particular, following a
sustained period of low 'spark' spreads, SSE decided to undertake a
comprehensive programme of maintenance and upgrade work to support more
flexible operations at Keadby and Medway power stations from 2013 onwards.
This means the way in which the stations will operate and be remunerated in
the future will change. Other issues include a small write down at
Ferrybridge power station, due to the early use of allowed running hours under
the Industrial Emissions Directive, and a write-down in the value of on- and
offshore wind assets in continental Europe
In the Retail segment, restructuring and related costs arising from SSE's
decision to stop all of its doorstep sales operations in Great Britain have
been recognised as exceptional. The value of some Metering assets has also
been impaired in anticipation of the expected introduction of smart meters.
Delivering Adjusted Profit Before Tax* in 2012/13
Adjusted profit before tax* is an important measure of performance in any
given year, but it is not an end in itself. SSE does not have the goal of
maximising profit in any single year or over any particular period. It takes
a longer-term view, believing that profit is a means to an end: sustained real
growth in the dividend, the delivery of which is its first financial
responsibility to shareholders.
At the same time, SSE has delivered 13 successive increases in adjusted profit
before tax* since it first reported full-year results in 1999. As in any
other year, SSE's adjusted profit before tax* for 2012/13 as a whole will be
determined by issues such as:
· the management of the overall energy portfolio, in the context of
geopolitical and macro-economic issues;
· the interaction between wholesale prices for energy and fuel and the
prices for the electricity and gas charged to customers;
· the availability of its operating thermal power stations to generate
· the output of renewable energy from its hydro electric stations and
wind farms; and
· the actual and underlying level of customers' energy consumption.
In terms of 2012/13, SSE continues to believe that its balanced range of
market-based and economically-regulated energy businesses, and the diversity
of opportunities within those businesses, should enable it to deliver a level
of adjusted profit before tax* capable of supporting the achievement of its
principal financial objective, a full-year dividend increase of at least 2%
more than RPI inflation, while maintaining dividend cover in a range around
SSE will provide an update on its financial, operational and investment
progress during 2012/13 when it presents its results for the six months to 30
September 2012. Its expectation at the start of each financial year is that
it will not provide an outlook for adjusted profit before tax* before the
publication of its fourth quarter Interim Management Statement, not least
because its principal financial objective is dividend growth, and that remains
the case for 2012/13.
Monitoring Adjusted Earnings Per Share*
To monitor financial performance over the medium term, SSE continues to focus
on adjusted earnings per share* because it has the straightforward benefit of
defining the amount of profit after tax that has been earned for each Ordinary
Share and so reflects a clear view of underlying financial performance.
In 2011/12, SSE's adjusted earnings per share were 112.7p, based on 937.8
million shares, compared with 112.3p, based on 927.6 million shares, in the
previous year. As stated in SSE's Annual Report 2011, the charge for the
hybrid debt coupon is presented within dividends and reflected within adjusted
earnings per share*.
Increasing the Dividend for 2011/12
SSE's first financial responsibility to its shareholders is to remunerate
their investment through the delivery of sustained, above-inflation increases
in the dividend. The Board is recommending a final dividend of 56.1p, compared
with 52.6p in the previous year, an increase of 6.7%. This will make a
full-year dividend of 80.1p, which is:
· an increase of 6.8% compared with 2010/11;
· a real terms increase of 2%, based on the average annual rate of RPI
inflation in the UK between April 2011 and March 2012, which meets the target
set for the year;
· the thirteenth successive above-inflation dividend increase since the
first full-year dividend paid by SSE, for 1998/99;
· more than three times the first full-year dividend paid by SSE, for
· covered 1.41 times by SSE's adjusted earnings per share*.
SSE is now one of just five companies to have delivered better-than-inflation
dividend growth every year since 1999, while remaining part of the FTSE 100
for at least 50% of that time, and ranks third amongst that group in terms of
compound annual growth rate over that time.
Targeting further dividend increases in 2012/13 and beyond
SSE's key financial objective will remain the delivery of increases in the
dividend paid to shareholders, and its targets are to deliver:
· a full-year dividend increase of at least 2% more than RPI inflation
for 2012/13; and
· annual dividend increases from 2013/14 onwards which are greater than
Scrip Dividend Scheme option for shareholders
In 2010, SSE's shareholders approved for five years the provision of a Scrip
Dividend Scheme, to give them the option to receive new fully paid ordinary
shares in the company in place of their cash dividend payments. Scrip
dividend take-up was as follows:
· September 2011: A total of 30,397 shareholders elected to receive the
final dividend of 52.6p per ordinary share in respect of 22.6 million ordinary
shares in the form of Scrip dividend. This resulted in the issue of 0.9
million new ordinary shares, fully paid, an increase of 0.1% on the issued
share capital at the dividend record date of 29 July 2011.
· March 2012: A total of 30,504 shareholders elected to receive the
interim dividend of 24.0p per ordinary share in respect of 318 million
ordinary shares in the form of Scrip dividend. This resulted in the issue of
6.27 million new ordinary shares, fully, paid, an increase of 0.67% on the
issued share capital at the dividend record date of 27 January 2012.
This had the effect of reducing by £88.2m the amount of dividends paid in cash
during 2011/12. The total number of shares in issue at 31 March 2012 was
Investment and Capital Expenditure
Investment and Capex Summary Mar 12 Mar 11
Electricity Transmission 228.7 117.4
Electricity Distribution 260.3 211.9
Other Networks 48.0 55.0
Total Networks 537.0 384.3
Total Retail 78.5 27.9
Thermal Generation 129.7 129.8
Renewable Generation 852.3 813.8
Gas Storage and Gas Production 57.1 52.6
Total Wholesale 1,039.1 996.2
Other 52.3 35.3
Total investment and capital expenditure 1,706.9 1,443.7
50% of SGN capital/replacement expenditure 202.2 199.7
Investing for sustained dividend growth
In November 2010, SSE said that it expected its investment and capital
expenditure would be in the range of £1.5bn to £1.7bn in each of the five
years to March 2015. In 2011/12, its capital and investment expenditure
totalled £1,706.9m, compared with £1,443.7m in the previous year. During the
year there was investment of:
· £228.7m in electricity transmission, of which £126.3m was spent on the
work to replace SSE's section of the Beauly-Denny line;
· £260.3m in electricity distribution, the majority of which was spent on
· £129.7m in thermal generation, the majority of which was for
maintenance and early development of future projects;
· £852.3m in renewable generation, the larger part of which was invested
in the Clyde, Griffin and Gordonbush onshore wind farms; and
· £57.1m in gas storage and gas production, including investment in the
new facility at Aldbrough, which is nearing completion.
Including investment of £134.2m in 2011/12, SSE's cumulative investment in the
Greater Gabbard offshore wind farm is now £672.2m, excluding costs associated
with the construction of the offshore transmission line.
Delivering an expanded asset base
In the five years to March 2012, SSE's investment and capital expenditure
totalled just over £6.5bn. This has resulted in a significantly expanded
asset base for SSE, including:
· completion of the 840MW Marchwood Power Station (SSE share - 50%);
· an increase of around 1,500MW in its capacity for generating
electricity from wind farms (which produced around 3.2TWh of electricity in
· near-completion of the Aldbrough gas storage facility (SSE share - two
· an increase of over £1bn in the RAV of its electricity networks.
The 100MW Glendoe hydro electric scheme was also commissioned during this
period, in early 2009. It operated for less than a year before a tunnel
blockage resulted in electricity generation being stopped. The progress of
repair work means electricity generation is expected to resume this summer.
SSE remains committed to constructing robust assets, from which revenue can be
generated on a reliable, long-term basis and which deliver profit to support
future dividend growth. This entails rigorous scrutiny and control of the
costs of large capital projects and a clear focus on the return which
completed projects should generate.
In line with this, SSE keeps the economic evaluation of its investment
programme under close scrutiny to ensure that it continues to make the right
investment decisions. It continues to be confident that an enhanced asset
base and significant value are being created from its capital and investment
expenditure programme as a whole, based on actual delivery of the projects
within it and on the most up-to-date costs and schedules for projects.
Investing in gas distribution through Scotia Gas Networks (SGN)
In addition to its own capital and investment expenditure programme, SSE
effectively has a 50% interest in SGN's capital and replacement expenditure,
through its 50% equity share in that business. SGN is self-financing and all
debt relating to it is separate from SSE's balance sheet. Nevertheless, it is
a very substantial business which gives SSE, through its 50% stake, a major
interest in gas distribution. In 2011/12, a 50% share of SGN's capital and
replacement expenditure was £202.2m, compared with £199.7m in the previous
Delivering investment efficiently
Central to SSE's strategy is 'efficient' investment in a balanced range of
economically-regulated and market-based energy businesses. This means that
investments should be:
· consistent with SSE's financial principles and so should achieve
returns which are greater than the cost of capital (with an appropriate risk
premium applied to the expected rate of return from individual projects where
appropriate), enhance earnings and contribute to dividend growth; and
· governed, developed, approved and executed in an effective manner,
consistent with SSE's Large Capital Project Governance Framework which is, in
itself, regularly updated.
The premium is applied to reflect any risk associated with asset construction,
market dynamics, new technologies or regulatory or legislative change.
There are four main categories in SSE's investment and capital expenditure
plans to March 2015:
· economically-regulated expenditure on electricity transmission
· economically-regulated electricity distribution expenditure plus
essential maintenance of other assets;
· expenditure that is already committed to development of new assets such
as wind farms; and
· expenditure that is not yet committed but which could be incurred to
support the development of new assets.
Decisions on whether to proceed with individual projects are made:
· in line with SSE's financial principles;
· in the context of SSE's commitment to maintaining a diverse range of
assets within its economically-regulated and market-based businesses;
· in the light of developments in public policy and regulation; and
· on the basis of the experience and skills available to SSE.
SSE believes that its pipeline of development opportunities means that it will
be able to focus uncommitted spend on projects with the strongest potential to
achieve returns well in excess of its cost of capital, enhance earnings and
contribute to dividend growth.
In particular, a disciplined programme with the principles, shape and scale
described above is designed to allow SSE to maintain the development of a
balanced and diverse range of assets to support sustained, above-inflation
dividend growth while remaining consistent with the criteria for a single A
credit rating without the need to issue new shares. It will deliver:
· further significant enhancements to the asset base in key businesses,
including economically-regulated electricity networks;
· a continuing increase in fuel for electricity in the form of renewable
sources of energy, supporting a reduction in the CO intensity of
electricity generated; and
· additional cashflows and profits to support continuing dividend growth.
During the same period SGN, in which SSE has a 50% stake, will also be making
a significant investment in economically-regulated gas distribution networks.
Financial management and balance sheet
Key Performance Indicators Mar 12 Mar 11 Mar 10
Adjusted net debt and hybrid capital (£bn) 6.76 5.89 5.29
Average debt maturity (years) 9.3 10.6 11.0
Adjusted interest cover^1 (excluding SGN) 5.9 7.3 6.3
Shares in issue at 31 March (m) 944.7 936.9 923.1
Shares in issue (weighted average) (m) 937.8 927.6 921.9
^1 including hybrid coupon
Maintaining a prudent treasury policy
SSE's operations and investments are generally financed by a combination of:
· retained profits;
· bank borrowings;
· bond issuance; and
· commercial paper.
As a matter of policy, a minimum of 50% of SSE's debt is subject to fixed, or
inflation-linked, rates of interest. Within this policy framework, SSE
borrows as required on different interest bases, with derivatives and forward
rate agreements being used to achieve the desired out-turn interest rate
profile. At 31 March 2012, after taking account of interest rate swaps, 77.4%
of SSE's borrowings were at fixed rates.
Borrowings are mainly made in Sterling and Euro to reflect the underlying
currency denomination of assets and cashflows within SSE. All other foreign
currency borrowings are swapped back into Sterling.
The United Kingdom remains SSE's main area of operation, although business
activities in the Republic of Ireland are also substantial. Transactional
foreign exchange risk arises in respect of:
· procurement contracts;
· fuel and carbon purchasing;
· commodity hedging and energy trading operations; and
· long-term service agreements for plant.
SSE's policy is to hedge all material transactional foreign exchange exposures
through the use of forward currency purchases and/or derivative instruments.
Translational foreign exchange risk arises in respect of overseas investments,
and hedging in respect of such exposures is determined as appropriate to the
circumstances on a case-by-case basis.
Managing net debt and maintaining cash flow
SSE's adjusted net debt and hybrid capital was £6.76bn at 31 March 2012,
compared with £5.89bn at 31 March 2011. Fundamentally, this increase
· the quantum and phasing of capital and investment projects to support
sustained real dividend growth; and
· the decision to delay the increase in household energy prices until
September 2011, which meant some additional revenue would not be collected
until the new financial year.
In addition, significant coal stocks have been acquired in anticipation of the
fuel requirements at SSE's coal-fired power stations during 2012/13.
As the table below sets out, adjusted net debt excludes finance leases and
includes outstanding liquid funds that relate to wholesale energy
transactions. Hybrid capital is accounted for as equity within the Financial
Statements but has been included within SSE's 'Adjusted net debt and hybrid
capital' to aid comparability.
Adjusted Net Debt and Hybrid Capital Mar 12 Mar 11
Adjusted Net Debt and hybrid capital (6,755.8) (5,890.6)
Less: hybrid capital 1,161.4 1,161.4
Adjusted Net Debt (5,594.4) (4,729.2)
Add: Outstanding Liquid Funds (119.9) (28.1)
Add: Finance Leases (342.1) (372.2)
Unadjusted Net Debt (6,056.4) (5,129.5)
A strong debt structure through medium- and long-term borrowings
SSE's objective is to maintain a balance between continuity of funding and
flexibility, with debt maturities set across a broad range of dates. Its
average debt maturity as at 31 March 2012 was 9.3 years, compared with 10.6
years at 31 March 2011. The completion of the private placement (see
'Ensuring SSE is well-financed' below) means that SSE's average debt maturity
was 9.6 years at 30 April 2012.
SSE's debt structure remains strong, with around £5.1bn of medium- to
long-term borrowings in the form of issued bonds, European Investment Bank
debt and long-term project finance and other loans. The table above also
includes the issue by SSE, in September 2010, of hybrid capital of £1.16bn.
The balance of SSE's adjusted net debt is financed with short-term commercial
paper and bank debt. SSE's adjusted net debt includes cash and cash
equivalents totalling £189.2m.
Around £100m of medium-to-long-term borrowings will mature during 2012/13.
Ensuring SSE is well-financed
SSE believes that maintaining a strong balance sheet, evidenced by a
commitment to the criteria for a single A credit rating, is a key financial
principle. Its corporate credit ratings are currently:
· 'A-', with a 'stable' outlook (Standard & Poors); and
· 'A3' with a 'stable' outlook (Moody's).
SSE is committed to maintaining financial diversity and will move quickly to
take the right financing options, including issuing new bonds and loans. In
line with that it:
· successfully re-opened the European corporate bond market in September
2011 with the issuance of a £300m bond with a 4.25% coupon and a 10-year
maturity. As Lloyds Bank Corporate Markets stated, the strength of the order
book was testament to SSE's attractions to investors;
· secured in October 2011 a JPY15bn (equivalent to around £125m)
seven-year loan with an effective interest rate of 3.52%; and
· undertook in February 2012 a private placement of senior notes with 22
US-based investors for a total consideration of US$700m (equivalent to around
£450m). The senior notes consist of four tranches with a weighted average
maturity of 10.3 years and an all-in funding cost of around 4.25% once swapped
Following the issue of hybrid capital in 2010/11, the private placement was a
further example of SSE diversifying its funding sources and putting in place
funding at attractive rates. The placement was formally completed in April
2012. The net proceeds will be used to refinance short term debt and to
support SSE's programme of large capital projects.
With regard to shorter-term funding, SSE's core revolving credit facilities of
£900m are, and are expected to remain, undrawn. The facilities are the
subject of an agreement with banks which runs to 2015. In addition to these
facilities, SSE has a committed bilateral facility of £100m with one other
SSE believes that it has sufficient financial flexibility to pursue the best
opportunities to provide the means with which to increase dividends. At the
same time, it also believes that history - including shocks and uncertainties
seen in the financial markets in recent years - demonstrates how companies
with a commitment to the long term must be disciplined when managing their
balance sheets and cautious in financing their activities.
Net Finance Costs
The table below reconciles reported net finance costs to adjusted net finance
costs, which SSE believes is a more meaningful measure. In line with this,
SSE's adjusted net finance costs during 2011/12 were £322.1m, compared with
£342.8m in the previous year.
Mar 12 Mar 11
Adjusted net finance costs 322.1 342.8
Movement on derivatives 89.5 44.4
Exceptional charges - 8.8
Share of JCE^1/Associate interest (146.5) (139.9)
Reported net finance costs 265.1 256.1
Adjusted net finance costs 322.1 342.8
Return on pension scheme assets 147.4 141.9
Interest on pension scheme liabilities (149.8) (150.2)
Finance lease interest (38.4) (39.7)
Notional interest arising on discounted provisions (7.8) (4.3)
Hybrid coupon payment 65.5 -
Adjusted interest costs for interest cover calculation 339.0 290.5
^1Jointly Controlled Entities
The charge for hybrid debt is presented within dividends and reflected within
adjusted earnings per share*.
The average interest rate for SSE, excluding JCE/Associate interest, during
2011/12 was 5.06%, compared with 5.43% for the previous year. Based on
adjusted interest costs, SSE's adjusted interest cover (including the hybrid
coupon) was (previous year's comparison in brackets):
· 5.9 times, excluding interest related to SGN (7.3 times); and
· 4.9 times, including interest related to SGN (5.7 times).
Excluding shareholder loans, SGN's net debt at 31 March 2012 was £3.27bn, and
within the adjusted net finance costs of £322.1m, the element relating to
SGN's net finance costs was £96.5m (compared with £90.4m in the previous
year), after netting loan stock interest payable to SSE. Its contribution to
SSE's adjusted profit before tax* was £138.3m, compared with £96.4m in
Contributing to employees' pension schemes
In line with the IAS 19 treatment of pension scheme assets, liabilities and
costs, pension scheme liabilities of £731.9m are recognised in the balance
sheet at 31 March 2012, before deferred tax. This compares to a liability of
£668.6m at 31 March 2011.
During the year to March 2012, employer cash contributions amounted to:
· £47.9m for the Scottish Hydro Electric scheme, including deficit repair
contributions of £29.5m; and
· £90.1m for the Southern Electric scheme, including deficit repair
contributions of £67.2m.
As part of the electricity Distribution Price Control for 2010-15, it was
agreed that allowances equivalent to economically-regulated businesses' share
of deficit repair contributions in respect of the Southern Electric and
Scottish Hydro Electric schemes would be included in price controlled revenue,
with an incentive around ongoing pension costs.
Being a responsible tax payer
Central to SSE's approach to tax is that it should be regarded as a
responsible tax payer. As a consequence, SSE maintains a good relationship
with HM Revenue & Customs, based on trust and cooperation.
SSE strives to manage efficiently its total tax liability, and this is
achieved through operating within the framework of legislative reliefs. SSE
does not take an aggressive stance in its interpretation of tax legislation,
or use so-called 'tax havens' as a means of reducing its tax liability. SSE's
tax policy is to operate within both the letter and spirit of the law at all
SSE's tax paid to the Government in the UK, including Corporation Tax,
Employers' National Insurance Contributions and Business Rates, totalled
£396.4m during the year to 31 March 2012, compared with £343.8m in the
previous year. SSE also pays taxes in the Republic of Ireland, in relation to
its operations there, and indirectly contributed £59.5m to UK government tax
revenues through its significant investment in joint ventures and associates
(as compared with £69.9m in the previous year).
As a member of the Hundred Group of Finance Directors, SSE contributes to its
annual Total Tax Contribution survey. SSE ranked 23^rd in the 2011 survey,
both in terms of tax paid and total tax contribution.
Setting out SSE's tax position
To assist the understanding of SSE's tax position, the adjusted current tax
charge is presented as follows:
Mar 12 Mar 11
Adjusted current tax charge 213.4 268.2
Share of JCE/Associate tax (6.6) 3.3
Deferred tax 118.0 83.3
Tax on exceptional items/certain remeasurements (319.6) 252.4
Reported tax charge 5.2 607.2
The effective adjusted current tax rate, based on adjusted profit before tax*,
was 16%, compared with 20.5% in 2010/11, on the same basis. The impact of
SSE's higher capital expenditure programme and the changes introduced in
Budget 2007 and subsequently have had, and will continue to have, a positive
impact on the effective current tax rate.
The Budgets in June 2010, March 2011 and March 2012 have announced a series of
annual reductions in the UK Corporation Tax rate for future years. The
deferred tax balance has been remeasured to reflect the latest of these
enacted rate reductions (from 26% to 24%) and the effect of this has been
disclosed as an exceptional item. The deferred tax balances for future years
will continue to be remeasured as each subsequent rate reduction is enacted.
The reported tax charge for 2011/12 is £5.2m, compared with a tax charge of
£607.2m in the previous year. This reflects a large exceptional credit in
2011/12 compared to a large exceptional charge in 2010/11.
This financial report contains forward-looking statements about financial and
operational matters. Because they relate to future events and are subject to
future circumstances, these forward-looking statements are subject to risks,
uncertainties and other factors. As a result, actual financial results,
operational performance and other future developments could differ materially
from those envisaged by the forward-looking statements.
Remuneration Report 2012 on sse.com/investors 16 May 2012
Annual Report 2012 on sse.com/investors 18 June 2012
Ex-dividend date 25 July 2012
AGM (Bournemouth) and IMS 26 July 2012
Record date 27 July 2012
Final date for Scrip elections 24 August 2012
Payment date 21 September 2012
Interim results (provisional) 14 November 2012
Alan Young - Managing Director, Corporate Affairs + 44 (0)845 0760 530
Sally Fairbairn - Head of Investor Relations + 44 (0)845 0760 530
Justyn Smith - Head of Corporate Communications + 44 (0)845 0760 530
Start: 0900 (BST)
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Networks Key Performance Indicators Mar 12 Mar 11
Operating profit* - £m 73.7 47.7
Regulated Asset Value (RAV) - £m 770 560
Capital expenditure - £m 228.7 117.4
Operating profit* - £m 396.5 418.9
Regulated Asset Value (RAV) - £m 2,840 2,687
Capital expenditure - £m 260.3 211.9
Customer minutes lost (North) 73 78
Customer minutes lost (South) 60 64
Performance-based revenue - £m 11.4 8.5
SCOTIA GAS NETWORKS
Operating profit* (SSE's share) - £m 234.8 186.8
Regulated Asset Value (SSE's share) - £m 2,270 2,150
Capital and replacement expenditure (SSE's share)- £m 202.2 199.7
Uncontrolled gas escapes attended within one hour % 98.7 97.2
SGN gas mains replaced - km 1,202 1,102
Operating profit* - £m 32.1 37.1
Capital expenditure - £m 48.0 55.0
Lighting Services maintenance contracts (GB and Ire) 52 52
Lighting Services PFI contracts 11 10
Utility Solutions electricity networks in operation 118 74
Utility Solutions new gas connections 13,850 11,120
Telecoms network - km 11,200 11,200
Owning, operating and investing in Networks
In previous years, SSE reported the performance of its electricity networks on
a geographical basis (i.e. the north of Scotland and central southern
England). In terms of regulation, process, customers and service, it is now
more relevant to report performance of electricity networks by activity (i.e.
transmission and distribution) rather than geography and so from 2011/12
onwards SSE is adopting this approach.
The performance of the economically-regulated SGN will continue to be reported
within Networks. In addition, market-based activities of Lighting Services,
Utility Solutions and Telecoms are also network-based and have, therefore,
been included within SSE's Networks segment as Other Networks.
Economically-regulated network companies with a growing Regulatory Asset Value
SSE has an ownership interest in five economically-regulated energy network
· Scottish Hydro Electric Transmission (100%);
· Scottish Hydro Electric Power Distribution (100%);
· Southern Electric Power Distribution (100%);
· Scotland Gas Networks (50%); and
· Southern Gas Networks (50%).
SSE's electricity networks transmit and distribute electricity to around 3.7
million businesses, offices and homes via around130,000km of overhead lines
and underground cables and SGN's gas networks distribute gas to around 5.7
million homes, offices and businesses via 75,000km of gas mains.
SSE estimates that the total Regulatory Asset Value (RAV) of its
economically-regulated 'natural monopoly' businesses is now £5.88bn, up from
£4.2bn five years ago, comprising:
· £770m for electricity transmission;
· £2.84bn for electricity distribution; and
· £2.27bn for gas distribution (i.e. 50% of the business' total RAV of
SSE is the only energy company in the UK to be involved in electricity
transmission, electricity distribution and gas distribution. Through Price
Controls, Ofgem sets the index-linked revenue the network companies can earn
through charges levied on their users to cover their costs and earn a return
on their regulated assets. These lower-risk economically-regulated natural
monopoly businesses provide a financial backbone and operational focus for SSE
and balance its activities in the competitive Wholesale and Retail markets.
They are core to SSE, to its strategy in the short, medium and long term and
to its ability to deliver sustained real dividend growth.
Developing market-based networks businesses
In addition to its economically-regulated network companies, SSE owns and
operates three other networks businesses, which are market-based:
· Lighting Services, maintaining and replacing street and highway
· Utility Solutions, designing, building, owning and operating networks
for electricity, gas, water and heat; and
· Telecoms, providing network capacity, bandwidth and data centre
As with economically-regulated networks, they have made significant progress
in the past five years, in terms of assets, contracts and operating profit.
Financial performance in Networks
Operating profit* in Networks increased by 6.7%, from £690.5m to £737.1m,
contributing 44.5% of SSE's total operating profit*. This comprised
(comparisons with the previous year):
· £73.7m in electricity transmission, compared with £47.7m;
· £396.5m in electricity distribution, compared with £418.9m;
· £234.8m representing SSE's share of the operating profit* for SGN,
compared with £186.8m; and
· £32.1m in other network businesses, compared with £37.1m.
Performance in Scottish Hydro Electric Transmission Ltd (SHETL)
In SHETL, operating profit* increased by 54.5% from £47.7m to £73.7m. This
reflected the increase in its asset base following on from the ongoing
increase in capital invested. During 2011/12, a total of £228.7m was invested
by SHETL in its networks, up from £117.4m in the previous year, taking its
total Regulated Asset Value from £560m to £770m.
Upgrading Scotland's electricity transmission network
SHETL is responsible for maintaining and investing in the transmission network
in its area, which comprises almost 5,300km of high voltage overhead lines and
underground cables and which serves around 70% of the land mass of Scotland.
As the licensed transmission company for the area, SHETL has to ensure there
is sufficient network capacity for those within it seeking to generate
electricity from renewable and other sources.
A series of major developments is under way which is transforming the scale
and scope of SHETL:
· Knocknagael Substation: Ofgem authorised £43.8m of investment in this
project (at 2009/10 prices) and all major construction works relating to the
substation and related overhead lines and underground cables have been
completed. The successful completion of the project has increased by 125MW
the amount of electricity that can be exported from the north of Scotland.
· Beauly-Blackhillock-Kintore: Work on replacing the conductors of the
275kV transmission lines between Beauly and Blackhillock and Blackhillock and
Kintore, to allow an increase in the capacity of the network to transmit
electricity, is well under way and is expected to be finished in 2015. Ofgem
has authorised investment of £81m (at 2009/10 prices) for this development.
· Dounreay-Beauly: Work on upgrading and reinforcing the transmission
network between Dounreay and Beauly is continuing, including the installation
of a second set of conductors to create a double circuit line and development
of new and upgraded substations. Ofgem has authorised investment of £73.5m
(at 2009/10 prices) for this programme, which should be completed in 2013.
· Beauly-Denny: Following consultation, Ofgem approved, in September
2011, an asset value adjusting event submitted by SHETL to recover additional
forecast construction costs arising from the replacement of its part of the
line, from Beauly to Wharry Burn, taking the total to £539m (at 2009/10
prices). Full construction work on the replacement line is now under way,
including the erection of the first of the new pylons. The replacement line
should be completed in 2014.
A total of £173m was invested in these four projects during 2011/12 and their
completion is expected to take SHETL's RAV from £770m as at 31 March 2012 to
over £1bn by March 2013 and around £1.6bn in March 2015. In 2012/13 SHETL
expects to incur capital expenditure of over £350m.
In addition, in January 2012, SHETL submitted to Scottish Ministers an
application to construct a replacement 132kV transmission line between Beauly
and Mossford to accommodate a higher capacity. Work on a new substation is
getting under way. Based on current estimates, the two parts of the project
are likely to require total investment of around £45m.
Achieving a 'fast track' to Price Control agreement
In January 2012 Ofgem announced that it was recommending that SHETL be 'fast
tracked' under the RIIO T1 (Revenue = Incentives + Innovation + Outputs)
process for the eight-year transmission Price Control period from April 2013.
This was on the basis of the business plan submitted by SHETL, Keeping the
lights on and supporting growth, which set three key objectives for the next
· keep the lights on for customers;
· invest for a greener future; and
· minimise as far as possible the impact on the environment.
Ofgem said the business plan provided good evidence of how significant
benefits will be delivered to consumers through 'greater efficiency, enhanced
consumer engagement and investment'.
Ofgem adopted the new RIIO framework during 2011, and it is designed to
incentivise companies to deliver investment while providing value for money
for customers. RIIO T1 is the first Price Control to be conducted under the
new process. As Ofgem stated, fast-tracked companies, such as SHETL, can
'benefit from the swiftness of the process and concentrate on delivering
efficient network improvements for consumers'.
Following consultation, Ofgem published Final Proposals for RIIO T1 in April
· an allowed cost of equity of 7.0%;
· a new index for determining companies' debt costs;
· depreciation based on 20 years for existing assets; and
· depreciation for new assets (except Beauly-Denny) moving to 45 years
over the course of two Price Control periods.
SHETL is now developing a full implementation plan for the new Price Control
period, which will be shared with stakeholders later this year, much earlier
in the process than would have been possible had it not been 'fast tracked'.
This should be of benefit to SHETL and its stakeholders.
Keeping the lights on and supporting growth in the long term
The central case of SHETL's business plan is a £1.1bn capital investment
programme, with flexibility to increase this by up to a further £4bn if
required, to upgrade the transmission network during 2013-21. Projects
currently being developed and which could be constructed during the period
· Western Isles: In October 2010, SHETL concluded that the lack of
financial underwriting from electricity generators (attributed to the level of
transmission charges) relating to the proposed link from the Western Isles to
the mainland meant it would not be able to conclude a contract for the supply
of the necessary electricity cable. As a result, it withdrew its request to
Ofgem for authorisation to make the investment. Developers of wind farms on
the Western Isles are now conveying greater confidence about the
deliverability of their projects, which means that the case for the Western
Isles link has been renewed and submitted to Ofgem. Detailed work is being
undertaken to ensure that the final scheme design for the link meets the needs
of the developers and, over the coming months, work will resume on placing the
relevant contracts and undertaking environmental and other studies.
· Caithness to Moray: SHETL is now planning to develop a subsea
electricity cable between Caithness, where consent has been secured for a new
substation at Spittal, and Moray, where it is proposed to upgrade the existing
substation at Blackhillock, to transmit the large volume of existing and
planned electricity from renewable sources in the north of Scotland. The
cable will be capable of transmitting around 1,200MW of electricity. This
proposal to develop a subsea cable retains the flexibility to accommodate
generation developments in the north of Scotland as and when the need to do so
arises. An investment case will be submitted to Ofgem shortly.
· Shetland: SHETL has now secured consent for converter stations
associated with the proposed subsea/onshore underground high voltage direct
current (HVDC) transmission link between the Shetland Islands and the Scottish
mainland to accommodate renewable energy developments in Shetland. The link
would also connect properties in Shetland to the mainland electricity network
for the first time and could be installed in the second half of this decade.
Based on current estimates (although these will inevitably be revised) these
developments could require investment of around £1.4bn and would form part of
the £4bn investment programme that is additional to the £1.1bn central case of
SHETL's business plan.
In May 2012, Ofgem set out plans to change the charging arrangements for
electricity transmission networks, with greater account being taken of the
type of electricity generator seeking to use the networks. This will require
the Investment Cost Related Pricing (ICRP) methodology to be improved. Once
this is completed, Ofgem will consider the final form of the ICRP and make a
final decision on its modification. The impact of the planned changes will
have a bearing on the amount of electricity from renewable sources that is
developed in Scotland and, therefore, on the way in which the transmission
network is upgraded.
Electricity Transmission Priorities for 2012/13 and Beyond
SHETL is SSE's fastest-growing and fastest-changing business, where the core
activity for much of the next decade will be construction. Against this
background, its priorities for 2012/13 and beyond are to:
· complete successfully the remaining stages of the RIIO T1 price control
· meet key milestones in projects under construction, in a way that is
consistent with all safety and environmental requirements;
· make progress with projects in development; and
· ensure it has the people, skills, resources, supply chain and
stakeholder relationships that will be necessary to support growth on a
Performance in Southern Electric Power Distribution and Scottish Hydro
Electric Power Distribution
The performance of SSE's two electricity distribution companies during 2011/12
was as follows (comparisons with previous years):
· operating profit* decreased by 5.3% to £396.5m;
· electricity distributed fell by 1.4TWh to 40.7TWh;
· the average number of minutes of lost supply per customer was 73 in the
north (78) and 60 in the south (64);
· the number of supply interruptions per 100 customers was 71 in the
north (74) and 70 in the south (64); and
· performance-based additional incentive income and allowances (excluding
losses) of £11.4m is expected to be earned, compared with the final out-turn
of £8.5m in the previous year.
The decrease in operating profit principally reflects the timing of recovery
of allowed income.
Performance in respect of both minutes lost and interruptions was ahead of the
targets set by Ofgem under its Interruptions Incentive Scheme (IIS), which
gives financial benefits to distribution network operators that deliver good
performance for customers. The number of minutes lost in the South was the
lowest ever. Performance-based income covers a number of issues, including
the quality of service provided to customers and innovation.
Volume of electricity distributed
The total volume of electricity distributed by the two distribution companies
during 2011/12 was 40.7TWh, compared with 42.1TWh in the previous year. Under
the electricity Distribution Price Control for 2010-15, the volume of
electricity distributed no longer affects companies' overall allowed revenue
(although it does have an impact on the timing of revenue). This has further
reduced the level of risk associated with energy networks businesses.
Earning revenue by delivering a good quality of service
As a result of their operational performance during 2011/12 SSE's two
electricity distribution companies expect to earn additional incentive income
and allowances of £11.4m (2010/11: £8.5m) including additional incentive
income of £4.5m (2010/11: £3.4m). This reflects effective investment in the
automation of the networks and effective operational responses to electricity
Responding to the effects of severe weather
In the winter of 2011/12, SSE's electricity networks were subjected to the
effects of severe weather on an unusually large number of occasions, including
the 3 January storm affecting the north of Scotland. This weather event
alone, featuring exceptional low altitude wind speeds of over 90 miles per
hour, resulted in 600 separate faults and over 1,000 points of damage on the
network and the loss of power to around 40,000 households. The equivalent of
three months of fault repair work was carried out in four days (with very high
winds also occurring on 4 January) and was marked by the commitment of SSE
employees and the patience on the part of affected communities. The efforts
of SSE and other service providers were praised by the Scottish Government.
The 3 January storm and a number of other weather events were treated as
exceptional by Ofgem, meaning that they are excluded from the calculation of
performance measures such as customer minutes lost.
Operating electricity networks efficiently
Efficiency is one of SSE's core values and amongst Ofgem's explicit purposes
in setting Price Controls is to keep as low as possible the costs of providing
secure and reliable networks. SSE has a straightforward operating model,
under which the vast majority of activities are in-house. Under this model:
· customer-facing activities, such as restoring power supplies or
providing new connections, are managed from a network of 14 depots in
communities throughout central, southern England and the north of Scotland;
· network management activities, such as inspections, maintenance and
investment, are carried out in Operational Production Groups.
This model gives SSE a strong oversight of operations and investment, allows
flexibility in responding to changed circumstances and supports a culture of
efficiency, teamwork and excellence, including innovation.
Investing in electricity networks and securing growth in their RAV
2011/12 was the second year of the electricity Distribution Price Control for
2010-15. The Price Control changed the framework for operating and capital
expenditure to remove the perceived bias in favour of the latter and to ensure
the delivery of not only the investment itself but of agreed outputs from it.
The most successful electricity distribution companies, therefore, will be
those that apply efficiency and innovation to maximise outputs from agreed
In response to this, SSE has identified a number of solutions and
interventions for wider deployment in 2010-15 to ensure its success throughout
the Price Control period. This means SSE has robust and cost efficient
network investment processes that deliver real value for customers. It has
also identified a number of important innovations and new technologies that
are delivering cost savings and minimising disruption.
For example, in rural areas, use of the Ordnance Survey's Imagery database of
aerial photography has provided a simple and effective way of surveying
thousands of kilometres of overhead lines for potential risk of tree damage.
In urban areas, SSE has used directional drill technology, which creates
minimum disturbance to the highway and thereby reduces disruption to the
public and the cost of reinstatement, to install - for example - new 66kW
circuits in west London.
The deployment of innovations and technologies such as these, plus good
performance in response to Ofgem's enhanced incentive mechanisms in areas such
as customer service should enable SSE to continue to achieve the post-tax real
return in excess of 5% which it is targeting in electricity distribution.
Against this background, capital expenditure in electricity distribution
networks was £260.3m in 2011/12. The need for further significant investment
in Great Britain's electricity distribution networks, to maintain and/or
replace ageing assets or to provide additional capacity, is likely to mean SSE
will invest around £275m in 2012/13, taking the total for the first three
years of the 2010-15 Price Control to around £750m. As a result, the RAV of
SSE's two electricity distribution networks should increase to over £2.9bn
over the course of the year.
Significant developments include a £30m project to install new 132kV plant at
Bracknell and Camberley substations and new 132kV under ground cables between
the substations. The project will help to meet demand for electricity in a
key area between the M3 and M4 motorways. The cabling works should be
finished in the autumn of this year and the final substation work should be
completed in 2013.
In Scotland, plans have been made to invest in the resilience of the
electricity network in Argyll and Bute, which was particularly affected by the
storms of 2011/12, including provision of underground cables in Dunoon and of
large-scale mobile generation connection points for Bute.
Making electricity networks smart
Although there is no standard definition, the European Technology Platform for
the Electricity Networks of the Future defines smart grids as 'electricity
networks that can intelligently integrate the behaviour and actions of all
users connected to it - generators, consumers and those that do both - in
order to efficiently deliver sustainable, economic and secure electricity
The next decade promises major technological change for electricity
distribution networks as a result of things like micro generation, the growth
of electricity as a source of heating and electric vehicles. All of this will
change the traditional flows of electricity, which means smarter, more dynamic
networks will be required.
SSE, with Smarter Grid Solutions Ltd, an associate company, 'switched on' the
UK's first commercial smart grid technology on its power distribution network
on Orkney in 2009. This has since allowed 20MW of additional capacity for
generating electricity to be connected to the network, at a small fraction of
the cost that would have been required had traditional means been adopted.
Two other major 'smart' projects, with total funding of £64m, are being led by
SSE's electricity distribution businesses:
· Northern Isles New Energy Solutions (NINES) in Shetland: NINES is a
pilot project representing the first stage of the Integrated Plan for managing
electricity supply and demand on Shetland, which Scottish Hydro Electric Power
Distribution is required by Ofgem to present in 2013. It features the use of
heat and electricity storage to manage intelligently the impact of movements
in demand on electricity generation in Shetland, which could allow more
renewable energy to be connected to the network. It also features new active
network management solutions. In September 2011, Ofgem announced that the
NINES should be funded as part of the Integrated Plan, with 85% of its
expenditure included in SHEPD's RAV and the remaining 15% included in SHEPD's
allowed revenue. This confirmed that NINES is not just a 'smart' programme
but a comprehensive and sustainable solution to the energy challenges on
Shetland which is designed to meet the needs and aspirations of the community.
· New Thames Valley Vision (NTVV) in and around Bracknell: NTVV aims to
demonstrate that applying new technologies to Bracknell's network will provide
a lower cost alternative to redeveloping the substation to meet increasing
electricity demand, with the potential to reduce significantly costs to
customers. NTVV involves monitoring and predicting electricity demand and
usage patterns and using a range of innovative technologies, including network
automation, energy storage and automated demand response, to manage the
network flows predicted by the modelling. In November 2011, Ofgem announced
that NTVV should secure funding totalling £30m under its Low Carbon Networks
Fund and, as a result, NTVV will lead to the creation of one of the UK's first
'intelligent' distribution networks.
Supporting deployment of electric vehicles
Electric vehicles (EVs) will be an essential part of the move towards a
low-carbon transport infrastructure. Current predictions suggest that EVs
could account for as many as 10% of new car sales by 2020. The challenge for
electricity distribution companies is to prepare their networks for the likely
upswing in demand arising from EVs and SSE was a full participant in two EV
projects, both supported by the Technology Strategy Board - the MINI E and the
Ford Transit Connect consortia.
These have helped to demonstrate that up to one in four homes will be able to
have an EV without it having a significant impact on the electricity network.
Nevertheless, other issues - such as the need to schedule re-charging
effectively and to develop new control systems - require significant
attention and SSE is carrying out further work to understand the requirements
of so-called "smart charging" to maximise use of the existing infrastructure.
In March 2012, SSE opened in Glasgow the UK's first dedicated free EV
charging, hiring and parking facility. The facility features six charging car
park spaces and electric car hire from Europcar and Peugeot as well as an
electric car available for test drives.
Electricity Distribution priorities in 2012/13 and beyond
During 2012/13 and beyond SSE's priorities in Electricity Distribution are to:
· comply fully with all safety standards and environmental requirements;
· ensure that the networks are managed as efficiently as possible,
delivering required outputs while maintaining tight controls over operational
· put responsiveness at the heart of day-to-day operations, so that the
number and duration of power cuts experienced by customers is kept to a
· ensure there is adequate capacity to meet changing demands on the
· deliver excellent service to customers, which responds effectively to
their needs during supply interruptions and in 'business-as-usual' situations;
· make progress on the deployment of innovative investment in smart
With such significant changes required over the next few years, not least in
adapting the networks to accommodate changes in production and consumption,
the scope for additional incremental growth in electricity distribution
networks is clear.
Performance in SGN
SSE receives 50% of the distributable earnings from Scotia Gas Networks (SGN),
in line with its equity holding, and also provides it with corporate and
management services. In SGN in 2011/12 (comparisons with the previous year):
· SSE's share of operating profit* was £234.8m, compared with £186.8m;
· gas transported fell by 22.8TWh to 143.4TWh; and
· 98.7% of uncontrolled gas escapes were attended within one hour of
notification, compared with 97.2% in 2010/11 and the standard of 97%.
The increase in operating profit* for SGN is primarily due to three things:
· the impact of the price changes agreed as part of the five-year gas
Distribution Price Control to March 2013;
· underlying operational efficiencies achieved during the year; and
· income from 2010/11 not recovered during that financial year but
Only 3.5% of SGN's transportation income is volume-related; the remaining
96.5% is related to the maximum capacity requirements of its customers. A
small part of SGN's operating profit is derived from the non-regulated
activities of its contracting, connections and commercial services operations.
Operating gas networks efficiently
When SGN acquired its networks in June 2005, National Grid was contracted to
provide it with services with a total value of £30m per annum. In following
years, services were brought within SGN, and SGN's remaining service contracts
with National Grid totalled £7m per annum by the end of 2010/11.
These Managed Services Agreement contracts covered transmission services,
control and IT services and emergency call handling, and the process of
bringing them within SGN is continuing. In June 2011, SGN stopped using
National Grid's Gas Transportation Management System and replaced it with its
new Distribution Network Control System and in September 2011 it replaced a
National Grid system with a new application called Demand Management System.
This means that SGN's remaining contracts with National Grid now total £4.5m
Investing in gas networks and securing growth in their RAV
The five-year gas Distribution Price Control, which began in April 2008,
provides the opportunity for SGN to increase significantly investment in its
gas distribution networks, thereby reinforcing their safety and reliability
and securing another significant increase in their RAV. By the end of
2012/13, SGN estimates that its total RAV will be around £4.8bn.
During 2011/12, SGN invested £404.3m in capital expenditure and mains and
services replacement projects, compared with £399.3m in the previous year,
· The £21m replacement of the under-sea gas main between the south coast
of England and the Isle of Wight was completed during the year. The project
involved connecting Lepe and Gurnard through the longest directional drill
ever undertaken (2.9km). Tunnels were bored from each direction, meeting
around 40 metres below the seabed, to take the two 12 inch diameter pipes.
· The majority of the mains replacement expenditure was incurred under
the 30:30 mains replacement programme which was started in 2002. This
requires that all iron gas mains within 30 metres of homes and premises must
be replaced over a 30-year period. During 2011/12, SGN replaced 1,202km of its
metallic gas mains with modern polyethylene pipes.
· SGN is also committed to making new gas connections to existing homes
that are not on mains gas as affordable as possible, and is running a new
Assisted Connections scheme, under which 19,456 properties were connected to
its networks during 2011/12. A further 19,500 properties are expected to be
connected in 2012/13.
Investment will continue to be a top priority for SGN and, in line with that,
it expects to invest around £400m in capital expenditure and mains and service
replacement projects during 2012/13.
Earning financial rewards for corporate responsibility
In July 2011, SGN was awarded £1.3m under Ofgem's Discretionary Reward Scheme
which rewards companies for developing and adopting best practice in serving
the interests of customers, society and the environment. This was the third
successive year in which SGN secured the highest award under the scheme, and
it recognised SGN's work on its environmental impact, fuel poverty and
safety. The Scheme, which is judged by a panel of industry experts, was
established as part of Ofgem's gas Distribution Price Control 2008-13.
Making gas networks more sustainable
In March 2011, the UK government launched the Renewable Heat Incentive 'to
revolutionise the way heat is generated and used in buildings'. It will
support emerging technologies and is designed to reduce dependence on heating
from fossil fuels.
SGN has long recognised that renewable heat is an untapped resource. Working
with a water company and a gas supplier, it began the delivery and supply of
biomethane to 200 homes in Oxfordshire. Under the scheme, the first of its
kind in Britain, sludge is subjected to the process of anaerobic digestion to
create biogas which, after the removal of impurities, is fed into the gas
distribution network. It has since begun participation in the first
commercial biomass upgrading system in England, near Poundbury in the Duchy of
Cornwall. Biogas produced from green waste and chicken manure will be
upgraded to natural gas quality and fed into SGN's gas network to supply green
gas to almost 4,000 homes.
It is estimated that biomethane could account for up to 15% of domestic gas
needs in the UK in 2020. SGN is now developing this technology so that larger
volumes of biomethane at other sites can be commissioned into the network and
is carrying out feasibility studies on a further six proposals for biomethane
network entry points from anaerobic digestion and landfill gas projects in
Scotland and southern England.
Preparing for the new gas Distribution Price Control
As with electricity transmission, a new eight-year Price Control will be
introduced for gas distribution from 1 April 2013 - RIIO-GD1. SGN has
undertaken extensive consultations with stakeholders to help determine what
should be included in its business plan for the new Price Control.
In October 2011, SGN completed a public consultation on its proposed business
plan for RIIO-GD1 and submitted it to Ofgem in November 2011. The plan set
out four key themes and related measures of progress:
· acting safely, through reducing risk and protecting the public and
· providing excellent service through maintaining gas supplies, providing
timely information and listening to customers;
· being good neighbours by reducing environmental impact and removing
assets that affect local communities; and
· being a business for the future by helping to mitigate and adapt to
climate change and keeping costs down.
In February 2012, Ofgem set out its initial assessment of gas distribution
networks' business plans. Overall, it decided not to retain SGN (or any other
company) within the 'fast track' process because of the number of issues that
would have had to be resolved in a compressed timetable. SGN submitted a
revised business plan in April 2012 which it is hoped Ofgem will adopt as the
basis for its Initial Proposals document on the gas distribution Price Control
in July 2012.
Gas Distribution priorities in 2012/13 and beyond
During 2012/13, SGN's priorities are to:
· deliver a safe and secure gas supply to customers;
· deliver to time and budget the 2012/13 mains replacement and capital
· continue to work with stakeholders to secure an acceptable outcome to
the new gas Distribution Price Control; and
· support sustainable developments in gas distribution.
Performance in Other Networks
SSE's 'Other Networks' businesses - Lighting Services, Utility Solutions and
Telecoms - are relatively small when compared with its energy networks, and
they operate in tough and competitive markets. As a result of difficult
economic circumstances, their contribution to SSE's operating profit* fell,
from £37.1m in 2010/11 to £32.1m, in 2011/12.
Maintaining leadership in lighting services provision
SSE remains the UK's and Ireland's leading street-lighting contractor. It
· 24 contracts with local authorities in England, Wales and Scotland to
maintain over 630,000 lighting units;
· 28 contracts with local authorities in the Republic of Ireland to
maintain over 240,000 lighting units, through Airtricity Utility Solutions;
· 11 contracts with 12 local authorities, under the Private Finance
Initiative, to replace and maintain over 610,000 lighting units.
The PFI contracts include the 25-year contract awarded by Knowsley
Metropolitan Borough Council for the maintenance of over 24,000 lighting
columns, traffic bollards and traffic signs and for the replacement of more
than 70% of these during the initial four-year investment period which began
in August 2011. It includes the deployment of SSE's Mayflower technology
which offers customers variable light control, monitoring, fault detection and
energy consumption measurement - all undertaken from a central location.
Lighting Services fits well within SSE's business model and, as in electricity
distribution, future success will be based on effective and efficient customer
service and successful deployment of new technology.
Providing comprehensive Utility Solutions
SSE provides a comprehensive range of 'utility solutions'. It designs,
builds, owns, operates and maintains cable and pipe networks for delivering
electricity, gas, water, heat and telecommunications to existing and new
commercial and residential developments in England, Wales and Scotland. It
is, therefore, able to provide a one-stop solution for multi-utility
infrastructure requirements to customers in the development and construction
· Electricity Networks: SSE now owns and operates 118 embedded energised
electricity networks outside the areas served by its economically-regulated
subsidiaries Scottish Hydro Electric Power Distribution and Southern Electric
Power Distribution. A further 43 are under construction and contracts have
been signed for the development of an additional 5, taking the total to 166 -
up from 117 at the end of 2010/11. In total, SSE has 825MW of network
capacity, including 476MW of existing demand and 349MW of connections to be
· Gas Pipelines: SSE is also a licensed gas transporter, installing,
owning and operating gas mains and services on new housing and commercial
developments throughout the UK. The total number of new premises connected to
its gas networks has continued to grow, and during 2011/12 it connected a
further 13,853 premises, taking the total number of connections to over
92,000. Contracts have been signed for a further 60,000 connections to be
· Water: Through SSE Water (SSEW) SSE is able to install, own, operate
and supply water and sewerage services alongside its existing electricity and
gas services. An 'inset' appointment is the route by which one company
replaces another as the appointed water and/or sewerage company for a
specified area. SSEW now has 15 such appointments and provides, or has
secured contracts to provide, water and sewerage services to over 21,000
properties in England and Wales.
· Heat: SSE uses a range of sustainable technical solutions, including
Combined Heat and Power (CHP) generation, biomass boilers and ground- and
air-source heat pumps and combines these with community heating schemes where
appropriate. There are currently seven heat networks in operation and five
further schemes where SSE is the preferred bidder.
Of the four areas that Utility Solutions operates in, Heat is the least
developed but has significant potential as a result of the planning
requirements placed on developers and the introduction of the Renewable Heat
Incentive. That, allied to continuing focus on safety, customer service and
value across all activities and an ability to offer a true multi-utility
solution to customers, means that Utility Solutions should continue to
increase its already prominent market presence.
Operating a national telecoms network
SSE's Telecoms business operates in two different markets. It owns and
operates the UK's fourth largest fibre and microwave network offering carrier
standard connectivity to external customers and providing SSE's internal
managed voice and data services. The origins of this business lie in the
installation, a decade ago, of fibre on SSE's electricity network, and the
telecoms network now comprises:
· fibre optic cabling which SSE owns (5,000km);
· leased lit fibre (2,600km); and
· microwave radio (3,600km).
To complement its core telecoms network business, SSE's Fareham-based data
centre provides capacity for more than 1,200 racks for the co-location of IT
services within the 80,000 square feet secure site and 10MW of power in a
resilient and energy efficient environment.
Despite gaining some large, high-profile technology companies as clients, the
year was characterised by a challenging environment for sales in respect of
the network, which made tight control on operating costs especially
important. To support the business in the future, there will be a focus on
development of its network and products in what remains a very fast-developing
Other Networks priorities in 2012/13 and beyond
Lighting Services, Utility Solutions and Telecoms have specific priorities for
2012/13, but across all of them there is a continuing need for:
· efficiency and customer service;
· effective product development; and
· technological change and innovation.
Through efficiency, responsiveness and innovation, SSE aims to expand
significantly its Networks businesses in the coming years and they will play a
significant part in helping it to meet its financial objective of sustained
real dividend growth.
Retail Key Performance Indicators Mar 12 Mar 11
Operating profit* - £m 271.7 347.7
Electricity customer accounts (GB domestic) - m 5.04 5.16
Gas customer accounts (GB domestic) - m 3.48 3.57
Energy customers (GB business sites) - m 0.41 0.43
All-Island Energy Market customers (Ire) - m 0.62 0.49
Total energy customer accounts (GB, Ire) - m 9.55 9.65
Electricity supplied household average (GB) - kWh 4,104 4,408
Gas supplied household average (GB) - kWh 451 563
Household/small business aged debt (GB, Ire) - £m 88.3 89.2
Customer complaints to third parties (GB)* 896 1,161
* Energy Ombudsman, Consumer Focus and Consumer Direct
Operating profit* - £m 49.9 52.8
Home Services customer accounts (GB) - m 0.41 0.42
Meters read - m 15.0 13.8
SSE Contracting Order Book - £m 78 67
Improving transparency in competitive customer-facing businesses
In previous years, SSE reported performance relating to its energy supply
activities as part of a Generation and Supply segment and SSE continues to
believe that its involvement in the Retail activity of energy supply and the
Wholesale activities of energy production and portfolio management means it
has a well-balanced portfolio of customers, assets and contracts for
purchasing gas and power purchase agreements.
In October 2009, Ofgem introduced the requirement to report details of SSE's
Generation and Supply results in a Consolidated Segmental Statement (CSS).
Ofgem commissioned an independent review of suppliers' segmental statements
by BDO LLP and in January 2012 announced that while BDO had recommended
several changes to the way suppliers prepare their statements to improve
transparency and cross-company comparability the fact it 'found suppliers'
financial information to be fair and appropriate and should also give
consumers a degree of reassurance.'
Therefore, in relation to Generation and Supply, SSE was already publishing
information to help to improve the transparency of its financial reporting.
Following changes to SSE's management structure in 2011 and in the interests
of further transparency, it has concluded that this should be extended to its
The second biggest energy supplier across the Great Britain and Ireland
SSE is the second biggest energy retailer across the competitive markets in
Great Britain and Ireland. It supplies electricity and gas to more than 9.5
million household and business accounts under brands such as SSE, Scottish
Hydro, Southern Electric, SWALEC and Atlantic in the Great Britain market and
Airtricity in the markets on the island of Ireland.
The key responsibilities of the Energy Supply business are to:
· ensure it secures enough electricity and gas to meet customers' needs;
· arrange for electricity and gas to be distributed to customers'
premises through the relevant networks;
· provide customers with necessary associated services such as metering
and billing; and
· meet obligations in respect of energy efficiency and any related social
or environmental schemes promoted by government.
It must do so while being mindful of the fact that its core products -
electricity and gas - are something which people need to buy rather than
choose to buy, which means there is legitimate and significant political and
regulatory interest in energy supply markets. In Great Britain, for example,
energy supply has been the subject of a Retail Market Review announced by
Ofgem in November 2010, which is supposed to make energy retail markets work
more effectively in the interests of customers.
A significant provider of energy-related services
SSE provides other energy-related goods and services to customers, covering
three principal areas:
· retailing of 'home services' such as gas boiler, central heating and
wiring maintenance and installation, telephone line rental, calls and
broadband services and microgeneration;
· supplying, installing, maintaining and reading meters in the household,
commercial, industrial and generation sectors in Great Britain; and
· domestic, commercial and industrial mechanical and electrical
contracting and electrical and instrumentation engineering.
SSE's contracting business is the second largest mechanical and electrical
contracting business in the UK. Its metering business became national in
Great Britain in 2010 after it completed a programme of in-sourcing of
activities. 'Home services' were supplied to over 400,000 customer accounts
as at 31 March 2012.
SSE's activities in home services, metering and electrical and mechanical
contracting are all customer-facing and have, therefore, been included in the
Financial performance in Retail
Operating profit* in Retail fell by 19.7%, from £400.5m to £321.6m,
contributing 19% of SSE's total operating profit*. This comprised
(comparisons with the previous year):
· £271.7m in Energy Supply, compared with £347.7m; and
· £49.9m in Energy-Related Services, compared with £52.8m.
Performance in Energy Supply
SSE's Energy Supply business buys the electricity and gas it needs through
SSE's Energy Portfolio Management and Generation divisions. The associated
cost to the Energy Supply business comprises:
· the weighted average cost of electricity, made up of fuel used in
generation plus associated costs of CO emissions, power purchase agreements
and direct bilateral electricity contracts; and
· the weighted average cost of gas, made up of gas purchase contracts and
direct bilateral gas contracts and gas storage.
It therefore carries risks associated with energy procurement. In addition
the Energy Supply business has to meet costs associated with the transmission
and distribution of energy, customer service and government-sponsored social
and environmental obligations.
Operating profit* in Energy Supply in 2011/12 fell by 21.9% to £271.7m, and
comprised 16.4% of SSE's total operating profit. Within this, SSE's operating
profit from supplying energy to a household account in Great Britain in
2011/12 was an average of around £30. Operating profit in Energy Supply
reflects the higher wholesale gas costs and the delay to September 2011 in
implementing an increase in household energy prices and falling energy
consumption. There was, however:
· a reduction in overheads associated with the doorstep sales operation
as a result of its closure in July 2011; and
· success in managing, with customers, the level of aged debt.
Expected profitability in Energy Supply
Electricity and gas are things which people need to buy rather than choose to
buy (unless they are used inefficiently), so SSE recognises that it would not
be acceptable for it to achieve an excessive level of profitability in Energy
Supply. At the same time, a reasonable and sustainable level of profitability
is necessary to ensure that the risks associated with energy procurement can
be remunerated in a way that will sustain investment and to ensure that
investment can also be made in the services and systems that customers will
need in the future.
SSE expects that its profit margin (i.e. adjusted operating profit* as a
percentage of revenue) in Energy Supply will average around 5% over the medium
term (i.e. three to five years). In 2011/12, it was 3.5%. On this basis, SSE
hopes to demonstrate that the prices it charges for, and any profit it makes
in, supplying electricity and gas are fair. It also hopes to give further
momentum to its efforts to build trust in energy supply.
Building trust in energy supply
In October 2011, SSE published a document, Building Trust: SSE's proposals to
build customers' trust in energy supply in Great Britain. It set out 10
· restore simplicity, including reducing the number of tariffs from over
60 to four core products;
· enhance transparency, including improving wholesale electricity market
· improve customer service, including retrospective introduction of a
Sales Guarantee; and
· ensure fairness for all customers, including ensuring all customers
have the opportunity to access all tariffs.
In line with the fairness principle, SSE has made a clear commitment never to
engage in any form of unfair pricing. As the Institute for Public Policy
Research stated in February 2012, 'customers are being overcharged to
subsidise cheap offers for customers who switch suppliers in the more
competitive end of the market'. An effect of this practice is to make entry
in to the energy supply market in Great Britain more difficult for new
suppliers, and that is another reason why the practice should be stamped out.
In April 2012, SSE confirmed that the 10 measures had been completed,
including two that had been successfully piloted and would go forward to full
implementation. It also set out a number of other measures to maintain the
momentum, including steps to simplify energy bills, tackle estimated bills and
to enable prepayment meter customers get on to the best tariff.
As part of its Retail Market Review, Ofgem has completed consultations on
possible interventions in areas such as pricing structures, tariff
comparability and customer communications. Ofgem has said it would prefer to
implement reform wherever appropriate with the co-operation of energy supply
companies but will consider a referral to the Competition Commission if
SSE accepts the challenge posed by Ofgem but believes it is moving faster, and
further, to meet customers' needs in a way that a regulator-determined
approach would not be able to achieve. Indeed, the quick way in which SSE was
able, in April 2012, to enter into an agreement with the UK government on
measures to help improve the quality and relevance of the information
available to customers demonstrates that speed of response and innovation are
most likely to sustain and build customers' trust in energy supply.
Energy supply markets in Ireland are at a different stage of development;
indeed, since 2009, Ireland has experienced the EU's highest levels of
customers switching between suppliers. Nevertheless, after a period of rapid
growth in customer numbers, SSE is committed to ensuring that the principles
of Building Trust are also applied on the island of Ireland, and its Customer
Charter for household customers in the Republic of Ireland reflects that
SSE's approach to retaining and gaining customers
Long-term success in Energy Supply depends on the supplier's ability to retain
and gain customers. SSE aims to do this by:
· offering consistently competitive prices over the medium term;
· providing a straightforward range of products that are easy to assess;
· delivering the highest possible quality of service.
In summary, its proposition to customers is based on fair pricing, simple
products and excellent service. At the same time, SSE believes that, because
the products it supplies are fundamental to the functioning of modern life and
so are not discretionary, it has a responsibility to earn and retain the trust
Supplying energy to customers in GB and Ireland
During 2011/12, SSE's energy customer accounts in Great Britain and Ireland
fell slightly, to 9.55 million from 9.65 million in March 2011. Customer
accounts at March 2012 comprised:
· 8.52 million household electricity and gas accounts in GB;
· 407,000 business electricity and gas sites in GB; and
· 621,000 electricity and gas customer accounts in Northern Ireland and
the Republic of Ireland (91% household and 9% business).
The reduction in customer account numbers in GB was, therefore, offset
somewhat by success in the Irish markets, where there was a net customer gain
of 130,000. In contrast, there was a reduction of 230,000 in customer numbers
in Great Britain, reflecting the highly competitive market conditions. Of
this net reduction, most accounts were lost in the six months between July and
December 2011. This was the period following SSE's decision to stop selling
energy on the doorstep in Great Britain and the announcement of increases in
household gas and electricity prices.
Customer account numbers do not tell the whole story, however. Within the
overall total, 2.5 million customer accounts in Great Britain are for loyalty
products such as:
· energyplus Argos, which rewards customers with money-off discount
· energyplus Pulse, under which customers are able to support the British
Heart Foundation (which received £133,000 from SSE in respect of energyplus
Pulse customers during 2011/12, taking the total since the product was
launched to £1.5m); and
· M&S Energy, available to customers through Marks & Spencer's stores and
In May 2012 SSE has announced its intention to acquire Phoenix Supply Limited,
a regulated supplier of natural gas to 130,000 customers in Northern Ireland.
The acquisition also includes a small number of customers in ROI's deregulated
commercial supply market. The acquisition is subject to approval by the Irish
Competition Authority and SSE expects to complete the purchase during the
Selling energy in the right way
In July 2011, SSE became the first of the leading suppliers in the Great
Britain market to stop commission-based doorstep selling. The decision was
taken because confidence in the way energy was being sold on the doorstep and
in the way in which salespeople were being remunerated had become low.
This was followed in December 2011 by SSE's decision to implement its Sales
Guarantee for household energy customers and to apply the guarantee to any
household energy sales made by it since October 2009, when Ofgem placed new
obligations on energy suppliers to make sure sales activities are conducted in
a fair and professional manner.
Under the guarantee, devised as part of SSE's Building Trust initiative, any
customer who shows that they switched their energy supply to SSE after being
given inaccurate information or being misled will have any resulting financial
loss made good. Since it was launched, SSE has contacted customers about the
guarantee and so far settled over 3,000 claims. It expects that the
retrospective implementation of the guarantee could cost up to £5m. The
application of the guarantee is being independently assured and extended to
all energy products.
In May 2012, SSE was fined £1.25m after being found guilty, at Guildford Crown
Court, on two counts (out of seven) relating to the use of direct sales aids
in February 2009. SSE recognises that a company of its standing and with its
values should not have found itself in this position and various steps - of
which the Sales Guarantee is one - have been taken to ensure that it does not
do so again.
Meanwhile, SSE is continuing to co-operate with Ofgem's investigation into
whether it complied with the new licence conditions to govern sales processes
introduced in 2009.
SSE aims to gain customers through venue, telephone, online and direct mail
sales and through customer advice activities; through extending its range of
affinity partnerships, of which M&S Energy is one example; and through a
series of commercially-focused sponsorships.
It is also planning to launch later this year pilot networks of
appointment-only and salary-based 'smart energy advisers', starting in Wales
and Scotland and trained to an externally-accredited standard. The advisers
will draw on SSE's experience in the Energy Demand Research Project carried
out in North Leigh, Oxfordshire, between 2007 and 2010, during which a
locally-based energy adviser employed by SSE engaged with local people to
secure a 10% reduction in household energy consumption. According to the
Independent Project Final Analysis, published in June 2011, the adviser was
'able to work very well within the community and was very well received by
Customers' use of energy is continuing to decline
SSE household customers have continued to reduce their use of energy, and on
an actual basis in 2011/12 SSE household customers used, on average:
· 451 therms of gas, compared with 563 therms in the previous year; and
· 4,104kWh of electricity, compared with 4,408kWh in the previous year.
On a weather-corrected basis, average household consumption of gas by SSE's
customers has fallen by 21.5% in the five years since 2007 and consumption of
electricity has fallen by 16.7%. The decline in energy consumption is
expected to continue for the next few years.
Falling consumption presents short term issues in relation to the revenue that
companies are able to earn from supplying energy and in relation to the
operation and development of plant for generating electricity. Nevertheless,
as a result of the underlying fall in energy consumption, households are less
exposed to the impact of high unit prices than they otherwise would be and the
overall sustainability of supplies of gas and electricity is improved. These
are very positive trends, which SSE welcomes.
Helping customers use less energy in the future
As an energy supplier, SSE has obligations under the Carbon Emissions
Reduction Target (CERT) 2008-12 scheme to deliver energy efficiency measures
to households throughout Great Britain that deliver savings in CO
emissions, and in 2011/12 it funded the installation of cavity wall insulation
in over 125,000 homes and loft insulation in over 190,000 homes (excluding DIY
insulation), an increase of over 60% on last year.
In August 2011, Ofgem published its Annual Report on suppliers' progress
towards CERT targets for 2008-12. It reported that SSE had achieved 64% of
its obligation by the end of the third year of CERT; this increases to 71%
when the innovation features of CERT are taken into account. The delivery of
CERT and, in particular, of the requirement to ensure that 15% of the CO
savings are achieved in a subset of low income households considered to be at
high risk of fuel poverty (the Super Priority Group) has proved to be very
challenging, not least because of difficulties associated with identifying,
and then collecting the information required to verify, a customer as being
within the Super Priority Group.
Complementing CERT, the Community Energy Savings Programme (CESP) is an
obligation placed on energy suppliers and electricity generators to make
savings in customers' homes by helping to install energy efficiency measures.
The programme is designed to ensure that suppliers work in the lower income
areas and to incentivise a 'whole house' approach to energy savings. While
delivering CESP is challenging, SSE now has 33 CESP agreements in place for
locations throughout England, Scotland and Wales.
CERT and CESP will be superseded by the Green Deal and Energy Company
Obligation (ECO) when they are introduced following the passage of the Energy
· the Green Deal is a new financing mechanism for customers seeking to
install energy saving measures, featuring a 'Golden Rule' under which the
expected financial savings arising from the measures must be equal to or
greater than the costs attached to the energy bill; and
· the ECO will replace the obligations arising from CERT and CESP, with
suppliers expected to focus assistance on the poorest and most vulnerable
households and the hardest-to-treat properties, which may not be able to take
advantage of the Green Deal.
In April 2012, SSE was one of 22 organisations to sign an agreement with the
UK government to work to become one of the first Green Deal providers,
offering energy efficiency packages to consumers when the scheme launches
later this year. The UK government has emphasised the importance of a 'good
customer experience from day one' of the Green Deal, a point which SSE
Energy efficiency is also a key issue in Ireland and 2013 will see the
introduction there of an energy company-administered Pay As You Save
Helping vulnerable customers
In March 2012 Professor John Hills published the final report following his
review of the fuel poverty definition and target commissioned by the Secretary
of State for Energy and Climate Change. Under the existing definition, a
household is classed as being in 'fuel poverty' if it would need to spend more
than 10% of its income on fuel to keep its home warm enough.
Hills has proposed an alternative measurement framework focused directly on
the overlap of high energy costs and low income. Hills believes that the new
framework will show that interventions targeted at the core of the problem -
especially energy efficiency policies focused on low income households - can
make a substantial difference. Following Hills' final report, the UK
government has committed to the adoption of a revised approach to measuring
fuel poverty by the end of the year.
SSE agrees with Hills' assessment of the importance of energy efficiency and
the successful deployment of measures under schemes like CERT and CESP is an
important priority for it. In addition, SSE fulfils three other key
responsibilities in order to help those of its customers who struggle to pay
for their basic energy needs:
· giving financial assistance with energy bills, helping over 400,000
customers with a total of £46m in 2011/12;
· providing tailor-made payment arrangements, helping over 300,000
customers who may be experiencing hardship and having difficulty in paying
their energy bills; and
· contacting more than 60,000 potentially vulnerable customers, helping
them with practical advice and support.
As in Great Britain, greater energy efficiency is seen as the most sustainable
solution to issues relating to energy affordability in Ireland.
Retail energy bills in Great Britain
SSE increased its prices for household gas supply by 18% and household
electricity supply by 11% (average) on 14 September 2011. That was the first
increase in household electricity prices for three years. SSE was able to cut
the unit price of gas for household customers by 4.5% on 26 March 2012.
There are three upward pressures on household energy bills:
· the cost of using energy networks to distribute electricity and gas to
· the cost of mandatory environmental and social schemes that energy
suppliers are required to fund; and
· the wholesale cost of energy.
The decline in actual average consumption of electricity and gas by SSE's
household customers in Great Britain in 2011/12, compared with 2010/11, means
that - despite the price increase on 14 September - a typical household
customer of SSE paid £1,118 for electricity and gas in the year to 31 March
2012 (excluding VAT), down from £1,137 in the previous year. This illustrates
the distinction between the price of a unit of energy and the amount customers
pay for heating and powering their homes.
According to the UK government's statement of Energy Trends in March 2012, for
the period July to December 2011, prices (including tax) paid by medium
domestic gas and electricity customers in the UK were the lowest and fourth
lowest in the EU15 respectively.
A typical SSE dual fuel bill is made up of:
· distribution costs - 23%;
· metering and customer service costs - 8%;
· mandatory social and environmental costs - 9%;
· VAT - 5%; and
· Energy costs - 50%.
This leaves SSE with a profit of around 5%. As recently as 2008, energy costs
accounted for 55% of a typical dual fuel bill. The fall to 50% in 2012 shows
the impact of distribution, environmental and social costs on household energy
bills. The bills issued by SSE now contain this breakdown.
SSE will not implement an increase in the price of household electricity or
gas before October 2012 at the earliest. Beyond that, energy prices for
household customers will ultimately depend on what happens in wholesale
electricity and gas markets, with public policy and regulatory decisions on
energy production, distribution and consumption also having a significant
As part of its Building Trust initiative, SSE publishes an online 'tracker'
showing the relationship between the different components of a typical dual
fuel energy bill. The tracker shows the changing components of bills with the
aim of explaining the rationale for pricing decisions.
How people pay their energy bills
A total of 61% of SSE's domestic electricity and gas accounts across Great
Britain and Ireland are paid by direct debit or standing order. A further 12%
are paid through pay-as-you-go (or pre-payment) meters in Great Britain and
the balance are on credit terms and settled by cheque or other such payment
Keeping customers' energy debt under control
As at 31 March 2012, the total aged debt (i.e. debt that is overdue by more
than six months) of SSE's domestic and small business electricity and gas
customers in Great Britain and Ireland was £88.3m, compared with £89.2m in
March 2011. A bad debt-related charge to profits of £40.5m has been made.
This compares with a charge of £47.4m in the previous year.
The general economic climate means there are significant debt management
challenges, with the volume of work in this area for SSE's Customer Service
division again increasing. SSE has office- and field-based employees who work
with customers to resolve debt issues. They aim to help customers by
identifying as early as is practical when their payments are in arrears and
contacting them as soon as possible to discuss the options available to them.
This makes the situation easier from both SSE's point of view and that of the
customer and the benefit can be seen in the fact that debt which is less than
three months old was 16.5% lower on 31 March 2012 than the year before and
debt overdue by four-to-six months was 6.3% lower.
Providing sector-leading service to customers
SSE continues to be independently and consistently recognised as the customer
service benchmark for the leading energy suppliers in Great Britain. To
provide customers with the best possible value for money, SSE believes that it
needs to provide excellent service, simple products and fair prices.
SSE's position as the customer service benchmark for the rest of the energy
supply industry in Great Britain is illustrated by:
· the UK Customer Satisfaction Index, published in July 2011, in which
SSE achieved the top ranking in the utility sector for the fourth consecutive
· the uSwitch.com Energy Customer Satisfaction Awards, announced in
November 2011, in which SSE won the Overall Customer Satisfaction category for
the eighth time in a row. Altogether, SSE won eight of the 11 categories;
· the J.D. Power and Associates 2011 UK Electricity and Gas Supplier
Customer Satisfaction Study, in which SSE brands topped both the electricity
and gas supplier rankings; and
· the energy complaints league table, published by Consumer Focus in
March 2012, in which SSE achieved a five star rating with the lowest number of
customer complaints to Ombudsman Services: Energy, Consumer Direct and
contacts with Consumer Focus' Extra Help Unit. SSE is the only company to
achieve a five star rating and has topped the league table since it began in
During 2011/12, there were 896 SSE-related complaints to the following third
party organisations: the Ombudsman Services: Energy, Consumer Focus and
Consumer Direct. This was a reduction from the 1,161 complaints in the
previous year and the 1,231 complaints in 2009/10.
Although SSE maintained its best-in-sector position in customer service during
2011/12, it was a year in which the profile of the energy supply sector
remained very high. In total, SSE's energy supply customers in Great Britain
made almost 16 million calls (excluding calls handled by automated services)
to its teams in Basingstoke, Cardiff, Cumbernauld, Havant and Perth during the
year. These conversations allow SSE to assess, consider and respond to
customers' concerns and, over time, adapt the services and products it
The same applies to markets in Ireland and SSE is planning further investment
in customer services and training to deliver sector leadership there also.
Making services available digitally
Web and email are now firmly established as the second most common means of
communication with the company used by SSE's customers. Around 26% of SSE's
transactions with customers now take place using digital channels.
Moreover, SSE's customers in the Great Britain and Ireland markets now have
1.7 million digitally billed accounts, up from 1.3 million in the year before.
Such customers can view their account and payment history, submit meter
readings and receive an up-to-date balance on their account, make secure
payments on their account and other such services.
The popularity of e-services such as paperless billing is likely to continue
to increase rapidly over the next few years. Enabling customers to carry out
more transactions using digital channels if they so choose is now one of SSE's
top customer service priorities and significant investment is being made in
this and in services to customers generally. In this context, the development
of mobile apps and social media such as Twitter and Facebook mean the ways in
which customers engage with SSE is undergoing further change and responding to
this is a key priority for 2012/13 and beyond.
At the same time, the charges SSE makes for energy will always be
cost-reflective. This means that any differences between prices available
online and prices available through other
channels will reflect only the different cost of the transactions. Among
leading energy suppliers, SSE has had the lowest differential between its
online and standard credit prices.
In line with its Building Trust commitments, SSE has gone one step further and
in October 2011 removed all differentials between its tariffs online and
offline. This means that a customer of SSE will have the same price for their
energy, regardless of the sign-up method used. SSE will continue to offer a 1%
discount to all customers who choose paperless billing, which reflects the
lower cost of providing this option.
SSE believes that its approach helps make tariffs simpler and energy prices
across all of its
customers fairer. It continues to believe the much larger differentials
maintained by other suppliers should be the subject of the most detailed
investigation by Ofgem.
Developing new energy products and services
The competitive energy supply market in Great Britain spurred companies to
develop and deploy an ever-increasing number of features and options around
the core commodities of electricity and gas. This led critics to say that
customers had become 'bamboozled' by the complexities that resulted from this.
As part of its Building Trust initiative, SSE responded to this by
introducing, in February 2012, a dramatically-simplified range of energy
tariffs which meet the needs of the vast majority of customers featuring:
· four core products - two with a variable price and two with a fixed
· five simple questions to enable customers to find the best deal;
· a new price comparison metric to enable customers to see the relative
cost of each tariff; and
· the same availability online, face-to-face or over the telephone.
This fulfils two key principles: simplicity for the customer who is concerned
only or mainly about price; and choice for the customer who is more concerned
about features and products.
To achieve this simplification, SSE removed the 'no standing charge' option
from all of its products, with all new customers being placed on a tariff
· a standing charge which, covers a proportion of the fixed costs; and
· a single unit price for all units consumed.
In response to SSE's tariff simplification, uSwitch.com said: 'Yet again SSE
is setting the pace for the rest of the industry, this time unveiling its
plans to simplify its products and prices while Ofgem is still consulting on
its own proposals.'
Preparing for the roll-out of smart meters
Energy supply in Great Britain is expected be transformed by the installation
of around 53 million smart energy meters in around 30 million homes and
businesses. They will enable the quantity and value of electricity and gas us
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