REG - SSE Plc - Half Yearly Report <Origin Href="QuoteRef">SSE.L</Origin> - Part 3

SSEAnnouncement

12/11/2014 08:01

- Part 3: For the preceding part double click  ID:nRSL7750Wb 

provides the return on capital investment
required to be compatible with the risks involved. 
 
In addition to Beatrice, SSE has an interest in three further offshore wind farm developments.  In March 2014 it announced
that it would not take the consented Galloper project (50:50 partnership between SSE and RWE Innogy) beyond the current
phase of development. In September 2014 SSE announced it would exit the project on pre-agreed terms once a RWE Innogy has
made a Final Investment Decision.  In October 2014 RWE Innogy announced that it was stopping its development activities. 
SSE will now work with RWE Innogy to explore divestment opportunities for the project. 
 
SSE also  stated that it would support the progress of development work on Seagreen (3,500MW), a 50:50 partnership between
SSE Renewables and Fluor Limited, and Forewind (7,200MW), a four-way partnership with RWE Innogy, Statoil and Statkraft,
with the objective of securing the necessary consents for construction; but that it would not extend beyond that the scope
of its commitments to the projects in the near term.  Since March, Seagreen has secured consent for the first two projects
in the zone (totalling 1,050MW) and the first two Forewind projects (totalling 2,400MW) have completed the examination
phase of the consenting process. 
 
Construction continues at the Hunterston offshore wind energy test facility in North Ayrshire, in which SSE is a partner. 
The Siemens (6MW) turbine is completed and is now fully operational.  The Mitsubishi (7MW) turbine is now on site and is
being erected by our partner Mitsubishi. SSE is working with Scottish Enterprise to find a manufacturer for the third and
final berth at the site. 
 
Generation - Ireland 
 
 SSE Irish Generation Capacity and Output  Sep 14  Sep 13  
 Onshore wind capacity (NI) - MW           88      42      
 Onshore wind capacity (ROI) - MW          456     421     
 All Ireland wind capacity  - MW           544     463     
 Thermal capacity (ROI) - MW               1,068   1,068   
 All Ireland generation capacity - MW      1,612   1,531   
                                                           
 Onshore wind output (NI) - GWh            71      63      
 Onshore wind output (ROI) - GWh           345     502     
 All Ireland wind output  - GWh            416     565     
 Thermal output  (ROI)  - GWh              11      8       
 All Ireland generation output - GWh       427     573     
 
 
Maintaining a balanced generation portfolio 
 
As in GB, SSE in Ireland seeks to maintain a balanced generation portfolio. The fuel mix includes 1,068 MW of oil fired
plant, 544MW of wind powered renewable generation and will shortly include the new gas-fired power station at Great Island.
This combination of fuel mix and technologies ensures that SSE is well positioned.  SSE will own just over 14% of installed
capacity on the island of Ireland once Great Island CCGT becomes fully operational, to supply power to the Irish
electricity system throughout any given day. 
 
SSE seeks to maintain an effective balance between the electricity required to meet the demands of its customer base in
Ireland and the electricity it produces from its own generation assets on the island. Following the expected completion of
the new combined cycle gas turbine (CCGT) at Great Island, County Wexford, around the end of this financial year, SSE will
generate enough electricity to meet around 60% of its energy customers' requirements. Meanwhile, the investment at Great
Island will displace oil with gas, further improving carbon intensity and underpinning SSE Airtricity's heritage as a
greener energy provider. 
 
The project at Great Island is well progressed. Its rated capacity is 460MW but in October 2014 its regulated export
capacity was set at 431MW. SSE is currently reviewing its options, with the objective of securing additional regulated
export capacity.  During September construction activities at the site were completed and commissioning is currently under
way. The plant is expected to be fully operational by the end of the financial year. It will be the cleanest, most
efficient and reliable gas power plant on the Irish national grid, generating enough electricity to power half a million
homes. Once completed, SSE will progress with the decommissioning of the 240MW heavy fuel oil plant at Great Island. 
 
Engaging in the ISEM reform process 
 
The market across Ireland and Northern Ireland is known as the 'Single Electricity Market' or SEM. Its main components
include: centrally dispatched generation; a capacity mechanism that remunerates generators for a proportion of their fixed
costs when plant is made available; and no support for offshore wind electricity generation. 
 
Whilst the market has proven very effective at delivering cost competitive energy supply for customers since its
introduction in 2007, the requirements of the EU Target Model mean changes need to be made. These changes are expected to
take effect around October 2017. During the forthcoming period of change SSE is focused on ensuring that the new Integrated
Single Electricity Market or ISEM delivers a reasonable return for its investments in Ireland while ensuring it can deliver
competitive prices for consumers. 
 
In September 2014 the Regulatory Authorities, representing both the Commission for Energy Regulation and the Northern
Ireland Utilities Regulator published a decision paper on high level design for ISEM. The decision paper delivered was as
expected and reflected industry discussions  and can be viewed under two headings - those relating to energy arrangements
and those relating to capacity. 
 
The project now moves to the detailed design and implementation phase. This is expected to deliver a detailed market
structure for both energy and capacity by August 2015. Meanwhile SSE is an active participant both through industry
representation and bilaterally with the Regulatory Authorities. Changes to the SEM presents both risk and opportunity and
SSE will consider how its assets can best be deployed in the new ISEM, ensuring affordable prices for customers, security
of electricity supply and supporting continuing investment in electricity in Ireland. 
 
Developing new capacity for renewable energy in the all Island market 
 
While no new SSE generating capacity came into operation since March 2014, Glenconway (46MW) and Athea (34MW) have both
come into operation since 30 September 2013. 
 
 Onshore wind farm development pipeline (All Ireland)  Sep 2014  Sep 2013  
 In operation -  MW                                    544       463       
 In construction or pre-construction - MW              152       80        
 With consent for development - MW                     24        14        
 
 
During the period, enabling works have continued at the 170MW (SSE share 116.5MW) Galway Wind Park development in County
Galway. Subject to a final investment decision, this project is expected to enter construction toward the end of the
financial year. Similarly, early site investigation works have commenced at the 32MW Tievenameenta wind farm in Northern
Ireland. 
 
Supporting renewable energy in Ireland 
 
In the Republic of Ireland renewable generation receives policy support through the Renewable Energy Feed in Tariff
(REFIT). Policy support for renewable generation in Northern Ireland is delivered through the Renewables Obligation. It is
proposed that the new UK Contract for Difference support scheme will be introduced in Northern Ireland in 2016, and work on
its final design is ongoing. Meanwhile, the advent of ISEM removes the reference price previously used for the payment of
REFIT. With both NI and ROI falling behind in the achievement of 2020 renewable targets, SSE is currently working with
officials in both jurisdictions to find suitable solutions that will provide investment incentives while protecting
consumers. 
 
Generation priorities in 2014/15 and beyond 
 
In Generation, SSE's 2014/15 priorities are consistent with its established principles: 
 
·      comply fully with all safety standards and environmental requirements; 
 
·      ensure power stations are available to respond to customer demand and market conditions; 
 
·      operate power stations efficiently to achieve the optimum conversion of primary fuel into electricity; and 
 
·      continue to show discipline in the development of and investment in new generation projects. 
 
Gas Production 
 
 GAS PRODUCTION                          Sep 2014  Sep 2013  
 Gas production operating profit* - £m   13.3      69.0      
 Gas production - m therms               200.8     206.8     
 Gas production capital investment - £m  6.2       15.7      
 
 
Producing gas to meet the needs of customers 
 
SSE's upstream portfolio is 100% gas weighted, and at 30 September 2014, it was estimated to hold in excess of 2.4 billion
therms of reserves. The volume and production profile of the assets represents a secure supply of gas that can meet around
30% of the forecast demand from SSE's domestic gas customers over the next three years. 
 
Securing output from gas production assets 
 
Total output in the six months to 30 September 2014 was 200.8 million therms, compared with 206.8 million therms in the
same period last year. As stated earlier the reduction in operating profit (£13.3m compared to £69.0m) from gas production
during the period was a result of lower day ahead wholesale gas prices which were around one third lower than the same
period last year. 
 
Continuing to consider options in Gas Production 
 
The addition, in the previous year, of the Sean assets scaled-up SSE's Gas Production business considerably. SSE continues
to seek new opportunities to increase its reserve base to meet portfolio demand requirements. The UK and north west Europe
remains the focus for this activity, as it provides a relatively stable tax and fiscal regime and is near to SSE's domestic
energy supply markets. SSE has not set a target scale for its Gas Production business and will continue to evaluate gas
weighted opportunities in line with its investment criteria and financial discipline. 
 
Monitoring developments in shale gas 
 
SSE currently has no involvement in any shale gas operations. It is, however, continuing to monitor the development of
shale gas in the UK and the proposed fiscal and tax regimes surrounding its potential exploitation. 
 
Gas Production priorities for 2014/15 and beyond 
 
Gas Production priorities for the 2014/15 financial year include: 
 
·      ensuring the safe operation of all the assets in which it has an ownership interest; 
 
·      stringent cost control on operator budgets and enhanced monitoring and reporting of operator work programmes; and 
 
·      continuing the robust investment appraisal process to identify potentially suitable acquisition targets. 
 
Gas Storage 
 
 GAS STORAGE                               Sep 2014  Sep 2013  
 Gas storage operating profit* - £m        1.6       5.2       
 Gas storage customer nominations met - %  100       100       
 Gas storage capital investment - £m       1.4       1.8       
 
 
Providing capacity to store gas 
 
Gas storage provides physical flexibility enabling customers of storage services to manage their market risks and respond
to trading opportunities. It also provides an important security of supply function for the UK.  SSE, through its
wholly-owned subsidiary SSE Hornsea Ltd, has an ownership interest in two major gas storage facilities in East Yorkshire,
and has continued to focus during the period on maximising the capacity of the facilities for its customers: 
 
·      Hornsea (Atwick) provided 257 million cubic metres (mcm) of gas storage capacity to its customers in the six months
to 30 September 2014; one of its nine caverns was out of service during this period. This facility accounts for around 5%
of the total gas storage capacity in the UK and 10% of deliverability; and 
 
·      Aldbrough, the UK's largest onshore gas storage facility, is owned by SSE (66.7%) and Statoil (UK) Ltd (33.3%) and
operated by SSE. Seven of the facility's nine caverns were in operation during the six months to 30 September 2014,
providing a total capacity of up to 200mcm, with work to return the two remaining caverns to service at an advanced stage
and which is due for completion by the end of this financial year. It is anticipated that the Aldbrough facility will
ultimately be able to store up to a maximum of around 320mcm, and account for around 17% of the UK's storage
deliverability. 
 
Managing operations at Hornsea and Aldbrough 
 
The further reduction in the profitability of the Gas Storage business reflects the continued low spread between summer and
winter wholesale gas prices and the prevailing lower volatility in shorter-term gas prices.  Profitability has been further
impacted during the period following a revision to rateable values for gas storage assets across the UK. Both sites
continued to operate with good availability to meet commercial requirements, with significant ongoing maintenance and
upgrade activities also progressed at the Hornsea site. During the six months to 30 September 2014: 
 
·      Hornsea again met 100% of customer nominations with the site 88% available except in instances of planned
maintenance; 
 
·      Aldbrough met 100% of customer nominations and was 89% available overall except in instances of planned
maintenance. 
 
Looking to the future for gas storage 
 
Current gas storage capacity, both at SSE and within the UK as a whole, plays an important role in the UK's energy
infrastructure. The UK already meets the EU Regulation for Security of Supply of Gas and will do so for the foreseeable
future.  It is also clear that the market returns for gas storage are challenging and currently too low to encourage
additional capacity to be deployed. SSE believes this situation is unlikely to change in the short to medium term and so is
currently focussed on continuing to provide an efficient, reliable service to its customers where economically beneficial
to do so. The consequence of these market conditions is that the valuation of SSE's gas storage assets remains subject to
review. SSE and Statoil, despite having full planning permission for the development of a second phase of the gas storage
facility at the Aldbrough site, maintain their decision not to proceed with this project until market conditions improve. 
 
Gas Storage priorities in 2014/15 and beyond 
 
Gas storage priorities for the financial year and beyond include: 
 
·      ensuring on-going high safety standards for operation of the facilities at Hornsea and Aldbrough and the compliant
and effective operation of the Gas Storage business; and 
 
·      continuing to listen to existing and potential customers, working with them to shape flexible products which add
value to their portfolios. 
 
Wholesale - Conclusion 
 
Producing and securing energy in a sustainable way to meet the needs of customers is at the heart of SSE's Wholesale
businesses. Key parts of this segment continue to face public policy uncertainty and challenging market conditions. 
Nevertheless, continued focus on operating efficiently its portfolio of assets, ongoing progress in the development and
delivery of new assets, and strategic investments across its portfolio, mean that SSE's activities in Energy Portfolio
Management, Electricity Generation, Gas Production and Gas Storage are able to support its core purpose of providing the
energy people need in a reliable and sustainable way.  They are able to contribute to the achievement of SSE's first
financial goal of annual growth in the dividend payable to shareholders. 
 
NETWORKS 
 
 Networks Key Performance Indicators                    Sep 14  Sep 13  
                                                                        
 ELECTRICITY TRANSMISSION                                               
 Operating profit* - £m                                 98.9    67.6    
 Regulated Asset Value (RAV) - £m                       1,515   1,200   
 Capital expenditure - £m                               212.8   195.0   
 Connection offers provided in required period          41      28      
                                                                        
 ELECTRICITY DISTRIBUTION                                               
 Operating profit* - £m                                 215.7   232.0   
 Regulated Asset Value (RAV) - £m                       3,112   2,985   
 Capital expenditure - £m                               127.6   128.2   
 Electricity Distributed TWh                            18.3    18.8    
 Customer minutes lost (SHEPD) average per customer     29      33      
 Customer minutes lost (SEPD) average per customer      32      32      
 Customer interruptions (SHEPD) per 100 customers       31      37      
 Customer interruptions (SEPD) per 100 customers        32      36      
                                                                        
 SCOTIA GAS NETWORKS                                                    
 Operating profit* (SSE's share) - £m                   143.8   138.2   
 Regulated Asset Value (SSE's share) - £m               2,450   2,405   
 Capital and replacement expenditure (SSE's share)- £m  84.0    72.2    
 Uncontrolled gas escapes attended within one hour %    98.3    98.6    
 SGN gas mains replaced - km                            533     468     
 
 
Owning, operating and investing in Networks 
 
The performance of SSE's economically-regulated electricity networks businesses is reported within Networks, as is the
performance of Scotia Gas Networks (SGN) in which SSE has a 50% stake. 
 
Economically-regulated network companies with a growing Regulated Asset Value 
 
SSE has an ownership interest in five economically-regulated energy network companies: 
 
·      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 estimates that the total Regulated Asset Value (RAV) of its economically-regulated 'natural monopoly' businesses is
£7,077m, up £257m from £6,820m at 31 March 2014.  As at 30 September 2014, it comprised around: 
 
·      £1,515m for electricity transmission; 
 
·      £3,112m for electricity distribution; and 
 
·      £2,450m for gas distribution (being 50% of SGN's total RAV). 
 
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 users to cover costs and earn a return on regulated assets. Although the process for setting Price Controls is
complex and demanding, 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. 
 
Financial performance in Networks 
 
During the six months to 30 September 2014 operating profit* in Networks was £458.4m. This comprised (comparisons with the
same period last year): 
 
 Networks Operating Profit                 Sep 14  Sep 13  
 Transmission operating profit* - £m       98.9    67.6    
 Distribution operating profit* - £m       215.7   232.0   
 SGN operating profit* (SSE's share) - £m  143.8   138.2   
 Total Networks Operating Profit* - £m     458.4   437.8   
 
 
Electricity Transmission 
 
                                                Sep 14  Sep 13  
 Operating profit* - £m                         98.9    67.6    
 Regulated Asset Value (RAV) - £m               1,515   1,200   
 Capital expenditure - £m                       212.8   195.0   
 Connection offers provided in required period  41      28      
 
 
Increasing operating profit* for Scottish Hydro Electric Transmission 
 
In SHE Transmission, operating profit* increased by 46.3% to £98.9.m.  This reflects the major programme of capital
investment undertaken in recent years.  Since the current RIIO T1 Price Control started in April 2013, SHE Transmission's
capital investment has totalled £562m.  For 2014/15 as a whole, SHE Transmission expects to invest around £500m, including
some expenditure on the Caithness to Moray transmission link. 
 
Managing SHE Transmission through a period of rapid growth 
 
SHE Transmission is responsible for maintaining and investing in the transmission network in around 70% of the land mass of
Scotland, serving remote and island communities. As the licensed transmission company for an area with a significant amount
of generation from renewable sources seeking to connect to the electricity network, SHE Transmission is required to ensure
that there is sufficient capacity for projects committed to generating electricity. 
 
As a result of the requirement to connect large volumes of dispersed renewable energy generation,  SSE has committed to a
major programme of investment in electricity transmission infrastructure in its area to support the transition to lower
carbon electricity generation, increase security of supply and promote economic growth. 
 
A significant portfolio of work also continues to develop and construct local connections to the network for new generation
sites across SHE Transmission's licence area.  In the year to date, 41 new connection offers were provided in the required
period. 
 
Delivering the Beauly-Denny replacement line under the TIRG mechanism 
 
Transmission Investment for Renewable Generation (TIRG) is a funding mechanism that preceded Strategic Wider Works (see
below) to provide a framework for funding for large transmission projects.  SHE Transmission has one project in
construction under this mechanism - the replacement of the Beauly-Denny line between Beauly and Wharry Burn. 
 
The project has continued to make good progress.  The central section which links Fort Augustus and Tummel Bridge
substations, and includes the highest transmission tower above sea level in the UK, has now been completed and energised.
All SSE tower foundations are complete and the final two towers are programmed to be erected in early 2015.  The Amulree,
Whitebridge and Muthill network rationalisation schemes that were required as a condition of planning consent have been
completed, with two further rationalisation schemes located at Beauly and in The Cairngorms National Park on course to be
completed in 2015. 
 
Based on expenditure to date (c£570m) and known issues, including the interface with SP Transmission's section of the line,
it is expected the final cost will not exceed £690m. Further discussions continue to take place with SP Transmission and
Ofgem on coordination with the network in the south of Scotland; and the timescales and full cost of completion. 
 
Delivering other transmission upgrades, including Beauly to Blackhillock to Kintore 
 
Funding for four further projects was separately approved by Ofgem in 2010, of which three have been completed and one is
ongoing: Beauly to Blackhillock to Kintore: The replacement of the 275kV conductors to allow an increase in the capacity of
the network to transmit electricity is well under way, with over half of the project already complete and anticipated
energisation in 2015.  Ofgem has given capital funding approval of £94m (2013/14 prices) for this development. 
 
Delivering under the RIIO-T1 Framework through Strategic Wider Works 
 
SHE Transmission is now 18 months into the RIIO-T1 Price Control.  Under this framework Ofgem recognises the requirement
for SHE Transmission to significantly expand its network over the period of the price control to facilitate the growth of
renewable generation in the north of Scotland in order to meet national renewable energy targets.  The exact timing and
scale of growth is dynamic and  is largely dependent on the requirements from existing and planned capacity for electricity
generation. 
 
To allow these projects to be delivered in this dynamic environment, Ofgem developed the Strategic Wider Works mechanism
whereby it considers on a case-by-case basis the evidence presented by SHE Transmission to decide whether a project is
needed.  It then considers SHE Transmission's proposed solution in detail, scrutinises the costs and approves funding.  SHE
Transmission has been working with Ofgem on three projects under the Strategic Wider Works mechanism: 
 
·      Beauly to Mossford: Following the successful completion of Phase 1 with the energisation of Corriemoillie substation
in 2013, the rebuild of the 132kV overhead line is progressing well and is on course to be completed in 2015.  Ofgem has
given capital funding approval of £68m (2013/14 prices) in total for both phases of work. 
 
·      Kintyre to Hunterston: Following on from the completion of the platform for a new substation and landing point for
the subsea cable in Kintyre, the construction of new steel towers for a replacement 132kV overhead line to the existing
substation at Carradale has now begun.  Onshore cable installation works at the Kintyre landfall have also started, with
onshore cable works at Hunterston and marine installation expected to follow next year.  The current programme anticipates
that the reinforcement will be operational by 2015. Ofgem has given capital funding approval of £205.6m (2013/14 prices). 
 
·      Caithness to Moray: In July 2014, Ofgem announced its approval of the needs case for a High Voltage Direct Current
(HVDC) subsea cable between Caithness and Moray, with associated reinforcements to the onshore network in the north of
Scotland. The contract for the HVDC works has been placed and preparations are under way for the initial stage of
construction work at substation sites in Caithness and Moray.   In October 2014, Ofgem published a consultation on the
proposed allowances for the new transmission link.  SHE Transmission believes that it has produced a well defined and well
scoped project that offers value for money for customers while allowing the realisation of the vast potential of renewable
electricity generation in the north of Scotland for the benefit of the whole country.  While it is disappointed with the
level of the allowances proposed (£1.06bn 2013/14 prices) , the consultation does enable further engagement with Ofgem to
take place on important issues, such as the best way for treating contingency- and risk-related costs.  SHE Transmission
believes the consultation provides the right opportunity for these to be considered and resolved in a way that's fair to
customers and investors alike, and will engage constructively in the process.  A decision is expected from Ofgem in
December.  The project itself is still expected to be completed in 2018, with the first revenues due to be received in
2015/16. 
 
Working on possible transmission links for the Scottish islands 
 
Orkney, Shetland and the Western Isles all have the potential to host large scale renewable energy developments which could
add significantly to the local economies and also contribute towards Scottish and UK renewable energy targets.  Major new
transmission infrastructure is, however, required to get the electricity they would produce to market. 
 
SHE Transmission has engaged with all key stakeholders, including the Scottish and UK governments and Ofgem, through the
Scottish Islands Renewables Delivery Forum and played a leading role in the recognition that all of those represented on
the Forum have a part to play in finding solutions for this exceptionally complex situation.  The Forum has been successful
in bringing greater clarity and better understanding about what needs to happen before SHE Transmission can produce a
robust needs case upon which capital funding approval can be secured from Ofgem.  This in turn has facilitated improved
relationships with key stakeholders around the Scottish islands issues. 
 
For its part SHE Transmission has made it clear that, in line with its operating licence, it would be prepared to submit a
needs case to Ofgem for an appropriate transmission solution at the right time -   but making such a case without greater
certainty on the scale of development and its timing is not practically possible. 
 
Responding to proposed regulatory changes for electricity transmission 
 
In its Draft Conclusions on Integrated Transmission Planning and Regulation (ITPR) published in September 2014, Ofgem set
out a number of significant changes to the regulation of electricity transmission: 
 
·      an enhanced role for the System Operator in the identification of system needs and development and assessment of
options to meet these needs; 
 
·      broad framework for regulation of transmission asset delivery but retaining different treatment for different types
of transmission activity; 
 
·      expanded use of competitive tendering where Ofgem believes it can drive efficiency, with a focus on large assets
that can be easily identified and separated from the surrounding network; and 
 
·      measures to mitigate conflicts of interest with the System Operator's enhanced role, including transparency,
business separation and information ring-fencing. 
 
Ofgem envisages initial implementation via changes to transmission licences in the summer of 2015, with some proposals such
as competitive tenders that may need legislative change likely to take longer.  It is too early to predict the net impact
of this on SHE Transmission's investment programme later this decade; in the meantime, SHE Transmission  will submit a
response to the consultation on the Draft Conclusions before it closes on 24 November. 
 
Maintaining a resilient Transmission network 
 
On 16 April and 18 August there were two significant incidents on the SHE Transmission network that caused interruptions to
customer electricity supplies for up to six hours.  Investigations have been carried out into these incidents and resulting
recommendations have been implemented to resolve a technical issue identified with some supplied components and to minimise
potential for operator error through revised working procedures during significant upgrade works.   SHE Transmission
greatly appreciates the contributions of all those who worked with it to manage these incidents, including the customers
who were affected. 
 
Electricity Transmission priorities for 2014/15 and beyond 
 
For SHE Transmission, the core activity for much of the next decade will be construction. Against this background, its
priorities for the rest of 2014/15 and beyond are to: 
 
·      meet key milestones in projects under construction, in a way that is consistent with all safety and environmental
requirements; 
 
·      provide an excellent service to all generation and demand customers who rely on its network; 
 
·      continue to implement the new operational regimes for the 2013-21 Price Control and maintain high levels of system
availability; 
 
·      work within the changing policy framework and, where appropriate, achieve regulatory approval for new links in an
efficient and timely manner; 
 
·      make progress with projects in development, including implementing the programme of consulting with, and updating,
interested parties; 
 
·      maintain and develop effective stakeholder relationships; and 
 
·      ensure it has the people, skills, resources and supply chain relationships that will be necessary to support
growth. 
 
Electricity Distribution 
 
Performance in Scottish and Southern Energy Power Distribution (SSEPD) 
 
The performance of SSEPD's two electricity distribution companies, Scottish Hydro Electric Power Distribution (SHEPD) and
Southern Electric Power Distribution (SEPD), during the six months to 30 September 2014 was as follows (comparisons with
the same period in 2013): 
 
 ELECTRICITY DISTRIBUTION                            Sep 14  Sep 13  
 Operating profit* - £m                              215.7   232.0   
 Regulated Asset Value (RAV) - £m                    3,112   2,985   
 Capital expenditure - £m                            127.6   128.2   
 Electricity distributed TWh                         18.3    18.8    
 Customer minutes lost (SHEPD) average per customer  29      33      
 Customer minutes lost (SEPD) average per customer   32      32      
 Customer interruptions (SHEPD) per 100 customers    31      37      
 Customer interruptions (SEPD) per 100 customers     32      36      
 
 
The decrease in operating profit reflects lower units distributed compared to the same period in 2013, the adjustment for
last year's over-recovery of £25m and additional costs incurred. Looking to 2015/16, the first year of the RIIO-ED1 Price
Control, Ofgem set out in its decision letter in December 13 that base revenues will match those in the Draft
Determinations which, for SSEPD, were around 18% below 2014/15 base revenue levels.  Any difference between the Draft and
Final Determinations will be recovered over the remaining seven years of ED1.  From this starting point, it will,
therefore, be a demanding Price Control, requiring the achievement of significant cost reductions and service
improvements. 
 
Volume of electricity distributed 
 
The total volume of electricity distributed by the two companies in the six months to 30 September 2014 was 18.3TWh,
compared with 18.8TWh in the same period in 2013. Under the electricity Distribution Price Control for 2010-15, the volume
of electricity distributed does not affect companies' overall allowed revenue (although it does have an impact on the
timing of revenue collection). 
 
Investing in distribution network resilience 
 
Capital expenditure in electricity distribution networks was £127.6m in the six months to 30 September 2014, taking the
total for the 2010-15 Price Control so far to £1,197m. The RAV of the electricity distribution networks is estimated to
total £3,112m at the end of September 2014 and is expected to reach just under £3.2bn by 31 March 2015. 
 
This investment is good for customers.  For example, making the electricity network more resilient and improving supplies
to nearly 60,000 homes and businesses was the objective of the £10m project to install 11km of new underground cables
between Iver and Slough.  Part of the work involved using a horizontal directional drill to install the cables under the
M4, avoiding disruption or delays for road users. 
 
Other investment includes the installation of a new subsea cable between Lepe in Hampshire and Thorness Bay on the Isle of
Wight, as part of a £13m project.  This significant project was completed safely, on time and on budget. 
 
Responding to feedback from customers 
 
In the autumn and winter of 2013/14, SSEPD customers were affected by an exceptional series of severe winter storms, which
had particular impact on its network in central southern England.  Following disruption to power supplies over the
Christmas period, SSEPD launched a consultation in January 2014 to identify where customers and stakeholders felt
improvements could be made. 
 
In July 2014, SSEPD published Reconnecting with our customers, responding to the feedback received and outlining steps to: 
 
·      invest in improved communication with customers during power cuts; 
 
·      improve the support offered to customers who may be vulnerable while they are without electricity; 
 
·      reduce the number and duration of power cuts, including by increasing the availability of mobile generation; and 
 
·      make it easier for customers to send in details of observed damage to the network. 
 
SSEPD also submitted evidence required by Ofgem and DECC for their investigations into performance and processes over the
Christmas period.  Both reviews recognised, in line with the evidence submitted, that the networks in the south and south
east of England were particularly severely affected by the adverse weather.  In recognition of the inconvenience and
disruption caused to customers, and following discussions with Ofgem, SSEPD committed to donating £1m to the Red Cross, Age
UK, MacMillan Cancer Support and National Energy Action. SSEPD has also set up a £1.3m fund to help community groups and
organisations that look after the welfare of vulnerable households. 
 
Continuing investment in the distribution networks contributes to the key priority of providing an essential service to
customers by delivering a reliable supply of electricity. SSEPD has a strong historic performance on network reliability.
Investing in the networks to maintain reliability is therefore critical to sustaining this record; and with new standards
on restoring power within 12 hours, SSEPD continues to implement a programme to keep assets in good condition and to
further improve reliability without increasing costs.  SSEPD is fully committed to working collaboratively with DECC, other
DNOs and the Energy Networks Association (ENA) to deliver improvements for customers ahead of winter 2014/15 and beyond. 
 
Keeping costs down and improving customer service for RIIO ED1 
 
In July Ofgem published the Draft Determinations for electricity distribution network operators (DNOs) for