REG - SSE Plc - Preliminary results for the year to 31 March 2017 <Origin Href="QuoteRef">SSE.L</Origin> - Part 3

SSEAnnouncement

17/05/2017 07:06

- Part 3: For the preceding part double click  ID:nRSQ3515Fb 

recovered at the end of the
RIIO-T1 period in 2021/22. 
 
Delivering a record year for connecting new sources of renewable generation 
 
In advance of the closure of the Renewables Obligations Scheme, there has been an increased demand for SSEN to provide
connections to its transmission network for renewable energy developers. 
 
In total, including that connected at distribution level, SSEN connected over 500MW of renewable electricity to its
transmission network in 2016/17, the highest combined capacity to connect to the north of Scotland transmission network in
a single year since electricity privatisation. 
 
SSEN's delivery of these projects and other strategic investments has played an essential part in facilitating the rapid
growth of renewable energy within its licence area, bringing the total connected generation capacity supported by its
transmission network, including that connected at distribution level, to over 5GW, of which over 4.5GW is from low carbon
renewable sources. 
 
SSEN expects to connect a significant number of new renewable energy projects to its transmission network throughout the
remainder of this Price Control to March 2021, subject to those renewable projects reaching financial close. 
 
Fulfilling responsibilities for potential island links 
 
SSEN remains fully committed to bringing forward proposals for new transmission links to the Scottish Islands. A UK
Government consultation on the treatment of non-mainland GB onshore wind projects took place during 2016/17 and SSEN
continues to await the outcome of the consultation and subsequent developer commitment before it will be in a position to
submit a 'Needs Cases' to Ofgem for the Western Isles and Shetland.  SSEN continues to engage with affected stakeholders in
order to progress the development of the links in anticipation of the consultation outcome. 
 
Adapting to policy and regulatory change 
 
SSEN continues to engage constructively with Ofgem in relation to the development of the regime for Extending Competition
in onshore Transmission (ECIT). Whilst it is not yet clear when ECIT might be implemented, the introduction of competition
poses some potential risks to future growth and revenue, but also presents opportunities. With a strong track record for
connecting renewables on time and within budget, SSEN believes the experience it has gained both in-house and with its
supply chain means that it is well placed to participate in competitive delivery arrangements once the regime is
implemented. 
 
Innovating to sustain operational success 
 
To support the successful integration of new High Voltage Direct Current (HVDC) infrastructure on its own network and
elsewhere in Great Britain, SSEN led the development of the National HVDC Centre in Cumbernauld via Ofgem's Electricity
Network Innovation Competition. The centre, which formally opened in April 2017, allows engineers to replicate the
complexities of the future transmission system in real time, using powerful computer simulators to enable potential risks
to be identified and addressed. 
 
Innovation continues to play a key role in meeting the needs of customers, with SSEN utilising ACCC (Aluminium Conductor
Composite Core) Monte Carlo conductor for the first time on its network to provide the connection for the combined Bienneun
(Blue Energy, 108.8MW) and Bhlaraidh (SSE Renewables, 108MW) wind farms.  This innovative technology enabled SSEN to reduce
costs and timescales whilst also mitigating the visual and environmental impact of the connection by the use of
reconductoring and strengthening of the existing 132kV steel towers which dispensed with the need for the erection of new
additional trident wood poles. SSEN expects to deploy this innovative technology on a number of other projects in the years
ahead. 
 
Working with stakeholders 
 
Under the RIIO-T1 price control, Transmission Owners are encouraged to be more responsive to changing stakeholder needs,
with financial incentives based on performance in this area. The views of stakeholders have played a key part in SSEN's
success in electricity transmission under the current price control period and will remain central to its future business
plans. 
 
Stakeholders have played a major part in the development of SSEN's Visual Impact of Scottish Transmission Assets (VISTA)
policy, which seeks to mitigate the impacts of existing transmission infrastructure in National Parks and National Scenic
Areas.  In August 2016, SSEN received Ofgem approval for its proposed approach and expects to set out a series of proposed
projects to take forward for funding from Ofgem later in 2017. 
 
Operating a rapidly growing network 
 
SSEN's first priority is to provide a safe and reliable supply of electricity to the communities its transmission network
serves.  SSEN has established a dedicated and experienced team within its transmission business to deliver operational
excellence, including improved asset management and timely preparation for the introduction of new types of plant and
technology. During the current period of rapid growth in transmission development, including commissioning of substantial
new assets and connection of large volumes of renewable generation capacity, SSEN has maintained an impressive reliability
of over 99.9%. 
 
Looking ahead to the next Price Control 
 
SSEN is at the midpoint of the RIIO-T1 price control which ends March 2021 and is now starting to develop its business plan
for the next price control period.  During 2017/18 SSEN will undertake a period of engagement and consultation with key
external stakeholders, including the Stakeholder Advisory Panel, to help shape and influence its future business plan
commitments. 
 
Electricity Distribution 
 
Scottish and Southern Electricity Networks (SSEN), operating as Scottish Hydro Electric Power Distribution (SHEPD) and
Southern Electric Power Distribution (SEPD) under licence, is responsible for maintaining the electricity distribution
networks supplying over 3.7 million homes and businesses across central southern England and north of the central belt of
Scotland, the Mull of Kintyre and the Scottish islands. 
 
Delivering for customers 
 
Now in the second year of the RIIO-ED1 price control, SSEN's electricity distribution business continues to adapt to the
regulatory framework and has delivered significant changes to its operations, processes and standards to ensure the needs
of its customers remain at the forefront of decision making. 
 
The outcomes of the incentive based framework within which SSEN operates are increasingly dependent on customer opinion and
feedback. Financial performance is reflected against: the Interruption Incentive Scheme; Ofgem Customer Satisfaction
Measures; Incentive in Connections Engagement; Complaints Performance and Stakeholder Engagement and Customer
Vulnerability. 
 
By making the concerted effort to focus on its people and its processes, SSEN has made significant changes to ensure it is
meeting its customers' needs and delivering against the measures as set by the RIIO ED1 price control. This has ensured it
is able to deliver outputs aligned to the expectations of its customers, stakeholders and the regulator while delivering a
fair financial return to investors. 
 
Keeping the lights on 
 
As part of RIIO-ED1, SSEN is incentivised on its performance against the loss of electricity supply through the recording
of Customer Interruptions (CI) and Customers Minutes Lost (CML), which include both planned and unplanned supply
interruptions. 
 
During 2016/17, Customer Interruptions rose to 68 (SHEPD; 66 in 15/16) and 48 (SEPD; 47 in 15/16) per 100 customers.
Customer Minutes Lost rose to 60 minutes (SHEPD; 55 in 15/16) and 43 minutes (SEPD; 41 in 15/16) per customer. Despite this
marginal rise in both CI and CML metrics, SSEN continues to outperform the pre-determined targets set by Ofgem. 
 
When planned outages, which serve to improve network reliability, are excluded, both CI and CMLs decreased in comparison to
2015/16 in the SHEPD licence area, highlighting an improved performance in restoring power in fault situations. Despite an
increase in extra-high voltage (EHV) faults in the SEPD licence area, performance improved in the high voltage (HV) and low
voltage (LV) networks reflecting an increased investment in automation schemes and the implementation of improved business
processes prioritising customer restoration. 
 
SSEN's commitment to providing a safe and secure electricity supply and to minimise unplanned interruptions requires a
continuous programme of investment in the network. During 2016/17, SSEN's programme of network investment included
reinforcements, upgrades to automation and tree cutting. The success of the programme is providing an improved service for
customers as well as a fair return for SSEN through the incentive mechanism. 
 
The regional operations model, now in its second year, continues to deliver benefits in operational efficiency and in the
improved service SSEN provides to its customers and communities. This includes faster response times thanks to a focus on
speed of fault restoration and targeting investment in key circuits to improve network reliability. 
 
Increasing customer satisfaction 
 
In 2016/17 SSEN made significant improvements to its customer service processes and in the way it engages and communicates
with its customers. This has increased customer awareness of SSEN and has helped to improve broad measure incentive
performance across the business. 
 
By improving customer contact experience, including the use of proactive outbound calls, performance against the RIIO-ED1
customer satisfaction measure increased significantly, from £1.6m (2015/16) to £2.75m (2016/17). Complaints performance
also rose, with SSEN resolving 78% of complaints within 24 hours (65% in 2015/16) and 98% within 31 days (95% in 2015/16),
resulting in no incentive penalty (potential -£3.1m). This improved performance will feed into SSEN's regulated income in
2018/19. 
 
Ahead of winter 2016/17, SSEN delivered an awareness campaign, including advertising on TV, radio and digital outputs. The
campaign promoted the new single emergency power cut number 105; what to do during a storm; and to promote the services it
provides for customers, including those who may need extra help through SSEN's Priority Service Register.  This was
followed up by a customer communication delivered to all 3.7m customers in its two distribution areas in January 2017.   As
well as driving a general increase in awareness of SSEN, these measures have resulted in a three-fold increase in sign-ups
to SSEN's Priority Service Register. 
 
Protecting vulnerable customers 
 
SSEN delivered a number of initiatives in 2016/17 to help protect its most vulnerable customers and seek to improve
performance in the Stakeholder Engagement and Consumer Vulnerability incentive. 
 
In November 2016 SSEN became the first network operator to meet the requirements of the British Standard Inclusive Service
Provision (ISP) BS18477:2010 for two years in a row. The achievement outlines the critical procedures to ensure inclusive
services are available and accessible to all customers equally, regardless of their personal circumstances. 
 
In 2016/17, SSEN created a vulnerability mapping portal, which provides it with detailed demographic information about its
communities. The bespoke tool allows SSEN to make informed decisions about assistance during power cuts, planned supply
interruptions and where to promote its Priority Service Register. 
 
Preparing for a new, flexible energy system 
 
In their joint Call for Evidence in November 2016, BEIS and Ofgem put forward their view on the transition from the
traditional Distribution Network Operator model to a prominent Distributed System Operator (DSO) role.  SSEN believes this
transition will meet the needs of a flexible and de-carbonised electricity system, serving to protect customers' interests
whilst ensuring the network remains resilient and affordable. 
 
In 2016/17 SSEN's innovation projects provided some significant findings, which will ultimately inform this transition: 
 
·      The New Thames Valley Vision project explored a number of innovative methods, including network monitoring, battery
storage and thermal storage. This was done to anticipate and manage the growth of new technologies connecting to the
electricity network, including electric vehicles, heat pumps and solar panels. Its findings detail how network
reinforcement can be avoided by the use of smart technologies, such as Active Network Management. 
 
·      Following the My Electric Avenue project, which identified the impact of electric vehicles on the electricity
network; SSEN has taken these findings and launched a new project - Smart EV. The aim of the project is to create and
collaborate with other DNOs, National Grid, DECC and Ofgem on an industry-accepted solution for managing future EV
charging, in the form of an Engineering Recommendation. This will help DNOs protect the LV network and allow EVs to connect
to networks. 
 
·      The Shetland-based Northern Isles New Energy Solutions (NINES) project allowed SSEN to use large and small scale
energy storage solutions and new monitoring and control systems, to deliver an Active Network Management (ANM) solution on
the islands. It allowed for a 200% increase in renewable energy contribution on Shetland by helping to manage grid
constraints more efficiently in real time. The project's findings can be modelled across the wider-GB electricity network
and they will play a vital role in it adapting to a flexible and de-carbonised electricity system. 
 
SSEN's innovation projects are designed to help anticipate and prepare the electricity network operators for future energy
scenarios. It continues to deploy technologies, such as Constrained Managed Zones and LiDAR technology, at a
business-as-usual level to develop a system that is transparent, reliable and affordable. 
 
SSEN will continue to engage with industry, policy-makers and the regulator in support of a phased approach to the DSO
transition whereby impacts can be carefully reviewed and the best interests of customers maintained. 
 
Making progress on a new energy solution for Shetland 
 
The Shetland isles are not connected to the GB Main Island Transmission System and all Shetland's energy needs are met from
a range of generation sources located on the islands, underpinned by the existing Lerwick Power Station.  As Lerwick Power
Station is reaching the end of its operational life, SSEN is conducting a competitive tender to secure the future of
Shetland's electricity supply.  This process will identify the most economic and efficient solution to meet Shetland's
needs, as required by the energy regulator Ofgem. SSEN expects to appoint a preferred bidder in the summer of 2017 and,
following a consultation by Ofgem, contracts are expected to be signed in late 2017. 
 
Adapting to National Marine Plan in submarine cable replacement programme 
 
The implementation of Scotland's National Marine Plan has introduced a number of changes to Marine Planning Policy which
may have implications for the way in which subsea cables are installed within Scotland's waters.  The Marine Plan now
includes a clear preference for burial or protection as opposed to the approach successfully adopted by SSEN over many
decades of surface laying its subsea cables. 
 
SSEN has developed a Cost Benefit Analysis methodology to support each subsea cable licence application to Marine Scotland.
 The CBA is designed to ensure that all stakeholder views are considered and factored into the proposed installation method
and that any additional costs are justified through a robust economic and evidenced based analysis. 
 
SSEN expects to submit its first application to Marine Scotland under the new marine planning regime, supported by the
output of its CBA methodology, in the summer of 2017. 
 
SGN 
 
SGN manages the networks distributing natural and green gas to 5.9 million homes and businesses across Scotland and the
south of England and is currently building a third distribution network comprising around 700km of new gas pipelines in the
west of Northern Ireland where some 40,000 customers will be able to  connect to mains natural gas for the first time. In
line with its reduced equity holding, SSE now receives 33.3% of the distributable earnings from SGN Ltd while, through a
managed service agreement, continues to provide the same level of back-office support. 
 
With the current Gas Distribution Price Control passing its mid-point review with no material changes from Ofgem, SGN
continues to focus on delivering all its outputs under the RIIO framework. It is also focused on maximizing regulatory
incentives while the focus of its innovation programme is to ensure gas has a secure future in the UK energy mix. At the
same time, the management team ensures all its operations are run safely and efficiently providing customers with a safe
and reliable gas network. SGN has invested significantly across the business, driving the implementation of innovative
technology for the of benefit customers, the gas industry as a whole and the environment in which it operates, achieving
several industry firsts. 
 
Continued investment enables SGN to deliver a safe and reliable network for customers; minimise its impact on the
environment; engage with and communicate its work to stakeholders and; deliver new customer-driven initiatives to help
reduce fuel poverty and increase awareness of Carbon Monoxide dangers. SGN is committed to developing its workforce,
driving diversity and inclusion throughout the company while building even stronger relationships within the diverse
geographic and demographic communities it serves. 
 
SGN has embedded a 'One SGN' ethos throughout the company resulting in outstanding customer satisfaction scores (UK No.1
GDN in 2016/17), and a reduction in the number of complaints (60% reduction overall since 2013). In terms of operational
performance and safety, SGN has again exceeded the regulator's 97% emergency standard of attending uncontrolled public
reported gas escapes within one hour. 
 
Networks - Conclusion and Priorities 
 
In addition to their first priority of safety, SSE's economically-regulated Networks businesses play a crucial role in the
provision of energy in Scotland and southern England, delivering value for money for customers and a fair return for
investors. SSE will work, in 2017/18 and beyond, to ensure it continues to meet the needs of customers and earn returns for
shareholders through focusing on the current and future needs of customers, disciplined investment and innovation and
excellence in delivery, creating a stable platform for future growth. 
 
Networks priorities for 2017/18 and beyond 
 
SSE's Networks businesses' priorities in 2017/18 and beyond are to: 
 
·      operate safely and meet all compliance requirements; 
 
·      provide an excellent service to all customers who rely on their  networks and related services; 
 
·      deliver required outputs while maintaining tight controls over expenditure; 
 
·      maintain good progress in the safe delivery of new assets; 
 
·      progress innovations that will improve network reliability, efficiency and customer service and inform 
industry-wide improvements; and 
 
·      develop and maintain effective stakeholder relationships and conduct constructive engagement with regulators and
legislators, advocating clarity and stability in the regulatory framework. 
 
RETAIL (including Enterprise) 
 
Retail (including Enterprise) Key Performance Indicators 
 
                                                                       Mar 17        Mar 16        
                                                                                                   
 Energy Supply                                                                                     
 Energy Supply adjusted operating profit  - £m                         389.5         398.9         
 Energy Supply reported operating profit - £m                          313.2         398.9         
 Capital expenditure (Energy Supply and Energy Related Services) - £m  184.3         169.0         
 Electricity customer accounts (GB domestic) - m                       4.06          4.16          
 Gas customer accounts (GB domestic) - m                               2.70          2.79          
 Energy customers (GB business sites) - m                              0.45          0.47          
 All-Island energy market customers (Ire) - m                          0.79          0.79          
 Total energy customer accounts (GB, Ire) - m                          8.00          8.21          
                                                                                                   
 Electricity supplied household average (GB) - kWh                     3,793         3,763         
 Gas supplied household average (GB) - th                              440           426           
 Household/small business aged debt (GB, Ireland) - £m                 80.2          103.2         
 Bad debt expense (GB, Ireland) - £m                                   47.9          44.0          
 Customer complaints to third parties (GB)1                            1,322         1,416         
 1 Ombudsman: Energy Services and Citizens Advice                                                  
                                                                                                   
 Energy Related Services                                                                           
 Energy Related Services adjusted operating profit- £m                 16.1          15.4          
 Energy Related Services reported operating profit - £m                (20.3)        (2.4)         
 Home Services customer accounts (GB) - m                              0.47          0.40          
 Supply customers' bills based on actual reading %                     95.5          95.1          
 Smart Meters installed                                                Over 500,000  Over 180,000  
                                                                                                   
 Enterprise                                                                                        
 Enterprise adjusted and reported operating profit - £m                16.7          40.9          
 Capital expenditure - £m                                              58.7          48.5          
 SSE Heat network customer accounts                                    Over 6,500    Over 5,000    
 
 
Supplying energy and essential services across Great Britain and Ireland 
 
SSE is one of the largest energy suppliers operating in the competitive energy markets in Great Britain and Ireland. At 31
March 2017 it supplied electricity and gas to 8 million household and business accounts. It also provides other related
products and services, including telephone, broadband and boiler care, to 0.5 million household and business customers. The
Retail segment includes the Enterprise business which provides energy-related services to meet the needs of businesses and
public sector organisations in a reliable and sustainable way. Taken together, these businesses contribute balance to the
SSE group and demonstrate SSE's commitment to efficient operations and industry-leading customer service. 
 
The rapidly evolving and increasingly competitive market for energy and related services presents a number of challenges
for traditional energy supply business models and they must evolve and adapt in order to be sustainable in the medium to
longer term. SSE has already made significant progress in its transformation from commodity provider towards becoming a
retailer of energy and essential services, by digitalising and diversifying its business, and consistently leading the
sector in customer service. This strategy is designed to help improve SSE's ability to retain its valued customers, offset
the impact of the continued reduction in household energy demand and ensure it is well positioned to capitalise on market
developments in energy and related services in the short, medium and long term. 
 
Financial performance in Retail 
 
During the 12 months to 31 March 2017, total adjusted operating profit in Retail including Enterprise fell by 7.2% to
£422.3m, the principal movements were as follows: 
 
Energy Supply: adjusted operating profit across Energy Supply as a whole reduced slightly, to £389.5m, in 2016/17, compared
to £398.9m in 2015/16.  Within this, in GB household supply, increases in non- energy costs, the impact of the household
gas tariff reduction in March 2016 and falling customer numbers were offset by the impact of reduced wholesale energy costs
and slightly increased average consumption, leading to a small overall increase in adjusted operating profit. Business
Energy profits decreased in 2016/17, reflecting an increase in non-commodity costs and a decrease in volumes supplied. 
 
An improvement in estimation confidence in relation to the judgemental measurement of unbilled energy has enabled an
additional £60m of revenue to be recognised in the year.  This is split between household energy (£14m) and business energy
(£46m). 
 
In 2016/17, £27.5m of the bad debt provision was released, with the majority being allocated against a reduction in aged
debt. 
 
Energy-related services: adjusted operating profit increased slightly to £16.1m in 2016/17, compared to £15.4m in 2015/16,
reflecting a reduction in revenue streams in the heritage metering business and  continued investment  in building scale in
 the customer-facing broadband and telecoms businesses; 
 
Enterprise:  adjusted and reported operating profit fell to £16.7m in 2016/17, from £40.9m in 2015/16, reflecting
challenging conditions in a competitive environment, particularly in Contracting which was loss making in the year.
Enterprise is now in a key phase of development with the recent appointment of a new Managing Director. 
 
Reported Retail Operating Profit:  reported operating profit for the Retail segment was £309.6m compared to £437.4m, the
reduction was due to exceptional impairments in the year particularly the impairment of technology developments projects,
principally relating to an Energy Supply customer billing system which is no longer being progressed.  The reduction in
reported operating profit also reflected the impairment of goodwill in the acquisition of the Energy Solutions Group in the
Enterprise business. 
 
In line with its licence condition, SSE will publish by July 2017 a Consolidated Segmental Statement (CSS) setting out the
revenues, costs and profits or losses of businesses in its Wholesale and Retail segments in Great Britain for 2016/17. The
CSS will be fully reconciled to SSE's published financial statements and reviewed by SSE's auditors, KPMG. It is expected
to show that SSE's operating profit margin from supplying electricity and gas to British households was 6.9% in 2016/17,
compared with 6.2% in 2015/16. SSE has previously highlighted a divergence between gas and electricity margins due to the
increasing costs associated with vital policies designed to modernise and decarbonise Britain's energy infrastructure,
which are levied predominantly against electricity. This divergence is expected to continue in the 2016/17 CSS, with
margins becoming more balanced across fuels in 2017/18 following the changes to household electricity prices from 28 April
2017, detailed below. 
 
Risks 
 
Managing political, compliance and regulatory risk 
 
SSE recognises that energy is an essential service and that customers rely on its core products of electricity and gas to
power and heat their homes in order to live safely and comfortably.  SSE is mindful that there remains considerable, and
legitimate, political interest in energy supply markets, exemplified by the UK general election campaign.  The sector will
continue to be subject to scrutiny and possible intervention by the new UK government.  As ever, SSE's approach will be to
engage actively and constructively with that government as it develops and takes forward its policies, as well as
continuing its own efforts to engage and reward SSE customers; however, SSE would caution against potential unintended
consequences of any proposed intervention in what is a rapidly changing and increasingly competitive market. 
 
It therefore believes that further energy supply market reforms should be subject to substantive consultation to ensure
that any such reforms are well-founded, supported by objective analysis and introduced in a way that benefits all customers
and supports the functioning of an effective and sustainable energy supply market. SSE will participate fully and
constructively in any such consultation process that takes place after the general election. 
 
One issue that has been extensively debated in the course of the UK general election campaign is the possible introduction
of a 'cap' on the energy prices paid by customers on standard variable tariffs (SVTs).  As at 31 March 2017, of its 6.76
million GB domestic customer accounts, 4.76 million could be impacted by this.  While the outcome of the general election
won't be known until 9 June it appears likely that any price cap would be would be set by Ofgem, which regulated retail
energy prices until 2002.  The key features of any price cap are its core objective, the expected role of competition in
the market featuring a cap, the methodology used for setting the cap, the frequency with which it is reviewed, the extent
of any regional variations, its implications for other administered features of energy supply and its duration.  The impact
of a price cap on any energy supplier can only be fully determined once all of those features are clear and once that
supplier has considered its strategy in response, covering the products and services it wishes to offer in a market
featuring a price cap, and the cost base it is willing to sustain in order to do so. 
 
Until the facts are known, the uncertainty around a possible price cap would clearly add to the risk for SSE and other
energy suppliers and add to the volume of regulatory changes that need to be addressed and implemented and the significant
consequences for finances. 
 
The markets for energy supply in GB and Ireland both continue to be intensely competitive. In GB, for example, political,
regulatory and market factors are all contributing to the rapid growth of new market entrants and increasing levels of
customer engagement in the market, and  there are now more than 50 suppliers operating in the GB market alone. In addition,
efforts to simplify the switching process for customers mean that, according to Energy UK data, more than 500,000 customers
switched electricity supplier in March 2017, an increase of 13% on the March 2016.  SSE is responding to this competition
by investing in retention, taking additional steps to engage and reward its customers, and redoubling efforts to digitalise
and diversify its Retail business. 
 
Focusing on energy affordability 
 
Affordability of energy is vitally important but must be balanced against the need to decarbonise and ensure the
reliability of Britain's energy system. The cost of vital government programmes designed to achieve these aims by upgrading
Britain's ageing energy infrastructure are predominantly levied against electricity customers; as a result, SSE regrettably
had to take the difficult decision to increase electricity prices by an average of 14.9%, or 6.9% across a typical dual
fuel bill, from 28 April. However, this was SSE's first price increase for three and a half years and, with gas prices held
at previous levels, the typical dual fuel bill remains cheaper than in November 2013. Without this increase, SSE would have
been supplying electricity at a financial loss. 
 
However, SSE recognises the impact higher energy costs can have on customers, particularly the most vulnerable. With that
in mind it is continuing work to deliver efficiencies across its business to mitigate the impact of rising costs and
launched a new £5 million fund providing additional financial support for those who need it most, particularly those who
rely on electricity for their heating.  An update on progress in administering this fund will be provided in SSE's interim
results statement for 2017/18. 
 
Development and change: moving towards a smarter market 
 
The energy sector in Great Britain is undergoing a radical transformation, in particular through the digitalisation of key
infrastructure and services. Customer expectations and behaviours continue to evolve and this will mean energy suppliers
must meet their needs differently if they are to be sustainable. This risk also presents an opportunity to enhance service
levels, drive further engagement and reduce costs, and SSE has continued to invest in enhancing and digitalising its
front-end, customer-facing systems to manage this risk and realise these benefits. 
 
However, these investments need to be balanced against SSE's other key risks, particularly affordability; with this in mind
SSE confirmed in January 2017 that it would not be replacing its billing system at this point in time, focusing instead on
improvements to customer-facing systems and channels. 
 
The underlying infrastructure is also being digitalised through the smart meter roll-out and SSE views this as a unique
opportunity to transform the relationship between customers, their energy supplier and the energy they use. However, in
order to take this opportunity SSE is focused on delivering its obligations in a way that is cost-effective and
customer-centric, to maximise the net benefits for customers. As of 31 March 2017 it had installed over half a million
smart meters. 
 
Delays to delivery of critical central infrastructure including the Data Communications Company (DCC) have, however,
impacted on the industry's ability to make progress and compressed the timetable for delivery. As with any infrastructure
programme with dependencies and of this complexity and scale, there continue to be challenges associated with SSE's
obligations under the smart meter roll out but SSE is working hard to mitigate the risks to delivery. SSE continues to
maintain a constructive dialogue with its key partners and stakeholders including BEIS, Ofgem, Citizens Advice and Smart
Energy GB, in order to raise concerns and share learnings as the roll-out progresses. 
 
Progress in Energy Supply and Energy-related Services 
 
SSE Retail has a long-standing strategy to respond to these and other risks by becoming a market-leading retailer of energy
and essential services, by digitalising, diversifying and aiming for high levels of customer service. This approach will
enable SSE to build stronger, more enduring customer relationships based on engagement, service and value. 
 
Owing to ongoing competitive pressures, in the 12 months to 31 March 2017, SSE's energy customer accounts in Great Britain
and Ireland fell from 8.21 million to 8 million. While any loss of customers is disappointing, this represents the smallest
decline in SSE's customer numbers since 2013, due to the impact of efforts to improve retention and attract more new
customers to SSE. 
 
Helping vulnerable customers through inclusive provision 
 
SSE recognises that, as an essential service provider, it must be both sensitive and flexible in how it deals with
customers. With that goal in mind, in August 2016 SSE became the first energy supplier in Great Britain to commit to
achieving the British Standard for Inclusive Service Provision. This represents the gold standard in recognising and
catering for vulnerability in all its forms and SSE is currently working towards achieving this accreditation in the early
part of 2018. 
 
This builds on the additional training SSE has provided to customer-facing staff in areas like mental health and,
specifically, dementia, to ensure its advisers are equipped to provide the best possible support. 
 
In addition to the £5 million fund set up to provide extra financial assistance to vulnerable customers following SSE's
household energy price increase from 28 April, SSE helps vulnerable customers manage their energy costs in a number of
enduring ways: 
 
·      Through the Warm Home Discount scheme, as of 31 March 2017 SSE had allocated over 275,000 £140 rebates; by the end
of the scheme year on 31 May 2017, SSE expects to spend around £46.4m, helping over 300,000 customers in total ; 
 
·      SSE's customer service advisers proactively identified and referred over 5000 customers for benefit entitlement
checks during the year, with more than 2700 customers successfully completing the check, resulting in an average increase
in income of more than  £3,200 a year per  customer. 
 
·      SSE's Priority Assistance Fund provides additional support to low income and vulnerable customers, including debt
relief, free energy efficiency advice, and help with bespoke payment arrangements. 
 
·      It also offers a free Careline priority service, dedicated to helping customers who are elderly, disabled or have
special medical needs. 
 
·      In line with its licence, between the start of October and the end of March (or longer if the weather is
unseasonably cold), SSE has a no-disconnection policy covering all household customers. In addition, SSE is a member of
Safety Net, which is an additional voluntary commitment overseen by Energy UK. This commits signatory suppliers to never
knowingly disconnect vulnerable customers at any time. 
 
Particularly in the context of rising prices, SSE aims to engage constructively and understandingly with customers in
arrears as early as possible, making sure support is provided for those struggling with their energy costs and that payment
plans are manageable. 
 
Maintaining high standards in customer service 
 
As outlined in its Treating Customers Fairly Statement, published in August 2016, SSE works hard to maintain the standards
and quality of service that customers expect: listening to customers, making it easy for customers to deal with them,
looking after customers when they need extra help and putting things right if there's a problem. SSE maintained a strong
position in the Citizens Advice Energy Supplier Performance Report through the course of 2016/17, setting a new record in
June with a complaints score of just 22.5 per 100,000 customers for the quarter, down from 47.7 at the same point in
2015/16. SSE ended the year with an even better score of 20.5 and aims to maintain high standards in 2017/18 in the new,
more holistic energy supplier customer service comparison tool, which has superseded the Supplier Performance Report. 
 
Diversifying through energy-related services 
 
As part of efforts to further diversify its Retail business, SSE expanded its customer base in energy-related services
including boiler cover, electrical wiring and home broadband and telephone to 0.5m. Critically, SSE has now completed work
enabling it to offer its boiler servicing, repair and cover and electrical wiring cover to all customers across Great
Britain for the first time. The national offer got off to a strong start helped by a range of value-for-money offers,
including free boiler recovery for SSE energy customers. Meanwhile, SSE's white label partnership with M&S Energy is also
offering M&S Home Services. SSE is already seeing the retention benefits of providing customers with a broader range of
services and will continue efforts to cross-sell other home and essential services to add more value for its energy
customers in 2017/18. 
 
Doing more for customers 
 
SSE is clear that its business is built on its customers and that, for its Retail business to be sustainable in the long
term, it must have active, informed and engaged relationships with them. In February 2017, SSE published a report, 'Doing
more for our customers', setting out what it is doing to build and sustain those customer relationships. 
 
As well as providing fair prices and high-quality customer service, SSE believes in rewarding its customers' loyalty -
recognising that they have chosen SSE from the 50-plus other suppliers competing for their custom. During 2016 SSE
introduced a range of offers targeted exclusively at loyal SSE customers including a free 'boiler rescue' potentially worth
over £300 where customers subsequently sign up to boiler cover and an innovative 'no-ties' broadband offer. 
 
SSE also aims to engage and reward its customers through the things that they enjoy most, so the SSE Reward programme
engages customers by offering early access to tickets and money-can't-buy experiences at some of Britain's biggest
entertainment venues. 
 
Meeting the needs of business customers 
 
Business Energy performed strongly during 2016/17, driven by a continued focus on meeting business customers' core energy
needs, ongoing efforts to control operating costs and an enhanced proactive approach to its key customers and partners. 
 
Over the year, SSE Business Energy has adapted the way in which it engages with customers, offering a customer service
commitment which was recognised by Citizens Advice as the best performing non-domestic energy provider at handling
complaints from small business customers.  Business Energy continued to build its offering in the commercial sector and
launched a new 100% renewable energy proposition known as 'SSE Green'. 
 
For micro business customers, SSE continued its emphasis on Treating Customers Fairly (TCF) by relaunching its TCF
Statement and establishing a performance team to focus on operational excellence by driving continuous improvement.  Third
Party Intermediaries (TPIs) remain an important channel for Business Energy growth and SSE continues to provide ongoing
support to its TPIs by providing access to its industry experts via sales channels, engagement sessions and regular
industry updates. 
 
Supplying energy and essential services across Ireland 
 
SSE Airtricity is the second largest provider of energy and related services in Ireland (ROI) and Northern Ireland (NI),
and the only energy retailer to operate in all of the competitive gas and electricity markets across the island. At 31
March 2017, SSE Airtricity supplied electricity and natural gas to 0.79 million household and business customer accounts in
ROI and NI, representing a 17% share of the total combined gas and electricity markets. 
 
SSE Airtricity's focus is on excelling in customer service as a key differentiator in what are highly competitive,
price-driven markets. The company's focus on using digitised platforms to enable customers to self-serve using their choice
of device at times that suit them is another key differentiator, with 73% of all customer interactions completed via
digital channels. 
 
This continuous drive to deliver excellent customer experience has received extensive external recognition. In November,
SSE Airtricity was named Customer Contact Centre of the Year by CCMA Ireland, and in March the company won awards for Best
Customer Service and Best Online Service from leading internet comparison site Bonkers.ie. In October, SSE Airtricity was
named the top electricity provider for business customer satisfaction in the Commission for Energy Regulation's (CER)
Consumer Survey Report, receiving an overall satisfaction rating of 91% from SMEs. 
 
In late 2016, SSE Airtricity acquired 50 per cent of Fusion Heating Ltd., a leading energy services contractor in NI. The
acquisition enhances SSE Airtricity's retail energy offering, and further progresses the company's diversification to
become a retailer of essential services across the island. 
 
On 31 March 2017, SSE Airtricity increased its regulated natural gas prices in NI by 7.6% for home and small business
customers. The increase was examined and approved by the Utility Regulator and is the first increase in the company's
prices since April 2013. The change follows a four-year period during which SSE Airtricity either held or reduced its
standard gas prices in the regulated market, including a 10% reduction from 1 April 2016. 
 
In deregulated markets, SSE Airtricity reduced its household electricity prices in NI by 10% from 1 June 2016. In ROI, the
company reduced both its electricity and natural gas prices by 5% with effect from 1 August 2016.In deregulated markets,
SSE Airtricity reduced its household electricity prices in NI by 10% from 1 June 2016. In ROI, the company reduced both its
electricity and natural gas prices by 5% with effect from 1 August 2016. 
 
Enterprise 
 
Delivering an efficient and reliable service 
 
SSE Enterprise provides multi-disciplined utility services for industrial, commercial and public sector customers across
the UK. Its five businesses comprising Telecoms, Utilities, Rail, Contracting and Slough Heat and Power, serve a broad
client base with a collective focus on delivering efficient, reliable and bespoke solutions to meet individual client
needs. 
 
While the financial performance in the last year reflects the challenging markets SSE Enterprise operates in, the business
has established strong foundations for future profitability with a number of stable revenue streams delivering favourably.
The contracting business did not deliver as expected, however a process of transformation is underway to refine the
operating model in an effort to drive further efficiency and sustainable growth. 
 
Renewing the focus and direction for SSE Enterprise 
 
SSE Enterprise has a renewed focus under the stewardship of its new Managing Director, and several strategic appointments
to the wider leadership team are targeting leaner operations and improved business development and execution capabilities.
The business is anticipated to become more efficient and competitive going forward across a range of sectors whilst
continuing to deliver innovative solutions to meet the evolving needs of its customers. SSE Enterprise is building a
business that's fit for the future and has made progress in 2016/17 with specific activity detailed below: 
 
·      SSE Enterprise Telecoms has secured important new clients and continued to grow its network, extending its high
bandwidth fibre broadband services. The business continues to connect major UK commercial datacentres, providing direct
customer access to a majority of the leading suppliers of Cloud based business services. It has also invested in developing
its London City fibre network to connect key new commercial buildings. 
 
·      SSE Enterprise Rail delivered a strong performance this year.  Safety performance was optimal, and the business grew
with the team focused on winning work with new clients and associated business streams including significant contract wins
with Network Rail and Transport for London. 
 
·      SSE Enterprise Utilities now serve almost 7,000 customers connected to low carbon heat networks across the UK, and
over 13,000 connected to water networks.  With over 400 electrical networks contracted, and managing around 178,000 gas
connections, it is firmly established as a market leader in multi-utilities, with ambitious plans for growth in both
existing and new markets. 
 
·      Slough Heat and Power has further established itself within the Enterprise business and delivered its highest ever
profit in 2016/17. Consistent and focused stakeholder engagement with key customers has allowed the business to optimise
electricity demand forecasting. It is also in the process of doubling its electricity import capacity from the main grid to
the Slough Heat and Power network. 
 
·      SSE Enterprise Contracting had a difficult year but has reinforced its commitment to accelerate critical growth. The
business has recently attracted new and significant contract wins with considerable opportunities in the pipeline. A new
leadership team is in place to maximise these opportunities in 2017/18. 
 
Retail (including Enterprise) - Conclusion and Priorities 
 
In addition to their first priority of safety, SSE's Energy Supply, Energy-Related Services and Enterprise business
continue to operate in challenging competitive markets and are each focused on adapting to meet the changing energy needs
of household, commercial and public sector customers. This means maintaining a clear focus on delivering the propositions
and services that customers need, while actively managing key risks and leveraging SSE's core strengths. 
 
Key priorities for 2017/18 and beyond 
 
SSE's Retail priorities in 2017/18 and beyond are to: 
 
·      retain and gain  domestic and business energy customer accounts, minimising losses where possible; 
 
·      actively manage key risks, in particular by responding positively to challenges from political and regulatory
stakeholders following the General Election; 
 
·      continue to build on SSE's strong culture of customer service in both GB and Ireland with new products and
services; 
 
·      take the smart opportunity by optimising the mass deployment of smart meters and developing and launching compelling
smart-enabled customer propositions; 
 
·      continue to deliver operational efficiencies by further digitalising the business and moving towards an operating
model capable of meeting the future needs of customers; and 
 
·      re-focus the Enterprise business so it has the strongest possible foundations for future growth. 
 
Alternative Performance Measures 
 
When assessing, discussing and measuring the Group's financial performance, management refer to measures used for internal
performance management. These measures are not defined or specified under International Financial Reporting Standards
(IFRS) and as such are considered to be Alternative Performance Measures ("APMs").By their nature, APMs are not uniformly
applied by all preparers including other participants in the Group's industry. Accordingly APMs used by the Group may not
be comparable to other companies within the Group's industry. 
 
By their nature, APMs are not uniformly applied by all preparers including other participants in the Group's industry.
Accordingly APMs used by the Group may not be comparable to other companies within the Group's industry. 
 
Purpose 
 
APMs are used by management to aid comparison and assess historical performance against internal performance benchmarks and
across reporting periods. These measures provide an ongoing and consistent basis to assess performance by excluding items
that are materially non-recurring, uncontrollable or exceptional. These measures can be classified in terms of their key
financial characteristics: 
 
·      Profit measures allow management to assess and benchmark underlying business performance during the year. They are
primarily used by operational management to measure operating profit contribution and are also used by the Board to assess
performance against business plan. 
 
·      Capital measures allow management to track and assess the progress of the Group's significant ongoing investment in
capital assets and projects against their investment cases, including the expected timing of their operational deployment. 
 
·      Debt measures allow management to record and monitor both operating cash generation and the Group's ongoing
financing and liquidity position. 
 
The following table explains the key APMs applied by the Group and referred to in these statements: 
 
 Group APM                                      Purpose          Closest Equivalent IFRS measure                                           Adjustments to reconcile to primary financial statements                                                                                                                                                           
 Adjusted Operating Profit                      Profit measure   Operating Profit                                                          ·     Movement on operating and financing derivatives ('certain remeasurements')·     Exceptional items·     Share of joint ventures and associates interest and tax                                               
 Adjusted Profit Before Tax                     Profit measure   Profit before tax                                                         ·     Movement on operating and financing derivatives ('certain remeasurements')·     Exceptional items·     Interest on net pension assets/liabilities (IAS 19R)·     Share of joint ventures and associates tax  
 Adjusted net finance costs                     Profit measure   Net finance costs                                                         ·     Movement on financing derivatives·     Share of joint ventures and associates interest·     Interest on net pension assets/liabilities (IAS 19R)                                                             
 Adjusted Current Tax Charge                    Profit measure   Tax charge                                                                ·     Share of joint ventures and associates tax·     Deferred tax including share of joint ventures and associates·     Tax on exceptional items and certain re-measurement                                       
 Adjusted earnings per share                    Profit measure   Earnings per share                                                        ·     Exceptional items·     Movements on Derivatives ('certain re-measurements')·     Interest on net pension assets/liabilities (IAS 19R)·     Deferred tax including share of joint ventures and associates     
 Adjusted Net Debt and Hybrid Capital           Debt measure     Unadjusted net debt                                                       ·     Hybrid capital·     Outstanding liquid funds·     Finance leases·     Non-recourse Clyde debt                                                                                                                
 Investment and Capital expenditure (adjusted)  Capital measure  Capital additions to Intangible Assets and Property, Plant and Equipment  ·     Other expenditure·     Customer funded additions (IFRIC 18)·     Allowances and certificates·     Disposed additions·     Joint ventures and associates additions                                            
 
 
Rationale for adjustments 
 
Adjustments to Profit Measure 
 
1 Movement on operating and financing derivatives ('certain re-measurements') 
 
This adjustment can be split between operating and financing derivatives. 
 
Operating derivatives are where the Group enters into forward contracts to buy (or sell) electricity, gas and other
commodities to meet the future demand requirements of its Energy Supply business or to optimise the value of its Wholesale
assets. Certain of these contracts are determined to be derivative financial instruments under IAS 39 and as such are
required to be recorded at their fair value. Changes in the fair value of those commodity contracts designated as IAS 39
financial instruments are reflected in the income statement (as part of 'certain re-measurements').The Group shows the
change in the fair value of these forward contracts separately as this mark-to-market movement is not relevant to the
underlying performance of its operating segments due to the volatility that can arise. The Group will recognise the
underlying value of these contracts as the relevant commodity is delivered, which will predominately be within the
subsequent 12 to 18 months. Conversely, commodity contracts that are not financial instruments under IAS 39 are accounted
for as 'own use' contracts. 
 
Financing derivatives include all fair value and cash flow interest rate hedges, non-hedge accounted (mark-to-market)
interest rate derivatives, cash flow foreign exchange hedges and non-hedge accounted foreign exchange contracts entered
into by the Group to manage its banking and liquidity requirements as well as risk management relating to interest rate and
foreign exchange exposures. Changes in the fair value of those financing derivatives are reflected in the income statement
(as part of 'certain re-measurements').The Group shows the change in the fair value of these forward contracts separately
as this mark-to-market movement is not relevant to the underlying performance of its operating segments. 
 
The re-measurements arising from operating and financing derivatives, and the tax effects thereof, are disclosed separately
to aid understanding of the underlying performance of the Group. 
 
2 Exceptional Items 
 
Exceptional charges or credits, and the tax effects thereof, are considered unusual by nature or scale and of such
significance that separate disclosure is required for the underlying performance of the Group to be properly understood.
Further explanation of the rationale for deciding whether an item is exceptional is included in Note 3 of the Financial
Statements. 
 
3 Share of joint ventures and associates interest and tax 
 
This adjustment can be split between the share of interest and the share of tax. 
 
The Group is required to report profit before interest and tax ('operating profit') including its share of the profit after
tax of its equity-accounted joint ventures and associates. However, for internal performance management purposes and for
consistency of treatment, SSE reports its adjusted profit measures before its share of the interest and/or tax on joint
ventures and associates. 
 
4 Interest on net pension assets/liabilities (IAS 19R) 
 
The Group's interest charges relating to defined benefit pension schemes are derived from the net assets/liabilities of the
schemes as valued under IAS 19R. This will mean that the charge recognised in any given year will be dependent on the
impact of actuarial assumptions such as inflation and discount rates. To avoid income statement volatility derived from
this basis of measurement and reflecting the non-cash nature of these charges, the Group excludes these from its adjusted
profit measures. 
 
5 Deferred tax 
 
The Group adjusts for deferred tax when arriving at adjusted profit after tax and its adjusted effective rate of tax. Given
deferred tax arises as a result of potential future tax credits or charges, and is therefore unrelated to the current
period tax charge or payments made, the Group excludes these from its adjusted profit measures. 
 
Adjustments to Debt measure 
 
6 Hybrid capital 
 
The characteristics of hybrid capital securities mean they qualify for recognition as equity rather than debt under IFRSs.
Consequently, their coupon payments are presented within dividends rather than within finance costs. As a result, the
coupon payments are not included in SSE's adjusted PBT measure. In order to present total funding provided from sources
other than ordinary shareholders, SSE presents its adjusted net debt measure inclusive of hybrid capital to better reflect
the Group's funding position. 
 
7 Outstanding liquid funds 
 
Outstanding liquid funds are SSE cash balances held by counterparties as collateral at the year end. SSE includes these as
cash until they are utilised. Loans with a maturity of less than three months are also included in this adjustment. The
Group includes this adjustment in order to better reflect the immediate cash resources it has access, which in turn better
reflects the Group's funding position. 
 
8 Finance leases 
 
SSE's reported loans and borrowings include finance lease liabilities, most significantly in relation to its tolling


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