Focusing on what’s importantfaculty.jsd.claremont.edu/emorhardt/137/Corporate Reports for...

Focusing on what’s importantScottish and Southern Energy plc

Corporate Responsibility Report 2008

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A38932 SSE CR Report08 Text.QXP 17/7/08 2:58 pm

In this report 1>

Scottish and Southern Energy Corporate Responsibility Report 2008>

For more information and Global Reporting InitiativeThis report is about Scottish and SouthernEnergy. SSE owns 50% of, and providescorporate and management services to,Scotia Gas Networks (SGN). In addition, inFebruary 2008, SSE acquired Airtricity, theDublin-based renewable energy developmentcompany. Unless otherwise stated theinformation within the report excludes SGN and Airtricity. For more information, see www.scottish-southern.co.uk,www.scotiagasnetworks.co.uk andwww.airtricity.com.

Quick guide

How do we makeenergy better?PAGE 2

Chief Executive’sStatementPAGE 3

How does SSE work?PAGES 4-9

Performance IndicatorsPAGES 36-37

GenerationPAGES 10-17

SupplyPAGES 18-23

NetworksPAGES 24-27

Energy-RelatedServicesPAGES 28-31

Creating valuePAGES 32-35

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In this report 1

How do we make energy better? 2

Chief Executive’s Statement 3

How does SSE work? 4

Generation and Supply 10

Introduction 10

Generation and Supply – Generation 10

Context 10

Key responsibility 12

What are we doing? 12

Generation and Supply – Supply 18

Context 19



Networks 24

Context 25



Energy-Related Services 28

Context 28



Key Performance Indicators 31

Creating value 32

Context 33



Performance Indicators 36

Independent Assurance Report to Scottish and Southern Energy plc 38

Values for the future 40

Directors

Lord Smith of Kelvin ChairmanIan Marchant Chief ExecutiveGregor Alexander Finance DirectorNick BaldwinNon-Executive DirectorRichard GillingwaterNon-Executive Director

Colin Hood Chief Operating OfficerRené Médori Non-Executive DirectorAlistair Phillips-Davies Energy Supply DirectorSusan Rice CBENon-Executive DirectorSir Kevin Smith CBE Non-Executive Director

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The Global Reporting Initiative (GRI) hasguided the development of this report. The GRIis the most widely accepted global standardfor corporate responsibility reporting.

For the first time, SSE is developing a GRIIndex, based on the G3 Guidelines, for its2008 Corporate Responsibility Report todetermine and communicate the extent towhich the report reflects the GRI principlesand core indicators.

Our Corporate Responsibility Report>

Scottish and Southern Energy’s core purpose is to provide the energy people need in a reliable and sustainable way. From that flows our ability todeliver to our shareholders sustained real dividend growth. That is achievableonly if we demonstrate responsible practice in all of our activities. For thisreason, there is no separate corporate responsibility function within SSE; it is not an add-on, and should not be treated as such. Every one of us who is employed by SSE must demonstrate and deliver responsible businesspractice in whatever we do.

How to use this report

This report sets out for shareholdersand other interested parties Scottishand Southern Energy’s approach tocorporate responsibility; identifies andexamines the key responsibility-relatedquestions facing SSE; summarisesSSE’s performance during 2007/08;and identifies priorities for 2008/09 and beyond. In summary, it seeks to focus on what’s important.

How can generators harness sustainable resources?

The key question in electricity generation is sustainability: at a time when the world’sfinite resources are under greater strain thanever before, and with clear evidence pointingto climate change as a result of greenhousegas emissions, what can generators do toharness sustainable sources of energy?

The key questions

How can energy be kept as affordable as possible?

The key question in energy supply isaffordability: at a time of rapidly-growingglobal demand for all types of energy, volatilewholesale markets and rising transmission,distribution and environmental costs, whatcan companies do to make sure the electricityand gas which they supply is as affordable as possible?

How will networks remain reliable?

The key question in energy networks is reliability: at a time when people,organisations and companies rely onelectricity and gas more than ever before,what can companies do to make sure thenetworks which deliver the power and heatpeople need are robust, resilient and reliable?

How does SSE deliver value to stakeholders?

The key question in terms of value isdeliverability: how does SSE deliver value forits key stakeholders: customers; employees;shareholders and the wider community?

How can customers get dependable service?

The key question in energy services isdependability: at a time when customers’reliance on energy and the complexity of theinfrastructure required to support their needsis becoming greater, what can companies doto make sure that the energy-related servicesthey provide are dependable?


Chief Executive’s Statement 3>

How do we make energy better? 2


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The Big PictureIn introducing its Renewable Energy andClimate Change Package in January 2008,the European Commission said: ‘Increasingdemand for energy, soaring oil prices,uncertain energy supplies and fears of global warming have opened our eyes to the fact that energy can no longer be takenfor granted.’ This sums up the context inwhich companies like SSE now operate and the background against which the key questions must be answered.

PrioritiesAgainst the background of the key questionswe have identified (see inside front cover),our priorities for 2008/09 and beyond arestraightforward.

In electricity generation, our priority is tomaximise investment in renewable energy.We will do this by making good progress withour £3bn five-year programme of investmentin new renewable energy schemes andtechnologies, and make progress towardsour new, sector-leading goal of reducing the carbon intensity of electricity generated by 50% by 2020.

In energy supply, our priority is to ensure we keep prices as low as possible for as longas possible – and, in the meantime, helpmore customers reduce their consumption of energy by actively promoting our betterplan, which gives them financial incentivesfor doing so.

In electricity networks, our priority is tomaintain good performance in keeping power

cuts to a minimum, and make big inroadsinto the major investment programme onwhich we’ve embarked. The same applies in gas, where we will work hard through ourownership interest in, and service provisionto, Scotia Gas Networks.

In energy-related services, our priority is to respond to the growing complexities in meeting energy needs by meeting thecommitments we make as a dependableprovider of gas storage capacity andcontracting, utility and home services.

Our teamwork value is about supporting andvaluing our colleagues, and enjoying workingtogether as a team in an open and honestway. We recognise that we will be successfulin delivering on these priorities if SSE is asafe, positive and enjoyable place to workand making sure it is such a place is anotherof our priorities.

Our ValuesWe aim to deliver on these priorities throughresponsible business practice – by adheringto the ‘SSE SET’ of values: safety; service;efficiency; sustainability; excellence; andteamwork. The point of such values is, asJim Collins and Jerry Porras put it in theirbook, Built to Last: Successful Habits ofVisionary Companies, that they should be an ‘organisation’s essential and enduringtenets, not to be compromised for financialgain or short-term expediency’.

These values guide the decisions that theBoard and Committees of SSE make andclosely inform the selection of operationaltargets for each year. This is to ensure thatthere is no mis-match between the corevalues on the one hand and what the companyis trying to achieve on the other. Our KeyPerformance Indicators, set out in this Report,therefore reflect our values and the keyquestions which are material to our business.We believe that by identifying and answeringthe right questions, we will be successful in meeting the needs of shareholders,customers and other stakeholders.

PerformanceThis report looks at how the SSE teamperformed in each of our principal businessactivities in 2007/08 and addresses the keyquestions.

Sustainable Generation: It was the year in which we acquired Airtricity, taking ourtotal renewable energy capacity to beyond2,000 megawatts for the first time.

Affordable Supply: It was also a year in whichwe maintained our policy of responsiblepricing in energy supply, being the only majorsupplier not to increase prices during thewinter period in which most energy is used.

Reliable Networks: In electricity networks,the number and duration of power cuts fell

GenerationSSE owns around 10,500MW (megawatts) ofelectricity generating capacity, making it the UK’ssecond largest generator. This comprises almost4,500MW of gas- and oil-fired capacity, 4,000MW of coal-fired capacity (with biomass ‘co-firing’capability), and over 2,000MW of renewable (hydro, wind and dedicated biomass) capacity. It is, therefore, the UK’s leading generator ofelectricity from renewable sources.

SupplyUnder the Southern Electric, SWALEC, ScottishHydro Electric and Atlantic Electric and Gas brands, SSE supplies energy to around 8.5 millioncustomers, making it the UK’s second largestsupplier. Based on the latest information availableat March 2008, SSE’s customers were supplied by a higher proportion of renewable energy (10.2%)than customers of any other major supplier.

OperationsWhere we operate

Financial

During 2007/08, SSE delivered profit before tax of £1.229bn, an increase of 13.9% on theprevious year. Its operating profit was split between its Generation and Supply activities(52%), its Network activities, including telecoms, (39%) and its other Energy-Relatedactivities (9%). It incurred capital and investment expenditure of £810.3m. In February2008, it completed its largest-ever acquisition, of Airtricity, for £1.3bn.

FTSE4Good

In September 2007, SSE was advised that it continues to be a member company of theFTSE4Good Index, the responsible investment index calculated by FTSE Group. It saidthat as a member of the FTSE4Good Index, SSE is demonstrating that it has the policiesand management systems in place to help address environmental and social risks.

Our valuesSafety, service, efficiency, sustainability,excellence and teamwork.

Our strategyTo deliver sustained real growth in the dividend payable to shareholdersthrough the efficient operation of, and investment in, a balanced range of regulated and non-regulated energy-related businesses.

What we doScottish and Southern Energy’s core purpose is to provide the energy people need in a reliable andsustainable way. It does this through: the generation,transmission, distribution and supply of electricity; the storage, distribution and supply of gas; energy and utility contracting; and telecoms networks.

Ian MarchantChief Executive

and the networks investment programme in both electricity and gas made significantprogress.

Dependable Services: In energy-relatedservices, we secured consent to developadditional gas storage capacity – a keyinfrastructure requirement for the UK.

All of this was achieved while reducing thenumber of lost time and reportable injuriesper number of hours worked – another keymilestone towards our ultimate goal ofinjury-free working.

BenchmarkingTo benchmark our approach to corporateresponsibility, we took part in Business inthe Community’s Corporate ResponsibilityIndex 2007, the leading UK benchmark for responsible business practice. The Index enables companies to evaluate theirmanagement practice in BitC’s four impactareas of environment, marketplace,workplace and community; and theirperformance in a range of environmental and social impact areas material to theirbusiness.

The results were published in May 2008.SSE’s score was 98%, putting the company in the highest possible performance band of‘Platinum’. BitC’s feedback on the company’ssubmission to the Index can be viewed atwww.scottish-southern.co.uk.

Looking to the FutureThe selection of a quote from a book calledBuilt to Last is no coincidence: SSE is abusiness that is built for the long-term, andour 2020 goal for reducing carbon intensitytypifies that, as does our investmentprogramme for renewables.

For SSE, corporate responsibility is reallyjust common sense. People want to invest in companies that aim for a sustainableapproach in using resources and want to play an active part in changing the way inwhich energy is produced and consumed.Customers want to buy products andservices from companies that charge themost affordable prices – and companies that they trust. People want to know they can plan their lives on the basis that powersupplies are at least 99.99% reliable and theywant to be able to depend on energy-relatedservices that we provide. And as employees,we all want to take pride in our work and feel we are working for an organisation of which we can be proud.

As one commentator put it, a company thatis financially successful over a long period is, by dint of this success, a company that iscorporately responsible, and SSE’s vision issimple. It is to be financially successful overthe long-term and to deliver that successthrough responsible business practice. We aim to be built to last.

The company is listed on the London Stock Exchange, and on 31 March 2008 was ranked30th in the FT-SE, by market capitalisation. On that date, it employed 16,892 people, almostentirely in the United Kingdom and the Republic of Ireland. Its headquarters are in Perth,but it has significant operations in other locations, such as Basingstoke, Cardiff, Leeds,Portsmouth, Reading and Dublin.

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Energy-Related ServicesSSE’s electrical and utility contracting divisionemploys over 4,000 people from over 60 locationsthroughout Great Britain. It has three main areas of activity: industrial, commercial and domesticmechanical and electrical contracting; electricaland instrumentation engineering; and public andhighway lighting.

SSE owns and operates the UK’s largest onshoregas storage facility at Hornsea in East Yorkshire,making it the second largest provider of gasstorage (by capacity) in the UK.

Emerging TechnologiesIn addition to owning and operating businesses, SSE also invests in a number of ventures which are involved in emerging technologies for changingthe way in which energy is produced and consumed.These include Solarcentury, the UK’s leadingindependent solar photovoltaics company, andAquamarine, the marine energy company which is developing wave power and tidal power devices for comprehensive testing at the European MarineEnergy Centre in Orkney.

NetworksThe energy regulator, Ofgem, has defined energytransportation businesses as ‘natural monopolies –there is no realistic means of introducingcompetition’. SSE distributes electricity to around 3.5 million homes, offices and businesses in centralsouthern England and the north of Scotland and,through Scotia Gas Networks, in which it has a 50% stake, and to which it provides corporate andmanagement services, it distributes gas to 5.7 millionhomes, offices and businesses in southern Englandand Scotland. This makes it the second largestenergy distribution company in the UK.

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A38932 SSE CR Report08 Text.QXP 17/7/08 2:58 pm Page 2

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How does SSE work? 4


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At the end of 2007/08, SSE was the 30th largest companylisted on the London Stock Exchange. It employed over16,000 people, operating out of almost 200 locationsthroughout the UK, in Ireland and on continental Europe.

SSE pursues its core purpose and delivers itsstrategy through adherence to six core values:safety; service; efficiency; sustainability;excellence; and teamwork. As set out onpage 3, the point of such values is, as JimCollins and Jerry Porras put it in their book, Built to Last: Successful Habits ofVisionary Companies, that they should be ‘an organisation’s essential and enduringtenets, not to be compromised for financialgain or short-term expediency’.

SSE was formed in 1998 with the objective of delivering sustained real growth in thedividend payable to shareholders over thelong term. It is, therefore, a company that is ‘built to last’ and the way it is governedand operates is designed to reflect that. SSErecognises that its management processes,policies and programmes must be designedso that responsible business activity isdemonstrated throughout its activities, andthat these are supported by an organisationalculture in which behaviours are consistentwith its core values. In line with this,appraisals in SSE measure employees’performance against its six core values.

GovernanceThe principal objective of the Board of SSE isto ensure that its strategy is delivered withina sound framework of corporate governance.Indeed, SSE believes that strong corporategovernance enhances shareholder value overthe long term, and the Board is accountableto SSE’s shareholders for the good conductof the company’s affairs. During 2007/08,SSE complied with all provisions set out in Section 1 of the Combined Code onCorporate Governance of the FinancialReporting Council.

The Board is collectively responsible forcreating and sustaining shareholder valuethrough the overall management of SSEwhile ensuring that a sound system ofinternal control and risk management is in place. A formal schedule of matters is specifically reserved to the Board for its decision, including key policies, and it is published on SSE’s website(www.scottish-southern.co.uk).

The roles of the Chairman and the ChiefExecutive are separate and clearly defined.

The Chairman is responsible for theoperation, leadership and governance of the Board, ensuring that it operateseffectively whilst providing appropriatechallenge to management. The ChiefExecutive is responsible for the day-to-daymanagement of SSE’s business and theimplementation of strategy and policy asagreed by the Board. In discharging hisresponsibilities, the Chief Executive isadvised and assisted by senior managementand a number of specific managementcommittees from throughout SSE.

Risk Management and Internal ControlThe system of internal control is the Board’soverall responsibility. Responsibility forreviewing the systems and monitoring its effectiveness is delegated to the AuditCommittee and is reviewed at least annually.The system of internal control is designed to manage rather than eliminate the risk of failure to achieve business objectives and can provide only reasonable and not absoluteassurance against material misstatement and loss. The Board and the Audit Committeereviewed the effectiveness of the internal

control system in accordance with the Codeand no significant failings or weaknesseswere identified.

SSE’s key risks and the control environmentare set out in its Annual Report 2008(available at www.scottish-southern.co.uk).

Stakeholder EngagementAs Business in the Community has pointedout, working with the ‘rule-makers’ is aboutseeking to influence legislation or regulatoryregimes in ways which help serve the public interest relevant to the business while ensuring the company’s activity istransparent. This is a vital area for SSE,given the high profile of energy- andenvironment-related issues in the UK and elsewhere.

SSE engages with stakeholders in sevenmain ways:

k Constructive engagement with Ofgem,which is responsible for promotingcompetition, wherever appropriate, andregulating the monopoly companies whichrun the gas and electricity networks;

k Ongoing dialogue with Ministers andofficials in government, including thedevolved administrations in the UK;

k Submissions to government andParliamentary consultations and inquiries(which are generally publicly available);

k Meetings with and briefings of electedmembers of all parties in legislatures;

During 2007/08, the Board had six principalcommittees. The terms of reference for allcommittees are reviewedannually and are availablefor viewing on thecompany’s websitewww.scottish-southern.co.uk.

The Committees were as follows:

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k Full engagement with local authorityelected members and officials;

k Active participation in relevant tradeassociations and bodies; and

k Discussions with non-governmentalorganisations and other relevantorganisations such as charities.

SSE’s objective in working with ‘rule-makers’is to ensure that it is able to perform its corepurpose of providing the energy people needin a reliable and sustainable way. Its principalpublic policy goal is to ensure that there is in place a policy and regulatory frameworkwhich is compatible with the delivery of thelegally-binding EU targets for renewableenergy in 2020. Engaging with stakeholdersalso helps inform SSE’s assessment of itskey priorities.

Key PoliciesThere are a large number of policies whichgovern how people in SSE work, but three are particularly significant given the nature ofSSE’s business and apply to every employee:the People Principles; the Safety and HealthPolicy; and the Environment Policy.

The ‘People Principles’ are essentialbecause SSE recognises that the way inwhich employees are managed impacts onits performance. It believes that its ability toenhance and create value for shareholdersthrough the skill and commitment ofemployees depends on how well thoseemployees are recruited, managed, developed

and encouraged to participate in the business.Good management covers issues rangingfrom health and safety to training anddevelopment and the establishment andmaintenance of a positive organisationalculture. The Director with Board-levelresponsibility for all human resources-related matters is the Chief OperatingOfficer, Colin Hood.

The Safety and Health Policy is critical for the simple reason that SSE believes all accidents are preventable, so everythingshould be done safely and responsibly, or not at all. In line with that, SSE strives tofulfil both the spirit and the letter of the law;in addition, the company believes that all itsoperations can, and should, be carried outwithout any harm to employees, contractors,customers or members of the public. ColinHood’s Board-level responsibilities for allhuman resources-related matters includesafety and health.

The importance of the Environment Policyreflects the fact that SSE’s core activitiespresent major environmental challenges. It manages almost 130,000km of electricitynetwork across one third of the UK’slandmass, owns around 10,500MW ofelectricity generating capacity; and suppliesenergy to around 8.5 million electricity andgas customers. The Director with Board-level responsibility for all environment-related matters is the Chief Executive, Ian Marchant.


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How does SSE work? continued 6


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WORKPLACE

Equal OpportunitiesThe total number of people directly employed by SSE rose to 16,892 (headcount)at the end of March 2008, up from 13,427 the previous year. Of these, 74% were menand 26% were women. A total of 84% ofSSE’s managers were men and 16% werewomen. The average age of employees was 41 years. There was an 11.9% ‘turnover’ of employees, compared with 13.8% in theprevious year.

SSE’s equal opportunities policy aims toensure that all members of staff and jobapplicants are no less fairly treated due to sex, sexual orientation, marital status,race, disability or other reasons not justified in law or relevant to society. Indeed, thescarcity of people with certain skillscombined with business developmentopportunities means that adopting anythingother than a whole-hearted approach toequal opportunities would be self-defeating.Capable people can be recruited andretained from every part of society. Therewere no occasions during 2007/08 when SSE was found to have failed to comply with equal opportunities legislation.

The need to provide equal opportunitiesextends to the most deprived communitiesand in September 2007, SSE and Barnardo’s,with Dundee City Council, launched YouthbuildDundee. This initiative is designed to giveyoung people aged 16 to 24 who are not in education, employment or training theopportunity to gain comprehensive workexperience and quality training relevant tothe energy industry, leading to employmentwith SSE and other partner companies.

Human RightsVirtually all of SSE’s operations are in the United Kingdom. A small number ofemployees operate in other jurisdictionswithin the European Union, including theRepublic of Ireland. Their human rights aresafeguarded through the European Conventionon Human Rights. In the case of the UK,where the vast majority of SSE’s employeesoperate, this is via the Human Rights Act 1998,which aims to ‘give further effect’ in UK law tothe rights contained within the Convention.

Following the acquisition of Airtricity inFebruary 2008, SSE employs a handful of people outside the EU, although thisnumber might grow as its plans to develop aninternational business focusing on renewableenergy evolve. SSE’s policy is to supportfundamental human rights as defined in the International Labour Organisation’s Core Conventions.

DisclosureWere an employee of SSE or an agencyworker to become aware of informationindicating that SSE or an employee of SSEwas failing to recognise the obligation to actresponsibly, they would be encouraged todisclose it. The individual would be protectedfrom suffering any form of disadvantage oraction as a result of raising a concern inaccordance with SSE’s policy on publicinterest disclosure. Twelve employees raised such concerns during 2007/08.

There is also a confidential grievanceprocedure for employees, which was formallyinvoked by 48 employees during 2007/08.

Training and DevelopmentThe skills and competencies of employees

are critical to the energy sector and theeconomy as a whole. SSE needs to ensure the safe and efficient operation of itsbusinesses and reliability of supply to its customers. In addition, SSE needs todevelop new skills and flexibility to handlenew technologies. Therefore, it is critical that SSE employs people with the right skillsto deliver the high standards of operationalperformance necessary to achieve its coreobjective of sustained real growth in thedividend. It is also important that employeeshave the training, development and workexperience they need to fulfil their potentialwithin SSE.

Delivery of an enhanced training anddevelopment programme was a key indicatorfor SSE during 2007/08 and more than £3.3mwas invested in externally-provided training,compared with just over £1.5m in the previousyear. This is in addition to in-house provision.

During 2007/08, SSE advanced its trainingand development capability to meet thechallenges of future growth. It committed to delivering a further £3.8m programme of investment in externally-provided trainingduring 2008/09. Development programmes for significant numbers of Graduates,Technical Skills Trainees and CraftApprentices have been put in place whichlink to partner colleges and universities.Work has progressed on the establishmentof two new People Development Centres inPerth and in Thatcham which will providetraining facilities for operational, technicaland business skills knowledge.

ParticipationEmployees are encouraged to participate in SSE’s affairs in a range of ways, includingstructured team meetings, regular businessupdates and a number of feedback channels.

Employees’ views are canvassed via surveyson a variety of topics. During 2007/08, around 1,000 employees attended Director-led roadshows setting out the company’sfuture plans. Each person attending aroadshow completed a questionnaire on issues such as the company’s values,communication, personal development,safety and the environment.

The company’s Intranet hosts online forumsin which employees can express views andcanvass opinions on business-related issues.For example, on St Valentine’s Day 2008,employees were asked to say what they loveabout SSE. Comments ranged from ‘I lovethe handrails – always there to support me’to ‘I love the fact we have four Valentines inthe SSE Phonebook’ to ‘I love SSE because it is a fantastic place to work’.

Through the Intranet, the Chief Executivemaintains an employee ‘blog’, through which he comments on current industry and company issues, and receives feedback.

He also stages real-time, online ‘webchats’on topical company issues.

The Chief Executive is also the sponsor of the ‘Licence to Innovate’ scheme, wherebyemployees are enabled to research, review,test-trial and explore their ideas with theknowledge that they have his full support.This complements other employeesuggestion schemes specific to theCustomer Service and Contracting divisions.All of this is designed to support a culture of innovation throughout the organisation, in which everyone in SSE is encouraged to look for and promote operational andprocess improvements. According to thepost-roadshow questionnaire feedback,around 80% of employees believe SSE isstrong on encouraging ideas and innovation.

JNCCSSE benefits from a well-established JointNegotiating and Consultative Committeewhich includes lay and full-timerepresentatives from the five recognised trade unions. In February 2008, the fiveunions’ ballot produced a substantial vote in favour of SSE’s pay offer for the threeyears to 31 March 2011. Pay arrangements in SSE’s Contracting division are in line withnational construction agreements.

Employee BenefitsSSE offers employees a broad range ofbenefits in addition to their salary. Underlyingsome of the benefits offered is a desire toprovide employees with opportunities to beshareholders in, and customers of, thecompany – thereby directly aligning theirinterests with those of SSE’s two keystakeholder groups.

Around 38% of employees take part in the Share Incentive Plan (SIP). The averagetake-up of SSE’s Save As You Earn schemesis 28% for three-year schemes and 42% forfive-year schemes.

In October 2007, almost 900 employees were able to benefit when Save As You Earnschemes matured, giving them access to288,000 shares.

Almost 7,000 employees take advantage ofthe discount offered on domestic electricityand gas bills. SSE also provides a schemeenabling employees to add £50 to standardenergy efficiency grants, thereby reinforcingits efficiency and sustainability values.

SSE employees who are not already amember of a company-sponsored pensionscheme are entitled to participate in SSE’s Group Personal Pension Plan. Forparticipating employees, it contributes up to 6% of basic salary (plus shift allowanceswhere applicable). In addition, SSE rewardsemployees with extra contributions whenthey achieve five and 10 years’ continuouscompany service.

Safety and Health PolicySafety and Health must be a fundamentalpart of any business – and the benefits ofgood performance in this area were summedup in Institute of Directors/Health and Safety Commission guidance on health andsafety. They range from reduced employeeabsence and turnover rates to increasedproductivity from healthier, happier, andbetter-motivated employees.

SSE’s Safety and Health Policy guides thecompany towards achieving its health andsafety objectives, the ultimate of which isinjury-free working. Amongst other things,the policy is designed to address the risk of a safety- or health-related failure withinSSE. The Safety, Health and EnvironmentalAdvisory Committee of the Board meetsquarterly and is responsible for ensuring thatall relevant policies have been implemented,setting targets and monitoring performanceand promoting awareness of these issuesthroughout SSE.

Safety PerformanceSSE believes that every organisation’sultimate goal should be injury-free workingand during 2007/08 it sought to secure afurther reduction in the number of lost timeand reportable injuries involving employeesand the number of road traffic collisionsinvolving employees driving company vehicles.

During 2007/08, the number of lost time andreportable injuries within the company was0.04 per 100,000 hours worked, comparedwith 0.05 in 2006/07 and with 0.17 five yearsago, in 2002/03. On this basis, a total of 72 business units out of 81 were injury-free.

The number of serious, or potentially serious,road traffic collisions involving employeesdriving company vehicles was 0.18 per 100vehicles, compared with 0.29 in 2006/07.

To support the achievement of injury-freeworking, there is in place within SSE a ‘MakeIt Zero’ safety competition which recognisesand rewards excellent safety performance bymaking donations on behalf of employees totheir chosen charities. In 2007/08, 62 business

units were recognised under the scheme forpreventing any lost time injuries and roadtraffic collisions from occurring. They wererewarded with a total of £100,000 to donateto their chosen charities.

Given its programme of investment in major projects, SSE monitors closely thesafety performance of contractors who areexpected to deliver the highest standards.During 2007/08, the number of lost time and reportable injuries experienced bycontractors working on SSE’s generation andother major projects was 0.35 per 100,000hours worked, compared with 0.44 in theprevious year.

A significant issue for SSE is process safety –the engineering and management skillsfocused on preventing major incidentsarising from the use of, amongst otherthings, fossil fuels. Its approach in this areahas been comprehensively reviewed in thelight of the report of the Baker Panel into the BP incident at Texas City published inearly 2007. Process safety is typically focusedon the chemical and petrochemical sectors,but is also a significant issue for SSE’sGeneration and Gas Storage activities. (See Generation and Supply below.)

Health PerformanceUnder the Health and Safety at Work Act(1974) employers must ‘ensure so far as is reasonably practicable, the health, safety and welfare of all employees’. Healthpromotion in the workplace is increasinglybeing recognised as a key issue – not just to protect employees from potential hazardsin the working environment, but alsobecause the workplace provides a meansand an opportunity to tackle health issuesand improve the health of employees. Inaddition, a healthy, committed workforce is clearly central to the achievement ofbusiness success.

The SSE Health and Well-being Action Planis based on an annual cycle and provides abasis for workplace health programmes andinitiatives. Such initiatives are promoted to help employees be physically energised,

People PrinciplesDuring 2007/08, SSE adopted eight‘people principles’, built around its core value of teamwork.

Take all active steps to ensure there is no intimidation or discrimination

Engage in safe, healthy andenvironmentally friendly working practices

Always know and understand what is expected of you in your job

Maintain respect and support forcolleagues at all times

Work to continuously improve team and individual performance

Obtain constructive feedback on yourperformance from your line manager

Receive appropriate training,development and rewards

Know and embrace the company’s core values

Safety Golden RulesIn order to reinforce the Safety and HealthPolicy, and improve understanding of it,SSE introduced during 2007/08 five Safety Golden Rules, focusing on the keybehaviours which must be demonstratedat all times by employees of SSE toprevent injuries. Amongst other things,the Rules are designed to engage everyemployee of SSE in the promotion andachievement of safe working conditions.

The five Safety Golden Rules are:

Reverse park

Wear PPE (personal protective equipment)

Assess risks

Hold handrails

Accept challenges


9>

running trial schemes where tarmac isseparated and returned to a tarmac plantwhere it is segregated and used again.

In its Scottish distribution area, the volume of excavated material is insufficient to warrantSSE establishing its own recycling operationand so it is working with a variety of partnersto ensure as much excavated material aspossible is sent for recycling.

More generally, SSE is taking steps to reducethe need to remove excavated materials fromsites in the first place, with – for example,the purchase of direct moling equipment asan alternative to open cut excavations anddirectional drilling equipment to minimiseexcavations. While recycling of excavatedmaterial is a positive step forward, re-usingit and avoiding its production altogether arekey priorities going forward.

Avoiding PollutionFormal Environmental Management Systems(EMSs) are maintained for key aspects ofSSE’s activities. These EMSs are part of theoverall management system within SSE, and include responsibilities, practices,procedures, processes and resources fordetermining and implementing SSE’sEnvironment Policy.

During 2007/08, SSE undertook a study to consider whether those of its EMSs not already certified to the requirements of ISO 14001 should become so. Following the review, SSE’s contracting division willseek to have its EMS accredited to ISO 14001standard during 2008/09.

In the course of the year, the Power Systemsbusiness attained PAS 55 accreditation – the British Standards Institution’s PubliclyAvailable Specification for the optimisedmanagement of physical assets andinfrastructure.

The pollution of land and water by oil is the most widespread environmental riskwithin SSE. Typical oil holdings in one year are over 125 million litres. While risks from power stations and substationtransformers can be managed, SSE’s1,500km of fluid-filled underground cablesrepresent a more significant challenge. (See Energy Systems below.)

Environmental Risk ManagementMany of SSE’s operations are undertaken in areas which are ecologically sensitive or which have other important features ofwhich account needs to be taken. Such issuesmost often arise in respect of: electricitygeneration, particularly hydro and coal;operation of electricity networks in ruralareas; and construction projects.

SSE’s Safety and Environmental Manualstates that particular care must be taken by employees and contractors when work

is being carried out in the following habitats:woodland; unimproved grassland; heathland;wetlands; coastal habitats; and earth sciencesites. In particular, it states that where workcould have a significant environmental impact– and in all cases where work is being carriedout in environmentally high-risk areas suchas Sites of Special Scientific Interest – a fullenvironmental risk assessment must becarried out.

While SSE is confident that there are effectivesystems in place to manage the wide rangeof environmental issues and risks with whichthe organisation deals, these systems areregularly monitored and reviewed. Majorpower stations are externally audited by SGS.

A programme of internal environmental audits to ISO 14001 standard is carried out each year. In 2007/08, nine such auditswere carried out. The audit programme isbased on a risk profile where high riskactivities are audited on an annual basis. For example, all power stations that are ISO 14001 are audited annually. In addition,SSE’s Group Audit department carried out a number of reviews of environmental risks.During 2007/08, SSE appointed a GroupEnvironmental Auditor to enhance itsprofessional capability in this field.

Environmental PerformanceIn the first instance, SSE’s systems forenvironmental management are designed to ensure it complies with the manyenvironmental laws and regulations which are designed to prevent pollution of one kindor another. In line with this, SSE’s target forany given year, including 2007/08, is zeroenvironmental incidents (identified as beingincidents which result in SSE being servedwith a formal statutory notice by either theEnvironment Agency or the ScottishEnvironment Protection Agency).

During 2007/08 there was one environmentalincident which resulted in SSE being servedwith such a formal procedural notice. InJanuary 2008, the Environment Agencyserved an enforcement action on SSE forfailure to make sufficient progress on anagreed programme of improvements at itsSmurfit Townsend Hook CHP plant in Kent.

How does SSE work? continued 8


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mentally focused, emotionally connected and aligned to company values. SSE works in partnership with occupational healthspecialists to provide a comprehensive healthservice including: pre-employment screening;employee assistance programmes, includinga 24-hour free counselling service; absencemanagement; occupational health casemanagement; employee well-being surveys; health surveillance and drug and alcohol programmes.

Healthcare benefits focus on prevention andaccess to innovative and proven treatmentssuch as: discounted gym membership;smoking cessation support; stressmanagement programmes; walkingprogrammes; health promotion; weightmanagement programmes; and Bike2workprogrammes.

During 2007/08, SSE achieved the HealthyWorking Lives Bronze Award, supported by NHS Scotland. The programmeencompassed a wide range of topicsincluding identifying and supporting thesafety and health needs of staff through the provision of information and awareness-raising activities such as healthy eating,physical activity, health and the environmentand wider community health well-being. The Award is valid until 2010, during which time SSE is expected to maintain its Bronze activity.

SSE’s policy is to deal with all genuine andacceptable sickness absence confidentiallyand sympathetically and it aims to helpemployees make a speedy return to healthand to work by seeking and taking intoaccount medical advice. During 2007/08, the average number of days of absence from work was 6.03, compared with 6.01 in the previous year.

ENVIRONMENT

Minimising CarbonSSE’s emissions of carbon dioxide arisingfrom its electricity generation activities are setout in the ‘Generation and Supply’ section of

this Report. Its emissions from other activities– mainly energy consumption in buildings,offices and shops and through transport –were estimated to be the equivalent of 16,534 tonnes during 2007/08, using the UKgovernment’s standardised method for helpingcompanies to report on their emissions ofgreenhouse gases. This compares with16,687 tonnes in the previous year, and the slight reduction was achieved despite a major increase in employee numbers.

While this level of emissions is, relatively, verysmall compared with those resulting from thegeneration of electricity at its power stations,SSE believes it is important to demonstrateleadership in reducing energy consumptionvia buildings and transport so that it isbetter-placed to encourage its customersand other stakeholders to reduce theirconsumption of energy.

One of SSE’s targets for 2007/08 was toreduce energy consumption per employee in its main buildings by 4% per annum, from4.9MWh. In fact, energy consumption fell by 6.1% to 4.6MWh.

In the course of their duties, SSE employeesaccumulate significant ‘journey kilometres’ onaccount of the company’s large geographicalareas of operation. The total number ofkilometres travelled on SSE’s business in2007/08, was 212.6 million, compared with198.5 million in the previous year. Thisequates to 13,864km per employee in2007/08, compared with 15,416km peremployee in the year before, a fall of 10.1%.

In response to this, SSE is undertaking aseries of initiatives to improve the overallenvironmental performance of its 6,000vehicles. These include working to achievefurther reductions in average carbon dioxideemissions from cars, partly by selectingspecific vehicles with lower emissions,towards a target of 120g/km by 2016. Otherinitiatives include deployment of leading-edgetyres to deliver significant reductions in fuelconsumption and greater life expectancy forthe tyres themselves. In addition, by the end

of 2007, all SSE internal tanks contained fuelwith a mix of 5% bio-diesel, as well as lowsulphur diesel.

SSE’s green travel programme, which usesinternal cost allocations to incentivise railtravel and penalise air travel, led to anotherincrease, of 235%, in the number of businessrail journeys undertaken during the year, on a ‘per employee’ basis. This followed an increase of 53% in the previous year.

It also led to a reduction, of 15.2%, in thenumber of business flights which wereundertaken, to 7,897. On a ‘per employee’basis, the number of flights also fell, by28.8% to 0.51.

During 2007/08, SSE’s Group Audit teamundertook a study to identify key risks andassess and review the reporting measures in place to ensure that SSE is capable ofdelivering its stated intentions of reducingcarbon dioxide emissions from its activities(other than electricity generation and supply,which are treated separately). The Group Audit report found that the overall controlenvironment for these emissions was effective,while identifying some areas for improvement,which are now being implemented.

Efficient Use of ResourcesIn terms of managing resources, SSEendorses the waste hierarchy. This meansthat the first priority must be to prevent waste,with the last resort being disposal.

During 2007/08,SSE’s offices and depotsproduced just over 30,000 tonnes of waste,compared with just over 25,000 tonnes in the previous year, an increase of 20.9%. Of this, 73% was sent for re-use or recycling,compared with 69% in the previous year. This left 8,282 tonnes of waste for disposal at landfill sites, compared with 7,787 tonnesin the previous year, an increase of 6.4%.

This is a major issue, not least becauselandfill capacity is finite. As a result, in2007/08, SSE’s Group Audit team undertook areview of the management of non-operational,non-hazardous waste within SSE. The reviewhighlighted the need for better linkagesbetween policy, procedures and day-to-dayhandling of waste and actions are beingtaken to address this.

In its Southern electricity distribution area,SSE has adopted an approach to re-usematerials which are excavated from theground when electricity cables are being laid. The excavated material has added to it a stabiliser and is then used to re-fill thehole from which it came. This avoids the needfor new material to be quarried, reducestransportation requirements and reduces theamount of waste sent to landfill. In 2007/08,29,000 tonnes of excavated materials werere-used in this way. At its Reading depot and several other locations, SSE has been


Environment Policy SSE’s Environment Policy is designed to address the key areas in which SSE’score activities make an environmentalimpact. The full policy is available atwww.scottish-southern.co.uk.

Its principal focus is on the following areas:

Minimising carbon dioxide emissions

Helping customers reduce theirconsumption of energy (see underGeneration and Supply)

Efficient use of resources

Avoiding pollution

Sustainability Sustainability is one of SSE’s six corevalues. It means SSE aims to operateethically, taking the long-term view toachieve growth while safeguarding theenvironment. In the results of Businessin the Community’s Business in theEnvironment Index published in May 2008, SSE’s score was 99.0%.

While important, SSE believes thatbenchmarking and policies are inthemselves not enough; its approach isfounded on the belief that what is criticalis the delivery of good environmentalperformance throughout its operations.

BiodiversitySSE’s Environment Policy states that itunderstands the importance of the UK’s built and natural heritage, including itsbiodiversity. In other words, SSE is, as theConvention on Biological Diversity puts it,‘conscious of the intrinsic value of biologicaldiversity and of the ecological, genetic,social, economic, scientific, educational,cultural, recreational and aesthetic values of biological diversity and its components’.

In this context, SSE’s first priority is to meet international and national statutoryobligations to protect designated areas,species and habitats of natural heritage.Amongst other things, this involvesmaintaining a high degree of interaction and co-ordination with environmental andconservation agencies and organisationsseeking authoritative views on environmentalmatters and, where possible, going beyondthe minimum requirements of statutoryobligations.

The importance of safeguarding biologicaldiversity is particularly acute where SSE is undertaking major projects in electricitygeneration, transmission and distribution. In this context, SSE seeks to work particularlyclosely with Natural England, which is ‘here to conserve and enhance the naturalenvironment, for its intrinsic value’ andScottish Natural Heritage, the task of which is to ‘secure the conservation andenhancement of Scotland’s unique andprevious natural heritage’.

Environmental ParticipationEncouraging active support in pursuit of the sustainability value was the motivebehind an Environment Champions TrialProgramme run in SSE during 2007,facilitated by environmental group GlobalAction Plan. The Champions wereenthusiastic individuals from across SSE who volunteered to help reduce theenvironmental impact of their place of work.The Programme secured energy and wastesavings within SSE and is being continuedduring 2008/09. In addition, all seniormanagers in SSE took part in a series of one-day modules on sustainability, run by a leading Scottish-based academic.


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Generation and Supply 10>



HOW CAN GENERATORSHARNESS SUSTAINABLERESOURCES?

Context – Generation

‘Sustainable development is aboutaddressing the inevitabilities of a futureshaped by a growing population competingfor dwindling resources against a backdropof potentially accumulating wastes.’ Thatwas the observation of Dr Mark Everard, Vice Chair of the Institute of EnvironmentalSciences Council, and his view is reflected in a number of major developments.

For example, tackling climate change and securing future supplies are the twingoals of energy policy in the UK, Ireland and throughout the European Union (EU). In line with that, the EU’s adoption of a legally-binding target of 20% for the proportion of allenergy to be derived from renewable sources

by 2020 will clearly lead to a dramaticincrease in the amount of renewable energythat will be required in the future. The EUtargets currently mean the UK will have toincrease its renewable energy proportion of all energy demand by around ten-fold to15%. For Ireland, the increase is from 3.1%to 16%. In practice, this is likely to mean that up to 40% of the countries’ electricityrequirements will have to be met fromrenewable sources.

As the EU Energy Commissioner stated: ‘In a time of growing oil prices and climatechange concerns, renewable energy sourcesis an opportunity that we cannot miss. Theywill help us to reduce our carbon dioxide

emissions and strengthen our security of supply’. Against this background, SSE will seek to enhance and create value for shareholders from the development of an international business focusing on renewable energy.

At the same time, with its high thermalefficiency, relatively low cost and shortconstruction times, combined cycle gasturbine (CCGT) technology is set to remainthe benchmark technology for some years to come. It is also clear that coal-firedelectricity generation will remain a key part of the UK’s energy mix for many years to come, albeit within appropriateenvironmental constraints. As the UK

Secretary of State for Business put it inMarch 2008, fossil fuels will continue to playan important role in ensuring the flexibility ofthe electricity generation system, ‘with coal a key source of that flexibility as we increasethe proportion of renewable energy in ourelectricity mix’.

In May 2007, the Energy White Paper pointed out that the UK will need substantialinvestment in new generation capacity overthe next two decades. It also pointed out that the UK’s diverse generation mix avoidsexposure to the risks associated with heavydependency on a single fuel or technologytype, helps to maintain secure supplies of energy, with the maximum possibleefficiency, in response to customer demand

and market conditions, while complying fully with all safety standards andenvironmental regulations.

The same points apply to SSE’s portfolio. Inaddition to its focus on renewable energy itskey objectives in Generation are to ensure thatit has a diverse portfolio of power stations,available to generate electricity and supportsecurity of supply, with the maximum possibleefficiency, in response to customer demandand market conditions, while complying fullywith all safety standards and environmentalregulations and reducing their overallenvironmental impact. It is this diversitywhich enables SSE to manage the risksassociated with primary fuel procurement at a time of volatile and rising prices.

SSE owns around 10,500 megawatts (MW) of electricity generation capacity, includingits share of joint ventures. This makes it thesecond largest electricity generator acrossthe UK and Ireland. The capacity comprisesalmost 4,500MW of gas- and oil-fired capacity, 4,000MW of coal-fired capacity (with biomass ‘co-firing’ capability), and over 2,000MW of renewable (hydro, wind and dedicated biomass) capacity. This makes it the largest generator of electricityfrom renewable sources across the UK and Ireland.

As at 31 March 2008, SSE supplied energy to almost 8.5 million customers within theUK’s competitive electricity and gas supplymarket. This makes it the second largestsupplier of energy in the UK. Its responsibilityto those customers is to procure the

electricity and gas they need and to arrangefor it to be distributed to them through therelevant networks.

Under the British Electricity Trading and Transmission Arrangements (BETTA)wholesale gas and wholesale electricity are transacted like any other commodities.SSE purchases gas and, where appropriate,some electricity via bilateral contracts andthrough the wholesale market – the lattercomplementing the electricity produced from its own generation portfolio. Under itsintegrated Generation and Supply businessmodel, SSE’s power stations and fuel supplycontracts are used to support performancein electricity (and therefore energy) supply.

In 2007/08, Generation and Supply contributed52% of SSE’s total operating profit.

Introduction

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Generation and Supply – Generation 12>



Key responsibility

In this context, SSE’s key responsibility isto ensure that the generation of electricityat power stations in which it has anownership or contractual interestbecomes more sustainable.

It has three key means for doing so:investing to reduce the environmentalimpact of electricity generated at coal-and gas-fired power stations; increasingthe amount of electricity generated from renewable sources; and investing in emerging technologies to deliverpositive changes in energy production.

Thermal EfficiencyThe key measure of gas- and coal-firedpower stations’ environmental impact is their thermal efficiency. It is important tomaximise the efficiency of the conversion of energy at gas- and coal-fired powerstations. This makes a contribution tosustainability by extending the life of fuelresources. SSE can control efficiency at itsown power stations through improvements in plant and processes.

SSE’s portfolio of gas-fired power stationshas consistently maintained a high thermalefficiency, so they have, relatively, a lowerfuel intake for a similar amount of electricityproduction and so make significantly fewercarbon emissions than the average of allgas-fired power stations. Since it acquiredcoal-fired power stations in 2004/05, SSE has taken steps to improve their thermalefficiency also, although year-to-year

performance is influenced by issues such as plant availability and load factors.

The average thermal efficiency of SSE’s gas-fired power stations in March 2008 was 49.2%,compared with 49.5% in the previous year. Theaverage thermal efficiency of SSE’s coal-firedpower stations in March 2008 was 35.9%,compared with 36.1% in the previous year.

Work on the construction of MarchwoodPower Ltd’s new 840MW CCGT plant inSouthampton is now well under way.Marchwood Power is a joint venture betweenSSE and ESBI International, in which SSEhas 50% of the equity (£43m) and 50% of thedebt (£160m) – of which £55m was investedby 31 March 2008. All of the station’s output,however, will be contracted to SSE. With anet thermal efficiency in excess of 58%, itwill be one of the most efficient in the UK.

Co-firingSSE’s coal-fired power stations also ‘co-fire’fuels from renewable sources (biomass), inorder to displace fossil fuels, thus reducingthe impact of carbon, sulphur and nitrogenemissions resulting from their operation,using direct injection technology. Theresulting electricity output qualifies forRenewable Obligation Certificates (ROCs).During the year, their output qualifying for

ROCs was 368GWh, compared with 741GWhin the previous year. This reflects outagesrelating to the installation of Flue GasDesulphurisation (FGD) equipment anddifficulties relating to the ‘bioswirl’ facility at Ferrybridge power station.

SSE is now the UK’s leading user of biomassco-firing. In January 2008, the UK government

announced decisions to ‘band’ theRenewables Obligation, so that, from 1 April2009, electricity output resulting from co-firingwill receive 0.5 ROCs per MWh. This compareswith the 0.25 ROCs originally proposed. The cap on such co-firing will be retained, so that electricity suppliers can only meet up to 10% of their Renewables Obligationfrom this technology.

SustainabilityIn addition to investment in thermalefficiency, the overall sustainability of powerstations can be enhanced in other ways. The overall sustainability of SSE’s coal-firedpower stations will be further enhanced upon

the completion of the plasterboard factorybeing developed at Ferrybridge by LafargePlasterboard Ltd and the ash separationplant being developed at Fiddler’s Ferry by RockTron Limited.

Creating around 70 new jobs, the Lafargefactory at Ferrybridge will use the moresustainable source of gypsum produced as a result of FGD, process it and despatch it from the site as plasterboard. The factory

Carbon CaptureIn view of the ongoing role for coal-firedelectricity generation in the UK, SSE believesthat there may be a need to replace thatcapacity (800MW) at Ferrybridge which isscheduled to close in 2015. It is currentlydeveloping options for a new 800MW unit at the site using the Supercritical Boilertechnology. The high temperatures andpressures which feature in this technologydeliver a significant increase in thermalefficiency, from a typical 35% for existingplant to around 45% – thereby delivering

a significant reduction in the carbon dioxideemissions per kilowatt-hour of electricityproduced.

Any plant would be made ‘capture ready’,enabling it to be fitted with carbon captureand storage (CCS) equipment. SSE has a long-standing and active interest in developmentsin CCS and, following the launch of the UKgovernment’s CCS competition in November2007, submitted in March 2008 an outlineproject proposal to operate by 2012 a post-

AcquisitionsIn December 2007, SSE completed theacquisition of Slough Heat and Power fromSEGRO plc for a total cash consideration of £49.25m. Slough Heat and Power is anintegrated energy business, which includes a combined heat and power (CHP) plant with current generating capacity of 80MW.The CHP plant is the UK’s largest dedicatedbiomass energy facility and its main fuelsources are wood chips, biomass and waste paper. The site has its own fuelprocessing plant, which takes delivery of waste paper products and converts them into useable fuel.

Part of the plant is contracted under the Non Fossil Fuel Obligation and part of it

produces over 200GWh of output qualifying for ROCs, which is equivalent to around90MW of wind generation. The acquisitiongives SSE a platform from which to build upits interest in biomass and waste-to-energy,which it believes will become increasinglyimportant over the next decade.

In February 2008, SSE completed theacquisition of Airtricity, a well-establishedrenewable energy development company, for £1.3bn. The acquisition was the largestcompleted by SSE since its formation in 1998. It is designed, amongst other things, to further balance SSE’s electricitygeneration portfolio, reduce its exposure to volatile commodity prices for fossil fuels

and provide a major new range of investmentopportunities from which to secure growthover the next decade.

Following the acquisition of Airtricity, and the ongoing development of its own portfolioof projects, SSE now owns and operates2,040MW of capacity for generating electricityfrom renewable sources, comprising around:1,360MW of capacity in hydro electricschemes (including pumped storage); 600MWof wind farms; and the UK’s largest dedicatedbiomass energy facility at Slough (80MW). Of this capacity, 260MW is in the Republic ofIreland, with the remainder being in the UK.

49%

The average thermal efficiency of SSE’s gas-fired power stations

58%

Expected thermal efficiency of newMarchwood power station over

DesulphurisationThe Large Combustion Plant Directive (LCPD)aims to reduce acidification, ground levelozone and particles to below the EmissionLimit Value threshold for sulphur dioxide,nitrogen oxides and dust from plantsincluding power stations. In line with that, SSEhas opted in to the Directive all of the capacityat Fiddler’s Ferry and half of the capacity atFerrybridge and is installing FGD equipment inan investment expected to total around £225m.FGD equipment is designed and operated asa chemical absorption process as a result ofwhich at least 94% of the sulphur dioxide, oneof the main causes of acid rain, is removed.

By making them compliant with the 2008Large Combustion Plant Directive emissions

levels, the stations’ contribution to thesecurity of the UK’s energy supplies is being extended and SSE will continue to have the country’s most diverse electricitygeneration portfolio. The installation of FGD at both stations is on course to becomplete this year.

In order to comply with the LCPD after 2015, SSE will have to install advancednitrogen oxide abatement equipment atFiddler’s Ferry and at those units atFerrybridge fitted with FGD. This will require a substantial investment. It is unlikely tocommence before 2011/12 and is included in SSE’s expected capital expenditure for the next five years.

£225m

Investment to reduce emissions at Fiddler’s Ferry and Ferrybridge

94%Removal of sulphur dioxide

is expected to be operational later this year.

Over a period of up to 25 years, the RockTronplant at Fiddler’s Ferry will remove andprocess all fresh ash produced and all whichis currently stored in lagoons at the site, up toa total of around 800,000 tonnes per annum.The ash will be processed into its constituentparts such as fine and coarse ash fractions,magnetic fraction, carbon rich fraction andcenospheres. These constituent parts thenbecome marketable products and will be soldinto their respective markets, with the largestvolume being used as cement substitutes.

Without processing, ash disposal wouldbegin to attract landfill duty and associatedenvironmental liabilities.

In summary, the plant will be the first of its kind in the world and offers three majorbenefits: producing high added-valueindustrial materials; eliminating the need forstoring ash in lagoons and landfill sites; andhelping to reduce carbon dioxide emissionsby around 500,000 tonnes per annum byproviding an alternative to the limestonekilning process. The plant is expected to be operational before the end of 2008.

What are we doing?

>REDUCING IMPACT

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combustion plant fitted to 50-100MW on anexisting sub-critical coal unit at Ferrybridgepower station. This would allow the necessarydesign and operational knowledge to bedeveloped to enable commercial-sized units(300-400MW) to be offered on a commercialbasis on an earlier timetable than proposalsbased on installation to new Supercriticalplant which is unlikely to be available before2015. SSE believes its proposal provided an achievable and important step in thetechnological development of CCS.

>INCREASING RENEWABLES

500,000

Projected annual carbon dioxide saving (tonnes) from processing of ash at Fiddler’s Ferry


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Generation and Supply – Generation continued 14>



InvestmentAirtricity is now SSE’s renewable energydevelopment division, and has been combinedwith SSE’s existing team to provide asignificantly enhanced capability in this vitalarea. When it entered into the agreement toacquire Airtricity, SSE said it expected to haveover 3,500MW of operating renewable capacityin the UK and Ireland in 2013. Following acomprehensive review of its renewable energyprojects, SSE now expects this to be around4,000MW. On this basis, it will double in fiveyears its renewable energy capacity in the UK and Ireland.

While the achievement of this new target is subject to projects securing all of thenecessary approvals in a timely manner,adequate electricity network capacity and to the maintenance of a stable public policyframework which encourages investment inrenewable energy, SSE expects its portfolioin 2013 will comprise, in addition to 1,500MW

of hydro electric schemes: around 2,000MWof onshore wind farms; over 250MW ofoffshore wind farms; and around 250MW ofwaste-to-energy and biomass developments.

The delivery of over 2,000MW of renewablecapacity in the UK and Ireland by 2013 is likelyto require capital investment of over £2.5bn inonshore wind, offshore wind and hydro electricschemes over the next five financial years.

In addition to its investments in the UK and Ireland, SSE is also expecting to investaround £500m in renewable energy in newmarkets: onshore and offshore wind farms in Europe (principally Portugal, Sweden, Italy and Germany); onshore wind farms in China; waste-to-energy; and emergingtechnologies. This investment will largely be on an equity basis, with non-recoursedebt expected to account for around 75% of the total cost of the investment.

CommunityAll forms of energy production come withsome kind of (often localised) environmentalimpact and, in the UK, are therefore subjectto the greatest scrutiny through approvalprocesses set out in Sections 36 and 37 of the Electricity Act 1989.

SSE recognises that its major projects fornew developments in electricity generation(and gas storage) benefit from the co-operation of the local community in a varietyof ways. In recognition of this, its policy is to establish long-term funds to supportcommunity projects.

This approach has been successful. Forexample, when SSE built Britain’s first100MW-plus wind farm in South Ayrshire in 2006, its aim was not only to generateelectricity from renewable sources, but to support the local community in thedevelopment of a more financially-sound

and environmentally-friendly approach toenergy consumption. As a result, around£300,000 was set aside for investment inenergy efficiency advice and the provision of free insulation for households in the local community.

A non-profit organisation called the EnergyAgency was set up to deliver the investment,as a result of which the majority of the 800properties in the local community havebenefited. The community has cut its annualcarbon dioxide emissions by 750 tonnes andthe average household will save around £175on its fuel bill. In November 2007, the projectwas announced winner of the Energy ActionScotland Energy Savers Award 2007, and it is amodel which SSE is seeking to apply in respectof other wind farm developments. In total, SSEawarded £908,000 under its community benefitschemes in 2007/08, including fees to theScottish Community Foundation.

OverviewIn addition to its investment in technologieswhich have the scale to make a substantialcontribution to meeting energy needs in thenear future, SSE has a range of investmentsin emerging technologies. During 2007/08,SSE committed to investing over £60m in avariety of emerging technologies designed to deliver secure, reliable and cost-effectivelow carbon energy systems.

The development of secure, reliable and cost-effective low carbon energytechnologies towards commercial

deployment is a key priority for the UKgovernment and is part of SSE’s strategy to develop a portfolio of clean energybusinesses and remain the UK’s leadinggenerator of electricity from renewablesources. Participation in emergingtechnology developments helps position SSE to be at the forefront of, and to adapt to, the changes in energy production andconsumption that are likely to occur over the next decade. It therefore represents a significant business opportunity for thelong-term.

SolarThis includes a 12.3% stake in Solarcentury,the UK’s leading independent solarphotovoltaics company. SSE is Solarcentury’spreferred installer and the two companieshave been appointed by the Department ofTrade and Industry to supply and install solar

panels on Britain’s public buildings as part ofits £50m Low Carbon Buildings Programme.

Solarcentury says: ‘The sun bathes the earthin an incredible amount of energy – in a day,enough arrives to power the whole world for

MarineSSE also has a 50% stake in Aquamarine, themarine energy company which is developingwave power and tidal power devices forcomprehensive testing at the European

Marine Energy Centre in Orkney. The goal of Aquamarine is to deliver large-scale waveand tidal energy projects to help tackleclimate change and global fresh water

Fuel CellsIn March 2008, SSE and Intelligent Energyannounced the formation of a joint venturecompany which will develop clean andreliable fuel cell-based combined heat andpower (CHP) systems for the light industrial,commercial and residential markets in theUK and Ireland.

Intelligent Energy is a fuel cell power systemscompany, with a range of leading fuel cell,

fuel processing and hydrogen generationtechnologies. The company is focused on the provision of cleaner power and lowercarbon technologies.

SSE subsequently acquired a 21% stake inLogan Energy Limited, a newly-establishedsubsidiary of Logan Energy (US) Inc, anestablished fuel cell installation andmaintenance company. Logan Energy

GeothermalSSE has agreed to invest up to £15m for a20% stake in Geothermal International Ltd,the UK’s leading supplier of ground sourceheating and cooling systems. Since becomingestablished in 2000, it has installed over 1,300 ground source heat pump systems,amounting to over 90MW of installedcapacity, sized from 6kW to 10MW.

Ground source heat pump systems can beused to transfer energy between buildingsand the surface crust of the planet, orsurrounding air, providing a renewableenergy efficient means of heating and

cooling buildings. They are a practical, cost-effective and energy efficient way of achieving the high targets now being set in British cities for renewable energypenetration in new developments. Heatingand cooling costs are dramatically reducedwith ground source technology, up to 70%annually, and building carbon emissions can be also reduced by 50%.

4,000MW

Target renewable energy capacity in UK and Ireland by 2013

750

Award winning South Ayrshire wind farmproject emissions reduction (tonnes)

£3bn

Total five-year investment planned in renewable energy

70%

Reduction in heating and cooling costsusing ground source technology

BioenergyDuring 2007/08, SSE and Carbon TrustEnterprises entered into a new joint venture tosupport InSource Energy Limited – a bio-wasteto energy business created by the CarbonTrust to drive forward the development of the commercial waste-to-energy market in the UK. InSource is initially focusing on six sectors of the UK food industry, whichcurrently produce around 5.6 million tonnes of biodegradable waste a year.

It can develop, build, finance, own andoperate waste-to-energy systems, allowingbusinesses to outsource waste and energyprocesses whilst benefiting from financial and carbon savings. The initial projects willprovide on-site anaerobic digesters to breakdown the food waste into methane, providingan alternative and localised source of UK-derived fuel, which will be captured and used to generate electricity and heat.

PerformanceIn 2007/08, emissions of carbon dioxide from SSE’s power stations and from thecontracted output share of emissions frompower stations in which it has a contractualrelationship totalled 22.7 million tonnes,compared with 25.8 million tonnes in theprevious year. Total electricity generated was 45.8TWh, compared with 51.6TWh in the previous year.

The amount of carbon dioxide per kilowatt-hour of electricity generated fell, from around550g/kWh in 2006/07 to just under 500g/kWhin 2007/08.

During the year, SSE’s hydro schemes andwind farms (excluding Airtricity) produced3.9TWh of carbon-free electricity. Airtricity’swind farms produced 0.7TWh.

What are we doing? continued

>INCREASING RENEWABLES CONTINUED

>

>EMERGING TECHNOLOGIES

>

>

>

>

>

>CARBON EMISSIONS

£60m

During 2007/08, SSE made commitmentsto invest in emerging technologiestotalling over

several years. Humanity can now effectivelyharness the power of the sun. The 21stcentury must be the solar century.’

challenges. Global estimates indicate thatmarine energy could supply up to 10% of the world’s electricity needs.

Limited will develop Logan’s UK andEuropean market and provides SSE with an experienced partner in the fuel cellinstallation market.

The relationships between SSE andIntelligent Energy and SSE and Logan Energyrepresent a clear statement of intent by SSEthat it will continue to expand and develop its portfolio of clean energy businesses.

5.6m

Tonnes of biodegradable waste produced in UK annually

22.7m

Tonnes of carbon dioxide produced from SSE power stations

£175Typical household saving on fuel bills


17>

Generation and Supply – Generation continued 16>



TradingPhase II of the EU Emissions TradingScheme (EU ETS) started on 1 January 2008.Across its electricity generation portfolio(taking account of contractual shares), SSEreceived an allocation of 16.3 million tonnesper annum. This can be compared with itsPhase I allocation of 19.6 million tonnes per annum. SSE’s Phase II allocation as apercentage of its Phase I allocation is around83%, compared with around 80% across theelectricity sector as a whole.

SSE does not believe such allocationsrepresent any kind of ‘windfall’. Before theintroduction of EU ETS on 1 January 2005,power stations could emit carbon dioxide free

of charge. After that date, they had to operatewithin tighter emissions limits. Where thoselimits have had to be breached – often toensure the stability of the country’s electricitysystem – electricity generators, includingSSE, have had to purchase permits to emitcarbon dioxide. During 2007/08, SSEpurchased carbon dioxide emissionsallowances totalling 6.7 million tonnes in 2007/08, beyond that provided under the UK’s National Allocation Plan.

In other words, EU ETS represents anadditional – and, over the long term, growing –cost for electricity generators, and is not a‘windfall’. It is expected to grow on the basis

that the UK government and the EU remainconvinced that a price for carbon that reflectsthe environmental costs of electricityproduction and consumption is the bestmeans of encouraging investment in low- and zero-carbon technologies.

In line with this, in January 2008, the EU set out proposals for the EU ETS after 2012.It suggested that all of the carbon dioxideemissions allowances for electricity producersshould be auctioned. The proposals aresubject to approval by the EU Council ofMinisters and the European Parliament and so they have a long way to go before they are adopted policy for implementation.

TargetIn the light of its enhanced renewable energy capability, SSE has reviewed its target of reducing the amount of carbondioxide per kilowatt hour of electricity,produced at power stations in which it has an ownership or contractual interest, by 20% over the ten years to 2016. The baseyear for SSE’s carbon intensity target is2005/06, because it was the first full yearafter it acquired coal-fired power stations at Fiddler’s Ferry and Ferrybridge.

SSE’s target includes power it acquires underasset-specific contracts with other electricitygenerators, but excludes power acquired viacontracts which do not specify the asset atwhich the power is to be produced. Similarly,the target includes Certified EmissionsReductions (CERs) from specific generationprojects under the Clean DevelopmentMechanism established under Article 12 ofthe Kyoto Protocol, but excludes those which

are not related to a specific generating project.

Although year-to-year performance inevitablyvaries for a number of reasons, in 2007/08SSE again recorded a reduction in its carbonintensity, consistent with its original targetfor 2016. SSE is now targeting a reduction incarbon intensity of 50%, to around 300g/kWhor less from 2005/06 to 2020. As with theprevious target, SSE will report on itsprogress against the target each year and thedecisions it takes and the investments itmakes will be guided by it. Like most long-term targets, achievement will be influencedby circumstances outside its control.

Based on SSE’s existing portfolio of assetsand contracts and on typical electricityoutput, the target, if achieved, would meanthere would be around 12 million tonnesfewer carbon dioxide emissions in 2019/20compared with 2005/06.

PerformanceDuring 2007/08, emissions of sulphur dioxidefrom the generation of electricity by SSEwere 37,125 tonnes, compared with 50,776tonnes in the previous year. This equates to 0.903 grammes per kilowatt hour ofelectricity generated, compared with 1.086g/kWh in the previous year.

Emissions of oxides of nitrogen were 39,643tonnes, compared with 44,120 tonnes in the

previous year. This equates to 0.964g/kWh of electricity generated, compared with 0.944in the previous year.

Although year-to-year performanceinevitably varies for a number of reasons, in2007/08 SSE again a reduction in its carbonintensity, consistent with its original targetfor 2016. Performance will vary from oneyear to the next as a result of a number of

factors, including the way in which SSE’s generation portfolio is managed. The key point for the long term is that SSE is nearing the completion of its investment in flue gas desulphurisation equipment and has plans to invest in advanced nitrogenoxide abatement equipment. This is in linewith SSE’s general commitment to abate the environmental impact of its coal-firedpower stations.

SystemThe International Organisation forStandardisation (ISO) defines anEnvironmental Management System (EMS) as “a systematic approach to dealing with

environmental aspects of an organisation. It is a ‘tool’ that enables an organisation ofany size or type to control the impact of itsactivities, products or services on the natural

environment”. SSE’s ISO 14001-certified EMScovers almost the entire Generation business,including the major power stations whichhave the highest environmental impact.

PerformanceBy definition, pollution is directly harmful to the environment, and many environmentallaws and regulations are designed to preventpollution of one kind or another.

During 2007/08, there was one environmentalincident (identified as an incident whichresulted in SSE being served with a formalstatutory notice by either the EnvironmentAgency or the Scottish EnvironmentProtection Agency). In January 2008, theEnvironment Agency served an enforcementaction on SSE for failure to complete an

agreed programme of improvements at itsSmurfit Townsend Hook CHP plant in Kent.No damage resulted and the improvementwork has since been completed.

There were two breaches of IntegratedPollution Control (IPC)/Integrated PollutionPrevention and Control (IPPC) permitconditions during 2007/08, the same as inthe previous year. The incidents were at FifePower Station and Smurfit Kappa. Followingeach breach, a full review was carried outand points for future action identified.

HydroThe operation of SSE’s hydro electricschemes – particularly the abstraction andimpoundment of water – is closely licensed,as are the steps taken to mitigate the

impact of schemes such as the release of‘compensation’ water and the provision of fishpassage facilities. There are also additionalmitigation measures where a specific

environmental benefit has been identified,such as close control over reservoir rangesor fluctuations. During 2007/08, there wereno major licence breaches.

50%

SSE’s target reduction in carbonintensity from 2005/06 to 2020


>CARBON EMISSIONS CONTINUED

>

>OTHER EMISSIONS

>ENVIRONMENTAL MANAGEMENT

>

What are our priorities for 2008/09 and beyond?

During 2008/09, major questions will continue to be asked about thesustainability of electricity production in the UK, Ireland, the EU and elsewhere.SSE is a major investor in minimising the environmental impact of gas- and

assets and extend their lives and to delivernew assets, principally in renewableenergy but also – as in the case ofMarchwood – thermal generation.

As a result, SSE will have a growing, but balanced, portfolio of electricitygeneration assets, with a diminishingenvironmental impact and with relativelyless exposure to fossil fuel price volatility.

>

Carbon Disclosure ProjectDuring 2007/08, SSE was named a memberof the Carbon Disclosure Project’s ClimateDisclosure Leadership Index (CDLI). It iscomprised of 68 FT500 companies that showdistinction in their responses to the CarbonDisclosure Project survey based on theirreporting of greenhouse gas emissions andassessment of a company’s climate changestrategy. CDLI members were distinguishedby the disclosure of their awareness of the

risks and opportunities of climate change, as well as the quality and effectiveness ofprogrammes put in place to reduce overallgreenhouse gas emissions.

During 2008/09, SSE will examine the options for participating in the Dow JonesSustainability Index assessment as part of its ongoing commitment to benchmarking its performance in this key area.

>

ReviewWhile process safety is typically focused on the chemical and petrochemical sectors,its relevance for SSE lies principally within its Generation and Gas Storage plants. Thepotential hazards range from superheatedsteam in electricity generation to compressionin gas storage.

Following the publication of the report of theBaker Panel into the BP incident at TexasCity published in 2007, SSE undertook a

comprehensive review of its approach in thisarea, benchmarking Baker recommendationsagainst its process safety management.Following this review, a programme has beenestablished to deliver a material improvementin SSE’s performance in this area.

The programme has defined a process safety vision and management framework,featuring 15 separate elements. These rangefrom plant and process information to plant

and process risk assessment, operations and maintenance procedures and personneltraining and performance. This framework is the subject of pilots to test it, prior to a full roll-out to develop process safety plansfor all relevant business units by the end of 2008. The pilots will focus on the highpriority elements of the framework and,subject to their outcome, will be followed by the comprehensive implementation of the framework.

>

coal-fired generation and in renewableenergy (especially following the acquisitionof Airtricity) and emerging technologies andmaking progress with these investments will be a central priority for SSE in 2008/09and beyond.

Over the five years to 2013, it expects toinvest over £4bn across its entire generationportfolio, including investment in existingassets. This investment will be designed toabate the environmental impact of existing

3

Total number of reportableenvironmental incidents and breaches of IPC/IPPC in 2007/08

68

Total number of companies in CDPClimate Disclosure Leadership Index, including SSE

300g/kWh

Target carbon intensity in 2020 PROCESS SAFETY


19>

Generation and Supply – Supply 18>



HOW CAN ENERGY BEKEPT AS AFFORDABLEAS POSSIBLE?

This means adopting a policy of responsible pricing, helpingcustomers to reduce theirconsumption of energy anddelivering a high standard ofcustomer service, especially to vulnerable households.

In this context, SSE’s key responsibility is to ensure that the price of the electricityand gas which it supplies to customers is as affordable as possible.

PolicyOver the past few years, SSE has adopted aresponsible pricing policy. The policy meansthat SSE seeks to be the last, or one of the

last, of the major suppliers to increase pricesif it has to and the first, or one of the first, to reduce prices if it can.

ImpactThe consistent application of this policymeans that SSE’s customers have paid anaverage total of £430 less for their electricityand gas during the last four years than havecustomers of the UK’s largest supplier,British Gas. This is based on a comparison of the SSE ‘dual fuel’ standard quarterlypayment tariff and a comparable British Gas tariff, averaging price variations acrossthe 14 UK energy supply regions, and using energywatch’s average domesticconsumptions (3,300kWh electricity perannum and 20,500kWh gas per annum) forthe period April 2004 through to March 2008.It includes VAT at 5%. SSE was the onlymajor supplier not to introduce a priceincrease during 2007/08, although price rises were implemented on 1 April 2008.Nevertheless, SSE aims to maintain itsresponsible pricing policy going forward.

Context – Supply

Energy supply in the UK is changingdramatically, with companies having tooperate in volatile markets, which reflectdepletion of North Sea oil and gas fields,soaring global demand and competitionfor all types of energy and, during 2007/08, the passing of the $100 a barreloil price milestone. These pressures arecompounded by the rising transmission,distribution and environmental costswhich suppliers have to meet. All of this culminated in persistently highwholesale prices for electricity and gas during 2007/08.

Nevertheless, the UK’s energy marketremains the most competitive in the EU and G7, according to a report by theOxford Economic Research Associates(OXERA) published in January 2008

which monitored the competitiveness ofthe energy market by assessing a range of factors. In welcoming the report, the UK Secretary of State for Business said:‘Creating an open and competitive energymarket has meant that UK consumershave consistently benefited from amongstthe lowest energy prices in Europe’.

In January 2008, Ofgem ‘confirmed thatBritain’s competitive market in energy is working’. A month later, however, it launched an investigation into themarkets in electricity and gas forhouseholds and small businesses, using its powers under the Enterprise Act2002. While it has stated it has ‘no clearevidence’ of failure of the market, it iscarrying out the investigation in responseto ‘public concern’.

Key responsibility

What are we doing?

>RESPONSIBLE PRICING

>

£430

Average total saving by SSE customersover four years compared with largest UK supplier


21>

Generation and Supply – Supply continued 20>



EECUnder the Energy Efficiency Commitment(EEC), electricity and gas suppliers wererequired to achieve targets for the promotionand delivery of improvements in energyefficiency in customers’ homes. Suppliers’progress towards achieving their target was assessed using a bottom up approach.This means that every energy savingmeasure – be it a light bulb or insulationmeasure – has an associated energy savingcredit which counted towards the overalltarget. The accreditation of EEC schemesand the energy savings achieved towardstargets was administered by the regulator,Ofgem. EEC therefore helped to minimise

greenhouse gas emissions and, up to March2008, was the key policy for achieving energysavings in the domestic households in the UK.

SSE’s final target for the EEC 2005 to 2008was set at 17,404GWh of fuel standardisedsavings. In fact, SSE achieved savings of over28,000GWh, primarily by insulation savings(81.8%), along with a small proportion ofsavings from lighting (7.6%), heating (1.7%)and appliances (8.8)%. During the year, SSEprovided insulation measures to 200,000homes. It was also able to deliver, albeit on a smaller scale, savings from somemicrogeneration technologies.

The Great British Light SwitchIn January 2008, SSE, with The Sun, ran what is believed to be the largest-everenergy saving campaign of its kind. Around4.5 million energy saving light bulbs weredistributed on a single day to over two million

customers, via 17,000 retailers, enablingsavings of almost 400,000 tonnes of carbondioxide to be achieved. The UK Minister forClimate Change said: ‘This will do more to change behaviour than almost anything

else in the UK. It’s not just the savings fromthe light bulbs but the knock-on effect onpeople’s awareness and behaviour.’

CERTAt the start of April 2008, the EEC wasreplaced by a new Carbon Emission ReductionTarget (CERT) for the period 2008-11. CERThas the same underlying framework andpurpose as EEC, but with an expanded rangeof measures, including microgeneration andbehavioural measures within the scheme. It also features an increased carbon targeton energy suppliers, effectively requiring them

to double their current effort, significantlyincreasing activity in well-established marketslike insulation and encouraging a big push intonew areas like microgeneration. The aim ofCERT overall is to deliver annual net savingsof 4.2 million tonnes of carbon dioxide by 2010.

SSE believes that this programme needs tocontinue to evolve into the broadest package

AdviceSSE is in the unusual position of seeking to reduce demand for the core products(electricity and gas) which it markets and it has long advocated a series of actions inorder to achieve the specific aim of reducingdemand for energy. In line with this, during2007/08, SSE sent energy efficiency advicedirectly to all of its customers.

In common with all other electricitysuppliers, SSE provides information to all of its customers on the fuel mix of theirelectricity. The intention is that the provisionof the information on the fuel mix should

enable customers to make informed choices about the environmental impact of the electricity they buy. The information is provided in a document accompanying the bills sent to customers.

During 2007/08, SSE’s energy efficiencyadvice line offered high quality advice tocustomers. This service, available duringnormal working office hours, is provided toall SSE customers who call 0800 072 7201.The service is promoted in information sent to all domestic energy customers with their accounts.

The ‘better plan’During 2007/08, SSE launched a uniquepackage that provides financial rewards for customers using less energy. It offers a variety of incentives to help customers use less energy and earn cash credits. The credits are then applied as a reduction to the customers’ energy bills.

SSE has launched this product as part of its commitment to work in partnership with its customers to help them reduce their energy use and to create a moresustainable level of energy consumption

across the country. Its key features includeproviding cash rewards for consuming lessenergy (£15 for a 10% reduction in energyuse in any one year: £25 for 20%) and othercash rewards for taking positive action toreduce energy consumption. better plancustomers can save up to £150 on theinstallation of cavity wall insulation and earn a £20 cash credit on their energy billwhen they do so. Cash credits can also beearned when customers sign up for otherfree services, such as paperless billing and wiring checks.

This is an example of product developmentgeared to addressing specific challenges –climate change and energy security – andhelping customers to make more sustainablechoices. It is a clear alignment of publicpolicy (reducing energy consumption),business objectives (retaining and attractingcustomers) and customers’ interests (saving money). It is, in summary, a keymeans of helping energy to be as affordableas possible.

Smart Meter TrialsSSE is a leading participant in the UK-government sponsored two-year EnergyDemand Reduction Project, under whichalmost 30,000 SSE customers will be takingpart in energy saving trials. These includearound 15,000 customers receiving state-of-the-art smart meters. These allow energysuppliers to communicate directly with theircustomers, remove the need for meterreadings and ensure entirely accurate bills with no estimates. They should helpcustomers to reduce their consumption ofenergy. The results of the trials will provideevidence to support the future roll-out ofsmart electricity and gas meters.

The first smart meters were installed inPerthshire in February 2008. The trials arecomplex. Although some other high volume

rollouts have occurred elsewhere in theworld, none have attempted such a level of complexity because they have centred on delivering two-way communications to the electricity meter and providing customerlevel data on websites. The addition of in-home displays and gas data collectiondoes not exist in any widescale development.

In March 2008, SSE invested £1m in OnzoLimited, in return for a 24.5% share of the business. Onzo is a newly-establisheddata systems development business, with specific intellectual property relating to thedevelopment of display devices that supportsmart metering systems. The devices provide real-time information about energyconsumption and have the potential to providedata down to the individual appliance level.

Energy Performance CertificatesThe UK government is progressivelyintroducing Energy Performance Certificates(EPCs) for house sales and commercial and rented properties. The certificates arecommissioned by the seller or their agentfrom an accredited energy assessor, whovisits the property to collect the relevant data and who creates the certificate.Ultimately, there could be a requirement for up to 7.5 million surveys each year.

SSE is recruiting qualified Domestic EnergyAssessors to develop a new nationwidebusiness to provide customers with EPCsand other related services which willcomplement its activities in energy supply,energy efficiency and energy services. The launch of the new business is anotherpart of SSE’s strategy to work withcustomers to actively manage their energy consumption.

PerformanceCentral to success in a highly-competitivemarket such as Energy Supply is maintainingthe highest possible standards of customerservice. Despite the significant growth incustomer numbers, SSE secured during2007/08 another reduction, of 27% to 615, in the number of customer complaints sentto energywatch for resolution. This compareswith 3,400 five years ago. SSE continues tohave the lowest number of complaints sentto energywatch for resolution and, inSeptember 2007, it was announced that it had come top in an energywatch survey of small business customers’ satisfactionwith their energy suppliers.

In October 2007, uSwitch.com reported that

SSE was ranked top for customer satisfactionfor the fourth time in a row in its latestindependent Customer Satisfaction Reportand it described SSE as ‘simply the best’.

In the result of the JD Power 2007 UKElectricity and Gas Customer SatisfactionStudy announced in November 2007, SSEwas ranked the top-performing supplier inboth electricity and gas. This was the firsttime one supplier had achieved the topranking in both sectors. In electricity, it wasthe only supplier to achieve overall customersatisfaction which was ‘significantly better’than average and in gas it was one of justtwo suppliers to deliver ‘significantly better’than average customer satisfaction.

200,000

Number of homes provided withinsulation measures by SSE

27%

Reduction in customer complaints during 2007/08


>REDUCING ENERGY CONSUMPTION

>

>

>

>

>

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>CUSTOMER SERVICE

0800 072 7201

SSE Energy Efficiency Advice Line

30,000

SSE customers participating in Energy Demand Reduction Project

7.5m

Number of energy surveys needed each year up to

ApproachThe Energy White Paper stated that ‘usingenergy more efficiently is a cost effective wayof cutting carbon dioxide emissions. It canalso improve productivity and can contributeto the security of our energy supplies byreducing our reliance on imported energyand ensuring we make maximum use of ourown and global energy resources. Improvingthe energy efficiency of homes can also

reduce energy bills and help ensure that the most vulnerable can afford to heat theirhomes’. Energy efficiency has always beensensible; now it is imperative.

Nevertheless, as the European Policy Centre recently observed, energy efficiency is ‘a distinctly unglamorous subject’. This isbecause ‘it tends to focus on small changes

to individual behaviour and few peoplebelieve that changing their light bulbs orhaving the right tyre pressure will save theworld’. In fact, as the EPC said, eliminatingunnecessary or wasteful energy use cansignificantly contribute to meeting the EU’sclimate change and energy security targets.

of measures possible. This should includebehavioural as well as technological itemsenabling the UK to show real leadership inenergy demand management and reduction.This is consistent with the government’s viewthat energy saving is a central plank of itsenergy strategy.

>

24.5%SSE share in Onzo Limited

4

Consecutive years at top of uSwitch.com survey


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Generation and Supply – Supply continued 22>



DevelopmentsSSE’s objective is to build on its position asthe UK’s leading energy supplier for customerservice, and thereby be in a strong position to retain and gain customers. Customerservice performance is now supported by the combination, in September 2007, of telephony and billing systems so that theynow recognise a customer’s phone numberand bring up their details on the screen in front of the customer service adviser. This saves an average of 30 seconds per

call and adds the equivalent of around 100 extra people to take calls.

During 2006, SSE implemented a newDomestic Energy Customer Charter, the first of its kind in the UK. It made a series of specific commitments in respect ofcustomer service, including timely responsesto telephone calls, letters and emails, andwas designed to establish a new benchmarkfor customer service.

AssistanceIt is SSE’s policy to do all it can to helpcustomers who may be having difficulties in paying for the electricity and gas they use,by offering ‘tailor-made’ arrangements thatsuit their needs and best support theircircumstances. During 2007/08, 200,000households took advantage of thesearrangements.

The basic approach here is that customers who find it hard to pay their bill are encouraged to phone SSE straightaway. Customer service advisers will discuss the options available to customers.SSE urges customers not to be put offtalking to it, because the sooner it knowsthere is a problem, the sooner it can helpcustomers.

Customers who are over 60, who havedisabilities or who suffer from long-term ill health can receive free services byregistering with SSE’s ‘Careline’ free

on 0800 622 838. To date, 367,000 electricityand gas customers are on this register.

Specially trained Careline advisers givecustomers extra help with their energy bills,advice on saving energy or anything else to do with gas and electricity. Customers withhearing or speech difficulties can useTextline (0800 622 839). The Careline teamalso gives advice on where customers canget particular products, such as specialcontrols and adaptors that help them to use appliances more easily.

During 2007/08, SSE did not disconnect theelectricity supply for any household known tobe occupied by a pensioner, a disabled personor a person with chronic sickness. The totalnumber of electricity disconnections for non-payment of debt carried out by SSE in the yearwas 154, compared with 133 in the year before.The total number of gas disconnections fornon-payment of debt was 696.

Code of PracticeIn April 2008, SSE published a Code ofPractice for Vulnerable Customers, followingconsultation with consumer and voluntaryorganisations. It contains two key principles:

k Energy suppliers should ensure that any‘social’ tariff which they offer to fuel poorcustomers is the lowest-cost tariff madeavailable by them to any type of customer,via any type of payment plan or sign-upmethod; and, as an additional safeguard,

k Energy suppliers should ensure that their‘social’ tariff for customers is lower thanaverage direct debit tariffs in the UK.

SSE’s ‘social’ tariff, energyplus care,conforms to these principles. It offershouseholders a discount of 20% on theirenergy bills and a variety of other services to help them better manage their energyconsumption. In order to provide additionalsupport for vulnerable electricity and gas customers, SSE has committed toquadrupling the number of customers

who benefit from energyplus care, to 100,000customer accounts, over the next year.

SSE believes the single biggest contributionwhich energy suppliers can make to preventingfuel poverty is to keep prices as low as possiblefor as long as possible. For this reason, SSEwill aim to maintain its long-establishedresponsible pricing policy: it will seek to be thelast, or one of the last, of the major suppliersto increase prices if it has to and the first, or one of the first, to cut prices if it can.

The next biggest contribution which suppliers can make is to ensure ‘social’ tariffsare genuine. Vulnerable customers need thelowest prices available, not simply a tarifflabelled ‘social’, and that principle is at theheart of SSE’s new Code of Practice. Manyprevious claims about spending on ‘social’tariffs do not conform to this principle. SSE’s ‘social’ tariff does, and so it is going to quadruple the number of customers who benefit from it.

Energy Direct SalesSSE’s quality management system for energysales was originally approved by Lloyd’sRegister Quality Assurance to ISO 9001:2000 in 2002 and was renewed in 2005. The systemis applicable to marketing, sales andcustomer service relating to the supply of electricity and gas.

In common with other energy suppliers, SSEoperates under the Code of Practice for theFace-to-Face Marketing of Energy Supply. TheCode commits suppliers to higher standardsin energy sales and includes a commitmentto pay compensation to customers affectedin specified circumstances.

energywatch has published informationabout the number of consumer cases itdeals with. This includes publishing tablesfeaturing the number of customer casesabout direct selling issues relative to thenumber of customers transferring from each of the main energy suppliers. In theperiod February to April 2008, SSE was the third best-performing supplier, with a number of cases per 100,000 transfers that was well below the industry average.

Although the number of complaints aboutSSE’s direct sales activity is low comparedwith other companies, and compared with

200,000

Number of customers taking advantageof ‘tailor made’ payment arrangementsduring 1007/08

367,000

Number of customers registered on SSE’s ‘Careline’


>CUSTOMER SERVICE CONTINUED

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During 2008/09, significant questions willcontinue to be asked about the affordabilityof electricity and gas, in the context ofintense global competition for energy.SSE’s aim is to maintain its policy of

optimum range of products and tariff structures and, perhaps, affinityarrangements. Over the next few years,SSE expects to make significant investmentand progress in each of these areas which, allied to its long-standing focus onresponsible pricing and customer service,is designed to deliver continuing long-termgrowth in its energy supply business.

responsible pricing, promote energyefficiency, reinforce the standard of itscustomer service and enhance its support for its most vulnerable customers.

Longer-term, continuing trends in technology,and customers’ use of it, are likely to lead toa material change in the number of energysupply customers who wish to deal withtheir supplier online. This, in turn, meansthat suppliers will be required to have the

In the course of 2007/08, an updated Charterwas prepared. The new Charter maintains the‘commitment-based’ approach to generalcustomer enquiries which was central to the approach contained in the first Charter,with the emphasis on ensuring that as manycustomers as possible have their issuesresolved at the first point of contact. It alsosets out SSE’s responsible pricing policy.

20%

SSE’s discount for vulnerable customers on energyplus care

100,000

SSE’s target for number of customers on energyplus care

the total number of sales which take place,they can be upsetting for the customerconcerned and, from time to time, become high profile. SSE does not tolerateinappropriate behaviour on the part of salespeople acting on its behalf and the sanctionof dismissal is used in circumstances whereit is necessary. SSE regularly reviews sellingpractices to identify any areas of concern and during 2007/08 made important changes to the delivery of its direct salesactivities to address concerns that had been expressed by customers.


25>

Networks 24>



HOW WILL NETWORKSREMAIN RELIABLE?

SafetyThe electricity network is very extensive and by its very purpose has to be placed in locations that are close to the public.Networks are designed, constructed,installed and maintained to avoid danger to the public as far as is reasonably practical, but there will always be some risk of residual contact.

Although every reasonable care is taken to protect people from harm, the provision of information is an extremely importantfactor in seeking to reduce accidents. That’s why SSE provides bespoke safetyinformation for a number of groups,including the fire, police and ambulanceservices, sailors and aviators, farmers and agricultural workers and caravaners and campers.

Context – Networks

SSE owns Southern Electric PowerDistribution, Scottish Hydro Electric PowerDistribution and Scottish Hydro ElectricTransmission. These companies transmitand distribute electricity via 127,000km of overhead lines and underground cables to customers in 3.5 million homes, officesand businesses. SSE also has an equityinterest of 50% in, and provides corporateand management services to, Scotia GasNetworks (SGN), which owns around 74,000km of gas mains, delivering gas to customers in 5.7 million homes, offices and businesses.

Within the defined geographic areas theyserve, these companies have a virtualmonopoly because it would be economicallyinefficient to try to develop alternativecompeting networks. These companies arethe subject of incentive-based regulation byOfgem, which sets for periods of five years the prices they can charge for the use oftheir networks, their capital expenditure and their allowed operating expenditure,within a framework known as the PriceControl. Ofgem also places specificincentives on companies to improve their efficiency and quality of service.

Because its network customers depend on it for safe and secure delivery of power, andbecause there are no alternative competingnetworks, the communities to which SSE hasthe greatest responsibility are those in whichit is the electricity distributor.

This means maintaining safe and reliablesupplies of power and restoring suppliesas quickly as possible in the event ofinterruptions. The quality of servicereceived by customers from electricitydistribution companies is monitored byOfgem. It focuses on two main types ofquality of service measure – guaranteedstandards and output measures forspecific service areas.

SSE’s key responsibility in electricitynetworks is to make sure they are reliable.

Key responsibility

What are we doing?

>RELIABLE NETWORKS

SSE believes that compliance withgovernment policy on levels of exposure toElectric and Magnetic Fields, which in turn is based on the advice of the government’sindependent scientific advisers, who are partof the Health Protection Agency, ensures theappropriate level of protection for the publicfrom these fields. The HPA experts keep theresults of EMF health studies under constantreview to ensure that the guidelines forlimiting exposure are based on the bestavailable scientific information.

In October 2007, the HPA wrote to the UKMinister for Public Health setting out viewson the First Interim Assessment produced bythe Stakeholder Advisory Group on ExtremelyLow Frequency Electromagnetic Fields. Theletter can be read in full on www.hpa.org.uk.

>Guaranteed Standards of PerformanceGuaranteed Standards of Performance provideprotection to individual customers. If acompany fails to meet a Guaranteed Standardof Performance, it must make a payment to the customer affected, subject to agreedexemptions. These Standards cover areas suchas supply restoration following power cutsand estimation of charges for connections.

During 2007/08, SSE’s two Distributioncompanies had a total of six Guaranteed

Standard failures for restoration of supply.Under Ofgem’s compensation arrangements,Southern Electric Power Distribution paidcompensation to 396 customers wheresupplies were lost for an extended periodeither in normal or severe weatherconditions. Under similar arrangements,Scottish Hydro Electric Power Distributionpaid compensation to 114 customers.


network engineering and operations in two distinct ways.

First, as an operator, it offers bespokenetwork solutions and has the organisationand focus to respond to customers’ exactrequirements. This is an exception in amarket where other companies only tend to offer standard solutions. Second, for themajority of SSE’s telecoms customers,network resilience and availability are

27>

Networks continued 26>



Power CutsPower cuts are the subject of output-basedmeasurement monitored by the energyregulator, Ofgem. There are financialincentives in place for electricity distributioncompanies to deliver an improved level of service in relation to the number andduration of power cuts and the quality of telephone response.

During 2007/08, the number of power cuts

per 100 customers was 66 (compared with 75in the previous year) in the Southern ElectricPower Distribution area and 69 (comparedwith 79 in the previous year) in the ScottishHydro electric Power Distribution area.Performance was ahead of Ofgem targets.

The average number of minutes lostelectricity supply per customer was 67(compared with 72 in the previous year)

Telephone ResponseOfgem carries out telephone surveys of customers who have contacted the 14electricity distribution companies to assessthe companies’ performance in areas suchas: speed of telephone response; politenessof staff; willingness of staff to help; accuracy

of information provided; and usefulness of information provided. In the cumulativeperformance information published for2007/08, Scottish Hydro Electric PowerDistribution was ranked top among the 14 companies for the quality of telephone

Priority ServicesSSE maintains a Priority Services Register so that it can easily identify customers withspecial needs during planned or unplannedinterruptions to the electricity supply. It ismaintained through dialogue with keystakeholders, including customersthemselves, electricity suppliers and healthauthorities. The Register is part of the SupplyInterruption Management System and it is

used to provide accurate and timely advice to special needs customers under a varietyof conditions.

For example, when planned supplyinterruptions are scheduled, the Systemhighlights any customers on the Register whomay be affected. This enables appropriatesteps to be taken to inform the customer

InvestmentIn line with the key responsibility of SSE’selectricity networks businesses to maintainsafe and reliable supplies of electricity, the Distribution Price Control Review for2005-10 resulted in substantially increasedallowances for capital expenditure tomaintain and improve the networks’performance. During 2007/08, SSE invested£264.4m to enhance the reliability of itselectricity networks.

The most significant electricity distributionproject being undertaken by SSE is theconstruction of two new underground cable132kV circuits from Bramley to Basingstokein Hampshire, designed to ensure theelectricity network can meet maximumdemand from the 650,000 customers served

by the Bramley and Fleet grid supply points.The 10km route includes 4km of urban roads,directional drills under rural water coursesand large open cut crossings through themain railway line cutting in Basingstoke. It also requires development work at twosubstations. The total cost of the project isover £16m and it is on course for completionbefore the end of this year.

The most significant electricity transmissionproject on which work is actually gettingunder way is the Inverarnan substation,which will provide 200MW additional exportcapacity for electricity generated fromrenewable sources in Argyll. This is a jointproject with Scottish Power Transmission.SSE’s investment is around £12m.

Renewable EnergyIt is widely recognised that electricitynetworks will have to change if the UK is to secure the benefits of renewable energyand the business opportunities linked tocleaner electricity supplies. In January 2008,the Scottish government proposed ninenational infrastructure projects which willhave ‘a vital role to play’ in, amongst otherthings, tackling climate change. The nine

projects includes ‘grid reinforcements tosupport renewable energy development’.

SSE believes the project to replace theelectricity transmission line connectingBeauly in the Highlands with Denny in theCentral Belt of Scotland is in line with itsresponsibilities as a licensed transmissioncompany and is also in the national interest.

CommunitiesSSE is mindful of the need to consult withthe communities its electricity networksserve and to tell them about major projectsand developments that will affect themdirectly. It also takes all reasonable steps to keep customers, particularly vulnerablecustomers who have registered with thecompany’s Priority Services Register,informed of progress when reconnectingelectricity supplies, for example followingadverse weather conditions.

As the company begins planning for how best to invest in the network between 2010and 2015, it has embarked on a consultationprogramme of bilateral meetings, publicseminars and web-based feedback with MPs, MSPs, local authorities, environmentalagencies and similar organisations, andmembers of the public.

Whilst the majority of the investment willcontinue to be targeted at providing a safe

InnovationDuring 2007/08, SSE has continued to take an active role in the Ofgem InnovationFunding Incentive for both distribution andtransmission and has commissioned researchand development projects addressing asset

management, security of supply and activenetwork management. The IFI is intended tosupport research and development projectsfocused on the technical development ofdistribution networks to deliver value

£16m

Total investment to upgrade supplybetween Bramley and Basingstoke

£12m

SSE’s investment towards Inverarnansubstation development


>RELIABLE NETWORKS CONTINUED

>

>

>

>

>

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During 2008/09, and beyond, SSE’s firstobjective in electricity distribution andtransmission will be to maintain safe andreliable supplies of power and to restoresupplies as quickly as possible in the eventof interruptions, so performance in termsof customer minutes lost and customerinterruptions will continue to be critical.

This will be supported by delivery ofcontinuous improvement initiatives,following the implementation of a review of internal processes and customer-facingoperations that took place during 2007/08.

During 2008/09, important questions willbe asked about the reliability of the UK’selectricity networks and their fitness forpurpose in the context of the need toaccommodate output from renewableenergy schemes. Key priorities for SSEduring the year will include the efficientdelivery of the next phase of the majorprogramme of investment in thenetworks. This will be targeted atupgrading them so as to benefit thegreatest number of customers. It will also undertake work in advance of what is hoped to be a successful outcome fromthe Public Inquiry into the Beauly-Dennytransmission line proposal. In total, SSE currently expects to invest around£1.75bn in its electricity networks overthe next five years.

Ofgem has already stated that encouragingelectricity distribution companies to be‘more responsive to the needs of customers’will be amongst its key priorities for theforthcoming Distribution Price ControlReview for 2010-15.

Over the next year, detailed work will beginon the Review, where Ofgem’s other keypriorities include giving companies ‘strongincentives to help tackle climate change’ and delivering good value for consumers by ensuring that companies provide secureand more sustainable networks’. Ofgem also pointed out that it is likely that therewill be growth in renewable and small-scale‘distributed’ generation, which could seemuch more generation connecting directly to the distribution, as opposed to thetransmission, network.

A year-long Public Inquiry into the projectwas completed in February 2008. TheScottish Minister for Enterprise, Energy andTourism stated in the Scottish Parliament in September 2007 that Ministers do notexpect to receive the report of the Inquiryuntil late 2008 and that a determination isunlikely before early 2009. It is now likely that the construction of SSE’s share of the

replacement line will require investment in excess of £300m.

As the UK Business Council for SustainableEnergy said in its paper on implementing theEU renewable energy target in the UK, the

consenting and completion of the Beauly-Denny rebuild is essential to releasing theupgrade potential of the existing Scottishtransmission system. By rebuilding theweakest part of a north of Scotlandtransmission ring, it will allow the other

>elements to that ring to be re-conductoredand re-insulated (avoiding any need for new overhead line routes) to increase thecapability for renewable energy capacity inthe north of Scotland to over 6GW, comparedwith around 2.2GW currently connected.

ReliabilityAfter electricity and gas, telecoms is SSE’s third networks business, featuring an 8,000km UK-wide telecoms network,which provides services to other telecomsproviders, companies and public sectororganisations. This includes 3,240km of fibreoptic cabling which SSE owns; the remainderis leased fibre and microwave radio.

SSE’s telecoms activities are differentiatedfrom the competition by its approach to

>TELECOMS NETWORKS

and/or make special arrangements, such asthe provision of a portable generator for thosecustomers to whom electricity supply iscritical. It also enables SSE to take additionalaction to contact and update customersduring storms or other emergency situations such as major incidents.

response given to customers, and SouthernElectric Power Distribution was rankedninth. SSE has undertaken a review of itscustomer-facing operations, with a view todelivering improvements which it expects to be reflected in future surveys.

and reliable electricity network and to meetthe needs of customer growth in demand, the purpose of this consultation is toestablish what other aspects of electricitydistribution are important to customers,including reducing the environmental risks,improving flood protection measures andreducing the carbon footprint of electricitynetwork operations.

paramount. This is delivered through the useof diverse routing and automatic protectionat both Layers 1 and 2.

In line with this focus on reliability, SSE’stelecoms business fixed 98% of operationalfaults within Service Level Agreements during2007/08, compared with 94% in the previousyear. Its project delivery on standard projectswas also in excess of 95%.

in the Southern Electric area and 72(compared with 77 in the previous year) in the Scottish Hydro Electric area.Performance here was also ahead of Ofgem targets.

This performance is expected to lead to SSE receiving additional revenue during the next two financial years.

(i.e. financial, supply, quality, environmental,safety) to end customers. Open reporting ofIFI projects is required by Ofgem. This isintended to stimulate good management andpromote sharing of innovation good practice.


29>

Energy-Related Services 28>



HOW CAN CUSTOMERSGET DEPENDABLESERVICE?

Contracting – Public and Highway LightingDuring 2007/08, SSE acquired SeeboardTrading Limited, which finances and operatesstreet lighting maintenance and replacementprojects for three local authorities under thePrivate Finance Initiative (PFI). The threelocal authorities are the London Borough of Islington, the London Borough of Ealingand Dorset County Council. The projectscover around 90,000 street lighting columnsand they all have at least 20 years to run.

In partnership with the asset finance divisionof The Royal Bank of Scotland, SEC alreadyhas PFI contracts to replace and maintainaround 210,000 street lighting columns forfour local authorities in England: Stoke on

Trent City Council; Leeds City Council; andNewcastle City and North Tyneside Councils.These contracts all have over 20 years to run and, when combined with the contractsacquired via Seeboard Trading Limited, meanSSE’s interest in PFI contracts extends to300,000 lighting columns.

In addition to the PFI replacement andmaintenance contracts, SSE has contractswith 22 local authorities in England, Walesand Scotland to maintain over one millionstreet lights. It is the largest street lightingcontractor in the UK, and in 2007/08 securedits first-ever contract in north-west England,with St Helens Council.

WaterIn October 2007, Ofwat announced that SSE’ssubsidiary, SSE Water (SSEW), will becomethe first new company to offer both waterand sewerage services since privatisation in1989. This followed the granting of an ‘inset’appointment to SSEW, which allows for onesupplier of water and sewerage services to

be replaced by another for a definedgeographical area, in this case a housingdevelopment near Salisbury. Ofwat said ‘SSEhas a proven track record for its high levelsof customer service. Ofwat expects SSEW to set a benchmark in the water industry for similar high levels of customer service’.

Context – Energy-Related Services

In addition to being involved in Generation,Supply and Networks, SSE also provides a range of other energy-related serviceswhich complement its other businesses:Contracting, Connections and Metering;

Energy and Home Services; and Gas Storage.These are important services, on whichcustomers depend, so that increasinglycomplex energy requirements can be met.

While the purpose of these energy-related services varies – ranging frompublic and highway lighting to water andsewerage services, energy services andstorage of large volumes of gas – it isessential that they are all dependable.

In this context, SSE’s responsibility is to ensure that all energy-related services are dependable.

Key responsibility

What are we doing?

>

>


Key Performance Indicators 31>


Energy-Related Services continued 30>


Energy ServicesThe UK energy market is still focused on the delivery of units of energy but a market is beginning to emerge for the supply ofenergy services – warmth, light and power.More fundamentally, over time, a new modelis likely to be created whereby homes andother buildings are developed and designedso they need as little energy as possible.Energy services and SSE’s relatedinvestments in emerging technologies are about preparing for that new model.

Customers are increasingly interested inmanaging their own energy use and SSEprovides bespoke energy solutions featuringon-site or off-site dedicated wind turbines,solar thermal systems, solar photovoltaicsystems and ground-source heat pumps.SSE’s Energy Services division operates andmaintains site-wide energy infrastructures of this kind that improve environmentalperformance over conventional alternatives.

In addition, business customers of SSE now have over 50MW of on-site installedCombined Heat and Power (CHP) generation

capacity, generating heat and power in a single process. Current developmentsinclude The Warren, in south-east London,where Berkeley Homes Group is building 460 apartments, a nursery unit, primary caretrust and commercial units. Under the ESCO(Energy Services Company) Agreement, SSEis responsible for designing and installing an energy centre, including a CHP plant. SSE will also undertake all associated heat,electricity and gas infrastructure, meteringand billing customer services, long-termoperations and maintenance services and all fuel procurement requirements.

The market for these home and other energyservices is evolving, but it is one in whichrapid change is likely as – for example –demand for low- and zero-carbon homesgrows. As the needs of customers becomemore complex, SSE’s approach is to provide a growing range of dependable services andthereby position itself to be a successful –and national – provider as the production and consumption of energy changes over the next decade.

Gas StorageIt is generally recognised that the UK hasinsufficient gas storage. This under capacityreflects the reliance it was able to place inpast years on gas production from the NorthSea. As North Sea gas declines, UK importswill continue to increase and this meansthere will be a growing reliance on gasstorage facilities to help provide security of supply. Such facilities therefore have a long-term value.

SSE owns and operates the UK’s largestonshore gas storage facility at Hornsea in East Yorkshire. Nine salt caverns havebeen leached into a salt layer 1.8 kilometresbelow the surface, creating 325 million cubicmetres (mcm) of gas storage capacity. Gascan be injected at a rate of 2mcm per dayand withdrawn at a rate of 18mcm per day,which is equivalent to the requirements of around four million homes.

The services offered at Hornsea providecustomers with a dependable source offlexibility with which to manage their gassupply/demand balance and respond tomarket opportunities. Capacity is sold inStandard Bundled Units (SBU), of which

Hornsea has 195 million available in total,and each SBU provides capacity to inject gasinto the facility, store gas there and withdrawgas from it.

One of SSE’s priorities for 2007/08 was toensure that Hornsea maintained its excellentrecord of dependability, and during the year it was 100% available to customers, except in instances of planned maintenance. Thisenabled customers to manage their gasmarket risks and respond to gas tradingopportunities.

The joint venture with Statoil (UK) Ltd to develop, at Aldbrough, near Hornsea, what will become the UK’s largest onshoregas storage facility is continuing to makeprogress, albeit at a slower rate thanexpected when the development work started in 2004 and also when the project was reviewed at the start of 2007/08.

SSE and Statoil (UK) Ltd have securedconsent from East Riding of YorkshireCouncil to increase the storage capacity at the Aldbrough site beyond that currentlyunder development. They are now able to

develop a further nine gas storage caverns,taking the total to 18. If developed in full, this would approximately double the amountof gas that can be stored, to over 800mcm.Construction of the extension would,therefore, help to ensure that the UK canmeet gas demand during periods of highenergy usage.

SSE would contribute 50% of the cost of theextension in return for ownership of 50% ofthe capacity. On completion of the extension,SSE would have effective ownership of over800mcm of gas storage capacity, includingHornsea. Site preparation work has beencompleted and a final decision on whether to proceed with this development is expectedto be taken during 2008/09.

SSE’s priorities in Gas Storage during2008/09 are to: maintain its excellent record of reliability at Hornsea; ensure that the first of the new caverns at Aldbrough areavailable for commercial storage; and makea decision on whether to proceed with theAldbrough extension. Longer-term, SSE willalso continue to look for other opportunitiesto add to its gas storage capability.


>

>

> >

Renewable Energy Capacity – MW

2008

2007

2006

2005

2004

2,036

1,518

1,516

1,363

1,355

> >

2004

Complaints to energywatch

3,000

2,500

2,000

1,500

1,000

500

0

Energy Customer Numbers – million

2008

2007

2006

2005

2004

8.45

7.75

6.70

6.10

5.25

2005 2006 2007 2008

2,632

1,981

1,573

840

615

>

>

>

>

Electricity Generation Capacity – composition

Renewable 19%

Coal and Biomass 38%

Gas and Oil 43%

Customer Minutes Lost – Scottish Network

2008

2007

2006

2005

2004

72

77

65

82

83

>

>

>

Customer Minutes Lost – Southern Network

2008

2007

2006

2005

2004

67

72

71

84

81

>

>

Lost Time and Reportable Injuries

>2004

Employee Numbers

18,000

16,000

14,000

12,000

10,000

8,000

2005 2006 2007 2008

9,785

11,034

12,287

13,427

16,892

>

>

50MWCustomers’ capacity of on-site CHP over

2004

30

25

20

15

10

0

2005 2006 2007 2008

27

17 17

11 11


33>

Creating value 32


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HOW DOES SSEDELIVER VALUE TOSTAKEHOLDERS?

Services and ProductsSSE’s performance in delivering services and products is set out in this report and in its Annual Report 2008. SSE’s customers

TaxSSE’s contribution to government revenues,including Corporation Tax, Employers’National Insurance Contributions andBusiness Rates totalled £517.1m during2007/08, compared with £459.5m in the

previous year, an increase of 12.5%. Thisincludes joint ventures and associates andsupports government spending on things like hospitals, schools and transport.

DividendsDuring 2007/08, dividends totalling £502.8mwere paid to shareholders. Over 300,000 of SSE’s shareholders own fewer than 500shares. In addition, many of SSE’s shares areowned by financial institutions which provide

pensions for employees of public and private sector organisations. Companies paydividends out of profits on which they havealready paid (or are due to pay) tax. In theUK, dividends are then subject to income tax.

Context – Creating value

SSE’s core purpose is to provide the energypeople need in a reliable and sustainableway. In the words of Collins and Porras, the core purpose of an organisation is itsfundamental reasons for existence beyondjust making money. At the same time,

making money enables SSE to achieve itscore purpose. During 2007/08, it deliveredadjusted profit before tax of £1,229.2m, an increase of 13.9% on the previous yearand on 31 March 2008 it was ranked 30th in the FT-SE100 by market capitalisation.

What are we doing?

>VALUE

>

>

To operate successfully, it believes it mustadhere to its core values: safety; service;efficiency; sustainability; excellence; andteamwork. By adhering to those values, it is corporately responsible.

As one commentator put it when writing on the subject during 2007/08 ‘commercial

SSE must operate successfully in itsmarkets to deliver the services andproducts, tax payments, dividends and jobs that people rely on.

Key responsibility

longevity is more likely to be achieved bythose companies that innovate, that aresensitive to the needs of their employees,customers and suppliers, whose systemsare efficient and effective, that are not afraid of making hard decisions based on a long-term view, that enjoy what they doand bring stakeholders along with them’.

JobsAn additional 3,465 people were employed by SSE during 2007/08, taking the total atMarch 2008 to 16,892.

The total number of people employed by SSE has increased by 7,000 in the last four years.

>

benefit from best-in-sector service in themost competitive energy market in the EUand G7, as defined by Oxera.


35>

Creating value continued 34


>


SuppliersSSE has a policy setting out its commitmentto promote respect for internationally-recognised human and labour rights, ethicsand the environment in its supply chain andthe means by which it integrates thiscommitment into its procurement activities.This policy and guidance to suppliers can beviewed at www.scottish-southern.co.uk.

The policy states: ‘We recognise that oursuppliers face many challenges in today’sglobalised marketplace. We aim to work with our suppliers openly and honestly.Where concerns about human rights, labour, environment or ethical issues areidentified, we will work with them to makeimprovements to the issues arising.’

Capital and investment expenditure during2007/08 totalled £810.3m. SSE recognises that its approach to, and decisions on,procurement drive resource decisions bythird parties which have environmental andother implications. SSE believes that it hasan opportunity to encourage suppliers ofthose goods and services to deliver goodenvironmental performance and to maintainresponsible business practices towards their employees and the communities inwhich they operate.

SSE is a subscriber to the Verify systemoperated by an independent company,Achilles with regard to the environmental,health and safety and quality commitment of potential suppliers and contractorsworking on SSE sites. SSE expects existingand potential key suppliers and contractors to co-operate fully with the Verifyassessment process.

During 2008/09, SSE will participate withAchilles and other stakeholders in anassessment of the carbon emissions of its key suppliers in electricity generation and networks via the Achilles carbonfootprinting module – thus setting abenchmark from which emissions reductions can be managed going forward.The second stage is to ensure that each with a material emissions issue has in placean actual emissions reduction programme.The overall process will be certified byLandcare Research.

SSE’s energy trading division is responsiblefor the purchase of the coal and gas neededto fuel its power stations. All of its activities,including procurement, are scrutinised bySSE’s Risk Committee. While much gascontinues to be sourced from the UKContinental Shelf, this will change over time as imports of gas into the UK increase.

During 2007/08, the majority of the coal used at SSE’s Ferrybridge and Fiddler’s Ferry power stations was purchased in theglobal market, with supplies being derivedfrom countries such as Russia, South Africaand Indonesia.

In the course of the year, SSE – with otherinterested parties – commissioned anindependent study of the environmental,social and governance risks in the coalsupply chain. Key issues in this area include working conditions, unionarrangements, security arrangements, local and indigenous community impacts,distribution of mining benefits andenvironmental impacts.

The study suggested three areas for movingforward: encouraging self-regulation by thecoal industry; increasing diligence and rigourwithin existing supplier/mine engagementpractices; and developing a consistentindustry-wide approach to applying influenceon the coal industry that leads to improvedenvironmental, social and governancemanagement at mine level in all sourcecountries. SSE will remain fully active in each of these areas.

In particular, through the Association of UK Coal Importers, SSE has worked toagree on new corporate social responsibilityguidelines which set out standards ofperformance expected from all thoseinvolved in the coal importation supply chain.The guidelines cover the law, human rights,labour, health and safety, environmentalstewardship, business integrity, seafreightand continuous improvement.

With regards ethics, to ensure that supplierrelationships are managed with integrity, all employees are required to comply withSSE’s Employee Rules Policy, which includesspecific guidelines on receiving gifts andcorporate hospitality. SSE’s aim is to ensurethat the objectivity of its employees cannot be prejudiced during the negotiation,completion and delivery of a contract.

SSE values long-term relationships, and has more than 4,000 suppliers with which it has been working for three years or more.Many suppliers have been working with SSEfor less time than that, which often reflectsexpansion in the scale and scope of thecompany’s activities.

Research and Development Research and development is fundamental to the company’s ability to change and adapt to the challenges of the future, and in 2007/08 a number of strategic parts ofSSE’s R&D programme were successfullyimplemented. These included theappointment of R&D Coordinators in each of the main business areas, improved R&D governance, identification of key R&Dfunding sources, and the development ofstrategic research partnerships with leadingUK research institutes. The company hasalso continued to take an active role in theUK Energy Research Partnership, as well as building relationships with UK and EUResearch Councils.

During 2007/08 the company invested £3.7m in a number of innovative researchand demonstration projects including

clean coal technologies, carbon capture andstorage, and novel fuel processing techniques.Other projects have focused on climatechange, energy efficiency, energy storageand advanced renewable energytechnologies. One of the largest R&Dprojects commissioned in 2007 was theEnergy Demand Research Project which is jointly funded by SSE and the government, to enhance the understanding of howcustomers react to improved information on energy consumption.

SSE Power Distribution has continued totake an active role in the Ofgem InnovationFunding Incentive for both distribution andtransmission and has commissioned R&Dprojects addressing asset management,security or supply and active networkmanagement.

CommunityCharitable and community donationsamounted to £873,000 during 2007/08. The principal focus for this is SSE’s IntoAction scheme. It is a fund set aside tosupport employees who are actively involvedin community activities or charity work. It supports people who give up time tosupport a charity, raise funds for a charity or community group or help run youth sports teams. It is designed to enable and

encourage employees to be active citizens inthe communities in which they live and work.

In addition, £908,000 was awarded undervarious community benefit funds. This is in line with SSE’s recognition that its majorprojects for new developments in electricitygeneration and gas storage benefit from the co-operation of local communities in a variety of ways.

£3.7m

Investment in research and developmentprojects during 2007/08


>VALUE CONTINUED

>

>

£1.8m

Charitable donations and community benefit of almost

SustainabilitySSE realises the importance of conducting itsbusiness in a sustainable manner. It acceptsthat sustainable development is defined as:‘Development that meets the needs of thepresent without compromising the ability

of future generations to meet their ownneeds’ (Brundtland Report, Our CommonFuture, 1987). Adding value throughdelivering economic development,environmental protection is the goal

>

of SSE’s sustainable approach and of the new Sustainable Development Policy it adopted during 2007/08.


37>

Performance Indicators 36


>


2006 2007 2008 change

FINANCIAL OVERVIEW

Adjusted profit before tax* – £m 873.9 1,079.3 1,229.2 +13.9%

Dividend per share – pence 46.5 55.0 60.5 +10.0%

Capital expenditure – £m 502.1 663.4 810.3 +22.1%

GENERATION AND SUPPLY

Electricity generation capacity – MW 10,015 10,017 10,542 +5.2%

Electricity generated – TWh 44.0 51.6 45.8 -11.2%

Energy generation capacity – renewable – MW 1,516 1,518 2,036 +34.1%

Gas-fired power station availability – % 87 95 95 0.0%

Gas-fired power station thermal efficiency – % 50.4 49.5 49.2 -0.6%

Coal and biomass-fired power station availability – % 92 92 91 -1.1%

Coal and biomass-fired power station thermal efficiency – % 36.2 36.1 35.9 -0.6%

Power station water consumption – million cubic metres 3.49 3.18 4.12 +29.6%

Power station CO2 emissions – million metric tonnes 25.21 25.88 22.72 -20.3%

Power station CO2 emissions – kilograms per kWh 0.620 0.555 0.496 -10.1%

Power station SO2 emissions – metric tonnes 64,967 50,776 37,125 -26.9%

Power station SO2 emissions – grams per kWh 1.596 1.086 0.903 -16.9%

Power station NOx emissions – metric tonnes 49,180 44,120 39,643 -10.1%

Power station NOx emissions – grams per kWh 1.208 0.944 0.964 +2.1%

Electricity supplied – TWh 49.9 50.9 55.7 +9.4%

Energy customer numbers – millions 6.70 7.75 8.45 +9.0%

Complaints to energywatch 1,573 840 615 -26.8%

Electricity disconnections per 1,000 customers 0.02 0.03 0.03 +0.0%

Gas disconnections per 1,000 customers 0.20 0.22 0.22 +0.0%

ENERGY SYSTEMS

Power Systems capital expenditure – £m 172.1 204.5 264.4 +29.3%

Electricity distributed – TWh 43.8 42.4 43.0 +1.4%

Southern Electric Power Distribution customer minutes lost 71 72 67 -6.9%

Southern Electric Power Distribution interruptions – per 100 customers 78 75 66 -12.0%

Scottish Hydro Electric Power Distribution customer minutes lost 65 77 72 -6.5%

Scottish Hydro Electric Power Distribution interruptions – per 100 customers 78 79 69 -12.7%

GAS STORAGE

Customer nominations met – % 100 100 100 +0.0%

TELECOMS

Operational faults fixed within Service Level Agreements – % 90 94 98 +4.3%

Project delivery on standard projects – % 89 98 96 -2.0%

CONTRACTING, METERING AND CONNECTIONS

Meters read once a year – % N/A 95.1 95.4 +0.4%

Meters read twice a year – % N/A 78.7 80.8 +2.6%

SAFETY

Lost time and reportable injuries 17 11 11 0.0%

Lost time and reportable injuries – per 100,000 hours worked 0.08 0.05 0.04 -20.0%

Serious or potentially serious road traffic accidents 17 19 13 -31.6%

Serious or potentially serious road traffic accidents – per 100 vehicles 0.28 0.29 0.18 -37.9%

Injury-free business units 50 66 72 +9.1%

Scotia Gas Networks lost time injuries 20 21 13 -38.1%

Scotia Gas Networks lost time injuries – per 100,000 hours worked 0.28 0.21 0.15 -28.6%

= Positive = Neutral or Not Applicable = Negative

2006 2007 2008 change

ENVIRONMENT

Non-power station CO2 emissions – tonnes 17,019 16,687 16,534 -0.9%

Breaches of IPC/IPPC 6 2 2 0.0%

Oil leaked – litres 27,941 31,761 42,189 +32.8%

Waste produced – offices and depots – tonnes 28,380 25,052 30,299 +20.9%

Waste sent to landfill – offices and depots – tonnes 10,217 7,787 8,282 +6.4%

Water consumption in principal offices – cubic metres 135,421 133,822 109,167 -18.4%

Water consumption in principal offices – cubic metres per whole time equivalent (WTE) 11.0 10.4 7.4 -28.9%

Energy Consumption in operational buildings – GWh 34.8 34.2 27.7 -18.9%

Energy consumption in principal offices – GWh 28.3 31.1 32.6 +4.9%

Energy consumption in principal offices – MWh per WTE 5.1 4.9 4.6 -6.1%

Distance travelled on SSE business – million km 194.49 198.51 212.63 +7.1%

Distance travelled on SSE business – km per WTE 15,855 15,416 13,864 -10.1%

Business flights 8,079 9,311 7,897 -15.2%

Business flights – per 1,000 employees 659 693 467 -32.6%

Business flights – million km 6.97 9.22 7.36 -20.2%

Business rail journeys 1,511 2,545 9,706 +281.4%

Business rail journeys – per 1,000 employees 123 189 633 +234.9%

Business rail journeys – million km 0.56 0.86 2.83 +229.1%

Operational vehicles business travel – million km 153.80 156.90 168.91 +7.7%

Company cars business travel – million km 33.18 31.52 31.38 -0.04%

MARKETPLACE

EEC energy savings – GWh 4,891 7,125 13,789 +93.5%

Homes insulated – thousands 200 229 201 -12.2%

Low energy lamps subsidised – thousands 410 560 9,100 +1,525.0%

Energy efficient appliances subsidised – thousands 24.8 23.4 19.8 -15.4%

Customers registered for Priority Services Register – thousands 219.9 297.8 367.1 +23.3%

Customers with tailor made payment plans – thousands 235.6 229.0 200.0 -12.7%

Customers on loyalty plans – millions 0.84 1.34 1.86 +38.8%

New suppliers 1,085 1,112 1,024 -7.9%

Suppliers for more than three years N/A 5,626 4,270 -24.1%

WORKPLACE

Employees – headcount 12,287 13,427 16,892 +25.8%

Employees – monthly average 12,124 13,053 15,777 +20.9%

Average age of employees – years 39 40 41 +2.5%

Absence from work per employee – days 6.37 6.01 6.03 +0.3%

Turnover of employees – annual % 13.3 13.8 11.9 -13.8%

Gender split – all employees – male/female 76/24 75/25 74/26 N/A

Gender split – managers – male/female 90/10 89/11 84/16 N/A

Employees in Share Incentive Plan – % 48 44 38 -13.6%

COMMUNITY

Employees in receipt of Into Action 303 278 502 +80.6%

Employees participating in Quids In 892 943 1,375 +45.8%

Community benefit paid – £thousands 349 292 908 +210.9%

Charitable donations – £thousands 507 685 873 +27.4%

Research and development – £m 1.4 6.3 3.7 -41.3%


39>

Independent Assurance Report to Scottish and Southern Energy plc 38


>


Scottish & Southern Energy Plc (“SSE”) engagedEnvironmental Resources Management Ltd (ERM) toprovide independent assurance on selected informationpresented in its Corporate Responsibility Report 2008(the ‘Report’).

Scope of our workWe were asked to provide assurance on the following topics:

A. Environment k Progress made by SSE on its carbon

intensity target 2007/08; andk Carbon intensity (g/kWh) at SSE’s own

power stations and power stations inwhich it has part ownership.

B. Marketplacek Average total cost savings (in £)

delivered to SSE’s electricity and gas customers relative to British Gas customers over the past four years; and

C. Workplacek Delivery of SSE’s process safety

review and status of implementation of the review’s recommendations; and

k Lost time and reportable injuries andnumber of serious and potentiallyserious road traffic collisions.

D. Communityk The number of Customer Minutes Lost

and Customer Interruption in PowerSystems; and

k SSE’s Community Benefit Schemes total payments.

Objectives, basis of our work and limitationsThe objective of our engagement was toconclude as to whether SSE has appropriatelyreported the above assurance topics in theReport. We planned and performed our work to obtain all the information andexplanations that we believe were necessaryto gather sufficient evidence to provide a basis for our assurance conclusions.We undertook work at SSE’s head office inScotland, assessed two operational sites,and conducted other interviews country-wide. We did not undertake a detailed auditof the source information. If the scope ofwork had required us to do this, it may haveaffected our conclusions.

Reporting criteria and assurance standardsSSE has developed its methodologies formeasuring and reporting the selected CRassurance topics. These are described where appropriate within the Report.

We performed our work in accordance withERM’s assurance methodology which isbased on the international assurance andaudit standards: ISAE 3000, ISO 19011 and,where appropriate to our scope of work,AA1000AS.

Respective responsibilities and ERM’s independenceSSE’s management is responsible forpreparing the information presented in theReport whilst ERM’s responsibility is toexpress its assurance conclusions on theselected scope of work agreed with SSE.During 2008, ERM has worked with SSE onother consulting and assurance engagements.ERM operates strict conflict checks and hasconfirmed its independence to SSE fordelivering this assurance engagement.

Our team and assurance activitiesA multi-disciplinary team of CR,environmental, health and safety andassurance specialists performed theengagement. We conducted the followingassurance activities:

k Face-to-face interviews withmanagement at corporate level tounderstand the processes in place formanaging the selected CR assurancetopics (management system andperformance reporting), associated withreview and sample testing of evidence;

k Face-to-face interviews with CR and EHSdata management personnel, in order tounderstand how operations and BusinessUnit level data is reported to, andcollected by, the corporate structure.

k Face-to-face interviews with selectedBusiness Unit managers to reviewprocedures and processes in use andalignment with corporate systems.

k Telephone interviews with certainmanagement responsible for managingCR across SSE operations (managementsystem and performance datareporting), associated with review andsample testing of evidence. Thisincluded the Group Audit function;

k Site visits at two operational powergeneration facilities (Peterhead andFerrybridge) in order to review site level data capture processes, reportingsystems and SSE internal verificationprocedures in place;

k Reported our assurance findings tomanagement as they arose; and

k Reviewed the presentation ofinformation relevant to the scope of our work in the Report to ensureconsistency with our findings.

Our assurance conclusionsBased on our work undertaken as described above, we conclude that, in allmaterial respects SSE has appropriatelyreported within its 2008 CorporateResponsibility Report:

A. Environmentk The progress made in reaching the

carbon intensity target as presented on page 36 of the Report.

k Amount of emitted CO2 in tonnes and per kilowatt hour of electricitygenerated for SSE’s own power stationsand power stations in which it has partownership as presented on page 15 of the Report.

B. Marketplacek Average total cost savings (in £)

delivered to SSE’s electricity and gas customers relative to British Gas customers over the past four years as presented on page 19 of the Report.

C. Workplacek Delivery of SSE’s process safety

review and status of implementation of the review’s recommendations as presented on page 17 of the Report.

k Lost time and reportable injuries andnumber of serious and potentiallyserious road traffic collisions aspresented on page 7 of the Report.

D. Communityk The number of Customer Minutes Lost

and Customer Interruption in PowerSystems as presented on page 26 of the Report; and

k SSE’s Community Benefit Schemes total payments as presented on page 35of the Report.

Our key observations and recommendationsBased on our assurance activities set outabove, and without affecting our assuranceconclusions, we provide the followingcomments and recommendations forimprovements.

Improvements made since 2007:k Environment – Carbon management:

SSE has increased its proportion ofrenewable energy to the point that it hasbeen able to set a more stringent carbonintensity target for 2020.

k Workplace – Safety: Both LTI and RTCKPI data showed improvementcompared to the previous (2006/7) year.

k Community – Customer interruptions(Power cuts): Improved performancewith respective to both power cuts andminutes lost was reported relative to the previous year.

Areas to consider for future improvements:k Environment – Carbon management:

Keep under review best practice withregard to disclosure of performance oncarbon emissions and ensure eachyear’s performance, starting with2008/09, is publicly assessed in thecontext of the newly-adopted carbonintensity target.

k Workplace – Safety: Further strengthenmanagement’s approach to periodicallyreview the quality of the health andsafety performance data.

k Workplace – Process safety: Report fullyon the delivery of the process safetyreview in 2008/09, with appropriate KPIs.

k Community – Benefits schemes:Recognising recent changes inCommunity Benefits Schemes’ fundadministrators from Local Authorities to a Charity Organisation, we wouldrecommend SSE develop an internalassurance process to ensure third partyfund administrators quality of practicesand performance.

k Community – Benefits schemes: Roll-out the management system used toadminister Community Benefits Schemesto recently acquired businesses such as Airtricity’s operations.

Environmental Resources Management

9 July 2008, Edinburgh, UK

ERM is an independent global provider of environmental, social and corporateresponsibility consulting and assuranceservices. Over the past 4 years we haveworked with over half of the world’s 500largest companies, in addition to numerousgovernments, international organisationsand NGOs.


Values for the future 40


>

We believe that all accidents arepreventable, so we aim to do everythingsafely and responsibly, or not at all. Thismeans we believe all of our work can andshould be carried out without any harmto employees, contractors, customers or any other people.

What is Safety?We give our customers service we are proud of and make commitments that we deliver.

What is Service?

We keep things simple, do the work thatadds value and avoid wasting money,materials, energy or time. This is vitalwhen it comes to delivering electricity topeople’s homes, offices and businesses.We must maintain reliable power suppliesin the most efficient way possible.

What is Efficiency?We aim to operate ethically, taking thelong-term view to achieve growth whilesafeguarding the environment. That iswhy we actively support ways of changingthe way in which energy is produced and consumed.

What is Sustainability?

We strive to get better and smarter and more innovative because we want to be the best in everything we do. Thatmeans constantly looking for new ideas toimprove products, processes and servicesand finding better ways of working – all for the benefit of customers.

What is Excellence?We support and value our colleagues andenjoy working together as a team in anopen and honest way. Our team includesover 16,000 people working from morethan almost 200 power stations, depots,customer service centres, shops andoffices in every part of the UK and, now, overseas as well.

What is Teamwork?

Core values are the organisation’s essential andenduring tenets … not to be compromised for financialgain or short-term expediency, according to Collins and Porras in Built To Last. The SSE SET of values isSafety, Service, Efficiency, Sustainability, Excellenceand Teamwork.

Designed and produced by Tayburn Corporate


For further information about Scottish and Southern Energy, please contact:

Scottish and Southern Energy plcCorporate CommunicationsInveralmond House 200 Dunkeld RoadPerth PH1 3AQ

T: +44 (0)1738 456000E: [email protected]: www.scottish-southern.co.ukRegistered in Scotland No. 117119

SSE’s core purpose is to provide the energy people need ina reliable and sustainable way. In line with this, its strategyhas been, and will continue to be, the delivery of sustainedreal growth in the dividend payable to shareholdersthrough the efficient operation of, and investment in, a balanced range of regulated and non-regulated energyand utility businesses.

Shareholders expect companies not simply to beprofitable, but to be responsible in how those profits aremade. For SSE, this means that its Generation activitiesshould be as sustainable as possible and that the energyit supplies should be as affordable as possible. In addition,its networks should be reliable and its energy-relatedservices dependable.

This report was printed on Revive 50:50 Silk which contains 50% recovered waste and conforms to governmentrequirements for recycled paper. It is also certified as an FSC mixed sources grade.


www.Corporateregister.com 23/07/2008

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