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Trading statements

SSE issues update

20 July 2017 07:18

Since SSE published its preliminary results for 2016/17, there were important developments in the energy sector:

- Wholesale: It has been announced by National Grid in June 2017 that the T-1 capacity market auction for 2018/19 will take place in January 2018, with a target volume of 6.0GW, and that the T-4 capacity market auction for delivery in 2021/22 will take place in February 2018, with a target volume of 50.1GW.

SSE also welcomes Ofgem's decision in June 2017 to reduce a specific payment that some small electricity generators receive for producing electricity at peak times as the level of this payment is distorting the capacity and wholesale markets.

- Networks: Ofgem set out in June 2017 its 'minded to' position on financial adjustments relating to the Distribution Price Control for 2010-15, based on the extent to which electricity distribution companies have delivered the outputs they committed to.

SSE's Scottish and Southern Electricity Networks (SSEN) delivered all of the benefits required under its major capital schemes, asset health, network loading and fault performance and so will not be subject to an allowance adjustment in respect of these areas.

As a result of lower electricity demand across the five-year period and reduced requirement for network reinforcement, however, SSE will experience a total revenue reduction of around £3m spread over the period to 2023.

In July 2017, in launching its 'Framework Review Stage' Ofgem said that investors should prepare for lower returns from 2021, with 'tougher' price controls to maintain good value for customers.

SSE believes the RIIO regulatory framework is delivering the highest-ever standards of customer service in the sector and record levels of investment in a robust and secure network.

There are also opportunities as networks evolve in line with changes to how electricity is produced and used and SSE will respond constructively to the questions raised by Ofgem at this initial stage in the development of the post-2021 Price Controls.

- Retail: In June 2017, the Secretary of State for Business, Energy and Industrial Strategy wrote to Ofgem seeking advice on its plans in relation to the energy supply market.

Ofgem responded on 3 July 2017 with proposals including the option of a 'safeguard tariff' for vulnerable customers and plans to make it 'even easier' for customers to switch their energy supplier. It said it would work with the industry and other stakeholders 'as we move towards a smarter, fairer, and more competitive energy market' and SSE will engage constructively. SSE believes that competition should be at the heart of the retail energy market and in line with that promotes a range of tariffs, products and services.

The GB domestic energy market remains highly competitive and in the first three months of 2017/18 SSE continued to experience a net loss in total customer account numbers.

- Enterprise: In June 2017 the UK government confirmed that its legislative programme 'will work to attract investment in infrastructure to support economic growth' with new legislation announced covering electric vehicles and the next phase of high-speed rail, to complement the rollout plans for telecoms infrastructure underpinning mobile and broadband services. Whilst still relatively small compared to the rest of the SSE group, this public policy direction presents opportunities to grow SSE's Enterprise businesses, both in terms of its energy-related businesses (utilities, rail, contracting) and its telecoms business, which will seek to provide additional communications infrastructure and services to these growing telecoms markets in Great Britain and Ireland.

FINANCIAL OUTLOOK

SSE continues to fulfil its core purpose of providing the energy people need in a reliable and sustainable way. It operates with a clearly-defined and long-term strategic framework built around a continued focus on efficient operations and disciplined investment.

The financial objective of SSE's strategy is to give shareholders a return on their investment through the payment of a full-year dividend that increases annually by at least RPI inflation in 2017/18 and beyond. SSE remains on course to deliver this.

As stated in its Preliminary Results, SSE is working to keep dividend cover in 2017/18 within the expected range of around 1.2 to 1.4 times, although it is likely to be towards the bottom of it, which means adjusted earnings per share in 2017/18 is likely to be lower than it was 2016/17.

Also stated in the Preliminary Results, the level of dividend cover remains subject to the ongoing factors that influence earnings in SSE's market-based businesses.

Story provided by StockMarketWire.com

Related Company: SSE

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