SSE : Consolidated Segmental Statement 2021/22

SSE CONSOLIDATED SEGMENTAL STATEMENT FOR THE YEAR ENDED 31 MARCH 2022

		Electricity Generation	Aggregate	Electricity supply	Gas supply	Aggregate
				Generation			Supply
Year ended 31 March 2022	Unit	Thermal	Renewable	business	Non-domestic	Non-domestic	business
Total revenue	£m	1,050.3	1,071.4	2,121.7	2,086.2	237.3	2,323.5
Sales of electricity & gas	£m	541.8	864.5	1,406.3	2,086.2	237.3	2,323.5
Other revenue	£m	508.5	206.9	715.4	-	-	-
Total operating costs	£m	763.1	414.4	1,177.5	2,121.9	218.6	2,340.5
Direct fuel costs	£m	148.5	-	148.5	1,080.1	157.1	1,237.0
Transportation costs	£m	93.4	115.6	209.0	474.6	38.4	513.0
Environmental & social obligation	£m	165.4	-	165.4	464.7	1.4	466.1
costs
Other direct costs	£m	261.5	47.5	309.0	9.0	1.8	10.8
Indirect costs	£m	94.3	251.3	345.6	93.6	20.0	113.6
EBITDA	£m	287.2	657.0	944.2	(35.7)	18.7	(17.0)
Depreciation and Amortisation	£m	71.7	183.5	255.2	3.8	0.7	4.5
EBIT	£m	215.5	473.5	689.0	(39.5)	18.0	(21.5)
Volume	TWh /	10.7	9.0	19.7	12.6	218.0
	mTherms
WACOF/E/G	£/MWh / p/th	13.9	-		85.4	72.0
Customer numbers	'000s				403.0	67.9	470.9

BASIS OF PREPARATION AND DISCLOSURE NOTES

The Group's operating segments are those used internally by the board to run the business and make strategic decisions. The types of products and services from which each reportable segment derives its revenues are:

Business Area	Reported Segments	Description
Continuing operations
		The economically regulated high voltage transmission of electricity from generating plant to the distribution network in the North of
		Scotland. Revenue earned from constructing, maintaining and renovating our transmission network is determined in accordance with
Transmission	SSEN Transmission	the regulatory licence, based on an Ofgem approved revenue model and is recognised as charged to National Grid. The revenue
		earned from other transmission services such as generator plant connections is recognised in line with delivery of that service over the
		expected contractual period and at the contracted rate.
		The economically regulated lower voltage distribution of electricity to customer premises in the North of Scotland and the South of
		England. This now includes the result from the Group's out of area networks business. Revenue earned from delivery of electricity
Distribution	SSEN Distribution	supply to customers is recognised based on the volume of electricity distributed to those customers and the set customer tariff. The
		revenue earned from other distribution services such as domestic customer connections is recognised in line with delivery of that service
		over the expected contractual period and at the contracted rate.

		The generation of electricity from renewable sources, such as onshore and offshore windfarms and run of river and pumped storage
	SSE Renewables	hydro assets in the UK and Ireland. Revenue from physical generation of electricity sold to SSE EPM is recognised as generated,
Renewables	based on the contracted or spot price at the time of delivery. Revenue from national support schemes (such as Renewable Obligation
(covered by CSS)
	Certificates or the Capacity Market) may either be recognised in line with electricity being physically generated or over the contractual
		period, depending on the underlying performance obligation.
		The generation of electricity from thermal plant and the Group's interests in multifuel assets in the UK and Ireland. Revenue from
	SSE Thermal	physical generation of electricity sold to SSE EPM is recognised as generated, based on the contract or spot price at the time of delivery.
Thermal	(covered by CSS)	Revenue from national support schemes (such as the Capacity Market) and ancillary generation services may either be recognised in
	line with electricity being physically generated or over the contractual period, depending on the underlying performance obligation.
	Gas Storage	The operation of gas storage facilities in the UK, utilising capacity to optimise trading opportunity associated with the assets.
	Contribution arising from trading activities is recognised as realised based on the executed trades or withdrawal of gas from caverns.
	Business Energy	The supply of electricity gas to business customers in Great Britain. Revenue earned from the supply of energy is recognised in line
	with the volume delivered to the customer, based on actual and estimated volumes, and reflecting the applicable customer tariff after
	(covered by CSS)
	deductions or discounts.
Energy
	The supply of electricity, gas and energy related services to residential and business customers in the Republic of Ireland and Northern
Customers
	Ireland. Revenue earned from the supply of energy is recognised in line with the volume delivered to the customer, based on actual
Solutions
Airtricity	and estimated volumes, and reflecting the applicable customer tariff after deductions or discounts. Revenue earned from energy related
		services may either be recognised over the expected contractual period or following performance of the service, depending on the
		underlying performance obligation.
		The provision of services to enable customers to optimise and manage low carbon energy use; development and management of
Distributed		battery storage and solar assets; distributed generation, independent distribution, heat and cooling networks, smart buildings and EV
Distributed Energy	charging activities. The results of the Group's Contracting and Rail business was included within this segment until it was disposed on
Energy
	30 June 2021.
		The provision of a route to market for the Group's Renewable, Thermal and commodity procurement for the Group's energy supply
	Energy Portfolio	businesses in line with the Group's stated hedging policies. Revenue from physical sales of electricity, gas and other commodities
EPM & I	Management and	produced by SSE is recognised as supplied to either the national settlements body or the customer, based on either the spot price at
	Investments (EPM&I)	the time of delivery or trade price where that trade is eligible for "own use" designation. The sale of commodity optimisation trades is
		presented net in cost of sales alongside purchase commodity optimisation trades.
Discontinued operations
EPM & I	Gas Production	The production and processing of gas and oil from North Sea fields. Revenue is recognised based on the production that has been
delivered to the customer at the specified delivery point, at the applicable contractual market price.
		SSE's share of Scotia Gas Networks, which operates two economically regulated gas distribution networks in Scotland and the South
Gas Distribution	SGN	of England. The revenue earned from transportation of natural gas to customers is recognised based on the volume of gas distributed
		to those customers and the set customer tariff.

The Group's reportable operating segments for 'Renewables', 'Thermal Generation' and 'Business Energy' are substantially aligned to the business segments reported in the Consolidated Segmental Statement (CSS). However, it should be recognised that there are differences between the two disclosures, primarily driven by the Licence requirements - these are described in the notes below and shown in the table reconciling the CSS to the financial statements.

HOW THE ACCOUNTS ARE PRESENTED

The financial information presented in the CSS is based on operating activities of the Group's electricity generation businesses ("Renewables" and "Thermal Generation" segments described above) and the non- domestic electricity and gas supply business ("Business Energy" segment described above) in Great Britain. The paragraphs that follow describe how SSE's Renewable and Thermal Generation and Business Energy (non-domestic supply) businesses interact with Energy Portfolio Management (EPM), which is the Group's energy markets business. The basis of preparation defines the revenues, costs and profits of each business and describe in more detail the transfer pricing arrangements in place for the financial year ended 31 March 2022. The CSS has been prepared on a going concern basis as set out in note A6.3 of SSE plc's Annual Report.

SUMMARY

The Group's 'Renewables' business sells electricity and Renewable Obligation Certificates (ROCs) from onshore and offshore windfarms and qualifying hydro to the Group's EPM business.

'Thermal Generation' sells electricity in respect of gas generation to EPM. It also receives external income in respect of ancillary services, balancing market participation and other contractual arrangements with third parties including government. It purchases its requirement for gas, oil and carbon from EPM.

'Business Energy' sells electricity and gas to circa 0.5m business customer accounts in Great Britain and procures electricity, gas REGOS, RGGOs and ROCs from EPM.

EPM acts as a route to market for Renewables and Thermal Generation and as counterparty with the external market for the procurement of electricity and gas for SSE Energy Services and Business Energy. EPM does not form part of the CSS as it is not within the scope defined by Ofgem. The policies governing the forward hedging activity undertaken by EPM are overseen by Energy Markets Risk Committee, whose responsibilities and roles are described on page 162 of SSE Annual Report for the year ended 31 March 2022.

RENEWABLE ELECTRICITY GENERATION

The Renewables profit and loss account above is based on the Group's electricity generation activity derived from natural sources of energy to produce electricity which includes wind, hydro and pump storage powered generation.

Renewables as presented in the CSS includes revenue and operating profit for wholly owned renewable generation assets and also a proportion of turnover and operating profit in respect of joint ventures, joint operations and associate generation companies1. The principal Joint Ventures, Joint Operations and Associates included are Beatrice Offshore Windfarm Limited, Clyde Windfarm (Scotland) Limited, Stronelairg Windfarm Limited, Dunmaglass Windfarm Limited and Greater Gabbard Offshore Winds Ltd. A full list can be found in note A3 of SSE's audited financial statements.

The Renewables profitability statement bears the risks and rewards for plant performance and renewable generation output, changes in the power price achieved for renewable generation and the impact of weather.

Individual line items in the Renewables profit and loss account above are comprised of:

Revenue From Sales of Electricity - revenue is recognised as generated and supplied to the national settlements body. Revenue is sold to the wholesale market through EPM at either the spot price at the time of delivery, or trade price where that trade is eligible for 'own use' designation. Revenue includes the sale of ROCs generated from qualifying plant to EPM. Generation volumes are the volume of power actually sold to the wholesale market.

Other Revenue - includes ancillary services, capacity income, balancing market participation and other miscellaneous income.

Transportation Costs - include Use of System charges and market participation costs.

Other Direct Costs - include power purchase agreement ('PPA') costs, site costs and management charges from EPM.

Indirect Costs - include salaries and other people costs, asset maintenance, rates, corporate costs and IT charges.

Depreciation and Amortisation - the depreciation shown in the CSS is the underlying charge based on the useful remaining life of the assets.

1 The PPA's that SSE has with its joint venture companies Clyde Windfarm (Scotland) Limited, Stronelairg Windfarm Limited and Dunmaglass Windfarm Limited provide SSE with contractual entitlement to 100% of the output of the windfarms. Accordingly, SSE has reported its rights to those volumes within its Renewables statistics and has also, as mandated by Ofgem, included 50% of the JV revenue in the CSS.

THERMAL ELECTRICITY GENERATION

The Thermal profit and loss account above is based on the Group's conventional (thermal) electricity generation activity. Conventional generation is considered to be any generation where fuel is consumed to produce electricity and includes gas and oil fuelled generation.

Thermal Generation as presented in the CSS includes revenue and operating profit for wholly owned thermal generation assets and also a proportion of turnover and operating profit in respect of joint ventures2. The principal joint ventures included are Seabank Power Ltd and Marchwood Power Ltd. A full list can be found in note A3 of SSE's audited financial statements.

The Thermal Generation profitability statement bears the risks and rewards for plant performance, changes in market 'spark' (the marginal profit for generating electricity by gas), changes in government and EU policy particularly surrounding emissions.

Individual line items in the Thermal profit and loss account above are comprised of:

Revenue From Sales of Electricity - revenue is recognised as generated and supplied to the national settlements body. Revenue is sold to the wholesale market through EPM at either the spot price at the time of delivery, or trade price where that trade is eligible for 'own use' designation. Generation volumes are the volume of power sold to the wholesale market.

Other Revenue - includes ancillary services, capacity income, balancing market participation and other miscellaneous income.

Direct Fuel Costs - Thermal Generation procures fuel and carbon from EPM at wholesale market prices. The cost of fuel also includes the long term external purchase contracts and the impact of

financial hedges. The WACOF (weighted average cost of fuel) calculation includes the costs of carbon emissions (reported in the environmental and social obligations cost line in the CSS).

Transportation Costs - include Use of System charges and market participation costs.

Environmental and Social Costs - include carbon costs.

Other Direct Costs - include power purchase agreement ('PPA') costs, site costs and management charges from EPM.

Indirect Costs - include salaries and other people costs, asset maintenance, rates, corporate costs and IT charges.

Depreciation and Amortisation - the depreciation shown in the CSS is the underlying charge based on the useful remaining life of the assets and excludes exceptional asset impairments.

2 The tolling arrangements that SSE has with its joint venture companies Seabank Power Ltd (ended 30 September 2021) and Marchwood Power Ltd provide SSE with contractual entitlement to 100% of the output of the power stations. Accordingly, SSE has reported its rights to those volumes within its Thermal Generation statistics and has also, as mandated by Ofgem, included 50% of the JV revenue in the CSS.

BUSINESS ENERGY (NON DOMESTIC)

Revenue from Sales of Electricity and Gas - revenues are the value of electricity and gas supplied to business customers in Great Britain during the year and includes an estimate of the value of units supplied between the date of the last bill and the year end. Non domestic volumes are expressed at customer meter point. RCRC has been allocated to direct fuel costs in the year ended 31 March 2022. In the year ended 31 March 2021 this was allocated to Revenue.

Direct Fuel Costs - Business Energy does not engage in the trading of electricity and gas and procures all of its electricity and gas from EPM. The method by which EPM procures energy is at an arm's length arrangement on behalf of Business Energy is governed by Business Energy's forward hedging policy. The forward trades between Business Energy and EPM are priced at wholesale market prices at the time of execution and any differences in volume and reconciliation at the time of delivery is marked to the spot price on the day. WACOG (weighted average cost of gas) also includes all Allocation reconciliations and Unidentified Gas. The WACOE and WACOG also consist of trades marked to wholesale prices when committed at the point of sale for fixed price customer contracts or when a customer instructs SSE to purchase energy in respect of flexi- priced contracts. This transfer pricing methodology reflects how Business Energy actually acquired its energy. There have been no material changes in the transfer pricing policy in respect of Business Energy since the CSS for the financial year ending 31 March 2022.

Transportation Costs - these include transportation, transmission and distribution use of system costs and BSUOS.

Environmental and Social Obligation Costs - relate to policies designed to modernise and decarbonise the energy system in Great Britain and include ROCs, Feed in Tariff, charges under the Capacity Mechanism and CfD schemes and charges in relation to 'assistance for areas with high electricity distribution costs' (AAHEDC). REGO, RGGOs and GOO costs related to these schemes are also included in this section of the CSS. Industry Mutualisation costs have also been allocated to this element of the statement.