Chairman's AGM Statement

SCOTTISH AND SOUTHERN ENERGY PLC
29 July 1999
 
                 SCOTTISH AND SOUTHERN ENERGY PLC
                                 
  CHAIRMAN OUTLINES INTEGRATION AND COMPETITION HIGHLIGHTS TO AGM
 
Lord  Wilson of Tillyorn, Chairman of Scottish and Southern Energy
plc,  today  outlined the tremendous progress made on  integrating
the   Company,  which  is  already  delivering  customer   service
benefits,  and its success in the new competitive energy  markets,
with over half a million new energy customers.
 
Addressing shareholders at the Company's Annual General Meeting in
Perth, Lord Wilson said:
 
'This  has been a very important and an exciting year for Scottish
and  Southern  Energy  bringing together  two  of  Britain's  most
successful energy companies, Southern Electric and Scottish Hydro-
Electric.  The nil premium merger remains the only one of its kind
in  the  sector.   It  has produced one of  the  top  five  energy
companies  in the UK and, not having to pay a premium, means  that
the synergy benefits flow to our shareholders.
 
'We  now  serve  over  3.7 million energy customers,  one  of  the
largest  supply  businesses in the UK and we  have  the  country's
largest  electricity distribution business.  We  are  the  largest
generator  from renewable sources in the country and our portfolio
of  generation assets is the most diverse, flexible, efficient and
environmentally attractive of all the major generators.
 
'This strength is reflected in our operations where we're proud to
have delivered significant improvements in customer service.   Our
network  in  Southern England was once again the  best  performing
combined urban and rural network in the UK and continued  to  lead
its  peer  group  in  OFGEM's  guaranteed  standards  of  customer
service.   In  Scotland we were again the UK utility  most  highly
rated by customers.
 
'Financial performance during the past year has also been  strong.
Operating  profits  before exceptional  items  were  up  3.5%  and
earnings  up 0.5%.  The Board has recommended a full year dividend
of 25.7p.  This is in line with the commitment we made at the time
of  the merger to deliver dividend growth of 5-8% real between now
and March 2000.
 
'Reliability  of service is one of the key concerns  for  us.   So
we're  continuing  to invest heavily to make  improvements.   Over
£1bn  will  have been spent refurbishing our network in  the  five
years  to  March 2000 and that is all aimed at delivering  a  more
reliable  electricity supply for our customers.  The  benefits  of
this  can be seen very clearly with customer minutes lost down  to
under  52 minutes in the south of England and our network  in  the
north standing up very well to the 90mph winds which hit the  west
coast on Boxing Day.  Complaints to the industry regulator, OFGEM,
have once again fallen although payments per 100,000 customers for
failures against the guaranteed standards disappointingly rose  in
the  north mainly because of failure to keep appointments on time.
This  is  an  issue management is now focusing on.  Finally,  it's
worth  noting  that  our customers have enjoyed  another  year  of
falling prices.
 
'In our generation business the highlight of the past year was the
completed  upgrade of our power station at Keadby  in  Humberside.
It  returned to operation in November and it has achieved  a  high
rate  of  availability since then, averaging over 85%.  Our  first
two  open cycle gas turbine plants, at Burghfield near Reading and
Chickerell  near  Weymouth, have completed  their  first  year  of
operation.  We've also brought three new combined heat  and  power
plants  on stream and taken over the running of two similar plants
from NHS Trusts.
 
'By  contrast  though, our power station at  Seabank,  which  we'd
hoped  would  have completed its commissioning  by  now,  has  had
problems  with  its  turbines.   Siemens,  the  contractors,   are
addressing these.  Meanwhile the vast bulk of the payment  due  to
Siemens will be held back until the station is fully commissioned.
 
'As  reported  at the half year we agreed with our  joint  venture
partner,  BG plc, to go ahead with a second power station  on  the
site,  that's Seabank 2.  It will be a 385MW plant and work on  it
has already started.
 
'Let  me  turn  now to our supply business.  There have  been  two
significant highlights in the last year - the introduction of  our
new  Customer  System and the final stages of the opening  of  the
electricity markets to competition.
 
'We  have  been  delighted with the performance  of  our  Customer
System  which  is  a  key part of how we can improve  our  service
because  it holds all our customer data.  It was designed  for  us
with  the  needs of the competitive energy market in mind.   We're
already  benefiting from its flexibility in tailoring new products
and services for the competitive market.
 
'As for competition, all electricity and gas purchasing in Britain
is  now  open to competition.  That's a huge change if  you  think
that  only 13 years ago gas and electricity were entirely monopoly
businesses.   Great  credit  goes to  our  staff,  throughout  the
country, for the way they have tackled these massive changes.   In
the newly competitive markets we've won over half a million energy
customers  (that  is  gas and electricity) while  our  electricity
customer  losses were running at a slightly lower level than  we'd
anticipated with a net loss of about 120,000.
 
'It  has  been  an  important year for our  subsidiary  companies.
During  the  year Southern Electric Contracting purchased  Connect
South  West  which  was  the contracting  arm  of  SWEB  before  a
management  buyout.  We have also launched Scottish Hydro-Electric
Contracting.   That  will capitalise on loyalty  to  the  Scottish
Hydro-Electric  brand  and  offer  a  full  range  of  contracting
services.   It  also  means about 130 new jobs.   Another  of  our
subsidiaries, Thermal Transfer, has won a £7 million  contract  to
design  and  build a sterile clean room for AstraZeneca's  special
products plant at Macclesfield.  Our telecoms business has  signed
a  number  of  contracts  during  the  year  with  major  telecoms
companies such as One2One and Atlantic Telecom.  A key feature has
been  significantly reducing the need for new  mast  sites.   That
means  minimising the impact on the environment but still bringing
modern telecommunications to remote communities.
 
'Clearly  though the thing that has had to be one of  our  highest
priorities since December is the integration of our two companies.
We  have  made good progress and remain ahead of plan having  made
all key appointments, have made all key IT systems decisions, with
a  plan in place to move all the Scottish Hydro-Electric customers
to our new system by Spring next year and with a great deal learnt
from  best practice in both North and South.  We're already seeing
the  benefits of this, for example customer minutes  lost  in  the
North  have  reduced  by 50% for the first quarter  of  this  year
compared  to  the  same period last year.  In the  South  we  will
benefit  from  the training used in the North to  multi-skill  our
frontline staff.
 
'Our  staff  deserve tremendous credit for the contribution  which
they have made in the past year and particularly the way they have
tackled  issues  thrown  up  by the merger.   The  merger  of  two
companies,  which  both  have  strong  and  proud  traditions   of
achievement,  inevitably results in some  uncertainty.   It  is  a
tribute  to  our  staff  that they have continued  to  perform  so
exceptionally  well and that they have responded so positively  to
the opportunities opened up by the creation of the new Company.
 
'I am also glad to be able to report that performance in the first
three months of this year has been good, units distributed are up,
volumes  of energy traded are running at a similar level  to  this
time last year, our networks are delivering better reliability and
our  performance against Guaranteed Standards has improved in  the
North,  while  the  South continues its excellent  performance  of
previous years.
 
'Looking  forward  -  later  this year we  face  regulatory  price
reviews in distribution, supply and transmission.  These are going
to  have  a  considerable  impact, one  way  or  another,  on  our
financial  performance  over the next five  years.   The  approach
taken by the new regulator, Calum McCarthy, could be described  as
tough, as indeed we expected.  But we see ourselves as well placed
to  meet  the challenges.  Our commitments to investment, customer
service  and reducing controllable costs seem to be in  line  with
regulatory thinking, a key point of that is to insist on a  strong
link  between  performance against these particular  measures  and
future profitability.
 
'Let me turn now to our future strategic focus.  In essence it has
not  changed since we announced our merger in September last year.
Integration remains our top priority and we will continue to focus
on the UK in the medium term for our future growth.  We intend too
to  concentrate on areas where we know we are strong.  First, mass
market  supply, where we've already got one of the largest  supply
businesses  with over 3.7 million customers and in  which  we  can
continue to exploit our economies of scale and state-of-the-art IT
systems.   Second, network management, where we're  recognised  as
world  leaders in efficiency and customer service and in which  we
should  be in a strong position in terms of the likely outcome  of
the  regulatory  price  reviews.   Third,  generation,  where  the
thermal  efficiency, environmental credentials and cost  structure
of  our  generation  portfolio all help to  put  us  in  a  strong
position as this part of the market continues to evolve.   Fourth,
energy  trading, where our flexible generation, significant supply
business  and growing and complementary gas business  are  already
demonstrating the benefits of vertical integration.
 
'To  wind  up on this glance at the future I can say that Scottish
and  Southern Energy has good potential for earnings  growth  over
the   medium  term  from  three  sources  -  integration  and  the
efficiency savings which come from the merger, organic  growth  in
energy  supply and our already committed investments in generation
at  Keadby,  Seabank 1 and 2, hydro refurbishment  and  specialist
embedded generation.
 
'We were very pleased to note that International Business Magazine
'Forbes  Global',  published  in  the  USA,  agreed  recently  and
assessed  Scottish  and  Southern Energy  the  World's  top  rated
utility  based on return on equity, earnings per share, return  on
capital employed and the five year price change.'
 
For further information, please ring the Press Office on 01738 455111.