Energy supply overview

At the end of 2006, UK electricity year ahead base load prices were trading around £33/MWh, with corresponding UK gas prices at 33p/therm. At the end of December 2007, year ahead prices were £53/MWh and 51p/therm respectively. The increases can be attributed to the market factoring in steep rises in the wider energy commodity market, particularly in the second half of the year.

We decreased our sale prices for residential gas customers by 10.2% on 15 June 2007. However due to market conditions, on January 18, 2008, we raised prices by 7.9% for electricity and 12.9% for gas.

We operate gas-fired and coal-fired power plants, undertaking base load and cycling duties. We operate three major power plants in the UK, with a total generating capacity of 4.9 GW:

• Sutton Bridge, Cambridgeshire – a Combined Cycle Gas Turbine plant with a design capacity of 803MW, commissioned May 1999
• Cottam, Nottinghamshire – a coal-fired plant with four units generating a capacity of 2,008MW, commissioned 1970
• West Burton, Nottinghamshire – a coal-fired power plant with four units and two open cycle gas turbines, delivering a total registered capacity of 2,052 MW, commissioned 1970.

In 2007, we generated 25.4 TWh of electricity for sales. Output from our generation plants effectively meets demand from our residential and SME customers. Demand from our large business customers, with consumption measured on a half-hour basis, is met through wholesale market purchases.

For residential and SME customers, we determine our minimum exposure to the risk of energy cost variations in advance. Once determined, we set maximum and minimum hedging levels and set clear limits, providing the basis for a supply strategy covering all raw materials.

In addition to our own generation, we purchased electricity in 2007 through:

• Long-term purchase contracts with Barking and Teesside power stations and with Scottish and Southern Energy, purchasing approximately 5.3 TWh of electricity
• Contracts with generators connected directly to distribution networks (consisting mainly of generators using renewable energy sources located close to demand) with approximately  2.4  TWh of electricity purchased
• Wholesale purchase contracts based on quantities and variable periods, purchasing approximately 23.4 TWh of electricity

Losses of approximately 3.8 TWh were incurred in distributing the electricity we generated and purchased during 2007.

Gas for end-users and our Sutton Bridge power plant is purchased through a diversified contract portfolio. Coal purchases are based on the generation forecast and coal stock targets. We purchase around 40% of our coal from the UK and the balance from international sources.