SME Product

Revision 2022 - Partner briefing

Business Energy

19/04/22

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SME Product
Partner update
Background
As market volatility continues and with increasing Regulatory oversight,
we are changing our product terms to show customers what elements
are 100% fixed and backed by ScottishPower; and what elements vary
as they are set by Regulators, Government and/or other 3rd party
providers.
This reflects that the energy costs for customers now make up 80% -
85% of all bills, and customers want comfort that the deal struck today
for energy costs will be the same tomorrow. Costs that are not managed
by ScottishPower will vary with reviews set Quarterly.
In short…
• 1, 2 & 3-year Electricity & Gas tenures remain
• Energy costs (referred to as commodity costs) will be
100% fixed over contract term – largest bill element
• Additional costs (referred to as non-commodity) as set
by other 3rd parties will be variable
• These ‘additional costs’ will be updated quarterly &
where they have moved a customer bill will change
• The additional costs will move up / down with market
& customers only pay market pricing
Note: Variable cost elements are shown further in pack
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BUSINESS ENERGY
Q. How will we see these changes?
A. No change to pricing files and small adaption to our sales script to advise
customer of the product terms (i.e. as part of our Principal terms)
Q. How will it show for a customer?
A. Non-commodity charges are reviewed quarterly and their billed rates
will automatically change to reflect this – no action required by
customer
Q. Why has ScottishPower gone for this approach?
A. Typically an energy supplier mitigates non-commodity risks by either
having T&Cs that allow pass-through of costs /or apply a risk premium.
In both occasions a customer is unaware of the risk / costs.
With growing Regulatory oversight (i.e. Ofgem Microbusiness review)
ScottishPower has selected to move to a more transparent methodology
in which we are advising what elements will vary and customers will be
able to see how these costs have been arrived at and what they will pay
Q. What elements will vary & can you advise re potential cost impacts?
A. Please see next slide for summary and explanation
Q. Are we now very different to other supplier products?
A. No, our energy costs are 100% fixed and where majority of competitors
have T&Cs that enable change, not linked to Force Majeure – we are
being open with customers why and how it will change (think of it like
mobile phone bill’s – it does change and you are told why)
Q. How do you know you are being more transparent this way?
A. We have seen recent examples of prices on Fixed products set by energy
suppliers varying, and where this has been a shock to customers
As you can see from our worked example (slide 5) the impact over last
12 months with his change is minimal at <£15 p/month
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SME ‘For Business’ BUSINESS ENERGY

Partner Battlecard

Overview Details for customers Important for Partners

Basics of the product What’s important for customers What’s important for partners

Ɩ Product called Ɩ Product has Fixed Ɩ Energy costs are Ɩ Charges are Ɩ Revised script confusing product
‘For Business’ and Variable pricing Fixed 100% at rates automatically supplied to be used T&Cs that customers
elements agreed with TPI updated on bill for the are not aware of
Ɩ 1, 2 or 3 Year deals Ɩ Open, transparent
quarter ahead (not
Ɩ Variable pricing only Ɩ Variable costs are customer T&Cs Ɩ Confidence that
Ɩ Electricity & Gas retrospectively applied)
reflects costs not set shown online for energy is 100% price
products Ɩ Reviews held 1st Jan / Ɩ Important customer
by ScottishPower customers fixed
April / July & Oct considers our T&Cs
Ɩ Acquisition &
Ɩ Customers costs may Ɩ 9 pricing elements vs. any other Ɩ Less risk of mis-
Renewals Unit rate /or Standing
vary over the term of that can vary not set Ɩ suppliers selling as Variable
the agreement by ScottishPower charges will vary element can be seen
accordingly online

Key Features Key benefits Ɩ For Business

No elongated

Ɩ Energy charges 100% Ɩ Quarterly cost Ɩ Market reflect pricing Ɩ T&Cs reflective of
Fixed changes – no on variable charges how the product is Fixed energy costs &
customer action priced now and, in the
Ɩ Open, transparent
with costs shown
required
Ɩ Energy pricing fixed
future, market reflective costs for
online for customers Ɩ Customer only paying
Ɩ No additional risk
premiums included
variable elements
set market rates – no
premiums attached

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SME ‘For Business’ BUSINESS ENERGY

Variable elements
Quarter this cost
Unit rate or daily
Name of Cost Description Who sets the cost Applicable fuel could change in this
standing charge
tariff
To help meet the country’s environmental targets, the UK Government instructs
UK Government and
Renewable Obligation energy suppliers to buy some of the electricity they supply to their customers from Electricity Unit Rate 01-Apr
Ofgem
renewable sources.

This is a cost that has to be paid to energy generators to ensure energy supply is Via industry capacity
Capacity Market Electricity Unit Rate 1 April and 1 October
available to meet consumer demand. It ensures there is always a security of supply. market auctions

This is an operating cost to run the UK’s national grid. It is the cost to ‘balance’ the
Balancing Services Use of System National Grid Electricity Unit Rate Each quarter
system and make sure there is enough electricity in the network to meet demand.

This is a charge by the Distribution Network Operators for the operation, Distribution Network Daily Standing Charge
Distribution Use of System Electricity 1 April and 1 October
maintenance and development of the UK’s electricity distribution network. Operators and Unit Rate

The transmission system is the network that carries electricity from large power
Transmission Network Use of System stations to the local distribution system. This charge is for the management and National Grid Electricity Unit Rate 1 April and 1 October
maintenance of the transmission system.

This charge is for the management and maintenance of the pipes that transport gas
Gas Transportation charge Gas transporters Gas Unit Rate 1 April and 1 October
across the network to homes and businesses.

This is a charge to support the Government scheme that provides financial incentives
Green Gas Levy Government Gas Daily Standing Charge 01-Apr
to increase the proportion of green gas in the gas network.

Assistance For Areas with High Electricity This is a charge applied to all consumers to offset the significant distribution network
National Grid Electricity Unit Rate 1 April and 1 October
Distribution Costs (AAHEDC) costs for consumers in remote and island communities in Scotland.

Smart Meter Costs - Data Communication Company The DCC provides the smart meter communications infrastructure that links energy
DCC Gas and Electricity Daily Standing Charge 1 April and 1 October
(DCC), Smart Energy GB (SEGB) suppliers to smart meters via a secure wireless network.

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SME ‘For Business’ BUSINESS ENERGY

Example scenarios (Elec & Gas)

To give you an indication of the level of change in applicable variable costs, below is an example of cost
movement between tariffs launched in April 2021 and April 2022

Variable costs at Variable costs at

Elec Variable Cost Apr-21 Apr-22 Gas Variable Cost Apr-21 Apr-22
Standing Charge (p/day) 4.11p 18.49p Standing Charge (p/day) 0.00p 0.58p
Unit Rate (p/kWh) 6.320p 6.950p Unit Rate (p/kWh) 0.985p 1.100p

Illustrative scenario only

Product released Product released
Elec @ 20 MWh Apr-21 Apr-22 Gas @ 40 MWh Apr-21 Apr-22
Total Bill £3,257 £7,324 Total Bill £1,336 £5,615
Fixed Element £1,978 £5,867 Fixed Element £942 £5,173 Individual customer values
Variable Element £1,279 £1,457 Variable Element £394 £442 will vary depending on
Bill Fixed Cost % 61% 80% Bill Fixed % 71% 92% consumption/meter/PES etc.

1 Year Change in
Movement % of Bill Based on:
Variable Cost
- Single rate meter
Elec @ 20 MWh £178 2.4% - PES 10
Gas @ 40 MWh £48 0.9% - Direct debit