Independent Assurance Statement

Scope and objectives

Two Tomorrows (Europe) Limited has undertaken independent assurance of the ScottishPower 2010 CSR Annual Review. The assurance process was conducted in accordance with AA1000AS (2008). We were engaged to provide Type 2 assurance, which covers:

• evaluation of adherence to the AA1000APS (2008) principles of inclusivity, materiality and responsiveness (the Principles) and
• the reliability of specified sustainability performance information.

The performance information included in scope was all data and key claims in the Review, with checking processes prioritised according to materiality. The assurance scope excluded financial information taken from annual reporting processes, financial investment data, and any data already submitted to regulatory audit or other third party checks. We used the Global Reporting Initiative (GRI) Quality of Information Principles as Criteria for evaluating performance information. The scope of our work excluded company reporting relating to the operations of ScottishPower Renewables, and the material included under ‘TV Station’.

Responsibilities of the directors of ScottishPower and of the assurance providers

The directors of ScottishPower have sole responsibility for the preparation of the Report. We were not involved in the preparation of any part of the Report. We have no other contract with SP and this is the eighth year that we have provided assurance. Our statement represents our independent opinion and is intended to inform all of ScottishPower stakeholders including management. We adopt a balanced approach towards all ScottishPower stakeholders. Our team comprised Jon Woodhead, Elvin Ozensoy and Vicky McAllister. Further information, including individual competencies relating to the team can be found at: www.twotomorrows.com

Basis of our opinion

Our work was designed to gather evidence with the objective of providing moderate assurance as defined in AA1000AS (2008). We undertook the following activities:

• Review of the current sustainability issues that could affect ScottishPower and are of interest to stakeholders
• Interviews with selected directors and senior managers responsible for management of sustainability issues and review of selected evidence to support issues discussed. We were free to select these interviewees.
• Review of ScottishPower’s approach to stakeholder engagement and recent outputs. As part of this, we attended the Stakeholder Sessions held by the company in Chester and Glasgow in February 2011.
• Review of information provided to us by ScottishPower on its reporting and management processes relating to the Principles
• A site visit to Longannet Power Station, part of the Energy Wholesale business, to review process and systems for preparing site level sustainability data and implementation of sustainability strategy. We were free to choose the site.
• Review of supporting evidence for key claims in the report
• Review of the processes for gathering and consolidating data and, for a sample, checking the data consolidation
• An independent assessment of Scottish Power Reporting against the A+ Application Level for the Global Reporting Initiative (GRI) G3 Guidelines

Findings

We reviewed and provided feedback on drafts of the Report and where necessary changes were made. On the basis of the work undertaken, nothing came to our attention to suggest that the Report does not properly describe ScottishPower’s adherence to the Principles or its performance.

Observations

Without affecting our assurance opinion we also provide the following observations.

• During the reporting period, ScottishPower launched its ‘Big Goals’ initiative, which includes a set of goals and metrics that will be used across each business. This initiative has been communicated to internal and external stakeholders, and in the CSR Annual Review. This initiative should help ScottishPower to improve the way that success is tracked in each performance and business area.
• We understand future reporting might be restructured to cover all of Iberdola UK’s operations; ScottishPower and ScottishPower Renewables. This approach would present a clearer and more complete account to stakeholders on key issues such as climate change, Where possible, future reports should also include stakeholder views on the Iberdrola Group’s participation in a UK consortium to build new nuclear generation, as the current report refers to ScottishPower’s plans for a more diversified fuel portfolio.
• ScottishPower has conducted a number of stakeholder consultation activities during the year with a broad range of stakeholder organisations, including the stakeholder workshops held in Glasgow and Chester. We understand that a summary report on these stakeholder dialogues will be made available through the ScottishPower website.
• ScottishPower report on plans to introduce a new approach to measuring levels of employee engagement, in line with the “Engaged Motivated People” Goal. We recommend that this new approach should include ways of assessing employees’ engagement with the ways in which the company manages key sustainability issues, and the views of employees on their opportunities to participate and influence the company’s approach.

Inclusivity concerns the participation of stakeholders in developing and achieving an accountable and strategic response to sustainability.

Material issues are those which are necessary for stakeholders to make informed judgments concerning ScottishPower and its impacts.

• The 6 Big Goals underpinning ScottishPower’s 6 Values are representative of the company’s most material issues. Future reports should provide a clearer explanation of the relative materiality of individual issues, and should show how stakeholder dialogue influences the report development process.
• Iberdrola UK, of which ScottishPower forms a part alongside ScottishPower Renewables, has committed to reducing CO2 emissions by 20% over the period 2007 to 2020. This commitment will contribute towards the overall Iberdrola Group target to keep its emissions per unit of electricity (kWh) at least 20% below the European electricity sector average by 2020, which equates to a 30% reduction on 2007 levels. Whilst these commitments are a significant development since last year, we consider that future reports should provide a more comprehensive account of the specific contributions that ScottishPower’s activities are expected to make to the achievement of this target. We recognise that the process of energy market reform is not concluded, but believe that there is now a need to set out ScottishPower’s vision for how its planned investments could reduce carbon emissions in the period up to 2020 and beyond.
• With the exception of governance for environmental issues, which is covered in detail under the section of the report on environmental management, reporting on governance for sustainability issues requires improvement. Future reports should demonstrate where accountability sits for specific CSR issues at Board level, and how the Boards of ScottishPower Generation Holdings Limited and ScottishPower Energy Networks Limited have been kept appraised of relevant CSR issues and performance during the reporting year. Further details are also required on the work of the CSR Steering Committee, for example what effects the work of the Committee has had on the management of CSR issues across the business.
• In our opinion the report should include more information on ScottishPower’s planned response to the risk arising from a potential employee skills gaps in the future. The report identifies that forecast retirement rates over the next 10 years indicate that 18% of the workforce are due to retire in this period, and it has been identified that employees will in future need new skills to work on new, emerging technology. Whilst the report does include some relevant information, for example on liaison activities with universities, we recommend that future reports should include plans and forecasts for recruitment over the near-term.

Responsiveness concerns the extent to which an organisation responds to stakeholder issues

• As stated in previous years, we recommend that additional reporting on how the company understands stakeholder concerns and ScottishPower’s response would strengthen the report.
• In previous years we have recommended that ScottishPower should provide additional information on the basis for price changes during the reporting period. We recommend that ScottishPower should explain how and why prices have changed using the same definition of ‘average dual fuel customer’ as used by commonly quoted sources such as Uswitch. We also recommend reporting information on the range of tariffs available to ScottishPower customers, and what support is accessible to assist customers in selecting the most appropriate tariff.

Performance Information

• In terms of data accuracy, nothing came to our attention to suggest that these data have not been properly collated from information reported at operational level, nor that the assumptions utilised were inappropriate. We are not aware of any errors that would materially affect the ScottishPower corporate data. During the course of our review we identified issues regarding the accuracy of consolidated health and safety data, which were rectified prior to completion of the assurance process.
• The issue of multiple reporting requirements, and differences in data protocols between ScottishPower and Iberdrola was highlighted again this year during data checks. These differences have the potential to increase the risk of data transfer errors. We understand that work to further align these reporting requirements continues, and there has been a good progress in improving the communications, such as the guidance on environmental indicator requirements.
• We restate our recommendation made last year regarding the involvement of ScottishPower’s Internal Audit team through checks on data accuracy prior to the assurance process.
• We checked the basis for consolidated data on customer complaints, to ensure that reported data can be supported by internal systems. However we were unable to review the boundaries and definitions used to record customer complaints. For health and safety, waste, and carbon emissions data we checked the basis for consolidated data, however were also unable to check data at business level. For future reports we recommend that additional checks on source data and data collection processes should be carried out for these data.
• We do not provide assurance over non-fuel procurement data as these were provided by Iberdrola. We are also unable to provide assurance over average hours of training per year per employee, by employee category, which is also reported under GRI indicator LA10. We understand that these figures have been subject to external verification as part of the Iberdrola Sustainability Report.
• Energy Wholesale uses a number of different databases to collect environmental data for reporting purposes. Our review of data at site level indicated the potential for errors associated with manual transfers of data between databases, and rounding errors. We recommend that these processes should be reviewed to improve efficiency and accuracy.
• We confirm that the report meets the requirements of the A+ Application Level for the Global Reporting Initiative (GRI) G3 Guidelines.

Two Tomorrows (Europe) Limited

London, August 2011

Jon Woodhead	Elvin Ozensoy	Vicky McAllister
Group Director	Senior Consultant	Senior Consultant

Two Tomorrows (Europe) Limited trading as Two Tomorrows is an international consultancy that helps companies to perform better and create value by doing business in a sustainable way. www.twotomorrows.com