Jersey Electricity: Report and Accounts 2018 – Turning the Tide for a Low Carbon Island

7% to £13.6m

 Powerhouse Retail profit levels

up 11% to £0.8m

A YEAR IN FOCUS

COCNOTNENTETNSTS

CONTENTS DIRECTORS, OFFICERS AND

PROFESSIONAL ADVISERS

NON-EXECUTIVE DIRECTORS Geoffrey Grime FCA (Chairman) Aaron Le Cornu BSc, ACA

Alan Bryce MSc, CEng, FIET

Phil Austin MBE, FCIB, FCMI

8Wendy Dorman BA (Hons), ACA

Tony Taylor BSc

CTRICITY

12EXECUTIVE DIRECTORS

BILITY Christopher Ambler BA, MEng, CDipAF, CEng, MIMechE, MBA (Chief Executive)

Martin Magee CA (Finance)

ION S SECRETARY

Peter Routier BSc, FCIS

REGISTERED OFFICE

T Queen s Road, St. Helier , Jersey S

PLACE OF INCORPORATION

Limited company incorporated in Jersey

AUDITORS

Deloitte LLP, PO Box 403, 66-72 The Esplanade, St. Helier , Jersey

BANKERS

Royal Bank of Scotland International Limited,  71 Bath Street, St. Helier , Jersey

NITY U BROKERS

Canaccord Genuity Wealth Management,

PO Box 3, 37 The Esplanade, St. Helier , Jersey

REGISTRAR

Computershare Investor Services (Jersey) Limited,  Queensway House, Hilgrove Street, St. Helier , Jersey

42

CHAIRMAN'S STATEMENT

This year is my last on the Board and I am extremely pleased with the enormous progress made by the team at Jersey Electricity over my 10 years as Chairman.

Our Company has substantially completed a significant and sustained programme of investment over the last decade which has involved the construction of two new submarine cables laid between Jersey and France, three major primary substations, three reconditioned diesel generators as well as a series of other critical projects led by our functions and business units focused on delivering an affordable, secure and sustainable supply of electricity over the long term.

Jersey now benefits from a unique energy platform that is virtually completely decarbonised and is substantially future proofed for many years to come and importantly, it is an energy system that has the potential to underpin a smart , zero carbon view of the future.

I am delighted that our investments are creating value

for consumers and for the business. Not only are we strategically well positioned for the future but we have recorded our best ever financial performance this year and this is matched by an operational performance that is the envy of many jurisdictions large and small.

Our 2% tariff rise introduced in June 2018 was the first rise in over four years and our tariffs remain very competitive compared with other jurisdictions, including the EU and UK, the latter of which saw average power prices increase by almost a quarter in the last two years. Supply reliability is our best for 10 years and is at a level that is 10 times better than the UK on average. In addition, our energy system is delivering power into homes and businesses that is not only virtually completely decarbonised but one third of which is from certificated renewable sources.

Group revenue for the year 2017/18 was £105.9m, 4% higher than 2017, and profit before tax increased

to £15.3m, up from the £13.5m achieved last year. This was supported by strong underlying performance in the Energy business, which saw a new record peak demand of 178MW set and a 2% increase in unit sales volumes from 621 million to 634 million units. Our retail business Powerhouse.je also achieved continued strong growth in a challenging sector, with profits up 11% to £0.8m on an increased turnover of £13.6m, up 5% on last year.

We have made excellent progress on all our major investment projects during the year. St Helier West Primary Substation is about to be commissioned. Our Smart Metering programme, SmartSwitch, is entering its final phase, with 87% of our customers now converted and benefits already being realised. We successfully launched an innovative smart home demonstration concept, Smarter Living , embedded in the Powerhouse retail store which

is receiving great interest from customers. In France, we completed an important £1m upgrade, funded jointly with Guernsey Electricity, on our Normandie 2 circuit to increase both import capacity and security of supply.

As the Island s leading energy supplier, we bear an enormous responsibility to our customers and we continue to seek feedback from them. We are aware there is more

to do to promote energy efficiency, local renewables and electric transportation, but it is reassuring that we continue to receive positive feedback from stakeholders. Once again, I am pleased to report that our ratings in both our supply service and overall customer service showed improvements on last year.

Maintaining profitability is essential to continued investment in infrastructure and to providing a sustainable electricity service for everyone, including all our stakeholders. I am also pleased to report a proposed final dividend for this

year of 8.8p, a 5% rise on the previous year, payable on

28 March 2019.

My thanks, as always, go to our Executive and non- Executive Directors and colleagues throughout the business for their commitment, hard work and loyalty that have made Jersey Electricity the great success it is today.

I will be formally stepping down as Chairman at the AGM on 28 February 2019 and I am delighted to be handing

over to Phil Austin a Company that is well-positioned for the future, and I wish Phil and the whole Board the very best

in continuing to steer Jersey Electricity through the many exciting opportunities ahead.

13 December 2018

CHAIRMAN S STATEMENT

"I step down leaving the

Company well-positioned for the future and the exciting opportunities ahead."

CHIEF EXECUTIVE'S REVIEW

2017/18 has been an exceptional year in terms of both service delivery and financial performance. Our major investment in network assets over recent years is now paying dividends for our customers in terms of supply reliability, price and carbon reduction, and for the business in terms of increased unit sales and profits. Buoyed by the coldest snap of weather since 2013, our unit sales increased to 634 million kilowatt hours off the back of our highest electricity demand ever of 178MW on 1 March 2018. This helped support a

rise in Energy profits from £11.7m to £13.4m off the back

of revenues of £82.3m.

Other business units also performed well and, when combined with Energy, produced a Group turnover of £105.9m, a 4% rise on last year s £102.1m, resulting a profit of £15.3m being a 14% increase from the previous year s £13.5m and a return that is commensurate with our Energy asset  

base of £180m.

"Our vision includes locally generated

renewables delivered

on a fair basis  for all."

CHIEF EXECUTIVE S REVIEW

Maintaining profitability is essential considering that we have substantially completed a ten-year programme of significant infrastructure investment.

Investment continued this year with a £1m upgrade of the Normandie 2 (N2) French-side land cable from the beach at Surville to the substation at St RØmy des Landes. This work will allow us to draw additional capacity from the submarine cable network system in a more secure configuration and will further protect the Island in the event of a loss of any one cable. On-Island, our new £17m primary substation St Helier West

will shortly be brought into service and will relieve pressure on the network in St Helier; future proofing it to meet increasing demand.

Beyond our Energy business, our retail arm, Powerhouse and the online powerhouse.je, continued to show strong growth with profits moving up 11% to £0.8m in 2018 compared

with £0.7m last year on a 5% higher turnover of £13.6m (2017: £12.9m). This is an excellent achievement in a highly competitive sector both on-Island and online. Revenue from JEBS, our contracting and building services business, rose £0.8m from levels experienced in 2017 to £4.8m, but in a challenging year, incurred a loss of £0.2m against a profit

of £0.1m in 2017. Plans are being implemented to improve performance in this business unit. Jersey Energy, Jendev

and Jersey Deep Freeze all collectively produced profits

of £0.6m, being 12% higher than last year. Profits in our Property division, excluding the impact of investment property revaluation, at £1.8m, were £0.2m above last year.

Having laid a solid foundation in terms of infrastructure investment, the business is able to import even more low carbon power than ever before, with importation rising to 95% of total Island demand. This has yielded increased supply security and better affordability as well as our lowest ever average carbon intensity for distributed electricity of

24g CO2e/kWh. With a largely future-proofed importation platform substantially in place, we are now shifting our focus even further to the demand side a focus that will deepen

our relationships with customers beyond the meter and optimise those assets to yield higher efficiencies. We

expect technology and digital opportunities to have an increasingly important role in facilitating efficient

operation of our business and in creating new energy solutions for customers.

As an illustration of this, in July, we unveiled Smarter Living , a physical energy hub in the heart of our Powerhouse retail store showcasing

the most energy efficient heating technologies, smart controls and other smart tech in real home settings. The area is an invaluable tool for our Energy Solutions team that spearheads our load growth strategy of fuel switching customers from fossil fuels to electric heating by enabling them to show first-hand how systems will work and look in

customers homes. This is already leading to a richer source of fuel switching opportunities.

The area also features Smart Meters, another technology that brings benefits to both customers and the business. While the ambitious Smart Meter roll-out on mainland UK has faltered, Jersey s £11m SmartSwitch programme is due for completion mid-2019. More than 87% of the Island, around 44,000 premises, are already enjoying the benefits. Looking ahead,

our 4,500 Pay As You Go (PAYG) customers will have their key meters replaced by Smart PAYG Meters next year, enabling them to top up their meters remotely as easily as they do a mobile phone.

We also continue to encourage electric transport that we see as another potential load growth area. Transport accounts

for a third of the Island s total carbon emissions and is largely untapped. This is therefore the next big step for the Island in reducing emissions. We are leading further development of Jersey s EV charging network and are in the process of upgrading our current Rolec public charging infrastructure with the latest smart chargers from Chargemaster. Our aim

is to extend Jersey s public charging network to around 50 chargers.

Despite having already virtually completely decarbonised the Island s electricity supply, we recognise the appetite among

the community for local renewable generation. Our vision

for the future includes renewables delivered on a fair and economically sustainable basis for all customers and not just

a few. We believe the best opportunity for Jersey at present

is ground-based solar PV that is close to or at grid parity (ie competitive in cost terms with imported electricity). In July, we announced plans to enable the establishment of small ground- mounted solar farms on brownfield sites with the security of long-term purchase contracts with Jersey Electricity, and we are making some progress with the first pilot. We are encouraged by the policy focus of the new Government in Jersey which

is prioritising the environment and renewables, and we are looking forward to unlocking new renewable opportunities with them.

Providing affordable electricity for everyone is one of our

core objectives and a very challenging one for a business of our scale. We were encouraged by the support we received from the recent independent States of Jersey review into the Standby Charge to be extended to cover all new commercial embedded generators. The review concluded that a charge

for backup services taken by embedded generators was justifiable on commercial grounds and that without it, prices would rise for all other customers many of whom are not in a position to install solar PV, thermal or wind generators. As well as reviewing how this charge should now be implemented, we will examine how we can most effectively support a renewable industry without creating artificial subsidies.

The 2% tariff rise from 1 June 2018 was our first price rise

for four years, however, our tariffs for most customers remain competitive with other jurisdictions, including the UK which saw average rises of 24% in the last two years across the

 Big Six suppliers . We are well within our target of +/- 10% of the EU15.

Investment in staff development and succession planning has continued to ensure we not only have the energy of the future but a skilled, engaged and dedicated workforce to deliver it long into the future.

GROUP PURPOSE CHIEF EXECUTIVE S REVIEW

tot50,561al customers 17,587

customers on discounted tariffs

ENERGY GROWTH

Units sales, at 634 million, increased 2% on last year s  advanced energy-efficiency-promoting and Smart tech

621 million buoyed by a period of severe temperatures  showcase in the Channel Islands, if not the UK. Built in the

in February and March that also resulted in our previous  heart of our Powerhouse technology retail store, Smarter record peak demand of 161MW, set in February 2012,  Living enables our customers to examine and learn about the being exceeded three times in one week and culminating in  latest energy efficient, low carbon heating systems and other a new record of 178MW on 1 March 2018. Nevertheless,  smart home technology in a real home environment so they the ever-increasing downward pressure of energy efficiency  can see how these technologies would look and feel in their remains. While always advising our customers how to  own homes. During the official opening in July, UK smart become more energy efficient, we also seek to counter the  city expert Joe Dignam commended Smarter Living , saying impact by developing propositions that encourage them to  he had never seen a space that brought together so many

fuel switch from gas and oil to electricity in both domestic and  different manufacturers of smart technology under one roof. commercial markets. Maintaining unit sales distributed across

Bringing Smarter Living to life in a short time frame also our network helps to unitise fixed costs and keep prices

embodied our value of Teamwork by bringing together teams competitive. from right across the Group including Energy Solutions,

Powerhouse retail, Customer Care, JEBS for the install, and Energy Solutions   Jersey Energy who delivered a comprehensive 12-week

training programme that helped turn Customer Care Advisers Our team dedicated to load growth through fuel switching  into even more knowledgeable Home Energy Advisers.

is Energy Solutions and this small team has again exceeded

target by achieving over 160 fuel switches in the domestic  Already paying dividends, in August, Smarter Living s market. To further aid this important work, we have this year  first full month of operation, we saw a 50% increase in invested in a new customer-facing asset, Smarter Living .  fuel switching leads to the Solutions team. The area is also

 Smarter Living is a one-stop Energy Hub that is the most  hosting educational and promotional events for architects, contractors and the Island s associated tradesmen to

PEAK • 01 MARCH 2018encourage greater application of low carbon electricity in the

most efficient ways possible. The smart and digital revolutions 178MW will help them lead cleaner, greener lives.

are upon us and we aim to be at the forefront by helping our customers understand and embrace these technologies that

Commercial  

The team continues to also make good progress in the important commercial sector. As well as converting many hotel and restaurant kitchens to all electric solutions that include energy efficient induction cooking, heat pumps are now the main choice for heating and cooling new office buildings.

Electricity remains the first choice for developers seeking energy efficient building designs. Building standards today

mean little energy is needed for heating so most of

the opportunity is in general light and power and cooling applications. We have maintained our

position with over 98% of new builds choosing efficient electric solutions for heating and cooling.

Electric transportation

The total number of electric vehicles registered in Jersey  zero-emission, all electric Mercedes smart cars, introduced

at year end was 383, an increase of 112 on last year,  the first Peugeot iOn to the Island and added the Nissan Leaf which shows the tide is beginning to turn, albeit slowly, as  to our fleet.

advances in battery technology and an increased range of

By 2013 we had installed 14 public EV charging bays models and high-end marques entice owners off traditional

in town multi-storey car parks and our own Powerhouse combustion-engine vehicles. The number of commercial

car park. We also launched the Evolve EV owners club to electric vans has also risen from 52 to 72 as more businesses

provide free access to these chargers and free installation of wake up to the environmental and financial advantages of

a home charger for a monthly fee. By 2014, registered EVs electrifying their transport.

in Jersey topped 100, and we had increased public charge Jersey Post has continued the de-carbonisation of its  points to 18. By 2015, we were seeing increasing requests 110-vehicle fleet that Jersey Electricity helped to facilitate  from developers to install EV charging points as part of

in 2016. This year, Jersey Post added another 17 Nissan  their initial builds. Jersey now has over 70 EV charge points ENV200s bringing the total to 47 Nissans plus one LDV  (private and public but excluding domestic).

(formerly Leyland DAF Vans) on a year s free trial and it

Our focus on electric transport continues and this year we plans to add at least a further 15 Nissans and an electric

trialled the latest smart charger and portal system from Renault Master Van in 2019.

Chargemaster at our Powerhouse headquarters and are now Security company G4S is currently awaiting delivery of its  in the process of upgrading the existing public Rolec charge first EV and on completion of a successful trial hopes to  points. The system is designed with a modern back office expand electrification of its extensive fleet over time. The  and customer portal which will allow more flexible tariffs and BMW i3 is proving a success with law enforcement  charging access arrangements for Jersey residents and visi- agencies. States of Jersey Police have taken the lead from  tors. We have plans to extend the public charge network to the Irish Police Force and Czech Republic in ordering three  50 across the Island and we hope to secure parking places BMW i3s following a successful trial in the Island. from the States of Jersey and Parishes to facilitate this.

Jersey Electricity has been at the forefront of increasing the  Transport still currently accounts for a third of Jersey s overall awareness of the economic and environmental benefits of  carbon emissions and the States of Jersey Energy Plan Path- electric transportation and facilitating its uptake in Jersey  way 2050, ratified in 2014, states the following targets:

since 2011 when we took part in a worldwide trial of

% NEW CARS

REGISTERED AS ULEVs If these targets were (ULTRA LOW EMISSION VEHICLES)

met, the impact on CO

would be savings of...2

• 5,579 tonnes 90% • 2050

bbbyyy 222000234000• 33,465 tonnes

• 16,738 tonnes

by 2050 • 50,213 tonnes 60% • 2040

30% • 2030

10% • 2020

We know decarbonising transport is the next big step in helping Jersey further reduce its overall emissions and we look forward to en- gaging with government to bring this about.

ELECTRIC VEHICLES

ON JERSEY REAS AT END GISTER72 TOTAL

2018 16

46

249

FIRSpriceT RISE IN

4YEARS

The year brought our first tariff rise in four years, the last increase being 1.5% in April 2014. While any increase

is regrettable, the below-inflation rise of 2% that came into effect in June 2018 was restrained and ensured our tariffs continue to remain competitive compared with similar and even larger jurisdictions, which benefit from economies

of scale, and bettered our target of +/-10% of the EU15 average.

Price s and, importantly, price stability are rated by our customers as the most important factors in the provision of our service and we believe our record on price stability is commendable given our heavy investment in infrastructure in recent years and when set against the UK where the Big Six suppliers have increased retail prices by an average 24% over the last two years.

In May 2017, we re-negotiated our supply agreement with EDF, extending our importation framework by five years to 2027 to help maintain a stable importation regime over a potentially uncertain Brexit period. EDF has since assured us that whatever the final terms of the UK s exit from the European Union in March 2019, this will not affect or impact our existing supply agreement. This agreement combines a fixed price component with the ability to price fix future purchases over a rolling three-year period based on a market related mechanism linked to the European Energy Exchange (EEX).

This year we imported 95% of Jersey s electricity requirements from EDF. This represents a substantial portion of our cost base and is contractually denominated in Euro. To reduce our exposure to foreign exchange fluctuations

and to aid tariff planning, we enter into forward currency contracts. Due to this hedging, the average Euro/Sterling rate underpinning our electricity purchases during this financial year was 1.27  /£ against the average of 1.13  /£ due to continuing volatility on foreign exchange markets brought about by Brexit. While our strategy does provide us with some degree of protection and foresight, we expect further turbulence in energy and foreign exchange markets going forward.

Our Smart Meter installation programme SmartSwitch has already enabled us to introduce the more customer focused, 24-hour uninterrupted heating tariff Economy

20 Plus (E20+) that supports our fuel switching strategy. Around 200 customers a year are joining this tariff. This year over 700 new domestic customers joined our various discounted space and water heating tariffs bringing

the number of customers now on our off-peak tariffs to 17,587. With the SmartSwitch project due for completion in 2019, we hope to investigate more time-of-use tariffs to supplement the existing off-peak tariffs that could bring further economies for customers depending when they use electricity.

A States-of-Jersey-commissioned review by UK Economic Consultant NERA into the proposed extension of our Standby Charge for new Commercial customers installing embedded generators, but still requiring grid backup services, found that a charge was justified. NERA, however, suggested that other charging models might be considered in the longer-term and we have committed to considering options as we go forward.

6

  JERSEY CUSTOMER

MINUTES LOST (CMLs)

Even with three supply links to France successfully operating now for two years, we continue to invest in security. In particular this year, and in partnership with French transmission operators RØseau de Transport

d lectricitØ (RTE), we have upgraded the French-side

land cable of our Normandie 2 (N2) circuit, increasing

our importation capacity and we have carried out further work on our System Integrity Protection Scheme (SIPS) that provides cover and balance to our entire transmission network in times of stress. Crucially, on-Island, we are about to commission our much-needed new primary substation St Helier West which will secure existing supplies and future proof the network in and around St Helier.

We work to an adapted N minus 1 standard. This means we seek to maintain supplies to all customers during the failure of the largest component in the system (see below) and we strive to minimise the risk of such an asset failure. When assets do fail, we seek to ensure we are well prepared to deal with this by restoring supplies safely and quickly.

SUPPLY SECURITY STANDARD

Jersey Electricity s system is designed to meet an

 adapted N minus 1 security standard as follows:  A one-in-eight year winter peak demand

 All normal load in the event of the loss on the single

largest interconnector with France (N minus 1) plus a simultaneous failure of the largest:

o Diesel generator; and

o Gas turbine

 75% of peak winter load for 48 hours from on-Island

generation (no simultaneous loss of on-Island capacity)

 No coincidence of the above

+2.9% JE EfW Import

1.8% 2.6% 95.6% 2.5% 5.2% 92.3%

20.7% 3.9% 75.4% 14.9% 4.9% 80.2%

1.4% 4.6% 94.0% 2.9% 5.5% 91.6% 1.5% 5.8% 92.0% 0.2% 4.9% 94.9%

-1.3% -0.9%

This year we installed around 28km of new cable, seven new substations and 883 new services. We also refurbished 11 substations and maintained 184 substations and 18km of overhead line. Substations on the network now number 787.

SMARTSWITCH

Digitilisation is one of the major global trends among utilities that has the potential to transform the customer experience in a way that was unimaginable a few years ago. Our investment in Smart Meter technology is a cornerstone project from which we can further our demand-side aims and accelerate our journey into a digital future.

We are already well ahead of the UK when it comes to the roll out of Smart Meters. Our £11m, four-year project SmartSwitch is due for completion mid-2019. At year end 87% of Jersey,

or 44,000 premises are already enjoying the benefits that

this technology brings. The technology also aids our long-term decarbonisation strategy by enabling new tariffs that encourage customers to move from fossil fuels to low carbon electric heating, a move now regarded in Europe as a major driver of lower carbon emissions.

Jersey s Smart Meters work in tandem with Smart Account, a secure online customer portal, specially designed for Jersey Electricity customers by our billing provider Swiss Post Solutions and our own in-house software developer Jendev, to give customers more insight and a better understanding of their energy consumption than ever before. Though currently still in the trial stage, over 1,400 Islanders have already signed up

for Smart Account that enables them to view their electricity consumption profile in simple charts on their phone, tablet or PC and compare usage and with that of similar properties if they choose. They also receive and store their bills in Smart Account.

Looking ahead, our 4,500 Pay As You Go (PAYG) customers will next year benefit from the biggest enhancement to the Island s key meter system for decades as the Smart Meter roll- out enters its final phase. Smart PAYG Meters will mean an end to the key charger, enabling customers to top up their meters remotely as easily as they do a mobile phone. This means elderly or vulnerable customers, who have difficulty getting out to top up their keys, will be able to allow a relative or friend

to credit their meters on their behalf without the inconvenience of having to return to the house with the key. There will also be the added convenience of more than 100 top-up locations to choose from compared with the current 20.

SmartSwitch has been and continues to be a hugely complex project logistically and technically. This was recognised by Digital Jersey at its inaugural Tech Awards where SmartSwitch was short listed in the Technical Project of the Year category. The project involved the sourcing and manufacture of meters specifically designed to work with our low carbon, twin element heating tariffs while being compatible with UK standards, and the introduction of a new internal powerline carrier network, the biggest network in Jersey outside the telecoms industry. Despite the challenges - planning, gaining access to premises, ensuring supply chain of meters, data gathering, data protection, data transmission - SmartSwitch brings multiple benefits to customers and the business.

As well as enabling

the introduction

of our first 24-hour uninterrupted heating tariff, Economy 20 Plus (E20+), other benefits to customers include:

 An end to the inconvenience

of meter readers calling.

 The elimination of around 8,000

estimated readings a year.

 An end to pro-rata billing when tariffs

change.

 Bills on the same date each quarter, giving four accurate

and equal billing periods.

 Swift and remote change of tenancy with on-demand reads.  Swift and remote change of tariffs.

 More information and a better understanding of consumption

than ever before through the personal online Smart Account. www.smartaccount.je runs in tandem with Smart Meters, currently on trial pending further development to meet customer demands, already around 1,400 customers have signed up.

 A safety check of their installation carried out during the

meter changeover.

 Possibility of new tariffs offering further economies

depending on time of use.

For the business, SmartSwitch has meant:

 More efficient usage mapping in real time to optimise and

better maintain the distribution network.

 Reduction in meter reading staff leading to lower costs of

operating the network.

 Reduced Health and Safety risk of meter readers having to

access different properties.

 Elimination of difficult-to-access Must Be Reads .

 Increased uptake of Direct Debit payment due to precision of

consumption data.

 Potential future load growth encouraged by possible new

time-of-use tariffs offering further economies.

 Further emissions reduction by subsequent growth in

decarbonised heating.

Importantly, the end-to-end metering system and its customer interface have been designed to have a lifespan of 10 to

15 years with the flexibility to develop and change to meet the future needs of customers whose data viewing habits are constantly evolving.

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ENVIRONMENT | RENEWABLES CHIEF EXECUTIVE S REVIEW

CUSTOMER SERVICE  15%T HNIRCAL

ER & EUCPPO T

OM ICES STANDARDS US ER

T V

C S

Customer Focus is one of our six core Values: We listen to our  Which attribut e customers and seek to understand and respond to their needs,  of our service is  

treating them the way we would wish to be treated, with   MOST IMPORTANT respect and honesty.  to our customers?

To understand their needs we seek to engage with them  

in various ways to obtain feedback on our services as  well as predict and prepare for their changing needs and

expectations. We believe that meeting or exceeding our  PLY customers needs is important in protecting our franchise in  OF SUP

the community. Two significant examples of where we have  SECURITY

listened to our customers and acted this year are Smarter  29 %

Living and ground-mounted solar farms.

During a series of focus groups held in 2017 our customers said they would like to see a physical Energy Hub in Jersey, a one-stop centre where they could see, touch and learn about heating technology first hand and obtain advice from trusted, trained advisers. Our answer was to build Smarter Living our energy efficiency and smart tech showcase in the heart of our Powerhouse retail store.

Similarly, despite already distributing one third of our electricity from renewable sources, we have recognised a growing appetite for local renewable generation. After much research and installing our own solar PV rooftop system at the Powerhouse in 2013 we have concluded that ground-mounted solar is the most viable option in Jersey, and in response to customer demand, have this year put in motion a scheme to enable landowners and developers to acquire a stake in a local renewables sector in the form of small solar farms on brownfield sites.

As well as the renewables survey, our independent analytics company, Island Global Research (IGR), conducted our annual corporate survey and another specific to home heating. The 2018 corporate survey contained additional questions into

our customers perceptions of the business in general. A larger sample (635) was used and updated methodology applied. This means the average performance rating was calculated

by assigning a value to the response where 1=very poor, 2=poor, 3=below average, 4=average, 5=above average, 6=good, 7=very good, and the value scaled to provide a

value out of 10. Results of the past three years have been recalculated using this method and restated to enable accurate benchmarking.

As with previous years, however, customers were asked to weight out of 100 the importance of four electricity supply functions:

 Running costs and price stability

 Security and quality of supply

 Customer and technical service support  Environmental performance

then rate our performance against each element. Once again customers rated running costs and price stability as the most important attribute of our service.

Our overall performance score combines the individual performance ratings with the weight that reflects the importance customers give each element. Under the new methodology our overall rating is 6.5/10 or 65%. This reflects a consistent level of improvement over the last few years.

The updated methodology was also applied to questions about customer service. When applied to previous years, results show no significant changes although our overall customer service rating of 68% was marginally up on last year s 66%.

For the first time IGR created a sub-group of respondents who had been in contact with us for whatever reason and who

had therefore experienced customer service first hand, during the past 12 months. Almost a third (31%) of this group rated our overall customer service 9 or 10 out of 10 and 65% gave 7 or above. This group s average performance ratings were higher than the group that had no direct contact with us on all dimensions of customer service. They rated overall customer service as 72%, helpfulness dealing with telephone requests 74%, speed of response dealing with a technical problem 71% and clarity of bills 68% all above average ratings.

Of course, surveys are just one way we garner feedback. By far the most commonly used channels day to day are email, phone calls and visits to Customer Care which this year

has been relocated to the Smarter Living area inside the Powerhouse retail store. This is more convenient for customers, brings staffing efficiencies and increases footfall to Smarter Living and the Powerhouse.

Approximately 350 interactions a month are recorded on our call logging software Microsoft Dynamics Customer Relationship Management System (CRM) and dealt with by the appropriate department in the timeframe set in Standard of Service 5. This year there have been no breaches of our Service Standards.

CUSTOMER SERVICE STANDARDS CHIEF EXECUTIVE S REVIEW

Customer Focus is one of our six core Values: We listen

to our customers and seek

to understand and respond

to their needs, treating them

" ...exceeding our  be treated, with respect and the way we would wish to

honesty . customers needs is

important in protecting

our franchise in the

community."

65 %

Our overall performance score combines the

individual performance ratings with the weight that  64 % reflects the importance customers give each element.

Under the new methodology our overall rating is

6.5/10 or 65%. This reflects a consistent level of

improvement over the last few years which have been

restated using the new calculation methodology.

OLD FIGURES?

62 % 62 %

Our retail business, the Powerhouse and its online division powerhouse.je, continues to evolve and grow. It delivered its best financial performance for the second successive year, continuing a period of year-on-year growth that started

in 2014. Revenues at £13.6m were up 5% on last year s £12.9m, with profits up 11% to £0.8m (2017: £0.7m).

We continued our focus started last year - consolidating our position after our restructure and refining what we do best. Having exited toys last year, this year we withdrew from greeting cards to make way for more investment in our core range of electrical products, including a move into the premium market, and, in particular, investing heavily in growing categories such as smart / interconnected home technologies that complement our new Smarter Living area and align with our strategy for a smart , electrically powered, digital future.

We continued our investment in technology that we have made in recent years. This, coupled with better use of data, has enabled us to enhance our margins while remaining competitive on price. We continue to enhance the shopping

experience with new lighting and an improved air conditioning system.

We have also continued to invest in people with full-time members of the sales team now committed to 100 hours

of training off the shop floor per year with a mix of face-to- face and computer-led schemes to further enhance customer service skills and product knowledge that our customers so value. All the retail team s efforts were rewarded when the Powerhouse received a Highly Commended Award in the

 best large independent retailer of consumer electronics category at the UK s Innovative Electrical Retailing (IER) Awards. More recently and locally, the Powerhouse was

 highly commended in the Jersey Customer Service Awards in Best Service in Retail category.

We recognise that there may be challenges ahead as the electrical retail market and consumer habits continue to evolve at pace. However, we believe that through continued investment in our people and technology, while also keeping the store itself a come to destination , we can remain relevant in the eyes of our customers and maintain sustainable growth.

Jendev

Jendev is our in-house specialist software developer that focuses on the utility industry using Microsoft technology. First established in 1998, this small, highly skilled team continues to be a strategically important asset in the Group s portfolio, serving Jersey Electricity as an internal resource while also making headway in its aspirations for sustainable growth among external clients.

Jendev identified several new international prospects this financial year and successfully acquired the Northumbrian Water Group plc account, which owns AquaGib, the Gibraltarian water authority. AquaGib purchased Microsoft Dynamics NAVTM and Jendev s flagship billing product Jenworks, which the team has recently re-engineered using the latest Microsoft technology.

Technology is of increasing importance within the utility industry and Jersey Electricity is no exception. Having an internal resource like Jendev strengthens Jersey Electricity s position and ability to flex and adapt to new challenges

as they emerge. Building on Jersey Electricity s major ERP upgrade project in 2017, Jendev is now focused on helping the Company simplify its internal processes and associated technology helping the business to drive efficiencies and improve services. The team continues to support a number of other business critical projects including the Smart Metering project, SmartSwitch, that has significant implications on accurate and timely billing and customer service.

Jendev has been through several years of renewal and this phase of the business unit s development is now largely complete. We have made new senior appointments to enhance technical knowledge and skills. This enables

Jendev to move forward, supporting Jersey Electricity and selectively acquiring new utility clients in the British Isles and in international markets.

Jersey Energy and its Guernsey office, Channel Design Consultants, provides premium environmental and building services advisory, detail design and site administration services to end user clients, architects, the States of Jersey and Guernsey, Parish Town Hall s and developers.

As a leading pan-Channel Islands consultancy, the team is continually developing skillsets, intellectual knowledge and services offered to meet increasing client expectations. They have been rewarded with a consistent work stream of repeat business from satisfied clients and, significantly, winning high value, long-term contracts. Projects completed this past year include the new Channel Islands Co-operative Society s Charing Cross Locale store, the major refurbishment of the Health and Social Services department at Liberty House

and the enabling works for the major development of a new class wing at Grainville School where the building services design by Jersey Energy is well underway. Contracts due to commence for the financial year ahead are the redevelopment of the former St. Martin s school, the new Westaway Court outpatients and administration building, a new restaurant at the Elizabeth Terminal and a housing development in the east of St Martin.

The Guernsey office has continued to perform well, serving clients in Guernsey, Alderney and Sark. Projects have included the new Alderney public swimming pool, the Channel Islands

Co-operative Society s The Bridge Locale and several high-end luxury residential properties. The construction industry is particularly active in Jersey and we are hopeful of continued strong performance into next year, reflecting the business s respected and elevated position within the sector.

Jersey Energy has this year invested in the latest BIM software and has become the first Channel Island Mechanical, Electrical and Public Health consultancy to undertake design work using AutoDesk Revit. This is a highly complex tool which allows for three-dimensional engineering projects to be designed in conjunction with architects and structural engineers, ensuring projects are fully co-ordinated and offering a highly detailed visualisation aid for the client.

Although Jersey Energy is fuel neutral, the business has successfully broadened Jersey Electricity s services and solutions and has worked closely with the Energy Solutions team. Jersey Energy also developed and delivered

a training course for the Jersey Electricity Customer

Care team to aid the integration of the Smarter Living philosophy.

Turnover in the year at £0.6m was at a similar level to 2017 and the business met its target.

Building Services (JEBS)

Property

Our Property portfolio includes a B&Q store and Medical Centre situated on our Powerhouse retail and administration office site at Queen s Road as well as 29 private houses and flats that are rented on the open market. Commercial tenants leasing parts

of the Powerhouse building are SportsDirect, which shares the ground floor with our own retail business Powerhouse, and telecoms operator Sure, which occupies the middle floor. We also lease mobile aerial sites and fibre optics to telecoms operators.

Profits in our Property division, at £1.8m excluding the impact of investment property revaluation, were £0.2m above the level last year due to a higher rental level and reduced costs. Our investment property portfolio was revalued upwards this year by £0.3m to £20.5m by the external consultants who review the position annually due primarily to the growth in the value of the residential properties that we rent to tenants.

JEBS is our contracting and building services business that provides electrical, mechanical and plumbing installation and maintenance services, including air-conditioning, heating and refrigeration, to domestic and commercial customers. JEBS continues to develop its range of customer-focused services. Following a major re-structure two years ago, we this year re-located the team to one self-contained operations site on the first floor of the Queen s Road stores building to increase operational efficiencies and improve communications.

The team has again won several major contracts in a highly competitive marketplace. These have included the electrical, mechanical and air conditioning services installation at

Eaton House, a four-storey office block in St Helier, and the installation of heating at First Tower School, community works at Cheshire Home and Acorn s new facility in Trinity .

JEBS have also been involved with the delivery of Jersey Electricity s new Smarter Living facility located in the Powerhouse retail space, showcasing its installation services and the type of technology available for customers.

The business continues to support our Energy Solutions team in its load growth strategy by installing electric heating systems for customers switching from gas and oil-fired systems.

Revenue from JEBS rose £0.8m from levels experienced in 2017, but in a challenging year its profits have declined.

HEALTH AND SAFETY

Safety of our employees, contractors, customers and the public is our number one priority and we invest much

time and effort in developing a health and safety culture

right across the business and at all levels. This was again recognised with the award of Five-Star rating by the British Safety Council (BSC) following this year s Five-Star Audit of our Health and Safety Management Systems.

The Audit process involved an in-depth examination of our entire Health and Safety Management Systems and associated arrangements, focusing on the key aspects of our approach to managing occupational Health and Safety in the workplace and offers a structured path for continual improvement. This included inspections of work sites and buildings together with interviews with a wide range of employees. I am delighted to report that Jersey Electricity attained 98.93%, achieving the maximum Five-Star rating.

Electricity generation and transmission are hazardous activities if left unmanaged. It is testament to our vigilance that we experienced only one minor and avoidable Riddor Lost Time Accident (LTA) back in November 2017 due to poor manual handling technique. Our approach to Health, Safety and Environment (HSE) continues to be risk based .

We ensure staff are fully competent in the work we

ask them to do and they recognise their own limits of competency. They are also expected to proactively identify hazards through regular risk assessments and take action

to mitigate the risks associated with those hazards in

their day-to-day work. Various HSE Committees provide governance. This includes a forum for direct communication between the Chief Executive, senior management and

Safety Representatives. Although it is the vigilance of all our employees that ensures such a good record on HSE, special thanks go to our dedicated HSE team and our Safety Representatives who do so much to create a culture for safe working among colleagues, contractors and the public.

Major infrastructure projects in a busy public location such as St Helier West Primary Substation, involving international contractors, continue to make managing HSE challenging. Through extensive training, best practice working and careful risk assessment, we ensure our staff and the public are kept safe from the potential hazards inherent in our business. Our HSE team, alongside management at all levels, regularly conduct on-site inspections to closely monitor all our project teams, raise awareness of health

and safety matters and then discusses any findings and learnings. Our team this year has built on the solid foundations we have in place by increasing our focus on proactive measures such as enhanced safety plans, more

site inspections and revised incident investigation and reporting procedures.

We continue to work with the Health and Safety Inspectorate (HSI) to reinforce key safety messages to the community through initiatives such as radio campaigns warning of the dangers of working near electricity cables and urging building contractors and DIY enthusiasts to contact us before they start work to enable us to identify cables around their building sites and properties.

Safety is one of our six core values: We do everything safely and responsibly or not at all nothing is more important than the safety of the public, our customers and our staff . My thanks go to everyone for upholding this value by contributing to ensuring that Jersey Electricity and all the people the Company touches stay safe and healthy.

HEALTH AND SAFETY CHIEF EXECUTIVE S REVIEW

2014 2015 2016 2017 2018

LOST TIME ACCIDENTS (RIDDOR)

RIDDOR (Reporting of Injuries,  to do their normal work Diseases and Dangerous  for more than seven days. Occurrence Regulations) is  Jersey Electricity applies the the UK standard for reporting  more stringent standard of Accidents and Near Misses.  more than three days. This In the UK, an LTA is defined  enables us to benchmark

as an accident that results  against other peer group

in the injured person being  entities and allows us better away from work or unable  oversight on risk trends.

DAYS LOST (RIDDOR)

SUSTAINABILITY IN THE COMMUNITY

As a company with a long history in the Island, we are very much part of the community we serve. We support many charities, schools, volunteer groups, with an emphasis on health, education and the environment, both through corporate sponsorship and by supporting our employees

in fundraising activities they choose to take part in as individuals.

Our time and expertise can be a potent force for good and when combined with corporate financial support, we can make a huge impact. Two areas of significant corporate sponsorship this year have been the Jersey Cheshire Home Big Build and the social enterprise Acorn Reuse Centre. Jersey Cheshire Home is the Island s only residential home for disabled adults. I am delighted that we were able to support such a marvellous and much loved charity by funding and carrying out works on the home s new all-electric staff block that forms part of extensive improvement works.

We were similarly able to help Acorn Enterprises extend its worthy operations by providing the electrical installation at

its brand new 1,700sq ft recycling facility in the heart of Trinity . Acorn has been supporting Islanders with disabilities since 1991. Social enterprises Acorn Woodshack and Acorn Nursery were well established at the site. The new Reuse Centre follows the success of Acorn s Reuse Centre at La Collette which launched in January 2017 and has already saved thousands of unwanted items from going into the waste stream while helping many Islanders with disabilities or long- term health problems train for re-employment. The new Trinity Reuse Centre is expected to save 1,500 tonnes of waste in

the next five years while giving training and employment opportunities to a further 80 clients.

We are a long-term supporter of Family Nursing and Homecare (FNHC), providing much needed equipment every Christmas for its nurses who do such vital work in the community. This year we took our green energy message

to new extremes by sponsoring FNHC s annual Colour Run along the St Aubin s Bay at low tide. Our volunteers and their families delighted in pelting the 1,300 runners with green corn starch or braved the run itself.

We were also delighted to sponsor the inaugural Walk Into Light to raise awareness of the work of the Sanctuary Trust which provides support and accommodation for men who have hit a crisis and have nowhere else to turn. The first Walk Into Light was a great success and attracted around 200 people and several dogs who set out in the darkness from Corbiere at 4.30am to walk five miles into the sunrise at St Aubin.

It doesn t always take lots of money to make a difference in the community. When our Head of IT heard that Jersey Zoo had suffered a flood that damaged offices and equipment he quickly set about organising a consignment of surplus PCs to be prepared and delivered to the former Durrell Wildlife Conservation Trust.

We continue to recognise and reward others who are passionate about the environment with our sponsorship of the Jersey Evening Post-organised Pride of Jersey

SUSTAINABILITY IN THE COMMUNITYCHIEF EXECUTIVE S REVIEW

Environmentalist Award and Jersey Construction Council s (JeCC) Sustainability Award. The former was this year won by Scott ish mother-of-two Sheena Brockie who founded thegoodlifejersey.com website, which promotes and encourages environmentally friendly healthy living and has been at the forefront of eco-friendly initiatives. The JeCC Sustainability Award went to the Windsor Court housing development.

As well as supporting many charities at corporate level,

we also support staff in charity events, including the Lions Club Swimarathon, the Round Island Walk, the Hawksford Castle Challenge and charity football matches. Our Monthly Staff Number Charity Draw, now in its fifth year, raises

funds for employees-nominated charities which this year included Jersey Hedgehog Preservation Group, Donna Annand Melanoma Charity, Brighter Futures, Jersey Cancer Relief, Cystic Fibrosis, Bukit Lawang Charitable Trust, Jersey Cheshire Home, Headway Jersey, Jersey Alzheimer s Association, 7 Overseas Air Training Corp and Grace Trust Jersey.

As always, I am immensely proud of the hard work and commitment from all colleagues who invest their time and effort in charity fund raising and community work, while at the same time helping to raise the profile of Jersey Electricity within the community.

3  S

  0

After several years of heavy investment in infrastructure assets, this year we have invested considerable effort in our most important asset our people. The year has brought an intense programme of activity across the people agenda as we have sought to progress our cultural change programme.

We have undertaken an extensive programme of management and leadership development, conducted our first employee engagement survey for four years and created opportunities for promotion and career progression through two major restructures in Energy and Procurement and changed our approach to Customer Care as part of our new Smarter Living concept.

The new Energy structure created internal promotions to three new senior roles and a realignment of reporting lines. This

has enabled improved focus on Asset Management to drive more holistic and effective strategic asset development. The Engineering Delivery department brings together the former Production and Distribution Maintenance and Protection, Control and Instrumentation teams into a single unit offering greater economies of scale and better flexibility. This has also helped to break down the cultural barriers that have existed between Distribution and Production. The Service Delivery function includes Metering, Distribution Planning, Construction and Faults which are all complementary and customer facing activities.

OUR PEOPLE CHIEF EXECUTIVE S REVIEW

3 3 14.9 4 A RDS

R

Part of the reorganisation has involved a staff relocation programme designed to not only improve operational efficiencies and customer service but also provide better communication among employees and facilitate closer working relationships. We have also redesigned our intranet to improve internal communication and staff engagement.

The Executive and Senior Leadership Teams are already acting on April s survey results to address employee feedback and build further on current engagement levels. Actions

taken include the installation of secure bike stands at the Powerhouse, the provision of new computer monitors and more up-to-date equipment to improve comfort at work. Many teams have also started to have more regular team briefings to enable better communication.

Other actions planned as a direct result of employee feedback include:

 Improved break facilities

 Establishing focus groups for Employee Wellbeing and

Recognition

 Further training for managers and supervisors on

reward and compensation

 The promotion of career paths and career development

We have added to our HR team with the appointment of a new Head of HR Operations to support the new HR Director appointed last year. Together with the incumbent Head of Organisation Development they have instigated a broad programme of management and staff development as we

prepare for the departure through retirement of around 40% of a highly skilled and experienced workforce in the next 10 years.

To give a new generation the best opportunity for promotion we re leveraging technology and have introduced a new online performance management tool. Our objective is to help everyone reach their full potential and fairly recognise and reward them for great performance. Having completed the first full year on our new HR Enterprise System JE Connect , staff can now assess their own performance before completing appraisals on the new system that also provides access to a range of HR processes, learning events, discussion boards

and feedback requests.

As the system develops, we will see the addition of new modules on Succession Management, Absence Management and eRecruitment modules made available to employees and managers to deliver a fully integrated HR system. The system will eventually track employee career aspirations ensuring we can better align development planning to individual employees and the future needs of the business.

The HOW TO Management Development programme, piloted last year has now been rolled out to 50 employees aimed at providing a consistent approach to management across the Company. In addition, 59 employees have attended the Living Leader programme, which represented a major investment in leadership development right across the organisation including the Board of Directors. This is already positively impacting our people in a significant way and we plan to further cascade this right down the organisation.

OUTLOOK CHIEF EXECUTIVE S REVIEW

FINANCIAL REVIEW

Group Financial Results

Key Financial Information  2018  2017 Revenue   £105.9m  £102.1m

Profit before tax  £15.3m  £13.5m Earnings per share  39.5p  34.6p Dividend paid per share  14.5p  13.8p Final proposed dividend per share  8.8p  8.4p Net debt  £14.3m  £21.9m

Group revenue for the year to 30 September 2018 at £105.9m was 4% higher than in the previous financial year. Energy revenues at £82.3m were 2% higher than the £80.4m achieved in 2017 with a 2% increase in the unit sales volumes of electricity, largely driven by weather, being the main factor. Turnover in the Powerhouse retail business, increased by 5% from £12.9m to £13.6m. Revenue in

the Property business rose £0.1m to £2.3m due to higher rental income. Revenue from JEBS, our contracting and building services business, rose £0.8m from levels experienced in 2017 to £4.8m. Turnover in our other businesses rose £0.2m to £2.9m.

Cost of sales at £65.1m was £2.1m higher than last year with an increase in import costs in our Energy business and higher sales activity in the Powerhouse retail business being the main reasons.

Operating expenses at £24.4m were at the same level as in 2017.

Profit before tax for the year to 30 September 2018, at £15.3m, increased by 14% from £13.5m in 2017. Our Energy business unit sales saw volumes increasing from 621m to 634m kilowatt hours with strong winter period sales and the benefits of switching customers from other heating fuels more than offsetting the continued impact of energy efficiency measures employed by our customers.

Profits in our Energy business moved up to £13.4m from £11.7m last year. The higher level of sales resulted in an improved gross margin and this was supplemented by ongoing initiatives to reduce both manpower and maintenance costs. Customer tariffs rose by 2% in June 2018 yet remained competitive with other jurisdictions but this accounted for only £0.4m of the increase in profits with the remainder driven by cost efficiencies and increased unit sales of electricity. The UK saw material increases in retail electricity prices for their customers during both 2017 and 2018 with an average rise of 24% across the Big 6 suppliers.

In the financial year we imported 95% of our requirements from France (2017: 93%) and generated only 0.2% of our electricity on-island at La Collette Power Station (2017: 1%). The remaining 5% (2017: 6%) of our electricity came from the local Energy from Waste plant being marginally below that seen in 2017.

Profits in our Property division, excluding the impact of investment property revaluation, at £1.8m, were £0.2m above the level

last year due to a higher rental level and reduced costs. Our investment property portfolio was revalued upwards this year by £0.3m to £20.5m by the external consultants who review the position annually, due primarily to the growth in the value of the residential properties that we rent to tenants.

Our Powerhouse retail business saw continued strong growth in sales with profits moving up 11% to £0.8m in 2018.

JEBS, our contracting and business services unit had a challenging year and incurred a loss of £0.2m against a profit of £0.1m in 2017 as the business was impacted by both a decline in margins and some exceptional costs. Plans are being implemented to improve performance in this business unit.

Our other business units (Jersey Energy, Jendev, Jersey Deep Freeze and fibre optic lease rentals) produced profits of £0.6m being 12% higher than last year.

Net interest in 2018 was £1.3m being £0.1m higher than last year because in 2017 there was still an element of capitalisation of interest associated with the new N1 subsea cable. The taxation charge at £3.2m was £0.3m higher than 2017 due to the

increase in profit.

Group earnings per share rose to 39.5p compared to 34.6p in 2017 due mainly to increased profitability.

Dividends paid in the year, net of tax, rose by 5%, from 13.8p in 2017 to 14.5p in 2018. The proposed final dividend for this year is 8.8p, a 5% rise on the previous year. Dividend cover at 2.7 times was higher compared to 2.5 times in 2017.

Ordinary Dividends

2018  2017

Dividend proposed  - final for current year  8.8p  8.4p

Net cash inflow from operating activities at £27.0m was £0.5m higher than in 2017 with higher operating profit being

the primary driver. Capital expenditure, at £14.9m was marginally lower than £15.1m last year with spend on the St Helier West primary sub-station being the most material project in 2018. In the 2017 financial year the most material primary spend was on the N1 subsea cable project prior to commissioning in December 2016. The resultant position was that net debt at the year-end was £14.3m, being £30.0m of borrowings less £15.7m of cash and cash equivalents, which was £7.6m lower than

last year.

FINANCIAL REVIEW

Cash Flows

Summary cash flow data  2018  2017

Decrease in net debt  £7.6m  £7.1m

Treasury matters and hedging policies

Operating within policies approved by the Board and overseen by the Finance Director, the treasury function manages liquidity, funding, investment and risk from volatility in foreign exchange and counterparty credit risk.

As a substantial proportion of the cost base relates to the importation of power from Europe, which is contractually denominated in Euro, the Company enters into forward currency contracts to reduce exposure and as a tool to aid tariff planning. The average Euro/Sterling rate underpinning our electricity purchases during the financial year, as a result of the hedging program, was 1.27 /£. The average applicable spot rate

during this financial year was 1.13 /£ against 1.15 /£ during our 2017 financial year. The average spot level was 1.28 /£

in 2016 which was largely prior to the UK decision to leave

the EU which brought a higher degree of volatility to foreign exchange markets. In addition, we also materially hedge any foreign exchange exposure attributable to capital expenditure once planning consents and firm pricing is known and the commitment is made to proceed with the project.

Interest rate exposure is an area of potential risk but is managed by the £30m of private placement monies received in July 2014 having a fixed coupon and represents all of our borrowings at present.

The Group may be exposed to credit-related loss in the event of non-performance by counterparties in respect of cash and cash equivalents and derivative financial instruments. However, such potential non-performance is monitored despite the high credit ratings (investment grade and above) of the established financial institutions with which we transact. We also employ a policy of diversification through use of a number of counterparties.

In the 2018 financial year Jersey Electricity imported 95% of the electricity requirements of Jersey from Europe. It jointly purchased this power, with Guernsey Electricity, through the

Channel Islands Electricity Grid, from EDF in France. The supply contract allows power prices to be fixed in Euros in advance

of decisions being made on customer tariffs. A ten year power purchase agreement with EDF, which commenced in 2013,

was extended by a further five years during 2017 to 2027. This combines a fixed price component with the ability to price fix future purchases over a rolling three year period based on a market related mechanism linked to the EEX European Futures Exchange. The goal is to provide our customers with a market based price but with a degree of certainty in a volatile energy marketplace. A Risk Management Committee exists, consisting of members from Jersey Electricity, Guernsey Electricity and

an independent energy market adviser and follows guidelines approved by the Board.

Defined benefit pension scheme arrangements

As at 30 September 2018 the scheme surplus, under IAS 19

 Employee Benefits , was £3.8m, net of deferred tax, compared with a deficit of £3.4m at 30 September 2017. Scheme liabilities decreased 2% from £133.5m to £131.4m since the last year end with the discount rate assumption, which heavily influences the calculation of liabilities, rising from 2.7% in 2017 to 2.9% in 2018 to reflect sentiments in prevailing financial markets. In addition scheme assets rose 5% from £129.3m to £136.2m in the same period.

Our defined benefits pension scheme is an area of risk that continues to require careful monitoring as it is driven largely

by movements in financial markets and materially impacted

by relatively small movements in the underlying actuarial assumptions. If the discount rate applied to the liabilities had been either 0.5% lower or higher than the 2.9% under IAS 19 for 2018, the net surplus of £3.8m would have risen to £12.2m, or moved to a deficit of £5.8m, respectively. In a bid to mitigate the impact of movements in interest rates and inflation the trustees of the scheme adopted a Liability Driven Investment (LDI) approach in the prior year with the goal of reducing funding volatility. It does this by reducing the risk that asset and liability values change at different rates, or even move in different directions.

The last triennial actuarial valuation as at 31 December 2015 resulted in a surplus of £6.9m. Unlike most UK schemes, the Jersey Electricity pension scheme is not funded to pay mandatory annual rises on retirement. The cash funding rate by Jersey Electricity is 20.6% of pensionable salaries and employees contribute an additional 6% to the pension scheme. The final salary scheme was closed to new members in 2013, with new employees, since that time, being offered defined contribution pension arrangements. The next triennial actuarial valuation

of the defined benefit scheme will have an effective date of

31 December 2018.

Returns to shareholders

62% of the ordinary share capital of the Company is owned by the States of Jersey with the remaining 38% held by around 600 shareholders via a full listing on the London Stock Exchange.

Of the holders of listed shares, Huntress (CI) Nominees Limited owns 5.3m (46%) of our A Ordinary shares representing 18%

of our overall Ordinary shares and around 5% of voting rights. This nominee company is held within the broker firm Ravenscroft which has placed our stock with a number of private clients, and a fund, residing largely in the Channel Islands. During the year the ordinary dividend paid increased by 5% from 13.8p net of tax to 14.5p. The proposed final dividend for 2018, at 8.8p, is a 5% increase on last year and consistent with the underlying dividend pattern in recent years and with our stated policy to aim to deliver sustained real growth in the medium-term. The chart below shows the evolution of the ordinary dividend payments over the last

15 years (excluding additional special dividends) that have risen fourfold from 3.5p to 14.5p.

Dividend paid per ordinary share 2003-2018

16 14 12 10 8 6

pence per 4 2

0

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

The share price at 30 September 2018 was £4.66 against £4.53 at the 2017 year end. This gives a market capitalisation

of £143m as at 30 September 2018 compared with a balance sheet net assets position of £189m. However the illiquidity of our shares, due mainly to having one large majority shareholder, combined with an overall small number in circulation, constrains the ability of the management team to influence the share price. We use Edison (an investment research firm) to produce regular research on our performance to aid the understanding of our value proposition to a wider body of potential investors in the quest to improve our longer-term liquidity. The chart below shows the trending of our listed share price over the last 15 years that has risen from £1.75 to £4.66.

 A Ordinary share price movements 2003-2018

5.0 4.5 4.0 3.5 3.0 2.5

£ per shar

2.0 1.5 1.0

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Our largest shareholder, the States of Jersey, also owns holdings in other utilities in Jersey. It holds 100% of JT Group, Ports of Jersey, Andium Homes and Jersey Post, as well as around 75% of Jersey Water. The total direct cash return to the States of Jersey

from Jersey Electricity in the last year was £9.3m (2017: £7.9m). Lower amounts of corporation tax were paid in 2017 than 2018 due to capital allowances associated with our recent heavy investment spend in infrastructure and this will trend upwards.

2018  2017

The Company regularly communicates with its largest shareholders and details of discussions, including any concerns are reported

to the Board. The Chairman meets twice a year with the States of Jersey, and ensures there is a direct communication between the non-Executives and our largest shareholder.

Group Risk Management

Approach

The Board is ultimately responsible for managing the Group s approach to risk and determining a strategy for managing identified risks within the business. The Board is supported

by the Audit and Risk Committee which has been delegated responsibility for reviewing the effectiveness of the Group s system of internal controls and risk management. The Board recognises that any risk management process cannot eliminate all risk but rather manages the Group s exposures, and sets the acceptable level of tolerance required to successfully deliver the Group s strategy and growth.

We have an established risk management framework which is designed to identify, assess and help manage the key risks. This framework also assists in developing risk mitigation activities and making assessments of their effectiveness. In its maintenance

of the Group s Risk Register, each business unit or head office department, together with the Executive Leadership Team (ELT), identify the principal risks together with the mitigation strategies in place. Following this process the principal risks and mitigation actions are collated and reviewed by the management team, Audit and Risk Committee and Board. The output from this exercise forms the basis of the key principal risks.

Other key features of our system of risk management, which have been in place throughout the financial year, include:

 Regular business and financial reviews by the ELT and the Board;  Training for both management and staff e.g. cyber-security

and GDPR;

 Established and documented risk management policies including a schedule of matters reserved for the Board;

 Systems and tools to monitor keys risks with the aim of providing

regular and succinct information to the Board and ELT; and

 A comprehensive insurance programme.

FINANCIAL REVIEW

Principal risks

Brexit

As noted in the last two Annual Reports we continue to maintain a watching brief on Brexit developments. Although Jersey is not in the EU, the UK decision to exit has created uncertainty for the Island. The most material individual trading relationship we have is our electricity importation arrangements with EDF and RTE in France. We received confirmation in 2016 that our long-term contractual agreements would not be impacted and that is still our understanding having again received recent confirmations. Furthermore, we extended the current supply arrangements

with EDF by a further five years, during 2017, to the end of 2027. Foreign exchange considerations are also a risk, but as referred to elsewhere, we continue to hedge on an on-going basis. In addition, we have examined our supply chain, and existing contractual arrangements, for all our business units and have proactively engaged with the Jersey Government to ensure any concerns we have are voiced and understood. Uncertainty remains on what a no deal situation might mean to supply chain arrangements and as mitigation we intend holding a higher stock level of items felt essential to our business units.

The General Data Protection Regulation (GDPR)

In advance of the changes to EU data protection legislation in May 2018 we implemented changes to our processes, and will continue to monitor going forward, to ensure compliance with GDPR. This was supplemented by training for staff in areas where such changes were applicable. Although this requires careful management, we do not feel it represents a material risk, having considered the type of data we hold and the controls we have in place.

The table below summarises the Group s principal risks and how they are managed in addition to the two aforementioned risks that attracted focussed attention during the year. The Board considers these to be the most significant risks that could materially affect the Group s financial condition, ongoing performance and future strategy. The risks listed do not comprise all risks faced by the Group and are not set out in any order of priority. Additional risks not presently known to management, or currently deemed to be less material, may also have an adverse effect on the business.

Risk  Description and possible impact  Mitigation activities

 Regulatory / Political or Legislative change

Regulatory Not acting in line with expectations  Ensure we find the correct balance associated with being a key service provider on an Island but

of behaviours of a monopoly utility  recognising our responsibilities to a wide number of stakeholders.

resulting in the introduction of sector  Ensure transparency of objectives and regular communication with key stakeholders.

specific regulation with the attendant

cost of compliance and impact on public  Benchmark ourselves against comparable Key Performance Indicators with other jurisdictions (e.g. relations. Tariffs, Customer Minutes Lost, CO2 emissions, Lost Time Accidents).

Political Unfavourable political and/or legislative  Monitor political and legislative developments (e.g. the Government s Energy Plan) and analyse the

developments which cause a significant  opportunities and threats to enable us to respond effectively.

change to the operation of, or prospects

for, the business.

 Major Capital Project Management

Project Unsuccessful delivery of our major  Project milestones, costs and risks are recorded and monitored and regular progress updates

projects resulting in inability to achieve  issued to both management and the Board, including plans to address any issues. overall project objectives and/or

additional costs or delays.

 Financial - Treasury & Tax / Energy Portfolio Management / Pension Liabilities

Asset failure Financial implications associated with  Scenario and sensitivity analysis as part of our long-term budgeting process. Insurance obtained

the loss of significant plant and/or  where appropriate and where it can be cost effective.

importation assets. Effective monitoring and maintenance of the plant / assets.

Three subsea cables to France on two diverse routes provide resiliency along with a strong cable repair capability.

Financial Reduction in unit sales of electricity  The prime defence against falling volumes from the expected continued focus on energy efficien-

due to, for example, energy efficiency  cy is to migrate existing customers who use gas/oil as their primary heating source to all-electric and the corresponding impact on the  solutions. A dedicated team work on initiatives in this area.

competitiveness of electricity in the

heating marketplace.

Pension  Volatility of markets impacting our  The Board regularly monitors the latest position regarding the Scheme and the impact that it is Liabilities Defined Benefit Pension Scheme position  having on the Company. The Trustees implemented an LDI strategy to reduce the exposure to

e.g. liabilities increase due to market  movements in the value of pension liabilities.

conditions or demographic changes and/ The Defined Benefit scheme was closed to new members in 2013 and a triennial valuation or investments underperform. formally reports on performance.

Volatility A significant proportion of our  Power and foreign exchange are hedged in accordance with the agreed strategies which are

profitability and price competitiveness is  reviewed and approved by the Board on a periodic basis.

dependent upon our ability to manage

exposure to increasingly volatile power

and foreign exchange markets.

 Security of Supply / Supply Chain / Asset & Plant Management

Business  Failure and/or unavailability of significant  A Security of Supply standard has been developed and published and we seek to design the Continuity plant and/or importation assets which  system to meet those standards.

cause disruption to our operations  A programme of maintenance exists to optimise the life of assets.

including major emergency, incident or  Use of a comprehensive business continuity planning process including periodic testing under loss of electricity supplies to customers. various scenario exercises.

The EDF and RTE contracts are key to  A number of diverse sources of supply have been developed such as importation cables and the continuity of supply of electricity to  on-Island generation (deploying various technologies) to ensure that we are not over-reliant on Jersey.  any single source, fuel or technology.

The supply contract with EDF was extended by a further 5 years in 2017 to 2027. We have built a strong relationship with EDF that has existed since 1984 and also with RTE (the network operator in France). We maintain ongoing dialogue to ensure we understand any current or potential future developments that might impact security of supply.

We are also exploring potential options in the renewables space that would result in less depen- dence on importation.

Asset & Plant  Failure of ageing metering  The SmartSwitch project has resulted in a smarter more modern metering solution replacing Management infrastructure.  legacy systems. As at 30 September 2018 around 87% of our customers had such new meters in-

stalled and therefore this risk has reduced. The replacement of the current Pay as you go system in the coming year will complete the replacement of the legacy infrastructure.

 Health, Safety & Environment

H, S & E Non-compliance with relevant legislation,  A Health, Safety and Environment team sets standards and monitors performance against those

regulations and accepted codes of  standards. A proactive safety culture has been nurtured throughout the organisation supported by practice resulting in unnecessary  a safety management structure, Safety Representatives, programmes of site inspections, regular exposure to our staff, customer, member  training and induction amongst other areas. Performance measures are explicitly presented as a of the general public or our plant and  separate agenda item at each Board meeting.

equipment.  Use of British Safety Council for separate audits of both our safety and environmental

performance every 3 years.

 People / Succession Planning

People The Group s strategy is largely dependent  We have developed a long range HR Strategy. HR now has the resource and capability to provide

on the skills, experience and knowledge  frameworks for developing succession plans, development plans and attracting new talent to

of its employees. The inability to retain  enable planning for the future and mitigate and reduce the talent drain from Jersey Electricity. executives and other key employees,  Extensive networks have been built including access to UK (Utility) skills to enable best practice or a failure to adequately plan for  development.

succession, could negatively impact Group

performance (both operationally and

financially).

Over 40% of the current work-force is anticipated to retire from the business in the next 15 years.

 Cyber Security

Catastrophic  Due to the nature of our business we  We continue to use industry best practices as part of our cyber security policies, processes and breach of our  recognise that our critical infrastructure  technologies.

systems systems may be a potential target for  Cyber awareness training has been carried out with all staff with access to corporate IT systems

cyber threats. We must protect our  and there is a programme of follow-up monitoring and training. Following a review by external business assets, infrastructure and  cybercrime security consultants, additional security appliances with enhanced mitigation sensitive customer data and be prepared  technologies has been installed.

for any malicious attack. Disaster recovery procedures are incorporated within our business continuity arrangements and

periodic external reviews are undertaken.

Viability Statement

In accordance with provision C.2.2 of the 2016 revision of the Code, the Directors have assessed the prospect of the Company over a longer period than the 12 months required by the Going Concern provision. As disclosed last year, the Board conducted this review for a period of five years, selected because annually

a refreshment of the Five Year Plan is performed with the latest version presented to the Board on 20 September 2018. This document considers our forecast investment, hedging policy for electricity procurement and linked foreign exchange requirements, debt levels and other anticipated costs, and the resultant impact on likely customer tariff evolution. In addition, material sensitivities to this base case are considered. We have a strong balance sheet with net assets of around £190m supported by £30m of long-term debt funding which expires in 2034 and 2039.

Stress testing of the cost base of our Energy business was performed to establish the impact of material movements in both foreign exchange and wholesale electricity prices. A reduction in the volume of unit sales of electricity through, for example, energy efficiency is being mitigated by switching existing customers, who

use gas/oil as their primary heating source, to all-electric solutions. A dedicated team work on initiatives in this area. However as we employ a user pays model the Board has comfort on the longer term consequences of a reduction in the volume of electricity sales, a permanent weakening in Sterling, or a material rise in European wholesale power prices (albeit we continue to strive to deliver price stability for our customer base).

Based on the results of this analysis, and on the basis that the fundamental regulatory and statutory framework of the market in which the Company operates does not substantially change, the Directors have a reasonable expectation that the Company will be able to continue to operate, and meet its liabilities as they fall due, over the five-year period of their assessment through to 2023.

In making this statement the Directors have considered the resilience of the Company taking into account its current position, its principal risks and the control measures in place to mitigate each of them. In particular, the Directors recognise the significance of the strong Jersey Electricity plc balance sheet, and committed lending facilities, that will be available in most circumstances.

GOVERNANCE

Board of Directors

Geoffrey Grime Chairman  

R/N

Geoffrey joined the Board in 2003. He retired in

1999 as Chairman of Abacus Financial Services, a leading offshore trust company in which he played an instrumental role as one of its founders. A Chartered Accountant, his career in Jersey commenced in 1969 with Cooper Brothers & Co. and progressed to his appointment as Channel Islands Senior Partner of Coopers & Lybrand in 1990. In 2001, he became the founding Chairman

of Jersey Finance Limited, the body set up as a

joint venture between the Government of Jersey

and its finance industry,

to represent and promote the industry at home and abroad. He currently holds a number of professional appointments as both director and trustee. In November 2002 he was elected as a Deputy in the States of Jersey and he retired from that position in December 2005.

In September 2014 he

was elected as a Jurat of the Royal Court of Jersey where he sits as a lay judge.

Chris Ambler Chief Executive N

Chris was appointed

to the Board as Chief Executive on 1 October 2008. He previously

held a number of senior international positions in the global utility, chemicals and industrial sectors

for major corporations including Centrica/British Gas, The BOC Group

and ICI/Zeneca as well

as corporate finance

and strategic consulting roles. He is a Director

of Channel Islands Electricity Grid Limited. Externally, he is also a non-Executive Director of Apax Global Alpha Limited and Foresight Solar Fund Limited, both being listed funds on The London Stock Exchange. Chris

is a Chartered Engineer with the Institution of Mechanical Engineers and has a First Class Honours Degree from Queens College, Cambridge and a MBA from INSEAD.

Martin Magee Finance Director

Martin joined the Board as Finance Director in May 2002. He moved from Scott ish Power plc, after nine years in a variety of senior finance roles. He previously worked for nine years with Stakis plc (now part of the Hilton Hotels Group). He is a Director

of the Channel Islands Electricity Grid Limited. Externally, he is also the non-Executive Chairman of the Standard Life Wealth Offshore Strategy Fund Limited. He is a member of the Institute of Chartered Accountants of Scotland having qualified in 1984.

Aaron Le Cornu Non-Executive Director  A/R

Aaron was appointed to the Board as a non-Executive Director in January

2011 and is currently

the Chief Operating

Officer of GLI Finance,

an alternative finance provider and strategic investor in numerous Fintech platforms. Aaron left his previous role as Chief Financial Officer of Elian, a Fiduciary Firm, headquartered in Jersey

and with operations in 17 countries, following the sale of the business to Intertrust Group in 2016. Prior to

this, Aaron held a number

of senior positions within HSBC, latterly as the Deputy CEO of HSBC International. During his 10 years with HSBC, he held a number of Board positions for HSBC subsidiaries and was also involved in acquisitions (such as the purchase of Marks and Spencer Money). Aaron is a Chartered Accountant having qualified with Andersen in London. He also has a First Class Honours Degree in European Management Science from Swansea University.

Alan Bryce Non-Executive Director  A/N

Alan was appointed to the Board as a non-Executive Director in December 2015 and is currently a non- Executive Director at NIE Networks Ltd, Chair of the wind-farm developer Viking Energy and an advisor in

the utilities industry. He is

a former non-Executive Director of Scott ish Water, Infinis Energy plc and Iberdrola USA. Prior to 2010, he held a number

of senior positions at Scott ish Power, including Managing Director of Energy Networks, and Managing Director of Generation. He was also Strategy and Planning Director for Scott ish Power s UK Division, which included the company s Generation, Energy Management and Retail businesses. He is a Chartered Engineer and Fellow of the Institution

of Engineering and Technology.

Phil Austin MBE Non-Executive Director  R

Phil was appointed to the Board in May 2016 and spent most of his career

in banking with HSBC in London and, ultimately, Jersey where, from 1997

to 2001, he was Deputy Chief Executive of the Bank s business in the Offshore Islands. In 2001, he became the founding CEO of Jersey Finance Limited, the body set up as a joint venture between the Government

of Jersey and its Finance Industry, to represent and promote the Industry at

home and abroad. In 2009, he took on a portfolio of non-Executive directorships a portfolio consisting of both public and privately-owned businesses. Phil is a Fellow of the Chartered Institute

of Bankers and a Fellow of the Chartered Management Institute. In January 2016,

he was awarded an MBE

in the Queen s New Year s Honours list. Phil is currently a non-Executive Director of City Merchants High Yield Trust, a publicly quoted company.

Wendy Dorman Non-Executive Director  A/N

Wendy was appointed

to the Board as a non- Executive Director in

July 2016. Wendy is a Chartered Accountant

who began her career as

an auditor and went on

to specialise in financial services taxation. In 2001 she moved from London

to Jersey and she led the Channel Islands tax practice of PwC until June 2015. Wendy has over twenty

five years experience in taxation gained both in

the UK and the offshore environment, working both in practice and in industry. Wendy was Chairman of the Jersey branch of the Institute of Directors from 2014 to 2016 and is a former President of the Jersey Society of Chartered and Certified Accountants. Wendy is a non-Executive Director of 3i Infrastructure plc and CQS New City High Yield Fund Limited, both listed companies, as well as Jersey Finance Limited.

Tony Taylor Non-Executive Director  R/N

Tony joined the Board as a non-Executive Director in September 2017.

His career spans over

35 years in marketing

and communications, having worked for three of the world s leading global advertising agency networks, in senior management roles. Most recently, Tony has been  a Regional Director at  

J Walter Thompson, part  of WPP plc.

Born in Jersey, Tony

has lived in the UK and Singapore and has worked with numerous blue-chip companies around the world.

Tony is also a Director of Jersey Sport and Jersey Dairy. He has a BSc in Psychology from the City University, London.

Key to membership of committees

A  Audit and Risk Committee R  Remuneration Committee N  Nominations Committee

GOVERNANCE

Directors Report

for the year ended 30 September 2018

The Directors present their annual report and the audited financial statements of Jersey Electricity plc ( the Company ) and Jersey Deep Freeze Limited (together the Group ) for the year ended 30 September 2018.

Principal activities

The Company is the sole supplier of electricity in Jersey. It is involved in the generation and distribution of electricity and jointly operates the Channel Islands Electricity Grid System with Guernsey Electricity Limited importing power for both islands. It also engages in retailing, property management, building services and has other business interests, including software development and consulting.

Dividends

The Directors have declared and now recommend the following dividends in respect of the year ended 30 September 2018:

2018  2017 Preference dividends  £  £

5% Cumulative Participating Preference Shares at 6.5%  5,200  5,200 3.5% Cumulative Non-Participating Preference Shares at 3.5%  3,773  3,773 8,973  8,973

Ordinary dividends

Ordinary and A Ordinary Shares

Interim paid at 6.1p net of tax for the year ended 30 September 2018 (2017: 5.8p net of tax)  1,868,772  1,777,120 Final proposed at 8.8p net of tax for the year ended 30 September 2018 (2017: 8.4p net of tax)  2,696,320  2,573,760 4,565,092  4,350,880

Re-election of directors

The Board has made the decision that all Directors will in future seek re-election annually at each AGM.

Directors and officers insurance

During the year the Company maintained liability insurance for its Directors and Officers.

Policy on payment of creditors

It is Group policy, in respect of all of its suppliers, to settle the terms of payment when agreeing each transaction, to ensure that suppliers are made aware of the terms of payment and to abide by those terms. The number of creditor days in relation to trade creditors outstanding at the year end was 8 days (2017: 16 days).

Directors Report

for the year ended 30 September 2018

Substantial shareholdings

As at 13 December 2018 the Company has been notified of the following holdings of voting rights of 5% or more in its issued share capital:

Equity Ordinary Shares

The States of Jersey hold all of the Ordinary shares which amounts to 62% of the ordinary share capital and represents 86.4% of the total voting rights.

 A Ordinary Shares

 A Ordinary shares entitle the holder to 1 vote for every 100 shares held whereas the Ordinary shares carry voting rights of 1 vote for every 20 shares held.

Huntress (CI) Nominees Limited is the largest shareholder of our listed shares and hold 5,327,562 A Ordinary shares which represent 5% of the total voting rights. It is understood that the underlying owners of these shares are substantially private investors based in the Channel Islands.

Auditor

A resolution to re-appoint Deloitte LLP as auditor will be proposed at the next Annual General Meeting.

BY ORDER OF THE BOARD P.J. ROUTIER

Secretary

13 December 2018

GOVERNANCE

Corporate Governance

Corporate Governance

The Directors are committed to maintaining a high standard of Corporate Governance in accordance with The UK Corporate Governance Code April 2016 ( the Code ), as incorporated within The Listing Rules, issued by the Financial Conduct Authority. The Listing Rules require the Company to set out how it has applied the main principles of the Code and to explain any instances of non-compliance. In accordance with Listing Rule ( LR ) 9.8.4 R, the agreement related to Independent business required by LR 9.2.2A (2) (a) R has been entered into with the States of Jersey, the controlling shareholder, with effect from 17 November 2014. The company has complied with the independence provisions included in the agreement during this financial year and believes the controlling shareholder is also compliant. The other applicable information required by LR 9.8.4 R (5)/(6) is disclosed in external appointments.

During the next financial year, the Directors will be reviewing the latest UK Corporate Governance Code issued in July 2018, together with the supporting Guidance on Board Effectiveness. The new code applied to accounting periods on or after 1 January 2019 and we will be reviewing the changes against our existing governance arrangements to ensure that we meet the expectations of the new code.

Statement of Compliance

The Board considers that the Company is a smaller company for the purposes of the Code as it is not a member of the FTSE 350. Throughout the financial year ended 30 September 2018 the Board considers that it has complied with the Code, with the following exceptions: The Main Principle B.7 states that all directors should be submitted for re-election at regular intervals, subject to satisfactory performance. Executive Directors are not subject to retirement by rotation but they are subject to the same periods of notice of termination of employment as other members of the Company s senior management. This is deemed appropriate by the Board because it is felt that our largest shareholders have sufficient powers to remove Executive Directors if they saw fit.

The Board

The Board provides effective leadership and currently comprises six non-Executive and two Executive Directors. They are collectively responsible for the long-term success of the Company and bring together a balance of skills, experience, independence and knowledge. The Chairman and the Chief Executive roles are divided with the former being appointed by the Directors from amongst their number. Aaron Le Cornu is the Senior Independent Director.

Independence

The non-Executive Directors during the year were Geoffrey Grime, Wendy Dorman, Aaron Le Cornu, Alan Bryce, Phil Austin and Tony Taylor and they were all considered independent. The Board have determined that Geoffrey Grime remained independent notwithstanding that he has served on the Board for more than fifteen years. In making this determination, the Board took into account his breadth of experience, his financial independence and his other business interests. In addition, he has also served less than nine years on the Board prior to his appointment as Chairman. On appointment to the Board the required time commitment is established and any significant changes to

time commitments are notified to the Board. An induction process is in place for all newly appointed Directors. The Board is responsible to the Company s shareholders for the proper management of the Company. It meets regularly to set and monitor strategy, review trading performance, perform a robust assessment of the principal risks that could threaten the business model, future performance, solvency or liquidity (see Principal Risks section on pages 40 and 41), examine business plans and capital and revenue budgets, formulate policy on key issues and review the reporting to shareholders. Board papers are circulated, with reasonable notice, prior to each meeting in order

to facilitate informed discussion of the matters at hand. Members of the Board hold meetings with major shareholders to develop an understanding of the views they have about the Company.

Corporate Governance

The following table sets out the number of meetings (including Committee meetings) held during the year under review and the number of meetings attended by each Director.

Board  Audit and Risk  Remuneration  Nominations No of meetings  5  4  2  2

* attendees by invitation

Performance Evaluation

The effectiveness of the Board is vital to the success of the Company. An external evaluation took place during 2018 following two internal evaluations that were undertaken by the Chairman in both 2016 and 2017. The Trusted Advisors Partnership Ltd, an external recruitment consultancy firm which has no direct connection with the Company, conducted the 2018 evaluation, the findings of which are currently being reviewed in order to determine any emerging actions to be taken.

The key procedures which the Board has established to provide effective controls are:

Board Reports

Key strategic decisions are taken at Board meetings following due debate and with the benefit of Board papers circulated beforehand. The risks associated with such decisions are a primary consideration in the information presented and discussed by the Board who are responsible for determining the nature and extent of the risk it is willing to take to achieve the strategic objectives. Prior to significant investment decisions being taken, due diligence investigations include the review of business plans by the Board.

Management Structure

Responsibility for operating the systems of internal control is delegated to management. There are also specific matters reserved for decision by the Board; and these have been formally documented and a summary of the key types of decision made by the Board is as follows:

 Strategy and Management including:

  Approval of the Company s long-term objectives and commercial strategy.

  Approval of the annual operating and capital expenditure budgets and any subsequent material changes to them.  Changes in structure and capital of the Company

 Financial reporting and controls including:

  Approval of the Annual Report and Financial Statements.

  Declaration of the interim dividend and recommendation of the final dividend.

 Internal controls/Risk Management

  Reviewing the effectiveness of the Company s internal control and risk management systems. An external review of the risk management

process is conducted every three years.

 Approval of contracts   Major capital projects.  Major contracts.

  Major investments.

GOVERNANCE

Corporate Governance

 Board membership and other appointments

  Approval of changes to the structure, size and composition of the Board and key Committees, following recommendations from the

Nominations Committee.

Remuneration

  Determining the remuneration policy for the directors and other senior management, following recommendations from the Remuneration

Committee.

 Corporate governance matters

  Undertaking a formal and rigorous annual evaluation of its own performance, that of its Committees and individual Directors. Review of

the Company s overall corporate governance arrangements.

 Approval of key Company policies

Internal Audit/Risk Management

There is a permanent team of internal audit staff involved in a continuous structured review of the Company s systems and processes, both financial and non-financial. Internal Audit manage the process of strategic and operational risk reviews and facilitate risk review workshops with departmental managers. The Head of Internal Audit routinely reports to the Company Secretary with direct access to the Audit and Risk Committee Chairman and also attends Audit and Risk Committee meetings, at which risk based internal audit s plans are discussed and approved.

Personnel

The Company ensures that personnel are able to execute their duties in a competent and professional manner through its commitment to staff training, regular staff appraisals and organisational structure.

Budgetary Control

Detailed phased budgets are prepared at profit centre level. These budgets are approved by the Board, which receives sufficiently detailed financial data to monitor the performance of the Company with explanations of any material variances.

Audit and Risk Committee

The Audit and Risk Committee reviews the effectiveness of the internal control and risk management processes throughout the accounting period as outlined above. In addition, it regularly conducts deep dive reviews on specific identified risks to test assumptions on the substance of such risks and their mitigation. More detail on the Group s principal risks, and how they are managed, is provided in the Financial Review within this Annual Report (see the Principal Risks section on pages 40 and 41). The Audit and Risk Committee also reviews and monitors the independence of the external auditors and the non-audit services provided to the Group.

Stakeholder Engagement

The Company maintains an active dialogue with its largest shareholders and meetings between States of Jersey (which owns 62% of our Ordinary share capital) include both the non-Executive Chairman as well as the Chief Executive.

Nominations Committee Report

As Chair of the Nominations Committee (the Committee), I am grateful for the support of my fellow members Geoffrey Grime, Wendy Dorman, Tony Taylor and Chris Ambler, a majority of whom are independent non-Executive Directors. During the last financial year the Committee formally met twice.

The principle responsibilities of the Committee are to:

consider and make recommendations to the Board on all new appointments of Directors having regard to the overall balance and

composition of the Board;

consider succession planning for both the Board and for senior positions in the wider organisation; and

make recommendations to the Board concerning the reappointment of any non-Executive Director following conclusion of his or her

specified term of office.

During the year, Geoffrey Grime advised the Board of his intention to step down from the Chair at the next AGM, and a significant part

of the Committee s activities has focused on identifying his successor. The Committee appointed an external advisor, the Trusted Advisors Partnership Ltd (TAP), to develop a process for the selection and to advise both the Committee and the Board, leading to the outcome. This included a detailed assessment of the needs of the business and in-depth canvassing of directors and senior management over a period of three months. At the conclusion of this process the Committee recommended, and the Board confirmed, our decision to appoint Phil Austin as our new Chair when Geoffrey stands down. Phil Austin was absent from all Board discussions relating to his candidacy.

Phil brings a wealth of island and U.K. business experience to the Board and combines this with over two years of service to the Board and as Chair of the Remuneration Committee, having taken up both roles in 2016. As Geoffrey leaves the Board, we also intend to appoint

a replacement non-Executive Director and the recruitment process, also using our advisor TAP, is nearing finalisation. This will essentially complete the plan formulated in 2015 for a controlled change of non-executive composition. Under that plan, four new non-executives have already joined the Company, and including recruitment of a fifth, we are well positioned in terms of best practice and corporate governance requirements on independence.

Drawing on work done by the Board on strategic options, the Committee also carried out its review of Board skills and composition against the challenges and opportunities the Company experiences in its rapidly changing environment. This is an important input into succession management and has immediately been used to inform the recruitment process referred to above.

The Committee is also involved in succession planning for Executive Directors and the wider management team within Jersey Electricity.

This highlighted the importance of a mixed resourcing process, that both develops senior staff from within the organisation, and looks to external appointments where appropriate. As part of our commitment to development, a significant investment has been made during 2018 to roll out the Living Leader program across the business.

The Committee believes that the Board and senior management team has an adequate pipeline in place to manage its near and medium- term succession requirements.

The Committee recognises the benefits of diversity and will continue to appoint Executive and non-Executive Directors to ensure diversity of background based on attributes including gender, age, industry experience, background and race. The current profile of the Board is as follows:

Gender  Tenure  Age  Sector

The Board has put in place a Diversity Policy, which is taken fully into account in making appointments, as described above. It is not our policy to set measurable targets that involve diversity quotas, but we do measure our performance in terms of initiatives specifically focused on improving diversity. During 2018 the Board appointed a Board apprentice under the Jersey Board Apprentice scheme, which offers candidates Boardroom experience, designed to help equip them for a future non-executive position on the board of a company or other organisation.

The Terms of Reference for the Nominations Committee and the Terms and Conditions of the Appointment of non-Executive Directors are available on our website (www.jec.co.uk).

On behalf of the Committee

A. BRYCE Chairman

13 December 2018

GOVERNANCE

Audit and Risk Committee Report

The Audit and Risk Committee (the Committee) is chaired by Aaron Le Cornu supported by Wendy Dorman and Alan Bryce as members. Both Aaron and Wendy are Chartered Accountants with recent experience in both commerce and private practice. Alan is a Chartered Engineer with extensive experience of the utility sector and experience of serving on Audit Committees elsewhere. Full biographies of all members are provided on pages 42 and 43. The meetings provide a forum for discussions with both Company staff and the external auditor. Meetings are also attended, by invitation, by the Chief Executive, the Finance Director, the Financial Controller, the Company Secretary, and members of both the external audit and internal audit teams.

The Committee is responsible for protecting the interests of shareholders and this includes reviewing the Annual and Interim Financial Statements and accompanying reports before their submission to the Board for approval and for the reporting of its findings to the Board.

As part of the review process the Committee reviews the likely significant issues in advance of the preparation, and subsequent publication, of the external financial statements and in particular any critical accounting judgements identified by both the Company and the external auditor, which are disclosed in Note 2 to the Financial Statements (Critical Accounting Judgements). Comprehensive position papers on

each key area are produced by the Finance Director at both the half and full year. Some of the areas are recurring items such as revenue recognition, impairment of assets, retirement benefit obligations and hedge accounting. The Committee reviews any year-on-year changes in methodology for reasonableness.

The Committee formally met four times in the last financial year (aligned to the financial timetable) and is also responsible for monitoring the controls which are in force (including financial, operational and compliance controls and risk management procedures) to ensure the integrity of the financial information reported to the shareholders. In addition, a further meeting was facilitated by the Committee, inclusive of the wider Board members and an external consultant, to review in detail the key risks across the business to ensure they were appropriately captured, documented, monitored and mitigated. The Committee also considers reports from the internal and external auditors and from management and provides comment on salient issues to the Board. In addition, the Committee regularly reviews the scope and results of the work undertaken by both the internal and external auditors. The Terms of Reference for the Audit and Risk Committee are available on our website (www.jec.co.uk).

The Committee has approved the external auditor s remuneration and terms of engagement and is fully satisfied with the performance, objectivity, quality of challenge and independence of the external auditor. A full tender process for the external audit was carried out in 2015. Deloitte were successful in retaining the engagement and a new audit partner, Andy Isham, was appointed. The Committee will continue

to keep under review all aspects of the relationship with the external auditor and will initiate its next tender process at what is deemed an appropriate time taking into consideration the period since the last tender. Non-audit services are reviewed on a case by case basis. As disclosed in Note 6 to the Financial Statements, fees for non-audit services are not material, represent less than 10% of the audit fee and are not considered to impact on the auditor s independence. The effectiveness of the external auditor is considered on an ongoing basis driven primarily by discussions with Deloitte on the maintenance of audit quality and their ability to handle key accounting and audit judgements.

On behalf of the Board, the Committee considered whether the 2018 Annual report and financial statements taken as a whole are fair, balanced and understandable, and whether the disclosures are appropriate. The Committee reviewed the Group s procedures around the preparation, review and challenge of the report and the consistency of the narrative sections with the financial statements and the use of alternative performance measures and associated disclosures. The Committee also considers any potential inconsistencies raised by the external auditor. Furthermore, the Committee requested internal audit to conduct a review of the various non-financial KPIs included in the Annual Report and no issues were identified in this regard.

Following its review, the Committee is satisfied that the Annual report is fair, balanced and understandable, and provides the information necessary for shareholders and other stakeholders to assess the Company s position and performance, business model and strategy, and has advised the Board accordingly.

Audit and Risk Committee Report

Internal Control

The Board is responsible for establishing and maintaining the Company s system of internal control and for the management of risk. Internal control systems are designed to meet the particular needs of the business and the risks to which it is exposed, and by their nature can provide reasonable but not absolute assurance against material misstatement or loss. This process has been in place throughout the year up to the date of approval of the financial statements and is in accordance with The UK Corporate Governance Code. Whistleblowing arrangements are reviewed annually by the Committee.

The Committee members have regular meetings with Internal Audit to evaluate both performance, and any impediments that might exist, which would constrain their work. The Committee also approve the plan of work for the Internal Audit function in advance of the following year. In addition, independent reviews are undertaken on a regular basis. In 2015 a benchmarking exercise was performed, and in 2016 a review of the risk management process was undertaken by an external consultant. Such exercises provide further comfort to the Committee on the effectiveness of Internal Audit.

On behalf of the Committee

A. LE CORNU Chairman

13 December 2018

GOVERNANCE

Statement of Directors Responsibilities

Directors Responsibilities for the Financial Statements

The Directors are responsible for preparing the Annual Report, Directors Remuneration Report and the Financial Statements in accordance with applicable law and regulations.

Company Law requires the Directors to prepare Financial Statements for each financial year. The Directors are required by the IAS Regulation to prepare the Group Financial Statements under IFRS as adopted by the European Union. The Financial Statements are also required by Company Law to give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period.

International Accounting Standard 1 requires that Financial Statements present fairly for each financial year the Group s financial position, financial performance and cash flows. This requires the faithful representation of the effects of transactions, other events and conditions in accordance with the definitions and recognition criteria for assets, liabilities, income and expenses set out in the International Accounting Standards Board s Framework for the preparation and presentation of financial statements . In virtually all circumstances, a fair presentation will be achieved by compliance with all applicable IFRS. However, Directors are also required to:

properly select and apply accounting policies;

present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable

information;

provide additional disclosures when compliance with the specific requirements in IFRS are insufficient to enable users to understand the

impact of particular transactions, other events and conditions on the entity s financial position and financial performance; and

make an assessment of the Company s ability to continue as a going concern.

The Directors are responsible for keeping proper accounting records that disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with the Companies (Jersey) Law 1991. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company s website. Legislation in Jersey and in the United Kingdom governing the preparation and dissemination of Financial Statements may differ from legislation in other jurisdictions.

The Directors consider that the Group has adequate resources to continue in operational existence for the foreseeable future. The Financial Statements are therefore prepared on a going concern basis. Further details of the Group s going concern review are provided in note 1 of the financial statements on page 65.

Having taken advice from the Audit and Risk Committee, the Board considers the annual report and financial statements, taken as a whole, to be fair, balanced and understandable and that it provides the information necessary for shareholders to assess the Company s performance, business model and strategy.

Responsibility Statement

We confirm that to the best of our knowledge:

 the financial statements, prepared in accordance with International Financial Reporting Standards as adopted by the European Union,

give a true and fair view of the assets, liabilities, financial position and profit of the Company and the undertakings included in the consolidation taken as a whole; and

 the management report includes a fair review of the development and performance of the business and the position of the Company and

the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.

By order of the Board

C.J. AMBLER

Chief Executive Officer 13 December 2018

M.P. MAGEE Finance Director 13 December 2018

Remuneration Committee Report

Remuneration Committee

The Remuneration Committee (the Committee) is chaired by Phil Austin who was supported throughout the last year by members Geoffrey Grime, Aaron Le Cornu and Tony Taylor . The Committee operates within terms of reference, agreed by the Board, which are regularly reviewed and available on the Company s website (www.jec.co.uk). Two formal Committee meetings took place during the last financial year.

Remuneration Policy

The policy of the Committee is to ensure the provision of remuneration packages for the Executive directors that fairly reward them for their contribution to the overall performance of the Company. Remuneration packages comprise basic salary and benefits together with a performance related annual bonus. Benefits for Executive Directors principally consist of a car or car allowance, private health care and housing subsidy. The salary and benefits of the Executive team are reviewed by the Committee annually and historically adjustments were made in April, but the review has now been moved to November to coincide with the date for the rest of the Company.

The Committee commissioned an external review of Executive pay during the year and were advised by Mercer, an independent remuneration consultancy firm, who considered local benchmarking data alongside comparisons from the UK, including businesses within the energy sector, as well as listed companies of a similar size to Jersey Electricity. The key purpose of the review was to establish the competitiveness of the existing Executive package, and to seek advice as to how it should be positioned going forward.

As a result of the review, the salaries of the CEO and Finance Director were revised upwards, with effect from 1 April 2017, in accordance with Mercer s recommendations. Changes were also made to the executive bonus scheme, with effect from 2019, giving the Committee the discretion to defer up to 50% of the award for a period of two years with the ultimate pay-out linked to movements in the listed share price in the period before vesting. The bonus payable to the Executive Directors is performance related, taking account of their individual responsibilities within the business, together with the results of the Company as a whole, measured against a broad range of objectives.

The remuneration of Directors for the year ended 30 September 2018 was as follows:

Basic  Benefits  Total  Total salary/fees  Bonus  in kind  2018  2017

£ £  £  £  £

EXECUTIVE DIRECTORS

C.J. Ambler   238,877  75,900  15,230  330,007  378,570 M.P. Magee  186,470  60,390  12,338  259,198  285,276

NON-EXECUTIVE DIRECTORS

G.J. Grime  43,000  -  3,456  46,456  39,946 A.D. Le Cornu  28,000  -  1,728  29,728  24,726 A.A. Bryce  30,000  -  1,728  31,728  27,155 P.J. Austin  25,000  -  1,728  26,728  22,155 W.J. Dorman  25,000  -  1,728  26,728  19,726 A.H. Taylor (appointed 21 September 2017)  23,625  -  1,775  25,400  -* M.J. Liston (retired 31 December 2016)  -  -  -  -  4,500 Total  599,972  136,290  39,711  775,973  802,054

*Fees payable quarterly in arrears.

GOVERNANCE

Remuneration Committee Report

Service Contracts

The Executive Directors service contracts provide for a notice period of six months. The non-Executive Directors service contracts have no unexpired term at the time of election, or re-election, at the Annual General Meeting.

Pension Benefits

Set out below are details of the pension benefits to which each of the Directors is entitled. These pensions are restricted to the scheme in which the Director has earned benefits during service as a director, but include benefits under the scheme for service both before and after becoming a Director, including any service transferred into the scheme from a previous employment.

Increase  Accrued  Transfer  Transfer  Directors  Increase in accrued  pension at  value at  value at  contributions  in transfer value

pension  30.9.20182 30.9.20183 30.9.20173 during year  less Directors during the year1  contributions4

C.J. Ambler  £7,451  £52,051  £840,465  £699,966  -  £140,499 M.P. Magee5 £5,825  £87,779  £1,814,462  £1,653,399  £11,117  £149,946