Scottish & Southern Energy (SSE), the UK's second biggest energy supplier, rarely puts a foot wrong in its dealings with the City or its customers. In the retail environment, it has a track record of being the last to raise prices for domestic customers and this has helped it to pull in many new accounts, taking customer numbers above 9 million for the first time.

But the pressure to pass on its increased costs is becoming unbearable for the group, which issued a downbeat trading statement today. Significant increases to bills are likely in the coming weeks, although the falling oil price may allow the inevitable upwards move to be deferred a little longer.

Without these increases, profits will be eroded and SSE's much vaunted dividend pledge of a 4 per cent real-terms annual increase will be shot to pieces. First-half profits are already set to be substantially lower than in previous years because of the high wholesale cost of gas, the company said this morning. However, what appears to be a profit warning at first glance is far from that. The company is just pointing out that the usual skew of earnings will reverse this year, with a stronger second-half result.

Overall, the energy group is on track to make a modest increase in annual profits. SSE was issuing guidance today that the increase would be between 1 and 5 per cent, to between £1.28 billion and £1.3 billion. Given the backdrop of 60 to 80 per cent increases in wholesale gas prices this year, this will still be a very good result.

Of all the UK energy suppliers, SSE has a good balance of generation and customers, which is reflected it its smoother pricing policy. There have been some setbacks in the performance of its generation capacity this year, as new control equipment is installed. However, that is a temporary problem, which should soon be resolved.

SSE has a well-planned investment strategy, which includes renewables and has diversified into other areas such as home connections, network maintenance, street lighting and boiler repairs. In other words, while its main business is generating, trading and retailing power, it has added defensive features which protect it to some extent from the volatility of the wholesale markets as well as increasing customer loyalty. It's likely to weather high wholesale prices better than most.

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