Councillors have raised concerns over the financial scrutiny of Britain’s first council-run energy firm.
Conservative opposition members of Nottingham City Council have claimed there is a lack of independent oversight of how Robin Hood Energy – which was set up by the council – is being run.
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March 25th, 2020, Manchester
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Last year, the authority had to loan the firm £9.4m to pay a levy collected from customers to the regulator Ofgem and its accounts have been delayed.
The previous chief executive and director of the firm departed at the beginning of the year and full settlement of accounts have been delayed until March.
A scrutiny committee has been set up by Nottingham City Council to oversee all the companies set up by the council which met for the first time this week.
But opposition members were left unimpressed.
Conservative opposition leader Cllr Andrew Rule told Room 151 he was concerned about scrutiny especially given that the energy firm’s position had deteriorated without warning.
He said: “We found out at the beginning of the week there was no intention of letting opposition councillors near it [the committee].
“We don’t have any speaking rights or voting rights: we can sit at the back like naughty school children.
“For anything that is deemed commercially sensitive, we risk being ejected from the meeting.”
He added: “All of the members of the committee are directors of at least one company that they have scrutiny over. We’ve got no independent questioning.”
The financial position of the company has changed rapidly over the last year, according to information released publicly.
The company was set up by the Labour-run council in 2015 as a not-for-profit company to meet its wider environmental objectives by disrupting the energy market and helping people on low incomes experiencing fuel poverty.
It was started with £28.6m from reserve balances – according to the council – made as a loan at commercial rates.
The council are paid back with interest to generate to generate cash that the council could either plough back into the company or fund other services.
Robin Hood Energy then expanded by creating ‘white label’ energy companies that are partners with other local authorities including RAM Energy and Angelic Energy in Islington.
Until last year, it looked like things were going well for Robin Hood: the company announced an operating surplus of £202,000 which was used to offer the Warm Home Discount for older people and people on low incomes.
It even boasted having Labour leader Jeremy Corbyn among its customers.
Council leader Jon Collins said at the release of its first major update: “The company is already in a position to begin paying back their start-up loan from us and the most recent valuation shows the company is already worth twice the Council’s original investment.
“Add to that a cheaper prepayment tariffs, discounted for Nottingham citizens, and it’s clear to anyone that Robin Hood Energy is delivering a good deal for Nottingham.
“I look forward to seeing the company continue to go from strength to strength.”
But events intervened that have hindered progress.
The cost of fixed deals for domestic consumers has been reduced and further pressure was put on the balance sheet by the September 2019 deadline of having to pay £9,435,925 in green subsidies to Ofgem.
The money had already been taken as a payment from customers and should have been passed on to the regulator.
Robin Hood missed the deadline and then-chief executive Gail Scholes revealed in October the company had been given six months to pay – but with interest.
At this point, Nottingham City Council stepped in. The council’s audit committee met to discuss the firm’s future on 14 October 2019 behind closed doors.
Advice was provided by council officers about the company but it was made exempt from publication under the Local Government Act.
The council has blamed the tough conditions in the energy market but councillor Rule is unimpressed: “You would have known how tough it was had you done the due diligence before you entered the market.”
He added: “From the public’s view looking in, there’s a risk of a cause being kept going because of political will not financial reality.
To continue to risk council money is walking a fine line. Should the scale of the debt be called in it could have an absolutely catastrophic effect on the council’s ability to deliver statutory services.”
In a statement to Room 151, a council spokesman defended the council’s handling of discussions, including the decision to bar the public from the October meeting last year where Robin Hood Energy’s finances were discussed.
He said: “The audit committee were satisfied that the matter under discussion related to financial and business affairs and having considered the public interest test were satisfied that maintaining the exemption outweighed the public interest in disclosing the information.”
The council explained the firm’s repayment terms on the £9.4m to make the payment to Ofgem.
The statement explained: “Nottingham City Council agreed to provide assistance to RHE to enable it to make its renewable obligations in line with the Ofgem requirements.
“This will be repaid with interest at a commercial rate. The council has robust governance arrangements in place to oversee the performance of the company.”
But the company is operating in a tough environment that has already seen several smaller energy suppliers go bust.
So given the tough market, can Nottingham be sure it will get its money back?
The council said in its statement that it was confident that the energy firm would be able to meet its commitments: “The business plans for the company take account of the repayment of debt to the council.”
Robin Hood Energy were invited to comment but said Nottingham City Council’s statement would be sufficient.
The company was part of the boom in start-up companies by councils in order to generate income for council coffers.
Nottingham is not the only authority to have entered the energy market.
Bristol Energy (BE) was set up by Bristol City Council to create income and meet climate change objectives. It is forecast to break-even in 2023/24.
Bristol City Council’s energy firm is also facing tough times.
A recent report to councillors warned it was unlikely to add to council coffers any time soon.
It said: “Bristol Energy (BE) continues to face significant challenges…Both the BE and HoldCo Board [the council’s holding company] will continue to scrutinise performance to ensure dedicated management focus is maintained in delivering these plans.
“In addition, Bristol Energy recognises that the energy retail business will remain challenging so it has taken action to diversify into energy services.”
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