The UK's first energy company to be set up and run by a council is to be shut down and its customer base sold to a rival energy supplier, following an audit which found serious governance failings.
The energy company, Robin Hood Energy (RHE), which was set up by Nottingham City Council in a bid to tackle fuel poverty and provide an affordable alternative to the 'big 6' energy suppliers, has reached a purchase agreement with Centrica, the parent company of British Gas.
All of RHE's customers will be transferred to British Gas.
The city council's decision comes after it agreed an action plan last month (27 August 2020) to improve governance arrangements at the energy company and the authority itself, following a scathing independent audit.
A public interest report, issued by Grant Thornton, had accused the council of "institutional blindness". It claimed Nottingham made several failings in the creation and management of RHE including inadequate governance arrangements and a failure to understand the risks associated with entering the energy business.
The report also exposed RHE's year on year losses since its creation in 2015, which came to £34m.
Grant Thornton's report cited a number of governance arrangements at the council and its energy company that it said were not strong enough, including:
- An insufficient appreciation within the council (as a corporate body) of the huge risks involved in ownership of, and investment in, RHE
- Insufficient understanding within the council of RHE's financial position, partly due to delays in the provision of information by RHE and the quality and accuracy of that information
- Insufficient sector (or general commercial) expertise at non-executive board level
- A lack of clarity in relation to roles within the governance structure
- Arrangements that did not establish an appropriate and consistent balance between holding to account and allowing the Company freedom to manage, and this worsened as levels of trust decreased and the financial position deteriorated.
The ensuing action plan committed Nottingham to amending a series of governance and other practices in the city council and its companies. It included:
- Reviewing the council's approach to the ownership of companies and to councillor membership of its company boards
- Providing mandatory training for councillor and officer representatives on its company boards
- Reviewing the council's approach to its own risk management and governance as well as risk management and governance of its companies
- Improving the clarity of roles of different committees involved in different aspects of the council's companies
- Using external advice and best practice from elsewhere to help shape the way forward.
The full action plan lays out 78 individual actions the city council wishes to fulfil between now and mid-2021. The Director of Legal and Governance is accountable for the delivery of just over half of the actions listed (42).
Cllr David Mellen, Leader of Nottingham City Council, said that the local authority had been conducting its review of RHE over the last six months and considered a range of options for the energy company's future.
He added: "Significant improvements have been made in the financial performance of the business under the new management team the council appointed last year.
"However, given the current economic climate and the further levels of investment needed to enable the company to compete in an extremely difficult market, the review concluded that a sale was the right option.”
He added: "It provides the best possible deal for the council and city residents and reassurance to customers that they are transferring to a large, well established company.
"We know this is a very sad day for the business and its employees who have played a part in creating a more dynamic and customer orientated market for all energy consumers.
"The energy market has changed considerably over the last few years. At its peak there have been over 70 energy suppliers competing to win new customers and the introduction of price caps has fundamentally changed the landscape with many smaller suppliers exiting.”
Several councils across the UK which used Robin Hood Energy as a supplier for their own energy companies have meanwhile been forced to close or shift their focus away from supplying energy entirely.
In a statement, Southampton City Council said its 'ethical energy brand', CitizEn Energy, which was supplied by RHE, is no longer able to operate. Its customers will also be transferred to British Gas.
Southampton has assured customers that British Gas would be in touch to outline their new tariff and prices, "which will be at least as good as you are paying today."
At least eight more council-owned energy companies that relied on RHE for their energy supply have confirmed they are transferring their customers to British Gas. They include:
- Angelic Energy (Islington Council)
- Fosse Energy (Leicestershire County Council and Leicester City Council)
- Great North Energy (Doncaster Council & Barnsley MBC)
- The Leccy (Liverpool City Council)
- RAM Energy (Derby City Council)
- Southend Energy (Southend-on-Sea Borough Council)
- White Rose Energy (Leeds City Council)
- Your Energy Sussex (West Sussex County Council and other local authorities)
Beam Energy, owned by Barking and Dagenham Council, announced the end of its role as an energy provider but said it will turn its focus to "ensuring homes in Barking and Dagenham have access to affordable renewable energy systems like heat pumps, solar panels, insulation and electric charge-points as the borough moves to become carbon neutral by 2050".
According to reports, 230 people have lost their jobs at RHE and the number of customers transferred to British Gas comes to around 112,000 clients.