The lights had been flickering for a while, but the power cut came without warning. On Friday, 4 September 2020, Nottingham City Council announced the sale of municipal company Robin Hood Energy’s (RHE) customer book to British Gas. The rest of the UK’s first publicly owned not-for-profit energy supplier will be shut down. The previous afternoon, more than 230 staff were made redundant via Skype. 120,000 customers, many living in poverty, have been handed to a corporate giant. Ten partner council companies across the country are counting the cost of terminated supply deals. Nottingham faces a financial future even more troubled.
Nottingham is not a socialist council. Although Labour has held firm control for 30 years, the left is a minority. At the time of RHE’s inception in 2013-15, the council’s leadership chimed with Ed Miliband’s attack on rigged energy markets and rip-off prices. Faced with austerity cuts to its own budget and high levels of fuel poverty in parts of the city, the council saw an opportunity. It already had a record of creating commercial businesses. It launched the energy company with the intention of reducing fuel prices to the poor and increasing the council’s revenue by backing the company with profitable loans.
The council’s 2015 and 2019 manifesto commitments had wider significance. First, they exemplified the idea of energy supply as a public service with social and political objectives: a universal service, affordable for even the poorest, generated as sustainably as possible. Second, it showed that municipalities can and should take responsibility for delivering utilities like energy. It was an important and inspiring reminder that we can do these things publicly, and locally. The company blazed a trail for Bristol Energy and the crowdfunded People’s Energy Company in Scotland. It became a ‘white label’ supplier to rebadged companies at other councils, like Angelic in Islington, White Rose in Leeds, Leccy in Liverpool. It even entered a similar arrangement with a private retailer, Ebico.The public interest will not be served if this experience is allowed to pull the plug on public ownership
For the first four years, the signs were encouraging. Robin Hood’s turnover rose from £4.6 million in 2015-16 to £97.9 million in 2018-19, when it was supplying 220,000 meter points nationwide. By the financial year which ended in April 2019, however, the company had racked up losses of £34.4 million. The last straw for council executives seems to have been a sudden request from RHE in October 2019 for a loan of £9.5 million. The loan was needed to pay the industry-wide ROCS levy, which is intended to fund the growth of large-scale renewable energy production. In previous years Ofgem had allowed other companies to spread the payments over the winter. RHE was not offered a similar deal, and the demand for payment came at short notice.
With symbolic timing, on the Monday after the 2019 General Election, and without agreement from the company’s board, council officers moved to suspend RHE’s managing director and chief executive – a former energy director at the council who had been key to the company’s launch. In their place, three senior executives were imposed with the kind of industry CVs you would look for if you wanted to dispose of a company. Nothing was ever made explicit to the board, Labour Group, company staff, or trade unions but the writing was on the wall. The company’s Scotland office was promptly shut down in January, the board was expanded to ensure a majority vote aligned with the council leadership, and a strategic review was announced with ‘all options on the table’.
Those surveying the wreckage may be sold an opportunistic story of Labour’s overreach, mismanagement and profligacy – or a misguided attempt to challenge the market gods. Others may seek to pin blame on the company’s bosses. Much of the fallout will focus on money (and the sums are eye-watering). An external auditor’s public interest report on the relationship between council and company, published in August, saw the local authority accept a diagnosis of ‘institutional blindness’ to financial risk and failing governance. Leaked documents have reportedly shown the council will write off £38.1 million of its investment, having sold the company for around £26 million. They also appear to suggest an alternative offer was received which would have kept front-line staff, but generate less income for the council.
Labour councillors have been whipped into silence, but there are characters here who may have another story to tell which contains valuable lessons: about the constraints on municipal ventures under capitalism; missed opportunities and the need for a bold public investment strategy to maximise public benefit; an entrepreneurial, risk-taking approach which serves the interests of labour; the preparation of public servants to implement that approach; the commitment, leadership and discipline essential to overcoming mistrust and personal enmities; and finally, an unwillingness to share power with labour and service users, governing instead on the basis of secrecy and without the practical knowledge of those directly affected by decisions. There are questions too about the lack of practical action taken by Labour and its unions nationally to support the emergence of a public provider.
The perceived failures of RHE will surely be used to challenge the argument for public energy in the UK, but the public interest will not be served if this experience is allowed to pull the plug on public ownership. The alternative story is necessary. In a first sketch of an anatomy of failure, three key factors stand out for further inquiry.
At RHE’s launch, the market contained 35 companies. Within two years, that had almost doubled. A price cap introduced by Theresa May in 2019 did little to improve the cost of living but did change patterns of supply and demand. The upheaval fed into volatile hedging markets – the trade in contracts for future energy production. From sanctions on Iran, to Brexit and the Beast from the East, the geopolitical climate of the past five years has not made for safe bets.
A typical new entrant to the market would buy up wholesale energy, lure customers with loss-leading tariffs, then attract new investment, sellup, or go bust trying. Around 15 firms failed in 2018-19, and more since, along with sales and mergers. ‘It’s very important we don’t see RHE as a uniquely municipal experience,’ says David Hall, of the Public Services International Research Unit at Greenwich University. ‘It is just one among many energy supply companies in the UK which have become financially unsustainable over the last two years, including half of the Big Six. There is no evidence that RHE operated less efficiently than private companies in the field. As with many others, the main problem was probably the failure to grow to a large enough size’.
The customer base in Nottingham alone was far too small to keep the company afloat. But in January 2018, council executives blocked a deal to take on 10,000 customers from a collapsed rival. A year later, they blocked another deal for 40,000. The same month, RHE sought to extend its overdraft facility and the council refused to supply the bank with necessary documents.
The council’s handling of the company’s financial needs was characterised by a lack of a bold strategic approach. The external auditor noted that the original business case for RHE ‘envisaged that the company would need to attract significant external investment as it grew.’ But well-placed sources say company executives were told they should always come to the council for money and not go elsewhere – there was no intention of sharing any spoils. Early talks with a potential Japanese partner were shut down. A report on a merger with Bristol Energy (also now facing financial difficulties) was commissioned by council officers then shelved. Requests from the company were increasingly referred for scrutiny by consultants PwC. Delay, indecision and obstruction were disastrous in a fast-changing market, frustrating senior RHE staff and directors.‘There is no evidence that RHE operated less efficiently than private companies in the field’
There was a similar refusal to seriously consider shared ownership with other councils – an option pushed by councillors in the boardroom and beyond. A number of local authorities had previously shown interest and a strategy plan was produced by the Association for Public Service Excellence (APSE). As an indication of the appetite, in September 2019, Warrington invested £18m in the private company Together Energy. But in February 2020, when Nottingham hosted a national conference of Labour councillors, the existence of RHE was barely acknowledged.
Like the council’s other companies, RHE’s board had a controlling majority of Labour councillors. One position was allocated to the portfolio holder for energy to ensure business and policy aligned. That the auditor’s report was originally commissioned in 2018 by then deputy leader, Graham Chapman – apparently without informing the board or wider Labour Group of councillors – shows the council’s distrust in its own creation. As well as a change of political leadership in 2019, new officers arrived on the council’s corporate side. Competing agendas arose, relationships broke down. The new administration scrapped RHE’s governance structures, then took months to replace them. Boardroom roles were passed on to inexperienced councillors without suitable training. The new energy portfolio holder declined to take up her allotted place with no satisfying explanation.
While the idea of a municipal public energy company was exemplary and bravely innovative, the way that RHE was organised was conservative, without any attempt to deepen democracy beyond councillor representation. Senior management came from council departments and the industry. Staff unions saw repeated requests for inclusion rejected. There was no advocate for customers or city residents.
In August, the GMB entered a formal dispute over the continuing lack of transparency around the rumoured sale, saying: ‘As the sole stakeholder of RHE is a Labour-run authority, we are genuinely disappointed by the manner in which the workforce and its recognised trade unions are being treated.’ Management subsequently engaged with unions only via solicitors, and one shop steward was shut out of meetings with the surprising consent of senior union officials.
What ambitions does that leave for public ownership of energy in Britain? Labour’s 2017 General Election Manifesto promised support for more local public energy companies. By 2019, rolled into the Green Industrial Revolution, the language around ownership loosely suggested total nationalisation. Will the revolution be powered from above or below? Hall, who co-authored research for the party during that period, says: ‘One of the real contributions made by RHE was demonstrating that local municipal supply – and generation, distribution and storage – is quite feasible, but as a part of an overall system designed to deliver public objectives. Trying to compete for customers with private operators is not sufficient or sustainable for achieving those objectives. There needs to be an underlying framework that ensures universal delivery of affordability and renewable generation – and that requires non-market operators.’
Edward Dingwall is a freelance writer, editor and organiser with a background in education and community engagement
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