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13 August 2020updated 14 Oct 2021 1:32pm

Can publicly owned energy companies work?

Robin Hood Energy, Nottingham City Council’s experiment in municipally owned energy provision, hoped to challenge the dominance of the ‘Big Six’. But it has come in for fierce criticism in a report by the company’s auditors.

By Jonny Ball

In 2015, when Labour-run Nottingham City Council established Robin Hood Energy (RHE), the municipally owned firm was intended to embody the ethos of the city’s legendary heroic outlaw, who stole from the rich to give to the poor. Not since the energy system was privatised under Margaret Thatcher had a public body entered the energy market.

RHE offered annual energy tariffs up to £200 cheaper than the so-called ‘Big Six’ energy companies who dominate the UK’s energy market, one of which, EDF Energy, is a subsidiary of Électricité de France, a conglomerate 85 per cent owned by the French state.

The Big Six have often been accused of charging “rip off” prices and acting as a “cartel”. WeOwnIt, the pressure group that campaigns for publicly owned services and utilities, says they supply 95 per cent of households and pay out significant dividends while raising prices. Under Theresa May, a price cap was imposed on electricity companies. The policy was originally proposed by Ed Miliband as leader of the Labour Party, provoking derision at the time from then Prime Minister David Cameron, who said the idea showed he was living in a “Marxist universe”.

When RHE was set up, its leftwing credentials were enough to attract the attention of Jeremy Corbyn, who immediately signed up to the Robin Hood tariff.

But a damning report released this week by the independent auditors Grant Thornton gives a damning assessment of the viability of the company, which “would have immediately failed” if not for the council making “significant additional loans to RHE on several occasions”. The auditors say the council had “an insufficient appreciation” of “the huge risks involved in ownership of, and investment in, RHE”, as well as “insufficient sector (or general commercial) expertise”.

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Despite a total of £64.9m invested, loaned or guaranteed by the council to date, by March 2019, RHE had lost £34.4m. Councillors have been criticised for investing large amounts of taxpayers money into an unprofitable enterprise, while simultaneously making £12.5m worth of budget cuts in recent weeks, including 150 redundancies and the closure of a day care centre for disabled people.

Councillor David Mellen, leader of the council, said that despite “best intentions” in setting up a cheap, not-for-profit alternative for vulnerable people in fuel poverty, the report had revealed “failures in the council’s governance” that they were determined to rectify. “There is much more to do however and the Council is working hard to try to protect as much of its investment in the company as possible,” he said.

Despite the failures of RHE, Nottingham City Council has an impressive record in running services in-house. Rare for local authorities, it owns Nottingham City Transport (NCT), the city’s bus company. NCT boasts the highest customer satisfaction ratings in the country, cheap fares, regular services, and introduced electronic passes a full three years before Oyster cards in London. In addition, the municipally owned company provides the council with around £2m a year in dividends. Similarly, the council’s housing company, Nottingham City Homes, won ‘Landlord of the Year’ at the UK Housing Awards in 2018. The organisation runs 27,000 socially rented homes in the city.

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But energy seems to be one sector in which councils are encountering difficulties: it was announced in June that Bristol Energy, set up by Bristol City Council on similar terms as RHE, is to be sold after making huge losses in its first years. The failure of these companies will be seen as a set-back to the agenda of the Labour left, who have advocated an expansion of public ownership and “remunicipalisation” of local services back in-house.

Nadia Whittome, a Nottingham MP and Corbyn loyalist, said , “Robin Hood Energy was an innovative move by the council and was the first publicly owned, not-for-profit energy company in the country designed to help residents in Nottingham save money on their energy bills. It is a great shame that Robin Hood Energy has run into such difficulty”.