Into Warrington Borough Council and the Labour Councillors who have fecklessly thrown money needed for the poor, down the drain through poor mismanagement.
Here’s a report from our good friend at the PRIVATE EYE … surprisingly it’s also been printed in the WG – who asked for their view !! Wow .. kudos to the WG … hidden away
Here is what Old Sparky (PE) had to say about the TE purchase to the WG … .. I’d respectfully suggest reading this in conjunction with the post by Richard Grover showing the appalling due diligence carried out on this purchase that corroborates the concerns raised in this article …
Story starts here
Warrington’s venture into the energy supply business with Together Energy was doomed from the start.
This isn’t just being wise after the event: at Private Eye we first warned against local authorities getting into the complex energy markets as early as 2015: and have written 15 further articles in the same vein since then.
Back in 2015 the energy supply business was dominated by the unloved ‘Big 6’ companies, buying gas and electricity years forward and selling it to their customers at marked-up prices. It was hard to see how smaller players could break in: how could they afford to buy years’ worth of energy to supply hundreds of thousands of customers?
But wholesale energy prices were steadily declining then, opening up a new possibility. Instead of expensively buying forward, new players could sell at prices that undercut the Big 6, then buy the energy in small monthly or even daily amounts at ever decreasing ‘spot’ market prices, just a short time ahead of making deliveries.
When prices are falling, that’s certainly a profitable game. At Private Eye we noticed local authorities looking for ways to join what quickly became a bandwagon. They had several motives – a desire to promote “green”
energy, boost local employment, offer low prices, and other worthy social goals. How difficult could it be?
Unfortunately, the answer is – extremely difficult: and we strongly advised against it from the start. On top of the technical challenges of energy markets, there was the ever-present likelihood that sooner or later, wholesale prices would start to rise again, at which point the easy game of undercutting the bigger players would come to an end. Small suppliers, we wrote in 2016, “are at a big disadvantage, because buying forward to secure supplies needs a high credit rating – or a guarantee from their owners. The only way local authorities can provide this is to put council taxpayers’ money at risk in the energy markets” (Eye 1429).
Most local authorities took this advice, including London Mayor Sadiq Khan and the Scottish Government.
Where councils did enter the market, almost all of them became “white label” suppliers, setting up a local brand (e.g. Ram Energy in Derby), but leaving all the work – and the risk – to an established energy supplier on a commission basis. Just two went the whole hog and became fully licensed suppliers: Nottingham, with Robin Hood Energy, and Bristol. Sure enough, they soon started down the slippery slope of putting up those huge loans and guarantees that are needed to do business in the forward markets. Each council ended up committing around £50m apiece before their respective energy ventures went ignominiously bust .
The writing was very clearly on the wall for both of them by 2019, when Warrington started thinking about getting into the game. Wholesale prices by now were rising. Somehow, Paul Richards, majority shareholder of a loss-making small supplier Together Energy, persuaded Warrington to come in with him for £18m in shares and an immediate loan of £4m. Richards, incidentally, paid just £480 for his shares when Together was set up. He wasn’t modest about his achievements either, stating in an interview: “I realised I was capable of exceeding the achievements of some of the UK’s biggest household brands”.
As with other cities that had got into the supply business, Warrington leaders spoke warmly of creating jobs, green energy, and good governance. But for one thing, as we wrote when the deal was announced (Eye 1511) Warrington was buying into an existing business at about 3 times the going rate, which anyone in the market could have told them.
Additionally, Together had a history of making large payments to “related parties” – including Richards – for assets and services of questionable value. Again, this was in Together’s published accounts for all to see.
Council leaders now claim they did adequate due diligence and received a professional “risk briefing” but it is very hard to imagine how they satisfied themselves on the business model as a whole, and some of these details in particular.
The one problem Warrington avoided, by getting in with an established supplier, was tackling the technical complexities of the market as amateurs. But the fundamental danger – being used as a cash cow and provider of guarantees – loomed large from the start, and the council poured good money after bad, month after month. Just as with Nottingham and Bristol, Warrington has ended up on the wrong side of £50m, all at the expense of local taxpayers.
Whatever the good intentions of councillors anywhere, two inescapable facts remain. Neither they, nor council officers, are remotely qualified to manage risky commercial enterprises; and the energy market is no place for minnows. Why didn’t Warrington take these lessons
Why didn’t they ? And when will broomhead – bowden – Mitchell and green be held accountable for this “omnishambles”
And when will councillor Wiggins apologise for his spiteful , angry rhetoric over the questions asked of these investments by decent people .
Credit – old sparky – private eye ..
Credit – WG