Wednesday 9 September 2020

Local Authorities - The Day of Reckoning

So now Bristol Energy has gone under, joining Nottingham Council's Robin Hood Energy in ignominious retreat from its untenable market position.  Easily foreseen.  Though the details are slightly different**, the basic principle remains the same.  There's no easy way to enter a complex market as amateurs, despite "good intentions", "social objectives", and the backing of a Local Authority's all-too-accessible balance sheet.  The supposed rationale for being able to "undercut the Big 6++" - that you won't need to pay dividends and can thereby "pass on the savings" - is inane.  (How would that help me set up a supermarket, for example?)

Bizarrely, Bristol Energy has been bought by another Local Authority set-up!  Together Energy, a very peculiar little Scottish outfit, somehow persuaded Warrington Council last year to buy a 50% stake for a ridiculously large sum, plus a loan.  It's not clear (and probably won't be) how good or bad a deal they got for taking over Bristol's customers + staff.  But the point remains: LA's have no business doing this stuff.

There's more LA fallout to come.  On the energy front,

(1) Together Energy - must be a candidate for failure down the road, when Warrington is no longer willing to bankroll the show

(2) Thurrock - we've discussed their immense punt on solar farms (using cheap, short-term borrowed money, Northern Rock-style) before (BTL here)

(3) a plethora of smaller LA punts on solar farms and other trendy green "investments", not all of which are as low-risk as the developers tell you

Plus of course the vast sums LAs have staked on property of all kinds, racking up substantial debt to do so.  (My own LA, Croydon, is one of the biggest; the Chief Executive is walking; and word on the street is that a Section 114 Notice is imminent.)

Also interesting is FCA-registered Abundance Investment Ltd: "makes it easy for you to invest in businesses and councils that are developing the green infrastructure of tomorrow — while generating fair returns for your money".  They'd like you to believe LAs are an ultra low-risk punt.  Let's see how that looks by Xmas, eh?



** Bristol aspired to make a (small) profit, stuck to organic growth, didn't have too much doctrinaire political interference, and has been "sold" together with staff.  Robin Hood was a "not-for-profit"; had a lot of leftist political interference;  grew via loss-leaders and white-label marketing via other lefty councils; and, ironically as a leftie enterprise, has made all its staff redundant.  Both were secretive, badly governed, and burned their way through tens of millions of loca l taxpayers' money - all too easily done, keeping the show on the road long after it should have been wound up. 

++ the appellation "Big 6" ceased to be relevant some while ago: the retail market is much more complex these days.


Jan said...

The Bristol Energy sale was covered on my local news yesterday. I think they said £40 million loss.............unbelievable! I'm not sure when it was set up and feel sorry for the current mayor having to pick up the pieces as well as all the poor sap council tax payers.

There really should be some laws passed to ensure councils "stick to the knitting". It might be boring but they are not there to take risks with taxpayers' money. It's bad enough having to pay for all the pensions of long-departed employees without having to bail out their bad investments as well.

Nick Drew said...

There really should be some laws passed to ensure councils "stick to the knitting"

There used to be, Jan, *in my day* (as a councillor, when dinosaurs roamed the earth ...)

But Boy Genius Osborne changed the law

Matt said...

Kirklees council have just paid £1.8M for the George Hotel which a "property developer" bought for £900k 7 years ago. They did nothing with it in that time but doubled their money. The council has some plan to make is a Rugby League hotel (and maybe some other things) as part of a £250M regeneration of Huddersfield.

My prediction - the £250M regeneration will never happen but the council will burn tens of millions in the process.

Matt said...

Er, museum not hotel but the rest stands.

Scrobs. said...

" There's no easy way to enter a complex market as amateurs, despite "good intentions", "social objectives", and the backing of a Local Authority's all-too-accessible balance sheet."

And there you have it in a nutshell, Nick!

Meanwhile the rubbish piles up, the council here was tucked up like a kipper up with farming out garden rubbish collection to a small insignificant crowd who apparently couldn't afford a street map.

There's also nil expertise in Kent County Council, whose record of wasting money on failed people (Chief Exec - £450,000 after a year of total failure) and projects (A21
dualling at T.Wells - twenty-seven years delay) are still costing us all millions of debt.

But of course, the illegal immigrants have to land somewhere...